<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 1994
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 0-7949
FIRST HAWAIIAN, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 99-0156159
(State of incorporation) (I.R.S. Employer
Identification No.)
1132 BISHOP STREET, HONOLULU, HAWAII 96813
(Address of principal executive offices) (Zip Code)
</TABLE>
(808) 525-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or l5(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 X No
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock as of April 30, 1994:
<TABLE>
<S> <C>
Class Outstanding
- - --------------------------------- ------------------
Common Stock, $5 Par Value 32,335,897 Shares
</TABLE>
===============================================================================
<PAGE> 2
Part I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited) Page
----
<S> <C>
Consolidated Balance Sheets at March 31, 1994, December 31, 1993
and March 31, 1993 2
Consolidated Statements of Income for the three months ended March 31, 1994
and 1993 3
Consolidated Statements of Cash Flows for the three months ended
March 31, 1994 and 1993 4
Consolidated Statements of Changes in Stockholders' Equity for the
three months ended March 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6 - 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (Unaudited)
First Hawaiian, Inc. and Subsidiaries
<TABLE>
<CAPTION>
MARCH 31, December 31, March 31,
---------- ------------ ----------
1994 1993 1993
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 296,909 $ 436,129 $ 276,141
Interest-bearing deposits in other banks 65,810 116,736 176,468
Federal funds sold and securities purchased
under agreements to resell 87,956 35,000 186,988
Investment securities (note 2):
Held-to-maturity (fair value of $1,142,853,
$1,144,327 and $1,164,461, respectively) 1,139,798 1,132,025 1,140,122
Available-for-sale 131,352 98,453 --
Loans and leases:
Loans and leases 5,014,133 5,066,809 4,396,365
Less allowance for loan and lease losses 61,929 62,253 56,389
---------- ---------- ----------
Net loans and leases 4,952,204 5,004,556 4,339,976
---------- ---------- ----------
Premises and equipment (note 3) 251,841 249,479 217,476
Customers' acceptance liability 1,800 854 1,345
Core deposit premium 15,376 15,380 11,956
Goodwill 80,413 81,231 60,631
Other assets 95,439 99,288 95,837
---------- ---------- ----------
TOTAL ASSETS $7,118,898 $7,269,131 $6,506,940
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 931,751 $ 974,478 $ 921,213
Interest-bearing demand 1,207,065 1,143,037 1,112,707
Savings 1,394,498 1,507,200 1,392,907
Time 1,354,348 1,343,841 1,247,755
Foreign 184,286 251,572 200,953
---------- ---------- ----------
Total deposits 5,071,948 5,220,128 4,875,535
Short-term borrowings 1,055,025 1,069,682 857,351
Acceptances outstanding 1,800 854 1,345
Other liabilities 168,510 148,331 127,094
Long-term debt 208,583 221,767 70,858
---------- ---------- ----------
Total liabilities 6,505,866 6,660,762 5,932,183
---------- ---------- ----------
Stockholders' equity:
Common stock 162,713 162,713 162,507
Surplus 133,821 133,820 132,889
Retained earnings 321,028 311,836 279,361
Unrealized valuation adjustment (note 2) (41) -- --
Treasury stock (4,489) -- --
---------- ---------- ----------
Total stockholders' equity 613,032 608,369 574,757
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,118,898 $7,269,131 $6,506,940
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
First Hawaiian, Inc. and Subsidiaries
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------
1994 1993
----------- -----------
(in thousands, except shares and per share data)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 94,422 $ 85,813
Lease financing income 2,918 3,324
Interest on investment securities:
Taxable interest income 10,712 11,872
Exempt from Federal income taxes 3,282 3,609
Other interest income 2,134 4,239
----------- -----------
Total interest income 113,468 108,857
----------- -----------
INTEREST EXPENSE
Deposits 30,136 35,022
Short-term borrowings 9,332 5,636
Long-term debt 2,917 1,000
----------- -----------
Total interest expense 42,385 41,658
----------- -----------
Net interest income 71,083 67,199
Provision for loan and lease losses 3,843 3,903
----------- -----------
Net interest income after provision for
loan and lease losses 67,240 63,296
----------- -----------
OTHER OPERATING INCOME
Trust income 6,462 5,501
