10-K

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2019

OR

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to               

Commission File Number  001-14585

FIRST HAWAIIAN, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	99-0156159
(State or Other Jurisdiction of Incorporation)	(I.R.S. Employer Identification No.)

999 Bishop Street, 29th Floor Honolulu, HI	96813
(Address of Principal Executive Offices)	(Zip Code)

(808) 525-7000

(Registrant’s telephone number, including area code)

Securities Registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol(s)	Name of each exchange on which registered:
Common Stock, par value $0.01 per share	FHB	NASDAQ Global Select Market

Securities Registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☒  No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes  ☐  No  ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   ☐  Yes    ☒  No

As of June 28, 2019, the aggregate market value of the registrant’s voting shares held by non-affiliates was approximately $3.5 billion, based on the closing sale price of $25.87 as reported on the NASDAQ Global Select Market.

As of February 20, 2020, there were 130,350,725 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2020 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.

TABLE OF CONTENTS

FIRST HAWAIIAN, INC.

FORM 10-K ANNUAL REPORT

Part I			Page No.
	Item 1.	Business		2
	Item 1A.	Risk Factors		14
	Item 1B.	Unresolved Staff Comments		34
	Item 2.	Properties		34
	Item 3.	Legal Proceedings		35
	Item 4.	Mine Safety Disclosures		35
Part II
	Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		36
	Item 6.	Selected Financial Data		38
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations		43
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		79
	Item 8.	Financial Statements and Supplementary Data		80
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		154
	Item 9A.	Controls and Procedures		154
	Item 9B.	Other Information		157
Part III
	Item 10.	Directors, Executive Officers and Corporate Governance		159
	Item 11.	Executive Compensation		159
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		159
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		160
	Item 14.	Principal Accounting Fees and Services		160
Part IV
	Item 15.	Exhibits, Financial Statement Schedules		161
	Item 16.	Form 10-K Summary		161
		Signatures		165

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PART I

ITEM 1.  BUSINESS

General

First Hawaiian, Inc. (“FHI” or the “Parent”), a bank holding company, owns 100% of the outstanding common stock of First Hawaiian Bank (“FHB” or the “Bank”). References to “we,” “our,” “us,” or the “Company” refer to the Parent and its wholly-owned subsidiary, FHB, for purposes of discussion in this Annual Report on Form 10-K.

We are a bank holding company incorporated in the state of Delaware and headquartered in Honolulu, Hawaii. Our wholly-owned bank subsidiary, FHB, was founded in 1858 under the name Bishop & Company and was the first successful banking partnership in the Kingdom of Hawaii and the second oldest bank formed west of the Mississippi River. Today, FHB is the largest full-service bank headquartered in Hawaii as measured by assets, loans, deposits and net income. As of December 31, 2019, we had $20.2 billion of assets, $13.2 billion of gross loans and leases, $16.4 billion of deposits and $2.6 billion of stockholders’ equity. We generated $284.4 million of net income or diluted earnings per share of $2.13 per share for the year ended December 31, 2019.

Through the Bank, we operate a network of 58 branches in Hawaii (53 branches), Guam (3 branches) and Saipan (2 branches). We provide a diversified range of banking services to consumer and commercial customers, including deposit products, lending services and wealth management and trust services. Through our distribution channels, we offer a variety of deposit products to our customers, including checking and savings accounts and other types of deposit accounts. We offer comprehensive commercial banking services to middle market and large Hawaii-based businesses with over $10 million of revenue, strong balance sheets and high-quality collateral. We provide commercial and industrial lending, including auto dealer flooring, commercial real estate and construction lending. We also offer comprehensive consumer lending services focused on residential real estate lending, indirect auto financing and other consumer loans to individuals and small businesses through our branch, online and mobile distribution channels. Our wealth management business provides an array of trust services, private banking and investment management services. We also offer consumer and commercial credit cards and merchant processing.

We seek to develop comprehensive, long-term banking relationships by offering a diverse array of products and services, cross-selling those products and services and delivering high quality customer service. Our service culture and emphasis on repeat positive customer experiences are integral to our banking strategy and exemplified by our longstanding customer relationships.

We operate our business through three operating segments: Retail Banking, Commercial Banking and Treasury and Other. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) – Analysis of Business Segments” and “Note 23. Reportable Operating Segments” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

As of December 31, 2019, we had approximately 2,100 employees, which included full time employees, part time employees and temporary employees. None of our employees are parties to a collective bargaining agreement and we do not expect a significant change in the number of our employees in the near future.

Our Products and Services

The Bank is a full-service community bank focused on building relationships with our customers. We provide a variety of deposit accounts and lending services to commercial and consumer customers, as well as credit card products, wealth management services and merchant processing services. For over ten years, the Bank has maintained the largest deposit market share in Hawaii and currently has the leading market position in deposits in Hawaii, Guam and Saipan. We offer a comprehensive range of commercial lending services including commercial and industrial lending, auto dealer flooring, commercial real estate lending and construction lending. Our primary consumer lending services are mortgage lending, auto finance, small business loans, personal installment and credit cards. Our wealth management business offers individuals investment and financial planning services, insurance protection, trust and estate services and private banking.

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Competition

We operate in the highly competitive financial services industry and face significant competition for customers from financial institutions located both within and beyond our principal markets. We compete with commercial banks, savings banks, credit unions, non-bank financial services companies and other financial institutions operating within or near the areas we serve. Additionally, certain large banks headquartered on the U.S. mainland and large community banking institutions target the same customers we do. In addition, as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for banks to expand their geographic reach by providing services over the Internet and for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.

Our Strategic Initiatives

Our business strategy is focused on providing full service banking across our branch footprint, and we strive to be Hawaii’s bank of choice for consumer and commercial customers. We believe the combination of our brand, service quality, prudent approach to risk management and ties to the communities we serve provides us with steady growth opportunities and has allowed us to consistently deliver top tier operating performance. Our ongoing strategic focus and business initiatives include continuing to grow organically by leveraging our existing core competencies and positioning our business for the evolving bank landscape. We have a deep understanding of our customers and local market conditions which has been, and will continue to be, a primary factor in the success of our franchise.

Organizational History and Structure

Prior to our initial public offering in August 2016 (“IPO”), we were an indirect wholly owned subsidiary of BNP Paribas (“BNPP”), a global financial institution based in France.  

On April 1, 2016, BNPP effected a series of reorganization transactions (“Reorganization Transactions”), as a part of which we amended our certificate of incorporation to change our name to First Hawaiian, Inc., with First Hawaiian Bank remaining our only direct wholly owned subsidiary.

On July 1, 2016, in order to comply with the Board of Governors of the Federal Reserve System’s requirements applicable to BNPP, we became an indirect wholly owned subsidiary of BNP Paribas USA, Inc. (“BNP Paribas USA”), BNPP’s U.S. intermediate holding company. As part of that reorganization, we became a direct wholly owned subsidiary of BancWest Corporation (“BWC”), a direct wholly owned subsidiary of BNP Paribas USA.

In August 2016, FHI completed its IPO of 24,250,000 shares of common stock sold by BWC. Shares of FHI’s common stock began trading on the NASDAQ Global Select Market (“NASDAQ”) under the ticker symbol “FHB” on August 4, 2016. In connection with FHI’s IPO, BNPP announced its intent to sell its interest in FHI, including FHI’s wholly owned subsidiary, FHB, over time, subject to market conditions and other considerations.

Following a series of secondary offerings completed in 2017 and 2018, on February 1, 2019, BNPP, through BWC, completed the sale of its remaining 24,859,750 shares of FHI common stock in a public offering. FHI did not receive any of the proceeds from the sales of shares of FHI common stock in that offering, in any of the secondary offerings described above or the IPO. As a result of the completion of the February 1, 2019 public offering, BNPP (through BWC, the selling stockholder) fully exited its ownership interest in FHI common stock.

For additional information on the separation from BNPP and the Reorganization Transactions, see “Note 1. Organization and Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data.

Supervision and Regulation

We are subject to extensive regulation under federal and state banking laws that establish a comprehensive framework for our operations. This regulatory framework may materially impact our growth potential and financial performance and is intended primarily for the protection of the safety and soundness of financial institutions, maintenance of the federal deposit insurance system and the protection of consumers or classes of consumers, rather than the protection of stockholders or other investors.

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Significant elements of the statutes, regulations and policies applicable to the Company are described below. This description is qualified in its entirety by reference to the full text of the statutes, regulations and policies described. These statutes, regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory agencies.

Regulatory Agencies

FHI is a bank holding company under the U.S. Bank Holding Company Act of 1956 (the “BHC Act”) and has elected to be treated as a financial holding company under the BHC Act. Consequently, FHI and its subsidiary are subject to the supervision, regulation, examination and reporting requirements of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The BHC Act provides generally for “umbrella” regulation of bank holding companies by the Federal Reserve and functional regulation of holding company subsidiaries by applicable regulatory agencies. The BHC Act, however, authorizes the Federal Reserve to examine any subsidiary of a bank holding company, other than a depository institution, engaged in activities permissible for a depository institution. The Federal Reserve is also granted the authority, in certain circumstances, to require reports of, examine and adopt rules applicable to any holding company subsidiary.

In general, the BHC Act limits the activities permissible for bank holding companies. Bank holding companies electing to be treated as financial holding companies, however, may engage in additional activities under the BHC Act as described below under “— Permissible Activities under the BHC Act”. For a bank holding company to be eligible to elect financial holding company status, all of its subsidiary insured depository institutions must be well-capitalized and well-managed as described below under “— Prompt Corrective Action Framework” and must have received at least a “satisfactory rating” on such institution’s most recent examination under the Community Reinvestment Act (the “CRA”). The bank holding company itself must also be well-capitalized and well-managed in order to be eligible to elect financial holding company status. If a financial holding company fails to continue to meet any of the well-capitalized and well-managed prerequisites for financial holding company status after engaging in activities not permissible for bank holding companies that have not elected to be treated as financial holding companies, the company must enter into an agreement with the Federal Reserve to comply with all applicable capital and management requirements. If the company does not return to compliance within 180 days, the Federal Reserve may order the company to divest its subsidiary banks or the company may be required to discontinue or divest investments in companies engaged in activities permissible only for a bank holding company electing to be treated as a financial holding company. In addition, if any insured depository institution subsidiary of a financial holding company fails to maintain a CRA rating of at least “Satisfactory,” the financial holding company will be subject to restrictions on certain new activities and acquisitions.

FHB is a Federal Deposit Insurance Corporation (the “FDIC”) insured bank chartered under the laws of the state of Hawaii. FHB is not a member of the Federal Reserve System. Consequently, the FDIC and the Hawaii Department of Financial Institutions (the “DFI”) are the primary regulators of FHB and also regulate its subsidiaries. FHB’s branch operations in Guam are also subject to regulation by the Banking and Insurance Commissioner of the Government of Guam Department of Revenue and Taxation (the “Guam Banking and Insurance Commissioner”). FHB’s branch operation in Saipan, which is one of the principal islands of the Commonwealth of the Northern Mariana Islands (“CNMI”), is subject to the regulatory jurisdiction of the Division of Banking of the CNMI Department of Commerce. In addition, as the owner of a Hawaii-chartered bank, FHI is registered as a financial institution holding company under the Hawaii Code of Financial Institutions (the “Hawaii Code”) and is subject to the registration, reporting and examination requirements of the Hawaii Code, as well as supervision and examination by the Hawaii DFI.

The Company offers certain insurance, investment and trust products through FHB and its subsidiary, Bishop Street Capital Management Corporation, a registered investment advisor with the SEC. Bishop Street Capital Management Corporation is subject to the disclosure and regulatory requirements of the Investment Advisors Act of 1940, as administered by the SEC. FHB is also registered as a municipal securities advisor with the Municipal Securities Rulemaking Board (“MSRB”) and the SEC and is subject to the disclosure and regulatory requirements of the MSRB and the SEC. FHB’s insurance brokerage activities in Hawaii are conducted under its insurance producer license by appointed agents (licensed insurance producers) and those licensees are subject to regulation by the Insurance Division of the State of Hawaii Department of Commerce and Consumer Affairs (the “DCCA Insurance Division”). FHB’s trust services in Hawaii are subject to regulation by the FDIC and the Hawaii DFI. FHB’s insurance activities in Guam are conducted under a general agent’s license issued by the Guam Banking and Insurance Commissioner and FHB is therefore subject to regulation by the insurance branch of the regulatory division of the Guam Department of Revenue and Taxation.

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FHB and its affiliates are also subject to supervision, regulation, examination and enforcement by the Consumer Financial Protection Bureau (the “CFPB”), with respect to consumer protection laws and regulations. In addition, FHI is subject to the disclosure and regulatory requirements of the U.S. Securities and Exchange Act of 1934 (“Exchange Act”) administered by the SEC and the rules adopted by NASDAQ applicable to listed companies. The Company is subject to numerous other statutes and regulations that affect its business activities and operations.

Permissible Activities under the BHC Act

In general, the BHC Act limits the business of bank holding companies to banking, managing or controlling banks and other activities that the Federal Reserve has determined to be so closely related to banking as to be a proper incident thereto.

Bank holding companies that qualify and elect to be treated as “financial holding companies,” like us, may engage in, or acquire and retain the shares of a company engaged in, a broad range of additional activities that are (i) financial in nature or incidental to such financial activities or (ii) complementary to a financial activity and do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. These activities include securities underwriting and dealing, insurance underwriting and brokerage and making merchant banking investments.

The BHC Act does not place territorial restrictions on permissible non-banking activities of bank holding companies. The Federal Reserve has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the Federal Reserve has reasonable grounds to believe that continuing such activity, ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the bank holding company.

Permissible Activities for Banks

As a Hawaii-chartered bank, FHB’s business is generally limited to activities permitted by Hawaii law and any applicable federal laws. Under the Hawaii Code, the Bank may generally engage in all usual banking activities, including accepting deposits; extending loans and lines of credit; borrowing money; issuing, confirming and advising letters of credit; entering into repurchase agreements; buying and selling foreign currency and, subject to certain limitations, making investments. Subject to prior approval by the Commissioner of the Hawaii DFI and by the DCCA Insurance Division, the Bank may also permissibly engage in activities related to a trust business, activities relating to insurance and annuities and any activity permissible for a national banking association.

Hawaii law also imposes restrictions on the Bank’s activities and corporate governance requirements intended to ensure the safety and soundness of the bank. For example, the Hawaii Code requires that at least one of the directors of the Bank, as well as the Chief Executive Officer of the bank, be residents of the State of Hawaii. FHB is also restricted under the Hawaii Code to investing in certain types of investments and is generally limited in the amount of money it can lend to a single borrower or invest in securities issued by a single issuer (in each case, 20% of FHB’s common stock and additional paid-in capital).

Enhanced Prudential Standards

The Dodd-Frank Act, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (“EGRRCPA”), directs the Federal Reserve to monitor emerging risks to financial stability and enact enhanced supervision and prudential standards applicable to bank holding companies with total consolidated assets of $250 billion or more and non-bank covered companies designated as systemically important by the Financial Stability Oversight Council (often referred to as systemically important financial institutions). The Dodd-Frank Act mandates that certain regulatory requirements applicable to systemically important financial institutions be more stringent than those applicable to other financial institutions. In general, EGRRCPA and implementing regulations increased the statutory asset threshold above which the Federal Reserve is required to apply these enhanced prudential standards from $50 billion to $250 billion (subject to certain discretion by the Federal Reserve to apply any enhanced prudential standard requirement to any BHC with between $100 billion and $250 billion in total consolidated assets that would otherwise be exempt under EGRRCPA). BHCs with $250 billion or more in total consolidated assets remain fully subject to the Dodd-Frank Act’s enhanced prudential standards requirements.

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In February 2014, the Federal Reserve adopted rules to implement certain of these enhanced prudential standards. The rules required publicly traded bank holding companies with $10 billion or more in total consolidated assets to establish risk committees and require bank holding companies with $50 billion or more in total consolidated assets to comply with enhanced liquidity and overall risk management standards. In October 2019, the Federal Reserve adopted a rule that tailors the application of the enhanced prudential standards to BHCs per the EGRRCPA amendments, including by raising the asset threshold for application of many of these standards. Pursuant to the final rule, the requirement to maintain a risk committee was revised to apply to only bank holding companies with $50 billion or more in total consolidated assets.

EGRRCPA raised the asset thresholds for application of Dodd-Frank Act stress testing requirements. As a result, the stress testing requirements that previously applied to the Company, as a BHC with $10 billion to $100 billion in total consolidated assets, and FHB, as a bank with $10 billion or more in total consolidated assets, no longer apply to the Company and FHB.

Acquisitions by Bank Holding Companies

The BHC Act, the Bank Merger Act, the Hawaii Code and other federal and state statutes regulate acquisitions of banks and other FDIC-insured depository institutions. The Company must obtain the prior approval of the Federal Reserve before (i) acquiring direct or indirect ownership or control of any voting shares of any bank or bank holding company, if after such acquisition, it will directly or indirectly own or control 5% or more of any class of voting shares of the institution, (ii) acquiring all or substantially all of the assets of any bank (other than directly through the Bank) or (iii) merging or consolidating with any other bank holding company. Under the Bank Merger Act, the prior approval of the FDIC is required for the Bank to merge with another bank or purchase all or substantially all of the assets or assume any of the deposits of another FDIC-insured depository institution. In reviewing applications seeking approval of merger and acquisition transactions, bank regulators consider, among other things, the competitive effect and public benefits of the transactions, the capital position and managerial resources of the combined organization, the risks to the stability of the U.S. banking or financial system, the applicant’s performance record under the CRA, the applicant’s compliance with fair housing and other consumer protection laws and the effectiveness of all organizations involved in combating money laundering activities. In addition, failure to implement or maintain adequate compliance programs could cause bank regulators not to approve an acquisition where regulatory approval is required or to prohibit an acquisition even if approval is not required. In addition, the Federal Reserve will consider the extent to which a proposed transaction would result in greater or more concentrated risks to the stability of the U.S. banking or financial system. Under applicable laws, the Company may not be permitted to acquire any bank in Hawaii because it controls more than 30% of the total amount of deposits in the Hawaii market. As a result, any further growth in the Hawaii market will most likely have to occur organically rather than by acquisition.

Dividends and Repurchases

FHI is a legal entity separate and distinct from the Bank and its subsidiaries. Virtually all of FHI’s income comes from dividends from the Bank, which is also the primary source of FHI’s liquidity and funds to pay dividends on its equity and, if FHI were to incur debt in the future, interest and principal on its debt. There are statutory and regulatory limitations on the payment of dividends by the Bank to FHI, as well as by FHI to its stockholders.

Federal bank regulators are authorized to determine, under certain circumstances relating to the financial condition of a bank holding company or a bank, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. In particular, federal bank regulators have stated that paying dividends that deplete a banking organization’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings. In addition, the ability of banks and bank holding companies to pay dividends, and the contents of their respective dividend policies, could be impacted by a range of regulatory changes.

Payment of Dividends by the Bank. In addition to the restrictions discussed above, the Bank is subject to limitations under Hawaii law regarding the amount of dividends that it may pay to the Parent. In general, under Hawaii law, dividends from a bank may not exceed the bank’s retained earnings provided that the bank will, after the dividend, have the minimum paid-in common stock and additional paid-in capital required under Hawaii law, which, for a bank which has trust operations, is $6.5 million. Hawaii law also effectively restricts a bank from paying a dividend, or the amount of the dividend, unless that bank’s common stock and additional paid-in capital is $6.5 million multiplied by 133%, or $8.6 million. This amount is not necessarily indicative of amounts that may be paid or available to be paid in

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future periods. Under Hawaii banking law, for example, paying “excessive dividends” in relation to a bank’s capital position, earnings capacity and asset quality could be deemed to be an unsafe and unsound banking practice. Under the Hawaii Business Corporation Act, a dividend or other distribution may not be made if a bank would not be able to pay its debts as they become due in the ordinary course of business or if its total assets would be less than the sum of its total liabilities and the amounts that would be needed to satisfy shareholders with preferential rights of distribution. In addition, under the Federal Deposit Insurance Act of 1950 (“FDIA”), an insured institution may not pay a dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. See “— Prompt Corrective Action Framework” below.

Payment of Dividends and Common Stock Repurchases by the Company. As a bank holding company, the Company is subject to oversight by the Federal Reserve. In particular, the dividend policies and share repurchases of the Company are reviewed by the Federal Reserve and will be assessed against, among other things, the Company’s ability to achieve the required capital ratios under applicable capital rules (including the applicable capital conservation buffer). In addition, the Federal Reserve has indicated generally that it may be an unsafe or unsound practice for bank holding companies to pay dividends unless a bank holding company’s net income is sufficient to fund the dividends and the expected rate of earnings retention is consistent with the organization’s capital needs, asset quality and overall financial condition. See “— Regulatory Capital Requirements” below.

The Capital Simplification Rules (defined below) eliminated the standalone prior approval requirement in the Capital Rules (as defined below) for any repurchase of common stock. In certain circumstances, the Company’s repurchases of its common stock may be subject to a prior approval or notice requirement under other regulations or policies of the Federal Reserve. Any redemption or repurchase of preferred stock or subordinated debt remains subject to the prior approval of the Federal Reserve.

Transactions with Affiliates and Insiders

Transactions between the Bank and its subsidiaries, on the one hand, and the Company or any other affiliate of the Company, on the other hand, are regulated under federal banking law. The Federal Reserve Act imposes quantitative and qualitative requirements and collateral requirements on “covered transactions” by the Bank with, or for the benefit of, its affiliates, and generally requires those transactions to be on terms at least as favorable to the Bank as if the transaction were conducted with an unaffiliated third party. Covered transactions are defined by statute to include a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve) from the affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate, and credit exposure arising under derivative transactions, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions. In general, any such transaction by the Bank or its subsidiaries must be limited to certain thresholds on an individual and aggregate basis and, for credit transactions with any affiliate, must be secured by designated amounts of specified collateral.

Federal law also limits a bank’s authority to extend credit to its directors, executive officers, principal shareholders (and persons that beneficially own or control more than 10% of any class of the bank’s voting stock), as well as to entities owned or controlled by such persons. Among other things, extensions of credit to such insiders are required to be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with non-insiders. Also, the terms of such extensions of credit may not involve more than the normal risk of non-repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons individually and in the aggregate. Certain extensions of credit also require the approval of the Bank’s board of directors.

Source of Strength

Federal law requires bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. Under this requirement, the Company is expected to commit resources to support the Bank, including at times when the Parent may not be in a financial position to provide such resources, and it may not be in its, or its stockholders’ or creditors’, best interests to do so. In addition, any capital loans the Company makes to the Bank are subordinate in right of payment to depositors and to certain other indebtedness of the Bank. In the event of the Company’s bankruptcy, any commitment by the Company to a federal bank regulatory agency to maintain the capital of the Bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

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Regulatory Capital Requirements

Capital Requirements Applicable to Top-Tier Holding Companies in an Organizational Structure.  The Federal Reserve monitors the capital adequacy of the Company, and the FDIC and the Hawaii DFI monitor the capital adequacy of the Bank. The bank regulators currently use a combination of risk-based ratios and a leverage ratio to evaluate capital adequacy. The Company and the Bank are subject to the federal bank regulators’ final rules implementing Basel III and various provisions of the Dodd-Frank Act (the “Capital Rules”).

The Capital Rules, among other things, impose a capital measure called “Common Equity Tier 1” (“CET1”), to which most deductions/adjustments to regulatory capital must be made. In addition, the Capital Rules specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain specified requirements.

Under the Capital Rules, the minimum capital ratios are as follows:

• 4.5% CET1 to risk-weighted assets,

• 6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets,

• 8.0% total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets, and

• 4.0% Tier 1 capital to average quarterly assets.

The Capital Rules also require a 2.5% capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is composed entirely of CET1, on top of these minimum risk-weighted asset ratios, effectively resulting in minimum ratios of (i) 7% CET1 to risk-weighted assets, (ii) 8.5% Tier 1 capital to risk-weighted assets, and (iii) 10.5% total capital to risk-weighted assets.

Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer face constraints on dividends, equity repurchases and certain discretionary compensation based on the amount of the shortfall and the institution’s “eligible retained income” (that is, four quarter trailing net income, net of distributions and tax effects not reflected in net income).

The Capital Rules provide for a number of deductions from and adjustments to CET1 that were phased-in. These include, for example, the requirement that mortgage servicing rights (“MSRs”), certain deferred tax assets (“DTAs”) and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1. In November 2017, the federal bank regulators revised the Capital Rules to extend the current transitional treatment of MSRs, certain DTAs, investments in non-consolidated financial entities and minority interests for non-advanced approaches banking organizations (the “Transition Rules”), including the Company and FHB.

In July 2019, the federal bank regulators adopted rules intended to revise and simplify the capital treatment for MSRs, certain DTAs, investments in non-consolidated financial entities and minority interests for banking organizations, such as the Company and the Bank, that are not subject to the advanced approaches (the “Capital Simplification Rules”). The Capital Simplifications Rules and the rescission of the Transition Rule will take effect for the Company as of April 1, 2020. In November 2019, the federal bank regulators issued a final rule revising the definition of “high volatility commercial real estate” exposures to exclude certain acquisition, development and construction loans, consistent with the definition in EGRRCPA.

With respect to capital ratio requirements, the Bank is also subject to the prompt corrective action regulations pursuant to Section 38 of the FDIA. See “— Prompt Corrective Action Framework.”

In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”). Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card and home equity lines of credit) and provide a new standardized approach for operational risk capital. Under the Basel framework, these standards will generally be effective on January 1, 2022, with an aggregate output floor phasing in through January 1, 2027. Under the current U.S. Capital Rules, operational risk capital requirements and a capital floor apply only to

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advanced approaches institutions, and not to the Company or the Bank. The impact of Basel IV on the Company and the Bank will depend on the manner in which it is implemented by the federal bank regulators.

In December 2018, federal bank regulators issued a final rule that would provide an optional three-year phase-in period for the day-one regulatory capital effects of the adoption of the current expected credit losses (“CECL”) Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. See “Note 1. Organization and Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for additional information about CECL.

Prompt Corrective Action Framework

The FDIA requires the federal bank regulators to take prompt corrective action in respect of depository institutions that fail to meet specified capital requirements. The FDIA establishes five capital categories (“well-capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized” and “critically undercapitalized”), and the federal bank regulators are required to take certain mandatory supervisory actions, and are authorized to take other discretionary actions, with respect to institutions that are undercapitalized, significantly undercapitalized or critically undercapitalized. The severity of these mandatory and discretionary supervisory actions depends upon the capital category in which the institution is placed.

Currently, an insured depository institution generally will be classified in the following categories based on the capital measures indicated:

“Well capitalized”	“Adequately capitalized”
• Total capital ratio of at least 10.0%,	• Total capital ratio of at least 8.0%,
• CET1 capital ratio of at least 6.5%,	• CET1 capital ratio of at least 4.5%,
• Tier 1 capital ratio of at least 8.0%,	• Tier 1 capital ratio of at least 6.0%, and
• Tier 1 leverage ratio of at least 5.0%, and	• Tier 1 leverage ratio of at least 4.0%.
• Not subject to any order or written directive requiring a specific capital level.
“Undercapitalized”	“Significantly undercapitalized”
• Total capital ratio of less than 8.0%,	• Total capital ratio of less than 6.0%,
• CET1 capital ratio of less than 4.5%,	• CET1 capital ratio of less than 3.0%,
• Tier 1 capital ratio of less than 6.0%, or	• Tier 1 capital ratio of less than 4.0%, or
• Tier 1 leverage ratio of less than 4.0%.	• Tier 1 leverage ratio of less than 3.0%.
“Critically undercapitalized”
• Tangible equity to average quarterly tangible assets of 2.0% or less.

An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.

As of December 31, 2019, the Bank was well-capitalized with both a CET1 capital ratio and a Tier 1 capital ratio of 11.72%, total capital ratio of 12.65% and Tier 1 leverage ratio of 8.67%, in each case calculated under the Capital Rules. Although the prompt corrective action provisions apply only to depository institutions and not to bank holding companies, if the provisions applied to bank holding companies, the Company would be well-capitalized. As of December 31, 2019, the Company’s CET1 capital ratio and Tier 1 capital ratio was 11.88%, its total capital ratio was 12.81%, and its Tier 1 leverage ratio was 8.79%, in each case calculated under the Capital Rules. For more information on the Company’s and the Bank’s capital ratios, see “Item 7. Management’s Discussion and Analysis of Financial Condition — Capital” and “Note 13. Regulatory Capital Requirements” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data.

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An institution that is categorized as undercapitalized, significantly undercapitalized or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal bank regulator. Under the FDIA, in order for the capital restoration plan to be accepted by the appropriate federal banking agency, a bank holding company must guarantee that a subsidiary depository institution will comply with its capital restoration plan, subject to certain limitations. The bank holding company must also provide appropriate assurances of performance. The obligation of a controlling bank holding company under the FDIA to fund a capital restoration plan is limited to the lesser of 5% of an undercapitalized subsidiary’s assets or the amount required to meet regulatory capital requirements. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except in accordance with an accepted capital restoration plan or with the approval of the FDIC. Institutions are also generally prohibited from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the institution is or would thereafter become undercapitalized. Institutions that are undercapitalized or significantly undercapitalized and either fail to submit an acceptable capital restoration plan or fail to implement an approved capital restoration plan may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, orders to elect new boards of directors, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are generally subject to appointment of a receiver or conservator.

In addition, the FDIA prohibits insured depository institutions from accepting brokered deposits or offering interest rates on any deposits significantly higher than the prevailing rate in the bank’s normal market area or nationally (depending upon where the deposits are solicited), unless it is well capitalized or is adequately capitalized and receives a waiver from the FDIC. A depository institution that is adequately capitalized and that accepts brokered deposits under a waiver from the FDIC may not pay an interest rate on any deposit in excess of 75 basis points over certain prevailing market rates. The FDIA imposes no such restrictions on a bank that is well capitalized.

Safety and Soundness Standards

The FDIA requires the federal bank regulators to prescribe standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial standards as the agencies deem appropriate. Guidelines adopted by the federal bank regulatory agencies establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, these guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. These guidelines also prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal stockholder. In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the bank regulator must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution may be subject under the FDIA. See “— Prompt Corrective Action Framework” above. If an institution fails to comply with such an order, the bank regulator may seek to enforce such order in judicial proceedings and to impose civil money penalties.

Deposit Insurance

FDIC Insurance Assessments. As an FDIC-insured bank, FHB must pay deposit insurance assessments to the FDIC based on its average total assets minus its average tangible equity. For institutions with $10 billion or more in assets, such as FHB, the FDIC uses a performance score and a loss-severity score that are used to calculate an initial assessment rate. In calculating these scores, the FDIC uses a bank’s capital level and supervisory ratings and certain financial measures to assess an institution’s ability to withstand asset-related stress and funding-related stress. The FDIC also has the ability to make discretionary adjustments to the total score based upon significant risk factors that are not adequately captured in the calculations. In addition to ordinary assessments described above, the FDIC has the ability to impose special assessments in certain instances.

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Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. In addition, the FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions.

The Volcker Rule

The Dodd-Frank Act and the implementing regulations of the federal regulators generally prohibit banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds and private equity funds (the “Volcker Rule”). The Volcker Rule has not had a material effect on the Company’s operations, as the Company does not have any significant engagement in the businesses prohibited by the Volcker Rule. The Company has incurred costs to adopt additional policies and systems to ensure compliance with the Volcker Rule, but such costs have not been material.

In October 2019, the Federal Reserve, Office of the Comptroller of the Currency, FDIC, Commodity Futures Trading Commission (“CFTC”) and SEC finalized rules to tailor the application of the Volcker Rule based on the size and scope of a banking entity’s trading activities and to clarify and amend certain definitions, requirements and exemptions. In January 2020, the Federal Reserve, Office of the Comptroller of the Currency, FDIC, CFTC and SEC issued a proposal intended to clarify and amend certain definitions, requirements and exemptions with respect to covered funds. The ultimate impact of any amendments to the Volcker Rule regulations will depend on, among other things, further rulemaking and implementation guidance from the relevant U.S. federal regulatory agencies and the development of market practices and standards.

Depositor Preference

Under federal law, depositors (including the FDIC with respect to the subrogated claims of insured depositors) and certain claims for administrative expenses of the FDIC as receiver would be afforded a priority over other general unsecured claims against such an institution in the “liquidation or other resolution” of such an institution by any receiver.

Consumer Financial Protection

The Company is subject to a number of federal and state consumer protection laws that extensively govern the Company’s relationship with its customers. These laws include, but are not limited to, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Service Members Civil Relief Act and these laws’ respective state-law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices. These and other federal and state laws require, among other things, disclosures of the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, prohibit unfair, deceptive and abusive practices and subject the Company to substantial regulatory oversight. Violations of applicable consumer protection laws can result in significant potential liability from litigation brought by customers, including actual damages, restitution and attorneys’ fees. Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, action by the state and local attorneys general in each jurisdiction in which the Company operates and civil money penalties. Failure to comply with consumer protection requirements may also result in the failure to obtain any required bank regulatory approval for merger or acquisition transactions the Company may wish to pursue or the Company’s prohibition from engaging in such transactions even if approval is not required.

The CFPB is a federal agency with broad rulemaking, supervisory and enforcement powers under federal consumer financial protection laws. The CFPB is also authorized to engage in consumer financial education, track consumer complaints, request data and promote the availability of financial services to underserved consumers and communities. The CFPB has examination and enforcement authority over banks with assets of $10 billion or more, as well as their affiliates.

The CFPB has finalized a number of significant rules which impact nearly every aspect of the lifecycle of a residential mortgage loan. These rules implement the Dodd-Frank Act amendments to the Equal Credit Opportunity Act, the Truth in Lending Act and the Real Estate Settlement Procedures Act. Among other things, the rules adopted by the

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CFPB require banks to: (i) develop and implement procedures to ensure compliance with a “reasonable ability to repay” test and identify whether a loan meets a new definition for a “qualified mortgage”, in which case a rebuttable presumption exists that the creditor extending the loan has satisfied the reasonable ability to repay test; (ii) implement new or revised disclosures, policies and procedures for originating and servicing mortgages including, but not limited to, integrated loans estimate and closing disclosures, pre-loan counseling, early intervention with delinquent borrowers and specific loss mitigation procedures for loans secured by a borrower’s principal residence; (iii) comply with additional restrictions on mortgage loan originator hiring and compensation; (iv) comply with new disclosure requirements and standards for appraisals and certain financial products; and (v) maintain escrow accounts for higher-priced mortgage loans for a longer period of time. The Company is continuing to analyze the impact that such rules may have on its business.

The CFPB has broad supervisory, examination and enforcement authority over various consumer financial products and services, including the ability to require reimbursements and other payments to customers for alleged legal violations and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices. The CFPB also has the authority to obtain cease and desist orders providing for affirmative relief or monetary penalties. The Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards. State regulation of financial products and potential enforcement actions could also adversely affect the Company’s business, financial condition or results of operations.

Community Reinvestment Act of 1977

Under the CRA, the Bank has an obligation, consistent with safe and sound operations, to help meet the credit needs of the market areas where it operates, which include low- and moderate-income individuals and communities. In connection with its examination of the Bank, the FDIC is required to assess the Bank’s CRA performance in the areas of lending, investments and services. FHB’s CRA performance could, among other things, result in the denial or delay in certain corporate applications filed by the Parent or the Bank, including applications for branch openings or relocations and applications to acquire, merge or consolidate with another banking institution or holding company. FHB received a rating of “Outstanding” in its most recently completed CRA examination.

In December 2019, the Office of the Comptroller of the Currency and the FDIC issued a notice of proposed rulemaking intended to (i) clarify which activities qualify for CRA credit; (ii) update where activities count for CRA credit; (iii) create a more transparent and objective method for measuring CRA performance; and (iv) provide for more transparent, consistent, and timely CRA-related data collection, recordkeeping, and reporting. We will continue to evaluate the impact of any changes to the regulations implementing the CRA.

Financial Privacy and Cybersecurity

The federal bank regulators have adopted rules limiting the ability of banks and other financial institutions to disclose non-public information about consumers to unaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to an unaffiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications. Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services.

Federal banking regulators regularly issue guidance regarding cybersecurity intended to enhance cyber risk management standards among financial institutions. A financial institution is expected to establish multiple lines of defense and to ensure their risk management processes address the risk posed by potential threats to the institution. A financial institution’s management is expected to maintain sufficient processes to effectively respond and recover the institution’s operations after a cyberattack. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations if a critical service provider of the institution falls victim to this type of cyberattack. The Bank has adopted an information security program that has been approved by its board of directors and reviewed by its regulators.

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State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. For example, the California Consumer Privacy Act became effective on January 1, 2020. We expect this trend of state-level activity in those areas to continue and are continually monitoring developments in the states in which our customers are located.

Anti-Money Laundering and the USA PATRIOT ACT

A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. Anti-money laundering laws impose compliance and due diligence obligations, and financial institutions must take certain steps to assist government agencies in detecting and preventing money laundering and report certain types of suspicious transactions. Financial institutions are also prohibited from entering into specified financial transactions and account relationships and must use enhanced due diligence procedures in their dealings with certain types of high-risk customers and implement a written customer identification program. Regulatory authorities routinely examine financial institutions for compliance with these requirements, and failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious financial, legal and reputational consequences for the institution, including the imposition of civil money penalties or causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these requirements.

Office of Foreign Assets Control (“OFAC”) Regulation

The U.S. Treasury Department’s OFAC administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. The Company and the Bank are responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these sanctions.

Incentive Compensation

The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not “large, complex banking organizations.” These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

In June 2010, the Federal Reserve and FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent risk, (ii) be compatible with effective internal controls and risk management and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

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These three principles are incorporated into the proposed joint compensation regulations under the Dodd-Frank Act, discussed above.

The Dodd-Frank Act requires the U.S. financial regulators, including the Federal Reserve and the FDIC, to adopt rules on incentive-based payment arrangements at specified regulated entities having at least $1 billion in total assets (including the Company and the Bank). The U.S. financial regulators proposed revised rules in 2016, which have not been finalized.

Future Legislation and Regulation

Congress may enact, modify or repeal legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact, modify or repeal legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied. The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of proposed legislation, or modification or repeal of existing legislation, could impact the regulatory structure under which the Company operates and may significantly increase its costs, impede the efficiency of its internal business processes, require the Company to increase its regulatory capital and modify its business strategy, and limit its ability to pursue business opportunities in an efficient manner. The Company’s business, financial condition, results of operations or prospects may be adversely affected, perhaps materially, as a result.

Securities Exchange Act Reports and Additional Information

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports can be found free of charge on our website at www.fhb.com, under Investor Relations, as soon as reasonably practicable after such material is electronically filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”). These reports are also available free of charge on the SEC’s website at www.sec.gov.

Information on our Investor Relations website, our main website and other websites referred to in this report is not incorporated by reference into this report or any other report filed with or furnished to the SEC. We have included such website addresses only as inactive textual references and do not intend them to be active links.

ITEM 1A.  RISK FACTORS

Ownership of our common stock involves a significant degree of risk and uncertainty. The material risks and uncertainties that management believes affect us are described below. Any of the following risks, as well as risks that we do not know or currently deem immaterial, could have a material adverse effect on our business, financial condition or results of operations. To the extent that any of the information in this Form 10-K constitutes forward-looking statements, the risk factors below are cautionary statements identifying important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cautionary Note Regarding Forward-Looking Statements.”

Risks Related to Our Business

Geographic concentration in our existing markets may unfavorably impact our operations.

A substantial majority of our business is with customers located within Hawaii. Our operations are heavily concentrated in Hawaii, as well as in Guam and Saipan. As a result of this geographic concentration, our results depend largely on economic conditions in these and surrounding areas. As discussed below, deterioration in economic conditions in Hawaii, Guam and Saipan would have a material adverse effect on our business, financial condition or results of operations.

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Our business may be adversely affected by conditions in the financial markets and economic conditions generally and in Hawaii, Guam and Saipan in particular.

We provide banking and financial services to customers primarily in Hawaii, Guam and Saipan. Our financial performance generally, and the ability of our borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans in particular, as well as demand for loans and other products and services we offer, is highly dependent upon the business environment in the markets in which we operate. Economic conditions in our markets depend mainly on tourism, U.S. military and defense products and services, real estate, government and other service-based industries. In addition, Hawaii’s economy depends significantly on conditions of the U.S. economy and key international economies, particularly Japan. While the U.S. economy grew at a solid pace in 2019, the growth rate slowed compared to 2018, and Japanese economic growth slowed down in the second half of 2019, with fourth quarter GDP contracting at a rate of approximately 6.3% on an annualized basis. Declines in the economic conditions in these markets,  tourism, fluctuations in the strength of currencies such as the U.S. dollar and the Japanese yen, the inability of the Hawaii economy to absorb continuing construction expansion, continued higher levels of underemployment compared to pre-recession levels, increases in energy costs, the availability of affordable air transportation, pandemics or other widespread health emergency (or concerns over the possibility of such an emergency) (including coronavirus (COVID-19)), real or threatened acts of war or terrorism, adverse weather, natural disasters and local or national budget issues, among other factors, may impact consumer and corporate spending. As a result, these events may contribute to a deterioration in Hawaii’s general economic condition, which, as a result of our geographic concentration, could adversely impact us and our borrowers.

Commercial lending represents approximately 52% of our total loan and lease portfolio as of December 31, 2019, and we generally make loans to small to mid-sized businesses whose success depends on the regional economy. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and may expose us to greater credit risks. We also engage in mortgage lending and automobile financing, as well as other forms of consumer lending. Adverse economic and business conditions in our market areas could reduce our growth rate, affect our borrowers’ ability to repay their loans or the value of the collateral underlying their loans and, consequently, adversely affect our financial condition and performance.

The U.S. military has a major presence in Hawaii and Guam and, as a result, is an important aspect of the economies in which we operate. The funding of the U.S. military occurs as part of the overall U.S. government budget and appropriation process which is driven by numerous factors, including geo-political events, macroeconomic conditions and the ability of the U.S. government to enact legislation such as appropriations bills. There have been lower levels of federal government expenditures in Hawaii since the budget sequestration took effect in March 2013. Further cuts in defense and other security spending could have an adverse impact on the economy in our markets. While the current U.S. presidential administration has, to this point, favored an increase in military spending, it remains unclear whether any increase would match or exceed pre-sequester funding levels, or whether military spending will be impacted by the political elections in the United States in November 2020 or the resulting administration.

Other economic conditions that affect our financial performance include short-term and long-term interest rates, the prevailing yield curve, inflation and price levels (particularly for real estate), monetary policy, unemployment and the strength of the domestic economy as a whole. Unfavorable market conditions can result in a deterioration in the credit quality of our borrowers and the demand for our products and services, an increase in the number of loan delinquencies, defaults and charge-offs, additional provisions for loan losses, adverse asset values and an overall material adverse effect on the quality of our loan portfolio. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability or increases in the cost of credit and capital, increases in inflation or interest rates, high unemployment, natural disasters or a combination of these or other factors.

Our business is significantly dependent on the real estate markets in which we operate, as a significant percentage of our loan portfolio is secured by real estate.

As of December 31, 2019, our real estate loans represented approximately $8.6 billion, or 65% of our total loan and lease portfolio. Our real estate loans consist primarily of residential loans including home equity loans (representing 35% of our total loan and lease portfolio) and commercial and construction loans (representing 30% of our total loan and lease portfolio), with the significant majority of these loans concentrated in Hawaii. Real property values in Hawaii may be affected by a variety of factors outside of our control and the control of our borrowers, including national and local

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economic conditions generally. Declines in real property prices, including prices for homes and commercial properties, in Hawaii, Guam or Saipan could result in a deterioration of the credit quality of our borrowers, an increase in the number of loan delinquencies, defaults and charge-offs, and reduced demand for our products and services generally.

As of December 31, 2019, our commercial and industrial loans represented approximately $2.7 billion or 21% of our total loan and lease portfolio. Commercial and industrial loans may have a greater risk of loss than residential mortgage loans, in part because these loans are generally larger or more complex to underwrite and are characterized by having a limited supply of real estate at commercially attractive locations, long delivery time frames for development and high interest rate sensitivity. As payments on loans secured by commercial real estate often depend upon the successful operation and management of the properties and the businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy or changes in government regulation. In recent years, commercial real estate markets have been experiencing substantial growth, and increased competitive pressures have contributed significantly to historically low capitalization rates and rising property values. Commercial real estate prices, according to many U.S. commercial real estate indices, are currently above the 2007 peak levels that contributed to the financial crisis. Our failure to adequately implement risk management policies, procedures and controls could adversely affect our ability to increase this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio.

In addition, nearly all residential mortgage loans and home equity lines of credit and loans outstanding are for residences located in Hawaii, Guam or Saipan. These island locales are susceptible to a wide array of potential natural disasters including, but not limited to, hurricanes, floods, earthquakes and tsunamis, like the October 2018 super typhoon that struck Saipan causing material damage to the island. Finally, declines in real property values in the areas in which we operate, particularly Hawaii, could reduce the value of any collateral we realize following a default on these loans and could adversely affect our ability to continue to grow our loan portfolio consistent with our underwriting standards. Our failure to mitigate these risks effectively could have a material adverse effect on our business, financial condition or results of operations.

Concentrated exposures to certain asset classes and individual obligors may unfavorably impact our operations.

We have naturally developed concentrated exposures to those asset classes and industries in which we have specific knowledge or competency, such as commercial real estate lending and dealer financing, which represented 30% and 8% of our total loans, respectively, as of December 31, 2019. In management’s judgment, our extensive experience within these concentration areas, and our strategic relationships within such areas, allows us to better evaluate the associated risks and price credit accordingly. However, the presence of similar exposures concentrated in certain asset classes leaves us exposed to the risk of a focused downturn or increased competitive pressures within a concentration area. Additionally, we have cultivated relationships with market leaders that result in relatively larger exposures to select single obligors than would be typical for an institution of our size in a larger operating market. For example, our top five dealer relationships represented approximately 34% of our outstanding dealer flooring commitments as of December 31, 2019. The failure to properly anticipate and address risks associated with these concentrated exposures could have a material adverse effect on our business, financial condition or results of operations.

Our business is subject to interest rate risk and fluctuations in interest rates may adversely affect our earnings.

Fluctuations in interest rates may negatively impact our banking business and may weaken demand for some of our products. Our earnings and cash flows are largely dependent on net interest income, which is the difference between the interest income we receive from interest-earning assets (e.g., loans and investment securities) and the interest expense we pay on interest-bearing liabilities (e.g., deposits and borrowings). The level of net interest income is primarily a function of the average balance of interest-earning assets, the average balance of interest-bearing liabilities and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of interest-earning assets and interest-bearing liabilities. Interest rates are volatile and highly sensitive to many factors that are beyond our control, such as economic conditions and policies of various governmental and regulatory agencies, and, in particular the monetary policy of the Federal Open Market Committee of the Federal Reserve System (the “FOMC”). In recent years, it has been the policy of the FOMC and the U.S. Treasury Department to maintain interest rates at historically low levels through a targeted federal funds rate and the purchase of U.S. Treasury and mortgage-backed securities. Consequently, the average yield on our interest-earning assets has decreased during the current low interest rate environment. If a low interest rate environment persists, our net interest income may further decrease. This would be the

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case because our ability to lower our interest expense has been limited at these interest rate levels, while the average yield on our interest-earning assets has continued to decrease.

During 2019, the FOMC lowered short-term interest rates by 25 basis points three times. Though the FOMC noted in 2020 that although household spending has been rising at a moderate pace, business fixed investment and exports remains weak and longer-term inflation expectations remain unchanged. In the event that interest rates continue to decrease, our net interest income could be adversely affected. If our net interest income decreases, this could have an adverse effect on our profitability and the value of our investments.

Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but also our ability to originate loans and deposits. Changes in interest rates also have a significant impact on the carrying value of certain assets, including loans, real estate and investment securities, on our balance sheet. We may incur debt in the future, and that debt may also be sensitive to interest rates.

The cost of our deposits is largely based on short-term interest rates, the level of which is driven primarily by the FOMC’s actions. However, the yields generated by our loans and securities are often difficult to re-price and are typically driven by longer-term interest rates, which are set by the market or, at times, the FOMC’s actions, and vary over time. The level of net interest income is therefore influenced by movements in such interest rates and the pace at which such movements occur. If the interest rates paid on our deposits and other borrowings increase at a faster pace than the interest rates on our loans and other investments, our net interest income may decline and, with it, a decline in our earnings may occur. Our net interest income and earnings would be similarly affected if the interest rates on our interest-earning assets declined at a faster pace than the interest rates on our deposits and other borrowings. Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our business, financial condition or results of operations.

Changes in interest rates can also affect the level of loan refinancing activity, which impacts the amount of prepayment penalty income we receive on loans we hold. Because prepayment penalties are recorded as interest income when received, the extent to which they increase or decrease during any given period could have a significant impact on the level of net interest income and net income we generate during that time. A decrease in our prepayment penalty income resulting from any change in interest rates or as a result of regulatory limitations on our ability to charge prepayment penalties could therefore adversely affect our net interest income, net income or results of operations.

Changes in interest rates can also affect the slope of the yield curve. A flatter or inverted yield curve could cause our net interest income and net interest margin to contract, which could have a material adverse effect on our net income and cash flows, as well as the value of our assets. An inverted yield curve may also adversely affect the yield on investment securities by increasing the prepayment risk of any securities purchased at a premium.

As of December 31, 2019, we had $5.9 billion of noninterest-bearing demand deposits and $10.6 billion of interest-bearing deposits. Since 2011, depository institutions have not been prohibited from paying interest on demand deposits, such as checking accounts. The impact of the change on us has not been significant because of current market conditions, which have resulted in very low interest rates for checking accounts. If market conditions were to change, including as a result of monetary policy or the competitive environment, and we need to offer higher interest rates on checking accounts to maintain current clients or attract new clients, our interest expense will increase, perhaps materially. Furthermore, if we fail to offer interest in a sufficient amount to keep these demand deposits, our core deposits may be reduced, which would require us to obtain funding in other ways or risk slowing our future asset growth.

Certain of our businesses, our funding and financial products may be adversely affected by changes or the discontinuance of LIBOR.

Our floating-rate funding, certain hedging transactions and certain of the products that we offer, such as floating-rate loans and mortgages, determine the applicable interest rate or payment amount by reference to a benchmark rate, such as the London Interbank Offered Rate (“LIBOR”), or to an index, currency, basket or other financial metric. LIBOR and certain other benchmark rates are the subject of recent national, international, and other regulatory guidance and proposals for reform. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that after December 31, 2021 it would no longer compel banks to submit the rates required to calculate LIBOR. After

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2021, there also is uncertainty about the continued availability of LIBOR. If LIBOR ceases to exist or the methodology for the LIBOR calculation changes, financial products with interest rates tied to LIBOR may be adversely affected.

After 2021, if LIBOR remains available it may no longer be considered to be an acceptable market benchmark. There is also uncertainty regarding the development of acceptable alternatives to LIBOR and the effect of any such changes may have on the pricing for LIBOR-indexed financial instruments. We have loans, derivative contracts, and other financial instruments with rates that are either directly or indirectly tied to LIBOR and the interest rates on these instruments, as well as the associated revenue and expenses, may be adversely affected. Failing to adequately manage this transition process with our customers could also adversely impact our reputation.

Regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee) have, among other things, published recommended fallback language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., the Secured Overnight Financing Rate as the recommended alternative to U.S. Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments. At this time, it is not possible to predict whether these recommendations and proposals will be broadly accepted, whether they will continue to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments.

The discontinuation of LIBOR, changes in LIBOR or changes in market perceptions of the acceptability of LIBOR as a benchmark could result in other changes to our risk exposures (for example, if the anticipated discontinuation of LIBOR adversely affects the availability or cost of floating-rate funding and, therefore, our exposure to fluctuations in interest rates) or otherwise result in losses on a product or having to pay more or receive less on securities that we own or have issued. In addition, such uncertainty could result in pricing volatility, loss of market share in certain products, adverse tax or accounting impacts, and compliance, legal and operational costs and risks associated with client disclosures, discretionary actions taken or negotiation of fallback provisions, systems disruption and business continuity.

Our business, profitability and liquidity may be adversely affected by deterioration in the credit quality of, or defaults by, third parties who owe us money, securities or other assets or whose securities or obligations we hold.

A number of our products expose us to credit risk. We are exposed to the risk that third parties that owe us money, securities or other assets will not perform their obligations. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. A failure of a significant market participant, or even concerns about a default by such an institution, could lead to significant liquidity problems, losses or defaults by other institutions, which in turn could adversely affect us.

We are also subject to the risk that our rights against third parties may not be enforceable in all circumstances or that there is a deterioration in the credit quality of third parties whose securities or obligations we hold, including a deterioration in the value of collateral posted by third parties to secure their obligations to us under derivatives contracts and loan agreements. A deterioration in credit quality of such obligors, could result in losses and/or adversely affect our ability to rehypothecate or otherwise use those securities or obligations for liquidity purposes.

We might underestimate the credit losses inherent in our loan and lease portfolio and have credit losses in excess of the amount we reserve for loan and lease losses.

Because the credit quality of our loan and lease portfolio can have a significant impact on our earnings, the operation of our business requires us to manage credit risk. As a lender, we are exposed to the risk that our borrowers will be unable to repay their loans according to their terms, and that the collateral securing repayment of the loans we extend, if any, may not be sufficient to ensure repayment. In addition, there are risks inherent in making any loan, including risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers, including the risk that a borrower may not provide information to us about its business in a timely manner and/or may present inaccurate or incomplete information to us, and risks relating to the value of collateral.

We maintain an allowance for loan and lease losses (the “Allowance”), which is a reserve established through a provision for loan and lease losses (the “Provision”) charged to expense representing, beginning with the first quarter of 2020, management’s best estimate of inherent losses within our existing portfolio of loans and leases. The level of the Allowance reflects management’s continuing evaluation of specific credit risks, the quality of the loan and lease portfolio,

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the value of the underlying collateral, the level of non-accruing loans and leases, the unidentified losses inherent in the current loan and lease portfolio, and economic, political and regulatory conditions.

For our commercial loans, we perform an internal loan review and grade loans on an ongoing basis, and we estimate and establish reserves for credit risks and credit losses inherent in our credit exposure (including unfunded lending commitments). The objective of our loan review and grading procedures is to identify existing or emerging credit quality problems so that appropriate steps can be initiated to avoid or minimize future losses. This process, which is critical to our financial results and condition, requires difficult, subjective and complex judgments of loan collectability. As is the case with any such assessments, there is always the chance that we will fail to identify the proper factors or that we will fail to accurately estimate the impacts of factors that we do identify.

Although our management has established an Allowance it believes is adequate, we could sustain credit losses that are significantly higher than the amount of our Allowance. Higher credit losses could arise for a variety of reasons, such as growth in our loan and lease portfolio, changes in economic conditions affecting borrowers, new information regarding our loans and leases and other factors within and outside our control. If real estate values were to decline or if economic conditions in our markets were to deteriorate unexpectedly, additional loan and lease losses not incorporated in the existing Allowance might occur. Losses in excess of the existing Allowance will reduce our net income and could have a material adverse effect on our business, financial condition or results of operations. A severe downturn in the economy generally, in our markets specifically or affecting the business and assets of individual customers would generate increased charge-offs and a need for higher reserves. While we believe that our Allowance for credit losses was adequate as of December 31, 2019, there is no assurance that it will be sufficient to cover all incurred credit losses. In the event of significant deterioration in economic conditions, we may be required to increase reserves in future periods, which would reduce our earnings.

Bank regulatory agencies will periodically review our Allowance and the value attributed to non-accrual loans and leases or to real estate we acquire through foreclosure. Such regulatory agencies may require us to adjust our determination of the value for these items, increase our Allowance or reduce the carrying value of owned real estate, reducing our net income. Further, if charge-offs in future periods exceed the Allowance, we may need additional adjustments to increase the Allowance. These adjustments could have a material adverse effect on our business, financial condition or results of operations.

In addition, in June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-13 that, effective January 1, 2020, substantially changes the accounting for credit losses on loans and other financial assets held by banks, financial institutions and other organizations. In December 2018, the Federal Reserve, OCC and FDIC finalized revisions to their regulatory capital rules to address this change to the treatment of credit expense and allowances and provide an optional three-year phase-in period for the day-one adverse regulatory capital effects upon adopting the standard to address concerns with the impact on capital and capital planning. As a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio, the standard is expected to increase the level of our Allowance for Credit Losses (“ACL”) effective January 1, 2020. Based on the Company’s portfolio balances and forecasted economic conditions as of January 1, 2020, management believes that the adoption of the new standard will result in an increase in the ACL of approximately 10 – 15%, as compared to the Company’s reserve levels as of December 31, 2019. It is also possible that the Company’s ongoing reported earnings and lending activity will be negatively impacted in periods following adoption as ASU No. 2016-13 will necessitate that we establish an allowance for expected credit losses for certain debt securities and other financial assets. See “Note 1. Organization and Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data.

Our ability to maintain, attract and retain customer relationships is highly dependent on our reputation.

As the parent company of Hawaii’s oldest and largest bank, we rely in part on the reputation of our bank for superior financial services to retain our customer relationships. Damage to our reputation could undermine the confidence of our current and potential customers in our ability to provide high-quality financial services. Such damage could also impair the confidence of our counterparties and vendors and ultimately affect our ability to effect transactions. Maintenance of our reputation depends not only on our success in maintaining our service-focused culture and controlling and mitigating the various risks described in this Form 10-K, but also on our success in identifying and appropriately addressing issues that may arise in areas such as potential conflicts of interest, anti-money laundering, customer personal

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information and privacy issues, customer and other third party fraud, record-keeping, regulatory investigations and any litigation that may arise from the failure or perceived failure of us to comply with legal and regulatory requirements. Maintaining our reputation also depends on our ability to successfully prevent third parties from infringing on the “First Hawaiian Bank” brand and associated trademarks and our other intellectual property. Defense of our reputation, trademarks and other intellectual property, including through litigation, could result in costs that could have a material adverse effect on our business, financial condition or results of operations.

Severe weather, hurricanes, tsunamis, natural disasters, pandemics, acts of war or terrorism or other external events could significantly impact our business.

Severe weather, hurricanes, tsunamis, natural disasters, widespread disease or pandemics or other severe health emergencies, or concerns over the possibility of such an emergency (including the recent outbreak of coronavirus (COVID-19)), acts of war or terrorism or other adverse external events could have a significant impact on our business. In addition, as our primary markets are located on islands in the Pacific Ocean, they may be particularly susceptible to certain of these risks or other risks resulting from climate change, including those relating to rising sea levels.

Since the beginning of January 2020, the coronavirus outbreak has caused disruption to global markets, particularly in China. It remains unclear how this will evolve in 2020, and we continue to monitor the situation closely. At this time, given our very limited direct credit and operational exposure to regions that have been significantly affected to date, we believe that the primary risk that the current coronavirus poses to us relates to the potential disruption of the global economy and the transportation and tourism industries, particularly in markets in which we operate. Spread of the coronavirus, in particular within the United States or Japan, could exacerbate its effect on us which could have a material adverse effect on our business, prospects, financial condition and results of operations.

Among other things, the aforementioned events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue or cause us to incur additional expenses. Because Hawaii’s economy is heavily dependent on the tourism industry, which is in turn heavily influenced by the affordability and desirability of air travel, any related safety concerns or limitations  and the prevailing weather patterns in the region, we could be disproportionally affected relative to others in the case of external events such as acts of war or terrorism, severe weather, natural disasters or pandemics or other actual or perceived severe health emergencies, including travel restrictions as a result of actual or perceived health emergencies that impact markets on which we depend. The occurrence of any of these events in the future could have a material adverse effect on our business, financial condition or results of operations.

We own the building in Honolulu in which our principal office and headquarters are located. The building is the tallest building in downtown Honolulu and a prominent architectural landmark. We lease space in the building to a number of other businesses and, for the years ended December 31, 2019 and 2018, respectively, the leases in our headquarters generated $2.9 million, or approximately 1.0%, and $3.1 million, or approximately 1.2%, of our net income, respectively. In addition, as of December 31, 2019, over 600, or over a quarter of our employees work in our principal office. Given that we derive a portion of our income from leasing space in our principal office building and that the largest concentration of our employees is located in our principal office building, depending on the intensity and longevity of the event, a catastrophic event impacting our Honolulu office building, including a terrorist attack, extreme weather event or other hostile or catastrophic event, could negatively affect our business and reputation. In addition to the impact this would have on our ability to service and interact with our clients, we may also lose the rental income we derive from tenants that occupy our Honolulu office building. Further, the value of our Honolulu office building, which accounted for approximately 37.6% of the net book value of our total premises and equipment, or $119.0 million, as of December 31, 2019, could significantly depreciate if such a catastrophic event were to occur. A significant event impacting our principal office building could have a material adverse effect on our business, financial condition or results of operations.

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The value of the investment securities we own may decline in the future.

As of December 31, 2019, we owned investment securities with a fair market value of $4.1 billion, which largely consisted of our positions in obligations of the U.S. government and government-sponsored enterprises. We evaluate our investment securities on at least a quarterly basis, and more frequently when economic and market conditions warrant such an evaluation, to determine whether any decline in fair value below amortized cost is the result of an other-than-temporary impairment (“OTTI”). The process for determining whether impairment is other-than-temporary usually requires complex, subjective judgments about the future financial performance of the issuer in order to assess the probability of receiving all contractual principal and interest payments on the security. Because of changing economic and market conditions affecting issuers, we may be required to recognize OTTI in future periods, which could adversely affect our business, results of operations or financial condition.

Loss of deposits could increase our funding costs.

Like many banking companies, we rely on customer deposits to meet a considerable portion of our funding, and we continue to seek customer deposits to maintain this funding base. We accept deposits directly from consumer and commercial customers and, as of December 31, 2019, we had $16.4 billion in deposits. Although we hold the largest share of the deposit market in Hawaii, these deposits are subject to potentially dramatic fluctuations in availability or price due to certain factors outside our control, such as a loss of confidence by customers in us or the banking sector generally, customer perceptions of our financial health and general reputation, increasing competitive pressures from other financial services firms for consumer or corporate customer deposits, changes in interest rates and returns on other investment classes, which could result in significant outflows of deposits within short periods of time or significant changes in pricing necessary to maintain current customer deposits or attract additional deposits. In addition, if the Company’s competitors raise the rates they pay on deposits, the Company’s funding costs may increase, either because the Company raises its rates to avoid losing deposits or because the Company loses deposits and must rely on more expensive sources of funding. Higher funding costs could reduce the Company’s net interest margin and net interest income and could have a material adverse effect on the Company’s business, financial condition, and results of operations.

Our liquidity is dependent on dividends from First Hawaiian Bank.

We are a legal entity separate and distinct from our banking and other subsidiaries. Dividends from the Bank provide virtually all of our cash flow, including cash flow to pay dividends on our common stock and principal and interest on any debt we may incur. Various federal and state laws and regulations limit the amount of dividends that our bank may pay to us. For example, Hawaii law only permits our bank to pay dividends out of retained earnings as defined under Hawaii banking law, which differs from retained earnings calculated under GAAP. Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event the Bank is unable to pay dividends to us, we may not be able to service any debt we may incur, pay obligations or pay dividends on our common stock. The inability to receive dividends from the Bank could have a material adverse effect on our business, financial condition, liquidity or results of operations.

We may not be able to maintain consistent growth, earnings or profitability.

Although the Hawaii economy has experienced five consecutive years of economic expansion, there can be no assurance that we will be able to continue to grow and to remain profitable in future periods, or, if profitable, that our overall earnings will remain consistent or increase in the future. Sustainable growth requires that we manage our risks by following prudent loan underwriting standards, balancing loan and deposit growth without increasing interest rate risk or compressing our net interest margin, maintaining more than adequate capital at all times, hiring and retaining qualified employees and successfully implementing strategic projects and initiatives. Our earnings may also be reduced by increased expenses associated with increased assets, such as additional employee compensation expense, inflation and investments in technology and increased interest expense on any liabilities incurred or deposits solicited to fund increases in assets.

Continued, long-term growth may be unsustainable, given the concentration of our operations and customer base in Hawaii, Guam and Saipan. Moreover, under applicable laws, we may not be permitted to acquire any bank in Hawaii because we control more than 30% of the total amount of deposits in the Hawaii market. As a result, any further growth in the Hawaii market will most likely have to occur organically rather than by acquisition. Our inability to manage our growth successfully or to continue to expand into new markets could have a material adverse effect on our business, financial condition or results of operations.

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We may not be able to attract and retain key personnel and other skilled employees.

Our success depends, in large part, on the skills of our management team and our ability to retain, recruit and motivate key officers and employees. Competition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the regional banking industry, especially in the communities served by our branch network. A substantial number of our employees have considerable tenure with the Bank and some will be nearing retirement in the next few years, which makes succession planning important to the continued operation of our business. We need to continue to attract and retain key personnel and to recruit qualified individuals to succeed existing key personnel to ensure the continued growth and successful operation of our business. Leadership changes will occur from time to time, and we cannot predict whether significant retirements or resignations will occur or whether we will be able to recruit additional qualified personnel. Competition for senior executives and skilled personnel in the financial services and banking industry is intense, which means the cost of hiring, incentivizing and retaining skilled personnel may continue to increase, which could have a material adverse effect on our business, financial condition or results of operations. In addition, our ability to effectively compete for senior executives and other qualified personnel by offering competitive compensation and benefit arrangements may be restricted by applicable banking laws and regulations, including any restrictions that may in the future be adopted by U.S. regulatory agencies, including the Federal Reserve and FDIC. The loss of the services of any senior executive or other key personnel, the inability to recruit and retain qualified personnel in the future or the failure to develop and implement a viable succession plan, could have a material adverse effect on our business, financial condition or results of operations.

We operate in a highly competitive industry and market area.

We operate in the highly competitive financial services industry and face significant competition for customers from financial institutions located both within and beyond our principal markets. We compete with commercial banks, savings banks, credit unions, non-bank financial services companies and other financial institutions operating within or near the areas we serve. Additionally, certain large banks headquartered on the U.S. mainland and large community banking institutions target the same customers we do. In addition, as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for banks to expand their geographic reach by providing services over the Internet and for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. The banking industry is experiencing rapid changes in technology, and, as a result, our future success will depend in part on our ability to address our customers’ needs by using technology. Customer loyalty can be influenced by a competitor’s new products, especially offerings that could provide cost savings or a higher return to the customer. Increased lending activity of competing banks following the Great Recession (which we define as January 1, 2008 through December 31, 2009) has also led to increased competitive pressures on loan rates and terms for high-quality credits. We may not be able to compete successfully with other financial institutions in our markets, and we may have to pay higher interest rates to attract deposits, accept lower yields to attract loans and pay higher wages for new employees, resulting in lower net interest margins and reduced profitability.

Many of our non-bank competitors are not subject to the same extensive regulations that govern our activities and may have greater flexibility in competing for business. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. In addition, some of our current commercial banking customers may seek alternative banking sources as they develop needs for credit facilities larger than we may be able to accommodate. Our inability to compete successfully in the markets in which we operate could have a material adverse effect on our business, financial condition or results of operations.

New lines of business, products, product enhancements or services may subject us to additional risks.

From time to time, we may implement new lines of business or offer new products and product enhancements as well as new services within our existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In implementing, developing or marketing new lines of business, products, product enhancements or services, we may invest significant time and resources, although we may not assign the appropriate level of resources or expertise necessary to make these new lines of business, products, product enhancements or services successful or to realize their expected benefits. Further, initial timetables for the introduction and development of new lines of business, products, product enhancements or services may not be achieved, and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the ultimate implementation of a new line of

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business or offerings of new products, product enhancements or services. Furthermore, any new line of business, product, product enhancement or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or offerings of new products, product enhancements or services could have a material adverse effect on our business, financial condition or results of operations.

If our techniques for managing risk are ineffective, we may be exposed to material unanticipated losses.

In order to manage the significant risks inherent in our business, we must maintain effective policies, procedures and systems that enable us to identify, monitor and control our exposure to material risks, such as credit, operational, legal and reputational risks. Our risk management methods may prove to be ineffective due to their design, their implementation or the degree to which we adhere to them, or as a result of the lack of adequate, accurate or timely information or otherwise. If our risk management efforts are ineffective, we could suffer losses that could have a material adverse effect on our business, financial condition or results of operations. In addition, we could be subject to litigation, particularly from our customers, and sanctions or fines from regulators. Our techniques for managing the risks we face may not fully mitigate the risk exposure in all economic or market environments, including exposure to risks that we might fail to identify or anticipate.

We are dependent on the use of data and modeling both in our management decision-making generally and in meeting regulatory expectations in particular.

The use of statistical and quantitative models and other quantitatively-based analyses is central to bank decision-making and regulatory compliance processes, and the employment of such analyses is becoming increasingly widespread in our operations. Liquidity stress testing, interest rate sensitivity analysis, the automated extension of credit based on defined criteria and the identification of possible violations of anti-money laundering regulations are all examples of areas in which we are dependent on models and the data that underlies them. We anticipate that model-derived insights will penetrate further into bank decision-making, and particularly risk management efforts, as the capacities developed to meet rigorous stress testing requirements are able to be employed more widely. While these quantitative techniques and approaches improve our decision-making, they also create the possibility that faulty data or flawed quantitative approaches could yield adverse outcomes or regulatory scrutiny. Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision-making.

The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition or results of operations.

As a financial institution, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by us or our clients, denial or degradation of service attacks, and malware or other cyberattacks. In recent periods, several large corporations, including financial institutions and retail companies, have suffered major data breaches, in some cases exposing not only confidential and proprietary corporate information, but also sensitive financial and other personal information of their customers and employees and subjecting them to potentially fraudulent activity. Some of our clients may have been affected by these breaches, which increase their risks of identity theft, credit card fraud and other fraudulent activity that could involve their accounts with us. We are regularly the target of attempted electronic fraudulent activity, security breaches and cybersecurity-related attacks. Consistent with industry trends, we may face an increasing number of attempted cyberattacks as we expand our mobile and other internet-based products and services, and we provide more of these services to a greater number of individual customers. The increased use of mobile and cloud technologies can heighten these and other operational risks.

We also face risks related to cyberattacks and other security breaches in connection with credit card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties, including merchant acquiring banks, payment processors, payment card networks and our processors. Some of these parties have in the past been the target of security breaches and cyberattacks, and because the transactions involve third parties and environments such as the point of sale that we do not control or secure, future security breaches or cyberattacks

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affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them.

Information pertaining to us and our customers is maintained, and transactions are executed, on networks and systems maintained by us, our customers and certain of our third-party partners, such as our online banking or reporting systems. The secure maintenance and transmission of confidential information, as well as execution of transactions over these systems, are essential to protect us and our customers against fraud and security breaches and to maintain our customers’ confidence. Breaches of information security also may occur, and in infrequent cases have occurred, through intentional or unintentional acts by those having access to our systems or our customers’ or counterparties’ confidential information, including employees. In addition, increases in criminal activity levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third-party technologies (including browsers and operating systems) or other developments could result in a compromise or breach of the technology, processes and controls that we use to prevent fraudulent transactions and to protect data about us, our customers and underlying transactions, as well as the technology used by our customers to access our systems. Although we have developed, and continue to invest in, systems and processes that are designed to detect and prevent security breaches and cyberattacks and periodically test our security, our inability to anticipate, or failure to adequately mitigate, breaches of security could result in: losses to us or our customers; our loss of business and/or customers; damage to our reputation; the incurrence of additional expenses; disruption to our business; our inability to grow our online services or other businesses; additional regulatory scrutiny or penalties; or our exposure to civil litigation and possible financial liability — any of which could have a material adverse effect on our business, financial condition or results of operations. Additionally, we may not be able to ensure that our third-party vendors have appropriate controls in place to protect the confidentiality of the information they receive from us and our business, financial condition or results of operations could be adversely affected by a material breach of, or disruption to, the security of any of our or our vendors’ systems.  

More generally, publicized information concerning security and cyber-related problems could inhibit the use or growth of electronic or web-based applications or solutions as a means of conducting commercial transactions. Such publicity may also cause damage to our reputation as a financial institution. As a result, our business, financial condition or results of operations could be adversely affected.

Employee misconduct or mistakes could expose us to significant legal liability and reputational harm.

We are vulnerable to reputational harm because we operate in an industry in which integrity and the confidence of our customers are of critical importance. Our employees could engage in misconduct that adversely affects our business. For example, if an employee were to engage in fraudulent, illegal or suspicious activities, we could be subject to regulatory sanctions and suffer serious harm to our reputation (as a consequence of the negative perception resulting from such activities), financial position, customer relationships and ability to attract new customers. Our business often requires that we deal with confidential information. If our employees were to improperly use or disclose this information, even if inadvertently, we could suffer serious harm to our reputation, financial position and current and future business relationships. It is not always possible to deter employee misconduct, and the precautions we take to detect and prevent this activity may not always be effective. Misconduct by our employees, or even unsubstantiated allegations of misconduct, could result in a material adverse effect on our business, financial condition or results of operations. In addition, employee errors, such as inadvertent use or disclosure of confidential information, calculation errors, mistakes in addressing communications or data inputs, errors in developing, implementing or applying information technology systems or simple errors in judgment, could also have similar adverse effects.

We continually encounter technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new, technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. For instance, we are in the process of implementing a new core system and modernizing our digital architecture, which is expected to be completed in 2021. Certain of our competitors have substantially greater resources to invest in technological improvements than we do. We may not be able to effectively implement new, technology-driven products and services or implement them as quickly as our competitors do or be successful in marketing these products and services to our customers. In addition, the implementation of technological changes and upgrades to maintain current systems and integrate new ones may also cause service interruptions, transaction

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processing errors and system conversion delays and may cause us to fail to comply with applicable laws or may otherwise result in an increase, potentially a material increase, in our expenses. Failure to successfully keep pace with technological change affecting the financial services industry and failure to avoid interruptions, errors and delays could cause us to lose customers or have a material adverse effect on our business, financial condition or results of operations.

We expect that new technologies and business processes applicable to the consumer credit industry will continue to emerge, and these new technologies and business processes may be better than those we currently use. Because the pace of technological change is high and our industry is intensely competitive, we may not be able to sustain our investment in new technology as critical systems and applications become obsolete or as better ones become available. A failure to maintain current technology and business processes could cause disruptions in our operations or cause our products and services to be less competitive, all of which could have a material adverse effect on our business, financial condition or results of operations.

We may be adversely affected by changes in the actual or perceived soundness or condition of other financial institutions.

Financial services institutions that deal with each other are interconnected as a result of trading, investment, liquidity management, clearing, counterparty and other relationships. Within the financial services industry, loss of public confidence, including through default by any one institution, could lead to liquidity challenges or to defaults by other institutions. Concerns about, or a default by, one institution could lead to significant liquidity problems and losses or defaults by other institutions, as the commercial and financial soundness of many financial institutions is closely related as a result of these credit, trading, clearing and other relationships. Even the perceived lack of creditworthiness of, or questions about, a counterparty may lead to market-wide liquidity problems and losses or defaults by various institutions. This systemic risk may adversely affect financial intermediaries, such as clearing agencies, banks and exchanges with which we interact on a daily basis or key funding providers such as the Federal Home Loan Banks, any of which could have a material adverse effect on our access to liquidity or otherwise have a material adverse effect on our business, financial condition or results of operations.

We may need to raise additional capital in the future, and such capital may not be available when needed or at all.

We may need to raise additional capital, in the form of additional debt or equity, in the future to have sufficient capital resources and liquidity to meet our commitments and fund our business needs and future growth, particularly if the quality of our assets or earnings were to deteriorate significantly. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial condition. Economic conditions and a loss of confidence in financial institutions may increase our cost of funding and limit access to certain customary sources of capital, including inter-bank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve System. We may not be able to obtain capital on acceptable terms — or at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers, depositors of our bank or counterparties participating in the capital markets or other disruption in capital markets, may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. Further, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, financial condition or results of operations.

We may rely on the mortgage secondary market for some of our liquidity.

We may originate and sell mortgage loans. Loans sold on the secondary market represented $18.0 million and $29.8 million of mortgage loans for the years ended December 31, 2019 and 2018, respectively. We rely on Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) and other purchasers to purchase loans in order to reduce our credit risk and provide funding for additional loans we desire to originate. We cannot provide assurance that these purchasers will not materially limit their purchases from us due to capital constraints or other factors, including, with respect to Fannie Mae and Freddie Mac, a change in the criteria for conforming loans. In addition, various proposals have been made to reform the U.S. residential mortgage finance market, including the role of Fannie Mae and Freddie Mac. The exact effects of any such reforms are not yet known, but may limit our ability to sell conforming loans to Fannie Mae or Freddie Mac. In addition, mortgage lending is highly regulated, and our inability to comply with all federal and state regulations and investor guidelines regarding the origination, underwriting

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documentation and servicing of mortgage loans may also impact our ability to continue selling mortgage loans. If we are unable to continue to sell loans in the secondary market, our ability to fund, and thus originate, additional mortgage loans may be adversely affected, which could have a material adverse effect on our business, financial condition or results of operations.

Consumer protection initiatives related to the foreclosure process could materially affect our ability as a creditor to obtain remedies.

In 2011, Hawaii revised its rules for nonjudicial, or out-of-court, foreclosures. Prior to the revision, most lenders used the nonjudicial foreclosure method to handle foreclosures in Hawaii, as the process was less expensive and quicker than going through the court foreclosure process. After the revised rules went into effect, many lenders ended up forgoing nonjudicial foreclosures entirely and filing all foreclosures in court, which has created a backlog and slowed the judicial foreclosure process. Many lenders continue to exclusively use the judicial foreclosure process, making the foreclosure process very lengthy. Following a joint federal-state settlement regarding foreclosure practices, mortgage servicers have implemented new programs to assist borrowers with loss mitigation options. Federal and state loss mitigation requirements are now part of our annual audit requirements.

We are subject to a variety of risks in connection with any sale of loans we may conduct.

When we sell mortgage loans we are required to make customary representations and warranties to the purchaser about the mortgage loans and the manner in which they were originated and serviced. If any of these representations and warranties are incorrect, we may be required to indemnify the purchaser for any related losses, or we may be required to repurchase or provide substitute mortgage loans for part or all of the affected loans. We may also be required to repurchase loans as a result of borrower fraud or in the event of early payment default by the borrower on a loan we have sold. If the level of repurchase and indemnity activity becomes material, it could have a material adverse effect on our liquidity, business, financial condition or results of operations. Mortgage lending is highly regulated. Our inability to comply with all federal and state regulations and investor guidelines regarding the origination, underwriting documentation and servicing of mortgage loans may impact our ability to sell mortgage loans in the future.

In addition, we must report as held for sale any loans which we have undertaken to sell, whether or not a purchase agreement for the loans has been executed. We may therefore be unable to ultimately complete a sale for part or all of the loans we classify as held for sale. We must exercise our judgment in determining when loans must be reclassified from held for investment status to held for sale status under applicable accounting guidelines. Any failure to accurately report loans as held for sale could result in regulatory investigations and monetary penalties. Any of these actions could have a material adverse effect on our business, financial condition or results of operations. Our policy is to carry loans held for sale at the lower of cost or fair value. As a result, prior to being sold, any loans classified as held for sale may be adversely affected by market conditions, including changes in interest rates, and by changes in the borrower’s creditworthiness, and the value associated with these loans, including any loans originated for sale in the secondary market, may decline prior to being sold. We may be required to reduce the value of any loans we mark held for sale as a result, which could have a material adverse effect on our business, financial condition or results of operations.

The appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property, other real estate owned (“OREO”) and repossessed personal property may not accurately describe the net value of the asset.

In considering whether to make a loan secured by real property, we generally require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and, as real estate values may change significantly in value in relatively short periods of time (especially in periods of heightened economic uncertainty), this estimate may not accurately describe the net value of the real property collateral after the loan is made. As a result, we may not be able to realize the full amount of any remaining indebtedness when we foreclose on and sell the relevant property. In addition, we rely on appraisals and other valuation techniques to establish the value of our OREO and personal property that we acquire through foreclosure proceedings and to determine certain loan impairments. If any of these valuations are inaccurate, our consolidated financial statements may not reflect the correct value of our OREO, and our Allowance for loan losses may not reflect accurate loan impairments. This could have a material adverse effect on our business, financial condition or results of operations.

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Our operations could be interrupted if certain external vendors on which we rely experience difficulty, terminate their services or fail to comply with banking laws and regulations.

We depend to a significant extent on relationships with third-party service providers that provide services, primarily information technology services, that are critical to our operations. We utilize third-party core banking services and receive credit card and debit card services, Internet banking services, various information services and services complementary to our banking products from various third-party service providers. We are also exposed to the risk that a cyberattack, security breach or other information technology incident at a common vendor to our third-party service providers could impede their ability to provide services to us. We may not be able to effectively monitor or mitigate operational risks relating to the use of common vendors by third-party service providers. If any of our third-party service providers experience difficulties or terminate their services and we are unable to replace our service providers with other service providers, our operations could be interrupted. It may be difficult for us to replace some of our third-party vendors, particularly vendors providing our core banking, credit card and debit card services and information services, in a timely manner if they are unwilling or unable to provide us with these services in the future for any reason. If an interruption were to continue for a significant period of time, it could have a material adverse effect on our business, financial condition or results of operations. Even if we are able to replace them, it may be at higher cost to us, which could have a material adverse effect on our business, financial condition or results of operations. In addition, if a third-party provider fails to provide the services we require, fails to meet contractual requirements, such as compliance with applicable laws and regulations, or suffers a cyberattack or other security breach, our business could suffer economic and reputational harm that could have a material adverse effect on our business, financial condition or results of operations.

We depend on the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit or enter into other transactions, and in evaluating and monitoring our loan portfolio on an ongoing basis, we may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. We may also rely on representations of those customers or counterparties or of other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate, incomplete, fraudulent or misleading financial statements, credit reports or other financial or business information, or the failure to receive such information on a timely basis, could result in loan losses, reputational damage or other effects that could have a material adverse effect on our business, financial condition or results of operations.

Downgrades to the credit rating of the U.S. government or of its securities or any of its agencies by one or more of the credit ratings agencies could have a material adverse effect on general economic conditions, as well as our business.

Downgrades of the U.S. federal government’s sovereign credit rating, and the perceived creditworthiness of U.S. government-backed obligations, could impact our ability to obtain funding that is collateralized by affected instruments and our ability to access capital markets on favorable terms. Such downgrades could also affect the pricing of funding, when funding is available. A downgrade of the credit rating of the U.S. government, or of its agencies, government-sponsored enterprises or related institutions, agencies or instrumentalities, may also adversely affect the market value of such instruments and, further, exacerbate the other risks to which we are subject and any related adverse effects on our business, financial condition or results of operations.

Our accounting estimates and risk management processes and controls rely on analytical and forecasting techniques and models and assumptions, and actual results may differ from these estimates.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with GAAP and reflect management’s judgment of the most appropriate manner to report our financial condition and results. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet which may result in our reporting materially different results than would have been reported under a different alternative.

Certain accounting policies are critical to presenting our financial condition and results of operations. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. These critical accounting policies include the allowance for loan and lease losses, fair value measurements, pension and postretirement

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benefit obligations and income taxes. Because of the uncertainty of estimates involved in these matters, we may be required to do one or more of the following: significantly increase the allowance for loan losses or sustain loan losses that are significantly higher than the reserve provided; reduce the carrying value of an asset measured at fair value; or significantly increase our accrued tax liability. Any of these could have a material adverse effect on our business, financial condition or results of operations. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” for more information.

Our internal controls, disclosure controls, processes and procedures, and corporate governance policies and procedures are based in part on certain assumptions and can provide only reasonable (not absolute) assurances that the objectives of the system are met. Any failure or circumvention of our controls, processes and procedures or failure to comply with regulations related to controls, processes and procedures could necessitate changes in those controls, processes and procedures, which may increase our compliance costs, divert management’s attention from our business or subject us to regulatory actions and increased regulatory scrutiny. Any of these could have a material adverse effect on our business, financial condition or results of operations.

We are subject to environmental liability risk associated with our bank branches and any real estate collateral we acquire upon foreclosure.

During the ordinary course of business, we may foreclose on and take title to properties securing certain loans that we have originated or acquired. We also have an extensive branch network, owning separate branch locations throughout the areas we serve. For any real property that we may possess, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage and costs of complying with applicable environmental regulatory requirements. Failure to comply with such requirements can result in penalties. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use, sell or lease the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business, financial condition or results of operations.

We may be subject to litigation risk pertaining to our fiduciary responsibilities.

Some of the services we provide, such as trust and investment services, require us to act as fiduciaries for our customers and others. From time to time, third parties make claims and take legal action against us pertaining to the performance of our fiduciary responsibilities. If these claims and legal actions are not resolved in a manner favorable to us, we may be exposed to significant financial liability or our reputation could be damaged. Either of these results may adversely impact demand for our products and services or otherwise have a material adverse effect on our business, financial condition or results of operations.

Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition.

From time to time, the FASB and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. As a result of changes to financial accounting or reporting standards, whether required by the FASB or other regulators, we could be required to change certain of the assumptions or estimates we have previously used in preparing our financial statements, which could negatively impact how we record and report our results of operations and financial condition generally. For a discussion of the expected impact of accounting pronouncements recently issued but not adopted by us as of December 31, 2019, see “Note 1. Organization and Summary of Significant Accounting Policies – Recent Accounting Pronouncements” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

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Risks Related to the Regulatory Oversight of Our Business

The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a significant adverse effect on our operations.

The banking industry is extensively regulated and supervised under both federal and state laws and regulations that are intended primarily for the protection of depositors, customers, federal deposit insurance funds and the banking system as a whole, not for the protection of our stockholders and creditors. We are subject to regulation and supervision by the Federal Reserve and our bank is subject to regulation and supervision by the FDIC, the CFPB and the Hawaii DFI. The laws and regulations applicable to us govern a variety of matters, including permissible types, amounts and terms of loans and investments we may make, the maximum interest rate that may be charged, the amount of reserves we must hold against deposits we take, the types of deposits we may accept, maintenance of adequate capital and liquidity, changes in the control of us and our bank, restrictions on dividends and establishment of new offices. We must obtain approval from our regulators before engaging in certain activities, and there is the risk that such approvals may not be obtained, either in a timely manner or at all. Our regulators also have the ability to compel us to take, or restrict us from taking, certain actions entirely, such as actions that our regulators deem to constitute an unsafe or unsound banking practice. Our failure to comply with any applicable laws or regulations, or regulatory policies and interpretations of such laws and regulations, could result in sanctions by regulatory agencies, civil money penalties or damage to our reputation, all of which could have a material adverse effect our business, financial condition or results of operations.

Since the Great Recession, federal and state banking laws and regulations, as well as interpretations and implementations of these laws and regulations, have undergone substantial review and change. Financial institutions generally have also been subjected to increased scrutiny from regulatory authorities. These changes and increased scrutiny have resulted and may continue to result in increased costs of doing business and may in the future result in decreased revenues and net income, reduce our ability to effectively compete to attract and retain customers, or make it less attractive for us to continue providing certain products and services. Recent political developments have added additional uncertainty to the implementation, scope and timing of changes in regulatory policy. Any future changes in federal and state law and regulations, as well as the interpretations and implementations, or modifications or repeals, of such laws and regulations, could affect us in substantial and unpredictable ways, including those listed above or other ways that could have a material adverse effect on our business, financial condition or results of operations.

We are required to act as a source of financial and managerial strength for our bank in times of stress.

Under federal law, we are required to act as a source of financial and managerial strength to our bank, and to commit resources to support our bank if necessary. We may be required to commit additional resources to our bank at times when we may not be in a financial position to provide such resources or when it may not be in our, or our stockholders’ or our creditors’ best interests to do so. Providing such support is more likely during times of financial stress for us and our bank, which may make any capital we are required to raise to provide such support more expensive than it might otherwise be. In addition, any capital loans we make to our bank are subordinate in right of payment to depositors and to certain other indebtedness of our bank. In the event of our bankruptcy, any commitment by us to a federal banking regulator to maintain the capital of our bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

We are subject to capital adequacy requirements and may be subject to more stringent capital requirements.

We are subject to regulatory requirements relating to capital and liquidity, which are subject to change from time to time. If we fail to meet applicable requirements, we may be restricted in the types of activities we may conduct, and we may be prohibited from taking certain capital actions, such as paying dividends and repurchasing capital securities. See “Item 1. Business — Supervision and Regulation - Regulatory Capital Requirements” for more information.

While we have, and expect to continue to, meet the requirements of the Basel III-based capital rules and Regulation Q, we may fail to do so. In addition, these requirements could have a negative impact on our ability to lend, grow deposit balances, make acquisitions or make capital distributions in the form of dividends and share repurchases. Higher capital levels could also lower our return on equity.

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We may not pay dividends on our common stock in the future.

Holders of our common stock are entitled to receive only such dividends as our board of directors may declare out of funds legally available for such payments. Our board of directors may, in its sole discretion, change the amount or frequency of dividends or discontinue the payment of dividends entirely. In addition, we are a bank holding company, and our ability to declare and pay dividends is dependent on certain federal regulatory considerations, including the guidelines of the Federal Reserve regarding capital adequacy and dividends. It is the policy of the Federal Reserve that bank holding companies should generally pay dividends on common stock only out of earnings, and only if prospective earnings retention is consistent with the organization’s expected future needs, asset quality and financial condition.

Further, if we are unable to satisfy the capital requirements applicable to us for any reason, we may not be able to make, or may have to reduce or eliminate, the payment of dividends on our common stock. Any change in the level of our dividends or the suspension of the payment thereof could have a material adverse effect on the market price of our common stock. See “ – Risks Related to Our Business – Our liquidity is dependent on dividends from First Hawaiian Bank” for additional information on our reliance on dividends paid to us by the Bank.

Rulemaking changes implemented by the CFPB may result in higher regulatory and compliance costs that may adversely affect our results of operations.

The CFPB is a federal agency responsible for implementing, examining and enforcing compliance with federal consumer financial protection laws. The CFPB also has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets, their service providers and certain non-depository entities such as debt collectors and consumer reporting agencies. The consumer protection provisions of the Dodd-Frank Act and the examination, supervision and enforcement of those laws and implementing regulations by the CFPB have created a more intense and complex environment for consumer finance regulation. See “Item 1. Business — Supervision and Regulation — Consumer Financial Protection.” The ultimate impact of this heightened scrutiny is uncertain but could result in changes to pricing, practices, products and procedures. It could also result in increased costs related to regulatory oversight, supervision and examination, additional remediation efforts and possible penalties. We may also be required to add additional compliance personnel or incur other significant compliance-related expenses. Our business, results of operations or competitive position may be adversely affected as a result.

Litigation and regulatory actions, including possible enforcement actions, could subject us to significant fines, penalties, judgments or other requirements resulting in increased expenses or restrictions on our business activities.

Our business is subject to increased litigation and regulatory risks as a result of a number of factors, including the highly regulated nature of the financial services industry and the focus of civil government attorneys on banks and the financial services industry generally. This focus has only intensified since the Great Recession, with regulators and civil government attorneys focusing on a variety of financial institution practices and requirements, including foreclosure practices, applicable consumer protection laws, classification of held for sale assets and compliance with anti-money laundering statutes, the Bank Secrecy Act and sanctions administered by OFAC. In addition, a single event or issue may give rise to numerous and overlapping investigations and proceedings, including by multiple federal and state regulators and other governmental authorities.

In the normal course of business, from time to time, we may be named as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our business activities. Certain of the legal actions have included, and may in the future include, claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages. In addition, while the arbitration provisions in certain of our customer agreements historically have limited our exposure to consumer class action litigation, there can be no assurance that we will be successful in enforcing our arbitration clause in the future. We may also, from time to time, be the subject of subpoenas, requests for information, reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding our business. Any such legal or regulatory actions may subject us to substantial compensatory or punitive damages, significant fines, penalties, obligations to change our business practices or other requirements resulting in increased expenses, diminished income and damage to our reputation. Our involvement in any such matters, even if the matters are ultimately determined in our favor, could also cause significant harm to our reputation and divert management’s attention from the operation of our business. Directives issued to enforce such actions may be confidential and thus, in some instances, we are not permitted to publicly disclose these actions. Further, any settlement, consent order or adverse judgment in connection with any formal or informal proceeding or investigation by government

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agencies may result in litigation, investigations or proceedings as other litigants and government agencies begin independent reviews of the same activities. As a result, the outcome of legal and regulatory actions could be material to our business, results of operations, financial condition and cash flows depending on, among other factors, the level of our earnings for that period, and could have a material adverse effect on our business, financial condition or results of operations.

Increases in FDIC insurance premiums may adversely affect our earnings.

Our bank’s deposits are insured by the FDIC up to legal limits and, accordingly, our bank is subject to FDIC deposit insurance assessments. We generally cannot control the amount of premiums our bank will be required to pay for FDIC insurance. In 2010, the FDIC increased the deposit insurance fund’s target reserve ratio to 2.0% of insured deposits following the Dodd-Frank Act’s elimination of the 1.5% cap on the insurance fund’s reserve ratio. Assessment rates may be increased in the future to achieve this targeted reserve ratio. In addition, higher levels of bank failures during the Great Recession and increases in the statutory deposit insurance limits have increased resolution costs to the FDIC and put pressure on the deposit insurance fund. Future increases of FDIC insurance premiums or special assessments could have a material adverse effect on our business, financial condition or results of operations.

The Tax Cuts and Jobs Act (the “Tax Act”) could have adverse or uncertain impacts on some aspects of our business, results of operations or financial condition.

On December 22, 2017, President Trump signed into law the Tax Act. The Tax Act makes many significant amendments to the U.S. Internal Revenue Code of 1986, as amended (the “Code”), including reducing the statutory rate of U.S. federal corporate income tax from 35% to 21%.

The overall impact of the Tax Act is subject to the effect of numerous provisions in the Tax Act, including the imposition of a “base erosion and anti-abuse tax”, limitations on deductibility of interest, limitations on the deduction of certain executive compensation costs and limitations on the use of future net operating losses to 80% of taxable income, among other changes. The impact from certain of these and other provisions has reduced the benefit from the reduction in the statutory U.S. federal rate and increased the Company’s effective tax rate by approximately 0.40% in 2018 and 0.26% in 2019. The overall impact of the Tax Act also depends on the future interpretations and regulations that may be issued by U.S. tax authorities, and it is possible that future guidance could adversely impact us. While we expect the Tax Act to have a net positive economic impact on us, it contains measures that could have adverse or uncertain impacts on some aspects of our business, results of operations or financial condition.

Non-compliance with the USA PATRIOT Act, the Bank Secrecy Act or other laws and regulations could result in fines or sanctions against us.

The USA PATRIOT Act of 2001 and the Bank Secrecy Act require financial institutions to design and implement programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury Department’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Federal and state bank regulators also have begun to focus on compliance with Bank Secrecy Act and anti-money laundering regulations. Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches. In recent years, several banking institutions have received large fines for non-compliance with these laws and regulations. While we have developed policies and procedures designed to assist in compliance with these laws and regulations, these policies and procedures may not be effective in preventing violations of these laws and regulations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us, which could have a material adverse effect on our business, financial condition or results of operations.

Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.

We are subject to various privacy, information security and data protection laws, including requirements concerning security breach notification, and we could be negatively impacted by these laws. For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain limitations on our ability to share

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nonpublic personal information about our customers with nonaffiliated third parties; (ii) requires that we provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain exceptions) and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing safeguards appropriate based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we process, as well as plans for responding to data security breaches. Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach. Moreover, legislators and regulators in the United States are increasingly adopting or revising privacy, information security and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer or employee information, and some of our current or planned business activities. As new privacy-related laws and regulations, such as the California Consumer Privacy Act and any future laws and regulations which will be modeled after those laws, are implemented, the time and resources needed for us to comply with such laws and regulations, as well as our potential liability for non-compliance and reporting obligations in the case of data breaches, may significantly increase. This could result from, among other things, increased privacy-related enforcement activity at the federal level, by the Federal Trade Commission, as well as at the state level, such as with regard to mobile applications.

Compliance with current or future privacy, data protection and information security laws (including those regarding security breach notification) to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could have a material adverse effect on our business, financial conditions or results of operations. Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations.

Our use of third-party vendors and our other ongoing third-party business relationships are subject to increasing regulatory requirements and attention.

We regularly use third-party vendors as part of our business. We also have substantial ongoing business relationships with other third parties. These types of third-party relationships are subject to increasingly demanding regulatory requirements and attention by our federal bank regulators, as well as heightened supervisory expectations regarding our due diligence, ongoing monitoring and control over our third-party vendors and other ongoing third-party business relationships. In certain cases, we may be required to renegotiate our agreements with these vendors to meet these enhanced requirements, which could increase our costs. We expect that our regulators will hold us responsible for deficiencies in our oversight and control of our third-party relationships and in the performance of the parties with which we have these relationships. As a result, if our regulators conclude that we have not exercised adequate oversight and control over our third-party vendors or other ongoing third-party business relationships or that such third parties have not performed appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines as well as requirements for customer remediation, any of which could have a material adverse effect on our business, financial condition or results of operations.

Risks Related to BNPP’s Divestiture of Our Common Stock

We may be subject to unexpected income tax liabilities in connection with the Reorganization Transactions. BWHI is required to pay us for any unexpected income tax liabilities that arise in connection with the Reorganization Transactions. However, in the event that BWHI does not satisfy its payment obligations, we could be subject to significantly higher federal and/or state and local income tax liabilities than currently anticipated.

BNPP, BWHI and we expect that no U.S. federal income taxes will be imposed on us in connection with the Reorganization Transactions. However, we paid state and local income taxes of approximately $95.4 million in June 2016 (which was partially offset by a federal tax reduction of approximately $33.4 million received through the intercompany settlement of estimated taxes in April 2017) in connection with the Reorganization Transactions (the “Expected Taxes”). BNPP, BWHI and we reported a total tax liability in connection with the Reorganization Transactions of $92.1 million (the “Return Taxes”) in the tax returns of various state and local jurisdictions. Pursuant to the Tax Sharing Agreement, we reimbursed BWHI approximately $2.1 million due to the Return Taxes being lower than the Expected Taxes. Such amount was recorded as an adjustment to additional paid-in capital. We could be subject to higher income tax liabilities in the

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event that the Internal Revenue Service (the “IRS”) or state and local tax authorities successfully assert that our income tax liabilities in respect of the Reorganization Transactions are higher than the Return Taxes. Under the terms of the Tax Sharing Agreement, BWHI is required to pay us for any such additional taxes on an “after-tax basis” (which means an amount determined by reducing the payment amount by any tax benefits derived by the Company and increasing the payment amount by any tax costs, including additional taxes, incurred by the Company as a result of such additional taxes and/or payments). See “Certain Related Party Transactions” in the Company’s Proxy Statement is incorporated herein by reference. If, however, our income tax liabilities with respect to the Reorganization Transactions are higher than the Return Taxes and BWHI fails to satisfy its payment obligations under the Tax Sharing Agreement, we could be liable for significantly higher federal and/or state income tax liabilities. We have not sought and will not seek any rulings from the IRS or state and local tax authorities regarding our expected tax treatment of the Reorganization Transactions.

In addition, under the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and related rules and regulations, each entity that was a member of the BancWest combined tax reporting group during any taxable period or portion of any taxable period ending on or before the effective time of the Reorganization Transactions is jointly and severally liable for the U.S. federal income tax liability of the entire combined tax reporting group for such taxable period. Although the Tax Sharing Agreement allocates the responsibility for prior period taxes of the combined tax reporting group in accordance with the existing tax allocation agreements, if BWHI were unable to pay any such prior period taxes for which it is responsible, we could be required to pay the entire amount of such taxes, and such amounts could be significant. Other provisions of federal, state or local tax law may establish similar liability for other matters, including laws governing tax qualified pension plans, as well as other contingent liabilities.

Risks Related to Our Common Stock

Our stock price may be volatile, and you could lose part or all of your investment as a result.

Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. Our stock price may fluctuate significantly in response to a variety of factors including, among other things:

● actual or anticipated variations in our quarterly results of operations;

● recommendations or research reports about us or the financial services industry in general published by securities analysts;

● the failure of securities analysts to cover, or continue to cover, us;

● operating and stock price performance of other companies that investors deem comparable to us;

● news reports relating to trends, concerns and other issues in the financial services industry;

● future sales of our common stock;

● departure of our management team or other key personnel;

● new technology used, or services offered, by competitors;

● significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;

● changes or proposed changes in laws or regulations, or differing interpretations thereof affecting our business, or enforcement of these laws and regulations;

● litigation and governmental investigations; and

● geopolitical conditions such as acts or threats of terrorism or military conflicts.

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If any of the foregoing occurs, it could cause our stock price to fall and may expose us to litigation that, even if our defense is successful, could distract our management and be costly to defend. General market fluctuations, industry factors and general economic and political conditions and events — such as economic slowdowns or recessions, interest rate changes or credit loss trends — could also cause our stock price to decrease regardless of operating results.

Future sales and issuances of our common stock, including sales as part of our equity-based compensation plans, could result in dilution of the percentage ownership of our stockholders and could lower our stock price.

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock or from the perception that such sales could occur. These sales, or the possibility that these sales may occur, also may make it more difficult for us to raise additional capital by selling equity securities in the future, at a time and price that we deem appropriate. As of February 20, 2020, we had a total of 129,931,457 shares of common stock outstanding.

We have filed a registration statement to register 6,253,385 shares of our common stock for issuance pursuant to awards granted under the equity incentive and employee stock purchase plans. We have granted awards covering 1,341,738 shares of our common stock under these plans as of December 31, 2019. We may increase the number of shares registered for this purpose from time to time, subject to stockholder approval. Once we register and issue these shares, their holders will be able to sell them in the public market, subject to applicable transfer restrictions.

We cannot predict the size of future issuances or sales of our common stock or the effect, if any, that future issuances or sales of shares of our common stock may have on the market price of our common stock. Sales or distributions of substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may cause the market price of our common stock to decline.

Certain banking laws and certain provisions of our certificate of incorporation may have an anti-takeover effect.

Provisions of federal banking laws, including regulatory approval requirements, could make it difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our stockholders. Acquisition of 10% or more of any class of voting stock of a bank holding company or depository institution, including shares of our common stock, generally creates a rebuttable presumption that the acquirer “controls” the bank holding company or depository institution. Also, a bank holding company must obtain the prior approval of the Federal Reserve before, among other things, acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank, including our bank.

There also are provisions in our second amended and restated certificate of incorporation, which we refer to as our certificate of incorporation, and third amended and restated bylaws, which we refer to as our bylaws, such as limitations on the ability to call a special meeting of our stockholders and restrictions on stockholders’ ability to act by written consent, that may be used to delay or block a takeover attempt. In addition, our board of directors is authorized under our certificate of incorporation to issue shares of our preferred stock, and determine the rights, terms conditions and privileges of such preferred stock, without stockholder approval. These provisions may effectively inhibit a non-negotiated merger or other business combination, which, in turn could have a material adverse effect on the market price of our common stock.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.    PROPERTIES

Our corporate headquarters and main branch are located at 999 Bishop Street, Honolulu, Hawaii 96813. Inclusive of our main branch, we operated 58 branch offices located on the islands of Oahu, Maui, Hawaii, Kauai, Lanai, Guam and Saipan as of December 31, 2019. We lease 34 of our branch offices and own the remainder of our offices, including our corporate headquarters and main branch which is located in the First Hawaiian Center. We are currently in the process of evaluating plans for more efficient usage of square footage, modernization and technological improvements to existing branches. We have closed and may close branches in certain circumstances to improve our efficiency.

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ITEM 3.    LEGAL PROCEEDINGS

We operate in a highly regulated environment. From time to time, we are a party to various litigation matters incidental to the conduct of our business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, prospects, financial condition, liquidity, results of operation, cash flows, or capital levels. For additional information, see the discussion related to contingencies in “Note 18. Commitments and Contingent Liabilities” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data.

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

FHI’s common stock is listed on the NASDAQ under the symbol “FHB” and is quoted daily in leading financial publications.

As of February 20, 2020, there were 21 common registered shareholders of record. A registered shareholder of record is a shareholder whose share ownership in a company is recorded directly on the records of the company’s stock transfer agent. If one owns company shares through a bank, broker or other intermediary, then that shareholder is considered a “beneficial” shareholder. These holdings are considered to be held in “street name” through a bank, broker, or other intermediary and in the aggregate, are registered as a single shareholder of record.

Purchases of Equity Securities by the Issuer

Issuer Purchases of Equity Securities
				Total Number of	Approximate Dollar
				Shares Purchased	Value of Shares
	Total Number	Average		as Part of Publicly	that May Yet Be
	of Shares	Price Paid		Announced Plans or	Purchased Under the
Period	Purchased	per Share		Programs	Plans or Programs1
October 1, 2019 through October 31, 2019	453,505	$	26.97	453,505	$	38,961,524
November 1, 2019 through November 30, 2019	717,000		28.39	717,000		18,607,194
December 1, 2019 through December 31, 2019	170,367		28.47	170,367		13,757,598
Total	1,340,872	$	27.92	1,340,872

(1) In March 2019, the Company announced a share repurchase program for up to $100 million of its outstanding common stock during 2019. In August 2019, the Company announced a $50 million increase in its share repurchase program to up to $150 million of its outstanding common stock during 2019. On December 31, 2019, the share repurchase program for 2019 expired with $13.8 million remaining of the $150 million total repurchase amount authorized. In January 2020, the Company announced a share repurchase program for $80 million of its common stock during 2020. The timing and amount of share repurchases are influenced by various internal and external factors.

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Performance Graph

The following graph displays the cumulative total stockholder return on our common stock based on the market price of the common stock compared to the cumulative total returns for the Standard & Poor’s (“S&P”) 500 Index and the KBW Regional Banking Index (“KRX”). The graph assumes that $100 was invested on our IPO date, August 4, 2016, in our common stock⁽¹⁾, the S&P 500 Index⁽²⁾ and the KRX⁽²⁾. The cumulative total return on each investment is as of the dates indicated and assumes reinvestment of dividends.

	1Q 2017		2Q 2017		3Q 2017		4Q 2017		1Q 2018		2Q 2018		3Q 2018		4Q 2018		1Q 2019		2Q 2019		3Q 2019		4Q 2019
First Hawaiian, Inc. Common Stock	$	121.31	$	119.40	$	121.37	$	122.43	$	120.17	$	127.60	$	119.49	$	96.18	$	111.93	$	112.31	$	121.29	$	130.46
S&P 500 Index		107.88		111.51		114.76		122.86		122.05		125.44		133.45		113.54		129.27		134.14		136.84		147.46
KBW Regional Banking Index		123.53		123.69		124.23		132.55		134.18		138.69		134.01		104.12		115.19		115.12		117.66		127.60

(1) The investments in FHI were calculated using a volume weighted average price with a 10-day averaging period with dividends reinvested at the ex-dividend date.

(2) The S&P 500 Index and KRX were calculated using a 10-day averaging period.

The stock performance depicted in the graph above should not be relied upon as indicative of future performance.

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ITEM 6.    SELECTED FINANCIAL DATA

Financial Highlights
	For the Year Ended
	December 31,
(dollars in thousands, except per share data)	2019			2018			2017			2016			2015
Income Statement Data:
Interest income	$	678,692		$	646,051		$	570,768		$	518,520		$	483,846
Interest expense		105,290			79,733			41,964			26,848			22,521
Net interest income		573,402			566,318			528,804			491,672			461,325
Provision for loan and lease losses		13,800			22,180			18,500			8,600			9,900
Net interest income after provision for loan and lease losses		559,602			544,138			510,304			483,072			451,425
Noninterest income		192,533			178,993			205,605			226,037			219,111
Noninterest expense		370,437			364,953			347,554			337,280			327,309
Income before provision for income taxes		381,698			358,178			368,355			371,829			343,227
Provision for income taxes		97,306			93,784			184,673			141,651			129,447
Net income	$	284,392		$	264,394		$	183,682		$	230,178		$	213,780
Basic earnings per share	$	2.14		$	1.93		$	1.32		$	1.65		$	1.53
Diluted earnings per share	$	2.13		$	1.93		$	1.32		$	1.65		$	1.53
Basic weighted-average outstanding shares		133,076,489			136,945,134			139,560,305			139,487,762			139,459,620
Diluted weighted-average outstanding shares		133,387,157			137,111,420			139,656,993			139,492,608			139,459,620
Dividends declared per share	$	1.04		$	0.96		$	0.88		$	0.62		$	—
Dividend payout ratio		48.83	%		49.74	%		66.67	%		37.27	%		—	%
Supplemental Income Statement Data (non-GAAP)(1):
Core net interest income	$	573,402		$	566,318		$	528,804		$	491,672		$	456,489
Core noninterest income		199,748			203,078			198,683			198,793			195,905
Core noninterest expense		367,623			358,561			342,097			331,060			327,309
Core net income		291,785			286,711			230,366			217,111			196,315
Core basic earnings per share	$	2.19		$	2.09		$	1.65		$	1.56		$	1.41
Core diluted earnings per share	$	2.19		$	2.09		$	1.65		$	1.56		$	1.41
Other Financial Information / Performance Ratios:
Net interest margin		3.20	%		3.16	%		2.99	%		2.88	%		2.78	%
Core net interest margin (non-GAAP)(1),(2)		3.20	%		3.16	%		2.99	%		2.88	%		2.75	%
Efficiency ratio		48.36	%		48.96	%		47.32	%		46.99	%		48.10	%
Core efficiency ratio (non-GAAP)(1),(3)		47.55	%		46.59	%		47.02	%		47.94	%		50.17	%
Return on average total assets		1.40	%		1.31	%		0.92	%		1.19	%		1.14	%
Core return on average total assets (non-GAAP)(1),(4)		1.44	%		1.42	%		1.16	%		1.12	%		1.05	%
Return on average tangible assets (non-GAAP)(10)		1.47	%		1.37	%		0.97	%		1.26	%		1.20	%
Core return on average tangible assets (non-GAAP)(1),(5)		1.51	%		1.49	%		1.22	%		1.18	%		1.10	%
Return on average total stockholders' equity		10.90	%		10.76	%		7.24	%		8.96	%		7.81	%
Core return on average total stockholders' equity (non-GAAP)(1),(6)		11.18	%		11.67	%		9.08	%		8.45	%		7.18	%
Return on average tangible stockholders' equity (non-GAAP)(10)		17.62	%		18.08	%		11.91	%		14.64	%		12.28	%
Core return on average tangible stockholders' equity (non-GAAP)(1),(7)		18.08	%		19.61	%		14.93	%		13.80	%		11.28	%
Noninterest expense to average assets		1.82	%		1.80	%		1.74	%		1.74	%		1.74	%
Core noninterest expense to average assets (non-GAAP)(1),(8)		1.81	%		1.77	%		1.72	%		1.71	%		1.74	%

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	December 31,
	2019			2018			2017			2016			2015
Balance Sheet Data:
Cash and cash equivalents	$	694,017		$	1,003,637		$	1,034,644		$	1,052,058		$	2,650,195
Investment securities		4,075,644			4,498,342			5,234,658			5,077,514			4,027,265
Loans and leases		13,211,650			13,076,191			12,277,369			11,520,378			10,722,030
Allowance for loan and lease losses		130,530			141,718			137,253			135,494			135,484
Goodwill		995,492			995,492			995,492			995,492			995,492
Total assets		20,166,734			20,695,678			20,549,461			19,661,829			19,352,681
Total deposits		16,444,994			17,150,068			17,612,122			16,794,532			16,061,924
Short-term borrowings		400,000			—			—			9,151			216,151
Long-term borrowings		200,019			600,026			34			41			48
Total liabilities		17,526,476			18,170,839			18,016,910			17,185,344			16,615,740
Total stockholders' equity		2,640,258			2,524,839			2,532,551			2,476,485			2,736,941
Book value per share	$	20.32		$	18.72		$	18.14		$	17.75		$	19.63
Tangible book value per share (non-GAAP)(10)	$	12.66		$	11.34		$	11.01		$	10.61		$	12.49
Asset Quality Ratios:
Non-accrual loans and leases / total loans and leases		0.04	%		0.05	%		0.08	%		0.08	%		0.16	%
Allowance for loan and lease losses / total loans and leases		0.99	%		1.08	%		1.12	%		1.18	%		1.26	%
Net charge-offs / average total loans and leases		0.19	%		0.14	%		0.14	%		0.08	%		0.09	%

	December 31,
Capital Ratios(9):	2019			2018			2017			2016			2015
Common Equity Tier 1 Capital Ratio		11.88	%		11.97	%		12.45	%		12.75	%		15.31	%
Tier 1 Capital Ratio		11.88	%		11.97	%		12.45	%		12.75	%		15.31	%
Total Capital Ratio		12.81	%		12.99	%		13.50	%		13.85	%		16.48	%
Tier 1 Leverage Ratio		8.79	%		8.72	%		8.52	%		8.36	%		9.84	%
Total stockholders' equity to total assets		13.09	%		12.20	%		12.32	%		12.60	%		14.14	%
Tangible stockholders' equity to tangible assets (non-GAAP)(10)		8.58	%		7.76	%		7.86	%		7.93	%		9.49	%

(1) We present net interest income, noninterest income, noninterest expense, net income, basic earnings per share, diluted earnings per share and the related ratios described below, on an adjusted, or “core,” basis, each a non-GAAP financial measure. These core measures exclude from the corresponding GAAP measure the impact of certain items that we do not believe are representative of our financial results. We believe that the presentation of these non-GAAP financial measures helps identify underlying trends in our business from period to period that could otherwise be distorted by the effect of certain expenses, gains and other items included in our operating results. We believe that these core measures provide useful information about our operating results and enhance the overall understanding of our past performance and future performance. Investors should consider our performance and financial condition as reported under GAAP and all other relevant information when assessing our performance or financial condition. Non-GAAP measures have limitations as analytical tools and investors should not consider them in isolation or as a substitute for analysis of our financial results or financial condition as reported under GAAP.

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The following table provides a reconciliation of net interest income, noninterest income, noninterest expense and net income to their “core” non-GAAP financial measures:

GAAP to Non-GAAP Reconciliation
	For the Years Ended
	December 31,
(dollars in thousands, except per share data)	2019			2018			2017			2016			2015
Net interest income	$	573,402		$	566,318		$	528,804		$	491,672		$	461,325
Early loan termination(a)		—			—			—			—			(4,836)
Core net interest income (non-GAAP)	$	573,402		$	566,318		$	528,804		$	491,672		$	456,489
Noninterest income	$	192,533		$	178,993		$	205,605		$	226,037		$	219,111
Loss (gain) on sale of securities		2,715			—			—			(4,566)			(7,737)
(Gains) and costs associated with the sale of stock (Visa/MasterCard)		4,500			—			—			(22,678)			(4,584)
Gain on the sale of real estate and other assets		—			—			(6,922)			—			(3,414)
OTTI losses on available-for-sale debt securities		—			24,085			—			—			—
Other adjustments(a),(b)		—			—			—			—			(7,471)
Core noninterest income (non-GAAP)	$	199,748		$	203,078		$	198,683		$	198,793		$	195,905
Noninterest expense	$	370,437		$	364,953		$	347,554		$	337,280		$	327,309
Loss on litigation settlement(c)		—			(4,125)			—			—			—
One-time items(d)		(2,814)			(2,267)			(5,457)			(6,220)			—
Core noninterest expense (non-GAAP)	$	367,623		$	358,561		$	342,097		$	331,060		$	327,309
Net income	$	284,392		$	264,394		$	183,682		$	230,178		$	213,780
Early loan termination(a)		—			—			—			—			(4,836)
Loss (gain) on sale of securities		2,715			—			—			(4,566)			(7,737)
(Gains) and costs associated with the sale of stock (Visa/MasterCard)		4,500			—			—			(22,678)			(4,584)
Gain on the sale of real estate and other assets		—			—			(6,922)			—			(3,414)
OTTI losses on available-for-sale debt securities		—			24,085			—			—			—
Other noninterest income adjustments(b)		—			—			—			—			(7,471)
Loss on litigation settlement(c)		—			4,125			—			—			—
One-time noninterest expense items(d)		2,814			2,267			5,457			6,220			—
Tax Cuts and Jobs Act		—			—			47,598			—			—
Tax adjustments(e)		(2,636)			(8,160)			551			7,957			10,577
Total core adjustments		7,393			22,317			46,684			(13,067)			(17,465)
Core net income (non-GAAP)	$	291,785		$	286,711		$	230,366		$	217,111		$	196,315
Basic earnings per share	$	2.14		$	1.93		$	1.32		$	1.65		$	1.53
Diluted earnings per share	$	2.13		$	1.93		$	1.32		$	1.65		$	1.53
Efficiency ratio		48.36	%		48.96	%		47.32	%		46.99	%		48.10	%
Core basic earnings per share (non-GAAP)	$	2.19		$	2.09		$	1.65		$	1.56		$	1.41
Core diluted earnings per share (non-GAAP)	$	2.19		$	2.09		$	1.65		$	1.56		$	1.41
Core efficiency ratio (non-GAAP)		47.55	%		46.59	%		47.02	%		47.94	%		50.17	%

(a) Adjustments that are not material to our financial results have not been presented for certain periods.

