<PAGE> 1
================================================================================
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 September 30, 1996
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)
----------------
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)
(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 October 30, 1996 was:
<TABLE>
<CAPTION>
Class Outstanding
--------------------------------- ------------------
<S> <C> <C>
Common Stock, $5 Par Value 31,777,269 Shares
</TABLE>
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited) Page
----
<S> <C>
Consolidated Balance Sheets at September 30, 1996, December 31, 1995
and September 30, 1995 2
Consolidated Statements of Income for the quarter and nine months ended
September 30, 1996 and 1995 3
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 4
Consolidated Statements of Changes in Stockholders' Equity for the
quarter and nine months ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
EXHIBIT INDEX
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (Unaudited)
First Hawaiian, Inc. and Subsidiaries
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31, September 30,
1996 1995 1995
------------ ------------- -------------
(in thousands)
<S> <C> <C> <C>
ASSETS
Interest-bearing deposits in other banks $ 174,130 $ 244,570 $ 68,770
Federal funds sold and securities purchased
under agreements to resell 145,167 169,803 175,128
Investment securities:
Available-for-sale 1,240,578 1,175,293 144,952
Held-to-maturity (fair value of $1,138,041) -- -- 1,126,463
Loans:
Loans 5,786,006 5,259,545 5,224,243
Less allowance for loan losses 83,542 78,733 65,683
------------- ------------- -------------
Net loans 5,702,464 5,180,812 5,158,560
------------- ------------- -------------
Total earning assets 7,262,339 6,770,478 6,673,873
Cash and due from banks 320,639 304,051 262,961
Premises and equipment 266,084 241,987 242,593
Customers' acceptance liability 640 1,995 1,489
Core deposit premium 35,492 16,665 12,496
Goodwill 96,000 75,309 76,211
Other assets 171,371 154,024 135,980
-------------- -------------- --------------
TOTAL ASSETS $ 8,152,565 $ 7,564,509 $ 7,405,603
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 1,008,027 $ 913,228 $ 838,271
Interest-bearing demand 1,309,360 1,073,136 1,105,380
Savings 1,055,465 1,147,997 1,083,836
Time 2,395,231 1,927,011 1,782,401
Foreign 254,216 296,941 287,511
------------- ------------- -------------
Total deposits 6,022,299 5,358,313 5,097,399
Short-term borrowings 925,917 1,083,179 1,220,339
Acceptances outstanding 640 1,995 1,489
Other liabilities 249,780 232,733 213,306
Long-term debt 259,744 238,752 224,758
------------- ------------- -------------
TOTAL LIABILITIES 7,458,380 6,914,972 6,757,291
------------- ------------- -------------
Stockholders' equity:
Preferred stock -- -- --
Common stock 165,952 162,713 162,713
Surplus 148,219 133,925 133,927
Retained earnings 418,187 385,976 375,471
Unrealized valuation adjustment 606 5,489 313
Treasury stock (38,779) (38,566) (24,112)
-------------- -------------- --------------
TOTAL STOCKHOLDERS' EQUITY 694,185 649,537 648,312
-------------- -------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,152,565 $ 7,564,509 $ 7,405,603
============== ============== ==============
</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>
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------ -------------------------------
1996 1995 1996 1995
------------ ------------ ------------ -------------
(in thousands, except shares and per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 122,218 $ 115,099 $ 345,202 $ 356,077
Lease financing income 2,600 2,735 7,939 8,735
Interest on investment securities:
Taxable interest income 19,493 17,958 53,750 39,758
Exempt from Federal income taxes 706 856 2,339 4,019
Other interest income 4,996 3,376 15,168 11,674
------------ ----------- ------------ ------------
Total interest income 150,013 140,024 424,398 420,263
------------ ----------- ------------ ------------
INTEREST EXPENSE
Deposits 48,798 43,736 133,802 131,841
Short-term borrowings 13,090 17,893 40,126 59,281
Long-term debt 4,491 3,397 12,758 9,973
------------ ----------- ------------ ------------
Total interest expense 66,379 65,026 186,686 201,095
------------ ----------- ------------ ------------
Net interest income 83,634 74,998 237,712 219,168
Provision for loan losses 4,649 10,699 13,162 17,380
------------ ----------- ------------ ------------
Net interest income after provision for
loan losses 78,985 64,299 224,550 201,788
------------ ----------- ------------ ------------
NONINTEREST INCOME
Trust income 6,036 5,547 18,362 17,525
Service charges on deposit accounts 6,965 5,876 19,162 18,056
Other service charges and fees 10,322 9,541 30,220 26,305
Securities gains, net 9 6 36 7
Other 2,446 6,496 9,376 10,256
------------ ----------- ------------ ------------
Total noninterest income 25,778 27,466 77,156 72,149
------------ ----------- ------------ ------------
NONINTEREST EXPENSES
Salaries and wages 27,358 23,864 76,499 69,948
Employee benefits 8,078 7,470 26,034 20,316
Occupancy expense 7,044 6,260 19,861 19,185
Equipment expense 5,653 5,579 16,775 17,788
Other 27,243 18,284 71,559 57,900
------------ ----------- ------------ ------------
Total noninterest expenses 75,376 61,457 210,728 185,137
------------ ----------- ------------ ------------
Income before income taxes 29,387 30,308 90,978 88,800
Income taxes 10,386 10,637 31,030 31,491
------------ ----------- ------------ ------------
NET INCOME $ 19,001 $ 19,671 $ 59,948 $ 57,309
============ =========== ============ ============
PER SHARE DATA
NET INCOME $ .60 $ .62 $ 1.92 $ 1.80
============ =========== ============ ============
CASH DIVIDENDS $ .295 $ .295 $ .885 $ .885
============ =========== ============ ============
AVERAGE SHARES OUTSTANDING 31,564,554 31,701,484 31,272,264 31,903,697
============ =========== ============ ============
</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>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------
1996 1995
---------------- -----------------
(in thousands)
<S> <C> <C>
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD $ 304,051 $ 262,894
---------------- -----------------
Cash flows from operating activities:
Net income 59,948 57,309
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 13,162 17,380
Depreciation and amortization 23,327 19,904
Income taxes 21,296 17,448
Increase in interest receivable (2,029) (2,224)
Increase (decrease) in interest payable (4,339) 10,057
Increase in prepaid expenses (7,026) (1,696)
Other (6,116) (32,688)
---------------- -----------------
Net cash provided by operating activities 98,223 85,490
---------------- -----------------
Cash flows from investing activities:
Net decrease (increase) in interest-bearing deposits
in other banks 70,440 (57,100)
Net decrease in Federal funds sold and securities
purchased under agreements to resell 35,336 4,872