Service charges on deposit accounts 5,884 4,725
Other service charges and fees 8,153 7,212
Securities gains, net 141 26
Other 2,429 528
----------- -----------
Total other operating income 23,069 17,992
----------- -----------
OTHER OPERATING EXPENSES
Salaries and wages 23,227 20,628
Employee benefits 7,382 5,649
Occupancy expense 5,722 4,497
Equipment expense 5,873 4,614
Other (note 3) 19,200 20,198
----------- -----------
Total other operating expenses 61,404 55,586
----------- -----------
Income before income taxes and cumulative effect
of a change in accounting principle 28,905 25,702
Income taxes 10,168 7,706
----------- -----------
Income before cumulative effect of a
change in accounting principle 18,737 17,996
Cumulative effect of a change in accounting
principle (note 2) -- 3,650
----------- -----------
NET INCOME $ 18,737 $ 21,646
=========== ===========
PER SHARE DATA
Income before cumulative effect of a change
in accounting principle $ .58 $ .56
Cumulative effect of a change in accounting principle -- .11
----------- -----------
NET INCOME $ .58 $ .67
=========== ===========
CASH DIVIDENDS $ .295 $ .28
=========== ===========
AVERAGE SHARES OUTSTANDING 32,399,530 32,501,611
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
First Hawaiian, Inc. and Subsidiaries
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------
1994 1993
--------- ---------
(in thousands)
<S> <C> <C>
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD $ 436,129 $ 325,659
---------
Cash flows from operating activities:
Net income 18,737 21,646
Provision for loan and lease losses 3,843 3,903
Depreciation and amortization 5,932 4,627
Income taxes 8,123 1,170
Cumulative effect of a change in
accounting principle -- (3,650)
Decrease (increase) in interest receivable 7,542 (278)
Increase (decrease) in interest payable (1,691) 642
Increase in prepaid expenses (3,772) (5,986)
Write-off of building costs -- 5,444
--------- ---------
Net cash provided by operating activities 38,714 27,518
--------- ---------
Cash flows from investing activities:
Net decrease (increase) in interest-bearing
deposits in other banks 50,926 (20,152)
Net decrease (increase) in Federal funds sold and
securities purchased under agreements to resell (52,956) 218,012
Purchase of held-to-maturity investment securities (58,404) (372,836)
Proceeds from sale of held-to-maturity
investment securities 54,278 66,202
Proceeds from maturity of held-to-maturity
investment securities 94,806 117,701
Purchase of available-for-sale investment securities (141,137) --
--
Proceeds from maturity of available-for-sale
investment securities 9,785 --
--
Net decrease (increase) in loans and leases
made to customers 48,509 (347)
Capital expenditures (6,714) (19,000)
Other 13,027 11,855
--------- ---------
Net cash provided by investing activities 12,120 1,435
--------- ---------
Cash flows from financing activities:
Net decrease in deposits (148,180) (212,624)
Net increase (decrease) in short-term borrowings (14,657) 143,437
Payments on long-term debt (13,184) (199)
Cash dividends paid (9,544) (9,085)
Purchases of treasury stock (4,489) --
--------- ---------
Net cash used in financing activities (190,054) (78,471)
--------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 296,909 $ 276,141
========= =========
Supplemental disclosures:
Interest paid $ 40,694 $ 42,300
========= =========
Net income taxes paid $ 2,045 $ 6,536
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 6
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
First Hawaiian, Inc. and Subsidiaries
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------
1994 1993
---------------- -----------------
(in thousands)
<S> <C> <C>
BALANCE, BEGINNING OF PERIOD $608,369 $562,196
Net income 18,737 21,646
Purchases of treasury stock (4,489) --
Unrealized valuation adjustment (note 2) (41) --
Cash dividends paid (9,544) (9,085)
-------- --------
BALANCE, END OF PERIOD $613,032 $574,757
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
First Hawaiian, Inc. and Subsidiaries
1. BASIS OF PRESENTATION
The consolidated financial statements of the Company include the
accounts of First Hawaiian, Inc. and its wholly-owned subsidiaries - First
Hawaiian Bank (the "Bank") and its wholly-owned subsidiaries; Pioneer Federal
Savings Bank ("Pioneer") and its wholly-owned subsidiaries; First Hawaiian
Creditcorp, Inc.; First Hawaiian Leasing, Inc.; and FHI International, Inc.