(b) Other adjustments included a one-time MasterCard signing bonus and a recovery of an investment that was previously written down for the year.

(c) The Company reached an agreement in principle to resolve a putative class action lawsuit alleging that the Bank improperly charged certain overdraft fees. In connection with the anticipated settlement agreement, the Company recorded an expense of approximately $4.1 million during the year ended December 31, 2018.

(d) One-time items for the year ended December 31, 2019 included a nonrecurring payment to a former executive of the Company pursuant to the Bank’s Executive Change-in-Control Retention Plan, nonrecurring offering costs and the loss on our funding swap as a result of a 2019 decrease in the conversion rate of our Visa Class B restricted shares sold in 2016. One-time items for the year ended December 31, 2018 included public company transition-related costs, the loss on our funding swap as a result of a 2018 decrease in the conversion rate of the aforementioned Visa Class B restricted shares and nonrecurring offering costs. One-time items for the year-ended December 31, 2017 included salaries and benefits stemming from the Tax Act, nonrecurring offering costs and public company transition-related costs. One-time items for the year-ended December 31, 2016 included public company transition-related costs and nonrecurring offering costs.

(e) Represents the adjustments to net income, tax effected at the Company’s effective tax rate for the respective period, exclusive of one-time Tax Act expense.

(2) Core net interest margin is a non-GAAP financial measure. We compute our core net interest margin as the ratio of core net interest income to average earning assets. For a reconciliation to the most directly comparable GAAP financial measure for core net interest income, see the GAAP to Non-GAAP Reconciliation Table.

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(3) Core efficiency ratio is a non-GAAP financial measure. We compute our core efficiency ratio as the ratio of core noninterest expense to the sum of core net interest income and core noninterest income. For a reconciliation to the most directly comparable GAAP financial measure for core noninterest expense, core net interest income and core noninterest income, see the GAAP to Non-GAAP Reconciliation Table.

(4) Core return on average total assets is a non-GAAP financial measure. We compute our core return on average total assets as the ratio of core net income to average total assets. For a reconciliation to the most directly comparable GAAP financial measure for core net income, see the GAAP to Non-GAAP Reconciliation Table.

(5) Core return on average tangible assets is a non-GAAP financial measure. We compute our core return on average tangible assets as the ratio of core net income to average tangible assets, which is calculated by subtracting (and thereby effectively excluding) amounts related to the effect of goodwill from our average total assets. For a reconciliation to the most directly comparable GAAP financial measure for core net income, see the GAAP to Non-GAAP Reconciliation Table.

(6) Core return on average total stockholders’ equity is a non-GAAP financial measure. We compute our core return on average total stockholders’ equity as the ratio of core net income to average total stockholders’ equity. For a reconciliation to the most directly comparable GAAP financial measure for core net income, see the GAAP to Non-GAAP Reconciliation Table.

(7) Core return on average tangible stockholders’ equity is a non-GAAP financial measure. We compute our core return on average tangible stockholders’ equity as the ratio of core net income to average tangible stockholders’ equity, which is calculated by subtracting (and thereby effectively excluding) amounts related to the effect of goodwill from our average total stockholders’ equity. For a reconciliation to the most directly comparable GAAP financial measure for core net income, see the GAAP to Non-GAAP Reconciliation Table.

(8) Core noninterest expense to average assets is a non-GAAP financial measure. We compute our core noninterest expense to average assets as the ratio of core noninterest expense to average assets. For a reconciliation to the most directly comparable GAAP financial measure for core noninterest expense, see the GAAP to Non-GAAP Reconciliation Table.

(9) The change in our capital ratios from December 31, 2015 to December 31, 2016 was primarily due to distributions of $363.6 million made in connection with the Reorganization Transactions.

(10) Return on average tangible assets, return on average tangible stockholders’ equity, tangible book value per share and tangible stockholders’ equity to tangible assets are non-GAAP financial measures. We compute our return on average tangible assets as the ratio of net income to average tangible assets. We compute our return on average tangible stockholders’ equity as the ratio of net income to average tangible stockholders’ equity. We compute our tangible stockholders’ equity to tangible assets as the ratio of tangible stockholders’ equity to tangible assets. We compute our tangible book value per share as the ratio of tangible stockholders’ equity to outstanding shares. We believe that these financial measures are useful for investors, regulators, management and others to evaluate financial performance and capital adequacy relative to other financial institutions. Although these non-GAAP financial measures are frequently used by shareholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

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The following table provides a reconciliation of these non-GAAP financial measures with their most closely related GAAP measures for the years indicated:

GAAP to Non-GAAP Reconciliation
		For the Years Ended
		December 31,
(dollars in thousands, except per share data)	2019			2018			2017			2016			2015
Income Statement Data:
Noninterest expense	$	370,437		$	364,953		$	347,554		$	337,280		$	327,309
Core noninterest expense	$	367,623		$	358,561		$	342,097		$	331,060		$	327,309
Net income	$	284,392		$	264,394		$	183,682		$	230,178		$	213,780
Core net income	$	291,785		$	286,711		$	230,366		$	217,111		$	196,315
Average total stockholders' equity	$	2,609,432		$	2,457,771		$	2,538,341		$	2,568,219		$	2,735,786
Less: average goodwill		995,492			995,492			995,492			995,492			995,492
Average tangible stockholders' equity	$	1,613,940		$	1,462,279		$	1,542,849		$	1,572,727		$	1,740,294
Average total assets	$	20,325,697		$	20,247,135		$	19,942,807		$	19,334,653		$	18,785,701
Less: average goodwill		995,492			995,492			995,492			995,492			995,492
Average tangible assets	$	19,330,205		$	19,251,643		$	18,947,315		$	18,339,161		$	17,790,209
Return on average total stockholders' equity		10.90	%		10.76	%		7.24	%		8.96	%		7.81	%
Core return on average total stockholders' equity (non-GAAP)		11.18	%		11.67	%		9.08	%		8.45	%		7.18	%
Return on average tangible stockholders' equity (non-GAAP)		17.62	%		18.08	%		11.91	%		14.64	%		12.28	%
Core return on average tangible stockholders' equity (non-GAAP)		18.08	%		19.61	%		14.93	%		13.80	%		11.28	%
Return on average total assets		1.40	%		1.31	%		0.92	%		1.19	%		1.14	%
Core return on average total assets (non-GAAP)		1.44	%		1.42	%		1.16	%		1.12	%		1.05	%
Return on average tangible assets (non-GAAP)		1.47	%		1.37	%		0.97	%		1.26	%		1.20	%
Core return on average tangible assets (non-GAAP)		1.51	%		1.49	%		1.22	%		1.18	%		1.10	%
Noninterest expense to average assets		1.82	%		1.80	%		1.74	%		1.74	%		1.74	%
Core noninterest expense to average assets (non-GAAP)		1.81	%		1.77	%		1.72	%		1.71	%		1.74	%

		December 31,
	2019			2018			2017			2016			2015
Balance Sheet Data:
Total stockholders' equity	$	2,640,258		$	2,524,839		$	2,532,551		$	2,476,485		$	2,736,941
Less: goodwill		995,492			995,492			995,492			995,492			995,492
Tangible stockholders' equity	$	1,644,766		$	1,529,347		$	1,537,059		$	1,480,993		$	1,741,449
Total assets	$	20,166,734		$	20,695,678		$	20,549,461		$	19,661,829		$	19,352,681
Less: goodwill		995,492			995,492			995,492			995,492			995,492
Tangible assets	$	19,171,242		$	19,700,186		$	19,553,969		$	18,666,337		$	18,357,189
Shares outstanding		129,928,479			134,874,302			139,588,782			139,530,654			139,459,620
Total stockholders' equity to total assets		13.09	%		12.20	%		12.32	%		12.60	%		14.14	%
Tangible stockholders' equity to tangible assets (non-GAAP)		8.58	%		7.76	%		7.86	%		7.93	%		9.49	%
Book value per share	$	20.32		$	18.72		$	18.14		$	17.75		$	19.63
Tangible book value per share (non-GAAP)	$	12.66		$	11.34		$	11.01		$	10.61		$	12.49

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K, including the documents incorporated by reference herein, contains, and from time to time our management may make, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including the following: the geographic concentration of our business; current and future economic and market conditions in the United States generally or in Hawaii, Guam and Saipan in particular; our dependence on the real estate markets in which we operate; concentrated exposures to certain asset classes and individual obligors; the effect of the current low interest rate environment or changes in interest rates on our business including our net interest income, net interest margin, the fair value of our investment securities, and our mortgage loan originations, mortgage servicing rights and mortgage loans held for sale; changes in the method pursuant to which LIBOR and other benchmark rates are determined or the discontinuance of LIBOR; the possibility of a deterioration in credit quality in our portfolio; the possibility we might underestimate the credit losses inherent in our loan and lease portfolio; our ability to maintain our Bank's reputation; the future value of the investment securities that we own; our ability to attract and retain customer deposits; our inability to receive dividends from our bank, pay dividends to our common stockholders and satisfy obligations as they become due; the effects of severe weather, geopolitical instability, including war, terrorist attacks, pandemics or other severe health emergencies and man-made and natural disasters; our ability to maintain consistent growth, earnings and profitability; our ability to attract and retain skilled employees or changes in our management personnel; our ability to effectively compete with other financial services companies and the effects of competition in the financial services industry on our business; the effectiveness of our risk management and internal disclosure controls and procedures; our ability to keep pace with technological changes; any failure or interruption of our information and communications systems; our ability to identify and address cybersecurity risks; the occurrence of fraudulent activity or effect of a material breach of, or disruption to, the security of any of our or our vendors’ systems; the failure to properly use and protect our customer and employee information and data; the possibility of employee misconduct or mistakes; our ability to successfully develop and commercialize new or enhanced products and services; changes in the demand for our products and services; the effects of problems encountered by other financial institutions; our access to sources of liquidity and capital to address our liquidity needs; our use of the secondary mortgage market as a source of liquidity; risks associated with the sale of loans and with our use of appraisals in valuing and monitoring loans; the possibility that actual results may differ from estimates and forecasts; fluctuations in the fair value of our assets and liabilities and off-balance sheet exposures; the effects of the failure of any component of our business infrastructure provided by a third party; the potential for environmental liability; the risk of being subject to litigation and the outcome thereof; the impact of, and changes in, applicable laws, regulations and accounting standards and policies, including the enactment of the Tax Act (Public Law 115-97) on December 22, 2017; possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations; our likelihood of success in, and the impact of, litigation or regulatory actions; our ability to continue to pay dividends on our common stock; contingent liabilities and unexpected tax liabilities that may be applicable to us as a result of the Reorganization Transactions; and damage to our reputation from any of the factors described above.

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The foregoing factors should not be considered an exhaustive list and should be read together with the other cautionary statements set forth under “Item 1A. Risk Factors” in this Annual Report on Form 10-K. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by applicable law.

Company Overview

FHI, a bank holding company, owns 100% of the outstanding common stock of FHB. FHB was founded in 1858 under the name Bishop & Company and was the first successful banking partnership in the Kingdom of Hawaii and the second oldest bank formed west of the Mississippi River.

As of December 31, 2019, we were the largest full-service bank headquartered in Hawaii as measured by assets, loans and leases, deposits and net income. As of December 31, 2019, we had $20.2 billion of assets, $13.2 billion of gross loans and leases and $16.4 billion of deposits. We also generated $284.4 million of net income or diluted earnings per share of $2.13 per share for the year ended December 31, 2019. We operate our business through three operating segments: Retail Banking, Commercial Banking and Treasury and Other. See “Note 23. Reportable Operating Segments” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

Hawaii Economy

Hawaii’s economy continued to reflect stable growth during 2019, led in large part by a strong tourism industry and steady labor and real estate market conditions. Hawaii’s tourism industry remained robust in 2019. Visitor arrivals for the year ended December 31, 2019 increased by 5.4% compared to 2018, and total visitor spending for the year ended December 31, 2019 increased by 1.4% compared to 2018 according to the Hawaii Tourism Authority. Visitor arrivals and spending increased, in particular, from U.S. mainland and Japanese visitors. The statewide seasonally-adjusted unemployment rate was 2.6% in both December 2019 and 2018 according to the Hawaii State Department of Labor & Industrial Relations. The national seasonally-adjusted unemployment rate was 3.5% in December 2019 compared to 3.9% in December 2018. The volume of single-family home sales on Oahu increased by 3.9% for the year ended December 31, 2019 compared to 2018, while the volume of condominium sales on Oahu decreased by 4.8% for the year ended December 31, 2019 compared to 2018 according to the Honolulu Board of Realtors. The median price of single-family home sales on Oahu was $789,000 for the year ended December 31, 2019 or a decrease of 0.1% compared to the same period in 2018. The median price of condominium sales on Oahu was $425,000 for the year ended December 31, 2019 or an increase of 1.2% compared to the same period in 2018. As of December 31, 2019, months of inventory of single-family homes and condominiums on Oahu remained low at approximately 2.5 months and 3.4 months, respectively.

Although Hawaii’s economy continued to reflect stable growth in 2019, Hawaii’s economy depends significantly on conditions of the U.S. economy and key international economies, particularly Japan. In 2019, the U.S. economy grew at a solid pace, although the growth rate slowed compared to 2018. Japanese economic growth slowed down in the second half of 2019, with fourth quarter GDP contracting at a rate of approximately 6% on an annualized basis. Locally, we continue to monitor tourism and construction activity in Hawaii and the local economy’s ability to absorb further planned expansion given deteriorating home affordability in Hawaii. Nationally and globally, we continue to monitor the movement of interest rates in the U.S., global economic weakening, ongoing trade disputes and political uncertainty.

These and other key factors could impact our profitability in future reporting periods. See “Risk Factors – Risks Related to Our Business”.

Effect of Inflation and Changing Prices

The consolidated financial statements and related financial data presented in this Annual Report on Form 10-K have been prepared according to generally accepted accounting principles in the United States, which require the measurement of financial positions and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial

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institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Financial Highlights

Net income was $284.4 million for the year ended December 31, 2019, an increase of $20.0 million or 8% as compared to the same period in 2018. Basic earnings per share was $2.14 per share for the year ended December 31, 2019, an increase of $0.21 per share or 11% as compared to the same period in 2018. Diluted earnings per share was $2.13 for the year ended December 31, 2019, an increase of $0.20 or 10% as compared to the same period in 2018. The increase was primarily due to a $13.5 million increase in noninterest income, an $8.4 million decrease in the provision for loan and lease losses (the “Provision”) and a $7.1 million increase in net interest income, partially offset by a $5.5 million increase in noninterest expense and a $3.5 million increase in the provision for income taxes.

Net income for the year ended December 31, 2019 was negatively impacted by a $4.5 million charge on the funding swap for the Visa Class B restricted shares sold in 2016 as well as $2.7 million losses on available-for-sale debt securities. Core net income was $291.8 million for the year ended December 31, 2019, an increase of $5.1 million or 2% as compared to the same period in 2018. Core basic and diluted earnings per share were both $2.19 for the year ended December 31, 2019, an increase of $0.10 or 5% as compared to the same period in 2018. Core net income and core basic and diluted earnings per share are non-GAAP financial measures. For a reconciliation to the most directly comparable GAAP financial measures for core net income and core basic and diluted earnings per share, see “Item 6. Selected Financial Data - GAAP to Non-GAAP Reconciliation”.

Net income was $264.4 million for the year ended December 31, 2018, an increase of $80.7 million or 44% as compared to the same period in 2017. Basic and diluted earnings per share were $1.93 for the year ended December 31, 2018, an increase of $0.61 or 46% as compared to the same period in 2017. The increase was primarily due to a $90.9 million decrease in the provision for income taxes and a $37.5 million increase in net interest income, partially offset by a $26.6 million decrease in noninterest income, a $17.4 million increase in noninterest expense and a $3.7 million increase in the Provision.

Net income for the year ended December 31, 2018 was negatively impacted by $24.1 million OTTI losses on available-for-sale debt securities. Core net income was $286.7 million for the year ended December 31, 2018, an increase of $56.3 million or 24% as compared to the same period in 2017. Core basic and diluted earnings per share were $2.09 for the year ended December 31, 2018, an increase of $0.44 or 27% as compared to the same period in 2017. Core net income and core basic and diluted earnings per share are non-GAAP financial measures. For a reconciliation to the most directly comparable GAAP financial measures for core net income and core basic and diluted earnings per share, see “Item 6. Selected Financial Data - GAAP to Non-GAAP Reconciliation”.

Our return on average total assets was 1.40% for the year ended December 31, 2019, an increase of nine basis points as compared to the same period in 2018, and our return on average total stockholders’ equity was 10.90% for the year ended December 31, 2019, an increase of 14 basis points as compared to the same period in 2018. Our return on average tangible assets was 1.47% for the year ended December 31, 2019, an increase of 10 basis points as compared to the same period in 2018, and our return on average tangible stockholders’ equity was 17.62% for the year ended December 31, 2019, a decrease of 46 basis points as compared to the same period in 2018. We continued to manage our expenses as our efficiency ratio was 48.36% for the year ended December 31, 2019 as compared to 48.96% for the same period in 2018. Return on average tangible assets and return on average tangible stockholders’ equity are non-GAAP financial measures. For a reconciliation to the most directly comparable GAAP financial measures for return on average tangible assets and return on average tangible stockholders’ equity, see “Item 6. Selected Financial Data - GAAP to Non-GAAP Reconciliation”.

Our return on average total assets was 1.31% for the year ended December 31, 2018, an increase of 39 basis points as compared to the same period in 2017, and our return on average total stockholders’ equity was 10.76% for the year ended December 31, 2018, an increase of 352 basis points as compared to the same period in 2017. Our return on average tangible assets was 1.37% for the year ended December 31, 2018, an increase of 40 basis points as compared to the same period in 2017, and our return on average tangible stockholders’ equity was 18.08% for the year ended December 31, 2018, an increase of 617 basis points as compared to the same period in 2017. We continued to prudently manage our expenses as our efficiency ratio was 48.96% for the year ended December 31, 2018 as compared to 47.32%

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for the same period in 2017. Return on average tangible assets and return on average tangible stockholders’ equity are non-GAAP financial measures. For a reconciliation to the most directly comparable GAAP financial measures for return on average tangible assets and return on average tangible stockholders’ equity, see “Item 6. Selected Financial Data - GAAP to Non-GAAP Reconciliation”.

Our results for the year ended December 31, 2019 were highlighted by the following:

● Net interest income was $573.4 million for the year ended December 31, 2019, an increase of $7.1 million or 1% as compared to the same period in 2018. Our net interest margin was 3.20% for the year ended December 31, 2019, an increase of four basis points as compared to the same period in 2018. The increase in net interest income was primarily due to higher average balances and yields in most loan categories. This was partially offset by lower average balances in our investment securities portfolio, higher deposit funding costs and higher average balances in total borrowings.

● The Provision was $13.8 million for the year ended December 31, 2019, a decrease of $8.4 million or 38% as compared to the same period in 2018. This decrease was partially due to the sale of $408.9 million commercial and industrial loans during the year ended December 31, 2019. The Provision is recorded to maintain the Allowance at levels deemed adequate to absorb probable credit losses that have been incurred in our loan and lease portfolio as of the balance sheet date.

● Noninterest income was $192.5 million for the year ended December 31, 2019, an increase of $13.5 million or 8% as compared to the same period in 2018. The increase was primarily due to the absence of $24.1 million OTTI losses on available-for-sale debt securities, a $6.3 million increase in bank-owned life insurance (“BOLI”) income, a $3.8 million increase in trust and investment services income, a $1.7 million increase in service charges on deposit accounts and a $1.0 million increase in credit and debit card fees. This was partially offset by an $18.6 million decrease in other noninterest income, a $2.7 million net loss on investment securities and a $2.1 million decrease on other service charges and fees.

● Noninterest expense was $370.4 million for the year ended December 31, 2019, an increase of $5.5 million or 2% as compared to the same period in 2018. The increase in noninterest expense was primarily due to a $6.5 million increase in contracted services and professional fees, a $5.9 million increase in salaries and employee benefits, a $5.1 million increase in card rewards program expenses, a $2.1 million increase in advertising and marketing expenses and a $1.4 million increase in occupancy expenses, partially offset by an $8.4 million decrease in other noninterest expense and a $6.8 million decrease in regulatory assessment and fees.

Our results for the year ended December 31, 2018 were highlighted by the following:

● Net interest income was $566.3 million for the year ended December 31, 2018, an increase of $37.5 million or 7% as compared to the same period in 2017. Our net interest margin was 3.16% for the year ended December 31, 2018, an increase of 17 basis points as compared to the same period in 2017. The increase in net interest income was primarily due to higher average balances and yields in most loan categories and higher yields in our investment securities portfolio, partially offset by lower average balances in our investment securities portfolio and higher deposit funding costs.

● The Provision was $22.2 million for the year ended December 31, 2018, an increase of $3.7 million or 20% as compared to the same period in 2017. The Provision is recorded to maintain the Allowance at levels deemed adequate to absorb probable credit losses that have been incurred in our loan and lease portfolio as of the balance sheet date.

● Noninterest income was $179.0 million for the year ended December 31, 2018, a decrease of $26.6 million or 13% as compared to the same period in 2017. The decrease was primarily due to $24.1 million in OTTI losses on available-for-sale debt securities, a $4.1 million decrease in BOLI income, a $3.8 million decrease in service charges on deposit accounts and a $1.4 million decrease in other noninterest income, partially offset by a $4.3 million increase in other service charges and fees and a $1.7 million increase in credit and debit card fees.

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● Noninterest expense was $365.0 million for the year ended December 31, 2018, an increase of $17.4 million or 5% as compared to the same period in 2017. The increase in noninterest expense was primarily due to a $4.8 million increase in other noninterest expense, a $4.8 million increase in contracted services and professional fees, a $4.1 million increase in salaries and employee benefits, a $3.8 million increase in occupancy and $1.5 million increase in card rewards program expenses, partially offset by a $1.4 million decrease in advertising and marketing expenses.

During 2019, we continued to benefit from a stable Hawaii economy as reflected in the continued growth in our commercial real estate and residential real estate loan portfolios. Our investment securities portfolio remained strong as we continued to invest in high-grade investment securities. We also continued to maintain adequate reserves for loan and lease losses and high levels of capital.

● Total loans and leases were $13.2 billion as of December 31, 2019, an increase of $135.5 million or 1% as compared to December 31, 2018. Growth was particularly strong in our commercial real estate and residential real estate mortgage portfolios. Growth in our commercial real estate portfolio was a reflection of the demand by both investors and owner occupants to acquire new real estate assets in a low interest rate environment. Growth in our residential real estate mortgage portfolio was a reflection of the demand by owner occupants to refinance in a low interest rate environment. This growth was partially offset by the sale of $408.9 million commercial and industrial loans during the year ended December 31, 2019.

● The Allowance was $130.5 million as of December 31, 2019, a decrease of $11.2 million or 8% from December 31, 2018. The ratio of our Allowance to total loans and leases outstanding decreased to 0.99% as of December 31, 2019, compared to 1.08% as of December 31, 2018. The overall level of the Allowance was commensurate with our stable credit risk profile and the Hawaii economy.

● We continued to invest in high-grade investment securities, primarily collateralized mortgage obligations issued by the Government National Mortgage Association (“Ginnie Mae”), Fannie Mae and Freddie Mac. The total fair value of our investment securities portfolio was $4.1 billion as of December 31, 2019, a decrease of $422.7 million or 9% compared to December 31, 2018. The lower balances in investment securities were primarily due to redeploying runoff to fund growth in loans. Additionally, a restructuring of the investment portfolio was conducted in January 2019, whereby sales and purchases were conducted to improve the risk profile and return of the investment portfolio.

● Total deposits were $16.4 billion as of December 31, 2019, a decrease of $705.1 million or 4% from December 31, 2018. The decrease in total deposits was primarily due to a $502.0 million decrease in public time deposits, a $140.8 million decrease in money market deposit balances and a $127.9 million decrease in demand deposit balances, partially offset by a $145.6 million increase in savings deposit balances.

● Total stockholders’ equity was $2.6 billion as of December 31, 2019, an increase of $115.4 million or 5% from December 31, 2018. The increase in stockholders’ equity was primarily due to earnings for the year ended December 31, 2019 of $284.4 million, a $100.4 million decrease in accumulated other comprehensive loss, net of tax, and equity-based awards of $5.1 million. This was partially offset by dividends declared and paid to the Company’s stockholders of $138.2 million and common stock repurchases of $136.2 million.

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Analysis of Results of Operations

Net Interest Income

For the years ended December 31, 2019, 2018, and 2017, average balances, related income and expenses, on a fully taxable-equivalent basis, and resulting yields and rates are presented in Table 1. An analysis of the change in net interest income, on a fully taxable-equivalent basis, is presented in Table 2.

Average Balances and Interest Rates																		Table 1
	Year Ended							Year Ended						Year Ended
	December 31, 2019							December 31, 2018						December 31, 2017
	Average		Income/		Yield/			Average		Income/		Yield/		Average		Income/		Yield/
(dollars in millions)	Balance		Expense		Rate			Balance		Expense		Rate		Balance		Expense		Rate
Earning Assets
Interest-Bearing Deposits in Other Banks	$	437.8	$	9.3		2.11	%	$	460.8	$	8.3	1.81	%	$	507.3	$	5.5	1.09	%
Available-for-Sale Investment Securities		4,310.2		92.5		2.15			4,843.0		107.1	2.21			5,201.5		102.3	1.97
Loans Held for Sale		1.0		—		2.53			1.0		—	3.60			—		—	—
Loans and Leases(1)
Commercial and industrial		2,987.3		122.8		4.11			3,105.4		121.9	3.93			3,230.2		103.6	3.21
Commercial real estate		3,176.6		143.9		4.53			2,918.5		118.7	4.07			2,643.6		96.7	3.66
Construction		547.7		25.5		4.65			623.6		25.8	4.13			537.8		18.6	3.45
Residential:
Residential mortgage		3,626.0		150.9		4.16			3,254.9		138.4	4.25			2,956.3		126.2	4.27
Home equity line		910.7		34.1		3.74			874.2		32.2	3.68			865.2		29.6	3.43
Consumer		1,652.8		91.8		5.56			1,633.2		88.2	5.40			1,540.0		83.1	5.40
Lease financing		162.6		5.0		3.08			160.4		4.7	2.91			171.5		4.9	2.87
Total Loans and Leases		13,063.7		574.0		4.39			12,570.2		529.9	4.22			11,944.6		462.7	3.87
Other Earning Assets		79.8		2.9		3.66			36.5		0.7	1.93			27.5		0.3	1.04
Total Earning Assets(2)		17,892.5		678.7		3.79			17,911.5		646.0	3.61			17,680.9		570.8	3.23
Cash and Due from Banks		340.1							328.3						321.4
Other Assets		2,093.1							2,007.3						1,940.5
Total Assets	$	20,325.7						$	20,247.1					$	19,942.8
Interest-Bearing Liabilities
Interest-Bearing Deposits
Savings	$	4,840.6	$	16.6		0.34	%	$	4,638.6	$	11.0	0.24	%	$	4,475.2	$	3.9	0.09	%
Money Market		3,123.5		27.8		0.89			2,833.4		15.2	0.53			2,576.0		3.3	0.13
Time		2,882.9		43.5		1.51			3,743.5		46.8	1.25			4,096.4		34.8	0.85
Total Interest-Bearing Deposits		10,847.0		87.9		0.81			11,215.5		73.0	0.65			11,147.6		42.0	0.38
Short-Term Borrowings		209.8		5.9		2.82			39.9		0.8	2.13			2.2		—	0.80
Long-Term Borrowings		406.6		11.5		2.83			206.0		5.9	2.87			—		—	—
Total Interest-Bearing Liabilities		11,463.4		105.3		0.92			11,461.4		79.7	0.70			11,149.8		42.0	0.38
Net Interest Income			$	573.4						$	566.3					$	528.8
Interest Rate Spread						2.87	%					2.91	%					2.85	%
Net Interest Margin						3.20	%					3.16	%					2.99	%
Noninterest-Bearing Demand Deposits		5,766.4							5,899.9						5,868.8
Other Liabilities		486.5							428.0						385.9
Stockholders' Equity		2,609.4							2,457.8						2,538.3
Total Liabilities and Stockholders' Equity	$	20,325.7						$	20,247.1					$	19,942.8

(1) Non-performing loans and leases are included in the respective average loan and lease balances. Income, if any, on such loans and leases is recognized on a cash basis.

(2) For the years ended December 31, 2019, 2018 and 2017, the taxable-equivalent basis adjustments made to the table above were not material.

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Analysis of Change in Net Interest Income												Table 2
	Year Ended December 31, 2019						Year Ended December 31, 2018
	Compared to December 31, 2018						Compared to December 31, 2017
(dollars in millions)	Volume		Rate		Total(1)		Volume		Rate		Total(1)
Change in Interest Income:
Interest-Bearing Deposits in Other Banks	$	(0.4)	$	1.4	$	1.0	$	(0.5)	$	3.3	$	2.8
Available-for-Sale Investment Securities		(11.7)		(2.9)		(14.6)		(7.3)		12.2		4.9
Loans and Leases
Commercial and industrial		(4.7)		5.6		0.9		(4.1)		22.4		18.3
Commercial real estate		11.0		14.2		25.2		10.6		11.5		22.1
Construction		(3.3)		3.0		(0.3)		3.2		4.0		7.2
Residential:
Residential mortgage		15.6		(3.1)		12.5		12.7		(0.4)		12.3
Home equity line		1.4		0.5		1.9		0.3		2.2		2.5
Consumer		1.0		2.6		3.6		5.0		—		5.0
Lease financing		—		0.3		0.3		(0.3)		0.1		(0.2)
Total Loans and Leases		21.0		23.1		44.1		27.4		39.8		67.2
Other Earning Assets		1.3		0.9		2.2		0.1		0.3		0.4
Total Change in Interest Income		10.2		22.5		32.7		19.7		55.6		75.3
Change in Interest Expense:
Interest-Bearing Deposits
Savings		0.5		5.1		5.6		0.1		7.0		7.1
Money Market		1.7		10.9		12.6		0.4		11.5		11.9
Time		(11.9)		8.6		(3.3)		(3.2)		15.2		12.0
Total Interest-Bearing Deposits		(9.7)		24.6		14.9		(2.7)		33.7		31.0
Short-Term Borrowings		4.7		0.4		5.1		0.8		0.1		0.9
Long-Term Borrowings		5.7		(0.1)		5.6		5.9		—		5.9
Total Change in Interest Expense		0.7		24.9		25.6		4.0		33.8		37.8
Change in Net Interest Income	$	9.5	$	(2.4)	$	7.1	$	15.7	$	21.8	$	37.5

(1) The change in interest income and expense not solely due to changes in volume or rate has been allocated on a pro-rata basis to the volume and rate columns.

Net interest income, on a fully taxable-equivalent basis, was $573.4 million for the year ended December 31, 2019, an increase of $7.1 million or 1% as compared to the same period in 2018. Our net interest margin was 3.20% for the year ended December 31, 2019, an increase of four basis points as compared to the same period in 2018. The increase in net interest income, on a fully taxable-equivalent basis, was primarily due to higher average balances and yields in most loan categories. This was partially offset by lower average balances in our investment securities portfolio, higher deposit funding costs and higher average balances in total borrowings. For the year ended December 31, 2019, the average balance of our loans and leases was $13.1 billion, an increase of $493.5 million or 4% compared to the same period in 2018. The higher average balance in loans and leases was primarily due to growth in our residential mortgage and commercial real estate lending portfolios, partially offset by declines in our commercial and industrial portfolio. Yields on our loans and leases were 4.39% for the year ended December 31, 2019, an increase of 17 basis points as compared to the same period in 2018. We experienced an increase in our yields from total loans primarily due to increases in adjustable rate commercial real estate loans, which are typically based on the LIBOR. For the year ended December 31, 2019, the average balance of our investment securities portfolio decreased $532.8 million or 11% to $4.3 billion. Yields on our investment securities portfolio were 2.15% for the year ended December 31, 2019, a decrease of six basis points from the same period in 2018. Deposit funding costs were $87.9 million for the year ended December 31, 2019, an increase of $14.9 million compared to the same period in 2018. Rates paid on our interest-bearing deposits were 81 basis points for the year ended December 31, 2019, an increase of 16 basis points compared to the same period in 2018. While we experienced higher rates paid on all interest-bearing deposit categories in the year ended December 31, 2019, high rates were paid on our money market deposits with an increase of 36 basis points compared to the same period in 2018. For the year ended December 31, 2019, the average balance of our total borrowings was $616.4 million, an increase of $370.5 million as compared to the same period in 2018. This was primarily due to increases in FHLB fixed-rate advances during the year ended December 31, 2019 compared to the same period in 2018.

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Net interest income, on a fully taxable-equivalent basis, was $566.3 million for the year ended December 31, 2018, an increase of $37.5 million or 7% as compared to the same period in 2017. Our net interest margin was 3.16% for the year ended December 31, 2018, an increase of 17 basis points as compared to the same period in 2017. The increase in net interest income, on a fully taxable-equivalent basis, was primarily due to higher average balances and yields in most loan categories and higher yields in our investment securities portfolio. This was partially offset by lower average balances in our investment securities portfolio and higher deposit funding costs. For the year ended December 31, 2018, the average balance of our loans and leases was $12.6 billion, an increase of $625.6 million or 5% compared to the same period in 2017. The higher average balance in loans and leases was primarily due to growth in our residential mortgage, commercial real estate, consumer and construction lending portfolios, partially offset by declines in our commercial and industrial portfolio. Yields on our loans and leases were 4.22% for the year ended December 31, 2018, an increase of 35 basis points as compared to the same period in 2017. We experienced an increase in our yields from total loans primarily due to increases in adjustable rate commercial loans, which are typically based on the LIBOR. For the year ended December 31, 2018, the average balance of our investment securities portfolio decreased $358.5 million or 7% to $4.8 billion. Yields on our investment securities portfolio were 2.21% for the year ended December 31, 2018, an increase of 24 basis points from the same period in 2017. Deposit funding costs were $73.0 million for the year ended December 31, 2018, an increase of $31.0 million compared to the same period in 2017. Rates paid on our interest-bearing deposits were 65 basis points for the year ended December 31, 2018, an increase of 27 basis points compared to the same period in 2017. While we experienced higher rates paid on all interest-bearing deposit categories in the year ended December 31, 2018, particularly high rates were paid on our time deposits with an increase of 40 basis points compared to the same period in 2017.

Provision for Loan and Lease Losses

The Provision was $13.8 million for the year ended December 31, 2019, which represented a decrease of $8.4 million compared to the same period in 2018. We recorded net charge-offs of $25.0 million and $17.7 million for the years ended December 31, 2019 and 2018, respectively. This represented net charge-offs of 0.19% and 0.14% of total average loans and leases for the years ended December 31, 2019 and 2018, respectively. The Allowance was $130.5 million and $141.7 million as of December 31, 2019 and 2018, respectively, and represented 0.99% of total outstanding loans and leases as of December 31, 2019, compared to 1.08% of total outstanding loans and leases as of December 31, 2018. The Provision is recorded to maintain the Allowance at levels deemed adequate by management based on the factors noted in the “Risk Governance and Quantitative and Qualitative Disclosures About Market Risk — Credit Risk” section of this MD&A.

Noninterest Income

Table 3 presents the major components of noninterest income for the years ended December 31, 2019, 2018 and 2017:

Noninterest Income															Table 3
	Year Ended December 31,						Change					Change
(dollars in thousands)	2019		2018		2017			2019	vs.	2018			2018	vs.	2017
Service charges on deposit accounts	$	33,778	$	32,036	$	35,807	$	1,742		5	%	$	(3,771)		(11)	%
Credit and debit card fees		66,749		65,716		64,049		1,033		2			1,667		3
Other service charges and fees		36,253		38,316		34,063		(2,063)		(5)			4,253		12
Trust and investment services income		35,102		31,324		30,485		3,778		12			839		3
Bank-owned life insurance		15,479		9,217		13,283		6,262		68			(4,066)		(31)
Investment securities losses, net		(2,715)		—		—		(2,715)		n.m.			—		—
OTTI losses on available-for-sale debt securities		—		(24,085)		—		24,085		n.m.			(24,085)		n.m.
Other		7,887		26,469		27,918		(18,582)		(70)			(1,449)		(5)
Total noninterest income	$	192,533	$	178,993	$	205,605	$	13,540		8	%	$	(26,612)		(13)	%

n.m. – Denotes a variance that is not a meaningful metric to inform the change in noninterest income from the year ended December 31, 2018 to the same period in 2019 and from the year ended December 31, 2017 to the same period in 2018.

Total noninterest income was $192.5 million for the year ended December 31, 2019, an increase of $13.5 million or 8% as compared to the same period in 2018. Total noninterest income was $179.0 million for the year ended December 31, 2018, a decrease of $26.6 million or 13% as compared to the same period in 2017.

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Service charges on deposit accounts were $33.8 million for the year ended December 31, 2019, an increase of $1.7 million or 5% as compared to the same period in 2018. This increase was primarily due to a $0.8 million increase in overdraft and checking account fees, a $0.6 million increase in account analysis service charges and a $0.3 million increase in ATM interchange fees from customers. Service charges on deposit accounts were $32.0 million for the year ended December 31, 2018, a decrease of $3.8 million or 11% as compared to the same period in 2017. This decrease was primarily due to a $3.7 million decrease in account analysis service charges due to higher earning credit rates that offset fee income.

Credit and debit card fees were $66.7 million for the year ended December 31, 2019, an increase of $1.0 million or 2% as compared to the same period in 2018. This increase was primarily due to a $2.8 million increase in interchange settlement fees, partially offset by a $1.2 million decrease in merchant service revenues and a $0.5 million decrease in debit account interchange fees and ATM surcharge fees. Credit and debit card fees were $65.7 million for the year ended December 31, 2018, an increase of $1.7 million or 3% as compared to the same period in 2017. This increase was primarily due to a $2.0 million increase in merchant service revenues and a $1.5 million increase in interchange settlement fees, partially offset by a $1.6 million increase in network association dues.

Other service charges and fees were $36.3 million for the year ended December 31, 2019, a decrease of $2.1 million or 5% as compared to the same period in 2018. This decrease was primarily due to a $2.1 million decrease in fee income from our cash management services. Other service charges and fees were $38.3 million for the year ended December 31, 2018, an increase of $4.3 million or 12% as compared to the same period in 2017. This increase was primarily due to a $2.5 million increase in fees from the sale of annuities and securities, a $0.8 million increase in fee income from our cash management services, a $0.6 million increase in fees from standby letters of credit arrangements and a $0.5 million increase in residential mortgage loan servicing fees.

Trust and investment services income was $35.1 million for the year ended December 31, 2019, an increase of $3.8 million or 12% as compared to the same period in 2018. This increase was primarily due to a $3.1 million increase in business cash management fees and a $1.0 million increase in investment management fees. Trust and investment services income was $31.3 million for the year ended December 31, 2018, an increase of $0.8 million or 3% as compared to the same period in 2017. This increase was primarily due to a $0.5 million increase in investment management fees and a $0.3 million increase in business cash management fees.

BOLI income was $15.5 million for the year ended December 31, 2019, an increase of $6.3 million or 68% as compared to the same period in 2018. This increase was primarily due to a $4.9 million increase in BOLI earnings as well as a $1.4 million increase in death benefits received. BOLI income was $9.2 million for the year ended December 31, 2018, a decrease of $4.1 million or 31% as compared to the same period in 2017. This decrease was primarily due to a $3.4 million decrease in BOLI earnings and a $0.6 million decrease in death benefits received.

Net losses on the sale of investment securities were $2.7 million for the year ended December 31, 2019, a decrease of $2.7 million as compared to the same period in 2018. The net loss was primarily due to the investment portfolio restructuring and sale of the 48 investment securities for which a non-credit related OTTI write-down was recorded in December 2018 as a result of our intent to sell as of December 31, 2018. In January 2019, the Company completed its sale of the 48 securities and recorded an additional loss of $2.6 million.

There were no OTTI losses on available-for-sale debt securities during the year ended December 31, 2019. OTTI losses on available-for-sale debt securities were $24.1 million for the year ended December 31, 2018, an increase of $24.1 million as compared to the same period in 2017. OTTI losses on available-for-sale debt securities for the year ended December 31, 2018 were due to our intent to sell 48 securities with a book value of $898.2 million, which were sold in 2019. As a result, we recorded an OTTI write-down of $24.1 million, representing the entire difference between the amortized cost basis and fair value of the securities, during December 2018.

Other noninterest income was $7.9 million for the year ended December 31, 2019, a decrease of $18.6 million or 70% as compared to the same period in 2018. The decrease in other noninterest income was primarily due to a $13.2 million decrease in net gains recognized in income related to derivative contracts, a portion of which was attributable to the costs associated with the sale of Visa Class B restricted shares of $4.5 million recorded during the year ended December 31, 2019. The decrease was additionally due to a $2.8 million decrease in customer-related interest rate swap fees, $1.1 million loss on the sale of residential loans to government-sponsored enterprises and a $1.3 million decrease in gains on

51

the sale of leased equipment. Other noninterest income was $26.5 million for the year ended December 31, 2018, a decrease of $1.4 million or 5% as compared to the same period in 2017. The decrease in other noninterest income was primarily due to a $7.0 million decrease related to gains on the sale of bank properties in 2017, a $2.2 million decrease in income due to adjustments to certain liabilities assumed as a result of the Reorganization Transactions, a $0.8 million decrease related to insurance proceeds from severe weather which affected the Hawaiian Islands and a $0.6 million decrease in merchant discount fees related to debit card transactions. This was partially offset by a $7.0 million increase in net gains recognized in income related to derivative contracts, a $1.2 million increase in gains on the sale of leased equipment and a $1.2 million general excise tax refund.

Noninterest Expense

Table 4 presents the major components of noninterest expense for the years ended December 31, 2019, 2018 and 2017:

Noninterest Expense															Table 4
	Year Ended December 31,						Change					Change
(dollars in thousands)	2019		2018		2017			2019	vs.	2018			2018	vs.	2017
Salaries and employee benefits(1)	$	173,098	$	167,162	$	163,086	$	5,936		4	%	$	4,076		2	%
Contracted services and professional fees		56,321		49,775		45,011		6,546		13			4,764		11
Occupancy		28,753		27,330		23,485		1,423		5			3,845		16
Equipment		17,343		17,714		17,247		(371)		(2)			467		3
Regulatory assessment and fees		7,390		14,217		14,907		(6,827)		(48)			(690)		(5)
Advertising and marketing		6,910		4,813		6,191		2,097		44			(1,378)		(22)
Card rewards program		29,961		24,860		23,363		5,101		21			1,497		6
Other(1)		50,661		59,082		54,264		(8,421)		(14)			4,818		9
Total noninterest expense	$	370,437	$	364,953	$	347,554	$	5,484		2	%	$	17,399		5	%

(1) The Company adopted ASU No. 2017-07 and applied the guidance retrospectively. As such $12.3 million previously reported in salaries and employee benefits were reclassified to other noninterest expense for the year ending December 31, 2017.

Total noninterest expense was $370.4 million for the year ended December 31, 2019, an increase of $5.5 million or 2% as compared to the same period in 2018. Total noninterest expense was $365.0 million for the year ended December 31, 2018, an increase of $17.4 million or 5% as compared to the same period in 2017.

Salaries and employee benefits expense was $173.1 million for the year ended December 31, 2019, an increase of $5.9 million or 4% as compared to the same period in 2018. This increase was primarily due to a $4.5 million increase in incentive compensation and a $1.7 million increase in other compensation, primarily related to costs incurred for a nonrecurring payment pursuant to the Bank’s Executive Change-in-Control Retention Plan, partially offset by a $0.5 million decrease in base salaries and related payroll taxes. Salaries and employee benefits expense was $167.2 million for the year ended December 31, 2018, an increase of $4.1 million or 2% as compared to the same period in 2017. This increase was primarily due to a $7.7 million increase in base salaries and related payroll taxes and a $2.4 million increase in group health plan costs. This was partially offset by a $2.4 million increase in deferred loan origination costs, a $2.1 million decrease in incentive compensation and a $1.4 million decrease in other compensation, primarily related to bonuses to employees due to the benefits from the Tax Act being passed in December 2017.

Contracted services and professional fees were $56.3 million for the year ended December 31, 2019, an increase of $6.5 million or 13% as compared to the same period in 2018. This increase was primarily due to a $5.3 million increase in contracted data processing, primarily related to system upgrades and product enhancements, and a $2.6 million increase in outside services, primarily attributable to marketing and new customer services. This was partially offset by a $1.6 million decrease in audit, legal and consultant fees. Contracted services and professional fees were $49.8 million for the year ended December 31, 2018, an increase of $4.8 million or 11% as compared to the same period in 2017. This increase was primarily due to a $2.5 million increase in outside services, primarily attributable to marketing and new customer services and a $1.9 million increase in contracted data processing, primarily related to new merchant billing services.

Occupancy expense was $28.8 million for the year ended December 31, 2019, an increase of $1.4 million or 5% as compared to the same period in 2018. This increase was primarily due to a $0.9 million decrease in net sublease rental income and a $0.6 million increase in real property tax expense. Occupancy expense was $27.3 million for the year ended December 31, 2018, an increase of $3.8 million or 16% as compared to the same period in 2017. This increase was

52

primarily due to a $2.6 million decrease in net sublease rental income, a $1.5 million increase in building maintenance expense and a $0.6 million increase in utilities expense. This was partially offset by a $0.9 million decrease in ATM rent expense.

Equipment expense was $17.3 million for the year ended December 31, 2019, a decrease of $0.4 million or 2% as compared to the same period in 2018. Equipment expense was $17.7 million for the year ended December 31, 2018, an increase of $0.5 million or 3% as compared to the same period in 2017.

Regulatory assessment and fees were $7.4 million for the year ended December 31, 2019, a decrease of $6.8 million or 48% as compared to the same period in 2018. Regulatory assessment and fees were $14.2 million for the year ended December 31, 2018, a decrease of $0.7 million or 5% as compared to the same period in 2017. Starting in the third quarter of 2016, there was a change in the calculation of the FDIC insurance assessment and the adoption of an additional surcharge, which resulted in a higher insurance rate. This additional surcharge required by the FDIC ended during the third quarter of 2018. The decrease of the regulatory assessment and fees for the year ended December 31, 2019 as compared to the same period in 2018 was based on the exclusion of the additional surcharge for all twelve months of 2019. The decrease of the regulatory assessment and fees for the year ended December 31, 2018 as compared to the same period in 2017 was based on the exclusion of the additional surcharge for the last three months of 2018.

Advertising and marketing expense was $6.9 million for the year ended December 31, 2019, an increase of $2.1 million or 44% as compared to the same period in 2018. This increase was primarily due to a $1.8 million decrease in vendor reimbursements and a $0.3 million increase in advertising costs. Advertising and marketing expense was $4.8 million for the year ended December 31, 2018, a decrease of $1.4 million or 22% as compared to the same period in 2017. This decrease was primarily due to a $2.0 million increase in vendor reimbursements, partially offset by a $0.6 million increase in advertising costs.

Card rewards program expense was $30.0 million for the year ended December 31, 2019, an increase of $5.1 million or 21% as compared to the same period in 2018. This increase was primarily due to a $2.3 million increase in priority rewards card redemptions, a $2.1 million increase in interchange fees paid to our credit card partners and a $0.6 million increase in credit card cash reward redemptions. Card rewards program expense was $24.9 million for the year ended December 31, 2018, an increase of $1.5 million or 6% as compared to the same period in 2017. This increase was primarily due to a $1.6 million increase in credit card cash reward redemptions.

Other noninterest expense was $50.7 million for the year ended December 31, 2019, a decrease of $8.4 million or 14% as compared to the same period in 2018. This decrease was primarily due to a $4.1 million settlement recorded in 2018 in connection with a putative class action lawsuit against the Company, a $1.7 million decrease in operational losses (which includes losses as a result of bank error, fraud, items processing, or theft), a $0.9 million decrease in other tax expense, a $0.8 million decrease in software amortization expense and a $0.5 million decrease in shipping and delivery expenses. Other noninterest expense was $59.1 million for the year ended December 31, 2018, an increase of $4.8 million or 9% as compared to the same period in 2017. This increase was primarily due to a $4.1 million settlement recorded in connection with the class action lawsuit noted above, a $1.0 million increase in operational losses (which includes losses as a result of bank error, fraud, items processing, or theft), a $0.9 million increase in charitable contributions and a $0.7 million loss on our funding swap related to a decrease in the conversion rate of our Visa Class B restricted shares sold in 2016. This was partially offset by a $2.1 million decrease in pension-related expenses.

Provision for Income Taxes

The provision for income taxes was $97.3 million (reflecting an effective tax rate of 25.49%) for the year ended December 31, 2019, compared with a provision for income taxes of $93.8 million (reflecting an effective tax rate of 26.18%) for the same period in 2018. Additional information about the provision for income taxes is presented in “Note 16. Income Taxes” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data.

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Analysis of Business Segments

Our business segments are Retail Banking, Commercial Banking, and Treasury and Other. Table 5 summarizes net income from our business segments for the years ended December 31, 2019, 2018 and 2017. Additional information about operating segment performance is presented in “Note 23. Reportable Operating Segments” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data.

In 2019, the Company made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the change was to align deposit balances within the business segment that directly manages them. Specifically, certain deposit balances previously included as part of the Retail Banking segment have been reclassified to the Commercial Banking segment. The reallocation of select deposit balances affected net interest income, net interest income after provision for loan and lease losses, noninterest income, provision for income taxes and net income. The Company has reported its selected financial information using the new deposit balance alignments for the year ended December 31, 2019. The Company has restated the selected financial information for the years ended December 31, 2018 and 2017 in order to conform with the current presentation.

Additionally, during the fourth quarter of 2019 the Company changed its assumptions embedded in allocating deposit costs to the business segments. The Company has reported its selected financial information using the new deposit cost assumptions starting with the fourth quarter of 2019.

Business Segment Net Income						Table 5
	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Retail Banking	$	204,520	$	204,865	$	138,549
Commercial Banking		92,632		94,344		69,571
Treasury and Other		(12,760)		(34,815)		(24,438)
Total	$	284,392	$	264,394	$	183,682

Retail Banking.  Our Retail Banking segment includes the financial products and services we provide to consumers, small businesses and certain commercial customers. Loan and lease products offered include residential and commercial mortgage loans, home equity lines of credit, automobile loans and leases, personal lines of credit, installment loans, and small business loans and leases. Deposit products offered include checking, savings and time deposit accounts. Our Retail Banking segment also includes our wealth management services. Products and services from Retail Banking are delivered to customers through 58 banking locations throughout the State of Hawaii, Guam and Saipan.

Net income for the Retail Banking segment was $204.5 million for the year ended December 31, 2019, a decrease of $0.3 million as compared to the same period in 2018. The decrease in net income for the Retail Banking segment was primarily due to a $7.1 million decrease in net interest income and a $2.5 million increase in noninterest expense, partially offset by a $5.7 million increase in noninterest income, a $2.5 million decrease in the Provision and a $1.1 million decrease in the provision for income taxes. The decrease in net interest income was primarily due to lower spreads on our loan portfolio. The increase in noninterest expense was primarily due to higher overall expenses that were allocated to the Retail Banking segment, and an increase in occupancy expense and salaries and employee benefits expense, partially offset by a 2018 charge related to a settlement agreement to resolve a putative class action lawsuit against the Company, and a decrease in regulatory assessment and fees and contracted services and professional fees. The increase in noninterest income was primarily due to an increase in trust and investment services and service charges on deposit accounts. The decrease in the Provision was partially due to improvements in residential mortgage troubled loan trends. The decrease in the provision for income taxes was primarily due to the decrease in net income. The increase in total assets for the Retail Banking segment was primarily due to growth in our residential real estate loans which benefited from the demand by owner occupants to refinance in a low interest rate environment.

Net income for the Retail Banking segment was $204.9 million for the year ended December 31, 2018, an increase of $66.3 million or 48% as compared to the same period in 2017. The increase in net income for the Retail Banking segment was primarily due to a $59.8 million decrease in the provision for income taxes and a $10.4 million increase in net interest income, partially offset by a $2.2 million increase in noninterest expense and a $1.9 million increase in the Provision. The decrease in the provision for income taxes was primarily due to the reduction of the corporate tax rate as a result of the Tax Act. The increase in net interest income was primarily due to higher earnings credits as a result of higher average balances and margins in our deposit portfolio. The increase in noninterest expense was primarily due to a charge related to a settlement agreement to resolve a putative class action lawsuit against the Company and an increase in salaries

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and employee benefits expense, occupancy expense and contracted services and professional fees, partially offset by lower expenses that were allocated to the Retail Banking segment. The increase in total assets for the Retail Banking segment was primarily due to strong residential real estate loan growth, reflective of the strong housing market and economic conditions in Hawaii during 2018.

Commercial Banking.  Our Commercial Banking segment includes our corporate banking, residential and commercial real estate loans, commercial lease financing, automobile loans and auto dealer financing, business deposit products and credit cards that we provide primarily to middle market and large companies in Hawaii, Guam, Saipan and California.

Net income for the Commercial Banking segment was $92.6 million for the year ended December 31, 2019, a decrease of $1.7 million or 2% as compared to the same period in 2018. The decrease in net income for the Commercial Banking segment was primarily due to a $7.3 million decrease in noninterest income and a $1.6 million increase in noninterest expense, partially offset by a $5.9 million decrease in the Provision. The decrease in noninterest income was primarily due to a decrease in customer-related interest rate swap fees, fee income from our cash management services, volume-based incentives, merchant service revenues, lower gains on the sale of leased equipment and loss on the sale of residential loans to government-sponsored enterprises, partially offset by an increase in interchange settlement fees. The increase in noninterest expense was primarily due to an increase in card reward expenses and higher expenses that were allocated to the Commercial Banking segment, partially offset by a decrease in regulatory assessment and fees, operational losses and other taxes. The decrease in the Provision was partially due to the sale of $408.9 million commercial and industrial loans during the year ended December 31, 2019. The decrease in total assets for the Commercial Banking segment was primarily due to the sale of commercial and industrial loans and a decrease in other assets, partially offset by growth in our commercial real estate portfolio, reflective of the demand by both investors and owner occupants to refinance and/or to acquire new real estate assets.

Net income for the Commercial Banking segment was $94.3 million for the year ended December 31, 2018, an increase of $24.8 million or 36% as compared to the same period in 2017. The increase in net income for the Commercial Banking segment was primarily due to a $25.2 million decrease in the provision for income taxes, a $8.6 million increase in net interest income and a $5.3 million increase in noninterest income, partially offset by a $12.6 million increase in noninterest expense and a $1.8 million increase in the Provision. The decrease in the provision for income taxes was primarily due to the reduction of the corporate tax rate as a result of the Tax Act. The increase in net interest income was primarily due to higher spread on our deposit portfolio and higher interest income from our commercial lending portfolio, particularly our commercial real estate loans. The increase in noninterest income was primarily due to an increase in merchant service revenues and interchange settlement fees, a gain on the sale of leased equipment and an increase in fee income from our cash management services, partially offset by an increase in network association dues. The increase in noninterest expense was primarily due to higher expenses that were allocated to the Commercial Banking segment and an increase in card reward expenses, contracted services and professional fees and operational losses. The increase in total assets for the Commercial Banking segment was primarily due to growth in our commercial real estate portfolio, reflective of a strong real estate market in Hawaii during 2018.

Treasury and Other.  Our Treasury and Other segment includes our treasury business, which consists of corporate asset and liability management activities, including interest rate risk management. The assets and liabilities (and related interest income and expense) of our treasury business consist of interest-bearing deposits, investment securities, federal funds sold and purchased, government deposits, short and long-term borrowings and bank-owned properties. Our primary sources of noninterest income are from BOLI, net gains from the sale of investment securities, foreign exchange income related to customer driven currency requests from merchants and island visitors and management of bank-owned properties in Hawaii and Guam. The net residual effect of the transfer pricing of assets and liabilities is included in Treasury and Other, along with the elimination of intercompany transactions.

Other organizational units (Technology, Operations, Credit and Risk Management, Human Resources, Finance, Administration, Marketing, and Corporate and Regulatory Administration) provide a wide range of support to our other income earning segments. Expenses incurred by these support units are charged to the applicable business segments through an internal cost allocation process.

Net loss for the Treasury and Other segment was $12.8 million for the year ended December 31, 2019, a decrease in net loss of $22.1 million or 63% as compared to the same period in 2018. The decrease in net loss was primarily due to a $15.1 million increase in noninterest income and a $13.3 million increase in net interest income, partially offset by a

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$5.0 million decrease in the benefit for income taxes and a $1.4 million increase in noninterest expense. The increase in noninterest income was primarily due to the OTTI losses on available-for-sale securities recorded in 2018 and higher BOLI income, partially offset by a decrease in net gains recognized in income related to derivative contracts. The increase in net interest income was primarily due to higher earnings credits as a result of higher average balances and yields in our loan portfolio, partially offset by lower average balances in our investment securities portfolio. The decrease in the benefit for income taxes was primarily due to the decrease in net loss. The increase in noninterest expense was primarily due to higher contracted services and professional fees, salaries and employee benefits expenses and advertising and marketing expenses, partially offset by lower overall expenses that were allocated to the Treasury and Other segment and a decrease in regulatory assessment and fees. The decrease in total assets for the Treasury and Other segment was primarily due to a decrease in our investment securities portfolio.

Net loss for the Treasury and Other segment was $34.8 million for the year ended December 31, 2018, an increase in net loss of $10.4 million or 42% as compared to the same period in 2017. The increase in net loss was primarily due to a $32.2 million decrease in noninterest income and a $2.6 million increase in noninterest expense, partially offset by an $18.5 million increase in net interest income and a $5.9 million increase in the benefit for income taxes. The decrease in noninterest income was primarily due to the OTTI losses on available-for-sale securities and a decrease in gains related to the sale of bank properties, BOLI income, income due to adjustments to certain liabilities assumed as a result of the Reorganization Transactions and insurance proceeds from severe weather which affected the Hawaiian Islands, partially offset by an increase in net gains recognized in income related to derivative contracts. The increase in noninterest expense was primarily due to an increase in occupancy expense, salaries and employee benefits expense, contracted services and professional fees, charitable contributions and a loss on our funding swap related to a decrease in the conversion rate of our Visa Class B restricted shares sold in 2016.  This was partially offset by a decrease in pension-related expenses and advertisings costs. The increase in net interest income was primarily due to higher earnings credits as a result of higher average balances in our loan portfolio, partially offset by higher expense charges as a result of higher average balances and margins in our deposit portfolio. The increase in the benefit for income taxes was primarily due to the reduction of the corporate tax rate as a result of the Tax Act. The decrease in total assets for the Treasury and Other segment was primarily due to a decrease in our investment securities portfolio.

Analysis of Financial Condition

Liquidity

Liquidity refers to our ability to maintain cash flow that is adequate to fund operations and meet present and future financial obligations through either the sale or maturity of existing assets or by obtaining additional funding through liability management. We consider the effective and prudent management of liquidity to be fundamental to our health and strength. Our objective is to manage our cash flow and liquidity reserves so that they are adequate to fund our obligations and other commitments on a timely basis and at a reasonable cost.

Liquidity is managed to ensure stable, reliable and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals and investment opportunities. Funding requirements are impacted by loan originations and refinancings, deposit balance changes, liability issuances and settlements and off-balance sheet funding commitments. We consider and comply with various regulatory and internal guidelines regarding required liquidity levels and periodically monitor our liquidity position in light of the changing economic environment and customer activity. Based on periodic liquidity assessments, we may alter our asset, liability and off-balance sheet positions. The Company’s Asset Liability Management Committee (“ALCO”) monitors sources and uses of funds and modifies asset and liability positions as liquidity requirements change. This process, combined with our ability to raise funds in money and capital markets and through private placements, provides flexibility in managing the exposure to liquidity risk.

Immediate liquid resources are available in cash which is primarily on deposit with the Federal Reserve Bank of San Francisco (the “FRB”). As of December 31, 2019 and 2018, cash and cash equivalents were $0.7 billion and $1.0 billion, respectively. Potential sources of liquidity also include investment securities in our available-for-sale portfolio. The carrying value of our available-for-sale investment securities were $4.1 billion and $4.5 billion as of December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, we maintained our excess liquidity primarily in collateralized mortgage obligations issued by Ginnie Mae, Fannie Mae and Freddie Mac. As of December 31, 2019, our available-for-sale investment securities portfolio was comprised of securities with a weighted average life of approximately 3.7 years. These funds offer substantial resources to meet either new loan demand or to help offset reductions in our deposit funding base. Liquidity is further enhanced by our ability to pledge loans to access secured

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borrowings from the FHLB and the FRB. As of December 31, 2019, we have borrowing capacity of $1.7 billion from the FHLB and $596.8 million from the FRB based on the amount of collateral pledged.

Our core deposits have historically provided us with a long-term source of stable and relatively lower cost of funding. Our core deposits, defined as all deposits exclusive of time deposits exceeding $250,000, totaled $15.1 billion and $15.3 billion as of December 31, 2019 and 2018, which represented 92% and 89%, respectively, of our total deposits. These core deposits are normally less volatile, often with customer relationships tied to other products offered by the Company, however, deposit levels could decrease if interest rates increase significantly or if corporate customers increase investing activities and reduce deposit balances.

The Company’s routine funding requirements are expected to consist primarily of general corporate needs and capital to be returned to our shareholders. We expect to meet these obligations from dividends paid by the Bank to the Parent. Additional sources of liquidity available to us include selling residential real estate loans in the secondary market, short- and long-term borrowings and the issuance of long-term debt and equity securities.

Investment Securities

Table 6 presents the estimated fair value of our available-for-sale investment securities portfolio as of December 31, 2019, 2018 and 2017:

Investment Securities						Table 6
	December 31,
(dollars in thousands)	2019		2018		2017
U.S. Treasury securities	$	29,888	$	389,470	$	392,255
Government-sponsored enterprises debt securities		101,439		241,594		242,601
Mortgage-backed securities:
Residential - Government agency		291,209		411,536		351,390
Residential - Government-sponsored enterprises		399,492		150,847		174,741
Commercial - Government-sponsored enterprises		101,719		—		—
Collateralized mortgage obligations:
Government agency		2,381,278		2,682,449		3,290,474
Government-sponsored enterprises		770,619		602,592		762,718
Debt securities issued by states and political subdivisions		—		19,854		20,479
Total available-for-sale securities	$	4,075,644	$	4,498,342	$	5,234,658

Table 7 presents the maturity distribution at amortized cost and weighted-average yield to maturity of our available-for-sale investment securities portfolio as of December 31, 2019:

Maturities and Weighted-Average Yield on Securities(1)																						Table 7
	1 Year or Less				After 1 Year - 5 Years				After 5 Years - 10 Years				Over 10 Years				Total
			Weighted				Weighted				Weighted				Weighted				Weighted
			Average				Average				Average				Average				Average		Fair
(dollars in millions)	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Value
As of December 31, 2019
Available-for-sale securities
U.S. Treasury securities	$	29.8	2.40	%	$	—	—	%	$	—	—	%	$	—	—	%	$	29.8	2.40	%	$	29.9
Government-sponsored enterprises debt securities(3)		25.0	2.00			76.7	1.85			—	—			—	—			101.7	1.88			101.4
Mortgage-backed securities(2):
Residential - Government agency		—	—			139.3	2.80			150.8	2.29			—	—			290.1	2.54			291.2
Residential - Government-sponsored enterprises		—	—			318.5	2.65			—	—			76.6	2.79			395.1	2.68			399.5
Commercial - Government-sponsored enterprises		—	—			29.4	2.99			72.4	2.39			—	—			101.8	2.57			101.7
Collateralized mortgage obligations(2):
Government agency		10.4	1.64			2,308.3	2.17			71.5	2.06			—	—			2,390.2	2.17			2,381.3
Government-sponsored enterprises		—	—			720.1	2.24			—	—			51.9	3.11			772.0	2.29			770.6
Total available-for-sale securities as of December 31, 2019	$	65.2	2.13	%	$	3,592.3	2.25	%	$	294.7	2.26	%	$	128.5	2.92	%	$	4,080.7	2.27	%	$	4,075.6

(1) Weighted-average yields were computed on a fully taxable-equivalent basis.

(2) Maturities for mortgage-backed securities and collateralized mortgage obligations anticipate future prepayments.

(3) Maturities for government-sponsored enterprises debt securities purchased at a premium are categorized by their first call date.

The fair value of our available-for-sale investment securities portfolio was $4.1 billion as of December 31, 2019, a decrease of $422.7 million or 9% compared to December 31, 2018. The lower balances in investment securities were primarily due to redeploying runoff to fund growth in loans. Additionally, a restructuring of the investment portfolio was conducted in January 2019, whereby sales and purchases were conducted to improve the risk profile and return of the

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investment portfolio. Our available-for-sale investment securities are carried at fair value with changes in fair value reflected in other comprehensive income (loss), unless a security is deemed to be OTTI.

As of December 31, 2019, we maintained all of our investment securities in the available-for-sale category recorded at fair value in the consolidated balance sheets, with $3.2 billion invested in collateralized mortgage obligations issued by Ginnie Mae, Fannie Mae and Freddie Mac. Our available-for-sale portfolio also included $792.4 million in mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, $101.4 million in debt securities issued by government-sponsored enterprises (FHLB and Federal Farm Credit Banks Funding Corporation callable bonds) and $29.9 million in U.S. Treasury securities.

We continually evaluate our investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability and the level of interest rate risk to which we are exposed. These evaluations may cause us to change the level of funds we deploy into investment securities and change the composition of our investment securities portfolio.

Gross unrealized gains in our investment securities portfolio were $19.0 million and $0.1 million as of December 31, 2019 and 2018, respectively. Gross unrealized losses in our investment securities portfolio were $24.0 million and $142.2 million as of December 31, 2019 and 2018, respectively. Lower unrealized losses in our investment securities portfolio were primarily due to lower market interest rates as of December 31, 2019, relative to December 2018, resulting in higher valuation. The lower gross unrealized loss positions were primarily related to our collateralized mortgage obligations, the fair value of which is sensitive to changes in market interest rates.

We conduct a regular assessment of our investment securities portfolio to determine whether any securities are OTTI. When assessing unrealized losses for OTTI, we consider the nature of the investment, the financial condition of the issuer, the extent and duration of unrealized losses, expected cash flows of underlying assets and market conditions. As of December 31, 2019, we have no plans to sell investment securities with unrealized losses, and believe it is more likely than not that we would not be required to sell such securities before recovery of their amortized cost, which may be at maturity.

We are required to hold non-marketable equity securities, comprised of FHLB stock, as a condition of our membership in the FHLB system. Our FHLB stock is accounted for at cost, which equals par or redemption value. As of both December 31, 2019 and 2018, we held $34.1 million in FHLB stock, respectively, which is recorded as a component of other assets in our consolidated balance sheets.  

See “Note 3. Investment Securities” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information on our investment securities portfolio.

Loans and Leases

Table 8 presents the composition of our loan and lease portfolio by major categories as of December 31 for each of the last five years:

Loans and Leases										Table 8
	December 31,
(dollars in thousands)	2019		2018		2017		2016		2015
Commercial and industrial	$	2,743,242	$	3,208,760	$	3,135,266	$	3,239,600	$	3,057,455
Commercial real estate		3,463,953		2,990,783		2,667,597		2,343,495		2,164,448
Construction		519,241		626,757		632,911		450,012		367,460
Residential:
Residential mortgage		3,768,936		3,527,101		3,226,601		2,921,766		2,668,147
Home equity line		893,239		912,517		863,452		874,693		864,280
Total residential		4,662,175		4,439,618		4,090,053		3,796,459		3,532,427
Consumer		1,620,556		1,662,504		1,586,476		1,510,772		1,401,561
Lease financing		202,483		147,769		165,066		180,040		198,679
Total loans and leases	$	13,211,650	$	13,076,191	$	12,277,369	$	11,520,378	$	10,722,030

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Total loans and leases were $13.2 billion as of December 31, 2019, an increase of $135.5 million or 1% from December 31, 2018 with increases in commercial real estate loans, residential real estate loans and lease financing.  

Commercial and industrial loans are made primarily to corporations, middle market and small businesses for the purpose of financing equipment acquisition, expansion, working capital and other general business purposes. We also offer a variety of automobile dealer flooring lines to our customers in Hawaii and California to assist with the financing of their inventory. Commercial and industrial loans were $2.7 billion as of December 31, 2019, a decrease of $465.5 million or 15% from December 31, 2018. The decrease was primarily due to the sale of $408.9 million in loans during the year and greater than expected prepayments.

Commercial real estate loans are secured by first mortgages on commercial real estate at loan to value (“LTV”) ratios generally not exceeding 75% and a minimum debt service coverage ratio of 1.20 to 1. The commercial properties are predominantly apartments, neighborhood and grocery anchored retail, industrial, office, and to a lesser extent, specialized properties such as hotels. The primary source of repayment for investor property is cash flow from the property and for owner occupied property is the operating cash flow from the business. Commercial real estate loans were $3.5 billion as of December 31, 2019, an increase of $473.2 million or 16% from December 31, 2018. Strong demand for commercial real estate lending activities was reflective of the demand by both investors and owner occupants to refinance and/or to acquire new real estate assets.  

Construction loans are for the purchase or construction of a property for which repayment will be generated by the property. Loans in this portfolio are primarily for the purchase of land, as well as for the development of commercial properties, single family homes and condominiums. We classify loans as construction until the completion of the construction phase. Following construction, if a loan is retained by the Bank, the loan is reclassified to the commercial real estate or residential real estate classes of loans. Construction loans were $519.2 million as of December 31, 2019, a decrease of $107.5 million or 17% from December 31, 2018. The decrease in construction loans was primarily due to pay-offs of various large construction projects in 2019 that were outstanding as of December 31, 2018.

Residential real estate loans are generally secured by 1-4 unit residential properties and are underwritten using traditional underwriting systems to assess the credit risks and financial capacity and repayment ability of the consumer. Decisions are primarily based on LTV ratios, debt-to-income (“DTI”) ratios, liquidity and credit scores. LTV ratios generally do not exceed 80%, although higher levels are permitted with mortgage insurance. We offer fixed rate mortgage products and variable rate mortgage products with interest rates that are subject to change every year after the first, third, fifth or tenth year, depending on the product and are based on LIBOR. Variable rate residential mortgage loans are underwritten at fully-indexed interest rates. We generally do not offer interest-only, payment-option facilities, Alt-A loans or any product with negative amortization. Residential real estate loans were $4.7 billion as of December 31, 2019, an increase of $222.6 million or 5% from December 31, 2018. Our portfolio of residential real estate loans benefited from the demand by owner occupants to refinance in a low interest rate environment.

Consumer loans consist primarily of open- and closed-end direct and indirect credit facilities for personal, automobile and household purchases as well as credit card loans. We seek to maintain reasonable levels of risk in consumer lending by following prudent underwriting guidelines, which include an evaluation of personal credit history, cash flow and collateral values based on existing market conditions. Consumer loans were $1.6 billion as of December 31, 2019, a decrease of $41.9 million or 3% from December 31, 2018. The decrease in consumer loans was primarily due to lower automobile loans.

Lease financing consists of commercial single investor leases and leveraged leases. Underwriting of new lease transactions is based on our lending policy, including but not limited to an analysis of customer cash flows and secondary sources of repayment, including the value of leased equipment, the guarantors’ cash flows and/or other credit enhancements. No new leveraged leases are being added to the portfolio and all remaining leveraged leases are running off. Lease financing was $202.5 million as of December 31, 2019, an increase of $54.7 million or 37% from December 31, 2018. The increase in lease financing was due to portfolio growth in our commercial single investor leases.

See “Note 4. Loans and Leases” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data and the discussion in “Analysis of Financial Condition — Allowance for Loan and Lease Losses” of this MD&A for more information on our loan and lease portfolio.

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The Company’s loan and lease portfolio includes adjustable-rate loans, primarily tied to Prime and LIBOR, hybrid-rate loans, for which the initial rate is fixed for a period from one year to as much as ten years, and fixed rate loans, for which the interest rate does not change through the life of the loan. Table 9 presents the recorded investment in our loan and lease portfolio as of December 31, 2019:

Loans and Leases by Rate Type																							Table 9
	December 31, 2019
	Adjustable Rate															Hybrid			Fixed
(dollars in thousands)	Prime			LIBOR			Treasury			Other			Total			Rate			Rate			Total
Commercial and industrial	$	256,188		$	2,044,685		$	—		$	21,670		$	2,322,543		$	13,777		$	406,922		$	2,743,242
Commercial real estate		38,764			2,042,683			345			987,255			3,069,047			76,359			318,547			3,463,953
Construction		46,110			349,993			36			29,629			425,768			407			93,066			519,241
Residential:
Residential mortgage		30,797			168,047			107,370			50,787			357,001			371,252			3,040,683			3,768,936
Home equity line		327,081			—			35,663			—			362,744			530,428			67			893,239
Total residential		357,878			168,047			143,033			50,787			719,745			901,680			3,040,750			4,662,175
Consumer		350,109			18,499			1,670			102			370,380			9,762			1,240,414			1,620,556
Lease financing		—			—			—			—			—			—			202,483			202,483
Total loans and leases	$	1,049,049		$	4,623,907		$	145,084		$	1,089,443		$	6,907,483		$	1,001,985		$	5,302,182		$	13,211,650
% by rate type at December 31, 2019		8	%		35	%		1	%		8	%		52	%		8	%		40	%		100	%

Tables 10 and 11 present the geographic distribution of our loan and lease portfolio as of December 31, 2019 and 2018:

Geographic Distribution of Loan and Lease Portfolio										Table 10
	December 31, 2019
			U.S.		Guam &		Foreign &
(dollars in thousands)	Hawaii		Mainland(1)		Saipan		Other		Total
Commercial and industrial	$	1,270,997	$	1,285,340	$	140,929	$	45,976	$	2,743,242
Commercial real estate		2,289,626		768,314		405,720		293		3,463,953
Construction		261,089		253,577		4,575		—		519,241
Residential:
Residential mortgage		3,642,251		2,708		123,977		—		3,768,936
Home equity line		861,079		78		32,082		—		893,239
Total residential		4,503,330		2,786		156,059		—		4,662,175
Consumer		1,202,762		22,521		393,045		2,228		1,620,556
Lease financing		85,842		110,630		6,011		—		202,483
Total Loans and Leases	$	9,613,646	$	2,443,168	$	1,106,339	$	48,497	$	13,211,650
Percentage of Total Loans and Leases		73%		18%		8%		1%		100%

(1) For secured loans and leases, classification as U.S. Mainland is made based on where the collateral is located.  For unsecured loans and leases, classification as U.S. Mainland is made based on the location where the majority of the borrower's business operations are conducted.

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Geographic Distribution of Loan and Lease Portfolio										Table 11
	December 31, 2018
			U.S.		Guam &		Foreign &
(dollars in thousands)	Hawaii		Mainland(1)		Saipan		Other		Total
Commercial and industrial	$	1,289,171	$	1,707,713	$	130,477	$	81,399	$	3,208,760
Commercial real estate		2,003,997		615,364		370,546		876		2,990,783
Construction		326,006		272,709		28,042		—		626,757
Residential:
Residential mortgage		3,405,867		2,890		118,344		—		3,527,101
Home equity line		882,805		—		29,712		—		912,517
Total residential		4,288,672		2,890		148,056		—		4,439,618
Consumer		1,239,563		23,038		397,783		2,120		1,662,504
Lease financing		46,409		93,954		7,406		—		147,769
Total Loans and Leases	$	9,193,818	$	2,715,668	$	1,082,310	$	84,395	$	13,076,191
Percentage of Total Loans and Leases		70%		21%		8%		1%		100%

(1) For secured loans and leases, classification as U.S. Mainland is made based on where the collateral is located.  For unsecured loans and leases, classification as U.S. Mainland is made based on the location where the majority of the borrower's business operations are conducted.

Our lending activities are concentrated primarily in Hawaii. However, we also have lending activities on the U.S. mainland, Guam and Saipan. Our commercial lending activities on the U.S. mainland include automobile dealer flooring activities in California, participation in the Shared National Credits Program and selective commercial real estate projects based on existing customer relationships. Our lease financing portfolio includes leveraged lease financing activities on the U.S. mainland, but this portfolio continues to run off and no new leveraged leases are being added to the portfolio. Our consumer lending activities are concentrated primarily in Hawaii and to a smaller extent Guam and Saipan.

Table 12 presents certain contractual loan maturity categories and sensitivities of those loans to changes in interest rates as of December 31, 2019:

Maturities for Selected Loan Categories(1)								Table 12
	December 31, 2019
	Due in One		Due After One		Due After
(dollars in thousands)	Year or Less		to Five Years		Five Years		Total
Commercial and industrial	$	1,226,493	$	1,191,975	$	324,774	$	2,743,242
Construction		191,260		242,985		84,996		519,241
Total Selected Loans	$	1,417,753	$	1,434,960	$	409,770	$	3,262,483
Total of loans with:
Adjustable interest rates	$	1,304,539	$	1,148,553	$	295,219	$	2,748,311
Hybrid interest rates		1,315		5,164		7,705		14,184
Fixed interest rates		111,899		281,243		106,846		499,988
Total Selected Loans	$	1,417,753	$	1,434,960	$	409,770	$	3,262,483

(1) Based on contractual maturities.

Credit Quality

We evaluate certain loans and leases, including commercial and industrial loans, commercial real estate loans and construction loans, individually for impairment and non-accrual status. A loan is considered to be impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan. We generally place a loan on non-accrual status when management believes that collection of principal or interest has become doubtful or when a loan or lease becomes 90 days past due as to principal or interest, unless it is well secured and in the process of collection. Loans on non-accrual status are generally classified as impaired, but not all impaired loans are necessarily placed on non-accrual status. See “Note 5. Allowance for Loan and Lease Losses” in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information about our credit quality indicators.

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For purposes of managing credit risk and estimating the Allowance, management has identified three categories of loans (commercial, residential real estate and consumer) that we use to develop our systematic methodology to determine the Allowance. The categorization of loans for the evaluation of credit risk is specific to our credit risk evaluation process and these loan categories are not necessarily the same as the loan categories used for other evaluations of our loan portfolio. See “Note 5. Allowance for Loan and Lease Losses” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information about our approach to estimating the Allowance.

The following tables and discussion address non-performing assets, loans and leases that are 90 days past due but are still accruing interest, impaired loans and loans modified in a troubled debt restructuring.

Non-Performing Assets and Loans and Leases Past Due 90 Days or More and Still Accruing Interest

Table 13 presents information on our Non-Performing Assets (“NPAs”) and Accruing Loans and Leases Past Due 90 Days or More for each of the last five years:

Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More					Table 13
	December 31,
(dollars in thousands)	2019			2018			2017			2016			2015
Non-Performing Assets
Non-Accrual Loans and Leases
Commercial Loans:
Commercial and industrial	$	32		$	274		$	2,932		$	2,730		$	3,958
Commercial real estate		30			1,658			1,786			—			138
Lease financing		—			—			—			153			181
Total Commercial Loans		62			1,932			4,718			2,883			4,277
Residential Loans:
Residential mortgage		5,406			4,611			5,107			6,547			12,344
Total Residential Loans		5,406			4,611			5,107			6,547			12,344
Total Non-Accrual Loans and Leases		5,468			6,543			9,825			9,430			16,621
Other Real Estate Owned ("OREO")		319			751			329			329			154
Total Non-Performing Assets	$	5,787		$	7,294		$	10,154		$	9,759		$	16,775
Accruing Loans and Leases Past Due 90 Days or More
Commercial Loans:
Commercial and industrial	$	1,429		$	141		$	220		$	449		$	2,496
Commercial real estate		1,013			—			1,400			—			161
Construction		2,367			—			—			—			—
Lease financing		—			—			—			83			174
Total Commercial Loans		4,809			141			1,620			532			2,831
Residential Loans:
Residential mortgage		74			32			—			—			106
Home equity line		2,995			2,842			1,360			866			631
Total Residential Loans		3,069			2,874			1,360			866			737
Consumer		4,272			3,373			1,394			1,870			1,454
Total Accruing Loans and Leases Past Due 90 Days or More	$	12,150		$	6,388		$	4,374		$	3,268		$	5,022
Restructured Loans on Accrual Status and Not Past Due 90 Days or More	$	14,493		$	24,033		$	34,130		$	44,496		$	28,351
Total Loans and Leases	$	13,211,650		$	13,076,191		$	12,277,369		$	11,520,378		$	10,722,030
Ratio of Non-Accrual Loans and Leases to Total Loans and Leases		0.04	%		0.05	%		0.08	%		0.08	%		0.16	%
Ratio of Non-Performing Assets to Total Loans and Leases and OREO		0.04	%		0.06	%		0.08	%		0.08	%		0.16	%
Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More to Total Loans and Leases and OREO		0.14	%		0.10	%		0.12	%		0.11	%		0.20	%

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Table 14 presents the activity in NPAs for the years ended December 31, 2019 and 2018:

Non-Performing Assets				Table 14
	Year Ended
	December 31,
(dollars in thousands)	2019		2018
Balance at beginning of year	$	7,294	$	10,154
Additions		12,767		7,817
Reductions
Payments		(10,783)		(7,384)
Return to accrual status		(1,910)		(1,831)
Sales of other real estate owned		(751)		(691)
Charge-offs/write-downs		(830)		(771)
Total Reductions		(14,274)		(10,677)
Balance at end of year	$	5,787	$	7,294

The level of NPAs represents an indicator of the potential for future credit losses. NPAs consist of non-accrual loans and leases and OREO. Changes in the level of non-accrual loans and leases typically represent increases for loans and leases that reach a specified past due status, offset by reductions for loans and leases that are charged-off, paid down, sold, transferred to OREO or are no longer classified as non-accrual because they have returned to accrual status as a result of continued performance and an improvement in the borrower’s financial condition and loan repayment capabilities.

Total NPAs were $5.8 million as of December 31, 2019, a decrease of $1.5 million or 21% from December 31, 2018. The ratio of our NPAs to total loans and leases and OREO was 0.04% as of December 31, 2019, a decrease of 2 basis points from December 31, 2018. The decrease in total NPAs was primarily due to a $1.6 million decrease in commercial real estate loans and a $0.4 million decrease in OREO, partially offset by a $0.8 million increase in residential mortgage loans.  

The largest component of our NPAs continues to be residential mortgage loans. The level of these NPAs remains elevated due to a lengthy judicial foreclosure process in Hawaii. As of December 31, 2019, residential mortgage non-accrual loans were $5.4 million, an increase of $0.8 million or 17% from December 31, 2018. As of December 31, 2019, our residential mortgage non-accrual loans were comprised of 28 loans with a weighted average current loan-to-value (“LTV”) ratio of 66%.

Commercial real estate non-accrual loans were nil as of December 31, 2019, a decrease of $1.6 million or 98% from December 31, 2018.  This decrease was attributable to payoffs of four commercial real estate non-accrual loans in 2019.

Commercial and industrial non-accrual loans were nil as of December 31, 2019, a decrease of $0.2 million or 88% from December 31, 2018.

OREO represents property acquired as a result of borrower defaults on loans. OREO is recorded at fair value, less estimated selling costs, at the time of foreclosure. On an ongoing basis, properties are appraised as required by market conditions and applicable regulations. OREO was $0.3 million and $0.8 million as of December 31, 2019 and 2018, respectively, and was comprised of two residential properties as of both December 31, 2019 and 2018.

We attribute the lower level of NPAs to stable general economic conditions in Hawaii, led by strong tourism and construction industries, relatively low unemployment and favorable real estate valuations. We have also continued to remain diligent in our collection and recovery efforts and have continued to seek new lending opportunities while maintaining sound judgment and underwriting practices.

Loans and Leases Past Due 90 Days or More and Still Accruing Interest. Loans and leases in this category are 90 days or more past due, as to principal or interest, and are still accruing interest because they are well secured and in the process of collection.

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Loans and leases past due 90 days or more and still accruing interest were $12.2 million as of December 31, 2019, an increase of $5.8 million or 90% as compared to December 31, 2018. Construction, commercial and industrial and commercial real estate loans that were past due 90 days or more and still accruing interest increased by $2.4 million, $1.3 million and $1.0 million, respectively, from December 31, 2018.

Impaired Loans. A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. For a loan that has been modified in a troubled debt restructuring, the contractual terms of the loan agreement refer to the contractual terms specified by the original loan agreement, not the contractual terms specified by the modified loan agreement.

Impaired loans were $20.6 million and $30.6 million as of December 31, 2019 and 2018, respectively. These impaired loans had a related Allowance of $0.2 million and $0.5 million as of December 31, 2019 and 2018, respectively. The decrease in impaired loans during 2019 was primarily due to payoffs of six commercial real estate loans totaling $5.0 million and removals due to payoffs, returns to accrual status and transfers to OREO of fifteen residential mortgage loans totaling $4.1 million. The balance of impaired loans was also affected by charge-offs and paydowns. For the years ended December 31, 2019 and 2018, we recorded charge-offs of $0.6 million and $0.7 million, respectively, related to our total impaired loans. Our impaired loans are considered in management’s assessment of the overall adequacy of the Allowance.

If interest due on the balances of all non-accrual loans as of December 31, 2019 had been accrued under the original terms, approximately $0.2 million in additional interest income would have been recorded in the year ended December 31, 2019 and approximately $0.5 million in additional interest income would have been recorded for 2018. Actual interest income recorded on these loans was $1.8 million for the year ended December 31, 2019 and $1.9 million for the year ended December 31, 2018.

Loans Modified in a Troubled Debt Restructuring

Table 15 presents information on loans whose terms have been modified in a troubled debt restructuring (“TDR”) as of December 31, 2019 and 2018:

Loans Modified in a Troubled Debt Restructuring										Table 15
	December 31,
(dollars in thousands)	2019		2018		2017		2016		2015
Commercial and industrial	$	4,919	$	8,445	$	15,251	$	24,842	$	11,888
Commercial real estate		692		4,086		8,850		12,546		5,649
Total commercial		5,611		12,531		24,101		37,388		17,537
Residential mortgage		10,487		12,128		12,394		13,813		11,906
Total	$	16,098	$	24,659	$	36,495	$	51,201	$	29,443

Loans modified in a TDR were $16.1 million as of December 31, 2019, a decrease of $8.6 million or 35% from 2018. This decrease was primarily due to payoffs of two commercial real estate loans totaling $3.4 million and payoffs of five residential mortgage loans totaling $1.9 million. This was further decreased by charge-offs and paydowns on existing loans. As of December 31, 2019, $14.5 million or 90% of our loans modified in a TDR were performing in accordance with their modified contractual terms and were on accrual status.

Generally, loans modified in a TDR are returned to accrual status after the borrower has demonstrated performance under the modified terms by making six consecutive timely payments. See “Note 5. Allowance for Loan and Lease Losses” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information and a description of the modification programs that we currently offer to our customers.

Allowance for Loan and Lease Losses

We maintain the Allowance at a level which, in our judgment, is adequate to absorb probable losses that have been incurred in our loan and lease portfolio as of the balance sheet date. The Allowance consists of two components, allocated and unallocated. The allocated portion of the Allowance includes reserves that are allocated based on impairment analyses of specific loans or pools of loans. The unallocated component of the Allowance incorporates our judgment of the determination of the risks inherent in the loan and lease portfolio, economic uncertainties and imprecision in the estimation process. Although we determine the amount of each component of the Allowance separately, the Allowance as

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a whole was considered appropriate by management as of December 31, 2019 and 2018 based on our ongoing analysis of estimated probable credit losses, credit risk profiles, economic conditions, coverage ratios and other relevant factors.

Table 16 presents an analysis of our Allowance for the years indicated:

Allowance for Loan and Lease Losses														Table 16
	December 31,
(dollars in thousands)	2019			2018			2017			2016			2015
Balance at Beginning of Year	$	141,718		$	137,253		$	135,494		$	135,484		$	134,799
Loans and Leases Charged-Off
Commercial Loans:
Commercial and industrial		(2,718)			(778)			(1,519)			(348)			(866)
Lease financing		(24)			—			(147)			—			—
Total Commercial Loans		(2,742)			(778)			(1,666)			(348)			(866)
Residential		(438)			(165)			(408)			(799)			(618)
Consumer		(32,807)			(26,630)			(23,851)			(18,791)			(18,312)
Total Loans and Leases Charged-Off		(35,987)			(27,573)			(25,925)			(19,938)			(19,796)
Recoveries on Loans and Leases Previously Charged-Off
Commercial Loans:
Commercial and industrial		410			232			844			251			940
Commercial real estate		263			216			596			3,329			1,115
Lease financing		—			—			—			2			3
Total Commercial Loans		673			448			1,440			3,582			2,058
Residential		967			940			687			1,358			2,198
Consumer		9,359			8,470			7,057			6,408			6,325
Total Recoveries on Loans and Leases Previously Charged-Off		10,999			9,858			9,184			11,348			10,581
Net Loans and Leases Charged-Off		(24,988)			(17,715)			(16,741)			(8,590)			(9,215)
Provision for Loan and Lease Losses		13,800			22,180			18,500			8,600			9,900
Balance at End of Year	$	130,530		$	141,718		$	137,253		$	135,494		$	135,484
Average Loans and Leases Outstanding	$	13,063,716		$	12,570,182		$	11,944,596		$	11,175,213		$	10,297,834
Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding		0.19	%		0.14	%		0.14	%		0.08	%		0.09	%
Ratio of Allowance for Loan and Lease Losses to Loans and Leases Outstanding		0.99	%		1.08	%		1.12	%		1.18	%		1.26	%

Tables 17 and 18 present the allocation of the Allowance by loan category, in both dollars and as a percentage of total loans and leases outstanding, as of the dates indicated:

Allocation of the Allowance by Loan and Lease Category	Table 17
	December 31,
(dollars in thousands)	2019		2018		2017		2016		2015
Commercial and industrial	$	28,975	$	34,501	$	34,006	$	33,129	$	34,025
Commercial real estate		22,325		19,725		18,044		18,448		18,489
Construction		4,844		5,813		6,817		4,513		3,793
Lease financing		424		432		611		847		888
Total commercial		56,568		60,471		59,478		56,937		57,195
Residential		39,179		44,906		42,852		43,436		46,099
Consumer		34,644		35,813		31,249		28,388		28,385
Unallocated		139		528		3,674		6,733		3,805
Total Allowance for Loan and Lease Losses	$	130,530	$	141,718	$	137,253	$	135,494	$	135,484

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Allocation of the Allowance by Loan and Lease Category (as a percentage of total loans and leases outstanding)							Table 18
	December 31,
	2019				2018				2017				2016				2015
	Allocated		Loan		Allocated		Loan		Allocated		Loan		Allocated		Loan		Allocated		Loan
	Allowance as		category as		Allowance as		category as		Allowance as		category as		Allowance as		category as		Allowance as		category as
	% of loan or		% of total		% of loan or		% of total		% of loan or		% of total		% of loan or		% of total		% of loan or		% of total
	lease category		loans and leases		lease category		loans and leases		lease category		loans and leases		lease category		loans and leases		lease category		loans and leases
Commercial and industrial	1.06	%	20.76	%	1.08	%	24.54	%	1.08	%	25.54	%	1.02	%	28.12	%	1.11	%	28.52	%
Commercial real estate	0.64		26.22		0.66		22.87		0.68		21.73		0.79		20.34		0.85		20.19
Construction	0.93		3.93		0.93		4.79		1.08		5.16		1.00		3.91		1.03		3.43
Lease financing	0.21		1.53		0.29		1.13		0.37		1.34		0.47		1.56		0.45		1.85
Total commercial	0.82		52.44		0.87		53.33		0.90		53.77		0.92		53.93		0.99		53.99
Residential	0.84		35.29		1.01		33.96		1.05		33.31		1.14		32.96		1.31		32.94
Consumer	2.14		12.27		2.15		12.71		1.97		12.92		1.88		13.11		2.03		13.07
Total	0.99	%	100.00	%	1.08	%	100.00	%	1.12	%	100.00	%	1.18	%	100.00	%	1.26	%	100.00	%

As of December 31, 2019, the Allowance was $130.5 million or 0.99% of total loans and leases outstanding, compared with an Allowance of $141.7 million or 1.08% of total loans and leases outstanding as of December 31, 2018. The level of the Allowance was commensurate with our stable credit risk profile, loan portfolio growth and composition and a stable Hawaii economy.

Net charge-offs of loans and leases were $25.0 million or 0.19% of total average loans and leases outstanding for the year ended December 31, 2019 compared to $17.7 million or 0.14% for 2018. Net charge-offs in our commercial lending portfolio were $2.1 million for the year ended December 31, 2019 compared to net charge-offs of $0.3 million for 2018. Net recoveries in our residential lending portfolio were $0.5 million for the year ended December 31, 2019 compared to net recoveries of $0.8 million for 2018. Our net recovery position in this portfolio segment is largely attributable to rising real estate prices in Hawaii. Net charge-offs in our consumer lending portfolio were $23.4 million for the year ended December 31, 2019 compared to net charge-offs of $18.2 million for 2018. Net charge-offs in our consumer portfolio segment include those related to credit card, automobile loans, installment loans and small business lines of credit and reflect the inherent risk associated with these loans.  

Although we determine the amount of each component of the Allowance separately, the Allowance as a whole was considered appropriate by management as of December 31, 2019 and 2018 based on our ongoing analysis of estimated probable credit losses, credit risk profiles, economic conditions, coverage ratios and other relevant factors.

As of December 31, 2019, the allocation of the Allowance to our commercial loans decreased by $3.9 million or 6% from 2018. As of December 31, 2019, the allocation of the Allowance to our residential real estate loan portfolio decreased by $5.7 million or 13% from 2018.  The Company reviews qualitative factors periodically to reflect changing conditions, which resulted in a net decrease in the allocated Allowance as a percentage of loan or lease category for both commercial loans and residential loans.

See “Note 5. Allowance for Loan and Lease Losses” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information on the Allowance.

Goodwill

Goodwill was $995.5 million as of both December 31, 2019 and 2018. Our goodwill originated from the acquisition of the Company by BNPP in December of 2001. Goodwill generated in that acquisition was recorded on the balance sheet of the Bank as a result of push down accounting treatment, and remains on our consolidated balance sheets. Goodwill is not amortized but is subject, at a minimum, to annual tests for impairment at a reporting unit level. Determining the amount of goodwill impairment, if any, includes assessing the current implied fair value of the reporting unit as if it were being acquired in a business combination and comparing it to the carrying amount of the reporting unit’s goodwill. There was no impairment in our goodwill for the year ended December 31, 2019. Future events that could cause a significant decline in our expected future cash flows or a significant adverse change in our business or the business climate may necessitate taking charges in future reporting periods related to the impairment of our goodwill and other intangible assets.

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Other Assets

Other assets were $490.6 million as of December 31, 2019, an increase of $44.2 million or 10% from December 31, 2018. This increase was primarily due to a $51.2 million increase in interest rate swap agreements, a $44.3 million increase stemming from our adoption of Accounting Standard Update No. 2016-02, Leases (Topic 842), which required us to record right-of-use assets related to our operating leases, and a $34.1 million increase in investments in affordable housing and other tax credit partnership interests. This was partially offset by a $52.2 million decrease in current tax receivables and deferred tax assets and a $31.9 million decrease in interest-earning advances.

Deposits

Deposits are the primary funding source for the Bank and are acquired from a broad base of local markets, including both individual and corporate customers. We obtain funds from depositors by offering a range of deposit types, including demand, savings, money market and time.

Table 19 presents the composition of our deposits as of December 31, 2019 and 2018:

Deposits				Table 19
	December 31,
(dollars in thousands)	2019		2018
Demand	$	5,880,072	$	6,007,941
Savings		4,998,933		4,853,285
Money Market		3,055,832		3,196,678
Time		2,510,157		3,092,164
Total Deposits	$	16,444,994	$	17,150,068

Total deposits were $16.4 billion as of December 31, 2019, a decrease of $705.1 million or 4% from December 31, 2018. The decrease in deposit balances stemmed from a $582.0 million or 19% decrease in time deposit balances, primarily from a $502.0 million decrease in public time deposits, a $140.8 million or 4% decrease in money market deposit balances and a $127.9 million or 2% decrease in demand deposit balances. This was partially offset by a $145.6 million or 3% increase in savings deposit balances.

Table 20 presents the amount of time deposits of $100,000 or more issued by the Company, further segregated by time remaining until maturity, as of December 31, 2019:

						Table 20
(dollars in thousands)	Domestic		Foreign		Total
Three months or less	$	807,189	$	75,074	$	882,263
Over three through six months		291,299		31,354		322,653
Over six through twelve months		301,231		41,181		342,412
Over twelve months		192,603		59,277		251,880
Total	$	1,592,322	$	206,886	$	1,799,208

Short-term and Long-term Borrowings

Short-term borrowings were $400.0 million as of December 31, 2019, an increase of $400.0 million from December 31, 2018. This increase was due to the reclassification of $400.0 million in FHLB fixed-rate advances from long-term borrowings to short-term borrowings as the maturity dates for these advances are less than one year from the consolidated balance sheet date. These short-term FHLB fixed-rate advances have a weighted average interest rate of 2.84% and maturity dates in 2020.

Long-term borrowings were $200.0 million as of December 31, 2019, a decrease of $400.0 million from December 31, 2018 due to the reclassification of $400.0 million in FHLB fixed-rate advances from long-term borrowings to short-term borrowings as the maturity dates for these advances are less than one year. The Company's long-term borrowings included $200.0 million in FHLB fixed-rate advances with a weighted average interest rate of 2.73% and maturity dates ranging from 2023 to 2024. Long-term borrowings mature in excess of one year from the consolidated balance sheet date.

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As of December 31, 2019, the available remaining borrowing capacity with the FHLB was $1.7 billion. The FHLB fixed rate advances and remaining borrowing capacity were secured by residential real estate loan collateral as of December 31, 2019.

Pension and Postretirement Plan Obligations

We have a qualified noncontributory defined benefit pension plan, an unfunded supplemental executive retirement plan for certain key executives (“SERP”), a directors’ retirement plan, a non-qualified pension plan for eligible directors and a postretirement benefit plan providing life insurance and healthcare benefits that we offer to our directors and employees, as applicable. The qualified noncontributory defined benefit pension plan, the SERP and the directors’ retirement plan are all frozen plans to new participants. In March 2019, the Company’s board of directors approved an amendment to the SERP to freeze the SERP, which became effective on July 1, 2019. As a result of the amendment, since the effective date, there have not been any, and there will be no, new accruals of benefits, including service accruals. Existing benefits under the SERP, as of the effective date of the amendment described above, will otherwise continue in accordance with the terms of the SERP. To calculate annual pension costs, we use the following key variables: (1) size of the employee population, length of service and estimated compensation increases; (2) actuarial assumptions and estimates; (3) expected long-term rate of return on plan assets; and (4) discount rate.

Pension and postretirement benefit plan obligations, net of pension plan assets were $121.9 million as of December 31, 2019, an increase of $2.7 million or 2% from December 31, 2018. The balance as of December 31, 2019 included retirement benefits payable of $138.2 million for the Company’s underfunded plans, partially offset by pension plan assets for overfunded plans, recorded as a component of other assets on the consolidated balance sheets, of $16.3 million.

See “Note 15. Benefit Plans” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information on our pension and postretirement benefit plans.

Foreign Activities

Cross-border outstandings are defined as loans (including accrued interest), acceptances, interest-bearing deposits with other banks, other interest-bearing investments and any other monetary assets which are denominated in dollars or other non-local currency. As of December 31, 2019, aggregate cross-border outstandings in countries which amounted to 0.75% to 1% of our total consolidated assets totaled approximately $174.7 million to Japan and $162.1 million to Canada. As of December 31, 2018 and 2017, aggregate cross-border outstandings in countries which amounted to 0.75% to 1% of our total consolidated assets totaled approximately $186.3 million and $177.3 million to Japan, respectively. There were no cross-border outstandings in excess of 1% of our total consolidated assets.

Capital

The Company and the Bank are subject to the Capital Rules, which implemented the Basel Committee on Banking Supervision’s December 2010 final capital framework for strengthening international capital standards, known as Basel III, and various provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Capital Rules require bank holding companies and their bank subsidiaries to maintain substantially more capital than previously required, with a greater emphasis on common equity. The Capital Rules, among other things, (i) impose a capital measure called CET1, (ii) specify that Tier 1 capital consists of CET1 and ‘‘Additional Tier 1 capital’’ instruments meeting specified requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expand the scope of the deductions/adjustments to capital as compared to existing regulations.

The Capital Rules also require a 2.5% capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is composed entirely of CET1, on top of these minimum risk weighted asset ratios, effectively resulting in minimum ratios of (i) 7% CET1 to risk-weighted assets, (ii) 8.5% Tier 1 capital to risk-weighted assets, and (iii) 10.5% total capital to risk-weighted assets.

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As of December 31, 2019, our capital levels remained characterized as “well capitalized” under the Capital Rules. Our regulatory capital ratios, calculated in accordance with the Capital Rules, are presented in Table 21 below. There have been no conditions or events since December 31, 2019 that management believes have changed either the Company’s or the Bank’s capital classifications.

Regulatory Capital					Table 21
	December 31,
(dollars in thousands)	2019			2018
Stockholders' Equity	$	2,640,258		$	2,524,839
Less:
Goodwill		995,492			995,492
Accumulated other comprehensive loss, net		(31,749)			(132,195)
Common Equity Tier 1 Capital and Tier 1 Capital	$	1,676,515		$	1,661,542
Add:
Allowable Reserve for Loan and Lease Losses and Unfunded Commitments		131,130			142,318
Total Capital	$	1,807,645		$	1,803,860
Risk-Weighted Assets	$	14,110,799		$	13,884,976
Key Regulatory Capital Ratios
Common Equity Tier 1 Capital Ratio		11.88	%		11.97	%
Tier 1 Capital Ratio		11.88	%		11.97	%
Total Capital Ratio		12.81	%		12.99	%
Tier 1 Leverage Ratio		8.79	%		8.72	%

Total stockholders’ equity was $2.6 billion as of December 31, 2019, an increase of $115.4 million or 5% from December 31, 2018. The increase in stockholders’ equity was primarily due to earnings for the year ended December 31, 2019 of $284.4 million and a net change in the fair value of our investment securities of $100.1 million. This was partially offset by dividends declared and paid to the Company’s stockholders of $138.2 million and common stock repurchased of $136.2 million.

In January 2020, the Company’s board of directors declared a quarterly cash dividend of $0.26 per share on our outstanding shares. The dividend is to be paid on March 6, 2020 to shareholders of record at the close of business on February 24, 2020. In addition, In January 2020 the Company announced a share repurchase program for $80 million of its common stock during 2020. The timing and amount of share repurchases, if any, are influenced by various internal and external factors.

Off-Balance Sheet Arrangements and Guarantees

Off-Balance Sheet Arrangements

We hold interests in several unconsolidated variable interest entities (“VIEs”). These unconsolidated VIEs are primarily low-income housing tax credit investments in partnerships and limited liability companies. Variable interests are defined as contractual ownership or other interests in an entity that change with fluctuations in an entity’s net asset value. The primary beneficiary consolidates the VIE. Based on our analysis, we have determined that the Company is not the primary beneficiary of these entities. As a result, we do not consolidate these VIEs.

Guarantees

We sell residential mortgage loans in the secondary market primarily to Fannie Mae or Freddie Mac. The agreements under which we sell residential mortgage loans to Fannie Mae or Freddie Mac contain provisions that include various representations and warranties regarding the origination and characteristics of the residential mortgage loans. Although the specific representations and warranties vary among investors, insurance or guarantee agreements, they typically cover: ownership of the loan; validity of the lien securing the loan; the absence of delinquent taxes or liens against the property securing the loan; compliance with loan criteria set forth in the applicable agreement; compliance with applicable federal, state, and local laws; and other matters. As of December 31, 2019 and 2018, the unpaid principal balance of our portfolio of residential mortgage loans sold was $2.3 billion and $2.7 billion, respectively. The agreements under which we sell residential mortgage loans require delivery of various documents to the investor or its document

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custodian. Although these loans are primarily sold on a non-recourse basis, we may be obligated to repurchase residential mortgage loans or reimburse investors for losses incurred if a loan review reveals that underwriting and documentation standards were potentially not met in the origination of those loans. Upon receipt of a repurchase request, we work with investors to arrive at a mutually agreeable resolution. Repurchase demands are typically reviewed on an individual loan by loan basis to validate the claims made by the investor to determine if a contractually required repurchase event has occurred. We manage the risk associated with potential repurchases or other forms of settlement through our underwriting and quality assurance practices and by servicing mortgage loans to meet investor and secondary market standards. For the year ended December 31, 2019, there was one repurchase of a residential mortgage loan of $0.4 million and one pending repurchase request of a residential mortgage loan of $0.3 million.

In addition to servicing loans in our portfolio, substantially all of the loans we sell to investors are sold with servicing rights retained. We also service loans originated by other mortgage loan originators. As servicer, our primary duties are to: (1) collect payments due from borrowers; (2) advance certain delinquent payments of principal and interest; (3) maintain and administer any hazard, title, or primary mortgage insurance policies relating to the mortgage loans; (4) maintain any required escrow accounts for payment of taxes and insurance and administer escrow payments; and (5) foreclose on defaulted mortgage loans, or loan modifications or short sales. Each agreement under which we act as servicer generally specifies a standard of responsibility for actions taken by the Company in such capacity and provides protection against expenses and liabilities incurred by the Company when acting in compliance with the respective servicing agreements. However, if we commit a material breach of obligations as servicer, we may be subject to termination if the breach is not cured within a specified period following notice. The standards governing servicing and the possible remedies for violations of such standards vary by investor. These standards and remedies are determined by servicing guides issued by the investors as well as the contract provisions established between the investors and the Company. Remedies could include repurchase of an affected loan. For the year ended December 31, 2019, we had no repurchase requests related to loan servicing activities, nor were there any pending repurchase requests as of December 31, 2019.

Although to date repurchase requests related to representation and warranty provisions and servicing activities have been limited, it is possible that requests to repurchase mortgage loans may increase in frequency as investors more aggressively pursue all means of recovering losses on their purchased loans. However, as of December 31, 2019, management believes that this exposure is not material due to the historical level of repurchase requests and loss trends and thus has not established a liability for losses related to mortgage loan repurchases. As of December 31, 2019, 99% of our residential mortgage loans serviced for investors were current. We maintain ongoing communications with investors and continue to evaluate this exposure by monitoring the level and number of repurchase requests as well as the delinquency rates in loans sold to investors.

Contractual Obligations

Our contractual obligations as of December 31, 2019 were as follows:

Contractual Obligations										Table 22
	Less Than						After
(dollars in thousands)	One Year		1 - 3 Years		4 - 5 Years		5 Years		Total
Contractual Obligations
Time certificates of deposits	$	2,026,957	$	341,492	$	141,676	$	32	$	2,510,157
Short-term borrowings		400,000		—		—		—		400,000
Long-term borrowings(1)		9		10		200,000		—		200,019
Noncancelable operating leases		8,776		13,537		5,685		32,227		60,225
Postretirement benefit contributions		1,205		2,725		3,033		8,085		15,048
Purchase obligations		56,518		57,178		16,246		551		130,493
Affordable housing commitments		94,063		7,400		282		1,047		102,792
Total Contractual Obligations	$	2,587,528	$	422,342	$	366,922	$	41,942	$	3,418,734

(1) Amounts include the Company’s finance lease obligation.

Commitments to extend credit, standby letters of credit and commercial letters of credit do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon; therefore, these items are not included in the table above. Purchase obligations arise from agreements to purchase goods or services that are enforceable and legally binding. Other contracts included in purchase obligations primarily consist of service agreements for various systems and applications supporting bank operations. Postretirement benefit contributions

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represent the minimum expected contribution to the postretirement benefit plan. Actual contributions may differ from these estimates.

Our liability for unrecognized tax benefits (“UTBs”) as of December 31, 2019 and 2018 were $149.0 million and $144.1 million, respectively. The increase in UTB was primarily due to additions related to previously identified tax positions. We are unable to reasonably estimate the period of cash settlement with the respective taxing authority. As a result, our liability for UTBs is not disclosed in the table above.

See the discussion of credit, lease and other contractual commitments in “Note 4. Loans and Leases” and “Note 18. Commitments and Contingent Liabilities” in the notes to the consolidated financial statements included Item 8. Financial Statements and Supplementary Data.

Critical Accounting Policies

Our consolidated financial statements were prepared in accordance with GAAP and follow general practices within the industries in which we operate. The most significant accounting policies we follow are presented in “Note 1. Organization and Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data. Application of these principles requires us to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the consolidated financial statements. These factors include among other things, whether the policy requires management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. The accounting policies which we believe to be most critical in preparing our consolidated financial statements are those that are related to the determination of the Allowance, fair value estimates, pension and postretirement benefit obligations and income taxes.

Allowance for Loan and Lease Losses

We perform periodic and systematic detailed reviews of our loan and lease portfolio to assess overall collectability.

The Allowance provides for probable and estimable losses inherent in the loan and lease portfolio. The Allowance is increased or decreased through the provisioning process. There is no exact method of predicting specific losses or amounts that ultimately may be charged off on particular categories of the loan and lease portfolio.

Management's evaluation of the adequacy of the Allowance is often the most critical of accounting estimates for a financial institution. Our determination of the amount of the Allowance is a critical accounting estimate as it requires significant reliance on the accuracy of credit risk ratings on individual borrowers, the use of estimates and significant judgment as to the amount and timing of expected future cash flows on impaired loans, significant reliance on estimated loss rates on homogenous portfolios and consideration of our quantitative and qualitative evaluation of economic factors and trends. While our methodology in establishing the Allowance attributes portions of the Allowance to the commercial, residential real estate and consumer portfolios, the entire Allowance is available to absorb credit losses inherent in the total loan and lease portfolio.

The Allowance related to our commercial portfolio is generally most sensitive to the accuracy of credit risk ratings assigned to each borrower. Commercial loan risk ratings are evaluated based on each situation by experienced senior credit officers and are subject to periodic review by an independent internal team of credit specialists. The Allowance related to our residential real estate portfolio is most sensitive to the accuracy of delinquency data. Further refinement of the Allowance related to the residential real estate portfolio requires management to evaluate the borrower's financial condition and collateral values, among other factors. The Allowance related to our consumer portfolio is generally most sensitive to economic assumptions and delinquency trends.

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The Allowance attributable to each portfolio also includes an unallocated amount for imprecision in the estimation process. Furthermore, the estimate of the Allowance may change due to modifications in the mix and level of loan and lease balances outstanding and general economic conditions as evidenced by changes in interest rates, unemployment rates, bankruptcy filings and real estate values. While no one factor is dominant, each has the ability to result in actual loan losses which differ from originally estimated amounts.

See “Note 5. Allowance for Loan and Lease Losses” in the notes to the consolidated financial statements included in Item 8. Financial Statement and Supplementary Data and “— Analysis of Financial Condition — Allowance for Loan and Lease Losses” for more information on the Allowance.

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market inputs. For financial instruments that are traded actively and have quoted market prices or observable market inputs, there is minimal subjectivity involved in measuring fair value. However, when quoted market prices or observable market inputs are not fully available, significant management judgment may be necessary to estimate fair value. In developing our fair value measurements, we maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines Level 1 valuations as those based on quoted prices, unadjusted, for identical instruments traded in active markets. Level 2 valuations are those based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active or model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 valuations are based on model-based techniques that use at least one significant assumption not observable in the market, or significant management judgment or estimation, some of which may be internally developed.

Financial assets that are recorded at fair value on a recurring basis include available for sale investment securities, and derivative financial instruments. As of December 31, 2019 and 2018, $4.1 billion or 21% and $4.5 billion or 22%, respectively, of our total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available for sale investment securities measured using information from a third-party pricing service. These investments in debt securities and mortgage backed securities were classified in Level 2 of the fair value hierarchy. Financial liabilities that were recorded at fair value on a recurring basis were comprised of derivative financial instruments. As of December 31, 2019 and 2018, $4.9 million or less than 1% and $14.7 million or less than 1%, respectively, of our total liabilities, consisted of financial liabilities recorded at fair value on a recurring basis. As of December 31, 2019 and 2018, $0.7 million and $12.1 million, respectively, was classified in Level 2 of the fair value hierarchy and $4.2 million and $2.6 million, respectively, was classified in Level 3 of the fair value hierarchy. As of December 31, 2019 and 2018, the liability which was classified in Level 3 of the fair value hierarchy was related to the sale of our Visa Class B restricted shares in 2016. We recorded a derivative liability which requires payment to the buyer of the Visa Class B restricted shares in the event Visa further reduces the conversion rate to its publicly traded Visa Class A shares.

Our third-party pricing service makes no representations or warranties that the pricing data provided to us is complete or free from errors, omissions or defects. As a result, we have processes in place to monitor and periodically review the information provided to us by our third-party pricing service:

(1) Our third-party pricing service provides us with documentation by asset class of inputs and methodologies used to value securities. We review this documentation to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy. This documentation is periodically updated by our third-party pricing service. Accordingly, transfers of securities within the fair value hierarchy are made if deemed necessary. During the year ended December 31, 2019, there were no transfers of securities within the fair value hierarchy.

(2) On a monthly basis, management reviews the pricing information received from our third-party pricing service. This review process includes a comparison to non-binding third-party broker quotes, as well as a review of market related conditions impacting the information provided by our third-party pricing service. We also identify

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investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades relative to historic levels, as well as instances of a significant widening of the bid ask spread in the brokered markets. As of December 31, 2019, management did not make adjustments to prices provided by our third-party pricing service as a result of illiquid or inactive markets.

(3) On an annual basis, to the extent available, we obtain and review independent auditor's reports from our third-party pricing service related to controls placed in operation and tests of operating effectiveness. We did not note any significant control deficiencies in our review of the independent auditors' reports related to services rendered by our third-party pricing service.

(4) Our third-party pricing service has also established processes for us to submit inquiries regarding quoted prices. Periodically, we will challenge the quoted prices provided by our third-party pricing service. Our third-party pricing service will review the inputs to the evaluation in light of the new market data presented by us. Our third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis.

Based on the composition of our investment securities portfolio, we believe that we have developed appropriate internal controls and performed appropriate due diligence procedures to prevent or detect material misstatements by our third-party pricing service. See “Note 22. Fair Value” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information on our use of fair value estimates.