Purchase of held-to-maturity investment securities -- (192,005)
Proceeds from maturity of held-to-maturity
investment securities -- 526,440
Purchase of available-for-sale investment securities (510,420) (11,740)
Proceeds from sale of available-for-sale
investment securities 19,998 15,000
Proceeds from maturity of available-for-sale
investment securities 424,301 3,780
Net increase in loans to customers (72,990) (168,636)
Net cash provided by Pacific Northwest Acquisition 218,966 -
Capital expenditures (21,717) (10,572)
Other 7,854 1,689
---------------- -----------------
Net cash provided by investing activities 171,768 111,728
---------------- -----------------
Cash flows from financing activities:
Net decrease in deposits (89,191) (54,814)
Net decrease in short-term borrowings (186,262) (109,477)
Proceeds from long-term debt 53,000 5,447
Payments on long-term debt (3,008) (20)
Cash dividends paid (27,737) (28,192)
Repurchased common stock (205) (10,095)
---------------- -----------------
Net cash used in financing activities (253,403) (197,151)
---------------- -----------------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 320,639 $ 262,961
================ =================
Supplemental disclosures:
Interest paid $ 191,025 $ 191,038
================ =================
Net income taxes paid $ 9,734 $ 14,044
================ =================
Supplemental schedule of noncash investing
and financing activities:
Loans exchanged for mortgage backed securities $ -- $ 465,011
================ =================
The Company purchased 35 branches in the Pacific Northwest. In conjunction with the acquisitions, liabilities were
assumed as follows:
Fair value of assets acquired $ 481,125 $ -
Cash received 218,966 -
Issuance of common stock 17,525 -
---------------- -----------------
Liabilities assumed $ 717,616 $ -
================ =================
</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>
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------- ---------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD $ 666,629 $ 645,614 $ 649,537 $ 627,944
Net income 19,001 19,671 59,948 57,309
Issuance of common stock 17,525 -- 17,525 --
Issuance (purchase) of treasury stock, net - (7,629) (213) (10,095)
Incentive plan for key executives - -- 8 --
Unrealized valuation adjustment 404 (16) (4,883) 1,346
Cash dividends (9,374) (9,328) (27,737) (28,192)
------------ ------------ ------------ ------------
BALANCE, END OF PERIOD $ 694,185 $ 648,312 $ 694,185 $ 648,312
============ ============ ============ ============
</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 and its wholly-owned subsidiaries; Pioneer Federal Savings Bank
and its wholly-owned subsidiary; First Hawaiian Creditcorp, Inc.; Pacific One
Bank; ANB Financial Corporation and its wholly-owned subsidiary; 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 1995 have
been reclassified to conform with the 1996 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, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing
Rights." SFAS 122 amends SFAS No. 65, "Accounting for Certain Mortgage Banking
Activities," to require that mortgage banking enterprises recognize as separate
assets rights to service mortgage loans for others. SFAS No. 122 also requires
that mortgage banking enterprises assess capitalized mortgage servicing rights
based on the fair value of those rights on a disaggregated basis. The adoption
of this standard did not have a material effect on the consolidated financial
statements of the Company.
Effective January 1, 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." SFAS No. 114 requires that impaired loans be measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate, or at the loan's observable market price, or at the
fair value of the collateral if the loan is collateral dependent. The adoption
of SFAS No. 114 did not result in additional provisions for loan losses
primarily because the majority of impaired loan valuations continue to be based
on the fair value of the collateral.
The provision for loan losses charged to expense is based upon the
Company's historical loss experience and estimates of future loan losses in the
current loan portfolio, including the evaluation of impaired loans in
accordance with SFAS No. 114. A loan is considered to be impaired when, based
upon current information and events, it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the
loan. Impairment is primarily measured based on the fair value of the
collateral. Impairment losses are included in the provision for loan losses.
SFAS No. 114 does not apply to large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment, except for those loans
restructured under a troubled debt structuring. Loans collectively evaluated
for impairment include certain smaller balance commercial loans, consumer loans
and residential real estate loans, and are not included in the data that
follows.
5
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
First Hawaiian, Inc. and Subsidiaries
The following table summarizes impaired loan information as of
September 30, 1996:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Impaired loans $ 68,040
Impaired loans with related allowance for
loan losses calculated under
SFAS No. 114 $ 51,402
</TABLE>
Interest payments on impaired loans are applied to principal.
3. BUSINESS COMBINATION
On July 31, 1996, for a purchase price of $18 million, the Company
acquired ANB Financial Corporation, a bank holding company, and its subsidiary,
American National Bank ("ANB"), which had total loans of $51 million and
deposits of $67 million at the date of acquisition. ANB has a total of four
branches in Washington state. The acquisition was accounted for using the
purchase method of accounting and the results of operations of ANB Financial
Corporation were included in the Consolidated Statements of Income from the
date of acquisition.
On May 31, 1996, the Company acquired 31 branches in Oregon,
Washington and Idaho, which were being divested by U.S. Bancorp and West One
Bancorp as a result of their merger, at a purchase price of $36 million. The
branch acquisitions included the purchase of loans of $400 million and
assumption of deposits of $687 million. The acquisition was accounted for
using the purchase method of accounting and the results of its operations were
included in the Consolidated Statements of Income from the date of acquisition.
Of the 31 branches acquired by the Company, the 26 Oregon and Idaho branches
will be operated as Pacific One Bank, a wholly-owned subsidiary of the Company.
The five branches acquired in Washington are operated as Pacific One Bank, FSB
as branches of Pioneer Federal Savings Bank, another wholly-owned subsidiary of
the Company. On November 8, 1996, ANB acquired the five branches from Pioneer
Federal Savings Bank, and will operate eight of the nine branches acquired in
the state of Washington under the name "Pacific One Bank, N.A.". The remaining
branch will be closed.