All significant intercompany balances and transactions have been eliminated in
consolidation.
Certain amounts in the consolidated financial statements for 1993 have been
reclassified to conform with the 1994 presentation. Such reclassifications
had no effect on the consolidated net income as previously
reported.
In the opinion of management, all adjustments (which included only
normal recurring adjustments) necessary for a fair presentation are reflected
in the consolidated financial statements.
2. ACCOUNTING CHANGES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," the
cumulative effect of which was the recognition of an income tax benefit of
$3,650,000 in the first quarter of 1993. Under SFAS No. 109, deferred tax
assets and liabilities are measured using enacted tax rates scheduled to be in
effect at the time the related temporary differences between financial
reporting and tax reporting of income and expenses are expected to reverse.
The effect of changes in tax rates is recognized in income in the period that
includes the enactment date.
As of December 31, 1993, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Under SFAS No. 115,
investment securities are to be classified in three categories and accounted
for as follows: (1) held-to-maturity securities are debt securities which the
Company has the positive intent and ability to hold to maturity, and are
reported at amortized cost; (2) trading securities are debt securities that
are bought and held principally for the purpose of selling them in the near
term and are reported at fair value, with unrealized gains and losses included
in the current earnings; and (3) available-for-sale securities are debt
securities not classified as either held-to-maturity securities or trading
securities and are reported at fair value, with unrealized gains and losses
excluded from current earnings and reported in a separate component of
stockholders' equity. There were no trading securities as of March 31, 1994
and December 31, 1993.
3. OTHER OPERATING EXPENSES
In connection with the Company's redevelopment of its former downtown
headquarters block, the undepreciated cost of certain structures was written
off in the first quarter of 1993. The write-off amounted to $5,444,000 and is
included in "Other Operating Expenses" for that quarter.
4. BUSINESS COMBINATION
On August 6, 1993, the Company acquired for cash all of the
outstanding stock of Pioneer Fed BanCorp, Inc. ("Pioneer Holdings") at a
purchase price of $87 million through the merger of Pioneer Holdings with and
into the Company. As a result of the merger, Pioneer became a wholly- owned
subsidiary of the Company. The results of operations of Pioneer are included
in the Company's Consolidated Statements of Income from the date of
acquisition.
5
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NET INCOME
Consolidated net income for the first three months of 1994 was $18,737,000
compared to $21,646,000 for the first three months of 1993, a decrease of
13.4%. On a per share basis, consolidated net income for the three months
ended March 31, 1994 was $.58, a decrease of 13.4% as compared to the first
quarter of 1993. Excluding the cumulative effect of the change in accounting
principle in the first quarter of 1993, consolidated income from operations was
$17,996,000, or $.56 per share, compared to $.58 per share for the first
quarter of 1994, an increase of 3.6%, reflecting increases in both net interest
income and other operating income from the prior period.
On an annualized basis, the Company's return on average total assets for the
first three months of 1994 was 1.06% compared to 1.34% for the same period in
1993 and return on average stockholders' equity was 12.47% compared to 15.51%
for the same period in 1993. The decreases in return on average total assets
and return on average stockholders' equity in 1994 as compared to 1993 were
primarily attributable to the decrease in earnings previously mentioned.
NET INTEREST INCOME
On a fully taxable equivalent basis, net interest income increased $3,914,000,
or 5.7%, to $72,885,000 for the three months ended March 31, 1994 from
$68,971,000 for the same period in 1993. This increase was due to the 10.2%
increase in average earning assets (principally as a result of the acquisition
of Pioneer), offset by a 20 basis point (1% equals 100 basis points) decrease
in the net interest margin. For the first quarter of 1994, the yield on
earning assets decreased 41 basis points with the rate paid for
interest-bearing deposits and liabilities decreasing only 33 basis points
compared to the same period in 1993 resulting in a decrease in the interest
rate spread from 4.14% to 4.06%. Utilizing average earning assets as the base,
the net interest margin on earning assets for the first quarter of 1994 was
4.54% compared to 4.74% for the same period in 1993. These declines were
primarily attributable to the lower interest rate environment in the first
quarter of 1994 compared with the same period in 1993. The decline in yields
on loans and investment securities was primarily due to maturities and
refinancing of higher yielding loans and investment securities.