Pension and Postretirement Benefit Obligations

We use the following key variables to calculate annual pension costs: (1) size of the employee population, length of service and estimated compensation increases; (2) actuarial assumptions and estimates; (3) expected long-term rate of return on plan assets; and (4) discount rate. Pension cost is directly affected by the number of employees eligible for pension benefits and their estimated compensation increases. To calculate estimated compensation increases, management reviews our salary increases each year and compares this data with industry information. For all pension and postretirement plan calculations, we use a measurement date of December 31.

The expected long-term rate of return was based on a calculated rate of return from average rates of return on various asset classes over a 20-year historical time horizon. Using long-term historical data allows the Company to capture multiple economic environments, which management believes is relevant when using historical returns. Net actuarial gains or losses that exceed a 5% corridor of the greater of the projected benefit obligation or the fair value of plan assets as of the beginning of the year are amortized from accumulated other comprehensive income into net periodic pension cost on a straight-line basis over five years.

In estimating the projected benefit obligation, an independent actuary bases assumptions on factors such as mortality rate, turnover rate, retirement rate, disability rate and other assumptions related to the population of individuals in the pension plan. If significant actuarial gains or losses occur, the actuary reviews the demographic and economic assumptions with management, at which time the Company considers revising these assumptions based on actual results.

Our determination of the pension and postretirement benefit plan obligations and net periodic benefit cost is a critical accounting estimate as it requires the use of estimates and judgment related to the amount and timing of expected future cash out flows for benefit payments and cash inflows for maturities and return on plan assets. Changes in estimates and assumptions related to mortality rates and future health care costs could also have a material impact to our financial condition or results of operations. The discount rate assumption is used to determine the present value of future benefit obligations and the net periodic benefit cost. The discount rate assumption used to value the present value of future benefit obligations as of each year end is the rate used to determine the net periodic benefit cost for the following year.

See “Note 15. Benefit Plans” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information on pension and postretirement benefit plan obligations.

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Income Taxes

In estimating income taxes payable or receivable, we assess the relative merits and risks of the appropriate tax treatment considering statutory, judicial and regulatory guidance in the context of each tax position. Accordingly, previously estimated liabilities are regularly reevaluated and adjusted through the provision for income taxes. Changes in the estimate of income taxes payable or receivable occur periodically due to changes in tax rates, interpretations of tax law, the status of examinations being conducted by various taxing authorities, the expiration of statutes of limitations and newly enacted statutory, judicial and regulatory guidance that impact the relative merits and risks of each tax position. These changes, when they occur, may affect the provision for income taxes as well as current and deferred income taxes, and may be significant to our consolidated statements of income and balance sheets.

For example, on December 22, 2017, President Trump signed into law the Tax Act. The Tax Act made many significant amendments to the U.S. Internal Revenue Code of 1986, as amended (the “Code”), including reducing the statutory rate of U.S. federal corporate income tax from 35% to 21%. The reduction in the corporate tax rate under the Tax Act required a one-time revaluation of certain of our tax-related assets. As such, we recorded approximately $47.6 million of additional income tax expense in our consolidated statements of income in the fourth quarter of 2017.

Management's determination of the realization of net deferred tax assets is based upon management's judgment of various future events and uncertainties, including the timing and amount of future income, as well as the implementation of various tax planning strategies to maximize realization of the deferred tax assets. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized.

We are also required to record a liability for UTBs for the entire amount of a tax benefit taken in a prior or future income tax return when we determine that a tax position has a less than 50% likelihood of being accepted by the taxing authority. As of December 31, 2019 and 2018, our liabilities for UTBs were $149.0 million and $144.1 million, respectively. See “Note 16. Income Taxes” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information on income taxes.

Future Application of Accounting Pronouncements

For a discussion of the expected impact of accounting pronouncements recently issued but not adopted by us as of December 31, 2019, see “Note 1. Organization and Summary of Significant Accounting Policies — Recent Accounting Pronouncements” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

Risk Governance and Quantitative and Qualitative Disclosures About Market Risk

Managing risk is an essential part of successfully operating our business. Management believes that the most prominent risk exposures for the Company are credit risk, market risk, liquidity risk management, capital management and operational risk. See “Analysis of Financial Condition — Liquidity” and “—Capital” sections of MD&A for further discussions of liquidity risk management and capital management, respectively.

Credit Risk

Credit risk is the risk that borrowers or counterparties will be unable or unwilling to repay their obligations in accordance with the underlying contractual terms. We manage and control credit risk in the loan and lease portfolio by adhering to well-defined underwriting criteria and account administration standards established by management. Written credit policies document underwriting standards, approval levels, exposure limits and other limits or standards deemed necessary and prudent. Portfolio diversification at the obligor, industry, product, and/or geographic location levels is actively managed to mitigate concentration risk. In addition, credit risk management also includes an independent credit review process that assesses compliance with commercial, real estate and consumer credit policies, risk ratings and other critical credit information. In addition to implementing risk management practices that are based upon established and sound lending practices, we adhere to sound credit principles. We understand and evaluate our customers’ borrowing needs and capacity to repay, in conjunction with their character and history.

Management has identified three categories of loans that we use to develop our systematic methodology to determine the Allowance: commercial, residential real estate and consumer.

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Commercial lending is further categorized into four distinct classes based on characteristics relating to the borrower, transaction and collateral. These classes are: commercial and industrial, commercial real estate, construction and lease financing. Commercial and industrial loans are primarily for the purpose of financing equipment acquisition, expansion, working capital and other general business purposes by medium to larger Hawaii based corporations, as well as U.S. mainland and international companies. Commercial and industrial loans are typically secured by non-real estate assets whereby the collateral is trading assets, enterprise value or inventory. As with many of our customers, our commercial and industrial loan customers are heavily dependent on tourism, government expenditures and real estate values. Commercial real estate loans are secured by real estate, including but not limited to structures and facilities to support activities designated as retail, health care, general office space, warehouse and industrial space. Our bank’s underwriting policy generally requires that net cash flows from the property be sufficient to service the debt while still maintaining an appropriate amount of reserves. Commercial real estate loans in Hawaii are characterized by having a limited supply of real estate at commercially attractive locations, long delivery time frames for development and high interest rate sensitivity. Our construction lending portfolio consists primarily of land loans, single family and condominium development loans. Financing of construction loans is subject to a high degree of credit risk given the long delivery time frames for such projects. Construction lending activities are underwritten on a project financing basis whereby the cash flows or lease rents from the underlying real estate collateral or the sale of the finished inventory is the primary source of repayment. Market feasibility analysis is typically performed by assessing market comparables, market conditions and demand in the specific lending area and general community. We require presales of finished inventory prior to loan funding. However, because this analysis is typically performed on a forward-looking basis, real estate construction projects typically present a higher risk profile in our lending activities. Lease financing activities include commercial single investor leases and leveraged leases used to purchase items ranging from computer equipment to transportation equipment. Underwriting of new leasing arrangements typically includes analyzing customer cash flows, evaluating secondary sources of repayment such as the value of the leased asset, the guarantors’ net cash flows as well as other credit enhancements provided by the lessee.

Residential real estate is further categorized into the following classes: residential mortgages (loans secured by 1-4 family residential properties and home equity loans) and home equity lines of credit. Our bank’s underwriting standards typically require LTV ratios of not more than 80%, although higher levels are permitted with accompanying mortgage insurance. First mortgage loans secured by residential properties generally carry a moderate level of credit risk, with an average loan size of approximately $346,000. Residential mortgage loan production is added to our loan portfolio or is sold in the secondary market, based on management’s evaluation of our liquidity, capital and loan portfolio mix as well as market conditions. Changes in interest rates, the economic environment and other market factors have impacted, and will likely continue to impact, the marketability and value of collateral and the financial condition of our borrowers which impacts the level of credit risk inherent in this portfolio, although we remain a supply constrained housing environment in Hawaii. Geographic concentrations exist for this portfolio as nearly all residential mortgage loans and home equity lines of credit are for residences located in Hawaii, Guam or Saipan. These island locales are susceptible to a wide array of potential natural disasters including, but not limited to, hurricanes, floods, tsunamis and earthquakes. We offer home equity lines of credit with variable rates; fixed rate lock options may be available post-closing.  All lines are underwritten at 2% over the fully indexed rate. Our procedures for underwriting home equity lines of credit include an assessment of an applicant’s overall financial capacity and repayment ability. Decisions are primarily based on repayment ability via debt-to-income ratios, LTV ratios and an evaluation of credit history.

Consumer lending is further categorized into the following classes of loans: credit cards, automobile loans and other consumer-related installment loans. Consumer loans are either unsecured or secured by the borrower’s personal assets. The average loan size is generally small and risk is diversified among many borrowers. We offer a wide array of credit cards for business and personal use. In general, our customers are attracted to our credit card offerings on the basis of price, credit limit, reward programs and other product features. Credit card underwriting decisions are generally based on repayment ability of our borrower via DTI ratios, credit bureau information, including payment history, debt burden and credit scores, such as FICO, and analysis of financial capacity. Automobile lending activities include loans and leases secured by new or used automobiles. We originate the majority of our automobile loans and leases on an indirect basis through selected dealerships. Our procedures for underwriting automobile loans include an assessment of an applicant’s overall financial capacity and repayment ability, credit history and the ability to meet existing obligations and payments on the proposed loan or lease. Although an applicant’s creditworthiness is the primary consideration, the underwriting process also includes a comparison of the value of the collateral security to the proposed loan amount. We require borrowers to maintain full coverage automobile insurance on automobile loans and leases, with the Bank listed as either the loss payee or additional insured. Installment loans consist of open and closed end facilities for personal and household

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purchases. We seek to maintain reasonable levels of risk in installment lending by following prudent underwriting guidelines which include an evaluation of personal credit history and cash flow.

In addition to geographic concentration risk, we also monitor our exposure to industry risk. While the Bank and our customers could be adversely impacted by events affecting the tourism industry, we also monitor our other industry exposures, including but not limited to our exposures in the oil, gas and energy industries. As of December 31, 2019 and 2018, we did not have material exposures to customers in the oil, gas and energy industries.

Market Risk

Market risk is the potential of loss arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices, including the correlation among these factors and their volatility. When the value of an instrument is tied to such external factors, the holder faces market risk. We are exposed to market risk primarily from interest rate risk, which is defined as the risk of loss of net interest income or net interest margin because of changes in interest rates.

The potential cash flows, sales or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. In the banking industry, changes in interest rates can significantly impact earnings and the safety and soundness of an entity.

Interest rate risk arises primarily from our core business activities of extending loans and accepting deposits. This occurs when our interest earning loans and interest-bearing deposits mature or reprice at different times, on a different basis or in unequal amounts. Interest rates may also affect loan demand, credit losses, mortgage origination volume, pre- payment speeds and other items affecting earnings.

Many factors affect our exposure to changes in interest rates, such as general economic and financial conditions, customer preferences, historical pricing relationships and repricing characteristics of financial instruments. Our earnings are affected not only by general economic conditions, but also by the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The monetary policies of the Federal Reserve can influence the overall growth of loans, investment securities and deposits and the level of interest rates earned on assets and paid for liabilities.

Market Risk Measurement

We primarily use net interest income simulation analysis to measure and analyze interest rate risk. We run various hypothetical interest rate scenarios and compare these results against a measured base case scenario. Our net interest income simulation analysis incorporates various assumptions, which we believe are reasonable but which may have a significant impact on results. These assumptions include: (1) the timing of changes in interest rates, (2) shifts or rotations in the yield curve, (3) re-pricing characteristics for market rate sensitive instruments on and off-balance sheet, (4) differing sensitivities of financial instruments due to differing underlying rate indices and (5) varying loan prepayment speeds for different interest rate scenarios. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results but rather as a means to better plan and execute appropriate asset liability management strategies to manage our interest rate risk.

 ​

Table 23 presents, for the twelve months subsequent to December 31, 2019 and 2018, an estimate of the changes in net interest income that would result from ramps (gradual changes) and shocks (immediate changes) in market interest rates, moving in a parallel fashion over the entire yield curve, relative to the measured base case scenario. Ramp scenarios assume interest rates move gradually in parallel across the yield curve relative to the base case scenario. Shock scenarios assume an immediate and sustained parallel shift in interest rates across the entire yield curve, relative to the base case scenario. The base case scenario assumes that the balance sheet is generally unchanged. We evaluate the sensitivity by using a static forecast, where the balance sheets as of December 31, 2019 and 2018 are held constant.

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Net Interest Income Sensitivity Profile - Estimated Percentage Change Over 12 Months		Table 23
		Static Forecast				Static Forecast
	December 31, 2019				December 31, 2018
Ramp Change in Interest Rates (basis points)
+100			4.0	%			2.4	%
+50			1.9				1.2
(50)			(2.3)				(1.2)
(100)			(4.4)				(2.5)
Immediate Change in Interest Rates (basis points)
+100			8.9	%			5.5	%
+50			4.4				2.7
(50)			(4.9)				(2.8)
(100)			(9.6)				(6.2)

The table above shows the effects of a simulation which estimates the effect of a gradual and immediate sustained parallel shift in the yield curve of −100, −50, +50 and +100 basis points in market interest rates over a twelve-month period on our net interest income.

Currently, our interest rate profile is such that we project net interest income will benefit from higher interest rates as our assets would reprice faster and to a greater degree than our liabilities, while in the case of lower interest rates, our assets would reprice downward and to a greater degree than our liabilities.

Under the static balance sheet forecast as of December 31, 2019, our net interest income sensitivity profile is more sensitive as compared to similar forecasts as of December 31, 2018. The higher sensitivity is primarily due to lower market interest rates, which has the effect of higher prepayments of loans and investment securities and reinvestments which occur at lower interest rates. Also contributing to the higher net interest income sensitivity as of December 31, 2019, is lower balances in our interest rate sensitive deposit products.

The comparisons above provide insight into the potential effects of changes in interest rates on net interest income. The Company believes that its approach to interest rate risk has appropriately considered its susceptibility to both rising and falling rates and has adopted strategies which minimize the impact of such risks.

We also have longer term interest rate risk exposures which may not be appropriately measured by net interest income simulation analysis. We use market value of equity (“MVE”) sensitivity analysis to study the impact of long-term cash flows on earnings and capital. MVE involves discounting present values of all cash flows of on-balance sheet and off-balance sheet items under different interest rate scenarios. The discounted present value of all cash flows represents our MVE. MVE analysis requires modifying the expected cash flows in each interest rate scenario, which will impact the discounted present value. The amount of base case measurement and its sensitivity to shifts in the yield curve allow management to measure longer term repricing option risk in the balance sheet.

We also analyze the historical sensitivity of our interest-bearing transaction accounts to determine the portion that it classifies as interest rate sensitive versus the portion classified over one year. This analysis divides interest bearing assets and liabilities into maturity categories and measures the “gap” between maturing assets and liabilities in each category.

Limitations of Market Risk Measures

The results of our simulation analyses are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from those projected, our net interest income might vary significantly. Non-parallel yield curve shifts such as a flattening or steepening of the yield curve or changes in interest rate spreads would also cause our net interest income to be different from that depicted. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term liabilities re-price faster than expected or faster than our assets re-price. Actual results could differ from those projected if we grow assets and liabilities faster or slower than estimated, if we experience a net outflow of deposits or if our mix of assets and liabilities otherwise changes. For example, while we maintain relatively large cash balances with the FRB, a faster than expected withdrawal of deposits out of the bank may cause us to seek higher cost sources of funding.

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Actual results could also differ from those projected if we experience substantially different prepayment speeds in our loan portfolio than those assumed in the simulation analyses. Finally, these simulation results do not consider all the actions that we may undertake in response to potential or actual changes in interest rates, such as changes to our loan, investment, deposit, funding or hedging strategies.

Market Risk Governance

We seek to achieve consistent growth in net interest income and capital while managing volatility arising from changes in market interest rates. The objective of our interest rate risk management process is to increase net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.

To manage the impact on net interest income, we manage our exposure to changes in interest rates through our asset and liability management activities within guidelines established by our ALCO and approved by our board of directors. The ALCO has the responsibility for approving and ensuring compliance with the ALCO management policies, including interest rate risk exposures. The objective of our interest rate risk management process is to maximize net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.

Through review and oversight by the ALCO, we attempt to engage in strategies that neutralize interest rate risk as much as possible. Our use of derivative financial instruments, as detailed in “Note 17. Derivative Financial Instruments” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, has generally been limited. This is due to natural on balance sheet hedges arising out of offsetting interest rate exposures from loans and investment securities with deposits and other interest-bearing liabilities. In particular, the investment securities portfolio is utilized to manage the interest rate exposure and sensitivity to within the guidelines and limits established by the ALCO. We utilize natural and offsetting economic hedges in an effort to reduce the need to employ off-balance sheet derivative financial instruments to hedge interest rate risk exposures. Expected movements in interest rates are also considered in managing interest rate risk. Thus, as interest rates change, we may use different techniques to manage interest rate risk.

Management uses the results of its various simulation analyses to formulate strategies to achieve a desired risk profile within the parameters of our capital and liquidity guidelines.

Operational Risk

Operational risk is the risk of loss arising from inadequate or failed processes, people or systems, external events (such as natural disasters), or compliance, reputational or legal matters, including the risk of loss resulting from fraud, litigation and breaches in data security. Operational risk is inherent in all of our business ventures and the management of that risk is important to the achievement of our objectives. We have a framework in place that includes the reporting and assessment of any operational risk events, and the assessment of our mitigating strategies within our key business lines. This framework is implemented through our policies, processes and reporting requirements. We measure and report operational risk using the seven operational risk event types projected by the Basel Committee on Banking Supervision in Basel II: (1) external fraud; (2) internal fraud; (3) employment practices and workplace safety; (4) clients, products and business practices; (5) damage to physical assets; (6) business disruption and system failures; and (7) execution, delivery and process management. Our operational risk review process is also a core part of our assessment of material new products or activities.

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Selected Quarterly Financial Data (Unaudited)

																							Table 24
	2019												2018
(dollars in thousands,	Quarters Ended												Quarters Ended
except per share data)	12/31			9/30			6/30			3/31			12/31			9/30			6/30			3/31
Interest income	$	162,132		$	170,181		$	173,818		$	172,561		$	168,044		$	164,052		$	159,019		$	154,936
Interest expense		22,513			27,100			28,205			27,472			24,059			22,794			17,616			15,264
Net interest income		139,619			143,081			145,613			145,089			143,985			141,258			141,403			139,672
Provision for loan and lease losses		4,250			-			3,870			5,680			5,750			4,460			6,020			5,950
Noninterest income(1)		46,708			49,980			48,773			47,072			33,091			47,405			49,797			48,700
Noninterest expense(2)		91,058			93,466			93,290			92,623			89,354			93,147			91,865			90,587
Income before income taxes		91,019			99,595			97,226			93,858			81,972			91,056			93,315			91,835
Provision for income taxes		23,183			25,396			24,793			23,934			21,977			23,668			24,262			23,877
Net income	$	67,836		$	74,199		$	72,433		$	69,924		$	59,995		$	67,388		$	69,053		$	67,958
Per share information:
Earnings Per Common Share - Basic	$	0.52		$	0.56		$	0.54		$	0.52		$	0.44		$	0.50		$	0.50		$	0.49
Earnings Per Common Share - Diluted	$	0.52		$	0.56		$	0.54		$	0.52		$	0.44		$	0.50		$	0.50		$	0.49
Cash dividends declared per common share	$	0.26		$	0.26		$	0.26		$	0.26		$	0.24		$	0.24		$	0.24		$	0.24
Common share price:
High	$	29.47		$	27.84		$	28.20		$	27.67		$	27.49		$	30.02		$	31.28		$	32.36
Low	$	25.48		$	24.25		$	24.83		$	22.13		$	21.19		$	27.02		$	27.09		$	26.92
Quarter-end	$	28.85		$	26.70		$	25.87		$	26.05		$	22.51		$	27.16		$	29.02		$	27.83
Performance Ratios:
Return on average tangible stockholders' equity (non-GAAP)(3)		16.40	%		17.81	%		17.99	%		18.35	%		16.51	%		18.66	%		18.83	%		18.32	%
Return on average tangible assets (non-GAAP)(3)		1.41	%		1.52	%		1.50	%		1.45	%		1.25	%		1.38	%		1.45	%		1.42	%
Efficiency ratio		48.86	%		48.41	%		47.99	%		48.20	%		50.45	%		49.36	%		48.04	%		48.08	%
Net interest margin		3.15	%		3.19	%		3.25	%		3.23	%		3.23	%		3.11	%		3.18	%		3.13	%

(1) Noninterest income for the quarter ended December 31, 2019 included a $4.5 million loss related to an adjustment to revalue the Visa Class B derivative liability. Noninterest income for the quarter ended March 31, 2019 included $2.6 million related to net losses due to the investment portfolio restructuring and sale of 48 investment securities. Noninterest income for the quarter ended December 31, 2018 included $24.1 million related to OTTI losses on available-for-sale debt securities and a non-recurring $7.6 million mark-to-market adjustment related to two cash flow hedges that matured in December 2018.

(2) Noninterest expense for the quarter ended September 30, 2018 included $4.1 million related to the litigation settlement agreement.

(3) Return on average tangible stockholders’ equity and return on average tangible assets are non-GAAP financial measures. For a reconciliation to the most directly comparable GAAP financial measures for return on average tangible stockholders’ equity and return on average tangible assets, see “Item 6. Selected Financial Data - GAAP to Non-GAAP Reconciliation.”

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Item 7. MD&A - Risk Governance and Quantitative and Qualitative Disclosures About Market Risk.”

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Stockholders and the Board of Directors of

First Hawaiian, Inc.

Honolulu, Hawaii

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of First Hawaiian, Inc. and Subsidiary (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Loan and Lease Losses — Refer to Note 5 to the consolidated financial statements.

Critical Audit Matter Description

The Company maintains an allowance for loan and lease losses (the “Allowance”) at a level which, in management’s judgment, is adequate to absorb probable credit losses in the Company’s loan and lease portfolio. At December 31, 2019, the Company’s Allowance was $130.5 million. The Company’s allowance methodology considers many factors including, but not limited to, historical loss rate analysis and qualitative adjustments. Management incorporates qualitative adjustments to the historical loss rates or other static sources as these rates may not be an accurate indicator of inherent losses in the current portfolio. To arrive at the qualitative adjustments, management considers factors including global, national and local economic conditions; levels and trends in problem loans; the effect of credit concentrations; collateral

80

value trends; changes in risk due to changes in lending policies and practices; management expertise; industry and regulatory trends; and volume of loans.

The selection of relevant and appropriate qualitative adjustments in calculating the Allowance requires significant management judgment. Given the magnitude of the qualitative adjustments and significant amount of judgment required by management in developing the qualitative component of the overall allowance, performing audit procedures to evaluate the reasonableness of the Allowance required a high degree of auditor judgment, an increased level of effort, and the need to involve more experienced audit professionals.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Allowance included the following procedures, among others:

● We tested the effectiveness of controls over the Allowance, including management’s controls over the respective qualitative adjustments.

● We evaluated the reasonableness and conceptual soundness of the Allowance modeling framework, including the use of qualitative adjustments.

● We tested the mathematical accuracy of the calculation of the qualitative component of the Allowance as well as the accuracy and completeness of data used as inputs to the determination of the qualitative adjustments.

● We evaluated the qualitative adjustments to the historical loss rates under the incurred loss model, including assessing the basis for the adjustments and the reasonableness of the significant assumptions.

● We evaluated the directional consistency and magnitude of the qualitative adjustments as compared to the prior periods, as well as the absolute value of the Allowance attributable to the qualitative adjustments.

● In order to identify potential bias in the determination of the Allowance, we performed analytical analysis, including retrospective review, where we compared the estimate of losses to actual losses, analyzed ratios of the Allowance to loans and other relevant metrics, such as losses and nonperforming loans, performed peer analysis where we compared relevant metrics to comparable financial institutions, and evaluated the relevance of the underlying key performance indicators used to determine qualitative adjustments, to identify potential bias in the determination of the Allowance.

Organization and Summary of Significant Accounting Policies – Recent Accounting Pronouncements – Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments – Refer to Note 1 to the consolidated financial statements

Critical Audit Matter Description

On January 1, 2020, the Company will adopt ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which eliminated the probable recognition threshold for credit losses on financial assets measured at amortized cost. For loans and held-to-maturity debt securities, this guidance requires a current expected credit loss (“CECL”) approach to determine the allowance for credit losses (“ACL”). CECL requires loss estimates for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. CECL also applies to off-balance sheet credit exposures, except for unconditionally cancellable commitments.

Based on the Company’s portfolio balances and forecasted economic conditions as of January 1, 2020, management believes the adoption of the CECL standard will result in an increase in the ACL of approximately 10% to 15%, as compared to the Company’s reserve levels as of December 31, 2019. The CECL model requires management to make estimates of the expected credit losses over the remaining estimated life of the loans, including using estimates of future economic conditions that will impact the amount of such future losses. The implementation of CECL will require significant operational changes, particularly in data collection and analysis. The Company also engaged a new software vendor, ran multiple parallel productions, completed model validations and user acceptance testing, in order to align with the CECL model.

The estimation of credit losses significantly changes under the CECL model, including the application of new accounting policies, the use of new subjective judgments, and changes made to the loss estimation models. Accordingly, the procedures performed to audit the disclosure of the expected impact of the adoption of ASU No. 2016-13 involved a high degree of auditor judgment and required significant effort, including the need to involve our credit specialists.

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the disclosure of the expected impact of adopting ASU No. 2016-13 included the following, among others:

● We tested the effectiveness of management’s internal controls covering the key assumptions and judgments, CECL estimation models, selection and application of new accounting policies, and disclosure of the impact of adoption in the consolidated financial statements.

● We evaluated the adequacy of the Company’s disclosure related to the adoption of ASU No. 2016-13.

● We evaluated the appropriateness of the Company’s policies, methodologies, and elections involved in the adoption of the CECL model.

● We tested the mathematical accuracy of the CECL estimation models, including the completeness and accuracy of inputs to the models.

● We involved credit specialists to assist us in evaluating the reasonableness and conceptual soundness of the methodology as applied in the CECL estimation models.

● We evaluated the reasonableness of management’s key assumptions and judgments in estimating future credit losses.

/s/ DELOITTE & TOUCHE LLP

Honolulu, Hawaii
February 27, 2020

We have served as the Company’s auditor since 2012.

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FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended December 31,
(dollars in thousands, except per share amounts)	2019		2018		2017
Interest income
Loans and lease financing	$	574,013	$	529,877	$	462,675
Available-for-sale securities		92,505		107,123		102,272
Other		12,174		9,051		5,821
Total interest income		678,692		646,051		570,768
Interest expense
Deposits		87,865		72,976		41,944
Short-term and long-term borrowings		17,425		6,757		20
Total interest expense		105,290		79,733		41,964
Net interest income		573,402		566,318		528,804
Provision for loan and lease losses		13,800		22,180		18,500
Net interest income after provision for loan and lease losses		559,602		544,138		510,304
Noninterest income
Service charges on deposit accounts		33,778		32,036		35,807
Credit and debit card fees		66,749		65,716		64,049
Other service charges and fees		36,253		38,316		34,063
Trust and investment services income		35,102		31,324		30,485
Bank-owned life insurance		15,479		9,217		13,283
Investment securities losses, net		(2,715)		—		—
Other-than-temporary impairment (OTTI) losses on available-for-sale debt securities		—		(24,085)		—
Other		7,887		26,469		27,918
Total noninterest income		192,533		178,993		205,605
Noninterest expense
Salaries and employee benefits		173,098		167,162		163,086
Contracted services and professional fees		56,321		49,775		45,011
Occupancy		28,753		27,330		23,485
Equipment		17,343		17,714		17,247
Regulatory assessment and fees		7,390		14,217		14,907
Advertising and marketing		6,910		4,813		6,191
Card rewards program		29,961		24,860		23,363
Other		50,661		59,082		54,264
Total noninterest expense		370,437		364,953		347,554
Income before provision for income taxes		381,698		358,178		368,355
Provision for income taxes		97,306		93,784		184,673
Net income	$	284,392	$	264,394	$	183,682
Basic earnings per share	$	2.14	$	1.93	$	1.32
Diluted earnings per share	$	2.13	$	1.93	$	1.32
Basic weighted-average outstanding shares		133,076,489		136,945,134		139,560,305
Diluted weighted-average outstanding shares		133,387,157		137,111,420		139,656,993

The accompanying notes are an integral part of these consolidated financial statements.

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FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Net income	$	284,392	$	264,394	$	183,682
Other comprehensive income (loss), net of tax:
Net change in pensions and other benefits		297		2,960		4,291
Net change in investment securities		100,149		(14,259)		(14,159)
Net change in cash flow derivative hedges		—		(4,445)		1,496
Other comprehensive income (loss)		100,446		(15,744)		(8,372)
Total comprehensive income	$	384,838	$	248,650	$	175,310

The accompanying notes are an integral part of these consolidated financial statements.

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FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	December 31,		December 31,
(dollars in thousands, except share amount)	2019		2018
Assets
Cash and due from banks	$	360,375	$	396,836
Interest-bearing deposits in other banks		333,642		606,801
Investment securities		4,075,644		4,498,342
Loans held for sale		904		432
Loans and leases		13,211,650		13,076,191
Less: allowance for loan and lease losses		130,530		141,718
Net loans and leases		13,081,120		12,934,473
Premises and equipment, net		316,885		304,996
Other real estate owned and repossessed personal property		319		751
Accrued interest receivable		45,239		48,920
Bank-owned life insurance		453,873		446,076
Goodwill		995,492		995,492
Mortgage servicing rights		12,668		16,155
Other assets		490,573		446,404
Total assets	$	20,166,734	$	20,695,678
Liabilities and Stockholders' Equity
Deposits:
Interest-bearing	$	10,564,922	$	11,142,127
Noninterest-bearing		5,880,072		6,007,941
Total deposits		16,444,994		17,150,068
Short-term borrowings		400,000		—
Long-term borrowings		200,019		600,026
Retirement benefits payable		138,222		127,909
Other liabilities		343,241		292,836
Total liabilities		17,526,476		18,170,839
Commitments and contingent liabilities (Note 18)
Stockholders' equity
Common stock ($0.01 par value; authorized 300,000,000 shares; issued/outstanding: 139,917,150 / 129,928,479 as of December 31, 2019; issued/outstanding: 139,656,674 / 134,874,302 as of December 31, 2018)		1,399		1,397
Additional paid-in capital		2,503,677		2,495,853
Retained earnings		437,072		291,919
Accumulated other comprehensive loss, net		(31,749)		(132,195)
Treasury stock (9,988,671 shares as of December 31, 2019 and 4,782,372 shares as of December 31, 2018)		(270,141)		(132,135)
Total stockholders' equity		2,640,258		2,524,839
Total liabilities and stockholders' equity	$	20,166,734	$	20,695,678

The accompanying notes are an integral part of these consolidated financial statements.

85

FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

								Accumulated
				Additional				Other
(dollars in thousands,	Common Stock			Paid-In		Retained		Comprehensive		Treasury
except share amounts)	Shares	Amount		Capital		Earnings		Income (Loss)		Stock		Total
Balance as of December 31, 2016	139,530,654	$	1,395	$	2,484,251	$	78,850	$	(88,011)	$	—	$	2,476,485
Net income	—		—		—		183,682		—		—		183,682
Cash dividends declared ($0.88 per share)	—		—		—		(122,810)		—		—		(122,810)
Common stock issued under Employee Stock Purchase Plan	15,961		—		528		—		—		—		528
Equity-based awards	42,167		1		5,982		(545)		—		(282)		5,156
Distributions	—		—		(2,118)		—		—		—		(2,118)
Other comprehensive loss, net of tax	—		—		—		—		(8,372)		—		(8,372)
Balance as of December 31, 2017	139,588,782		1,396		2,488,643		139,177		(96,383)		(282)		2,532,551
Net income	—		—		—		264,394		—		—		264,394
Cash dividends declared ($0.96 per share)	—		—		—		(131,036)		—		—		(131,036)
Common stock issued under Employee Stock Purchase Plan	12,341		—		342		—		—		—		342
Equity-based awards	43,049		1		6,868		(684)		—		(53)		6,132
Common stock repurchased	(4,769,870)		—		—		—		—		(131,800)		(131,800)
Adoption of Accounting Standards Update No. 2018-02	—		—		—		20,068		(20,068)		—		—
Other comprehensive loss, net of tax	—		—		—		—		(15,744)		—		(15,744)
Balance as of December 31, 2018	134,874,302		1,397		2,495,853		291,919		(132,195)		(132,135)		2,524,839
Net income	—		—		—		284,392		—		—		284,392
Cash dividends declared ($1.04 per share)	—		—		—		(138,246)		—		—		(138,246)
Equity-based awards	194,187		2		7,824		(993)		—		(1,764)		5,069
Common stock repurchased	(5,140,010)		—		—		—		—		(136,242)		(136,242)
Other comprehensive income, net of tax	—		—		—		—		100,446		—		100,446
Balance as of December 31, 2019	129,928,479	$	1,399	$	2,503,677	$	437,072	$	(31,749)	$	(270,141)	$	2,640,258

The accompanying notes are an integral part of these consolidated financial statements.

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FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Cash flows from operating activities
Net income	$	284,392	$	264,394	$	183,682
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		13,800		22,180		18,500
Depreciation, amortization and accretion, net		67,824		54,903		62,019
Deferred income taxes		17,060		(3,602)		58,916
Stock-based compensation		7,826		6,185		5,292
Net gains on sale of real estate		—		—		(6,922)
Other losses (gains)		19		(1,062)		(210)
Originations of loans held for sale		(19,164)		(29,707)		—
Proceeds from sales of loans held for sale		18,156		29,467		—
Net losses (gains) on sales of loans originated for investment and held for sale		1,102		(199)		(16)
Net losses on investment securities		2,715		—		—
OTTI losses on available-for-sale debt securities		—		24,085		—
Change in assets and liabilities:
Net (increase) decrease in other assets		(20,923)		11,859		(42,359)
Net decrease in other liabilities		(76,303)		(27,090)		(9,128)
Net cash provided by operating activities		296,504		351,413		269,774
Cash flows from investing activities
Available-for-sale securities:
Proceeds from maturities and principal repayments		767,892		810,260		888,700
Proceeds from calls and sales		1,070,715		—		—
Purchases		(1,301,041)		(130,252)		(1,088,417)
Other investments:
Proceeds from sales		14,292		12,842		15,517
Purchases		(30,996)		(65,239)		(20,487)
Loans:
Net increase in loans and leases resulting from originations and principal repayments		(133,702)		(572,488)		(750,917)
Proceeds from sales of loans originated for investment		407,698		562		9,711
Purchases of loans		(398,735)		(270,272)		(26,626)
Proceeds from bank-owned life insurance		7,682		1,151		4,482
Purchases of premises, equipment and software		(29,354)		(35,880)		(10,068)
Proceeds from sales of premises and equipment		2		65		8,139
Purchases of mortgage servicing rights		—		(6,444)		—
Proceeds from sales of other real estate owned		759		718		929
Other		—		(2,832)		(2,044)
Net cash provided by (used in) investing activities		375,212		(257,809)		(971,081)
Cash flows from financing activities
Net (decrease) increase in deposits		(705,074)		(462,054)		817,590
Net decrease in short-term borrowings		—		—		(9,151)
Proceeds from long-term borrowings		—		600,000		—
Repayment of long-term borrowings		(10)		(10)		(10)
Dividends paid		(138,246)		(131,036)		(122,810)
Distributions paid		—		—		(2,118)
Stock tendered for payment of withholding taxes		(1,764)		(53)		(136)
Proceeds from employee stock purchase plan		—		342		528
Common stock repurchased		(136,242)		(131,800)		—
Net cash (used in) provided by financing activities		(981,336)		(124,611)		683,893
Net decrease in cash and cash equivalents		(309,620)		(31,007)		(17,414)
Cash and cash equivalents at beginning of year		1,003,637		1,034,644		1,052,058
Cash and cash equivalents at end of year	$	694,017	$	1,003,637	$	1,034,644
Supplemental disclosures
Interest paid	$	102,457	$	80,381	$	36,633
Income taxes paid, net of income tax refunds		70,508		43,002		145,072
Noncash investing and financing activities:
Transfers from loans and leases to other real estate owned		310		549		759
Operating lease right-of-use assets obtained in exchange for new lease obligations		1,401		—		—
Transfers from loans and leases to loans held for sale		408,264		—		10,251
Obligation to fund low-income housing partnerships		31,628		36,044		34,835

The accompanying notes are an integral part of these consolidated financial statements.

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FIRST HAWAIIAN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Basis of Presentation

First Hawaiian, Inc. (“FHI” or the “Parent”), a bank holding company, owns 100% of the outstanding common stock of First Hawaiian Bank (“FHB” or the “Bank”). FHB is a state-chartered bank that is not a member of the Federal Reserve System. FHB, the oldest financial institution in Hawaii, was established as Bishop & Company in 1858. As of December 31, 2019, FHB was the largest bank in Hawaii in terms of total assets, loans and leases and deposits. FHB has 58 branches located throughout the State of Hawaii, Guam and Saipan, and offers a comprehensive suite of banking services to consumer and commercial customers including loans, deposit products, wealth management, insurance, trust, retirement planning, credit card and merchant processing services.

The accounting and reporting principles of First Hawaiian, Inc. and Subsidiary (the “Company”) conform to U.S. generally accepted accounting principles (“GAAP”) and prevailing practices within the financial services industry. Intercompany accounts and transactions have been eliminated in consolidation.  

Transition to an Independent Public Company

Prior to our initial public offering in August 2016 (“IPO”), we were an indirect wholly owned subsidiary of BNP Paribas (“BNPP”), a global financial institution based in France.  

On April 1, 2016, BNPP effected a series of transactions (“Reorganization Transactions”) pursuant to which FHI, which was then known as BancWest Corporation (“BancWest”), contributed Bank of the West (“BOW”), its subsidiary at the time, to BancWest Holding Inc. (“BWHI”), a newly formed bank holding company and a wholly owned subsidiary of BancWest. Following the contribution of BOW to BWHI, BancWest distributed its interest in BWHI to BNPP, and BWHI became a wholly owned subsidiary of BNPP. As part of these transactions, we amended our certificate of incorporation to change our name to First Hawaiian, Inc., with First Hawaiian Bank remaining our only direct wholly owned subsidiary.

On July 1, 2016, we became an indirect wholly owned subsidiary of BNP Paribas USA, Inc. (“BNP Paribas USA”), BNPP’s U.S. intermediate holding company. As part of that reorganization, we became a direct wholly owned subsidiary of BancWest Corporation (“BWC”), a direct wholly owned subsidiary of BNP Paribas USA.

In August 2016, FHI completed its IPO of 24,250,000 shares of common stock sold by BWC. Shares of FHI’s common stock began trading on the NASDAQ Global Select Market (“NASDAQ”) under the ticker symbol “FHB” on August 4, 2016. In connection with FHI’s IPO, BNPP announced its intent to sell its interest in FHI, including FHI’s wholly owned subsidiary, FHB, over time, subject to market conditions and other considerations.

In February 2017, BWC sold an additional 28,750,000 shares of FHI common stock in a secondary offering. In May and June 2018, BWC sold an additional 16,830,000 shares of FHI common stock in the aggregate in a secondary offering. BWC sold 20,000,000 additional shares of FHI common stock in secondary offerings completed in each of August and September 2018, respectively. BWC sold shares of FHI common stock of 2,968,069 and 1,801,801 in May and August 2018, respectively, to the Company pursuant to share repurchase agreements. On February 1, 2019, BNPP, through BWC, completed the sale of its remaining 24,859,750 shares of FHI common stock in a public offering. FHI did not receive any of the proceeds from the sales of shares of FHI common stock in that offering, in any of the secondary offerings described above or the IPO. As a result of the completion of the February 1, 2019 public offering, BNPP (through BWC, the selling stockholder) fully exited its ownership interest in FHI common stock.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and various other assumptions believed to be reasonable.

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Although these estimates are based on management’s best knowledge of current events, actual results may differ from these estimates.

Variable Interest Entities

A variable interest entity (“VIE”) is a legal entity that lacks the ability to financially support its activities or whose equity investors lack the ability to control its activities or absorb profits and losses proportionately with their investment in the entity. The primary beneficiary consolidates the VIE. The primary beneficiary is defined as the enterprise that has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE.

The Company has a limited partnership interest or is a member in a limited liability company (“LLC”) in several low-income housing partnerships. These partnerships or LLCs provide funds for the construction and operation of apartment complexes that provide affordable housing to that segment of the population with lower family income. If these developments successfully attract a specified percentage of residents falling in that lower income range, state and/or federal income tax credits are made available to the partners or members. The tax credits are generally recognized over 10 years. In order to continue receiving the tax credits each year over the life of the partnership or LLC, the low-income residency targets must be maintained.

The Company accounts for its interests in these low-income housing partnerships using the proportional amortization method. Unfunded commitments to fund these investments were $102.8 million and $36.0 million as of December 31, 2019 and 2018, respectively. These unfunded commitments are unconditional and legally binding and are recorded in other liabilities in the consolidated balance sheets.

These low-income housing partnership and LLC entities meet the definition of a VIE; however, the Company is not the primary beneficiary of the entities, as the general partner or managing member has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. While the partnership or LLC agreements allow the limited partners and members, through a majority vote, to remove the general partner or managing member, this right is not deemed to be substantive as the general partner or managing member can only be removed for cause.

Cash and Due from Banks

Cash and due from banks include amounts due from other financial institutions as well as in-transit clearings. Because amounts due from other financial institutions often exceed the Federal Deposit Insurance Corporation (“FDIC”) deposit insurance limit, the Company evaluates the credit risk of these institutions through periodic review of their financial condition and regulatory capital position. Under the terms of the Depository Institutions Deregulation and Monetary Control Act, the Company is required to maintain reserves with the Federal Reserve Bank of San Francisco (“FRB”) based on the amount of deposits held. The average amount of cash reserves required was $67.4 million and $57.6 million for the years ended December 31, 2019 and 2018, respectively. Cash and cash equivalents include cash and due from banks and interest-bearing deposits in other banks. All amounts are readily convertible to cash and have maturities of less than 90 days.

Interest-bearing Deposits in Other Banks

Interest-bearing deposits in other banks include funds held in other financial institutions that are either fixed or variable rate instruments, including certificates of deposits. Interest income is recorded when earned and presented within other interest income in the Company’s consolidated statements of income.

Investment Securities

As of December 31, 2019 and 2018, investment securities were comprised of debt, mortgage-backed securities and collateralized mortgage obligations issued by the U.S. Government, its agencies and government-sponsored enterprises. The Company amortizes premiums and accretes discounts using the interest method over the expected lives of the individual securities. All investment securities transactions are recorded on a trade-date basis. All of the Company’s securities were categorized as available-for-sale as of December 31, 2019 and 2018. Available-for-sale investment

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securities are reported at fair value, with unrealized gains and losses reported in accumulated other comprehensive income. Gains and losses realized on sales of investment securities are determined using the specific identification method.  

Unrealized losses for all investment securities are reviewed to determine whether the losses are other than temporary. Investment securities are evaluated for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic and market conditions warrant such an evaluation, to determine whether the decline in fair value below amortized cost is other than temporary. For a debt security for which there has been a decline in the fair value below amortized cost, the Company will recognize an OTTI write-down in noninterest income if there is an intent to sell the security, it is more likely than not the Company will be required to sell the security before recovery of its amortized cost basis, or the Company does not expect to recover the entire amortized cost basis of the security. The OTTI write-down is measured as the entire difference between the amortized cost basis and fair value of the investment security.

Loans Held for Sale

The Company originates certain loans for individual sale or for sale as a pool of loans to government-sponsored enterprises. Loans held for sale are carried, on an aggregate basis, at the lower of cost or fair value. The fair value of loans held for sale is primarily determined based on quoted prices for similar loans in active markets. Net gains and losses on loan sales are recorded as a component of other noninterest income. Direct loan origination costs and fees are deferred at origination of the loan and are recognized in other noninterest income upon sale of the loan.

Loans and Leases

Loans are reported at the principal amount outstanding, net of unearned income including unamortized and unaccreted deferred loan fees and costs, and cumulative net charge-offs. Interest income is recognized on an accrual basis. Loan origination fees, certain direct costs and unearned discounts and premiums, if any, are deferred and are generally accreted or amortized into interest income as yield adjustments using the interest method over the contractual life of the loan. Other credit-related fees are recognized as fee income, a component of noninterest income, when earned.

Direct financing leases are carried at the aggregate of lease payments receivable plus the estimated residual value of leased property, less unearned income. Leveraged leases, which are a form of direct financing leases, are carried net of non-recourse debt. Unearned income on direct financing and leveraged leases is amortized over the lease terms by methods that approximate the interest method. Residual values on leased assets are periodically reviewed for impairment.

Non-Performing Loans and Leases

The Company generally places a loan or lease on nonaccrual status when management believes that collection of principal or interest has become doubtful or when a loan or lease becomes 90 days past due as to principal or interest, unless it is well secured and in the process of collection. A charge-off is recorded when it is probable that a loss has been incurred and when it is possible to determine a reasonable estimate of the loss. When the Company places a loan or lease on nonaccrual status, previously accrued and uncollected interest is reversed against interest income in the current period. When the Company receives an interest payment on a nonaccrual loan or lease, the payment is applied as a reduction of the principal balance. Nonaccrual loans and leases are generally returned to accrual status when they become current as to principal and interest and have demonstrated a sustained period of payment performance or become both well secured and in the process of collection.

Troubled Debt Restructurings

A restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the Company, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The Company offers various types of concessions when modifying a loan, including term extensions, temporary deferral of principal and temporary interest rate reductions. However, forgiveness of principal is rarely granted. Generally, a non-accrual loan that has been modified in a TDR remains on non-accrual status for at least six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. However, if the borrower’s ability to meet the revised payment terms is uncertain, the loan remains on non-accrual status.

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Impaired Loans

A loan is considered impaired when, based on current information and events, it is probable that the Company will not be able to collect all amounts due from the borrower in accordance with the contractual terms of the loan, including scheduled interest payments. This evaluation is generally based on delinquency information, an assessment of the borrower’s financial condition and the adequacy of collateral, if any. The Company’s impaired loans are primarily comprised of commercial and industrial, commercial real estate, residential mortgage and any loans modified in a TDR, whether on accrual or nonaccrual status.

The Company individually measures impairment on commercial and industrial loans and commercial real estate loans based on the present value of the expected future cash flows discounted at the loan’s effective interest rate or, for residential real estate loans and collateral-dependent loans, based on the fair value of the collateral less disposition costs. On a case-by-case basis, the Company may measure impairment based upon a loan’s observable market price. Impaired loans without a related allowance for loan and lease losses are generally collateralized by assets with fair values in excess of the recorded investment in the loans.

Allowance for Loan and Lease Losses

The Company maintains the allowance for loan and lease losses (the “Allowance”) at a level which, in management’s judgment, is adequate to absorb probable credit losses that have been incurred in the Company’s loan and lease portfolio as of the balance sheet date. The Company’s methodology for determining an adequate and appropriate level of the Allowance takes into account many factors, including:

● Trends in the volume and severity of delinquent loans and leases, nonaccrual loans and leases, troubled debt restructurings and other loan and lease modifications;

● Trends in the quality of risk management and loan administration practices including findings of internal and external reviews of loans and the effectiveness of collection practices;

● Changes in the quality of the Company’s risk identification process and loan review system;

● Changes in lending policies and procedures including underwriting standards and collection, charge-off and recovery practices;

● Changes in the nature and volume of the loan and lease portfolio;

● Changes in concentrations within the loan and lease portfolio;  

● Changes in national and local economic business conditions, including the condition of various market segments.

While the Company has a formal methodology to determine an adequate and appropriate level of the Allowance, estimates of inherent loan and lease losses involve judgment and assumptions as to various factors, including current economic conditions. Management’s determination of the adequacy of the Allowance is based on quarterly evaluations of the above factors. Accordingly, the provision for credit losses will vary from period to period based on management’s ongoing assessment of the adequacy of the Allowance.

The Allowance consists of two components, the allocated and the unallocated allowance. The allocated portion of the Allowance includes reserves that are allocated based on impairment analyses of specific loans or pools of loans. A discussion of evaluating specific loans for impairment is noted in the “Impaired Loans” section above. The Company collectively evaluates large groups or pools of smaller-balance homogeneous loans and leases such as consumer loans, residential real estate loans and small business loans. The risk assessment process includes the use of estimates to determine the inherent loss in these portfolios. The Company considers a variety of factors including, but not limited to historical loss experience, estimated defaults or foreclosures based on portfolio trends and delinquencies, and current economic conditions.

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The unallocated component of the Allowance recognizes the imprecision in the loan and lease loss estimation process. While the Company’s allocated reserve methodology strives to reflect all risk factors, there may still be certain unidentified risk elements. The purpose of the unallocated reserve is to capture these factors. The relationship of the unallocated component to the total Allowance may fluctuate from period to period. Management evaluates the adequacy of the total Allowance based on the combined total of the allocated and unallocated components of the Allowance.

The Allowance is increased by provisions for loan and lease losses and reduced by charge-offs, net of recoveries. Consumer loans and leases are generally charged off upon reaching a predetermined delinquency status that ranges from 120 to 180 days and varies by product type. Other loans and leases may be charged off to the extent they are classified as loss. Recoveries of amounts that have previously been charged off are credited to the Allowance and are generally recorded only to the extent that cash is received.

Reserve for Unfunded Commitments

The reserve for unfunded commitments (the “Unfunded Reserve”) is a component of other liabilities and represents the estimate for probable credit losses inherent in unfunded commitments to extend credit. Unfunded commitments to extend credit include loan commitments, and standby and commercial letters of credit. The process used to determine the Unfunded Reserve is consistent with the process for determining the Allowance as adjusted for estimated funding probabilities or loan and lease equivalency factors. The level of the Unfunded Reserve is adjusted by recording an expense or recovery in other noninterest expense.

Provision for Loan and Lease Losses

The provision for loan and lease losses (the “Provision”) represents the amount charged against current period earnings to achieve an Allowance that in management’s judgment is adequate to absorb probable credit losses that have been incurred in the Company’s loan and lease portfolio as of the consolidated balance sheet date. Accordingly, the Provision will vary from period to period based on management’s ongoing assessment of the overall adequacy of the Allowance.

Premises and Equipment

Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of 10 to 39 years for premises, 4 to 20 years for equipment and the shorter of the lease term or remaining useful life for leasehold improvements.

On a periodic basis, long-lived assets are reviewed for impairment. An impairment loss is recognized if the carrying amount of a long-lived asset exceeds its fair value and is not recoverable. An impairment analysis is performed whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets may not be recoverable.

Operating lease rental income for leased assets, primarily premises, is recognized on a straight-line basis as an offset to rental expense.

Other Real Estate Owned and Repossessed Personal Property

Other real estate owned (“OREO”) and repossessed personal property are comprised primarily of properties that the Company acquires through foreclosure proceedings. The Company values these properties at fair value less estimated costs to sell the property upon acquisition, which establishes the new carrying value. The Company charges losses arising upon the acquisition of the property against the Allowance. If the fair value of the property at the time of acquisition exceeds the carrying amount of the loan, the excess is recorded either as a recovery to the Allowance if a charge-off had previously been recorded, or as a gain on initial transfer in other noninterest income. After acquisition, the Company carries such properties at the lower of cost or fair value less estimated selling costs. Any write-downs or losses from the subsequent disposition of such properties are included in other noninterest expense. Gains recognized on the sale of such properties are included in other noninterest income.

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Goodwill

Goodwill represents the cost of acquired businesses in excess of the fair value of the net assets acquired. The Company performs impairment testing of goodwill, an infinite-lived intangible asset, as required under GAAP on an annual basis or when circumstances change that indicate that a potential impairment may have occurred. The Company has assigned goodwill to its operating segments for impairment testing purposes. The goodwill impairment guidance provides the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing further impairment tests is unnecessary. However, if an entity concludes otherwise, or does not elect this option, it is required to perform impairment testing. Step 1 of the test identifies potential impairments at the reporting unit level by comparing the estimated fair value of each identified reporting unit to its carrying amount. If the estimated fair value of a reporting unit exceeds its carrying amount, there is no impairment of goodwill. However, if the carrying amount exceeds the estimated fair value, Step 2 is performed to determine the amount of the potential impairment. Step 2 compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined as if the reporting unit were being acquired in a business combination. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Subsequent reversals of goodwill impairment are prohibited.

Mortgage Servicing Rights

Mortgage servicing rights are recognized as assets when residential mortgage loans are sold and the rights to service those loans are retained.  Mortgage servicing rights are initially recorded at fair value by using a discounted cash flow model to calculate the present value of estimated future net servicing income, incorporating assumptions that market participants would use in their estimates of fair value.

The Company’s mortgage servicing rights are accounted for under the amortization method and periodically assessed for impairment. The Company amortizes the mortgage servicing rights over the period of estimated net servicing income, taking into account prepayment assumptions. Any such indicated impairment is recognized in earnings during the period in which the impairment occurs. Mortgage servicing income, net of the amortization of mortgage servicing rights, is recorded as a component of other noninterest income in the consolidated statements of income.

Non-Marketable Equity Securities

The Company is required to own Federal Home Loan Bank (“FHLB”) of Des Moines stock as a condition of membership. These securities are accounted for under the cost method, which equals par value, and are included in other assets in the consolidated balance sheets. These securities do not have a readily determinable fair value as ownership is restricted and there is no market for these securities. The Company reviews these securities periodically for impairment. Management considers these securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. No impairment was recognized on non-marketable equity securities for the years ended December 31, 2019, 2018 and 2017.

Pension and Other Postretirement Benefit Plans

The Company has a qualified noncontributory defined benefit pension plan, an unfunded supplemental executive retirement plan, a directors’ retirement plan, a non-qualified pension plan for eligible directors and a postretirement benefit plan providing life insurance and healthcare benefits that is offered to directors and employees, as applicable. The qualified noncontributory defined benefit pension plan, the unfunded supplemental executive retirement plan and the directors’ retirement plan are all frozen plans to new participants. To calculate annual pension costs, management uses the following key variables: (1) size of the employee population, length of service and estimated compensation increases; (2) actuarial assumptions and estimates; (3) expected long-term rate of return on plan assets; and (4) discount rate. For all pension and postretirement benefit plan calculations, the Company uses a December 31^st measurement date.

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The expected long-term rate of return was based on a calculated rate of return from average rates of return on various asset classes over a 20-year historical time horizon. Using long-term historical data allows the Company to capture multiple economic environments, which management believes is relevant when using historical returns. Net actuarial gains or losses that exceed a 5% corridor of the greater of the projected benefit obligation or the fair value of plan assets as of the beginning of the year are amortized from accumulated other comprehensive income into net periodic pension cost on a straight-line basis over five years.

In estimating the projected benefit obligation, an independent actuary bases assumptions on factors such as mortality rate, turnover rate, retirement rate, disability rate and other assumptions related to the population of individuals in the pension plan. If significant actuarial gains or losses occur, the actuary reviews the demographic and economic assumptions with management, at which time the Company considers revising these assumptions based on actual results.

The Company recognizes an asset on its consolidated balance sheets for a plan’s overfunded status or a liability for a plan’s underfunded status. The Company also measures the plans’ assets and obligations that determine its funded status as of the end of the year and recognizes those changes in other comprehensive income, net of tax. Periodic pension expense (or income) includes service costs, interest costs based on the assumed discount rate, the expected return on plan assets based on an actuarially derived market-related value and amortization of actuarial gains and losses. Service cost is included in salaries and employee benefits expense, while all other components of net periodic pension cost are included in other noninterest expense in the consolidated statements of income.

Income Taxes

Current income tax expense is recognized for the amount of income taxes expected to be payable or refundable for the current period, and deferred income taxes are provided to reflect the tax effect of temporary differences between financial statement carrying amounts and the corresponding tax basis of assets and liabilities. Deferred income taxes are calculated by applying enacted statutory tax rates and tax laws to future years in which temporary differences are expected to reverse. The impact on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that the tax rate change is enacted. A deferred tax valuation allowance is established if it is more likely than not that a deferred tax asset will not be realized. Interest and penalties, if any, expected to be assessed or refunded by taxing authorities relating to an underpayment or overpayment of income taxes are accrued and recorded as part of income tax expense.

Excise tax credits relating to premises and equipment are accounted for using the flow-through method, and the benefit is recognized in the year the asset is placed in service. General business and excise tax credits generated from the leasing portfolio, except for credits that are passed on to lessees, are recognized over the term of the lease for book purposes, but in the year placed in service for tax purposes.

The Company maintains reserves for unrecognized tax benefits that arise in the normal course of business. As of December 31, 2019, these positions were evaluated based on an assessment of probabilities as to the likelihood of whether a liability had been incurred. Such assessments are reviewed as events occur and adjustments to the reserves are made as appropriate. In evaluating a tax position for recognition, the Company evaluates whether it is more likely than not that a tax position will be sustained upon examination, including resolution of related appeals or litigation processes, based on the technical merits of the position. If the tax position meets the more likely than not recognition threshold, the tax position is measured and recognized in the Company’s consolidated financial statements as the largest amount of tax benefit that, in management’s judgment, is greater than 50% likely of being realized upon ultimate settlement.

Derivative Instruments and Hedging Activities

Derivatives are recognized on the consolidated balance sheets at fair value. On the date the Company enters into a derivative contract, the Company designates the derivative instrument as: (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”); (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”); or (3) held for trading, customer accommodation or not qualifying for hedge accounting (“free-standing derivative instrument”). For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability or of an unrecognized firm commitment attributable to interest rate risk are recorded in current period earnings. For a cash flow hedge, to the extent that the hedge is considered highly effective, changes in the fair value of the derivative instrument are recorded in other comprehensive income and subsequently reclassified to net income in the same period

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that the hedged transaction impacts net income. To the extent the derivative instruments are not effective, any changes in the fair value of the derivatives are immediately recognized in noninterest income. For free-standing derivative instruments, changes in fair values are reported in current period earnings. The Company formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as hedges to specific assets or liabilities, unrecognized firm commitments or forecasted transactions. The Company also formally assesses, both at the inception of a hedge and on a quarterly basis, whether the derivative instruments used are highly effective in offsetting changes in fair values of, or cash flows related to, hedged items.

Fair Value Measurements

Fair value measurements apply whenever GAAP requires or permits assets or liabilities to be measured at fair value either on a recurring or nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. Fair value is based on the assumptions that management believes market participants would use when pricing an asset or liability. Fair value measurement and disclosure guidance established a three-level fair value hierarchy that prioritizes the use of inputs used in valuation methodologies. Management maximizes the use of observable inputs and minimizes the use of unobservable inputs when determining fair value measurements.

Stock-Based Compensation

The Company grants stock-based awards, including restricted stock, restricted stock units and performance stock units. These awards are issued at no cost to the recipient. The fair value of restricted stock and restricted stock unit awards was based on the closing price of FHI’s common stock on the date of grant. Such awards were recognized in the Company’s consolidated statements of income on a straight-line basis over the vesting period. Recipients of performance stock units are entitled to receive shares of FHI common stock at no cost, subject to the Company’s achievement of specified market or performance conditions. The grant date fair value of the performance stock units subject to the Company’s achievement of specified market conditions was estimated using a Monte Carlo simulation model. For purposes of this modeling exercise, historical volatilities of FHI common stock and members of the peer group were used. The risk-free interest rate that was used in the valuation was that of a zero-coupon U.S. Treasury note that was commensurate with the performance period.

As compensation cost is recognized, a deferred tax asset is established which represents an estimate of the future tax deduction from the release of restrictions or the achievement of performance targets. At the time that restrictions on the stock-based awards are released, the Company may be required to recognize an adjustment to income tax expense, depending on the market price of the Company’s common stock at that time.

Treasury Stock

Shares of the Parent’s common stock that were repurchased or that are used to satisfy payroll tax withholdings related to stock-based compensation are recorded in treasury stock at cost. On the date of subsequent reissuance, the treasury stock account will be reduced by the cost of such stock on a first-in, first-out basis.

Earnings per Share

Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period, assuming conversion of potentially dilutive common stock equivalents.

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred. Advertising and marketing costs were $6.9 million, $4.8 million and $6.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.  

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Accounting Standards Adopted in 2019

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). This guidance provided that lessees would be required to recognize the following for all operating leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee's obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The Company adopted the provisions of ASU No. 2016-02 on January 1, 2019 and elected several practical expedients made available by the FASB. Specifically, the Company elected the transition practical expedient to not recast comparative periods upon the adoption of the new guidance. In addition, the Company elected the package of practical expedients which among other things, required no reassessment of whether existing contracts were or contained leases as well as no reassessment of lease classification for existing leases and the practical expedient which permitted the Company to not separate nonlease components from lease components in determining the consideration in the lease agreement when the Company was a lessee or a lessor. The Company identified the primary lease agreements in scope of this new guidance as those relating to branch premises. As a result, the Company recognized a lease liability of $50.3 million and a related right-of-use asset of $50.6 million on its consolidated balance sheet on January 1, 2019. See “Note 14. Leases” for required disclosures related to this new guidance.

In March 2017, the FASB issued ASU No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. Prior to the adoption of ASU No. 2017-08, entities typically amortized the premium as an adjustment of yield over the contractual life of debt securities. This guidance shortens the amortization period for certain callable debt securities held at a premium to the earliest call date. The Company adopted the provisions of ASU No. 2017-08 on January 1, 2019 and it did not have a material impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. The objectives of the new guidance were to: (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities, and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. Historically, the Company has participated in limited activities in fair value and cash flow hedging relationships. As a result, the adoption of ASU No. 2017-12 on January 1, 2019 did not have a material impact on the Company’s consolidated financial statements. See “Note 17. Derivative Financial Instruments” for required disclosures related to this new guidance.

In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This guidance aligns the accounting for implementation costs related to a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Common examples of hosting arrangements include software as a service, platform or infrastructure as a service and other similar types of hosting arrangements. While capitalized costs related to internal-use software is generally considered an intangible asset, costs incurred to implement a cloud computing arrangement that is a service contract would typically be characterized in the company’s financial statements in the same manner as other service costs (e.g., other assets). The new guidance provided that an entity would be required to amortize capitalized implementation costs over the term of the hosting arrangement on a straight-line basis unless another systematic and rational basis was more representative of the pattern in which the entity expected to benefit from access to the hosted software. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with earlier adoption permitted in any annual or interim period for which financial statements have not yet been issued or made available for issuance. The Company early adopted the provisions of ASU No. 2018-15 prospectively on January 1, 2019 due to the Company’s shift towards utilizing more hosting arrangements that are service contracts. For the year ended December 31, 2019, the Company capitalized $10.6 million related to hosting arrangements that are service contracts.

In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815), Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This guidance expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting by adding the OIS rate based on the SOFR. Due to concerns about the sustainability of the London Interbank Offered Rate (“LIBOR”), a committee convened by the Federal Reserve Board and the Federal Reserve Bank of New

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York initiated an effort to introduce an alternative reference rate in the U.S. The committee identified SOFR as the preferred alternative reference rate to LIBOR. The OIS rate based on SOFR was added as a U.S. benchmark interest rate to facilitate broader use in the marketplace and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies. The Company adopted the provisions of ASU No. 2018-16 on January 1, 2019 and it did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

The following ASUs have been issued by the FASB and are applicable to the Company in future reporting periods.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This guidance eliminates the probable recognition threshold for credit losses on financial assets measured at amortized cost. For loans and held-to-maturity debt securities, this guidance requires a current expected credit loss (“CECL”) approach to determine the allowance for credit losses (“ACL”). CECL requires loss estimates for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. CECL also applies to off-balance sheet credit exposures, except for unconditionally cancellable commitments. In addition, this guidance modifies the other-than-temporary-impairment model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for a reversal of credit losses in future periods. This guidance requires entities to record a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In April 2019, the FASB also issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. As it relates to CECL, this guidance amended certain provisions contained in ASU No. 2016-13, particularly with regards to the inclusion of accrued interest in the definition of amortized cost, as well as clarifying that extension and renewal options that are not unconditionally cancelable by the entity that are included in the original or modified contract should be considered in the entity’s determination of expected credit losses. Federal banking regulatory agencies have also provided relief for an initial capital decrease on January 1, 2020 by allowing for an election to phase-in the impact of adopting the CECL standard over a three-year period on a straight-line basis.

The Company will adopt the provisions of ASU No. 2016-13, ASU No. 2019-04 and related amendments on January 1, 2020. The Company elected the practical expedient to use the fair value of the collateral at the reporting date when recording the net carrying amount of the asset and determining the ACL for a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company’s assessment as of the reporting date. The Company will also make accounting policy elections not to measure an ACL on accrued interest receivable, write-off accrued interest receivable by reversing interest income and to present accrued interest receivable separately from the related financial asset on the balance sheet. The implementation of CECL will require significant operational changes, particularly in data collection and analysis. The Company engaged a software vendor and ran several CECL parallel productions during 2019. In the fourth quarter of 2019, model validation was completed and management approved the model to be placed into production. Furthermore, significant progress was made in the Company’s user acceptance testing and reconciliation processes. Based on the Company’s portfolio balances and forecasted economic conditions as of January 1, 2020, management believes that the adoption of the CECL standard will result in an increase in the ACL of approximately 10% to 15%, as compared to the Company’s reserve levels as of December 31, 2019.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. This guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the current two-step goodwill impairment test. This guidance provides that a goodwill impairment test be conducted by comparing the fair value of a reporting unit with its carrying amount. Entities are to recognize an impairment charge for goodwill by the amount by which the carrying amount exceeds the reporting unit’s fair value. Entities will continue to have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This guidance is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. The Company adopted the provisions of ASU No. 2017-04 on January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.  

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This guidance is a part of the FASB’s disclosure framework project to improve disclosure effectiveness. This guidance eliminates certain disclosure

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requirements for fair value measurements: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, an entity’s policy for the timing of transfers between levels of the fair value hierarchy and an entity’s valuation processes for Level 3 fair value measurements. This guidance also adds new disclosure requirements for public entities: changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements, including how the weighted average is calculated. Furthermore, this guidance modifies certain requirements which will involve disclosing: transfers into and out of Level 3 of the fair value hierarchy, purchases and issuances of Level 3 assets and liabilities, and information about the measurement uncertainty of Level 3 fair value measurements as of the reporting date. The Company adopted the provisions of ASU No. 2018-13 on January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.

2. Transactions with Affiliates and Related Parties

In the normal course of business, the Company makes loans to executive officers and directors of the Company and its subsidiary and to entities and individuals affiliated with those executive officers and directors. These loans are made on terms no less favorable to the Company than those prevailing at the time for comparable transactions with unrelated persons or, in the case of certain residential real estate loans, on terms that are widely available to employees of the Company who are not directors or executive officers.

Changes in the loans to such executive officers, directors and affiliates during 2019, 2018 and 2017 were as follows:

	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Balance at beginning of year	$	66,088	$	61,603	$	94,466
New loans made		22,682		6,756		3,762
Repayments		(3,490)		(2,271)		(36,625)
Balance at end of year	$	85,280	$	66,088	$	61,603

The Company has participated in various transactions with BWC, BOW, BNPP and its affiliates, in each case while such entities were affiliates and related parties of the Company. These transactions were subject to review by the FRB, FDIC and other regulatory authorities. The transactions were required to be on terms at least as favorable to the Company as those prevailing at the time for similar non-affiliate transactions. These transactions included the provision of services, sales and purchases of assets, foreign exchange activities, financial guarantees, international services, interest rate swaps and intercompany deposits and borrowings.

The Company participates in forward and spot transactions with BOW (which ceased being an affiliate of the Company in February 2019) as the counterparty. These positions as of December 31, 2019, 2018 and 2017 are summarized below along with other transactions with its related parties.

	As of December 31,
(dollars in thousands)	2019		2018		2017
Cash and due from banks	$	—	$	55,454	$	41,874
Other assets		—		19,358		23,872
Noninterest-bearing demand deposits		—		(346)		(456)
Noninterest income from affiliates		382		5,677		4,908
Noninterest expense to affiliates		(4)		(59)		(47)

The Company had no other liabilities with affiliates and no off-balance sheet commitments with affiliates to purchase and sell foreign currencies as of December 31, 2019, 2018 and 2017.

The Company did not transact in hedging or trading activities on behalf of BOW or BWC, in each case while such entities were affiliates and related parties of the Company.

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In 2016, BWC and the Company entered into an Expense Reimbursement Agreement whereby BWC agreed to reimburse the Company for certain expenses incurred by the Company that are provided for the ultimate benefit of BNPP and its subsidiaries. Payments received from BWC amounted to $7.2 million, $14.6 million and $21.4 million for the years ended December 31, 2019, 2018 and 2017, respectively. Expenses incurred by the Company after 2019 are not subject to reimbursement by BWC under the Expense Reimbursement Agreement.

3. Investment Securities

As of December 31, 2019 and 2018, investment securities consisted predominantly of the following investment categories:

U.S. Treasury and debt securities – includes U.S. Treasury notes and debt securities issued by government-sponsored enterprises.

Mortgage-backed securities – includes securities backed by notes or receivables secured by mortgage assets with cash flows based on actual or scheduled payments.

Collateralized mortgage obligations – includes securities backed by a pool of mortgages with cash flows distributed based on certain rules rather than pass through payments.

Debt securities issued by states and political subdivisions – includes general obligation bonds issued by state and local governments.

As of December 31, 2019 and 2018, all of the Company’s investment securities were classified as debt securities and available-for-sale. Amortized cost and fair value of securities as of December 31, 2019 and 2018 were as follows:

	2019								2018
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Treasury securities	$	29,832	$	56	$	—	$	29,888	$	389,470	$	—	$	—	$	389,470
Government-sponsored enterprises debt securities		101,697		19		(277)		101,439		248,372		—		(6,778)		241,594
Mortgage-backed securities:
Residential - Government agency		290,131		2,224		(1,146)		291,209		426,710		—		(15,174)		411,536
Residential - Government-sponsored enterprises		395,039		6,126		(1,673)		399,492		156,056		85		(5,294)		150,847
Commercial - Government-sponsored enterprises		101,798		555		(634)		101,719		—		—		—		—
Collateralized mortgage obligations:
Government agency		2,390,143		7,483		(16,348)		2,381,278		2,779,620		—		(97,171)		2,682,449
Government-sponsored enterprises		772,023		2,505		(3,909)		770,619		620,337		—		(17,745)		602,592
Debt securities issued by states and political subdivisions		—		—		—		—		19,854		—		—		19,854
Total available-for-sale securities	$	4,080,663	$	18,968	$	(23,987)	$	4,075,644	$	4,640,419	$	85	$	(142,162)	$	4,498,342

Proceeds from call and sales of investment securities were $63.0 million and $1.0 billion for the year ended December 31, 2019. Proceeds from both calls and sales of investment securities were nil for both the years ended December 31, 2018 and 2017. The Company recorded gross realized gains of $0.5 million and gross realized losses of $3.2 million for the year ended December 31, 2019. The Company recorded no gross realized gains and no gross realized losses for both the years ended December 31, 2018 and 2017. The income tax benefit related to the Company’s net realized loss on the sale of investment securities was $0.7 million for the year ended December 31, 2019. The income tax expense related to the Company’s net realized gains on the sale of investment securities was nil during both the years ended December 31, 2018 and 2017. Gains and losses realized on sales of securities are determined using the specific identification method.

Interest income from taxable investment securities was $92.5 million, $106.6 million and $102.3 million for the years ended December 31, 2019, 2018 and 2017, respectively. Interest income from non-taxable investment securities was nil, $0.5 million and $0.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

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The amortized cost and fair value of debt securities issued by the U.S. Treasury and government-sponsored enterprises as of December 31, 2019, by contractual maturity, are shown below. Mortgage-backed securities and collateralized mortgage obligations are disclosed separately in the table below as remaining expected maturities will differ from contractual maturities as borrowers have the right to prepay obligations.

	December 31, 2019
	Amortized		Fair
(dollars in thousands)	Cost		Value
Due in one year or less	$	29,832	$	29,888
Due after one year through five years		101,697		101,439
Due after five years through ten years		—		—
Due after ten years		—		—
		131,529		131,327
Mortgage-backed securities:
Residential - Government agency		290,131		291,209
Residential - Government-sponsored enterprises		395,039		399,492
Commercial - Government-sponsored enterprises		101,798		101,719
Total mortgage-backed securities		786,968		792,420
Collateralized mortgage obligations:
Government agency		2,390,143		2,381,278
Government-sponsored enterprises		772,023		770,619
Total collateralized mortgage obligations		3,162,166		3,151,897
Total available-for-sale securities	$	4,080,663	$	4,075,644

At December 31, 2019, pledged securities totaled $1.8 billion, of which $1.5 billion was pledged to secure public deposits and $242.3 million was pledged to secure other financial transactions. At December 31, 2018, pledged securities totaled $2.0 billion, of which $1.7 billion was pledged to secure public deposits and $232.7 million was pledged to secure other financial transactions.

The Company held no securities of any single issuer, other than debt securities issued by the U.S. government, government agencies and government-sponsored enterprises, which were in excess of 10% of stockholders’ equity as of December 31, 2019 and 2018.

The following table presents the unrealized gross losses and fair values of securities in the available-for-sale portfolio by length of time that the 118 and 154 individual securities in each category have been in a continuous loss position as of December 31, 2019 and 2018, respectively. The unrealized losses on investment securities were attributable to market conditions.

	Time in Continuous Loss as of December 31, 2019
	Less Than 12 Months				12 Months or More				Total
	Unrealized				Unrealized				Unrealized
(dollars in thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
Government-sponsored enterprises debt securities	$	(277)	$	49,716	$	—	$	—	$	(277)	$	49,716
Mortgage-backed securities:
Residential - Government agency		—		—		(1,146)		109,614		(1,146)		109,614
Residential - Government-sponsored enterprises		(115)		76,481		(1,558)		109,025		(1,673)		185,506
Commercial - Government-sponsored enterprises		(634)		38,062		—		—		(634)		38,062
Collateralized mortgage obligations:
Government agency		(8,049)		969,762		(8,299)		565,764		(16,348)		1,535,526
Government-sponsored enterprises		(583)		180,785		(3,326)		209,752		(3,909)		390,537
Total available-for-sale securities with unrealized losses	$	(9,658)	$	1,314,806	$	(14,329)	$	994,155	$	(23,987)	$	2,308,961

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	Time in Continuous Loss as of December 31, 2018
	Less Than 12 Months				12 Months or More				Total
	Unrealized				Unrealized				Unrealized
(dollars in thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
Government-sponsored enterprises debt securities	$	—	$	—	$	(6,778)	$	157,939	$	(6,778)	$	157,939
Mortgage-backed securities:
Residential - Government agency		—		—		(15,174)		373,891		(15,174)		373,891
Residential - Government-sponsored enterprises		(1)		172		(5,293)		125,869		(5,294)		126,041
Collateralized mortgage obligations:
Government agency		—		—		(97,171)		2,475,532		(97,171)		2,475,532
Government-sponsored enterprises		—		—		(17,745)		486,175		(17,745)		486,175
Total available-for-sale securities with unrealized losses	$	(1)	$	172	$	(142,161)	$	3,619,406	$	(142,162)	$	3,619,578

Other-Than-Temporary Impairment

At December 31, 2019, the Company did not have any securities with the intent to sell and determined it was more likely than not that the Company would not be required to sell the securities prior to recovery of the amortized cost basis. At December 31, 2018, the Company had the intent to sell 48 securities with an aggregate amortized cost basis of $898.2 million. As a result, the Company recorded an OTTI write-down of $24.1 million for the year ended December 31, 2018. The OTTI write-down represented the entire difference between the amortized cost basis and fair value of the securities as of December 31, 2018. In January 2019, the Company completed its sale of the 48 securities and recorded an additional loss of $2.6 million.

As the Company had the intent and ability to hold the remaining securities in an unrealized loss position as of December 31, 2019 and 2018, each security with an unrealized loss position in the above tables has been further assessed to determine if a credit loss exists. If it is probable that the Company will not collect all amounts due according to the contractual terms of an investment security, an OTTI is considered to have occurred. In determining whether a credit loss exists, the Company estimates the present value of future cash flows expected to be collected from the investment security. If the present value of future cash flows is less than the amortized cost basis of the security, an OTTI exists. As of December 31, 2019 and 2018, the Company did not expect any credit losses in its debt securities and no OTTI related to credit losses were recognized on securities during the years ended December 31, 2019 and 2018. As noted above, the only OTTI losses recognized for the year ended December 31, 2018 were due to non-credit related factors.

The following table provides a detail of the OTTI write-downs included in earnings for the year ended December 31, 2018:

	Year Ended
(dollars in thousands)	December 31, 2018
U.S. Treasury securities	$	(13,634)
Government-sponsored enterprises debt securities		(1,344)
Mortgage-backed securities:
Residential - Government agency		(146)
Residential - Government-sponsored enterprises		(763)
Collateralized mortgage obligations:
Government agency		(5,064)
Government-sponsored enterprises		(2,711)
Debt securities issued by states and political subdivisions		(423)
Total OTTI write-downs included in earnings	$	(24,085)

Visa Class B Restricted Shares

In 2008, the Company received 394,000 Visa Class B restricted shares as part of Visa’s initial public offering. Visa Class B restricted shares are not currently convertible to publicly traded Visa Class A common shares, and only transferable in limited circumstances, until the settlement of certain litigation which are indemnified by Visa members, including the Company. As there are existing transfer restrictions and the outcome of the aforementioned litigation is uncertain, these shares were included in the consolidated balance sheets at their historical cost of $0.

In 2016, the Company recorded a $22.7 million net realized gain related to the sale of 274,000 Visa Class B restricted shares. Concurrent with the sale of the Visa Class B restricted shares, the Company entered into an agreement with the buyer that requires payment to the buyer in the event Visa reduces each member bank’s Class B conversion rate to unrestricted Class A common shares. On June 28, 2018, Visa additionally funded its litigation escrow account, thereby

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reducing each member bank’s Class B conversion rate to unrestricted Class A common shares. Accordingly, on July 5, 2018, Visa announced a decrease in conversion rate from 1.6483 to 1.6298 effective June 28, 2018. In July 2018, the Company made a payment of approximately $0.7 million to the buyer as a result of the reduction in the Visa Class B conversion rate. On September 27, 2019, Visa additionally funded its litigation escrow account, thereby further reducing each member bank’s Class B conversion rate to unrestricted Class A common shares. Accordingly, on September 30, 2019, Visa announced a decrease in conversion rate from 1.6298 to 1.6228, effective September 27, 2019. In October 2019, the Company made a payment of approximately $0.3 million to the buyer as a result of the reduction in the Visa Class B conversion rate. See “Note 17. Derivative Financial Instruments” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

The Company held approximately 120,000 Visa Class B restricted shares as of both December 31, 2019 and 2018. These shares continued to be carried at $0 cost basis during each of the respective periods.

4. Loans and Leases

As of December 31, 2019 and 2018, loans and leases were comprised of the following:

	December 31,
(dollars in thousands)	2019		2018
Commercial and industrial	$	2,743,242	$	3,208,760
Commercial real estate		3,463,953		2,990,783
Construction		519,241		626,757
Residential:
Residential mortgage		3,768,936		3,527,101
Home equity line		893,239		912,517
Total residential		4,662,175		4,439,618
Consumer		1,620,556		1,662,504
Lease financing		202,483		147,769
Total loans and leases	$	13,211,650	$	13,076,191

Outstanding loan balances are reported net of deferred loan costs and fees of $41.0 million and $36.3 million at December 31, 2019 and 2018, respectively.

As of December 31, 2019, residential real estate loans totaling $2.9 billion were pledged to collateralize the Company’s borrowing capacity at the FHLB, and consumer, commercial and industrial and commercial real estate loans totaling $953.2 million were pledged to collateralize the borrowing capacity at the FRB. As of December 31, 2018, residential real estate loans totaling $2.5 billion were pledged to collateralize the Company’s borrowing capacity at the FHLB, and consumer and commercial and industrial loans totaling $957.0 million were pledged to collateralize the borrowing capacity at the FRB. Residential real estate loans collateralized by properties that were in the process of foreclosure totaled $4.1 million and $4.6 million at December 31, 2019 and 2018, respectively.

In the course of evaluating the credit risk presented by a customer and the pricing that will adequately compensate the Company for assuming that risk, management may require a certain amount of collateral support. The type of collateral held varies, but may include accounts receivable, inventory, land, buildings, equipment, income-producing commercial properties and residential real estate. The Company applies the same collateral policy for loans whether they are funded immediately or on a delayed basis. The loan and lease portfolio is principally located in Hawaii and, to a lesser extent, on the U.S. Mainland, Guam and Saipan. The risk inherent in the portfolio depends upon both the economic stability of the state or territories, which affects property values, and the financial strength and creditworthiness of the borrowers.

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At December 31, 2019 and 2018, remaining loan and lease commitments were comprised of the following:

	December 31,
(dollars in thousands)	2019		2018
Commercial and industrial	$	2,451,362	$	2,484,857
Commercial real estate		130,597		114,186
Construction		718,121		526,938
Residential:
Residential mortgage		842		121
Home equity line		1,052,739		913,636
Total residential		1,053,581		913,757
Consumer		1,554,029		1,509,853
Total loan and lease commitments	$	5,907,690	$	5,549,591

5. Allowance for Loan and Lease Losses

The Company must maintain an allowance for loan and lease losses (the “Allowance”) that is adequate to absorb estimated probable credit losses associated with its loan and lease portfolio. The Allowance consists of an allocated portion, which covers estimated credit losses for specifically identified loans and pools of loans and leases, and an unallocated portion.

Segmentation

Management has identified three primary portfolio segments in estimating the Allowance: commercial lending, residential real estate lending and consumer lending. Commercial lending is further segmented into four distinct portfolios based on characteristics relating to the borrower, transaction, and collateral. These portfolio segments are: commercial and industrial, commercial real estate, construction, and lease financing. Residential real estate is not further segmented, but consists of residential mortgages including real estate secured installment loans and home equity lines of credit. Consumer lending is not further segmented, but consists primarily of automobile loans, credit cards, and other installment loans. Management has developed a methodology for each segment taking into consideration portfolio segment-specific factors such as product type, loan portfolio characteristics, management information systems, and other risk factors.

Specific Allocation

Commercial

A specific allocation is determined for individually impaired commercial loans. A loan is considered impaired when it is probable that the Company will be unable to collect the full amount of principal and interest according to the contractual terms of the loan agreement.

Management identifies material impaired loans based on their size in relation to the Company’s total loan and lease portfolio. Each impaired loan equal to or exceeding a specified threshold requires an analysis to determine the appropriate level of reserve for that specific loan. Impaired loans below the specified threshold are treated as a pool, with specific allocations established based on qualitative factors such as asset quality trends, risk identification, lending policies, portfolio growth, and portfolio concentrations.

Residential

A specific allocation is determined for residential real estate loans based on delinquency status. In addition, each impaired loan equal to or exceeding a specified threshold requires analysis to determine the appropriate level of reserve for that specific loan, generally based on the value of the underlying collateral less estimated costs to sell. The specific allocation will be zero for impaired loans in which the value of the underlying collateral, less estimated costs to sell, exceeds the unpaid principal balance of the loan.

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Consumer

A specific allocation is determined for the consumer loan portfolio using delinquency-based formula allocations. The Company uses a formula approach in determining the consumer loan specific allocation and recognizes the statistical validity of measuring losses predicated on past due status.

Pooled Allocation

Commercial

Pooled allocation for pass, special mention, substandard and doubtful grade commercial loans and leases that share common risk characteristics and properties is determined using a historical loss rate analysis and qualitative factor considerations. Loan grade categories are discussed under “Credit Quality”.

Residential and Consumer

Pooled allocation for non-delinquent consumer and residential real estate loans is determined using a historical loss rate analysis and qualitative factor considerations.

Qualitative Adjustments

Qualitative adjustments to historical loss rates or other static sources may be necessary since these rates may not be an accurate indicator of losses inherent in the current portfolio. To estimate the level of adjustments, management considers factors including global, national and local economic conditions; levels and trends in problem loans; the effect of credit concentrations; collateral value trends; changes in risk due to changes in lending policies and practices; management expertise; industry and regulatory trends; and volume of loans.

Unallocated Allowance

The Company’s Allowance incorporates an unallocated portion to cover risk factors and events that may have occurred as of the evaluation date that have not been reflected in the risk measures utilized due to inherent limitations in the precision of the estimation process. These risk factors, in addition to past and current events based on facts at the consolidated balance sheets date and realistic courses of action that management expects to take, are assessed in determining the level of unallocated allowance.

The Allowance was comprised of the following for the years indicated:

	Year Ended December 31, 2019
	Commercial Lending
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Residential		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Balance at beginning of year	$	34,501	$	19,725	$	5,813	$	432	$	44,906	$	35,813	$	528	$	141,718
Charge-offs		(2,718)		—		—		(24)		(438)		(32,807)		—		(35,987)
Recoveries		410		263		—		—		967		9,359		—		10,999
Increase (decrease) in Provision		(3,218)		2,337		(969)		16		(6,256)		22,279		(389)		13,800
Balance at end of year	$	28,975	$	22,325	$	4,844	$	424	$	39,179	$	34,644	$	139	$	130,530
Individually evaluated for impairment		46		27		—		—		130		—		—		203
Collectively evaluated for impairment		28,929		22,298		4,844		424		39,049		34,644		139		130,327
Loans and leases:
Individually evaluated for impairment	$	4,951	$	723	$	—	$	—	$	14,964	$	—	$	—	$	20,638
Collectively evaluated for impairment		2,738,291		3,463,230		519,241		202,483		4,647,211		1,620,556		—		13,191,012
Balance at end of year	$	2,743,242	$	3,463,953	$	519,241	$	202,483	$	4,662,175	$	1,620,556	$	—	$	13,211,650

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	Year Ended December 31, 2018
	Commercial Lending
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Residential		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Balance at beginning of year	$	34,006	$	18,044	$	6,817	$	611	$	42,852	$	31,249	$	3,674	$	137,253
Charge-offs		(778)		—		—		—		(165)		(26,630)		—		(27,573)
Recoveries		232		216		—		—		940		8,470		—		9,858
Increase (decrease) in Provision		1,041		1,465		(1,004)		(179)		1,279		22,724		(3,146)		22,180
Balance at end of year	$	34,501	$	19,725	$	5,813	$	432	$	44,906	$	35,813	$	528	$	141,718
Individually evaluated for impairment		108		32		—		—		396		—		—		536
Collectively evaluated for impairment		34,393		19,693		5,813		432		44,510		35,813		528		141,182
Loans and leases:
Individually evaluated for impairment	$	8,719	$	5,743	$	—	$	—	$	16,114	$	—	$	—	$	30,576
Collectively evaluated for impairment		3,200,041		2,985,040		626,757		147,769		4,423,504		1,662,504		—		13,045,615
Balance at end of year	$	3,208,760	$	2,990,783	$	626,757	$	147,769	$	4,439,618	$	1,662,504	$	—	$	13,076,191

	Year Ended December 31, 2017
	Commercial Lending
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Residential		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Balance at beginning of year	$	33,129	$	18,448	$	4,513	$	847	$	43,436	$	28,388	$	6,733	$	135,494
Charge-offs		(1,519)		—		—		(147)		(408)		(23,851)		—		(25,925)
Recoveries		844		596		—		—		687		7,057		—		9,184
Increase (decrease) in Provision		1,552		(1,000)		2,304		(89)		(863)		19,655		(3,059)		18,500
Balance at end of year	$	34,006	$	18,044	$	6,817	$	611	$	42,852	$	31,249	$	3,674	$	137,253
Individually evaluated for impairment		4		6		—		—		484		—		—		494
Collectively evaluated for impairment		34,002		18,038		6,817		611		42,368		31,249		3,674		136,759
Loans and leases:
Individually evaluated for impairment	$	18,183	$	10,636	$	—	$	—	$	16,530	$	—	$	—	$	45,349
Collectively evaluated for impairment		3,117,083		2,656,961		632,911		165,066		4,073,523		1,586,476		—		12,232,020
Balance at end of year	$	3,135,266	$	2,667,597	$	632,911	$	165,066	$	4,090,053	$	1,586,476	$	—	$	12,277,369

Credit Quality

The Company performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objective of the loan review and grading procedures is to identify, in a timely manner, existing or emerging credit quality problems so that appropriate steps can be initiated to avoid or minimize future losses.

Loans subject to grading include: commercial and industrial loans, commercial and standby letters of credit, installment loans to businesses or individuals for business and commercial purposes, commercial real estate loans, overdraft lines of credit, commercial credit cards, and other credits as may be determined. Loans which are not subject to grading include loans that are 100% sold with no recourse to the Company, consumer installment loans, indirect automobile loans, credit cards, home equity lines of credit and residential mortgage loans.

Residential real estate and consumer loans are underwritten primarily on the basis of credit bureau scores, debt-service-to-income ratios, and collateral quality and loan to value ratios.

A credit risk rating system is used to determine loan grade and is based on borrower credit risk and transactional risk. The loan grading process is a mechanism used to determine the risk of a particular borrower and is based on the following eight factors of a borrower: character, earnings and operating cash flow, asset and liability structure, debt capacity, financial reporting, management and controls, borrowing entity and industry and operating environment.

Pass – “Pass” (uncriticized) loans and leases, are not considered to carry greater than normal risk. The borrower has the apparent ability to satisfy obligations to the Company, and therefore no loss in ultimate collection is anticipated.

Special Mention – Loans and leases that have potential weaknesses that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for assets or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

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Substandard – Loans and leases that are inadequately protected by the current financial condition and paying capacity of the obligor or by any collateral pledged. Loans and leases so classified must have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the distinct possibility that the bank may sustain some loss if the deficiencies are not corrected.

Doubtful – Loans and leases that have weaknesses found in substandard borrowers with the added provision that the weaknesses make collection of debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss – Loans and leases classified as loss are considered uncollectible and of such little value that their continuance as an asset is not warranted. This classification does not mean that the loan or lease has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future.

The credit risk profiles by internally assigned grade for loans and leases as of December 31, 2019 and 2018 were as follows:

	December 31, 2019
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Total
Grade:
Pass	$	2,585,908	$	3,327,659	$	515,993	$	201,461	$	6,631,021
Special mention		91,365		106,331		127		1,022		198,845
Substandard		65,969		29,963		3,121		—		99,053
Total	$	2,743,242	$	3,463,953	$	519,241	$	202,483	$	6,928,919

	December 31, 2018
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Total
Grade:
Pass	$	3,069,546	$	2,876,907	$	625,607	$	146,356	$	6,718,416
Special mention		57,012		91,298		200		1,223		149,733
Substandard		82,010		22,578		950		190		105,728
Doubtful		192		—		—		—		192
Total	$	3,208,760	$	2,990,783	$	626,757	$	147,769	$	6,974,069

There were no loans and leases graded as Loss as of December 31, 2019 and 2018.

The credit risk profiles based on payment activity for loans and leases that were not subject to loan grading as of December 31, 2019 and 2018 were as follows:

	December 31, 2019
(dollars in thousands)	Residential Mortgage		Home Equity Line		Consumer		Consumer - Auto		Credit Cards		Total
Performing	$	3,759,799	$	886,879	$	219,046	$	1,016,142	$	347,264	$	6,229,130
Non-performing and delinquent		9,137		6,360		7,258		24,326		6,520		53,601
Total	$	3,768,936	$	893,239	$	226,304	$	1,040,468	$	353,784	$	6,282,731

	December 31, 2018
(dollars in thousands)	Residential Mortgage		Home Equity Line		Consumer		Consumer - Auto		Credit Cards		Total
Performing	$	3,519,172	$	903,284	$	234,458	$	1,044,393	$	339,162	$	6,040,469
Non-performing and delinquent		7,929		9,233		5,448		33,739		5,304		61,653
Total	$	3,527,101	$	912,517	$	239,906	$	1,078,132	$	344,466	$	6,102,122

Impaired and Nonaccrual Loans and Leases

The Company evaluates certain loans and leases individually for impairment. A loan or lease is considered to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan or lease. An allowance for impaired commercial loans, including commercial real estate and construction loans, is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the estimated fair value of the collateral, less any selling costs, if the loan is collateral

106

dependent. An allowance for impaired residential loans is measured based on the estimated fair value of the collateral, less any selling costs. Management exercises significant judgment in developing these estimates.

The Company generally places a loan on nonaccrual status when management believes that collection of principal or interest has become doubtful or when a loan or lease becomes 90 days past due as to principal or interest, unless it is well secured and in the process of collection.

It is the Company’s policy to charge off a loan when the facts indicate that the loan is considered uncollectible.

The aging analyses of past due loans and leases as of December 31, 2019 and 2018 were as follows:

	December 31, 2019
	Accruing Loans and Leases
					Greater								Total Non
					Than or						Total		Accruing
	30-59		60-89		Equal to		Total				Accruing		Loans
	Days		Days		90 Days		Past				Loans and		and		Total
(dollars in thousands)	Past Due		Past Due		Past Due		Due		Current		Leases		Leases		Outstanding
Commercial and industrial	$	1,525	$	808	$	1,429	$	3,762	$	2,739,448	$	2,743,210	$	32	$	2,743,242
Commercial real estate		1,664		1,125		1,013		3,802		3,460,121		3,463,923		30		3,463,953
Construction		—		—		2,367		2,367		516,874		519,241		—		519,241
Lease financing		—		—		—		—		202,483		202,483		—		202,483
Residential mortgage		3,258		399		74		3,731		3,759,799		3,763,530		5,406		3,768,936
Home equity line		2,971		394		2,995		6,360		886,879		893,239		—		893,239
Consumer		26,810		7,022		4,272		38,104		1,582,452		1,620,556		—		1,620,556
Total	$	36,228	$	9,748	$	12,150	$	58,126	$	13,148,056	$	13,206,182	$	5,468	$	13,211,650

	December 31, 2018
	Accruing Loans and Leases
					Greater								Total Non
					Than or						Total		Accruing
	30-59		60-89		Equal to		Total				Accruing		Loans
	Days		Days		90 Days		Past				Loans and		and		Total
(dollars in thousands)	Past Due		Past Due		Past Due		Due		Current		Leases		Leases		Outstanding
Commercial and industrial	$	1,293	$	—	$	141	$	1,434	$	3,207,052	$	3,208,486	$	274	$	3,208,760
Commercial real estate		—		—		—		—		2,989,125		2,989,125		1,658		2,990,783
Construction		91		—		—		91		626,666		626,757		—		626,757
Lease financing		47		—		—		47		147,722		147,769		—		147,769
Residential mortgage		2,274		1,012		32		3,318		3,519,172		3,522,490		4,611		3,527,101
Home equity line		5,616		775		2,842		9,233		903,284		912,517		—		912,517
Consumer		32,406		8,712		3,373		44,491		1,618,013		1,662,504		—		1,662,504
Total	$	41,727	$	10,499	$	6,388	$	58,614	$	13,011,034	$	13,069,648	$	6,543	$	13,076,191

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The total carrying amounts and the total unpaid principal balances of impaired loans and leases as of December 31, 2019 and 2018 were as follows:

	December 31, 2019
			Unpaid
	Recorded		Principal		Related
(dollars in thousands)	Investment		Balance		Allowance
Impaired loans with no related allowance recorded:
Commercial and industrial	$	3,825	$	3,841	$	—
Commercial real estate		30		30		—
Residential mortgage		10,425		10,718		—
Total	$	14,280	$	14,589	$	—
Impaired loans with a related allowance recorded:
Commercial and industrial	$	1,126	$	1,126	$	46
Commercial real estate		693		693		27
Residential mortgage		4,539		4,819		130
Total	$	6,358	$	6,638	$	203
Total impaired loans:
Commercial and industrial	$	4,951	$	4,967	$	46
Commercial real estate		723		723		27
Residential mortgage		14,964		15,537		130
Total	$	20,638	$	21,227	$	203

	December 31, 2018
			Unpaid
	Recorded		Principal		Related
(dollars in thousands)	Investment		Balance		Allowance
Impaired loans with no related allowance recorded:
Commercial and industrial	$	4,449	$	4,498	$	—
Commercial real estate		5,016		5,016		—
Residential mortgage		9,112		9,426		—
Total	$	18,577	$	18,940	$	—
Impaired loans with a related allowance recorded:
Commercial and industrial	$	4,270	$	4,270	$	108
Commercial real estate		727		727		32
Residential mortgage		7,002		7,387		396
Total	$	11,999	$	12,384	$	536
Total impaired loans:
Commercial and industrial	$	8,719	$	8,768	$	108
Commercial real estate		5,743		5,743		32
Residential mortgage		16,114		16,813		396
Total	$	30,576	$	31,324	$	536

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The following tables provide information with respect to the Company’s average balances, and of interest income recognized from, impaired loans for the years ended December 31, 2019, 2018, and 2017:

	Year Ended
	December 31, 2019
	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized
Impaired loans with no related allowance recorded:
Commercial and industrial	$	3,687	$	431
Commercial real estate		2,825		481
Residential mortgage		8,777		440
Consumer		40		—
Total	$	15,329	$	1,352
Impaired loans with a related allowance recorded:
Commercial and industrial	$	4,485	$	85
Commercial real estate		710		40
Residential mortgage		6,413		339
Total	$	11,608	$	464
Total impaired loans:
Commercial and industrial	$	8,172	$	516
Commercial real estate		3,535		521
Residential mortgage		15,190		779
Consumer		40		—
Total	$	26,937	$	1,816

	Year Ended
	December 31, 2018
	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized
Impaired loans with no related allowance recorded:
Commercial and industrial	$	11,409	$	408
Commercial real estate		7,873		231
Construction		1,248		91
Residential mortgage		9,356		529
Total	$	29,886	$	1,259
Impaired loans with a related allowance recorded:
Commercial and industrial	$	3,154	$	273
Commercial real estate		942		67
Residential mortgage		7,369		335
Total	$	11,465	$	675
Total impaired loans:
Commercial and industrial	$	14,563	$	681
Commercial real estate		8,815		298
Construction		1,248		91
Residential mortgage		16,725		864
Total	$	41,351	$	1,934

109

	Year Ended
	December 31, 2017
	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized
Impaired loans with no related allowance recorded:
Commercial and industrial	$	19,929	$	890
Commercial real estate		9,846		417
Lease financing		61		—
Residential mortgage		8,582		567
Total	$	38,418	$	1,874
Impaired loans with a related allowance recorded:
Commercial and industrial	$	2,572	$	10
Commercial real estate		918		42
Residential mortgage		8,897		344
Total	$	12,387	$	396
Total impaired loans:
Commercial and industrial	$	22,501	$	900
Commercial real estate		10,764		459
Lease financing		61		—
Residential mortgage		17,479		911
Total	$	50,805	$	2,270

Modifications

Commercial and industrial loans modified in a troubled debt restructuring (“TDR”) often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Commercial real estate and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. Lease financing modifications generally involve a short-term forbearance period, usually about three months, after which the missed payments are added to the end of the lease term, thereby extending the maturity date. Interest continues to accrue on the missed payments and as a result, the effective yield on the lease remains unchanged. As the forbearance period usually involves an insignificant payment delay, lease financing modifications typically do not meet the reporting criteria for a TDR. Residential real estate loans modified in a TDR are primarily comprised of loans where monthly payments are lowered to accommodate the borrowers' financial needs for a period of time, normally two years. During that time, the borrower's entire monthly payment is applied to principal. After the lowered monthly payment period ends, the borrower reverts to paying principal and interest per the original terms with the maturity date adjusted accordingly. Generally, consumer loans are not classified as a TDR as they are normally charged off upon reaching a predetermined delinquency status that ranges from 120 to 180 days and varies by product type.

Loans modified in a TDR may already be on nonaccrual status and in some cases partial charge-offs may have already been taken against the outstanding loan balance. Loans modified in a TDR are evaluated for impairment. As a result, this may have a financial effect of increasing the specific Allowance associated with the loan. An Allowance for impaired commercial loans, including commercial real estate and construction loans, that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. An Allowance for impaired residential loans that have been modified in a TDR is measured based on the estimated fair value of the collateral, less any selling costs. Management exercises significant judgment in developing these estimates.

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The following presents, by class, information related to loans modified in a TDR during the years ended December 31, 2019, 2018 and 2017:

	Year Ended December 31, 2019
	Number of	Recorded		Related
(dollars in thousands)	Contracts(1)	Investment(2)		Allowance
Commercial and industrial	2	$	571	$	25
Residential mortgage	1		609		—
Total	3	$	1,180	$	25

	Year Ended December 31, 2018
	Number of	Recorded		Related
(dollars in thousands)	Contracts(1)	Investment(2)		Allowance
Commercial and industrial	1	$	369	$	10
Residential mortgage	3		875		29
Total	4	$	1,244	$	39

	Year Ended December 31, 2017
	Number of	Recorded		Related
(dollars in thousands)	Contracts(1)	Investment(2)		Allowance
Commercial and industrial	1	$	1,075	$	—
Residential mortgage	2		659		23
Total	3	$	1,734	$	23

(1) The number of contracts does not include TDRs that have been fully paid off, charged off or foreclosed upon by the end of the period.

(2) The recorded investment balances reflect all partial paydowns and charge-offs since the modification date and do not include TDRs that have been fully paid off, charged off or foreclosed upon by the end of the period.

The above loans were modified in a TDR through an extension of maturity dates, temporary interest-only payments, reduced payments or below-market interest rates.

The Company had commitments to extend credit, standby letters of credit and commercial letters of credit totaling $6.1 billion and $5.8 billion as of December 31, 2019 and 2018, respectively. Of the $6.1 billion at December 31, 2019, there were commitments of $4.5 million related to borrowers who had loan terms modified in a TDR. Of the $5.8 billion at December 31, 2018, there were commitments of $1.8 million related to borrowers who had loan terms modified in a TDR.

The following table presents, by class, loans modified in TDRs that have defaulted in the current period within 12 months of their permanent modification date for the periods indicated. The Company is reporting these defaulted TDRs based on a payment default definition of 30 days past due:

	Year Ended December 31,
	2019			2018			2017
	Number of	Recorded		Number of	Recorded		Number of	Recorded
(dollars in thousands)	Contracts(1)	Investment(2)		Contracts(1)	Investment(2)		Contracts(1)	Investment(2)
Commercial and industrial(3)	2	$	571	—	$	—	1	$	2,480
Commercial real estate(4)	—		—	—		—	1		1,393
Total	2	$	571	—	$	—	2	$	3,873

(1) The number of contracts does not include TDRs that have been fully paid off, charged off or foreclosed upon by the end of the period.

(2) The recorded investment balances reflect all partial paydowns and charge-offs since the modification date and do not include TDRs that have been fully paid off, charged off or foreclosed upon by the end of the period.

(3) In 2019, the commercial and industrial loans that subsequent defaulted were temporarily modified to interest-only payments. In 2017, the maturity date for the commercial and industrial loan that subsequently defaulted was extended.

(4) In 2017, the commercial real estate loan that subsequently defaulted was extended.

Foreclosure Proceedings

There was one residential mortgage loan collateralized by real estate property of $0.3 million that was modified in a TDR that was in process of foreclosure as of both December 31, 2019 and December 31, 2018.

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Foreclosed Property

Residential real estate properties held from two foreclosed residential mortgage loans included in other real estate owned and repossessed personal property shown in the consolidated balance sheets were $0.3 million as of December 31, 2019. Residential real estate properties held from one foreclosed residential mortgage loan and one foreclosed home equity line included in other real estate owned and repossessed personal property shown in the consolidated balance sheets were $0.8 million as of December 31, 2018.

6. Premises and Equipment

At December 31, 2019 and 2018, premises and equipment were comprised of the following:

	December 31,
(dollars in thousands)	2019		2018
Buildings	$	289,271	$	280,853
Furniture and equipment		86,485		81,342
Land		106,487		105,302
Leasehold improvements		64,828		55,316
Total premises and equipment		547,071		522,813
Less: Accumulated depreciation and amortization		230,186		217,817
Net book value	$	316,885	$	304,996

Depreciation and amortization expenses included in occupancy and equipment expenses for 2019, 2018 and 2017 were as follows:

	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Occupancy	$	9,037	$	8,815	$	8,852
Equipment		5,485		6,488		6,426
Total	$	14,522	$	15,303	$	15,278

The Company, as a lessor, leases certain properties that it owns. See “Note 14. Leases” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

7. Other Assets

Goodwill

Goodwill originated from the acquisition of BancWest by BNPP in December 2001. Goodwill generated in that acquisition was recorded on the Company’s consolidated balance sheets as a result of push-down accounting treatment.

The carrying amount of goodwill reported in two of the Company’s reporting segments as of December 31, 2019 and 2018 were as shown below. The Treasury and Other segment is not assigned goodwill.

	Retail		Commercial
(in thousands)	Banking		Banking		Total
December 31, 2019	$	687,492	$	308,000	$	995,492
December 31, 2018		687,492		308,000		995,492

There was no impairment of the Company’s goodwill for the years ended December 31, 2019, 2018 and 2017.

Mortgage Servicing Rights (“MSRs”)

Mortgage servicing activities include collecting principal, interest, tax and insurance payments from borrowers while accounting for and remitting payments to investors, taxing authorities and insurance companies. The Company also monitors delinquencies and administers foreclosure proceedings.

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Mortgage loan servicing income is recorded in noninterest income as a part of other service charges and fees and amortization of the servicing assets is recorded in noninterest income as part of other income. The unpaid principal amount of residential real estate loans serviced for others was $2.3 billion and $2.7 billion as of December 31, 2019 and 2018, respectively. Servicing fees include contractually specified fees, late charges and ancillary fees and were $6.3 million, $7.0 million and $6.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Amortization of MSRs was $3.6 million, $3.8 million and $3.6 million for the years ended December 31, 2019, 2018 and 2017, respectively. The estimated future amortization expenses for MSRs over the next five years are as follows:

	Estimated
(dollars in thousands)	Amortization
Year ending December 31:
2020	$	2,129
2021		1,808
2022		1,530
2023		1,295
2024		1,101

The details of the Company’s MSRs are presented below:

	December 31,
(dollars in thousands)	2019		2018
Gross carrying amount	$	63,480	$	63,342
Less: accumulated amortization		50,812		47,187
Net carrying value	$	12,668	$	16,155

The following table presents changes in amortized MSRs for the years indicated:

	Year Ended December 31,
(dollars in thousands)	2019		2018
Balance at beginning of year	$	16,155	$	13,196
Originations		138		328
Purchases		—		6,444
Amortization		(3,625)		(3,813)
Balance at end of year	$	12,668	$	16,155
Fair value of amortized MSRs at beginning of year	$	27,662	$	21,697
Fair value of amortized MSRs at end of year	$	20,329	$	27,662
Balance of loans serviced for others	$	2,344,899	$	2,664,860

MSRs are evaluated for impairment if events and circumstances indicate a possible impairment. No impairment of MSRs was recorded for the years ended December 31, 2019, 2018 and 2017.

The quantitative assumptions used in determining the lower of cost or fair value of the Company’s MSRs were as follows:

	December 31, 2019							December 31, 2018
						Weighted							Weighted
	Range					Average		Range					Average
Conditional prepayment rate	10.74	%	-	23.39	%	11.10	%	7.86	%	-	19.26	%	8.31	%
Life in years (of the MSR)	2.04		-	6.33		5.99		3.43		-	7.68		7.19
Weighted-average coupon rate	3.96	%	-	7.26	%	4.01	%	3.97	%	-	6.70	%	4.02	%
Discount rate	10.00	%	-	10.01	%	10.00	%	10.00	%	-	10.02	%	10.00	%

The sensitivities surrounding MSRs are expected to have an immaterial impact on fair value.

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Other

The Company had $145.6 million and $111.5 million in affordable housing and other tax credit investment partnership interest as of December 31, 2019 and 2018, respectively, included in other assets on the consolidated balance sheets. The amount of amortization of such investments reported in the provision for income taxes was $11.3 million, $5.2 million and $3.5 million during the years ended December 31, 2019, 2018 and 2017, respectively. The affordable housing tax credits and other benefits recognized during the years ended December 31, 2019, 2018 and 2017 were $10.6 million, $6.3 million and $4.5 million, respectively.

Nonmarketable equity securities include FHLB stock, which the Company holds to meet regulatory requirements. As a member of the FHLB system, the Company is required to maintain a minimum level of investment in FHLB non-publicly traded stock based on specific percentages of the Company’s total assets and outstanding advances in accordance with the FHLB’s capital plan which may be amended or revised periodically. Amounts in excess of the required minimum may be transferred at par to another member institution subject to prior approval of the FHLB. Excess stock may also be sold to the FHLB subject to a five-year redemption notice period and at the sole discretion of the FHLB. These securities are accounted for under the cost method. These investments are considered long-term investments by management and accordingly, the ultimate recoverability of its par value is considered rather than considering temporary declines in value. The investment in FHLB stock was included in other assets on the consolidated balance sheets and was $34.1 million as of both December 31, 2019 and 2018.

8. Transfers of Financial Assets

The Company’s transfers of financial assets with continuing interest may include pledges of collateral to secure public deposits and repurchase agreements, FHLB and FRB borrowing capacity, automated clearing house (“ACH”) transactions and interest rate swaps.

For public deposits and repurchase agreements, the Company enters into bilateral agreements with the entity to pledge investment securities as collateral in the event of default. The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral pledged by the Company would be used to settle the fair value of the repurchase agreement should the Company be in default. The counterparty has the right to sell or repledge the investment securities. The Company is required by the counterparty to maintain adequate collateral levels. In the event the collateral fair value falls below stipulated levels, the Company will pledge additional investment securities. For transfers of assets with the FHLB and the FRB, the Company enters into bilateral agreements to pledge loans as collateral to secure borrowing capacity. For ACH transactions, the Company enters into bilateral agreements to collateralize possible daylight overdrafts. For interest rate swaps, the Company enters into bilateral agreements to pledge collateral when either party is in a negative fair value position to mitigate counterparty credit risk. Counterparties to ACH transactions, certain interest rate swaps, the FHLB and the FRB do not have the right to sell or repledge the collateral.

The carrying amounts of the assets pledged as collateral to secure public deposits, borrowing arrangements and other transactions as of December 31, 2019 and 2018 were as follows:  

(dollars in thousands)	2019		2018
Public deposits	$	1,543,492	$	1,749,726
Federal Home Loan Bank		2,928,581		2,497,030
Federal Reserve Bank		953,169		957,017
ACH transactions		155,360		150,903
Interest rate swaps		43,296		28,843
Total	$	5,623,898	$	5,383,519

As the Company did not enter into reverse repurchase agreements, no collateral was accepted as of December 31, 2019 and 2018. In addition, no debt was extinguished by in-substance defeasance.

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9. Deposits

As of December 31, 2019 and 2018, deposits were categorized as interest-bearing or noninterest-bearing as follows:

(dollars in thousands)	2019		2018
U.S.:
Interest-bearing	$	9,782,957	$	10,393,449
Noninterest-bearing		5,188,696		5,368,729
Foreign:
Interest-bearing		781,965		748,678
Noninterest-bearing		691,376		639,212
Total deposits	$	16,444,994	$	17,150,068

The following table presents the maturity distribution of time certificates of deposit as of December 31, 2019:

	Under		$250,000
(dollars in thousands)	$250,000		or More		Total
Three months or less	$	260,198	$	772,794	$	1,032,992
Over three through six months		215,191		242,008		457,199
Over six through twelve months		321,555		215,211		536,766
2021		98,344		55,118		153,462
2022		128,845		59,185		188,030
2023		59,069		12,167		71,236
2024		59,547		10,893		70,440
Thereafter		32		—		32
Total	$	1,142,781	$	1,367,376	$	2,510,157

Time certificates of deposit in denominations of $250,000 or more, in the aggregate, were $1.4 billion and $1.9 billion as of December 31, 2019 and 2018, respectively. Overdrawn deposit accounts are classified as loans and totaled $3.6 million and $2.4 million at December 31, 2019 and 2018, respectively.

10. Short-Term Borrowings

As of December 31, 2019 and 2018, short-term borrowings were comprised of the following:

	December 31,
(dollars in thousands)	2019		2018
Short-term FHLB fixed-rate advances(1)	$	400,000	$	—
Total short-term borrowings	$	400,000	$	—

(1) Interest is payable monthly.

115

As of December 31, 2019, the Company’s short-term borrowings included $400.0 million in short-term FHLB fixed-rate advances with a weighted average interest rate of 2.84% and maturity dates in 2020. The short-term FHLB fixed-rate advances require monthly interest-only payments with the principal amount due on the maturity date. See “Note 8. Transfers of Financial Assets” for more information.

The table below provides selected information for short-term borrowings during the years ended December 31, 2019, 2018 and 2017:

	Year Ended December 31,
(dollars in thousands)	2019			2018			2017
Federal funds purchased:
Weighted-average interest rate at December 31,		—	%		—	%		—	%
Highest month-end balance	$	110,000		$	374,875		$	6,000
Average outstanding balance	$	16,410		$	32,987		$	1,280
Weighted-average interest rate paid		2.44	%		2.18	%		0.97	%
Securities sold under agreements to repurchase:
Weighted-average interest rate at December 31,		—	%		—	%		—	%
Highest month-end balance	$	—		$	—		$	5,951
Average outstanding balance	$	—		$	—		$	893
Weighted-average interest rate paid		—	%		—	%		0.55	%
Short-term FHLB fixed-rate advance:
Weighted-average interest rate at December 31,		2.84	%		—	%		—	%
Highest month-end balance	$	400,000		$	81,800		$	—
Average outstanding balance	$	193,425		$	6,929		$	—
Weighted-average interest rate paid		2.85	%		1.90	%		—	%

The Company treats securities sold under agreements to repurchase as collateralized financings. The Company reflects the obligations to repurchase the same or similar securities sold as liabilities, with the dollar amount of securities underlying the agreements remaining in the asset accounts. Generally, for these types of agreements, there is a requirement that collateral be maintained with a market value equal to or in excess of the principal amount borrowed. As such, the collateral pledged may be increased or decreased over time to meet contractual obligations. The securities underlying the agreements to repurchase are held in collateral accounts with a third-party custodian. The Company did not enter into any repurchase agreements in 2019 and 2018.

At December 31, 2019 and 2018, the Company had a remaining line of credit of $1.7 billion and $1.3 billion available from the FHLB, respectively, and an undrawn line of credit of $596.8 million and $671.8 million available from the FRB, respectively.

11. Long-Term Borrowings

Long-term borrowings consisted of the following at December 31, 2019 and 2018:

(dollars in thousands)	2019		2018
Finance lease	$	19	$	26
FHLB fixed-rate advances(1)		200,000		600,000
Total long-term borrowings	$	200,019	$	600,026

(1) Interest is payable monthly.

As of December 31, 2019, the Company’s long-term borrowings included $200.0 million in FHLB fixed-rate advances with a weighted average interest rate of 2.73% and maturity dates ranging from 2023 to 2024. The FHLB fixed-rate advances require monthly interest-only payments with the principal amount due on the maturity date. The FHLB fixed-rate advances and remaining borrowing capacity were secured by residential real estate loan collateral as of December 31, 2019 and 2018. See “Note 8. Transfers of Financial Assets” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

116

At December 31, 2019 and 2018, the Company’s long-term borrowings included a finance lease obligation with a 6.78%annual interest rate that matures in 2022.