6
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
NET INCOME
The Company recorded consolidated net income for the first nine months of 1996
of $59,948,000, an increase of $2,639,000, or 4.6%, over the first nine months
of 1995. For the third quarter of 1996, the consolidated net income of
$19,001,000 represented a decrease of 3.4% compared to the same quarter in
1995. Consolidated net income for the first nine months and quarter ended
September 30, 1996 was negatively impacted by a pre-tax charge of $3,849,000
(after-tax charge of $2,309,000) resulting from the Bank Insurance Fund
("BIF")/Savings Association Insurance Fund ("SAIF") legislation enacted on
September 30, 1996. The Deposit Insurance Funds Act of 1996 imposed a special
one-time assessment at a rate of 65.7 cents per $100 of deposits on
institutions holding SAIF-insured deposits on March 31, 1995, in order to
recapitalize the SAIF fund. Exclusive of the special SAIF one-time assessment,
consolidated net income for the first nine months and quarter ended September
30, 1996 on a recurring basis was $62,257,000 and $21,310,000, respectively,
reflecting increases of 8.6% and 8.3%, respectively, over the corresponding
periods in 1995. The improved operating results for the Company reflects the
slow, but steady recovery of the Hawaii economy and a reduction in the Federal
Deposit Insurance Corporation deposit insurance premium.
On a per share basis, consolidated net income for the nine months ended
September 30, 1996 was $1.92, representing an increase of 6.7% over the same
period in 1995. Consolidated net income per share for the quarter ended
September 30, 1996 was $.60, representing a decrease of 3.2% compared to the
same period in 1995. Exclusive of the aforementioned special one-time SAIF
assessment, consolidated net income per share on a recurring basis for the
first nine months and quarter ended September 30, 1996 were $1.99 and $.67,
respectively, reflecting increases of 10.6% and 8.1%, respectively. The
proportionately greater increase in earnings per share on a recurring basis for
the nine months ended September 30, 1996 was attributable to the fewer average
number of shares outstanding in 1996 as compared to 1995, as a result of the
Company's stock repurchase program which authorized the total repurchase of up
to 1.6 million shares (of which 1.1 million shares were repurchased through
September 30, 1996), or five percent of the Company's approximately 32 million
shares outstanding.
On an annualized basis, the Company's return on average total assets for the
first nine months of 1996 was 1.04%, an increase of 3.0% over the same period
in 1995, and return on average stockholders' equity was 11.99%, an increase of
.1%, over the same period in 1995. The increase in return on average total
assets was primarily attributable to the increase in net income partially
offset by an increase in average total assets. The increase in return on
average shareholders' equity was due to the increase in net income and the
stock repurchase program previously discussed.
NET INTEREST INCOME
Net interest income, on a fully taxable equivalent basis, increased
$15,994,000, or 7.2%, to $239,321,000 for the first nine months of 1996 from
$223,327,000 for the same period in 1995. Net interest income increased
$7,997,000, or 10.5%, to $84,120,000 for the third quarter of 1996 from
$76,123,000 for the same period in 1995. The increases in net interest income
for the first nine months and third quarter of 1996 over the same periods in
1995, were primarily due to increases in the net interest margin and average
earning assets.
The net interest margin was 4.58% and 4.56% for the first nine months and third
quarter of 1996, respectively, up 26 basis points (1% equals 100 basis points)
and 10 basis points, respectively, over the same periods in 1995. Both the
yield on average earning assets and rate paid on funding sources decreased
during the first nine months and third quarter of 1996 as compared with the
same periods in 1995. However, the 32 basis point decrease in the rate paid on
funding sources outpaced the decrease in the yield on average earning assets of
6 basis points for the first nine months of 1996 as compared to the same period
in 1995, resulting in a favorable impact on the net interest margin. In
addition, the increases in noninterest-bearing demand deposits during the first
nine months and third quarter of 1996 over the same periods in 1995 also
contributed to the increase in the net interest margin. The disproportionate
decrease in the rate paid on funding sources was attributable in part to the
positive impact of interest rate swaps designed to minimize the effect of
changing interest rate environments on the net interest margin.
7
<PAGE> 9
For the first nine months of 1996, the net interest rate swap expense on
deposit accounts decreased $5,647,000 compared to the same period in 1995.
Average earning assets increased by $75,096,000, or 1.1%, and $566,151,000, or
8.4%, for the first nine months and third quarter of 1996, respectively, over
the same periods in 1995. The disproportionate increase in average earning
assets for the first nine months of 1996 as compared to the third quarter of
1996 was due to the acquisition of the 31 branches in Oregon, Washington and
Idaho and the acquisition of ANB Financial Corporation (the "Pacific Northwest
Acquisitions"), which occurred on May 31 and July 31, 1996, respectively. The
Company initially purchased or acquired $225,966,000 in investment securities
as a result of the Pacific Northwest Acquisitions. In addition, in the second
quarter of 1995, the Company securitized approximately $490,000,000 of
adjustable rate mortgage loans with the Federal National Mortgage Association
("FNMA") in an effort to increase its funding capacity and liquidity. The
securities backed by these loans are held by the Company and were reclassified
to the investment securities portfolio. Excluding the aforementioned Pacific
Northwest Acquisitions and loan securitization, the investment securities
portfolio reflected decreases of $235,787,000, or 24.7%, and $84,700,000 or
10.3%, for the first nine months and third quarter of 1996, respectively,
compared to the same periods in 1995. The investment securities portfolio was
allowed to run-off as securities matured since the securitized loans provided
the necessary collateral for public deposits and reverse repurchase agreements.
In addition, the increases in the overall yield on the investment securities
portfolio, compared to the first nine months and third quarter of 1995, were
also attributable to the mortgage securitization.
Average loans decreased by $107,745,000, or 1.9%, for the first nine months of
1996 as compared to the same period in 1995. For the third quarter of 1996,
average loans increased $438,799,000, or 8.4%, over the third quarter of 1995.
The increase in the third quarter of 1996 was primarily due to the Pacific
Northwest Acquisitions. Excluding the effect of the Pacific Northwest
Acquisitions and loan securitization, average loans for the first nine months
and the third quarter of 1996, reflected decreases of 1.2% and .4%,
respectively, compared to the same periods in 1995. The Company continues its
efforts to diversify the loan portfolio, both geographically and by industry.