6
<PAGE> 8
The following table sets forth consolidated average balance sheets, an analysis
of interest income/expense, and the average yield/rate for each major category
of interest-earning assets and interest-bearing liabilities for the periods
indicated on a fully taxable equivalent basis. The tax equivalent adjustment
is made for items exempt from Federal income taxes to make them comparable with
taxable items before any income taxes are applied.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------
1994 1993
------------------------------ ------------------------------
INTEREST Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
BALANCE EXPENSE RATE(1) Balance Expense Rate(1)
--------- --------- ---- --------- --------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Interest-bearing deposits
in other banks $ 128,871 $ 1,013 3.19% $ 282,089 $ 2,134 3.07%
Federal funds sold and
securities purchased
under agreements to resell 143,740 1,121 3.16 259,935 2,104 3.28
Held-to-maturity securities 1,076,171 14,599 5.50 990,012 17,071 6.99
Available-for-sale securities 109,441 1,050 3.89 -- -- --
Loans and leases(2),(3) 5,045,514 97,487 7.84 4,369,240 89,320 8.29
------------ ---------- ------------ ---------
Total earning assets 6,503,737 115,270 7.19 5,901,276 110,629 7.60
---------- ---------
Nonearning assets 686,329 636,381
------------ ------------
Total assets $ 7,190,066 $ 6,537,657
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits
and liabilities:
Deposits $ 4,166,823 $ 30,136 2.93% $ 4,097,106 $ 35,022 3.47%
Short-term borrowings 1,119,656 9,331 3.38 722,497 5,636 3.16
Long-term debt 212,925 2,918 5.56 67,473 1,000 6.01
------------ ---------- ------------ ---------
Total interest-bearing
deposits and liabilities 5,499,404 42,385 3.13 4,887,076 41,658 3.46
---------- ---- --------- ----
Interest rate spread 4.06% 4.14%
==== ====
Noninterest-bearing demand
deposits 920,502 913,824
Other liabilities 160,789 170,706
------------ ------------
Total liabilities 6,580,695 5,971,606
Stockholders' equity 609,371 566,051
------------ ------------
Total liabilities and
stockholders' equity $ 7,190,066 $ 6,537,657
============ ============
Net interest income and
margin on earning assets 72,885 4.54% 68,971 4.74%
==== ====
Tax equivalent adjustment 1,802 1,772
---------- ---------
Net interest income $ 71,083 $ 67,199
========== =========
</TABLE>
(1) Annualized.
(2) Nonaccruing loans and leases have been included in computations of average
loan and lease balances.
(3) Interest income for loans and leases included loans fees of $8,005 and
$6,123 for 1994 and 1993, respectively.
7
<PAGE> 9
INVESTMENT SECURITIES
Comparative book and fair values of held-to-maturity investment securities at
March 31, 1994, December 31, 1993, and March 31, 1993 were as follows:
<TABLE>
<CAPTION>
MARCH 31, December 31, March 31,
1994 1993 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Book value $ 1,139,798 $ 1,132,025 $ 1,140,122
Unrealized gains 9,259 14,036 24,455
Unrealized losses (6,204) (1,734) (116)
------------ ----------- ------------
Fair value $ 1,142,853 $ 1,144,327 $ 1,164,461
============ =========== ============
</TABLE>
The decrease in unrealized gains and increase in unrealized losses from
December 31, 1993 is attributable to the recent rise in the overall level of
interest rates resulting from recent monetary actions of the Federal Reserve
Board.
Gross realized gains and losses for the three months ended March 31, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Realized gains $ 141 $ 71
Realized losses -- (45)
--------- ---------
Securities gains, net $ 141 $ 26
========= =========
</TABLE>
Gains and losses realized on the sales of investment securities are determined
using the specific identification method.