At December 31, 2019, future contractual principal payments and maturities on long-term borrowings were as follows:

	Principal
(dollars in thousands)	Payments
Year ending December 31:
2020	$	9
2021		10
2022		—
2023(1)		100,000
2024(2)		100,000
Total	$	200,019

(1) FHLB fixed-rate advance callable on December 4, 2020 with an interest rate of 2.80%

(2) FHLB fixed-rate advance callable on January 15, 2021 with an interest rate of 2.65%

12. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) is defined as the revenues, expenses, gains and losses that are included in comprehensive income, but excluded from net income. The Company’s significant items of accumulated other comprehensive income (loss) are pension and other benefits, investment securities and cash flow derivative hedges. Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2019, 2018 and 2017 are presented below:

			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at December 31, 2018	$	(180,915)	$	48,720	$	(132,195)
Year ended December 31, 2019
Pension and other benefits:
Net actuarial losses arising during the year		(5,774)		1,555		(4,219)
Prior service credit		(429)		115		(314)
Amortization of net loss included in net income		6,610		(1,780)		4,830
Net change in pension and other benefits		407		(110)		297
Investment securities:
Unrealized net gains arising during the year		134,343		(36,178)		98,165
Reclassification of net losses to net income:
Investment securities losses, net		2,715		(731)		1,984
Net change in investment securities		137,058		(36,909)		100,149
Other comprehensive income		137,465		(37,019)		100,446
Accumulated other comprehensive loss at December 31, 2019	$	(43,450)	$	11,701	$	(31,749)

117

			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at December 31, 2017	$	(159,423)	$	63,040	$	(96,383)
Year ended December 31, 2018
Early adoption of ASU No. 2018-02		—		(20,068)		(20,068)
Pension and other benefits:
Net actuarial losses arising during the year		(2,835)		763		(2,072)
Prior service credit		(429)		116		(313)
Amortization of net loss included in net income		7,315		(1,970)		5,345
Net change in pension and other benefits		4,051		(1,091)		2,960
Investment securities:
Unrealized net losses arising during the year		(43,545)		11,686		(31,859)
Reclassification of net gains to net income:
OTTI losses on available-for-sale debt securities, net		24,085		(6,485)		17,600
Net change in investment securities		(19,460)		5,201		(14,259)
Cash flow derivative hedges:
Unrealized net gains on cash flow derivative hedges arising during the year		1,475		(397)		1,078
Reclassification of net gains to net income:
Other noninterest expense		(7,558)		2,035		(5,523)
Net change in cash flow derivative hedges		(6,083)		1,638		(4,445)
Other comprehensive loss		(21,492)		5,748		(15,744)
Accumulated other comprehensive loss at December 31, 2018	$	(180,915)	$	48,720	$	(132,195)

			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at December 31, 2016	$	(145,472)	$	57,461	$	(88,011)
Year ended December 31, 2017
Pension and other benefits:
Net actuarial losses arising during the year		(1,104)		436		(668)
Prior service credit		(429)		170		(259)
Amortization of net loss included in net income		8,625		(3,407)		5,218
Net change in pension and other benefits		7,092		(2,801)		4,291
Investment securities:
Unrealized net losses arising during the year		(23,516)		9,357		(14,159)
Net change in investment securities		(23,516)		9,357		(14,159)
Cash flow derivative hedges:
Unrealized net gains on cash flow derivative hedges arising during the year		2,473		(977)		1,496
Net change in cash flow derivative hedges		2,473		(977)		1,496
Other comprehensive loss		(13,951)		5,579		(8,372)
Accumulated other comprehensive loss at December 31, 2017	$	(159,423)	$	63,040	$	(96,383)

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The following table summarizes changes in accumulated other comprehensive loss, net of tax, for the years indicated:

	Pensions						Accumulated
	and				Cash Flow		Other
	Other		Investment		Derivative		Comprehensive
(dollars in thousands)	Benefits		Securities		Hedges		Income (Loss)
Year Ended December 31, 2019
Balance at beginning of year	$	(28,379)	$	(103,816)	$	—	$	(132,195)
Other comprehensive income		297		100,149		—		100,446
Balance at end of year	$	(28,082)	$	(3,667)	$	—	$	(31,749)
Year Ended December 31, 2018
Balance at beginning of year	$	(25,946)	$	(74,117)	$	3,680	$	(96,383)
Early adoption of ASU No. 2018-02		(5,393)		(15,440)		765		(20,068)
Other comprehensive income (loss)		2,960		(14,259)		(4,445)		(15,744)
Balance at end of year	$	(28,379)	$	(103,816)	$	—	$	(132,195)
Year Ended December 31, 2017
Balance at beginning of year	$	(30,237)	$	(59,958)	$	2,184	$	(88,011)
Other comprehensive income (loss)		4,291		(14,159)		1,496		(8,372)
Balance at end of year	$	(25,946)	$	(74,117)	$	3,680	$	(96,383)

As of December 31, 2019, there was no non-credit OTTI loss on securities available for sale. An OTTI loss on available-for-sale debt securities of $24.1 million was  recorded due to the Company’s intent to sell as of December 31, 2018.  

13. Regulatory Capital Requirements

Federal and state laws and regulations limit the amount of dividends the Company may declare or pay. The Company depends primarily on dividends from FHB as the source of funds for the Company’s payment of dividends.

The Company and the Bank are subject to various regulatory capital requirements imposed by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s operating activities and financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of its assets and certain off-balance-sheet items. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of Common Equity Tier 1 (“CET1”) capital, Tier 1 capital and total capital to risk-weighted assets, as well as a minimum leverage ratio.

The following provides definitions for the regulatory risk-based capital ratios and leverage ratio, which are calculated as per standard regulatory guidance:

Risk-Weighted Assets — Assets are weighted for risk according to a formula used by the Federal Reserve to conform to capital adequacy guidelines. On- and off-balance sheet items are weighted for risk, with off-balance sheet items converted to balance sheet equivalents, using risk conversion factors, before being allocated a risk-adjusted weight. The off-balance sheet items comprise a minimal part of the overall calculation.

Common Equity Tier 1 Risk-Based Capital Ratio — The CET1 risk-based capital ratio is calculated as CET1 capital, divided by risk-weighted assets. CET1 is the sum of equity, adjusted for ineligible goodwill as well as certain other comprehensive income items as follows: net unrealized gains/losses on securities and derivatives, and net unrealized pension and other benefit losses.

119

Tier 1 Risk-Based Capital Ratio — The Tier 1 capital ratio is calculated as Tier 1 capital divided by risk-weighted assets.

Total Risk-Based Capital Ratio — The total risk-based capital ratio is calculated as the sum of Tier 1 capital and an allowable amount of the reserve for credit losses (limited to 1.25 percent of risk-weighted assets), divided by risk-weighted assets.

Tier 1 Leverage Ratio — The Tier 1 leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets.

The table below sets forth those ratios at December 31, 2019 and 2018:

					First Hawaiian				Minimum		Well-
	First Hawaiian, Inc.				Bank				Capital		Capitalized
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Ratio(1)		Ratio(1)
December 31, 2019:
Common equity tier 1 capital to risk-weighted assets	$	1,676,515	11.88	%	$	1,654,304	11.72	%	4.50	%	6.50	%
Tier 1 capital to risk-weighted assets		1,676,515	11.88	%		1,654,304	11.72	%	6.00	%	8.00	%
Total capital to risk-weighted assets		1,807,645	12.81	%		1,785,434	12.65	%	8.00	%	10.00	%
Tier 1 capital to average assets (leverage ratio)		1,676,515	8.79	%		1,654,304	8.67	%	4.00	%	5.00	%
December 31, 2018:
Common equity tier 1 capital to risk-weighted assets	$	1,661,542	11.97	%	$	1,658,172	11.94	%	4.50	%	6.50	%
Tier 1 capital to risk-weighted assets		1,661,542	11.97	%		1,658,172	11.94	%	6.00	%	8.00	%
Total capital to risk-weighted assets		1,803,860	12.99	%		1,800,490	12.97	%	8.00	%	10.00	%
Tier 1 capital to average assets (leverage ratio)		1,661,542	8.72	%		1,658,172	8.70	%	4.00	%	5.00	%

(1) As defined by the regulations issued by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the FDIC.

A new capital conservation buffer, comprised of CET1 capital, was established above the regulatory minimum capital requirements. This capital conservation buffer was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increased each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. As of December 31, 2019, under the bank regulatory capital guidelines, the Company and Bank were both classified as well-capitalized. Management is not aware of any conditions or events that have occurred since December 31, 2019, to change the capital adequacy category of the Company or the Bank.

14. Leases

The Company, as lessee, is obligated under a number of noncancelable operating leases primarily for branch premises and related real estate. Terms of such leases extend for periods up to 44 years, many of which provide for periodic adjustment of rent payments based on changes in various economic indicators. Renewal options are included in the Company’s lease liabilities and related right-of-use assets to the extent that the Company is reasonably certain to exercise such options. For all of the Company’s short-term leases (i.e., leases with an initial term of 12 months or less), the Company recognizes lease expense on a straight-line basis over the lease term. Variable lease payments are recognized in the period in which the obligation for those payments is incurred.

The Company’s branch premises leases typically require that the Company is responsible to pay for variable lease expense, primarily maintenance expense, as well as real property taxes, property insurance and sales taxes. Maintenance expense is paid to maintain common areas and covers costs including landscaping, cleaning and general maintenance. Such variable costs are typically re-evaluated by the landlord on an annual basis and are charged to the Company based on the portion of the total building premises that is occupied by the Company.

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The Company subleases certain premises and real estate to third parties. The sublease portfolio consists of operating leases for space connected with three of the Company’s branch properties.

The components of the Company’s net lease expense for the year ended December 31, 2019 were as follows:

	Year Ended
(dollars in thousands)	December 31, 2019
Operating lease expense	$	9,158
Short-term lease expense		487
Variable lease expense		2,152
Finance lease expense:
Amortization of right-of-use assets		3
Interest on lease liabilities		2
Total finance lease expense		5
Less: Sublease income		(1,073)
Net lease expense	$	10,729

For the years ended December 31, 2018 and 2017, rental expense, net of sublease income, presented in accordance with Topic 840, Leases was as follows:

	Year Ended December 31,
(dollars in thousands)	2018		2017
Rental expense charged to occupancy	$	9,947	$	8,620
Less: Sublease income		903		1,342
Net rental expense charged to occupancy		9,044		7,278
Rental expense charged to equipment expense		3,679		285
Total	$	12,723	$	7,563

Other information related to the Company’s lease liabilities as of and for the year ended December 31, 2019 was as follows:

	Year Ended
(dollars in thousands)	December 31, 2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	8,802
Operating cash flows paid for finance leases	$	10
Financing cash flows paid for finance leases	$	10
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	1,401
Weighted Average Remaining Lease Term
Operating leases (years)		15.7
Finance leases (years)		2.5
Weighted Average Discount Rate
Operating leases		3.36	%
Finance leases		6.78	%

Operating lease right-of-use assets were $44.3 million and finance lease right-of-use assets were not material as of December 31, 2019. Operating lease right-of-use assets and finance lease right-of use assets were recorded as a component of other assets and premises and equipment, respectively, as of December 31, 2019. Operating lease liabilities were $44.4 million and finance lease liabilities were not material as of December 31, 2019. Operating lease liabilities and finance lease liabilities were recorded as a component of other liabilities and long-term borrowings, respectively, as of December 31, 2019.

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The most significant assumption related to the Company’s application of Topic 842 was the discount rate assumption. As most of the Company’s lease agreements do not provide for an implicit interest rate, the Company used the collateralized interest rate that the Company would have to pay to borrow over a similar term to estimate the Company’s lease liability as of January 1, 2019.

The following table sets forth future minimum rental payments under noncancelable operating leases with terms in excess of one year as of December 31, 2019:

	Net Operating
	Lease
(dollars in thousands)	Payments
Year ending December 31:
2020	$	8,776
2021		8,084
2022		5,453
2023		2,964
2024		2,721
Thereafter		32,227
Total future minimum lease payments		60,225
Less: Imputed interest		(15,934)
Total	$	44,291

The following table presents future minimum rental payments under operating leases with terms in excess of one year as of December 31, 2018 presented in accordance with Topic 840, “Leases”:

	Operating		Less		Net Operating
	Lease		Sublease		Lease
(dollars in thousands)	Payments		Income		Payments
Year ending December 31:
2019	$	8,780	$	903	$	7,877
2020		8,668		903		7,765
2021		7,961		892		7,069
2022		5,101		—		5,101
2023		2,632		—		2,632
Thereafter		34,638		—		34,638
Total future minimum lease payments	$	67,780	$	2,698	$	65,082

The Company has several operating leases with related parties associated with its branch premises. The lease payments to related parties were $0.3 million for the year ended December 31, 2019. The future minimum rental payments due to related parties are $0.3 million (2020), $0.3 million (2021), $0.2 million (2022), $0.2 million (2023), $0.2 million (2024), and $7.3 million thereafter.

The Company, as lessor, rents office space in its headquarters office building as well as office space located primarily in Hawaii to third party lessees. The cost and accumulated depreciation related to leased properties were $288.8 million and $141.3 million, respectively, as of December 31, 2019, and $289.2 million and $133.7 million, respectively, as of December 31, 2018. Terms of such leases, including renewal options, may be extended for up to ten years, many of which provide for periodic adjustment of rent payments based on changes in consumer or other price indices. The Company recognizes lease income on a straight-line basis over the lease term. Non-lease components, primarily consisting of costs incurred by the Company for maintenance and utilities, are recognized as income in the period in which the payments are due.

The Company recognized operating lease income related to lease payments of $5.9 million for the year ended December 31, 2019. In addition, the Company recognized $5.3 million of lease income related to variable lease payments for the year ended December 31, 2019.

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Certain of the Company’s leases are with related parties for the use of space at the Company’s headquarters office building. The rental income paid by the related parties for the year ended December 31, 2019 was $0.4 million. The future minimum rental income from related parties are $0.4 million (2020), $0.4 million (2021), $0.4 million (2022), $0.4 million (2023), $0.4 million (2024), and $0.8 million thereafter.

The following table sets forth future minimum rental income under noncancelable operating leases with terms in excess of one year as of December 31, 2019:

	Minimum
	Rental
(dollars in thousands)	Income
Year ending December 31:
2020	$	6,164
2021		6,152
2022		4,431
2023		3,506
2024		2,680
Thereafter		6,511
Total	$	29,444

15. Benefit Plans

Qualified Pension Plan

The Company’s employees participate in the Employees’ Retirement Plan of First Hawaiian, Inc. (the “FHI ERP”). The FHI ERP is a frozen plan whereby there are no further benefit accruals for the Company’s employees. However, employees retain rights to participant benefits accrued as of the date of the plan freeze.

No contributions to the pension trust are expected to be made during 2020 for the Company’s participants in the FHI ERP. However, should contributions be required in accordance with the funding rules under the Employee Retirement Income Security Act of 1974 (“ERISA”), including the impact of the Pension Protection Act of 2006, the Company would make those required contributions.

Nonqualified Pension and Other Postretirement Benefit Plans

The Company also sponsors an unfunded supplemental executive retirement plan for certain key executives (“SERP”). In addition, the Company sponsors a directors’ retirement plan (“Directors’ Plan”), a non-qualified pension plan for eligible FHI and FHB directors that qualify for retirement benefits based on their years of service as a director. Both the SERP and the Directors’ Plan were frozen as of January 1, 2005 to new participants. In March 2019, the Company’s board of directors approved an amendment to the SERP to freeze the SERP, which became effective on July 1, 2019. As a result of the amendment, since the effective date, there have not been any, and there will be no, new accruals of benefits, including service accruals. Existing benefits under the SERP, as of the effective date of the amendment described above, will otherwise continue in accordance with the terms of the SERP. No contributions to the SERP are expected to be made in 2020.

A postretirement benefit plan is also offered to eligible employees that provides life insurance and healthcare benefits upon retirement. The Company provides access to medical coverage for eligible retirees under age 65 at active employee premium rates and a monthly stipend to both retiree and retiree’s spouse after age 62.

The Company expects to contribute $0.2 million to its Directors’ Plan and $1.2 million to its postretirement medical and life insurance plans in 2020. These contributions reflect the estimated benefit payments for the unfunded plans and may vary depending on retirements during 2020.

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Defined Contribution Plans

401(k) Savings Plan and Money Purchase Pension Plan

The Company matched employee contributions to the First Hawaiian, Inc. 401(k) Savings Plan, a qualified defined contribution plan, up to 5%of the employee’s pay in 2019 and 2018. The Company also contributed 2.5% of employee pay to the First Hawaiian, Inc. Future Plan, a money purchase pension plan. The plans cover all employees who satisfy eligibility requirements. A select group of key executives who participate in an unqualified grandfathered supplemental executive retirement plan may participate in the 401(k) plan but are not eligible to receive the matching contribution.

The employer contributions to the above-mentioned plans for the years ended December 31, 2019, 2018 and 2017 were $7.5 million, $7.8 million and $7.3 million, respectively, and are included in salaries and employee benefits within the consolidated statements of income.

Annual Incentive Awards for Key Executives

The Company makes cash-based annual incentive awards under the First Hawaiian, Inc. Bonus Plan (the “Bonus Plan”). The Bonus Plan limits the aggregate and individual value of the awards that could be issued in any one fiscal year. The Bonus Plan expenses totaled $15.6 million, $14.3 million and $13.3 million for the years ended December 31, 2019, 2018 and 2017, respectively, and are included in salaries and employee benefits within the consolidated statements of income.

The following table details the amounts recognized in other comprehensive income during the years presented. Pension benefits include benefits from the qualified and non-qualified plans. Other benefits include life insurance and healthcare benefits from the postretirement benefit plan.

	Pension Benefits						Other Benefits
(dollars in thousands)	2019		2018		2017		2019		2018		2017
Amounts arising during the year:
Net (gain) loss on pension assets	$	(16,278)	$	12,209	$	(8,619)	$	—	$	—	$	—
Net loss (gain) on pension obligations		21,512		(6,619)		9,757		540		(2,755)		(34)
Reclassification adjustments recognized as components of net periodic benefit cost during the year:
Net (gain) loss		(6,995)		(7,315)		(8,625)		385		—		—
Prior service credit		—		—		—		429		429		429
Amount recognized in other comprehensive income	$	(1,761)	$	(1,725)	$	(7,487)	$	1,354	$	(2,326)	$	395

The following table shows the amounts within accumulated other comprehensive loss that had not yet been recognized as components of net periodic benefit cost as of December 31, 2019 and 2018:

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Net actuarial loss (gain)	$	40,061	$	41,822	$	(1,582)	$	(2,507)
Prior service credit		—		—		(51)		(480)
Total, pretax effect		40,061		41,822		(1,633)		(2,987)
Tax impact		(10,786)		(11,260)		440		804
Ending balance in accumulated other comprehensive loss	$	29,275	$	30,562	$	(1,193)	$	(2,183)

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The following table provides the amounts within accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 2020:

	Pension		Other
(dollars in thousands)	Benefits		Benefits
Amortization of prior service credit	$	—	$	(51)
Amortization of net actuarial loss (gain)		5,753		(103)
Total to be recognized in 2020	$	5,753	$	(154)

The following tables summarize the changes to projected benefit obligation (“PBO”) and fair value of plan assets for pension benefits and accumulated postretirement benefit obligation and fair value of plan assets for other benefits:

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Benefit obligation at beginning of year	$	199,072	$	212,981	$	19,716	$	21,449
Service cost		14		696		710		750
Interest cost		8,261		7,362		808		739
Actuarial loss (gain)		22,573		(6,619)		540		(2,755)
Curtailment gain		(1,061)		—		—		—
Benefit payments		(15,574)		(15,348)		(469)		(467)
Benefit obligation at end of year	$	213,285	$	199,072	$	21,305	$	19,716

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Fair value of plan assets at beginning of year	$	99,581	$	114,220	$	—	$	—
Actual return on plan assets		20,863		(6,936)		—		—
Benefit payments from trust		(7,785)		(7,703)		—		—
Fair value of plan assets at end of year	$	112,659	$	99,581	$	—	$	—

The following table summarizes the funded status of the Company’s plans and amounts recognized in the Company’s consolidated balance sheets as of December 31, 2019 and 2018:

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Pension assets for overfunded plans	$	16,291	$	8,702	$	—	$	—
Pension liabilities for underfunded plans		(116,917)		(108,193)		(21,305)		(19,716)
Funded status	$	(100,626)	$	(99,491)	$	(21,305)	$	(19,716)

The following table provides information regarding the PBO, accumulated benefit obligation (“ABO”), and fair value of plan assets as of December 31, 2019 and 2018:

	Funded Pension Plan				Unfunded Pension Plans				Total Pension Plans
(dollars in thousands)	2019		2018		2019		2018		2019		2018
Projected benefit obligation	$	96,368	$	90,879	$	116,917	$	108,193	$	213,285	$	199,072
Accumulated benefit obligation		96,368		90,879		116,834		106,357		213,202		197,236
Fair value of plan assets		112,659		99,581		—		—		112,659		99,581
Overfunded (underfunded) portion of PBO/ABO		16,291		8,702		(116,917)		(108,193)		(100,626)		(99,491)

The Company recognizes the overfunded and underfunded status of its pension plans as an asset and liability in the consolidated balance sheets.

Unrecognized net gains or losses that exceed 5% of the greater of the PBO or the fair value of plan assets as of the beginning of the year are amortized on a straight-line basis over five years in accordance with ASC 715. Amortization of the unrecognized net gain or loss is included as a component of net periodic pension cost. If amortization results in an amount less than the minimum amortization required under GAAP, the minimum required amount is recorded.

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The following table summarizes the change in net actuarial loss and amortization for the years ended December 31, 2019 and 2018:

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Net actuarial loss (gain) at beginning of year	$	41,822	$	43,547	$	(2,507)	$	248
Amortization cost		(6,995)		(7,315)		385		—
Liability loss (gain)		21,512		(6,619)		540		(2,755)
Asset (gain) loss		(16,278)		12,209		—		—
Net actuarial loss (gain) at end of year	$	40,061	$	41,822	$	(1,582)	$	(2,507)

The following table sets forth the components of net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017:

	Income line item where recognized in	Pension Benefits						Other Benefits
(dollars in thousands)	the consolidated statements of income	2019		2018		2017		2019		2018		2017
Service cost	Salaries and employee benefits	$	14	$	696	$	629	$	710	$	750	$	738
Interest cost	Other noninterest expense		8,261		7,362		8,297		808		739		776
Expected return on plan assets	Other noninterest expense		(4,585)		(5,273)		(5,003)		—		—		—
Prior service credit	Other noninterest expense		—		—		—		(429)		(429)		(429)
Recognized net actuarial loss (gain)	Other noninterest expense		6,995		7,315		8,625		(385)		—		—
Total net periodic benefit cost		$	10,685	$	10,100	$	12,548	$	704	$	1,060	$	1,085

The funded pension benefit amounts included in pension benefits for the years ended December 31, 2019, 2018 and 2017 were as follows:

	Funded Pension Benefits
(dollars in thousands)	2019		2018		2017
Interest cost	$	3,808	$	3,420	$	3,922
Expected return on plan assets		(4,585)		(5,273)		(5,003)
Recognized net actuarial loss		3,714		2,600		4,316
Total net periodic benefit cost	$	2,937	$	747	$	3,235

Assumptions

The following weighted-average assumptions were used to determine benefit obligations at December 31, 2019 and 2018:

	FHI ERP Pension Benefits				SERP Pension Benefits				Other Benefits
	2019		2018		2019		2018		2019		2018
Discount rate	3.16	%	4.30	%	3.16	%	4.30	%	3.16	%	4.30	%
Rate of compensation increase	NA		NA		4.00	%	4.00	%	NA		NA

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017 were as follows:

	FHI ERP Pension Benefits						SERP Pension Benefits						Other Benefits
	2019		2018		2017		2019		2018		2017		2019		2018		2017
Discount rate	4.30	%	3.51	%	4.05	%	4.30	%	3.51	%	4.05	%	4.30	%	3.51	%	4.05	%
Expected long-term return on plan assets	4.75	%	4.75	%	4.75	%	NA		NA		NA		NA		NA		NA
Rate of compensation increase	NA		NA		NA		4.00	%	4.00	%	4.00	%	NA		NA		NA

To select the discount rate, the Company reviews the yield on high quality corporate bonds. This rate is adjusted to convert the yield to an annual discount rate basis and may be adjusted for the population of plan participants to reflect the expected duration of the benefit payments of the plan.

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Assumed healthcare cost trend rates were as follows at December 31, 2019, 2018 and 2017:

	2019		2018		2017
Healthcare cost trend rate assumed for next year	6.50	%	7.00	%	7.00	%
Rate to which the cost trend is assumed to decline (the ultimate trend rate)	5.00	%	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2026		2026		2026

A one percentage-point change in the assumed healthcare cost trend rates would have had the following pre-tax effect:

	One Percentage-		One Percentage-
(dollars in thousands)	Point Increase		Point Decrease
Effect on 2019 total of service and interest cost components	$	75	$	(67)
Effect on postretirement benefit obligation at December 31, 2019		353		(328)

Plan Assets

The Company’s pension plan assets were allocated as follows as of December 31, 2019 and 2018:

	Asset Allocation
	2019		2018
Equity securities	31	%	29	%
Debt securities	66	%	69	%
Other securities	3	%	2	%
Total	100	%	100	%

There were no holdings of FHI or BNPP stock included in equity securities at December 31, 2019 and 2018.

The assets within the pension plan are managed in accordance with ERISA. The objective of the plan is to achieve, over full market cycles, a compounded annual rate of return equal to or greater than the pension plan’s expected long-term rate of return. The pension plan’s participants recognize that capital markets can be unpredictable and that any investment could result in periods where the market value of the pension plan’s assets will decline in value. Asset allocation is likely to be the primary determinant of the pension plan’s return and the associated volatility of returns for the pension plan. The Company estimated the long-term rate of return for the 2019 net periodic pension cost to be 4.75%. The return was selected based on a model of U.S. capital market assumptions with expected returns reflecting the anticipated asset allocation of the pension plan.

The target asset allocation for the pension plan at December 31, 2019, was as follows:

	Target
	Allocation
Equity securities	30	%
Debt securities	68	%
Other securities	2	%

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Estimated Future Benefit Payments

The following table presents benefit payments that are expected to be paid over the next ten years, giving consideration to expected future service as appropriate:

	Pension		Other
(dollars in thousands)	Benefits		Benefits
2020	$	16,120	$	1,205
2021		15,902		1,315
2022		15,580		1,410
2023		15,176		1,487
2024		14,739		1,546
2025 to 2029		69,769		8,085

Fair Value Measurement of Plan Assets

The Company’s overall investment strategy includes a wide diversification of asset types, fund strategies and fund managers. Investments in mutual funds and exchange-traded funds consist primarily of investments in large-cap companies located in the United States. Fixed income securities include U.S. government agencies and corporate bonds of companies from diversified industries.

The fair values of the Company’s pension plans assets at December 31, 2019 and 2018, by asset class, were as follows:

	December 31, 2019
	Quoted Prices		Significant
	In Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Asset classes:
Cash and cash equivalents	$	2,824	$	—	$	—	$	2,824
Fixed income - U.S. Treasury securities		—		4,053		—		4,053
Fixed income - U.S. government agency securities		—		3,504		—		3,504
Fixed income - U.S. corporate securities		—		58,808		—		58,808
Fixed income - municipal securities		—		484		—		484
Fixed income - mutual funds		6,204		—		—		6,204
Fixed income - international securities		1,544		—		—		1,544
Equity - large-cap exchange-traded funds		23,278		—		—		23,278
Equity - mid-cap exchange-traded funds		3,379		—		—		3,379
Equity - small-cap exchange-traded funds		1,645		—		—		1,645
Equity - international funds		6,936		—		—		6,936
Total	$	45,810	$	66,849	$	—	$	112,659

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	December 31, 2018
	Quoted Prices		Significant
	In Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Asset classes:
Cash and cash equivalents	$	2,428	$	—	$	—	$	2,428
Fixed income - U.S. Treasury securities		—		4,450		—		4,450
Fixed income - U.S. government agency securities		—		3,565		—		3,565
Fixed income - U.S. corporate securities		—		53,721		—		53,721
Fixed income - municipal securities		—		451		—		451
Fixed income - mutual funds		6,272		—		—		6,272
Equity - large-cap mutual funds		8,831		—		—		8,831
Equity - large-cap exchange-traded funds		10,482		—		—		10,482
Equity - mid-cap exchange-traded funds		2,544		—		—		2,544
Equity - small-cap exchange-traded funds		1,176		—		—		1,176
Equity - international funds		5,661		—		—		5,661
Total	$	37,394	$	62,187	$	—	$	99,581

No fair value measurements used Level 3 inputs as of December 31, 2019 and 2018.

The plan’s investments in fixed income securities represent approximately 66.2% and 68.7% of total plan assets as of December 31, 2019 and 2018, respectively, which is the most significant concentration of risk in the plan.

Valuation Methodologies

Cash and cash equivalents — includes investments in money market funds. Carrying value is a reasonable estimate of fair value based on the short-term nature of the instruments.

U.S. Treasury securities — includes securities issued by the U.S. government valued at fair value based on observable market prices for similar securities or other market observable inputs.

U.S. government agency securities — includes investment-grade debt securities issued by U.S. government agencies. These securities are valued at fair value based upon the quoted market values of the underlying net assets.

U.S. corporate securities — includes investment-grade debt securities issued by U.S. corporations. These securities are valued at fair value based on observable market prices for similar securities or other market observable inputs.

Municipal securities — includes bonds issued by a city or other local government, or their agencies. Potential issuers of municipal bonds include cities, counties, redevelopment agencies, special-purpose districts, school districts, public utility districts, publicly owned airports and seaports, and any other governmental entity (or group of governments) below the state level. Municipal bonds may be general obligations of the issuer or secured by specified revenues. These securities are valued at fair value based on observable market prices for similar securities or other market observable inputs.

Mutual funds — includes an open-end fixed-income fund benchmarked to the Barclay’s Capital U.S. Government/Credit Bond Index. At least 80% of its assets are high-grade corporate bonds and U.S. government debt obligations. The fair value is based upon the quoted market values of the underlying net assets.

Large-cap mutual funds — includes open-end equity funds holding a diversified portfolio of large-cap domestic equity securities. The portfolio has a bias towards stocks with growth characteristics and stocks with high cash flow and growing dividends. The fair value is based upon the quoted market values of the underlying net assets.

Large-cap exchange-traded fund — includes an exchange-traded fund which invests mainly in U.S. large-cap stocks such as those in the S&P 500 index. The fair value is based upon the quoted market values of the underlying net assets.

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Mid-cap exchange-traded funds — includes broadly-diversified exchange-traded funds which invest in U.S. mid-cap stocks such as those in the S&P 400 Mid Cap index. The fair value is based upon the quoted market values of the underlying net assets.

Small-cap exchange-traded funds — includes broadly-diversified exchange-traded funds which invest in U.S. small-cap stocks such as those in the S&P 600 Small Cap index. The fair value is based upon the quoted market values of the underlying net assets.

International funds — includes well-diversified exchange-traded funds tracking broad-based international equity indexes. The fair value is based upon the quoted market values of the underlying net assets.

16. Income Taxes

On December 22, 2017, President Trump signed into law the Tax Act. The Tax Act made many significant amendments to the Internal Revenue Code of 1986, as amended (the “Code”), including reducing the corporate tax rate from 35% to 21%, effective January 1, 2018. GAAP requires that companies record and reflect the impact of the Tax Act in their financial statements for the quarter during which the Tax Act becomes law, even if provisions of the Tax Act become effective at a future date. Accordingly, the Company reported the impact of the Tax Act on its results of operations in its consolidated financial statements for the fourth quarter and year ended December 31, 2017. The reduction in the corporate tax rate under the Tax Act required a one-time revaluation of certain tax-related assets, which resulted in the Company recording $47.6 million in additional income tax expense in our consolidated statements of income in the fourth quarter of 2017.

For the years ended December 31, 2019, 2018 and 2017, the provision for income taxes was comprised of the following:

	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Current:
Federal	$	56,450	$	69,477	$	101,162
State and local		23,796		27,909		24,595
Total current		80,246		97,386		125,757
Deferred:
Federal		14,047		(2,043)		58,732
State and local		3,013		(1,559)		184
Total deferred		17,060		(3,602)		58,916
Total provision for income taxes	$	97,306	$	93,784	$	184,673

The Company files Federal and state income tax returns for its subsidiaries. The Company’s subsidiary also files income tax returns in Guam and Saipan. The Company had a current income tax receivable due from various jurisdictions of $24.4 million and $25.3 million as of December 31, 2019 and 2018, respectively, for its share of consolidated and combined tax overpayments that had not yet been received.

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The components of net deferred income tax assets and liabilities at December 31, 2019 and 2018, were as follows:

	December 31,
(dollars in thousands)	2019		2018
Assets:
Deferred compensation expense	$	56,148	$	56,989
Allowance for loan and lease losses and nonperforming assets		35,195		38,245
Lease liabilities		11,951		—
Investment securities		2,474		45,846
State income taxes		3,338		5,378
Total deferred income tax assets before valuation allowance		109,106		146,458
Valuation allowance		(1,393)		(1,901)
Total deferred income tax assets after valuation allowance		107,713		144,557
Liabilities:
Leases		(14,873)		(10,597)
Deferred income		(16,069)		(15,471)
Lease right-of-use assets		(11,931)		—
Intangible assets		(500)		(788)
Other		(10,570)		(9,852)
Total deferred income tax liabilities		(53,943)		(36,708)
Net deferred income tax assets	$	53,770	$	107,849

Net deferred income tax assets were included in other assets in the consolidated balance sheets as of December 31, 2019 and 2018.

Management evaluated the deferred income tax assets for recoverability by considering negative and positive evidence. Negative evidence included the uncertainty of generating future capital gains and restrictions on the ability to sell low-income housing investments during periods when carrybacks of capital losses are allowed. Positive evidence included the generation of capital gains in the current year and carryback years. Based on the weight of all available evidence, management determined a valuation allowance to offset deferred tax assets related to investments in low-income housing projects that can only be utilized to offset capital gains was required. Management further concluded it is more likely than not that the remaining deferred tax assets will be realized through carryback to taxable income in prior years, future reversals of existing taxable temporary differences, and projected future taxable income. Consequently, the remaining deferred income tax assets are not subject to a valuation allowance.  

The following analysis reconciles the Federal statutory income tax rate to the effective income tax rate for the years ended December 31, 2019, 2018 and 2017:

	Year Ended December 31,
	2019				2018				2017
(dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Federal statutory income tax expense and rate	$	80,157	21.00	%	$	75,217	21.00	%	$	128,924	35.00	%
State and local taxes, net of federal income tax benefit		21,179	5.55			20,817	5.81			16,106	4.37
Impact of Tax Reform		—	—			—	—			47,598	12.92
Nontaxable income		(3,269)	(0.86)			(2,037)	(0.57)			(4,974)	(1.35)
Other		(761)	(0.20)			(213)	(0.06)			(2,981)	(0.81)
Income tax expense and effective income tax rate	$	97,306	25.49	%	$	93,784	26.18	%	$	184,673	50.13	%

The Company is subject to examination by the Internal Revenue Service (“IRS”) and tax authorities in states in which the Company has significant business operations. The tax years under examination and open for examination vary by jurisdiction. The Company’s 2016 tax returns are currently under IRS examination. In addition, refund claims and tax returns for certain years are being reviewed by state jurisdictions. No material adjustments are anticipated as a result of these examinations and reviews. The Company’s income tax returns for 2016 and subsequent tax years generally remain subject to examination by U.S. federal and foreign jurisdictions, and 2015 and subsequent years are subject to examination by state taxing authorities.

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A reconciliation of the amount of unrecognized tax benefits is as follows for the years ended December 31, 2019, 2018 and 2017:

	Year Ended December 31,
	2019						2018						2017
			Interest						Interest						Interest
			and						and						and
(dollars in thousands)	Tax		Penalties		Total		Tax		Penalties		Total		Tax		Penalties		Total
Balance at beginning of year	$	131,570	$	12,524	$	144,094	$	130,619	$	10,660	$	141,279	$	127,085	$	9,965	$	137,050
Additions for current year tax positions		1,038		—		1,038		2,260		—		2,260		2,727		—		2,727
Additions for Reorganization Transactions		—		986		986		—		832		832		—		226		226
Additions for prior years' tax positions:
New uncertain tax positions identified		1,894		—		1,894		—		—		—		—		—		—
Accrual of interest and penalties		—		1,280		1,280		—		1,159		1,159		—		621		621
Other		—		—		—		—		—		—		1,152		—		1,152
Reductions for prior years' tax positions:
Expiration of statute of limitations		(190)		(89)		(279)		(280)		(127)		(407)		(345)		(152)		(497)
Other		—		—		—		(1,029)		—		(1,029)		—		—		—
Balance at December 31,	$	134,312	$	14,701	$	149,013	$	131,570	$	12,524	$	144,094	$	130,619	$	10,660	$	141,279

Included in the balance of unrecognized tax benefits for the years ended December 31, 2019, 2018 and 2017, was $19.1 million, $16.2 million and $14.9 million, respectively, of unrecognized tax benefits that, if recognized, would impact the effective tax rate.

In connection with the Reorganization Transactions discussed below, the Company recorded unrecognized tax benefits and interest and penalties of $121.4 million and $7.0 million, respectively. Included in the balance of the unrecognized tax benefits as of both December 31, 2019 and 2018, was $93.9 million attributable to tax refund claims with respect to tax years 2005 through 2012 in the State of California. Such refund claims were filed by the Company in 2015, on behalf of the Company and its affiliates, including BOW, concerning the determination of taxes for which no benefit is currently recognized. It is reasonably possible that the amount of unrecognized tax benefits could decrease within the next 12 months by as much as $1.4 million of taxes and $0.9 million of accrued interest and penalties as a result of settlements and the expiration of the statute of limitations in various states.

The Company recognizes interest and penalties attributable to both unrecognized tax benefits and undisputed tax adjustments in the provision for income taxes. For the years ended December 31, 2019, 2018 and 2017, the Company recorded $2.4 million, $1.0 million and $0.7 million, respectively, of net expense attributable to interest and penalties. The Company had a liability of $16.3 million and $13.8 million as of December 31, 2019 and 2018, respectively, accrued for interest and penalties, of which $14.7 million and $12.5 million as of December 31, 2019 and 2018, respectively, were attributable to unrecognized tax benefits and the remainder was attributable to tax adjustments which are not expected to be in dispute.

Prior to the Reorganization Transactions, the Company filed consolidated U.S. Federal and combined state tax returns that incorporated the tax receivables and unrecognized tax benefits of FHB and BOW. The consummation of the Reorganization Transactions did not relieve the Company of the pre-Reorganization Transactions tax receivables and unrecognized tax benefits recognized by BOW that were included in the Company's consolidated and combined tax returns. As a result, on April 1, 2016, the Company recorded $72.8 million related to current tax receivables, $116.6 million related to unrecognized tax benefits, and an indemnification payable of $28.6 million. As of both December 31, 2019 and 2018, the Company maintained balances of $93.1 million related to current tax receivables. As of December 31, 2019 and 2018, the Company maintained balances of $118.1  million and $117.3 million, respectively, related to unrecognized tax benefits, and an indemnification receivable of  $25.0 million and $24.2 million, respectively. Additionally, in connection with the Reorganization Transactions, the Company has incurred certain tax-related liabilities related to the distribution of its interest in BWHI amounting to $95.4 million. The amount necessary to pay the distribution taxes (net of the expected federal tax benefit of $33.4 million) was paid by BNPP to the Company on April 1, 2016. The Company reported total

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distribution taxes of $92.1 million in the 2016 tax returns of various state and local jurisdictions, and reimbursed BWHI approximately $2.1 million pursuant to a tax sharing agreement entered into on April 1, 2016 and pursuant to certain tax allocation agreements entered into among the parties. The Company expects that any future adjustment to such taxes will be similarly reimbursed to, or funded by, BWHI or its affiliates. Accordingly, the assumption of the pre-Reorganization Transactions tax receivables, unrecognized tax benefits and distribution tax liabilities and the offsetting indemnification receivables or payables were reflected as equity contributions and distributions on April 1, 2016. The reimbursement of distribution taxes to BWHI was also reflected as an adjustment to equity. If there are any future adjustments to the indemnified tax receivables or unrecognized tax benefits, including as a result of the IRS audit of the Company’s 2016 income tax returns, an offsetting adjustment to the indemnification receivables or payables will be recorded to the provision for income taxes and other noninterest income or expense. For the years ended December 31, 2019, 2018 and 2017, the Company recorded nil, $1.5 million and $3.9 million, respectively, of such adjustments through the provision for income taxes and noninterest income.

17. Derivative Financial Instruments

The Company enters into derivative contracts primarily to manage its interest rate risk, as well as for customer accommodation purposes. Derivatives used for risk management purposes consist of interest rate swaps that are designated as either a fair value hedge or a cash flow hedge. The derivatives are recognized on the consolidated balance sheets as either assets or liabilities at fair value. Derivatives entered into for customer accommodation purposes consist of various free-standing interest rate derivative products and foreign exchange contracts. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. 

The following table summarizes notional amounts and fair values of derivatives held by the Company as of December 31, 2019 and 2018:

	December 31, 2019						December 31, 2018
			Fair Value						Fair Value
	Notional		Asset		Liability		Notional		Asset		Liability
(dollars in thousands)	Amount		Derivatives(1)		Derivatives(2)		Amount		Derivatives(1)		Derivatives(2)
Derivatives designated as hedging instruments:
Interest rate swaps	$	23,190	$	—	$	(682)	$	41,317	$	31	$	(44)
Derivatives not designated as hedging instruments:
Interest rate swaps		2,818,803		63,527		—		2,269,247		12,305		(12,007)
Funding swap		82,900		—		(4,233)		62,039		—		(2,607)
Foreign exchange contracts		1,428		12		—		1,191		—		(34)

(1) The positive fair values of derivative assets are included in other assets.

(2) The negative fair values of derivative liabilities are included in other liabilities.

Certain interest rate swaps noted above, are cleared through clearinghouses, rather than directly with counterparties. Those transactions cleared through a clearinghouse require initial margin collateral and variation margin payments depending on the contracts being in a net asset or liability position. The amount of initial margin cash collateral posted by the Company was $8.7 million and $2.1 million as of December 31, 2019 and 2018, respectively.  

In 2017 and 2018, each of the Chicago Mercantile Exchange (“CME”) and the London Clearing House (“LCH”) amended its rulebook to legally characterize variation margin payments for derivative contracts that are referred to as settled-to-market as settlements of the derivative’s mark-to-market exposure and not collateral. Based on these changes, the Company has treated the CME and LCH variation margins as settlements, which has resulted in a decrease in the Company’s cash collateral and a corresponding decrease in the Company’s derivative asset and liability. As of December 31, 2019 and 2018, the CME variation margin was $1.0 million and $0.5 million, respectively. As of December 31, 2019 and 2018, the LCH variation margin was $62.5 million and $0.6 million, respectively.

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As of December 31, 2019, the Company pledged $29.9 million in financial instruments and $13.4 million in cash as collateral for interest rate swaps. As of December 31, 2018, the Company pledged $26.2 million in financial instruments and $2.6 million in cash as collateral for interest rate swaps. As of December 31, 2019 and 2018, the cash collateral includes the excess initial margin for interest rate swaps cleared through clearinghouses and cash collateral for interest rate swaps with financial institution counterparties.

Fair Value Hedges

To manage the risk related to the Company’s net interest margin, interest rate swaps are utilized to hedge certain fixed-rate loans. These swaps have maturity, amortization and prepayment features that correspond to the loans hedged and are designated and qualify as fair value hedges. Any gain or loss on the swaps, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, is recognized in current period earnings.

At December 31, 2019, the Company carried one interest rate swap with a notional amount of $23.2 million with a negative fair value of $0.7 million that was categorized as a fair value hedge for a commercial and industrial loan. The Company received a USD Prime floating rate and paid a fixed rate of 2.90%. The swap matures in 2023. At December 31, 2018, the Company carried interest rate swaps with notional amounts totaling $41.3 million with a positive fair value of nil and a negative fair value of nil that were categorized as fair value hedges for commercial and industrial loans and commercial real estate loans.

The following table shows the net gains and losses recognized in income related to derivatives in fair value hedging relationships for the years ended December 31, 2019, 2018 and 2017:

	Gains (losses) recognized in
	the consolidated statements	December 31,
(dollars in thousands)	of income line item	2019		2018		2017
Gains (losses) on fair value hedging relationships recognized in interest income(1):
Recognized on interest rate swap	Loans and lease financing	$	(671)	$	—	$	—
Recognized on hedged item	Loans and lease financing		735		—		—
Gains (losses) on fair value hedging relationships recognized in noninterest income(2):
Recognized on interest rate swap	Other	$	—	$	629	$	846
Recognized on hedged item	Other		—		(723)		(841)

(1) In connection with the adoption of ASU 2017-12, beginning January 1, 2019, gain (loss) amounts for the interest rate swap qualifying as fair value hedging and the hedged item are included in interest income from loans and lease financing.

(2) Prior to January 1, 2019, gain (loss) amounts for the interest rate swaps qualifying as fair value hedging and the hedged items were included in other noninterest income.

As of December 31, 2019 and 2018, the following amounts were recorded in the consolidated balance sheets related to the cumulative basis adjustments for fair value hedges:

					Cumulative Amount of Fair Value
					Hedging Adjustment Included in the
	Carrying Amount of the Hedged Asset				Carrying Amount of the Hedged Asset
(dollars in thousands)	December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018
Line item in the consolidated balance sheets in which the hedged item is included
Loans and leases	$	24,415	$	42,496	$	1,017	$	293

Cash Flow Hedges

During 2018 and 2017, the Company carried two interest rate swaps with notional amounts totaling $150.0 million, in order to reduce exposure to interest rate increases associated with short-term fixed-rate liabilities. The Company received 6-month LIBOR and paid fixed rates ranging from 2.98% to 3.03%. The swaps matured in December 2018. As of December 31, 2019 and 2018, the Company held no cash flow hedges.

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The Company utilized interest rate swaps to reduce exposure to interest rates associated with short-term fixed-rate liabilities. The Company entered into interest rate swaps paying fixed rates and receiving LIBOR. The LIBOR index corresponded to the short-term fixed-rate nature of the liabilities being hedged. If interest rates rose, the increase in interest received on the swaps offset increases in interest costs associated with these liabilities. By hedging with interest rate swaps, the Company minimized the adverse impact on interest expense associated with increasing rates on short-term liabilities.

The interest rate swaps were designated and qualified as cash flow hedges. The effective portion of the gain or loss on the interest rate swaps was reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affected earnings. During the year ended December 31, 2018, the pretax gain recognized in accumulated other comprehensive income of $7.6 million was reclassified into other noninterest income on the maturity dates of the cash flow hedges. The interest rate swaps designated as cash flow hedges resulted in net interest expense of $1.2 million and $2.4 million during the years ended December 31, 2018 and 2017, respectively. The Company also recognized expenses related to the ineffective portion of the change in fair value of the cash flow hedges of nil and $0.1 million for the years ended December 31, 2018 and 2017, respectively.

The following table summarizes the effect of cash flow hedging relationships for the years ended December 31, 2018 and 2017:

	December 31,
(dollars in thousands)	2018		2017
Pretax gains recognized in other comprehensive income on derivatives (effective portion)	$	1,475	$	2,473
Pretax gain reclassified from accumulated other comprehensive income		(7,558)		—

Free-Standing Derivative Instruments

For the derivatives that are not designated as hedges, changes in fair value are reported in current period earnings. The following table summarizes the impact on pretax earnings of derivatives not designated as hedges, as reported on the consolidated statements of income for the years ended December 31, 2019, 2018 and 2017:

	Net gains (losses) recognized
	in the consolidated statements	December 31,
(dollars in thousands)	of income line item	2019		2018		2017
Derivatives Not Designated As Hedging Instruments:
Interest rate swaps	Other noninterest income	$	16	$	574	$	819
Funding swap	Other noninterest income		(5,355)		(172)		(169)
Foreign exchange contracts	Other noninterest income		12		(58)		171

As of December 31, 2019, the Company carried multiple interest rate swaps with notional amounts totaling $2.8 billion, all of which were related to the Company’s customer swap program, with a positive fair value of $63.5 million and a negative fair value of nil. The Company received 1-month LIBOR and paid fixed rates ranging from 1.71% to 8.73%. The swaps mature between 2021 and 2039. As of December 31, 2018, the Company carried multiple interest rate swaps with notional amounts totaling $2.3 billion, including $2.2 billion related to the Company’s customer swap program, with a positive fair value of $12.3 million and a negative fair value of $12.0 million. The Company received 1-month LIBOR and paid fixed rates ranging from 2.02% to 5.78%. These swaps resulted in net interest expense of nil, $0.5 million and $0.9 million for the years ended December 31, 2019, 2018, and 2017, respectively.

The Company’s customer swap program is designed by offering customers a variable-rate loan that is swapped to fixed-rate through an interest-rate swap. The Company simultaneously executes an offsetting interest-rate swap with a swap dealer. Upfront fees on the dealer swap are recorded in other noninterest income and totaled $4.5 million, $7.3 million and $6.7 million for the years ended December 31, 2019, 2018, and 2017, respectively. Interest rate swaps related to the program had asset fair values of $63.5 million and $12.3 million as of December 31, 2019 and 2018, respectively, and liability fair values of nil and $11.2 million as of December 31, 2019 and 2018, respectively.

In conjunction with the 2016 sale of Class B restricted shares of common stock issued by Visa, the Company entered into a funding swap agreement with the buyer that requires payment to the buyer in the event Visa reduces each member bank’s Class B conversion rate to unrestricted Class A common shares. On June 28, 2018, Visa additionally

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funded its litigation escrow account, thereby reducing each member bank’s Class B conversion rate to unrestricted Class A common shares. Accordingly, on July 5, 2018, Visa announced a decrease in conversion rate from 1.6483 to 1.6298 effective June 28, 2018. In July 2018, the Company made a payment of approximately $0.7 million to the buyer as a result of the reduction in the Visa Class B conversion rate. On September 27, 2019, Visa additionally funded its litigation escrow account, thereby further reducing each member bank’s Class B conversion rate to unrestricted Class A common shares. Accordingly, on September 30, 2019, Visa announced a decrease in conversion rate from 1.6298 to 1.6228, effective September 27, 2019. In October 2019, the Company made a payment of approximately $0.3 million to the buyer as a result of the reduction in the Visa Class B conversion rate. Under the terms of the funding swap agreement, the Company will make monthly payments to the buyer based on Visa’s Class A stock price and the number of Visa Class B restricted shares that were sold until the date on which the covered litigation is settled. During the year ended December 31, 2019, the Company recorded a $4.5 million loss in other noninterest income related to a revaluation adjustment to increase the fair value of the derivative liability (“Visa derivative”). The Visa derivative of $4.2 million and $2.6 million was included in the consolidated balance sheets at December 31, 2019 and 2018, respectively, to provide for the fair value of this liability. There were no sales of these shares prior to 2016. See “Note 22. Fair Value” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

Counterparty Credit Risk

By using derivatives, the Company is exposed to counterparty credit risk if counterparties to the derivative contracts do not perform as expected. If a counterparty fails to perform, the Company’s counterparty credit risk is equal to the amount reported as a derivative asset, net of cash or other collateral received, and net of derivatives in a loss position with the same counterparty to the extent master netting arrangements exist. The Company minimizes counterparty credit risk through credit approvals, limits, monitoring procedures, executing master netting arrangements and obtaining collateral, where appropriate. Counterparty credit risk related to derivatives is considered in determining fair value.

The Company’s interest rate swap agreements include bilateral collateral agreements with collateral requirements which begin with exposures in excess of $0.5 million. For each counterparty, the Company reviews the interest rate swap collateral daily. Collateral for customer interest rate swap agreements, calculated as the pledged asset less loan balance, requires valuation of the pledged asset. Counterparty credit risk adjustments of $0.1 million were recognized during each of the years ended December 31, 2019, 2018 and 2017.

Credit-Risk Related Contingent Features

Certain of our derivative contracts contain provisions whereby if the Company’s credit rating were to be downgraded by certain major credit rating agencies as a result of a merger or material adverse change in the Company’s financial condition, the counterparty could require an early termination of derivative instruments in a net liability position. The aggregate fair value of all derivative instruments with such credit-risk related contingent features that are in a net liability position was $4.0 million and $0.8 million at December 31, 2019 and 2018, respectively, for which we posted $4.7 million and $0.5 million, respectively, in collateral in the normal course of business. If the Company’s credit rating had been downgraded on December 31, 2019 and 2018, we may have been required to settle the contract in an amount equal to its fair value.

18. Commitments and Contingent Liabilities

Contingencies

On January 27, 2017, a putative class action lawsuit was filed by a Bank customer alleging that FHB improperly charges an overdraft fee in circumstances where an account had sufficient funds to cover the transaction at the time the transaction is authorized, but not at the time the transaction is presented for payment and that this practice constitutes an unjust and deceptive trade practice and a breach of contract. The lawsuit further alleged that FHB’s practice of assessing a one-time continuous negative balance overdraft fee on accounts remaining in a negative balance for a seven-day period constitutes a usurious interest charge and an unfair and deceptive trade practice. On October 2, 2018, the parties reached an agreement in principle to resolve this class action lawsuit. In connection with the anticipated settlement agreement, the Company recorded an expense of approximately $4.1 million during the year ended December 31, 2018. In August 2019, the court approved the settlement agreement executed by the parties, pursuant to which the Company funded a $4.1 million settlement account. During the year ended December 31, 2019, the Company received insurance proceeds of $0.7 million to partially cover the litigation expense incurred in the prior year.

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In addition to the litigation noted above, various other legal proceedings are pending or threatened against the Company. After consultation with legal counsel, management does not expect that the aggregate liability, if any, resulting from these proceedings would have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and commercial letters of credit which are not reflected in the consolidated financial statements.

Unfunded Commitments to Extend Credit

A commitment to extend credit is a legally binding agreement to lend funds to a customer, usually at a stated interest rate and for a specified purpose. Commitments are reported net of participations sold to other institutions. Such commitments have fixed expiration dates and generally require a fee. The extension of a commitment gives rise to credit risk. The actual liquidity requirements or credit risk that the Company will experience is expected to be lower than the contractual amount of commitments to extend credit because a significant portion of those commitments are expected to expire without being drawn upon. Certain commitments are subject to loan agreements containing covenants regarding the financial performance of the customer that must be met before the Company is required to fund the commitment. The Company uses the same credit policies in making commitments to extend credit as it does in making loans. In addition, the Company manages the potential credit risk in commitments to extend credit by limiting the total amount of arrangements, both by individual customer and in the aggregate, by monitoring the size and expiration structure of these portfolios and by applying the same credit standards maintained for all of its related credit activities. Commitments to extend credit are reported net of participations sold to other institutions of $94.1 million and $92.3 million at December 31, 2019 and 2018, respectively.

Standby and Commercial Letters of Credit

Standby letters of credit are issued on behalf of customers in connection with contracts between the customers and third parties. Under standby letters of credit, the Company assures that the third parties will receive specified funds if customers fail to meet their contractual obligations. The credit risk to the Company arises from its obligation to make payment in the event of a customer’s contractual default. Standby letters of credit are reported net of participations sold to other institutions of $9.0 million and $17.3 million at December 31, 2019 and 2018, respectively. The Company also had commitments for commercial and similar letters of credit. Commercial letters of credit are issued specifically to facilitate commerce whereby the commitment is typically drawn upon when the underlying transaction between the customer and a third-party is consummated. The maximum amount of potential future payments guaranteed by the Company is limited to the contractual amount of these letters. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held supports those commitments for which collateral is deemed necessary. The commitments outstanding as of December 31, 2019 have maturities ranging from January 2020 to May 2022. Substantially all fees received from the issuance of such commitments are deferred and amortized on a straight-line basis over the term of the commitment.

Financial instruments with off-balance sheet risk at December 31, 2019 and 2018 were as follows:

	December 31,
(dollars in thousands)	2019		2018
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	5,907,690	$	5,549,591
Standby letters of credit		181,412		204,324
Commercial letters of credit		7,334		7,535

Guarantees

The Company sells residential mortgage loans in the secondary market primarily to The Federal National Mortgage Association (“FNMA” or “Fannie Mae”) and The Federal Home Loan Mortgage Corporation (“FHLMC” or

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“Freddie Mac”) that may potentially require repurchase under certain conditions. This risk is managed through the Company’s underwriting practices. The Company services loans sold to investors and loans originated by other originators under agreements that may include repurchase remedies if certain servicing requirements are not met. This risk is managed through the Company’s quality assurance and monitoring procedures. Management does not anticipate any material losses as a result of these transactions.

Lease Commitments

The Company’s lease commitments are discussed in “Note 14. Leases” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data.

Foreign Exchange Contracts

The Company has forward foreign exchange contracts that represent commitments to purchase or sell foreign currencies at a future date at a specified price. The Company’s utilization of forward foreign exchange contracts is subject to the primary underlying risk of movements in foreign currency exchange rates and to additional counterparty risk should its counterparties fail to meet the terms of their contracts. Forward foreign exchange contracts are utilized to mitigate the Company’s risk to satisfy customer demand for foreign currencies and are not used for trading purposes. See “Note 17. Derivative Financial Instruments” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

Reorganization Transactions

In connection with the Reorganization Transactions as discussed in “Note 1. Organization and Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, FHI (formerly BancWest) distributed its interest in BWHI (including BOW) to BNPP so that BWHI was held directly by BNPP (BWHI is now held indirectly by BNPP through its intermediate holding company). As a result of the Reorganization Transactions that occurred on April 1, 2016, various tax or other contingent liabilities could arise related to the business of BOW, or related to the Company’s operations prior to the restructuring when it was known as BancWest, including its then wholly owned subsidiary, BOW. The Company is not able to determine the ultimate outcome or estimate the amounts of these contingent liabilities, if any, at this time.

19. Revenue from Contracts with Customers

In accordance with Topic 606, Revenue from Contracts with Customers, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Disaggregation of Revenue

In 2019, the Company made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The Company has restated the selected financial information for the year ended December 31, 2018 in order to conform with the current presentation. See “Note 23. Reportable Operating Segments” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for further information.

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The following table summarizes the Company’s revenues, which includes net interest income on financial instruments and noninterest income, disaggregated by type of service and business segments for the years ended December 31, 2019 and 2018:

		Year Ended December 31, 2019
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income(1)	$	413,029	$	141,227	$	19,146	$	573,402
Service charges on deposit accounts		30,298		1,238		2,242		33,778
Credit and debit card fees		—		58,034		6,812		64,846
Other service charges and fees		20,454		2,096		2,155		24,705
Trust and investment services income		35,102		—		—		35,102
Other		715		4,899		3,351		8,965
Not in scope of Topic 606(1)		8,844		7,368		8,925		25,137
Total noninterest income		95,413		73,635		23,485		192,533
Total revenue	$	508,442	$	214,862	$	42,631	$	765,935

		Year Ended December 31, 2018
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income(1)	$	420,165	$	140,333	$	5,820	$	566,318
Service charges on deposit accounts		28,866		1,146		2,024		32,036
Credit and debit card fees		—		78,218		7,080		85,298
Other service charges and fees		19,977		4,089		2,175		26,241
Trust and investment services income		31,324		—		—		31,324
Other		585		6,616		2,731		9,932
Not in scope of Topic 606(1)		8,917		(9,165)		(5,590)		(5,838)
Total noninterest income		89,669		80,904		8,420		178,993
Total revenue	$	509,834	$	221,237	$	14,240	$	745,311

(1) Most of the Company’s revenue is not within the scope of Topic 606. The guidance explicitly excludes net interest income from financial assets and liabilities as well as other noninterest income from loans, leases, investment securities and derivative financial instruments.

For the years ended December 31, 2019 and 2018, substantially all of the Company’s revenues under the scope of Topic 606 were related to performance obligations satisfied at a point in time.

The following is a discussion of revenues within the scope of Topic 606.

Service Charges on Deposit Accounts

Service charges on deposit accounts relate to fees generated from a variety of deposit products and services rendered to customers.  Charges include, but are not limited to, overdraft fees, non-sufficient fund fees, dormant fees and monthly service charges. Such fees are recognized concurrent with the event on a daily basis or on a monthly basis depending upon the customer’s cycle date.

Credit and Debit Card Fees

Credit and debit card fees primarily represent revenues earned from interchange fees, ATM fees and merchant processing fees. Interchange and network revenues are earned on credit and debit card transactions conducted with payment networks. ATM fees are primarily earned as a result of surcharges assessed to non-FHB customers who use an FHB ATM. Merchant processing fees are primarily earned on transactions in which FHB is the acquiring bank. Such fees are generally recognized concurrently with the delivery of services on a daily basis.

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Trust and Investment Services Fees

Trust and investment services fees represent revenue earned by directing, holding and managing customers’ assets. Fees are generally computed based on a percentage of the previous period’s value of assets under management. The transaction price (i.e., percentage of assets under management) is established at the inception of each contract. Trust and investment services fees also include broker dealer fees which represent revenue earned from buying and selling securities on behalf of customers. Such fees are recognized at the end of a valuation period or concurrently with the execution of a buy or sell transaction.

Other Fees

Other fees primarily include revenues generated from wire transfers, lockboxes, bank issuance of checks and insurance commissions. Such fees are recognized concurrent with the event or on a monthly basis.

Contract Balances

A contract liability is an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer. In prior years, the Company received signing bonuses from two vendors which are being amortized over the term of the respective contracts. As of December 31, 2019 and 2018, the Company had contract liabilities of $1.8 million and $2.6 million, respectively, which will be recognized over the remaining term of the respective contracts with the vendors. For both the years ended December 31, 2019 and 2018, the Company recognized revenues and contract liabilities decreased by approximately $0.8 million, due to the passage of time. There were no changes in contract liabilities due to changes in transaction price estimates.

A contract asset is the right to consideration for transferred goods or services when the amount is conditioned on something other than the passage of time. As of December 31, 2019 and 2018, there were no receivables from contracts with customers or contract assets recorded on the Company’s consolidated balance sheets.

Other

Except for the contract liabilities noted above, the Company did not have any significant performance obligations as of December 31, 2019 and 2018. The Company also did not have any material contract acquisition costs or use any significant judgments or estimates in recognizing revenue for financial reporting purposes.

20. Earnings per Share

The Company made no adjustments to net income for the purposes of computing earnings per share and there were no antidilutive securities.

The computations of basic and diluted earnings per share were as follows for the years ended December 31, 2019, 2018 and 2017:

	Year Ended December 31,
(dollars in thousands, except shares and per share amounts)	2019		2018		2017
Numerator:
Net income	$	284,392	$	264,394	$	183,682
Denominator:
Basic: weighted-average shares outstanding		133,076,489		136,945,134		139,560,305
Add: weighted-average equity-based awards		310,668		166,286		96,688
Diluted: weighted-average shares outstanding		133,387,157		137,111,420		139,656,993
Basic earnings per share	$	2.14	$	1.93	$	1.32
Diluted earnings per share	$	2.13	$	1.93	$	1.32

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21. Stock-Based Compensation

The Company has several stock-based compensation plans that allow for grants of restricted stock, restricted shares, performance share units, performance shares and restricted stock units to its employees and non-employee directors. The Company’s stock-based compensation plans are administered by the Compensation Committee of the Board of Directors. For the years ended December 31, 2019, 2018 and 2017, stock-based compensation expense was $7.8 million, $6.9 million and $3.1 million, respectively, and the related income tax benefit was $2.0 million, $1.8 million and $1.6 million, respectively. For the years ended December 31, 2019, 2018 and 2017, all common stock issuances in connection with stock-based compensation arrangements were issued from unissued shares.

As of December 31, 2019, total shares authorized under the Company’s stock-based compensation plan for employees were 5.6 million shares, of which 4.3 million shares were available for future grants. As of December 31, 2019, total shares authorized under the 2016 Non-Employee Director Plan were 75,000 shares, of which 34,842 shares were available for future grants.

Restricted Share Awards

Restricted share awards (“Restricted Stock”) provide grantees with rights to shares of common stock contingent upon completion of a service period. Restricted Stock generally vests and any restrictions will lapse over a period of three years in equal annual installments on each of the first, second and third anniversaries of the grant date, provided that the grantee remain continuously employed through the applicable vesting date, subject to certain exceptions. Grantees have the right to receive all dividends without restrictions at the times and in the manner paid to shareholders generally. The fair value of Restricted Stock is determined based on the closing price of FHI’s common stock on the date of grant. The Company recognizes compensation expense related to Restricted Stock on a straight-line basis over the vesting period for service-based awards.

The following presents the Company’s Restricted Stock activity for the year ended December 31, 2019:

			Weighted
	Number		Average Grant
	of Shares		Date Fair Value
Unvested as of December 31, 2018	—	$	—
Granted	162,550		27.06
Vested	(11,239)		27.37
Forfeited	(11,593)		27.04
Unvested as of December 31, 2019	139,718	$	27.04

For the year ended December 31, 2019, the Company granted 162,550 shares of Restricted Stock with a weighted-average grant date fair value of $27.06 to key employees. The total grant date fair value of Restricted Stock that vested for the year ended December 31, 2019 was $0.3 million. Unrecognized compensation expense related to unvested Restricted Stock was $2.9 million and nil as of December 31, 2019 and 2018, respectively. The unrecognized compensation expense as of December 31, 2019 is expected to be recognized over a weighted average vesting period of 1.3 years.

There were no shares of Restricted Stock granted for the years ended December 31, 2018 and 2017.

Performance Share Units and Performance Share Awards

Performance share units (“PSUs”) and performance share awards (“PSAs”) (collectively, “Performance Awards”) are an award of units or shares in which the recipient’s rights in the units or shares are contingent on the achievement of pre-established performance goals. At the end of the performance period, the Compensation Committee will determine to what extent the performance goals originally outlined when the Performance Awards were granted have been achieved. Depending on the level of performance achieved, 0-100% of the original grant (target number) of PSUs will be earned and will vest and 0-200% of the original grant (target number) of PSAs will be earned and will vest. All remaining unvested PSUs or PSAs will be immediately forfeited. Employees must be continuously employed by the Company from the grant date through the applicable vesting date, with any unvested Performance Awards being forfeited upon termination of employment, subject to certain exceptions. Following vesting, the Company will issue one share of FHI common stock for each vested PSU and evidence of ownership of one share of FHI common stock for each vested PSA. The fair value of

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Performance Awards is estimated based on the use of a Monte Carlo simulation or based on the closing price of FHI’s common stock on the date of grant and is amortized on a straight-line basis over the vesting period. For PSUs, grantees have no voting rights until the shares of common stock underlying vested PSUs are delivered to the grantee. Conversely, for PSAs, grantees have full voting rights as of the grant date.

The Performance Awards are governed by the Company’s Long-Term Incentive Plan (the “LTIP”), which is designed to reward selected key executives for their individual performance and the Company’s performance measured over multi-year performance cycles. Awards related to the LTIP provide for equity-based awards based on the Company’s profitability and market conditions that are based on the Company’s performance relative to peer groups over a three-year performance period.

The following presents the Company’s Performance Award activity for the years ended December 31, 2019, 2018 and 2017, which includes the PSUs based on 100% target performance and the PSAs based on 200% maximum performance:

			Weighted
	Number		Average Grant
	of Shares		Date Fair Value
Unvested as of December 31, 2016	321,612	$	29.11
Granted	244,218		30.44
Vested	(38,522)		24.41
Forfeited	(21,257)		33.20
Unvested as of December 31, 2017	506,051	$	30.82
Granted	277,197		22.39
Vested	(229,809)		32.17
Forfeited	(48,942)		30.52
Unvested as of December 31, 2018	504,497	$	25.93
Granted	310,696		27.04
Vested	(36,342)		24.51
Forfeited	(83,535)		26.37
Unvested as of December 31, 2019	695,316	$	26.46

For the years ended December 31, 2019, 2018 and 2017, the Company granted 310,696, 277,197 and 209,374 Performance Awards, respectively, to key employees. The Company granted these Performance Awards in connection with its LTIP for the three-year performance periods which began on January 1, 2019, 2018 and 2017. These awards have performance conditions that are based on the Company’s profitability and market conditions that are based on the Company’s performance relative to peer groups.

For the year ended December 31, 2016, the Company granted 115,566 PSUs in connection with its IPO. One-third of these PSUs vested on each of the first, second and third anniversaries of the IPO date. However, transfer restrictions remained on these shares for six months following the vesting date. The performance condition related to these PSUs was based on the Company’s profitability in the fiscal years immediately preceding the vesting dates.

The total grant date fair value of Performance Awards that vested for the years ended December 31, 2019, 2018 and 2017 was $0.9 million, $7.4 million and $0.9 million, respectively. Unrecognized compensation expense related to unvested Performance Shares was $5.6 million, $6.2 million and $4.3 million as of December 31, 2019, 2018 and 2017, respectively. The unrecognized compensation expense as of December 31, 2019 is expected to be recognized over a weighted average vesting period of 1.5 years.

Restricted Stock Units

Restricted stock units (“RSUs”) are an award of units that correspond in number and value to a specified number of shares of FHI’s common stock that are subject to vesting requirements, including certain service conditions, and transferability restrictions. RSUs do not represent actual ownership of common stock and grantees have no voting rights until the shares of common stock underlying the RSUs are delivered. Following vesting, the Company will issue one share of FHI common stock for each vested RSU. The fair value of RSUs is valued based on the closing price of FHI’s common stock on the date of grant and is amortized on a straight-line basis over the vesting period.

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The following presents the Company’s RSU activity for the years ended December 31, 2019, 2018 and 2017:

			Weighted
	Number		Average Grant
	of Shares		Date Fair Value
Unvested as of December 31, 2016	5,379	$	24.41
Granted	14,506		29.74
Vested	(8,379)		26.77
Forfeited	—		—
Unvested as of December 31, 2017	11,506	$	29.74
Granted	47,094		28.64
Vested	(9,839)		32.31
Forfeited	—		—
Unvested as of December 31, 2018	48,761	$	28.60
Granted	20,418		26.50
Vested	(22,452)		28.37
Forfeited	(1,944)		28.29
Unvested as of December 31, 2019	44,783	$	27.82

For the year ended December 31, 2019, the Company granted 15,918 RSUs to non-employee directors with a weighted-average grant date fair value of $26.38 and granted 4,500 RSUs to employees with a weighted average grant date fair value of $26.92. For the year ended December 31, 2018, the Company granted 11,799 RSUs to non-employee directors with a weighted-average grant date fair value of $27.89 and granted 35,295 RSUs to employees with a weighted average grant date fair value of $28.89. For the year ended December 31, 2017, the Company granted 9,006 RSUs to non-employee directors with a weighted-average grant date fair value of $30.19 and granted 5,500 RSUs to employees with a weighted average grant date fair value of $28.97. The awards will vest on various dates.

The total grant date fair value of RSUs that vested during the years ended December 31, 2019, 2018 and 2017 was $0.6 million, $0.3 million and $0.2 million, respectively. Unrecognized compensation expense related to unvested RSUs was $0.9 million, $1.1 million and $0.2 million as of December 31, 2019, 2018 and 2017, respectively. The unrecognized compensation expense as of December 31, 2019 is expected to be recognized over a weighted average vesting period of 1.0 years.

For all awards of PSUs, PSAs, and RSUs, dividend equivalents will accrue from the date of grant and the Company, upon delivery of the common stock, with respect to the vested PSUs and RSUs, and evidence of ownership of the shares, with respect to the vested PSAs, will pay to each grantee a cash amount equal to the product of all cash dividends paid on a share of common stock from the grant date to such delivery date and the number of shares of common stock underlying such vested PSUs, PSAs, and RSUs, as applicable, on such delivery date.

Employee Stock Purchase Plan

The Company also has an employee stock purchase plan (“ESPP”) which permits employees to periodically purchase Company stock on a payroll deduction basis. Participant purchases through the ESPP receive a discount of 5% from the closing price of FHI’s common stock on the exercise date. Participants are required to adhere to a two-year holding period with regards to shares purchased through the ESPP. The ESPP has been determined to be non-compensatory in nature. As a result, the Company expects that expenses related to the ESPP will not be material. As of December 31, 2019, total shares authorized under the Company’s ESPP were 600,000 shares. The Company issued 12,341 shares and 15,961 shares of common stock to employee participants in January 2018 and 2017, respectively, which resulted in 571,698 shares of common stock authorized for future purchases.  

22. Fair Value

The Company determines the fair values of its financial instruments based on the requirements established in ASC 820, Fair Value Measurements, which provides a framework for measuring fair value under GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 defines fair value as the exit price, the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions.

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Fair Value Hierarchy

ASC 820 establishes three levels of fair values based on the markets in which the assets or liabilities are traded and the reliability of the assumptions used to determine fair value. The levels are:  

● Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

● Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

● Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability (“Company-level data”). Level 3 assets and liabilities include financial instruments whose value is determined using unobservable inputs to pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

ASC 820 requires that the Company disclose estimated fair values for certain financial instruments. Financial instruments include such items as investment securities, loans, deposits, interest rate and foreign exchange contracts, swaps and other instruments as defined by the standard. The Company has an organized and established process for determining and reviewing the fair value of financial instruments reported in the Company’s financial statements. The fair value measurements are reviewed to ensure they are reasonable and in line with market experience in similar asset and liability classes.

Additionally, the Company may be required to record at fair value other assets on a nonrecurring basis, such as other real estate owned, other customer relationships, and other intangible assets. These nonrecurring fair value adjustments typically involve the application of lower-of-cost-or-fair-value accounting or write-downs of individual assets.

Disclosure of fair values is not required for certain items such as lease financing, obligations for pension and other postretirement benefits, premises and equipment, prepaid expenses, deposit liabilities with no defined or contractual maturity, and income tax assets and liabilities.

Reasonable comparisons of fair value information with that of other financial institutions cannot necessarily be made because the standard permits many alternative calculation techniques, and numerous assumptions have been used to estimate the Company’s fair values.

Valuation Techniques Used in the Fair Value Measurement of Assets and Liabilities Carried at Fair Value

For the assets and liabilities measured at fair value on a recurring basis (categorized in the valuation hierarchy table below), the Company applies the following valuation techniques:

Available-for-sale securities

Available-for-sale debt securities are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, including estimates by third-party pricing services, if available. If quoted prices are not available, fair values are measured using proprietary valuation models that utilize market observable parameters from active market makers and inter-dealer brokers whereby securities are valued based upon available market data for securities with similar characteristics. Management reviews the pricing information received from the Company’s third-party pricing service to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy and transfers of securities within the fair value hierarchy are made if necessary. On a monthly basis, management reviews the pricing information received from the third-party pricing service which includes a comparison to non-binding third-party broker quotes, as well as a review of market-related conditions impacting the information provided by the third-party pricing service. Management also identifies investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. As of December 31, 2019 and 2018, management did not make adjustments to prices provided by the third-party pricing services as a result of illiquid

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or inactive markets. The Company’s third-party pricing service has also established processes for the Company to submit inquiries regarding quoted prices. Periodically, the Company will challenge the quoted prices provided by the third-party pricing service. The Company’s third-party pricing service will review the inputs to the evaluation in light of the new market data presented by the Company. The Company’s third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis. The Company classifies all available-for-sale securities as Level 2.

Derivatives

Most of the Company’s derivatives are traded in over-the-counter markets where quoted market prices are not readily available. For those derivatives, the Company measures fair value on a recurring basis using proprietary valuation models that primarily use market observable inputs, such as yield curves, and option volatilities. The fair value of derivatives includes values associated with counterparty credit risk and the Company’s own credit standing. The Company classifies these derivatives, included in other assets and other liabilities, as Level 2.

Concurrent with the sale of the Visa Class B restricted shares, the Company entered into an agreement with the buyer that requires payment to the buyer in the event Visa reduces each member bank’s Class B conversion rate to unrestricted Class A common shares. On July 5, 2018, Visa announced a decrease in conversion rate from 1.6483 to 1.6298 effective June 28, 2018. Additionally, on September 30, 2019, Visa announced a decrease in conversion rate from 1.6298 to 1.6228, effective September 27, 2019. The Visa derivative of $4.2 million and $2.6 million was included in the consolidated balance sheets at December 31, 2019 and 2018, respectively, to provide for the fair value of this liability. The potential liability related to this funding swap agreement was determined based on management’s estimate of the timing and the amount of Visa’s litigation settlement and the resulting payments due to the counterparty under the terms of the contract. As such, the funding swap agreement is classified as Level 3 in the fair value hierarchy. The significant unobservable inputs used in the fair value measurement of the Company’s funding swap agreement are the potential future changes in the conversion rate, expected term and growth rate of the market price of Visa Class A common shares. Material increases (or decreases) in any of those inputs may result in a significantly higher (or lower) fair value measurement.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 and 2018 are summarized below:

	Fair Value Measurements as of December 31, 2019
	Quoted Prices in		Significant
	Active Markets for		Other		Significant
	Identical Assets		Observable		Unobservable
(dollars in thousands)	(Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
Assets
U.S. Treasury securities	$	—	$	29,888	$	—	$	29,888
Government-sponsored enterprises debt securities		—		101,439		—		101,439
Mortgage-backed securities:
Residential - Government agency(1)		—		291,209		—		291,209
Residential - Government-sponsored enterprises(1)		—		399,492		—		399,492
Commercial - Government-sponsored enterprises		—		101,719		—		101,719
Collateralized mortgage obligations:
Government agency		—		2,381,278		—		2,381,278
Government-sponsored enterprises		—		770,619		—		770,619
Total available-for-sale securities		—		4,075,644		—		4,075,644
Other assets(2)		—		63,539		—		63,539
Liabilities
Other liabilities(3)		—		(682)		(4,233)		(4,915)
Total	$	—	$	4,138,501	$	(4,233)	$	4,134,268

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	Fair Value Measurements as of December 31, 2018
	Quoted Prices in		Significant
	Active Markets for		Other		Significant
	Identical Assets		Observable		Unobservable
(dollars in thousands)	(Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
Assets
U.S. Treasury securities	$	—	$	389,470	$	—	$	389,470
Government-sponsored enterprises debt securities		—		241,594		—		241,594
Mortgage-backed securities:
Residential - Government agency(1)		—		411,536		—		411,536
Residential - Government-sponsored enterprises(1)		—		150,847		—		150,847
Collateralized mortgage obligations:
Government agency		—		2,682,449		—		2,682,449
Government-sponsored enterprises		—		602,592		—		602,592
Debt securities issued by states and political subdivisions		—		19,854		—		19,854
Total available-for-sale securities		—		4,498,342		—		4,498,342
Other assets(2)		—		12,336		—		12,336
Liabilities
Other liabilities(3)		—		(12,085)		(2,607)		(14,692)
Total	$	—	$	4,498,593	$	(2,607)	$	4,495,986

(1) Backed by residential real estate.

(2) Other assets include derivative assets.

(3) Other liabilities include derivative liabilities.

Changes in Fair Value Levels

For any transfers in and out of the levels of the fair value hierarchy, the Company discloses the fair value measurement at the beginning of the reporting period during which the transfer occurred. During the years ended December 31, 2019 and 2018, there were no transfers between fair value hierarchy levels.

The changes in Level 3 liabilities measured at fair value on a recurring basis for the years ended December 31, 2019 and 2018 are summarized below:

	Visa Derivative
(dollars in thousands)	2019		2018
Year Ended December 31,
Balance as of January 1,	$	(2,607)	$	(5,439)
Total net losses included in other noninterest income		(5,354)		(173)
Settlements		3,728		3,005
Balance as of December 31,	$	(4,233)	$	(2,607)
Total net losses included in net income attributable to the change in unrealized gains or losses related to liabilities still held as of December 31,	$	(5,354)	$	(173)

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Assets and Liabilities Carried at Other Than Fair Value

The following tables summarize for the periods indicated the estimated fair value of the Company’s financial instruments that are not required to be carried at fair value on a recurring basis, excluding leases and deposit liabilities with no defined or contractual maturity:

	December 31, 2019
			Fair Value Measurements
			Quoted Prices in		Significant		Significant
			Active Markets		Other		Unobservable
			for Identical		Observable		Inputs
(dollars in thousands)	Book Value		Assets (Level 1)		Inputs (Level 2)		(Level 3)		Total
Financial assets:
Cash and cash equivalents	$	694,017	$	360,375	$	333,642	$	—	$	694,017
Loans held for sale		904		—		904		—		904
Loans(1)		13,009,167		—		—		13,140,898		13,140,898
Financial liabilities:
Time deposits(2)	$	2,510,157	$	—	$	2,501,478	$	—	$	2,501,478
Short-term borrowings		400,000		—		401,709		—		401,709
Long-term borrowings(3)		200,000		—		207,104		—		207,104

	December 31, 2018
			Fair Value Measurements
			Quoted Prices in		Significant		Significant
			Active Markets		Other		Unobservable
			for Identical		Observable		Inputs
(dollars in thousands)	Book Value		Assets (Level 1)		Inputs (Level 2)		(Level 3)		Total
Financial assets:
Cash and cash equivalents	$	1,003,637	$	396,836	$	606,801	$	—	$	1,003,637
Loans held for sale		432		—		432		—		432
Loans(1)		12,928,422		—		—		12,664,170		12,664,170
Financial liabilities:
Time deposits(2)	$	3,092,164	$	—	$	3,058,792	$	—	$	3,058,792
Long-term borrowings(3)		600,000		—		602,088		—		602,088

(1) Excludes financing leases of $202.5 million at December 31, 2019 and $147.8 million at December 31, 2018.

(2) Excludes deposit liabilities with no defined or contractual maturity of $13.9 billion at December 31, 2019 and $14.1 billion at December 31, 2018.

(3) Excludes capital lease obligations of $19 thousand and $26 thousand at December 31, 2019 and 2018, respectively.

Unfunded loan and lease commitments and letters of credit are not included in the tables above. As of December 31, 2019 and 2018, the Company had $6.1 billion and $5.8 billion, respectively, of unfunded loan and lease commitments and letters of credit. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the related reserve for unfunded commitments, which totaled $14.4 million and $14.2 million at December 31, 2019 and 2018, respectively. No active trading market exists for these instruments and the estimated fair value does not include value associated with the borrower relationship. The Company does not estimate the fair values of certain unfunded loan and lease commitments that can be canceled by providing notice to the borrower. As Company-level data is incorporated into the fair value measurement, unfunded loan and lease commitments and letters of credit are classified as Level 3.

147

Valuation Techniques Used in the Fair Value Measurement of Assets and Liabilities Carried at the Lower of Cost or Fair Value

The Company applies the following valuation techniques to assets measured at the lower of cost or fair value:

Mortgage servicing rights

MSRs are carried at the lower of cost or fair value and are therefore subject to fair value measurements on a nonrecurring basis. The fair value of MSRs is determined using models which use significant unobservable inputs, such as estimates of prepayment rates, the resultant weighted average lives of the MSRs and the option-adjusted spread levels. Accordingly, the Company classifies MSRs as Level 3.

Impaired loans

A large portion of the Company’s impaired loans are collateral dependent and are measured at fair value on a nonrecurring basis using collateral values as a practical expedient. The fair values of collateral for impaired loans are primarily based on real estate appraisal reports prepared by third-party appraisers less disposition costs, present value of the expected future cash flows or the loan’s observable market price. Certain loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective rate, which is not a fair value measurement. The Company measures the impairment on certain loans and leases by performing a lower-of-cost-or-fair-value analysis. If impairment is determined by the value of the collateral or an observable market price, it is written down to fair value on a nonrecurring basis as Level 3.

Other real estate owned

The Company values these properties at fair value at the time the Company acquires them, which establishes their new cost basis. After acquisition, the Company carries such properties at the lower of cost or fair value less estimated selling costs on a nonrecurring basis. Fair value is measured on a nonrecurring basis using collateral values as a practical expedient. The fair values of collateral for other real estate owned are primarily based on real estate appraisal reports prepared by third-party appraisers less disposition costs and are classified as Level 3.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required to record certain assets at fair value on a nonrecurring basis in accordance with GAAP. These assets are subject to fair value adjustments that result from the application of lower of cost or fair value accounting or write-downs of individual assets to fair value.

The following table provides the level of valuation inputs used to determine each fair value adjustment and the fair value of the related individual assets or portfolio of assets with fair value adjustments on a nonrecurring basis as of December 31, 2019 and 2018:

(dollars in thousands)	Level 1		Level 2		Level 3
December 31, 2019
Impaired loans	$	—	$	—	$	1,502
December 31, 2018
Impaired loans	$	—	$	—	$	402

Total losses on impaired loans for the years ended December 31, 2019, 2018 and 2017 were $1.0 million, $0.7 million and $0.7 million, respectively.

148

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 2019 and 2018, the significant unobservable inputs used in the fair value measurements were as follows:

	Quantitative Information about Level 3 Fair Value Measurements at December 31, 2019
				Significant	Range
(dollars in thousands)	Fair value		Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans	$	1,502	Appraisal Value	Appraisal Value	n/m(1)
Visa derivative	$	(4,233)	Discounted Cash Flow	Expected Conversion Rate	1.6228
				Expected Term	1 year
				Growth Rate	13%

	Quantitative Information about Level 3 Fair Value Measurements at December 31, 2018
					Range
(dollars in thousands)	Fair value		Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans	$	402	Appraisal Value	Appraisal Value	n/m(1)
Visa derivative	$	(2,607)	Discounted Cash Flow	Expected Conversion Rate	1.6298
				Expected Term	4 years
				Growth Rate	15%

(1) The fair value of these assets is determined based on appraised values of collateral or broker price opinions, the range of which is not meaningful to disclose.

23. Reportable Operating Segments

The Company’s operations are organized into three business segments – Retail Banking, Commercial Banking and Treasury and Other. These segments reflect how discrete financial information is currently evaluated by the chief operating decision maker and how performance is assessed and resources allocated. The Company’s internal management process measures the performance of these business segments. This process, which is not necessarily comparable with similar information for any other financial institution, uses various techniques to assign balance sheet and income statement amounts to the business segments, including allocations of income, expense, the provision for loan and lease losses and capital. This process is dynamic and requires certain allocations based on judgment and other subjective factors. Unlike financial accounting, there is no comprehensive authoritative guidance for management accounting that is equivalent to GAAP.

The net interest income of the business segments reflects the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics and reflects the allocation of net interest income related to the Company’s overall asset and liability management activities on a proportionate basis. The basis for the allocation of net interest income is a function of the Company’s assumptions that are subject to change based on changes in current interest rates and market conditions. Funds transfer pricing also serves to transfer interest rate risk to Treasury. 

The Company allocates the provision for loan and lease losses to each segment based on management’s estimate of the inherent loss content in each of the specific loan and lease portfolios. Noninterest income and expense includes allocations from support units to the business segments. These allocations are based on actual usage where practicably calculated or by management’s estimate of such usage.

In 2019, the Company made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the change was to align deposit balances within the business segment that directly manages them. Specifically, certain deposit balances previously included as part of the Retail Banking segment have been reclassified to the Commercial Banking segment. The reallocation of select deposit balances affected net interest income, net interest income after provision for loan and lease losses, noninterest income, provision for income taxes and net income. The Company has reported its selected financial information using the new deposit balance alignments for the year ended December 31, 2019. The Company has restated the selected financial information for the years ended December 31, 2018 and 2017 in order to conform with the current presentation.

Additionally, during the fourth quarter of 2019 the Company changed its assumptions embedded in allocating deposit costs to the business segments. The Company has reported its selected financial information using the new deposit cost assumptions starting with the fourth quarter of 2019.

149

Business Segments

Retail Banking

Retail Banking offers a broad range of financial products and services to consumers and small businesses. Loan and lease products offered include residential and commercial mortgage loans, home equity lines of credit, automobile loans and leases, personal lines of credit, installment loans and small business loans and leases. Deposit products offered include checking, savings and time deposit accounts. Retail Banking also offers wealth management services. Products and services from Retail Banking are delivered to customers through 58 banking locations throughout the State of Hawaii, Guam and Saipan.

Commercial Banking

Commercial Banking offers products that include corporate banking, residential and commercial real estate loans, commercial lease financing, automobile loans and auto dealer financing, business deposit products and credit cards. Commercial lending and deposit products are offered primarily to middle-market and large companies locally, nationally and internationally.

Treasury and Other

Treasury consists of corporate asset and liability management activities including interest rate risk management. The segment’s assets and liabilities (and related interest income and expense) consist of interest-bearing deposits, investment securities, federal funds sold and purchased, government deposits, short- and long-term borrowings and bank-owned properties. The primary sources of noninterest income are from bank-owned life insurance, net gains from the sale of investment securities, foreign exchange income related to customer-driven currency requests from merchants and island visitors and management of bank-owned properties. The net residual effect of the transfer pricing of assets and liabilities is included in Treasury, along with the elimination of intercompany transactions.

Other organizational units (Technology, Operations, Credit and Risk Management, Human Resources, Finance, Administration, Marketing and Corporate and Regulatory Administration) provide a wide-range of support to the Company’s other income earning segments. Expenses incurred by these support units are charged to the business segments through an internal cost allocation process.

The following tables present selected business segment financial information for the years indicated:

					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Year Ended December 31, 2019
Net interest income	$	413,029	$	141,227	$	19,146	$	573,402
Provision for loan and lease losses		(6,248)		(7,552)		—		(13,800)
Net interest income after provision for loan and lease losses		406,781		133,675		19,146		559,602
Noninterest income		95,413		73,635		23,485		192,533
Noninterest expense		(228,389)		(82,380)		(59,668)		(370,437)
Income (loss) before (provision) benefit for income taxes		273,805		124,930		(17,037)		381,698
(Provision) benefit for income taxes		(69,285)		(32,298)		4,277		(97,306)
Net income (loss)	$	204,520	$	92,632	$	(12,760)	$	284,392
Total assets as of December 31, 2019	$	7,276,047	$	6,071,356	$	6,819,331	$	20,166,734

150

					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other (1)		Total
Year Ended December 31, 2018
Net interest income	$	420,165	$	140,333	$	5,820	$	566,318
Provision for loan and lease losses		(8,753)		(13,427)		—		(22,180)
Net interest income after provision for loan and lease losses		411,412		126,906		5,820		544,138
Noninterest income		89,669		80,904		8,420		178,993
Noninterest expense		(225,881)		(80,766)		(58,306)		(364,953)
Income (loss) before (provision) benefit for income taxes		275,200		127,044		(44,066)		358,178
(Provision) benefit for income taxes		(70,335)		(32,700)		9,251		(93,784)
Net income (loss)	$	204,865	$	94,344	$	(34,815)	$	264,394
Total assets as of December 31, 2018	$	7,078,016	$	6,346,541	$	7,271,121	$	20,695,678

⁽¹⁾ Includes $24.1 million in OTTI write-downs.

					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other (1)		Total
Year Ended December 31, 2017
Net interest income (expense)	$	409,796	$	131,692	$	(12,684)	$	528,804
Provision for loan and lease losses		(6,837)		(11,663)		—		(18,500)
Net interest income (expense) after provision for loan and lease losses		402,959		120,029		(12,684)		510,304
Noninterest income		89,372		75,566		40,667		205,605
Noninterest expense		(223,652)		(68,167)		(55,735)		(347,554)
Income (loss) before (provision) benefit for income taxes		268,679		127,428		(27,752)		368,355
(Provision) benefit for income taxes		(130,130)		(57,857)		3,314		(184,673)
Net income (loss)	$	138,549	$	69,571	$	(24,438)	$	183,682
Total assets as of December 31, 2017	$	7,003,724	$	5,462,370	$	8,083,367	$	20,549,461

⁽¹⁾ Includes $6.9 million gains on the sale of real estate.

151

24. Parent Company

The following tables present Parent Company-only condensed financial statements:

Condensed Statements of Comprehensive Income
	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Income
Dividends from FHB	$	300,300	$	263,400	$	105,400
Other income		1,691		1,541		3,937
Total income		301,991		264,941		109,337
Noninterest expense
Salaries and employee benefits		5,241		5,940		5,949
Contracted services and professional fees		2,689		3,780		3,643
Equipment		—		31		55
Advertising and marketing		—		—		1
Other		721		732		570
Total noninterest expense		8,651		10,483		10,218
Income before benefit (provision) for income taxes and (excess distributions) equity in undistributed income of FHB		293,340		254,458		99,119
Benefit (provision) for income taxes		1,672		1,184		(642)
(Excess distributions) equity in undistributed income of FHB		(10,620)		8,752		85,205
Net income	$	284,392	$	264,394	$	183,682
Comprehensive income	$	384,838	$	248,650	$	175,310

152

Condensed Statements of Condition
	December 31,
(dollars in thousands)	2019		2018
Assets
Cash and cash equivalents	$	24,455	$	5,647
Investment in FHB		2,617,949		2,521,347
Other assets		24,969		19,358
Total assets	$	2,667,373	$	2,546,352
Liabilities and Stockholders' Equity
Retirement benefits payable	$	553	$	509
Other liabilities		26,562		21,004
Total liabilities		27,115		21,513
Stockholders' Equity
Stockholders' equity		2,640,258		2,524,839
Total stockholders' equity		2,640,258		2,524,839
Total liabilities and stockholders' equity	$	2,667,373	$	2,546,352

Condensed Statements of Cash Flows
	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Cash flows from operating activities
Net income	$	284,392	$	264,394	$	183,682
Adjustments to reconcile net income to net cash provided by operating activities:
Excess distributions (equity in undistributed income) of FHB		10,620		(8,752)		(85,205)
Deferred income taxes		85		(48)		(274)
Stock-based compensation		84		281		244
Change in assets and liabilities:
Net decrease (increase) in other assets		5,318		(9,635)		36,467
Net (decrease) increase in other liabilities		(5,439)		7,633		(2,058)
Net cash provided by operating activities		295,060		253,873		132,856
Cash flows from investing activities
Other, net		—		—		7
Net cash provided by investing activities		—		—		7
Cash flows from financing activities
Dividends paid		(138,246)		(131,036)		(122,810)
Distributions paid		—		—		(2,118)
Stock tendered for payment of withholding taxes		(1,764)		(69)		(120)
Proceeds from employee stock purchase plan		—		342		528
Common stock repurchased		(136,242)		(131,800)		—
Net cash used in financing activities		(276,252)		(262,563)		(124,520)
Net increase (decrease) in cash and cash equivalents		18,808		(8,690)		8,343
Cash and cash equivalents at beginning of year		5,647		14,337		5,994
Cash and cash equivalents at end of year	$	24,455	$	5,647	$	14,337

153

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2019. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.  Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2019.

Management’s Annual Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting. Internal control is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation of reliable published financial statements. Internal control over financial reporting includes self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.

Because of inherent limitations in any system of internal control, no matter how well designed, misstatements due to error or fraud may occur and not be detected, including the possibility of the circumvention or overriding of controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, internal control effectiveness may vary over time.

Management assessed the Company’s internal control over financial reporting as of December 31, 2019. This assessment was based on criteria for effective internal control over financial reporting described in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, the Chief Executive Officer and Chief Financial Officer assert that the Company maintained effective internal control over financial reporting as of December 31, 2019 based on the specified criteria.

Attestation Report of the Company’s Independent Registered Public Accounting Firm

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited by Deloitte & Touche LLP, the independent registered public accounting firm who also has audited the Company’s consolidated financial statements included in this Annual Report on Form 10-K. Deloitte & Touche LLP’s attestation report on the Company’s internal control over financial reporting appears on the following page and is incorporated by reference herein.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2019 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

154

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Stockholders and the Board of Directors of

First Hawaiian, Inc.

Honolulu, Hawaii

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of First Hawaiian, Inc. and Subsidiary (the “Company”) as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Because management's assessment and our audit were conducted to meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), management's assessment and our audit of the Company’s internal control over financial reporting included controls over the preparation of the schedules equivalent to the basic financial statements in accordance with the instructions for the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have not examined and, accordingly, we do not express an opinion or any other form of assurance on management's statement referring to compliance with laws and regulations.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated February 27, 2020 expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

155

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Honolulu, Hawaii
February 27, 2020

156

ITEM 9B.  OTHER INFORMATION

Information Required Pursuant to Section 13(r) of the Securities Exchange Act

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 amended Section 13 of the Exchange Act of 1934 (the “Exchange Act”) to add new subsection (r), which requires disclosure if, during the reporting period, the issuer or any of its affiliates has knowingly engaged in certain specified activities involving Iran or other persons targeted by the United States sanctions programs related to terrorism (Executive Order 13224) or the proliferation of weapons of mass destruction (Executive Order 13382). Disclosure is generally required even if the activities were conducted outside the United States by non-U.S. entities in compliance with applicable law.

First Hawaiian, Inc. and the Bank (the “Company”) have not engaged in any activities that would require reporting under Section 13(r) of the Exchange Act. However, during the reporting period (until February 1, 2019), the Company was controlled by BNP Paribas under the Bank Holding Company Act of 1956, as amended, and was under common control with BNP Paribas’ affiliates (collectively “BNPP”). As a result, until February 1, 2019, BNPP was an affiliate of the Company. To help the Company comply with Section 13(r) of the Exchange Act, in April 2019, BNPP requested relevant information from its affiliates globally, and it provided the following information to the Company. Unless stated otherwise, the information below is as of March 31, 2019. From February 2019, BNPP was no longer an affiliate of the Company.

BNPP is committed to economic sanctions compliance, the prevention of money laundering and the fight against corruption and terrorist financing. As part of these efforts, BNPP has adopted and maintains a risk-based compliance program reasonably designed to ensure conformity with applicable anti-money laundering, anti-corruption, counter-terrorist financing, and sanctions laws and regulations in the territories in which BNPP operates.

Legacy agreements: In the past, BNPP issued and participated in legacy guarantees and other financing arrangements that supported various projects, including the construction of petrochemical plants in Iran. Some of these financing arrangements had counterparties that were entities or instrumentalities of the Government of Iran, involved Iranian banks that were subsequently sanctioned pursuant to Executive Orders 13224 or 13382, or involved a Syrian entity that was subsequently sanctioned pursuant to Executive Order 13382. BNPP continued to have obligations under these arrangements and made efforts to close the positions which remain outstanding in accordance with applicable law. BNPP received gross revenues of approximately EUR $1.0 million during the three months ended March 31, 2019, in connection with these projects, with a net profit of less than that amount, which were mainly comprised of repayments and fees on those legacy guarantees and other financing arrangements.

Other relationships with Iranian banks: Until August 1, 2017, BNPP maintained a safe deposit box in Italy for the Rome branch of an Iranian government-owned bank. There was no gross revenue to BNPP during the first quarter of 2019 for this activity.

Clearing systems: As part of its operations and in conformance with applicable law, BNPP participated in various local clearing and settlement exchange systems. Iranian government-owned banks also participate in some of these clearing systems and may act as counterparty banks. BNPP intended to continue to participate in the local clearing and settlement exchange systems in various countries. There was no measurable gross revenue or net profit generated by this activity for BNPP during the first quarter of 2019.

Restricted accounts and transactions: BNPP maintained various accounts that are blocked or restricted for sanctions-related reasons, for which no activity took place during the first quarter of 2019, except for the crediting of interest or the deduction of standard account charges, in accordance with applicable law. During the fourth quarter of 2016, BNPP froze payments where required under relevant sanctions programs. BNPP will continue to hold these assets in a blocked or restricted status, as applicable laws may require or permit.

157

Amendment of Bylaws

On February 26, 2020, the Company’s Board of Directors (the “Board”) approved certain amendments to the Company’s amended and restated bylaws (the “Bylaws”) effective as of such date to change the voting standard for the election of directors in uncontested elections from a plurality to a majority voting standard. The Board also amended the Company’s Corporate Governance Guidelines (the “Corporate Governance Guidelines”) to include a director resignation policy. The amended Corporate Governance Guidelines are available on the Company’s website at www.fhb.com.  The Bylaws were also amended to remove the reference in Section 2.1 therein to the initial number of directors, which is no longer applicable.

The foregoing description is qualified in its entirety by reference to the full text of the Bylaws, a copy of which is attached hereto as Exhibit 3.3 and is incorporated herein by reference.

158

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

For information relating to the directors and executive officers of the Company, the section captioned “Directors and Executive Officers” in the Company’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders (the “Proxy Statement”) to be filed with the SEC within 120 days after the end of the Company's fiscal year is incorporated herein by reference. For information regarding procedures for stockholder nominations, the section captioned “Stockholder Proposals for the 2020 Annual Meeting” in the Proxy Statement is incorporated herein by reference.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

For information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, the section captioned “Delinquent Section 16(a) Reports” in the Company’s Proxy Statement is incorporated herein by reference.

Disclosure of Code of Ethics

For information concerning The Company’s Code of Ethics, the information contained under the section captioned “Board of Directors, Committees and Governance—Corporate Governance Guidelines and Code of Conduct and Ethics” in the Company’s Proxy Statement is incorporated herein by reference.

Corporate Governance

For information regarding the Audit Committee and its composition and the audit committee financial experts, the section captioned “Board of Directors, Committees and Governance — Committees of Our Board of Directors — Audit Committee” in the Company’s Proxy Statement is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

For information regarding executive and director compensation, the sections captioned “Executive Compensation” and “Director Compensation” in the Company’s Proxy Statement are incorporated herein by reference.

For information regarding compensation committee interlocks and insider participation, the section captioned “Board of Directors, Committees and Governance — Compensation Committee Interlocks and Insider Participation” in the Company’s Proxy Statement is incorporated herein by reference. For our Compensation Committee Report, see “Executive Compensation — Compensation Disclosure and Analysis — Compensation Committee Report.”

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

For information regarding Security Ownership of Certain Beneficial Owners, Directors and Management, the section captioned “Security Ownership of Certain Beneficial Owners, Directors and Management” in the Company’s Proxy Statement is incorporated herein by reference.

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The following table sets forth information about the Company common stock that may be issued upon the exercise of stock options, warrants and rights under all of the Company’s equity compensation plans as of December 31, 2019.

					Number of securities
		Number of securities	Weighted average		remaining available
		to be issued upon	exercise price of		for future issuance
		exercise of outstanding	outstanding options,		under equity
Plan Category		options, warrants and rights	warrants and rights		compensation plans
Equity compensation plans approved by security holders	879,817		$	—	4,911,647
Equity compensation plans not approved by security holders		—		—	—
Total		879,817	$	—	4,911,647

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

For information regarding transactions with related persons, promoters and certain control persons, the section captioned “Certain Related Party Transactions” in the Company’s Proxy Statement is incorporated herein by reference.

For information regarding director independence, the section captioned “Board of Directors, Committees and Governance — Director Independence” in the Company’s Proxy Statement is incorporated herein by reference.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

For information regarding transactions with related persons, promoters and certain control persons, the section captioned “Principal Accountant Fees” in the Company’s Proxy Statement is incorporated herein by reference.

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PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) 1.Financial Statements

The following consolidated financial statements of First Hawaiian, Inc. and Subsidiary are included in Item 8 of this report:

Consolidated Statements of Income – For the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive Income – For the years ended December 31, 2019, 2018 and 2017

Consolidated Balance Sheets – As of December 31, 2019 and 2018

Consolidated Statements of Stockholders’ Equity – For the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Cash Flows – For the years ended December 31, 2019, 2018 and 2017

Notes to Consolidated Financial Statements

2.Financial Statement Schedules

All schedules are omitted since the required information is either not applicable, not deemed material, or is disclosed in the Company’s consolidated financial statements.  

3.Exhibits

The list of exhibits required to be filed as exhibits to this Annual Report on Form 10-K is listed below in the “Exhibit Index”.

ITEM 16.  FORM 10-K SUMMARY

None.

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EXHIBIT INDEX

Exhibit Number
	3.1	Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by First Hawaiian, Inc. on August 10, 2016 (File No. 001-14585))
	3.2	Certificate of Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1(a) to the Quarterly Report on Form 10-Q filed by First Hawaiian, Inc. on April 27, 2018 (File No. 001-14585))
	3.3	Fourth Amended and Restated Bylaws of First Hawaiian, Inc., effective as of February 26, 2020
	4.1	Description of First Hawaiian, Inc. securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended
	10.1	Master Reorganization Agreement, dated as of April 1, 2016, by and among BancWest Corporation (to be renamed First Hawaiian, Inc.), BancWest Holding Inc., BWC Holding Inc. and BNP Paribas (incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1 filed by First Hawaiian, Inc. on July 8, 2016 (File No. 333-212451))
	10.2	Tax Sharing Agreement, dated as of April 1, 2016, by and among BNP Paribas, BancWest Corporation (to be renamed First Hawaiian, Inc.) and BancWest Holding Inc. (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1 filed by First Hawaiian, Inc. on July 8, 2016 (File No. 333-212451))
	10.3	Agreement for Allocation and Settlement of Income Tax Liabilities, effective as of July 1, 2016, by and among BNP Paribas, BNP Paribas Fortis, BNP Paribas USA, Inc., BancWest Corporation, BancWest Holding Inc., Bank of the West, First Hawaiian, Inc. and First Hawaiian Bank (incorporated by reference to Exhibit 10.17 to Amendment No. 1 the Registration Statement on Form S-1 filed by First Hawaiian, Inc. on July 26, 2016 (File No. 333-212451))
	10.4	Insurance Agreement, by and among BNP Paribas, BNP Paribas USA, Inc. and First Hawaiian, Inc. (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed by First Hawaiian,  Inc. on August 10, 2016 (File No. 001-14585))
	10.5	First Hawaiian Bank Long-Term Incentive Plan, as amended and restated as of January 1, 2013 (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1 filed by First Hawaiian, Inc. on July 8, 2016 (File No. 333-212451))
	10.6	Certification Regarding Amendment and Restatement of the First Hawaiian Bank Incentive Plan for Key Employees, dated February 24, 2014 (incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 filed by First Hawaiian, Inc. on July 8, 2016 (File No. 333-212451))
	10.7	First Hawaiian, Inc. 2016 Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-8 filed by First Hawaiian, Inc. on August 8, 2016 (File No. 333-212996))
	10.8	First Hawaiian, Inc. 2016 Non-Employee Director Plan (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-8 filed by First Hawaiian, Inc. on August 8, 2016 (File No. 333-212996))
	10.9	First Hawaiian, Inc. Bonus Plan (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by First Hawaiian, Inc. on August 10, 2016 (File No. 001-14585))
	10.10	First Hawaiian, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-8 filed by First Hawaiian, Inc. on August 8, 2016 (File No. 333-212996))

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Exhibit Number
	10.11	Executive Change-in-Control Retention Plan of First Hawaiian Bank (incorporated by reference to Exhibit 10.20 to the Registration Statement on Form S-1 filed by First Hawaiian, Inc. on July 8, 2016 (File No. 333-212451))
	10.12	First Hawaiian, Inc. Long-Term Incentive Plan, as amended and restated effective August 9, 2016 (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed by First Hawaiian,  Inc. on August 10, 2016 (File No. 001-14585))
	10.13	Form of First Hawaiian, Inc. 2016 Omnibus Incentive Compensation Plan IPO Restricted Share Award Agreement (incorporated by reference to Exhibit 10.22 to the Registration Statement on Form S-1 filed by First Hawaiian, Inc. on July 8, 2016 (File No. 333-212451))
	10.14	Form of First Hawaiian, Inc. 2016 Omnibus Incentive Compensation Plan IPO Performance Share Unit Award Agreement (incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-1 filed by First Hawaiian, Inc. on July 8, 2016 (File No. 333-212451))
	10.15	Form of First Hawaiian, Inc. Long-Term Incentive Plan Performance Share Unit Award Agreement (incorporated by reference to Exhibit 10.24 to the Registration Statement on Form S-1 filed by First Hawaiian, Inc. on July 8, 2016 (File No. 333-212451))
	10.16	Form of First Hawaiian, Inc. Long-Term Incentive Plan Performance Share Award Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by First Hawaiian, Inc. on March 5, 2019 (File No. 001-14585))
	10.17	Form of First Hawaiian, Inc. 2016 Non-Employee Director Plan Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.25 to the Registration Statement on Form S-1 filed by First Hawaiian, Inc. on July 8, 2016 (File No. 333-212451))
	10.18	Form of First Hawaiian, Inc. 2016 Omnibus Incentive Compensation Plan Restricted Share Unit Award Agreement (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q filed by First Hawaiian, Inc. on October 26, 2018 (File No. 001-14585))
	10.19	Form of First Hawaiian, Inc. 2016 Omnibus Incentive Compensation Plan Restricted Share Award Agreement (2019) (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by First Hawaiian, Inc. on March 5, 2019 (File No. 001-14585))
	10.20	Form of First Hawaiian, Inc. 2016 Omnibus Incentive Compensation Plan Restricted Share Award Agreement (2020)
	10.21	BancWest Corporation Deferred Compensation Plan Part B (2016 Restatement) (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-8 filed by First Hawaiian, Inc. on December 13, 2016 (File No. 333-215068))
	10.22	First Hawaiian Inc. Supplemental Executive Retirement Plan Part B (2019 Restatement) (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed by First Hawaiian, Inc. on April 26, 2019 (File No. 001-14585))
	10.23	Amended and Restated First Hawaiian Bank Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by First Hawaiian, Inc. on April 27, 2018 (File No. 001-14585))
	10.24	Employment Agreement, dated as of October 20, 2011, by and among Robert S. Harrison, First Hawaiian Bank and BancWest Corporation (incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1 filed by First Hawaiian, Inc. on July 8, 2016 (File No. 333-212451))

163

Exhibit Number
	10.25	First Hawaiian, Inc. Role-Based Allowance Award Agreement for Robert S. Harrison (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed by First Hawaiian, Inc. on August 10, 2016 (File No. 001-14585))
	10.26	Offer Letter, dated as of June 15, 2015, from Robert S. Harrison on behalf of First Hawaiian Bank to Eric K. Yeaman (incorporated by reference to Exhibit 10.30 to the Registration Statement on Form S-1 filed by First Hawaiian, Inc. on January 24, 2017 (File No. 333-215676))
	10.27	Offer Letter, dated as of July 25, 2018, from Robert S. Harrison on behalf of First Hawaiian Bank to Ravi Mallela (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by First Hawaiian, Inc. on October 26, 2018 (File No. 001-14585))
	21.1	Subsidiaries of First Hawaiian, Inc.
	23.1	Consent of Deloitte & Touche LLP
	31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Amended, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Amended, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
	101.SCH	Inline XBRL Taxonomy Extension Schema Document
	101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
	101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
	101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
	101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
	104	Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101)

164

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 27, 2020		First Hawaiian, Inc.
	By:	/s/ Robert S. Harrison
		Robert S. Harrison
		Chairman of the Board, President and Chief Executive Officer
		(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: February 27, 2020
/s/ Robert S. Harrison	/s/ Ravi Mallela
Robert S. Harrison Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)	Ravi Mallela Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
/s/ Matthew J. Cox	/s/ W. Allen Doane
Matthew J. Cox, Director	W. Allen Doane, Director
/s/ Faye W. Kurren	/s/ Allen B. Uyeda
Faye W. Kurren, Director	Allen B. Uyeda, Director
/s/ Jenai S. Wall	/s/ C. Scott Wo
Jenai S. Wall, Director	C. Scott Wo, Director

165

EX-3.3

Exhibit 3.3

FOURTH AMENDED AND RESTATED BYLAWS

OF

FIRST HAWAIIAN, INC.

ARTICLE I

Stockholders

Section 1.1. Annual Meetings. An annual meeting of stockholders shall be held for the election of directors at such date, time and place either within or without the State of Delaware, or may instead be held solely by means of remote communication, as may be designated by the Board of Directors of the Corporation (the “Board”) from time to time. Any other proper business may be transacted at the annual meeting.

Section 1.2. Special Meetings. Special meetings of stockholders may be called at any time only by the Chairperson of the Board, the Chief Executive Officer, the President or the Board, to be held at such date, time and place either within or without the State of Delaware, or may instead be held by means of remote communication, as may be stated in the notice of such meeting.

Section 1.3. Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. In addition, if stockholders have consented to receive notices by a form of electronic transmission, then such notice, by facsimile telecommunication, or by electronic mail, shall be deemed to be given when directed to a facsimile number or an electronic mail address, respectively, at which the stockholder has consented to receive notice. If such notice is transmitted by a posting on an electronic network together with separate notice to the stockholder of such specific posting, such notice shall be deemed to be given upon the later of (a) such posting and (b) the giving of such separate notice. If such notice is transmitted by any other form of electronic transmission, such notice shall be deemed to be given when directed to the stockholder. Notice shall be deemed to have been given to all stockholders of record who share an address if notice is given in accordance with the “householding” rules set forth in the rules of the Securities and

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Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 233 of the Delaware General Corporation Law (the “DGCL”). For purposes of these Bylaws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form through an automated process.

Section 1.4. Adjournments. Any meeting of stockholders, annual or special, may be adjourned from time to time, to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time, place thereof, if any, and the means of remote communications, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at such meeting.

Section 1.5. Quorum. At each meeting of stockholders, except where otherwise provided by law, the Amended and Restated Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”) or these Bylaws, the holders of a majority of the outstanding shares of stock entitled to vote on a matter at the meeting, present in person or represented by proxy, shall constitute a quorum. For purposes of the foregoing, where a separate vote by class or classes is required for any matter, the holders of a majority of the outstanding shares of such class or classes, present in person or represented by proxy, shall constitute a quorum to take action with respect to that vote on that matter. Two or more classes or series of stock shall be considered a single class if the holders thereof are entitled to vote together as a single class at the meeting. In the absence of a quorum of the holders of any class of stock entitled to vote on a matter, either (a) the holders of such class so present or represented may, by majority vote, adjourn the meeting of such class from time to time in the manner provided by Section 1.4 of these Bylaws until a quorum of such class shall be so present or represented or (b) the chairperson of the meeting may, on his or her own motion and without the approval of the stockholders who are present in person or represented by proxy and entitled to vote at such meeting, adjourn the meeting from time to time in the manner provided by Section 1.4 of these Bylaws until a quorum of such class shall be so present and represented, without notice other than announcement at the meeting. Shares of capital stock of the Corporation (i) belonging to the Corporation or (ii) held by another corporation if the Corporation owns, directly or indirectly, a sufficient number of shares entitled to elect a majority of the directors of such other corporation, shall not be counted in determining the total number of outstanding shares at any given time. Notwithstanding the foregoing, shares held by the Corporation in a fiduciary capacity shall be counted in determining the total number of outstanding shares at any given time.

Section 1.6. Organization.

(a) Meetings of stockholders shall be presided over by the Chairperson of the Board, or in the absence of the Chairperson of the Board by the Chief Executive Officer, or in the absence of the Chief Executive Officer by the President, or in the absence of the

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President by a Vice Chairman or an Executive Vice President, or in the absence of the foregoing persons by a chairperson designated by the Board, or in the absence of such designation by a chairperson chosen at the meeting. The Secretary, or in the absence of the Secretary an Assistant Secretary, or in the absence of an Assistant Secretary, any person appointed by the chairperson of the meeting, shall act as secretary of the meeting.

(b) The order of business at each such meeting shall be as determined by the chairperson of the meeting. The chairperson of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the voting polls for each item on which a vote is to be taken.

Section 1.7. Inspectors.

(a) Prior to any meeting of stockholders, the Board, the Chief Executive Officer, the President or any other officer designated by the Board shall appoint one or more inspectors to act at such meeting and make a written report thereof and may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at the meeting of stockholders, the chairperson of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the number of shares represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors and (v) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons to assist them in the performance of their duties.

(b) The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxy or vote, nor any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls.

(c) In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted therewith, any information provided by a stockholder who submits a proxy by telegram, cablegram or

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other electronic transmission from which it can be determined that the proxy was authorized by the stockholder, any written ballot or, if authorized by the Board, a ballot submitted by electronic transmission together with any information from which it can be determined that the electronic transmission was authorized by the stockholder, any information provided in a record of a vote if such vote was taken at the meeting by means of remote communication along with any information used to verify that any person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder, ballots and the regular books and records of the Corporation, and they may also consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for such purpose, they shall, at the time they make their certification, specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.

Section 1.8. Voting.

(a) Unless otherwise provided in the Certificate of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question.

