First Hawaiian, Inc.
First Hawaiian, Inc.
Incorporated: 1858 as Bishop & Co.
Sales: $.51 billion (interest income + operating income)
Stock Exchanges: NASDAQ
SICs: 8100 FinancialServices
With assets of $7.3 billion in 1994, First Hawaiian, Inc., is the second largest bank holding company in Hawaii. Its primary subsidiary is First Hawaiian Bank. Through that bank and four other subsidiaries, the holding company operates about 90 bank branches, provides various financial services, and leases and finances commercial equipment and vehicles. First Hawaiian Bank is one of the oldest and largest U.S. banks, west of the Rocky Mountains.
The institution that would become First Hawaiian Bank was founded in 1858 in Honolulu by Charles Reed Bishop and William A. Aldrich. The Bishop Co. Savings Bank opened its doors on August 17 after advertising the venture in the local newspaper: “Bishop & Co.’s Savings Bank! The undersigned will receive money at their Savings Bank upon the following terms: On sums of $300 or under, from one person, they will pay interest at the rate of 5 per cent per annum from date of receipt.” At the end of its first day of operation, Bishop and Aldrich were in business with $4,784.25 in deposits.
Bishop, an upstate New Yorker, had stopped in Honolulu on his way to Oregon in 1846 and stayed, although he would later return to the United States to build another fortune in San Francisco. Bishop soon became a respected business and civic leader in the Kingdom, which was ruled by King Kamehameha IV. He started out as a partner in a small drygoods store. After three years on the island, he obtained citizenship in the Kingdom and left the drygoods store to become collector of customs. In 1850, he married Princess Bernice Pauahi, who later inherited a wealth of Kamehameha land.
Bishop and his associate, Aldrich, recognized a need for a local bank in Hawaii during the 1850s. Whaling had grown into a big industry by that time, creating a need for a dependable place for people to store money, make payments to customers and employees, and to borrow money to start and grow businesses. Established to serve those needs, Bishop & Co. became the second bank to open west of the Rocky Mountains. It was headquartered in a small waterfront building that the cofounders shared with another tenant.
Bishop ran the bank for more than 30 years, during which he and his bank became a respected and important part of the Hawaiian community. For example, Bishop cofounded and helped run the Royal Hawaiian Agricultural Society, was a member of the King’s Privy Council (cabinet) for over 30 years, was a lifetime member of the House of Nobles (upper legislative house), and played a pivotal role in the development of the sugar industry following the important Reciprocity Treaty with the United States in 1875. Among other accomplishments, Bishop received Japan’s highest award, the Order of the Rising Sun First Class, from Emperor Meiji. After nearly 50 years in Hawaii, Bishop returned to the United States in the 1890s.
Despite Bishop’s absence, Bishop & Co. continued to grow during the early and mid-1900s. In 1919 its name was changed to The Bank of Bishop and Co., Ltd. As population and commerce ballooned, the bank’s name changed several times as Hawaii switched from a monarchy to a provisional republican government, to a U.S. territory (1900), and finally to the 50th state of the Union (1959). To house its expanding operations, the bank erected a two-story headquarters building on Bishop Street (in Honolulu) in 1925. In 1929, its name was changed to Bishop First National Bank of Honolulu before switching again in 1933 to Bishop First National Bank of Hawaii at Honolulu. The bank became Bishop National Bank of Hawaii in 1956 before switching to First National Bank of Hawaii in 1960, one year after Hawaii became a state. Finally, in 1969, it was titled First Hawaiian Bank.
Bishop experienced relatively steady growth during the 1900s, with the exception of temporary setbacks encountered during the Great Depression and during World War I and World War II. Its greatest era of expansion occurred during the 1960s and 1970s, following Hawaii’s passage into statehood. During that period, tourism generated a massive economic boom that pumped up the bank’s deposits and created a huge need for construction, business, and mortgage loans. To keep up with the surge in business, the bank built a new headquarters facility in the early 1960s. Located on Bishop and King Streets, near its existing building, the structure was the first major high-rise on the Honolulu skyline.
John D. Bellinger took over as chief executive of First Hawaiian Bank in 1969. He presided over a 20-year expansion of the organization that would take it far beyond what its founder had envisioned. Although First Hawaiian experienced record growth under Bellinger during the 1970s, and even before Bellinger during the 1960s, the bank was joined by a slew of competitors that were gunning for a share of First Hawaiian’s customers. Notable was the entrance in 1960 of heavy-hitter Hawaii National Bank. On its opening day, First Hawaiian’s new competitor captured $6.3 million in deposits, a national record for first-day deposits.
