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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-7949
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BANCWEST CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 99-0156159
(State of incorporation) (I.R.S. Employer
Identification No.)
999 BISHOP STREET, HONOLULU, HAWAII 96813
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (808) 525-7000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
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Common Stock, $1.00 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
(Title of class)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates
of the registrant as of February 29, 2000 was $636,605,000.
The number of shares outstanding of each of the registrant's classes
of common stock as of February 29, 2000 was:
Title of Class Number of Shares Outstanding
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Common Stock, $1.00 Par Value 70,091,454 Shares
Class A Common Stock, $1.00 Par Value 54,539,936 Shares
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in this
Form 10-K:
DOCUMENTS FORM 10-K REFERENCE
BancWest Corporation Annual Report 1999 Parts I and II
BancWest Corporation Proxy Statement
for the 2000 Annual Meeting of Stockholders
Part III
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INDEX
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PART I
Item 1. Business............................................................................... 1
Item 2. Properties............................................................................. 15
Item 3. Legal Proceedings...................................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders.................................... 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................................................... 16
Item 6. Selected Financial Data................................................................ 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................. 16
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.............................. 16
Item 8. Financial Statements and Supplementary Data............................................ 19
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................................... 19
PART III
Item 10. Directors and Executive Officers of the Registrant..................................... 20
Item 11. Executive Compensation................................................................. 20
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 20
Item 13. Certain Relationships and Related Transactions......................................... 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................................................ 21
Signatures ....................................................................................... 25
Exhibit Index ....................................................................................... 28
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PART I
ITEM 1. BUSINESS
BANCWEST CORPORATION (FORMERLY KNOWN AS FIRST HAWAIIAN, INC.) -
BancWest Corporation, a Delaware corporation (the "Corporation"), is a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended (the "BHCA"). As a bank holding company, the Corporation is allowed to
acquire or invest in the securities of companies that are engaged in banking or
in activities closely related to banking as authorized by the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board"). The Corporation,
through its subsidiaries, operates a general commercial banking business and
other businesses related to banking. Its principal assets are its investments in
Bank of the West, a State of California-chartered bank with authority to operate
interstate branches in Oregon, Washington, Nevada and Idaho; First Hawaiian Bank
("First Hawaiian"), a State of Hawaii-chartered bank; FHL Lease Holding Company,
Inc. ("FHL"), a financial services loan company; and First Hawaiian Capital I
(the "Trust"), a Delaware business trust. Bank of the West, First Hawaiian, FHL
and the Trust are wholly owned subsidiaries of the Corporation. At December 31,
1999, the Corporation had consolidated total assets of $16.7 billion, total
deposits of $12.9 billion and total stockholders' equity of $1.8 billion. Based
on assets as of December 31, 1999, the Corporation was the 45th largest bank
holding company in the United States as reported in the American Banker.
On November 1, 1998, the former BancWest Corporation ("Old BancWest"), parent
company of Bank of the West, merged (the "BancWest Merger") with and into First
Hawaiian, Inc. ("FHI"). Upon consummation of the BancWest Merger, FHI, the
surviving corporation, changed its name to "BancWest Corporation." Prior to the
consummation of the BancWest Merger, Old BancWest was wholly owned by Banque
Nationale de Paris ("BNP"). BNP received approximately 25.8 million shares
(equivalent to 51.6 million shares after adjusting for the two-for-one stock
split in December 1999) of the Corporation's newly authorized Class A Common
Stock representing approximately 45% of the then outstanding total voting stock
of the Corporation in the BancWest Merger (a purchase price of approximately
$905.7 million). As a result of the BancWest Merger, Bank of the West is now a
wholly owned subsidiary of the Corporation. Additional information regarding the
BancWest Merger is included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" (pages 22 through 42), "Note 2.
Mergers and Acquisitions" (pages 53 and 54), "Note 3. Restructuring,
Merger-Related and Other Nonrecurring Costs" (pages 54 and 55) and "Note 12.
Common Stock and Earnings Per Share" (pages 60 and 61) in the Financial Review
Section of the Corporation's Annual Report 1999, and is incorporated herein by
reference thereto.
On July 1, 1999, the Corporation acquired SierraWest Bancorp ("SierraWest").
SierraWest and its subsidiary, SierraWest Bank, were merged with and into Bank
of the West (the "SierraWest Merger") resulting in the issuance of approximately
4.4 million shares of the Corporation's common stock to the shareholders of
SierraWest. The acquisition was accounted for using the pooling-of-interests
method of accounting. Additional information regarding the SierraWest Merger is
included in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" (pages 22 through 42), "Note 2. Mergers and Acquisitions"
(pages 53 and 54), "Note 3. Restructuring, Merger-Related and Other Nonrecurring
Costs" (pages 54 and 55) and "Note 12. Common Stock and Earnings Per Share"
(pages 60 and 61) in the Financial Review Section of the Corporation's Annual
Report 1999, and is incorporated herein by reference thereto.
In January 2000, the Corporation agreed to acquire 68 branches in Utah and
Idaho. These branches have approximately $2.1 billion in deposits and $660.0
million in loans. The branch acquisition is contingent upon completion of a
merger between Zions Bancorporation and First Security Corporation. Based on
information set forth in recent proxy statement supplements filed by those
corporations, there are significant questions as to whether the merger will
occur.
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BANK OF THE WEST -
Bank of the West is a State of California-chartered bank that is not a member of
the Federal Reserve System. The deposits of Bank of the West are insured by the
Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF")
of the Federal Deposit Insurance Corporation ("FDIC") to the extent and subject
to the limitations set forth in the Federal Deposit Insurance Act ("FDIA"). The
predecessor of Bank of the West, "The Farmers National Gold Bank," was chartered
as a national banking association in 1874 in San Jose, California.
On July 1, 1999, SierraWest Bancorp and SierraWest Bank were merged with and
into Bank of the West. As a result of the SierraWest Merger, 20 SierraWest
branches in California and Nevada became branches of Bank of the West.
Bank of the West is the fourth largest bank in California, with total assets of
approximately $9.6 billion and total deposits of approximately $7.4 billion at
December 31, 1999. Bank of the West conducts a general commercial banking
business, providing retail and corporate banking and trust services to
individuals, institutions, businesses and governments through 162 branches and
other commercial banking offices located primarily in the San Francisco Bay area
and elsewhere in the Northern and Central Valley regions of California and in
Oregon, Washington, Idaho and Nevada. Bank of the West also generates indirect
automobile loans and leases, recreational vehicle loans, recreational marine
vessel loans, equipment leases and deeds of trust on single-family residences
through a network of manufacturers, dealers, representatives and brokers in all
50 states. Bank of the West's principal subsidiary is Essex Credit Corporation
("Essex"), a Connecticut corporation. Essex is engaged primarily in the business
of originating and selling consumer loans on a nationwide basis, such loans
being made for the purpose of acquiring or refinancing pleasure boats or
recreational vehicles. Essex generally sells the loans that it makes to various
banks and other financial institutions, on a servicing release basis. Essex has
a network of 10 regional direct lending offices located in the following states:
California, Connecticut, Florida, Maryland, Massachusetts, New Jersey, New York,
Texas and Washington.
COMMUNITY BANKING -
The focus of Bank of the West's community banking strategy is primarily in
Northern California, Nevada and the Pacific Northwest region. The Northern
California market region is comprised of the San Francisco Bay area and the
Central Valley area of California. The San Francisco Bay area is one of
California's wealthiest regions, and the Central Valley of California is an area
which has been experiencing rapid transition from a largely agricultural base to
a mix of agricultural and commercial enterprises. The Pacific Northwest region
includes Oregon, Washington and Idaho. The SierraWest Merger expanded the region
that Bank of the West services into Nevada.
Bank of the West utilizes its 162-branch network as its principal funding
source. A key element of Bank of the West's community banking strategy is to
seek to distinguish itself as the provider of the "best value" in community
banking services. To this end, Bank of the West seeks to position itself within
its markets as an alternative to both the higher-priced, smaller "boutique"
commercial banks and the larger commercial banks, which may be perceived as
offering lower service and lower prices on a "mass market" basis.
In pursuing the Northern California and Pacific Northwest community banking
markets, Bank of the West seeks to serve a broad customer base by furnishing a
range of retail and commercial banking products. Through its branch network,
Bank of the West generates a variety of consumer loans, including direct vehicle
loans, consumer lines of credit and second mortgages. In addition, Bank of the
West generates and holds a small portfolio of first mortgage loans on one- to
four-family residences. Through its commercial banking operations conducted from
its branch network, Bank of the West offers a wide range of basic commercial
banking products intended to serve the needs of smaller community-based
businesses. These loan products include in-branch originations of standardized
products for businesses with relatively simple banking and financing needs. More
complex and customized commercial banking services are offered through Bank of
the West's regional banking centers, which serve clusters of branches and
provide lending, deposit and cash management services to companies operating in
the relevant market areas. Bank of the West also provides a number of fee-based
products and services such as annuities, insurance and securities brokerage.
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PROFESSIONAL BANKING, TRUST SERVICES -
The Professional Banking and Trust & Investment Services areas within the
Community Banking division provide a wide range of products to targeted markets.
Professional Banking, located in San Francisco, serves the banking needs of
attorneys, doctors and other working professionals. The Trust & Investment
Services area, headquartered in San Jose, and with offices in San Francisco,
provides a full range of individual and corporate trust services.
COMMERCIAL BANKING -
Bank of the West's Business Banking division supports commercial lending
activities for middle market business customers through ten regional lending
centers located in Northern California, Central California, Oregon, Northern
Nevada, Idaho and Washington. Each regional office provides a wide range of loan
and deposit services to mid-sized companies with borrowing needs of $500,000 to
$25 million. Lending services include receivable and inventory financing,
equipment term loans, letters of credit, agricultural loans and trade finance.
Other banking services include cash management, insurance products, trust,
investment, foreign exchange and various international banking services.
The Specialty Lending division seeks to provide focused banking services and
products to specifically targeted markets where Bank of the West's resources,
experience and technical expertise give it a competitive advantage. Through
operations conducted in this division, Bank of the West has established itself
as the national leader among those commercial banks which are lenders to
religious organizations. In addition, leasing operations within Specialty
Lending have made Bank of the West a significant provider of equipment leasing
financing, including both standard and tax-oriented products, to a wide array of
clients. To support the cash management needs of both Bank of the West's
corporate banking customers and large private and public deposit relationships
maintained with Bank of the West, the Specialty Lending division operates a Cash
Management group which provides a full range of innovative and
relationship-focused cash management services.
The Real Estate Industries division, whose primary markets are Northern and
Central California, Nevada and Oregon, originates and services construction,
short-term and permanent loans to residential developers, commercial builders
and investors. The division is particularly active in financing the construction
of detached residential subdivisions. Other construction lending activities
include low-income housing, industrial development, apartment, retail and office
projects. The division also originates and services single-family home loans
sourced through the Bank's Community Bank branch network.
CONSUMER FINANCE -
The Consumer Finance division targets the production of auto loans and leases in
the Western United States, and recreational vehicle and marine loans nationwide,
with emphasis on originating credits at the high end of the credit spectrum. The
Consumer Finance division originates recreational vehicle and marine credits on
a nationwide basis through sales representatives located throughout the country
servicing a network of over 1,900 recreational vehicle and marine dealers and
brokers. Essex primarily focuses on the origination and sale of loans in the
broker marine market and also originates and sells loans to finance the
acquisition of recreational vehicles.
The division's auto lending activity is primarily focused in the Western United
States. Bank of the West originates loans and leases to finance the purchase of
new and used autos, light trucks and vans through a network of more than 2,000
dealers and brokers in California, Nevada, Oregon and Arizona.
SMALL BUSINESS ADMINISTRATION LENDING -
Bank of the West operates in California, Nevada, Oregon, Alabama and Tennessee
under the Preferred Lender Program of the Small Business Administration ("SBA"),
which is headquartered in Washington, D.C. This designation is the highest
lender status granted by the SBA. Bank of the West has over 17 years of
experience and expertise in the generation and sale of SBA guaranteed loans.
Bank of the West anticipates continuing its SBA lending activities.
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FIRST HAWAIIAN BANK -
First Hawaiian, the oldest financial institution in Hawaii, was established as
Bishop & Co. in 1858 in Honolulu. First Hawaiian is a State of Hawaii-chartered
bank that is not a member of the Federal Reserve System. The deposits of First
Hawaiian are insured by the BIF and the SAIF of the FDIC to the extent and
subject to the limitations set forth in the FDIA.
First Hawaiian is a full-service bank conducting a general commercial and
consumer banking business and offering trust and insurance services. Its banking
activities include receiving demand, savings and time deposits for personal and
commercial accounts; making commercial, agricultural, real estate and consumer
loans; acting as a United States tax depository facility; providing money
transfer and cash management services; selling insurance products, mutual funds
and annuities, traveler's checks and personal money orders; issuing letters of
credit; handling domestic and foreign collections; providing safe deposit and
night depository facilities; offering lease financing; and investing in U.S.
Treasury securities and securities of other U.S. government agencies and
corporations and state and municipal securities.
At December 31, 1999, First Hawaiian had total assets of $7.1 billion and total
deposits of $5.5 billion, making it the second largest bank in Hawaii.
DOMESTIC SERVICES -
The domestic operations of First Hawaiian are carried out through its main
banking office located in Honolulu, Hawaii, with 55 other banking offices
located throughout Hawaii. All but one of the banking offices are equipped with
automatic teller machines that provide 24-hour service to customers wishing to
make withdrawals from and deposits to their personal checking and savings
accounts, to make balance inquiries, to obtain interim bank statements and to
make utility and loan payments. There are 98 automated teller machines at
nonbranch locations that provide balance inquiry, withdrawal transaction and
account transfer services. At selected nonbranch locations, interim bank
statements are also available. First Hawaiian is a member of the
CIRRUS(R)/MasterCard(R), Plus(R)/VISA(R) and Star System(R), AFFN(R), American
Express(R), Discover(R) and JCB(R) automatic teller machine networks, which
provide First Hawaiian's customers with access to their funds nationwide and in
selected foreign countries.
LENDING ACTIVITIES -
First Hawaiian engages in a broad range of lending activities, including making
real estate, commercial and consumer loans. The majority of First Hawaiian's
loans were for construction, commercial, and residential real estate. Commercial
loans also comprised a major portion of the loan portfolio, with consumer and
foreign loans and leases accounting for the balance of the portfolio.
REAL ESTATE LENDING--CONSTRUCTION. First Hawaiian provides construction
financing for a variety of commercial and residential single-family subdivision
and multi-family developments.
REAL ESTATE LENDING--COMMERCIAL. First Hawaiian provides permanent financing for
a variety of commercial developments, such as various retail facilities,
warehouses and office buildings.
REAL ESTATE LENDING--RESIDENTIAL. First Hawaiian makes residential real estate
loans, including home equity loans, to enable borrowers to purchase, refinance
or improve residential real property. The loans are collateralized by mortgage
liens on the related property, substantially all located in Hawaii.
COMMERCIAL LENDING. First Hawaiian is a major lender to primarily small- and
medium-sized businesses in Hawaii. First Hawaiian also participates in
syndication lending to highly rated large corporate entities and to the media
and telecommunications industry located on the mainland U.S.
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CONSUMER LENDING. First Hawaiian offers many types of loans and credits to
consumers including lines of credit, uncollateralized or collateralized, and
various types of personal and automobile loans. First Hawaiian also provides
indirect consumer automobile financing on new and used autos by purchasing
finance contracts from dealers. First Hawaiian's Dealer Center is the largest
commercial bank automobile lender in the State of Hawaii. First Hawaiian is the
largest issuer of MasterCard(R) credit cards and the second largest issuer of
VISA(R) credit cards in Hawaii.
INTERNATIONAL BANKING SERVICES -
First Hawaiian maintains an International Banking division which provides
international banking products and services through First Hawaiian's branch
system, its international banking headquarters in Honolulu, a Grand Cayman
branch, two Guam branches, a branch in Saipan and a representative office in
Tokyo, Japan. First Hawaiian maintains a network of correspondent banking
relationships throughout the world.
First Hawaiian's international banking activities are primarily trade-related
and are concentrated in the Asia-Pacific area.
TRUST SERVICES -
First Hawaiian's Trust and Investments division offers a full range of trust and
investment management services. The Trust and Investments division provides
asset management, advisory and administrative services for estates, trusts and
individuals. It also acts as trustee and custodian of retirement and other
employee benefit plans. At December 31, 1999, the Trust and Investments division
had 6,287 accounts with a market value of $10.9 billion. Of this total, $7.0
billion represented assets in nonmanaged accounts and $2.7 billion were managed
assets.
The Trust and Investments division maintains custodial accounts pursuant to
which it acts as agent for customers in rendering a variety of services,
including dividend and interest collection, collection under installment
obligations and rent collection.
SECURITIES AND INSURANCE SERVICES -
First Hawaiian, through a wholly owned subsidiary, offers insurance needs
analysis for individuals, families and businesses as well as insurance products
such as life, disability and long-term care. In association with an independent
registered broker-dealer, First Hawaiian offers mutual funds, annuities and
other securities in its branches.
FHL LEASE HOLDING COMPANY, INC. -
FHL, a financial services loan company, primarily finances and leases personal
property including equipment and vehicles, and acts as an agent, broker or
advisor in the leasing or financing of such property for affiliates as well as
third parties. On January 1, 1997, FHL sold certain leases to First Hawaiian
Leasing, Inc., a subsidiary of First Hawaiian. FHL is in a run-off mode and all
new leveraged and direct financing leases are recorded by First Hawaiian
Leasing, Inc.
At December 31, 1999, FHL's net investment in leases amounted to $64.2 million
and total assets were $107.0 million.
FIRST HAWAIIAN CAPITAL I -
The Trust is a Delaware business trust which was formed in 1997. The Trust
issued $100 million of its Capital Securities (the "Capital Securities") and
used the proceeds therefrom to purchase junior subordinated deferrable interest
debentures of the Corporation. The Capital Securities qualify as Tier 1 Capital
of the Corporation and are fully and unconditionally guaranteed by the
Corporation. All of the common securities of the Trust are owned by the
Corporation.
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At December 31, 1999, the Trust's total assets were $107.4 million.
HAWAII COMMUNITY REINVESTMENT CORPORATION -
In an effort to support affordable housing and as part of First Hawaiian's
community reinvestment program, First Hawaiian is a member of the Hawaii
Community Reinvestment Corporation (the "HCRC"). The HCRC is a consortium of
local financial institutions that provides $50 million in permanent long-term
financing for affordable housing rental projects throughout Hawaii for low- and
moderate-income residents.
The $50 million loan pool is funded by the member financial institutions which
participate pro rata (based on deposit size) in each HCRC loan. First Hawaiian's
participations in these HCRC loans are included in its loan portfolio.
HAWAII INVESTORS FOR AFFORDABLE HOUSING, INC. -
To further enhance First Hawaiian's community reinvestment program and provide
support for the development of additional affordable housing rental units in
Hawaii, First Hawaiian, and other HCRC member institutions, have subscribed to a
$19.7 million tax credit equity fund ("Hawaii Affordable Housing Fund I") and a
$20.0 million tax credit equity fund ("Hawaii Affordable Housing Fund II").
Hawaii Affordable Housing Fund I and Hawaii Affordable Housing Fund II (the
"Funds") have been established to invest in qualified low-income housing tax
credit rental projects and to ensure that these projects are maintained as
low-income housing throughout the required compliance period. First Hawaiian's
investments in the Funds are included in its investment portfolio.
EMPLOYEES -
At December 31, 1999, the Corporation had 4,918 full-time equivalent employees.
Bank of the West and First Hawaiian employed 2,687 and 2,231 persons,
respectively. None of our employees are represented by any collective bargaining
agreements and our relations with employees are considered excellent.
MONETARY POLICY AND ECONOMIC CONDITIONS -
The earnings and business of the Corporation are affected not only by general
economic conditions (both domestic and international), but also by the monetary
policies of various governmental regulatory authorities of (i) the United States
and foreign governments and (ii) international agencies. In particular, the
Corporation's earnings and growth may be affected by actions of the Federal
Reserve Board in connection with its implementation of national monetary policy
through its open market operations in United States Government securities,
control of the discount rate and establishment of reserve requirements against
both member and non-member financial institutions' deposits. These actions have
a significant effect on the overall growth and distribution of loans,
investments and deposits as well as on the rates earned on loans or paid on
deposits. It is not possible to predict the effect of future changes in monetary
policies upon the operating results of the Corporation.