(b) Each director shall be elected by a majority of the votes cast for or against the director at any meeting for the election of directors; provided, however, that if the number of director nominees exceeds the number of directors to be elected, the directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. In all other matters, unless otherwise provided by law or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Where a separate vote by class or classes is required, the affirmative vote of the holders of a majority of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class or classes, except as otherwise provided by law or by the Certificate of Incorporation or these Bylaws. For purposes of this Section 1.8(b), votes cast “for” or “against” and “abstentions” with respect to such matter shall be counted as shares of stock of the Corporation entitled to vote on such matter, while “broker non-votes” (or other shares of stock of the Corporation similarly not entitled to vote) shall not be counted as shares entitled to vote on such matter.

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(c) Voting at meetings of stockholders need not be by written ballot unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or represented by proxy at such meeting shall so determine.

(d) Shares of capital stock of the Corporation (i) belonging to the Corporation or (ii) held by another corporation if the Corporation owns, directly or indirectly, a sufficient number of shares entitled to elect a majority of the directors of such other corporation, shall not be voted directly or indirectly at any meeting. Notwithstanding the foregoing, shares held by the Corporation in a fiduciary capacity may be voted at any given time.

Section 1.9. Proxies. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power, regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation.

Section 1.10. Fixing Date for Determination of Stockholders of Record.

(a) In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day immediately preceding the day on which notice is given, or, if notice is waived, at the close of business on the day immediately preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with this Section 1.10(a) at the adjourned meeting.

(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the

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stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

Section 1.11. List of Stockholders Entitled to Vote. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting; provided, however, if the record date for determining the stockholders entitled to vote is less than ten days before the meeting date, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Nothing in this Section 1.11 shall require the Corporation to include electronic mail addresses or other electronic content information on such list. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least ten days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then such list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

Section 1.12. Advance Notice of Stockholder Nominees for Director and Other Stockholder Proposals.

(a) The matters to be considered and brought before any annual or special meeting of stockholders shall be limited to only such matters, including the nomination and election of directors, as shall be brought properly before such meeting in compliance with the procedures set forth in this Section 1.12 and (as applicable) in Section 1.13 of these Bylaws.

(b) For any matter to be brought properly before the annual meeting of stockholders, the matter must be (i) specified in the notice of the annual meeting given by or at the direction of the Board, (ii) otherwise brought before the annual meeting by or at the direction of the Board or (iii) brought before the annual meeting by a stockholder who (1) (x) is a stockholder of record of the Corporation on the date the Stockholder Notice (as defined below) is delivered to the Secretary of the Corporation, (y) is entitled to

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vote at the annual meeting and (z) complies with the procedures set forth in this Section 1.12 or (2) is an Eligible Holder (as defined in Section 1.13(c) of these Bylaws) who meets the requirements of and complies with the procedures set forth in Section 1.13 and whose Nominee (as defined in Section 1.13(a)(i) of these Bylaws) is included in the Corporation’s proxy materials for the relevant annual meeting.

(c) In addition to any other requirements under applicable law and the Certificate of Incorporation and these Bylaws, including Section 1.13 of these Bylaws, written notice (the “Stockholder Notice”) of any nomination or other proposal must be timely and any proposal, other than a nomination, must constitute a proper matter for stockholder action. To be timely, the Stockholder Notice must be delivered to the Secretary of the Corporation at the principal executive office of the Corporation not less than 90 nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year; provided, however, that if (and only if) the annual meeting is not scheduled to be held within a period that commences 30 days before such anniversary date and ends within 60 days after such anniversary date (an annual meeting date outside such period being referred to herein as an “Other Meeting Date”), the Stockholder Notice shall be given in the manner provided herein by the later of the close of business on (i) the date 90 days prior to such Other Meeting Date or (ii) the tenth day following the date such Other Meeting Date is first publicly announced or disclosed. A Stockholder Notice must contain the following information: (i) whether the stockholder is providing the notice at the request of a beneficial holder of shares, whether the stockholder, any such beneficial holder or any nominee has any agreement, arrangement or understanding with, or has received any financial assistance, funding or other consideration from, any other person with respect to the investment by the stockholder or such beneficial holder in the Corporation or the matter the Stockholder Notice relates to, and the details thereof, including the name of such other person (the stockholder, any beneficial holder on whose behalf the notice is being delivered, any nominees listed in the notice and any persons with whom such agreement, arrangement or understanding exists or from whom such assistance has been obtained are hereinafter collectively referred to as “Interested Persons”), (ii) the name and address of all Interested Persons, (iii) a complete listing of the record and beneficial ownership positions (including number or amount) of all equity securities and debt instruments, whether held in the form of loans or capital market instruments, of the Corporation or any of its subsidiaries held by all Interested Persons, (iv) whether and the extent to which any hedging, derivative or other transaction is in place or has been entered into within the prior six months preceding the date of delivery of the Stockholder Notice by or for the benefit of any Interested Person with respect to the Corporation or its subsidiaries or any of their respective securities, debt instruments or credit ratings, the effect or intent of which transaction is to give rise to gain or loss as a result of changes in the trading price of such securities or debt instruments or changes in the credit ratings for the Corporation, its subsidiaries or any of their respective securities or debt instruments (or, more generally, changes in the perceived creditworthiness of the

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Corporation or its subsidiaries), or to increase or decrease the voting power of such Interested Person, and if so, a summary of the material terms thereof, and (v) a representation that the stockholder is a holder of record of stock of the Corporation that would be entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to propose the matter set forth in the Stockholder Notice. As used herein, “beneficially owned” has the meaning provided in Rules 13d-3 and 13d-5 under the Exchange Act. The Stockholder Notice shall be updated not later than 10 days after the record date for the determination of stockholders entitled to vote at the meeting to provide any material changes in the foregoing information as of the record date. Any Stockholder Notice relating to the nomination of directors must also contain (1) the information regarding each nominee required by paragraphs (a), (e) and (f) of Item 401 of Regulation S-K adopted by the SEC (or the corresponding provisions of any successor regulation), (2) each nominee’s signed consent to serve as a director of the Corporation if elected and (3) whether each nominee is eligible for consideration as an independent director under the relevant standards contemplated by Item 407(a) of Regulation S-K (or the corresponding provisions of any successor regulation). The Corporation may also require any proposed nominee to furnish such other information, including completion of the Corporation’s director questionnaire, as it may reasonably require to determine whether the nominee would be considered “independent” as a director or as a member of any applicable committee of the Board under the various rules and standards applicable to the Corporation. Any Stockholder Notice with respect to a matter other than the nomination of directors must contain (x) the text of the proposal to be presented, including the text of any resolutions to be proposed for consideration by stockholders and (y) a brief written statement of the reasons why such stockholder favors the proposal. Notwithstanding anything in this Section 1.12(c) to the contrary, in the event that the number of directors to be elected to the Board of the Corporation is increased and either all of the nominees for director or the size of the increased Board is not publicly announced or disclosed by the Corporation at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a Stockholder Notice shall also be considered timely hereunder, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive office of the Corporation not later than the close of business on the tenth day following the first date all of such nominees or the size of the increased Board shall have been publicly announced or disclosed.

(d) For any matter to be brought properly before a special meeting of stockholders, the matter must be set forth in the Corporation’s notice of the meeting given by or at the direction of the Board. In the event that the Corporation calls a special meeting of stockholders for the purpose of electing one or more persons to the Board, any stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of the meeting, if the Stockholder Notice required by Section 1.12(c) shall be delivered to the Secretary of the Corporation at the principal executive office of the Corporation not later than the close

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of business on the tenth day following the day on which the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting is publicly announced or disclosed.

(e) For purposes of this Section 1.12, a matter shall be deemed to have been “publicly announced or disclosed” if such matter is disclosed in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the SEC.

(f) Only persons who are nominated in accordance with the procedures set forth in this Section 1.12 and (as applicable) in Section 1.13 of these Bylaws shall be eligible for election by stockholders as directors of the Corporation. In no event shall the postponement or adjournment of an annual meeting already publicly noticed, or any announcement of such postponement or adjournment, commence a new period (or extend any time period) for the giving of notice as provided in this Section 1.12. This Section 1.12 shall not apply to (i) stockholder proposals made pursuant to Rule 14a-8 under the Exchange Act or (ii) the election of directors selected by or pursuant to the provisions of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock of the Corporation having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances.

(g) The chairperson of any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall have the power and duty to determine whether notice of nominees and other matters proposed to be brought before a meeting has been duly given in the manner provided in this Section 1.12 and, if not so given, shall direct and declare at the meeting that such nominees and other matters are not properly before the meeting and shall not be considered. Notwithstanding the foregoing provisions of this Section 1.12, if the stockholder or a qualified representative of the stockholder does not appear at the annual or special meeting of stockholders of the Corporation to present any such nomination, or make any such proposal, such nomination or proposal shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation.

Section 1.13. Stockholder Nominations Included in the Corporation’s Proxy Materials.

(a) Inclusion of Nominees in Proxy Statement.  Subject to the provisions of this Section 1.13, if expressly requested in the relevant Nomination Notice (as defined below), the Corporation shall include in its proxy statement for any annual meeting of stockholders:

(i) the name of any person nominated for election (each, a “Nominee”), which shall also be included on the Corporation’s form of proxy and ballot, by any Eligible Holder (as defined below) or group of up to 20 Eligible Holders that has (individually and collectively, in the case of a group) satisfied, as determined

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by the Board of Directors, all applicable conditions and complied with all applicable procedures set forth in this Section 1.13 (such Eligible Holder or group of Eligible Holders being a “Nominating Stockholder”);

(ii) disclosure about each Nominee and the Nominating Stockholder required under the rules of the SEC or other applicable law to be included in the proxy statement;

(iii) any statement included by the Nominating Stockholder in the Nomination Notice for inclusion in the proxy statement in support of each Nominee’s election to the Board of Directors (subject, without limitation, to Section 1.13(e)(ii)), if such statement does not exceed 500 words and fully complies with Section 14 of the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations thereunder, including Rule 14a-9 (the “Supporting Statement”); and

(iv) any other information that the Corporation or the Board of Directors determines, in their discretion, to include in the proxy statement relating to the nomination of each Nominee, including, without limitation, any statement in opposition to the nomination, any of the information provided pursuant to this Section and any solicitation materials or related information with respect to a Nominee.

For purposes of this Section 1.13, any determination to be made by the Board of Directors may be made by the Board of Directors, a committee of the Board of Directors or any officer of the Corporation designated by the Board of Directors or a committee of the Board of Directors, and any such determination shall be final and binding on the Corporation, any Eligible Holder, any Nominating Stockholder, any Nominee and any other person so long as made in good faith (without any further requirements). The chairman of any annual meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall have the power and duty to determine whether a Nominee has been nominated in accordance with the requirements of this Section 1.13 and, if not so nominated, shall direct and declare at the meeting that such Nominee shall not be considered.

(b) Maximum Number of Nominees.

(i) The Corporation shall not be required to include in the proxy statement for an annual meeting of stockholders more Nominees than that number of directors constituting the greater of (i) two or (ii) 20% of the total number of directors of the Corporation on the last day on which a Nomination Notice may be submitted pursuant to this Section 1.13 (rounded down to the nearest whole number) (the “Maximum Number”).  The Maximum Number for a particular annual meeting shall be reduced by: (1) Nominees who the Board of Directors itself decides to nominate for election at such annual meeting; (2) Nominees who cease to

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satisfy, or Nominees of Nominating Stockholders that cease to satisfy, the eligibility requirements in this Section 1.13, as determined by the Board of Directors; (3) Nominees whose nomination is withdrawn by the Nominating Stockholder or who become unwilling to serve on the Board of Directors; and (4) the number of incumbent directors who had been Nominees with respect to any of the preceding three annual meetings of stockholders and whose reelection at the upcoming annual meeting is being recommended by the Board of Directors.  In the event that one or more vacancies for any reason occurs on the Board of Directors after the deadline for submitting a Nomination Notice as set forth in Section 1.13(d) below but before the date of the annual meeting, and the Board of Directors resolves to reduce the size of the board in connection therewith, the Maximum Number shall be calculated based on the number of directors in office as so reduced.

(ii) If the number of Nominees pursuant to this Section 1.13 for any annual meeting of stockholders exceeds the Maximum Number then, promptly upon notice from the Corporation, each Nominating Stockholder will select one Nominee for inclusion in the proxy statement until the Maximum Number is reached, going in order of the amount (largest to smallest) of the ownership position as disclosed in each Nominating Stockholder’s Nomination Notice, with the process repeated if the Maximum Number is not reached after each Nominating Stockholder has selected one Nominee. If, after the deadline for submitting a Nomination Notice as set forth in Section 1.13(d), a Nominating Stockholder or a Nominee ceases to satisfy the eligibility requirements in this Section 1.13, as determined by the Board of Directors, a Nominating Stockholder withdraws its nomination or a Nominee becomes unwilling to serve on the Board of Directors, whether before or after the mailing or other distribution of the definitive proxy statement, then the nomination shall be disregarded, and the Corporation: (1) shall not be required to include in its proxy statement or on any ballot or form of proxy the disregarded Nominee or any successor or replacement nominee proposed by the Nominating Stockholder or by any other Nominating Stockholder and (2) may otherwise communicate to its stockholders, including without limitation by amending or supplementing its proxy statement or ballot or form of proxy, that a Nominee will not be included as a nominee in the proxy statement or on any ballot or form of proxy and will not be voted on at the annual meeting.

(c) Eligibility of Nominating Stockholder.

(i) An “Eligible Holder” is a person who has either (1) been a record holder of the shares of common stock used to satisfy the eligibility requirements in this Section 1.13(c) continuously for the three-year period specified in Subsection (ii) below or (2) provides to the Secretary of the Corporation, within the time

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period referred to in Section 1.13(d), evidence of continuous ownership of such shares for such three-year period from one or more securities intermediaries in a form that the Board of Directors determines would be deemed acceptable for purposes of a shareholder proposal under Rule 14a-8(b)(2) under the Exchange Act (or any successor rule).

(ii) An Eligible Holder or group of up to 20 Eligible Holders may submit a nomination in accordance with this Section 1.13 only if the person or group (in the aggregate) has continuously owned at least the Minimum Number (as defined below) of shares of the Corporation’s common stock throughout the three-year period preceding and including the date of submission of the Nomination Notice, and continues to own at least the Minimum Number through the date of the annual meeting.  Two or more funds that are (x) under common management and investment control, (y) under common management and funded primarily by a single employer or (z) a “group of investment companies,” as such term is defined in Section 12(d)(1)(G)(ii) of the Investment Company Act of 1940, as amended, shall be treated as one Eligible Holder if such Eligible Holder shall provide together with the Nomination Notice documentation reasonably satisfactory to the Corporation that demonstrates that the funds meet the criteria set forth in (x), (y) or (z) hereof.  For the avoidance of doubt, in the event of a nomination by a group of Eligible Holders, any and all requirements and obligations for an individual Eligible Holder that are set forth in this Section 1.13, including the minimum holding period, shall apply to each member of such group; provided, however, that the Minimum Number shall apply to the ownership of the group in the aggregate.  Should any stockholder cease to satisfy the eligibility requirements in this Section 1.13, as determined by the Board of Directors, or withdraw from a group of Eligible Holders at any time prior to the annual meeting of stockholders, the group of Eligible Holders shall only be deemed to own the shares held by the remaining members of the group.

(iii) The “Minimum Number” of shares of the Corporation’s common stock means 3% of the number of outstanding shares of common stock as of the most recent date for which such amount is given in any filing by the Corporation with the SEC prior to the submission of the Nomination Notice.

(iv) For purposes of this Section 1.13, an Eligible Holder “owns” only those outstanding shares of the Corporation as to which the Eligible Holder possesses both:

(A) the full voting and investment rights pertaining to the shares; and

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(B) the full economic interest in (including the opportunity for profit and risk of loss on) such shares;

provided that the number of shares calculated in accordance with clauses (A) and (B) shall not include any shares:  (1) purchased or sold by such Eligible Holder or any of its affiliates in any transaction that has not been settled or closed, (2) sold short by such Eligible Holder, (3) borrowed by such Eligible Holder or any of its affiliates for any purpose or purchased by such Eligible Holder or any of its affiliates pursuant to an agreement to resell or subject to any other obligation to resell to another person, or (4) subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar agreement entered into by such Eligible Holder or any of its affiliates, whether any such instrument or agreement is to be settled with shares or with cash based on the notional amount or value of outstanding shares of the Corporation, in any such case which instrument or agreement has, or is intended to have, the purpose or effect of:  (x) reducing in any manner, to any extent or at any time in the future, such Eligible Holder’s or any of its affiliates’ full right to vote or direct the voting of any such shares, and/or (y) hedging, offsetting, or altering to any degree, gain or loss arising from the full economic ownership of such shares by such Eligible Holder or any of its affiliates.

An Eligible Holder “owns” shares held in the name of a nominee or other intermediary so long as the Eligible Holder retains the right to instruct how the shares are voted with respect to the election of directors and possesses the full economic interest in the shares.  An Eligible Holder’s ownership of shares shall be deemed to continue during any period in which the Eligible Holder has delegated any voting power by means of a proxy, power of attorney, or other similar instrument or arrangement that is revocable at any time by the Eligible Holder.  An Eligible Holder’s ownership of shares shall be deemed to continue during any period in which the Eligible Holder has loaned such shares provided that the Eligible Holder has the power to recall such loaned shares on five business days’ notice, has recalled such loaned shares as of the date of the Nomination Notice and continues to hold such shares through the date of the annual meeting.  The terms “owned,” “owning” and other variations of the word “own” shall have correlative meanings.  Whether outstanding shares of the Corporation are “owned” for these purposes shall be determined by the Board.

(v) No Eligible Holder shall be permitted to be in more than one group constituting a Nominating Stockholder, and if any Eligible Holder appears as a member of more than one group, it shall be deemed to be a member of the group that has the largest ownership position as reflected in the Nomination Notice.

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(d) Nomination Notice.  To nominate a Nominee, the Nominating Stockholder must, not less than 90 nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year, submit to the Secretary of the Corporation at the principal executive office of the Corporation all of the following information and documents (collectively, the “Nomination Notice”); provided, however, that if (and only if) the annual meeting is scheduled to be held on an Other Meeting Date (as defined in Section 1.12(c) of these Bylaws), the Nomination Notice shall be given in the manner provided herein by the later of the close of business on (i) the date that is 90 days prior to such Other Meeting Date or (ii) the tenth day following the date such Other Meeting Date is first publicly announced or disclosed:

(i) A Schedule 14N (or any successor form) relating to each Nominee, completed and filed with the SEC by the Nominating Stockholder as applicable, in accordance with SEC rules;

(ii) A written notice, in a form deemed satisfactory by the Board of Directors, of the nomination of each Nominee that includes the following additional information, agreements, representations and warranties by the Nominating Stockholder (including each group member):

(A) the information required with respect to the nomination of directors pursuant to Section 1.12  of these Bylaws;

(B) the details of any relationship that existed within the past three years and that would have been described pursuant to Item 6(e) of Schedule 14N (or any successor item) if it existed on the date of submission of the Schedule 14N;

(C) a representation and warranty that the Nominating Stockholder acquired the securities of the Corporation in the ordinary course of business and did not acquire, and is not holding, securities of the Corporation for the purpose or with the effect of influencing or changing control of the Corporation;

(D) a representation and warranty that each Nominee’s candidacy or, if elected, Board membership would not violate applicable state or federal law or the rules of any stock exchange on which the Corporation’s securities are traded;

(E) a representation and warranty that each Nominee:

(1) does not have any direct or indirect relationship with the Corporation that would cause the Nominee to be considered

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not independent pursuant to the Corporation’s Corporate Governance Guidelines as most recently published on its website and otherwise qualifies as independent under the rules of the primary stock exchange on which the Corporation’s shares of common stock are traded;

(2) meets the audit committee and compensation committee independence requirements under the rules of the primary stock exchange on which the Corporation’s shares of common stock are traded;

(3) is a “non-employee director” for the purposes of Rule 16b-3 under the Exchange Act (or any successor rule);

(4) is an “outside director” for the purposes of Section 162(m) of the Internal Revenue Code (or any successor provision); and

(5) is not and has not been subject to any event specified in Rule 506(d)(1) of Regulation D (or any successor rule) under the Securities Act of 1933 or Item 401(f) of Regulation S-K (or any successor rule) under the Exchange Act, without reference to whether the event is material to an evaluation of the ability or integrity of such Nominee;

(F) a representation and warranty that the Nominating Stockholder satisfies the eligibility requirements set forth in Section 1.13(c) and has provided evidence of ownership to the extent required by Section 1.13(c)(i);

(G) a representation and warranty that the Nominating Stockholder intends to continue to satisfy the eligibility requirements described in Section 1.13(c) through the date of the annual meeting and intends to continue to hold the Minimum Number of shares for at least one year following the annual meeting if its Nominee is elected;

(H) details of any position of a Nominee as an officer or director of any competitor (that is, any entity that produces products, provides services or engages in business activities that compete with or are alternatives to the services provided or business activities engaged in by the Corporation or its affiliates) of the Corporation, within the three years preceding the submission of the Nomination Notice;

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(I) a representation and warranty that the Nominating Stockholder will not engage in a “solicitation” within the meaning of Rule 14a-1(l) (without reference to the exception in Section 14a-1(l)(2)(iv)) (or any successor rules) with respect to the annual meeting, other than with respect to a Nominee or any nominee of the Board;

(J) a representation and warranty that the Nominating Stockholder will not use any proxy card other than the Corporation’s proxy card in soliciting stockholders in connection with the election of a Nominee at the annual meeting; 

(K) if desired, a Supporting Statement; and

(L) in the case of a nomination by a group, the designation by all group members of one group member that is authorized to act on behalf of all group members with respect to matters relating to the nomination, including withdrawal of the nomination;

(iii) An executed agreement, in a form deemed satisfactory by the Board of Directors, pursuant to which the Nominating Stockholder (including each group member) agrees:

(A) to comply with all applicable laws, rules and regulations in connection with the nomination, solicitation and election;

(B) to file any written solicitation or other written communication with the Corporation’s stockholders relating to one or more of the Corporation’s directors or director nominees or any Nominee with the Securities and Exchange Commission, regardless of whether any such filing is required under rule or regulation or whether any exemption from filing is available for such materials under any rule or regulation;

(C) to assume all liability stemming from an action, suit or proceeding concerning any actual or alleged legal or regulatory violation arising out of any communication by the Nominating Stockholder or any of its Nominees with the Corporation, its stockholders or any other person in connection with the nomination or election of directors, including, without limitation, the Nomination Notice;

(D) to indemnify and hold harmless the Corporation and each of its directors, officers and employees individually against any liability, loss, damages, expenses or other costs (including attorneys’ fees)  incurred in connection with any threatened or pending action, suit or

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proceeding, whether legal, administrative or investigative, against the Corporation or any of its directors, officers or employees arising out of or relating to a failure or alleged failure of the Nominating Stockholder or any of its Nominees to comply with, or any breach or alleged breach of, its or their obligations, agreements or representations under this Section 1.13;

(E) in the event that any information included in the Nomination Notice, or any other communication by the Nominating Stockholder (including with respect to any group member), with the Corporation, its stockholders or any other person in connection with the nomination or election ceases to be true and accurate in all material respects (or omits a material fact necessary to make the statements made not misleading), or that the Nominating Stockholder (including any group member) has failed to continue to satisfy the eligibility requirements described in Section 1.13(c), to promptly (and in any event within 48 hours of discovering such misstatement, omission or failure) notify the Corporation and any other recipient of such communication of (A) the misstatement or omission in such previously provided information and of the information that is required to correct the misstatement or omission or (B) such failure; and

(iv) An executed agreement, in a form deemed satisfactory by the Board of Directors, by each Nominee:

(A) to provide to the Corporation such other information and certifications, including completion of the Corporation’s director questionnaire, as it may reasonably request;

(B) at the reasonable request of the Corporate Governance and Nominating Committee, to meet with the Corporate Governance and Nominating Committee to discuss matters relating to the nomination of such Nominee to the Board of Directors, including the information provided by such Nominee to the Corporation in connection with his or her nomination and such Nominee’s eligibility to serve as a member of the Board of Directors;

(C) that such Nominee has read and agrees, if elected, to serve as a member of the Board of Directors, to adhere to the Corporation’s Corporate Governance Guidelines, Code of Business Conduct and Ethics, Related Party Transaction Policy and any other Corporation policies and guidelines applicable to directors; and

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(D) that such Nominee is not and will not become a party to (i) any compensatory, payment or other financial agreement, arrangement or understanding with any person or entity in connection with his or her nomination, service or action as a director of the Corporation that has not been disclosed to the Corporation, (ii) any agreement, arrangement or understanding with any person or entity as to how such Nominee would vote or act on any issue or question as a director (a “Voting Commitment”) that has not been disclosed to the Corporation or (iii) any Voting Commitment that could limit or interfere with such Nominee’s ability to comply, if elected as a director of the Corporation, with its fiduciary duties under applicable law.

The information and documents required by this Section 1.13(d) to be provided by the Nominating Stockholder shall be: (i) provided with respect to and executed by each group member, in the case of information applicable to group members; and (ii) provided with respect to the persons specified in Instruction 1 to Items 6(c) and (d) of Schedule 14N (or any successor item) in the case of a Nominating Stockholder or group member that is an entity.  The Nomination Notice shall be deemed submitted on the date on which all the information and documents referred to in this Section 1.13(d) (other than such information and documents contemplated to be provided after the date the Nomination Notice is provided) have been delivered to or, if sent by mail, received by the Secretary of the Corporation.

(e) Exceptions.

(i) Notwithstanding anything to the contrary contained in this Section 1.13, the Corporation may omit from its proxy statement any Nominee and any information concerning such Nominee (including a Nominating Stockholder’s Supporting Statement) and no vote on such Nominee will occur (notwithstanding that proxies in respect of such vote may have been received by the Corporation), and the Nominating Stockholder may not, after the last day on which a Nomination Notice would be timely, cure in any way any defect preventing the nomination of such Nominee, if:

(A) the Corporation receives a notice pursuant to Section 1.12 of these Bylaws that a stockholder intends to nominate a candidate for director at the annual meeting, whether or not such notice is subsequently withdrawn or made the subject of a settlement with the Corporation;

(B) the Nominating Stockholder or the designated lead group member, as applicable, or any qualified representative thereof, does not appear at

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the meeting of stockholders to present the nomination submitted pursuant to this Section 1.13, the Nominating Stockholder withdraws its nomination or the chairman of the annual meeting declares that such nomination was not made in accordance with the procedures prescribed by this Section 1.13 and shall therefore be disregarded;

(C) the Board of Directors determines that such Nominee’s nomination or election to the Board of Directors would result in the Corporation violating or failing to be in compliance with the Corporation’s bylaws or certificate of incorporation or any applicable law, rule or regulation to which the Corporation is subject, including any rules or regulations of the primary stock exchange on which the Corporation’s common stock is traded;

(D) such Nominee was nominated for election to the Board of Directors pursuant to this Section 1.13 at one of the Corporation’s three preceding annual meetings of stockholders and either withdrew or became ineligible or received a vote of less than 15% of the shares of common stock entitled to vote for such Nominee;

(E) (1) such Nominee has been, within the past three years, an officer or director of a competitor, as defined for purposes of Section 8 of the Clayton Antitrust Act of 1914, as amended, or (2) the Nominee’s election as a member of the Board of Directors would cause the Corporation to seek, or assist in the seeking of, advance approval or to obtain, or assist in the obtaining of, an interlock waiver pursuant to the rules or regulations of the Board of Governors of the Federal Reserve System or the Office of the Comptroller of the Currency; 

(F) the Corporation is notified, or the Board of Directors determines, that the Nominating Stockholder or the Nominee has failed to continue to satisfy the eligibility requirements described in Section 1.13(c), any of the representations and warranties made in the Nomination Notice ceases to be true and accurate in all material respects (or omits a material fact necessary to make the statements made not misleading), such Nominee becomes unwilling or unable to serve on the Board of Directors or any material violation or breach occurs of the obligations, agreements, representations or warranties of the Nominating Stockholder or such Nominee under this Section 1.13;

(ii) Notwithstanding anything to the contrary contained in this Section 1.13, the Corporation may omit from its proxy statement, or may supplement or correct, any information, including all or any portion of the Supporting Statement or

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any other statement in support of a Nominee included in the Nomination Notice, if the Board of Directors determines that:

(A) such information is not true in all material respects or omits a material statement necessary to make the statements made not misleading;

(B) such information directly or indirectly impugns the character, integrity or personal reputation of, or directly or indirectly makes charges concerning improper, illegal or immoral conduct or associations, without factual foundation, with respect to, any person; or

(C) the inclusion of such information in the proxy statement would otherwise violate the SEC proxy rules or any other applicable law, rule or regulation.

The Corporation may solicit against, and include in the proxy statement its own statement relating to, any Nominee.

ARTICLE II

Board of Directors

Section 2.1. Powers; Number; Qualifications. The business and affairs of the Corporation shall be managed by or under the direction of the Board, except as may be otherwise provided by law or in the Certificate of Incorporation. The Board shall consist of at least five members, each of whom shall be a natural person but need not, except as otherwise determined by the Board, be a stockholder. The number of directors may be designated from time to time by resolution of the Board.  This Section 2.1 may not be amended, modified or repealed except by the affirmative vote of not less than fifty percent (50%) of the directors present at a meeting at which a quorum is present.

Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies.

(a) Each director shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any director may resign at any time upon notice given in writing or by electronic transmission to the Board or to the Chairperson of the Board, the Chief Executive Officer, the President or the Secretary of the Corporation. Such resignation shall take effect at the time it is delivered unless the resignation specifies a later effective date or an effective date determined upon the happening of an event or events. Unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Any director or the entire Board may be removed, with cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Unless otherwise provided in the Certificate of Incorporation or these Bylaws, vacancies and newly created directorships resulting

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from any increase in the authorized number of directors shall, except as otherwise required by law, be filled solely by a majority of the directors then in office, although less than a quorum, or by the sole remaining director.

(b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by the sole remaining director so elected. Any director appointed to fill a vacancy shall hold office until and his or her successor is elected and qualified, unless such director resigns or is removed prior to such time.

Section 2.3. Regular Meetings. Regular meetings of the Board may be held at such places within or without the State of Delaware and at such times as the Board may from time to time determine, and if so determined notice thereof need not be given.

Section 2.4. Special Meetings. Special meetings of the Board may be held at any time or place within or without the State of Delaware whenever called by the Chairperson of the Board, by the Chief Executive Officer, by the President or by any two directors. Reasonable notice thereof shall be given by the person or persons calling the meeting.

Section 2.5. Participation in Meetings by Conference Telephone Permitted. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board or of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 2.5 shall constitute presence in person at such meeting.

Section 2.6. Quorum; Vote Required for Action. At all meetings of the Board a majority of the entire Board shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board unless the Certificate of Incorporation or these Bylaws shall require a vote of a greater number. In case at any meeting of the Board a quorum shall not be present, the members of the Board present may adjourn the meeting from time to time until a quorum shall be present.

Section 2.7. Organization. Meetings of the Board shall be presided over by the Chairperson of the Board, or in the absence of the Chairperson of the Board by the Chief Executive Officer, or in their absence by a chairperson chosen at the meeting. The Secretary, or in the absence of the Secretary an Assistant Secretary, shall act as secretary of the meeting, but in the absence of the Secretary and any Assistant Secretary the chairperson of the meeting may appoint any person to act as secretary of the meeting.

Section 2.8. Action by Directors Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members

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of the Board or of such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

Section 2.9. Compensation of Directors. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board shall have the authority to fix the compensation of directors.

ARTICLE III

Committees

Section 3.1. Committees. The Board may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board creating the committee, in the charter adopted by the Board for the committee or in these Bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (a) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by law to be submitted to stockholders for approval, (b) adopting, amending or repealing these Bylaws or (c) indemnifying directors.

Section 3.2. Committee Rules. Unless the Board otherwise provides by board resolution or committee charter, each committee designated by the Board may adopt, amend and repeal rules for the conduct of its business. In the absence of a provision by the Board or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee, and in other respects each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II. In addition, any committee may appoint one or more subcommittees of its members.

ARTICLE IV

Officers

Section 4.1. Officers; Election and Appointment. The Board of Directors shall take such action as may be necessary from time to time to ensure that the Corporation has a Chief Executive Officer,

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a President, a Chief Financial Officer and a Secretary, and it may, if it so determines, elect from among its members a Chairperson of the Board . The Board may also elect or authorize the appointment of one or more Vice Chairmen, Vice Presidents (which will have such designations as the Board shall deem appropriate, and which may include Executive Vice President or Senior Vice President), one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and such other officers as the Board may deem desirable or appropriate and may give any of them such further designations or alternate titles as it considers desirable. Any number of offices may be held by the same person unless the Certificate of Incorporation or these Bylaws otherwise provide.

Section 4.2. Term of Office; Resignation; Removal; Vacancies. Unless otherwise provided in the resolution of the Board electing or authorizing the appointment of any officer, each officer shall hold office until his or her successor is elected or appointed and qualified or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice or electronic transmission to the Board, the Chief Executive Officer, the President or the Secretary of the Corporation. Such resignation shall take effect at the time it is delivered unless the resignation specifies a later effective date or an effective date determined upon the happening of an event or events. Unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. The Board may remove any officer with or without cause at any time. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election of an officer shall not of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, may be filled by the Board at any annual or special meeting.

Section 4.3. Chairperson of the Board. The Chairperson of the Board, if one is selected, shall preside at all meetings of the Board and of the stockholders at which he or she shall be present and shall have and may exercise such powers as may, from time to time, be assigned to him or her by the Board or as may be provided by law.

Section 4.4. Chief Executive Officer. The Chief Executive Officer shall have general charge and supervision of the business of the Corporation and, in general, shall perform all duties incident to the office of chief executive officer of a corporation and such other duties as may, from time to time, be assigned to him or her by the Board or as may be provided by law. The Chief Executive Officer may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by resolution of the Board or by these Bylaws to some other officer or agent of the Corporation, or shall be required by applicable law otherwise to be signed or executed. In the absence of the Chairperson of the Board and Vice Chairperson of the Board, the Chief Executive Officer shall preside at all meetings of the Board and of the stockholders at which he or she shall be present.

Section 4.5. President. The President shall, subject to the oversight of the Chief Executive Officer, have general charge and supervision of the business of the Corporation and, in general, shall perform all duties incident to the office of president of a corporation and such other duties as may, from time to time, be assigned to him or her by the Board or as may be provided by law. In

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the absence of the Chief Executive Officer or in the event of his death or inability or refusal to act, the President, if one has been elected, shall perform the duties of the Chief Executive Officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. The President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by resolution of the Board or by these Bylaws to some other officer or agent of the Corporation, or shall be required by applicable law otherwise to be signed or executed. In the absence of the Chairperson of the Board, Vice Chairperson of the Board and the Chief Executive Officer, the President shall preside at all meetings of the Board and of the stockholders at which he or she shall be present.

Section 4.6. Chief Financial Officer. The Chief Financial Officer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation and shall deposit or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks, trust companies or other depositories as shall, from time to time, be selected by or under authority of the Board. If required by the Board, the Chief Financial Officer shall give a bond for the faithful discharge of his or her duties, with such surety or sureties as the Board may determine. The Chief Financial Officer shall keep or cause to be kept full and accurate records of all receipts and disbursements in books of the Corporation, shall render to the Chief Executive Officer, the President and to the Board, whenever requested, an account of the financial condition of the Corporation, and, in general, shall perform all the duties incident to the offices of chief financial officer and treasurer of a corporation (including the authority of the treasurer to execute stock certificates on behalf of the Corporation under the DGCL) and such other duties as may, from time to time, be assigned to him or her by the Board or the Chief Executive Officer or as may be provided by law. The Chief Financial Officer may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by resolution of the Board or by these Bylaws to some other officer or agent of the Corporation, or shall be required by applicable law otherwise to be signed or executed.

Section 4.7. Vice Chairmen and Vice Presidents. The Vice Chairmen or Vice Presidents shall perform such duties and exercise such powers as are assigned by law, these Bylaws, the Board or the Chief Executive Officer. The seniority in rank of all Vice Chairmen and all Vice Presidents, including Executive and Senior Vice Presidents, may be designated by the Board. Any Vice Chairman, or any two Vice Presidents acting together, may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by resolution of the Board or by these Bylaws to some other officer or agent of the Corporation, or shall be required by applicable law otherwise to be signed or executed.

Section 4.8. Secretary. The Secretary shall have the duty to record the proceedings of the meetings of the stockholders, the Board and any committees in a book to be kept for that purpose, shall see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law, shall be custodian of the records of the Corporation, may affix the corporate seal,

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if any, to any document the execution of which, on behalf of the Corporation, is duly authorized, and when so affixed may attest the same, and, in general, shall perform all duties incident to the office of secretary of a corporation and such other duties as may, from time to time, be assigned to him or her by the Board or the Chief Executive Officer or as may be provided by law. The Secretary may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by resolution of the Board or by these Bylaws to some other officer or agent of the Corporation, or shall be required by applicable law otherwise to be signed or executed.

Section 4.9. Other Officers. The other officers, if any, of the Corporation shall have such powers and duties in the management of the Corporation as shall be stated in a resolution of the Board which is not inconsistent with these Bylaws and, to the extent not so stated, as generally pertain to their respective offices, subject to the control of the Board. The Board may require any officer, agent or employee to give security for the faithful performance of his or her duties.

ARTICLE V

Stock

Section 5.1. Stock Certificates and Uncertificated Shares.

(a) The shares of stock of the Corporation may be either represented by certificates or as provided by resolution of the Board some or all of the shares of any or all classes or series of stock may be uncertificated shares. The provisions of this Bylaw relating to uncertificated stock shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Every holder of stock represented by certificates shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairperson of the Board or the President, a Vice Chairman or a Vice President, and by the Treasurer or an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Corporation, representing the number of shares of stock registered in certificate form owned by such holder. Such certificate shall be in such form as the Board may determine, to the extent consistent with applicable law, the Certificate of Incorporation and these Bylaws. If such certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The Corporation may not issue stock certificates in bearer form.

(b) Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner thereof a written notice containing the information required by law to be set forth or stated on certificates or a statement that the Corporation will furnish without charge to each stockholder who so requests the

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powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. If shares are issued that are represented by a certificate, such information shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock; provided that, except as otherwise provided by law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

(c) Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.

Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, confirmed by the holder to have been lost, stolen or destroyed by an affidavit or other instrument in form and substance acceptable to the Corporation and executed by the holder, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Corporation a bond or a written indemnity in form and substance satisfactory to the Corporation to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

Section 5.3. Transfer of Shares. Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation, which books may be maintained by a registered stock transfer agent.

ARTICLE VI

Indemnification

Section 6.1. Indemnification.

(a) Except as expressly provided in this Article VI, the Corporation shall indemnify Indemnitees against all Expenses, liability and loss (including judgments, fines, penalties and amounts paid in settlement) arising in connection with any Proceeding to the full extent permitted by Delaware law, as it now exists and as it may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment). Expenses reasonably incurred by Indemnitee in defending any Proceeding, as described in this Article VI, shall be paid or reimbursed by the Corporation promptly in advance of the

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final disposition of the Proceeding upon receipt by it of an undertaking of Indemnitee to repay such Expenses if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation. Indemnitee’s obligation to reimburse the Corporation shall be unsecured and no interest shall be charged thereon. The Corporation shall not indemnify Indemnitee or advance or reimburse Indemnitee’s Expenses if such indemnification or payment would constitute a “prohibited indemnification payment” under applicable regulations of the Federal Deposit Insurance Corporation (or any successor provisions) or any other applicable laws, rules or regulations.

(b) No claim for indemnification shall be paid by the Corporation unless the Corporation has determined that Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interest of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was unlawful. Unless ordered by a court, such determinations shall be made by (1) a majority vote of the directors who are not parties to the action, suit or proceeding for which indemnification is sought, even though less than a quorum, or (2) by a committee of such directors designated by a majority vote of directors, even though less than a quorum, or (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (4) by stockholders. Indemnitee shall be presumed to have met the relevant standard and, if a determination to the contrary is not made by the Corporation within thirty (30) days of a demand by such Indemnitee for indemnification, such Indemnitee shall be deemed to have met such standard.

(c) Indemnitee shall promptly notify the Corporation in writing upon the sooner of (1) becoming aware of a Proceeding where indemnification or the advance payment or reimbursement of Expenses may be sought or (2) being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter which may be subject to indemnification or the advance payment or reimbursement of Expenses covered hereunder. The failure of Indemnitee to so notify the Corporation shall not relieve the Corporation of any obligation which it may have to Indemnitee pursuant to this Article VI.

(d) As a condition to indemnification or the advance payment or reimbursement of Expenses, any demand for payment by Indemnitee hereunder shall be in writing and shall provide reasonable accounting for the Expenses to be paid by the Corporation.

(e) For the purposes of this Article VI,

(i) the term “Indemnitee” shall mean any person made or threatened to be made a party, or otherwise involved in any Proceeding by reason of the fact that such person or such person’s testator or intestate is or was a director, officer,

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employee or agent of the Corporation or serves or served at the request of the Corporation any other enterprise as a director, officer, manager, employee or agent;

(ii) the term “Corporation” shall include any predecessor of the Corporation and any constituent corporation (including any constituent of a constituent) absorbed by the Corporation in a consolidation or merger; the term “other enterprise” shall include any corporation, association, limited liability company, public limited company, partnership, joint venture, trust, employee benefit plan, fund or other enterprise;

(iii) service “at the request of the Corporation” shall include service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and action by a person with respect to an employee benefit plan which such person reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Corporation;

(iv) the term “Expenses” shall include all reasonable out of pocket fees, costs and expenses, including without limitation, attorney’s fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, ERISA excise taxes or penalties assessed on Indemnitee with respect to an employee benefit plan, Federal, state, local or foreign taxes imposed as a result of the actual or deemed receipt of any payments under this Article VI, penalties and all other disbursements or expenses of the types customarily incurred in connection with defending, preparing to defend, or investigating an actual or threatened action, suit or proceeding (including Indemnitee’s counterclaims that directly respond to and negate the affirmative claim made against Indemnitee (“Permitted Counterclaims”) in such action, suit or proceeding, whether civil, criminal, administrative or investigative, but shall exclude the costs of any of Indemnitee’s counterclaims, other than Permitted Counterclaims; and

(v) the term “Proceeding” means any civil, criminal, administrative, investigative (administrative, judicial or administrative) or other action, suit, arbitration, inquiry, hearing or other form of pending or threatened proceeding.

(f) If a claim for indemnification or advancement of Expenses under this Article VI is not paid in full within sixty (60) days (in the case of a request for indemnification) or thirty (30) days (in the case of a request for advancement of Expenses), as applicable, after a written claim thereof by the Indemnitee has been received by the Corporation, the

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Indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the Expenses of prosecuting such claim. In any such action, the Corporation shall have the burden of proving that the Indemnitee is not entitled to the requested indemnification or advancement of Expenses under this Article VI.

(g) Any action, suit or proceeding regarding indemnification or advance payment or reimbursement of Expenses arising out of the Bylaws or otherwise shall only be brought and heard in Delaware Court of Chancery. In the event of any payment under this Article VI, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee (under any insurance policy or otherwise), who shall execute all papers required and shall do everything necessary to secure such rights, including the execution of such documents necessary to enable the Corporation to effectively bring suit to enforce such rights. Except as required by law or as otherwise becomes public, Indemnitee will keep confidential any information that arises in connection with this Article VI, including but not limited to, claims for indemnification or the advance payment or reimbursement of Expenses, amounts paid or payable under this Article VI and any communications between the parties. No amendment, modification or repeal of the Certificate of Incorporation of the Corporation or of this Article VI shall impair the rights of any Indemnitee arising at any time with respect to events occurring prior to such amendment, modification or repeal.

(h) The indemnification and advancement of Expenses provided in this Article VI shall not be deemed exclusive of any other rights to which any person may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors, statute, provision of the Certificate of Incorporation, or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such official capacity (including, without limitation, rights to indemnification or advancement of Expenses incurred in connection with an action, suit or proceeding commenced by such person to enforce a right to indemnification or advancement, to the extent such person is successful in such action, suit or proceeding).

(i) The indemnification and advancement of Expenses provided by, or granted pursuant to, this Article VI shall continue as to a person who has ceased to be an officer, director or employee and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 6.2. Permissive Supplementary Benefits. The Corporation may, but shall not be required to, supplement the right to indemnification against liability and advancement of Expenses under Section 6.1 by (a) purchasing insurance on behalf of any one or more of such Indemnitees, whether or not the Corporation would be obligated to indemnify or advance Expenses to such Indemnitee under Section 6.1, and/or (b) entering into individual or group indemnification agreements with any one or more of such Indemnitees.

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Section 6.3. Non-Exclusivity of Rights. The rights to indemnification and to the advancement of Expenses conferred on any Indemnitee by this Article VI are not exclusive of other rights arising under any statute, provision of the Certificate of Incorporation, provision of these Bylaws, agreement, vote of stockholders or of disinterested directors or otherwise, and shall inure to the benefit of the estate, heirs, legatees, distributees, executors, administrators and other comparable legal representatives of such person.

Section 6.4. Severability. If any portion of this Article VI shall be invalidated or held to be unenforceable on any ground by any court of competent jurisdiction, the decision of which shall not have been reversed on appeal, the provisions of this Article VI shall be deemed to be modified to the minimum extent necessary to avoid a violation of law and, as so modified, shall remain valid and enforceable in accordance with their terms to the fullest extent permitted by law.

ARTICLE VII

Miscellaneous

Section 7.1. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board.

Section 7.2. Seal. The Corporation may have a corporate seal which shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

Section 7.3. Waiver of Notice of Meetings of Stockholders, Directors and Committees. Whenever notice is required to be given by law or under any provision of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate of Incorporation or these Bylaws.

Section 7.4. Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because such director’s or officer’s votes are counted for such purpose, if: (a) the material facts as to director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested

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directors be less than a quorum; or (b) the material facts as to director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction.

Section 7.5. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or by means of, or be in the form of, any information storage device, or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records in accordance with law.

Section 7.6. Amendment of Bylaws. Subject to the terms of the Certificate of Incorporation, these Bylaws may be amended or repealed, and new Bylaws adopted, by the Board, but the stockholders entitled to vote may adopt additional Bylaws and may amend or repeal any bylaw whether or not adopted by them.

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EX-4.1

Exhibit 4.1

DESCRIPTION OF REGISTERED SECURITIES

As of December 31, 2019, First Hawaiian Inc. (the “Company”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”): our common stock.

DESCRIPTION OF COMMON STOCK

The following description of the Company’s common stock and the relevant provisions of the Company’s amended and restated certificate of incorporation and amended and restated bylaws are summaries and are qualified in their entirety by reference to the Company’s amended and restated certificate of incorporation and amended and restated bylaws. As used in this Exhibit 4.1, the terms “we”, “us” and “our” refer to the Company and not to any of its consolidated subsidiaries.

General

Under our amended and restated certificate of incorporation, we are authorized to issue a total of 300,000,000 shares of common stock, par value of $0.01 per share. Our common stock is listed on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “FHB”. Holders of common stock do not have any conversion, preemptive, subscription or redemption rights, and no sinking fund will be applicable to our common stock.

Dividends

Holders of our common stock are entitled to receive ratably such dividends as may be declared from time to time by our board of directors out of legally available funds. The ability of our board of directors to declare and pay dividends on our common stock is subject to the laws of the state of Delaware, applicable federal and state banking laws and regulations, and the terms of any senior securities (including preferred stock) we may then have outstanding. Our principal source of income is dividends that are declared and paid by our bank on its capital stock. Therefore, our ability to pay dividends is dependent upon the receipt of dividends from our subsidiary bank.

Voting Rights

Each holder of our common stock is entitled to one vote for each share of record held on all matters submitted to a vote of stockholders, except as otherwise required by law and subject to the rights and preferences of the holders of any outstanding shares of our preferred stock. Holders of our common stock are not entitled to cumulative voting in the election of directors. Directors are elected by a majority of the votes cast. In addition to any other vote required by law, the affirmative vote of a majority of the outstanding shares of common stock will be required to amend, alter or repeal (including by merger, consolidation or otherwise) any provision of our certificate of incorporation that adversely affects the rights, preferences or privileges of the common stock in a manner that is materially adverse from the effect of such amendment, alteration or repeal on the other class of our capital stock, as applicable.

Liquidation Rights

In the event of our liquidation, dissolution or winding up, holders of common stock are entitled to share ratably in all of our assets remaining after payment of liabilities, including but not limited to the liquidation preference of any then outstanding preferred stock. Because we are a bank holding company, our rights and the rights of our creditors and stockholders to receive the assets of any subsidiary upon liquidation or recapitalization may be subject to prior claims of our subsidiary’s creditors, except to the extent that we may be a creditor with recognized claims against our subsidiary.

Authorized but Unissued Capital Stock

The Delaware General Corporation Law (the “DGCL”) does not generally require stockholder approval for the issuance of authorized shares. These additional shares may be used for a variety of corporate purposes, including future public offerings, to raise additional capital or to facilitate acquisitions. However, the listing requirements of NASDAQ, which would apply so long as the common stock remains listed on NASDAQ, require stockholder approval of certain issuances equal to or exceeding 20% of the then outstanding voting power or then outstanding number of shares of common stock.

One of the effects of the existence of unissued and unreserved common stock or preferred stock may be to enable our board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive our stockholders of opportunities they may believe are in their best interests or in which they may receive a premium for their common stock over the market price of the common stock.

CERTAIN PROVISIONS THAT MAY HAVE AN ANTI-TAKOVER EFFECT

Business Combination Statute. As a Delaware corporation, we are subject to Section 203 of the DGCL, unless we expressly elect not to be governed by the statute. Section 203 provides that, subject to certain exceptions specified in the law, we may not engage in any “business combination” with any “interested stockholder” for a three-year period following the time such stockholder became an interested stockholder unless:

· prior to such time, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

· upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain shares as specified in Section 203; or

· at or subsequent to such time, the business combination is approved by our board of directors and authorized at a meeting of stockholders (and not by written consent) by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.

Generally, a “business combination” includes, among other things, a merger or asset or stock sale of us or any of our majority-owned subsidiaries or any of certain other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who, together with that person’s affiliates and associates, owns, or within the previous three years did own, 15% or more of our voting stock.

Under certain circumstances, Section 203 makes it more difficult for a person who would be an “interested stockholder” to effect various business combinations with a corporation for a three-year period. The provisions of Section 203 may encourage companies interested in acquiring us to negotiate in advance with our board of directors because the stockholder approval requirement described above would be avoided if our board of directors approves either the business combination or the transaction that results in the stockholder becoming an interested stockholder. These provisions also may make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Federal Banking Law. The ability of a third party to acquire our stock is also limited under applicable U.S. banking laws, including regulatory approval requirements. The U.S. Bank Holding Company Act of 1956, as amended (the “BHC Act”), requires any “bank holding company” to obtain the approval of the Federal Reserve before acquiring, directly or indirectly, more than 5% of our outstanding common stock. Any “company”, as defined in the BHC Act, other than a bank holding company is required to obtain the approval of the Federal Reserve before acquiring “control” of us. “Control” generally means (i) the ownership or control of 25% or more of a class of voting securities, (ii) the ability to elect a majority of the directors or (iii) the ability otherwise to exercise a controlling influence over management and policies. A person, other than an individual, that controls us for purposes of the BHC Act is subject to regulation and supervision as a bank holding company under the BHC Act. In addition, under the Change in Bank

Control Act of 1978, as amended, and the Federal Reserve’s regulations thereunder, any person, either individually or acting through or in concert with one or more persons, is required to provide notice to the Federal Reserve prior to acquiring, directly or indirectly, 10% or more of our outstanding common stock (or any other class of our voting securities).

Requirements for Advance Notification of Stockholder Nominations and Proposals. Our bylaws establish advance notice procedures with respect to stockholder proposals and nomination of candidates for election as directors. These procedures provide that notice of such stockholder proposal must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year.

Limits on Written Consents. Our certificate of incorporation provides that any action to be taken by the stockholders that the stockholders are required or permitted to take must be effected at a duly called annual or special meeting of stockholders. Our stockholders are not permitted to take action by written consent.

Annual Meetings; Limits on Special Meetings. We have annual meetings of stockholders. Subject to the rights of the holders of any series of preferred stock, special meetings of the stockholders may be called only by (i) the Chairperson of our board of directors (the “Board”), (ii) the Chairperson of the Board, (iii) our Chief Executive Officer, or (iv) our President.

Amendments to our Governing Documents. Generally, the amendment of our certificate of incorporation requires approval by our board of directors and a majority vote of stockholders; however, certain material amendments (including amendments with respect to provisions governing board composition and actions by written consent) require the approval of at least 50% of the votes entitled to be cast by the outstanding capital stock in the elections of our board of directors. Any amendment to our bylaws requires the approval of either a majority of our board of directors or holders of at least 50% of the votes entitled to be cast by the outstanding capital stock in the election of our board of directors. Under our bylaws, the approval of a majority of our board of directors present at a meeting at which a quorum is present is also required to amend our bylaws to modify the number of directors required therein. In addition to any other vote required by law, the affirmative vote of a majority of the outstanding shares of common stock or non-voting common stock, each voting separately as a class, as the case may be, will be required to amend, alter or repeal (including by merger, consolidation or otherwise) any provision of our certificate of incorporation that adversely affects the privileges, preferences or rights of our common stock or non-voting common stock, respectively, in a manner that is materially adverse from the effect of such amendment, alteration or repeal on the other class of our capital stock, as applicable. Any amendment to our certificate of incorporation (whether by merger, consolidation or otherwise) to increase or decrease the authorized shares of any class of common stock must be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class or series, as applicable.

EX-10.20

Exhibit 10.20

FIRST HAWAIIAN, INC.

2016 OMNIBUS INCENTIVE COMPENSATION PLAN

FORM OF

RESTRICTED SHARE AWARD AGREEMENT

This Restricted Share Award Agreement (this “Award Agreement”) evidences an award of restricted shares (the “Restricted Shares”) by First Hawaiian, Inc., a Delaware corporation (“First Hawaiian”), under the First Hawaiian, Inc. 2016 Omnibus Incentive Compensation Plan (as amended, supplemented or modified, from time to time, the “Plan”).  Capitalized terms used but not defined in this Award Agreement have the meanings given to them in the Plan.

Name of Grantee:	_______________ (the “Grantee”).
Grant Date:	_______________ (the “Grant Date”).
Number of Restricted Shares:	______________________.

Vesting:

One-third of the total number of Restricted Shares granted will vest on each of the first, second and third anniversaries of the Grant Date (each date, a “Vesting Date”), provided, that, except as otherwise provided herein, if the Grantee’s employment with First Hawaiian is terminated for any reason, any unvested Restricted Shares will automatically be cancelled by or revert to First Hawaiian and the Grantee will forfeit any rights or interests in such Restricted Shares without compensation. Notwithstanding the foregoing: A.    In the event the employment of the Grantee is terminated by reason of death or Disability, the Restricted Shares will immediately vest in full as of the date of such termination; B.    In the event the employment of the Grantee is terminated by reason of Retirement, the Restricted Shares will immediately vest on a pro-rata basis, determined by multiplying the number of Restricted Shares that were otherwise scheduled to vest on the next Vesting Date by the number of full months for which the Grantee was continuously employed at First Hawaiian since the previous Vesting Date, and dividing the product by 12; and C.    Upon a Change in Control, the Restricted Shares will be treated in accordance with the Plan.

Delivery:

As of the Grant Date, one or more Certificates representing the Restricted Shares will be registered in the name of the Grantee, but will be held by First Hawaiian or its designated agent until the applicable vesting date. Notwithstanding the foregoing, First Hawaiian may, in its sole and absolute discretion and in accordance with the terms of the Plan and applicable law, issue the Restricted Shares in the form of uncertificated shares credited to a book entry account, subject to the restrictions on transferability imposed by this Award Agreement. No later than 30 days after the applicable vesting date, First Hawaiian will deliver to the Grantee evidence of ownership of one Share for each vested Restricted Share, subject to applicable tax withholding.

Non-Transferability of the Restricted Shares:	Prior to the applicable vesting date, the Restricted Shares may not be sold, exchanged, transferred, assigned, pledged, hypothecated, fractionalized, hedged or otherwise disposed of (including through the use of any cash-settled instrument) in any manner other than by will or by the laws of descent and distribution, and any attempt to sell, exchange, transfer, assign, pledge, hypothecate, fractionalize, hedge or otherwise dispose of the Shares delivered in respect of the Restricted Shares in violation of this Award Agreement shall be void and of no effect and First Hawaiian shall have the right to disregard the same on its books and records and advise the registrar and transfer agent to place a stop order against the transfer of such Shares. First Hawaiian may affix to Certificates or to the book entry account holding Shares issued pursuant to this Award Agreement any legend that the Committee reasonably determines to be necessary or advisable to reflect the transfer restrictions.
Dividends:	The Grantee will be the beneficial owner of the Restricted Shares and shall have the rights of a shareholder of First Hawaiian with respect to the Shares, including full voting rights and the right to receive all dividends without restrictions at the times and in the manner paid to shareholders generally.
All Other Terms:	As set forth in the Plan.

The Plan is incorporated herein by reference.  Except as otherwise set forth in the Award Agreement, the Award Agreement and the Plan constitute the entire agreement and understanding of the parties with respect to the Restricted Shares.  In the event that any provision of the Award Agreement is inconsistent with the Plan, the terms of the Plan will control.  Except as specifically provided herein, in the event that any provision of this Award Agreement is inconsistent with any employment agreement between the Grantee and First Hawaiian (“Employment Agreement”), the terms of the Employment Agreement will control.  By accepting this Award, the Grantee agrees to be subject to the terms and conditions of the Plan.

This Award Agreement may be executed in counterparts, which together will constitute one and the same original.

IN WITNESS WHEREOF, the parties have caused this Award Agreement to be duly executed and effective as of the Grant Date.

FIRST HAWAIIAN, INC.

By: ______________________________

Name:

Title:

[NAME OF GRANTEE]

__________________________________

EX-21.1

Exhibit 21.1

Subsidiaries of First Hawaiian, Inc.

Name	Jurisdiction of Incorporation/Organization
First Hawaiian Bank	Hawaii
Bishop Street Capital Management Corporation	Hawaii
First Hawaiian Leasing, Inc.	Hawaii

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in this Registration Statement No. 333-212996 and 333-215068 on Form S-8 of our reports dated February 27, 2020, relating to the consolidated financial statements of First Hawaiian, Inc. and Subsidiary and the effectiveness of First Hawaiian, Inc.’s internal control over financial reporting dated February 27, 2020, appearing in this Annual Report on Form 10-K of First Hawaiian, Inc. for the year ended December 31, 2019.  

/s/ DELOITTE & TOUCHE LLP

Honolulu, Hawaii

February 27, 2020

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to

Rule 13a-14(a) of the Securities Exchange Act of 1934, as Amended,

Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert S. Harrison, certify that:

1.I have reviewed this annual report on Form 10-K of First Hawaiian, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 27, 2020	/s/ Robert S. Harrison
	Robert S. Harrison
	Chairman of the Board, President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to

Rule 13a-14(a) of the Securities Exchange Act of 1934, as Amended,

Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Ravi Mallela,  certify that:

1.I have reviewed this annual report on Form 10-K of First Hawaiian, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 27, 2020	/s/ Ravi Mallela
	Ravi Mallela
	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

I hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

· The Annual Report on Form 10-K of First Hawaiian, Inc. (the “Company”) for the year ended December 31, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

· the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 27, 2020	/s/ Robert S. Harrison
	Robert S. Harrison
	Chairman of the Board, President and Chief Executive Officer
	(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

I hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

· The Annual Report on Form 10-K of First Hawaiian, Inc. (the “Company”) for the year ended December 31, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

· the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 27, 2020	/s/ Ravi Mallela
	Ravi Mallela
	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

XML

Organization and Basis of Presentation - VIEs and Cash and Due from Banks (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Variable Interest Entities
Period over which affordable housing tax credits are recognized	10 years
Cash and Due from Banks
Average cash reserves required with Federal Reserve Bank	$ 67.4	$ 57.6
Included in other liabilities | VIEs, not primary beneficiary
Variable Interest Entities
Unfunded commitments to fund low-income housing partnerships	$ 102.8	$ 36.0

XML

Parent Company - Condensed Statements of Comprehensive Income (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income
Total revenue	$ 765,935	$ 745,311
Noninterest expense
Salaries and employee benefits	173,098	167,162	$ 163,086
Contracted services and professional fees	56,321	49,775	45,011
Equipment	17,343	17,714	17,247
Advertising and marketing	6,910	4,813	6,191
Other	50,661	59,082	54,264
Total noninterest expense	370,437	364,953	347,554
Benefit (provision) for income taxes	(97,306)	(93,784)	(184,673)
Net income (loss)	284,392	264,394	183,682
Comprehensive income	384,838	248,650	175,310
Parent Company
Income
Dividends from FHB	300,300	263,400	105,400
Other income	1,691	1,541	3,937
Total revenue	301,991	264,941	109,337
Noninterest expense
Salaries and employee benefits	5,241	5,940	5,949
Contracted services and professional fees	2,689	3,780	3,643
Equipment		31	55
Advertising and marketing			1
Other	721	732	570
Total noninterest expense	8,651	10,483	10,218
Income before benefit (provision) for income taxes and (excess distributions) equity in undistributed income of FHB	293,340	254,458	99,119
Benefit (provision) for income taxes	1,672	1,184	(642)
(Excess distributions) equity in undistributed income of FHB	(10,620)	8,752	85,205
Net income (loss)	284,392	264,394	183,682
Comprehensive income	$ 384,838	$ 248,650	$ 175,310

XML

Fair Value - Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis (Details) - Impaired loans - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Assets with fair value adjustments on a nonrecurring basis
Total impairment losses	$ 1,000	$ 700	$ 700
Fair Value Measurements, Nonrecurring | Level 3
Assets with fair value adjustments on a nonrecurring basis
Fair value	$ 1,502	$ 402

XML

Reportable Operating Segments (Tables)

12 Months Ended

Dec. 31, 2019

Reportable Operating Segments

Schedule of selected business segment financial information

					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Year Ended December 31, 2019
Net interest income	$	413,029	$	141,227	$	19,146	$	573,402
Provision for loan and lease losses		(6,248)		(7,552)		—		(13,800)
Net interest income after provision for loan and lease losses		406,781		133,675		19,146		559,602
Noninterest income		95,413		73,635		23,485		192,533
Noninterest expense		(228,389)		(82,380)		(59,668)		(370,437)
Income (loss) before (provision) benefit for income taxes		273,805		124,930		(17,037)		381,698
(Provision) benefit for income taxes		(69,285)		(32,298)		4,277		(97,306)
Net income (loss)	$	204,520	$	92,632	$	(12,760)	$	284,392
Total assets as of December 31, 2019	$	7,276,047	$	6,071,356	$	6,819,331	$	20,166,734

					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other (1)		Total
Year Ended December 31, 2018
Net interest income	$	420,165	$	140,333	$	5,820	$	566,318
Provision for loan and lease losses		(8,753)		(13,427)		—		(22,180)
Net interest income after provision for loan and lease losses		411,412		126,906		5,820		544,138
Noninterest income		89,669		80,904		8,420		178,993
Noninterest expense		(225,881)		(80,766)		(58,306)		(364,953)
Income (loss) before (provision) benefit for income taxes		275,200		127,044		(44,066)		358,178
(Provision) benefit for income taxes		(70,335)		(32,700)		9,251		(93,784)
Net income (loss)	$	204,865	$	94,344	$	(34,815)	$	264,394
Total assets as of December 31, 2018	$	7,078,016	$	6,346,541	$	7,271,121	$	20,695,678

⁽¹⁾ Includes $24.1 million in OTTI write-downs.

					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other (1)		Total
Year Ended December 31, 2017
Net interest income (expense)	$	409,796	$	131,692	$	(12,684)	$	528,804
Provision for loan and lease losses		(6,837)		(11,663)		—		(18,500)
Net interest income (expense) after provision for loan and lease losses		402,959		120,029		(12,684)		510,304
Noninterest income		89,372		75,566		40,667		205,605
Noninterest expense		(223,652)		(68,167)		(55,735)		(347,554)
Income (loss) before (provision) benefit for income taxes		268,679		127,428		(27,752)		368,355
(Provision) benefit for income taxes		(130,130)		(57,857)		3,314		(184,673)
Net income (loss)	$	138,549	$	69,571	$	(24,438)	$	183,682
Total assets as of December 31, 2017	$	7,003,724	$	5,462,370	$	8,083,367	$	20,549,461

⁽¹⁾ Includes $6.9 million gains on the sale of real estate.

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Revenue from Contracts with Customers (Tables)

12 Months Ended

Dec. 31, 2019

Revenue from Contracts with Customers

Summary of revenues disaggregated by type of service and business segments

		Year Ended December 31, 2019
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income(1)	$	413,029	$	141,227	$	19,146	$	573,402
Service charges on deposit accounts		30,298		1,238		2,242		33,778
Credit and debit card fees		—		58,034		6,812		64,846
Other service charges and fees		20,454		2,096		2,155		24,705
Trust and investment services income		35,102		—		—		35,102
Other		715		4,899		3,351		8,965
Not in scope of Topic 606(1)		8,844		7,368		8,925		25,137
Total noninterest income		95,413		73,635		23,485		192,533
Total revenue	$	508,442	$	214,862	$	42,631	$	765,935

		Year Ended December 31, 2018
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income(1)	$	420,165	$	140,333	$	5,820	$	566,318
Service charges on deposit accounts		28,866		1,146		2,024		32,036
Credit and debit card fees		—		78,218		7,080		85,298
Other service charges and fees		19,977		4,089		2,175		26,241
Trust and investment services income		31,324		—		—		31,324
Other		585		6,616		2,731		9,932
Not in scope of Topic 606(1)		8,917		(9,165)		(5,590)		(5,838)
Total noninterest income		89,669		80,904		8,420		178,993
Total revenue	$	509,834	$	221,237	$	14,240	$	745,311

(1) Most of the Company’s revenue is not within the scope of Topic 606. The guidance explicitly excludes net interest income from financial assets and liabilities as well as other noninterest income from loans, leases, investment securities and derivative financial instruments.

XML

Investment Securities - Unrealized Gross Losses and Fair Values of Securities in a Continuous Loss Position (Details) $ in Thousands	Dec. 31, 2019 USD ($) security	Dec. 31, 2018 USD ($) security
Securities in the available-for-sale portfolio in a continuous loss position
Number of individual securities in a continuous loss position | security	118	154
Time in Continuous Loss, Unrealized Losses
Less Than 12 Months Unrealized Losses	$ (9,658)	$ (1)
12 Months or More Unrealized Losses	(14,329)	(142,161)
Total Unrealized Losses	(23,987)	(142,162)
Time in Continuous Loss, Fair Value
Less Than 12 Months Fair Value	1,314,806	172
12 Months or More Fair Value	994,155	3,619,406
Total Fair Value	2,308,961	3,619,578
Government-sponsored enterprises debt securities
Time in Continuous Loss, Unrealized Losses
Less Than 12 Months Unrealized Losses	(277)
12 Months or More Unrealized Losses		(6,778)
Total Unrealized Losses	(277)	(6,778)
Time in Continuous Loss, Fair Value
Less Than 12 Months Fair Value	49,716
12 Months or More Fair Value		157,939
Total Fair Value	49,716	157,939
Residential - Government agency
Time in Continuous Loss, Unrealized Losses
12 Months or More Unrealized Losses	(1,146)	(15,174)
Total Unrealized Losses	(1,146)	(15,174)
Time in Continuous Loss, Fair Value
12 Months or More Fair Value	109,614	373,891
Total Fair Value	109,614	373,891
Residential - Government-sponsored enterprises
Time in Continuous Loss, Unrealized Losses
Less Than 12 Months Unrealized Losses	(115)	(1)
12 Months or More Unrealized Losses	(1,558)	(5,293)
Total Unrealized Losses	(1,673)	(5,294)
Time in Continuous Loss, Fair Value
Less Than 12 Months Fair Value	76,481	172
12 Months or More Fair Value	109,025	125,869
Total Fair Value	185,506	126,041
Commercial - Government-sponsored enterprises
Time in Continuous Loss, Unrealized Losses
Less Than 12 Months Unrealized Losses	(634)
Total Unrealized Losses	(634)
Time in Continuous Loss, Fair Value
Less Than 12 Months Fair Value	38,062
Total Fair Value	38,062
Government agency
Time in Continuous Loss, Unrealized Losses
Less Than 12 Months Unrealized Losses	(8,049)
12 Months or More Unrealized Losses	(8,299)	(97,171)
Total Unrealized Losses	(16,348)	(97,171)
Time in Continuous Loss, Fair Value
Less Than 12 Months Fair Value	969,762
12 Months or More Fair Value	565,764	2,475,532
Total Fair Value	1,535,526	2,475,532
Government-sponsored enterprises
Time in Continuous Loss, Unrealized Losses
Less Than 12 Months Unrealized Losses	(583)
12 Months or More Unrealized Losses	(3,326)	(17,745)
Total Unrealized Losses	(3,909)	(17,745)
Time in Continuous Loss, Fair Value
Less Than 12 Months Fair Value	180,785
12 Months or More Fair Value	209,752	486,175
Total Fair Value	$ 390,537	$ 486,175

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Allowance for Loan and Lease Losses - Troubled Debt Restructuring Modifications (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($) contract property	Dec. 31, 2018 USD ($) contract property	Dec. 31, 2017 USD ($) contract
Troubled debt restructuring modifications
Number of Contracts | contract	3	4	3
Recorded Investment	$ 1,180	$ 1,244	$ 1,734
Related Allowance	25	39	$ 23
Aggregate commitments to extend credit, standby letters of credit and commercial letters of credit	6,100,000	5,800,000
Commitments related to borrowers who had loan terms modified in a TDR	$ 4,500	$ 1,800
Loans modified in TDRs that experienced a payment default
Period past due for payment default	30 days
Number of contracts | contract	2		2
Recorded Investment	$ 571		$ 3,873
Number of residential mortgage loans collateralized by real estate property and modified in a TDR in the process of foreclosure | contract	1	1
Residential mortgage loans collateralized by real estate property and modified in a TDR in the process of foreclosure	$ 300	$ 300
Commercial and Industrial
Troubled debt restructuring modifications
Number of Contracts | contract	2	1	1
Recorded Investment	$ 571	$ 369	$ 1,075
Related Allowance	$ 25	$ 10
Loans modified in TDRs that experienced a payment default
Number of contracts | contract	2		1
Recorded Investment	$ 571		$ 2,480
Commercial real estate
Loans modified in TDRs that experienced a payment default
Number of contracts | contract			1
Recorded Investment			$ 1,393
Lease financing
Troubled debt restructuring modifications
Short-term forbearance period after which missed payments are added to end of lease term	3 months
Residential
Troubled debt restructuring modifications
Period of time monthly payments are lowered to accommodate borrowers' financial needs	2 years
Number of Contracts | contract	1	3	2
Recorded Investment	$ 609	$ 875	$ 659
Related Allowance		$ 29	$ 23
Residential | Real estate property held from foreclosed TDR
Loans modified in TDRs that experienced a payment default
Number of real estate properties | property	2	1
Real estate property held from a foreclosed TDR	$ 300	$ 800
Consumer | Minimum
Troubled debt restructuring modifications
Threshold period past due for charge-off	120 days
Consumer | Maximum
Troubled debt restructuring modifications
Threshold period past due for charge-off	180 days
Home equity line | Real estate property held from foreclosed TDR
Loans modified in TDRs that experienced a payment default
Number of real estate properties | property	1
Commitments to extend credit
Troubled debt restructuring modifications
Aggregate commitments to extend credit, standby letters of credit and commercial letters of credit	$ 5,907,690	5,549,591
Standby letters of credit
Troubled debt restructuring modifications
Aggregate commitments to extend credit, standby letters of credit and commercial letters of credit	181,412	204,324
Commercial Letters of credit
Troubled debt restructuring modifications
Aggregate commitments to extend credit, standby letters of credit and commercial letters of credit	$ 7,334	$ 7,535

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Other Assets - Changes in Amortized MSRs (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Changes in amortized mortgage servicing rights
Balance at beginning of period	$ 16,155	$ 13,196
Originations	138	328
Purchases		6,444
Amortization	(3,625)	(3,813)	$ (3,600)
Balance at end of period	12,668	16,155	13,196
Fair value of amortized MSRs at end of period	20,329	27,662	21,697
Impairment of MSRs recorded	$ 0	$ 0	$ 0

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Loans and Leases - Remaining commitments (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Loans and leases
Loan and lease commitments	$ 5,907,690	$ 5,549,591
Commercial and Industrial
Loans and leases
Loan and lease commitments	2,451,362	2,484,857
Commercial real estate | Real estate
Loans and leases
Loan and lease commitments	130,597	114,186
Construction | Real estate
Loans and leases
Loan and lease commitments	718,121	526,938
Residential | Real estate
Loans and leases
Loan and lease commitments	1,053,581	913,757
Consumer
Loans and leases
Loan and lease commitments	1,554,029	1,509,853
Residential mortgage | Residential | Real estate
Loans and leases
Loan and lease commitments	842	121
Home equity | Home equity Line | Real estate
Loans and leases
Loan and lease commitments	$ 1,052,739	$ 913,636

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cash flows from operating activities:
Net income	$ 284,392	$ 264,394	$ 183,682
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	13,800	22,180	18,500
Depreciation, amortization and accretion, net	67,824	54,903	62,019
Deferred income taxes	17,060	(3,602)	58,916
Stock-based compensation	7,826	6,185	5,292
Net gains on sale of real estate			(6,922)
Other losses (gains)	19	(1,062)	(210)
Originations of loans held for sale	(19,164)	(29,707)
Proceeds from sales of loans held for sale	18,156	29,467
Net losses (gains) on sales of loans originated for investment and held for sale	1,102	(199)	(16)
Net losses on investment securities	2,715
OTTI losses on available-for-sale debt securities		24,085
Change in assets and liabilities:
Net (increase) decrease in other assets	(20,923)	11,859	(42,359)
Net decrease in other liabilities	(76,303)	(27,090)	(9,128)
Net cash provided by operating activities	296,504	351,413	269,774
Available-for-sale securities:
Proceeds from maturities and principal repayments	767,892	810,260	888,700
Proceeds from calls and sales	1,070,715
Purchases	(1,301,041)	(130,252)	(1,088,417)
Other investments:
Proceeds from sales	14,292	12,842	15,517
Purchases	(30,996)	(65,239)	(20,487)
Loans:
Net increase in loans and leases resulting from originations and principal repayments	(133,702)	(572,488)	(750,917)
Proceeds from sales of loans originated for investment	407,698	562	9,711
Purchases of loans	(398,735)	(270,272)	(26,626)
Proceeds from bank-owned life insurance	7,682	1,151	4,482
Purchases of premises, equipment and software	(29,354)	(35,880)	(10,068)
Proceeds from sales of premises and equipment	2	65	8,139
Purchases of mortgage servicing rights		(6,444)
Proceeds from sales of other real estate owned	759	718	929
Other		(2,832)	(2,044)
Net cash provided by (used in) investing activities	375,212	(257,809)	(971,081)
Cash flows from financing activities
Net (decrease) increase in deposits	(705,074)	(462,054)	817,590
Net decrease in short-term borrowings			(9,151)
Proceeds from long-term borrowings		600,000
Repayment of long-term borrowings	(10)	(10)	(10)
Dividends paid	(138,246)	(131,036)	(122,810)
Distributions paid			(2,118)
Stock tendered for payment of withholding taxes	(1,764)	(53)	(136)
Proceeds from employee stock purchase plan		342	528
Common stock repurchased	(136,242)	(131,800)
Net cash (used in) provided by financing activities	(981,336)	(124,611)	683,893
Net decrease in cash and cash equivalents	(309,620)	(31,007)	(17,414)
Cash and cash equivalents at beginning of period	1,003,637	1,034,644	1,052,058
Cash and cash equivalents at end of period	694,017	1,003,637	1,034,644
Supplemental disclosures
Interest paid	102,457	80,381	36,633
Income taxes paid, net of income tax refunds	70,508	43,002	145,072
Noncash investing and financing activities:
Transfers from loans and leases to other real estate owned	310	549	759
Operating lease right-of-use assets obtained in exchange for new lease obligations	1,401
Transfers from loans and leases to loans held for sale	408,264		10,251
Obligation to fund low-income housing partnerships	$ 31,628	$ 36,044	$ 34,835

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Deposits

12 Months Ended

Dec. 31, 2019

Deposits

Deposits

9. Deposits

As of December 31, 2019 and 2018, deposits were categorized as interest-bearing or noninterest-bearing as follows:

(dollars in thousands)	2019		2018
U.S.:
Interest-bearing	$	9,782,957	$	10,393,449
Noninterest-bearing		5,188,696		5,368,729
Foreign:
Interest-bearing		781,965		748,678
Noninterest-bearing		691,376		639,212
Total deposits	$	16,444,994	$	17,150,068

The following table presents the maturity distribution of time certificates of deposit as of December 31, 2019:

	Under		$250,000
(dollars in thousands)	$250,000		or More		Total
Three months or less	$	260,198	$	772,794	$	1,032,992
Over three through six months		215,191		242,008		457,199
Over six through twelve months		321,555		215,211		536,766
2021		98,344		55,118		153,462
2022		128,845		59,185		188,030
2023		59,069		12,167		71,236
2024		59,547		10,893		70,440
Thereafter		32		—		32
Total	$	1,142,781	$	1,367,376	$	2,510,157

Time certificates of deposit in denominations of $250,000 or more, in the aggregate, were $1.4 billion and $1.9 billion as of December 31, 2019 and 2018, respectively. Overdrawn deposit accounts are classified as loans and totaled $3.6 million and $2.4 million at December 31, 2019 and 2018, respectively.

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Allowance for Loan and Lease Losses

12 Months Ended

Dec. 31, 2019

Allowance for Loan and Lease Losses

Allowance for Loan and Lease Losses

5. Allowance for Loan and Lease Losses

The Company must maintain an allowance for loan and lease losses (the “Allowance”) that is adequate to absorb estimated probable credit losses associated with its loan and lease portfolio. The Allowance consists of an allocated portion, which covers estimated credit losses for specifically identified loans and pools of loans and leases, and an unallocated portion.

Segmentation

Management has identified three primary portfolio segments in estimating the Allowance: commercial lending, residential real estate lending and consumer lending. Commercial lending is further segmented into four distinct portfolios based on characteristics relating to the borrower, transaction, and collateral. These portfolio segments are: commercial and industrial, commercial real estate, construction, and lease financing. Residential real estate is not further segmented, but consists of residential mortgages including real estate secured installment loans and home equity lines of credit. Consumer lending is not further segmented, but consists primarily of automobile loans, credit cards, and other installment loans. Management has developed a methodology for each segment taking into consideration portfolio segment-specific factors such as product type, loan portfolio characteristics, management information systems, and other risk factors.

Specific Allocation

Commercial

A specific allocation is determined for individually impaired commercial loans. A loan is considered impaired when it is probable that the Company will be unable to collect the full amount of principal and interest according to the contractual terms of the loan agreement.

Management identifies material impaired loans based on their size in relation to the Company’s total loan and lease portfolio. Each impaired loan equal to or exceeding a specified threshold requires an analysis to determine the appropriate level of reserve for that specific loan. Impaired loans below the specified threshold are treated as a pool, with specific allocations established based on qualitative factors such as asset quality trends, risk identification, lending policies, portfolio growth, and portfolio concentrations.

Residential

A specific allocation is determined for residential real estate loans based on delinquency status. In addition, each impaired loan equal to or exceeding a specified threshold requires analysis to determine the appropriate level of reserve for that specific loan, generally based on the value of the underlying collateral less estimated costs to sell. The specific allocation will be zero for impaired loans in which the value of the underlying collateral, less estimated costs to sell, exceeds the unpaid principal balance of the loan.

Consumer

A specific allocation is determined for the consumer loan portfolio using delinquency-based formula allocations. The Company uses a formula approach in determining the consumer loan specific allocation and recognizes the statistical validity of measuring losses predicated on past due status.

Pooled Allocation

Commercial

Pooled allocation for pass, special mention, substandard and doubtful grade commercial loans and leases that share common risk characteristics and properties is determined using a historical loss rate analysis and qualitative factor considerations. Loan grade categories are discussed under “Credit Quality”.

Residential and Consumer

Pooled allocation for non-delinquent consumer and residential real estate loans is determined using a historical loss rate analysis and qualitative factor considerations.

Qualitative Adjustments

Qualitative adjustments to historical loss rates or other static sources may be necessary since these rates may not be an accurate indicator of losses inherent in the current portfolio. To estimate the level of adjustments, management considers factors including global, national and local economic conditions; levels and trends in problem loans; the effect of credit concentrations; collateral value trends; changes in risk due to changes in lending policies and practices; management expertise; industry and regulatory trends; and volume of loans.

Unallocated Allowance

The Company’s Allowance incorporates an unallocated portion to cover risk factors and events that may have occurred as of the evaluation date that have not been reflected in the risk measures utilized due to inherent limitations in the precision of the estimation process. These risk factors, in addition to past and current events based on facts at the consolidated balance sheets date and realistic courses of action that management expects to take, are assessed in determining the level of unallocated allowance.

The Allowance was comprised of the following for the years indicated:

	Year Ended December 31, 2019
	Commercial Lending
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Residential		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Balance at beginning of year	$	34,501	$	19,725	$	5,813	$	432	$	44,906	$	35,813	$	528	$	141,718
Charge-offs		(2,718)		—		—		(24)		(438)		(32,807)		—		(35,987)
Recoveries		410		263		—		—		967		9,359		—		10,999
Increase (decrease) in Provision		(3,218)		2,337		(969)		16		(6,256)		22,279		(389)		13,800
Balance at end of year	$	28,975	$	22,325	$	4,844	$	424	$	39,179	$	34,644	$	139	$	130,530
Individually evaluated for impairment		46		27		—		—		130		—		—		203
Collectively evaluated for impairment		28,929		22,298		4,844		424		39,049		34,644		139		130,327
Loans and leases:
Individually evaluated for impairment	$	4,951	$	723	$	—	$	—	$	14,964	$	—	$	—	$	20,638
Collectively evaluated for impairment		2,738,291		3,463,230		519,241		202,483		4,647,211		1,620,556		—		13,191,012
Balance at end of year	$	2,743,242	$	3,463,953	$	519,241	$	202,483	$	4,662,175	$	1,620,556	$	—	$	13,211,650

	Year Ended December 31, 2018
	Commercial Lending
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Residential		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Balance at beginning of year	$	34,006	$	18,044	$	6,817	$	611	$	42,852	$	31,249	$	3,674	$	137,253
Charge-offs		(778)		—		—		—		(165)		(26,630)		—		(27,573)
Recoveries		232		216		—		—		940		8,470		—		9,858
Increase (decrease) in Provision		1,041		1,465		(1,004)		(179)		1,279		22,724		(3,146)		22,180
Balance at end of year	$	34,501	$	19,725	$	5,813	$	432	$	44,906	$	35,813	$	528	$	141,718
Individually evaluated for impairment		108		32		—		—		396		—		—		536
Collectively evaluated for impairment		34,393		19,693		5,813		432		44,510		35,813		528		141,182
Loans and leases:
Individually evaluated for impairment	$	8,719	$	5,743	$	—	$	—	$	16,114	$	—	$	—	$	30,576
Collectively evaluated for impairment		3,200,041		2,985,040		626,757		147,769		4,423,504		1,662,504		—		13,045,615
Balance at end of year	$	3,208,760	$	2,990,783	$	626,757	$	147,769	$	4,439,618	$	1,662,504	$	—	$	13,076,191

	Year Ended December 31, 2017
	Commercial Lending
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Residential		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Balance at beginning of year	$	33,129	$	18,448	$	4,513	$	847	$	43,436	$	28,388	$	6,733	$	135,494
Charge-offs		(1,519)		—		—		(147)		(408)		(23,851)		—		(25,925)
Recoveries		844		596		—		—		687		7,057		—		9,184
Increase (decrease) in Provision		1,552		(1,000)		2,304		(89)		(863)		19,655		(3,059)		18,500
Balance at end of year	$	34,006	$	18,044	$	6,817	$	611	$	42,852	$	31,249	$	3,674	$	137,253
Individually evaluated for impairment		4		6		—		—		484		—		—		494
Collectively evaluated for impairment		34,002		18,038		6,817		611		42,368		31,249		3,674		136,759
Loans and leases:
Individually evaluated for impairment	$	18,183	$	10,636	$	—	$	—	$	16,530	$	—	$	—	$	45,349
Collectively evaluated for impairment		3,117,083		2,656,961		632,911		165,066		4,073,523		1,586,476		—		12,232,020
Balance at end of year	$	3,135,266	$	2,667,597	$	632,911	$	165,066	$	4,090,053	$	1,586,476	$	—	$	12,277,369

Credit Quality

The Company performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objective of the loan review and grading procedures is to identify, in a timely manner, existing or emerging credit quality problems so that appropriate steps can be initiated to avoid or minimize future losses.

Loans subject to grading include: commercial and industrial loans, commercial and standby letters of credit, installment loans to businesses or individuals for business and commercial purposes, commercial real estate loans, overdraft lines of credit, commercial credit cards, and other credits as may be determined. Loans which are not subject to grading include loans that are 100% sold with no recourse to the Company, consumer installment loans, indirect automobile loans, credit cards, home equity lines of credit and residential mortgage loans.

Residential real estate and consumer loans are underwritten primarily on the basis of credit bureau scores, debt-service-to-income ratios, and collateral quality and loan to value ratios.

A credit risk rating system is used to determine loan grade and is based on borrower credit risk and transactional risk. The loan grading process is a mechanism used to determine the risk of a particular borrower and is based on the following eight factors of a borrower: character, earnings and operating cash flow, asset and liability structure, debt capacity, financial reporting, management and controls, borrowing entity and industry and operating environment.

Pass – “Pass” (uncriticized) loans and leases, are not considered to carry greater than normal risk. The borrower has the apparent ability to satisfy obligations to the Company, and therefore no loss in ultimate collection is anticipated.

Special Mention – Loans and leases that have potential weaknesses that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for assets or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard – Loans and leases that are inadequately protected by the current financial condition and paying capacity of the obligor or by any collateral pledged. Loans and leases so classified must have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the distinct possibility that the bank may sustain some loss if the deficiencies are not corrected.

Doubtful – Loans and leases that have weaknesses found in substandard borrowers with the added provision that the weaknesses make collection of debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss – Loans and leases classified as loss are considered uncollectible and of such little value that their continuance as an asset is not warranted. This classification does not mean that the loan or lease has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future.

The credit risk profiles by internally assigned grade for loans and leases as of December 31, 2019 and 2018 were as follows:

	December 31, 2019
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Total
Grade:
Pass	$	2,585,908	$	3,327,659	$	515,993	$	201,461	$	6,631,021
Special mention		91,365		106,331		127		1,022		198,845
Substandard		65,969		29,963		3,121		—		99,053
Total	$	2,743,242	$	3,463,953	$	519,241	$	202,483	$	6,928,919

	December 31, 2018
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Total
Grade:
Pass	$	3,069,546	$	2,876,907	$	625,607	$	146,356	$	6,718,416
Special mention		57,012		91,298		200		1,223		149,733
Substandard		82,010		22,578		950		190		105,728
Doubtful		192		—		—		—		192
Total	$	3,208,760	$	2,990,783	$	626,757	$	147,769	$	6,974,069

There were no loans and leases graded as Loss as of December 31, 2019 and 2018.

The credit risk profiles based on payment activity for loans and leases that were not subject to loan grading as of December 31, 2019 and 2018 were as follows:

	December 31, 2019
(dollars in thousands)	Residential Mortgage		Home Equity Line		Consumer		Consumer - Auto		Credit Cards		Total
Performing	$	3,759,799	$	886,879	$	219,046	$	1,016,142	$	347,264	$	6,229,130
Non-performing and delinquent		9,137		6,360		7,258		24,326		6,520		53,601
Total	$	3,768,936	$	893,239	$	226,304	$	1,040,468	$	353,784	$	6,282,731

	December 31, 2018
(dollars in thousands)	Residential Mortgage		Home Equity Line		Consumer		Consumer - Auto		Credit Cards		Total
Performing	$	3,519,172	$	903,284	$	234,458	$	1,044,393	$	339,162	$	6,040,469
Non-performing and delinquent		7,929		9,233		5,448		33,739		5,304		61,653
Total	$	3,527,101	$	912,517	$	239,906	$	1,078,132	$	344,466	$	6,102,122

Impaired and Nonaccrual Loans and Leases

The Company evaluates certain loans and leases individually for impairment. A loan or lease is considered to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan or lease. An allowance for impaired commercial loans, including commercial real estate and construction loans, is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the estimated fair value of the collateral, less any selling costs, if the loan is collateral

dependent. An allowance for impaired residential loans is measured based on the estimated fair value of the collateral, less any selling costs. Management exercises significant judgment in developing these estimates.

The Company generally places a loan on nonaccrual status when management believes that collection of principal or interest has become doubtful or when a loan or lease becomes 90 days past due as to principal or interest, unless it is well secured and in the process of collection.

It is the Company’s policy to charge off a loan when the facts indicate that the loan is considered uncollectible.

The aging analyses of past due loans and leases as of December 31, 2019 and 2018 were as follows:

	December 31, 2019
	Accruing Loans and Leases
					Greater								Total Non
					Than or						Total		Accruing
	30-59		60-89		Equal to		Total				Accruing		Loans
	Days		Days		90 Days		Past				Loans and		and		Total
(dollars in thousands)	Past Due		Past Due		Past Due		Due		Current		Leases		Leases		Outstanding
Commercial and industrial	$	1,525	$	808	$	1,429	$	3,762	$	2,739,448	$	2,743,210	$	32	$	2,743,242
Commercial real estate		1,664		1,125		1,013		3,802		3,460,121		3,463,923		30		3,463,953
Construction		—		—		2,367		2,367		516,874		519,241		—		519,241
Lease financing		—		—		—		—		202,483		202,483		—		202,483
Residential mortgage		3,258		399		74		3,731		3,759,799		3,763,530		5,406		3,768,936
Home equity line		2,971		394		2,995		6,360		886,879		893,239		—		893,239
Consumer		26,810		7,022		4,272		38,104		1,582,452		1,620,556		—		1,620,556
Total	$	36,228	$	9,748	$	12,150	$	58,126	$	13,148,056	$	13,206,182	$	5,468	$	13,211,650

	December 31, 2018
	Accruing Loans and Leases
					Greater								Total Non
					Than or						Total		Accruing
	30-59		60-89		Equal to		Total				Accruing		Loans
	Days		Days		90 Days		Past				Loans and		and		Total
(dollars in thousands)	Past Due		Past Due		Past Due		Due		Current		Leases		Leases		Outstanding
Commercial and industrial	$	1,293	$	—	$	141	$	1,434	$	3,207,052	$	3,208,486	$	274	$	3,208,760
Commercial real estate		—		—		—		—		2,989,125		2,989,125		1,658		2,990,783
Construction		91		—		—		91		626,666		626,757		—		626,757
Lease financing		47		—		—		47		147,722		147,769		—		147,769
Residential mortgage		2,274		1,012		32		3,318		3,519,172		3,522,490		4,611		3,527,101
Home equity line		5,616		775		2,842		9,233		903,284		912,517		—		912,517
Consumer		32,406		8,712		3,373		44,491		1,618,013		1,662,504		—		1,662,504
Total	$	41,727	$	10,499	$	6,388	$	58,614	$	13,011,034	$	13,069,648	$	6,543	$	13,076,191

The total carrying amounts and the total unpaid principal balances of impaired loans and leases as of December 31, 2019 and 2018 were as follows:

	December 31, 2019
			Unpaid
	Recorded		Principal		Related
(dollars in thousands)	Investment		Balance		Allowance
Impaired loans with no related allowance recorded:
Commercial and industrial	$	3,825	$	3,841	$	—
Commercial real estate		30		30		—
Residential mortgage		10,425		10,718		—
Total	$	14,280	$	14,589	$	—
Impaired loans with a related allowance recorded:
Commercial and industrial	$	1,126	$	1,126	$	46
Commercial real estate		693		693		27
Residential mortgage		4,539		4,819		130
Total	$	6,358	$	6,638	$	203
Total impaired loans:
Commercial and industrial	$	4,951	$	4,967	$	46
Commercial real estate		723		723		27
Residential mortgage		14,964		15,537		130
Total	$	20,638	$	21,227	$	203

	December 31, 2018
			Unpaid
	Recorded		Principal		Related
(dollars in thousands)	Investment		Balance		Allowance
Impaired loans with no related allowance recorded:
Commercial and industrial	$	4,449	$	4,498	$	—
Commercial real estate		5,016		5,016		—
Residential mortgage		9,112		9,426		—
Total	$	18,577	$	18,940	$	—
Impaired loans with a related allowance recorded:
Commercial and industrial	$	4,270	$	4,270	$	108
Commercial real estate		727		727		32
Residential mortgage		7,002		7,387		396
Total	$	11,999	$	12,384	$	536
Total impaired loans:
Commercial and industrial	$	8,719	$	8,768	$	108
Commercial real estate		5,743		5,743		32
Residential mortgage		16,114		16,813		396
Total	$	30,576	$	31,324	$	536

The following tables provide information with respect to the Company’s average balances, and of interest income recognized from, impaired loans for the years ended December 31, 2019, 2018, and 2017:

	Year Ended
	December 31, 2019
	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized
Impaired loans with no related allowance recorded:
Commercial and industrial	$	3,687	$	431
Commercial real estate		2,825		481
Residential mortgage		8,777		440
Consumer		40		—
Total	$	15,329	$	1,352
Impaired loans with a related allowance recorded:
Commercial and industrial	$	4,485	$	85
Commercial real estate		710		40
Residential mortgage		6,413		339
Total	$	11,608	$	464
Total impaired loans:
Commercial and industrial	$	8,172	$	516
Commercial real estate		3,535		521
Residential mortgage		15,190		779
Consumer		40		—
Total	$	26,937	$	1,816

	Year Ended
	December 31, 2018
	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized
Impaired loans with no related allowance recorded:
Commercial and industrial	$	11,409	$	408
Commercial real estate		7,873		231
Construction		1,248		91
Residential mortgage		9,356		529
Total	$	29,886	$	1,259
Impaired loans with a related allowance recorded:
Commercial and industrial	$	3,154	$	273
Commercial real estate		942		67
Residential mortgage		7,369		335
Total	$	11,465	$	675
Total impaired loans:
Commercial and industrial	$	14,563	$	681
Commercial real estate		8,815		298
Construction		1,248		91
Residential mortgage		16,725		864
Total	$	41,351	$	1,934

	Year Ended
	December 31, 2017
	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized
Impaired loans with no related allowance recorded:
Commercial and industrial	$	19,929	$	890
Commercial real estate		9,846		417
Lease financing		61		—
Residential mortgage		8,582		567
Total	$	38,418	$	1,874
Impaired loans with a related allowance recorded:
Commercial and industrial	$	2,572	$	10
Commercial real estate		918		42
Residential mortgage		8,897		344
Total	$	12,387	$	396
Total impaired loans:
Commercial and industrial	$	22,501	$	900
Commercial real estate		10,764		459
Lease financing		61		—
Residential mortgage		17,479		911
Total	$	50,805	$	2,270

Modifications

Commercial and industrial loans modified in a troubled debt restructuring (“TDR”) often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Commercial real estate and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. Lease financing modifications generally involve a short-term forbearance period, usually about three months, after which the missed payments are added to the end of the lease term, thereby extending the maturity date. Interest continues to accrue on the missed payments and as a result, the effective yield on the lease remains unchanged. As the forbearance period usually involves an insignificant payment delay, lease financing modifications typically do not meet the reporting criteria for a TDR. Residential real estate loans modified in a TDR are primarily comprised of loans where monthly payments are lowered to accommodate the borrowers' financial needs for a period of time, normally two years. During that time, the borrower's entire monthly payment is applied to principal. After the lowered monthly payment period ends, the borrower reverts to paying principal and interest per the original terms with the maturity date adjusted accordingly. Generally, consumer loans are not classified as a TDR as they are normally charged off upon reaching a predetermined delinquency status that ranges from 120 to 180 days and varies by product type.

Loans modified in a TDR may already be on nonaccrual status and in some cases partial charge-offs may have already been taken against the outstanding loan balance. Loans modified in a TDR are evaluated for impairment. As a result, this may have a financial effect of increasing the specific Allowance associated with the loan. An Allowance for impaired commercial loans, including commercial real estate and construction loans, that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. An Allowance for impaired residential loans that have been modified in a TDR is measured based on the estimated fair value of the collateral, less any selling costs. Management exercises significant judgment in developing these estimates.

The following presents, by class, information related to loans modified in a TDR during the years ended December 31, 2019, 2018 and 2017:

	Year Ended December 31, 2019
	Number of	Recorded		Related
(dollars in thousands)	Contracts(1)	Investment(2)		Allowance
Commercial and industrial	2	$	571	$	25
Residential mortgage	1		609		—
Total	3	$	1,180	$	25

	Year Ended December 31, 2018
	Number of	Recorded		Related
(dollars in thousands)	Contracts(1)	Investment(2)		Allowance
Commercial and industrial	1	$	369	$	10
Residential mortgage	3		875		29
Total	4	$	1,244	$	39

	Year Ended December 31, 2017
	Number of	Recorded		Related
(dollars in thousands)	Contracts(1)	Investment(2)		Allowance
Commercial and industrial	1	$	1,075	$	—
Residential mortgage	2		659		23
Total	3	$	1,734	$	23

(1) The number of contracts does not include TDRs that have been fully paid off, charged off or foreclosed upon by the end of the period.

(2) The recorded investment balances reflect all partial paydowns and charge-offs since the modification date and do not include TDRs that have been fully paid off, charged off or foreclosed upon by the end of the period.

The above loans were modified in a TDR through an extension of maturity dates, temporary interest-only payments, reduced payments or below-market interest rates.

The Company had commitments to extend credit, standby letters of credit and commercial letters of credit totaling $6.1 billion and $5.8 billion as of December 31, 2019 and 2018, respectively. Of the $6.1 billion at December 31, 2019, there were commitments of $4.5 million related to borrowers who had loan terms modified in a TDR. Of the $5.8 billion at December 31, 2018, there were commitments of $1.8 million related to borrowers who had loan terms modified in a TDR.

The following table presents, by class, loans modified in TDRs that have defaulted in the current period within 12 months of their permanent modification date for the periods indicated. The Company is reporting these defaulted TDRs based on a payment default definition of 30 days past due:

	Year Ended December 31,
	2019			2018			2017
	Number of	Recorded		Number of	Recorded		Number of	Recorded
(dollars in thousands)	Contracts(1)	Investment(2)		Contracts(1)	Investment(2)		Contracts(1)	Investment(2)
Commercial and industrial(3)	2	$	571	—	$	—	1	$	2,480
Commercial real estate(4)	—		—	—		—	1		1,393
Total	2	$	571	—	$	—	2	$	3,873

(1) The number of contracts does not include TDRs that have been fully paid off, charged off or foreclosed upon by the end of the period.

(2) The recorded investment balances reflect all partial paydowns and charge-offs since the modification date and do not include TDRs that have been fully paid off, charged off or foreclosed upon by the end of the period.

(3) In 2019, the commercial and industrial loans that subsequent defaulted were temporarily modified to interest-only payments. In 2017, the maturity date for the commercial and industrial loan that subsequently defaulted was extended.

(4) In 2017, the commercial real estate loan that subsequently defaulted was extended.

Foreclosure Proceedings

There was one residential mortgage loan collateralized by real estate property of $0.3 million that was modified in a TDR that was in process of foreclosure as of both December 31, 2019 and December 31, 2018.

Foreclosed Property

Residential real estate properties held from two foreclosed residential mortgage loans included in other real estate owned and repossessed personal property shown in the consolidated balance sheets were $0.3 million as of December 31, 2019. Residential real estate properties held from one foreclosed residential mortgage loan and one foreclosed home equity line included in other real estate owned and repossessed personal property shown in the consolidated balance sheets were $0.8 million as of December 31, 2018.

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Benefit Plans - Assumptions (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Postretirement healthcare benefits
Assumed healthcare cost trend rates (reaches ultimate trend rate in 2026)
Healthcare cost trend rate assumed for next year (as a percent)	6.50%	7.00%	7.00%
Rate to which the cost trend is assumed to decline (the ultimate trend rate) (as a percent)	5.00%	5.00%	5.00%
Pre-tax effect of a one percentage point change in the assumed healthcare cost trend rates
Effect on 2019 total of service and interest cost components, One Percentage Point Increase	$ 75
Effect on 2019 total of service and interest cost components, One Percentage Point Decrease	(67)
Effect on postretirement benefit obligation at December 31, 2019, One Percentage Point Increase	353
Effect on postretirement benefit obligation at December 31, 2019, One Percentage Point Decrease	$ (328)
Qualified Plan (ERP) | Pension Benefits
Weighted average assumptions were used to determine benefit obligations
Discount rate (as a percent)	3.16%	4.30%
Weighted average assumptions used to determine net periodic benefit cost
Discount rate (as a percent)	4.30%	3.51%	4.05%
Expected long term return on plan assets (as a percent)	4.75%	4.75%	4.75%
Nonqualified Plan | Pension Benefits
Weighted average assumptions were used to determine benefit obligations
Discount rate (as a percent)	3.16%	4.30%
Rate of compensation increase (as a percent)	4.00%	4.00%
Weighted average assumptions used to determine net periodic benefit cost
Discount rate (as a percent)	4.30%	3.51%	4.05%
Rate of compensation increase (as a percent)	4.00%	4.00%	4.00%
Nonqualified Plan | Other Benefits
Weighted average assumptions were used to determine benefit obligations
Discount rate (as a percent)	3.16%	4.30%
Weighted average assumptions used to determine net periodic benefit cost
Discount rate (as a percent)	4.30%	3.51%	4.05%

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Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Assets
Cash and due from banks	$ 360,375	$ 396,836
Interest-bearing deposits in other banks	333,642	606,801
Investment securities	4,075,644	4,498,342
Loans held for sale	904	432
Loans and leases	13,211,650	13,076,191
Less: allowance for loan and lease losses	130,530	141,718
Net loans and leases	13,081,120	12,934,473
Premises and equipment, net	316,885	304,996
Other real estate owned and repossessed personal property	319	751
Accrued interest receivable	45,239	48,920
Bank-owned life insurance	453,873	446,076
Goodwill	995,492	995,492
Mortgage servicing rights	12,668	16,155
Other assets	490,573	446,404
Total assets	20,166,734	20,695,678
Deposits:
Interest-bearing	10,564,922	11,142,127
Noninterest-bearing	5,880,072	6,007,941
Total deposits	16,444,994	17,150,068
Short-term borrowings	400,000
Long-term borrowings	200,019	600,026
Retirement benefits payable	138,222	127,909
Other liabilities	343,241	292,836
Total liabilities	17,526,476	18,170,839
Commitments and contingent liabilities (Note 18)
Stockholders' equity
Common stock ($0.01 par value; authorized 300,000,000 shares; issued/outstanding: 139,917,150 / 129,928,479 as of December 31, 2019; issued/outstanding: 139,656,674 / 134,874,302 as of December 31, 2018)	1,399	1,397
Additional paid-in capital	2,503,677	2,495,853
Retained earnings	437,072	291,919
Accumulated other comprehensive loss, net	(31,749)	(132,195)
Treasury stock (9,988,671 shares as of December 31, 2019 and 4,782,372 shares as of December 31, 2018)	(270,141)	(132,135)
Total stockholders' equity	2,640,258	2,524,839
Total liabilities and stockholders' equity	$ 20,166,734	$ 20,695,678

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Benefit Plans - Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Amounts within accumulated other comprehensive loss that had not yet been recognized as components of net periodic benefit cost
Tax impact	$ (11,701)	$ (48,720)	$ (63,040)	$ (57,461)
Pension Benefits
Amounts within accumulated other comprehensive loss that had not yet been recognized as components of net periodic benefit cost
Net actuarial loss (gain)	40,061	41,822	43,547
Total, pretax effect	40,061	41,822
Tax impact	(10,786)	(11,260)
Ending balance in accumulated other comprehensive loss	29,275	30,562
Amounts within accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost in next year
Amortization of net actuarial loss (gain)	5,753
Total to be recognized in 2020	5,753
Other Benefits
Amounts within accumulated other comprehensive loss that had not yet been recognized as components of net periodic benefit cost
Net actuarial loss (gain)	(1,582)	(2,507)	$ 248
Prior service credit	(51)	(480)
Total, pretax effect	(1,633)	(2,987)
Tax impact	440	804
Ending balance in accumulated other comprehensive loss	(1,193)	$ (2,183)
Amounts within accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost in next year
Amortization of prior service credit	(51)
Amortization of net actuarial loss (gain)	(103)
Total to be recognized in 2020	$ (154)

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Fair Value

12 Months Ended

Dec. 31, 2019

Fair Value

Fair Value

22. Fair Value

The Company determines the fair values of its financial instruments based on the requirements established in ASC 820, Fair Value Measurements, which provides a framework for measuring fair value under GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 defines fair value as the exit price, the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions.

Fair Value Hierarchy

ASC 820 establishes three levels of fair values based on the markets in which the assets or liabilities are traded and the reliability of the assumptions used to determine fair value. The levels are:  

● Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

● Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

● Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability (“Company-level data”). Level 3 assets and liabilities include financial instruments whose value is determined using unobservable inputs to pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

ASC 820 requires that the Company disclose estimated fair values for certain financial instruments. Financial instruments include such items as investment securities, loans, deposits, interest rate and foreign exchange contracts, swaps and other instruments as defined by the standard. The Company has an organized and established process for determining and reviewing the fair value of financial instruments reported in the Company’s financial statements. The fair value measurements are reviewed to ensure they are reasonable and in line with market experience in similar asset and liability classes.

Additionally, the Company may be required to record at fair value other assets on a nonrecurring basis, such as other real estate owned, other customer relationships, and other intangible assets. These nonrecurring fair value adjustments typically involve the application of lower-of-cost-or-fair-value accounting or write-downs of individual assets.

Disclosure of fair values is not required for certain items such as lease financing, obligations for pension and other postretirement benefits, premises and equipment, prepaid expenses, deposit liabilities with no defined or contractual maturity, and income tax assets and liabilities.

Reasonable comparisons of fair value information with that of other financial institutions cannot necessarily be made because the standard permits many alternative calculation techniques, and numerous assumptions have been used to estimate the Company’s fair values.

Valuation Techniques Used in the Fair Value Measurement of Assets and Liabilities Carried at Fair Value

For the assets and liabilities measured at fair value on a recurring basis (categorized in the valuation hierarchy table below), the Company applies the following valuation techniques:

Available-for-sale securities

Available-for-sale debt securities are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, including estimates by third-party pricing services, if available. If quoted prices are not available, fair values are measured using proprietary valuation models that utilize market observable parameters from active market makers and inter-dealer brokers whereby securities are valued based upon available market data for securities with similar characteristics. Management reviews the pricing information received from the Company’s third-party pricing service to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy and transfers of securities within the fair value hierarchy are made if necessary. On a monthly basis, management reviews the pricing information received from the third-party pricing service which includes a comparison to non-binding third-party broker quotes, as well as a review of market-related conditions impacting the information provided by the third-party pricing service. Management also identifies investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. As of December 31, 2019 and 2018, management did not make adjustments to prices provided by the third-party pricing services as a result of illiquid

or inactive markets. The Company’s third-party pricing service has also established processes for the Company to submit inquiries regarding quoted prices. Periodically, the Company will challenge the quoted prices provided by the third-party pricing service. The Company’s third-party pricing service will review the inputs to the evaluation in light of the new market data presented by the Company. The Company’s third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis. The Company classifies all available-for-sale securities as Level 2.

Derivatives

Most of the Company’s derivatives are traded in over-the-counter markets where quoted market prices are not readily available. For those derivatives, the Company measures fair value on a recurring basis using proprietary valuation models that primarily use market observable inputs, such as yield curves, and option volatilities. The fair value of derivatives includes values associated with counterparty credit risk and the Company’s own credit standing. The Company classifies these derivatives, included in other assets and other liabilities, as Level 2.

Concurrent with the sale of the Visa Class B restricted shares, the Company entered into an agreement with the buyer that requires payment to the buyer in the event Visa reduces each member bank’s Class B conversion rate to unrestricted Class A common shares. On July 5, 2018, Visa announced a decrease in conversion rate from 1.6483 to 1.6298 effective June 28, 2018. Additionally, on September 30, 2019, Visa announced a decrease in conversion rate from 1.6298 to 1.6228, effective September 27, 2019. The Visa derivative of $4.2 million and $2.6 million was included in the consolidated balance sheets at December 31, 2019 and 2018, respectively, to provide for the fair value of this liability. The potential liability related to this funding swap agreement was determined based on management’s estimate of the timing and the amount of Visa’s litigation settlement and the resulting payments due to the counterparty under the terms of the contract. As such, the funding swap agreement is classified as Level 3 in the fair value hierarchy. The significant unobservable inputs used in the fair value measurement of the Company’s funding swap agreement are the potential future changes in the conversion rate, expected term and growth rate of the market price of Visa Class A common shares. Material increases (or decreases) in any of those inputs may result in a significantly higher (or lower) fair value measurement.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 and 2018 are summarized below:

	Fair Value Measurements as of December 31, 2019
	Quoted Prices in		Significant
	Active Markets for		Other		Significant
	Identical Assets		Observable		Unobservable
(dollars in thousands)	(Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
Assets
U.S. Treasury securities	$	—	$	29,888	$	—	$	29,888
Government-sponsored enterprises debt securities		—		101,439		—		101,439
Mortgage-backed securities:
Residential - Government agency(1)		—		291,209		—		291,209
Residential - Government-sponsored enterprises(1)		—		399,492		—		399,492
Commercial - Government-sponsored enterprises		—		101,719		—		101,719
Collateralized mortgage obligations:
Government agency		—		2,381,278		—		2,381,278
Government-sponsored enterprises		—		770,619		—		770,619
Total available-for-sale securities		—		4,075,644		—		4,075,644
Other assets(2)		—		63,539		—		63,539
Liabilities
Other liabilities(3)		—		(682)		(4,233)		(4,915)
Total	$	—	$	4,138,501	$	(4,233)	$	4,134,268

	Fair Value Measurements as of December 31, 2018
	Quoted Prices in		Significant
	Active Markets for		Other		Significant
	Identical Assets		Observable		Unobservable
(dollars in thousands)	(Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
Assets
U.S. Treasury securities	$	—	$	389,470	$	—	$	389,470
Government-sponsored enterprises debt securities		—		241,594		—		241,594
Mortgage-backed securities:
Residential - Government agency(1)		—		411,536		—		411,536
Residential - Government-sponsored enterprises(1)		—		150,847		—		150,847
Collateralized mortgage obligations:
Government agency		—		2,682,449		—		2,682,449
Government-sponsored enterprises		—		602,592		—		602,592
Debt securities issued by states and political subdivisions		—		19,854		—		19,854
Total available-for-sale securities		—		4,498,342		—		4,498,342
Other assets(2)		—		12,336		—		12,336
Liabilities
Other liabilities(3)		—		(12,085)		(2,607)		(14,692)
Total	$	—	$	4,498,593	$	(2,607)	$	4,495,986

(1) Backed by residential real estate.

(2) Other assets include derivative assets.

(3) Other liabilities include derivative liabilities.

Changes in Fair Value Levels

For any transfers in and out of the levels of the fair value hierarchy, the Company discloses the fair value measurement at the beginning of the reporting period during which the transfer occurred. During the years ended December 31, 2019 and 2018, there were no transfers between fair value hierarchy levels.

The changes in Level 3 liabilities measured at fair value on a recurring basis for the years ended December 31, 2019 and 2018 are summarized below:

	Visa Derivative
(dollars in thousands)	2019		2018
Year Ended December 31,
Balance as of January 1,	$	(2,607)	$	(5,439)
Total net losses included in other noninterest income		(5,354)		(173)
Settlements		3,728		3,005
Balance as of December 31,	$	(4,233)	$	(2,607)
Total net losses included in net income attributable to the change in unrealized gains or losses related to liabilities still held as of December 31,	$	(5,354)	$	(173)

Assets and Liabilities Carried at Other Than Fair Value

The following tables summarize for the periods indicated the estimated fair value of the Company’s financial instruments that are not required to be carried at fair value on a recurring basis, excluding leases and deposit liabilities with no defined or contractual maturity:

	December 31, 2019
			Fair Value Measurements
			Quoted Prices in		Significant		Significant
			Active Markets		Other		Unobservable
			for Identical		Observable		Inputs
(dollars in thousands)	Book Value		Assets (Level 1)		Inputs (Level 2)		(Level 3)		Total
Financial assets:
Cash and cash equivalents	$	694,017	$	360,375	$	333,642	$	—	$	694,017
Loans held for sale		904		—		904		—		904
Loans(1)		13,009,167		—		—		13,140,898		13,140,898
Financial liabilities:
Time deposits(2)	$	2,510,157	$	—	$	2,501,478	$	—	$	2,501,478
Short-term borrowings		400,000		—		401,709		—		401,709
Long-term borrowings(3)		200,000		—		207,104		—		207,104

	December 31, 2018
			Fair Value Measurements
			Quoted Prices in		Significant		Significant
			Active Markets		Other		Unobservable
			for Identical		Observable		Inputs
(dollars in thousands)	Book Value		Assets (Level 1)		Inputs (Level 2)		(Level 3)		Total
Financial assets:
Cash and cash equivalents	$	1,003,637	$	396,836	$	606,801	$	—	$	1,003,637
Loans held for sale		432		—		432		—		432
Loans(1)		12,928,422		—		—		12,664,170		12,664,170
Financial liabilities:
Time deposits(2)	$	3,092,164	$	—	$	3,058,792	$	—	$	3,058,792
Long-term borrowings(3)		600,000		—		602,088		—		602,088

(1) Excludes financing leases of $202.5 million at December 31, 2019 and $147.8 million at December 31, 2018.

(2) Excludes deposit liabilities with no defined or contractual maturity of $13.9 billion at December 31, 2019 and $14.1 billion at December 31, 2018.

(3) Excludes capital lease obligations of $19 thousand and $26 thousand at December 31, 2019 and 2018, respectively.

Unfunded loan and lease commitments and letters of credit are not included in the tables above. As of December 31, 2019 and 2018, the Company had $6.1 billion and $5.8 billion, respectively, of unfunded loan and lease commitments and letters of credit. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the related reserve for unfunded commitments, which totaled $14.4 million and $14.2 million at December 31, 2019 and 2018, respectively. No active trading market exists for these instruments and the estimated fair value does not include value associated with the borrower relationship. The Company does not estimate the fair values of certain unfunded loan and lease commitments that can be canceled by providing notice to the borrower. As Company-level data is incorporated into the fair value measurement, unfunded loan and lease commitments and letters of credit are classified as Level 3.

Valuation Techniques Used in the Fair Value Measurement of Assets and Liabilities Carried at the Lower of Cost or Fair Value

The Company applies the following valuation techniques to assets measured at the lower of cost or fair value:

Mortgage servicing rights

MSRs are carried at the lower of cost or fair value and are therefore subject to fair value measurements on a nonrecurring basis. The fair value of MSRs is determined using models which use significant unobservable inputs, such as estimates of prepayment rates, the resultant weighted average lives of the MSRs and the option-adjusted spread levels. Accordingly, the Company classifies MSRs as Level 3.