8
<PAGE> 10
LOANS
The following table sets forth the loan portfolio by major categories and loan
mix at March 31, 1994, December 31, 1993 and March 31, 1993:
<TABLE>
<CAPTION>
MARCH 31, 1994 December 31, 1993 March 31, 1993
------------------- ------------------- ------------------
AMOUNT % Amount % Amount %
------------------- ------------------- ------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $1,185,337 23.6% $1,208,912 23.8% $1,189,553 27.1%
Real estate:
Commercial 895,431 17.8 882,628 17.4 710,081 16.2
Construction 271,042 5.4 317,036 6.2 431,697 9.8
Residential:
Insured, guaranteed or
conventional 1,449,685 28.9 1,427,299 28.2 869,054 19.8
Home equity credit lines 349,490 7.0 358,662 7.1 357,314 8.1
--------- ---- ---------- ---- --------- -----
Total real estate loans 2,965,648 59.1 2,985,625 58.9 2,368,146 53.9
--------- ---- ---------- ---- --------- -----
Consumer 450,411 9.0 459,910 9.1 454,297 10.3
Lease financing 198,826 4.0 201,449 4.0 182,554 4.1
Foreign 213,911 4.3 210,913 4.2 201,815 4.6
--------- ---- ---------- ---- --------- -----
Total loans and leases 5,014,133 100.0% 5,066,809 100.0% 4,396,365 100.0%
===== ===== =====
Less allowance for loan and
lease losses 61,929 62,253 56,389
--------- ---------- ----------
Total net loans and
leases $4,952,204 $5,004,556 $4,339,976
========== ========== ==========
</TABLE>
The loan and lease portfolio is the largest component of earning assets and
accounts for the greatest portion of total interest income. At March 31, 1994,
total loans and leases were $5,014,133,000, a decrease of 1.0% from December
31, 1993.
Total loans and leases at March 31, 1994, represented 70.4% of total assets,
77.8% of total earning assets and 98.9% of total deposits compared to 69.7% of
total assets, 78.6% of total earning assets and 97.1% of total deposits at
December 31, 1993. Governmental and certain other time deposits were shifted
into security repurchase agreements at March 31, 1994, December 31, 1993 and
March 31, 1993 to reduce the Company's deposit insurance premiums. If these
repurchase agreements were included in the deposit base, total loans and leases
as a percentage of total deposits would represent 84.2%, 83.8% and 82.4%,
respectively, at such dates.
Loan concentrations are considered to exist when there are amounts loaned to
multiple borrowers engaged in similar activities which would cause them to be
similarly impacted by economic or other conditions. At March 31, 1994,
commercial real estate loans totalled $895,431,000, or 17.8%, of total loans
and leases. The Company has selectively participated as a lender on commercial
properties on the mainland United States, principally on the west coast. Such
loans totalled $66,198,000 at March 31, 1994, a decrease of 2.1% from December
31, 1993. At March 31, 1994, the largest concentration of commercial real
estate loans to a single borrower was $29.2 million.
Construction and land development loans decreased 14.5% from December 31, 1993
to March 31, 1994 due to repayments and loans transferred to commercial real
estate.