Also, the mix of average earning assets continues to change (excluding the
effect of the Pacific Northwest Acquisitions and loan securitization), with
higher-yielding average loans representing 84.8% and 85.1% of average earning
assets for the first nine months and third quarter of 1996, respectively, as
compared to 82.3% and 84.3%, respectively, for the same periods in 1995.
Average interest-bearing deposits and liabilities decreased by $3,673,000, or
.1%, for the first nine months of 1996 compared to 1995. This decrease
reflects the repayment of short-term borrowings from proceeds received from the
run-off of the investment securities portfolio. This decrease was offset by
increases in average deposits resulting from the Pacific Northwest Acquisitions
and deposits acquired from a depository financial services company in the
fourth quarter of 1995. In addition, the Company issued $50 million of
long-term subordinated debt during the second quarter of 1996 to fund the
Pacific Northwest Acquisitions. Average interest-bearing deposits and
liabilities increased $437,064,000, or 7.6%, for the third quarter of 1996,
over the same period in 1995 as a result of the Pacific Northwest Acquisitions.
As a result of depositors seeking higher yields, the mix of average
interest-bearing deposits and liabilities changed with higher-yielding average
time deposits representing 38.6% and 40.1% of average interest-bearing deposits
and liabilities for the first nine months and third quarter of 1996,
respectively, as compared to 33.1% and 33.7%, respectively, for the same
periods in 1995.
8
<PAGE> 10
The following table sets forth consolidated average balance sheets, an analysis
of interest income/expense, and average yield/rate for each major category of
interest-earning assets and interest-bearing liabilities for the periods
indicated on a taxable equivalent basis. The tax equivalent adjustment is made
for items exempt from Federal income taxes (assuming a 35% tax rate for 1996
and 1995) to make them comparable with taxable items before any income taxes
are applied.
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
------------------------------------------------------------------
1996 1995
------------------------------- -------------------------------
INTEREST Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
ASSETS BALANCE EXPENSE RATE(1) Balance Expense Rate(1)
----------- -------- -------- ----------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Interest-bearing deposits
in other banks $ 232,579 $ 3,384 5.79% $ 59,358 $ 912 6.10%
Federal funds sold and
securities purchased
under agreements to
resell 118,877 1,612 5.39 175,397 2,464 5.57
Investment securities 1,306,746 20,553 6.26 1,296,095 19,785 6.06
Loans(2),(3) 5,675,240 124,950 8.76 5,236,441 117,988 8.94
----------- -------- ----------- --------
Total earning assets 7,333,442 150,499 8.16 6,767,291 141,149 8.27
-------- --------
Nonearning assets 749,136 662,053
----------- -----------
Total assets $ 8,082,578 $ 7,429,344
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------
1996 1995
------------------------------- -------------------------------
INTEREST Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
ASSETS BALANCE EXPENSE RATE(1) Balance Expense Rate(1)
----------- -------- -------- ----------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Interest-bearing deposits
in other banks $ 213,708 $ 9,036 5.65% $ 29,347 $ 1,330 6.06%
Federal funds sold and
securities purchased
under agreements to
resell 149,113 6,132 5.49 239,606 10,345 5.77
Investment securities 1,199,860 57,289 6.38 1,110,887 47,460 5.71
Loans(2),(3) 5,420,974 353,550 8.71 5,528,719 365,287 8.83
----------- -------- ----------- --------
Total earning assets 6,983,655 426,007 8.15 6,908,559 424,422 8.21
-------- --------
Nonearning assets 680,065 661,106
----------- -----------
Total assets $ 7,663,720 $ 7,569,665
=========== ===========
</TABLE>
(1) Annualized.
(2) Nonaccruing loans have been included in the computations of average loan
balances.
(3) Interest income for loans included loan fees of $6,548 and $18,349 for the
quarter and nine months ended September 30, 1996, respectively, and $6,003
and $18,009 for the quarter and nine months ended September 30, 1995,
respectively.
9
<PAGE> 11
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
------------------------------------------------------------------
1996 1995
------------------------------- -------------------------------
INTEREST Interest
LIABILITIES AND AVERAGE INCOME/ YIELD/ Average Income/ Yield/
STOCKHOLDERS' EQUITY BALANCE EXPENSE RATE(1) Balance Expense Rate(1)
----------- -------- -------- ----------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits
and liabilities:
Deposits $ 4,958,542 $ 48,798 3.91% $ 4,292,443 $ 43,736 4.04%
Short-term borrowings 996,377 13,090 5.23 1,253,721 17,893 5.66
Long-term debt 261,424 4,491 6.83 233,115 3,397 5.78
----------- -------- ----------- --------
Total interest-bearing
deposits and
liabilities 6,216,343 66,379 4.25 5,779,279 65,026 4.46
-------- ---- -------- ----
Interest rate spread 3.91% 3.81%
==== ====
Noninterest-bearing demand
deposits 950,929 830,513
Other liabilities 228,104 174,347
----------- -----------
Total liabilities 7,395,376 6,784,139
Stockholders' equity 687,202 645,205
----------- -----------
Total liabilities and
stockholders' equity $ 8,082,578 $ 7,429,344
=========== ===========
Net interest income
and margin on
earning assets 84,120 4.56% 76,123 4.46%
==== ====
Tax equivalent adjustment 486 1,125
-------- --------
Net interest income $ 83,634 $ 74,998
======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------
1996 1995
------------------------------- -------------------------------
INTEREST Interest
LIABILITIES AND AVERAGE INCOME/ YIELD/ Average Income/ Yield/
STOCKHOLDERS' EQUITY BALANCE EXPENSE RATE(1) Balance Expense Rate(1)
----------- -------- -------- ----------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits
and liabilities:
Deposits $ 4,634,603 $133,802 3.86% $ 4,344,601 $131,841 4.06%
Short-term borrowings 1,005,890 40,126 5.33 1,330,981 59,281 5.95
Long-term debt 262,908 12,758 6.48 231,492 9,973 5.76
----------- -------- ----------- --------
Total interest-bearing
deposits and
liabilities 5,903,401 186,686 4.22 5,907,074 201,095 4.55
-------- ---- -------- ----
Interest rate spread 3.93% 3.66%
==== ====
Noninterest-bearing demand
deposits 885,044 828,993
Other liabilities 207,601 194,097
----------- -----------
Total liabilities 6,996,046 6,930,164
Stockholders' equity 667,674 639,501
----------- -----------
Total liabilities and
stockholders' equity $ 7,663,720 $ 7,569,665
=========== ===========
Net interest income
and margin on
earning assets 239,321 4.58% 223,327 4.32%
==== ====
Tax equivalent adjustment 1,609 4,159
-------- --------
Net interest income $237,712 $219,168
======== ========
</TABLE>
(1) Annualized.