Impaired loans

A large portion of the Company’s impaired loans are collateral dependent and are measured at fair value on a nonrecurring basis using collateral values as a practical expedient. The fair values of collateral for impaired loans are primarily based on real estate appraisal reports prepared by third-party appraisers less disposition costs, present value of the expected future cash flows or the loan’s observable market price. Certain loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective rate, which is not a fair value measurement. The Company measures the impairment on certain loans and leases by performing a lower-of-cost-or-fair-value analysis. If impairment is determined by the value of the collateral or an observable market price, it is written down to fair value on a nonrecurring basis as Level 3.

Other real estate owned

The Company values these properties at fair value at the time the Company acquires them, which establishes their new cost basis. After acquisition, the Company carries such properties at the lower of cost or fair value less estimated selling costs on a nonrecurring basis. Fair value is measured on a nonrecurring basis using collateral values as a practical expedient. The fair values of collateral for other real estate owned are primarily based on real estate appraisal reports prepared by third-party appraisers less disposition costs and are classified as Level 3.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required to record certain assets at fair value on a nonrecurring basis in accordance with GAAP. These assets are subject to fair value adjustments that result from the application of lower of cost or fair value accounting or write-downs of individual assets to fair value.

The following table provides the level of valuation inputs used to determine each fair value adjustment and the fair value of the related individual assets or portfolio of assets with fair value adjustments on a nonrecurring basis as of December 31, 2019 and 2018:

(dollars in thousands)	Level 1		Level 2		Level 3
December 31, 2019
Impaired loans	$	—	$	—	$	1,502
December 31, 2018
Impaired loans	$	—	$	—	$	402

Total losses on impaired loans for the years ended December 31, 2019, 2018 and 2017 were $1.0 million, $0.7 million and $0.7 million, respectively.

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 2019 and 2018, the significant unobservable inputs used in the fair value measurements were as follows:

	Quantitative Information about Level 3 Fair Value Measurements at December 31, 2019
				Significant	Range
(dollars in thousands)	Fair value		Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans	$	1,502	Appraisal Value	Appraisal Value	n/m(1)
Visa derivative	$	(4,233)	Discounted Cash Flow	Expected Conversion Rate	1.6228
				Expected Term	1 year
				Growth Rate	13%

	Quantitative Information about Level 3 Fair Value Measurements at December 31, 2018
					Range
(dollars in thousands)	Fair value		Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans	$	402	Appraisal Value	Appraisal Value	n/m(1)
Visa derivative	$	(2,607)	Discounted Cash Flow	Expected Conversion Rate	1.6298
				Expected Term	4 years
				Growth Rate	15%

(1) The fair value of these assets is determined based on appraised values of collateral or broker price opinions, the range of which is not meaningful to disclose.

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Revenue from Contracts with Customers - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Revenue from Contracts with Customers
Net interest income	$ 573,402	$ 566,318	$ 528,804
Not in scope of Topic 606	25,137	(5,838)
Total noninterest income	192,533	178,993	205,605
Total revenue	765,935	745,311
Retail Banking
Revenue from Contracts with Customers
Net interest income	413,029	420,165	409,796
Not in scope of Topic 606	8,844	8,917
Total noninterest income	95,413	89,669	89,372
Total revenue	508,442	509,834
Commercial Banking
Revenue from Contracts with Customers
Net interest income	141,227	140,333	131,692
Not in scope of Topic 606	7,368	(9,165)
Total noninterest income	73,635	80,904	75,566
Total revenue	214,862	221,237
Treasury and Other
Revenue from Contracts with Customers
Net interest income	19,146	5,820	(12,684)
Not in scope of Topic 606	8,925	(5,590)
Total noninterest income	23,485	8,420	$ 40,667
Total revenue	42,631	14,240
Service charges on deposit accounts.
Revenue from Contracts with Customers
Revenue by type of service	33,778	32,036
Service charges on deposit accounts. | Retail Banking
Revenue from Contracts with Customers
Revenue by type of service	30,298	28,866
Service charges on deposit accounts. | Commercial Banking
Revenue from Contracts with Customers
Revenue by type of service	1,238	1,146
Service charges on deposit accounts. | Treasury and Other
Revenue from Contracts with Customers
Revenue by type of service	2,242	2,024
Credit and debit card fees.
Revenue from Contracts with Customers
Revenue by type of service	64,846	85,298
Credit and debit card fees. | Commercial Banking
Revenue from Contracts with Customers
Revenue by type of service	58,034	78,218
Credit and debit card fees. | Treasury and Other
Revenue from Contracts with Customers
Revenue by type of service	6,812	7,080
Other service charges and fees.
Revenue from Contracts with Customers
Revenue by type of service	24,705	26,241
Other service charges and fees. | Retail Banking
Revenue from Contracts with Customers
Revenue by type of service	20,454	19,977
Other service charges and fees. | Commercial Banking
Revenue from Contracts with Customers
Revenue by type of service	2,096	4,089
Other service charges and fees. | Treasury and Other
Revenue from Contracts with Customers
Revenue by type of service	2,155	2,175
Trust and investment services income.
Revenue from Contracts with Customers
Revenue by type of service	35,102	31,324
Trust and investment services income. | Retail Banking
Revenue from Contracts with Customers
Revenue by type of service	35,102	31,324
Other.
Revenue from Contracts with Customers
Revenue by type of service	8,965	9,932
Other. | Retail Banking
Revenue from Contracts with Customers
Revenue by type of service	715	585
Other. | Commercial Banking
Revenue from Contracts with Customers
Revenue by type of service	4,899	6,616
Other. | Treasury and Other
Revenue from Contracts with Customers
Revenue by type of service	$ 3,351	$ 2,731

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Transactions with Affiliates and Related Parties (Tables)

12 Months Ended

Dec. 31, 2019

Transactions with Affiliates and Related Parties

Schedule of changes in loans to executive officers, directors and affiliates

	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Balance at beginning of year	$	66,088	$	61,603	$	94,466
New loans made		22,682		6,756		3,762
Repayments		(3,490)		(2,271)		(36,625)
Balance at end of year	$	85,280	$	66,088	$	61,603

Summary of transactions with related parties

	As of December 31,
(dollars in thousands)	2019		2018		2017
Cash and due from banks	$	—	$	55,454	$	41,874
Other assets		—		19,358		23,872
Noninterest-bearing demand deposits		—		(346)		(456)
Noninterest income from affiliates		382		5,677		4,908
Noninterest expense to affiliates		(4)		(59)		(47)

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Derivative Financial Instruments - Amounts Recorded in Balance Sheets Related to Cumulative Basis Adjustments (Details) - Fair value hedges - Loans and leases - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Amounts recorded in the balance Sheets
Carrying amount of the Hedged Asset	$ 24,415	$ 42,496
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset	$ 1,017	$ 293

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Derivative Financial Instruments - Counterparty Credit Risk and Credit-Risk Related Contingent Features (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Credit-risk-related contingent features
Aggregate fair value of derivative instruments in a net liability position	$ 4.0	$ 0.8
Collateral posted for derivatives in a net liability position	4.7	0.5
Interest rate swaps
Derivative contracts
Collateral thresholds for derivative agreements with credit risk related contingent features	0.5
Counterparty credit risk adjustments	$ 0.1	$ 0.1	$ 0.1

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Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2019

Premises and Equipment

Schedule of premises and equipment

At December 31, 2019 and 2018, premises and equipment were comprised of the following:

	December 31,
(dollars in thousands)	2019		2018
Buildings	$	289,271	$	280,853
Furniture and equipment		86,485		81,342
Land		106,487		105,302
Leasehold improvements		64,828		55,316
Total premises and equipment		547,071		522,813
Less: Accumulated depreciation and amortization		230,186		217,817
Net book value	$	316,885	$	304,996

Depreciation and amortization expenses included in occupancy and equipment expenses for 2019, 2018 and 2017 were as follows:

	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Occupancy	$	9,037	$	8,815	$	8,852
Equipment		5,485		6,488		6,426
Total	$	14,522	$	15,303	$	15,278

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Leases - Net Lease Expense (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)
Net lease expense
Operating lease expense	$ 9,158
Short-term lease expense	487
Variable lease expense	2,152
Amortization of right-of-use assets	3
Interest on lease liabilities	2
Total finance lease expense	5
Less: Sublease income	(1,073)
Net lease expense	$ 10,729

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Leases - Future Minimum Rental Payments, Presented in Accordance with Topic 840 (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Operating Lease Payments
2019	$ 8,780
2020	8,668
2021	7,961
2022	5,101
2023	2,632
Thereafter	34,638
Total future minimum lease payments	67,780
Less Sublease Income
2019	903
2020	903
2021	892
Total future minimum lease payments	2,698
Net Operating Lease Payments
2019	7,877
2020	7,765
2021	7,069
2022	5,101
2023	2,632
Thereafter	34,638
Total future minimum lease payments	$ 65,082

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Income Taxes - Reorganization Transactions - (Details) - USD ($) $ in Thousands		12 Months Ended
	Apr. 01, 2016	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income taxes
Current tax receivables related to transactions prior to Reorganization Transactions		$ 93,100	$ 93,100
Unrecognized tax positions		118,100	117,300
Indemnification receivable		25,000	24,200
Total state and local distribution taxes reported		92,100
Capital Distributions				$ 2,118
Net adjustments to pre-reorganization indemnification receivables or payables and unrecognized tax benefits			$ 1,500	$ 3,900
Reorganization Transactions on April 1, 2016
Income taxes
Current tax receivables recorded	$ 72,800
Unrecognized tax positions	116,600
Indemnification payable	28,600
Certain tax related liabilities incurred	95,400
Expected federal tax benefit on distribution taxes	$ 33,400
Capital Distributions		$ 2,100

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2019

Stock-Based Compensation

Stock-Based Compensation

21. Stock-Based Compensation

The Company has several stock-based compensation plans that allow for grants of restricted stock, restricted shares, performance share units, performance shares and restricted stock units to its employees and non-employee directors. The Company’s stock-based compensation plans are administered by the Compensation Committee of the Board of Directors. For the years ended December 31, 2019, 2018 and 2017, stock-based compensation expense was $7.8 million, $6.9 million and $3.1 million, respectively, and the related income tax benefit was $2.0 million, $1.8 million and $1.6 million, respectively. For the years ended December 31, 2019, 2018 and 2017, all common stock issuances in connection with stock-based compensation arrangements were issued from unissued shares.

As of December 31, 2019, total shares authorized under the Company’s stock-based compensation plan for employees were 5.6 million shares, of which 4.3 million shares were available for future grants. As of December 31, 2019, total shares authorized under the 2016 Non-Employee Director Plan were 75,000 shares, of which 34,842 shares were available for future grants.

Restricted Share Awards

Restricted share awards (“Restricted Stock”) provide grantees with rights to shares of common stock contingent upon completion of a service period. Restricted Stock generally vests and any restrictions will lapse over a period of three years in equal annual installments on each of the first, second and third anniversaries of the grant date, provided that the grantee remain continuously employed through the applicable vesting date, subject to certain exceptions. Grantees have the right to receive all dividends without restrictions at the times and in the manner paid to shareholders generally. The fair value of Restricted Stock is determined based on the closing price of FHI’s common stock on the date of grant. The Company recognizes compensation expense related to Restricted Stock on a straight-line basis over the vesting period for service-based awards.

The following presents the Company’s Restricted Stock activity for the year ended December 31, 2019:

			Weighted
	Number		Average Grant
	of Shares		Date Fair Value
Unvested as of December 31, 2018	—	$	—
Granted	162,550		27.06
Vested	(11,239)		27.37
Forfeited	(11,593)		27.04
Unvested as of December 31, 2019	139,718	$	27.04

For the year ended December 31, 2019, the Company granted 162,550 shares of Restricted Stock with a weighted-average grant date fair value of $27.06 to key employees. The total grant date fair value of Restricted Stock that vested for the year ended December 31, 2019 was $0.3 million. Unrecognized compensation expense related to unvested Restricted Stock was $2.9 million and nil as of December 31, 2019 and 2018, respectively. The unrecognized compensation expense as of December 31, 2019 is expected to be recognized over a weighted average vesting period of 1.3 years.

There were no shares of Restricted Stock granted for the years ended December 31, 2018 and 2017.

Performance Share Units and Performance Share Awards

Performance share units (“PSUs”) and performance share awards (“PSAs”) (collectively, “Performance Awards”) are an award of units or shares in which the recipient’s rights in the units or shares are contingent on the achievement of pre-established performance goals. At the end of the performance period, the Compensation Committee will determine to what extent the performance goals originally outlined when the Performance Awards were granted have been achieved. Depending on the level of performance achieved, 0-100% of the original grant (target number) of PSUs will be earned and will vest and 0-200% of the original grant (target number) of PSAs will be earned and will vest. All remaining unvested PSUs or PSAs will be immediately forfeited. Employees must be continuously employed by the Company from the grant date through the applicable vesting date, with any unvested Performance Awards being forfeited upon termination of employment, subject to certain exceptions. Following vesting, the Company will issue one share of FHI common stock for each vested PSU and evidence of ownership of one share of FHI common stock for each vested PSA. The fair value of

Performance Awards is estimated based on the use of a Monte Carlo simulation or based on the closing price of FHI’s common stock on the date of grant and is amortized on a straight-line basis over the vesting period. For PSUs, grantees have no voting rights until the shares of common stock underlying vested PSUs are delivered to the grantee. Conversely, for PSAs, grantees have full voting rights as of the grant date.

The Performance Awards are governed by the Company’s Long-Term Incentive Plan (the “LTIP”), which is designed to reward selected key executives for their individual performance and the Company’s performance measured over multi-year performance cycles. Awards related to the LTIP provide for equity-based awards based on the Company’s profitability and market conditions that are based on the Company’s performance relative to peer groups over a three-year performance period.

The following presents the Company’s Performance Award activity for the years ended December 31, 2019, 2018 and 2017, which includes the PSUs based on 100% target performance and the PSAs based on 200% maximum performance:

			Weighted
	Number		Average Grant
	of Shares		Date Fair Value
Unvested as of December 31, 2016	321,612	$	29.11
Granted	244,218		30.44
Vested	(38,522)		24.41
Forfeited	(21,257)		33.20
Unvested as of December 31, 2017	506,051	$	30.82
Granted	277,197		22.39
Vested	(229,809)		32.17
Forfeited	(48,942)		30.52
Unvested as of December 31, 2018	504,497	$	25.93
Granted	310,696		27.04
Vested	(36,342)		24.51
Forfeited	(83,535)		26.37
Unvested as of December 31, 2019	695,316	$	26.46

For the years ended December 31, 2019, 2018 and 2017, the Company granted 310,696, 277,197 and 209,374 Performance Awards, respectively, to key employees. The Company granted these Performance Awards in connection with its LTIP for the three-year performance periods which began on January 1, 2019, 2018 and 2017. These awards have performance conditions that are based on the Company’s profitability and market conditions that are based on the Company’s performance relative to peer groups.

For the year ended December 31, 2016, the Company granted 115,566 PSUs in connection with its IPO. One-third of these PSUs vested on each of the first, second and third anniversaries of the IPO date. However, transfer restrictions remained on these shares for six months following the vesting date. The performance condition related to these PSUs was based on the Company’s profitability in the fiscal years immediately preceding the vesting dates.

The total grant date fair value of Performance Awards that vested for the years ended December 31, 2019, 2018 and 2017 was $0.9 million, $7.4 million and $0.9 million, respectively. Unrecognized compensation expense related to unvested Performance Shares was $5.6 million, $6.2 million and $4.3 million as of December 31, 2019, 2018 and 2017, respectively. The unrecognized compensation expense as of December 31, 2019 is expected to be recognized over a weighted average vesting period of 1.5 years.

Restricted Stock Units

Restricted stock units (“RSUs”) are an award of units that correspond in number and value to a specified number of shares of FHI’s common stock that are subject to vesting requirements, including certain service conditions, and transferability restrictions. RSUs do not represent actual ownership of common stock and grantees have no voting rights until the shares of common stock underlying the RSUs are delivered. Following vesting, the Company will issue one share of FHI common stock for each vested RSU. The fair value of RSUs is valued based on the closing price of FHI’s common stock on the date of grant and is amortized on a straight-line basis over the vesting period.

The following presents the Company’s RSU activity for the years ended December 31, 2019, 2018 and 2017:

			Weighted
	Number		Average Grant
	of Shares		Date Fair Value
Unvested as of December 31, 2016	5,379	$	24.41
Granted	14,506		29.74
Vested	(8,379)		26.77
Forfeited	—		—
Unvested as of December 31, 2017	11,506	$	29.74
Granted	47,094		28.64
Vested	(9,839)		32.31
Forfeited	—		—
Unvested as of December 31, 2018	48,761	$	28.60
Granted	20,418		26.50
Vested	(22,452)		28.37
Forfeited	(1,944)		28.29
Unvested as of December 31, 2019	44,783	$	27.82

For the year ended December 31, 2019, the Company granted 15,918 RSUs to non-employee directors with a weighted-average grant date fair value of $26.38 and granted 4,500 RSUs to employees with a weighted average grant date fair value of $26.92. For the year ended December 31, 2018, the Company granted 11,799 RSUs to non-employee directors with a weighted-average grant date fair value of $27.89 and granted 35,295 RSUs to employees with a weighted average grant date fair value of $28.89. For the year ended December 31, 2017, the Company granted 9,006 RSUs to non-employee directors with a weighted-average grant date fair value of $30.19 and granted 5,500 RSUs to employees with a weighted average grant date fair value of $28.97. The awards will vest on various dates.

The total grant date fair value of RSUs that vested during the years ended December 31, 2019, 2018 and 2017 was $0.6 million, $0.3 million and $0.2 million, respectively. Unrecognized compensation expense related to unvested RSUs was $0.9 million, $1.1 million and $0.2 million as of December 31, 2019, 2018 and 2017, respectively. The unrecognized compensation expense as of December 31, 2019 is expected to be recognized over a weighted average vesting period of 1.0 years.

For all awards of PSUs, PSAs, and RSUs, dividend equivalents will accrue from the date of grant and the Company, upon delivery of the common stock, with respect to the vested PSUs and RSUs, and evidence of ownership of the shares, with respect to the vested PSAs, will pay to each grantee a cash amount equal to the product of all cash dividends paid on a share of common stock from the grant date to such delivery date and the number of shares of common stock underlying such vested PSUs, PSAs, and RSUs, as applicable, on such delivery date.

Employee Stock Purchase Plan

The Company also has an employee stock purchase plan (“ESPP”) which permits employees to periodically purchase Company stock on a payroll deduction basis. Participant purchases through the ESPP receive a discount of 5% from the closing price of FHI’s common stock on the exercise date. Participants are required to adhere to a two-year holding period with regards to shares purchased through the ESPP. The ESPP has been determined to be non-compensatory in nature. As a result, the Company expects that expenses related to the ESPP will not be material. As of December 31, 2019, total shares authorized under the Company’s ESPP were 600,000 shares. The Company issued 12,341 shares and 15,961 shares of common stock to employee participants in January 2018 and 2017, respectively, which resulted in 571,698 shares of common stock authorized for future purchases.  

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Income Taxes - Components of Provision and Current Receivable (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Tax Cuts and Jobs Act of 2017
Corporate tax rate (as a percent)		21.00%	21.00%	35.00%
Additional income tax expense from on-time revaluation of certain tax-related assets	$ 47,600
Current:
Federal		$ 56,450	$ 69,477	$ 101,162
State and local		23,796	27,909	24,595
Total current		80,246	97,386	125,757
Deferred:
Federal		14,047	(2,043)	58,732
State and local		3,013	(1,559)	184
Total deferred		17,060	(3,602)	58,916
Total provision for income taxes		97,306	93,784	$ 184,673
Receivables
Current income tax receivable due from various jurisdictions		$ 24,400	$ 25,300

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Derivative Financial Instruments - Net Gains and Losses Recognized in Income, Fair Value Hedges (Details) - Fair value hedges - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Interest rate swaps | Interest income, loans and lease financing
Gains and losses related to derivatives
Loss recognized	$ (671)
Interest rate swaps | Noninterest income, Other
Gains and losses related to derivatives
Gain recognized		$ 629	$ 846
Hedged item | Interest income, loans and lease financing
Gains and losses related to derivatives
Gain recognized	$ 735
Hedged item | Noninterest income, Other
Gains and losses related to derivatives
Loss recognized		$ (723)	$ (841)

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Derivative Financial Instruments

12 Months Ended

Dec. 31, 2019

Derivative Financial Instruments

Derivative Financial Instruments

17. Derivative Financial Instruments

The Company enters into derivative contracts primarily to manage its interest rate risk, as well as for customer accommodation purposes. Derivatives used for risk management purposes consist of interest rate swaps that are designated as either a fair value hedge or a cash flow hedge. The derivatives are recognized on the consolidated balance sheets as either assets or liabilities at fair value. Derivatives entered into for customer accommodation purposes consist of various free-standing interest rate derivative products and foreign exchange contracts. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. 

The following table summarizes notional amounts and fair values of derivatives held by the Company as of December 31, 2019 and 2018:

	December 31, 2019						December 31, 2018
			Fair Value						Fair Value
	Notional		Asset		Liability		Notional		Asset		Liability
(dollars in thousands)	Amount		Derivatives(1)		Derivatives(2)		Amount		Derivatives(1)		Derivatives(2)
Derivatives designated as hedging instruments:
Interest rate swaps	$	23,190	$	—	$	(682)	$	41,317	$	31	$	(44)
Derivatives not designated as hedging instruments:
Interest rate swaps		2,818,803		63,527		—		2,269,247		12,305		(12,007)
Funding swap		82,900		—		(4,233)		62,039		—		(2,607)
Foreign exchange contracts		1,428		12		—		1,191		—		(34)

(1) The positive fair values of derivative assets are included in other assets.

(2) The negative fair values of derivative liabilities are included in other liabilities.

Certain interest rate swaps noted above, are cleared through clearinghouses, rather than directly with counterparties. Those transactions cleared through a clearinghouse require initial margin collateral and variation margin payments depending on the contracts being in a net asset or liability position. The amount of initial margin cash collateral posted by the Company was $8.7 million and $2.1 million as of December 31, 2019 and 2018, respectively.  

In 2017 and 2018, each of the Chicago Mercantile Exchange (“CME”) and the London Clearing House (“LCH”) amended its rulebook to legally characterize variation margin payments for derivative contracts that are referred to as settled-to-market as settlements of the derivative’s mark-to-market exposure and not collateral. Based on these changes, the Company has treated the CME and LCH variation margins as settlements, which has resulted in a decrease in the Company’s cash collateral and a corresponding decrease in the Company’s derivative asset and liability. As of December 31, 2019 and 2018, the CME variation margin was $1.0 million and $0.5 million, respectively. As of December 31, 2019 and 2018, the LCH variation margin was $62.5 million and $0.6 million, respectively.

As of December 31, 2019, the Company pledged $29.9 million in financial instruments and $13.4 million in cash as collateral for interest rate swaps. As of December 31, 2018, the Company pledged $26.2 million in financial instruments and $2.6 million in cash as collateral for interest rate swaps. As of December 31, 2019 and 2018, the cash collateral includes the excess initial margin for interest rate swaps cleared through clearinghouses and cash collateral for interest rate swaps with financial institution counterparties.

Fair Value Hedges

To manage the risk related to the Company’s net interest margin, interest rate swaps are utilized to hedge certain fixed-rate loans. These swaps have maturity, amortization and prepayment features that correspond to the loans hedged and are designated and qualify as fair value hedges. Any gain or loss on the swaps, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, is recognized in current period earnings.

At December 31, 2019, the Company carried one interest rate swap with a notional amount of $23.2 million with a negative fair value of $0.7 million that was categorized as a fair value hedge for a commercial and industrial loan. The Company received a USD Prime floating rate and paid a fixed rate of 2.90%. The swap matures in 2023. At December 31, 2018, the Company carried interest rate swaps with notional amounts totaling $41.3 million with a positive fair value of nil and a negative fair value of nil that were categorized as fair value hedges for commercial and industrial loans and commercial real estate loans.

The following table shows the net gains and losses recognized in income related to derivatives in fair value hedging relationships for the years ended December 31, 2019, 2018 and 2017:

	Gains (losses) recognized in
	the consolidated statements	December 31,
(dollars in thousands)	of income line item	2019		2018		2017
Gains (losses) on fair value hedging relationships recognized in interest income(1):
Recognized on interest rate swap	Loans and lease financing	$	(671)	$	—	$	—
Recognized on hedged item	Loans and lease financing		735		—		—
Gains (losses) on fair value hedging relationships recognized in noninterest income(2):
Recognized on interest rate swap	Other	$	—	$	629	$	846
Recognized on hedged item	Other		—		(723)		(841)

(1) In connection with the adoption of ASU 2017-12, beginning January 1, 2019, gain (loss) amounts for the interest rate swap qualifying as fair value hedging and the hedged item are included in interest income from loans and lease financing.

(2) Prior to January 1, 2019, gain (loss) amounts for the interest rate swaps qualifying as fair value hedging and the hedged items were included in other noninterest income.

As of December 31, 2019 and 2018, the following amounts were recorded in the consolidated balance sheets related to the cumulative basis adjustments for fair value hedges:

					Cumulative Amount of Fair Value
					Hedging Adjustment Included in the
	Carrying Amount of the Hedged Asset				Carrying Amount of the Hedged Asset
(dollars in thousands)	December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018
Line item in the consolidated balance sheets in which the hedged item is included
Loans and leases	$	24,415	$	42,496	$	1,017	$	293

Cash Flow Hedges

During 2018 and 2017, the Company carried two interest rate swaps with notional amounts totaling $150.0 million, in order to reduce exposure to interest rate increases associated with short-term fixed-rate liabilities. The Company received 6-month LIBOR and paid fixed rates ranging from 2.98% to 3.03%. The swaps matured in December 2018. As of December 31, 2019 and 2018, the Company held no cash flow hedges.

The Company utilized interest rate swaps to reduce exposure to interest rates associated with short-term fixed-rate liabilities. The Company entered into interest rate swaps paying fixed rates and receiving LIBOR. The LIBOR index corresponded to the short-term fixed-rate nature of the liabilities being hedged. If interest rates rose, the increase in interest received on the swaps offset increases in interest costs associated with these liabilities. By hedging with interest rate swaps, the Company minimized the adverse impact on interest expense associated with increasing rates on short-term liabilities.

The interest rate swaps were designated and qualified as cash flow hedges. The effective portion of the gain or loss on the interest rate swaps was reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affected earnings. During the year ended December 31, 2018, the pretax gain recognized in accumulated other comprehensive income of $7.6 million was reclassified into other noninterest income on the maturity dates of the cash flow hedges. The interest rate swaps designated as cash flow hedges resulted in net interest expense of $1.2 million and $2.4 million during the years ended December 31, 2018 and 2017, respectively. The Company also recognized expenses related to the ineffective portion of the change in fair value of the cash flow hedges of nil and $0.1 million for the years ended December 31, 2018 and 2017, respectively.

The following table summarizes the effect of cash flow hedging relationships for the years ended December 31, 2018 and 2017:

	December 31,
(dollars in thousands)	2018		2017
Pretax gains recognized in other comprehensive income on derivatives (effective portion)	$	1,475	$	2,473
Pretax gain reclassified from accumulated other comprehensive income		(7,558)		—

Free-Standing Derivative Instruments

For the derivatives that are not designated as hedges, changes in fair value are reported in current period earnings. The following table summarizes the impact on pretax earnings of derivatives not designated as hedges, as reported on the consolidated statements of income for the years ended December 31, 2019, 2018 and 2017:

	Net gains (losses) recognized
	in the consolidated statements	December 31,
(dollars in thousands)	of income line item	2019		2018		2017
Derivatives Not Designated As Hedging Instruments:
Interest rate swaps	Other noninterest income	$	16	$	574	$	819
Funding swap	Other noninterest income		(5,355)		(172)		(169)
Foreign exchange contracts	Other noninterest income		12		(58)		171

As of December 31, 2019, the Company carried multiple interest rate swaps with notional amounts totaling $2.8 billion, all of which were related to the Company’s customer swap program, with a positive fair value of $63.5 million and a negative fair value of nil. The Company received 1-month LIBOR and paid fixed rates ranging from 1.71% to 8.73%. The swaps mature between 2021 and 2039. As of December 31, 2018, the Company carried multiple interest rate swaps with notional amounts totaling $2.3 billion, including $2.2 billion related to the Company’s customer swap program, with a positive fair value of $12.3 million and a negative fair value of $12.0 million. The Company received 1-month LIBOR and paid fixed rates ranging from 2.02% to 5.78%. These swaps resulted in net interest expense of nil, $0.5 million and $0.9 million for the years ended December 31, 2019, 2018, and 2017, respectively.

The Company’s customer swap program is designed by offering customers a variable-rate loan that is swapped to fixed-rate through an interest-rate swap. The Company simultaneously executes an offsetting interest-rate swap with a swap dealer. Upfront fees on the dealer swap are recorded in other noninterest income and totaled $4.5 million, $7.3 million and $6.7 million for the years ended December 31, 2019, 2018, and 2017, respectively. Interest rate swaps related to the program had asset fair values of $63.5 million and $12.3 million as of December 31, 2019 and 2018, respectively, and liability fair values of nil and $11.2 million as of December 31, 2019 and 2018, respectively.

In conjunction with the 2016 sale of Class B restricted shares of common stock issued by Visa, the Company entered into a funding swap agreement with the buyer that requires payment to the buyer in the event Visa reduces each member bank’s Class B conversion rate to unrestricted Class A common shares. On June 28, 2018, Visa additionally

funded its litigation escrow account, thereby reducing each member bank’s Class B conversion rate to unrestricted Class A common shares. Accordingly, on July 5, 2018, Visa announced a decrease in conversion rate from 1.6483 to 1.6298 effective June 28, 2018. In July 2018, the Company made a payment of approximately $0.7 million to the buyer as a result of the reduction in the Visa Class B conversion rate. On September 27, 2019, Visa additionally funded its litigation escrow account, thereby further reducing each member bank’s Class B conversion rate to unrestricted Class A common shares. Accordingly, on September 30, 2019, Visa announced a decrease in conversion rate from 1.6298 to 1.6228, effective September 27, 2019. In October 2019, the Company made a payment of approximately $0.3 million to the buyer as a result of the reduction in the Visa Class B conversion rate. Under the terms of the funding swap agreement, the Company will make monthly payments to the buyer based on Visa’s Class A stock price and the number of Visa Class B restricted shares that were sold until the date on which the covered litigation is settled. During the year ended December 31, 2019, the Company recorded a $4.5 million loss in other noninterest income related to a revaluation adjustment to increase the fair value of the derivative liability (“Visa derivative”). The Visa derivative of $4.2 million and $2.6 million was included in the consolidated balance sheets at December 31, 2019 and 2018, respectively, to provide for the fair value of this liability. There were no sales of these shares prior to 2016. See “Note 22. Fair Value” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

Counterparty Credit Risk

By using derivatives, the Company is exposed to counterparty credit risk if counterparties to the derivative contracts do not perform as expected. If a counterparty fails to perform, the Company’s counterparty credit risk is equal to the amount reported as a derivative asset, net of cash or other collateral received, and net of derivatives in a loss position with the same counterparty to the extent master netting arrangements exist. The Company minimizes counterparty credit risk through credit approvals, limits, monitoring procedures, executing master netting arrangements and obtaining collateral, where appropriate. Counterparty credit risk related to derivatives is considered in determining fair value.

The Company’s interest rate swap agreements include bilateral collateral agreements with collateral requirements which begin with exposures in excess of $0.5 million. For each counterparty, the Company reviews the interest rate swap collateral daily. Collateral for customer interest rate swap agreements, calculated as the pledged asset less loan balance, requires valuation of the pledged asset. Counterparty credit risk adjustments of $0.1 million were recognized during each of the years ended December 31, 2019, 2018 and 2017.

Credit-Risk Related Contingent Features

Certain of our derivative contracts contain provisions whereby if the Company’s credit rating were to be downgraded by certain major credit rating agencies as a result of a merger or material adverse change in the Company’s financial condition, the counterparty could require an early termination of derivative instruments in a net liability position. The aggregate fair value of all derivative instruments with such credit-risk related contingent features that are in a net liability position was $4.0 million and $0.8 million at December 31, 2019 and 2018, respectively, for which we posted $4.7 million and $0.5 million, respectively, in collateral in the normal course of business. If the Company’s credit rating had been downgraded on December 31, 2019 and 2018, we may have been required to settle the contract in an amount equal to its fair value.

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Regulatory Capital Requirements

12 Months Ended

Dec. 31, 2019

Regulatory Capital Requirements

Regulatory Capital Requirements

13. Regulatory Capital Requirements

Federal and state laws and regulations limit the amount of dividends the Company may declare or pay. The Company depends primarily on dividends from FHB as the source of funds for the Company’s payment of dividends.

The Company and the Bank are subject to various regulatory capital requirements imposed by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s operating activities and financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of its assets and certain off-balance-sheet items. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of Common Equity Tier 1 (“CET1”) capital, Tier 1 capital and total capital to risk-weighted assets, as well as a minimum leverage ratio.

The following provides definitions for the regulatory risk-based capital ratios and leverage ratio, which are calculated as per standard regulatory guidance:

Risk-Weighted Assets — Assets are weighted for risk according to a formula used by the Federal Reserve to conform to capital adequacy guidelines. On- and off-balance sheet items are weighted for risk, with off-balance sheet items converted to balance sheet equivalents, using risk conversion factors, before being allocated a risk-adjusted weight. The off-balance sheet items comprise a minimal part of the overall calculation.

Common Equity Tier 1 Risk-Based Capital Ratio — The CET1 risk-based capital ratio is calculated as CET1 capital, divided by risk-weighted assets. CET1 is the sum of equity, adjusted for ineligible goodwill as well as certain other comprehensive income items as follows: net unrealized gains/losses on securities and derivatives, and net unrealized pension and other benefit losses.

Tier 1 Risk-Based Capital Ratio — The Tier 1 capital ratio is calculated as Tier 1 capital divided by risk-weighted assets.

Total Risk-Based Capital Ratio — The total risk-based capital ratio is calculated as the sum of Tier 1 capital and an allowable amount of the reserve for credit losses (limited to 1.25 percent of risk-weighted assets), divided by risk-weighted assets.

Tier 1 Leverage Ratio — The Tier 1 leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets.

The table below sets forth those ratios at December 31, 2019 and 2018:

					First Hawaiian				Minimum		Well-
	First Hawaiian, Inc.				Bank				Capital		Capitalized
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Ratio(1)		Ratio(1)
December 31, 2019:
Common equity tier 1 capital to risk-weighted assets	$	1,676,515	11.88	%	$	1,654,304	11.72	%	4.50	%	6.50	%
Tier 1 capital to risk-weighted assets		1,676,515	11.88	%		1,654,304	11.72	%	6.00	%	8.00	%
Total capital to risk-weighted assets		1,807,645	12.81	%		1,785,434	12.65	%	8.00	%	10.00	%
Tier 1 capital to average assets (leverage ratio)		1,676,515	8.79	%		1,654,304	8.67	%	4.00	%	5.00	%
December 31, 2018:
Common equity tier 1 capital to risk-weighted assets	$	1,661,542	11.97	%	$	1,658,172	11.94	%	4.50	%	6.50	%
Tier 1 capital to risk-weighted assets		1,661,542	11.97	%		1,658,172	11.94	%	6.00	%	8.00	%
Total capital to risk-weighted assets		1,803,860	12.99	%		1,800,490	12.97	%	8.00	%	10.00	%
Tier 1 capital to average assets (leverage ratio)		1,661,542	8.72	%		1,658,172	8.70	%	4.00	%	5.00	%

(1) As defined by the regulations issued by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the FDIC.

A new capital conservation buffer, comprised of CET1 capital, was established above the regulatory minimum capital requirements. This capital conservation buffer was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increased each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. As of December 31, 2019, under the bank regulatory capital guidelines, the Company and Bank were both classified as well-capitalized. Management is not aware of any conditions or events that have occurred since December 31, 2019, to change the capital adequacy category of the Company or the Bank.

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Transfers of Financial Assets (Tables)

12 Months Ended

Dec. 31, 2019

Transfers of Financial Assets

Schedule of carrying amounts of assets pledged as collateral

(dollars in thousands)	2019		2018
Public deposits	$	1,543,492	$	1,749,726
Federal Home Loan Bank		2,928,581		2,497,030
Federal Reserve Bank		953,169		957,017
ACH transactions		155,360		150,903
Interest rate swaps		43,296		28,843
Total	$	5,623,898	$	5,383,519

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Accumulated Other Comprehensive Income (Loss) (Tables)

12 Months Ended

Dec. 31, 2019

Accumulated Other Comprehensive Income (Loss) [Abstract]

Schedule of changes in accumulated other comprehensive income (loss)

			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at December 31, 2018	$	(180,915)	$	48,720	$	(132,195)
Year ended December 31, 2019
Pension and other benefits:
Net actuarial losses arising during the year		(5,774)		1,555		(4,219)
Prior service credit		(429)		115		(314)
Amortization of net loss included in net income		6,610		(1,780)		4,830
Net change in pension and other benefits		407		(110)		297
Investment securities:
Unrealized net gains arising during the year		134,343		(36,178)		98,165
Reclassification of net losses to net income:
Investment securities losses, net		2,715		(731)		1,984
Net change in investment securities		137,058		(36,909)		100,149
Other comprehensive income		137,465		(37,019)		100,446
Accumulated other comprehensive loss at December 31, 2019	$	(43,450)	$	11,701	$	(31,749)

			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at December 31, 2017	$	(159,423)	$	63,040	$	(96,383)
Year ended December 31, 2018
Early adoption of ASU No. 2018-02		—		(20,068)		(20,068)
Pension and other benefits:
Net actuarial losses arising during the year		(2,835)		763		(2,072)
Prior service credit		(429)		116		(313)
Amortization of net loss included in net income		7,315		(1,970)		5,345
Net change in pension and other benefits		4,051		(1,091)		2,960
Investment securities:
Unrealized net losses arising during the year		(43,545)		11,686		(31,859)
Reclassification of net gains to net income:
OTTI losses on available-for-sale debt securities, net		24,085		(6,485)		17,600
Net change in investment securities		(19,460)		5,201		(14,259)
Cash flow derivative hedges:
Unrealized net gains on cash flow derivative hedges arising during the year		1,475		(397)		1,078
Reclassification of net gains to net income:
Other noninterest expense		(7,558)		2,035		(5,523)
Net change in cash flow derivative hedges		(6,083)		1,638		(4,445)
Other comprehensive loss		(21,492)		5,748		(15,744)
Accumulated other comprehensive loss at December 31, 2018	$	(180,915)	$	48,720	$	(132,195)

			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at December 31, 2016	$	(145,472)	$	57,461	$	(88,011)
Year ended December 31, 2017
Pension and other benefits:
Net actuarial losses arising during the year		(1,104)		436		(668)
Prior service credit		(429)		170		(259)
Amortization of net loss included in net income		8,625		(3,407)		5,218
Net change in pension and other benefits		7,092		(2,801)		4,291
Investment securities:
Unrealized net losses arising during the year		(23,516)		9,357		(14,159)
Net change in investment securities		(23,516)		9,357		(14,159)
Cash flow derivative hedges:
Unrealized net gains on cash flow derivative hedges arising during the year		2,473		(977)		1,496
Net change in cash flow derivative hedges		2,473		(977)		1,496
Other comprehensive loss		(13,951)		5,579		(8,372)
Accumulated other comprehensive loss at December 31, 2017	$	(159,423)	$	63,040	$	(96,383)

Summary of changes in accumulated other comprehensive loss, net of tax

	Pensions						Accumulated
	and				Cash Flow		Other
	Other		Investment		Derivative		Comprehensive
(dollars in thousands)	Benefits		Securities		Hedges		Income (Loss)
Year Ended December 31, 2019
Balance at beginning of year	$	(28,379)	$	(103,816)	$	—	$	(132,195)
Other comprehensive income		297		100,149		—		100,446
Balance at end of year	$	(28,082)	$	(3,667)	$	—	$	(31,749)
Year Ended December 31, 2018
Balance at beginning of year	$	(25,946)	$	(74,117)	$	3,680	$	(96,383)
Early adoption of ASU No. 2018-02		(5,393)		(15,440)		765		(20,068)
Other comprehensive income (loss)		2,960		(14,259)		(4,445)		(15,744)
Balance at end of year	$	(28,379)	$	(103,816)	$	—	$	(132,195)
Year Ended December 31, 2017
Balance at beginning of year	$	(30,237)	$	(59,958)	$	2,184	$	(88,011)
Other comprehensive income (loss)		4,291		(14,159)		1,496		(8,372)
Balance at end of year	$	(25,946)	$	(74,117)	$	3,680	$	(96,383)

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Fair Value - Changes in Fair Value Levels and in Level 3 Liabilities (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Fair value
Asset transfers out of Level 1 into Level 2	$ 0	$ 0
Asset transfers into (out of) Level 3	0	0
Liability transfers out of Level 1 into Level 2	0	0
Liability transfers into (out of) Level 3	0	0
Visa derivative | Funding Swap (Visa Derivative)
Changes in Level 3 liabilities measured at fair value on a recurring basis
Balance	(2,607,000)	(5,439,000)
Total net losses included in other noninterest income	(5,354,000)	(173,000)
Settlements	3,728,000	3,005,000
Balance	(4,233,000)	(2,607,000)
Total net (losses) gains included in net income attributable to the change in unrealized gains or losses related to liabilities still held as of September 30,	$ (5,354,000)	$ (173,000)

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Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Earnings per Share
Adjustments to net income (in dollars)	$ 0	$ 0	$ 0
Antidilutive securities (in shares)	0	0	0
Numerator:
Net income	$ 284,392	$ 264,394	$ 183,682
Denominator:
Basic: weighted-average shares outstanding (in shares)	133,076,489	136,945,134	139,560,305
Add: weighted-average equity-based awards (in shares)	310,668	166,286	96,688
Diluted: weighted-average shares outstanding (in shares)	133,387,157	137,111,420	139,656,993
Basic earnings per share (in dollars per share)	$ 2.14	$ 1.93	$ 1.32
Diluted earnings per share (in dollars per share)	$ 2.13	$ 1.93	$ 1.32

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2019

Income Taxes

Schedule of components of provision for income taxes

	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Current:
Federal	$	56,450	$	69,477	$	101,162
State and local		23,796		27,909		24,595
Total current		80,246		97,386		125,757
Deferred:
Federal		14,047		(2,043)		58,732
State and local		3,013		(1,559)		184
Total deferred		17,060		(3,602)		58,916
Total provision for income taxes	$	97,306	$	93,784	$	184,673

Schedule of components of net deferred income tax assets and liabilities

	December 31,
(dollars in thousands)	2019		2018
Assets:
Deferred compensation expense	$	56,148	$	56,989
Allowance for loan and lease losses and nonperforming assets		35,195		38,245
Lease liabilities		11,951		—
Investment securities		2,474		45,846
State income taxes		3,338		5,378
Total deferred income tax assets before valuation allowance		109,106		146,458
Valuation allowance		(1,393)		(1,901)
Total deferred income tax assets after valuation allowance		107,713		144,557
Liabilities:
Leases		(14,873)		(10,597)
Deferred income		(16,069)		(15,471)
Lease right-of-use assets		(11,931)		—
Intangible assets		(500)		(788)
Other		(10,570)		(9,852)
Total deferred income tax liabilities		(53,943)		(36,708)
Net deferred income tax assets	$	53,770	$	107,849

Schedule of reconciliation of Federal statutory to effective income tax rate

	Year Ended December 31,
	2019				2018				2017
(dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Federal statutory income tax expense and rate	$	80,157	21.00	%	$	75,217	21.00	%	$	128,924	35.00	%
State and local taxes, net of federal income tax benefit		21,179	5.55			20,817	5.81			16,106	4.37
Impact of Tax Reform		—	—			—	—			47,598	12.92
Nontaxable income		(3,269)	(0.86)			(2,037)	(0.57)			(4,974)	(1.35)
Other		(761)	(0.20)			(213)	(0.06)			(2,981)	(0.81)
Income tax expense and effective income tax rate	$	97,306	25.49	%	$	93,784	26.18	%	$	184,673	50.13	%

Schedule of reconciliation of unrecognized tax benefits

	Year Ended December 31,
	2019						2018						2017
			Interest						Interest						Interest
			and						and						and
(dollars in thousands)	Tax		Penalties		Total		Tax		Penalties		Total		Tax		Penalties		Total
Balance at beginning of year	$	131,570	$	12,524	$	144,094	$	130,619	$	10,660	$	141,279	$	127,085	$	9,965	$	137,050
Additions for current year tax positions		1,038		—		1,038		2,260		—		2,260		2,727		—		2,727
Additions for Reorganization Transactions		—		986		986		—		832		832		—		226		226
Additions for prior years' tax positions:
New uncertain tax positions identified		1,894		—		1,894		—		—		—		—		—		—
Accrual of interest and penalties		—		1,280		1,280		—		1,159		1,159		—		621		621
Other		—		—		—		—		—		—		1,152		—		1,152
Reductions for prior years' tax positions:
Expiration of statute of limitations		(190)		(89)		(279)		(280)		(127)		(407)		(345)		(152)		(497)
Other		—		—		—		(1,029)		—		(1,029)		—		—		—
Balance at December 31,	$	134,312	$	14,701	$	149,013	$	131,570	$	12,524	$	144,094	$	130,619	$	10,660	$	141,279

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Stock-Based Compensation - Restricted Stock Units (Details) $ / shares in Units, $ in Millions	12 Months Ended
	Dec. 31, 2019 USD ($) $ / shares shares	Dec. 31, 2018 USD ($) $ / shares shares	Dec. 31, 2017 USD ($) $ / shares shares
Stock-based compensation
Stock-based compensation expense | $	$ 7.8	$ 6.9	$ 3.1
Period for recognition of unrecognized compensation expense	1 year 3 months 18 days
Restricted Stock Units
Stock-based compensation
Ratio of common stock for each vested award	1
Number of Shares
Unvested as of beginning of period (in shares) | shares	48,761	11,506	5,379
Granted (in shares) | shares	20,418	47,094	14,506
Vested (in shares) | shares	(22,452)	(9,839)	(8,379)
Forfeited (in shares) | shares	(1,944)
Unvested as of end of period (in shares) | shares	44,783	48,761	11,506
Weighted Average Grant Date Fair Value
Unvested as of beginning of period (in dollars per share) | $ / shares	$ 28.60	$ 29.74	$ 24.41
Granted (in dollars per share) | $ / shares	26.50	28.64	29.74
Vested (in dollars per share) | $ / shares	28.37	32.31	26.77
Forfeited (in dollars per share) | $ / shares	28.29
Unvested as of end of period (in dollars per share) | $ / shares	$ 27.82	$ 28.60	$ 29.74
Stock-based compensation
Total fair value of vested shares (in dollars) | $	$ 0.6	$ 0.3	$ 0.2
Unrecognized compensation expense | $	$ 0.9	$ 1.1	$ 0.2
Period for recognition of unrecognized compensation expense	1 year
Restricted Stock Units | Directors
Number of Shares
Granted (in shares) | shares	15,918	11,799	9,006
Weighted Average Grant Date Fair Value
Granted (in dollars per share) | $ / shares	$ 26.38	$ 27.89	$ 30.19
Restricted Stock Units | Employees
Number of Shares
Granted (in shares) | shares	4,500	35,295	5,500
Weighted Average Grant Date Fair Value
Granted (in dollars per share) | $ / shares	$ 26.92	$ 28.89	$ 28.97

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Transactions with Affiliates and Related Parties - Summary of Transactions (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Related party transactions
Other liabilities	$ 0	$ 0	$ 0
Off-balance sheet commitments with affiliates to purchase and sell foreign currencies	0	0	0
Related parties associated with its branch premises
Related party transactions
Cash and due from banks		55,454,000	41,874,000
Other assets		19,358,000	23,872,000
Noninterest-bearing demand deposits		(346,000)	(456,000)
Noninterest income from affiliates	382,000	5,677,000	4,908,000
Noninterest expense to affiliates	(4,000)	(59,000)	(47,000)
BancWest Corporation (BWC) | Expense reimbursements
Related party transactions
Payments received from BWC	$ 7,200,000	$ 14,600,000	$ 21,400,000

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Accumulated Other Comprehensive Income (Loss) - Changes (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Pre-tax Amount
Balance	$ (180,915)	$ (159,423)	$ (145,472)
Other comprehensive income (loss)	137,465	(21,492)	(13,951)
Balance	(43,450)	(180,915)	(159,423)
Income Tax Benefit (Expense)
Balance	48,720	63,040	57,461
Other comprehensive income (loss)	(37,019)	5,748	5,579
Balance	11,701	48,720	63,040
Net of tax
Balance, beginning	2,524,839	2,532,551	2,476,485
Other comprehensive income (loss)	100,446	(15,744)	(8,372)
Balance, ending	2,640,258	2,524,839	2,532,551
Accumulated other comprehensive Income (loss)
Net of tax
Balance, beginning	(132,195)	(96,383)	(88,011)
Other comprehensive income (loss)	100,446	(15,744)	(8,372)
Balance, ending	(31,749)	(132,195)	(96,383)
Accumulated other comprehensive Income (loss) | Early Adoption | ASU 2018-02
Income Tax Benefit (Expense)
Early adoption of ASU No. 2018-02		(20,068)
Net of tax
Other comprehensive income (loss)	(20,068)
Pension and other benefits, net actuarial losses arising during the year
Pre-tax Amount
Unrealized net (losses) gains arising during the year	(5,774)	(2,835)	(1,104)
Reclassification of net losses (gains) to net income	6,610	7,315	8,625
Income Tax Benefit (Expense)
Unrealized net gains (losses) arising during the year	1,555	763	436
Reclassification of net losses (gains) to net income	(1,780)	(1,970)	(3,407)
Net of tax
Unrealized net gains (losses) arising during the year	(4,219)	(2,072)	(668)
Reclassification of net losses (gains) to net income	4,830	5,345	5,218
Pension and other benefits, prior service credit
Pre-tax Amount
Unrealized net (losses) gains arising during the year	(429)
Reclassification of net losses (gains) to net income		(429)	(429)
Income Tax Benefit (Expense)
Unrealized net gains (losses) arising during the year	115
Reclassification of net losses (gains) to net income		116	170
Net of tax
Unrealized net gains (losses) arising during the year	(314)
Reclassification of net losses (gains) to net income		(313)	(259)
Pension and other benefits, net change in pension and other benefits
Pre-tax Amount
Other comprehensive income (loss)	407	4,051	7,092
Income Tax Benefit (Expense)
Other comprehensive income (loss)	(110)	(1,091)	(2,801)
Net of tax
Balance, beginning	(28,379)	(25,946)	(30,237)
Other comprehensive income (loss)	297	2,960	4,291
Balance, ending	(28,082)	(28,379)	(25,946)
Pension and other benefits, net change in pension and other benefits | Early Adoption | ASU 2018-02
Net of tax
Other comprehensive income (loss)	(5,393)
Investment securities:
Pre-tax Amount
Unrealized net (losses) gains arising during the year	134,343	(43,545)	(23,516)
Other comprehensive income (loss)	137,058	(19,460)	(23,516)
Income Tax Benefit (Expense)
Unrealized net gains (losses) arising during the year	(36,178)	11,686	9,357
Other comprehensive income (loss)	(36,909)	5,201	9,357
Net of tax
Balance, beginning	(103,816)	(74,117)	(59,958)
Unrealized net gains (losses) arising during the year	98,165	(31,859)	(14,159)
Other comprehensive income (loss)	100,149	(14,259)	(14,159)
Balance, ending	(3,667)	(103,816)	(74,117)
Investment securities: | Early Adoption | ASU 2018-02
Net of tax
Other comprehensive income (loss)	(15,440)
Investment securities, OTTI losses on AFS debt securities, net
Pre-tax Amount
Reclassification of net losses (gains) to net income	2,715	24,085
Income Tax Benefit (Expense)
Reclassification of net losses (gains) to net income	731	(6,485)
Net of tax
Reclassification of net losses (gains) to net income	1,984	17,600
Cash flow derivative hedges:
Pre-tax Amount
Unrealized net (losses) gains arising during the year		1,475	2,473
Reclassification of net losses (gains) to net income		(7,558)
Other comprehensive income (loss)		(6,083)	2,473
Income Tax Benefit (Expense)
Unrealized net gains (losses) arising during the year		(397)	(977)
Reclassification of net losses (gains) to net income		(2,035)
Other comprehensive income (loss)		1,638	(977)
Net of tax
Balance, beginning		3,680	2,184
Unrealized net gains (losses) arising during the year		1,078	1,496
Reclassification of net losses (gains) to net income		(5,523)
Other comprehensive income (loss)		$ (4,445)	1,496
Balance, ending			$ 3,680
Cash flow derivative hedges: | Early Adoption | ASU 2018-02
Net of tax
Other comprehensive income (loss)	$ 765

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Deposits - Time Certificate Denominations and Overdrawn Accounts (Details) - USD ($) $ in Millions	Dec. 31, 2019	Dec. 31, 2018
Deposits
Time certificates of deposit in denominations of $250,000 or more, in the aggregate	$ 1,400.0	$ 1,900.0
Overdrawn deposit accounts classified as loans	$ 3.6	$ 2.4

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Organization and Basis of Presentation - Non Marketable Equity Securities Impairment (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Organization and Summary of Significant Accounting Policies
Impairment recognized on non marketable equity securities	$ 0	$ 0	$ 0

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Leases - Rental Expense, Net of Sublease Income presented in accordance with Topic 840 (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Rental expense, net of sublease income, presented in accordance with Topic 840
Net rental expense	$ 12,723	$ 7,563
Occupancy
Rental expense, net of sublease income, presented in accordance with Topic 840
Rental expense charged to occupancy	9,947	8,620
Less: Sublease income	903	1,342
Net rental expense	9,044	7,278
Equipment
Rental expense, net of sublease income, presented in accordance with Topic 840
Rental expense charged to equipment expense	$ 3,679	$ 285

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Leases - Third Party Leases, Cost and Accumulated Depreciation (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Lease payments to related parties	$ 300
Future minimum rental payments under noncancelable leases
2020	8,776
2021	8,084
2022	5,453
2023	2,964
2024	2,721
Thereafter	32,227
Office space leased in headquarters office and to third party lessees
Cost	547,071	$ 522,813
Accumulated Depreciation	$ 230,186	217,817
Terms of such leases
Lessor, renewal options included	true
Future minimum rental income from related parties
2020	$ 6,164
2021	6,152
2022	4,431
2023	3,506
2024	2,680
Thereafter	6,511
Third party lessees
Office space leased in headquarters office and to third party lessees
Cost	$ 288,800	289,200
Terms of such leases
Lessor, Operating Lease, Renewal Term	10 years
Operating lease income related to lease payments
Operating lease income	$ 5,900
Lease income related to variable lease payments	5,300
Rental income paid by related parties	400
Future minimum rental income from related parties
2020	400
2021	400
2022	400
2023	400
2024	400
Thereafter	800
Buildings
Office space leased in headquarters office and to third party lessees
Cost	289,271	280,853
Accumulated Depreciation	141,300	$ 133,700
Related parties associated with its branch premises
Future minimum rental payments under noncancelable leases
2020	300
2021	300
2022	200
2023	200
2024	200
Thereafter	$ 7,300

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Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

Income Taxes

16. Income Taxes

On December 22, 2017, President Trump signed into law the Tax Act. The Tax Act made many significant amendments to the Internal Revenue Code of 1986, as amended (the “Code”), including reducing the corporate tax rate from 35% to 21%, effective January 1, 2018. GAAP requires that companies record and reflect the impact of the Tax Act in their financial statements for the quarter during which the Tax Act becomes law, even if provisions of the Tax Act become effective at a future date. Accordingly, the Company reported the impact of the Tax Act on its results of operations in its consolidated financial statements for the fourth quarter and year ended December 31, 2017. The reduction in the corporate tax rate under the Tax Act required a one-time revaluation of certain tax-related assets, which resulted in the Company recording $47.6 million in additional income tax expense in our consolidated statements of income in the fourth quarter of 2017.

For the years ended December 31, 2019, 2018 and 2017, the provision for income taxes was comprised of the following:

	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Current:
Federal	$	56,450	$	69,477	$	101,162
State and local		23,796		27,909		24,595
Total current		80,246		97,386		125,757
Deferred:
Federal		14,047		(2,043)		58,732
State and local		3,013		(1,559)		184
Total deferred		17,060		(3,602)		58,916
Total provision for income taxes	$	97,306	$	93,784	$	184,673

The Company files Federal and state income tax returns for its subsidiaries. The Company’s subsidiary also files income tax returns in Guam and Saipan. The Company had a current income tax receivable due from various jurisdictions of $24.4 million and $25.3 million as of December 31, 2019 and 2018, respectively, for its share of consolidated and combined tax overpayments that had not yet been received.

The components of net deferred income tax assets and liabilities at December 31, 2019 and 2018, were as follows:

	December 31,
(dollars in thousands)	2019		2018
Assets:
Deferred compensation expense	$	56,148	$	56,989
Allowance for loan and lease losses and nonperforming assets		35,195		38,245
Lease liabilities		11,951		—
Investment securities		2,474		45,846
State income taxes		3,338		5,378
Total deferred income tax assets before valuation allowance		109,106		146,458
Valuation allowance		(1,393)		(1,901)
Total deferred income tax assets after valuation allowance		107,713		144,557
Liabilities:
Leases		(14,873)		(10,597)
Deferred income		(16,069)		(15,471)
Lease right-of-use assets		(11,931)		—
Intangible assets		(500)		(788)
Other		(10,570)		(9,852)
Total deferred income tax liabilities		(53,943)		(36,708)
Net deferred income tax assets	$	53,770	$	107,849

Net deferred income tax assets were included in other assets in the consolidated balance sheets as of December 31, 2019 and 2018.

Management evaluated the deferred income tax assets for recoverability by considering negative and positive evidence. Negative evidence included the uncertainty of generating future capital gains and restrictions on the ability to sell low-income housing investments during periods when carrybacks of capital losses are allowed. Positive evidence included the generation of capital gains in the current year and carryback years. Based on the weight of all available evidence, management determined a valuation allowance to offset deferred tax assets related to investments in low-income housing projects that can only be utilized to offset capital gains was required. Management further concluded it is more likely than not that the remaining deferred tax assets will be realized through carryback to taxable income in prior years, future reversals of existing taxable temporary differences, and projected future taxable income. Consequently, the remaining deferred income tax assets are not subject to a valuation allowance.  

The following analysis reconciles the Federal statutory income tax rate to the effective income tax rate for the years ended December 31, 2019, 2018 and 2017:

	Year Ended December 31,
	2019				2018				2017
(dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Federal statutory income tax expense and rate	$	80,157	21.00	%	$	75,217	21.00	%	$	128,924	35.00	%
State and local taxes, net of federal income tax benefit		21,179	5.55			20,817	5.81			16,106	4.37
Impact of Tax Reform		—	—			—	—			47,598	12.92
Nontaxable income		(3,269)	(0.86)			(2,037)	(0.57)			(4,974)	(1.35)
Other		(761)	(0.20)			(213)	(0.06)			(2,981)	(0.81)
Income tax expense and effective income tax rate	$	97,306	25.49	%	$	93,784	26.18	%	$	184,673	50.13	%

The Company is subject to examination by the Internal Revenue Service (“IRS”) and tax authorities in states in which the Company has significant business operations. The tax years under examination and open for examination vary by jurisdiction. The Company’s 2016 tax returns are currently under IRS examination. In addition, refund claims and tax returns for certain years are being reviewed by state jurisdictions. No material adjustments are anticipated as a result of these examinations and reviews. The Company’s income tax returns for 2016 and subsequent tax years generally remain subject to examination by U.S. federal and foreign jurisdictions, and 2015 and subsequent years are subject to examination by state taxing authorities.

A reconciliation of the amount of unrecognized tax benefits is as follows for the years ended December 31, 2019, 2018 and 2017:

	Year Ended December 31,
	2019						2018						2017
			Interest						Interest						Interest
			and						and						and
(dollars in thousands)	Tax		Penalties		Total		Tax		Penalties		Total		Tax		Penalties		Total
Balance at beginning of year	$	131,570	$	12,524	$	144,094	$	130,619	$	10,660	$	141,279	$	127,085	$	9,965	$	137,050
Additions for current year tax positions		1,038		—		1,038		2,260		—		2,260		2,727		—		2,727
Additions for Reorganization Transactions		—		986		986		—		832		832		—		226		226
Additions for prior years' tax positions:
New uncertain tax positions identified		1,894		—		1,894		—		—		—		—		—		—
Accrual of interest and penalties		—		1,280		1,280		—		1,159		1,159		—		621		621
Other		—		—		—		—		—		—		1,152		—		1,152
Reductions for prior years' tax positions:
Expiration of statute of limitations		(190)		(89)		(279)		(280)		(127)		(407)		(345)		(152)		(497)
Other		—		—		—		(1,029)		—		(1,029)		—		—		—
Balance at December 31,	$	134,312	$	14,701	$	149,013	$	131,570	$	12,524	$	144,094	$	130,619	$	10,660	$	141,279

Included in the balance of unrecognized tax benefits for the years ended December 31, 2019, 2018 and 2017, was $19.1 million, $16.2 million and $14.9 million, respectively, of unrecognized tax benefits that, if recognized, would impact the effective tax rate.

In connection with the Reorganization Transactions discussed below, the Company recorded unrecognized tax benefits and interest and penalties of $121.4 million and $7.0 million, respectively. Included in the balance of the unrecognized tax benefits as of both December 31, 2019 and 2018, was $93.9 million attributable to tax refund claims with respect to tax years 2005 through 2012 in the State of California. Such refund claims were filed by the Company in 2015, on behalf of the Company and its affiliates, including BOW, concerning the determination of taxes for which no benefit is currently recognized. It is reasonably possible that the amount of unrecognized tax benefits could decrease within the next 12 months by as much as $1.4 million of taxes and $0.9 million of accrued interest and penalties as a result of settlements and the expiration of the statute of limitations in various states.

The Company recognizes interest and penalties attributable to both unrecognized tax benefits and undisputed tax adjustments in the provision for income taxes. For the years ended December 31, 2019, 2018 and 2017, the Company recorded $2.4 million, $1.0 million and $0.7 million, respectively, of net expense attributable to interest and penalties. The Company had a liability of $16.3 million and $13.8 million as of December 31, 2019 and 2018, respectively, accrued for interest and penalties, of which $14.7 million and $12.5 million as of December 31, 2019 and 2018, respectively, were attributable to unrecognized tax benefits and the remainder was attributable to tax adjustments which are not expected to be in dispute.

Prior to the Reorganization Transactions, the Company filed consolidated U.S. Federal and combined state tax returns that incorporated the tax receivables and unrecognized tax benefits of FHB and BOW. The consummation of the Reorganization Transactions did not relieve the Company of the pre-Reorganization Transactions tax receivables and unrecognized tax benefits recognized by BOW that were included in the Company's consolidated and combined tax returns. As a result, on April 1, 2016, the Company recorded $72.8 million related to current tax receivables, $116.6 million related to unrecognized tax benefits, and an indemnification payable of $28.6 million. As of both December 31, 2019 and 2018, the Company maintained balances of $93.1 million related to current tax receivables. As of December 31, 2019 and 2018, the Company maintained balances of $118.1  million and $117.3 million, respectively, related to unrecognized tax benefits, and an indemnification receivable of  $25.0 million and $24.2 million, respectively. Additionally, in connection with the Reorganization Transactions, the Company has incurred certain tax-related liabilities related to the distribution of its interest in BWHI amounting to $95.4 million. The amount necessary to pay the distribution taxes (net of the expected federal tax benefit of $33.4 million) was paid by BNPP to the Company on April 1, 2016. The Company reported total

distribution taxes of $92.1 million in the 2016 tax returns of various state and local jurisdictions, and reimbursed BWHI approximately $2.1 million pursuant to a tax sharing agreement entered into on April 1, 2016 and pursuant to certain tax allocation agreements entered into among the parties. The Company expects that any future adjustment to such taxes will be similarly reimbursed to, or funded by, BWHI or its affiliates. Accordingly, the assumption of the pre-Reorganization Transactions tax receivables, unrecognized tax benefits and distribution tax liabilities and the offsetting indemnification receivables or payables were reflected as equity contributions and distributions on April 1, 2016. The reimbursement of distribution taxes to BWHI was also reflected as an adjustment to equity. If there are any future adjustments to the indemnified tax receivables or unrecognized tax benefits, including as a result of the IRS audit of the Company’s 2016 income tax returns, an offsetting adjustment to the indemnification receivables or payables will be recorded to the provision for income taxes and other noninterest income or expense. For the years ended December 31, 2019, 2018 and 2017, the Company recorded nil, $1.5 million and $3.9 million, respectively, of such adjustments through the provision for income taxes and noninterest income.

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Derivative Financial Instruments - Fair Value Hedges (Details) $ in Thousands	Dec. 31, 2019 USD ($) derivative	Dec. 31, 2018 USD ($)
Fair value hedges
Fair hedges carried
Fixed interest rate (as a percent)	2.90%
Interest rate swaps | Fair value hedges
Fair hedges carried
Number of derivatives carried | derivative	1
Derivatives designated as hedging instruments | Interest rate swaps
Fair hedges carried
Notional amounts	$ 23,190	$ 41,317
Derivatives designated as hedging instruments | Interest rate swaps | Fair value hedges
Fair hedges carried
Notional amounts	23,200	41,300
Positive fair value
Negative fair value	$ 700

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Accumulated Other Comprehensive Income (Loss)

12 Months Ended

Dec. 31, 2019

Accumulated Other Comprehensive Income (Loss) [Abstract]

Accumulated Other Comprehensive Income (Loss).

12. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) is defined as the revenues, expenses, gains and losses that are included in comprehensive income, but excluded from net income. The Company’s significant items of accumulated other comprehensive income (loss) are pension and other benefits, investment securities and cash flow derivative hedges. Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2019, 2018 and 2017 are presented below:

			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at December 31, 2018	$	(180,915)	$	48,720	$	(132,195)
Year ended December 31, 2019
Pension and other benefits:
Net actuarial losses arising during the year		(5,774)		1,555		(4,219)
Prior service credit		(429)		115		(314)
Amortization of net loss included in net income		6,610		(1,780)		4,830
Net change in pension and other benefits		407		(110)		297
Investment securities:
Unrealized net gains arising during the year		134,343		(36,178)		98,165
Reclassification of net losses to net income:
Investment securities losses, net		2,715		(731)		1,984
Net change in investment securities		137,058		(36,909)		100,149
Other comprehensive income		137,465		(37,019)		100,446
Accumulated other comprehensive loss at December 31, 2019	$	(43,450)	$	11,701	$	(31,749)

			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at December 31, 2017	$	(159,423)	$	63,040	$	(96,383)
Year ended December 31, 2018
Early adoption of ASU No. 2018-02		—		(20,068)		(20,068)
Pension and other benefits:
Net actuarial losses arising during the year		(2,835)		763		(2,072)
Prior service credit		(429)		116		(313)
Amortization of net loss included in net income		7,315		(1,970)		5,345
Net change in pension and other benefits		4,051		(1,091)		2,960
Investment securities:
Unrealized net losses arising during the year		(43,545)		11,686		(31,859)
Reclassification of net gains to net income:
OTTI losses on available-for-sale debt securities, net		24,085		(6,485)		17,600
Net change in investment securities		(19,460)		5,201		(14,259)
Cash flow derivative hedges:
Unrealized net gains on cash flow derivative hedges arising during the year		1,475		(397)		1,078
Reclassification of net gains to net income:
Other noninterest expense		(7,558)		2,035		(5,523)
Net change in cash flow derivative hedges		(6,083)		1,638		(4,445)
Other comprehensive loss		(21,492)		5,748		(15,744)
Accumulated other comprehensive loss at December 31, 2018	$	(180,915)	$	48,720	$	(132,195)

			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at December 31, 2016	$	(145,472)	$	57,461	$	(88,011)
Year ended December 31, 2017
Pension and other benefits:
Net actuarial losses arising during the year		(1,104)		436		(668)
Prior service credit		(429)		170		(259)
Amortization of net loss included in net income		8,625		(3,407)		5,218
Net change in pension and other benefits		7,092		(2,801)		4,291
Investment securities:
Unrealized net losses arising during the year		(23,516)		9,357		(14,159)
Net change in investment securities		(23,516)		9,357		(14,159)
Cash flow derivative hedges:
Unrealized net gains on cash flow derivative hedges arising during the year		2,473		(977)		1,496
Net change in cash flow derivative hedges		2,473		(977)		1,496
Other comprehensive loss		(13,951)		5,579		(8,372)
Accumulated other comprehensive loss at December 31, 2017	$	(159,423)	$	63,040	$	(96,383)

The following table summarizes changes in accumulated other comprehensive loss, net of tax, for the years indicated:

	Pensions						Accumulated
	and				Cash Flow		Other
	Other		Investment		Derivative		Comprehensive
(dollars in thousands)	Benefits		Securities		Hedges		Income (Loss)
Year Ended December 31, 2019
Balance at beginning of year	$	(28,379)	$	(103,816)	$	—	$	(132,195)
Other comprehensive income		297		100,149		—		100,446
Balance at end of year	$	(28,082)	$	(3,667)	$	—	$	(31,749)
Year Ended December 31, 2018
Balance at beginning of year	$	(25,946)	$	(74,117)	$	3,680	$	(96,383)
Early adoption of ASU No. 2018-02		(5,393)		(15,440)		765		(20,068)
Other comprehensive income (loss)		2,960		(14,259)		(4,445)		(15,744)
Balance at end of year	$	(28,379)	$	(103,816)	$	—	$	(132,195)
Year Ended December 31, 2017
Balance at beginning of year	$	(30,237)	$	(59,958)	$	2,184	$	(88,011)
Other comprehensive income (loss)		4,291		(14,159)		1,496		(8,372)
Balance at end of year	$	(25,946)	$	(74,117)	$	3,680	$	(96,383)

As of December 31, 2019, there was no non-credit OTTI loss on securities available for sale. An OTTI loss on available-for-sale debt securities of $24.1 million was  recorded due to the Company’s intent to sell as of December 31, 2018.  

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Earnings per Share

12 Months Ended

Dec. 31, 2019

Earnings per Share

Earnings per Share

20. Earnings per Share

The Company made no adjustments to net income for the purposes of computing earnings per share and there were no antidilutive securities.

The computations of basic and diluted earnings per share were as follows for the years ended December 31, 2019, 2018 and 2017:

	Year Ended December 31,
(dollars in thousands, except shares and per share amounts)	2019		2018		2017
Numerator:
Net income	$	284,392	$	264,394	$	183,682
Denominator:
Basic: weighted-average shares outstanding		133,076,489		136,945,134		139,560,305
Add: weighted-average equity-based awards		310,668		166,286		96,688
Diluted: weighted-average shares outstanding		133,387,157		137,111,420		139,656,993
Basic earnings per share	$	2.14	$	1.93	$	1.32
Diluted earnings per share	$	2.13	$	1.93	$	1.32

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Income Taxes - Reconciliation of Unrecognized Tax Benefits - (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Tax
Balance	$ 131,570	$ 130,619	$ 127,085
Additions for current year tax positions	1,038	2,260	2,727
Additions for Reorganization Transactions				$ 121,400
Additions for prior years' tax positions: New uncertain tax positions identified	1,894
Additions for prior years' tax positions: Other			1,152
Reductions for prior years' tax positions: Expiration of statute of limitations	(190)	(280)	(345)
Reductions for prior years' tax positions: Other		(1,029)
Balance	134,312	131,570	130,619	127,085
Interest and Penalties
Balance	12,524	10,660	9,965
Additions for Reorganization Transactions	986	832	226	7,000
Additions for prior years' tax positions: Accrual of interest and penalties	1,280	1,159	621
Reductions for prior years' tax positions: Expiration of statute of limitations	(89)	(127)	(152)
Balance	14,701	12,524	10,660	9,965
Total
Balance	144,094	141,279	137,050
Additions for current year tax positions	1,038	2,260	2,727
Additions for Reorganization Transactions	986	832	226
Additions for prior years' tax positions: New uncertain tax positions identified	1,894
Additions for prior years' tax positions: Accrual of interest and penalties	1,280	1,159	621
Additions for prior years' tax positions: Other			1,152
Reductions for prior years' tax positions: Expiration of statute of limitations	(279)	(407)	(497)
Reductions for prior years' tax positions: Other		(1,029)
Balance	149,013	144,094	141,279	$ 137,050
Unrecognized tax benefits
Amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate	19,100	16,200	14,900
Unrecognized tax benefits attributable to tax refund claims in State of California	93,900	93,900
Unrecognized tax benefits, reasonably possible to decrease within the next 12 months	1,400
Unrecognized interest and penalties, reasonably possible to decrease within the next 12 months	900
Net expense attributable to interest and penalties recorded	2,400	1,000	$ 700
Accrued interest and penalties attributable to uncertain tax positions and undisputed tax adjustments	16,300	13,800
Accrued interest and penalties attributable to unrecognized tax benefits	14,700	$ 12,500
Determination of taxes benefit is currently recognized	$ 0

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Benefit Plans - Fair Value Measurement of Plan Assets (Details) - Pension Benefits - USD ($)	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Benefit plans
Fair value of plan assets	$ 112,659,000	$ 99,581,000	$ 114,220,000
Percentage of total	100.00%	100.00%
Minimum
Benefit plans
Percentage of assets in high-grade corporate bonds and U.S. government debt obligations	80.00%
Cash and cash equivalents
Benefit plans
Fair value of plan assets	$ 2,824,000	$ 2,428,000
Fixed income securities
Benefit plans
Percentage of total	66.20%	68.70%
U.S. Treasury securities
Benefit plans
Fair value of plan assets	$ 4,053,000	$ 4,450,000
Government agency debt securities
Benefit plans
Fair value of plan assets	3,504,000	3,565,000
Fixed income - U.S. corporate securities
Benefit plans
Fair value of plan assets	58,808,000	53,721,000
Fixed income - municipal securities
Benefit plans
Fair value of plan assets	484,000	451,000
Fixed income - mutual funds
Benefit plans
Fair value of plan assets	6,204,000	6,272,000
Fixed income - international securities
Benefit plans
Fair value of plan assets	1,544,000
Equity - large-cap mutual funds
Benefit plans
Fair value of plan assets		8,831,000
Equity - large-cap exchange-traded fund
Benefit plans
Fair value of plan assets	23,278,000	10,482,000
Equity - mid-cap exchange-traded funds
Benefit plans
Fair value of plan assets	3,379,000	2,544,000
Equity - small-cap exchange-traded funds
Benefit plans
Fair value of plan assets	1,645,000	1,176,000
Equity - international funds
Benefit plans
Fair value of plan assets	6,936,000	5,661,000
Level 1
Benefit plans
Fair value of plan assets	45,810,000	37,394,000
Level 1 | Cash and cash equivalents
Benefit plans
Fair value of plan assets	2,824,000	2,428,000
Level 1 | Fixed income - mutual funds
Benefit plans
Fair value of plan assets	6,204,000	6,272,000
Level 1 | Fixed income - international securities
Benefit plans
Fair value of plan assets	1,544,000
Level 1 | Equity - large-cap mutual funds
Benefit plans
Fair value of plan assets		8,831,000
Level 1 | Equity - large-cap exchange-traded fund
Benefit plans
Fair value of plan assets	23,278,000	10,482,000
Level 1 | Equity - mid-cap exchange-traded funds
Benefit plans
Fair value of plan assets	3,379,000	2,544,000
Level 1 | Equity - small-cap exchange-traded funds
Benefit plans
Fair value of plan assets	1,645,000	1,176,000
Level 1 | Equity - international funds
Benefit plans
Fair value of plan assets	6,936,000	5,661,000
Level 2
Benefit plans
Fair value of plan assets	66,849,000	62,187,000
Level 2 | U.S. Treasury securities
Benefit plans
Fair value of plan assets	4,053,000	4,450,000
Level 2 | Government agency debt securities
Benefit plans
Fair value of plan assets	3,504,000	3,565,000
Level 2 | Fixed income - U.S. corporate securities
Benefit plans
Fair value of plan assets	58,808,000	53,721,000
Level 2 | Fixed income - municipal securities
Benefit plans
Fair value of plan assets	484,000	451,000
Level 3
Benefit plans
Fair value of plan assets	$ 0	$ 0

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Stock-Based Compensation - Expense (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Stock-based compensation
Stock-based compensation expense	$ 7.8	$ 6.9	$ 3.1
Related income tax benefit of stock-based compensation	$ 2.0	$ 1.8	$ 1.6
Employee stock-based compensation plan
Stock-based compensation
Total shares authorized	5,600,000
Shares available for future grants	4,300,000
Non-employee director plan
Stock-based compensation
Total shares authorized	75,000
Shares available for future grants	34,842

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Stock-Based Compensation - Employee Stock Purchase Plan (Details) - shares	1 Months Ended		12 Months Ended
	Jan. 31, 2018	Jan. 31, 2017	Dec. 31, 2019
Employee Stock Purchase Plan
Stock-based compensation
Total shares authorized			600,000
Shares available for future purchases			571,698
Employee Stock Purchase Plan
Stock-based compensation
Discount from the closing price on the exercise date (as a percent)	5.00%	5.00%
Holding period for common stock purchased by plan participants			2 years
Shares issued to employee participants	12,341	15,961

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Derivative Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2019

Derivative Financial Instruments

Summary of notional amounts and fair values of derivatives held

	December 31, 2019						December 31, 2018
			Fair Value						Fair Value
	Notional		Asset		Liability		Notional		Asset		Liability
(dollars in thousands)	Amount		Derivatives(1)		Derivatives(2)		Amount		Derivatives(1)		Derivatives(2)
Derivatives designated as hedging instruments:
Interest rate swaps	$	23,190	$	—	$	(682)	$	41,317	$	31	$	(44)
Derivatives not designated as hedging instruments:
Interest rate swaps		2,818,803		63,527		—		2,269,247		12,305		(12,007)
Funding swap		82,900		—		(4,233)		62,039		—		(2,607)
Foreign exchange contracts		1,428		12		—		1,191		—		(34)

(1) The positive fair values of derivative assets are included in other assets.

(2) The negative fair values of derivative liabilities are included in other liabilities.

Schedule of net gains and losses recognized in income related to derivatives in fair value hedging relationships

	Gains (losses) recognized in
	the consolidated statements	December 31,
(dollars in thousands)	of income line item	2019		2018		2017
Gains (losses) on fair value hedging relationships recognized in interest income(1):
Recognized on interest rate swap	Loans and lease financing	$	(671)	$	—	$	—
Recognized on hedged item	Loans and lease financing		735		—		—
Gains (losses) on fair value hedging relationships recognized in noninterest income(2):
Recognized on interest rate swap	Other	$	—	$	629	$	846
Recognized on hedged item	Other		—		(723)		(841)

Schedule of amounts related to cumulative basis adjustments for fair value hedges

					Cumulative Amount of Fair Value
					Hedging Adjustment Included in the
	Carrying Amount of the Hedged Asset				Carrying Amount of the Hedged Asset
(dollars in thousands)	December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018
Line item in the consolidated balance sheets in which the hedged item is included
Loans and leases	$	24,415	$	42,496	$	1,017	$	293

Summary of effect of cash flow hedging relationships

	December 31,
(dollars in thousands)	2018		2017
Pretax gains recognized in other comprehensive income on derivatives (effective portion)	$	1,475	$	2,473
Pretax gain reclassified from accumulated other comprehensive income		(7,558)		—

Summary of impact on pretax earnings of derivatives not designated as hedges

	Net gains (losses) recognized
	in the consolidated statements	December 31,
(dollars in thousands)	of income line item	2019		2018		2017
Derivatives Not Designated As Hedging Instruments:
Interest rate swaps	Other noninterest income	$	16	$	574	$	819
Funding swap	Other noninterest income		(5,355)		(172)		(169)
Foreign exchange contracts	Other noninterest income		12		(58)		171

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Deposits (Tables)

12 Months Ended

Dec. 31, 2019

Deposits

Schedule of deposits by category

(dollars in thousands)	2019		2018
U.S.:
Interest-bearing	$	9,782,957	$	10,393,449
Noninterest-bearing		5,188,696		5,368,729
Foreign:
Interest-bearing		781,965		748,678
Noninterest-bearing		691,376		639,212
Total deposits	$	16,444,994	$	17,150,068

Schedule of maturity distribution of time certificates of deposit

The following table presents the maturity distribution of time certificates of deposit as of December 31, 2019:

	Under		$250,000
(dollars in thousands)	$250,000		or More		Total
Three months or less	$	260,198	$	772,794	$	1,032,992
Over three through six months		215,191		242,008		457,199
Over six through twelve months		321,555		215,211		536,766
2021		98,344		55,118		153,462
2022		128,845		59,185		188,030
2023		59,069		12,167		71,236
2024		59,547		10,893		70,440
Thereafter		32		—		32
Total	$	1,142,781	$	1,367,376	$	2,510,157

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Fair Value - Financial Instruments not Required to be Carried at Fair Value (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Lease and lease commitments excluded
Financing leases	$ 202,500	$ 147,800
Deposit liabilities with no defined or contractual maturity	13,900,000	14,100,000
Capital lease obligations	19	26
Book Value
Financial assets:
Cash and cash equivalents	694,017	1,003,637
Loans held for sale	904	432
Loans	13,009,167	12,928,422
Financial liabilities:
Time Deposits	2,510,157	3,092,164
Short-term borrowings	400,000
Long-term borrowings	200,000	600,000
Estimated Fair Value
Financial assets:
Cash and cash equivalents	694,017	1,003,637
Loans held for sale	904	432
Loans	13,140,898	12,664,170
Financial liabilities:
Time Deposits	2,501,478	3,058,792
Short-term borrowings	401,709
Long-term borrowings	207,104	602,088
Estimated Fair Value | Level 1
Financial assets:
Cash and cash equivalents	360,375	396,836
Estimated Fair Value | Level 2
Financial assets:
Cash and cash equivalents	333,642	606,801
Loans held for sale	904	432
Financial liabilities:
Time Deposits	2,501,478	3,058,792
Short-term borrowings	401,709
Long-term borrowings	207,104	602,088
Estimated Fair Value | Level 3
Financial assets:
Loans	$ 13,140,898	$ 12,664,170

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Regulatory Capital Requirements (Tables)

12 Months Ended

Dec. 31, 2019

Regulatory Capital Requirements

Schedule of regulatory capital ratios

					First Hawaiian				Minimum		Well-
	First Hawaiian, Inc.				Bank				Capital		Capitalized
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Ratio(1)		Ratio(1)
December 31, 2019:
Common equity tier 1 capital to risk-weighted assets	$	1,676,515	11.88	%	$	1,654,304	11.72	%	4.50	%	6.50	%
Tier 1 capital to risk-weighted assets		1,676,515	11.88	%		1,654,304	11.72	%	6.00	%	8.00	%
Total capital to risk-weighted assets		1,807,645	12.81	%		1,785,434	12.65	%	8.00	%	10.00	%
Tier 1 capital to average assets (leverage ratio)		1,676,515	8.79	%		1,654,304	8.67	%	4.00	%	5.00	%
December 31, 2018:
Common equity tier 1 capital to risk-weighted assets	$	1,661,542	11.97	%	$	1,658,172	11.94	%	4.50	%	6.50	%
Tier 1 capital to risk-weighted assets		1,661,542	11.97	%		1,658,172	11.94	%	6.00	%	8.00	%
Total capital to risk-weighted assets		1,803,860	12.99	%		1,800,490	12.97	%	8.00	%	10.00	%
Tier 1 capital to average assets (leverage ratio)		1,661,542	8.72	%		1,658,172	8.70	%	4.00	%	5.00	%

(1) As defined by the regulations issued by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the FDIC.

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Transactions with Affiliates and Related Parties - Loans to Executive Officers, Directors and Affiliates (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Changes in loans executive officers, directors and affiliates
Balance at beginning of year	$ 66,088	$ 61,603	$ 94,466
New loans made	22,682	6,756	3,762
Repayments	(3,490)	(2,271)	(36,625)
Balance at end of year	$ 85,280	$ 66,088	$ 61,603

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Long-Term Borrowings - Future Contractual Principal Payments (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Future contractual principal payments and maturities on long term borrowings
2020	$ 9
2021	10
2023	100,000
2024	100,000
Total	$ 200,019	$ 600,026
Finance lease
Future contractual principal payments and maturities on long term borrowings
Interest rate (as a percent)	6.78%	6.78%
Short-term FHLB fixed-rate advance:
Future contractual principal payments and maturities on long term borrowings
Total	$ 200,000	$ 600,000
Interest rate (as a percent)	2.73%
Short-term FHLB fixed-rate advance: | December 4, 2020
Future contractual principal payments and maturities on long term borrowings
Interest rate (as a percent)	2.80%
Short-term FHLB fixed-rate advance: | January 15, 2021
Future contractual principal payments and maturities on long term borrowings
Interest rate (as a percent)	2.65%

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Deposits - Maturity Distribution of Time Certificates of Deposits (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Maturity distribution of time certificates of deposit
Three months or less	$ 1,032,992
Over three through six months	457,199
Over six through twelve months	536,766
2021	153,462
2022	188,030
2023	71,236
2024	70,440
Thereafter	32
Total	2,510,157
Under $250,000
Maturity distribution of time certificates of deposit
Three months or less	260,198
Over three through six months	215,191
Over six through twelve months	321,555
2021	98,344
2022	128,845
2023	59,069
2024	59,547
Thereafter	32
Total	1,142,781
$250,000 or More
Maturity distribution of time certificates of deposit
Three months or less	772,794
Over three through six months	242,008
Over six through twelve months	215,211
2021	55,118
2022	59,185
2023	12,167
2024	10,893
Total	$ 1,367,376

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Organization and Basis of Presentation - Goodwill (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Organization and Summary of Significant Accounting Policies
Impairment of goodwill	$ 0	$ 0	$ 0

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Fair Value (Tables)

12 Months Ended

Dec. 31, 2019

Fair Value

Schedule of assets and liabilities measured at fair value on a recurring basis

	Fair Value Measurements as of December 31, 2019
	Quoted Prices in		Significant
	Active Markets for		Other		Significant
	Identical Assets		Observable		Unobservable
(dollars in thousands)	(Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
Assets
U.S. Treasury securities	$	—	$	29,888	$	—	$	29,888
Government-sponsored enterprises debt securities		—		101,439		—		101,439
Mortgage-backed securities:
Residential - Government agency(1)		—		291,209		—		291,209
Residential - Government-sponsored enterprises(1)		—		399,492		—		399,492
Commercial - Government-sponsored enterprises		—		101,719		—		101,719
Collateralized mortgage obligations:
Government agency		—		2,381,278		—		2,381,278
Government-sponsored enterprises		—		770,619		—		770,619
Total available-for-sale securities		—		4,075,644		—		4,075,644
Other assets(2)		—		63,539		—		63,539
Liabilities
Other liabilities(3)		—		(682)		(4,233)		(4,915)
Total	$	—	$	4,138,501	$	(4,233)	$	4,134,268

	Fair Value Measurements as of December 31, 2018
	Quoted Prices in		Significant
	Active Markets for		Other		Significant
	Identical Assets		Observable		Unobservable
(dollars in thousands)	(Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
Assets
U.S. Treasury securities	$	—	$	389,470	$	—	$	389,470
Government-sponsored enterprises debt securities		—		241,594		—		241,594
Mortgage-backed securities:
Residential - Government agency(1)		—		411,536		—		411,536
Residential - Government-sponsored enterprises(1)		—		150,847		—		150,847
Collateralized mortgage obligations:
Government agency		—		2,682,449		—		2,682,449
Government-sponsored enterprises		—		602,592		—		602,592
Debt securities issued by states and political subdivisions		—		19,854		—		19,854
Total available-for-sale securities		—		4,498,342		—		4,498,342
Other assets(2)		—		12,336		—		12,336
Liabilities
Other liabilities(3)		—		(12,085)		(2,607)		(14,692)
Total	$	—	$	4,498,593	$	(2,607)	$	4,495,986

(1) Backed by residential real estate.

(2) Other assets include derivative assets.

(3) Other liabilities include derivative liabilities.

Summary of changes in Level 3 liabilities measured at fair value on a recurring basis

	Visa Derivative
(dollars in thousands)	2019		2018
Year Ended December 31,
Balance as of January 1,	$	(2,607)	$	(5,439)
Total net losses included in other noninterest income		(5,354)		(173)
Settlements		3,728		3,005
Balance as of December 31,	$	(4,233)	$	(2,607)
Total net losses included in net income attributable to the change in unrealized gains or losses related to liabilities still held as of December 31,	$	(5,354)	$	(173)

Summary of estimated fair value of financial instruments not required to be carried at fair value on a recurring basis

	December 31, 2019
			Fair Value Measurements
			Quoted Prices in		Significant		Significant
			Active Markets		Other		Unobservable
			for Identical		Observable		Inputs
(dollars in thousands)	Book Value		Assets (Level 1)		Inputs (Level 2)		(Level 3)		Total
Financial assets:
Cash and cash equivalents	$	694,017	$	360,375	$	333,642	$	—	$	694,017
Loans held for sale		904		—		904		—		904
Loans(1)		13,009,167		—		—		13,140,898		13,140,898
Financial liabilities:
Time deposits(2)	$	2,510,157	$	—	$	2,501,478	$	—	$	2,501,478
Short-term borrowings		400,000		—		401,709		—		401,709
Long-term borrowings(3)		200,000		—		207,104		—		207,104

	December 31, 2018
			Fair Value Measurements
			Quoted Prices in		Significant		Significant
			Active Markets		Other		Unobservable
			for Identical		Observable		Inputs
(dollars in thousands)	Book Value		Assets (Level 1)		Inputs (Level 2)		(Level 3)		Total
Financial assets:
Cash and cash equivalents	$	1,003,637	$	396,836	$	606,801	$	—	$	1,003,637
Loans held for sale		432		—		432		—		432
Loans(1)		12,928,422		—		—		12,664,170		12,664,170
Financial liabilities:
Time deposits(2)	$	3,092,164	$	—	$	3,058,792	$	—	$	3,058,792
Long-term borrowings(3)		600,000		—		602,088		—		602,088

(1) Excludes financing leases of $202.5 million at December 31, 2019 and $147.8 million at December 31, 2018.

(2) Excludes deposit liabilities with no defined or contractual maturity of $13.9 billion at December 31, 2019 and $14.1 billion at December 31, 2018.

(3) Excludes capital lease obligations of $19 thousand and $26 thousand at December 31, 2019 and 2018, respectively.

Schedule of assets with fair value adjustments on a nonrecurring basis

(dollars in thousands)	Level 1		Level 2		Level 3
December 31, 2019
Impaired loans	$	—	$	—	$	1,502
December 31, 2018
Impaired loans	$	—	$	—	$	402

Significant unobservable inputs used in fair value measurements for Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis

	Quantitative Information about Level 3 Fair Value Measurements at December 31, 2019
				Significant	Range
(dollars in thousands)	Fair value		Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans	$	1,502	Appraisal Value	Appraisal Value	n/m(1)
Visa derivative	$	(4,233)	Discounted Cash Flow	Expected Conversion Rate	1.6228
				Expected Term	1 year
				Growth Rate	13%

	Quantitative Information about Level 3 Fair Value Measurements at December 31, 2018
					Range
(dollars in thousands)	Fair value		Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans	$	402	Appraisal Value	Appraisal Value	n/m(1)
Visa derivative	$	(2,607)	Discounted Cash Flow	Expected Conversion Rate	1.6298
				Expected Term	4 years
				Growth Rate	15%

(1) The fair value of these assets is determined based on appraised values of collateral or broker price opinions, the range of which is not meaningful to disclose.

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Commitments and Contingent Liabilities (Tables)

12 Months Ended

Dec. 31, 2019

Commitments and Contingent Liabilities

Schedule of financial instruments with off-balance sheet risk

	December 31,
(dollars in thousands)	2019		2018
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	5,907,690	$	5,549,591
Standby letters of credit		181,412		204,324
Commercial letters of credit		7,334		7,535

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Reportable Operating Segments - Selected Business Segment Financial Information (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Selected business segment financial information
Net interest income (expense)	$ 573,402	$ 566,318	$ 528,804
Provision for loan and lease losses	(13,800)	(22,180)	(18,500)
Net interest income after provision for loan and lease losses	559,602	544,138	510,304
Noninterest income	192,533	178,993	205,605
Noninterest expense	(370,437)	(364,953)	(347,554)
Income before provision for income taxes	381,698	358,178	368,355
(Provision) benefit for income taxes	(97,306)	(93,784)	(184,673)
Net income (loss)	284,392	264,394	183,682
Assets	20,166,734	20,695,678	20,549,461
Total OTTI write-downs included in earnings		24,085
Gains on sale of real estate			6,922
Retail Banking
Selected business segment financial information
Net interest income (expense)	413,029	420,165	409,796
Provision for loan and lease losses	(6,248)	(8,753)	(6,837)
Net interest income after provision for loan and lease losses	406,781	411,412	402,959
Noninterest income	95,413	89,669	89,372
Noninterest expense	(228,389)	(225,881)	(223,652)
Income before provision for income taxes	273,805	275,200	268,679
(Provision) benefit for income taxes	(69,285)	(70,335)	(130,130)
Net income (loss)	204,520	204,865	138,549
Assets	7,276,047	7,078,016	7,003,724
Commercial Banking
Selected business segment financial information
Net interest income (expense)	141,227	140,333	131,692
Provision for loan and lease losses	(7,552)	(13,427)	(11,663)
Net interest income after provision for loan and lease losses	133,675	126,906	120,029
Noninterest income	73,635	80,904	75,566
Noninterest expense	(82,380)	(80,766)	(68,167)
Income before provision for income taxes	124,930	127,044	127,428
(Provision) benefit for income taxes	(32,298)	(32,700)	(57,857)
Net income (loss)	92,632	94,344	69,571
Assets	6,071,356	6,346,541	5,462,370
Treasury and Other
Selected business segment financial information
Net interest income (expense)	19,146	5,820	(12,684)
Net interest income after provision for loan and lease losses	19,146	5,820	(12,684)
Noninterest income	23,485	8,420	40,667
Noninterest expense	(59,668)	(58,306)	(55,735)
Income before provision for income taxes	(17,037)	(44,066)	(27,752)
(Provision) benefit for income taxes	4,277	9,251	3,314
Net income (loss)	(12,760)	(34,815)	(24,438)
Assets	$ 6,819,331	$ 7,271,121	$ 8,083,367

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Organization and Basis of Presentation - Transition to an Independent Public Company (Details) - First Hawaiian, Inc. (FHI) - USD ($)				1 Months Ended				12 Months Ended
	Feb. 01, 2019	Feb. 17, 2017	Aug. 09, 2016	Sep. 30, 2018	Aug. 31, 2018	Jun. 30, 2018	May 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Reorganization Transactions
Outstanding common stock owned (as a percent)								100.00%
BNP Paribas (BNPP)
Reorganization Transactions
Outstanding common stock owned after sales of shares (as a percent)	0.00%
Initial public offering | BNP Paribas (BNPP)
Reorganization Transactions
Number of shares sold			24,250,000
Secondary offering | BNP Paribas (BNPP)
Reorganization Transactions
Number of shares sold		28,750,000		20,000,000	20,000,000	16,830,000	16,830,000
Share repurchase agreements | BNP Paribas (BNPP)
Reorganization Transactions
Number of shares sold					1,801,801		2,968,069
Completion of public offering
Reorganization Transactions
Proceeds from the sales of shares								$ 0	$ 0	$ 0
Completion of public offering | BNP Paribas (BNPP)
Reorganization Transactions
Number of shares sold	24,859,750

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Fair Value - Unfunded Loan and Lease Commitments and Letters of Credit (Details) - USD ($) $ in Millions	Dec. 31, 2019	Dec. 31, 2018
Unfunded loan and lease commitments and letters of credit
Aggregate commitments to extend credit, standby letters of credit and commercial letters of credit	$ 6,100.0	$ 5,800.0
Level 3
Unfunded loan and lease commitments and letters of credit
Estimated fair value of unfunded loan and lease commitments and letters of credit	$ 14.4	$ 14.2

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Investment Securities - Other-Than-Temporary Impairment (Details)	1 Months Ended	12 Months Ended
	Jan. 31, 2019 USD ($) security	Dec. 31, 2019 USD ($) security	Dec. 31, 2018 USD ($) security
Investment securities
Total OTTI write-downs included in earnings			$ (24,085,000)
Number of securities intended to sell or sold | security	48	0	48
Amortized cost of securities intended to sell			$ 898,200,000
Additional loss from sale of securities	$ 2,600,000
Expected credit losses in debt securities		$ 0	0
OTTI related to credit losses		$ 0	0
U.S. Treasury securities
Investment securities
Total OTTI write-downs included in earnings			(13,634,000)
Government-sponsored enterprises debt securities
Investment securities
Total OTTI write-downs included in earnings			(1,344,000)
Residential - Government agency
Investment securities
Total OTTI write-downs included in earnings			(146,000)
Residential - Government-sponsored enterprises
Investment securities
Total OTTI write-downs included in earnings			(763,000)
Government agency
Investment securities
Total OTTI write-downs included in earnings			(5,064,000)
Government-sponsored enterprises
Investment securities
Total OTTI write-downs included in earnings			(2,711,000)
Debt securities issued by states and political subdivisions
Investment securities
Total OTTI write-downs included in earnings			$ (423,000)

XML

Premises and Equipment - Components and Depreciation and Amortization Expenses (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Components of premises and equipment
Premises and equipment	$ 547,071	$ 522,813
Less: Accumulated depreciation and amortization	230,186	217,817
Net book value	316,885	304,996
Depreciation and amortization expenses	14,522	15,303	$ 15,278
Occupancy
Components of premises and equipment
Depreciation and amortization expenses	9,037	8,815	8,852
Equipment
Components of premises and equipment
Depreciation and amortization expenses	5,485	6,488	$ 6,426
Buildings
Components of premises and equipment
Premises and equipment	289,271	280,853
Less: Accumulated depreciation and amortization	141,300	133,700
Furniture and equipment
Components of premises and equipment
Premises and equipment	86,485	81,342
Land
Components of premises and equipment
Premises and equipment	106,487	105,302
Leasehold improvements
Components of premises and equipment
Premises and equipment	$ 64,828	$ 55,316

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Other Assets - Quantitative Assumptions Used for MSRs (Details)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Minimum
Quantitative assumptions used in determining lower of cost or fair value of MSRs
Conditional prepayment rate (as a percent)	10.74%	7.86%
Life in years (of the MSR)	2 years 14 days	3 years 5 months 4 days
Weighted-average coupon rate (as a percent)	3.96%	3.97%
Discount rate (as a percent)	10.00%	10.00%
Maximum
Quantitative assumptions used in determining lower of cost or fair value of MSRs
Conditional prepayment rate (as a percent)	23.39%	19.26%
Life in years (of the MSR)	6 years 3 months 29 days	7 years 8 months 4 days
Weighted-average coupon rate (as a percent)	7.26%	6.70%
Discount rate (as a percent)	10.01%	10.02%
Weighted Average
Quantitative assumptions used in determining lower of cost or fair value of MSRs
Conditional prepayment rate (as a percent)	11.10%	8.31%
Life in years (of the MSR)	5 years 11 months 26 days	7 years 2 months 8 days
Weighted-average coupon rate (as a percent)	4.01%	4.02%
Discount rate (as a percent)	10.00%	10.00%

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Allowance for Loan and Lease Losses - Activity (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($) segment class	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Allowance for loan and lease losses
Number of primary portfolio segments | segment	3
Allowance for loan and lease losses:
Balance at beginning of period	$ 141,718	$ 137,253	$ 135,494
Charge-offs	(35,987)	(27,573)	(25,925)
Recoveries	10,999	9,858	9,184
Increase (decrease) in Provision	13,800	22,180	18,500
Balance at end of period	130,530	141,718	137,253
Individually evaluated for impairment				$ 203	$ 536	$ 494
Collectively evaluated for impairment				130,327	141,182	136,759
Total allowance for loan and lease losses	$ 141,718	137,253	135,494	130,530	141,718	137,253
Loans and leases:
Individually evaluated for impairment				20,638	30,576	45,349
Collectively evaluated for impairment				13,191,012	13,045,615	12,232,020
Total loans and leases				13,211,650	13,076,191	12,277,369
Commercial Lending
Allowance for loan and lease losses
Number of distinct portfolios | class	4
Commercial and Industrial
Allowance for loan and lease losses:
Balance at beginning of period	$ 34,501	34,006	33,129
Charge-offs	(2,718)	(778)	(1,519)
Recoveries	410	232	844
Increase (decrease) in Provision	(3,218)	1,041	1,552
Balance at end of period	28,975	34,501	34,006
Individually evaluated for impairment				46	108	4
Collectively evaluated for impairment				28,929	34,393	34,002
Total allowance for loan and lease losses	28,975	34,006	34,006	28,975	34,501	34,006
Loans and leases:
Individually evaluated for impairment				4,951	8,719	18,183
Collectively evaluated for impairment				2,738,291	3,200,041	3,117,083
Total loans and leases				2,743,242	3,208,760	3,135,266
Commercial real estate
Allowance for loan and lease losses:
Balance at beginning of period	19,725	18,044	18,448
Recoveries	263	216	596
Increase (decrease) in Provision	2,337	1,465	(1,000)
Balance at end of period	22,325	19,725	18,044
Individually evaluated for impairment				27	32	6
Collectively evaluated for impairment				22,298	19,693	18,038
Total allowance for loan and lease losses	22,325	18,044	18,044	22,325	19,725	18,044
Loans and leases:
Individually evaluated for impairment				723	5,743	10,636
Collectively evaluated for impairment				3,463,230	2,985,040	2,656,961
Total loans and leases				3,463,953	2,990,783	2,667,597
Construction
Allowance for loan and lease losses:
Balance at beginning of period	5,813	6,817	4,513
Increase (decrease) in Provision	(969)	(1,004)	2,304
Balance at end of period	4,844	5,813	6,817
Collectively evaluated for impairment				4,844	5,813	6,817
Total allowance for loan and lease losses	4,844	6,817	4,513	4,844	5,813	6,817
Loans and leases:
Collectively evaluated for impairment				519,241	626,757	632,911
Total loans and leases				519,241	626,757	632,911
Lease financing
Allowance for loan and lease losses:
Balance at beginning of period	432	611	847
Charge-offs	(24)		(147)
Increase (decrease) in Provision	16	(179)	(89)
Balance at end of period	424	432	611
Collectively evaluated for impairment				424	432	611
Total allowance for loan and lease losses	424	611	611	424	432	611
Loans and leases:
Collectively evaluated for impairment				202,483	147,769	165,066
Total loans and leases				202,483	147,769	165,066
Residential
Allowance for loan and lease losses
Specific allocation for impaired loans in which the net collateral value exceeds the unpaid principal balance of the loan				0
Allowance for loan and lease losses:
Balance at beginning of period	44,906	42,852	43,436
Charge-offs	(438)	(165)	(408)
Recoveries	967	940	687
Increase (decrease) in Provision	(6,256)	1,279	(863)
Balance at end of period	39,179	44,906	42,852
Individually evaluated for impairment				130	396	484
Collectively evaluated for impairment				39,049	44,510	42,368
Total allowance for loan and lease losses	39,179	42,852	43,436	39,179	44,906	42,852
Loans and leases:
Individually evaluated for impairment				14,964	16,114	16,530
Collectively evaluated for impairment				4,647,211	4,423,504	4,073,523
Total loans and leases				4,662,175	4,439,618	4,090,053
Consumer
Allowance for loan and lease losses:
Balance at beginning of period	35,813	31,249	28,388
Charge-offs	(32,807)	(26,630)	(23,851)
Recoveries	9,359	8,470	7,057
Increase (decrease) in Provision	22,279	22,724	19,655
Balance at end of period	34,644	35,813	31,249
Collectively evaluated for impairment				34,644	35,813	31,249
Total allowance for loan and lease losses	34,644	31,249	31,249	34,644	35,813	31,249
Loans and leases:
Collectively evaluated for impairment				1,620,556	1,662,504	1,586,476
Total loans and leases				1,620,556	1,662,504	1,586,476
Unallocated
Allowance for loan and lease losses:
Balance at beginning of period	528	3,674	6,733
Increase (decrease) in Provision	(389)	(3,146)	(3,059)
Balance at end of period	139	528	3,674
Collectively evaluated for impairment				139	528	3,674
Total allowance for loan and lease losses	$ 139	$ 3,674	$ 3,674	$ 139	$ 528	$ 3,674

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Benefit Plans - Components of Net Periodic Benefit Cost (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Pension Benefits
Components of net periodic benefit cost
Service cost	$ 14	$ 696
Interest cost	8,261	7,362
Total net periodic benefit cost	10,685	10,100	$ 12,548
Pension Benefits | Salaries and employee benefits
Components of net periodic benefit cost
Service cost	14	696	629
Pension Benefits | Other noninterest expense
Components of net periodic benefit cost
Interest cost	8,261	7,362	8,297
Expected return on plan assets	(4,585)	(5,273)	(5,003)
Recognized net actuarial loss (gain)	6,995	7,315	8,625
Pension Benefits | Funded Plan
Components of net periodic benefit cost
Interest cost	3,808	3,420	3,922
Expected return on plan assets	(4,585)	(5,273)	(5,003)
Recognized net actuarial loss (gain)	3,714	2,600	4,316
Total net periodic benefit cost	2,937	747	3,235
Other Benefits
Components of net periodic benefit cost
Service cost	710	750
Interest cost	808	739
Total net periodic benefit cost	704	1,060	1,085
Other Benefits | Salaries and employee benefits
Components of net periodic benefit cost
Service cost	710	750	738
Other Benefits | Other noninterest expense
Components of net periodic benefit cost
Interest cost	808	739	776
Prior service credit	(429)	$ (429)	$ (429)
Recognized net actuarial loss (gain)	$ (385)

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2019	Dec. 31, 2018
Consolidated Balance Sheets
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized (in shares)	300,000,000	300,000,000
Common stock, issued (in shares)	139,917,150	139,656,674
Common stock outstanding (in shares)	129,928,479	134,874,302
Treasury stock (in shares)	9,988,671	4,782,372

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Document and Entity Information - USD ($) $ in Billions	12 Months Ended
	Dec. 31, 2019	Feb. 20, 2020	Jun. 28, 2019
Document and Entity Information
Entity Registrant Name	FIRST HAWAIIAN, INC.
Entity Central Index Key	0000036377
Document Type	10-K
Document Annual Report	true
Document Transition Report	false
Document Period End Date	Dec. 31, 2019
Entity File Number	001-14585
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	99-0156159
Entity Address, Address Line One	999 Bishop Street, 29th Floor
Entity Address, City or Town	Honolulu
Entity Address, State or Province	HI
Entity Address, Postal Zip Code	96813
City Area Code	808
Local Phone Number	525-7000
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	FHB
Security Exchange Name	NASDAQ
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$ 3.5
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		130,350,725
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY

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Benefit Plans - Amounts Recognized in Other Comprehensive Income (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Pension Benefits
Amounts arising during the year:
Net (gain) loss on pension assets	$ (16,278)	$ 12,209	$ (8,619)
Net loss (gain) on pension obligations	21,512	(6,619)	9,757
Reclassification adjustments recognized as components of net periodic benefit cost during the year:
Net (gain) loss	(6,995)	(7,315)	(8,625)
Amount recognized in other comprehensive income	(1,761)	(1,725)	(7,487)
Other Benefits
Amounts arising during the year:
Net loss (gain) on pension obligations	540	(2,755)	(34)
Reclassification adjustments recognized as components of net periodic benefit cost during the year:
Net (gain) loss	385
Prior service credit	429	429	429
Amount recognized in other comprehensive income	$ 1,354	$ (2,326)	$ 395

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Organization and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2019

Organization and Summary of Significant Accounting Policies

Organization and Summary of Significant Accounting Policies

FIRST HAWAIIAN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Basis of Presentation

First Hawaiian, Inc. (“FHI” or the “Parent”), a bank holding company, owns 100% of the outstanding common stock of First Hawaiian Bank (“FHB” or the “Bank”). FHB is a state-chartered bank that is not a member of the Federal Reserve System. FHB, the oldest financial institution in Hawaii, was established as Bishop & Company in 1858. As of December 31, 2019, FHB was the largest bank in Hawaii in terms of total assets, loans and leases and deposits. FHB has 58 branches located throughout the State of Hawaii, Guam and Saipan, and offers a comprehensive suite of banking services to consumer and commercial customers including loans, deposit products, wealth management, insurance, trust, retirement planning, credit card and merchant processing services.

The accounting and reporting principles of First Hawaiian, Inc. and Subsidiary (the “Company”) conform to U.S. generally accepted accounting principles (“GAAP”) and prevailing practices within the financial services industry. Intercompany accounts and transactions have been eliminated in consolidation.  

Transition to an Independent Public Company

Prior to our initial public offering in August 2016 (“IPO”), we were an indirect wholly owned subsidiary of BNP Paribas (“BNPP”), a global financial institution based in France.  

On April 1, 2016, BNPP effected a series of transactions (“Reorganization Transactions”) pursuant to which FHI, which was then known as BancWest Corporation (“BancWest”), contributed Bank of the West (“BOW”), its subsidiary at the time, to BancWest Holding Inc. (“BWHI”), a newly formed bank holding company and a wholly owned subsidiary of BancWest. Following the contribution of BOW to BWHI, BancWest distributed its interest in BWHI to BNPP, and BWHI became a wholly owned subsidiary of BNPP. As part of these transactions, we amended our certificate of incorporation to change our name to First Hawaiian, Inc., with First Hawaiian Bank remaining our only direct wholly owned subsidiary.

On July 1, 2016, we became an indirect wholly owned subsidiary of BNP Paribas USA, Inc. (“BNP Paribas USA”), BNPP’s U.S. intermediate holding company. As part of that reorganization, we became a direct wholly owned subsidiary of BancWest Corporation (“BWC”), a direct wholly owned subsidiary of BNP Paribas USA.

In August 2016, FHI completed its IPO of 24,250,000 shares of common stock sold by BWC. Shares of FHI’s common stock began trading on the NASDAQ Global Select Market (“NASDAQ”) under the ticker symbol “FHB” on August 4, 2016. In connection with FHI’s IPO, BNPP announced its intent to sell its interest in FHI, including FHI’s wholly owned subsidiary, FHB, over time, subject to market conditions and other considerations.

In February 2017, BWC sold an additional 28,750,000 shares of FHI common stock in a secondary offering. In May and June 2018, BWC sold an additional 16,830,000 shares of FHI common stock in the aggregate in a secondary offering. BWC sold 20,000,000 additional shares of FHI common stock in secondary offerings completed in each of August and September 2018, respectively. BWC sold shares of FHI common stock of 2,968,069 and 1,801,801 in May and August 2018, respectively, to the Company pursuant to share repurchase agreements. On February 1, 2019, BNPP, through BWC, completed the sale of its remaining 24,859,750 shares of FHI common stock in a public offering. FHI did not receive any of the proceeds from the sales of shares of FHI common stock in that offering, in any of the secondary offerings described above or the IPO. As a result of the completion of the February 1, 2019 public offering, BNPP (through BWC, the selling stockholder) fully exited its ownership interest in FHI common stock.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and various other assumptions believed to be reasonable.

Although these estimates are based on management’s best knowledge of current events, actual results may differ from these estimates.

Variable Interest Entities

A variable interest entity (“VIE”) is a legal entity that lacks the ability to financially support its activities or whose equity investors lack the ability to control its activities or absorb profits and losses proportionately with their investment in the entity. The primary beneficiary consolidates the VIE. The primary beneficiary is defined as the enterprise that has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE.

The Company has a limited partnership interest or is a member in a limited liability company (“LLC”) in several low-income housing partnerships. These partnerships or LLCs provide funds for the construction and operation of apartment complexes that provide affordable housing to that segment of the population with lower family income. If these developments successfully attract a specified percentage of residents falling in that lower income range, state and/or federal income tax credits are made available to the partners or members. The tax credits are generally recognized over 10 years. In order to continue receiving the tax credits each year over the life of the partnership or LLC, the low-income residency targets must be maintained.

The Company accounts for its interests in these low-income housing partnerships using the proportional amortization method. Unfunded commitments to fund these investments were $102.8 million and $36.0 million as of December 31, 2019 and 2018, respectively. These unfunded commitments are unconditional and legally binding and are recorded in other liabilities in the consolidated balance sheets.

These low-income housing partnership and LLC entities meet the definition of a VIE; however, the Company is not the primary beneficiary of the entities, as the general partner or managing member has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. While the partnership or LLC agreements allow the limited partners and members, through a majority vote, to remove the general partner or managing member, this right is not deemed to be substantive as the general partner or managing member can only be removed for cause.

Cash and Due from Banks

Cash and due from banks include amounts due from other financial institutions as well as in-transit clearings. Because amounts due from other financial institutions often exceed the Federal Deposit Insurance Corporation (“FDIC”) deposit insurance limit, the Company evaluates the credit risk of these institutions through periodic review of their financial condition and regulatory capital position. Under the terms of the Depository Institutions Deregulation and Monetary Control Act, the Company is required to maintain reserves with the Federal Reserve Bank of San Francisco (“FRB”) based on the amount of deposits held. The average amount of cash reserves required was $67.4 million and $57.6 million for the years ended December 31, 2019 and 2018, respectively. Cash and cash equivalents include cash and due from banks and interest-bearing deposits in other banks. All amounts are readily convertible to cash and have maturities of less than 90 days.

Interest-bearing Deposits in Other Banks

Interest-bearing deposits in other banks include funds held in other financial institutions that are either fixed or variable rate instruments, including certificates of deposits. Interest income is recorded when earned and presented within other interest income in the Company’s consolidated statements of income.

Investment Securities

As of December 31, 2019 and 2018, investment securities were comprised of debt, mortgage-backed securities and collateralized mortgage obligations issued by the U.S. Government, its agencies and government-sponsored enterprises. The Company amortizes premiums and accretes discounts using the interest method over the expected lives of the individual securities. All investment securities transactions are recorded on a trade-date basis. All of the Company’s securities were categorized as available-for-sale as of December 31, 2019 and 2018. Available-for-sale investment

securities are reported at fair value, with unrealized gains and losses reported in accumulated other comprehensive income. Gains and losses realized on sales of investment securities are determined using the specific identification method.  

Unrealized losses for all investment securities are reviewed to determine whether the losses are other than temporary. Investment securities are evaluated for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic and market conditions warrant such an evaluation, to determine whether the decline in fair value below amortized cost is other than temporary. For a debt security for which there has been a decline in the fair value below amortized cost, the Company will recognize an OTTI write-down in noninterest income if there is an intent to sell the security, it is more likely than not the Company will be required to sell the security before recovery of its amortized cost basis, or the Company does not expect to recover the entire amortized cost basis of the security. The OTTI write-down is measured as the entire difference between the amortized cost basis and fair value of the investment security.

Loans Held for Sale

The Company originates certain loans for individual sale or for sale as a pool of loans to government-sponsored enterprises. Loans held for sale are carried, on an aggregate basis, at the lower of cost or fair value. The fair value of loans held for sale is primarily determined based on quoted prices for similar loans in active markets. Net gains and losses on loan sales are recorded as a component of other noninterest income. Direct loan origination costs and fees are deferred at origination of the loan and are recognized in other noninterest income upon sale of the loan.

Loans and Leases

Loans are reported at the principal amount outstanding, net of unearned income including unamortized and unaccreted deferred loan fees and costs, and cumulative net charge-offs. Interest income is recognized on an accrual basis. Loan origination fees, certain direct costs and unearned discounts and premiums, if any, are deferred and are generally accreted or amortized into interest income as yield adjustments using the interest method over the contractual life of the loan. Other credit-related fees are recognized as fee income, a component of noninterest income, when earned.