First Hawaiian faced competition during the 1970s and 1980s from an influx of new banks as well as from established competitors, such as Pioneer Federal Savings Bank. Pioneer was founded in 1890 and by the 1970s had become a leader in the residential mortgage market. Nevertheless, First Hawaiian rapidly enlarged its assets and customer base during the 1970s. It also expanded through acquisition. In 1975, for example, First Hawaiian purchased a financial services company to broaden its strength in both consumer and commercial credit markets, renaming the subsidiary First Hawaiian Creditcorp, Inc.
The banking industry as a whole suffered during the late 1970s and early 1980s from a variety of economic factors that caused a metamorphosis of U.S., and even global, financial markets. A combination of inflation and high interest rates diminished profit opportunities for First Hawaiian and its industry counterparts. Furthermore, banks came under increasing pressure from other financial institutions that were offering competing financial services. By the mid-1980s, however, a surging economy was pulling many U.S. banks out of the doldrums.
Hawaii, particularly, benefited from the economic boom of the 1980s. Besides heavy investment from the continental United States, First Hawaiian benefited from explosive economic growth in Japan. As that country’s economic machine shifted into high gear during the 1980s, Japanese individuals and companies, eager to invest in the United States, began dumping billions of dollars per year into Hawaii’s economy. In 1989 alone, in fact, Japan invested more than $4.4 billion in Hawaii. As other foreign dollars poured in, a massive commercial construction boom ensued. Healthy tourism, home building, and agricultural markets augmented First Hawaiian’s expansion during the decade.
By the late 1980s, First Hawaiian was generating over $400 million annually in interest income on its loans and investments and was garnering over $40 million per year from its other services and operating activities; its actual net income in 1989 reached $57 million. Besides enhancing its reputation and financial strength in the region during the 1980s, First Hawaiian had also established a role as an innovator in the local banking industry. It was the first institution, for example, to introduce full-service automated teller machines or to offer telephone home banking services. Also during the 1980s, it introduced debit cards for gasoline purchases and created the first locally available variable-rate consumer loans.
After nearly a decade of unprecedented growth, it was clear to many observers that the economic boom of the mid- and late 1980s was coming to an end. First Hawaiian recognized the first signs of slowing growth in 1989. Investments from Japan and most other countries appeared to be fading, and the U.S. mainland was slipping into what appeared to be a recession. Coincidentally, Bellinger died in 1989 after 30 years of service, leaving First National in the hands of younger managers. Hoping to duplicate or even improve the performance the bank had achieved since its inception, First Hawaiian’s board selected Walter A. Dods, Jr., to run the company.
Dods’ appointment occurred at an opportune time. Although First Hawaiian did not know it at the time (nor did any other industry analysts), the nation was entering into a recession in 1989 that would linger through the early and even into the mid-1990s. The 50-year-old Dods, who had been with the company for 20 years, quickly installed a new management team, most of which still had 15 to 20 years of potential service left to the company. He decentralized the company’s management structure by creating five separate divisions, each under the direction of a strong leader—Dods himself assumed a less controlling role than his predecessor. Dods also began to push for greater diversification and acquisitions. Diversification was an attempt to reduce First Hawaiian’s dependence on traditional banking activities that were under increasing competitive pressures.
As the rest of the nation spiraled into recession, Hawaii managed to sustain moderate growth during 1989 and the early 1990s. In fact, the organization increased its interest and operating income to $523 million and $61 million, respectively, as net income surged about 40 percent to $81.7 million. Much of First Hawaiian’s gains were the result of its 1991 acquisition of First Interstate of Hawaii, Inc., a commercial bank holding company with $900 million in assets. The bank also benefited from the relatively conservative lending strategy that it had employed during the 1980s. By the early 1990s, First Hawaiian’s nonperforming assets totaled a comparatively low $39 million. In April of 1992, Business Week ranked First Hawaiian Bank the tenth safest lender in the nation.