9
<PAGE> 11
NONPERFORMING ASSETS
A summary of nonperforming assets at March 31, 1994, December 31, 1993 and
March 31, 1993 follows:
<TABLE>
<CAPTION>
MARCH 31, December 31, March 31,
1994 1993 1993
---------------- --------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Nonperforming loans and leases:
Nonaccrual:
Commercial, financial and agricultural $ 9,646 $ 13,823 $ 13,213
Real estate:
Commercial 25,969 12,145 3,784
Construction 26,547 28,571 37,981
Residential:
Insured, guaranteed, or conventional 8,207 5,473 2,774
Home equity credit lines 259 255 245
--------- ---------- ---------
Total real estate loans 60,982 46,444 44,784
--------- ---------- ---------
Consumer 76 45 50
Lease financing 3 -- 27
--------- ---------- ---------
Total nonaccrual loans and leases 70,707 60,312 58,074
Renegotiated - commercial, financial
and agricultural 2 20 10,219
--------- ---------- ---------
Total nonperforming loans and leases 70,709 60,332 68,293
Other real estate owned 13,210 13,034 256
--------- ---------- ---------
Total nonperforming assets $ 83,919 $ 73,366 $ 68,549
========= ========== =========
Loans and leases past due 90 days or more
and still accruing interest $ 22,733 $ 40,285 $ 42,682
========= ========== =========
Nonperforming assets to total loans and leases
and other real estate owned (end of period):
Excluding past due loans and leases 1.66% 1.44% 1.56%
Including past due loans and leases 2.11% 2.24% 2.53%
Nonperforming assets to total assets
(end of period):
Excluding past due loans and leases 1.17% 1.01% 1.05%
Including past due loans and leases 1.48% 1.56% 1.71%
</TABLE>
10
<PAGE> 12
NONPERFORMING ASSETS, Continued
Nonperforming assets increased from $73,366,000 at December 31, 1993 to
$83,919,000 at March 31, 1994. The increase of $10,553,000 was primarily
attributable to two Hawaii commercial real estate loans totalling $13.6
million, offset by the settlement of a $7.0 million commercial loan. The
increase is a result of the continuing weakness in the Hawaii economy and local
real estate markets. Hawaii's economy, which is the worst that Hawaii has
experienced since statehood, will continue to affect its level of nonperforming
assets.
Loans and leases past due 90 days or more and still accruing interest totalled
$22,733,000 at March 31, 1994. The decrease of $17,552,000 from December 31,
1993 to March 31, 1994 was attributable to several loans becoming current. All
of the loans which are past due 90 days or more and still accruing interest are
in management's judgment adequately secured and in the process of collection.
11
<PAGE> 13
DEPOSITS
The following table sets forth the average balances and the average rates paid
on deposits for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------
1994 1993
------------------------ -------------------------
AVERAGE AVERAGE Average Average
BALANCE RATE(1) Balance Rate (1)
----------- --------- ------------ ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Interest-bearing demand $ 1,246,257 1.92 % $ 1,236,303 2.34 %
Savings 1,488,406 2.03 1,423,721 3.20
Time 1,432,160 4.75 1,437,082 4.71
------------ ------------
Total interest-bearing deposits 4,166,823 2.93 4,097,106 3.47
Noninterest-bearing demand 920,502 -- 913,824 --
------------ ------------
Total deposits $ 5,087,325 2.40 % $ 5,010,930 2.84 %
============ ============
</TABLE>
(1) Annualized.
Average deposits during the first quarter of 1994 increased $76.4 million, or
1.5%, as compared to the first quarter of 1993. Exclusive of the average
deposits of Pioneer for the first quarter of 1994, average deposits decreased
$315.1 million, or 6.3%. The investment by customers in higher-yielding
alternative investments, generally with non-financial institutions, and the
shift of public deposits, contributed to the decrease in average deposits.
12
<PAGE> 14
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The following table sets forth the activity in the allowance for loan and lease
losses for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------
1994 1993
------------- --------------
(dollars in thousands)
<S> <C> <C>
Loans and leases outstanding (end of period) $ 5,014,133 $ 4,396,365
============== ==============
Average loans and leases outstanding $ 5,045,514 $ 4,369,240
============== ==============
Allowance for loan and lease losses:
Balance at beginning of period $ 62,253 $ 56,385
-------------- --------------
Loans and leases charged off:
Commercial, financial and agricultural 2,551 1,058
Real estate - commercial 375 --
Real estate - residential 252 --
Real estate - construction 804 1,672
Consumer 1,488 1,567
-------------- --------------
Total loans and leases charged off 5,470 4,297
-------------- --------------
Recoveries on loans and leases previously charged off:
Commercial, financial and agricultural 871 32
Real estate - mortgage 14 --
Real estate - construction 4 --
Consumer 412 365
Lease financing 2 1
-------------- --------------
Total recoveries on loans and leases
previously charged off 1,303 398
-------------- --------------
Net charge-offs 4,167 3,899
Provision charged to expense 3,843 3,903
-------------- --------------
Balance at end of period $ 61,929 $ 56,389
============== ==============
Net loans and leases charged off to
average loans and leases .33%(1) .36%(1)
Net loans and leases charged off to
allowance for loan and lease losses 27.29%(1) 28.04%(1)
Allowance for loan and lease losses to
total loans and leases (end of period) 1.24% 1.28%
Allowance for loan and lease losses to
nonperforming loans and leases (end of period):
Excluding past due loans and leases .88X .83x
Including past due loans and leases .66X .51x
</TABLE>
(1)Annualized.