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COMPETITION -
Competition in the financial services industry is intense. The Corporation
competes with a large number of commercial banks (including domestic, foreign
and foreign-affiliated banks), savings institutions, finance companies, leasing
companies, credit unions and other entities that provide financial services such
as mutual funds, insurance companies and brokerage firms. Many of these
competitors are significantly larger and have greater financial resources than
the Corporation. In addition, the increasing use of the Internet and other
electronic distribution channels has resulted in increased competition with
respect to many of the products and services that the Corporation offers. As a
result, the Corporation competes with financial service providers located not
only in its home markets but also those located elsewhere in the United States
that are able to offer their products and services through electronic and other
non-conventional distribution channels.
Recent changes in federal law have also made it easier for out-of-state banks to
enter and compete in the states in which the Corporation's bank subsidiaries
operate. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle-Neal Act"), among other things, eliminated substantially all state
law barriers to the acquisition of banks by out-of-state bank holding companies,
effective September 29, 1995. A bank holding company may now acquire banks in
states other than its home state, without regard to the permissibility of such
acquisitions under state law, but subject to any state requirement that the
acquired bank has been organized and operating for a minimum period of time (not
to exceed five years), and the requirement that the acquiring bank holding
company, prior to or following the proposed acquisition, controls no more than
10 percent of the total amount of deposits of insured depository institutions in
the United States and no more than 30 percent of such deposits in that state (or
such lesser or greater amount as may be established by state law).
The Riegle-Neal Act also permits interstate branching by banks in all states
other than those which have "opted out." Effective June 1, 1997, the Riegle-Neal
Act permits banks to acquire branches located in another state by purchasing or
merging with a bank chartered in that state or a national banking association
having its headquarters located in that state. However, banks are not permitted
to establish de novo branches or purchase individual branches located in other
states unless expressly permitted by the laws of those other states. None of the
states in which the Corporation's banking subsidiaries operate have elected to
"opt out" of the provisions of the Riegle-Neal Act permitting interstate
branching through acquisition or mergers, although most do not permit de novo
branching. The Corporation anticipates that the effect of the Riegle-Neal Act
will be to increase competition within the markets in which the Corporation now
operates, but the Corporation cannot predict when and to what extent competition
will increase in these markets.
On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLBA") was signed into
law. The GLBA permits a financial holding company to engage in a wide variety of
financial activities, including insurance underwriting and sales, investment
banking, commercial banking, merchant banking and real estate investment. Each
activity is to be conducted in a separate subsidiary that is regulated by a
functional regulator: a state insurance regulator in the case of an insurance
subsidiary, the Securities and Exchange Commission in the case of a
broker-dealer or investment advisory subsidiary, or the appropriate federal
banking regulator in the case of a bank or thrift institution. The Federal
Reserve Board is the "umbrella" supervisor of financial holding companies.
Section 23A of the Federal Reserve Act, which severely restricts lending by an
insured bank subsidiary to nonbank affiliates, remains in place. The Corporation
cannot predict at this time the potential effect that the GLBA will have on its
business and operations, although the Corporation expects that a likely effect
of the GLBA will be to increase competition in the financial services industry
generally and lead to the formation of large financial services groups with
significant market share and power.
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SUPERVISION AND REGULATION -
As a registered bank holding company, the Corporation is subject to regulation
and supervision by the Federal Reserve Board under the BHCA. The various
subsidiaries of the Corporation are subject to regulation and supervision by the
banking authorities of Hawaii, California, Nevada, Washington, Oregon, Idaho,
Guam and the Commonwealth of the Northern Mariana Islands, as well as by the
FDIC (which is the primary federal regulator of the Corporation's two bank
subsidiaries) and various other regulatory agencies.
The consumer lending and finance activities of the Corporation's subsidiaries
are also subject to extensive regulation under various Federal laws including
the Truth-in-Lending, Equal Credit Opportunity, Fair Credit Reporting, Fair Debt
Collection Practice and Electronic Funds Transfer Acts, as well as various state
laws. These statutes impose requirements on the making, enforcement and
collection of consumer loans and on the types of disclosures that need to be
made in connection with such loans.
Holding Company Structure. The BHCA currently limits the business of the
Corporation to owning or controlling banks and engaging in such other activities
as the Federal Reserve Board may determine to be so closely related to banking
as to be a proper incident thereto. The GLBA will permit bank holding companies
that qualify for, and elect to be regulated as, financial holding companies, to
engage in a wide range of financial activities, including certain activities,
such as insurance, merchant banking and real estate investment, that are not
permissible for other bank holding companies. Financial holding companies are
permitted to acquire nonbank companies without prior approval of the Federal
Reserve Board, but approval of the Federal Reserve Board continues to be
required before acquiring more than 5% of the voting shares of another bank or
bank holding company, before merging or consolidating with another bank holding
company, and before acquiring substantially all the assets of any additional
bank. In addition, all acquisitions are reviewed by the Department of Justice
for antitrust considerations. The Corporation expects to qualify for regulation
as a financial holding company, but has not determined whether to elect that
status.
Dividend Restrictions. As a holding company, the principal source of the
Corporation's cash revenue has been dividends and interest received from the
Corporation's bank subsidiaries. Each of the bank subsidiaries is subject to
various federal regulatory restrictions relating to the payment of dividends.
For example, if, in the opinion of the FDIC, a bank under its jurisdiction is
engaged in or is about to engage in an unsafe or unsound practice (which,
depending on the financial condition of the bank, could include the payment of
dividends), the FDIC may require, after notice and hearing, that such bank cease
and desist from such practice. In addition, the Federal Reserve Board has issued
a policy statement which provides that, as a general matter, insured banks and
bank holding companies should only pay dividends out of current operating
earnings. The regulatory capital requirements of the Federal Reserve Board and
the FDIC also may limit the ability of the Corporation and its insured
depository subsidiaries to pay dividends. See "Prompt Corrective Action" and
"Capital Requirements" below.
State regulations also place restrictions on the ability of the Corporation's
bank subsidiaries to pay dividends. Under Hawaii law, First Hawaiian is
prohibited from declaring or paying any dividends in excess of its retained
earnings. California law generally prohibits Bank of the West from paying cash
dividends to the extent such payments exceed the lesser of retained earnings and
net income for the three most recent fiscal years (less any distributions to
stockholders during such three-year period). At December 31, 1999, the aggregate
amount of dividends that such subsidiaries could pay to the Corporation under
the foregoing limitations without prior regulatory approval was $365.5 million.
There are also statutory limits on the transfer of funds to the Corporation and
its nonbanking subsidiaries by its banking subsidiaries, whether in the form of
loans or other extensions of credit, investments or asset purchases. Such
transfers to any single affiliate are limited in amount to 10% of the bank's
capital and surplus, or 20% in the aggregate to all affiliates. Furthermore,
such loans and extensions of credit are required to be collateralized in
specified amounts.
8
<PAGE> 11
Under Federal Reserve Board policy, a bank holding company is expected to act as
a source of financial strength to each subsidiary bank and to make capital
infusions into a troubled subsidiary bank, and the Federal Reserve Board may
charge the bank holding company with engaging in unsafe and unsound practices
for failure to commit resources to a subsidiary bank. This capital infusion may
be required at times when the Corporation may not have the resources to provide
it. Any capital loans by the Corporation to one of its subsidiary banks would be
subordinate in right of payment to deposits and to certain other indebtedness of
such subsidiary bank.
In addition, depository institutions insured by the FDIC can be held liable for
any losses incurred, or reasonably expected to be incurred, by the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC-insured depository institution in danger of default. "Default" is defined
generally as the appointment of a conservator or receiver and "in danger of
default" is defined generally as the existence of certain conditions indicating
that a "default" is likely to occur in the absence of regulatory assistance.
Accordingly, in the event that any insured subsidiary of the Corporation causes
a loss to the FDIC, other insured subsidiaries of the Corporation could be
required to compensate the FDIC by reimbursing it for the amount of such loss.
Any such obligation by the Corporation's insured subsidiaries to reimburse the
FDIC would rank senior to their obligations, if any, to the Corporation.
Prompt Corrective Action. Pursuant to the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), the federal banking agencies are required to
take "prompt corrective action" with respect to insured depository institutions
that do not meet minimum capital requirements. FDICIA established a five-tier
framework for measuring the capital adequacy of insured depository institutions
(including Bank of the West and First Hawaiian), with each depository
institution being classified into one of the following categories: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized."
Under the regulations adopted by the federal banking agencies to implement these
provisions of FDICIA (commonly referred to as the "prompt corrective action"
rules), a depository institution is "well capitalized" if it has (i) a total
risk-based capital ratio of 10% or greater, (ii) a Tier 1 risk-based capital
ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv) is not
subject to any written agreement, order or directive to meet and maintain a
specific capital level for any capital measure. An "adequately capitalized"
depository institution is defined as one that has (i) a total risk-based capital
ratio of 8% or greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater
and (iii) a leverage ratio of 4% or greater (or 3% or greater in the case of a
bank rated a composite 1 under the Uniform Financial Institution Rating System,
"CAMELS rating," established by the Federal Financial Institution Examinations
Council). A depository institution is considered (i) "undercapitalized" if it
has (A) a total risk-based capital ratio of less than 8%, (B) a Tier 1
risk-based capital ratio of less than 4% or (C) a leverage ratio of less than 4%
(or 3% in the case of an institution with a CAMELS rating of 1), (ii)
"significantly undercapitalized" if it has (A) a total risk-based capital ratio
of less than 6%, (B) a Tier 1 risk-based capital ratio of less than 3% or (C) a
leverage ratio of less than 3% and (iii) "critically undercapitalized" if it has
a ratio of tangible equity to total assets equal to or less than 2%. An
institution may be deemed by the regulators to be in a capitalization category
that is lower than is indicated by its actual capital position if, among other
things, it receives an unsatisfactory examination rating. At December 31, 1999,
all the Corporation's subsidiary depository institutions were "well
capitalized."
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a cash dividend) or paying any management
fees to its holding company if the depository institution is, or would
thereafter be, undercapitalized. Undercapitalized depository institutions are
subject to growth limitations and are required to submit a capital restoration
plan. The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the parent
holding company under such guarantee is limited to the lesser of (i) an amount
equal to 5% of the depository institution's total assets at the time it became
undercapitalized, or (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable to such
9
<PAGE> 12
institution as of the time it fails to comply with the plan. If a depository
institution fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of other requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions may not make any payments of interest
or principal on their subordinated debt and are subject to the appointment of a
conservator or receiver, generally within 90 days of the date such institution
becomes critically undercapitalized. In addition, the FDIC has adopted
regulations under FDICIA prohibiting an insured depository institution from
accepting brokered deposits (as defined by the regulations) unless the
institution is "well capitalized" or is "adequately capitalized" and receives a
waiver from the FDIC.
FDIC Insurance Assessments. The FDIC has implemented a risk-based deposit
insurance assessment system under which the assessment rate for an insured
institution may vary according to the regulatory capital levels of the
institution and other factors (including supervisory evaluations). Depository
institutions insured by the BIF which are ranked in the top risk classification
category currently have no annual assessment for deposit insurance while all
other banks are required to pay premiums ranging from .03% to .27% of domestic
deposits. As a result of the enactment on September 30, 1996 of the Economic
Growth and Regulatory Paperwork Reduction Act of 1996 (the "Deposit Funds Act"),
the deposit insurance premium assessment rates for depository institutions
insured by the SAIF were reduced, effective January 1, 1997, to the same rates
as apply to depository institutions insured by the BIF. The Deposit Funds Act
also provided for a one-time assessment of 65.7 basis points on all SAIF-insured
deposits in order to fully recapitalize the SAIF (which assessment was paid by
the Corporation in 1996), and imposes annual assessments on all depository
institutions to pay interest on bonds issued by the Financing Corporation (the
"FICO") in connection with the resolution of savings association insolvencies
occurring prior to 1991. The FICO assessment rate for the first quarter of 2000
was 2.1 basis points. These rate schedules are adjusted quarterly by the FDIC.
In addition, the FDIC has authority to impose special assessments from time to
time, subject to certain limitations specified in the Deposit Funds Act.
Capital Requirements. The Corporation and certain of its subsidiaries are
subject to regulatory capital guidelines issued by the federal banking agencies.
Information with respect to the applicable capital requirements is included in
"Note 13. Regulatory Capital Requirements" on page 62 in the Financial Review
section of the Corporation's Annual Report 1999, and is incorporated herein by
reference thereto.
FDICIA required each federal banking agency to revise its risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risk of nontraditional activities, as
well as reflect the actual performance and expected risk of loss on multi-family
mortgages. The federal banking agencies have adopted amendments to their
respective risk-based capital requirements that explicitly identify
concentrations of credit risk and certain risks arising from nontraditional
activities, and the management of such risks, as important factors to consider
in assessing an institution's overall capital adequacy. The amendments do not,
however, mandate any specific adjustments to the risk-based capital calculations
as a result of such factors.
In August 1996, the federal banking regulators adopted amendments to their
risk-based capital rules to incorporate a measure for market risk in foreign
exchange and commodity activities and in the trading of debt and equity
instruments. Under these amendments, which became effective in 1997, banking
institutions with relatively large trading activities are required to calculate
their capital charges for market risk using their own internal value-at-risk
models (subject to parameters set by the regulators) or, alternatively, risk
management techniques developed by the regulators. As a result, these
institutions are required to hold capital based on the measure of their market
risk exposure in addition to existing capital requirements for credit risk.
These institutions are able to satisfy this additional requirement, in part, by
issuing short-term subordinated debt that qualifies as Tier 3 capital. The
adoption of these amendments did not have a material effect on the Corporation's
business or operations.
10
<PAGE> 13
On November 5, 1997, the federal banking regulators proposed for comment
regulations establishing new risk-based capital requirements for recourse
arrangements and direct credit substitutes. "Recourse" for this purpose means
any retained risk of loss associated with any transferred asset that exceeds a
pro rata share of the bank's or bank holding company's remaining claim on the
asset, if any. Under existing regulations, banks and bank holding companies have
to maintain capital against the full amount of any assets for which risk of loss
is retained, unless the resulting capital amount would exceed the maximum
contractual liability or exposure retained, in which case the capital required
would equal, dollar-for-dollar, such maximum contractual liability or exposure.
The proposal would extend this treatment to direct credit substitutes. "Direct
credit substitute" means any assumed risk of loss associated with any asset or
other claim that exceeds the bank's or bank holding company's pro rata share of
the asset or claim, if any. The proposal also included a multi-level approach to
assessing capital charges based upon the relative credit risk of the bank's or
bank holding company's position in a securitization (i.e., recourse
arrangements, direct credit substitute or asset-backed security) and the rating
assigned to such position by a nationally recognized statistical rating agency.
The Corporation does not believe the adoption of this proposal will have a
material adverse effect on its operations or financial position.
On June 3, 1999, the Basel Committee on Banking Supervision proposed a new
capital adequacy framework to replace the framework adopted in 1988. Under the
new framework, risk weights for certain types of claims would be based on
ratings assigned by rating agencies. Certain low quality exposures would be
assigned a risk weight greater than 100%. Short-term commitments to lend, which
currently do not require capital, would be subject to a 20% conversion factor.
The Committee also proposes to develop capital charges for interest rate risk,
for banks that incur interest rate risk that is significantly above average, and
for operational risk. The comment period on the proposal ends on March 31, 2000
and the Committee plans to set forth a more definitive proposal later in the
year. If adopted by the Committee, the new accord would then be the subject of
rulemaking by the U.S. bank regulatory agencies. Because the timing and content
of the proposal are not yet clear, the Corporation cannot predict at this time
the potential effect that the adoption of such a proposal will have on its
regulatory capital requirements.
Real Estate Activities. The FDIC adopted regulations, effective January 1, 1999,
that make it significantly easier for state non-member banks to engage in a
variety of real estate investment activities. These regulations generally allow
a majority-owned corporate subsidiary of a state non-member bank to make equity
investments in real estate if the bank complies with certain investment and
transaction limits and satisfies certain capital requirements (after giving
effect to its investment in the majority-owned subsidiary). In addition, the
regulations permit a subsidiary of an insured state non-member bank to act as a
lessor under a real property lease that is the equivalent of a financing
transaction, meets certain criteria applicable to the lease and the underlying
real estate and does not represent a significant risk to the deposit insurance
funds.
FUTURE LEGISLATION -
Legislation relating to banking and other financial services has been introduced
from time to time in Congress and is likely to be introduced in the future. If
enacted, such legislation could significantly change the competitive environment
in which the Corporation and its subsidiaries operate. Management cannot predict
whether these or any other proposals will be enacted or the ultimate impact of
any such legislation on the Corporation's competitive situation, financial
condition or results of operations.
11
<PAGE> 14
FOREIGN OPERATIONS -
Information regarding the Corporation's foreign operations is included in Table
III-C (3) on page 14 of this Report on Form 10-K. Additional information
concerning foreign operations is also included in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in "Note 20.
International Operations," on pages 37 and 69, respectively, of the Financial
Review section of the Corporation's Annual Report 1999, and is incorporated
herein by reference thereto.
OPERATING SEGMENTS -
Information regarding the Corporation's operating segments is included in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in "Note 19. Operating Segments," on pages 25 and 68,
respectively, of the Financial Review section of the Corporation's Annual Report
1999, and is incorporated herein by reference thereto.
12
<PAGE> 15
STATISTICAL DISCLOSURES -
Guide 3 of the "Guides for the Preparation and Filing of Reports and
Registration Statements" under the Securities Act of 1933 sets forth certain
statistical disclosures to be included in the "Description of Business" section
of bank holding company filings with the Securities and Exchange Commission (the
"SEC"). The statistical information required is presented in the tables shown
below in the Corporation's Annual Report 1999, which tables are incorporated
herein by reference thereto and Table III-C (3) on page 14 of this Report on
Form 10-K. The tables and information contained therein have been prepared by
the Corporation and have not been audited or reported upon by the Corporation's
independent accountants.
Information in response to the following applicable sections of Guide 3 is
included in the Financial Review section of the Corporation's Annual Report
1999, and is incorporated herein by reference thereto:
<TABLE>
<CAPTION>
PAGE NUMBERS IN
-----------------------
BANCWEST CORPORATION
ANNUAL REPORT 1999
DISCLOSURE REQUIREMENTS (EXHIBIT 13)
----------------------- -----------------------
<S> <C> <C>
I. Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential -
A. Average balance sheets 26 - 27
B. Analysis of net interest earnings 26 - 27
C. Dollar amount of change in interest income and interest expense 28
II. Investment Portfolio -
A. Book value of investment securities 55 - 57
B. Investment securities by maturities and weighted average yields 38 - 39
C. Investment securities in excess of 10% of stockholders' equity 57
III. Loan Portfolio -
A. Types of loans 34
B. Maturities and sensitivities of loans to changes in interest rates 35, 40 - 41
C. Risk elements
1. Nonaccrual, past due and restructured loans 36 - 37, 48 - 49
2. Potential problem loans 37 - 38
4. Loan concentrations 35
IV. Summary of Credit Loss Experience -
A. Analysis of loss experience 30 - 32, 49 - 50, 58
B. Breakdown of the allowance for credit losses 31
V. Deposits -
A. Average amount and average rate paid on deposits 38
D. Maturity distribution of domestic time certificates of deposits
of $100,000 or more 59
E. Time certificates of deposit in denominations of $100,000 or more
issued by foreign offices 59
VI. Return on Equity and Assets 21
VII. Short-Term Borrowings 59 - 60
</TABLE>
13
<PAGE> 16
III. LOAN PORTFOLIO
Table III-C (3) presents a summary of the Corporation's foreign outstandings to
each country which exceeded 1% of total assets for the years indicated. Foreign
outstandings are defined as the balances outstanding of cross-border loans,
acceptances, interest-bearing deposits with other banks, other interest-bearing
investments and any other monetary assets. At December 31, 1999 and 1998, the
Corporation had no foreign outstandings to any country which exceeded 1% of
total assets. At December 31, 1997, Japan was the only country to which the
Corporation had outstandings in excess of 1% of total assets.
BANCWEST CORPORATION AND SUBSIDIARIES
TABLE III-C (3)
FOREIGN OUTSTANDINGS TO EACH COUNTRY WHICH EXCEEDS 1% OF TOTAL ASSETS
(in millions)
<TABLE>
<CAPTION>
GOVERNMENTS COMMERCIAL BANKS AND
AND OFFICIAL AND OTHER FINANCIAL
INSTITUTIONS INDUSTRIAL INSTITUTIONS OTHER TOTAL
------------ ------------ ------------ ----- -----
<S> <C> <C> <C> <C> <C>
At December 31, 1997
Japan $ - $ 17 $ - $ 74 $ 91
============ ============ ============ ===== =====
</TABLE>
At December 31, 1999, 1998 and 1997, there were no foreign outstandings to any
country between .75% and 1.0% of total assets.