10
<PAGE> 12
INVESTMENT SECURITIES
The following table presents the amortized cost and fair values of
available-for-sale investment securities as of the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31, September 30,
1996 1995 1995
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Amortized cost $ 1,240,314 $ 1,166,178 $ 144,432
Unrealized gains 2,954 9,920 528
Unrealized losses (2,690) (805) (8)
------------- ------------- ------------
Fair value $ 1,240,578 $ 1,175,293 $ 144,952
============= ============= ============
</TABLE>
Book and fair values of held-to-maturity investment securities at September 30,
1995, were as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Book value $ 1,126,463
Unrealized gains 13,147
Unrealized losses (1,569)
-----------
Fair value $ 1,138,041
===========
</TABLE>
In December 1995, the Company made a one-time reclassification of its
investment securities portfolio from held-to-maturity to available-for-sale as
allowed by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
Gross realized gains and losses for the nine months ended September 30, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Realized gains $ 46 $ 69
Realized losses (10) (62)
--------- ---------
Securities gains, net $ 36 $ 7
========= =========
</TABLE>
Gains and losses realized on the sales of investment securities are determined
using the specific identification method.
11
<PAGE> 13
LOANS
The following table sets forth the loan portfolio by major categories and loan
mix at September 30, 1996, December 31, 1995 and September 30, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 December 31, 1995 September 30, 1995
AMOUNT % Amount % Amount %
-------- -------- --------- ------- --------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $1,423,206 24.6% $1,315,736 25.0% $1,345,794 25.8%
Real estate:
Commercial 1,164,496 20.1 996,715 18.9 979,237 18.7
Construction 207,080 3.6 256,943 4.9 269,612 5.2
Residential:
Insured, guaranteed or
conventional 1,457,046 25.2 1,334,063 25.4 1,295,940 24.8
Home equity credit lines 462,288 8.0 432,229 8.2 437,238 8.4
---------- ---- ---------- ---- ---------- -----
Total real estate loans 3,290,910 56.9 3,019,950 57.4 2,982,027 57.1
---------- ---- ---------- ---- ---------- -----
Consumer 580,011 10.0 473,909 9.0 463,327 8.9
Lease financing 236,483 4.1 241,721 4.6 226,829 4.3
Foreign 255,396 4.4 208,229 4.0 206,266 3.9
---------- ---- ---------- ---- ---------- -----
Total loans 5,786,006 100.0% 5,259,545 100.0% 5,224,243 100.0%
===== ===== =====
Less allowance for loan losses 83,542 78,733 65,683
---------- ---------- ----------
Total net loans $5,702,464 $5,180,812 $5,158,560
========== ========== ==========
</TABLE>
The loan portfolio is the largest component of earning assets and accounts for
the greatest portion of total interest income. At September 30, 1996, total
loans were $5,786,006,000, an increase of 10.0% from December 31, 1995. This
increase was due to the Pacific Northwest Acquisitions. Excluding the impact
of the Pacific Northwest Acquisitions, total loans as of September 30, 1996
would have reflected a slight increase as compared to December 31, 1995.
Total loans at September 30, 1996, represented 71.0% of total assets, 79.7% of
total earning assets and 96.1% of total deposits compared to 69.5% of total
assets, 77.7% of total earning assets and 98.2% of total deposits at December
31, 1995 and 70.5% of total assets, 78.3% of total earning assets and 102.5% of
total deposits at September 30, 1995.
12
<PAGE> 14
NONPERFORMING ASSETS
A summary of nonperforming assets at September 30, 1996, December 31, 1995 and
September 30, 1995 follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31, September 30,
1996 1995 1995
---------------- ------------- ---------------
(dollars in thousands)
<S> <C> <C> <C>
Nonperforming loans:
Nonaccrual:
Commercial, financial and agricultural $ 16,655 $ 16,229 $ 18,872
Real estate:
Commercial 24,098 40,664 38,165
Construction 6,924 9,697 2,260
Residential:
Insured, guaranteed, or conventional 10,869 12,238 8,995
Home equity credit lines 331 496 407
--------- ---------- ---------
Total real estate loans 42,222 63,095 49,827
--------- ---------- ---------
Consumer 457 390 109
Lease financing 33 19 63
--------- ---------- ---------
Total nonaccrual loans 59,367 79,733 68,871
Renegotiated:
Commercial, financial and agricultural 616 682 733
Real estate - commercial 2,500 2,500 2,500
--------- ---------- ---------
Total nonperforming loans 62,483 82,915 72,104
Other real estate owned 11,868 9,312 8,610
--------- ---------- ---------
Total nonperforming assets $ 74,351 $ 92,227 $ 80,714
========= ========== =========
Loans past due 90 days or more
and still accruing interest $ 27,455 $ 28,790 $ 41,916
========= ========== =========
Nonperforming assets to total loans
and other real estate owned (end of period):
Excluding 90 days past due accruing loans 1.28% 1.75% 1.54%
Including 90 days past due accruing loans 1.76% 2.30% 2.34%
Nonperforming assets to total assets
(end of period):
Excluding 90 days past due accruing loans .91% 1.22% 1.09%
Including 90 days past due accruing loans 1.25% 1.60% 1.66%
</TABLE>
13
<PAGE> 15
NONPERFORMING ASSETS, Continued
Nonperforming assets decreased from $92,227,000 at December 31, 1995 to
$74,351,000 at September 30, 1996.
The decrease in the nonaccrual real estate - commercial category and
corresponding increase in the other real estate owned category were primarily
due to the foreclosure of two real estate - commercial loans with carrying
values totalling $7,295,000. The increase in other real estate owned was
partially offset by the sale of a property with a carrying value of $4,167,000.