13
<PAGE> 15
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES, Continued
The allowance for loan and lease losses at March 31, 1994 was $61,929,000 and
represented 1.24% of total outstanding loans and leases. This ratio was 1.23%
as of December 31, 1993 and 1.28% at March 31, 1993. The ratio of allowance
for loan and lease losses to nonperforming loans and leases declined from
December 31, 1993 to March 31, 1994.
Net charge-offs for the first three months of 1994 were $4,167,000, an increase
of $268,000 over the first three months of 1993.
OTHER OPERATING INCOME
Exclusive of securities transactions, other operating income totalled
$22,928,000 for the first quarter of 1994, an increase of 27.6% over the same
period in 1993. The increases were primarily attributable to the increases in
trust income and other service charges/fees, and the acquisition of Pioneer.
Trust fees increased $961,000, or 17.5%, for the first quarter of 1994 over the
same period in 1993. The increase was primarily the result of increases in
fees from pension plans and irrevocable trusts and investment management fees
which were the result of new business.
Service charges on deposit accounts increased $1,159,000, or 24.5%, for the
first quarter of 1994 over the same period in 1993. This increase was partly
attributable to increases in fees on checking accounts and on checks returned
and paid from Pioneer.
Other service charges and fees increased $941,000, or 13.0%, for the first
quarter of 1994 over the same period in 1993. This increase was partly
attributable to increases in merchant discount income and commissions.
Security transactions resulted in net pre-tax gains of $141,000 for the first
three months of 1994 compared to net pre-tax gains of $26,000 for the same
period in 1993.
Other operating income increased $1,901,000 for the first quarter of 1994 over
the same period in 1993. This increase was partly attributable to an advisory
fee income and the acquisition of Pioneer.
OTHER OPERATING EXPENSES
Other operating expenses totalled $61,404,000 for the first three months of
1994, an increase of 10.5% over the first three months of 1993.
Total personnel expenses (salaries and wages and employee benefits) increased
$4,332,000 for the first three months of 1994 over the same period in 1993.
Personnel expenses attributable to recent acquisitions account for $2,437,000.
The balance of the increase is attributable to normal merit increases and
higher workers' compensation, health and payroll tax expenses.
Occupancy expense for the first three months of 1994 increased $1,225,000, or
27.2%, over the same period in 1993 with $1,130,000 attributable to the Pioneer
acquisition.
Equipment expense increased $1,259,000, or 27.3%, for the first quarter of 1994
over the same period in 1993, primarily as a result of higher depreciation and
rental expense and maintenance service contracts in connection with the
conversion of the computer mainframes and improvements in the delivery and
processing systems.
Excluding the write-off of $5,444,000 for the undepreciated cost of certain
structures on the Company's redevelopment block in the first quarter of 1993,
other operating expenses grew $4,446,000 for the first quarter of 1994. The
recent acquisitions, lower interest capitalization on construction in progress,
higher utility, professional fees and outside services and goodwill
amortization primarily accounted for this increase.
14
<PAGE> 16
INCOME TAXES
The Company's effective income tax rate (exclusive of the tax equivalent
adjustment) for the first three months of 1994 was 35.2% as compared to 30.0%
for the same period in 1993. The increase in the Company's effective income
tax rate was primarily due to the (1) increase in the corporate tax rate as a
result of the Omnibus Budget Reconciliation Act of 1993; (2) declining income
from tax-exempt earning assets, primarily municipal securities; and, (3)
amortization of purchase accounting adjustments (goodwill and core deposit
premium) which do not have the benefit of being deductible for income tax
purposes.
LIQUIDITY AND CAPITAL
Stockholders' equity was $613,032,000 at March 31, 1994, a .8% increase from
$608,369,000 at December 31, 1993. Average stockholders' equity represented
8.48% of average total assets for the first quarter of 1994 compared to 8.66%
in the same quarter last year. There was no significant change in the
Company's liquidity position during the first quarter of 1994.