14
<PAGE> 17
ITEM 2. PROPERTIES
Bank of the West leases two adjacent sites in Walnut Creek, California, which
are its primary administrative headquarters. The administrative headquarters
office is a 132,000-square-foot, three-story building. Bank of the West also
leases 48,382 square feet of executive office space in downtown San Francisco in
the same building that houses its San Francisco Main Branch at 180 Montgomery
Street (see "Note 21. Lease Commitments" (pages 69 and 70) in the Financial
Review section of the Corporation's Annual Report 1999, which is incorporated
herein by reference). Approximately 30,396 square feet of leased space at 180
Montgomery Street is subleased to BNP.
Fifty-three of Bank of the West's active branches are located on land owned by
Bank of the West. The remaining 109 active branches are located on leasehold
properties. Bank of the West also has 12 surplus branch properties, 11 of which
are currently leased to others. In addition, Bank of the West leases 26
properties that are utilized for administrative (including warehouses), lease
support, management information systems and regional management services (see
"Note 21. Lease Commitments" (pages 69 and 70) in the Financial Review section
of the Corporation's Annual Report 1999, which is incorporated herein by
reference).
First Hawaiian indirectly (through two subsidiaries) owns all of a city block in
downtown Honolulu. The administrative headquarters of the Corporation and First
Hawaiian as well as the main branch of First Hawaiian are located in a modern
banking center on this city block. The headquarters building includes 418,000
square feet of gross office space. Information about the lease financing of the
headquarters building is included in "Note 21. Lease Commitments" (pages 69 and
70) in the Financial Review section of the Corporation's Annual Report 1999,
which is incorporated herein by reference.
Eighteen of First Hawaiian's offices in Hawaii are located on land owned in fee
simple by First Hawaiian. The other branches of First Hawaiian in Hawaii and one
branch each in Guam and Saipan are situated on leasehold premises or in
buildings constructed by the respective companies on leased land (see "Note 21.
Lease Commitments" (pages 69 and 70) in the Financial Review section of the
Corporation's Annual Report 1999, which is incorporated herein by reference). In
addition, First Hawaiian owns an operations center which is located on
125,919-square-feet of land owned in fee simple by First Hawaiian in an
industrial area near downtown Honolulu. First Hawaiian occupies all of this
four-story building.
First Hawaiian owns a five-story, 75,000-square-foot office building, including
a branch, which is situated on property owned in fee simple in Maite, Guam,
where it maintains a branch.
ITEM 3. LEGAL PROCEEDINGS
Various legal proceedings are pending against the Corporation or its
subsidiaries. The ultimate liability of the Corporation, if any, cannot be
determined at this time. Based upon consultation with counsel, management does
not expect that the aggregate liability, if any, resulting from these
proceedings would have a material effect on the Corporation's consolidated
financial position, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1999.
15
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Required information is included in "Common Stock Information" (pages 19 and
20), "Management's Discussion and Analysis of Financial Condition and Results of
Operations" (page 22) and "Notes to Consolidated Financial Statements" (pages 60
and 61) in the Financial Review section of the Corporation's Annual Report 1999,
and is incorporated herein by reference.
On November 18, 1999, the Board approved a two-for-one stock split effected in
the form of a 100% stock dividend on the total issued shares of the Company's
common stock and Class A common stock. The additional shares issued as a result
of the stock split were distributed on December 15, 1999, to stockholders of
record at the close of business on December 1, 1999. A total of 63,522,968
shares of common stock and Class A common stock were issued in connection with
the stock split. In addition, due to the stock split, treasury shares increased
by 1,220,408 shares. As a result of the stock split, $63.523 million was
reclassified from capital surplus to common stock and Class A common stock. The
stock split did not cause any changes in the $1 par value per share of the
common stock or Class A common stock or in total stockholders' equity.
ITEM 6. SELECTED FINANCIAL DATA
Required information is included in "Summary of Selected Consolidated Financial
Data" (page 21) and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" (page 22) in the Financial Review section of the
Corporation's Annual Report 1999, and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Required information is included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" (pages 22 through 42) in the
Financial Review section of the Corporation's Annual Report 1999, and is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Required information is included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" (page 39) and "Notes to
Consolidated Financial Statements" (page 52) in the Financial Review section of
the Corporation's Annual Report 1999, and is incorporated herein by reference.
INTEREST RATE RISK MEASUREMENT AND MANAGEMENT
The net interest income of the Corporation is subject to interest rate risk to
the extent the Corporation's interest-bearing liabilities (primarily deposits
and borrowings) mature or reprice on a different basis than its interest-earning
assets (primarily loans and investment securities). When interest-bearing
liabilities mature or reprice more quickly than interest-earning assets during a
given period, an increase in interest rates could reduce net interest income.
Similarly, when interest-earning assets mature or reprice more quickly than
interest-bearing liabilities, a decrease in interest rates could have a negative
impact on net interest income. In addition, the impact of interest rate swings
may be exacerbated by factors such as our customers' propensity to manage their
demand deposit balances more or less aggressively or to refinance mortgage and
other consumer loans depending on the interest rate environment.
The Asset/Liability Committees of each of the Corporation's subsidiary companies
are responsible for managing interest rate risk. The Asset/Liability Committees
generally meet monthly. Recommendations for changes to a particular subsidiary's
interest rate profile, should they be deemed necessary and exceed established
policies, are made to its Board of Directors. Other than loans that are
originated and held for sale and commitments to purchase and sell foreign
currencies and mortgage-backed securities, the Corporation's interest rate
derivatives and other financial instruments are not entered into for trading
purposes.
16
<PAGE> 19
The Corporation's exposure to interest rate risk is managed primarily by taking
actions that impact certain balance sheet accounts (e.g., lengthening or
shortening maturities in the investment portfolio, changing asset and/or
liability mix -- including increasing or decreasing the amounts of fixed and/or
variable instruments held by the Corporation -- to adjust sensitivity to
interest rate changes) and/or utilizing off-balance-sheet instruments such as
interest rate swaps, caps, floors, options, or forwards.
The Corporation models its net interest income in order to quantify its exposure
to changes in interest rates. Generally, the size of the balance sheet is held
constant and then subjected to interest rate shocks up and down of 100 and 200
basis points (1% equals 100 basis points) each. Each account-level item is
repriced according to its respective contractual characteristics, including any
imbedded options which might exist (e.g., periodic interest rate caps or floors
or loans which permit the borrower to prepay the principal balance of the loan
prior to maturity without penalty). Off-balance-sheet instruments such as
interest rate swaps, caps or floors are included as part of the modeling
process. For each interest rate shock scenario, net interest income over a
12-month horizon is compared against the results of a scenario in which no
interest rate change occurs (a "flat rate scenario") to determine the level of
interest rate risk at that time.
17
<PAGE> 20
The projected impact of 100 and 200 basis-point increases and decreases in
interest rates on the Corporation's consolidated net interest income over the
next 12 months beginning January 1, 2000 and 1999 is shown below.
<TABLE>
<CAPTION>
2000
----------------------------------------------------------------
+2% +1% Flat -1% -2%
------ ------ ------ ------ --------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Net Interest Income $690.0 $710.3 $720.4 $718.4 $709.8
Difference from Flat $(30.4) $(10.1) $ (2.0) $(10.6)
% Variance (4.2)% (1.4)% (.3)% (1.5)%
================================================================
</TABLE>
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------
+2% +1% Flat -1% -2%
------ ------ ------ ------ -------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Net Interest Income $639.2 $643.3 $635.6 $621.0 $609.0
Difference from Flat $ 3.6 $ 7.7 $(14.6) $(26.6)
% Variance .6% 1.2% (2.3)% (4.2)%
==============================================================
</TABLE>
The changes in the models are due to differences in interest rate environments
which include the absolute level of interest rates, the shape of the yield
curve, and spreads between various benchmark rates.
SIGNIFICANT ASSUMPTIONS UTILIZED AND INHERENT LIMITATIONS
The significant net interest income changes for each interest rate scenario
presented above include assumptions based on accelerating or decelerating
mortgage prepayments in declining or rising scenarios, respectively, and
adjusting deposit levels and mix in the different interest rate scenarios. The
magnitude of changes to both areas in turn are based upon analyses of customers'
behavior in differing rate environments. However, these analyses may differ from
actual future customer behavior. For example, actual prepayments may differ from
current assumptions as prepayments are affected by many variables which cannot
be predicted with certainty (e.g., prepayments of mortgages may differ on fixed
and adjustable loans depending upon current interest rates, expectations of
future interest rates, availability of refinancing, economic benefit to
borrower, financial viability of borrower, etc.).
As with any model for analyzing interest rate risk, certain limitations are
inherent in the method of analysis presented above. For example, the actual
impact on net interest income due to certain interest rate shocks may differ
from those projections presented should market conditions vary from assumptions
used in the analysis. Furthermore, the analysis does not consider the effects of
a changed level of overall economic activity that could exist in certain
interest rate environments. Moreover, the method of analysis used does not take
into account the actions that management might take to respond to changes in
interest rates because of inherent difficulties in determining the likelihood or
impact of any such response.
FORWARD-LOOKING STATEMENTS
Certain matters contained in this Item 7A. are forward-looking statements that
involve certain risks and uncertainties that could cause the Corporation's
actual results to differ materially from those discussed in the forward-looking
statements. A discussion of some of these risks and uncertainties is included in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" (page 22) in the Financial Review section of the Corporation's
Annual Report 1999 and is incorporated herein by reference thereto.
18
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information is included in the Financial Review section of the
Corporation's Annual Report 1999, which is incorporated herein by reference
thereto as follows:
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Report of Independent Accountants 43
BancWest Corporation and Subsidiaries:
Consolidated Balance Sheets at December 31, 1999 and 1998 44
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997 45
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997 46
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 47
BancWest Corporation (Parent Company):
Balance Sheets at December 31, 1999 and 1998 71
Statements of Income for the years ended December 31, 1999,
1998 and 1997 72
Statements of Changes in Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997 46
Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997 72
Notes to Consolidated Financial Statements 48 - 72
Summary of Quarterly Financial Data (Unaudited) 42
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Required information relating to directors is included in "Election of
Directors" (pages 4 through 7) "Executive Officers" (page 11) and
"Change-in-Control and Employment Arrangements" (page 18) of the Corporation's
Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Required information is included in "Executive Compensation" (pages 12 through
22) of the Corporation's Proxy Statement and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Required information is included in "Security Ownership of Directors, Named
Executive Officers and Others" (pages 8 through 11) of the Corporation's Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Required information is included in "Certain Transactions" (pages 23 through 24)
of the Corporation's Proxy Statement and is incorporated herein by reference.
20
<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE NUMBER IN
--------------------
BANCWEST
CORPORATION
ANNUAL REPORT 1999
(EXHIBIT 13)
--------------------
<S> <C>
(a) 1. Financial Statements
The following financial statements are incorporated by reference in
Part II (Item 8) of this Form 10-K:
Report of Independent Accountants 43
BancWest Corporation and Subsidiaries:
Consolidated Balance Sheets at December 31, 1999 and 1998 44
Consolidated Statements of Income for the
years ended December 31, 1999, 1998 and 1997 45
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997 46
Consolidated Statements of Cash Flows for the
years ended December 31, 1999, 1998 and 1997 47
BancWest Corporation (Parent Company):
Balance Sheets at December 31, 1999 and 1998 71
Statements of Income for the years ended
December 31, 1999, 1998 and 1997 72
Statements of Changes in Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997 46
Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 72
Notes to Consolidated Financial Statements 48 - 72
Summary of Quarterly Financial Data (Unaudited) 42
</TABLE>
2. Financial Statement Schedules
Schedules to the consolidated financial statements required by this
Item 14(a)2 are not required under the related instructions, or the
information is included in the consolidated financial statements, or
are inapplicable, and therefore have been omitted.
3. Exhibits
3.1 Certificate of Incorporation of BancWest Corporation is incorporated
by reference to Exhibit 3.1 of the Corporation's Current Report on
Form 8-K as filed with the SEC on November 5, 1998.
3.2 Amended and Restated Bylaws of BancWest Corporation is incorporated
by reference to Exhibit 3.2 of the Corporation's Current Report on
Form 8-K as filed with the SEC on November 5, 1998.
21
<PAGE> 24
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C> <C>
4. Instruments defining rights of security holders, including
indentures.
4.1 Instruments with respect to long-term debt not filed herewith
will be furnished to the Commission upon its request.
4.2 Indenture, dated as of August 9, 1993, between First Hawaiian,
Inc. and The First National Bank of Chicago, Trustee, is
incorporated by reference to Exhibit 4.2 to the Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1993 as filed with the SEC.
4.3 Indenture, dated as of June 30, 1997, between First Hawaiian,
Inc. and The First National Bank of Chicago, Trustee, is
incorporated by reference to the Corporation's Registration
Statement on Form S-4 as filed with the SEC on October 17,
1997.
4.4 Standstill and Governance Agreement between First Hawaiian,
Inc. and Banque Nationale de Paris, dated as of November 1,
1998, is incorporated by reference to Exhibit 4.1 to the
Corporation's Current Report on Form 8-K as filed with the SEC
on November 5, 1998.
4.5 Registration Rights Agreements between First Hawaiian, Inc.
and Banque Nationale de Paris, dated as of November 1, 1998,
is incorporated by reference to the Corporation's Current
Report on Form 8-K as filed with the SEC on November 5, 1998.
10. Material contracts
10.1 Lease Agreement, dated as of December 1, 1993, between
REFIRST, Inc. and First Hawaiian Bank is incorporated by
reference to Exhibit 10.3 to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993 as
filed with the SEC.
10.2 Ground Lease, dated as of December 1, 1993, among First
Hawaiian Center Limited Partnership, FH Center, Inc. and
REFIRST, Inc. is incorporated by reference to Exhibit 10.5 to
the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 as filed with the SEC.
10.3 Stock Incentive Plan of First Hawaiian, Inc., dated as of
November 22, 1991, is incorporated by reference to Exhibit 10
to the Corporation's Form 10-Q for the quarterly period ended
June 30, 1998 as filed with the SEC.*
10.4 Long-Term Incentive Plan of First Hawaiian, Inc., effective as
of January 1, 1992, is incorporated by reference to Exhibit 10
to the Corporation's Form 10-Q for the quarterly period ended
June 30, 1998 as filed with the SEC.*
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
<S> <C> <C>
10.5 First Hawaiian, Inc. Supplemental Executive Retirement Plan,
as amended and restated as of January 1, 1998, is incorporated
by reference to Exhibit 10 to the Corporation's Form 10-Q for
the quarterly period ended June 30, 1998 as filed with the
SEC.*
10.6 Amendment No. 1 to First Hawaiian, Inc. Supplemental Executive
Retirement Plan, effective November 1, 1998, is incorporated
by reference to Exhibit 10(x) to the Corporation's Form 10-K
for the fiscal year ended December 31, 1998.*
10.7 First Hawaiian, Inc. Deferred Compensation Plan, as amended
and restated as of January 1, 1998, is incorporated by
reference to Exhibit 10 to the Corporation's Form 10-Q for the
quarterly period ended June 30, 1998 as filed with the SEC.*
10.8 First Hawaiian, Inc. Incentive Plan for Key Executives, is
incorporated by reference to Exhibit 10 to the Corporation's
Form 10-Q for the quarterly period ended June 30, 1998 as
filed with the SEC.*
10.9 Amendment to First Hawaiian, Inc. Incentive Plan for Key
Executives adopted October 15, 1998, filed herewith.*
10.10 IPKE Award Policy for Certain Executives adopted February
28, 2000, filed herein.*
10.11 Directors' Retirement Plan, effective as of January 1, 1992,
is incorporated by reference to Exhibit 10 to the
Corporation's Form 10-Q for the quarterly period ended June
30, 1998 as filed with the SEC.*
10.12 First Hawaiian, Inc. 1998 Stock Incentive Plan, effective as
of January 1, 1998, is incorporated by reference to Exhibit 10
to the Corporation's Form 10-Q for the quarterly period ended
June 30, 1998 as filed with the SEC.*
10.13 Sierra Tahoe Bancorp amended 1988 Stock Option Plan,
incorporated by reference to Exhibit A of SierraWest Bancorp
Proxy Statement for its August 16, 1995 annual meeting of
shareholders (File No. 001-11611).*
10.14 SierraWest Bancorp 1996 Stock Option Plan, as amended,
incorporated by reference to Exhibit 99.1 of Registration
Statement on Form S-8 (Registration No. 333-13031) filed by
SierraWest Bancorp on September 30, 1996.*
10.15 Continental Pacific Bank 1990 Amended Stock Option Plan,
incorporated by reference to Exhibit 4.1 of Registration
Statement on Form S-8 (Registration No. 333-51733) filed by
SierraWest Bancorp on May 4, 1998.*
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
<S> <C> <C>
10.16 California Community Bancshares Corporation 1993 Amended and
Restated Stock Option Plan, incorporated by reference to
Exhibit 4.2 of Registration Statement on Form S-8
(Registration No. 333-51733) filed by SierraWest Bancorp on
May 4, 1998.*
10.17 Employment Agreement between Don J. McGrath and the
Corporation, effective November 1, 1998.*
10.18 BancWest Corporation Umbrella Trust(TM) Trust Agreement by and
between BancWest Corporation and Wachovia Bank, N.A., for
BancWest Corporation Supplemental Executive Retirement Plan
and BancWest Corporation Deferred Compensation Plan, executed
November 23, 1999, filed herewith.*
10.19 BancWest Corporation Split-Dollar Plan For Executives,
effective January 1, 1999, filed herewith.*
10.20 Sublease made as of November 1, 1993, between Bank of the West
and Banque Nationale de Paris, is incorporated by reference to
Exhibit 10.19 to the Corporation's Form 10-K for the fiscal
year ended December 31, 1998.
*Management contract or compensatory plan or arrangement.
12. Statement re: computation of ratios.
13. Annual report to security holders - Corporation's Annual
Report 1999.
21. Subsidiaries of the registrant.
23. Consent of independent accountants.
27. Financial data schedule.
</TABLE>
(b) Reports on Form 8-K
None.
(c) The exhibits listed in Item 14(a)3 are incorporated by reference or
attached hereto.
(d) Response to this item is the same as the response to Item 14(a)2.
24
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BANCWEST CORPORATION
(Registrant)
By /s/ HOWARD H. KARR
------------------------------------
HOWARD H. KARR
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Date: March 16, 2000
25
<PAGE> 28
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ WALTER A. DODS, JR. Chairman, March 16, 2000
- ---------------------------------------- Chief Executive Officer --------------------
Walter A. Dods, Jr. & Director Date
/s/ JACQUES ARDANT Director March 16, 2000
- ---------------------------------------- --------------------
Jacques Ardant Date
/s/ JOHN W. A. BUYERS Director March 16, 2000
- ---------------------------------------- --------------------
John W. A. Buyers Date
/s/ JULIA ANN FROHLICH Director March 16, 2000
- ---------------------------------------- --------------------
Julia Ann Frohlich Date
/s/ ROBERT A. FUHRMAN Director March 16, 2000
- ---------------------------------------- --------------------
Robert A. Fuhrman Date
/s/ PAUL MULLIN GANLEY Director March 16, 2000
- ---------------------------------------- --------------------
Paul Mullin Ganley Date
/s/ DAVID M. HAIG Director March 16, 2000
- ---------------------------------------- --------------------
David M. Haig Date
/s/ JOHN A. HOAG Director March 16, 2000
- ---------------------------------------- --------------------
John A. Hoag Date
/s/ BERT T. KOBAYASHI, JR. Director March 16, 2000
- ---------------------------------------- --------------------
Bert T. Kobayashi, Jr. Date
/s/ MICHEL LARROUILH Director March 16, 2000
- ---------------------------------------- --------------------
Michel Larrouilh Date
/s/ PIERRE MARIANI Director March 16, 2000
- ---------------------------------------- --------------------
Pierre Mariani Date
/s/ YVES MARTRENCHAR Director March 16, 2000
- ---------------------------------------- --------------------
Yves Martrenchar Date
/s/ FUJIO MATSUDA Director March 16, 2000
- ---------------------------------------- --------------------
Fujio Matsuda Date
/s/ DON J. McGRATH President, March 16, 2000
- ---------------------------------------- Chief Operating Officer --------------------
Don J. McGrath & Director Date
/s/ RODNEY R. PECK Director March 16, 2000
- ---------------------------------------- --------------------
Rodney R. Peck Date
/s/ JOEL SIBRAC Vice Chairman March 16, 2000
- ---------------------------------------- & Director --------------------
Joel Sibrac Date
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ JOHN K. TSUI Vice Chairman, March 16, 2000
- ---------------------------------------- Chief Credit Officer --------------------
John K. Tsui & Director Date
/s/ JACQUES HENRI WAHL Director March 16, 2000
- ---------------------------------------- --------------------
Jacques Henri Wahl Date
/s/ FRED C. WEYAND Director March 16, 2000
- ---------------------------------------- --------------------
Fred C. Weyand Date
/s/ ROBERT C. WO Director March 16, 2000
- ---------------------------------------- --------------------
Robert C. Wo Date
/s/ HOWARD H. KARR Executive Vice President March 16, 2000
- ---------------------------------------- & Chief Financial Officer --------------------
Howard H. Karr (Principal financial and accounting officer) Date
</TABLE>
27
<PAGE> 30
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
3.1 Certificate of Incorporation of BancWest Corporation is
incorporated by reference to Exhibit 3.1 of the Corporation's
Current Report on Form 8-K as filed with the SEC on November
5, 1998.