Direct financing leases are carried at the aggregate of lease payments receivable plus the estimated residual value of leased property, less unearned income. Leveraged leases, which are a form of direct financing leases, are carried net of non-recourse debt. Unearned income on direct financing and leveraged leases is amortized over the lease terms by methods that approximate the interest method. Residual values on leased assets are periodically reviewed for impairment.

Non-Performing Loans and Leases

The Company generally places a loan or lease on nonaccrual status when management believes that collection of principal or interest has become doubtful or when a loan or lease becomes 90 days past due as to principal or interest, unless it is well secured and in the process of collection. A charge-off is recorded when it is probable that a loss has been incurred and when it is possible to determine a reasonable estimate of the loss. When the Company places a loan or lease on nonaccrual status, previously accrued and uncollected interest is reversed against interest income in the current period. When the Company receives an interest payment on a nonaccrual loan or lease, the payment is applied as a reduction of the principal balance. Nonaccrual loans and leases are generally returned to accrual status when they become current as to principal and interest and have demonstrated a sustained period of payment performance or become both well secured and in the process of collection.

Troubled Debt Restructurings

A restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the Company, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The Company offers various types of concessions when modifying a loan, including term extensions, temporary deferral of principal and temporary interest rate reductions. However, forgiveness of principal is rarely granted. Generally, a non-accrual loan that has been modified in a TDR remains on non-accrual status for at least six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. However, if the borrower’s ability to meet the revised payment terms is uncertain, the loan remains on non-accrual status.

Impaired Loans

A loan is considered impaired when, based on current information and events, it is probable that the Company will not be able to collect all amounts due from the borrower in accordance with the contractual terms of the loan, including scheduled interest payments. This evaluation is generally based on delinquency information, an assessment of the borrower’s financial condition and the adequacy of collateral, if any. The Company’s impaired loans are primarily comprised of commercial and industrial, commercial real estate, residential mortgage and any loans modified in a TDR, whether on accrual or nonaccrual status.

The Company individually measures impairment on commercial and industrial loans and commercial real estate loans based on the present value of the expected future cash flows discounted at the loan’s effective interest rate or, for residential real estate loans and collateral-dependent loans, based on the fair value of the collateral less disposition costs. On a case-by-case basis, the Company may measure impairment based upon a loan’s observable market price. Impaired loans without a related allowance for loan and lease losses are generally collateralized by assets with fair values in excess of the recorded investment in the loans.

Allowance for Loan and Lease Losses

The Company maintains the allowance for loan and lease losses (the “Allowance”) at a level which, in management’s judgment, is adequate to absorb probable credit losses that have been incurred in the Company’s loan and lease portfolio as of the balance sheet date. The Company’s methodology for determining an adequate and appropriate level of the Allowance takes into account many factors, including:

● Trends in the volume and severity of delinquent loans and leases, nonaccrual loans and leases, troubled debt restructurings and other loan and lease modifications;

● Trends in the quality of risk management and loan administration practices including findings of internal and external reviews of loans and the effectiveness of collection practices;

● Changes in the quality of the Company’s risk identification process and loan review system;

● Changes in lending policies and procedures including underwriting standards and collection, charge-off and recovery practices;

● Changes in the nature and volume of the loan and lease portfolio;

● Changes in concentrations within the loan and lease portfolio;  

● Changes in national and local economic business conditions, including the condition of various market segments.

While the Company has a formal methodology to determine an adequate and appropriate level of the Allowance, estimates of inherent loan and lease losses involve judgment and assumptions as to various factors, including current economic conditions. Management’s determination of the adequacy of the Allowance is based on quarterly evaluations of the above factors. Accordingly, the provision for credit losses will vary from period to period based on management’s ongoing assessment of the adequacy of the Allowance.

The Allowance consists of two components, the allocated and the unallocated allowance. The allocated portion of the Allowance includes reserves that are allocated based on impairment analyses of specific loans or pools of loans. A discussion of evaluating specific loans for impairment is noted in the “Impaired Loans” section above. The Company collectively evaluates large groups or pools of smaller-balance homogeneous loans and leases such as consumer loans, residential real estate loans and small business loans. The risk assessment process includes the use of estimates to determine the inherent loss in these portfolios. The Company considers a variety of factors including, but not limited to historical loss experience, estimated defaults or foreclosures based on portfolio trends and delinquencies, and current economic conditions.

The unallocated component of the Allowance recognizes the imprecision in the loan and lease loss estimation process. While the Company’s allocated reserve methodology strives to reflect all risk factors, there may still be certain unidentified risk elements. The purpose of the unallocated reserve is to capture these factors. The relationship of the unallocated component to the total Allowance may fluctuate from period to period. Management evaluates the adequacy of the total Allowance based on the combined total of the allocated and unallocated components of the Allowance.

The Allowance is increased by provisions for loan and lease losses and reduced by charge-offs, net of recoveries. Consumer loans and leases are generally charged off upon reaching a predetermined delinquency status that ranges from 120 to 180 days and varies by product type. Other loans and leases may be charged off to the extent they are classified as loss. Recoveries of amounts that have previously been charged off are credited to the Allowance and are generally recorded only to the extent that cash is received.

Reserve for Unfunded Commitments

The reserve for unfunded commitments (the “Unfunded Reserve”) is a component of other liabilities and represents the estimate for probable credit losses inherent in unfunded commitments to extend credit. Unfunded commitments to extend credit include loan commitments, and standby and commercial letters of credit. The process used to determine the Unfunded Reserve is consistent with the process for determining the Allowance as adjusted for estimated funding probabilities or loan and lease equivalency factors. The level of the Unfunded Reserve is adjusted by recording an expense or recovery in other noninterest expense.

Provision for Loan and Lease Losses

The provision for loan and lease losses (the “Provision”) represents the amount charged against current period earnings to achieve an Allowance that in management’s judgment is adequate to absorb probable credit losses that have been incurred in the Company’s loan and lease portfolio as of the consolidated balance sheet date. Accordingly, the Provision will vary from period to period based on management’s ongoing assessment of the overall adequacy of the Allowance.

Premises and Equipment

Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of 10 to 39 years for premises, 4 to 20 years for equipment and the shorter of the lease term or remaining useful life for leasehold improvements.

On a periodic basis, long-lived assets are reviewed for impairment. An impairment loss is recognized if the carrying amount of a long-lived asset exceeds its fair value and is not recoverable. An impairment analysis is performed whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets may not be recoverable.

Operating lease rental income for leased assets, primarily premises, is recognized on a straight-line basis as an offset to rental expense.

Other Real Estate Owned and Repossessed Personal Property

Other real estate owned (“OREO”) and repossessed personal property are comprised primarily of properties that the Company acquires through foreclosure proceedings. The Company values these properties at fair value less estimated costs to sell the property upon acquisition, which establishes the new carrying value. The Company charges losses arising upon the acquisition of the property against the Allowance. If the fair value of the property at the time of acquisition exceeds the carrying amount of the loan, the excess is recorded either as a recovery to the Allowance if a charge-off had previously been recorded, or as a gain on initial transfer in other noninterest income. After acquisition, the Company carries such properties at the lower of cost or fair value less estimated selling costs. Any write-downs or losses from the subsequent disposition of such properties are included in other noninterest expense. Gains recognized on the sale of such properties are included in other noninterest income.

Goodwill

Goodwill represents the cost of acquired businesses in excess of the fair value of the net assets acquired. The Company performs impairment testing of goodwill, an infinite-lived intangible asset, as required under GAAP on an annual basis or when circumstances change that indicate that a potential impairment may have occurred. The Company has assigned goodwill to its operating segments for impairment testing purposes. The goodwill impairment guidance provides the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing further impairment tests is unnecessary. However, if an entity concludes otherwise, or does not elect this option, it is required to perform impairment testing. Step 1 of the test identifies potential impairments at the reporting unit level by comparing the estimated fair value of each identified reporting unit to its carrying amount. If the estimated fair value of a reporting unit exceeds its carrying amount, there is no impairment of goodwill. However, if the carrying amount exceeds the estimated fair value, Step 2 is performed to determine the amount of the potential impairment. Step 2 compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined as if the reporting unit were being acquired in a business combination. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Subsequent reversals of goodwill impairment are prohibited.

Mortgage Servicing Rights

Mortgage servicing rights are recognized as assets when residential mortgage loans are sold and the rights to service those loans are retained.  Mortgage servicing rights are initially recorded at fair value by using a discounted cash flow model to calculate the present value of estimated future net servicing income, incorporating assumptions that market participants would use in their estimates of fair value.

The Company’s mortgage servicing rights are accounted for under the amortization method and periodically assessed for impairment. The Company amortizes the mortgage servicing rights over the period of estimated net servicing income, taking into account prepayment assumptions. Any such indicated impairment is recognized in earnings during the period in which the impairment occurs. Mortgage servicing income, net of the amortization of mortgage servicing rights, is recorded as a component of other noninterest income in the consolidated statements of income.

Non-Marketable Equity Securities

The Company is required to own Federal Home Loan Bank (“FHLB”) of Des Moines stock as a condition of membership. These securities are accounted for under the cost method, which equals par value, and are included in other assets in the consolidated balance sheets. These securities do not have a readily determinable fair value as ownership is restricted and there is no market for these securities. The Company reviews these securities periodically for impairment. Management considers these securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. No impairment was recognized on non-marketable equity securities for the years ended December 31, 2019, 2018 and 2017.

Pension and Other Postretirement Benefit Plans

The Company has a qualified noncontributory defined benefit pension plan, an unfunded supplemental executive retirement plan, a directors’ retirement plan, a non-qualified pension plan for eligible directors and a postretirement benefit plan providing life insurance and healthcare benefits that is offered to directors and employees, as applicable. The qualified noncontributory defined benefit pension plan, the unfunded supplemental executive retirement plan and the directors’ retirement plan are all frozen plans to new participants. To calculate annual pension costs, management uses the following key variables: (1) size of the employee population, length of service and estimated compensation increases; (2) actuarial assumptions and estimates; (3) expected long-term rate of return on plan assets; and (4) discount rate. For all pension and postretirement benefit plan calculations, the Company uses a December 31^st measurement date.

The expected long-term rate of return was based on a calculated rate of return from average rates of return on various asset classes over a 20-year historical time horizon. Using long-term historical data allows the Company to capture multiple economic environments, which management believes is relevant when using historical returns. Net actuarial gains or losses that exceed a 5% corridor of the greater of the projected benefit obligation or the fair value of plan assets as of the beginning of the year are amortized from accumulated other comprehensive income into net periodic pension cost on a straight-line basis over five years.

In estimating the projected benefit obligation, an independent actuary bases assumptions on factors such as mortality rate, turnover rate, retirement rate, disability rate and other assumptions related to the population of individuals in the pension plan. If significant actuarial gains or losses occur, the actuary reviews the demographic and economic assumptions with management, at which time the Company considers revising these assumptions based on actual results.

The Company recognizes an asset on its consolidated balance sheets for a plan’s overfunded status or a liability for a plan’s underfunded status. The Company also measures the plans’ assets and obligations that determine its funded status as of the end of the year and recognizes those changes in other comprehensive income, net of tax. Periodic pension expense (or income) includes service costs, interest costs based on the assumed discount rate, the expected return on plan assets based on an actuarially derived market-related value and amortization of actuarial gains and losses. Service cost is included in salaries and employee benefits expense, while all other components of net periodic pension cost are included in other noninterest expense in the consolidated statements of income.

Income Taxes

Current income tax expense is recognized for the amount of income taxes expected to be payable or refundable for the current period, and deferred income taxes are provided to reflect the tax effect of temporary differences between financial statement carrying amounts and the corresponding tax basis of assets and liabilities. Deferred income taxes are calculated by applying enacted statutory tax rates and tax laws to future years in which temporary differences are expected to reverse. The impact on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that the tax rate change is enacted. A deferred tax valuation allowance is established if it is more likely than not that a deferred tax asset will not be realized. Interest and penalties, if any, expected to be assessed or refunded by taxing authorities relating to an underpayment or overpayment of income taxes are accrued and recorded as part of income tax expense.

Excise tax credits relating to premises and equipment are accounted for using the flow-through method, and the benefit is recognized in the year the asset is placed in service. General business and excise tax credits generated from the leasing portfolio, except for credits that are passed on to lessees, are recognized over the term of the lease for book purposes, but in the year placed in service for tax purposes.

The Company maintains reserves for unrecognized tax benefits that arise in the normal course of business. As of December 31, 2019, these positions were evaluated based on an assessment of probabilities as to the likelihood of whether a liability had been incurred. Such assessments are reviewed as events occur and adjustments to the reserves are made as appropriate. In evaluating a tax position for recognition, the Company evaluates whether it is more likely than not that a tax position will be sustained upon examination, including resolution of related appeals or litigation processes, based on the technical merits of the position. If the tax position meets the more likely than not recognition threshold, the tax position is measured and recognized in the Company’s consolidated financial statements as the largest amount of tax benefit that, in management’s judgment, is greater than 50% likely of being realized upon ultimate settlement.

Derivative Instruments and Hedging Activities

Derivatives are recognized on the consolidated balance sheets at fair value. On the date the Company enters into a derivative contract, the Company designates the derivative instrument as: (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”); (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”); or (3) held for trading, customer accommodation or not qualifying for hedge accounting (“free-standing derivative instrument”). For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability or of an unrecognized firm commitment attributable to interest rate risk are recorded in current period earnings. For a cash flow hedge, to the extent that the hedge is considered highly effective, changes in the fair value of the derivative instrument are recorded in other comprehensive income and subsequently reclassified to net income in the same period

that the hedged transaction impacts net income. To the extent the derivative instruments are not effective, any changes in the fair value of the derivatives are immediately recognized in noninterest income. For free-standing derivative instruments, changes in fair values are reported in current period earnings. The Company formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as hedges to specific assets or liabilities, unrecognized firm commitments or forecasted transactions. The Company also formally assesses, both at the inception of a hedge and on a quarterly basis, whether the derivative instruments used are highly effective in offsetting changes in fair values of, or cash flows related to, hedged items.

Fair Value Measurements

Fair value measurements apply whenever GAAP requires or permits assets or liabilities to be measured at fair value either on a recurring or nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. Fair value is based on the assumptions that management believes market participants would use when pricing an asset or liability. Fair value measurement and disclosure guidance established a three-level fair value hierarchy that prioritizes the use of inputs used in valuation methodologies. Management maximizes the use of observable inputs and minimizes the use of unobservable inputs when determining fair value measurements.

Stock-Based Compensation

The Company grants stock-based awards, including restricted stock, restricted stock units and performance stock units. These awards are issued at no cost to the recipient. The fair value of restricted stock and restricted stock unit awards was based on the closing price of FHI’s common stock on the date of grant. Such awards were recognized in the Company’s consolidated statements of income on a straight-line basis over the vesting period. Recipients of performance stock units are entitled to receive shares of FHI common stock at no cost, subject to the Company’s achievement of specified market or performance conditions. The grant date fair value of the performance stock units subject to the Company’s achievement of specified market conditions was estimated using a Monte Carlo simulation model. For purposes of this modeling exercise, historical volatilities of FHI common stock and members of the peer group were used. The risk-free interest rate that was used in the valuation was that of a zero-coupon U.S. Treasury note that was commensurate with the performance period.

As compensation cost is recognized, a deferred tax asset is established which represents an estimate of the future tax deduction from the release of restrictions or the achievement of performance targets. At the time that restrictions on the stock-based awards are released, the Company may be required to recognize an adjustment to income tax expense, depending on the market price of the Company’s common stock at that time.

Treasury Stock

Shares of the Parent’s common stock that were repurchased or that are used to satisfy payroll tax withholdings related to stock-based compensation are recorded in treasury stock at cost. On the date of subsequent reissuance, the treasury stock account will be reduced by the cost of such stock on a first-in, first-out basis.

Earnings per Share

Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period, assuming conversion of potentially dilutive common stock equivalents.

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred. Advertising and marketing costs were $6.9 million, $4.8 million and $6.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.  

Accounting Standards Adopted in 2019

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). This guidance provided that lessees would be required to recognize the following for all operating leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee's obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The Company adopted the provisions of ASU No. 2016-02 on January 1, 2019 and elected several practical expedients made available by the FASB. Specifically, the Company elected the transition practical expedient to not recast comparative periods upon the adoption of the new guidance. In addition, the Company elected the package of practical expedients which among other things, required no reassessment of whether existing contracts were or contained leases as well as no reassessment of lease classification for existing leases and the practical expedient which permitted the Company to not separate nonlease components from lease components in determining the consideration in the lease agreement when the Company was a lessee or a lessor. The Company identified the primary lease agreements in scope of this new guidance as those relating to branch premises. As a result, the Company recognized a lease liability of $50.3 million and a related right-of-use asset of $50.6 million on its consolidated balance sheet on January 1, 2019. See “Note 14. Leases” for required disclosures related to this new guidance.

In March 2017, the FASB issued ASU No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. Prior to the adoption of ASU No. 2017-08, entities typically amortized the premium as an adjustment of yield over the contractual life of debt securities. This guidance shortens the amortization period for certain callable debt securities held at a premium to the earliest call date. The Company adopted the provisions of ASU No. 2017-08 on January 1, 2019 and it did not have a material impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. The objectives of the new guidance were to: (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities, and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. Historically, the Company has participated in limited activities in fair value and cash flow hedging relationships. As a result, the adoption of ASU No. 2017-12 on January 1, 2019 did not have a material impact on the Company’s consolidated financial statements. See “Note 17. Derivative Financial Instruments” for required disclosures related to this new guidance.

In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This guidance aligns the accounting for implementation costs related to a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Common examples of hosting arrangements include software as a service, platform or infrastructure as a service and other similar types of hosting arrangements. While capitalized costs related to internal-use software is generally considered an intangible asset, costs incurred to implement a cloud computing arrangement that is a service contract would typically be characterized in the company’s financial statements in the same manner as other service costs (e.g., other assets). The new guidance provided that an entity would be required to amortize capitalized implementation costs over the term of the hosting arrangement on a straight-line basis unless another systematic and rational basis was more representative of the pattern in which the entity expected to benefit from access to the hosted software. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with earlier adoption permitted in any annual or interim period for which financial statements have not yet been issued or made available for issuance. The Company early adopted the provisions of ASU No. 2018-15 prospectively on January 1, 2019 due to the Company’s shift towards utilizing more hosting arrangements that are service contracts. For the year ended December 31, 2019, the Company capitalized $10.6 million related to hosting arrangements that are service contracts.

In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815), Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This guidance expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting by adding the OIS rate based on the SOFR. Due to concerns about the sustainability of the London Interbank Offered Rate (“LIBOR”), a committee convened by the Federal Reserve Board and the Federal Reserve Bank of New

York initiated an effort to introduce an alternative reference rate in the U.S. The committee identified SOFR as the preferred alternative reference rate to LIBOR. The OIS rate based on SOFR was added as a U.S. benchmark interest rate to facilitate broader use in the marketplace and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies. The Company adopted the provisions of ASU No. 2018-16 on January 1, 2019 and it did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

The following ASUs have been issued by the FASB and are applicable to the Company in future reporting periods.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This guidance eliminates the probable recognition threshold for credit losses on financial assets measured at amortized cost. For loans and held-to-maturity debt securities, this guidance requires a current expected credit loss (“CECL”) approach to determine the allowance for credit losses (“ACL”). CECL requires loss estimates for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. CECL also applies to off-balance sheet credit exposures, except for unconditionally cancellable commitments. In addition, this guidance modifies the other-than-temporary-impairment model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for a reversal of credit losses in future periods. This guidance requires entities to record a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In April 2019, the FASB also issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. As it relates to CECL, this guidance amended certain provisions contained in ASU No. 2016-13, particularly with regards to the inclusion of accrued interest in the definition of amortized cost, as well as clarifying that extension and renewal options that are not unconditionally cancelable by the entity that are included in the original or modified contract should be considered in the entity’s determination of expected credit losses. Federal banking regulatory agencies have also provided relief for an initial capital decrease on January 1, 2020 by allowing for an election to phase-in the impact of adopting the CECL standard over a three-year period on a straight-line basis.

The Company will adopt the provisions of ASU No. 2016-13, ASU No. 2019-04 and related amendments on January 1, 2020. The Company elected the practical expedient to use the fair value of the collateral at the reporting date when recording the net carrying amount of the asset and determining the ACL for a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company’s assessment as of the reporting date. The Company will also make accounting policy elections not to measure an ACL on accrued interest receivable, write-off accrued interest receivable by reversing interest income and to present accrued interest receivable separately from the related financial asset on the balance sheet. The implementation of CECL will require significant operational changes, particularly in data collection and analysis. The Company engaged a software vendor and ran several CECL parallel productions during 2019. In the fourth quarter of 2019, model validation was completed and management approved the model to be placed into production. Furthermore, significant progress was made in the Company’s user acceptance testing and reconciliation processes. Based on the Company’s portfolio balances and forecasted economic conditions as of January 1, 2020, management believes that the adoption of the CECL standard will result in an increase in the ACL of approximately 10% to 15%, as compared to the Company’s reserve levels as of December 31, 2019.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. This guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the current two-step goodwill impairment test. This guidance provides that a goodwill impairment test be conducted by comparing the fair value of a reporting unit with its carrying amount. Entities are to recognize an impairment charge for goodwill by the amount by which the carrying amount exceeds the reporting unit’s fair value. Entities will continue to have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This guidance is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. The Company adopted the provisions of ASU No. 2017-04 on January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.  

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This guidance is a part of the FASB’s disclosure framework project to improve disclosure effectiveness. This guidance eliminates certain disclosure

requirements for fair value measurements: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, an entity’s policy for the timing of transfers between levels of the fair value hierarchy and an entity’s valuation processes for Level 3 fair value measurements. This guidance also adds new disclosure requirements for public entities: changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements, including how the weighted average is calculated. Furthermore, this guidance modifies certain requirements which will involve disclosing: transfers into and out of Level 3 of the fair value hierarchy, purchases and issuances of Level 3 assets and liabilities, and information about the measurement uncertainty of Level 3 fair value measurements as of the reporting date. The Company adopted the provisions of ASU No. 2018-13 on January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.

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Transfers of Financial Assets

12 Months Ended

Dec. 31, 2019

Transfers of Financial Assets

Transfers of Financial Assets

8. Transfers of Financial Assets

The Company’s transfers of financial assets with continuing interest may include pledges of collateral to secure public deposits and repurchase agreements, FHLB and FRB borrowing capacity, automated clearing house (“ACH”) transactions and interest rate swaps.

For public deposits and repurchase agreements, the Company enters into bilateral agreements with the entity to pledge investment securities as collateral in the event of default. The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral pledged by the Company would be used to settle the fair value of the repurchase agreement should the Company be in default. The counterparty has the right to sell or repledge the investment securities. The Company is required by the counterparty to maintain adequate collateral levels. In the event the collateral fair value falls below stipulated levels, the Company will pledge additional investment securities. For transfers of assets with the FHLB and the FRB, the Company enters into bilateral agreements to pledge loans as collateral to secure borrowing capacity. For ACH transactions, the Company enters into bilateral agreements to collateralize possible daylight overdrafts. For interest rate swaps, the Company enters into bilateral agreements to pledge collateral when either party is in a negative fair value position to mitigate counterparty credit risk. Counterparties to ACH transactions, certain interest rate swaps, the FHLB and the FRB do not have the right to sell or repledge the collateral.

The carrying amounts of the assets pledged as collateral to secure public deposits, borrowing arrangements and other transactions as of December 31, 2019 and 2018 were as follows:  

(dollars in thousands)	2019		2018
Public deposits	$	1,543,492	$	1,749,726
Federal Home Loan Bank		2,928,581		2,497,030
Federal Reserve Bank		953,169		957,017
ACH transactions		155,360		150,903
Interest rate swaps		43,296		28,843
Total	$	5,623,898	$	5,383,519

As the Company did not enter into reverse repurchase agreements, no collateral was accepted as of December 31, 2019 and 2018. In addition, no debt was extinguished by in-substance defeasance.

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Loans and Leases

12 Months Ended

Dec. 31, 2019

Loans and Leases.

Loans and Leases

4. Loans and Leases

As of December 31, 2019 and 2018, loans and leases were comprised of the following:

	December 31,
(dollars in thousands)	2019		2018
Commercial and industrial	$	2,743,242	$	3,208,760
Commercial real estate		3,463,953		2,990,783
Construction		519,241		626,757
Residential:
Residential mortgage		3,768,936		3,527,101
Home equity line		893,239		912,517
Total residential		4,662,175		4,439,618
Consumer		1,620,556		1,662,504
Lease financing		202,483		147,769
Total loans and leases	$	13,211,650	$	13,076,191

Outstanding loan balances are reported net of deferred loan costs and fees of $41.0 million and $36.3 million at December 31, 2019 and 2018, respectively.

As of December 31, 2019, residential real estate loans totaling $2.9 billion were pledged to collateralize the Company’s borrowing capacity at the FHLB, and consumer, commercial and industrial and commercial real estate loans totaling $953.2 million were pledged to collateralize the borrowing capacity at the FRB. As of December 31, 2018, residential real estate loans totaling $2.5 billion were pledged to collateralize the Company’s borrowing capacity at the FHLB, and consumer and commercial and industrial loans totaling $957.0 million were pledged to collateralize the borrowing capacity at the FRB. Residential real estate loans collateralized by properties that were in the process of foreclosure totaled $4.1 million and $4.6 million at December 31, 2019 and 2018, respectively.

In the course of evaluating the credit risk presented by a customer and the pricing that will adequately compensate the Company for assuming that risk, management may require a certain amount of collateral support. The type of collateral held varies, but may include accounts receivable, inventory, land, buildings, equipment, income-producing commercial properties and residential real estate. The Company applies the same collateral policy for loans whether they are funded immediately or on a delayed basis. The loan and lease portfolio is principally located in Hawaii and, to a lesser extent, on the U.S. Mainland, Guam and Saipan. The risk inherent in the portfolio depends upon both the economic stability of the state or territories, which affects property values, and the financial strength and creditworthiness of the borrowers.

At December 31, 2019 and 2018, remaining loan and lease commitments were comprised of the following:

	December 31,
(dollars in thousands)	2019		2018
Commercial and industrial	$	2,451,362	$	2,484,857
Commercial real estate		130,597		114,186
Construction		718,121		526,938
Residential:
Residential mortgage		842		121
Home equity line		1,052,739		913,636
Total residential		1,053,581		913,757
Consumer		1,554,029		1,509,853
Total loan and lease commitments	$	5,907,690	$	5,549,591

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Derivative Financial Instruments - Cash Flow Hedges (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($) derivative	Dec. 31, 2017 USD ($) derivative	Dec. 31, 2019 USD ($) derivative
Cash Flow Hedges
Cash flow hedges
Number of derivatives carried | derivative	0		0
Effect of cash flow hedging relationships
Pretax gains recognized in other comprehensive income on derivatives (effective portion)	$ 1,475	$ 2,473
Pretax gain reclassified from accumulated other comprehensive income	(7,558)
Interest rate swaps
Cash flow hedges
Recognized expenses related to the ineffective portion		100
Interest rate swaps | Cash Flow Hedges
Cash flow hedges
Net interest expense on derivative	$ 1,200	$ 2,400
Minimum | Interest rate swaps | Cash Flow Hedges
Cash flow hedges
Fixed interest rate (as a percent)	2.98%	2.98%
Maximum | Interest rate swaps | Cash Flow Hedges
Cash flow hedges
Fixed interest rate (as a percent)	3.03%	3.03%
Derivatives designated as hedging instruments | Interest rate swaps
Cash flow hedges
Notional amounts	$ 41,317		$ 23,190
Derivatives designated as hedging instruments | Interest rate swaps | Cash Flow Hedges
Cash flow hedges
Number of derivatives carried | derivative	2	2
Notional amounts	$ 150,000	$ 150,000

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Other Assets (Tables)

12 Months Ended

Dec. 31, 2019

Other assets.

Schedule of carrying amount of goodwill reported in reporting units

	Retail		Commercial
(in thousands)	Banking		Banking		Total
December 31, 2019	$	687,492	$	308,000	$	995,492
December 31, 2018		687,492		308,000		995,492

Schedule of estimated future amortization expense for MSRs

	Estimated
(dollars in thousands)	Amortization
Year ending December 31:
2020	$	2,129
2021		1,808
2022		1,530
2023		1,295
2024		1,101

Schedule of details of the Company's MSRs

	December 31,
(dollars in thousands)	2019		2018
Gross carrying amount	$	63,480	$	63,342
Less: accumulated amortization		50,812		47,187
Net carrying value	$	12,668	$	16,155

Schedule of changes in amortized MSRs

	Year Ended December 31,
(dollars in thousands)	2019		2018
Balance at beginning of year	$	16,155	$	13,196
Originations		138		328
Purchases		—		6,444
Amortization		(3,625)		(3,813)
Balance at end of year	$	12,668	$	16,155
Fair value of amortized MSRs at beginning of year	$	27,662	$	21,697
Fair value of amortized MSRs at end of year	$	20,329	$	27,662
Balance of loans serviced for others	$	2,344,899	$	2,664,860

Schedule of quantitative assumptions used in determining lower of cost or fair value of MSRs

	December 31, 2019							December 31, 2018
						Weighted							Weighted
	Range					Average		Range					Average
Conditional prepayment rate	10.74	%	-	23.39	%	11.10	%	7.86	%	-	19.26	%	8.31	%
Life in years (of the MSR)	2.04		-	6.33		5.99		3.43		-	7.68		7.19
Weighted-average coupon rate	3.96	%	-	7.26	%	4.01	%	3.97	%	-	6.70	%	4.02	%
Discount rate	10.00	%	-	10.01	%	10.00	%	10.00	%	-	10.02	%	10.00	%

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Commitments and Contingent Liabilities - Contingencies (Details) - Overdraft fee litigation - USD ($) $ in Millions	1 Months Ended	12 Months Ended
	Aug. 31, 2019	Dec. 31, 2019	Dec. 31, 2018
Contingencies
Settlement agreement expense recorded			$ 4.1
Settlement agreement, amount funded	$ 4.1
Insurance proceeds to partially cover litigation expense incurred		$ 0.7

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Reportable Operating Segments

12 Months Ended

Dec. 31, 2019

Reportable Operating Segments

Reportable Operating Segments

23. Reportable Operating Segments

The Company’s operations are organized into three business segments – Retail Banking, Commercial Banking and Treasury and Other. These segments reflect how discrete financial information is currently evaluated by the chief operating decision maker and how performance is assessed and resources allocated. The Company’s internal management process measures the performance of these business segments. This process, which is not necessarily comparable with similar information for any other financial institution, uses various techniques to assign balance sheet and income statement amounts to the business segments, including allocations of income, expense, the provision for loan and lease losses and capital. This process is dynamic and requires certain allocations based on judgment and other subjective factors. Unlike financial accounting, there is no comprehensive authoritative guidance for management accounting that is equivalent to GAAP.

The net interest income of the business segments reflects the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics and reflects the allocation of net interest income related to the Company’s overall asset and liability management activities on a proportionate basis. The basis for the allocation of net interest income is a function of the Company’s assumptions that are subject to change based on changes in current interest rates and market conditions. Funds transfer pricing also serves to transfer interest rate risk to Treasury. 

The Company allocates the provision for loan and lease losses to each segment based on management’s estimate of the inherent loss content in each of the specific loan and lease portfolios. Noninterest income and expense includes allocations from support units to the business segments. These allocations are based on actual usage where practicably calculated or by management’s estimate of such usage.

In 2019, the Company made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the change was to align deposit balances within the business segment that directly manages them. Specifically, certain deposit balances previously included as part of the Retail Banking segment have been reclassified to the Commercial Banking segment. The reallocation of select deposit balances affected net interest income, net interest income after provision for loan and lease losses, noninterest income, provision for income taxes and net income. The Company has reported its selected financial information using the new deposit balance alignments for the year ended December 31, 2019. The Company has restated the selected financial information for the years ended December 31, 2018 and 2017 in order to conform with the current presentation.

Additionally, during the fourth quarter of 2019 the Company changed its assumptions embedded in allocating deposit costs to the business segments. The Company has reported its selected financial information using the new deposit cost assumptions starting with the fourth quarter of 2019.

Business Segments

Retail Banking

Retail Banking offers a broad range of financial products and services to consumers and small businesses. Loan and lease products offered include residential and commercial mortgage loans, home equity lines of credit, automobile loans and leases, personal lines of credit, installment loans and small business loans and leases. Deposit products offered include checking, savings and time deposit accounts. Retail Banking also offers wealth management services. Products and services from Retail Banking are delivered to customers through 58 banking locations throughout the State of Hawaii, Guam and Saipan.

Commercial Banking

Commercial Banking offers products that include corporate banking, residential and commercial real estate loans, commercial lease financing, automobile loans and auto dealer financing, business deposit products and credit cards. Commercial lending and deposit products are offered primarily to middle-market and large companies locally, nationally and internationally.

Treasury and Other

Treasury consists of corporate asset and liability management activities including interest rate risk management. The segment’s assets and liabilities (and related interest income and expense) consist of interest-bearing deposits, investment securities, federal funds sold and purchased, government deposits, short- and long-term borrowings and bank-owned properties. The primary sources of noninterest income are from bank-owned life insurance, net gains from the sale of investment securities, foreign exchange income related to customer-driven currency requests from merchants and island visitors and management of bank-owned properties. The net residual effect of the transfer pricing of assets and liabilities is included in Treasury, along with the elimination of intercompany transactions.

Other organizational units (Technology, Operations, Credit and Risk Management, Human Resources, Finance, Administration, Marketing and Corporate and Regulatory Administration) provide a wide-range of support to the Company’s other income earning segments. Expenses incurred by these support units are charged to the business segments through an internal cost allocation process.

The following tables present selected business segment financial information for the years indicated:

					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Year Ended December 31, 2019
Net interest income	$	413,029	$	141,227	$	19,146	$	573,402
Provision for loan and lease losses		(6,248)		(7,552)		—		(13,800)
Net interest income after provision for loan and lease losses		406,781		133,675		19,146		559,602
Noninterest income		95,413		73,635		23,485		192,533
Noninterest expense		(228,389)		(82,380)		(59,668)		(370,437)
Income (loss) before (provision) benefit for income taxes		273,805		124,930		(17,037)		381,698
(Provision) benefit for income taxes		(69,285)		(32,298)		4,277		(97,306)
Net income (loss)	$	204,520	$	92,632	$	(12,760)	$	284,392
Total assets as of December 31, 2019	$	7,276,047	$	6,071,356	$	6,819,331	$	20,166,734

					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other (1)		Total
Year Ended December 31, 2018
Net interest income	$	420,165	$	140,333	$	5,820	$	566,318
Provision for loan and lease losses		(8,753)		(13,427)		—		(22,180)
Net interest income after provision for loan and lease losses		411,412		126,906		5,820		544,138
Noninterest income		89,669		80,904		8,420		178,993
Noninterest expense		(225,881)		(80,766)		(58,306)		(364,953)
Income (loss) before (provision) benefit for income taxes		275,200		127,044		(44,066)		358,178
(Provision) benefit for income taxes		(70,335)		(32,700)		9,251		(93,784)
Net income (loss)	$	204,865	$	94,344	$	(34,815)	$	264,394
Total assets as of December 31, 2018	$	7,078,016	$	6,346,541	$	7,271,121	$	20,695,678

⁽¹⁾ Includes $24.1 million in OTTI write-downs.

					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other (1)		Total
Year Ended December 31, 2017
Net interest income (expense)	$	409,796	$	131,692	$	(12,684)	$	528,804
Provision for loan and lease losses		(6,837)		(11,663)		—		(18,500)
Net interest income (expense) after provision for loan and lease losses		402,959		120,029		(12,684)		510,304
Noninterest income		89,372		75,566		40,667		205,605
Noninterest expense		(223,652)		(68,167)		(55,735)		(347,554)
Income (loss) before (provision) benefit for income taxes		268,679		127,428		(27,752)		368,355
(Provision) benefit for income taxes		(130,130)		(57,857)		3,314		(184,673)
Net income (loss)	$	138,549	$	69,571	$	(24,438)	$	183,682
Total assets as of December 31, 2017	$	7,003,724	$	5,462,370	$	8,083,367	$	20,549,461

⁽¹⁾ Includes $6.9 million gains on the sale of real estate.

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Investment Securities (Tables)

12 Months Ended

Dec. 31, 2019

Investment Securities

Schedule of amortized cost and fair value of securities

	2019								2018
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Treasury securities	$	29,832	$	56	$	—	$	29,888	$	389,470	$	—	$	—	$	389,470
Government-sponsored enterprises debt securities		101,697		19		(277)		101,439		248,372		—		(6,778)		241,594
Mortgage-backed securities:
Residential - Government agency		290,131		2,224		(1,146)		291,209		426,710		—		(15,174)		411,536
Residential - Government-sponsored enterprises		395,039		6,126		(1,673)		399,492		156,056		85		(5,294)		150,847
Commercial - Government-sponsored enterprises		101,798		555		(634)		101,719		—		—		—		—
Collateralized mortgage obligations:
Government agency		2,390,143		7,483		(16,348)		2,381,278		2,779,620		—		(97,171)		2,682,449
Government-sponsored enterprises		772,023		2,505		(3,909)		770,619		620,337		—		(17,745)		602,592
Debt securities issued by states and political subdivisions		—		—		—		—		19,854		—		—		19,854
Total available-for-sale securities	$	4,080,663	$	18,968	$	(23,987)	$	4,075,644	$	4,640,419	$	85	$	(142,162)	$	4,498,342

Schedule of amortized cost and fair value of debt securities by contractual maturity

	December 31, 2019
	Amortized		Fair
(dollars in thousands)	Cost		Value
Due in one year or less	$	29,832	$	29,888
Due after one year through five years		101,697		101,439
Due after five years through ten years		—		—
Due after ten years		—		—
		131,529		131,327
Mortgage-backed securities:
Residential - Government agency		290,131		291,209
Residential - Government-sponsored enterprises		395,039		399,492
Commercial - Government-sponsored enterprises		101,798		101,719
Total mortgage-backed securities		786,968		792,420
Collateralized mortgage obligations:
Government agency		2,390,143		2,381,278
Government-sponsored enterprises		772,023		770,619
Total collateralized mortgage obligations		3,162,166		3,151,897
Total available-for-sale securities	$	4,080,663	$	4,075,644

Schedule of gross unrealized losses and fair values of securities in a continuous loss position

	Time in Continuous Loss as of December 31, 2019
	Less Than 12 Months				12 Months or More				Total
	Unrealized				Unrealized				Unrealized
(dollars in thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
Government-sponsored enterprises debt securities	$	(277)	$	49,716	$	—	$	—	$	(277)	$	49,716
Mortgage-backed securities:
Residential - Government agency		—		—		(1,146)		109,614		(1,146)		109,614
Residential - Government-sponsored enterprises		(115)		76,481		(1,558)		109,025		(1,673)		185,506
Commercial - Government-sponsored enterprises		(634)		38,062		—		—		(634)		38,062
Collateralized mortgage obligations:
Government agency		(8,049)		969,762		(8,299)		565,764		(16,348)		1,535,526
Government-sponsored enterprises		(583)		180,785		(3,326)		209,752		(3,909)		390,537
Total available-for-sale securities with unrealized losses	$	(9,658)	$	1,314,806	$	(14,329)	$	994,155	$	(23,987)	$	2,308,961

	Time in Continuous Loss as of December 31, 2018
	Less Than 12 Months				12 Months or More				Total
	Unrealized				Unrealized				Unrealized
(dollars in thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
Government-sponsored enterprises debt securities	$	—	$	—	$	(6,778)	$	157,939	$	(6,778)	$	157,939
Mortgage-backed securities:
Residential - Government agency		—		—		(15,174)		373,891		(15,174)		373,891
Residential - Government-sponsored enterprises		(1)		172		(5,293)		125,869		(5,294)		126,041
Collateralized mortgage obligations:
Government agency		—		—		(97,171)		2,475,532		(97,171)		2,475,532
Government-sponsored enterprises		—		—		(17,745)		486,175		(17,745)		486,175
Total available-for-sale securities with unrealized losses	$	(1)	$	172	$	(142,161)	$	3,619,406	$	(142,162)	$	3,619,578

Schedule of OTTI write-downs included in earnings

	Year Ended
(dollars in thousands)	December 31, 2018
U.S. Treasury securities	$	(13,634)
Government-sponsored enterprises debt securities		(1,344)
Mortgage-backed securities:
Residential - Government agency		(146)
Residential - Government-sponsored enterprises		(763)
Collateralized mortgage obligations:
Government agency		(5,064)
Government-sponsored enterprises		(2,711)
Debt securities issued by states and political subdivisions		(423)
Total OTTI write-downs included in earnings	$	(24,085)

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Revenue from Contracts with Customers - Contract Balances (Details) $ in Millions	12 Months Ended
	Dec. 31, 2019 USD ($) item	Dec. 31, 2018 USD ($)
Revenue from Contracts with Customers
Signing bonuses received from vendors | item	2
Contract liabilities	$ 1.8	$ 2.6
Decrease in recognized revenues and contract liabilities	0.8	0.8
Change in contract liabilities due to changes in transaction price estimates	0.0
Receivables from contracts with customers or contract assets	$ 0.0	$ 0.0

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Commitments and Contingent Liabilities

12 Months Ended

Dec. 31, 2019

Commitments and Contingent Liabilities

Commitments and Contingent Liabilities

18. Commitments and Contingent Liabilities

Contingencies

On January 27, 2017, a putative class action lawsuit was filed by a Bank customer alleging that FHB improperly charges an overdraft fee in circumstances where an account had sufficient funds to cover the transaction at the time the transaction is authorized, but not at the time the transaction is presented for payment and that this practice constitutes an unjust and deceptive trade practice and a breach of contract. The lawsuit further alleged that FHB’s practice of assessing a one-time continuous negative balance overdraft fee on accounts remaining in a negative balance for a seven-day period constitutes a usurious interest charge and an unfair and deceptive trade practice. On October 2, 2018, the parties reached an agreement in principle to resolve this class action lawsuit. In connection with the anticipated settlement agreement, the Company recorded an expense of approximately $4.1 million during the year ended December 31, 2018. In August 2019, the court approved the settlement agreement executed by the parties, pursuant to which the Company funded a $4.1 million settlement account. During the year ended December 31, 2019, the Company received insurance proceeds of $0.7 million to partially cover the litigation expense incurred in the prior year.

In addition to the litigation noted above, various other legal proceedings are pending or threatened against the Company. After consultation with legal counsel, management does not expect that the aggregate liability, if any, resulting from these proceedings would have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and commercial letters of credit which are not reflected in the consolidated financial statements.

Unfunded Commitments to Extend Credit

A commitment to extend credit is a legally binding agreement to lend funds to a customer, usually at a stated interest rate and for a specified purpose. Commitments are reported net of participations sold to other institutions. Such commitments have fixed expiration dates and generally require a fee. The extension of a commitment gives rise to credit risk. The actual liquidity requirements or credit risk that the Company will experience is expected to be lower than the contractual amount of commitments to extend credit because a significant portion of those commitments are expected to expire without being drawn upon. Certain commitments are subject to loan agreements containing covenants regarding the financial performance of the customer that must be met before the Company is required to fund the commitment. The Company uses the same credit policies in making commitments to extend credit as it does in making loans. In addition, the Company manages the potential credit risk in commitments to extend credit by limiting the total amount of arrangements, both by individual customer and in the aggregate, by monitoring the size and expiration structure of these portfolios and by applying the same credit standards maintained for all of its related credit activities. Commitments to extend credit are reported net of participations sold to other institutions of $94.1 million and $92.3 million at December 31, 2019 and 2018, respectively.

Standby and Commercial Letters of Credit

Standby letters of credit are issued on behalf of customers in connection with contracts between the customers and third parties. Under standby letters of credit, the Company assures that the third parties will receive specified funds if customers fail to meet their contractual obligations. The credit risk to the Company arises from its obligation to make payment in the event of a customer’s contractual default. Standby letters of credit are reported net of participations sold to other institutions of $9.0 million and $17.3 million at December 31, 2019 and 2018, respectively. The Company also had commitments for commercial and similar letters of credit. Commercial letters of credit are issued specifically to facilitate commerce whereby the commitment is typically drawn upon when the underlying transaction between the customer and a third-party is consummated. The maximum amount of potential future payments guaranteed by the Company is limited to the contractual amount of these letters. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held supports those commitments for which collateral is deemed necessary. The commitments outstanding as of December 31, 2019 have maturities ranging from January 2020 to May 2022. Substantially all fees received from the issuance of such commitments are deferred and amortized on a straight-line basis over the term of the commitment.

Financial instruments with off-balance sheet risk at December 31, 2019 and 2018 were as follows:

	December 31,
(dollars in thousands)	2019		2018
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	5,907,690	$	5,549,591
Standby letters of credit		181,412		204,324
Commercial letters of credit		7,334		7,535

Guarantees

The Company sells residential mortgage loans in the secondary market primarily to The Federal National Mortgage Association (“FNMA” or “Fannie Mae”) and The Federal Home Loan Mortgage Corporation (“FHLMC” or

“Freddie Mac”) that may potentially require repurchase under certain conditions. This risk is managed through the Company’s underwriting practices. The Company services loans sold to investors and loans originated by other originators under agreements that may include repurchase remedies if certain servicing requirements are not met. This risk is managed through the Company’s quality assurance and monitoring procedures. Management does not anticipate any material losses as a result of these transactions.

Lease Commitments

The Company’s lease commitments are discussed in “Note 14. Leases” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data.

Foreign Exchange Contracts

The Company has forward foreign exchange contracts that represent commitments to purchase or sell foreign currencies at a future date at a specified price. The Company’s utilization of forward foreign exchange contracts is subject to the primary underlying risk of movements in foreign currency exchange rates and to additional counterparty risk should its counterparties fail to meet the terms of their contracts. Forward foreign exchange contracts are utilized to mitigate the Company’s risk to satisfy customer demand for foreign currencies and are not used for trading purposes. See “Note 17. Derivative Financial Instruments” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

Reorganization Transactions

In connection with the Reorganization Transactions as discussed in “Note 1. Organization and Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, FHI (formerly BancWest) distributed its interest in BWHI (including BOW) to BNPP so that BWHI was held directly by BNPP (BWHI is now held indirectly by BNPP through its intermediate holding company). As a result of the Reorganization Transactions that occurred on April 1, 2016, various tax or other contingent liabilities could arise related to the business of BOW, or related to the Company’s operations prior to the restructuring when it was known as BancWest, including its then wholly owned subsidiary, BOW. The Company is not able to determine the ultimate outcome or estimate the amounts of these contingent liabilities, if any, at this time.

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Leases

12 Months Ended

Dec. 31, 2019

Leases

Leases

14. Leases

The Company, as lessee, is obligated under a number of noncancelable operating leases primarily for branch premises and related real estate. Terms of such leases extend for periods up to 44 years, many of which provide for periodic adjustment of rent payments based on changes in various economic indicators. Renewal options are included in the Company’s lease liabilities and related right-of-use assets to the extent that the Company is reasonably certain to exercise such options. For all of the Company’s short-term leases (i.e., leases with an initial term of 12 months or less), the Company recognizes lease expense on a straight-line basis over the lease term. Variable lease payments are recognized in the period in which the obligation for those payments is incurred.

The Company’s branch premises leases typically require that the Company is responsible to pay for variable lease expense, primarily maintenance expense, as well as real property taxes, property insurance and sales taxes. Maintenance expense is paid to maintain common areas and covers costs including landscaping, cleaning and general maintenance. Such variable costs are typically re-evaluated by the landlord on an annual basis and are charged to the Company based on the portion of the total building premises that is occupied by the Company.

The Company subleases certain premises and real estate to third parties. The sublease portfolio consists of operating leases for space connected with three of the Company’s branch properties.

The components of the Company’s net lease expense for the year ended December 31, 2019 were as follows:

	Year Ended
(dollars in thousands)	December 31, 2019
Operating lease expense	$	9,158
Short-term lease expense		487
Variable lease expense		2,152
Finance lease expense:
Amortization of right-of-use assets		3
Interest on lease liabilities		2
Total finance lease expense		5
Less: Sublease income		(1,073)
Net lease expense	$	10,729

For the years ended December 31, 2018 and 2017, rental expense, net of sublease income, presented in accordance with Topic 840, Leases was as follows:

	Year Ended December 31,
(dollars in thousands)	2018		2017
Rental expense charged to occupancy	$	9,947	$	8,620
Less: Sublease income		903		1,342
Net rental expense charged to occupancy		9,044		7,278
Rental expense charged to equipment expense		3,679		285
Total	$	12,723	$	7,563

Other information related to the Company’s lease liabilities as of and for the year ended December 31, 2019 was as follows:

	Year Ended
(dollars in thousands)	December 31, 2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	8,802
Operating cash flows paid for finance leases	$	10
Financing cash flows paid for finance leases	$	10
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	1,401
Weighted Average Remaining Lease Term
Operating leases (years)		15.7
Finance leases (years)		2.5
Weighted Average Discount Rate
Operating leases		3.36	%
Finance leases		6.78	%

Operating lease right-of-use assets were $44.3 million and finance lease right-of-use assets were not material as of December 31, 2019. Operating lease right-of-use assets and finance lease right-of use assets were recorded as a component of other assets and premises and equipment, respectively, as of December 31, 2019. Operating lease liabilities were $44.4 million and finance lease liabilities were not material as of December 31, 2019. Operating lease liabilities and finance lease liabilities were recorded as a component of other liabilities and long-term borrowings, respectively, as of December 31, 2019.

The most significant assumption related to the Company’s application of Topic 842 was the discount rate assumption. As most of the Company’s lease agreements do not provide for an implicit interest rate, the Company used the collateralized interest rate that the Company would have to pay to borrow over a similar term to estimate the Company’s lease liability as of January 1, 2019.

The following table sets forth future minimum rental payments under noncancelable operating leases with terms in excess of one year as of December 31, 2019:

	Net Operating
	Lease
(dollars in thousands)	Payments
Year ending December 31:
2020	$	8,776
2021		8,084
2022		5,453
2023		2,964
2024		2,721
Thereafter		32,227
Total future minimum lease payments		60,225
Less: Imputed interest		(15,934)
Total	$	44,291

The following table presents future minimum rental payments under operating leases with terms in excess of one year as of December 31, 2018 presented in accordance with Topic 840, “Leases”:

	Operating		Less		Net Operating
	Lease		Sublease		Lease
(dollars in thousands)	Payments		Income		Payments
Year ending December 31:
2019	$	8,780	$	903	$	7,877
2020		8,668		903		7,765
2021		7,961		892		7,069
2022		5,101		—		5,101
2023		2,632		—		2,632
Thereafter		34,638		—		34,638
Total future minimum lease payments	$	67,780	$	2,698	$	65,082

The Company has several operating leases with related parties associated with its branch premises. The lease payments to related parties were $0.3 million for the year ended December 31, 2019. The future minimum rental payments due to related parties are $0.3 million (2020), $0.3 million (2021), $0.2 million (2022), $0.2 million (2023), $0.2 million (2024), and $7.3 million thereafter.

The Company, as lessor, rents office space in its headquarters office building as well as office space located primarily in Hawaii to third party lessees. The cost and accumulated depreciation related to leased properties were $288.8 million and $141.3 million, respectively, as of December 31, 2019, and $289.2 million and $133.7 million, respectively, as of December 31, 2018. Terms of such leases, including renewal options, may be extended for up to ten years, many of which provide for periodic adjustment of rent payments based on changes in consumer or other price indices. The Company recognizes lease income on a straight-line basis over the lease term. Non-lease components, primarily consisting of costs incurred by the Company for maintenance and utilities, are recognized as income in the period in which the payments are due.

The Company recognized operating lease income related to lease payments of $5.9 million for the year ended December 31, 2019. In addition, the Company recognized $5.3 million of lease income related to variable lease payments for the year ended December 31, 2019.

Certain of the Company’s leases are with related parties for the use of space at the Company’s headquarters office building. The rental income paid by the related parties for the year ended December 31, 2019 was $0.4 million. The future minimum rental income from related parties are $0.4 million (2020), $0.4 million (2021), $0.4 million (2022), $0.4 million (2023), $0.4 million (2024), and $0.8 million thereafter.

The following table sets forth future minimum rental income under noncancelable operating leases with terms in excess of one year as of December 31, 2019:

	Minimum
	Rental
(dollars in thousands)	Income
Year ending December 31:
2020	$	6,164
2021		6,152
2022		4,431
2023		3,506
2024		2,680
Thereafter		6,511
Total	$	29,444

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Derivative Financial Instruments - Notional Amounts and Fair Values (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Derivatives designated as hedging instruments | Interest rate swaps
Notional amounts and fair values of derivatives
Notional Amount	$ 23,190	$ 41,317
Derivatives designated as hedging instruments | Interest rate swaps | Included in other assets
Notional amounts and fair values of derivatives
Asset Derivatives		31
Derivatives designated as hedging instruments | Interest rate swaps | Included in other liabilities
Notional amounts and fair values of derivatives
Liability Derivatives	(682)	(44)
Derivatives Not Designated as Hedging Instruments | Interest rate swaps
Notional amounts and fair values of derivatives
Notional Amount	2,818,803	2,269,247
Derivatives Not Designated as Hedging Instruments | Interest rate swaps | Included in other assets
Notional amounts and fair values of derivatives
Asset Derivatives	63,527	12,305
Derivatives Not Designated as Hedging Instruments | Interest rate swaps | Included in other liabilities
Notional amounts and fair values of derivatives
Liability Derivatives		(12,007)
Derivatives Not Designated as Hedging Instruments | Funding Swap (Visa Derivative)
Notional amounts and fair values of derivatives
Notional Amount	82,900	62,039
Derivatives Not Designated as Hedging Instruments | Funding Swap (Visa Derivative) | Included in other liabilities
Notional amounts and fair values of derivatives
Liability Derivatives	(4,233)	(2,607)
Derivatives Not Designated as Hedging Instruments | Foreign exchange contracts
Notional amounts and fair values of derivatives
Notional Amount	1,428	1,191
Derivatives Not Designated as Hedging Instruments | Foreign exchange contracts | Included in other assets
Notional amounts and fair values of derivatives
Asset Derivatives	$ 12
Derivatives Not Designated as Hedging Instruments | Foreign exchange contracts | Included in other liabilities
Notional amounts and fair values of derivatives
Liability Derivatives		$ (34)

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Income Taxes - Components of Net Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Assets:
Deferred compensation expense	$ 56,148	$ 56,989
Allowance for loan and lease losses and nonperforming assets	35,195	38,245
Lease liabilities	11,951
Investment securities	2,474	45,846
State income taxes	3,338	5,378
Total deferred income tax assets before valuation allowance	109,106	146,458
Valuation allowance	(1,393)	(1,901)
Total deferred income tax assets after valuation allowance	107,713	144,557
Liabilities:
Leases	(14,873)	(10,597)
Deferred income	(16,069)	(15,471)
Lease right-of-use assets	(11,931)
Intangible assets	(500)	(788)
Other	(10,570)	(9,852)
Total deferred income tax liabilities	(53,943)	(36,708)
Net deferred income tax assets	$ 53,770	$ 107,849

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Benefit Plans - Contributions to Pension and Other Postretirement Benefit Plans (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Jul. 01, 2019	Dec. 31, 2018
Qualified Plan (ERP)
Benefit plans
Benefit accruals for the company's employees	$ 0
Pension Benefits
Benefit plans
Benefit accruals for the company's employees	(100,626)		$ (99,491)
Pension Benefits | Qualified Plan (ERP)
Benefit plans
Expected contributions in 2020	0
Pension Benefits | Nonqualified Plan
Benefit plans
Expected contributions in 2020	200
SERP and Directors' Plan
Benefit plans
Benefit accruals for the company's employees		$ 0
Expected contributions in 2020	0
Other Benefits | Nonqualified Plan
Benefit plans
Expected contributions in 2020	$ 1,200

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Leases - Terms of Leases (Details)	12 Months Ended
	Dec. 31, 2019 location
Lessee, Lease, Description [Line Items]
Lessee, renewal options included	true
Number of branch properties where operating leases for space are connected	3
Maximum
Lessee, Lease, Description [Line Items]
Term of lease	44 years

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Leases - Future Minimum Rental Payments (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Future minimum rental payments under noncancelable leases
2020	$ 8,776
2021	8,084
2022	5,453
2023	2,964
2024	2,721
Thereafter	32,227
Total future minimum lease payments	60,225
Less: Imputed interest	(15,934)
Total	$ 44,291

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Accumulated Other Comprehensive Income (Loss) - Changes, Net of Tax (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Net of tax
Balance, beginning	$ 2,524,839	$ 2,532,551	$ 2,476,485
Net income	284,392	264,394	183,682
Other comprehensive income (loss)	100,446	(15,744)	(8,372)
Balance, ending	2,640,258	2,524,839	2,532,551
Non-credit other-than-temporary impairment losses on securities available for sale	0
Accumulated other comprehensive Income (loss)
Net of tax
Balance, beginning	(132,195)	(96,383)	(88,011)
Other comprehensive income (loss)	100,446	(15,744)	(8,372)
Balance, ending	(31,749)	(132,195)	(96,383)
Accumulated other comprehensive Income (loss) | ASU 2018-02 | Early Adoption
Net of tax
Other comprehensive income (loss)	(20,068)
Pension and other benefits, net change in pension and other benefits
Net of tax
Balance, beginning	(28,379)	(25,946)	(30,237)
Other comprehensive income (loss)	297	2,960	4,291
Balance, ending	(28,082)	(28,379)	(25,946)
Pension and other benefits, net change in pension and other benefits | ASU 2018-02 | Early Adoption
Net of tax
Other comprehensive income (loss)	(5,393)
Investment securities:
Net of tax
Balance, beginning	(103,816)	(74,117)	(59,958)
Other comprehensive income (loss)	100,149	(14,259)	(14,159)
Balance, ending	(3,667)	(103,816)	(74,117)
Investment securities: | ASU 2018-02 | Early Adoption
Net of tax
Other comprehensive income (loss)	(15,440)
Investment securities, OTTI losses on AFS debt securities, net
Net of tax
Reclassification of net losses (gains) to net income	2,715	24,085
Cash flow derivative hedges:
Net of tax
Balance, beginning		3,680	2,184
Other comprehensive income (loss)		(4,445)	1,496
Balance, ending			$ 3,680
Reclassification of net losses (gains) to net income		$ (7,558)
Cash flow derivative hedges: | ASU 2018-02 | Early Adoption
Net of tax
Other comprehensive income (loss)	$ 765

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Investment Securities - Amortized Cost and Fair Value of Securities (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Available for sale debt securities
Amortized Cost	$ 4,080,663	$ 4,640,419
Unrealized Gains	18,968	85
Unrealized Losses	(23,987)	(142,162)
Fair value	4,075,644	4,498,342
U.S. Treasury securities
Available for sale debt securities
Amortized Cost	29,832	389,470
Unrealized Gains	56
Fair value	29,888	389,470
Government-sponsored enterprises debt securities
Available for sale debt securities
Amortized Cost	101,697	248,372
Unrealized Gains	19
Unrealized Losses	(277)	(6,778)
Fair value	101,439	241,594
Residential - Government agency
Available for sale debt securities
Amortized Cost	290,131	426,710
Unrealized Gains	2,224
Unrealized Losses	(1,146)	(15,174)
Fair value	291,209	411,536
Residential - Government-sponsored enterprises
Available for sale debt securities
Amortized Cost	395,039	156,056
Unrealized Gains	6,126	85
Unrealized Losses	(1,673)	(5,294)
Fair value	399,492	150,847
Commercial - Government-sponsored enterprises
Available for sale debt securities
Amortized Cost	101,798
Unrealized Gains	555
Unrealized Losses	(634)
Fair value	101,719
Government agency
Available for sale debt securities
Amortized Cost	2,390,143	2,779,620
Unrealized Gains	7,483
Unrealized Losses	(16,348)	(97,171)
Fair value	2,381,278	2,682,449
Government-sponsored enterprises
Available for sale debt securities
Amortized Cost	772,023	620,337
Unrealized Gains	2,505
Unrealized Losses	(3,909)	(17,745)
Fair value	$ 770,619	602,592
Debt securities issued by states and political subdivisions
Available for sale debt securities
Amortized Cost		19,854
Fair value		$ 19,854

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Organization and Basis of Presentation - Defined Benefit Assumption and Advertising and Marketing Costs (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Expected long term rate of return for defined benefit plans
Time period for average rate of return	20 years
Percentage of greater of projected benefit obligation or fair value of plan assets for amortization of actuarial gains or losses	5.00%
Amortization period for actuarial gains and losses that exceed threshold	5 years
Advertising and marketing costs
Advertising and marketing	$ 6,910	$ 4,813	$ 6,191

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Short-Term Borrowings - Components and Selected Information (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Short-term borrowings
Short-term borrowings	$ 400,000
Short-term FHLB fixed-rate advance:
Short-term borrowings
Available remaining borrowing capacity	1,700,000	$ 1,300,000
Federal Reserve Bank line of credit
Short-term borrowings
Available remaining borrowing capacity	596,800	671,800
Federal funds purchased
Short-term borrowings
Highest month-end balance	110,000	374,875	$ 6,000
Average outstanding balance	$ 16,410	$ 32,987	$ 1,280
Weighted-average interest rate paid (as a percent)	2.44%	2.18%	0.97%
Securities sold under agreements to repurchase
Short-term borrowings
Highest month-end balance			$ 5,951
Average outstanding balance			$ 893
Weighted-average interest rate paid (as a percent)			0.55%
Short-term FHLB fixed-rate advance:
Short-term borrowings
Short-term borrowings	$ 400,000
Weighted-average interest rate (as a percent)	2.84%
Highest month-end balance	$ 400,000	$ 81,800
Average outstanding balance	$ 193,425	$ 6,929
Weighted-average interest rate paid (as a percent)	2.85%	1.90%

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Transfers of Financial Assets - Carrying Amounts of Assets Pledged as Collateral, Borrowings and Other Transactions (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Carrying amounts of the assets pledged as collateral
Public deposits	$ 1,543,492	$ 1,749,726
Federal Home Loan Bank	2,928,581	2,497,030
Federal Reserve Bank	953,169	957,017
ACH transactions	155,360	150,903
Interest rate swaps	43,296	28,843
Total	5,623,898	5,383,519
Securities for reverse repurchase agreements	0	0
Extinguishment of debt
In-substance debt defeasance	$ 0	$ 0

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Organization and Basis of Presentation - Allowance for Loan and Lease Losses (Details)	12 Months Ended
	Dec. 31, 2019 component
Allowance for loan and lease losses
Reserve for credit losses, number of components	2
Consumer | Minimum
Allowance for loan and lease losses
Threshold period past due for charge-off	120 days
Consumer | Maximum
Allowance for loan and lease losses
Threshold period past due for charge-off	180 days

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Stock-Based Compensation - Performance Share Units and Performance Share Awards (Details) $ / shares in Units, $ in Millions			12 Months Ended
	Jan. 01, 2018 $ / shares shares	Jan. 01, 2017 $ / shares shares	Dec. 31, 2019 USD ($) $ / shares shares	Dec. 31, 2018 USD ($) $ / shares shares	Dec. 31, 2017 USD ($) $ / shares shares	Dec. 31, 2016 $ / shares shares
Stock-based compensation
Stock-based compensation expense | $			$ 7.8	$ 6.9	$ 3.1
Period for recognition of unrecognized compensation expense			1 year 3 months 18 days
Performance Share Units
Stock-based compensation
Ratio of common stock for each vested award			1
Number of Shares
Unvested as of beginning of period (in shares)	506,051	321,612	504,497	506,051	321,612
Granted (in shares)			310,696	277,197	244,218
Vested (in shares)			(36,342)	(229,809)	(38,522)
Forfeited (in shares)			(83,535)	(48,942)	(21,257)
Unvested as of end of period (in shares)			695,316	504,497	506,051	321,612
Weighted Average Grant Date Fair Value
Unvested as of beginning of period (in dollars per share) | $ / shares	$ 30.82	$ 29.11	$ 25.93	$ 30.82	$ 29.11
Granted (in dollars per share) | $ / shares			27.04	22.39	30.44
Vested (in dollars per share) | $ / shares			24.51	32.17	24.41
Forfeited (in dollars per share) | $ / shares			26.37	30.52	33.20
Unvested as of end of period (in dollars per share) | $ / shares			$ 26.46	$ 25.93	$ 30.82	$ 29.11
Stock-based compensation
Unrecognized compensation expense | $			$ 5.6	$ 6.2	$ 4.3
Period for recognition of unrecognized compensation expense			1 year 6 months
Total fair value of vested shares (in dollars) | $			$ 0.9	$ 7.4	$ 0.9
Performance Share Units | Key employees
Number of Shares
Granted (in shares)			310,696	277,197	209,374
Minimum
Stock-based compensation
Performance achieved, percentage of PSUs earned and vested			0
Performance achieved, percentage of PSAs earned and vested			0
Maximum
Stock-based compensation
Performance achieved, percentage of PSUs earned and vested			100
Performance achieved, percentage of PSAs earned and vested			200
IPO | Performance Share Units
Number of Shares
Granted (in shares)						115,566
Stock-based compensation
Period following vesting date for lapsing of transfer restrictions					6 months
IPO | Performance Share Units | Tranche one
Stock-based compensation
Vesting (as a percent)						33.33%
IPO | Performance Share Units | Tranche two
Stock-based compensation
Vesting (as a percent)						33.33%
IPO | Performance Share Units | Tranche three
Stock-based compensation
Vesting (as a percent)						33.33%
LongTerm Incentive Plan
Stock-based compensation
Performance period	3 years	3 years	3 years

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Fair Value - Assets and Liabilities Recorded at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Assets
Investment securities	$ 4,075,644	$ 4,498,342
Fair Value Measurements, Recurring
Assets
Investment securities	4,075,644	4,498,342
Other assets	63,539	12,336
Liabilities
Other liabilities	(4,915)	(14,692)
Total
Net Assets (Liabilities)	4,134,268	4,495,986
Fair Value Measurements, Recurring | Level 2
Assets
Investment securities	4,075,644	4,498,342
Other assets	63,539	12,336
Liabilities
Other liabilities	(682)	(12,085)
Total
Net Assets (Liabilities)	4,138,501	4,498,593
Fair Value Measurements, Recurring | Level 3
Liabilities
Other liabilities	(4,233)	(2,607)
Total
Net Assets (Liabilities)	(4,233)	(2,607)
U.S. Treasury securities
Assets
Investment securities	29,888	389,470
U.S. Treasury securities | Fair Value Measurements, Recurring
Assets
Investment securities	29,888	389,470
U.S. Treasury securities | Fair Value Measurements, Recurring | Level 2
Assets
Investment securities	29,888	389,470
Government-sponsored enterprises debt securities
Assets
Investment securities	101,439	241,594
Government-sponsored enterprises debt securities | Fair Value Measurements, Recurring
Assets
Investment securities	101,439	241,594
Government-sponsored enterprises debt securities | Fair Value Measurements, Recurring | Level 2
Assets
Investment securities	101,439	241,594
Residential - Government agency
Assets
Investment securities	291,209	411,536
Residential - Government agency | Fair Value Measurements, Recurring
Assets
Investment securities	291,209	411,536
Residential - Government agency | Fair Value Measurements, Recurring | Level 2
Assets
Investment securities	291,209	411,536
Residential - Government-sponsored enterprises
Assets
Investment securities	399,492	150,847
Residential - Government-sponsored enterprises | Fair Value Measurements, Recurring
Assets
Investment securities	399,492	150,847
Residential - Government-sponsored enterprises | Fair Value Measurements, Recurring | Level 2
Assets
Investment securities	399,492	150,847
Commercial - Government-sponsored enterprises
Assets
Investment securities	101,719
Commercial - Government-sponsored enterprises | Fair Value Measurements, Recurring
Assets
Investment securities	101,719
Commercial - Government-sponsored enterprises | Fair Value Measurements, Recurring | Level 2
Assets
Investment securities	101,719
Government agency
Assets
Investment securities	2,381,278	2,682,449
Government agency | Fair Value Measurements, Recurring
Assets
Investment securities	2,381,278	2,682,449
Government agency | Fair Value Measurements, Recurring | Level 2
Assets
Investment securities	2,381,278	2,682,449
Government-sponsored enterprises
Assets
Investment securities	770,619	602,592
Government-sponsored enterprises | Fair Value Measurements, Recurring
Assets
Investment securities	770,619	602,592
Government-sponsored enterprises | Fair Value Measurements, Recurring | Level 2
Assets
Investment securities	$ 770,619	602,592
Debt securities issued by states and political subdivisions
Assets
Investment securities		19,854
Debt securities issued by states and political subdivisions | Fair Value Measurements, Recurring
Assets
Investment securities		19,854
Debt securities issued by states and political subdivisions | Fair Value Measurements, Recurring | Level 2
Assets
Investment securities		$ 19,854

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Long-Term Borrowings (Tables)

12 Months Ended

Dec. 31, 2019

Long-Term Borrowings

Schedule of long-term borrowings

(dollars in thousands)	2019		2018
Finance lease	$	19	$	26
FHLB fixed-rate advances(1)		200,000		600,000
Total long-term borrowings	$	200,019	$	600,026

(1) Interest is payable monthly.

Schedule of future contractual principal payments on long-term borrowings

At December 31, 2019, future contractual principal payments and maturities on long-term borrowings were as follows:

	Principal
(dollars in thousands)	Payments
Year ending December 31:
2020	$	9
2021		10
2022		—
2023(1)		100,000
2024(2)		100,000
Total	$	200,019

(1) FHLB fixed-rate advance callable on December 4, 2020 with an interest rate of 2.80%

(2) FHLB fixed-rate advance callable on January 15, 2021 with an interest rate of 2.65%

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Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2019

Benefit plans

Schedule of amounts recognized in other comprehensive income from benefit plans

	Pension Benefits						Other Benefits
(dollars in thousands)	2019		2018		2017		2019		2018		2017
Amounts arising during the year:
Net (gain) loss on pension assets	$	(16,278)	$	12,209	$	(8,619)	$	—	$	—	$	—
Net loss (gain) on pension obligations		21,512		(6,619)		9,757		540		(2,755)		(34)
Reclassification adjustments recognized as components of net periodic benefit cost during the year:
Net (gain) loss		(6,995)		(7,315)		(8,625)		385		—		—
Prior service credit		—		—		—		429		429		429
Amount recognized in other comprehensive income	$	(1,761)	$	(1,725)	$	(7,487)	$	1,354	$	(2,326)	$	395

Schedule of amounts within accumulated other comprehensive income not yet recognized in net periodic benefit cost

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Net actuarial loss (gain)	$	40,061	$	41,822	$	(1,582)	$	(2,507)
Prior service credit		—		—		(51)		(480)
Total, pretax effect		40,061		41,822		(1,633)		(2,987)
Tax impact		(10,786)		(11,260)		440		804
Ending balance in accumulated other comprehensive loss	$	29,275	$	30,562	$	(1,193)	$	(2,183)

Schedule of amounts within accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost

	Pension		Other
(dollars in thousands)	Benefits		Benefits
Amortization of prior service credit	$	—	$	(51)
Amortization of net actuarial loss (gain)		5,753		(103)
Total to be recognized in 2020	$	5,753	$	(154)

Summary of changes to projected or accumulated benefit obligation

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Benefit obligation at beginning of year	$	199,072	$	212,981	$	19,716	$	21,449
Service cost		14		696		710		750
Interest cost		8,261		7,362		808		739
Actuarial loss (gain)		22,573		(6,619)		540		(2,755)
Curtailment gain		(1,061)		—		—		—
Benefit payments		(15,574)		(15,348)		(469)		(467)
Benefit obligation at end of year	$	213,285	$	199,072	$	21,305	$	19,716

Summary of changes to fair value of plan assets

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Fair value of plan assets at beginning of year	$	99,581	$	114,220	$	—	$	—
Actual return on plan assets		20,863		(6,936)		—		—
Benefit payments from trust		(7,785)		(7,703)		—		—
Fair value of plan assets at end of year	$	112,659	$	99,581	$	—	$	—

Summary of funded status of plans

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Pension assets for overfunded plans	$	16,291	$	8,702	$	—	$	—
Pension liabilities for underfunded plans		(116,917)		(108,193)		(21,305)		(19,716)
Funded status	$	(100,626)	$	(99,491)	$	(21,305)	$	(19,716)

Schedule of projected and accumulated benefit obligation and fair value of plan assets

	Funded Pension Plan				Unfunded Pension Plans				Total Pension Plans
(dollars in thousands)	2019		2018		2019		2018		2019		2018
Projected benefit obligation	$	96,368	$	90,879	$	116,917	$	108,193	$	213,285	$	199,072
Accumulated benefit obligation		96,368		90,879		116,834		106,357		213,202		197,236
Fair value of plan assets		112,659		99,581		—		—		112,659		99,581
Overfunded (underfunded) portion of PBO/ABO		16,291		8,702		(116,917)		(108,193)		(100,626)		(99,491)

Summary of change in net actuarial loss and amortization

			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at December 31, 2018	$	(180,915)	$	48,720	$	(132,195)
Year ended December 31, 2019
Pension and other benefits:
Net actuarial losses arising during the year		(5,774)		1,555		(4,219)
Prior service credit		(429)		115		(314)
Amortization of net loss included in net income		6,610		(1,780)		4,830
Net change in pension and other benefits		407		(110)		297
Investment securities:
Unrealized net gains arising during the year		134,343		(36,178)		98,165
Reclassification of net losses to net income:
Investment securities losses, net		2,715		(731)		1,984
Net change in investment securities		137,058		(36,909)		100,149
Other comprehensive income		137,465		(37,019)		100,446
Accumulated other comprehensive loss at December 31, 2019	$	(43,450)	$	11,701	$	(31,749)

			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at December 31, 2017	$	(159,423)	$	63,040	$	(96,383)
Year ended December 31, 2018
Early adoption of ASU No. 2018-02		—		(20,068)		(20,068)
Pension and other benefits:
Net actuarial losses arising during the year		(2,835)		763		(2,072)
Prior service credit		(429)		116		(313)
Amortization of net loss included in net income		7,315		(1,970)		5,345
Net change in pension and other benefits		4,051		(1,091)		2,960
Investment securities:
Unrealized net losses arising during the year		(43,545)		11,686		(31,859)
Reclassification of net gains to net income:
OTTI losses on available-for-sale debt securities, net		24,085		(6,485)		17,600
Net change in investment securities		(19,460)		5,201		(14,259)
Cash flow derivative hedges:
Unrealized net gains on cash flow derivative hedges arising during the year		1,475		(397)		1,078
Reclassification of net gains to net income:
Other noninterest expense		(7,558)		2,035		(5,523)
Net change in cash flow derivative hedges		(6,083)		1,638		(4,445)
Other comprehensive loss		(21,492)		5,748		(15,744)
Accumulated other comprehensive loss at December 31, 2018	$	(180,915)	$	48,720	$	(132,195)

			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at December 31, 2016	$	(145,472)	$	57,461	$	(88,011)
Year ended December 31, 2017
Pension and other benefits:
Net actuarial losses arising during the year		(1,104)		436		(668)
Prior service credit		(429)		170		(259)
Amortization of net loss included in net income		8,625		(3,407)		5,218
Net change in pension and other benefits		7,092		(2,801)		4,291
Investment securities:
Unrealized net losses arising during the year		(23,516)		9,357		(14,159)
Net change in investment securities		(23,516)		9,357		(14,159)
Cash flow derivative hedges:
Unrealized net gains on cash flow derivative hedges arising during the year		2,473		(977)		1,496
Net change in cash flow derivative hedges		2,473		(977)		1,496
Other comprehensive loss		(13,951)		5,579		(8,372)
Accumulated other comprehensive loss at December 31, 2017	$	(159,423)	$	63,040	$	(96,383)

Schedule of components of net periodic benefit cost

	Income line item where recognized in	Pension Benefits						Other Benefits
(dollars in thousands)	the consolidated statements of income	2019		2018		2017		2019		2018		2017
Service cost	Salaries and employee benefits	$	14	$	696	$	629	$	710	$	750	$	738
Interest cost	Other noninterest expense		8,261		7,362		8,297		808		739		776
Expected return on plan assets	Other noninterest expense		(4,585)		(5,273)		(5,003)		—		—		—
Prior service credit	Other noninterest expense		—		—		—		(429)		(429)		(429)
Recognized net actuarial loss (gain)	Other noninterest expense		6,995		7,315		8,625		(385)		—		—
Total net periodic benefit cost		$	10,685	$	10,100	$	12,548	$	704	$	1,060	$	1,085

Schedule of funded pension benefit amounts included in pension benefits

	Funded Pension Benefits
(dollars in thousands)	2019		2018		2017
Interest cost	$	3,808	$	3,420	$	3,922
Expected return on plan assets		(4,585)		(5,273)		(5,003)
Recognized net actuarial loss		3,714		2,600		4,316
Total net periodic benefit cost	$	2,937	$	747	$	3,235

Schedule of assumptions used to determine benefit obligations and net periodic benefit cost

The following weighted-average assumptions were used to determine benefit obligations at December 31, 2019 and 2018:

	FHI ERP Pension Benefits				SERP Pension Benefits				Other Benefits
	2019		2018		2019		2018		2019		2018
Discount rate	3.16	%	4.30	%	3.16	%	4.30	%	3.16	%	4.30	%
Rate of compensation increase	NA		NA		4.00	%	4.00	%	NA		NA

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017 were as follows:

	FHI ERP Pension Benefits						SERP Pension Benefits						Other Benefits
	2019		2018		2017		2019		2018		2017		2019		2018		2017
Discount rate	4.30	%	3.51	%	4.05	%	4.30	%	3.51	%	4.05	%	4.30	%	3.51	%	4.05	%
Expected long-term return on plan assets	4.75	%	4.75	%	4.75	%	NA		NA		NA		NA		NA		NA
Rate of compensation increase	NA		NA		NA		4.00	%	4.00	%	4.00	%	NA		NA		NA

Schedule of assumed healthcare cost trend rates

	2019		2018		2017
Healthcare cost trend rate assumed for next year	6.50	%	7.00	%	7.00	%
Rate to which the cost trend is assumed to decline (the ultimate trend rate)	5.00	%	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2026		2026		2026

Schedule of pre-tax effect of one percentage point change in assumed healthcare cost trend rates

	One Percentage-		One Percentage-
(dollars in thousands)	Point Increase		Point Decrease
Effect on 2019 total of service and interest cost components	$	75	$	(67)
Effect on postretirement benefit obligation at December 31, 2019		353		(328)

Schedule of allocation of employee retirement plan assets

	Asset Allocation
	2019		2018
Equity securities	31	%	29	%
Debt securities	66	%	69	%
Other securities	3	%	2	%
Total	100	%	100	%

Schedule of target allocation of employee retirement plan assets

	Target
	Allocation
Equity securities	30	%
Debt securities	68	%
Other securities	2	%

Schedule of expected future benefit payments

	Pension		Other
(dollars in thousands)	Benefits		Benefits
2020	$	16,120	$	1,205
2021		15,902		1,315
2022		15,580		1,410
2023		15,176		1,487
2024		14,739		1,546
2025 to 2029		69,769		8,085

Schedule of fair value of employee retirement plan assets

	December 31, 2019
	Quoted Prices		Significant
	In Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Asset classes:
Cash and cash equivalents	$	2,824	$	—	$	—	$	2,824
Fixed income - U.S. Treasury securities		—		4,053		—		4,053
Fixed income - U.S. government agency securities		—		3,504		—		3,504
Fixed income - U.S. corporate securities		—		58,808		—		58,808
Fixed income - municipal securities		—		484		—		484
Fixed income - mutual funds		6,204		—		—		6,204
Fixed income - international securities		1,544		—		—		1,544
Equity - large-cap exchange-traded funds		23,278		—		—		23,278
Equity - mid-cap exchange-traded funds		3,379		—		—		3,379
Equity - small-cap exchange-traded funds		1,645		—		—		1,645
Equity - international funds		6,936		—		—		6,936
Total	$	45,810	$	66,849	$	—	$	112,659

	December 31, 2018
	Quoted Prices		Significant
	In Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Asset classes:
Cash and cash equivalents	$	2,428	$	—	$	—	$	2,428
Fixed income - U.S. Treasury securities		—		4,450		—		4,450
Fixed income - U.S. government agency securities		—		3,565		—		3,565
Fixed income - U.S. corporate securities		—		53,721		—		53,721
Fixed income - municipal securities		—		451		—		451
Fixed income - mutual funds		6,272		—		—		6,272
Equity - large-cap mutual funds		8,831		—		—		8,831
Equity - large-cap exchange-traded funds		10,482		—		—		10,482
Equity - mid-cap exchange-traded funds		2,544		—		—		2,544
Equity - small-cap exchange-traded funds		1,176		—		—		1,176
Equity - international funds		5,661		—		—		5,661
Total	$	37,394	$	62,187	$	—	$	99,581

Pension and other benefits, net actuarial losses arising during the year

Benefit plans

Summary of change in net actuarial loss and amortization

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Net actuarial loss (gain) at beginning of year	$	41,822	$	43,547	$	(2,507)	$	248
Amortization cost		(6,995)		(7,315)		385		—
Liability loss (gain)		21,512		(6,619)		540		(2,755)
Asset (gain) loss		(16,278)		12,209		—		—
Net actuarial loss (gain) at end of year	$	40,061	$	41,822	$	(1,582)	$	(2,507)

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Investment Securities - Pledged Securities and Concentration (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Pledged securities
Total pledged securities	$ 1,800,000	$ 2,000,000
Securities pledged to secure public deposits	1,543,492	1,749,726
Securities pledged to secure public deposits and repurchase transactions	1,500,000	1,700,000
Securities pledged to secure other financial transactions	242,300	232,700
Non-government issuer
Concentration of risk
Securities of issuers in excess of 10% of stockholders' equity	$ 0	$ 0

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Allowance for Loan and Lease Losses - Impaired Loans and Leases (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Recorded Investment
Impaired loans with no related allowance recorded	$ 14,280	$ 18,577
Impaired loans with a related allowance recorded	6,358	11,999
Total impaired loans	20,638	30,576
Unpaid Principal Balance
Impaired loans with no related allowance recorded	14,589	18,940
Impaired loans with a related allowance recorded	6,638	12,384
Total impaired loans	21,227	31,324
Related Allowance, Impaired loans	203	536
Average Recorded Investment
Impaired loans with no related allowance recorded	15,329	29,886	$ 38,418
Impaired loans with a related allowance recorded	11,608	11,465	12,387
Total impaired loans	26,937	41,351	50,805
Interest Income Recognized
Impaired loans with no related allowance recorded	1,352	1,259	1,874
Impaired loans with a related allowance recorded	464	675	396
Total impaired loans	1,816	1,934	2,270
Commercial and Industrial
Recorded Investment
Impaired loans with no related allowance recorded	3,825	4,449
Impaired loans with a related allowance recorded	1,126	4,270
Total impaired loans	4,951	8,719
Unpaid Principal Balance
Impaired loans with no related allowance recorded	3,841	4,498
Impaired loans with a related allowance recorded	1,126	4,270
Total impaired loans	4,967	8,768
Related Allowance, Impaired loans	46	108
Average Recorded Investment
Impaired loans with no related allowance recorded	3,687	11,409	19,929
Impaired loans with a related allowance recorded	4,485	3,154	2,572
Total impaired loans	8,172	14,563	22,501
Interest Income Recognized
Impaired loans with no related allowance recorded	431	408	890
Impaired loans with a related allowance recorded	85	273	10
Total impaired loans	516	681	900
Commercial real estate
Recorded Investment
Impaired loans with no related allowance recorded	30	5,016
Impaired loans with a related allowance recorded	693	727
Total impaired loans	723	5,743
Unpaid Principal Balance
Impaired loans with no related allowance recorded	30	5,016
Impaired loans with a related allowance recorded	693	727
Total impaired loans	723	5,743
Related Allowance, Impaired loans	27	32
Average Recorded Investment
Impaired loans with no related allowance recorded	2,825	7,873	9,846
Impaired loans with a related allowance recorded	710	942	918
Total impaired loans	3,535	8,815	10,764
Interest Income Recognized
Impaired loans with no related allowance recorded	481	231	417
Impaired loans with a related allowance recorded	40	67	42
Total impaired loans	521	298	459
Construction
Average Recorded Investment
Impaired loans with no related allowance recorded		1,248
Total impaired loans		1,248
Interest Income Recognized
Impaired loans with no related allowance recorded		91
Total impaired loans		91
Residential
Recorded Investment
Impaired loans with no related allowance recorded	10,425	9,112
Impaired loans with a related allowance recorded	4,539	7,002
Total impaired loans	14,964	16,114
Unpaid Principal Balance
Impaired loans with no related allowance recorded	10,718	9,426
Impaired loans with a related allowance recorded	4,819	7,387
Total impaired loans	15,537	16,813
Related Allowance, Impaired loans	130	396
Average Recorded Investment
Impaired loans with no related allowance recorded	8,777	9,356	8,582
Impaired loans with a related allowance recorded	6,413	7,369	8,897
Total impaired loans	15,190	16,725	17,479
Interest Income Recognized
Impaired loans with no related allowance recorded	440	529	567
Impaired loans with a related allowance recorded	339	335	344
Total impaired loans	779	$ 864	911
Consumer
Average Recorded Investment
Impaired loans with no related allowance recorded	40
Total impaired loans	$ 40
Lease financing
Average Recorded Investment
Impaired loans with no related allowance recorded			61
Total impaired loans			$ 61

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Other Assets - Loans, Fees, Amortization and Carrying Value (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Other Intangible Assets
Unpaid principal amount of consumer loans serviced for others	$ 2,344,899	$ 2,664,860
Contractually specified fees, late charges, and ancillary fees	6,300	7,000	$ 6,500
Amortization of mortgage servicing rights	3,625	3,813	$ 3,600
MSRs
Estimated future amortization expenses for MSRs, next five years
2020	2,129
2021	1,808
2022	1,530
2023	1,295
2024	1,101
Details of MSRs
Gross carrying amount	63,480	63,342
Less: accumulated amortization	50,812	47,187
Net carrying value	$ 12,668	$ 16,155

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Loans and Leases - Components (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Loans and leases
Loans and leases	$ 13,211,650	$ 13,076,191	$ 12,277,369
Outstanding loan balances, deferred loan costs and fees	41,000	36,300
Residential real estate loans pledged to collateralize the borrowing capacity at the FHLB	2,900,000	2,500,000
Consumer and commercial and industrial loans pledged to collateralize the borrowing capacity at the FRB	953,200	957,000
Commercial and Industrial
Loans and leases
Loans and leases	2,743,242	3,208,760	3,135,266
Commercial real estate
Loans and leases
Loans and leases	3,463,953	2,990,783	2,667,597
Commercial real estate | Real estate
Loans and leases
Loans and leases	3,463,953	2,990,783
Construction
Loans and leases
Loans and leases	519,241	626,757	632,911
Construction | Real estate
Loans and leases
Loans and leases	519,241	626,757
Residential
Loans and leases
Loans and leases	4,662,175	4,439,618	4,090,053
Real estate loans in the process of foreclosure	4,100	4,600
Residential | Real estate
Loans and leases
Loans and leases	4,662,175	4,439,618
Consumer
Loans and leases
Loans and leases	1,620,556	1,662,504	1,586,476
Lease financing
Loans and leases
Loans and leases	202,483	147,769	$ 165,066
Residential mortgage | Residential
Loans and leases
Loans and leases	3,768,936	3,527,101
Residential mortgage | Residential | Real estate
Loans and leases
Loans and leases	3,768,936	3,527,101
Home equity | Home equity Line
Loans and leases
Loans and leases	893,239	912,517
Home equity | Home equity Line | Real estate
Loans and leases
Loans and leases	$ 893,239	$ 912,517

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Allowance for Loan and Lease Losses - Credit Risk Profiles Based on Payment Activity, Not Subject to Loan Grading (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($) factor	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Loans and Leases Receivable Disclosure [Line Items]
Percentage of loans sold with no recourse not subject to grading	100.00%
Number of risk factors in internal loan rating system | factor	8
Loans and leases	$ 13,211,650	$ 13,076,191	$ 12,277,369
Residential and consumer
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	6,282,731	6,102,122
Residential and consumer | Performing
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	6,229,130	6,040,469
Residential and consumer | Non-performing and delinquent
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	53,601	61,653
Residential
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	4,662,175	4,439,618	4,090,053
Residential | Residential mortgage
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	3,768,936	3,527,101
Residential | Residential mortgage | Performing
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	3,759,799	3,519,172
Residential | Residential mortgage | Non-performing and delinquent
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	9,137	7,929
Home equity Line | Home equity
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	893,239	912,517
Home equity Line | Home equity | Performing
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	886,879	903,284
Home equity Line | Home equity | Non-performing and delinquent
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	6,360	9,233
Consumer
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	1,620,556	1,662,504	$ 1,586,476
Consumer | Consumer loans
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	226,304	239,906
Consumer | Consumer loans | Performing
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	219,046	234,458
Consumer | Consumer loans | Non-performing and delinquent
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	7,258	5,448
Consumer | Consumer - Auto
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	1,040,468	1,078,132
Consumer | Consumer - Auto | Performing
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	1,016,142	1,044,393
Consumer | Consumer - Auto | Non-performing and delinquent
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	24,326	33,739
Consumer | Credit Cards
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	353,784	344,466
Consumer | Credit Cards | Performing
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	347,264	339,162
Consumer | Credit Cards | Non-performing and delinquent
Loans and Leases Receivable Disclosure [Line Items]
Loans and leases	$ 6,520	$ 5,304

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Other Assets - Federal Home Loan Bank Stock (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Federal Home Loan Bank Stock redemption notice period	5 years
Included in other assets
Investment in Federal Home Loan Bank stock	$ 34.1	$ 34.1

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Parent Company (Tables) - Parent Company

12 Months Ended

Dec. 31, 2019

Condensed Statements of Comprehensive Income

Condensed Statements of Comprehensive Income
	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Income
Dividends from FHB	$	300,300	$	263,400	$	105,400
Other income		1,691		1,541		3,937
Total income		301,991		264,941		109,337
Noninterest expense
Salaries and employee benefits		5,241		5,940		5,949
Contracted services and professional fees		2,689		3,780		3,643
Equipment		—		31		55
Advertising and marketing		—		—		1
Other		721		732		570
Total noninterest expense		8,651		10,483		10,218
Income before benefit (provision) for income taxes and (excess distributions) equity in undistributed income of FHB		293,340		254,458		99,119
Benefit (provision) for income taxes		1,672		1,184		(642)
(Excess distributions) equity in undistributed income of FHB		(10,620)		8,752		85,205
Net income	$	284,392	$	264,394	$	183,682
Comprehensive income	$	384,838	$	248,650	$	175,310

Condensed Statements of Condition

Condensed Statements of Condition
	December 31,
(dollars in thousands)	2019		2018
Assets
Cash and cash equivalents	$	24,455	$	5,647
Investment in FHB		2,617,949		2,521,347
Other assets		24,969		19,358
Total assets	$	2,667,373	$	2,546,352
Liabilities and Stockholders' Equity
Retirement benefits payable	$	553	$	509
Other liabilities		26,562		21,004
Total liabilities		27,115		21,513
Stockholders' Equity
Stockholders' equity		2,640,258		2,524,839
Total stockholders' equity		2,640,258		2,524,839
Total liabilities and stockholders' equity	$	2,667,373	$	2,546,352

Condensed Statement of Cash Flows

Condensed Statements of Cash Flows
	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Cash flows from operating activities
Net income	$	284,392	$	264,394	$	183,682
Adjustments to reconcile net income to net cash provided by operating activities:
Excess distributions (equity in undistributed income) of FHB		10,620		(8,752)		(85,205)
Deferred income taxes		85		(48)		(274)
Stock-based compensation		84		281		244
Change in assets and liabilities:
Net decrease (increase) in other assets		5,318		(9,635)		36,467
Net (decrease) increase in other liabilities		(5,439)		7,633		(2,058)
Net cash provided by operating activities		295,060		253,873		132,856
Cash flows from investing activities
Other, net		—		—		7
Net cash provided by investing activities		—		—		7
Cash flows from financing activities
Dividends paid		(138,246)		(131,036)		(122,810)
Distributions paid		—		—		(2,118)
Stock tendered for payment of withholding taxes		(1,764)		(69)		(120)
Proceeds from employee stock purchase plan		—		342		528
Common stock repurchased		(136,242)		(131,800)		—
Net cash used in financing activities		(276,252)		(262,563)		(124,520)
Net increase (decrease) in cash and cash equivalents		18,808		(8,690)		8,343
Cash and cash equivalents at beginning of year		5,647		14,337		5,994
Cash and cash equivalents at end of year	$	24,455	$	5,647	$	14,337

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Earnings per Share (Tables)

12 Months Ended

Dec. 31, 2019

Earnings per Share

Schedule of computations of basic and diluted earnings per share

	Year Ended December 31,
(dollars in thousands, except shares and per share amounts)	2019		2018		2017
Numerator:
Net income	$	284,392	$	264,394	$	183,682
Denominator:
Basic: weighted-average shares outstanding		133,076,489		136,945,134		139,560,305
Add: weighted-average equity-based awards		310,668		166,286		96,688
Diluted: weighted-average shares outstanding		133,387,157		137,111,420		139,656,993
Basic earnings per share	$	2.14	$	1.93	$	1.32
Diluted earnings per share	$	2.13	$	1.93	$	1.32

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Parent Company - Condensed Balance Sheets (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Assets
Cash and cash equivalents	$ 694,017	$ 1,003,637	$ 1,034,644	$ 1,052,058
Other assets	490,573	446,404
Total assets	20,166,734	20,695,678	20,549,461
Liabilities and Stockholders' Equity
Retirement benefits payable	138,222	127,909
Other liabilities	343,241	292,836
Total liabilities	17,526,476	18,170,839
Stockholders' equity
Stockholders' equity	2,640,258	2,524,839	2,532,551	2,476,485
Total liabilities and stockholders' equity	20,166,734	20,695,678
Parent Company
Assets
Cash and cash equivalents	24,455	5,647	$ 14,337	$ 5,994
Investment in FHB	2,617,949	2,521,347
Other assets	24,969	19,358
Total assets	2,667,373	2,546,352
Liabilities and Stockholders' Equity
Retirement benefits payable	553	509
Other liabilities	26,562	21,004
Total liabilities	27,115	21,513
Stockholders' equity
Stockholders' equity	2,640,258	2,524,839
Total liabilities and stockholders' equity	$ 2,667,373	$ 2,546,352

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Fair Value - Significant Unobservable Inputs Used in Fair Value Measurements (Details) - Level 3 $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Fair Value Measurements, Nonrecurring | Impaired loans
Fair value
Assets	$ 1,502	$ 402
Fair Value Measurements, Recurring | Visa derivative
Fair value
Liabilities	$ (4,233)	$ (2,607)
Fair Value Measurements, Recurring | Visa derivative | Discounted cash flow | Weighted Average
Fair value
Expected Conversion Rate	1.6228	1.6298
Expected Term	1 year	4 years
Growth Rate (as a percent)	13.00%	15.00%

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Derivative Financial Instruments - Free-Standing (Details) $ in Thousands	12 Months Ended				96 Months Ended
	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 shares	Dec. 31, 2015 shares	Oct. 31, 2019 USD ($)	Sep. 27, 2019	Jul. 31, 2018 USD ($)	Jun. 28, 2018
Visa | Class B restricted shares
Derivative financial instruments
Estimated liability that was subsequently paid to the buyer						$ 300
Number of shares sold | shares				274,000	0
Other noninterest income | Visa
Derivative financial instruments
Loss related to a revaluation adjustment to increase the fair value	$ 4,500
Interest rate swaps | Customer swap program
Derivative financial instruments
Notional Amount	2,800,000
Funding Swap (Visa Derivative) | Class B restricted shares
Derivative financial instruments
Conversion rate			1.6483				1.6228		1.6298
Funding Swap (Visa Derivative) | Visa
Derivative financial instruments
Conversion rate			1.6483				1.6228		1.6298
Estimated liability that was subsequently paid to the buyer								$ 700
Funding Swap (Visa Derivative) | Included in other liabilities
Derivative financial instruments
Derivative liability value	4,200	$ 2,600
Derivatives Not Designated as Hedging Instruments | Interest rate swaps
Derivative financial instruments
Notional Amount	2,818,803	2,269,247
Net interest expense on derivative	$ 0	$ 500	$ 900
Derivatives Not Designated as Hedging Instruments | Interest rate swaps | Minimum
Derivative financial instruments
Fixed interest rate (as a percent)	1.71%	2.02%
Derivatives Not Designated as Hedging Instruments | Interest rate swaps | Maximum
Derivative financial instruments
Fixed interest rate (as a percent)	8.73%	5.78%
Derivatives Not Designated as Hedging Instruments | Interest rate swaps | Customer swap program
Derivative financial instruments
Notional Amount		$ 2,200,000
Positive fair value, derivative asset		12,300
Negative fair value, derivative liability		12,000
Derivative asset value	$ 63,500	12,300
Derivative liability value	0	11,200
Derivatives Not Designated as Hedging Instruments | Interest rate swaps | Customer swap program | Maximum
Derivative financial instruments
Positive fair value, derivative asset	63,500
Negative fair value, derivative liability
Derivatives Not Designated as Hedging Instruments | Interest rate swaps | Customer swap program | Other noninterest income
Derivative financial instruments
Upfront fees on the dealer swap	4,500	7,300	$ 6,700
Derivatives Not Designated as Hedging Instruments | Interest rate swaps | Included in other assets
Derivative financial instruments
Positive fair value, derivative asset	63,527	12,305
Derivatives Not Designated as Hedging Instruments | Interest rate swaps | Included in other liabilities
Derivative financial instruments
Negative fair value, derivative liability		12,007
Derivatives Not Designated as Hedging Instruments | Funding Swap (Visa Derivative)
Derivative financial instruments
Notional Amount	82,900	62,039
Derivatives Not Designated as Hedging Instruments | Funding Swap (Visa Derivative) | Included in other liabilities
Derivative financial instruments
Negative fair value, derivative liability	$ 4,233	$ 2,607

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Commitments and Contingent Liabilities - Financial Instruments with Off-Balance Sheet Risk (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Financial instruments with off-balance sheet risk
Contract amount	$ 6,100,000	$ 5,800,000
Commitments to extend credit
Financial instruments with off-balance sheet risk
Contract amount	5,907,690	5,549,591
Standby letters of credit
Financial instruments with off-balance sheet risk
Contract amount	181,412	204,324
Commercial Letters of credit
Financial instruments with off-balance sheet risk
Contract amount	$ 7,334	$ 7,535

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Organization and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2019

Organization and Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

First Hawaiian, Inc. (“FHI” or the “Parent”), a bank holding company, owns 100% of the outstanding common stock of First Hawaiian Bank (“FHB” or the “Bank”). FHB is a state-chartered bank that is not a member of the Federal Reserve System. FHB, the oldest financial institution in Hawaii, was established as Bishop & Company in 1858. As of December 31, 2019, FHB was the largest bank in Hawaii in terms of total assets, loans and leases and deposits. FHB has 58 branches located throughout the State of Hawaii, Guam and Saipan, and offers a comprehensive suite of banking services to consumer and commercial customers including loans, deposit products, wealth management, insurance, trust, retirement planning, credit card and merchant processing services.

The accounting and reporting principles of First Hawaiian, Inc. and Subsidiary (the “Company”) conform to U.S. generally accepted accounting principles (“GAAP”) and prevailing practices within the financial services industry. Intercompany accounts and transactions have been eliminated in consolidation.  

Transition to an Independent Public Company

Transition to an Independent Public Company

Prior to our initial public offering in August 2016 (“IPO”), we were an indirect wholly owned subsidiary of BNP Paribas (“BNPP”), a global financial institution based in France.  

On April 1, 2016, BNPP effected a series of transactions (“Reorganization Transactions”) pursuant to which FHI, which was then known as BancWest Corporation (“BancWest”), contributed Bank of the West (“BOW”), its subsidiary at the time, to BancWest Holding Inc. (“BWHI”), a newly formed bank holding company and a wholly owned subsidiary of BancWest. Following the contribution of BOW to BWHI, BancWest distributed its interest in BWHI to BNPP, and BWHI became a wholly owned subsidiary of BNPP. As part of these transactions, we amended our certificate of incorporation to change our name to First Hawaiian, Inc., with First Hawaiian Bank remaining our only direct wholly owned subsidiary.

On July 1, 2016, we became an indirect wholly owned subsidiary of BNP Paribas USA, Inc. (“BNP Paribas USA”), BNPP’s U.S. intermediate holding company. As part of that reorganization, we became a direct wholly owned subsidiary of BancWest Corporation (“BWC”), a direct wholly owned subsidiary of BNP Paribas USA.

In August 2016, FHI completed its IPO of 24,250,000 shares of common stock sold by BWC. Shares of FHI’s common stock began trading on the NASDAQ Global Select Market (“NASDAQ”) under the ticker symbol “FHB” on August 4, 2016. In connection with FHI’s IPO, BNPP announced its intent to sell its interest in FHI, including FHI’s wholly owned subsidiary, FHB, over time, subject to market conditions and other considerations.

In February 2017, BWC sold an additional 28,750,000 shares of FHI common stock in a secondary offering. In May and June 2018, BWC sold an additional 16,830,000 shares of FHI common stock in the aggregate in a secondary offering. BWC sold 20,000,000 additional shares of FHI common stock in secondary offerings completed in each of August and September 2018, respectively. BWC sold shares of FHI common stock of 2,968,069 and 1,801,801 in May and August 2018, respectively, to the Company pursuant to share repurchase agreements. On February 1, 2019, BNPP, through BWC, completed the sale of its remaining 24,859,750 shares of FHI common stock in a public offering. FHI did not receive any of the proceeds from the sales of shares of FHI common stock in that offering, in any of the secondary offerings described above or the IPO. As a result of the completion of the February 1, 2019 public offering, BNPP (through BWC, the selling stockholder) fully exited its ownership interest in FHI common stock.

Use of Estimates in the Preparation of Financial Statements

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and various other assumptions believed to be reasonable.

Although these estimates are based on management’s best knowledge of current events, actual results may differ from these estimates.

Variable Interest Entities

Variable Interest Entities

A variable interest entity (“VIE”) is a legal entity that lacks the ability to financially support its activities or whose equity investors lack the ability to control its activities or absorb profits and losses proportionately with their investment in the entity. The primary beneficiary consolidates the VIE. The primary beneficiary is defined as the enterprise that has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE.

The Company has a limited partnership interest or is a member in a limited liability company (“LLC”) in several low-income housing partnerships. These partnerships or LLCs provide funds for the construction and operation of apartment complexes that provide affordable housing to that segment of the population with lower family income. If these developments successfully attract a specified percentage of residents falling in that lower income range, state and/or federal income tax credits are made available to the partners or members. The tax credits are generally recognized over 10 years. In order to continue receiving the tax credits each year over the life of the partnership or LLC, the low-income residency targets must be maintained.

The Company accounts for its interests in these low-income housing partnerships using the proportional amortization method. Unfunded commitments to fund these investments were $102.8 million and $36.0 million as of December 31, 2019 and 2018, respectively. These unfunded commitments are unconditional and legally binding and are recorded in other liabilities in the consolidated balance sheets.

These low-income housing partnership and LLC entities meet the definition of a VIE; however, the Company is not the primary beneficiary of the entities, as the general partner or managing member has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. While the partnership or LLC agreements allow the limited partners and members, through a majority vote, to remove the general partner or managing member, this right is not deemed to be substantive as the general partner or managing member can only be removed for cause.

Cash and Due from Banks and Interest bearing Deposits in Other Banks

Cash and Due from Banks

Cash and due from banks include amounts due from other financial institutions as well as in-transit clearings. Because amounts due from other financial institutions often exceed the Federal Deposit Insurance Corporation (“FDIC”) deposit insurance limit, the Company evaluates the credit risk of these institutions through periodic review of their financial condition and regulatory capital position. Under the terms of the Depository Institutions Deregulation and Monetary Control Act, the Company is required to maintain reserves with the Federal Reserve Bank of San Francisco (“FRB”) based on the amount of deposits held. The average amount of cash reserves required was $67.4 million and $57.6 million for the years ended December 31, 2019 and 2018, respectively. Cash and cash equivalents include cash and due from banks and interest-bearing deposits in other banks. All amounts are readily convertible to cash and have maturities of less than 90 days.

Interest-bearing Deposits in Other Banks

Interest-bearing deposits in other banks include funds held in other financial institutions that are either fixed or variable rate instruments, including certificates of deposits. Interest income is recorded when earned and presented within other interest income in the Company’s consolidated statements of income.

Investment Securities

Investment Securities

As of December 31, 2019 and 2018, investment securities were comprised of debt, mortgage-backed securities and collateralized mortgage obligations issued by the U.S. Government, its agencies and government-sponsored enterprises. The Company amortizes premiums and accretes discounts using the interest method over the expected lives of the individual securities. All investment securities transactions are recorded on a trade-date basis. All of the Company’s securities were categorized as available-for-sale as of December 31, 2019 and 2018. Available-for-sale investment

securities are reported at fair value, with unrealized gains and losses reported in accumulated other comprehensive income. Gains and losses realized on sales of investment securities are determined using the specific identification method.  

Unrealized losses for all investment securities are reviewed to determine whether the losses are other than temporary. Investment securities are evaluated for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic and market conditions warrant such an evaluation, to determine whether the decline in fair value below amortized cost is other than temporary. For a debt security for which there has been a decline in the fair value below amortized cost, the Company will recognize an OTTI write-down in noninterest income if there is an intent to sell the security, it is more likely than not the Company will be required to sell the security before recovery of its amortized cost basis, or the Company does not expect to recover the entire amortized cost basis of the security. The OTTI write-down is measured as the entire difference between the amortized cost basis and fair value of the investment security.

Loans Held for Sale

Loans Held for Sale

The Company originates certain loans for individual sale or for sale as a pool of loans to government-sponsored enterprises. Loans held for sale are carried, on an aggregate basis, at the lower of cost or fair value. The fair value of loans held for sale is primarily determined based on quoted prices for similar loans in active markets. Net gains and losses on loan sales are recorded as a component of other noninterest income. Direct loan origination costs and fees are deferred at origination of the loan and are recognized in other noninterest income upon sale of the loan.

Loans and Leases

Loans and Leases

Loans are reported at the principal amount outstanding, net of unearned income including unamortized and unaccreted deferred loan fees and costs, and cumulative net charge-offs. Interest income is recognized on an accrual basis. Loan origination fees, certain direct costs and unearned discounts and premiums, if any, are deferred and are generally accreted or amortized into interest income as yield adjustments using the interest method over the contractual life of the loan. Other credit-related fees are recognized as fee income, a component of noninterest income, when earned.

Direct financing leases are carried at the aggregate of lease payments receivable plus the estimated residual value of leased property, less unearned income. Leveraged leases, which are a form of direct financing leases, are carried net of non-recourse debt. Unearned income on direct financing and leveraged leases is amortized over the lease terms by methods that approximate the interest method. Residual values on leased assets are periodically reviewed for impairment.

Non-Performing Loans and Leases

Non-Performing Loans and Leases

The Company generally places a loan or lease on nonaccrual status when management believes that collection of principal or interest has become doubtful or when a loan or lease becomes 90 days past due as to principal or interest, unless it is well secured and in the process of collection. A charge-off is recorded when it is probable that a loss has been incurred and when it is possible to determine a reasonable estimate of the loss. When the Company places a loan or lease on nonaccrual status, previously accrued and uncollected interest is reversed against interest income in the current period. When the Company receives an interest payment on a nonaccrual loan or lease, the payment is applied as a reduction of the principal balance. Nonaccrual loans and leases are generally returned to accrual status when they become current as to principal and interest and have demonstrated a sustained period of payment performance or become both well secured and in the process of collection.

Troubled Debt Restructurings

Troubled Debt Restructurings

A restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the Company, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The Company offers various types of concessions when modifying a loan, including term extensions, temporary deferral of principal and temporary interest rate reductions. However, forgiveness of principal is rarely granted. Generally, a non-accrual loan that has been modified in a TDR remains on non-accrual status for at least six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. However, if the borrower’s ability to meet the revised payment terms is uncertain, the loan remains on non-accrual status.

Impaired Loans

Impaired Loans

A loan is considered impaired when, based on current information and events, it is probable that the Company will not be able to collect all amounts due from the borrower in accordance with the contractual terms of the loan, including scheduled interest payments. This evaluation is generally based on delinquency information, an assessment of the borrower’s financial condition and the adequacy of collateral, if any. The Company’s impaired loans are primarily comprised of commercial and industrial, commercial real estate, residential mortgage and any loans modified in a TDR, whether on accrual or nonaccrual status.

The Company individually measures impairment on commercial and industrial loans and commercial real estate loans based on the present value of the expected future cash flows discounted at the loan’s effective interest rate or, for residential real estate loans and collateral-dependent loans, based on the fair value of the collateral less disposition costs. On a case-by-case basis, the Company may measure impairment based upon a loan’s observable market price. Impaired loans without a related allowance for loan and lease losses are generally collateralized by assets with fair values in excess of the recorded investment in the loans.

Allowance for Loan and Lease Losses, Reserve for Unfunded Commitments and Provision for Loan and Lease Losses

Allowance for Loan and Lease Losses

The Company maintains the allowance for loan and lease losses (the “Allowance”) at a level which, in management’s judgment, is adequate to absorb probable credit losses that have been incurred in the Company’s loan and lease portfolio as of the balance sheet date. The Company’s methodology for determining an adequate and appropriate level of the Allowance takes into account many factors, including:

● Trends in the volume and severity of delinquent loans and leases, nonaccrual loans and leases, troubled debt restructurings and other loan and lease modifications;

● Trends in the quality of risk management and loan administration practices including findings of internal and external reviews of loans and the effectiveness of collection practices;

● Changes in the quality of the Company’s risk identification process and loan review system;

● Changes in lending policies and procedures including underwriting standards and collection, charge-off and recovery practices;

● Changes in the nature and volume of the loan and lease portfolio;

● Changes in concentrations within the loan and lease portfolio;  

● Changes in national and local economic business conditions, including the condition of various market segments.

While the Company has a formal methodology to determine an adequate and appropriate level of the Allowance, estimates of inherent loan and lease losses involve judgment and assumptions as to various factors, including current economic conditions. Management’s determination of the adequacy of the Allowance is based on quarterly evaluations of the above factors. Accordingly, the provision for credit losses will vary from period to period based on management’s ongoing assessment of the adequacy of the Allowance.

The Allowance consists of two components, the allocated and the unallocated allowance. The allocated portion of the Allowance includes reserves that are allocated based on impairment analyses of specific loans or pools of loans. A discussion of evaluating specific loans for impairment is noted in the “Impaired Loans” section above. The Company collectively evaluates large groups or pools of smaller-balance homogeneous loans and leases such as consumer loans, residential real estate loans and small business loans. The risk assessment process includes the use of estimates to determine the inherent loss in these portfolios. The Company considers a variety of factors including, but not limited to historical loss experience, estimated defaults or foreclosures based on portfolio trends and delinquencies, and current economic conditions.

The unallocated component of the Allowance recognizes the imprecision in the loan and lease loss estimation process. While the Company’s allocated reserve methodology strives to reflect all risk factors, there may still be certain unidentified risk elements. The purpose of the unallocated reserve is to capture these factors. The relationship of the unallocated component to the total Allowance may fluctuate from period to period. Management evaluates the adequacy of the total Allowance based on the combined total of the allocated and unallocated components of the Allowance.

The Allowance is increased by provisions for loan and lease losses and reduced by charge-offs, net of recoveries. Consumer loans and leases are generally charged off upon reaching a predetermined delinquency status that ranges from 120 to 180 days and varies by product type. Other loans and leases may be charged off to the extent they are classified as loss. Recoveries of amounts that have previously been charged off are credited to the Allowance and are generally recorded only to the extent that cash is received.

Reserve for Unfunded Commitments

The reserve for unfunded commitments (the “Unfunded Reserve”) is a component of other liabilities and represents the estimate for probable credit losses inherent in unfunded commitments to extend credit. Unfunded commitments to extend credit include loan commitments, and standby and commercial letters of credit. The process used to determine the Unfunded Reserve is consistent with the process for determining the Allowance as adjusted for estimated funding probabilities or loan and lease equivalency factors. The level of the Unfunded Reserve is adjusted by recording an expense or recovery in other noninterest expense.

Provision for Loan and Lease Losses

The provision for loan and lease losses (the “Provision”) represents the amount charged against current period earnings to achieve an Allowance that in management’s judgment is adequate to absorb probable credit losses that have been incurred in the Company’s loan and lease portfolio as of the consolidated balance sheet date. Accordingly, the Provision will vary from period to period based on management’s ongoing assessment of the overall adequacy of the Allowance.

Premises and Equipment

Premises and Equipment

Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of 10 to 39 years for premises, 4 to 20 years for equipment and the shorter of the lease term or remaining useful life for leasehold improvements.

On a periodic basis, long-lived assets are reviewed for impairment. An impairment loss is recognized if the carrying amount of a long-lived asset exceeds its fair value and is not recoverable. An impairment analysis is performed whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets may not be recoverable.

Operating lease rental income for leased assets, primarily premises, is recognized on a straight-line basis as an offset to rental expense.

Other Real Estate Owned and Repossessed Personal Property

Other Real Estate Owned and Repossessed Personal Property

Other real estate owned (“OREO”) and repossessed personal property are comprised primarily of properties that the Company acquires through foreclosure proceedings. The Company values these properties at fair value less estimated costs to sell the property upon acquisition, which establishes the new carrying value. The Company charges losses arising upon the acquisition of the property against the Allowance. If the fair value of the property at the time of acquisition exceeds the carrying amount of the loan, the excess is recorded either as a recovery to the Allowance if a charge-off had previously been recorded, or as a gain on initial transfer in other noninterest income. After acquisition, the Company carries such properties at the lower of cost or fair value less estimated selling costs. Any write-downs or losses from the subsequent disposition of such properties are included in other noninterest expense. Gains recognized on the sale of such properties are included in other noninterest income.

Goodwill

Goodwill

Goodwill represents the cost of acquired businesses in excess of the fair value of the net assets acquired. The Company performs impairment testing of goodwill, an infinite-lived intangible asset, as required under GAAP on an annual basis or when circumstances change that indicate that a potential impairment may have occurred. The Company has assigned goodwill to its operating segments for impairment testing purposes. The goodwill impairment guidance provides the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing further impairment tests is unnecessary. However, if an entity concludes otherwise, or does not elect this option, it is required to perform impairment testing. Step 1 of the test identifies potential impairments at the reporting unit level by comparing the estimated fair value of each identified reporting unit to its carrying amount. If the estimated fair value of a reporting unit exceeds its carrying amount, there is no impairment of goodwill. However, if the carrying amount exceeds the estimated fair value, Step 2 is performed to determine the amount of the potential impairment. Step 2 compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined as if the reporting unit were being acquired in a business combination. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Subsequent reversals of goodwill impairment are prohibited.

Mortgage Servicing Rights

Mortgage Servicing Rights

Mortgage servicing rights are recognized as assets when residential mortgage loans are sold and the rights to service those loans are retained.  Mortgage servicing rights are initially recorded at fair value by using a discounted cash flow model to calculate the present value of estimated future net servicing income, incorporating assumptions that market participants would use in their estimates of fair value.

The Company’s mortgage servicing rights are accounted for under the amortization method and periodically assessed for impairment. The Company amortizes the mortgage servicing rights over the period of estimated net servicing income, taking into account prepayment assumptions. Any such indicated impairment is recognized in earnings during the period in which the impairment occurs. Mortgage servicing income, net of the amortization of mortgage servicing rights, is recorded as a component of other noninterest income in the consolidated statements of income.

