Regulatory Capital Requirements

12 Months Ended

Dec. 31, 2021

Regulatory Capital Requirements

Regulatory Capital Requirements

12. 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, 2021 and 2020:

					First Hawaiian				Minimum		Well-
	First Hawaiian, Inc.				Bank				Capital		Capitalized
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Ratio(1)		Ratio(1)
December 31, 2021:
Common equity tier 1 capital to risk-weighted assets	$	1,783,113	12.24	%	$	1,769,214	12.14	%	4.50	%	6.50	%
Tier 1 capital to risk-weighted assets		1,783,113	12.24	%		1,769,214	12.14	%	6.00	%	8.00	%
Total capital to risk-weighted assets		1,965,280	13.49	%		1,951,377	13.40	%	8.00	%	10.00	%
Tier 1 capital to average assets (leverage ratio)		1,783,113	7.24	%		1,769,214	7.18	%	4.00	%	5.00	%
December 31, 2020:
Common equity tier 1 capital to risk-weighted assets	$	1,717,008	12.47	%	$	1,699,485	12.34	%	4.50	%	6.50	%
Tier 1 capital to risk-weighted assets		1,717,008	12.47	%		1,699,485	12.34	%	6.00	%	8.00	%
Total capital to risk-weighted assets		1,889,958	13.73	%		1,872,427	13.60	%	8.00	%	10.00	%
Tier 1 capital to average assets (leverage ratio)		1,717,008	8.00	%		1,699,485	7.92	%	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 capital conservation buffer, comprised of CET1 capital, was established above the regulatory minimum capital requirements. As of December 31, 2021, under the bank regulatory capital guidelines, the Company and Bank were both classified as well-capitalized and exceeded the aforementioned capital conservation buffer. Management is not aware of any conditions or events that have occurred since December 31, 2021, to change the capital adequacy category of the Company or the Bank.