3.2 Amended and Restated Bylaws of BancWest Corporation is
incorporated by reference to Exhibit 3.2 of the Corporation's
Current Report on Form 8-K as filed with the SEC on November
5, 1998.
4. Instruments defining rights of security holders, including
indentures.
4.1 Instruments with respect to long-term debt not filed herewith
will be furnished to the commission upon its request.
4.2 Indenture, dated as of August 9, 1993, between First Hawaiian,
Inc. and The First National Bank of Chicago, Trustee, is
incorporated by reference to Exhibit 4.2 to the Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1993 as filed with the SEC.
4.3 Indenture, dated as of June 30, 1997, between First Hawaiian,
Inc. and The First National Bank of Chicago, Trustee, is
incorporated by reference to the Corporation's Registration
Statement on Form S-4 as filed with the SEC on October 17,
1997.
4.4 Standstill and Governance Agreement between First Hawaiian,
Inc. and Banque Nationale de Paris, dated as of November 1,
1998, is incorporated by reference to Exhibit 4.1 to the
Corporation's Current Report on Form 8-K as filed with the SEC
on November 5, 1998.
4.5 Registration Rights Agreements between First Hawaiian, Inc.
and Banque Nationale de Paris, dated as of November 1, 1998,
is incorporated by reference to the Corporation's Current
Report on Form 8-K as filed with the SEC on November 5, 1998.
10. Material contracts
10.1 Lease Agreement, dated as of December 1, 1993, between
REFIRST, Inc. and First Hawaiian Bank is incorporated by
reference to Exhibit 10.3 to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993 as
filed with the SEC.
10.2 Ground Lease, dated as of December 1, 1993, among First
Hawaiian Center Limited Partnership, FH Center, Inc. and
REFIRST, Inc. is incorporated by reference to Exhibit 10.5 to
the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 as filed with the SEC.
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
<S> <C> <C>
10.3 Stock Incentive Plan of First Hawaiian, Inc., dated as of
November 22, 1991, is incorporated by reference to Exhibit 10
to the Corporation's Form 10-Q for the quarterly period ended
June 30, 1998 as filed with the SEC.*
10.4 Long-Term Incentive Plan of First Hawaiian, Inc., effective as
of January 1, 1992, is incorporated by reference to Exhibit 10
to the Corporation's Form 10-Q for the quarterly period ended
June 30, 1998 as filed with the SEC.*
10.5 First Hawaiian, Inc. Supplemental Executive Retirement Plan,
as amended and restated as of January 1, 1998, is incorporated
by reference to Exhibit 10 to the Corporation's Form 10-Q for
the quarterly period ended June 30, 1998 as filed with the
SEC.*
10.6 Amendment No. 1 to First Hawaiian, Inc. Supplemental Executive
Retirement Plan, effective November 1, 1998, is incorporated
by reference to Exhibit 10(x) to the Corporation's Form 10-K
for the fiscal year ended December 31, 1998.*
10.7 First Hawaiian, Inc. Deferred Compensation Plan, as amended
and restated as of January 1, 1998, is incorporated by
reference to Exhibit 10 to the Corporation's Form 10-Q for the
quarterly period ended June 30, 1998 as filed with the SEC.*
10.8 First Hawaiian, Inc. Incentive Plan for Key Executives, is
incorporated by reference to Exhibit 10 to the Corporation's
Form 10-Q for the quarterly period ended June 30, 1998 as
filed with the SEC.*
10.9 Amendment to First Hawaiian, Inc. Incentive Plan for Key
Executives adopted October 15, 1998, filed herewith.*
10.10 IPKE Award Policy for Certain Executives adopted February
28, 2000, filed herein.*
10.11 Directors' Retirement Plan, effective as of January 1, 1992,
is incorporated by reference to Exhibit 10 to the
Corporation's Form 10-Q for the quarterly period ended June
30, 1998 as filed with the SEC.*
10.12 First Hawaiian, Inc. 1998 Stock Incentive Plan, effective as
of January 1, 1998, is incorporated by reference to Exhibit 10
to the Corporation's Form 10-Q for the quarterly period ended
June 30, 1998 as filed with the SEC.*
10.13 Sierra Tahoe Bancorp amended 1988 Stock Option Plan,
incorporated by reference to Exhibit A of SierraWest Bancorp
Proxy Statement for its August 16, 1995 annual meeting of
shareholders (File No. 001-11611).*
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C> <C>
10.14 SierraWest Bancorp 1996 Stock Option Plan, as amended,
incorporated by reference to Exhibit 99.1 of Registration
Statement on Form S-8 (Registration No. 333-13031) filed by
SierraWest Bancorp on September 30, 1996.*
10.15 Continental Pacific Bank 1990 Amended Stock Option Plan,
incorporated by reference to Exhibit 4.1 of Registration
Statement on Form S-8 (Registration No. 333-51733) filed by
SierraWest Bancorp on May 4, 1998.*
10.16 California Community Bancshares Corporation 1993 Amended and
Restated Stock Option Plan, incorporated by reference to
Exhibit 4.2 of Registration Statement on Form S-8
(Registration No. 333-51733) filed by SierraWest Bancorp on
May 4, 1998.*
10.17 Employment Agreement between Don J. McGrath and the
Corporation, effective November 1, 1998.*
10.18 BancWest Corporation Umbrella Trust(TM) Trust Agreement by and
between BancWest Corporation and Wachovia Bank, N.A., for
BancWest Corporation Supplemental Executive Retirement Plan
and BancWest Corporation Deferred Compensation Plan, executed
November 23, 1999, filed herewith.*
10.19 BancWest Corporation Split-Dollar Plan For Executives,
effective January 1, 1999, filed herewith.*
10.20 Sublease made as of November 1, 1993, between Bank of the West
and Banque Nationale de Paris, is incorporated by reference to
Exhibit 10.19 to the Corporation's Form 10-K for the fiscal
year ended December 31, 1998.
*Management contract or compensatory plan or arrangement.
12. Statement re: computation of ratios.
13. Annual report to security holders - Corporation's Annual
Report 1999.
21. Subsidiaries of the registrant.
23. Consent of independent accountants.
27. Financial data schedule.
</TABLE>
30
<PAGE> 1
EXHIBIT 10.9
AMENDMENT TO
FIRST HAWAIIAN, INC.
INCENTIVE PLAN FOR KEY EXECUTIVES
In accordance with paragraph 10 of the First Hawaiian, Inc. Incentive
Plan for Key Executives (hereinafter the "Plan"), Section 3.b of the Plan is
hereby amended by adding a new sentence at the end thereof to read in its
entirety as follows:
In calculating the Consolidated Income Before Income Taxes and
Securities Gains of the Group, the Committee, in consultation with the
Chief Executive Officer and/or the Chief Financial Officer, may make
such adjustments to the reported amount as the Committee may deem
appropriate in the circumstances.
The amendments set forth herein shall be effective as of the date BancWest
Corporation, a California corporation, is merged with and into First Hawaiian,
Inc., a Delaware corporation.
TO RECORD the adoption of these amendments, First Hawaiian, Inc. has
executed this document this 15th day of October, 1998.
FIRST HAWAIIAN, INC.
By /s/ Herbert E. Wolff
-----------------------------
Its Senior Vice President
and Secretary
<PAGE> 1
EXHIBIT 10.10
RESOLUTION OF
EXECUTIVE COMPENSATION COMMITTEE
OF
BANCWEST CORPORATION
Re: IPKE Award Policy for Certain Executives
WHEREAS, Section 162(m) of the Internal Revenue Code ("Section 162(m)")
precludes an income tax deduction for compensation in excess of $1,000,000 per
year paid to a publicly held corporation's chief executive officer and its four
other highest paid executive officers unless certain performance-based criteria
are satisfied;
WHEREAS, this Committee desires to establish a policy regarding Section
162(m) applicable to annual incentive awards to certain executives under the
BancWest Corporation Incentive Plan for Key Executives (the "IPKE");
NOW, THEREFORE, BE IT RESOLVED, that this Committee hereby establishes
the following policy regarding Section 162(m) and the IPKE:
1. This policy shall apply to any key executive of BancWest
Corporation (the "corporation") and its subsidiaries whose
compensation, in the Committee's judgment, may be or become subject to
the provisions of Section 162(m) and who is designated by the
Committee, in its discretion, no later than the ninetieth day of a
calendar year (a "plan year"), as an executive covered by this policy
for such plan year. Such an executive is referred to herein as a
"Covered Executive".
2. Subject to this Committee's discretion to reduce the amount of
any award that is subject to this policy, each Covered Executive for a
plan year shall be granted an award (an "Incentive Award") equal to the
lesser of (i) .4% of the Corporation's "Net Income Before Taxes" for
such year or (ii) 100% of the Covered Executive's annualized base
salary in effect on the ninetieth day of the plan year. Such an
Incentive Award may, in the Committee's discretion, be paid in any form
permitted by Section 3.c of the IPKE, and unless otherwise determined
by the Committee shall be paid within 90 days after the close of the
plan year. Solely for purposes of this policy, "Net Income Before
Taxes" means for any plan year the Corporation's net income before
income taxes as reported in the Corporation's consolidated financial
statements for that year, as adjusted to eliminate the effects of any
of the following: (a) the cumulative effect of changes in generally
accepted accounting principles; (b) losses resulting from discontinued
operations; (c) securities gains and losses; (d) restructuring,
1
<PAGE> 2
merger-related and other nonrecurring costs; (e) amortization of
goodwill and intangible assets; (f) extraordinary gains or losses; and
(g) any other unusual, nonrecurring gain or loss that is separately
quantified in the Corporation's financial statements. Net Income Before
Taxes shall be calculated on the assumption that all Incentive Awards
under this policy for a plan year will be paid without reduction by the
Committee.
3. Notwithstanding any other provisions of this policy or the
IPKE:
a. This Committee shall not have discretion to increase
the amount of an Incentive Award payable for a plan year to a
Covered Executive above the amount determined in accordance
with paragraph 2.
b. At any time prior to payment of an Incentive Award
covered by this policy, this Committee in its sole discretion
may reduce (including a reduction to zero) the amount payable
under such Award.
c. Any such reduction in the amount payable to a Covered
Executive under an Incentive Award shall not, for purposes of
calculating the amount to be paid to other Covered Executives
under this policy, result in recalculation of Net Income
Before Taxes.
4. In accordance with the requirements of Section 162(m), prior
to any payment of an Incentive Award under this policy, this Committee
shall certify in writing the amount of the Corporation's Net Income
Before Taxes for the applicable plan year.
5. If a Covered Executive terminates employment with the
Corporation and its subsidiaries prior to the end of the plan year, this
Committee may in its discretion determine the amount, if any, of the
Incentive Award determined for such year pursuant to paragraph 2 that
shall be paid to the Covered Executive. Any such payment shall be made
no earlier than the date Incentive Awards for the plan year are to be
paid to other Covered Executives.
6. For each plan year during which the IPKE remains in effect,
the amount of Incentive Awards paid under this policy shall reduce the
aggregate amount of awards that may be paid for such year to non-Covered
Executives under the limitation imposed by Section 3.b of the IPKE.
2
<PAGE> 3
7. This policy applies only to awards or payments to Covered
Executives made under the IPKE (or a short-term incentive or bonus plan
designated by the Committee pursuant to paragraph 8). Nothing in this
policy shall preclude this Committee or the Corporation from making any
other payment or award to a Covered Executive, regardless of whether
such payment or award qualifies for tax deductibility under Section
162(m).
8. This Committee may amend or terminate this policy at any time.
Unless this policy is expressly terminated by the Committee, it shall
remain in effect notwithstanding any termination of the IPKE. This
policy (other than paragraph 6 and the salary-based limitation set forth
in the first sentence of paragraph 2) shall thereafter be applied to
such short-term incentive or bonus plans, if any, as are designated in
writing by the Committee. So long as the IPKE remains in effect, any
provision of this policy that is inconsistent with those of the IPKE
shall supersede the corresponding IPKE provisions with respect to
Covered Executives for any plan year.
9. In accordance with the requirements of Section 162(m), this
policy shall be submitted to the Corporation's stockholders for
approval. If the Corporation's stockholders fail to approve this policy,
this policy shall be void and no payments shall be made under this
policy.
CERTIFICATE
I, HERBERT E. WOLFF, the duly elected and acting Secretary of BANCWEST
CORPORATION, a Delaware corporation (the "Company"), do hereby certify that the
foregoing resolution was duly and validly adopted at a meeting of the Executive
Compensation Committee of the Company duly convened and held on February 28,
2000, and that such resolution is in full force and effect on the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of March
2000.
/s/ Herbert E. Wolff
-----------------------------
Secretary
3
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the date specified below as the
effective date (the "Effective Date"), by and between DON J. MCGRATH (the
"Employee") and FIRST HAWAIIAN, INC., a Delaware corporation (the "Company").
1. Term of Employment.
(a) Basic Rule. The Company agrees to employ the Employee, and the
Employee agrees to remain in employment with the Company, and as set forth in
Section 2 below, the Company's subsidiary (and any successor entity thereto),
Bank of the West (the "Bank") from the Effective Date until the date when the
Employee's employment terminates pursuant to Subsection (b), (c) or (d) below.
(b) Early Termination. Subject to Sections 6, 7 and 8, the Company may
terminate the Employee's employment by giving the Employee 30 days' advance
notice in writing. The Employee may terminate his employment by giving the
Company 30 days' advance notice in writing. The Employee's employment shall
terminate automatically in the event of his death. Any waiver of notice shall be
valid only if it is made in writing and expressly refers to the applicable
notice requirement of this Section 1.
(c) Cause. Subject to the provisions of this Subsection (c), upon
written notice to the Employee, the Company may at any time terminate the
Employee's employment for Cause. For all purposes under this Agreement, "Cause"
shall mean:
(i) A material failure by the Employee to perform his duties,
other than a failure resulting from the Employee's complete or partial
incapacity due to physical or mental illness or impairment, hereunder;
(ii) Gross misconduct, fraud or dishonesty to the Company or its
employees; or
(iii) Conviction of, or plea of "guilty" or "no contest" to, a
felony; or
(iv) A material violation by the Employee in the course of his
duties hereunder of any law or regulation to which the Company is
subject provided that the Employee knew or should have known that the
conduct in question was in violation of such law or regulation;
provided, that a violation of such law or regulation shall be deemed
to be "material" only if it results in material financial loss to the
Company or if it materially impairs the Employee's ability to perform
his duties hereunder or his value to the Company as its officer; and
provided, further, that the Employee shall be fully protected by, and
entitled to rely upon, advice of counsel to the Company for purposes
of determining whether the Employee knew or should have known that the
conduct in question was in violation of such law or regulation.
(d) Disability. Subject to Section 8, the Company may terminate the
Employee's active
-1-
<PAGE> 2
employment due to Disability by giving the Employee 30 days' advance notice in
writing. For all purposes under this Agreement, "Disability" shall mean a
physical or mental incapacity that qualifies the Employee for payments under the
Company's group long-term disability insurance policy or plan (the "LTD Plan").
In the event that the Employee resumes the performance of substantially all of
his duties hereunder before the termination of his active employment under this
Subsection (d) becomes effective, the notice of termination shall automatically
be deemed to have been revoked.
(e) Rights Upon Termination. Except as expressly provided in Sections
6, 7 and 8, upon the termination of the Employee's employment pursuant to this
Section 1, the Employee shall only be entitled to the compensation, benefits and
reimbursements under the plans, programs or policies described in Sections 3, 4
and 5 and which accrued or vested during the period preceding the effective date
of the termination or as a consequence of such termination (whether payable on
such termination or thereafter). The payments under this Agreement shall fully
discharge all responsibilities of the Company and the Bank to the Employee,
other than the Employee's entitlement to such accrued or vested compensation,
benefits and reimbursements as referred to in the preceding sentence.
(f) Termination of Agreement. This Agreement shall terminate when all
obligations of the parties hereunder have been satisfied.
2. Duties and Scope of Employment.
(a) Position. The Company agrees to employ the Employee as its
President and Chief Operating Officer for the term of his employment under this
Agreement. In addition, the Company agrees to cause the Bank to employ the
Employee as the Bank's President and Chief Executive Officer for the term of
this Agreement. The Employee, as President and Chief Operating Officer of the
Company, shall report to the Chief Executive Officer of the Company and in his
capacity as President and Chief Executive Officer of the Bank, the Employee
shall report to the Board of Directors of the Bank (the "Bank of the West
Board"). As of the Effective Date, the Employee shall be appointed to serve as a
member of the Board of Directors of the Company (the "Board") and, thereafter,
the Company agrees to use its best efforts to have the Employee reelected to the
Board. The Company shall also appoint the Employee to the Bank of the West Board
and cause the reelection of the Employee to the Bank of the West Board. The
Employee's principal offices for the performance of his duties hereunder shall
be located in the San Francisco Bay Area. However, the Company shall also
maintain suitable offices and secretarial support for the Employee at its
headquarters in Honolulu, Hawaii for use while he is performing services at that
location.
(b) Obligations. During the term of his employment under this
Agreement, the Employee shall devote his full business efforts and time to the
Company and its affiliates. He shall not render services to any other person
without the express prior approval of the Board (including, without limitation,
services as a member of the board of directors of another corporation).
Membership on the board of directors of another corporation shall not be
approved unless:
(i) Such other corporation is not engaged in activities that are
competitive, or potentially competitive, with the Company;
(ii) Such other corporation is of a quality and stature
commensurate, in the sole judgment of the Board, with the Employee's
position under this Agreement and with
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<PAGE> 3
the Company's objectives; and
(iii) The Employee's aggregate time commitments to board
memberships are consistent with his responsibilities under this
Agreement.
The foregoing shall not preclude the Employee from engaging in appropriate
civic, charitable or religious activities or from devoting a reasonable amount
of time to private investments that do not interfere or conflict with his
responsibilities to the Company.
3. Salary.
(a) Amount of Salary. During the term of his employment under this
Agreement, the Company agrees to pay the Employee as compensation for his
services to the Company and the Bank a base salary at the annual rate of
$650,000 or at such higher rate as the Company may determine from time to time.
Such salary shall be payable in accordance with the Company's standard payroll
procedures. Once the Company has increased such salary, it thereafter shall not
be reduced for any reason. The Company covenants that such base salary is and
shall be, during the term hereof, the second highest base salary of any employee
of the Company or any of its subsidiaries.
(b) Base Compensation. For purposes of this Agreement, the term "Base
Compensation" for a year means the difference between:
(i) The Employee's total compensation for such year, as shown on
the Form W-2 prepared by the Company for such year; minus
(ii) All bonuses received by the Employee in such year.
4. Vacations and Employee Benefits.
During the term of his employment under this Agreement, the Employee
shall be entitled to not less than four weeks of paid vacation time per annum.
During such term, the Employee shall also be eligible to participate in all of
the employee benefit plans and executive compensation programs (including, but
not limited to, all bonus, incentive, stock, stock option, deferred compensation
and retirement plans and executive loan programs) maintained by the Company or
the Bank, subject, in each case to the generally applicable terms and conditions
of the plan in question and to the determinations of any person or committee
administering such plan. The determination as to the amounts of any awards
available to the Employee under these programs shall be reviewed at least
annually by the Company's Executive Compensation Committee to ensure that such
amounts are competitive with awards granted to similarly situated executives of
publicly held bank holding companies comparable to the Company.
5. Business Expenses.
During the term of his employment under this Agreement, the Employee
shall be authorized to incur necessary and reasonable travel, entertainment and
other business expenses in connection with his duties hereunder. The Company, or
the Bank, shall reimburse the Employee for such expenses upon presentation of an
itemized account and appropriate supporting documentation, all in accordance
with the Company's generally applicable policies.