In addition, paydowns on three nonaccrual real estate - commercial loans and one
commercial loan totalling $16,502,000 and partial writedowns on three commercial
loans and one real estate - construction loan totalling $2,204,000 contributed
to the decrease in nonperforming assets. These decreases were partially offset
by the addition of a real estate - commercial loan totalling $6,050,000.
Loans past due 90 days or more and still accruing interest totalled $27,455,000
at September 30, 1996, a decrease of 4.6% from December 31, 1995. All of the
loans which are past due 90 days or more and still accruing interest are in
management's judgment adequately collateralized and in the process of
collection.
In recent years, the level of the Company's nonperforming assets and
charge-offs has been adversely affected by the prolonged economic downturn in
Hawaii and related weakness in the local real estate market. Although the
Company believes that the Hawaii economy continues to show signs of
improvement, and certain local real estate sectors evidence signs of having
stabilized, the recovery of the Hawaii economy has been slow and the effects of
the economic downturn may continue to affect the level of nonperforming assets
and related charge-offs in future periods.
14
<PAGE> 16
DEPOSITS
The following table sets forth the average balances and the average rates paid
on deposits for the periods indicated:
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- ----------------------------------------
1996 1995 1996 1995
----------------- ----------------- ------------------ -----------------
AVERAGE AVERAGE Average Average AVERAGE AVERAGE Average Average
BALANCE RATE(1) Balance Rate(1) BALANCE RATE(1) Balance Rate(1)
------- ------- ------- ------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing demand $ 1,371,192 2.83% $ 1,148,982 2.65% $ 1,223,388 2.72% $ 1,158,936 2.67%
Savings 1,092,076 2.11 1,195,371 2.79 1,134,889 2.11 1,229,852 3.04
Time 2,495,274 5.30 1,948,090 5.63 2,276,326 5.34 1,955,813 5.51
----------- ----------- ----------- -----------
Total interest-bearing deposits 4,958,542 3.91 4,292,443 4.04 4,634,603 3.86 4,344,601 4.06
Noninterest-bearing demand 950,929 - 830,513 - 885,044 - 828,993 -
----------- ----------- ----------- -----------
Total deposits $ 5,909,471 3.29% $ 5,122,956 3.39% $ 5,519,647 3.24% $ 5,173,594 3.40%
=========== =========== =========== ===========
</TABLE>
Average interest-bearing deposits increased $290,002,000, or 6.7%, and
$666,099,000, or 15.5%, over the first nine months and third quarter of 1995.
The increase in average interest-bearing deposits was due to the Pacific
Northwest Acquisitions, the purchase of deposits from a depository financial
services loan company in the fourth quarter of 1995 and various deposit product
programs initiated by the Company in the latter part of 1995 and 1996. With
the acquisitions and assumption of deposits and depositors seeking higher
yields through the aforementioned deposit product programs, the mix of average
interest-bearing deposits changed, with higher yielding average time
certificate of deposits representing 49.1% and 50.3% of average
interest-bearing deposits in the first nine months and third quarter of 1996,
respectively, as compared to 45.0% and 45.4% in the same periods in 1995.
(1) Annualized.
15
<PAGE> 17
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The following table sets forth the activity in the allowance for loan losses
for the periods indicated:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------- ------------ ------------ ------------
(dollars in thousands)
<S> <C> <C>
Loans outstanding (end of period) $ 5,786,006 $ 5,224,243 $ 5,786,006 $ 5,224,243
============ =========== ============ ===========
Average loans outstanding $ 5,675,240 $ 5,236,441 $ 5,420,974 $ 5,528,719
============ =========== ============ ===========
Allowance for loan losses summary:
Balance at beginning of period $ 84,531 $ 61,200 $ 78,733 $ 61,250
------------ ----------- ------------ -----------
Allowance due to Pacific
Northwest Acquisitions 306 -- 6,506 --
Loans charged off:
Commercial, financial and agricultural 1,926 2,632 4,322 4,387
Real estate:
Commercial 39 1,212 1,325 2,268
Construction 500 - 500 828
Residential 833 769 2,023 1,284
Consumer 3,126 2,027 8,737 5,544
Lease financing -- 241 -- 241
Foreign 62 -- 139 --
------------ ----------- ------------ -----------
Total loans charged off 6,486 6,881 17,046 14,552
------------ ----------- ------------ -----------
Recoveries on loans charged off:
Commercial, financial and agricultural 77 308 660 377
Real estate:
Commercial 1 2 8 4
Construction 3 5 3 11
Residential 44 1 181 18
Consumer 412 349 1,315 1,191
Lease financing -- -- 2 4
Foreign 5 -- 18 --
------------ ----------- ------------ -----------
Total recoveries on loans
charged off 542 665 2,187 1,605
------------ ----------- ------------ -----------
Net charge-offs (5,944) (6,216) (14,859) (12,947)
Provision charged to expense 4,649 10,699 13,162 17,380
------------ ----------- ------------ -----------
Balance at end of period $ 83,542 $ 65,683 $ 83,542 $ 65,683
============ =========== ============ ===========
Net loans charged off to average loans .42% (1) .47% (1) .37% (1) .31% (1)
Net loans charged off to allowance for
loan losses 28.31% (1) 37.55% (1) 23.76% (1) 26.35% (1)
Allowance for loan losses to total
loans (end of period) 1.44% 1.26% 1.44% 1.26%
Allowance for loan losses to nonperforming
loans (end of period):
Excluding 90 days past due
accruing loans 1.34x .91x 1.34X .91x
Including 90 days past due
accruing loans .93X .58x .93X .58x
</TABLE>
(1) Annualized.
16
<PAGE> 18
PROVISION AND ALLOWANCE FOR LOAN LOSSES, Continued
For the first nine months of 1996, the provision for loan losses was
$13,162,000, a decrease of $4,218,000, or 24.3%, compared to the same period in
1995. The provision for loan losses was $4,649,000 for the third quarter of
1996, a decrease of $6,050,000, or 56.5%, compared to the same period in 1995.
The decrease in the provision for loan losses is consistent with the decrease
in nonperforming assets for the same periods.
Net charge-offs for the first nine months of 1996 were $14,859,000, an increase
of $1,912,000, or 14.8%, over the same period in 1995. Net charge-offs for the
third quarter of 1996 were $5,944,000 compared to $6,216,000 for the same
period a year ago. The increase in net charge-offs for the first nine months
of 1996 over the same period in 1995 was primarily due to increased charge-offs
in all categories of consumer loans which include direct loans, indirect dealer
loans and credit cards.