The following tables present the Company's regulatory capital position at March
31, 1994:
RISK-BASED CAPITAL RATIOS
<TABLE>
<CAPTION>
AMOUNT RATIO
----------- -------
(dollars in thousands)
<S> <C> <C>
Tier 1 Capital $ 528,477 10.26%
Tier 1 Capital minimum requirement (1) 205,935 4.00
----------- ------
Excess $ 322,542 6.26%
=========== ======
Total Capital $ 690,406 13.41%
Total Capital minimum requirement (1) 411,870 8.00
----------- ------
Excess $ 278,536 5.41%
=========== ======
Risk-weighted assets $ 5,148,379
===========
</TABLE>
LEVERAGE RATIO
<TABLE>
<CAPTION>
AMOUNT RATIO
----------- -------
(dollars in thousands)
<S> <C> <C>
Tier 1 Capital $ 528,477 7.26 %
Minimum leverage requirement (2) 218,240 3.00
----------- ------
Excess $ 310,237 4.26 %
=========== ======
Average total assets, net of goodwill
and certain intangible assets $ 7,274,662
===========
</TABLE>
(1) Risk-based capital guidelines as established by the Federal Reserve Board
for bank holding companies require minimum Tier 1 and Total capital ratios
of 4% and 8%, respectively.
(2) The Federal Reserve Board has stated that the Leverage Ratio of 3% is
the minimum requirement for the most highly rated banking organizations
which are not experiencing or anticipating significant growth. Other
banking organizations are expected to maintain leverage ratios of at
least one to two percent higher.
15
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The legal proceeding brought by MasterCard International, Inc. in the
United States District court for the Southern District of New York
against Dean Witter, Discover & Co. and others, in which the Bank and
others were named as counterclaim defendants, which was described in
the Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, was settled and dismissed without the
Corporation or the Bank making any payment or assuming any other
obligation. The date of the dismissal of claims against the Bank was
January 21, 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 12 Statement regarding computation of ratios.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended March 31, 1994.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements 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.
FIRST HAWAIIAN, INC.
(Registrant)
Date May 10, 1994 By /s/ HOWARD H. KARR
-------------------------
HOWARD H. KARR
EXECUTIVE VICE PRESIDENT
AND TREASURER
(PRINCIPAL FINANCIAL OFFICER)
17
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER IN
NUMBER DESCRIPTION QUARTERLY REPORT ON FORM 10-Q
------ ----------- -----------------------------
<S> <C> <C>
12 Statement regarding computation of ratios. 19
</TABLE>
18
<PAGE> 1
EXHIBIT 12. STATEMENT RE: COMPUTATION OF RATIOS
First Hawaiian, Inc. and Subsidiaries
Computation of Consolidated Ratios of Earnings to Fixed Charges
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1994 1993
------- -------
(dollars in thousands)
<S> <C> <C>
Income before income taxes and
cumulative effect of a change
in accounting principle $28,905 $25,702
------- -------
Fixed charges:(1)
Interest expense 42,385 41,658
Capitalized interest -- 1,092
Rental expense 1,084 613
------- -------
43,469 43,363
Less interest on deposits 30,136 35,022
------- -------
Net fixed charges 13,333 8,341
------- -------
Earnings, excluding
interest on deposits $42,238 $34,043
======= =======
Earnings, including
interest on deposits $72,374 $69,065
======= =======
Ratio of earnings to
fixed charges:
Excluding interest on deposits 3.17 X 4.08 x
Including interest on deposits 1.66 X 1.59 x
</TABLE>
(1) For purposes of computing the above ratios, earnings represent income
before income taxes and cumulative effect of a change in accounting
principle plus fixed charges. Fixed charges, excluding interest on
deposits, include interest (other than on deposits), whether expensed or
capitalized, and that portion of rental expense (generally one third)
deemed representative of the interest factor. Fixed charges, including
interest on deposits, include all interest, whether expensed or
capitalized, and that portion of rental expense (generally one third)
deemed representative of the interest factor.
19