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<PAGE> 4
6. Termination After Change in Control.
(a) Definition. For all purposes under this Agreement, "Change in
Control" shall have the meaning ascribed to such term in the Standstill and
Governance Agreement (the "Standstill Agreement") in the form attached as
Exhibit C to the Agreement and Plan of Merger dated as of May 28, 1998 (the
"Merger Agreement"), between Banc West Corporation and the Company.
Notwithstanding the foregoing sentence, no "Change in Control" for purposes of
this Agreement shall be deemed to occur if the "person" (as defined in the
Standstill Agreement) who acquires control pursuant to such definition shall be
Banque Nationale de Paris or any Affiliate thereof.
(b) Good Reason. For all purposes under this Agreement, "Good Reason"
shall mean that the Employee, without his consent:
(i) Has incurred a material reduction in his title, authority or
responsibility at the Company or the Bank;
(ii) Has incurred a reduction in his Base Compensation;
(iii) Has been notified that his principal place of work will be
relocated by a distance of 50 miles or more; or
(iv) Is required to work more than 120 days per year outside of
the Employee's principal offices.
(c) Special Severance Payment. The Employee shall be entitled to
receive a severance payment from the Company (the "Special Severance Payment")
if, during the term of this Agreement and within the first 12-month period after
the occurrence of a Change in Control becomes effective, either:
(i) The Employee voluntarily resigns his employment with the
Company for Good Reason; or
(ii) The Company terminates the Employee's employment with the
Company for any reason other than Cause or Disability.
The Special Severance Payment shall be made in a lump sum not more than five
business days following the date of the employment termination and shall be in
an amount determined under Subsection (d) below. The Special Severance Payment
shall be in lieu of any further payments to the Employee under Section 3 and any
further accrual of benefits under Section 4 with respect to periods subsequent
to the date of the employment termination. Notwithstanding the preceding
sentence, however, the Employee shall be entitled to any payments or
acceleration of the vesting of awards which occur under the terms of any plan
described in Section 4 as a result of the Change in Control. With respect to any
options granted to the Employee pursuant to a stock option plan, the Employee
shall be 100% vested in any option outstanding upon a Change in Control. If the
Employee's employment is terminated pursuant to this Section 6(c), and
notwithstanding anything to the contrary in the Company's stock option plans and
the Employee's stock option agreements, the Employee shall have a minimum of
eighteen (18) months to exercise such options (irrespective of termination of
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<PAGE> 5
employment).
(d) Amount. The amount of the Special Severance Payment shall be equal
to 300% of the sum of the following:
(i) The Employee's annual rate of Base Compensation, as in effect
on the date of the employment termination; plus
(ii) The arithmetic mean of the annual bonuses awarded to the
Employee by the Company (or by the Bank in respect of the period prior
to the Effective Date) for the three most recent consecutive fiscal
years ending prior to the date of the employment termination
(regardless of when paid). If the Company has determined that no bonus
shall be awarded to the Employee for a fiscal year, such bonus shall
be included in the calculation as zero.
(e) Insurance Coverage. During the 12-month period commencing upon a
termination of employment described in Subsection (c) above, the Employee (and,
where applicable, his dependents) shall be entitled to continue participation in
the group insurance plans maintained by the Company, including life, disability
and health insurance programs, as if he were still an employee of the Company.
Where applicable, the Employee's salary for purposes of such plans shall be
deemed to be equal to his Base Compensation. To the extent that the Company
finds it impossible to cover the Employee under its group insurance policies
during such 12-month period, the Company shall provide the Employee with
individual policies which offer at least the same level of coverage and which
impose not more than the same costs on him. The foregoing notwithstanding, in
the event that the Employee becomes eligible for comparable group insurance
coverage in connection with new employment, the coverage provided by the Company
under this Subsection (e) shall terminate immediately. Any group health
continuation coverage that the Company is required to offer under the
Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA") shall commence
when coverage under this Subsection (e) terminates.
(f) No Mitigation. The Employee shall not be required to mitigate the
amount of any payment contemplated by this Section 6 (whether by seeking new
employment or in any other manner). Except as expressly provided in Subsection
(e) above, no such payment shall be reduced by earnings that the Employee may
receive from any other source.
7. Involuntary Termination Without Cause Or Voluntary Resignation for
Good Reason.
(a) Regular Severance Payment. The Employee shall be entitled to
receive a severance payment from the Company (the "Regular Severance Payment")
if, (i) during the term of this Agreement the Company terminates the Employee's
employment for any reason other than Cause or Disability, and Section 6 does not
apply or (ii) the Employee voluntarily resigns his employment with the Company
for Good Reason.
The Regular Severance Payment shall be made in a lump sum not more than five
business days following the date of the employment termination and shall be in
an amount determined under Subsection (b) below. The Regular Severance Payment
shall be in lieu of any further payments to the Employee under Section 3 and any
further accrual of benefits under Section 4 with respect to periods
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<PAGE> 6
subsequent to the date of the employment termination.
(b) Amount. The amount of the Regular Severance Payment shall be equal
to 300% of the sum of the following:
(i) The Employee's annual rate of Base Compensation, as in effect
on the date of the employment termination; plus
(ii) The arithmetic mean of the annual bonuses awarded to the
Employee by the Company (or by the Bank in respect of the period prior
to the Effective Date) for the three most recent consecutive fiscal
years ending prior to the date of the employment termination
(regardless of when paid). If the Company has determined that no bonus
shall be awarded to the Employee for a fiscal year, such bonus shall
be included in the calculation as zero.
(c) Insurance Coverage. During the 12-month period commencing upon a
termination of employment described in Subsection (a) above, the Employee (and,
where applicable, his dependents) shall be entitled to continue participation in
the group insurance plans maintained by the Company, including life, disability
and health insurance programs, as if he were still an employee of the Company.
Where applicable, the Employee's salary for purposes of such plans shall be
deemed to be equal to his Base Compensation. To the extent that the Company
finds it impossible to cover the Employee under its group insurance policies
during such 12-month period, the Company shall provide the Employee with
individual policies which offer at least the same level of coverage and which
impose not more than the same costs on him. The foregoing notwithstanding, in
the event that the Employee becomes eligible for comparable group insurance
coverage in connection with new employment, the coverage provided by the Company
under this Subsection (c) shall terminate immediately. Any group health
continuation coverage that the Company is required to offer under COBRA shall
commence when coverage under this Subsection (c) terminates.
(d) No Mitigation. The Employee shall not be required to mitigate the
amount of any payment contemplated by this Section 7 (whether by seeking new
employment or in any other manner). Except as expressly provided in Subsection
(c) above, no such payment shall be reduced by earnings that the Employee may
receive from any other source.
(e) Option Plans. Notwithstanding anything to the contrary in the
Company's stock option plans and the Employee's stock option agreements, in the
event of a termination of the Employee under this Section 7, the Employee shall
be credited with an additional year of service for purposes of determining the
vested portion of the Employee's stock options as of the date of such
termination.
8. Termination for Disability.
(a) Disability Continuation Period. In the event that, during the term
of this Agreement, the Company terminates the Employee's employment for
Disability, the Employee shall be entitled to receive all of the payments and
benefit coverage described in this Section 8. Such payments and benefit coverage
shall continue for the period (the "Disability Continuation Period") commencing
on the date when the employment termination is effective and ending on the
earliest of:
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<PAGE> 7
(i) The date 36 months after such date;
(ii) The date when the Employee's benefits under the LTD Plan
terminate; or
(iii) The date of the Employee's death.
(b) Compensation. During the Disability Continuation Period, the
Company shall pay the Employee compensation at an annual rate equal to the
difference between:
(i) The sum of the following:
(A) The Employee's annual rate of Base Compensation, as in
effect on the date of the employment termination; plus
(B) The arithmetic mean of the annual bonuses awarded to the
Employee by the Company (or by the Bank in respect of the period prior
to the Effective Date) for the three most recent consecutive fiscal
years ending prior to the date of the employment termination
(regardless of when paid); minus
(ii) The benefits received by the Employee during the applicable
period under the LTD Plan.
If the Company has determined that no bonus shall be awarded to the Employee for
a fiscal year, such bonus shall be included in the calculation as zero.
Compensation under this Subsection (b) shall be paid at periodic intervals in
accordance with the Company's standard payroll procedures.
(c) Insurance Coverage. During the Disability Continuation Period, the
Employee (and, where applicable, his dependents) shall be entitled to continue
participation in the group insurance plans maintained by the Company, including
life, disability and health insurance programs, as if he were still an employee
of the Company. Where applicable, the Employee's salary for purposes of such
plans shall be deemed to be equal to his Base Compensation. To the extent that
the Company finds it impossible to cover the Employee under its group insurance
policies during the Disability Continuation Period, the Company shall provide
the Employee with individual policies which offer at least the same level of
coverage and which impose not more than the same costs on him. Any group health
continuation coverage that the Company is required to offer under COBRA shall
commence when coverage under this Subsection (c) terminates.
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<PAGE> 8
9. Successors.
(a) Company's Successors. The Company shall require any successor
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets, by an agreement in substance and form
satisfactory to the Employee, to assume this Agreement and to agree expressly to
perform this Agreement in the same manner and to the same extent as the Company
would be required to perform it in the absence of a succession. The Company's
failure to obtain such agreement prior to the effectiveness of a succession
shall be a breach of this Agreement and shall entitle the Employee to all of the
compensation and benefits to which he would have been entitled hereunder if the
Company had involuntarily terminated his employment without Cause immediately
after such succession becomes effective. For all purposes under this Agreement,
the term "Company" shall include any successor to the Company's business and/or
assets which executes and delivers the assumption agreement described in this
Subsection (a) or which becomes bound by this Agreement by operation of law.
(b) Employee's Successors. This Agreement and all rights of the
Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
10. Non-Disclosure of Confidential Information.
During the term of this Agreement and thereafter, the Employee shall
not, without the prior written consent of the Board, disclose or use for any
purpose (except in the course of his employment and in furtherance of the
business of the Company and its subsidiaries) confidential information or
proprietary data of the Company and its subsidiaries, except as required by
applicable law or legal process; provided, however, that confidential
information shall not include any information known generally to the public or
ascertainable from public or published information (other than as a result of
unauthorized disclosure by the Employee) or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that conducted by the Company and its subsidiaries. The
Employee agrees to deliver to the Company at the termination of his employment,
or at any other time the Company may request, all memoranda, notes, plans,
records, reports and other documents (and copies thereof) relating to the
business of the Company and its subsidiaries which he may then possess or have
under his control.
11. Non-Competition.
(a) Covenant Not To Compete. This Section 11 shall apply:
(i) During the term of this Agreement;
(ii) For three years after the Employee receives the Regular
Severance Payment under Section 7; and
(iii) For three years after the Employee voluntarily resigns his
employment for any reason not described in Section 6, but only if the
Company voluntarily makes all provisions of Section 7 applicable to
him.
While this Section 11 applies, the Employee shall not, directly or indirectly,
engage in any banking
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<PAGE> 9
business or activity in the States of California, Hawaii, Oregon, Washington, or
Idaho ("Competitive Business") nor be employed by, render services of any kind
to, advise or receive compensation in any form from, nor invest or participate
in any manner or capacity in, any entity or person which directly or indirectly
engages in a Competitive Business.
(b) Exception. Subsection (a) above shall not preclude investments in a
corporation whose stock is traded on a public market and of which the Employee
owns less than one percent of the outstanding shares.
(c) Purpose of Covenant. It is agreed by both parties hereto that the
covenants contained in Subsection (a) above are reasonable and necessary to
protect the confidentiality of the customer, lists and trade secrets, and other
confidential information concerning the Company, acquired by the Employee.
(d) Specific Performance. The Employee and the Company recognize and
agree that (i) because of the nature of the businesses in which the Company and
its subsidiaries are engaged and because of the nature of the confidential
information that the Employee has acquired or will acquire with respect to the
businesses of the Company and its subsidiaries, it would be impracticable and
excessively difficult to determine the actual damages of the Company or its
subsidiaries in the event that the Employee breaches any of the covenants
contained in Subsection (a) above, and (ii) damages in an action at law would
not constitute reasonable or adequate compensation to the Company or its
subsidiaries in the event that the Employee breaches any of such covenants.
Accordingly, if the Employee commits any breach of such covenants or threatens
to commit any such breach, then the Company shall have the right to have the
covenants contained in Subsection (a) above specifically enforced by any court
having equity jurisdiction, without posting bond or other security, it being
acknowledged and agreed by both parties hereto that any such breach or
threatened breach would cause irreparable injury to the Company and its
subsidiaries and that an injunction may be issued against the Employee. The
rights described in this Subsection (d) shall be in addition to, and not in lieu
of, any other rights or remedies available to the Company under law or in
equity.
(e) Modification by Court. If any of the covenants contained in
Subsection (a) above is determined to be unenforceable because of the duration
of such covenants or the area covered thereby, then the court making the
determination shall have the power to reduce the duration of such covenants
and/or the area covered thereby, and such covenants, in their reduced form,
shall be enforceable.
(f) Different Jurisdictions. If any of the covenants contained in
Subsection (a) above is determined to be wholly unenforceable by the courts of
any domestic or foreign jurisdiction, then the determination shall not bar or in
any way affect the Company's right to relief in the courts of any other
jurisdiction with respect to any breach of such covenants in such other
jurisdiction. Such covenants, as they relate to each jurisdiction, shall be
severable into independent covenants and shall be governed by the laws of the
jurisdiction where a breach occurs.
(g) Discontinuance of Severance Pay. In the event that the Employee
breaches any of the covenants contained in Subsection (a) above, the Company may
discontinue all payments and benefits to the Employee under Section 7.
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<PAGE> 10
12. No Solicitation.
This Section 12 shall apply (a) during the term of this Agreement and
(b) during the one-year period following the termination of the Employee's
employment for any reason not described in Section 6. While this Section 12
applies, the Employee shall not, directly or indirectly, contact any employee of
the Company or any of its subsidiaries to solicit such employee (or any entity
in which such employee has a significant equity interest) to become an employee,
partner or independent contractor of the Employee or any other person.
13. Tax Effect of Payments.
Excise Tax Restoration Payment. In the event that it is determined that
any payment or distribution of any type to or for the benefit of the Employee
made by the Company, by any of its affiliates, by any person who acquires
ownership or effective control of the Company or ownership of a substantial
portion of the Company's assets (within the meaning of section 280G of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder (the
"Code")) or by any affiliate of such person, whether paid or payable or
distributed or distributable pursuant to the terms of an employment agreement or
otherwise (the "Total Payments"), would be subject to the excise tax (such
excise tax, together with any such interest or penalties, are collectively
referred to as the "Excise Tax"), then the Employee shall be entitled to receive
an additional payment (an "Excise Tax Restoration Payment") in an amount that
shall fund the payment by the Employee of any Excise Tax on the Total Payments
as well as all income taxes imposed on the Excise Tax Restoration Payment, any
Excise Tax imposed on the Excise Tax Restoration Payment and any interest or
penalties imposed with respect to taxes on the Excise Tax Restoration Payment or
any Excise Tax.
Determination by Auditors. All mathematical determinations and all
determinations of whether any of the Total Payments are "parachute payments"
(within the meaning of section 280G of the Code) that are required to be made
under this agreement, including all determinations of whether an Excise Tax
Restoration Payment is required, of the amount of such Excise Tax Restoration
Payment and of amounts relevant to the last sentence of this agreement, shall be
made by the independent auditors retained by the Company most recently prior to
the change in control (the "Auditors"), who shall provide their determination
(the "Determination"), together with detailed supporting calculations regarding
the amount of any Excise Tax Restoration Payment and any other relevant matters,
both to the Company and to the Employee within seven business days of the
Employee's termination date, if applicable, or such earlier time as is requested
by the Company or by the Employee (if the Employee reasonably believes that any
of the Total Payments may be subject to the Excise Tax). If the Auditors
determine that no Excise Tax is payable by the Employee, it shall furnish the
Employee with a written statement that such Auditors have concluded that no
Excise Tax is payable (including the reasons therefor) and that the Employee has
substantial authority not to report any Excise Tax on the Employee's federal
income tax return. If an Excise Tax Restoration Payment is determined to be
payable, it shall be paid to the Employee within five business days after the
Determination is delivered to the Company or the Employee. Any determination by
the Auditors shall be binding upon the Company and the Employee, absent manifest
error.
Underpayments and Overpayments. As a result of uncertainty in the
application of section 4999 of the Code at the time of the initial determination
by the Auditors hereunder, it is possible that Excise Tax Restoration Payments
not made by the Company should have been made ("Underpayments") or that Excise
Tax Restoration Payments will have been made by the Company
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<PAGE> 11
which should not have been made ("Overpayments"). In either event, the Auditors
shall determine the amount of the Underpayment or Overpayment that has occurred.
In the case of an Underpayment, the amount of such Underpayment shall promptly
be paid by the Company to or for the benefit of the Employee. In the case of an
Overpayment, the Employee shall, at the direction and expense of the Company,
take such steps as are reasonably necessary (including the filing of returns and
claims for refund), follow reasonable instructions from, and procedures
established by, the Company and otherwise reasonably cooperate with the Company
to correct such Overpayment; provided, however, that (i) the Employee shall in
no event be obligated to return to the Company an amount greater than the net
after-tax portion of the Overpayment that the Employee has retained or has
recovered as a refund from the applicable taxing authorities and (ii) this
provision shall be interpreted in a manner consistent with the intent of this
agreement, which is to make the Employee whole, on an after-tax basis, for the
application of the Excise Tax, it being understood that the correction of an
Overpayment may result in the Employee's repaying to the Company an amount which
is less than the Overpayment.
This agreement amends and supersedes provisions concerning
parachute payments under section 280G of the Code and excise taxes under section
4999 of the Code in any other employment agreements or other agreements between
the Employee and the Company.
14. Miscellaneous Provisions.
(a) Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to him at the home address which he most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
(b) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of compliance
with, any condition or provision of this Agreement by the other party shall be
considered a waiver of any other condition or provision or of the same condition
or provision at another time.
(c) Whole Agreement; Modifications. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement contains
the entire understanding of the parties with respect to the subject matter
hereof. A modification of this Agreement shall be valid only if it is made in
writing and executed by both parties hereto. This Agreement shall be subject to
the requirements of any applicable banking law, regulation or order. This
Agreement shall supersede the employment agreement dated January 1, 1996 between
the Employee and the Bank.
(d) Withholding Taxes. All payments and imputed payments made under
this Agreement shall be subject to reduction to reflect taxes required to be
withheld by law.
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<PAGE> 12
(e) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Delaware (other than their choice-of-law provisions).
(f) Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(g) Arbitration. Except as otherwise provided in Section 11, any
controversy or claim arising out of or relating to this Agreement or the breach
thereof, shall be settled by arbitration in San Francisco, California, in
accordance with the rules of the American Arbitration Association then in
effect. Discovery shall be permitted to the same extent as in a proceeding under
the Federal Rules of Civil Procedure, including (without limitation) such
discovery as is specially authorized by Section 1283.05 of the California Code
of Civil Procedure, without need of prior leave of the arbitrator under Section
1283.05(c) of the Code. Judgment may be entered on the arbitrator's award in any
court having jurisdiction . All fees and expenses of the arbitrator of such
Association shall be determined by the arbitrator.
(h) No Assignment. The rights of any person to payments or benefits
under this Agreement shall not be made subject to option or assignment, either
by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this Subsection (h) shall be void.
(i) Effective Date. This Agreement shall become effective on the date
when there shall occur the Effective Time under the Merger Agreement. Such date
is herein referred to as the "Effective Date." If the Merger Agreement shall
terminate for any reason without the merger provided for therein having been
consummated, then this Agreement shall automatically terminate and be of no
further force or effect and the parties hereto shall have no further obligation
to one another.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the 28th day of
May, to be effective as of the Effective Date.
/s/ Don J. McGrath
------------------------------------------
FIRST HAWAIIAN, INC.
By /s/ Walter A. Dods, Jr.
----------------------------------------
Title Chairman and Chief Executive Officer
-------------------------------------
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<PAGE> 1
EXHIBIT 10.18
BANCWEST CORPORATION
UMBRELLA TRUST(TM)
TRUST AGREEMENT
By and Between
BANCWEST CORPORATION
And
WACHOVIA BANK, N.A.