The allowance for loan losses increased to 134% of nonperforming loans at
September 30, 1996 (excluding 90 days past due accruing loans) from 95% at
December 31, 1995, reflecting the decrease in nonperforming loans and increase
in the allowance for loan losses in the first nine months of 1996.
In management's judgment, the allowance for loan losses is adequate to absorb
potential losses currently inherent in the portfolio, however, changes in
prevailing economic conditions in the Company's markets could result in changes
in the level of nonperforming assets and charge-offs in the future and,
accordingly, changes in the allowance for loan losses.
NONINTEREST INCOME
Noninterest income of Pacific One Bank and ANB Financial Corporation are
included in the Company's results of operations since May 31, 1996 and July 31,
1996, respectively.
Exclusive of securities transactions, noninterest income for the first nine
months of 1996 totalled $77,120,000, an increase of $4,978,000, or 6.9%, over
the same period in the prior year. Exclusive of securities transactions,
noninterest income for the third quarter of 1996 decreased $1,691,000, or 6.2%,
compared to the same period in 1995. Excluding the Pacific Northwest
Acquisitions and securities transactions, noninterest income for the first nine
months of 1996 increased $3,206,000, or 4.4%, over the same period in 1995.
Conversely, for the third quarter of 1996, exclusive of the Pacific Northwest
Acquisitions and securities transactions, noninterest income decreased
$3,158,000, or 11.5%, compared to the same period in 1995.
Trust and Investment Division income increased $837,000, or 4.8%, and $489,000,
or 8.8%, for the first nine months and third quarter of 1996, respectively,
over the same periods in 1995.
Service charges on deposit accounts increased $1,106,000, or 6.1%, and
$1,089,000, or 18.5%, for the first nine months and third quarter of 1996,
respectively, over the same periods in 1995. Excluding the Pacific Northwest
Acquisitions, service charges on deposit accounts increased $271,000, or 1.5%,
and $369,000, or 6.3%, for the first nine months and third quarter of 1996,
respectively, over the same periods in 1995. The disproportionate percentage
increase in the third quarter of 1996 was partly attributable to higher fees on
analyzed accounts.
Other service charges and fees increased $3,915,000, or 14.9%, and $781,000, or
8.2%, for the first nine months and third quarter of 1996, respectively, over
the same periods in 1995. Excluding the Pacific Northwest Acquisitions, other
service charges and fees increased $3,067,000, or 11.7%, and $86,000, or .9%,
for the first nine months and third quarter of 1996, respectively, over the
same periods in 1995. These increases were primarily the result of higher
merchant discount and mortgage brokerage fees and income earned from annuity
and mutual fund sales.
Other noninterest income decreased $880,000, or 8.6%, and $4,050,000, or 62.3%,
for the first nine months and third quarter of 1996, respectively, compared to
the same periods in 1995. These decreases were primarily due to insurance
recoveries and reversal of accruals totalling $4,700,000 recorded in September
1995 related to losses incurred in December 1994 in the trust area. In
December 1994, the Company recognized a nonrecurring charge of $5,000,000 to
cover estimated losses attributable to investments made in the trust area that
were outside of the clients' express investment guidelines. The decrease for
the first nine months of 1996 was partially offset by a gain
17
<PAGE> 19
on sale of other real estate owned of $3,029,000 recognized in the second
quarter of 1996.
NONINTEREST EXPENSES
Noninterest expenses of Pacific One Bank and ANB Financial Corporation are
included in the Company's results of operations since May 31, 1996 and July 31,
1996, respectively.
Noninterest expenses totalled $210,728,000 and $75,376,000 for the first nine
months and third quarter of 1996, respectively, representing increases of 13.8%
and 22.6%, respectively, over the same periods a year ago. Excluding the
Pacific Northwest Acquisitions, noninterest expenses increased $16,083,000, or
8.7%, and $6,278,000, or 10.2%, for the first nine months and third quarter of
1996, respectively, over the same periods in 1995.
Total personnel expenses (salaries and wages and employee benefits) increased
$12,269,000 or 13.6%, and $4,102,000, or 13.1%, for the first nine months and
third quarter of 1996, respectively, over the same periods in 1995. Excluding
the Pacific Northwest Acquisitions, personnel expenses increased $7,614,000, or
8.4%, and $577,000, or 1.8%, for the first nine months and third quarter of
1996, respectively, over the same periods in 1995. The increases were
primarily due to an increase in employee benefit costs associated with the
curtailment of a noncontributory pension plan in the fourth quarter of 1995,
which was replaced with a 401(k) match and money purchase plan, effective
January 1, 1996. Also, higher salaries and wages reflecting normal merit
increases in 1996 and lower expenses related to various employee benefit and
incentive accounts in 1995 contributed to the increases.
Occupancy expense for the first nine months and third quarter of 1996 increased
$676,000, or 3.5%, and $784,000, or 12.5%, respectively, over the same periods
in 1995. The increases were primarily due to the Pacific Northwest Acquisitions
and higher building maintenance expenses in 1996.
Equipment expense decreased $1,013,000, or 5.7%, for the first nine months of
1996 compared to the same period in 1995. For the third quarter of 1996,
equipment expense increased $74,000, or 1.3%, over the same period in 1995.
Excluding the Pacific Northwest Acquisitions, equipment expense decreased
$1,386,000, or 7.8%, and $233,000, or 4.2%, for the first nine months and third
quarter of 1996, respectively, compared to the same periods in 1995. The
decreases were a result of lower depreciation on furniture and equipment and
service contract and equipment rental expenses in 1996.