Although it was delayed, Hawaii began to feel the effects of the global recession in 1992. Importantly, Japan fell into a deep slump during that period, all but halting serious investments from that country into Hawaii. Tourism was off too; Hawaii’s visitor count plummeted about 6 percent in both 1992 and 1993, largely as a result of fewer mainland travelers. It was the largest decline since 1949. In addition, the tourists that were coming were spending less and not staying as long. Tourism, foreign investment, and agricultural markets continued to slide in 1993, resulting in lackluster lending opportunities. Although First Hawaiian’s revenue and net income increased in 1992 to about $557 million and $87 million, respectively, those figures slipped to $511 million and $81.9 million in 1993.
In an effort to increase its efficiency by spreading its overhead amongst a larger customer base, Dods continued his acquisition strategy in 1993 by purchasing Pioneer Federal Savings Bank. Pioneer brought $650 million in assets to the organization, increasing the total base of assets under First Hawaiian, Inc.’s corporate umbrella to more than $7 billion. Pioneer also added 19 branches on four Hawaiian islands, boosting First Hawaiian’s number of branches to 92. Dods oversaw the purchase of Phoenix Financial Services in 1993, as well, reflecting the bank’s newfound emphasis on fee-based financial services. Phoenix specialized in mortgage financing.
First Hawaiian’s portfolio of nonperforming assets doubled in 1992 to more that $70 million before declining slightly in 1993. Furthermore, its ranking in Financial World fell from 72 in 1991 to 217 in 1992. Nevertheless, it remained a very healthy bank by industry standards. In addition, Hawaii was still one of the healthiest business environments in the United States—the unemployment rate was only four percent in 1993—and First Hawaiian enjoyed a rock-solid local reputation. Besides the company’s relatively strong financial position and sticking power, the management team assembled by Dods seemed to be performing admirably.
A good example of First Hawaiian’s management depth was Lily Yao, chief executive of the holding company’s Pioneer subsidiary. Yao grew up in China, moved to Taiwan, and then relocated to Hawaii in 1968 where she went to work as a teller at Pioneer. While she earned her business degree at night, Yao climbed the corporate ladder. She quickly moved from teller to branch manager and up into the executive ranks. In 1984, Pioneer’s board of directors selected her to head the company. Pioneer’s sales jumped from $432,000 in 1984 to $6.1 million in 1993. Yao stayed with First Hawaiian after the buyout, and was even instrumental in transferring ownership to the well-heeled holding company. First Hawaiian also hoped to use Yao to secure business in burgeoning Asian markets.
In addition to branching into new foreign and financial markets in 1994, First Hawaiian declared its long-term growth intentions with the construction of a new, world-class headquarters building. Scheduled for completion in 1996, the proposed building would be a $240 million, 30-story high-rise on Bishop street. The plaza level of the building, with its 40-foot ceilings, had been dedicated to house The Contemporary Art Museum.’ ’First Hawaiian has been committed to Hawaii for 134 years, and our decision to build [the First Hawaiian Center] is a statement of our faith in the future of this state and our continued dedication to meeting the financial and community needs of Hawaii’s people,” proclaimed Dods on August 21, 1992, PR Newswire.
First Hawaiian Bank; First Hawaiian Creditcorp, Inc.; First Hawaiian Leasing, Inc.; FHI International, Inc.; Pioneer Federal Savings Bank.
“Bank Bullish on Big Isle Future,” Pacific Business News, October 4, 1993, p. A9.
Favorite, Monica, “Yao Says Yes: Pioneer Federal’s Sale to First Hawaiian Is the Latest Feather in the Cap of Hawaii Finance’s Sole Woman CEO,” Hawaii Business, September 1993, Sec. 1, p. 18.
The First Hawaiian Bank, Honolulu: First Hawaiian Bank, 1969.
Halvorson, Lisa, “First Hawaiian Bank to Build New Banking Center with the Downtown Branch of the Contemporary Art Museum,” PR Newswire, August 21, 1992.
Ma, Libya, “More of the Same? What’s the Outlook in 1993?,” Hawaii Business, Sec. 1, p. 55.
Ohira, Rod, “Dods’ Quarterback Is a Woman: The Banker Says He Couldn’t Survive without Audrey Mitsuda,” Honolulu Star-Bulletin, March 9, 1993, Sec. BUS.
Wiles, Greg, “Hawaii Bank Companies Slip in Quality Rankings,” Honolulu Advertiser, December 16, 1992, Sec. BUS.