For
BANCWEST CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
BANCWEST CORPORATION DEFERRED COMPENSATION PLAN
BancWest Corporation Company
999 Bishop Street
Honolulu, Hawaii 96813
Wachovia Bank, N.A. Trustee
301 N Main Street
Winston-Salem, North Carolina 27150-3099
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PREAMBLE...................................................................................................1
ARTICLE I--EFFECTIVE DATE; DURATION........................................................................3
1.01 Effective Date and Trust Year...................................................................3
1.02 Duration........................................................................................3
1.03 Irrevocability..................................................................................4
1.04 Special Circumstance............................................................................5
ARTICLE II--TRUST FUND AND FUNDING POLICY..................................................................7
2.01 Contributions...................................................................................7
2.02 Investments and Valuation......................................................................10
2.03 Subtrusts......................................................................................13
2.04 Recapture of Excess Assets.....................................................................14
2.05 Substitution of Other Property.................................................................15
2.06 Administrative Powers of Trustee...............................................................16
ARTICLE III--ADMINISTRATION...............................................................................19
3.01 Committee; Company Representatives.............................................................19
3.02 Payment of Benefits............................................................................19
3.03 Disputed Claims................................................................................20
3.04 Records........................................................................................21
3.05 Accountings....................................................................................21
3.06 Expenses and Fees..............................................................................22
ARTICLE IV--LIABILITY.....................................................................................22
4.01 Indemnity......................................................................................22
4.02 Bonding........................................................................................22
ARTICLE V--INSOLVENCY.....................................................................................22
5.01 Trustee Responsibility Regarding Payments When Company Is Insolvent............................22
5.02 Insolvency Administration......................................................................23
5.03 Termination of Insolvency Administration.......................................................24
5.04 Creditors' Claims During Solvency..............................................................24
ARTICLE VI--SUCCESSOR TRUSTEES............................................................................25
6.01 Resignation and Removal........................................................................25
6.02 Appointment of Successor.......................................................................25
6.03 Accountings; Continuity........................................................................25
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VII--GENERAL PROVISIONS...........................................................................25
7.01 Interests Not Assignable.......................................................................25
7.02 Amendment......................................................................................26
7.03 Applicable Law.................................................................................26
7.04 Agreement Binding on All Parties...............................................................26
7.05 Notices and Directions.........................................................................26
7.06 No Implied Duties..............................................................................27
7.07 Gender, Singular and Plural....................................................................27
7.08 Counterparts...................................................................................27
ARTICLE VIII--INSURER.....................................................................................27
8.01 Insurer Not a Party............................................................................27
8.02 Authority of Trustee...........................................................................28
8.03 Contract Ownership.............................................................................28
8.04 Limitation of Liability........................................................................28
8.05 Change of Trustee..............................................................................28
</TABLE>
APPENDIX A
Assumptions and Methodology for Calculations Required Under 2.01 and 2.04
SCHEDULE I
Plans and Agreements Covered by Trust Agreement
(ii)
<PAGE> 4
INDEX OF TERMS
<TABLE>
<CAPTION>
TERM AND PROVISION NUMBER PAGE
- ------------------------- ----
A
<S> <C>
Act: 1.04-3.............................................................. 6
Affiliate: 1.04-3........................................................ 6
B
Beneficial Ownership: 1.04-3............................................. 6
Board: 1.02-3............................................................ 3
C
Change in Control: 1.04-3................................................ 5
Class A Directors: 1.04-3................................................ 6
Code: Preamble........................................................... 2
Committee: Preamble...................................................... 1
Common Stock: 1.04-3..................................................... 6
Company: Heading......................................................... 1
Contracts: 2.02-1....................................................... 10
D
Default: 1.04-5.......................................................... 7
Directors: 1.04-3........................................................ 6
E
ERISA: Preamble.......................................................... 3
ERISA Funded: 1.02-4..................................................... 4
Excess Assets: 2.04-2................................................... 14
Expert: 2.06-2.......................................................... 18
I
Independent Directors: 1.04-3............................................ 6
Insolvency Administration: 5.02......................................... 23
Insolvent or Insolvency: 5.01-1......................................... 22
Insurer: 2.02-1......................................................... 10
Investment Manager: 2.02-4.............................................. 12
N
Non-Class A Directors: 1.04-3............................................ 6
</TABLE>
(iii)
<PAGE> 5
INDEX OF TERMS
<TABLE>
<CAPTION>
TERM AND PROVISION NUMBER PAGE
- ------------------------- ----
P
<S> <C>
Participants: Preamble................................................... 2
Payment Schedule: 2.01-5................................................. 8
Person: 1.04-3........................................................... 6
Plans: Preamble.......................................................... 1
Potential Change in Control: 2.01-7...................................... 9
S
Segregated Fund: 2.02-4(a).............................................. 12
Special Circumstance: 1.04-2............................................. 5
Subtrust: 2.03-1........................................................ 14
T
Tax Funded: 1.02-4....................................................... 4
Trust: Heading........................................................... 1
Trustee: Heading......................................................... 1
V
Voting Securities: 1.04-3................................................ 7
W
Written Consent of Participants: 1.02-5.................................. 4
</TABLE>
(iv)
<PAGE> 6
INDEX OF TERMS
<TABLE>
<CAPTION>
TERM AND PROVISION NUMBER PAGE
- ------------------------- ----
A
<S> <C>
</TABLE>
(v)
<PAGE> 7
TRUST AGREEMENT FOR
BANCWEST CORPORATION
GRANTOR TRUST
This Trust Agreement is made and entered into by and between BancWest
Corporation, formerly know as First Hawaiian, Inc. (the "Company") and Wachovia
Bank, N.A. (the "Trustee").
WHEREAS, the Company wishes to establish a trust (the "Trust") and to
contribute to the Trust assets that shall be held therein, subject to the claims
of Company's creditors in the event of Company's insolvency, until paid to
Participants (as herein defined) and their beneficiaries in such manner and at
such times as specified in the Plans (as herein defined);
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plans
as unfunded plans maintained for the purpose of providing deferred compensation
for a select group of management or highly compensated employees for purposes of
Title I of the Employee Retirement Income Security Act of 1974; and
WHEREAS, it is the intention of the Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plans;
NOW, THEREFORE, the parties do hereby agree as follows:
PREAMBLE
The Company hereby establishes with the Trustee the Trust to hold all
monies and other property, together with the income thereon, as shall be paid or
transferred to it hereunder in accordance with the terms and conditions of this
Trust Agreement. The Trustee hereby accepts the Trust established under this
Trust Agreement and agrees to hold, IN TRUST, all monies and other property
transferred to and accepted by it hereunder, together with the income therefrom
and any increment thereon, for the uses and purposes and upon the terms and
conditions set forth herein, and the Trustee further agrees to discharge and
perform fully and faithfully all of the duties and obligations imposed upon it
under this Trust Agreement.
The Company has adopted the plans and/or agreements listed on Schedule I
hereto (the "Plans"), which shall initially be subject to this Trust. If only
one (1) plan or agreement is subject to this Trust at any time, references in
this Trust Agreement to the Plans shall refer to such Plan.
The Plans are administered by an administrative committee (the
"Committee") appointed by the Company. If the Plans are administered by more
than one (1) Committee at any time, references in this Trust Agreement to the
Committee which relate to a particular Plan shall refer to the Committee which
administers that Plan and, if the reference does not relate to a particular
Plan, shall refer to all of such Committees. All references in this Trust
Agreement to the Committee shall refer to the administrative committee(s) which
administers the Plan(s), unless the Company appoints a separate administrative
committee to administer this Trust Agreement. If the Company appoints a separate
administrative committee to administer this Trust Agreement, references in this
Trust Agreement to the Committee shall re-
1
<PAGE> 8
fer to such administrative committee which is appointed to administer this Trust
Agreement, unless the context clearly indicates otherwise.
The Plan participants who are covered by this Trust Agreement
("Participants") shall be all persons who are Plan participants prior to a
Special Circumstance, unless the Company specifically designates in Schedule I
only specified individuals or groups of Plan participants as Participants
covered by this Trust Agreement. After a person becomes a Participant covered by
this Trust Agreement, such person will continue to be a Participant at all times
thereafter (including after retirement or other termination of service) until
all Plan benefits payable to such Participant have been paid, the Participant
ceases to be entitled to any Plan benefits, or the Participant's death,
whichever occurs first.
At any time prior to a Special Circumstance, the Company may, by
written notice to the Trustee which shall include a revised Schedule I to this
Trust Agreement and with the Trustee's written consent, cause additional plans
and/or agreements to become Plans subject to this Trust Agreement or cause
additional Plan participants to become Participants covered by this Trust
Agreement. Upon and after a Special Circumstance, the Company may not add any
additional plans or agreements or Plan participants to this Trust Agreement.
The Company shall provide the Trustee with certified copies of the
following items: (i) all documents constituting the Plan; (ii) all Plan
amendments promptly following their adoption; and (iii) lists and specimen
signatures of the members of the Committee(s) which administer the Plan(s) and
this Trust Agreement and any other Company representatives authorized to take
action in regard to the administration of the Plan(s) and this Trust, including
any changes in the members of such Committee(s) and of such other
representatives promptly following any such change. The Company shall also
provide the Trustee at least annually with a list of all Participants in each
Plan who are covered by this Trust Agreement. The Trustee shall be entitled to
rely upon any such lists until notified in writing to the contrary by the
Company.
The purpose of this Trust is to give Participants greater security by
placing assets in trust for use only to pay Plan benefits to Participants or, if
the Company becomes insolvent, to pay creditors. The Company shall continue to
be liable to Participants to make all payments required under the terms of the
Plans to the extent such payments are not made from this Trust. Distributions
made from this Trust to Participants or their beneficiaries shall, to the extent
of such distributions, satisfy the Company's obligations to pay benefits to
Participants and their beneficiaries under the Plans.
The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended (the "Code"), and
shall be construed accordingly. The Company hereby agrees to report all items of
income, deductions and credits of the Trust on its own income tax returns. No
contribution to or income of the Trust is intended to be taxable to Participants
until benefits are distributed to them.
The principal of the Trust and any earnings thereon shall be held
separate and apart from other funds of the Company and shall be used exclusively
for the uses and purposes of Participants and general creditors as herein set
forth. Participants and their beneficiaries shall have no preferred claim on, or
any beneficial ownership interest in, any assets of the Trust. Any rights
created under the Plans and this Trust Agreement shall be mere unsecured
contractual rights of Participants and their beneficiaries against the Company.
Any assets held by the Trust will be subject to the claims of Company's general
creditors under federal and state law in the event of the Company's insolvency.
2
<PAGE> 9
The Plans are intended to be "unfunded" and maintained "primarily for
the purpose of providing deferred compensation for a select group of management
or highly compensated employees" for purposes of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and as such are intended not to be
covered by Parts 2 through 4 of Subtitle B of Title I of ERISA (relating to
participation and vesting, funding and fiduciary responsibility). The existence
of this Trust is not intended to alter this characterization of the Plans.
ARTICLE I--EFFECTIVE DATE; DURATION
1.01 Effective Date and Trust Year
This Trust shall become effective when the Trust Agreement has been
executed by the Company and the Trustee, and the Company has made a contribution
to the Trust.
For tax purposes, the trust year shall be the calendar year. For
financial reporting purposes, the trust year shall coincide with the Company's
fiscal year. The Company shall report any change in its fiscal year to the
Trustee.
1.02 Duration
1.02-1 This Trust may be revoked by the Company in its discretion at
any time unless this Trust is then irrevocable pursuant to 1.03-1. The Trust
shall continue in effect until the trust fund is exhausted through distribution
of benefits to Participants, payment to creditors in the event of insolvency,
payment of fees and expenses of the Trustee, and return of remaining funds to
the Company pursuant to 1.02-2. Notwithstanding the foregoing, if required to
comply with applicable state laws regulating the maximum period for which trusts
may exist, this Trust shall terminate six (6) months before twenty-one (21)
years after the death of the last survivor of all present or future Participants
who are now living and those persons now living who are designated as
beneficiaries of any such Participants in accordance with the terms of any
Plans.
1.02-2 The Trust shall (except as otherwise provided in 1.02-3) become
irrevocable at the times set forth in 1.03-1. If pursuant to 1.03-1 the Trust is
irrevocable, it shall not be revoked by the Company until all benefits payable
under the Plans to Participants who are covered by this Trust Agreement are
paid. The Trustee, upon written direction of the Company, shall then return to
the Company any assets remaining in the Trust.
1.02-3 If the existence of this Trust or any Subtrust hereunder is held
to be ERISA Funded or Tax Funded by a federal court and appeals from that
holding are no longer timely or have been exhausted, this Trust or such Subtrust
shall terminate. The Board of Directors of the Company (the "Board") may also
terminate this Trust or any Subtrust if it determines, based on an opinion of
legal counsel which is satisfactory to the Trustee, that either (i) judicial
authority or the position of the U.S. Department of Labor, Treasury Department
or Internal Revenue Service (as expressed in proposed or final regulations,
advisory opinions or rulings, or similar administrative announcements) creates a
significant risk that the Trust or any Subtrust will be held to be ERISA Funded
or Tax Funded or (ii) ERISA or the Code requires the Trust or any Subtrust to be
amended in a way that creates a significant risk that the Trust or such Subtrust
will be held to be ERISA Funded or Tax Funded, and failure to so amend the Trust
or such Subtrust could subject the Company to material penalties. Upon any such
termination, the assets of each terminated Trust or Subtrust remaining after
payment of the Trustee's fees and expenses shall be distributed, in accordance
with the written directions of the Company, as follows:
3
<PAGE> 10
(a) Such assets shall be transferred to a new trust
established by the Company which is not deemed to be ERISA Funded or
Tax Funded, but which is similar in all other respects to this Trust,
if the Company determines that it is possible to establish such a
trust.
(b) If the Company determines that it is not possible to
establish the trust in (a) above, then the assets shall be distributed
to the Company if the Written Consent of Participants, as defined in
1.02-5, in the Trust or applicable Subtrust is obtained for such
distribution.
(c) If the Company determines that it is not advantageous to
establish a new trust and cannot obtain the Written Consent of
Participants without adverse tax consequences, the assets of the
terminated Subtrust shall be allocated in proportion to the vested
accrued benefits of Participants under the applicable Plans and shall
be distributed to such Participants in lump sums. Any assets remaining
upon termination of a Subtrust shall be distributed to other Subtrusts
or to the Company in accordance with 2.04.
Notwithstanding the foregoing, the Trustee, upon the direction of the
Committee, shall distribute Plan benefits to a Participant to the extent that a
federal court has held that the interest of the Participant in this Trust causes
such Plan benefits to be includible for federal income tax purposes in the gross
income of the Participant prior to actual payment of such Plan benefits to the
Participant and appeals from that holding are no longer timely or have been
exhausted. The Trustee may also distribute Plan benefits to a Participant, upon
direction of the Committee, if the Trustee reasonably believes, based on an
opinion of legal counsel which is satisfactory to the Trustee, that there is a
significant risk that the Participant's interest in the trust fund will be held
to be ERISA Funded or Tax Funded with respect to such Participant or that such
Participant will be determined not to be a "management or highly compensated
employee" for purposes of ERISA. The provisions of this paragraph shall also
apply to any beneficiary of a Participant.
1.02-4 This Trust shall be "Tax Funded" if it causes the interest of a
Participant in this Trust to be includible for federal income tax purposes in
the gross income of the Participant prior to actual payment of Plan benefits to
the Participant.
This Trust shall be "ERISA Funded" if it prevents any of the Plans from
meeting the "unfunded" criterion of the exceptions to application of the
provisions of Parts 2 through 4 of Subtitle B of Title I of ERISA for plans that
are unfunded and maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees.
1.02-5 "Written Consent of Participants" means, for the purposes of
this Trust Agreement, consent in writing by Participants who (i) are a majority
in number and (ii) have more than fifty percent (50%) in value of the accrued
benefits, of the Participants in the Trust or in each affected Subtrust under
this Trust Agreement on the date of such consent. For this purpose, Participants
shall not include any beneficiaries of Participants.
1.03 Irrevocability
1.03-1 This Trust shall become irrevocable (subject to 1.02-3) upon the
occurrence of a Special Circumstance. In addition, this Trust shall not be
revoked after the occurrence of a Potential Change in Control unless that
Potential Change in Control has ceased to exist.
4
<PAGE> 11
1.04 Special Circumstance
1.04-1 Upon the occurrence of a Special Circumstance described in
1.04-2, the Trust assets shall be held for Participants who had accrued benefits
under the Plans before the Special Circumstance occurred, including benefits
accrued for such Participants after the Special Circumstance.
1.04-2 A "Special Circumstance" shall mean a Change in Control (as
defined in 1.04-3) or a Default (as defined in 1.04-5).
1.04-3 A "Change in Control" means any of the following:
(a) Any Person becomes the Beneficial Owner of more than
fifty percent (50%) of the total voting power of the outstanding Voting
Securities of the Company.
(b) Any Person becomes the Beneficial Owner of more than
fifty percent (50%) of the then outstanding shares of Common Stock.
(c) During any period of two (2) consecutive years,
individuals who at the beginning of such period constituted the
Non-Class A Directors (together with any new Non-Class A Directors
whose election by Independent Directors or Non-Class A Directors or
whose nomination for election by the Company's stockholders was
approved by a vote or written consent of a majority of the Non-Class A
Directors then still in office who were either Directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the Directors of the Company then in office.
(d) A merger or consolidation of the Company with or into
another Person or the merger or consolidation of another Person into
the Company if as a result of such transaction or series of related
transactions (i) any Person becomes the Beneficial Owner of more than
fifty percent (50%) of the total voting power of all Voting Securities
of the Company (or, if the Company is not the survivor or transferee
corporation of such transaction or transactions, of such surviving or
transferee corporation) outstanding immediately after such transaction
or transactions, or (ii) the shares of Common Stock outstanding
immediately prior to such transaction or transactions do not represent
a majority of the voting power of all Voting Securities of the Company
(or of such surviving or transferee corporation, if not the Company)
outstanding immediately after such transaction or transactions.
(e) The sale, lease, exchange, or mortgage of all or
substantially all of the assets of the Company and its subsidiaries
taken as a whole.
(f) The approval by the stockholders of the Company of a
plan of liquidation or dissolution of the Company.
(g) The Board agrees by a majority vote that an event has
occurred or is about to occur that, in fairness to the Participants, is
tantamount to a Change in Control.
(h) For purposes of this Section 1.04-3 and of Section
2.01-7, the following definitions shall apply:
5
<PAGE> 12
(i) "Affiliate" means, with respect to any Person,
any other Person that directly, or indirectly through one (1)
or more intermediaries, controls, is controlled by, or is
under common control with, such specified Person.
(ii) "Beneficial Ownership" by a Person of any
securities includes ownership by any Person who, directly or
indirectly, through any contract, arrangement, understanding,
relationship, or otherwise, has or shares (A) voting power,
which includes the power to vote, or to direct the voting of,
such security, and/or (B) investment power, which includes the
power to dispose, or to direct the disposition, of such
security; and shall otherwise be interpreted in accordance
with the term "beneficial ownership" as defined in Rule 13d-3
(or any successor provision) under the Securities Exchange Act
of 1934 (the "Act"); provided that for purposes of determining
Beneficial Ownership, a Person shall be deemed to be the
Beneficial Owner of any securities which may be acquired by
such Person (irrespective of whether the right to acquire such
securities is exercisable immediately or only after the
passage of time, including the passage of time in excess of
sixty (60) days, the satisfaction of any conditions, the
occurrence of any event or any combination of the foregoing)
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise. The percentage of
outstanding securities of any class Beneficially Owned or
deemed to be owned by any Person shall be calculated in
accordance with the last sentence of Rule 13d-3(d)(1)(i) under
the Act. A Person shall be deemed to Beneficially Own any
securities Beneficially Owned by its Affiliates or any group
(within the meaning of Section 13(d) of the Act and the rules
adopted thereunder) of which such Person or any of its
Affiliates is or becomes a member.
(iii) "Class A Directors" has the meaning set forth
in the Company's Certificate of Incorporation.
(iv) "Common Stock" means "Common Stock" as defined
in the Company's Certificate of Incorporation (and does not
refer to the Company's Class A Common Stock).
(v) "Directors" means members of the Company's Board
of Directors (other than any advisory, honorary or other
nonvoting members of such Board of Directors).
(vi) "Independent Directors" has the meaning set
forth in the Company's Certificate of Incorporation.
(vii) "Non-Class A Directors" has the meaning set
forth in the Company's Certificate of Incorporation.