Exclusive of: (1) the aforementioned $3,849,000 SAIF one-time special
assessment recognized this quarter; (2) a pre-tax loss of $1,925,000 (after-tax
gain of $399,000 due to a net tax benefit of $2,344,000 resulting from the
reversal of the related tax liabilities) recognized on the sale of a certain
leveraged lease in the first quarter of 1996; (3) the Pacific Northwest
Acquisitions; and (4) the Federal Deposit Insurance Corporation's (the "FDIC")
insurance refund plus interest of $2,774,000 received in September 1995 as a
result of the reduction in the assessment from 23 cents to 4 cents per $100 of
deposits effective June 1, 1995, other noninterest expenses for the first nine
months increased $1,089,000, or 1.8%, over the same period in 1995. The
increase was primarily due to higher interchange settlement fees, outside
services, legal fees (primarily related to foreclosed property) and
nonrecurring losses in connection with a certain credit card fraud. This
increase was partially offset by: (1) a decrease in the FDIC deposit insurance
assessment rate from 23 to 4 cents per $100 of insured deposits beginning June
1995 compared to zero beginning January 1996; and (2) the write-off of the
residual values of $620,000 related to the early termination of certain
leveraged leases in June 1995. Exclusive of the aforementioned nonrecurring
items and the Pacific Northwest Acquisitions, other noninterest expenses for
the third quarter of 1996 decreased $1,078,000, or 5.1%, compared to the same
period in 1995. The decrease was primarily due to the decrease in the FDIC
assessment rate, partially offset by higher interchange settlement fees and
outside services.
18
<PAGE> 20
INCOME TAXES
The Company's effective income tax rate (exclusive of the tax equivalent
adjustment) for the first nine months and third quarter of 1996 was 34.1% and
35.3%, respectively, as compared to 35.5% and 35.1%, respectively, for the same
periods in 1995. The decrease in the effective income tax rate for the nine
month period ended September 30, 1996, was primarily due to the reversal of
deferred tax liabilities (reflecting a change in the State tax laws) related to
the aforementioned leveraged lease sale.
LIQUIDITY AND CAPITAL
Stockholders' equity was $694,185,000 at September 30, 1996, a 6.9% increase
from $649,537,000 at December 31, 1995. Average stockholders' equity
represented 8.5% of average total assets for the third quarter of 1996 compared
to 8.7% in the same quarter last year. There was no significant change in the
Company's liquidity position during the third quarter of 1996.
The following tables present the Company's regulatory capital position at
September 30, 1996:
RISK-BASED CAPITAL RATIOS
<TABLE>
<CAPTION>
AMOUNT RATIO
----------- -------
(dollars in thousands)
<S> <C> <C>
Tier 1 Capital $ 568,103 8.26%
Tier 1 Capital minimum requirement (1) 274,969 4.00
----------- ------
Excess $ 293,134 4.26%
=========== ======
Total Capital $ 801,645 11.66%
Total Capital minimum requirement (1) 549,938 8.00
----------- ------
Excess $ 251,707 3.66%
=========== ======
Risk-weighted assets $ 6,874,222
===========
</TABLE>
LEVERAGE RATIO
<TABLE>
<CAPTION>
AMOUNT RATIO
----------- -------
(dollars in thousands)
<S> <C> <C>
Tier 1 Capital to average quarterly total assets
(net of certain intangibles)
Tier 1 Leverage Ratio $ 568,103 7.14%
Minimum leverage requirement (2) 238,713 3.00
----------- ------
Excess $ 329,390 4.14%
=========== ======
Average quarterly total assets (net of certain intangibles) $ 7,957,102
===========
</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.
19
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 12 Statement regarding computation of ratios.
Exhibit 27 Financial data schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended September 30, 1996.
20
<PAGE> 22
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 November 13, 1996 By /s/ HOWARD H. KARR
--------------------------- --------------------------------------
HOWARD H. KARR
EXECUTIVE VICE PRESIDENT AND TREASURER
(PRINCIPAL FINANCIAL OFFICER)
21
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<S> <C> <C>
12 Statement regarding computation of ratios. 23
27 Financial data schedule 24
</TABLE>
<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>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1996 1995 1996 1995
----------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes $ 29,387 $ 30,308 $ 90,978 $ 88,800
----------- ---------- ---------- ----------
Fixed charges:(1)
Interest expense 66,379 65,026 186,686 201,095
Rental expense 1,168 1,122 3,544 3,628
----------- ---------- ---------- ----------
67,547 66,148 190,230 204,723
Less interest on deposits 48,798 43,736 133,802 131,841
----------- ---------- ---------- ----------
Net fixed charges 18,749 22,412 56,428 72,882
----------- ---------- ---------- ----------
Earnings, excluding
interest on deposits $ 48,136 $ 52,720 $ 147,406 $ 161,682
=========== ========== ========== ==========
Earnings, including
interest on deposits $ 96,934 $ 96,456 $ 281,208 $ 293,523
=========== ========== ========== ==========
Ratio of earnings to
fixed charges:
Excluding interest on deposits 2.57 X 2.35 x 2.61 X 2.22 x
Including interest on deposits 1.44 X 1.46 x 1.48 X 1.43 x
</TABLE>
(1) For purposes of computing the above ratios, earnings represent income
before income taxes 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.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S QUARTERLY FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 320,639
<INT-BEARING-DEPOSITS> 174,130
<FED-FUNDS-SOLD> 145,167
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,240,578
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 5,786,006
<ALLOWANCE> 83,542
<TOTAL-ASSETS> 8,152,565
<DEPOSITS> 6,022,299
<SHORT-TERM> 925,917
<LIABILITIES-OTHER> 250,420
<LONG-TERM> 259,744
0
0
<COMMON> 165,952
<OTHER-SE> 528,233
<TOTAL-LIABILITIES-AND-EQUITY> 8,152,565
<INTEREST-LOAN> 353,141
<INTEREST-INVEST> 56,089
<INTEREST-OTHER> 15,168
<INTEREST-TOTAL> 424,398
<INTEREST-DEPOSIT> 133,802
<INTEREST-EXPENSE> 186,686
<INTEREST-INCOME-NET> 237,712
<LOAN-LOSSES> 13,162
<SECURITIES-GAINS> 36
<EXPENSE-OTHER> 210,728
<INCOME-PRETAX> 90,978
<INCOME-PRE-EXTRAORDINARY> 59,948
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,948
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 1.92
<YIELD-ACTUAL> 8.15
<LOANS-NON> 59,367
<LOANS-PAST> 27,455
<LOANS-TROUBLED> 3,116
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 78,733
<CHARGE-OFFS> 17,046
<RECOVERIES> 2,187
<ALLOWANCE-CLOSE> 83,542
<ALLOWANCE-DOMESTIC> 35,680
<ALLOWANCE-FOREIGN> 1,815
<ALLOWANCE-UNALLOCATED> 46,047
</TABLE>