Non Marketable Equity Securities

Non-Marketable Equity Securities

The Company is required to own Federal Home Loan Bank (“FHLB”) of Des Moines stock as a condition of membership. These securities are accounted for under the cost method, which equals par value, and are included in other assets in the consolidated balance sheets. These securities do not have a readily determinable fair value as ownership is restricted and there is no market for these securities. The Company reviews these securities periodically for impairment. Management considers these securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. No impairment was recognized on non-marketable equity securities for the years ended December 31, 2019, 2018 and 2017.

Pension and Other Postretirement Benefit Plans

Pension and Other Postretirement Benefit Plans

The Company has a qualified noncontributory defined benefit pension plan, an unfunded supplemental executive retirement plan, a directors’ retirement plan, a non-qualified pension plan for eligible directors and a postretirement benefit plan providing life insurance and healthcare benefits that is offered to directors and employees, as applicable. The qualified noncontributory defined benefit pension plan, the unfunded supplemental executive retirement plan and the directors’ retirement plan are all frozen plans to new participants. To calculate annual pension costs, management uses the following key variables: (1) size of the employee population, length of service and estimated compensation increases; (2) actuarial assumptions and estimates; (3) expected long-term rate of return on plan assets; and (4) discount rate. For all pension and postretirement benefit plan calculations, the Company uses a December 31^st measurement date.

The expected long-term rate of return was based on a calculated rate of return from average rates of return on various asset classes over a 20-year historical time horizon. Using long-term historical data allows the Company to capture multiple economic environments, which management believes is relevant when using historical returns. Net actuarial gains or losses that exceed a 5% corridor of the greater of the projected benefit obligation or the fair value of plan assets as of the beginning of the year are amortized from accumulated other comprehensive income into net periodic pension cost on a straight-line basis over five years.

In estimating the projected benefit obligation, an independent actuary bases assumptions on factors such as mortality rate, turnover rate, retirement rate, disability rate and other assumptions related to the population of individuals in the pension plan. If significant actuarial gains or losses occur, the actuary reviews the demographic and economic assumptions with management, at which time the Company considers revising these assumptions based on actual results.

The Company recognizes an asset on its consolidated balance sheets for a plan’s overfunded status or a liability for a plan’s underfunded status. The Company also measures the plans’ assets and obligations that determine its funded status as of the end of the year and recognizes those changes in other comprehensive income, net of tax. Periodic pension expense (or income) includes service costs, interest costs based on the assumed discount rate, the expected return on plan assets based on an actuarially derived market-related value and amortization of actuarial gains and losses. Service cost is included in salaries and employee benefits expense, while all other components of net periodic pension cost are included in other noninterest expense in the consolidated statements of income.

Income Taxes

Income Taxes

Current income tax expense is recognized for the amount of income taxes expected to be payable or refundable for the current period, and deferred income taxes are provided to reflect the tax effect of temporary differences between financial statement carrying amounts and the corresponding tax basis of assets and liabilities. Deferred income taxes are calculated by applying enacted statutory tax rates and tax laws to future years in which temporary differences are expected to reverse. The impact on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that the tax rate change is enacted. A deferred tax valuation allowance is established if it is more likely than not that a deferred tax asset will not be realized. Interest and penalties, if any, expected to be assessed or refunded by taxing authorities relating to an underpayment or overpayment of income taxes are accrued and recorded as part of income tax expense.

Excise tax credits relating to premises and equipment are accounted for using the flow-through method, and the benefit is recognized in the year the asset is placed in service. General business and excise tax credits generated from the leasing portfolio, except for credits that are passed on to lessees, are recognized over the term of the lease for book purposes, but in the year placed in service for tax purposes.

The Company maintains reserves for unrecognized tax benefits that arise in the normal course of business. As of December 31, 2019, these positions were evaluated based on an assessment of probabilities as to the likelihood of whether a liability had been incurred. Such assessments are reviewed as events occur and adjustments to the reserves are made as appropriate. In evaluating a tax position for recognition, the Company evaluates whether it is more likely than not that a tax position will be sustained upon examination, including resolution of related appeals or litigation processes, based on the technical merits of the position. If the tax position meets the more likely than not recognition threshold, the tax position is measured and recognized in the Company’s consolidated financial statements as the largest amount of tax benefit that, in management’s judgment, is greater than 50% likely of being realized upon ultimate settlement.

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Derivatives are recognized on the consolidated balance sheets at fair value. On the date the Company enters into a derivative contract, the Company designates the derivative instrument as: (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”); (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”); or (3) held for trading, customer accommodation or not qualifying for hedge accounting (“free-standing derivative instrument”). For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability or of an unrecognized firm commitment attributable to interest rate risk are recorded in current period earnings. For a cash flow hedge, to the extent that the hedge is considered highly effective, changes in the fair value of the derivative instrument are recorded in other comprehensive income and subsequently reclassified to net income in the same period

that the hedged transaction impacts net income. To the extent the derivative instruments are not effective, any changes in the fair value of the derivatives are immediately recognized in noninterest income. For free-standing derivative instruments, changes in fair values are reported in current period earnings. The Company formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as hedges to specific assets or liabilities, unrecognized firm commitments or forecasted transactions. The Company also formally assesses, both at the inception of a hedge and on a quarterly basis, whether the derivative instruments used are highly effective in offsetting changes in fair values of, or cash flows related to, hedged items.

Fair Value Measurements

Fair Value Measurements

Fair value measurements apply whenever GAAP requires or permits assets or liabilities to be measured at fair value either on a recurring or nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. Fair value is based on the assumptions that management believes market participants would use when pricing an asset or liability. Fair value measurement and disclosure guidance established a three-level fair value hierarchy that prioritizes the use of inputs used in valuation methodologies. Management maximizes the use of observable inputs and minimizes the use of unobservable inputs when determining fair value measurements.

Stock-Based Compensation

Stock-Based Compensation

The Company grants stock-based awards, including restricted stock, restricted stock units and performance stock units. These awards are issued at no cost to the recipient. The fair value of restricted stock and restricted stock unit awards was based on the closing price of FHI’s common stock on the date of grant. Such awards were recognized in the Company’s consolidated statements of income on a straight-line basis over the vesting period. Recipients of performance stock units are entitled to receive shares of FHI common stock at no cost, subject to the Company’s achievement of specified market or performance conditions. The grant date fair value of the performance stock units subject to the Company’s achievement of specified market conditions was estimated using a Monte Carlo simulation model. For purposes of this modeling exercise, historical volatilities of FHI common stock and members of the peer group were used. The risk-free interest rate that was used in the valuation was that of a zero-coupon U.S. Treasury note that was commensurate with the performance period.

As compensation cost is recognized, a deferred tax asset is established which represents an estimate of the future tax deduction from the release of restrictions or the achievement of performance targets. At the time that restrictions on the stock-based awards are released, the Company may be required to recognize an adjustment to income tax expense, depending on the market price of the Company’s common stock at that time.

Treasury Stock

Treasury Stock

Shares of the Parent’s common stock that were repurchased or that are used to satisfy payroll tax withholdings related to stock-based compensation are recorded in treasury stock at cost. On the date of subsequent reissuance, the treasury stock account will be reduced by the cost of such stock on a first-in, first-out basis.

Earnings per Share

Earnings per Share

Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period, assuming conversion of potentially dilutive common stock equivalents.

Advertising and Marketing Costs

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred. Advertising and marketing costs were $6.9 million, $4.8 million and $6.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.  

Accounting Standard Adopted in 2019 and Recent Accounting Pronouncements

Accounting Standards Adopted in 2019

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). This guidance provided that lessees would be required to recognize the following for all operating leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee's obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The Company adopted the provisions of ASU No. 2016-02 on January 1, 2019 and elected several practical expedients made available by the FASB. Specifically, the Company elected the transition practical expedient to not recast comparative periods upon the adoption of the new guidance. In addition, the Company elected the package of practical expedients which among other things, required no reassessment of whether existing contracts were or contained leases as well as no reassessment of lease classification for existing leases and the practical expedient which permitted the Company to not separate nonlease components from lease components in determining the consideration in the lease agreement when the Company was a lessee or a lessor. The Company identified the primary lease agreements in scope of this new guidance as those relating to branch premises. As a result, the Company recognized a lease liability of $50.3 million and a related right-of-use asset of $50.6 million on its consolidated balance sheet on January 1, 2019. See “Note 14. Leases” for required disclosures related to this new guidance.

In March 2017, the FASB issued ASU No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. Prior to the adoption of ASU No. 2017-08, entities typically amortized the premium as an adjustment of yield over the contractual life of debt securities. This guidance shortens the amortization period for certain callable debt securities held at a premium to the earliest call date. The Company adopted the provisions of ASU No. 2017-08 on January 1, 2019 and it did not have a material impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. The objectives of the new guidance were to: (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities, and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. Historically, the Company has participated in limited activities in fair value and cash flow hedging relationships. As a result, the adoption of ASU No. 2017-12 on January 1, 2019 did not have a material impact on the Company’s consolidated financial statements. See “Note 17. Derivative Financial Instruments” for required disclosures related to this new guidance.

In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This guidance aligns the accounting for implementation costs related to a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Common examples of hosting arrangements include software as a service, platform or infrastructure as a service and other similar types of hosting arrangements. While capitalized costs related to internal-use software is generally considered an intangible asset, costs incurred to implement a cloud computing arrangement that is a service contract would typically be characterized in the company’s financial statements in the same manner as other service costs (e.g., other assets). The new guidance provided that an entity would be required to amortize capitalized implementation costs over the term of the hosting arrangement on a straight-line basis unless another systematic and rational basis was more representative of the pattern in which the entity expected to benefit from access to the hosted software. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with earlier adoption permitted in any annual or interim period for which financial statements have not yet been issued or made available for issuance. The Company early adopted the provisions of ASU No. 2018-15 prospectively on January 1, 2019 due to the Company’s shift towards utilizing more hosting arrangements that are service contracts. For the year ended December 31, 2019, the Company capitalized $10.6 million related to hosting arrangements that are service contracts.

In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815), Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This guidance expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting by adding the OIS rate based on the SOFR. Due to concerns about the sustainability of the London Interbank Offered Rate (“LIBOR”), a committee convened by the Federal Reserve Board and the Federal Reserve Bank of New

York initiated an effort to introduce an alternative reference rate in the U.S. The committee identified SOFR as the preferred alternative reference rate to LIBOR. The OIS rate based on SOFR was added as a U.S. benchmark interest rate to facilitate broader use in the marketplace and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies. The Company adopted the provisions of ASU No. 2018-16 on January 1, 2019 and it did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

The following ASUs have been issued by the FASB and are applicable to the Company in future reporting periods.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This guidance eliminates the probable recognition threshold for credit losses on financial assets measured at amortized cost. For loans and held-to-maturity debt securities, this guidance requires a current expected credit loss (“CECL”) approach to determine the allowance for credit losses (“ACL”). CECL requires loss estimates for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. CECL also applies to off-balance sheet credit exposures, except for unconditionally cancellable commitments. In addition, this guidance modifies the other-than-temporary-impairment model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for a reversal of credit losses in future periods. This guidance requires entities to record a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In April 2019, the FASB also issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. As it relates to CECL, this guidance amended certain provisions contained in ASU No. 2016-13, particularly with regards to the inclusion of accrued interest in the definition of amortized cost, as well as clarifying that extension and renewal options that are not unconditionally cancelable by the entity that are included in the original or modified contract should be considered in the entity’s determination of expected credit losses. Federal banking regulatory agencies have also provided relief for an initial capital decrease on January 1, 2020 by allowing for an election to phase-in the impact of adopting the CECL standard over a three-year period on a straight-line basis.

The Company will adopt the provisions of ASU No. 2016-13, ASU No. 2019-04 and related amendments on January 1, 2020. The Company elected the practical expedient to use the fair value of the collateral at the reporting date when recording the net carrying amount of the asset and determining the ACL for a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company’s assessment as of the reporting date. The Company will also make accounting policy elections not to measure an ACL on accrued interest receivable, write-off accrued interest receivable by reversing interest income and to present accrued interest receivable separately from the related financial asset on the balance sheet. The implementation of CECL will require significant operational changes, particularly in data collection and analysis. The Company engaged a software vendor and ran several CECL parallel productions during 2019. In the fourth quarter of 2019, model validation was completed and management approved the model to be placed into production. Furthermore, significant progress was made in the Company’s user acceptance testing and reconciliation processes. Based on the Company’s portfolio balances and forecasted economic conditions as of January 1, 2020, management believes that the adoption of the CECL standard will result in an increase in the ACL of approximately 10% to 15%, as compared to the Company’s reserve levels as of December 31, 2019.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. This guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the current two-step goodwill impairment test. This guidance provides that a goodwill impairment test be conducted by comparing the fair value of a reporting unit with its carrying amount. Entities are to recognize an impairment charge for goodwill by the amount by which the carrying amount exceeds the reporting unit’s fair value. Entities will continue to have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This guidance is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. The Company adopted the provisions of ASU No. 2017-04 on January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.  

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This guidance is a part of the FASB’s disclosure framework project to improve disclosure effectiveness. This guidance eliminates certain disclosure

requirements for fair value measurements: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, an entity’s policy for the timing of transfers between levels of the fair value hierarchy and an entity’s valuation processes for Level 3 fair value measurements. This guidance also adds new disclosure requirements for public entities: changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements, including how the weighted average is calculated. Furthermore, this guidance modifies certain requirements which will involve disclosing: transfers into and out of Level 3 of the fair value hierarchy, purchases and issuances of Level 3 assets and liabilities, and information about the measurement uncertainty of Level 3 fair value measurements as of the reporting date. The Company adopted the provisions of ASU No. 2018-13 on January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.

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Allowance for Loan and Lease Losses (Tables)

12 Months Ended

Dec. 31, 2019

Allowance for Loan and Lease Losses

Schedule of components of allowance for loan and lease losses

	Year Ended December 31, 2019
	Commercial Lending
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Residential		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Balance at beginning of year	$	34,501	$	19,725	$	5,813	$	432	$	44,906	$	35,813	$	528	$	141,718
Charge-offs		(2,718)		—		—		(24)		(438)		(32,807)		—		(35,987)
Recoveries		410		263		—		—		967		9,359		—		10,999
Increase (decrease) in Provision		(3,218)		2,337		(969)		16		(6,256)		22,279		(389)		13,800
Balance at end of year	$	28,975	$	22,325	$	4,844	$	424	$	39,179	$	34,644	$	139	$	130,530
Individually evaluated for impairment		46		27		—		—		130		—		—		203
Collectively evaluated for impairment		28,929		22,298		4,844		424		39,049		34,644		139		130,327
Loans and leases:
Individually evaluated for impairment	$	4,951	$	723	$	—	$	—	$	14,964	$	—	$	—	$	20,638
Collectively evaluated for impairment		2,738,291		3,463,230		519,241		202,483		4,647,211		1,620,556		—		13,191,012
Balance at end of year	$	2,743,242	$	3,463,953	$	519,241	$	202,483	$	4,662,175	$	1,620,556	$	—	$	13,211,650

	Year Ended December 31, 2018
	Commercial Lending
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Residential		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Balance at beginning of year	$	34,006	$	18,044	$	6,817	$	611	$	42,852	$	31,249	$	3,674	$	137,253
Charge-offs		(778)		—		—		—		(165)		(26,630)		—		(27,573)
Recoveries		232		216		—		—		940		8,470		—		9,858
Increase (decrease) in Provision		1,041		1,465		(1,004)		(179)		1,279		22,724		(3,146)		22,180
Balance at end of year	$	34,501	$	19,725	$	5,813	$	432	$	44,906	$	35,813	$	528	$	141,718
Individually evaluated for impairment		108		32		—		—		396		—		—		536
Collectively evaluated for impairment		34,393		19,693		5,813		432		44,510		35,813		528		141,182
Loans and leases:
Individually evaluated for impairment	$	8,719	$	5,743	$	—	$	—	$	16,114	$	—	$	—	$	30,576
Collectively evaluated for impairment		3,200,041		2,985,040		626,757		147,769		4,423,504		1,662,504		—		13,045,615
Balance at end of year	$	3,208,760	$	2,990,783	$	626,757	$	147,769	$	4,439,618	$	1,662,504	$	—	$	13,076,191

	Year Ended December 31, 2017
	Commercial Lending
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Residential		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Balance at beginning of year	$	33,129	$	18,448	$	4,513	$	847	$	43,436	$	28,388	$	6,733	$	135,494
Charge-offs		(1,519)		—		—		(147)		(408)		(23,851)		—		(25,925)
Recoveries		844		596		—		—		687		7,057		—		9,184
Increase (decrease) in Provision		1,552		(1,000)		2,304		(89)		(863)		19,655		(3,059)		18,500
Balance at end of year	$	34,006	$	18,044	$	6,817	$	611	$	42,852	$	31,249	$	3,674	$	137,253
Individually evaluated for impairment		4		6		—		—		484		—		—		494
Collectively evaluated for impairment		34,002		18,038		6,817		611		42,368		31,249		3,674		136,759
Loans and leases:
Individually evaluated for impairment	$	18,183	$	10,636	$	—	$	—	$	16,530	$	—	$	—	$	45,349
Collectively evaluated for impairment		3,117,083		2,656,961		632,911		165,066		4,073,523		1,586,476		—		12,232,020
Balance at end of year	$	3,135,266	$	2,667,597	$	632,911	$	165,066	$	4,090,053	$	1,586,476	$	—	$	12,277,369

Schedule of credit risk profiles by internally assigned grade for loans and leases

	December 31, 2019
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Total
Grade:
Pass	$	2,585,908	$	3,327,659	$	515,993	$	201,461	$	6,631,021
Special mention		91,365		106,331		127		1,022		198,845
Substandard		65,969		29,963		3,121		—		99,053
Total	$	2,743,242	$	3,463,953	$	519,241	$	202,483	$	6,928,919

	December 31, 2018
	Commercial		Commercial
	and		Real				Lease
(dollars in thousands)	Industrial		Estate		Construction		Financing		Total
Grade:
Pass	$	3,069,546	$	2,876,907	$	625,607	$	146,356	$	6,718,416
Special mention		57,012		91,298		200		1,223		149,733
Substandard		82,010		22,578		950		190		105,728
Doubtful		192		—		—		—		192
Total	$	3,208,760	$	2,990,783	$	626,757	$	147,769	$	6,974,069

Schedule of credit risk profiles based on payment activity for loans and leases

	December 31, 2019
(dollars in thousands)	Residential Mortgage		Home Equity Line		Consumer		Consumer - Auto		Credit Cards		Total
Performing	$	3,759,799	$	886,879	$	219,046	$	1,016,142	$	347,264	$	6,229,130
Non-performing and delinquent		9,137		6,360		7,258		24,326		6,520		53,601
Total	$	3,768,936	$	893,239	$	226,304	$	1,040,468	$	353,784	$	6,282,731

	December 31, 2018
(dollars in thousands)	Residential Mortgage		Home Equity Line		Consumer		Consumer - Auto		Credit Cards		Total
Performing	$	3,519,172	$	903,284	$	234,458	$	1,044,393	$	339,162	$	6,040,469
Non-performing and delinquent		7,929		9,233		5,448		33,739		5,304		61,653
Total	$	3,527,101	$	912,517	$	239,906	$	1,078,132	$	344,466	$	6,102,122

Schedule of aging analyses of past due loans and leases

	December 31, 2019
	Accruing Loans and Leases
					Greater								Total Non
					Than or						Total		Accruing
	30-59		60-89		Equal to		Total				Accruing		Loans
	Days		Days		90 Days		Past				Loans and		and		Total
(dollars in thousands)	Past Due		Past Due		Past Due		Due		Current		Leases		Leases		Outstanding
Commercial and industrial	$	1,525	$	808	$	1,429	$	3,762	$	2,739,448	$	2,743,210	$	32	$	2,743,242
Commercial real estate		1,664		1,125		1,013		3,802		3,460,121		3,463,923		30		3,463,953
Construction		—		—		2,367		2,367		516,874		519,241		—		519,241
Lease financing		—		—		—		—		202,483		202,483		—		202,483
Residential mortgage		3,258		399		74		3,731		3,759,799		3,763,530		5,406		3,768,936
Home equity line		2,971		394		2,995		6,360		886,879		893,239		—		893,239
Consumer		26,810		7,022		4,272		38,104		1,582,452		1,620,556		—		1,620,556
Total	$	36,228	$	9,748	$	12,150	$	58,126	$	13,148,056	$	13,206,182	$	5,468	$	13,211,650

	December 31, 2018
	Accruing Loans and Leases
					Greater								Total Non
					Than or						Total		Accruing
	30-59		60-89		Equal to		Total				Accruing		Loans
	Days		Days		90 Days		Past				Loans and		and		Total
(dollars in thousands)	Past Due		Past Due		Past Due		Due		Current		Leases		Leases		Outstanding
Commercial and industrial	$	1,293	$	—	$	141	$	1,434	$	3,207,052	$	3,208,486	$	274	$	3,208,760
Commercial real estate		—		—		—		—		2,989,125		2,989,125		1,658		2,990,783
Construction		91		—		—		91		626,666		626,757		—		626,757
Lease financing		47		—		—		47		147,722		147,769		—		147,769
Residential mortgage		2,274		1,012		32		3,318		3,519,172		3,522,490		4,611		3,527,101
Home equity line		5,616		775		2,842		9,233		903,284		912,517		—		912,517
Consumer		32,406		8,712		3,373		44,491		1,618,013		1,662,504		—		1,662,504
Total	$	41,727	$	10,499	$	6,388	$	58,614	$	13,011,034	$	13,069,648	$	6,543	$	13,076,191

Schedule of total carrying amounts and total unpaid principal balances of impaired loans and leases

	December 31, 2019
			Unpaid
	Recorded		Principal		Related
(dollars in thousands)	Investment		Balance		Allowance
Impaired loans with no related allowance recorded:
Commercial and industrial	$	3,825	$	3,841	$	—
Commercial real estate		30		30		—
Residential mortgage		10,425		10,718		—
Total	$	14,280	$	14,589	$	—
Impaired loans with a related allowance recorded:
Commercial and industrial	$	1,126	$	1,126	$	46
Commercial real estate		693		693		27
Residential mortgage		4,539		4,819		130
Total	$	6,358	$	6,638	$	203
Total impaired loans:
Commercial and industrial	$	4,951	$	4,967	$	46
Commercial real estate		723		723		27
Residential mortgage		14,964		15,537		130
Total	$	20,638	$	21,227	$	203

	December 31, 2018
			Unpaid
	Recorded		Principal		Related
(dollars in thousands)	Investment		Balance		Allowance
Impaired loans with no related allowance recorded:
Commercial and industrial	$	4,449	$	4,498	$	—
Commercial real estate		5,016		5,016		—
Residential mortgage		9,112		9,426		—
Total	$	18,577	$	18,940	$	—
Impaired loans with a related allowance recorded:
Commercial and industrial	$	4,270	$	4,270	$	108
Commercial real estate		727		727		32
Residential mortgage		7,002		7,387		396
Total	$	11,999	$	12,384	$	536
Total impaired loans:
Commercial and industrial	$	8,719	$	8,768	$	108
Commercial real estate		5,743		5,743		32
Residential mortgage		16,114		16,813		396
Total	$	30,576	$	31,324	$	536

Schedule of average balances, and of interest income recognized from, impaired loans

	Year Ended
	December 31, 2019
	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized
Impaired loans with no related allowance recorded:
Commercial and industrial	$	3,687	$	431
Commercial real estate		2,825		481
Residential mortgage		8,777		440
Consumer		40		—
Total	$	15,329	$	1,352
Impaired loans with a related allowance recorded:
Commercial and industrial	$	4,485	$	85
Commercial real estate		710		40
Residential mortgage		6,413		339
Total	$	11,608	$	464
Total impaired loans:
Commercial and industrial	$	8,172	$	516
Commercial real estate		3,535		521
Residential mortgage		15,190		779
Consumer		40		—
Total	$	26,937	$	1,816

	Year Ended
	December 31, 2018
	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized
Impaired loans with no related allowance recorded:
Commercial and industrial	$	11,409	$	408
Commercial real estate		7,873		231
Construction		1,248		91
Residential mortgage		9,356		529
Total	$	29,886	$	1,259
Impaired loans with a related allowance recorded:
Commercial and industrial	$	3,154	$	273
Commercial real estate		942		67
Residential mortgage		7,369		335
Total	$	11,465	$	675
Total impaired loans:
Commercial and industrial	$	14,563	$	681
Commercial real estate		8,815		298
Construction		1,248		91
Residential mortgage		16,725		864
Total	$	41,351	$	1,934

	Year Ended
	December 31, 2017
	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized
Impaired loans with no related allowance recorded:
Commercial and industrial	$	19,929	$	890
Commercial real estate		9,846		417
Lease financing		61		—
Residential mortgage		8,582		567
Total	$	38,418	$	1,874
Impaired loans with a related allowance recorded:
Commercial and industrial	$	2,572	$	10
Commercial real estate		918		42
Residential mortgage		8,897		344
Total	$	12,387	$	396
Total impaired loans:
Commercial and industrial	$	22,501	$	900
Commercial real estate		10,764		459
Lease financing		61		—
Residential mortgage		17,479		911
Total	$	50,805	$	2,270

Schedule of information related to loans modified in a TDR

	Year Ended December 31, 2019
	Number of	Recorded		Related
(dollars in thousands)	Contracts(1)	Investment(2)		Allowance
Commercial and industrial	2	$	571	$	25
Residential mortgage	1		609		—
Total	3	$	1,180	$	25

	Year Ended December 31, 2018
	Number of	Recorded		Related
(dollars in thousands)	Contracts(1)	Investment(2)		Allowance
Commercial and industrial	1	$	369	$	10
Residential mortgage	3		875		29
Total	4	$	1,244	$	39

	Year Ended December 31, 2017
	Number of	Recorded		Related
(dollars in thousands)	Contracts(1)	Investment(2)		Allowance
Commercial and industrial	1	$	1,075	$	—
Residential mortgage	2		659		23
Total	3	$	1,734	$	23

(1) The number of contracts does not include TDRs that have been fully paid off, charged off or foreclosed upon by the end of the period.

(2) The recorded investment balances reflect all partial paydowns and charge-offs since the modification date and do not include TDRs that have been fully paid off, charged off or foreclosed upon by the end of the period.

Schedule of TDRs that defaulted in period within 12 months of their permanent modification date

	Year Ended December 31,
	2019			2018			2017
	Number of	Recorded		Number of	Recorded		Number of	Recorded
(dollars in thousands)	Contracts(1)	Investment(2)		Contracts(1)	Investment(2)		Contracts(1)	Investment(2)
Commercial and industrial(3)	2	$	571	—	$	—	1	$	2,480
Commercial real estate(4)	—		—	—		—	1		1,393
Total	2	$	571	—	$	—	2	$	3,873

(1) The number of contracts does not include TDRs that have been fully paid off, charged off or foreclosed upon by the end of the period.

(2) The recorded investment balances reflect all partial paydowns and charge-offs since the modification date and do not include TDRs that have been fully paid off, charged off or foreclosed upon by the end of the period.

(3) In 2019, the commercial and industrial loans that subsequent defaulted were temporarily modified to interest-only payments. In 2017, the maturity date for the commercial and industrial loan that subsequently defaulted was extended.

(4) In 2017, the commercial real estate loan that subsequently defaulted was extended.

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Short-Term Borrowings

12 Months Ended

Dec. 31, 2019

Short-Term Borrowings

Short-Term Borrowings

10. Short-Term Borrowings

As of December 31, 2019 and 2018, short-term borrowings were comprised of the following:

	December 31,
(dollars in thousands)	2019		2018
Short-term FHLB fixed-rate advances(1)	$	400,000	$	—
Total short-term borrowings	$	400,000	$	—

(1) Interest is payable monthly.

As of December 31, 2019, the Company’s short-term borrowings included $400.0 million in short-term FHLB fixed-rate advances with a weighted average interest rate of 2.84% and maturity dates in 2020. The short-term FHLB fixed-rate advances require monthly interest-only payments with the principal amount due on the maturity date. See “Note 8. Transfers of Financial Assets” for more information.

The table below provides selected information for short-term borrowings during the years ended December 31, 2019, 2018 and 2017:

	Year Ended December 31,
(dollars in thousands)	2019			2018			2017
Federal funds purchased:
Weighted-average interest rate at December 31,		—	%		—	%		—	%
Highest month-end balance	$	110,000		$	374,875		$	6,000
Average outstanding balance	$	16,410		$	32,987		$	1,280
Weighted-average interest rate paid		2.44	%		2.18	%		0.97	%
Securities sold under agreements to repurchase:
Weighted-average interest rate at December 31,		—	%		—	%		—	%
Highest month-end balance	$	—		$	—		$	5,951
Average outstanding balance	$	—		$	—		$	893
Weighted-average interest rate paid		—	%		—	%		0.55	%
Short-term FHLB fixed-rate advance:
Weighted-average interest rate at December 31,		2.84	%		—	%		—	%
Highest month-end balance	$	400,000		$	81,800		$	—
Average outstanding balance	$	193,425		$	6,929		$	—
Weighted-average interest rate paid		2.85	%		1.90	%		—	%

The Company treats securities sold under agreements to repurchase as collateralized financings. The Company reflects the obligations to repurchase the same or similar securities sold as liabilities, with the dollar amount of securities underlying the agreements remaining in the asset accounts. Generally, for these types of agreements, there is a requirement that collateral be maintained with a market value equal to or in excess of the principal amount borrowed. As such, the collateral pledged may be increased or decreased over time to meet contractual obligations. The securities underlying the agreements to repurchase are held in collateral accounts with a third-party custodian. The Company did not enter into any repurchase agreements in 2019 and 2018.

At December 31, 2019 and 2018, the Company had a remaining line of credit of $1.7 billion and $1.3 billion available from the FHLB, respectively, and an undrawn line of credit of $596.8 million and $671.8 million available from the FRB, respectively.

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Benefit Plans - Changes to Benefit Obligations and Fair Value of Plan Assets and Funded Status (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2019	Dec. 31, 2018
Funded status and amounts recognized in balance sheets
Pension liabilities for underfunded plans				$ (138,222)	$ (127,909)
Pension Benefits
Changes to PBO or APBO
Benefit obligation at beginning of year	$ 199,072	$ 212,981
Service cost	14	696
Interest cost	8,261	7,362
Actuarial loss (gain)	22,573	(6,619)
Curtailment gain	(1,061)
Benefit payments	(15,574)	(15,348)
Benefit obligation at end of year	213,285	199,072	$ 212,981
Changes to fair value of plan assets
Fair value of plan assets at beginning of year	99,581	114,220
Actual return on plan assets	20,863	(6,936)
Benefit payments from trust	(7,785)	(7,703)
Fair value of plan assets at end of year	112,659	99,581	114,220
Funded status and amounts recognized in balance sheets
Pension assets for overfunded plans				16,291	8,702
Pension liabilities for underfunded plans				(116,917)	(108,193)
Funded status				(100,626)	(99,491)
PBO, ABO and fair value of plan assets
Projected benefit obligation	213,285	199,072	212,981	213,285	199,072
Accumulated benefit obligation				213,202	197,236
Fair value of plan assets	99,581	99,581	114,220	112,659	99,581
Overfunded (underfunded) portion of PBO/ABO				(100,626)	(99,491)
Pension Benefits | Funded Plan
Changes to PBO or APBO
Benefit obligation at beginning of year	90,879
Interest cost	3,808	3,420	3,922
Benefit obligation at end of year	96,368	90,879
Changes to fair value of plan assets
Fair value of plan assets at beginning of year	99,581
Fair value of plan assets at end of year	112,659	99,581
PBO, ABO and fair value of plan assets
Projected benefit obligation	90,879	90,879		96,368	90,879
Accumulated benefit obligation				96,368	90,879
Fair value of plan assets	99,581	99,581		112,659	99,581
Overfunded (underfunded) portion of PBO/ABO				16,291	8,702
Pension Benefits | Unfunded Plan
Changes to PBO or APBO
Benefit obligation at beginning of year	108,193
Benefit obligation at end of year	116,917	108,193
PBO, ABO and fair value of plan assets
Projected benefit obligation	108,193	108,193		116,917	108,193
Accumulated benefit obligation				116,834	106,357
Overfunded (underfunded) portion of PBO/ABO				(116,917)	(108,193)
Other Benefits
Changes to PBO or APBO
Benefit obligation at beginning of year	19,716	21,449
Service cost	710	750
Interest cost	808	739
Actuarial loss (gain)	540	(2,755)
Benefit payments	(469)	(467)
Benefit obligation at end of year	21,305	19,716	21,449
Funded status and amounts recognized in balance sheets
Pension liabilities for underfunded plans				(21,305)	(19,716)
Funded status				(21,305)	(19,716)
PBO, ABO and fair value of plan assets
Projected benefit obligation	$ 21,305	$ 21,449	$ 21,449	$ 21,305	$ 19,716

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Consolidated Statements of Stockholders' Equity (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Consolidated Statements of Stockholders' Equity
Cash dividends declared (in dollars per share)	$ 1.04	$ 0.96	$ 0.88

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Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Consolidated Statements of Comprehensive Income
Net income	$ 284,392	$ 264,394	$ 183,682
Other comprehensive income (loss), net of tax:
Net change in pensions and other benefits	297	2,960	4,291
Net change in investment securities	100,149	(14,259)	(14,159)
Net change in cash flow derivative hedges		(4,445)	1,496
Other comprehensive income (loss)	100,446	(15,744)	(8,372)
Total comprehensive income	$ 384,838	$ 248,650	$ 175,310

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Benefit Plans - 401(k) Savings Plan (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Salaries and employee benefits
401(k) Savings Plan and Money Purchase Pension Plan
Employer contributions	$ 7.5	$ 7.8	$ 7.3
First Hawaiian, Inc. 401(k) Savings Plan | Maximum
401(k) Savings Plan and Money Purchase Pension Plan
Employer contributions, as percentage of employee's pay	5.00%	5.00%	5.00%
First Hawaiian, Inc. Future Plan
401(k) Savings Plan and Money Purchase Pension Plan
Employer contributions, as percentage of employee's pay	2.50%	2.50%	2.50%

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Premises and Equipment

12 Months Ended

Dec. 31, 2019

Premises and Equipment

Premises and Equipment

6. Premises and Equipment

At December 31, 2019 and 2018, premises and equipment were comprised of the following:

	December 31,
(dollars in thousands)	2019		2018
Buildings	$	289,271	$	280,853
Furniture and equipment		86,485		81,342
Land		106,487		105,302
Leasehold improvements		64,828		55,316
Total premises and equipment		547,071		522,813
Less: Accumulated depreciation and amortization		230,186		217,817
Net book value	$	316,885	$	304,996

Depreciation and amortization expenses included in occupancy and equipment expenses for 2019, 2018 and 2017 were as follows:

	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Occupancy	$	9,037	$	8,815	$	8,852
Equipment		5,485		6,488		6,426
Total	$	14,522	$	15,303	$	15,278

The Company, as a lessor, leases certain properties that it owns. See “Note 14. Leases” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

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Benefit Plans - Plan Assets Allocation (Details) - Pension Benefits	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Benefit plans
Asset Allocation (as a percent)	100.00%	100.00%
Equity securities
Benefit plans
Asset Allocation (as a percent)	31.00%	29.00%
Target Allocation (as a percent)	30.00%
FHI stock
Benefit plans
Asset Allocation (as a percent)	0.00%	0.00%
BNP Paribas stock
Benefit plans
Asset Allocation (as a percent)	0.00%	0.00%
Debt securities
Benefit plans
Asset Allocation (as a percent)	66.00%	69.00%
Target Allocation (as a percent)	68.00%
Other securities
Benefit plans
Asset Allocation (as a percent)	3.00%	2.00%
Target Allocation (as a percent)	2.00%
Qualified Plan (ERP)
Benefit plans
Expected long term return on plan assets (as a percent)	4.75%	4.75%	4.75%

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Transactions with Affiliates and Related Parties

12 Months Ended

Dec. 31, 2019

Transactions with Affiliates and Related Parties

Transactions with Affiliates and Related Parties

2. Transactions with Affiliates and Related Parties

In the normal course of business, the Company makes loans to executive officers and directors of the Company and its subsidiary and to entities and individuals affiliated with those executive officers and directors. These loans are made on terms no less favorable to the Company than those prevailing at the time for comparable transactions with unrelated persons or, in the case of certain residential real estate loans, on terms that are widely available to employees of the Company who are not directors or executive officers.

Changes in the loans to such executive officers, directors and affiliates during 2019, 2018 and 2017 were as follows:

	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Balance at beginning of year	$	66,088	$	61,603	$	94,466
New loans made		22,682		6,756		3,762
Repayments		(3,490)		(2,271)		(36,625)
Balance at end of year	$	85,280	$	66,088	$	61,603

The Company has participated in various transactions with BWC, BOW, BNPP and its affiliates, in each case while such entities were affiliates and related parties of the Company. These transactions were subject to review by the FRB, FDIC and other regulatory authorities. The transactions were required to be on terms at least as favorable to the Company as those prevailing at the time for similar non-affiliate transactions. These transactions included the provision of services, sales and purchases of assets, foreign exchange activities, financial guarantees, international services, interest rate swaps and intercompany deposits and borrowings.

The Company participates in forward and spot transactions with BOW (which ceased being an affiliate of the Company in February 2019) as the counterparty. These positions as of December 31, 2019, 2018 and 2017 are summarized below along with other transactions with its related parties.

	As of December 31,
(dollars in thousands)	2019		2018		2017
Cash and due from banks	$	—	$	55,454	$	41,874
Other assets		—		19,358		23,872
Noninterest-bearing demand deposits		—		(346)		(456)
Noninterest income from affiliates		382		5,677		4,908
Noninterest expense to affiliates		(4)		(59)		(47)

The Company had no other liabilities with affiliates and no off-balance sheet commitments with affiliates to purchase and sell foreign currencies as of December 31, 2019, 2018 and 2017.

The Company did not transact in hedging or trading activities on behalf of BOW or BWC, in each case while such entities were affiliates and related parties of the Company.

In 2016, BWC and the Company entered into an Expense Reimbursement Agreement whereby BWC agreed to reimburse the Company for certain expenses incurred by the Company that are provided for the ultimate benefit of BNPP and its subsidiaries. Payments received from BWC amounted to $7.2 million, $14.6 million and $21.4 million for the years ended December 31, 2019, 2018 and 2017, respectively. Expenses incurred by the Company after 2019 are not subject to reimbursement by BWC under the Expense Reimbursement Agreement.

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Allowance for Loan and Lease Losses - Credit Risk Profiles by Internally Assigned Grade (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($) factor	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Credit quality
Percentage of loans sold with no recourse not subject to grading	100.00%
Number of risk factors in internal loan rating system | factor	8
Loans and leases	$ 13,211,650	$ 13,076,191	$ 12,277,369
Loans graded
Credit quality
Loans and leases	6,928,919	6,974,069
Pass
Credit quality
Loans and leases	6,631,021	6,718,416
Special mention
Credit quality
Loans and leases	198,845	149,733
Substandard
Credit quality
Loans and leases	99,053	105,728
Doubtful
Credit quality
Loans and leases		192
Loss
Credit quality
Loans and leases	0	0
Commercial and Industrial
Credit quality
Loans and leases	2,743,242	3,208,760	3,135,266
Commercial and Industrial | Loans graded
Credit quality
Loans and leases	2,743,242	3,208,760
Commercial and Industrial | Pass
Credit quality
Loans and leases	2,585,908	3,069,546
Commercial and Industrial | Special mention
Credit quality
Loans and leases	91,365	57,012
Commercial and Industrial | Substandard
Credit quality
Loans and leases	65,969	82,010
Commercial and Industrial | Doubtful
Credit quality
Loans and leases		192
Commercial real estate
Credit quality
Loans and leases	3,463,953	2,990,783	2,667,597
Commercial real estate | Loans graded
Credit quality
Loans and leases	3,463,953	2,990,783
Commercial real estate | Pass
Credit quality
Loans and leases	3,327,659	2,876,907
Commercial real estate | Special mention
Credit quality
Loans and leases	106,331	91,298
Commercial real estate | Substandard
Credit quality
Loans and leases	29,963	22,578
Construction
Credit quality
Loans and leases	519,241	626,757	632,911
Construction | Loans graded
Credit quality
Loans and leases	519,241	626,757
Construction | Pass
Credit quality
Loans and leases	515,993	625,607
Construction | Special mention
Credit quality
Loans and leases	127	200
Construction | Substandard
Credit quality
Loans and leases	3,121	950
Lease financing
Credit quality
Loans and leases	202,483	147,769	$ 165,066
Lease financing | Loans graded
Credit quality
Loans and leases	202,483	147,769
Lease financing | Pass
Credit quality
Loans and leases	201,461	146,356
Lease financing | Special mention
Credit quality
Loans and leases	$ 1,022	1,223
Lease financing | Substandard
Credit quality
Loans and leases		$ 190

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Other Assets - Affordable Housing and Other Tax Credit Investment Partnerships (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Affordable housing and other tax credit investment partnership interests
Affordable housing tax credits and other benefits recognized	$ 10.6	$ 6.3	$ 4.5
Provision for income taxes
Affordable housing and other tax credit investment partnership interests
Amortization	11.3	5.2	$ 3.5
Included in other assets
Affordable housing and other tax credit investment partnership interests
Investment partnership interest	$ 145.6	$ 111.5

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Investment Securities - Contractual Maturity (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Amortized Cost
Due in one year or less	$ 29,832
Due after one year through five years	101,697
Total contractual maturities	131,529
Amortized Cost	4,080,663	$ 4,640,419
Fair Value
Due in one year or less	29,888
Due after one year through five years	101,439
Total contractual maturities	131,327
Fair value	4,075,644	4,498,342
Mortgage-backed securities:
Amortized Cost
Government debt securities, mortgaged-backed securities and obligations	786,968
Fair Value
Government debt securities, mortgaged-backed securities and collateralized mortgage obligations	792,420
Residential - Government agency
Amortized Cost
Government debt securities, mortgaged-backed securities and obligations	290,131
Amortized Cost	290,131	426,710
Fair Value
Government debt securities, mortgaged-backed securities and collateralized mortgage obligations	291,209
Fair value	291,209	411,536
Residential - Government-sponsored enterprises
Amortized Cost
Government debt securities, mortgaged-backed securities and obligations	395,039
Amortized Cost	395,039	156,056
Fair Value
Government debt securities, mortgaged-backed securities and collateralized mortgage obligations	399,492
Fair value	399,492	150,847
Commercial - Government-sponsored enterprises
Amortized Cost
Government debt securities, mortgaged-backed securities and obligations	101,798
Amortized Cost	101,798
Fair Value
Government debt securities, mortgaged-backed securities and collateralized mortgage obligations	101,719
Fair value	101,719
Collateralized mortgage obligations
Amortized Cost
Government debt securities, mortgaged-backed securities and obligations	3,162,166
Fair Value
Government debt securities, mortgaged-backed securities and collateralized mortgage obligations	3,151,897
Government agency
Amortized Cost
Government debt securities, mortgaged-backed securities and obligations	2,390,143
Amortized Cost	2,390,143	2,779,620
Fair Value
Government debt securities, mortgaged-backed securities and collateralized mortgage obligations	2,381,278
Fair value	2,381,278	2,682,449
Government-sponsored enterprises
Amortized Cost
Government debt securities, mortgaged-backed securities and obligations	772,023
Amortized Cost	772,023	620,337
Fair Value
Government debt securities, mortgaged-backed securities and collateralized mortgage obligations	770,619
Fair value	$ 770,619	$ 602,592

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Allowance for Loan and Lease Losses - Aging of Analysis of Past Due Loans and Leases (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Financing Receivable, Recorded Investment, Past Due
Total Past Due	$ 58,126	$ 58,614
Current	13,148,056	13,011,034
Total Accruing Loans and Leases	13,206,182	13,069,648
Total Non Accruing Loans and Leases	5,468	6,543
Total loans and leases	13,211,650	13,076,191	$ 12,277,369
30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	36,228	41,727
60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	9,748	10,499
Greater Than or Equal to 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	12,150	6,388
Commercial and Industrial
Financing Receivable, Recorded Investment, Past Due
Total Past Due	3,762	1,434
Current	2,739,448	3,207,052
Total Accruing Loans and Leases	2,743,210	3,208,486
Total Non Accruing Loans and Leases	32	274
Total loans and leases	2,743,242	3,208,760	3,135,266
Commercial and Industrial | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	1,525	1,293
Commercial and Industrial | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	808
Commercial and Industrial | Greater Than or Equal to 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	1,429	141
Commercial real estate
Financing Receivable, Recorded Investment, Past Due
Total Past Due	3,802
Current	3,460,121	2,989,125
Total Accruing Loans and Leases	3,463,923	2,989,125
Total Non Accruing Loans and Leases	30	1,658
Total loans and leases	3,463,953	2,990,783	2,667,597
Commercial real estate | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	1,664
Commercial real estate | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	1,125
Commercial real estate | Greater Than or Equal to 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	1,013
Construction
Financing Receivable, Recorded Investment, Past Due
Total Past Due	2,367	91
Current	516,874	626,666
Total Accruing Loans and Leases	519,241	626,757
Total loans and leases	519,241	626,757	632,911
Construction | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due		91
Construction | Greater Than or Equal to 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	2,367
Lease financing
Financing Receivable, Recorded Investment, Past Due
Total Past Due		47
Current	202,483	147,722
Total Accruing Loans and Leases	202,483	147,769
Total loans and leases	202,483	147,769	165,066
Lease financing | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due		47
Residential
Financing Receivable, Recorded Investment, Past Due
Total loans and leases	4,662,175	4,439,618	4,090,053
Consumer
Financing Receivable, Recorded Investment, Past Due
Total Past Due	38,104	44,491
Current	1,582,452	1,618,013
Total Accruing Loans and Leases	1,620,556	1,662,504
Total loans and leases	1,620,556	1,662,504	$ 1,586,476
Consumer | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	26,810	32,406
Consumer | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	7,022	8,712
Consumer | Greater Than or Equal to 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	4,272	3,373
Residential mortgage | Residential
Financing Receivable, Recorded Investment, Past Due
Total Past Due	3,731	3,318
Current	3,759,799	3,519,172
Total Accruing Loans and Leases	3,763,530	3,522,490
Total Non Accruing Loans and Leases	5,406	4,611
Total loans and leases	3,768,936	3,527,101
Residential mortgage | Residential | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	3,258	2,274
Residential mortgage | Residential | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	399	1,012
Residential mortgage | Residential | Greater Than or Equal to 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	74	32
Home equity | Home equity Line
Financing Receivable, Recorded Investment, Past Due
Total Past Due	6,360	9,233
Current	886,879	903,284
Total Accruing Loans and Leases	893,239	912,517
Total loans and leases	893,239	912,517
Home equity | Home equity Line | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	2,971	5,616
Home equity | Home equity Line | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	394	775
Home equity | Home equity Line | Greater Than or Equal to 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	2,995	2,842
Consumer loans | Consumer
Financing Receivable, Recorded Investment, Past Due
Total loans and leases	226,304	239,906
Consumer - Auto | Consumer
Financing Receivable, Recorded Investment, Past Due
Total loans and leases	1,040,468	1,078,132
Credit Cards | Consumer
Financing Receivable, Recorded Investment, Past Due
Total loans and leases	$ 353,784	$ 344,466

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Other Assets - Goodwill (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($) segment	Dec. 31, 2018 USD ($) segment	Dec. 31, 2017 USD ($)
Goodwill
Number of reporting segments with goodwill | segment	2	2
Goodwill	$ 995,492	$ 995,492
Impairment of goodwill	0	0	$ 0
Retail Banking
Goodwill
Goodwill	687,492	687,492
Commercial Banking
Goodwill
Goodwill	$ 308,000	$ 308,000

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Investment Securities - Visa Class B Restricted Shares (Details)	12 Months Ended		96 Months Ended
	Dec. 31, 2016 USD ($) shares	Dec. 31, 2008 USD ($) shares	Dec. 31, 2015 shares	Dec. 31, 2019 USD ($) shares	Oct. 31, 2019 USD ($)	Sep. 27, 2019	Dec. 31, 2018 USD ($) shares	Jul. 31, 2018 USD ($)	Jun. 28, 2018	Dec. 31, 2017
Visa | Class B restricted shares
Visa Class B Restricted Shares
Historical cost included in the balance sheets		$ 0
Net realized gain related to the sale of stock	$ 22,700,000
Number of shares sold | shares	274,000		0
Estimated liability that was subsequently paid to the buyer					$ 300,000
Shares held | shares				120,000			120,000
Cost basis				$ 0			$ 0
Funding Swap (Visa Derivative) | Class B restricted shares
Visa Class B Restricted Shares
Conversion rate						1.6228			1.6298	1.6483
Funding Swap (Visa Derivative) | Visa
Visa Class B Restricted Shares
Estimated liability that was subsequently paid to the buyer								$ 700,000
Conversion rate						1.6228			1.6298	1.6483
Visa | Class B restricted shares
Visa Class B Restricted Shares
Stock received in initial public offering (in shares) | shares		394,000
Visa | Funding Swap (Visa Derivative)
Visa Class B Restricted Shares
Estimated liability that was subsequently paid to the buyer					$ 300,000

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Parent Company - Condensed Statements of Cash Flows (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cash flows from operating activities
Net income	$ 284,392	$ 264,394	$ 183,682
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes	17,060	(3,602)	58,916
Stock-based compensation	7,826	6,185	5,292
Change in assets and liabilities:
Net decrease (increase) in other assets	(20,923)	11,859	(42,359)
Net decrease in other liabilities	(76,303)	(27,090)	(9,128)
Net cash provided by operating activities	296,504	351,413	269,774
Cash flows from investing activities
Other, net		(2,832)	(2,044)
Net cash provided by investing activities	375,212	(257,809)	(971,081)
Cash flows from financing activities
Dividends paid	(138,246)	(131,036)	(122,810)
Distributions paid			(2,118)
Stock tendered for payment of withholding taxes	(1,764)	(53)	(136)
Proceeds from employee stock purchase plan		342	528
Common stock repurchased	(136,242)	(131,800)
Net cash (used in) provided by financing activities	(981,336)	(124,611)	683,893
Net decrease in cash and cash equivalents	(309,620)	(31,007)	(17,414)
Cash and cash equivalents at beginning of period	1,003,637	1,034,644	1,052,058
Cash and cash equivalents at end of period	694,017	1,003,637	1,034,644
Parent Company
Cash flows from operating activities
Net income	284,392	264,394	183,682
Adjustments to reconcile net income to net cash provided by operating activities:
(Equity in undistributed income) excess distributions of FHB	10,620	(8,752)	(85,205)
Deferred income taxes	85	(48)	(274)
Stock-based compensation	84	281	244
Change in assets and liabilities:
Net decrease (increase) in other assets	5,318	(9,635)	36,467
Net decrease in other liabilities	(5,439)	7,633	(2,058)
Net cash provided by operating activities	295,060	253,873	132,856
Cash flows from investing activities
Other, net			7
Net cash provided by investing activities			7
Cash flows from financing activities
Dividends paid	(138,246)	(131,036)	(122,810)
Distributions paid			(2,118)
Stock tendered for payment of withholding taxes	(1,764)	(69)	(120)
Proceeds from employee stock purchase plan		342	528
Common stock repurchased	(136,242)	(131,800)
Net cash (used in) provided by financing activities	(276,252)	(262,563)	(124,520)
Net decrease in cash and cash equivalents	18,808	(8,690)	8,343
Cash and cash equivalents at beginning of period	5,647	14,337	5,994
Cash and cash equivalents at end of period	$ 24,455	$ 5,647	$ 14,337

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Reportable Operating Segments - Business Segments (Details)	12 Months Ended
	Dec. 31, 2019 location segment
Reportable operating segments
Number of business segments | segment	3
First Hawaiian Bank (FHB)
Reportable operating segments
Number of Branches	58
Retail Banking
Reportable operating segments
Number of Branches	58

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Organization and Basis of Presentation - Subsidiary Ownership (Details)	12 Months Ended
	Dec. 31, 2019 location
First Hawaiian, Inc. (FHI)
Capitalization
Outstanding common stock owned (as a percent)	100.00%
First Hawaiian Bank (FHB)
Capitalization
Number of banking locations	58

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Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2019

Stock-Based Compensation

Schedule of restricted stock activity

			Weighted
	Number		Average Grant
	of Shares		Date Fair Value
Unvested as of December 31, 2018	—	$	—
Granted	162,550		27.06
Vested	(11,239)		27.37
Forfeited	(11,593)		27.04
Unvested as of December 31, 2019	139,718	$	27.04

Schedule of PSU activity

			Weighted
	Number		Average Grant
	of Shares		Date Fair Value
Unvested as of December 31, 2016	321,612	$	29.11
Granted	244,218		30.44
Vested	(38,522)		24.41
Forfeited	(21,257)		33.20
Unvested as of December 31, 2017	506,051	$	30.82
Granted	277,197		22.39
Vested	(229,809)		32.17
Forfeited	(48,942)		30.52
Unvested as of December 31, 2018	504,497	$	25.93
Granted	310,696		27.04
Vested	(36,342)		24.51
Forfeited	(83,535)		26.37
Unvested as of December 31, 2019	695,316	$	26.46

Schedule of RSU activity

			Weighted
	Number		Average Grant
	of Shares		Date Fair Value
Unvested as of December 31, 2016	5,379	$	24.41
Granted	14,506		29.74
Vested	(8,379)		26.77
Forfeited	—		—
Unvested as of December 31, 2017	11,506	$	29.74
Granted	47,094		28.64
Vested	(9,839)		32.31
Forfeited	—		—
Unvested as of December 31, 2018	48,761	$	28.60
Granted	20,418		26.50
Vested	(22,452)		28.37
Forfeited	(1,944)		28.29
Unvested as of December 31, 2019	44,783	$	27.82

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Parent Company

12 Months Ended

Dec. 31, 2019

Parent Company Only

Parent Company

24. Parent Company

The following tables present Parent Company-only condensed financial statements:

Condensed Statements of Comprehensive Income
	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Income
Dividends from FHB	$	300,300	$	263,400	$	105,400
Other income		1,691		1,541		3,937
Total income		301,991		264,941		109,337
Noninterest expense
Salaries and employee benefits		5,241		5,940		5,949
Contracted services and professional fees		2,689		3,780		3,643
Equipment		—		31		55
Advertising and marketing		—		—		1
Other		721		732		570
Total noninterest expense		8,651		10,483		10,218
Income before benefit (provision) for income taxes and (excess distributions) equity in undistributed income of FHB		293,340		254,458		99,119
Benefit (provision) for income taxes		1,672		1,184		(642)
(Excess distributions) equity in undistributed income of FHB		(10,620)		8,752		85,205
Net income	$	284,392	$	264,394	$	183,682
Comprehensive income	$	384,838	$	248,650	$	175,310

Condensed Statements of Condition
	December 31,
(dollars in thousands)	2019		2018
Assets
Cash and cash equivalents	$	24,455	$	5,647
Investment in FHB		2,617,949		2,521,347
Other assets		24,969		19,358
Total assets	$	2,667,373	$	2,546,352
Liabilities and Stockholders' Equity
Retirement benefits payable	$	553	$	509
Other liabilities		26,562		21,004
Total liabilities		27,115		21,513
Stockholders' Equity
Stockholders' equity		2,640,258		2,524,839
Total stockholders' equity		2,640,258		2,524,839
Total liabilities and stockholders' equity	$	2,667,373	$	2,546,352

Condensed Statements of Cash Flows
	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Cash flows from operating activities
Net income	$	284,392	$	264,394	$	183,682
Adjustments to reconcile net income to net cash provided by operating activities:
Excess distributions (equity in undistributed income) of FHB		10,620		(8,752)		(85,205)
Deferred income taxes		85		(48)		(274)
Stock-based compensation		84		281		244
Change in assets and liabilities:
Net decrease (increase) in other assets		5,318		(9,635)		36,467
Net (decrease) increase in other liabilities		(5,439)		7,633		(2,058)
Net cash provided by operating activities		295,060		253,873		132,856
Cash flows from investing activities
Other, net		—		—		7
Net cash provided by investing activities		—		—		7
Cash flows from financing activities
Dividends paid		(138,246)		(131,036)		(122,810)
Distributions paid		—		—		(2,118)
Stock tendered for payment of withholding taxes		(1,764)		(69)		(120)
Proceeds from employee stock purchase plan		—		342		528
Common stock repurchased		(136,242)		(131,800)		—
Net cash used in financing activities		(276,252)		(262,563)		(124,520)
Net increase (decrease) in cash and cash equivalents		18,808		(8,690)		8,343
Cash and cash equivalents at beginning of year		5,647		14,337		5,994
Cash and cash equivalents at end of year	$	24,455	$	5,647	$	14,337

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Loans and Leases (Tables)

12 Months Ended

Dec. 31, 2019

Loans and Leases.

Schedule of components of loans and leases

	December 31,
(dollars in thousands)	2019		2018
Commercial and industrial	$	2,743,242	$	3,208,760
Commercial real estate		3,463,953		2,990,783
Construction		519,241		626,757
Residential:
Residential mortgage		3,768,936		3,527,101
Home equity line		893,239		912,517
Total residential		4,662,175		4,439,618
Consumer		1,620,556		1,662,504
Lease financing		202,483		147,769
Total loans and leases	$	13,211,650	$	13,076,191

Schedule of components of remaining loan and lease commitments

	December 31,
(dollars in thousands)	2019		2018
Commercial and industrial	$	2,451,362	$	2,484,857
Commercial real estate		130,597		114,186
Construction		718,121		526,938
Residential:
Residential mortgage		842		121
Home equity line		1,052,739		913,636
Total residential		1,053,581		913,757
Consumer		1,554,029		1,509,853
Total loan and lease commitments	$	5,907,690	$	5,549,591

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Derivative Financial Instruments - Derivatives Not Designated as Hedges (Details) - Derivatives Not Designated as Hedging Instruments - Other noninterest income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Interest rate swaps
Impact on pretax earnings of derivatives not designated as hedges
Net Gains (Losses) on Derivatives	$ 16	$ 574	$ 819
Funding Swap (Visa Derivative)
Impact on pretax earnings of derivatives not designated as hedges
Net Gains (Losses) on Derivatives	(5,355)	(172)	(169)
Foreign exchange contracts
Impact on pretax earnings of derivatives not designated as hedges
Net Gains (Losses) on Derivatives	$ 12	$ (58)	$ 171

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Commitments and Contingent Liabilities - Commitments to Extend Credit, Participations Sold (Details) - USD ($) $ in Millions	Dec. 31, 2019	Dec. 31, 2018
Commitments to extend credit
Commitments
Participations sold to other institutions	$ 94.1	$ 92.3
Standby letters of credit
Commitments
Participations sold to other institutions	$ 9.0	$ 17.3

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Benefit Plans - Estimated Future Benefit Payments (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Pension Benefits
Benefit payments expected to be paid over the next ten years
2020	$ 16,120
2021	15,902
2022	15,580
2023	15,176
2024	14,739
2025 to 2029	69,769
Other Benefits
Benefit payments expected to be paid over the next ten years
2020	1,205
2021	1,315
2022	1,410
2023	1,487
2024	1,546
2025 to 2029	$ 8,085

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Other Assets

12 Months Ended

Dec. 31, 2019

Other assets.

Other assets

7. Other Assets

Goodwill

Goodwill originated from the acquisition of BancWest by BNPP in December 2001. Goodwill generated in that acquisition was recorded on the Company’s consolidated balance sheets as a result of push-down accounting treatment.

The carrying amount of goodwill reported in two of the Company’s reporting segments as of December 31, 2019 and 2018 were as shown below. The Treasury and Other segment is not assigned goodwill.

	Retail		Commercial
(in thousands)	Banking		Banking		Total
December 31, 2019	$	687,492	$	308,000	$	995,492
December 31, 2018		687,492		308,000		995,492

There was no impairment of the Company’s goodwill for the years ended December 31, 2019, 2018 and 2017.

Mortgage Servicing Rights (“MSRs”)

Mortgage servicing activities include collecting principal, interest, tax and insurance payments from borrowers while accounting for and remitting payments to investors, taxing authorities and insurance companies. The Company also monitors delinquencies and administers foreclosure proceedings.

Mortgage loan servicing income is recorded in noninterest income as a part of other service charges and fees and amortization of the servicing assets is recorded in noninterest income as part of other income. The unpaid principal amount of residential real estate loans serviced for others was $2.3 billion and $2.7 billion as of December 31, 2019 and 2018, respectively. Servicing fees include contractually specified fees, late charges and ancillary fees and were $6.3 million, $7.0 million and $6.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Amortization of MSRs was $3.6 million, $3.8 million and $3.6 million for the years ended December 31, 2019, 2018 and 2017, respectively. The estimated future amortization expenses for MSRs over the next five years are as follows:

	Estimated
(dollars in thousands)	Amortization
Year ending December 31:
2020	$	2,129
2021		1,808
2022		1,530
2023		1,295
2024		1,101

The details of the Company’s MSRs are presented below:

	December 31,
(dollars in thousands)	2019		2018
Gross carrying amount	$	63,480	$	63,342
Less: accumulated amortization		50,812		47,187
Net carrying value	$	12,668	$	16,155

The following table presents changes in amortized MSRs for the years indicated:

	Year Ended December 31,
(dollars in thousands)	2019		2018
Balance at beginning of year	$	16,155	$	13,196
Originations		138		328
Purchases		—		6,444
Amortization		(3,625)		(3,813)
Balance at end of year	$	12,668	$	16,155
Fair value of amortized MSRs at beginning of year	$	27,662	$	21,697
Fair value of amortized MSRs at end of year	$	20,329	$	27,662
Balance of loans serviced for others	$	2,344,899	$	2,664,860

MSRs are evaluated for impairment if events and circumstances indicate a possible impairment. No impairment of MSRs was recorded for the years ended December 31, 2019, 2018 and 2017.

The quantitative assumptions used in determining the lower of cost or fair value of the Company’s MSRs were as follows:

	December 31, 2019							December 31, 2018
						Weighted							Weighted
	Range					Average		Range					Average
Conditional prepayment rate	10.74	%	-	23.39	%	11.10	%	7.86	%	-	19.26	%	8.31	%
Life in years (of the MSR)	2.04		-	6.33		5.99		3.43		-	7.68		7.19
Weighted-average coupon rate	3.96	%	-	7.26	%	4.01	%	3.97	%	-	6.70	%	4.02	%
Discount rate	10.00	%	-	10.01	%	10.00	%	10.00	%	-	10.02	%	10.00	%

The sensitivities surrounding MSRs are expected to have an immaterial impact on fair value.

Other

The Company had $145.6 million and $111.5 million in affordable housing and other tax credit investment partnership interest as of December 31, 2019 and 2018, respectively, included in other assets on the consolidated balance sheets. The amount of amortization of such investments reported in the provision for income taxes was $11.3 million, $5.2 million and $3.5 million during the years ended December 31, 2019, 2018 and 2017, respectively. The affordable housing tax credits and other benefits recognized during the years ended December 31, 2019, 2018 and 2017 were $10.6 million, $6.3 million and $4.5 million, respectively.

Nonmarketable equity securities include FHLB stock, which the Company holds to meet regulatory requirements. As a member of the FHLB system, the Company is required to maintain a minimum level of investment in FHLB non-publicly traded stock based on specific percentages of the Company’s total assets and outstanding advances in accordance with the FHLB’s capital plan which may be amended or revised periodically. Amounts in excess of the required minimum may be transferred at par to another member institution subject to prior approval of the FHLB. Excess stock may also be sold to the FHLB subject to a five-year redemption notice period and at the sole discretion of the FHLB. These securities are accounted for under the cost method. These investments are considered long-term investments by management and accordingly, the ultimate recoverability of its par value is considered rather than considering temporary declines in value. The investment in FHLB stock was included in other assets on the consolidated balance sheets and was $34.1 million as of both December 31, 2019 and 2018.

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Investment Securities

12 Months Ended

Dec. 31, 2019

Investment Securities

Investment Securities

3. Investment Securities

As of December 31, 2019 and 2018, investment securities consisted predominantly of the following investment categories:

U.S. Treasury and debt securities – includes U.S. Treasury notes and debt securities issued by government-sponsored enterprises.

Mortgage-backed securities – includes securities backed by notes or receivables secured by mortgage assets with cash flows based on actual or scheduled payments.

Collateralized mortgage obligations – includes securities backed by a pool of mortgages with cash flows distributed based on certain rules rather than pass through payments.

Debt securities issued by states and political subdivisions – includes general obligation bonds issued by state and local governments.

As of December 31, 2019 and 2018, all of the Company’s investment securities were classified as debt securities and available-for-sale. Amortized cost and fair value of securities as of December 31, 2019 and 2018 were as follows:

	2019								2018
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Treasury securities	$	29,832	$	56	$	—	$	29,888	$	389,470	$	—	$	—	$	389,470
Government-sponsored enterprises debt securities		101,697		19		(277)		101,439		248,372		—		(6,778)		241,594
Mortgage-backed securities:
Residential - Government agency		290,131		2,224		(1,146)		291,209		426,710		—		(15,174)		411,536
Residential - Government-sponsored enterprises		395,039		6,126		(1,673)		399,492		156,056		85		(5,294)		150,847
Commercial - Government-sponsored enterprises		101,798		555		(634)		101,719		—		—		—		—
Collateralized mortgage obligations:
Government agency		2,390,143		7,483		(16,348)		2,381,278		2,779,620		—		(97,171)		2,682,449
Government-sponsored enterprises		772,023		2,505		(3,909)		770,619		620,337		—		(17,745)		602,592
Debt securities issued by states and political subdivisions		—		—		—		—		19,854		—		—		19,854
Total available-for-sale securities	$	4,080,663	$	18,968	$	(23,987)	$	4,075,644	$	4,640,419	$	85	$	(142,162)	$	4,498,342

Proceeds from call and sales of investment securities were $63.0 million and $1.0 billion for the year ended December 31, 2019. Proceeds from both calls and sales of investment securities were nil for both the years ended December 31, 2018 and 2017. The Company recorded gross realized gains of $0.5 million and gross realized losses of $3.2 million for the year ended December 31, 2019. The Company recorded no gross realized gains and no gross realized losses for both the years ended December 31, 2018 and 2017. The income tax benefit related to the Company’s net realized loss on the sale of investment securities was $0.7 million for the year ended December 31, 2019. The income tax expense related to the Company’s net realized gains on the sale of investment securities was nil during both the years ended December 31, 2018 and 2017. Gains and losses realized on sales of securities are determined using the specific identification method.

Interest income from taxable investment securities was $92.5 million, $106.6 million and $102.3 million for the years ended December 31, 2019, 2018 and 2017, respectively. Interest income from non-taxable investment securities was nil, $0.5 million and $0.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The amortized cost and fair value of debt securities issued by the U.S. Treasury and government-sponsored enterprises as of December 31, 2019, by contractual maturity, are shown below. Mortgage-backed securities and collateralized mortgage obligations are disclosed separately in the table below as remaining expected maturities will differ from contractual maturities as borrowers have the right to prepay obligations.

	December 31, 2019
	Amortized		Fair
(dollars in thousands)	Cost		Value
Due in one year or less	$	29,832	$	29,888
Due after one year through five years		101,697		101,439
Due after five years through ten years		—		—
Due after ten years		—		—
		131,529		131,327
Mortgage-backed securities:
Residential - Government agency		290,131		291,209
Residential - Government-sponsored enterprises		395,039		399,492
Commercial - Government-sponsored enterprises		101,798		101,719
Total mortgage-backed securities		786,968		792,420
Collateralized mortgage obligations:
Government agency		2,390,143		2,381,278
Government-sponsored enterprises		772,023		770,619
Total collateralized mortgage obligations		3,162,166		3,151,897
Total available-for-sale securities	$	4,080,663	$	4,075,644

At December 31, 2019, pledged securities totaled $1.8 billion, of which $1.5 billion was pledged to secure public deposits and $242.3 million was pledged to secure other financial transactions. At December 31, 2018, pledged securities totaled $2.0 billion, of which $1.7 billion was pledged to secure public deposits and $232.7 million was pledged to secure other financial transactions.

The Company held no securities of any single issuer, other than debt securities issued by the U.S. government, government agencies and government-sponsored enterprises, which were in excess of 10% of stockholders’ equity as of December 31, 2019 and 2018.

The following table presents the unrealized gross losses and fair values of securities in the available-for-sale portfolio by length of time that the 118 and 154 individual securities in each category have been in a continuous loss position as of December 31, 2019 and 2018, respectively. The unrealized losses on investment securities were attributable to market conditions.

	Time in Continuous Loss as of December 31, 2019
	Less Than 12 Months				12 Months or More				Total
	Unrealized				Unrealized				Unrealized
(dollars in thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
Government-sponsored enterprises debt securities	$	(277)	$	49,716	$	—	$	—	$	(277)	$	49,716
Mortgage-backed securities:
Residential - Government agency		—		—		(1,146)		109,614		(1,146)		109,614
Residential - Government-sponsored enterprises		(115)		76,481		(1,558)		109,025		(1,673)		185,506
Commercial - Government-sponsored enterprises		(634)		38,062		—		—		(634)		38,062
Collateralized mortgage obligations:
Government agency		(8,049)		969,762		(8,299)		565,764		(16,348)		1,535,526
Government-sponsored enterprises		(583)		180,785		(3,326)		209,752		(3,909)		390,537
Total available-for-sale securities with unrealized losses	$	(9,658)	$	1,314,806	$	(14,329)	$	994,155	$	(23,987)	$	2,308,961

	Time in Continuous Loss as of December 31, 2018
	Less Than 12 Months				12 Months or More				Total
	Unrealized				Unrealized				Unrealized
(dollars in thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
Government-sponsored enterprises debt securities	$	—	$	—	$	(6,778)	$	157,939	$	(6,778)	$	157,939
Mortgage-backed securities:
Residential - Government agency		—		—		(15,174)		373,891		(15,174)		373,891
Residential - Government-sponsored enterprises		(1)		172		(5,293)		125,869		(5,294)		126,041
Collateralized mortgage obligations:
Government agency		—		—		(97,171)		2,475,532		(97,171)		2,475,532
Government-sponsored enterprises		—		—		(17,745)		486,175		(17,745)		486,175
Total available-for-sale securities with unrealized losses	$	(1)	$	172	$	(142,161)	$	3,619,406	$	(142,162)	$	3,619,578

Other-Than-Temporary Impairment

At December 31, 2019, the Company did not have any securities with the intent to sell and determined it was more likely than not that the Company would not be required to sell the securities prior to recovery of the amortized cost basis. At December 31, 2018, the Company had the intent to sell 48 securities with an aggregate amortized cost basis of $898.2 million. As a result, the Company recorded an OTTI write-down of $24.1 million for the year ended December 31, 2018. The OTTI write-down represented the entire difference between the amortized cost basis and fair value of the securities as of December 31, 2018. In January 2019, the Company completed its sale of the 48 securities and recorded an additional loss of $2.6 million.

As the Company had the intent and ability to hold the remaining securities in an unrealized loss position as of December 31, 2019 and 2018, each security with an unrealized loss position in the above tables has been further assessed to determine if a credit loss exists. If it is probable that the Company will not collect all amounts due according to the contractual terms of an investment security, an OTTI is considered to have occurred. In determining whether a credit loss exists, the Company estimates the present value of future cash flows expected to be collected from the investment security. If the present value of future cash flows is less than the amortized cost basis of the security, an OTTI exists. As of December 31, 2019 and 2018, the Company did not expect any credit losses in its debt securities and no OTTI related to credit losses were recognized on securities during the years ended December 31, 2019 and 2018. As noted above, the only OTTI losses recognized for the year ended December 31, 2018 were due to non-credit related factors.

The following table provides a detail of the OTTI write-downs included in earnings for the year ended December 31, 2018:

	Year Ended
(dollars in thousands)	December 31, 2018
U.S. Treasury securities	$	(13,634)
Government-sponsored enterprises debt securities		(1,344)
Mortgage-backed securities:
Residential - Government agency		(146)
Residential - Government-sponsored enterprises		(763)
Collateralized mortgage obligations:
Government agency		(5,064)
Government-sponsored enterprises		(2,711)
Debt securities issued by states and political subdivisions		(423)
Total OTTI write-downs included in earnings	$	(24,085)

Visa Class B Restricted Shares

In 2008, the Company received 394,000 Visa Class B restricted shares as part of Visa’s initial public offering. Visa Class B restricted shares are not currently convertible to publicly traded Visa Class A common shares, and only transferable in limited circumstances, until the settlement of certain litigation which are indemnified by Visa members, including the Company. As there are existing transfer restrictions and the outcome of the aforementioned litigation is uncertain, these shares were included in the consolidated balance sheets at their historical cost of $0.

In 2016, the Company recorded a $22.7 million net realized gain related to the sale of 274,000 Visa Class B restricted shares. Concurrent with the sale of the Visa Class B restricted shares, the Company entered into an agreement with the buyer that requires payment to the buyer in the event Visa reduces each member bank’s Class B conversion rate to unrestricted Class A common shares. On June 28, 2018, Visa additionally funded its litigation escrow account, thereby

reducing each member bank’s Class B conversion rate to unrestricted Class A common shares. Accordingly, on July 5, 2018, Visa announced a decrease in conversion rate from 1.6483 to 1.6298 effective June 28, 2018. In July 2018, the Company made a payment of approximately $0.7 million to the buyer as a result of the reduction in the Visa Class B conversion rate. On September 27, 2019, Visa additionally funded its litigation escrow account, thereby further reducing each member bank’s Class B conversion rate to unrestricted Class A common shares. Accordingly, on September 30, 2019, Visa announced a decrease in conversion rate from 1.6298 to 1.6228, effective September 27, 2019. In October 2019, the Company made a payment of approximately $0.3 million to the buyer as a result of the reduction in the Visa Class B conversion rate. See “Note 17. Derivative Financial Instruments” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

The Company held approximately 120,000 Visa Class B restricted shares as of both December 31, 2019 and 2018. These shares continued to be carried at $0 cost basis during each of the respective periods.

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Benefit Plans - Change in Net Actuarial Loss (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Benefit plans
Percentage of greater of projected benefit obligation or fair value of plan assets for amortization of actuarial gains or losses	5.00%
Amortization period for actuarial gains and losses that exceed threshold	5 years
Pension Benefits
Change in net actuarial loss and amortization
Net actuarial loss (gain) at beginning of year	$ 41,822	$ 43,547
Amortization cost	(6,995)	(7,315)	$ (8,625)
Liability loss (gain)	21,512	(6,619)	9,757
Asset (gain) loss	(16,278)	12,209	(8,619)
Net actuarial loss (gain) at end of year	40,061	41,822	43,547
Other Benefits
Change in net actuarial loss and amortization
Net actuarial loss (gain) at beginning of year	(2,507)	248
Amortization cost	385
Liability loss (gain)	540	(2,755)	(34)
Net actuarial loss (gain) at end of year	$ (1,582)	$ (2,507)	$ 248

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Long-Term Borrowings

12 Months Ended

Dec. 31, 2019

Long-Term Borrowings

Long-Term Borrowings

11. Long-Term Borrowings

Long-term borrowings consisted of the following at December 31, 2019 and 2018:

(dollars in thousands)	2019		2018
Finance lease	$	19	$	26
FHLB fixed-rate advances(1)		200,000		600,000
Total long-term borrowings	$	200,019	$	600,026

(1) Interest is payable monthly.

As of December 31, 2019, the Company’s long-term borrowings included $200.0 million in FHLB fixed-rate advances with a weighted average interest rate of 2.73% and maturity dates ranging from 2023 to 2024. The FHLB fixed-rate advances require monthly interest-only payments with the principal amount due on the maturity date. The FHLB fixed-rate advances and remaining borrowing capacity were secured by residential real estate loan collateral as of December 31, 2019 and 2018. See “Note 8. Transfers of Financial Assets” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

At December 31, 2019 and 2018, the Company’s long-term borrowings included a finance lease obligation with a 6.78%annual interest rate that matures in 2022.

At December 31, 2019, future contractual principal payments and maturities on long-term borrowings were as follows:

	Principal
(dollars in thousands)	Payments
Year ending December 31:
2020	$	9
2021		10
2022		—
2023(1)		100,000
2024(2)		100,000
Total	$	200,019

(1) FHLB fixed-rate advance callable on December 4, 2020 with an interest rate of 2.80%

(2) FHLB fixed-rate advance callable on January 15, 2021 with an interest rate of 2.65%

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Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated other comprehensive Income (loss)	Treasury Stock	Total
Balance, beginning at Dec. 31, 2016	$ 1,395	$ 2,484,251	$ 78,850	$ (88,011)		$ 2,476,485
Balance (in shares) at Dec. 31, 2016	139,530,654
Increase (Decrease) in Stockholders' Equity
Net income			183,682			183,682
Cash dividends declared			(122,810)			(122,810)
Equity-based awards	$ 1	5,982	(545)		$ (282)	5,156
Equity-based awards (in shares)	42,167
Other comprehensive income (loss), net of tax				(8,372)		(8,372)
Distributions		(2,118)				(2,118)
Common stock issued under Employee Stock Purchase Plan		528				528
Common stock issued under Employee Stock Purchase Plan (in shares)	15,961
Balance, ending at Dec. 31, 2017	$ 1,396	2,488,643	139,177	(96,383)	(282)	2,532,551
Balance (in shares) at Dec. 31, 2017	139,588,782
Increase (Decrease) in Stockholders' Equity
Adoption of Accounting Standards Update No. 2018-02			20,068	(20,068)
Net income			264,394			264,394
Cash dividends declared			(131,036)			(131,036)
Equity-based awards	$ 1	6,868	(684)		(53)	6,132
Equity-based awards (in shares)	43,049
Common stock repurchased					(131,800)	(131,800)
Common stock repurchased (in shares)	(4,769,870)
Other comprehensive income (loss), net of tax				(15,744)		(15,744)
Common stock issued under Employee Stock Purchase Plan		342				342
Common stock issued under Employee Stock Purchase Plan (in shares)	12,341
Balance, ending at Dec. 31, 2018	$ 1,397	2,495,853	291,919	(132,195)	(132,135)	$ 2,524,839
Balance (in shares) at Dec. 31, 2018	134,874,302					134,874,302
Increase (Decrease) in Stockholders' Equity
Net income			284,392			$ 284,392
Cash dividends declared			(138,246)			(138,246)
Equity-based awards	$ 2	7,824	(993)		(1,764)	5,069
Equity-based awards (in shares)	194,187
Common stock repurchased					(136,242)	(136,242)
Common stock repurchased (in shares)	(5,140,010)
Other comprehensive income (loss), net of tax				100,446		100,446
Balance, ending at Dec. 31, 2019	$ 1,399	$ 2,503,677	$ 437,072	$ (31,749)	$ (270,141)	$ 2,640,258
Balance (in shares) at Dec. 31, 2019	129,928,479					129,928,479

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Consolidated Statements of Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Interest income
Loans and lease financing	$ 574,013	$ 529,877	$ 462,675
Available-for-sale securities	92,505	107,123	102,272
Other	12,174	9,051	5,821
Total interest income	678,692	646,051	570,768
Interest expense
Deposits	87,865	72,976	41,944
Short-term and long-term borrowings	17,425	6,757	20
Total interest expense	105,290	79,733	41,964
Net interest income	573,402	566,318	528,804
Provision for loan and lease losses	13,800	22,180	18,500
Net interest income after provision for loan and lease losses	559,602	544,138	510,304
Noninterest income
Service charges on deposit accounts	33,778	32,036	35,807
Credit and debit card fees	66,749	65,716	64,049
Other service charges and fees	36,253	38,316	34,063
Trust and investment services income	35,102	31,324	30,485
Bank-owned life insurance	15,479	9,217	13,283
Investment securities losses, net	2,715
Other-than-temporary impairment (OTTI) losses on available-for-sale debt securities		(24,085)
Other	7,887	26,469	27,918
Total noninterest income	192,533	178,993	205,605
Noninterest expense
Salaries and employee benefits	173,098	167,162	163,086
Contracted services and professional fees	56,321	49,775	45,011
Occupancy	28,753	27,330	23,485
Equipment	17,343	17,714	17,247
Regulatory assessment and fees	7,390	14,217	14,907
Advertising and marketing	6,910	4,813	6,191
Card rewards program	29,961	24,860	23,363
Other	50,661	59,082	54,264
Total noninterest expense	370,437	364,953	347,554
Income before provision for income taxes	381,698	358,178	368,355
Provision for income taxes	97,306	93,784	184,673
Net income (loss)	$ 284,392	$ 264,394	$ 183,682
Basic earnings per share (in dollars per share)	$ 2.14	$ 1.93	$ 1.32
Diluted earnings per share (in dollars per share)	$ 2.13	$ 1.93	$ 1.32
Basic weighted-average outstanding shares (in shares)	133,076,489	136,945,134	139,560,305
Diluted weighted-average outstanding shares (in shares)	133,387,157	137,111,420	139,656,993

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Benefit Plans - Incentive Plans (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Incentive Plan for Key Executives | Salaries and employee benefits
Incentive Plans
Incentive plan expense	$ 15.6	$ 14.3	$ 13.3

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Derivative Financial Instruments - Clearinghouse Margin and Collateral (Details) - USD ($) $ in Millions	Dec. 31, 2019	Dec. 31, 2018
Derivative contracts
Initial margin collateral posted	$ 8.7	$ 2.1
Interest rate swaps
Derivative contracts
Financial instruments pledged as collateral	29.9	26.2
Cash pledged as collateral	13.4	2.6
Chicago Mercantile Exchange (CME)
Derivative contracts
Variation margin	1.0	0.5
London Clearing House (LCH)
Derivative contracts
Variation margin	$ 62.5	$ 0.6

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Income Taxes - Effective Tax Rate (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Reconciliation of the Federal statutory income tax rate to the effective income tax rate, Amount
Federal statutory income tax expense	$ 80,157	$ 75,217	$ 128,924
State and local taxes, net of federal income tax benefit	21,179	20,817	16,106
Impact of Tax Reform			47,598
Nontaxable income	(3,269)	(2,037)	(4,974)
Other	(761)	(213)	(2,981)
Total provision for income taxes	$ 97,306	$ 93,784	$ 184,673
Reconciliation of the Federal statutory income tax rate to the effective income tax rate, Percent
Federal statutory income tax rate, Percent	21.00%	21.00%	35.00%
State and local taxes, net of federal income tax benefit (as a percent)	5.55%	5.81%	4.37%
Impact of Tax Reform (as a percent)			12.92%
Nontaxable income (as a percent)	(0.86%)	(0.57%)	(1.35%)
Other (as a percent)	(0.20%)	(0.06%)	(0.81%)
Effective Income Tax Rate Reconciliation, Percent, Total	25.49%	26.18%	50.13%

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Revenue from Contracts with Customers

12 Months Ended

Dec. 31, 2019

Revenue from Contracts with Customers

Revenue from Contracts with Customers

19. Revenue from Contracts with Customers

In accordance with Topic 606, Revenue from Contracts with Customers, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Disaggregation of Revenue

In 2019, the Company made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The Company has restated the selected financial information for the year ended December 31, 2018 in order to conform with the current presentation. See “Note 23. Reportable Operating Segments” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for further information.

The following table summarizes the Company’s revenues, which includes net interest income on financial instruments and noninterest income, disaggregated by type of service and business segments for the years ended December 31, 2019 and 2018:

		Year Ended December 31, 2019
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income(1)	$	413,029	$	141,227	$	19,146	$	573,402
Service charges on deposit accounts		30,298		1,238		2,242		33,778
Credit and debit card fees		—		58,034		6,812		64,846
Other service charges and fees		20,454		2,096		2,155		24,705
Trust and investment services income		35,102		—		—		35,102
Other		715		4,899		3,351		8,965
Not in scope of Topic 606(1)		8,844		7,368		8,925		25,137
Total noninterest income		95,413		73,635		23,485		192,533
Total revenue	$	508,442	$	214,862	$	42,631	$	765,935

		Year Ended December 31, 2018
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income(1)	$	420,165	$	140,333	$	5,820	$	566,318
Service charges on deposit accounts		28,866		1,146		2,024		32,036
Credit and debit card fees		—		78,218		7,080		85,298
Other service charges and fees		19,977		4,089		2,175		26,241
Trust and investment services income		31,324		—		—		31,324
Other		585		6,616		2,731		9,932
Not in scope of Topic 606(1)		8,917		(9,165)		(5,590)		(5,838)
Total noninterest income		89,669		80,904		8,420		178,993
Total revenue	$	509,834	$	221,237	$	14,240	$	745,311

(1) Most of the Company’s revenue is not within the scope of Topic 606. The guidance explicitly excludes net interest income from financial assets and liabilities as well as other noninterest income from loans, leases, investment securities and derivative financial instruments.

For the years ended December 31, 2019 and 2018, substantially all of the Company’s revenues under the scope of Topic 606 were related to performance obligations satisfied at a point in time.

The following is a discussion of revenues within the scope of Topic 606.

Service Charges on Deposit Accounts

Service charges on deposit accounts relate to fees generated from a variety of deposit products and services rendered to customers.  Charges include, but are not limited to, overdraft fees, non-sufficient fund fees, dormant fees and monthly service charges. Such fees are recognized concurrent with the event on a daily basis or on a monthly basis depending upon the customer’s cycle date.

Credit and Debit Card Fees

Credit and debit card fees primarily represent revenues earned from interchange fees, ATM fees and merchant processing fees. Interchange and network revenues are earned on credit and debit card transactions conducted with payment networks. ATM fees are primarily earned as a result of surcharges assessed to non-FHB customers who use an FHB ATM. Merchant processing fees are primarily earned on transactions in which FHB is the acquiring bank. Such fees are generally recognized concurrently with the delivery of services on a daily basis.

Trust and Investment Services Fees

Trust and investment services fees represent revenue earned by directing, holding and managing customers’ assets. Fees are generally computed based on a percentage of the previous period’s value of assets under management. The transaction price (i.e., percentage of assets under management) is established at the inception of each contract. Trust and investment services fees also include broker dealer fees which represent revenue earned from buying and selling securities on behalf of customers. Such fees are recognized at the end of a valuation period or concurrently with the execution of a buy or sell transaction.

Other Fees

Other fees primarily include revenues generated from wire transfers, lockboxes, bank issuance of checks and insurance commissions. Such fees are recognized concurrent with the event or on a monthly basis.

Contract Balances

A contract liability is an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer. In prior years, the Company received signing bonuses from two vendors which are being amortized over the term of the respective contracts. As of December 31, 2019 and 2018, the Company had contract liabilities of $1.8 million and $2.6 million, respectively, which will be recognized over the remaining term of the respective contracts with the vendors. For both the years ended December 31, 2019 and 2018, the Company recognized revenues and contract liabilities decreased by approximately $0.8 million, due to the passage of time. There were no changes in contract liabilities due to changes in transaction price estimates.

A contract asset is the right to consideration for transferred goods or services when the amount is conditioned on something other than the passage of time. As of December 31, 2019 and 2018, there were no receivables from contracts with customers or contract assets recorded on the Company’s consolidated balance sheets.

Other

Except for the contract liabilities noted above, the Company did not have any significant performance obligations as of December 31, 2019 and 2018. The Company also did not have any material contract acquisition costs or use any significant judgments or estimates in recognizing revenue for financial reporting purposes.

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Benefit Plans

12 Months Ended

Dec. 31, 2019

Benefit Plans

Benefit Plans

15. Benefit Plans

Qualified Pension Plan

The Company’s employees participate in the Employees’ Retirement Plan of First Hawaiian, Inc. (the “FHI ERP”). The FHI ERP is a frozen plan whereby there are no further benefit accruals for the Company’s employees. However, employees retain rights to participant benefits accrued as of the date of the plan freeze.

No contributions to the pension trust are expected to be made during 2020 for the Company’s participants in the FHI ERP. However, should contributions be required in accordance with the funding rules under the Employee Retirement Income Security Act of 1974 (“ERISA”), including the impact of the Pension Protection Act of 2006, the Company would make those required contributions.

Nonqualified Pension and Other Postretirement Benefit Plans

The Company also sponsors an unfunded supplemental executive retirement plan for certain key executives (“SERP”). In addition, the Company sponsors a directors’ retirement plan (“Directors’ Plan”), a non-qualified pension plan for eligible FHI and FHB directors that qualify for retirement benefits based on their years of service as a director. Both the SERP and the Directors’ Plan were frozen as of January 1, 2005 to new participants. In March 2019, the Company’s board of directors approved an amendment to the SERP to freeze the SERP, which became effective on July 1, 2019. As a result of the amendment, since the effective date, there have not been any, and there will be no, new accruals of benefits, including service accruals. Existing benefits under the SERP, as of the effective date of the amendment described above, will otherwise continue in accordance with the terms of the SERP. No contributions to the SERP are expected to be made in 2020.

A postretirement benefit plan is also offered to eligible employees that provides life insurance and healthcare benefits upon retirement. The Company provides access to medical coverage for eligible retirees under age 65 at active employee premium rates and a monthly stipend to both retiree and retiree’s spouse after age 62.

The Company expects to contribute $0.2 million to its Directors’ Plan and $1.2 million to its postretirement medical and life insurance plans in 2020. These contributions reflect the estimated benefit payments for the unfunded plans and may vary depending on retirements during 2020.

Defined Contribution Plans

401(k) Savings Plan and Money Purchase Pension Plan

The Company matched employee contributions to the First Hawaiian, Inc. 401(k) Savings Plan, a qualified defined contribution plan, up to 5%of the employee’s pay in 2019 and 2018. The Company also contributed 2.5% of employee pay to the First Hawaiian, Inc. Future Plan, a money purchase pension plan. The plans cover all employees who satisfy eligibility requirements. A select group of key executives who participate in an unqualified grandfathered supplemental executive retirement plan may participate in the 401(k) plan but are not eligible to receive the matching contribution.

The employer contributions to the above-mentioned plans for the years ended December 31, 2019, 2018 and 2017 were $7.5 million, $7.8 million and $7.3 million, respectively, and are included in salaries and employee benefits within the consolidated statements of income.

Annual Incentive Awards for Key Executives

The Company makes cash-based annual incentive awards under the First Hawaiian, Inc. Bonus Plan (the “Bonus Plan”). The Bonus Plan limits the aggregate and individual value of the awards that could be issued in any one fiscal year. The Bonus Plan expenses totaled $15.6 million, $14.3 million and $13.3 million for the years ended December 31, 2019, 2018 and 2017, respectively, and are included in salaries and employee benefits within the consolidated statements of income.

The following table details the amounts recognized in other comprehensive income during the years presented. Pension benefits include benefits from the qualified and non-qualified plans. Other benefits include life insurance and healthcare benefits from the postretirement benefit plan.

	Pension Benefits						Other Benefits
(dollars in thousands)	2019		2018		2017		2019		2018		2017
Amounts arising during the year:
Net (gain) loss on pension assets	$	(16,278)	$	12,209	$	(8,619)	$	—	$	—	$	—
Net loss (gain) on pension obligations		21,512		(6,619)		9,757		540		(2,755)		(34)
Reclassification adjustments recognized as components of net periodic benefit cost during the year:
Net (gain) loss		(6,995)		(7,315)		(8,625)		385		—		—
Prior service credit		—		—		—		429		429		429
Amount recognized in other comprehensive income	$	(1,761)	$	(1,725)	$	(7,487)	$	1,354	$	(2,326)	$	395

The following table shows the amounts within accumulated other comprehensive loss that had not yet been recognized as components of net periodic benefit cost as of December 31, 2019 and 2018:

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Net actuarial loss (gain)	$	40,061	$	41,822	$	(1,582)	$	(2,507)
Prior service credit		—		—		(51)		(480)
Total, pretax effect		40,061		41,822		(1,633)		(2,987)
Tax impact		(10,786)		(11,260)		440		804
Ending balance in accumulated other comprehensive loss	$	29,275	$	30,562	$	(1,193)	$	(2,183)

The following table provides the amounts within accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 2020:

	Pension		Other
(dollars in thousands)	Benefits		Benefits
Amortization of prior service credit	$	—	$	(51)
Amortization of net actuarial loss (gain)		5,753		(103)
Total to be recognized in 2020	$	5,753	$	(154)

The following tables summarize the changes to projected benefit obligation (“PBO”) and fair value of plan assets for pension benefits and accumulated postretirement benefit obligation and fair value of plan assets for other benefits:

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Benefit obligation at beginning of year	$	199,072	$	212,981	$	19,716	$	21,449
Service cost		14		696		710		750
Interest cost		8,261		7,362		808		739
Actuarial loss (gain)		22,573		(6,619)		540		(2,755)
Curtailment gain		(1,061)		—		—		—
Benefit payments		(15,574)		(15,348)		(469)		(467)
Benefit obligation at end of year	$	213,285	$	199,072	$	21,305	$	19,716

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Fair value of plan assets at beginning of year	$	99,581	$	114,220	$	—	$	—
Actual return on plan assets		20,863		(6,936)		—		—
Benefit payments from trust		(7,785)		(7,703)		—		—
Fair value of plan assets at end of year	$	112,659	$	99,581	$	—	$	—

The following table summarizes the funded status of the Company’s plans and amounts recognized in the Company’s consolidated balance sheets as of December 31, 2019 and 2018:

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Pension assets for overfunded plans	$	16,291	$	8,702	$	—	$	—
Pension liabilities for underfunded plans		(116,917)		(108,193)		(21,305)		(19,716)
Funded status	$	(100,626)	$	(99,491)	$	(21,305)	$	(19,716)

The following table provides information regarding the PBO, accumulated benefit obligation (“ABO”), and fair value of plan assets as of December 31, 2019 and 2018:

	Funded Pension Plan				Unfunded Pension Plans				Total Pension Plans
(dollars in thousands)	2019		2018		2019		2018		2019		2018
Projected benefit obligation	$	96,368	$	90,879	$	116,917	$	108,193	$	213,285	$	199,072
Accumulated benefit obligation		96,368		90,879		116,834		106,357		213,202		197,236
Fair value of plan assets		112,659		99,581		—		—		112,659		99,581
Overfunded (underfunded) portion of PBO/ABO		16,291		8,702		(116,917)		(108,193)		(100,626)		(99,491)

The Company recognizes the overfunded and underfunded status of its pension plans as an asset and liability in the consolidated balance sheets.

Unrecognized net gains or losses that exceed 5% of the greater of the PBO or the fair value of plan assets as of the beginning of the year are amortized on a straight-line basis over five years in accordance with ASC 715. Amortization of the unrecognized net gain or loss is included as a component of net periodic pension cost. If amortization results in an amount less than the minimum amortization required under GAAP, the minimum required amount is recorded.

The following table summarizes the change in net actuarial loss and amortization for the years ended December 31, 2019 and 2018:

	Pension Benefits				Other Benefits
(dollars in thousands)	2019		2018		2019		2018
Net actuarial loss (gain) at beginning of year	$	41,822	$	43,547	$	(2,507)	$	248
Amortization cost		(6,995)		(7,315)		385		—
Liability loss (gain)		21,512		(6,619)		540		(2,755)
Asset (gain) loss		(16,278)		12,209		—		—
Net actuarial loss (gain) at end of year	$	40,061	$	41,822	$	(1,582)	$	(2,507)

The following table sets forth the components of net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017:

	Income line item where recognized in	Pension Benefits						Other Benefits
(dollars in thousands)	the consolidated statements of income	2019		2018		2017		2019		2018		2017
Service cost	Salaries and employee benefits	$	14	$	696	$	629	$	710	$	750	$	738
Interest cost	Other noninterest expense		8,261		7,362		8,297		808		739		776
Expected return on plan assets	Other noninterest expense		(4,585)		(5,273)		(5,003)		—		—		—
Prior service credit	Other noninterest expense		—		—		—		(429)		(429)		(429)
Recognized net actuarial loss (gain)	Other noninterest expense		6,995		7,315		8,625		(385)		—		—
Total net periodic benefit cost		$	10,685	$	10,100	$	12,548	$	704	$	1,060	$	1,085

The funded pension benefit amounts included in pension benefits for the years ended December 31, 2019, 2018 and 2017 were as follows:

	Funded Pension Benefits
(dollars in thousands)	2019		2018		2017
Interest cost	$	3,808	$	3,420	$	3,922
Expected return on plan assets		(4,585)		(5,273)		(5,003)
Recognized net actuarial loss		3,714		2,600		4,316
Total net periodic benefit cost	$	2,937	$	747	$	3,235

Assumptions

The following weighted-average assumptions were used to determine benefit obligations at December 31, 2019 and 2018:

	FHI ERP Pension Benefits				SERP Pension Benefits				Other Benefits
	2019		2018		2019		2018		2019		2018
Discount rate	3.16	%	4.30	%	3.16	%	4.30	%	3.16	%	4.30	%
Rate of compensation increase	NA		NA		4.00	%	4.00	%	NA		NA

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017 were as follows:

	FHI ERP Pension Benefits						SERP Pension Benefits						Other Benefits
	2019		2018		2017		2019		2018		2017		2019		2018		2017
Discount rate	4.30	%	3.51	%	4.05	%	4.30	%	3.51	%	4.05	%	4.30	%	3.51	%	4.05	%
Expected long-term return on plan assets	4.75	%	4.75	%	4.75	%	NA		NA		NA		NA		NA		NA
Rate of compensation increase	NA		NA		NA		4.00	%	4.00	%	4.00	%	NA		NA		NA

To select the discount rate, the Company reviews the yield on high quality corporate bonds. This rate is adjusted to convert the yield to an annual discount rate basis and may be adjusted for the population of plan participants to reflect the expected duration of the benefit payments of the plan.

Assumed healthcare cost trend rates were as follows at December 31, 2019, 2018 and 2017:

	2019		2018		2017
Healthcare cost trend rate assumed for next year	6.50	%	7.00	%	7.00	%
Rate to which the cost trend is assumed to decline (the ultimate trend rate)	5.00	%	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2026		2026		2026

A one percentage-point change in the assumed healthcare cost trend rates would have had the following pre-tax effect:

	One Percentage-		One Percentage-
(dollars in thousands)	Point Increase		Point Decrease
Effect on 2019 total of service and interest cost components	$	75	$	(67)
Effect on postretirement benefit obligation at December 31, 2019		353		(328)

Plan Assets

The Company’s pension plan assets were allocated as follows as of December 31, 2019 and 2018:

	Asset Allocation
	2019		2018
Equity securities	31	%	29	%
Debt securities	66	%	69	%
Other securities	3	%	2	%
Total	100	%	100	%

There were no holdings of FHI or BNPP stock included in equity securities at December 31, 2019 and 2018.

The assets within the pension plan are managed in accordance with ERISA. The objective of the plan is to achieve, over full market cycles, a compounded annual rate of return equal to or greater than the pension plan’s expected long-term rate of return. The pension plan’s participants recognize that capital markets can be unpredictable and that any investment could result in periods where the market value of the pension plan’s assets will decline in value. Asset allocation is likely to be the primary determinant of the pension plan’s return and the associated volatility of returns for the pension plan. The Company estimated the long-term rate of return for the 2019 net periodic pension cost to be 4.75%. The return was selected based on a model of U.S. capital market assumptions with expected returns reflecting the anticipated asset allocation of the pension plan.

The target asset allocation for the pension plan at December 31, 2019, was as follows:

	Target
	Allocation
Equity securities	30	%
Debt securities	68	%
Other securities	2	%

Estimated Future Benefit Payments

The following table presents benefit payments that are expected to be paid over the next ten years, giving consideration to expected future service as appropriate:

	Pension		Other
(dollars in thousands)	Benefits		Benefits
2020	$	16,120	$	1,205
2021		15,902		1,315
2022		15,580		1,410
2023		15,176		1,487
2024		14,739		1,546
2025 to 2029		69,769		8,085

Fair Value Measurement of Plan Assets

The Company’s overall investment strategy includes a wide diversification of asset types, fund strategies and fund managers. Investments in mutual funds and exchange-traded funds consist primarily of investments in large-cap companies located in the United States. Fixed income securities include U.S. government agencies and corporate bonds of companies from diversified industries.

The fair values of the Company’s pension plans assets at December 31, 2019 and 2018, by asset class, were as follows:

	December 31, 2019
	Quoted Prices		Significant
	In Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Asset classes:
Cash and cash equivalents	$	2,824	$	—	$	—	$	2,824
Fixed income - U.S. Treasury securities		—		4,053		—		4,053
Fixed income - U.S. government agency securities		—		3,504		—		3,504
Fixed income - U.S. corporate securities		—		58,808		—		58,808
Fixed income - municipal securities		—		484		—		484
Fixed income - mutual funds		6,204		—		—		6,204
Fixed income - international securities		1,544		—		—		1,544
Equity - large-cap exchange-traded funds		23,278		—		—		23,278
Equity - mid-cap exchange-traded funds		3,379		—		—		3,379
Equity - small-cap exchange-traded funds		1,645		—		—		1,645
Equity - international funds		6,936		—		—		6,936
Total	$	45,810	$	66,849	$	—	$	112,659

	December 31, 2018
	Quoted Prices		Significant
	In Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Asset classes:
Cash and cash equivalents	$	2,428	$	—	$	—	$	2,428
Fixed income - U.S. Treasury securities		—		4,450		—		4,450
Fixed income - U.S. government agency securities		—		3,565		—		3,565
Fixed income - U.S. corporate securities		—		53,721		—		53,721
Fixed income - municipal securities		—		451		—		451
Fixed income - mutual funds		6,272		—		—		6,272
Equity - large-cap mutual funds		8,831		—		—		8,831
Equity - large-cap exchange-traded funds		10,482		—		—		10,482
Equity - mid-cap exchange-traded funds		2,544		—		—		2,544
Equity - small-cap exchange-traded funds		1,176		—		—		1,176
Equity - international funds		5,661		—		—		5,661
Total	$	37,394	$	62,187	$	—	$	99,581

No fair value measurements used Level 3 inputs as of December 31, 2019 and 2018.

The plan’s investments in fixed income securities represent approximately 66.2% and 68.7% of total plan assets as of December 31, 2019 and 2018, respectively, which is the most significant concentration of risk in the plan.

Valuation Methodologies

Cash and cash equivalents — includes investments in money market funds. Carrying value is a reasonable estimate of fair value based on the short-term nature of the instruments.

U.S. Treasury securities — includes securities issued by the U.S. government valued at fair value based on observable market prices for similar securities or other market observable inputs.

U.S. government agency securities — includes investment-grade debt securities issued by U.S. government agencies. These securities are valued at fair value based upon the quoted market values of the underlying net assets.

U.S. corporate securities — includes investment-grade debt securities issued by U.S. corporations. These securities are valued at fair value based on observable market prices for similar securities or other market observable inputs.

Municipal securities — includes bonds issued by a city or other local government, or their agencies. Potential issuers of municipal bonds include cities, counties, redevelopment agencies, special-purpose districts, school districts, public utility districts, publicly owned airports and seaports, and any other governmental entity (or group of governments) below the state level. Municipal bonds may be general obligations of the issuer or secured by specified revenues. These securities are valued at fair value based on observable market prices for similar securities or other market observable inputs.

Mutual funds — includes an open-end fixed-income fund benchmarked to the Barclay’s Capital U.S. Government/Credit Bond Index. At least 80% of its assets are high-grade corporate bonds and U.S. government debt obligations. The fair value is based upon the quoted market values of the underlying net assets.

Large-cap mutual funds — includes open-end equity funds holding a diversified portfolio of large-cap domestic equity securities. The portfolio has a bias towards stocks with growth characteristics and stocks with high cash flow and growing dividends. The fair value is based upon the quoted market values of the underlying net assets.

Large-cap exchange-traded fund — includes an exchange-traded fund which invests mainly in U.S. large-cap stocks such as those in the S&P 500 index. The fair value is based upon the quoted market values of the underlying net assets.

Mid-cap exchange-traded funds — includes broadly-diversified exchange-traded funds which invest in U.S. mid-cap stocks such as those in the S&P 400 Mid Cap index. The fair value is based upon the quoted market values of the underlying net assets.

Small-cap exchange-traded funds — includes broadly-diversified exchange-traded funds which invest in U.S. small-cap stocks such as those in the S&P 600 Small Cap index. The fair value is based upon the quoted market values of the underlying net assets.

International funds — includes well-diversified exchange-traded funds tracking broad-based international equity indexes. The fair value is based upon the quoted market values of the underlying net assets.

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Regulatory Capital Requirements - Capital Conservation Buffer (Details)	Dec. 31, 2019	Jan. 01, 2019	Dec. 31, 2018	Jan. 01, 2016
Regulatory Capital Requirements
Phased in rate (as a percent)				0.625%
Annual increase after initial year (as a percent)	0.625%
Capital requirements above regulatory rate (as a percent)		2.50%
Effective CET1 capital to risk-weighted assets (as a percent)	4.50%		4.50%
Effective Tier 1 capital to risk-weighted assets (as a percent)	11.88%		11.97%
Effective total capital to risk-weighted assets (as a percent)	12.81%		12.99%

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Leases - Lease Liabilities (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$ 8,802
Operating cash flows paid for finance leases	10
Financing cash flows paid for finance leases	10	$ 10	$ 10
Right-of-use assets obtained in exchange for new lease obligations, Operating leases	$ 1,401
Weighted Average Remaining Lease Term, Operating leases (years)	15 years 8 months 12 days
Weighted Average Remaining Lease Term, Finance leases (years)	2 years 6 months
Weighted Average Discount Rate, Operating leases	3.36%
Weighted Average Discount Rate, Finance leases	6.78%
Operating lease right-of-use assets	$ 44,300
Other assets	us-gaap:OtherAssetsMember
Finance lease right-of use assets	$ 0
Premises and equipment	fhb:PremisesAndEquipmentMember
Operating lease liabilities	$ 44,400
Other liabilities	us-gaap:OtherLiabilitiesMember
Finance lease liabilities	$ 19	$ 26
Long-term borrowings	us-gaap:LongTermDebtMember

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Leases - Future Minimum Rental Income (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Future minimum rental income under noncancellable operating leases
2020	$ 6,164
2021	6,152
2022	4,431
2023	3,506
2024	2,680
Thereafter	6,511
Total	$ 29,444

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Organization and Basis of Presentation - Accounting Standards Adopted (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Jan. 01, 2020	Jan. 01, 2019
Accounting Standards Adopted in 2019
Corporate tax rate (as a percent)	21.00%	21.00%	35.00%
Lease liability	$ 44.4
Right-of-use asset	$ 44.3
Change in Accounting Principle, Accounting Standards Update, Early Adoption [true false]	false
ASU 2018-15
Accounting Standards Adopted in 2019
Capitalized hosting arrangements that are service contracts	$ 10.6
Restatement adjustment | ASU 2016-02
Accounting Standards Adopted in 2019
Lease liability					$ 50.3
Right-of-use asset					$ 50.6
Forecast adjustment | Minimum | ASU 2016-13
Accounting Standards Adopted in 2019
Percentage of estimated increase in ACL and the reserve for unfunded commitments				10.00%
Forecast adjustment | Maximum | ASU 2016-13
Accounting Standards Adopted in 2019
Percentage of estimated increase in ACL and the reserve for unfunded commitments				15.00%

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Long-Term Borrowings - Components (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Long-term borrowings
Finance lease liabilities	$ 19	$ 26
Long-term borrowings	200,019	600,026
Short-term FHLB fixed-rate advance:
Long-term borrowings
Long-term borrowings	$ 200,000	$ 600,000

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Deposits - Interest-bearing or Noninterest-bearing (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
U.S.:
Interest-bearing	$ 9,782,957	$ 10,393,449
Noninterest-bearing	5,188,696	5,368,729
Foreign:
Interest-bearing	781,965	748,678
Noninterest-bearing	691,376	639,212
Total deposits	$ 16,444,994	$ 17,150,068

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Organization and Basis of Presentation - Premises and Equipment (Details)	12 Months Ended
	Dec. 31, 2019 component
Premises and Equipment
Reserve for Credit Losses, Number of Components	2
Buildings | Minimum
Premises and Equipment
Useful lives	10 years
Buildings | Maximum
Premises and Equipment
Useful lives	39 years
Furniture and equipment | Minimum
Premises and Equipment
Useful lives	4 years
Furniture and equipment | Maximum
Premises and Equipment
Useful lives	20 years

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Regulatory Capital Requirements (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Regulatory capital requirements
Limit on allowable reserve for credit losses for total risk-based capital ratio as a percentage of risk-weighted assets	1.25%
Common equity tier 1 capital to risk-weighted assets
Amount	$ 1,676,515	$ 1,661,542
Ratio (as a percent)	11.88%	11.97%
Minimum Capital Ratio (as a percent)	4.50%	4.50%
Well-Capitalized Ratio (as a percent)	6.50%	6.50%
Tier 1 capital to risk-weighted assets
Amount	$ 1,676,515	$ 1,661,542
Ratio (as a percent)	11.88%	11.97%
Minimum Capital Ratio (as a percent)	6.00%	6.00%
Well-Capitalized Ratio (percent)	8.00%	8.00%
Total capital to risk-weighted assets
Amount	$ 1,807,645	$ 1,803,860
Ratio (as a percent)	12.81%	12.99%
Minimum Capital Ratio (as a percent)	8.00%	8.00%
Well-Capitalized Ratio (as a percent)	10.00%	10.00%
Tier 1 capital to average assets (leverage ratio)
Amount	$ 1,676,515	$ 1,661,542
Ratio	8.79%	8.72%
Minimum Capital Ratio (as a percent)	4.00%	4.00%
Well-Capitalized Ratio (percent)	5.00%	5.00%
First Hawaiian Bank (FHB)
Common equity tier 1 capital to risk-weighted assets
Amount	$ 1,654,304	$ 1,658,172
Ratio (as a percent)	11.72%	11.94%
Tier 1 capital to risk-weighted assets
Amount	$ 1,654,304	$ 1,658,172
Ratio (as a percent)	11.72%	11.94%
Total capital to risk-weighted assets
Amount	$ 1,785,434	$ 1,800,490
Ratio (as a percent)	12.65%	12.97%
Tier 1 capital to average assets (leverage ratio)
Amount	$ 1,654,304	$ 1,658,172
Ratio	8.67%	8.70%

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Investment Securities - Proceeds from Calls and Sales, Realized Gains and Losses and Interest Income (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Proceeds from calls and sales of investment securities
Proceeds from calls of available for sale securities	$ 63,000,000.0
Proceeds from sales of available for sale securities	1,000,000,000.0
Debt Securities, Available-for-sale, Realized Gain (Loss) [Abstract]
Gross realized gains on sales of investment securities	500,000	0	0
Gross realized losses on sales of investment securities	3,200,000	0	0
Income tax benefit related to net realized loss on sale of investment securities	(700,000)
Interest income from taxable and nontaxable investment securities
Taxable interest income	92,500,000	106,600,000	102,300,000
Non-taxable interest income		$ 500,000	$ 100,000

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Short-Term Borrowings (Tables)

12 Months Ended

Dec. 31, 2019

Short-Term Borrowings

Schedule of short-term borrowings

	December 31,
(dollars in thousands)	2019		2018
Short-term FHLB fixed-rate advances(1)	$	400,000	$	—
Total short-term borrowings	$	400,000	$	—

(1) Interest is payable monthly.

Schedule of selected information for short-term borrowings

	Year Ended December 31,
(dollars in thousands)	2019			2018			2017
Federal funds purchased:
Weighted-average interest rate at December 31,		—	%		—	%		—	%
Highest month-end balance	$	110,000		$	374,875		$	6,000
Average outstanding balance	$	16,410		$	32,987		$	1,280
Weighted-average interest rate paid		2.44	%		2.18	%		0.97	%
Securities sold under agreements to repurchase:
Weighted-average interest rate at December 31,		—	%		—	%		—	%
Highest month-end balance	$	—		$	—		$	5,951
Average outstanding balance	$	—		$	—		$	893
Weighted-average interest rate paid		—	%		—	%		0.55	%
Short-term FHLB fixed-rate advance:
Weighted-average interest rate at December 31,		2.84	%		—	%		—	%
Highest month-end balance	$	400,000		$	81,800		$	—
Average outstanding balance	$	193,425		$	6,929		$	—
Weighted-average interest rate paid		2.85	%		1.90	%		—	%

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Leases (Tables)

12 Months Ended

Dec. 31, 2019

Leases

Summary of net lease expense

	Year Ended
(dollars in thousands)	December 31, 2019
Operating lease expense	$	9,158
Short-term lease expense		487
Variable lease expense		2,152
Finance lease expense:
Amortization of right-of-use assets		3
Interest on lease liabilities		2
Total finance lease expense		5
Less: Sublease income		(1,073)
Net lease expense	$	10,729

Summary of rental expense, net of sublease income, presented in accordance with Topic 840

	Year Ended December 31,
(dollars in thousands)	2018		2017
Rental expense charged to occupancy	$	9,947	$	8,620
Less: Sublease income		903		1,342
Net rental expense charged to occupancy		9,044		7,278
Rental expense charged to equipment expense		3,679		285
Total	$	12,723	$	7,563

Summary of other information related to the Company's lease liabilities

	Year Ended
(dollars in thousands)	December 31, 2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	8,802
Operating cash flows paid for finance leases	$	10
Financing cash flows paid for finance leases	$	10
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	1,401
Weighted Average Remaining Lease Term
Operating leases (years)		15.7
Finance leases (years)		2.5
Weighted Average Discount Rate
Operating leases		3.36	%
Finance leases		6.78	%

Summary of future minimum rental payments under noncancellable leases

	Net Operating
	Lease
(dollars in thousands)	Payments
Year ending December 31:
2020	$	8,776
2021		8,084
2022		5,453
2023		2,964
2024		2,721
Thereafter		32,227
Total future minimum lease payments		60,225
Less: Imputed interest		(15,934)
Total	$	44,291

Summary of future minimum rental payments under operating leases, Topic 840

	Operating		Less		Net Operating
	Lease		Sublease		Lease
(dollars in thousands)	Payments		Income		Payments
Year ending December 31:
2019	$	8,780	$	903	$	7,877
2020		8,668		903		7,765
2021		7,961		892		7,069
2022		5,101		—		5,101
2023		2,632		—		2,632
Thereafter		34,638		—		34,638
Total future minimum lease payments	$	67,780	$	2,698	$	65,082

Summary of future minimum rental income under noncancellable operating leases

The following table sets forth future minimum rental income under noncancelable operating leases with terms in excess of one year as of December 31, 2019:

	Minimum
	Rental
(dollars in thousands)	Income
Year ending December 31:
2020	$	6,164
2021		6,152
2022		4,431
2023		3,506
2024		2,680
Thereafter		6,511
Total	$	29,444

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Stock-Based Compensation - Restricted Stock and Restricted Share Awards (Details) - USD ($) $ / shares in Units, $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Stock-based compensation
Period for recognition of unrecognized compensation expense	1 year 3 months 18 days
Restricted Stock
Number of Shares
Granted (in shares)	162,550	0	0
Vested (in shares)	(11,239)
Forfeited (in shares)	(11,593)
Unvested as of end of period (in shares)	139,718
Weighted Average Grant Date Fair Value
Granted (in dollars per share)	$ 27.06
Vested (in dollars per share)	27.37
Forfeited (in dollars per share)	27.04
Unvested as of end of period (in dollars per share)	$ 27.04
Stock-based compensation
Total fair value of vested shares (in dollars)	$ 0.3
Unrecognized compensation expense	$ 2.9

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Fair Value - Visa Derivative (Details) - Funding Swap (Visa Derivative) $ in Thousands	Dec. 31, 2019 USD ($)	Sep. 27, 2019	Dec. 31, 2018 USD ($)	Jun. 28, 2018	Dec. 31, 2017
Class B restricted shares
Fair value
Conversion rate		1.6228		1.6298	1.6483
Included in other liabilities | Derivatives Not Designated as Hedging Instruments
Fair value
Derivative Liability	$ 4,233		$ 2,607