(viii) "Person" means "person" as defined in Section
3(a)(9) of the Act and as used in Sections 13(d) and 14(d)
thereof, including a "group" within the meaning of Section
13(d) and the rules adopted thereunder; provided that,
"Person" shall exclude (i) the Company, (ii) any trustee or
other fiduciary holding securities under an employee benefit
plan of the Company, and (iii) an entity that acquires all
Voting Securities of the Company (or into which the Company is
merged) if immediately following that transaction (A) such
entity has expressly assumed the obligations of the Company
under this Trust, and (B) the rights, powers, preferences and
proportionate ownership of that en-
6
<PAGE> 13
tity's authorized and outstanding voting securities are in
all material respects identical to the rights, powers,
preferences and proportionate ownership of the Common Stock
and of the Class A Common Stock outstanding immediately prior
to the transaction.
(ix) "Voting Securities" means at any time shares of
any class of capital stock or other securities of the Company
which are then entitled to vote generally in the election of
Directors and not solely upon the occurrence and during the
continuation of certain specified events.
1.04-4 For purposes of this Trust Agreement, a Change in Control shall
be deemed to have occurred upon receipt by the Trustee of written notice to that
effect from the Company. The Chief Executive Officer of the Company or the Board
shall have the duty to furnish written notice to the Trustee when a Change in
Control occurs under 1.04-3. Upon receipt of a written demand from a
Participant, the Trustee shall request the Chief Executive Officer of the
Company and the Board to advise it whether a Change in Control (as defined in
this Trust Agreement) has occurred. If the Chief Executive Officer of the
Company or the Board fails to advise the Trustee whether a Change in Control has
occurred, the Trustee shall make this determination in its sole discretion.
1.04-5 A "Default" shall mean a failure by the Company to contribute,
within thirty (30) days of receipt of written notice from the Trustee, any of
the following amounts:
(a) The full amount of any insufficiency in assets of the
Trust or any Subtrust that is required to pay any Plan benefit that is
payable by the Trustee pursuant to 3.02-3 or upon final resolution of a
disputed claim pursuant to 3.03-2; or
(b) Any contribution which is then required to be made by
the Company to the Trust or any Subtrust under 2.01, 2.02-5, 2.05-3,
3.03-3, or 3.06-2.
If, after the occurrence of a Default, the Company at any time cures
such Default by contributing to the Trust all amounts which are then required
under subparagraphs (a) and (b) above, it shall then cease to be deemed that a
Default has occurred or that a Special Circumstance has occurred by reason of
such Default.
ARTICLE II--TRUST FUND AND FUNDING POLICY
2.01 Contributions
2.01-1 In its discretion, the Company may contribute to the Trust such
amounts or assets as the Committee may reasonably decide are necessary to
provide security for all Plan benefits payable to Participants covered by this
Trust.
The Company shall also contribute to the Trust such amounts as are
necessary to enable the Trustee to make all Plan benefit payments to
Participants when due, unless the Company makes such payments directly, whenever
the Trustee advises the Company that the assets of the Trust or Subtrust are
insufficient to make such payments.
2.01-2 Whenever the Company makes a contribution to the Trust, the
Company shall designate the Plan(s) and Subtrust(s) to which such contribution
(or designated portions thereof) shall be allocated. The Company may also make
contributions to a special reserve for payment of future fees and ex-
7
<PAGE> 14
penses of the Trustee and future trust fees and expenses for legal and
administrative proceedings. The Company shall designate a separate Subtrust to
receive such contributions, which shall be distinct from the other Subtrust(s)
established for the Plan(s).
2.01-3 The Company shall, within sixty (60) days after the occurrence
of a Special Circumstance (as defined in 1.04-2) or a Potential Change in
Control (as defined in 2.01-7), and not later than sixty (60) days after the end
of each calendar year following a Special Circumstance: (a) contribute to the
Trust $150,000 to fund an expense reserve for use by the Trustee, which amount
shall be credited to the separate Subtrust contemplated by clause (ii) of
2.03-1, (b) repay any loan made to the Company from the proceeds of any
insurance policy held as an asset of the Trust (except to the extent such
repayment would cause the Trust to hold Excess Assets); and (c) contribute to
the Trust the amount by which the present value of all accrued benefits (vested
and unvested) payable under the Plans on a pretax basis to Participants covered
by this Trust exceeds the value of all Trust assets as of the applicable date.
All benefits shall be calculated by assuming that each Participant is terminated
at a time when the Participant is entitled to receive any benefit enhancement
provided by the Plans upon or in connection with a change in control (as defined
in the relevant Plan). Any benefit enhancement or right with respect to the
Plans which is provided under employment or severance agreements of Participants
shall be taken into account in making the foregoing calculation insofar as it
may increase benefits under the Plans.
2.01-4 The calculations required under 2.01-3 shall be made by the
Company, or a qualified actuary or consultant selected by the Committee, based
on the terms of the Plans and the actuarial assumptions and methodology set
forth in Appendix A attached hereto. Before a Special Circumstance (unless a
Potential Change in Control exists), Appendix A may be revised by the Committee
from time to time. After a Special Circumstance (or while a Potential Change in
Control exists), Appendix A may be revised only with the Written Consent of
Participants.
2.01-5 Whenever the Company makes a contribution to the Trust pursuant
to 2.01-3, it shall furnish the Trustee with a written statement setting forth
the computation of all required amounts contributed under 2.01-3. The Trustee
shall have no duty or responsibility to review or otherwise question any such
computation.
Whenever a Special Circumstance occurs or the Company makes a
contribution pursuant to 2.01-3, the Company shall deliver to the Trustee,
contemporaneously with or immediately prior to such event, a schedule (the
"Payment Schedule") indicating the amounts payable under each Plan in respect of
each Participant, or providing a formula or instructions acceptable to the
Trustee for determining the amounts so payable, the form in which such amounts
are to be paid (as provided for or available under the Plans) and the time of
commencement for payment of such amounts. The Payment Schedule shall include any
other necessary instructions with respect to Plan benefits (including legal
expenses) payable under the Plans and any conditions with respect to any
Participant's entitlement to, and the Company's obligation to provide, such
benefits, and such instructions may be revised from time to time to the extent
so provided under the Plans or this Trust Agreement.
A modified Payment Schedule shall be delivered by the Company to the
Trustee (i) at each time that additional amounts are required to be paid by the
Company to the Trustee pursuant to 2.01-3, (ii) whenever Excess Assets are
returned to the Company pursuant to 2.04, and (iii) upon the occurrence of any
event requiring a modification of the Payment Schedule. The Company shall also
furnish a Payment Schedule or modified Payment Schedule for any or all Plan(s)
upon request by the Trustee at any other time. Whenever the Company is required
to deliver a Payment Schedule or a modified Payment Schedule, it shall also
deliver to each Participant the respective portion of the Payment Schedule or
modified Payment Schedule that sets forth the amount payable to that
Participant. If the Company fails to deliver
8
<PAGE> 15
to the Trustee a Payment Schedule or modified Payment Schedule at any time it is
required to do so, the Trustee may, in its sole discretion, prepare such
Schedule.
2.01-6 Any contribution to the Trust which is made by the Company under
2.01-3 on account of a Potential Change in Control shall be returned to the
Company if a Change in Control does not occur, when a Potential Change in
Control no longer exists, and if the Company requests such return within one (1)
year after the Potential Change in Control ceases to exist.
If no such request is made within this one (1) year period, the
contribution shall become a permanent part of the trust fund.
2.01-7 A "Potential Change in Control" shall be deemed to occur if:
(a) Any Person delivers to the Company a statement
containing the information required by Schedule 13-D under the Act, or
any amendment to any such statement, that shows that such Person has
acquired, directly or indirectly, the Beneficial Ownership of (i) more
than thirty-five percent (35%) of the Company's Common Stock, or (ii)
more than forty-six percent (46%) of the total voting power of the then
outstanding Voting Securities of the Company;
(b) The Company becomes aware that preliminary or definitive
copies of a proxy statement or information statement or other
information have been filed with the Securities and Exchange Commission
pursuant to Rule 14a-6, Rule 14c-5, or Rule 14f-1 under the Act
relating to any transaction or event that if consummated would
constitute or result in a Change in Control;
(c) Any Person delivers to the Company pursuant to Rule
14d-3 under the Act a tender offer statement relating to Voting
Securities of the Company;
(d) Any Person publicly announces an intention to take
actions which if consummated would constitute or result in a Change in
Control;
(e) The Company enters into an agreement or arrangement, the
consummation of which would constitute or result in a Change in
Control;
(f) The Board approves a proposal, which if consummated
would constitute or result in a Change in Control; or
(g) The Board adopts a resolution to the effect that, for
purposes of this Trust Agreement, a Potential Change in Control has
occurred.
2.01-8 For purposes of this Trust, a Potential Change in Control shall
be deemed to have occurred upon receipt by the Trustee of written notice to that
effect from the Company.
The Chief Executive Officer of the Company or the Board shall furnish
written notice to the Trustee when a Potential Change in Control occurs under
2.01-7. Upon receipt of a written demand from a Participant, the Trustee shall
request the Chief Executive Officer of the Company and the Board to advise it
whether a Potential Change in Control (as defined in the Trust Agreement) has
occurred. If the Chief Executive Officer of the Company or the Board fails to
advise the Trustee that a Potential Change in Control has occurred or fails to
respond to the Trustee's request, the Trustee shall make this determi-
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nation in its sole discretion. The Trustee shall also have discretion to
determine whether any Potential Change in Control has ceased to exist.
2.01-9 The Trustee shall accept the contributions made by the Company
and hold them as a trust fund for the payment of benefits under the Plans. The
Trustee shall not be responsible for determining the required amount of
contributions or for collecting any contribution not voluntarily paid, nor shall
the Trustee be responsible for the adequacy of the trust fund to meet and
discharge all liabilities under the Plans. Contributions may be in cash or in
other assets specified in 2.02.
2.02 Investments and Valuation
2.02-1 The trust fund shall be initially invested primarily in
insurance (including annuity) contracts ("Contracts"). Such Contracts may be
purchased by the Company and transferred to the Trustee as in-kind contributions
or may be purchased by the Trustee with the proceeds of cash contributions (or
may be purchased upon direction by the Committee pursuant to 2.02-2 or an
Investment Manager pursuant to 2.02-4). The Trustee shall have the power to
exercise all rights, privileges, options and elections granted by or permitted
under any Contract or under the rules of the insurance company issuing the
Contract ("Insurer"), including the right to obtain policy loans against the
cash value of the Contract. Prior to a Special Circumstance (unless a Potential
Change in Control exists), the exercise by the Trustee of any incidents of
ownership under any Contract shall be subject to the direction of the Committee.
Prior to a Special Circumstance (unless a Potential Change in Control
exists), the Trustee shall execute the application for any insurance contract to
be applied for in such form as the Company shall deem appropriate. Following a
Special Circumstance (or while a Potential Change in Control exists), insurance
contracts shall be obtained in the discretion of the Trustee. The Trustee shall
be the absolute owner of all Contracts which shall be held as part of the Trust
corpus. The Trustee, upon direction of the Committee, shall pay from the Trust
corpus premiums, assessments, dues, charges and interest to acquire or maintain
any Contracts held in the Trust; provided that following a Special Circumstance
(or while a Potential Change in Control exists), such payments shall be made or
continue to be made in the discretion of the Trustee. For such purposes the
Trustee may use any money held by the Trustee as part of the Trust corpus. If,
prior to a Special Circumstance (or while a Potential Change in Control exists),
the cash available in the Trust is not sufficient to pay all of the sums due
with respect to such Contracts, the Trustee shall immediately notify the Company
of the amount of the deficiency; and the Trustee shall be under no duty or
obligation to make any such payments unless and until the Trustee shall be in
receipt of a Company contribution which is sufficient to make such payments.
As directed by the Committee prior to a Special Circumstance (unless a
Potential Change in Control exists), but otherwise in its discretion, the
Trustee shall, without the consent of any other person, collect and receive all
dividends or other payments of any kind payable with respect to, under, or
arising out of any insurance contracts held in the Trust or shall leave the same
with the Insurer. As directed by the Committee prior to a Special Circumstance
(unless a Potential Change in Control exists), but otherwise in its discretion,
the Trustee shall have the power to convert from one (1) form of Contract to any
other form of Contract; to designate any mode of settlement of the proceeds of
any Contract held in the Trust; to borrow sums of money from the Insurer upon
any Contract or Contracts issued by it and held in the Trust; to agree with the
Insurer issuing any Contract to any release, reduction, modification or
amendment thereof; and, without limitation of any of the foregoing, to exercise
any and all of the rights, options or privileges that belong to the absolute
owner of any Contracts held in the Trust or that are granted by the terms of any
such Contracts or of this Trust Agreement.
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The Trustee shall have no power to name a beneficiary of an insurance
policy other than the Trust, to assign the policy (as distinct from conversion
of the policy to a different form) other than to a successor Trustee, or to loan
to any person the proceeds of any borrowing against such policy. Notwithstanding
the prior sentence, provided that no Special Circumstance has occurred and no
Potential Change in Control exists, the Trustee may loan to the Company the
proceeds of any borrowing against any insurance policy held as an asset of the
Trust.
Notwithstanding anything contained herein to the contrary, the Trustee
shall not be liable for the refusal of any Insurer to issue or change any
Contract or Contracts or to take any other action requested by the Trustee; nor
for the form, genuineness, validity, sufficiency or effect of any Contract or
Contracts held in the Trust; nor for the act of any person or persons that may
render any such Contract or Contracts null and void; nor for the failure of any
Insurer to pay the proceeds of any such Contract or Contracts as and when the
same shall become due and payable; nor for any delay in payment resulting from
any provision contained in any such Contract or Contracts; nor for the fact that
for any reason whatsoever (other than its own negligence or willful misconduct)
any Contracts shall lapse or otherwise become uncollectible.
2.02-2 Prior to a Special Circumstance (unless a Potential Change in
Control exists), the Trustee shall invest the trust fund in accordance with
written directions by the Committee, including directions for exercising rights,
privileges, options and elections pertaining to Contracts and for borrowing from
Contracts or other borrowing by the Trustee. The Trustee shall act only as an
administrative agent in carrying out directed investment transactions and shall
not be responsible for the investment decision. If a directed investment
transaction violates any duty to diversify, to maintain liquidity or to meet any
other investment standard under this Trust Agreement or applicable law, the
entire responsibility shall rest upon the Company. The Trustee shall be fully
protected in acting upon or complying with any investment objectives,
guidelines, restrictions or directions provided in accordance with this
paragraph.
After a Special Circumstance (or while a Potential Change in Control
exists), the Committee shall no longer be entitled to direct the Trustee with
respect to the investment of the trust fund, unless the Written Consent of
Participants is obtained for the Committee to continue to have this right
pursuant to 2.02-2. If such Written Consent of Participants is not obtained, the
trust fund shall be invested by the Trustee pursuant to 2.02-3 or by an
Investment Manager pursuant to 2.02-4.
The Trustee may not invest in securities (including stock or rights to acquire
stock) or obligations issued by the Company or its affiliates or in other real
or personal property of the Company or its affiliates, other than a de minimis
amount held by a mutual fund. No rights associated with assets of the Trust
shall be exercisable by or rest with Participants.
The Committee may not direct the Trustee to make any investments, and
the Company may not make any contributions to the trust fund, which are not
permissible investments under 2.02-2 and 2.02-3.
2.02-3 After a Special Circumstance (or while a Potential Change in
Control exists), the Trustee shall invest and reinvest the assets of the trust
fund as the Trustee, in its sole discretion, may deem appropriate, in accordance
with applicable law, except as provided in 2.02-2 or 2.02-4.
Permissible investments shall be limited to the following:
(a) Insurance or annuity contracts, including variable
insurance or annuity contracts;
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(b) Preferred or common stocks, bonds, notes, debentures,
commercial paper, certificates of deposit, money market funds,
obligations of governmental bodies, or other securities;
(c) Interest-bearing savings or deposit accounts with any
federally-insured bank or savings and loan association (including the
Trustee or an affiliate of the Trustee);
(d) Shares or certificates of participation issued by
investment companies, investment trusts, mutual funds, or common or
pooled investment funds (including any common or pooled investment fund
now or hereafter maintained by the Trustee or an affiliate of the
Trustee); or
(e) Real property, mortgage-backed securities, mortgages,
deeds of trust, or notes secured by mortgages or deeds of trust.
Investments in securities, obligations or real or personal property of
the Company or its affiliates shall be subject to the limitations under 2.02-2.
2.02-4 Prior to a Special Circumstance (unless a Potential Change in
Control exists), the Company may appoint one (1) or more investment managers
("Investment Manager") subject to the following provisions:
(a) The Company may appoint one (1) or more Investment
Managers to manage (including the power to acquire and dispose of) a
specified portion of the assets of the Trust (hereinafter referred to
as that Investment Manager's "Segregated Fund"). Any Investment Manager
so appointed must be either (A) an investment adviser registered as
such under the Investment Advisers Act of 1940, (B) a bank, as defined
in that Act, or (C) an insurance company qualified to perform services
in the management, acquisition or disposition of the assets of trusts
under the laws of more than one (1) state; and any Investment Manager
so appointed must acknowledge in writing to the Company and to the
Trustee that it is a fiduciary with respect to the Plans. The Trustee,
until notified in writing to the contrary, shall be fully protected in
relying upon any written notice of the appointment of an Investment
Manager furnished to it by the Company. In the event of any vacancy in
the office of Investment Manager, the Trustee shall be deemed to be the
Investment Manager of that Investment Manager's Segregated Fund until
an Investment Manager thereof shall have been duly appointed; and in
such event, until an Investment Manager shall have been so appointed
and qualified, references herein to the Trustee's acting in respect of
that Segregated Fund pursuant to direction from the Investment Manager
shall be deemed to authorize the Trustee to act in its own discretion
in managing and controlling the assets of that Segregated Fund, and
subparagraphs (b) and (c) below shall have no effect with respect
thereto and shall be disregarded.
(b) Each Investment Manager appointed pursuant to
subparagraph (a) above shall have exclusive authority and discretion to
manage and control the assets of its Segregated Fund and may invest and
reinvest the assets of the Segregated Fund in any investments in which
the Trustee is authorized to invest under 2.02-3, subject to the terms
and limitations of any written instruments pertaining to its
appointment as Investment Manager. Copies of any such written
instruments shall be furnished to the Trustee. In addition, each
Investment Manager from time to time and at any time may direct the
Trustee to invest and reinvest otherwise uninvested cash held in its
Segregated Fund temporarily in bonds, notes or other evidences of
indebtedness issued or fully guaranteed by the United States of America
or any agency or instrumentality thereof, or in
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<PAGE> 19
other obligations of a short-term nature, including prime commercial
obligations or part interests therein.
(c) Unless the Trustee knowingly participates in, or
knowingly undertakes to conceal, an act or omission of an Investment
Manager, knowing such act or omission to be a breach of the fiduciary
responsibility of the Investment Manager with respect to the Plans, the
Trustee shall not be liable for any act or omission of any Investment
Manager and shall not be under any obligation to invest or otherwise
manage the assets of the Plans that are subject to the management of
any Investment Manager. Without limiting the generality of the
foregoing, the Trustee shall not be liable by reason of its taking or
refraining from taking at the direction, or in the absence of a
direction, of an Investment Manager any action in respect of that
Investment Manager's Segregated Fund. The Trustee shall be under no
duty to question or to make inquiries as to any direction or order or
failure to give direction or order by any Investment Manager; and the
Trustee shall be under no duty to make any review of investments
acquired for the Trust at the direction or order of any Investment
Manager and shall be under no duty at any time to make any
recommendation with respect to disposing of or continuing to retain any
such investment.
(d) After occurrence of a Special Circumstance (or while a
Potential Change in Control exists), the appointment or retention of
any Investment Manager shall be at the sole discretion of the Trustee.
2.02-5 The values of all assets in the trust fund shall be reasonably
determined by the Trustee and may be based on the determination of qualified
independent parties or Experts (as described in 2.06-2). At any time before or
after a Special Circumstance, the Trustee shall have the right to secure
confirmation of value by a qualified independent party or Expert for all
property of the trust fund, as well as any property to be substituted for other
property of the trust fund pursuant to 2.05. Before a Special Circumstance
(unless a Potential Change in Control exists), the Company may designate one (1)
or more independent parties, who are acceptable to the Trustee, to determine the
fair market value of any notes, securities, real property or other assets.
Any insurance or annuity contracts held in the trust fund shall be
valued at their cash surrender value, except for purposes of substituting other
property for such Contracts pursuant to 2.05-2. All securities shall be valued
net of estimated costs to sell, or register for sale, such securities. All real
property shall be valued net of estimated costs to sell such real property. All
other assets of the trust fund shall be valued at their fair market value.
The Company shall pay all costs incurred in valuing the assets of the
trust fund, including any assets to be substituted for other assets of the trust
fund pursuant to 2.05. If not so paid, these costs shall be paid from the trust
fund. The Company shall fully reimburse the trust fund within thirty (30) days
after receipt of a trust statement from the Trustee indicating such costs paid
out of the trust fund.
2.02-6 In order to permit the Committee or an Investment Manager, as
the case may be, to make timely and informed decisions regarding the management
of those assets of the Trust subject to its respective control, the Trustee
shall forward to the Committee or Investment Manager, as the case may be, for
appropriate action any and all proxies, proxy statements, notices, requests or
other communications received by the Trustee (or its nominee) as the record
owner of such assets.
2.03 Subtrusts
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2.03-1 The Company shall direct the Trustee to establish (i) a separate
subtrust ("Subtrust") for each Plan to which the Trustee shall credit
contributions it receives which are earmarked for that Plan and Subtrust and
(ii) a separate Subtrust to which the Trustee shall credit contributions it
receives which are earmarked to the special reserve for payment of future fees
and expenses of the Trustee and future Trust fees and expenses for legal and
administrative proceedings. Each Subtrust shall reflect an undivided interest in
assets of the trust fund and shall not require any segregation of particular
assets. When Subtrusts are established, all contributions shall be designated by
the Company for a particular Subtrust. However, any contribution received by the
Trustee which is not designated by the Company for a particular Subtrust before
a Special Circumstance shall be allocated among the Subtrusts as the Trustee may
determine in its sole discretion.
The Committee may direct the Trustee, or the Trustee may determine on
its own initiative after a Special Circumstance, to maintain a separate
sub-account within each Subtrust for a Plan for each Participant who is covered
by the Subtrust. Each sub-account in a Subtrust shall reflect an individual
interest in assets of the Subtrust and, as much as possible, shall operate in
the same manner as if it were a separate Subtrust.
2.03-2 The Trustee shall allocate investment earnings and losses and
expenses of the trust fund as of a valuation date among the Subtrusts in
proportion to their balances. Payments to creditors during Insolvency
Administration under 5.02 shall be charged against the Subtrusts in proportion
to their balances, except that payment of Plan benefits to a Participant as a
general creditor shall be charged against the Subtrust for that Plan.
2.03-3 Assets allocated to a Subtrust for one (1) Plan may not be
utilized to provide benefits under any other Plans until all benefits under such
Plan have been paid in full, except that Excess Assets of a Subtrust may be
transferred to other Subtrusts pursuant to 2.04-5.
2.04 Recapture of Excess Assets
2.04-1 In the event the Trust shall hold Excess Assets, the Committee,
at its option, may direct the Trustee to return part or all of such Excess
Assets to the Company.
2.04-2 "Excess Assets" are assets of the Trust exceeding one hundred
twenty-five percent (125%) of the amounts described in 2.01-3.
2.04-3 The calculation required by 2.04-2 shall be based on the terms
of the Plans and the actuarial assumptions and methodology set forth in Appendix
A. Before a Special Circumstance (unless a Potential Change in Control exists),
the calculation shall be made by the Company or a qualified actuary or
consultant selected by the Committee. After a Special Circumstance (or while a
Potential Change in Control exists), the calculation shall be made by a
qualified actuary or consultant selected by the Trustee, provided the Committee
may select a qualified actuary or consultant with the Written Consent of
Participants.
2.04-4 Excess Assets shall be returned to the Company in the following
order of priority, unless the Trustee determines otherwise to protect the
Participants:
(a) Cash and cash equivalents;
(b) All taxable investments of the Trust (other than cash
and cash equivalents and Contracts with Insurers), in such order as the
Committee may request;
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(c) All nontaxable investments of the Trust (other than cash
and cash equivalents and Contracts with Insurers), in such order as the
Committee may request; and
(d) Contracts with Insurers, proceeding in order of
Contracts on insureds from the youngest to the oldest ages based on the
insured's attained age on the date of return of Excess Assets.
Notwithstanding the foregoing, Excess Assets may be returned in any
other order of priority directed by the Committee with the Written Consent of
Participants.
2.04-5 If any Subtrust holds Excess Assets, the Committee may direct
the Trustee to transfer such Excess Assets to other Subtrusts, either ratably in
proportion to the unfunded liabilities to Participants for Plan benefits of all
other Subtrusts or first to the other Subtrust(s) with the largest percentage of
such unfunded liabilities. After a Special Circumstance the Trustee may also
transfer Excess Assets of a Subtrust to other Subtrusts upon its own initiative
in such amounts as it may determine in its sole discretion.
Excess Assets of a Subtrust for a Plan shall be determined in the same
manner as Excess Assets of the Trust are determined pursuant to 2.04-2 and
2.04-3. In making this determination each Subtrust for a Plan shall bear its
allocable share of the amounts described in subparagraphs (a) and (b) of 2.01-3
which relate to that Plan. The Trustee, in its sole discretion, shall determine
whether there are Excess Assets in the separate Subtrust which constitutes the
reserve for payment of future fees and expenses of the Trustee and future Trust
fees and expenses for legal and administrative proceedings. Excess Assets for
this Subtrust shall be any amounts which the Trustee reasonably determines will
not be needed in the future for payment of such fees and expenses; provided,
however, that no such determination shall deprive the Trustee from having the
right to receive from the Company funds sufficient to satisfy any such fees and
expenses.
2.05 Substitution of Other Property
2.05-1 The Company shall have the power to reacquire part or all of the
assets or collateral held in the trust fund at any time, by simultaneously
substituting for it other readily marketable property of equivalent value, net
of any estimated costs of disposition; provided that, if the Trust holds Excess
Assets, the property which is substituted shall not be required to be of
equivalent value, but only of sufficient value so that the Trust will retain
Excess Assets of not less than one thousand dollars ($1,000) after such
substitution. The property which is substituted must be among the types of
investments authorized under 2.02 and may not be less liquid or marketable or
less well secured than the property for which it is substituted, as determined
by the Trustee. Such power is exercisable by the Company in a nonfiduciary
capacity and may be exercised without the approval or consent of Participants or
any other person, subject to the limitations under 2.05.
2.05-2 Except for insurance contracts, the value of any assets
reacquired under 2.05-1 shall be determined as provided in 2.02-5. The value of
any insurance contract reacquired under 2.05-1 shall be the present value of
future projected cash flow or benefits payable under the Contract, but not less
than the cash surrender value. The projection shall include death benefits based
on reasonable mortality assumptions, including known facts specifically relating
to the health of the insured and the terms of the Contract to be reacquired.
Values shall be reasonably determined by the Trustee and may be based on the
determination of qualified independent parties and Experts, as described in
2.02-5 and 2.06-2. The Trus-
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<PAGE> 22
tee shall have the right, but shall be under no duty or obligation, to secure
confirmation of value by a qualified independent party or Expert for all
property to be substituted for other property.
2.05-3 The Company shall pay all costs incurred in valuing the assets
of the trust fund, including any assets to be substituted for other assets of
the trust fund pursuant to 2.05. If not so paid, these costs shall be paid from
the trust fund. The Company shall reimburse the trust fund within thirty (30)
days after receipt of a bill from the Trustee for any such costs paid out of the
trust fund.
2.06 Administrative Powers of Trustee
2.06-1 Subject in all respects to direction by the Committee or
Investment Manager, as applicable, and to the applicable provisions of this
Trust Agreement, including limitations on investment of the trust fund, the
Trustee shall have the rights, powers and privileges of an absolute owner when
dealing with property of the Trust, including (without limiting the generality
of the foregoing) the powers listed below:
(a) To sell, convey, transfer, exchange, convert, partition,
lease, and otherwise dispose of any of the assets of the Trust at any
time held by the Trustee under this Trust Agreement and generally to
make, execute, acknowledge and deliver any and all assignments and
other instruments whenever such actions may be required to perform its
obligation hereunder;
(b) To exercise any option, conversion privilege,
subscription right, or other privilege given the Trustee as the owner
of any security held in the Trust; to vote any corporate stock either
in person or by proxy, with or without power of substitution; to
consent to or oppose any reorganization, consolidation, merger,
readjustment of financial structure, sale, lease or other disposition
of the assets of any corporation or other organization, the securities
of which may be an asset of the Trust; and to take any action in
connection therewith and receive and retain any securities resulting
therefrom;
(c) To deposit any security with any voting trust or
protective or reorganization committee (and to delegate to such
committee such power and authority with respect thereto as the Trustee
may deem proper), or with depositories designated thereby, and to agree
to pay out of the Trust such portion of the expenses and compensation
of such voting trust or committee as the Trustee, in its discretion,
shall deem appropriate;
(d) To cause any property of the Trust to be issued, held or
registered in the name of the Trustee as trustee, or in the name of one
(1) or more of its nominees, or one (1) or more nominees of any system
for the central handling of securities, or in such form that title will
pass by delivery, provided that the records of the Trustee shall in all
events indicate the true ownership of such property, or to deposit any
securities held in the Trust with a securities depository;
(e) To renew or extend the time of payment of any obligation
due or to become due;
(f) To commence or defend lawsuits or legal or
administrative proceedings; to compromise, arbitrate or settle claims,
debts or damages in favor of or against the Trust; to deliver or
accept, in either total or partial satisfaction of any indebtedness or
other obligation, any property; to continue to hold for such period of
time as the Trustee may deem appropriate any property so received; and
to pay all costs and reasonable attorneys' fees in connection therewith
out of the assets of the Trust; provided, however, that the Trustee
shall be obligated to take any such action only to the extent the
assets of the Trust are sufficient to fund such action;
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<PAGE> 23
(g) To foreclose any obligation by judicial proceeding or
otherwise;
(h) Subject to 2.02, to borrow money from any person in such
amounts, upon such terms and for such purposes as the Trustee may be
directed by the Committee prior to a Special Circumstance (provided no
Potential Change in Control exists) or as the Trustee, in its
discretion, may deem appropriate; and in connection therewith, to
execute promissory notes, mortgages or other obligations and to pledge
or mortgage any trust assets as security; and to lend money on a
secured or unsecured basis to any person other than a party in
interest;
(i) To manage any real property in the Trust in the same
manner as if the Trustee were the absolute owner thereof, including the
power to lease the same for such term or terms within or beyond the
existence of the Trust and upon such conditions as the Trustee may be
directed by the Committee or may deem proper; and to grant options to
purchase or acquire options to purchase any real property;
(j) To appoint one (1) or more persons or entities as
custodian or ancillary trustee or sub-trustee for the purpose of
investing in and holding title to real or personal property or any
interest therein located outside the State of North Carolina; provided
that any such custodian, ancillary trustee or sub-trustee shall act
with such power, authority, discretion, duties, and functions of the
Trustee as shall be specified in the instrument establishing such
custodianship, ancillary trust or sub-trust, including (without
limitation) the power to receive, hold and manage property, real or
personal, or undivided interests therein; and the Trustee may pay the
reasonable expenses and compensation of such custodians, ancillary
trustees or sub-trustees out of the Trust;
(k) To hold such part of the assets of the Trust uninvested
for such limited periods of time as may be necessary for purposes of
orderly trust administration or pending required directions, or to
create reserves for the payment of expenses or for distributions
pursuant to the Plans without liability for payment of interest;
(l) To determine how all receipts and disbursements shall be
credited, charged or apportioned as between income and principal, and
the decision of the Trustee shall be final and not subject to question
by any Participant or beneficiary of the Trust;
(m) To pay the expenses and taxes of the Trust out of the
assets held hereunder, including, without limitation, reasonable
expenses and compensation for its services as Trustee;
(n) To deposit any securities with stock clearing
corporations or similar organizations, whether located within the State
of North Carolina or in another state of the United States of America
or elsewhere;
(o) To lend securities of the Trust and to invest and
reinvest any cash collateral deposited as security for the securities
so loaned; provided that any such loan of securities shall be made
pursuant to a written agreement between the Company and the Trustee,
which agreement shall set forth the terms and conditions of the
Trustee's appointment as securities lending agent;
(p) To employ suitable agents, consultants, custodians, and
legal counsel, and, as part of its reasonable expenses under this Trust
Agreement, to pay their reasonable expenses and compensation;
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<PAGE> 24
(q) To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other instruments
that may be necessary or appropriate to carry out the powers granted
herein;
(r) To foreclose on any notes from the Company or its
affiliates (and dispose of any collateral securing such notes, subject
to the terms of any pledge agreement) upon any Default (as defined in
1.04-6), after sixty (60) days written notice to the Company to permit
the Company to cure any Default; and
(s) Generally to do all acts, whether or not expressly
authorized, which the Trustee may deem necessary or desirable for the
orderly administration or protection of the trust fund.
Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
2.06-2 The Trustee may engage one (1) or more qualified independent
attorneys, accountants, actuaries, appraisers, arbitrators, consultants or other
experts (an "Expert") for any purpose, including the determination of Excess
Assets pursuant to 2.04 or disputed claims pursuant to 3.03. For purposes of
valuing any insurance contract, the issuer of any such Contract shall be deemed
to be an Expert. The determination of an Expert shall be final and binding on
the Company, the Trustee, and all of the Participants unless, within sixty (60)
days after receiving a determination deemed by any Participant to be adverse,
any Participant disputes the determination using the procedure for disputed
claims pursuant to 3.03. The Trustee shall have no duty to oversee,
independently evaluate or otherwise question the determination of the Expert and
shall be fully protected in relying upon, and acting in accordance with, any
advice or determination of any such Expert. The Trustee shall be authorized to
pay the fees and expenses of any Expert out of the assets of the trust fund.
2.06-3 The Company shall from time to time pay taxes (references in
this Trust Agreement to the payment of taxes shall include interest and
applicable penalties) of any and all kinds whatsoever which at any time are
lawfully levied or assessed upon or become payable in respect of the trust fund,
the income or any property forming a part thereof, or any security transaction
pertaining thereto. To the extent that any taxes levied or assessed upon the
trust fund are not paid by the Company or contested by the Company pursuant to
the last sentence of this paragraph, the Trustee shall pay such taxes out of the
trust fund, and the Company shall deposit into the trust fund an amount equal to
the amount paid from the trust fund to satisfy such tax liability, upon notice
by the Trustee that any such amount has been paid by the Trustee, to the extent
such amount is necessary to keep the Trust funded under 2.01-3. If requested by
the Company, the Trustee may, at the Company's expense, contest the validity of
such taxes in any manner deemed appropriate by the Company or its counsel, but
only if it has received an indemnity bond or other security satisfactory to it
to pay any expenses or any liability it may incur in connection with such
contest. Alternatively, the Company may itself contest the validity of any such
taxes, but any such contest shall not affect the Company's obligation to
reimburse the trust fund for taxes paid from the trust fund.
2.06-4 Notwithstanding any provisions in the Plans or this Trust
Agreement to the contrary, the Company and Trustee may withhold any benefits
payable to a beneficiary as a result of the death of the Participant or any
other beneficiary until such time as (a) the Company is able to determine
whether a generation-skipping transfer tax, as defined in Chapter 13 of the
Code, or any substitute provision therefor, is or may become payable by the
Company or Trustee as a result of benefit payments to the benefici-
18
<PAGE> 25
ary; and (b) the Company has determined the amount of generation-skipping
transfer tax that is or may become due, including interest thereon. If any such
tax is or may become payable, the Company shall reduce the benefits otherwise
payable hereunder to such beneficiary by such amounts as the Company feels are
reasonably necessary to pay any generation-skipping transfer tax and interest
thereon which is or may become due.
Any excess amounts so withheld from a beneficiary, which are not used
to pay generation-skipping transfer tax and interest thereon, shall be payable
to the beneficiary as soon as there is a final determination of the applicable
generation-skipping transfer tax and interest thereon. Whenever any amounts
which were withheld are paid to any beneficiary, interest shall be payable by
the Company or Trustee to such beneficiary for the period of time between the
date when such amounts would otherwise have been paid to the beneficiary and the
date when such amounts are actually paid to the beneficiary after the
aforementioned generation-skipping transfer tax determinations are made and the
amount of benefits payable to the beneficiary is finally determined. Interest
shall be payable at the same rate as provided under 5.03-2.
ARTICLE III--ADMINISTRATION
3.01 Committee; Company Representatives
3.01-1 The Committee is the plan administrator for the Plans and has
general responsibility to interpret the Plans and determine the rights of
Participants and beneficiaries.
3.01-2 The Trustee shall be given the names and specimen signatures of
the members of the Committee and any other Company representatives authorized to
take action in regard to the administration of the Plans and this Trust. The
Trustee shall accept and rely upon the names and signatures until notified of
any change. Instructions to the Trustee shall be signed for the Committee by its
Chair or such other person as the Committee may designate and for the Company by
any officer or such other representative as the Company may designate.
3.02 Payment of Benefits
3.02-1 Benefit payments shall be made directly by the Company or by the
Trustee pursuant to the Payment Schedule. If such payments are not made by the
Company when due, the Participant or beneficiaries shall give written notice of
the amount of such non-payment to the Trustee. The Trustee shall forward such
notice to the Company and may pay such benefits to the Participant or
beneficiaries on behalf of the Company thirty (30) days after such notice had
been forwarded to the Company, unless the Company notifies the Trustee in
writing in a timely manner that such payment already has been made. Benefit
payments from the Trust or a Subtrust shall be made in full until the assets of
the Trust or Subtrust are exhausted. Payments due on the date the Trust or
Subtrust is exhausted shall be covered pro rata. The Company's obligation shall
not be limited to the trust fund, and a Participant or beneficiary shall have a
claim against the Company for any payment not made by the Trustee.
The Trustee shall bear no liability if the assets of the Trust or any
Subtrust are insufficient to satisfy any liability of the Plan or Trust, and no
Participant or beneficiary or the Company shall have a claim against the Trustee
with respect to such insufficiency.
3.02-2 A Participant's entitlement to benefits under the Plans shall
initially be determined by the Committee or consultant designated by the
Committee. Any benefit enhancement or right with re-
19
<PAGE> 26
spect to the Plans which is provided under employment or severance agreements of
Participants shall be taken into account in making the foregoing determination.
Any claim for such benefits shall be considered and reviewed under the claims
procedures established for the Plans.
3.02-3 The Trustee shall make payments in accordance with written
directions from the Committee or consultant designated by the Committee, except
as provided in 3.03. The Trustee may request such directions from the Committee
or consultant designated by the Committee. If the Committee or consultant
designated by the Committee fails to furnish written directions to the Trustee,
within thirty (30) days after receiving a written request for directions from
the Trustee, the Trustee may make payments in accordance with the Plan or the
most recent Payment Schedule furnished to it by the Company.
The Trustee shall not be liable for payment of any tax assessed under
any existing or future law against the assets of the trust fund. With respect to
any benefit payment which is subject to federal, state or local income tax
withholding, as directed in writing by the Company, the Trustee shall distribute
assets of the trust fund to the Company for its submission to the applicable
taxing authority or may pay amounts so withheld to taxing authorities on the
Company's behalf, as the Trustee may determine in its discretion. With respect
to any federal, state or local income tax on the earnings on the assets of the
trust fund, such tax shall be paid by the Company.
3.02-4 The Trustee shall use the assets of the Trust or any Subtrust to
make benefit payments or other payments in the following order of priority,
unless the Trustee determines otherwise to protect the Participants:
(a) Cash contributions from the Company which are
specifically designated to enable the Trustee to make such benefit
payments or other payments when due;
(b) Cash and cash equivalents of the Trust or Subtrust;
(c) All taxable investments of the Trust or Subtrust (other
than cash and cash equivalents and Contracts with Insurers), in such
order as the Trustee may determine;
(d) All nontaxable investments of the Trust or Subtrust
(other than cash and cash equivalents and Contracts with Insurers), in
such order as the Trustee may determine; and
(e) Contracts with Insurers held in the Trust or Subtrust,
in such order and manner (for example, making tax-free withdrawals
prior to any taxable withdrawals from Contracts) as the Trustee may
determine. Unless the Trustee determines otherwise to protect the
Participants, the Trustee shall make tax-free withdrawals prior to any
taxable withdrawals from Contracts; shall make withdrawals from
Contracts to the premium vanish point before surrendering any
Contracts; and shall surrender Contracts, only if necessary, proceeding
in order of Contracts on insureds from the youngest to the oldest ages
based on the insured's age on the date of surrender of the Contract.
Notwithstanding the foregoing, the Trustee may use the assets of the
Trust or any Subtrust in any other order of priority directed by the Committee
with the Written Consent of Participants affected thereby.
3.03 Disputed Claims
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<PAGE> 27
3.03-1 A Participant covered by this Trust whose claim has been denied
in whole or in part by the Committee, or who has received no response to the
claim within sixty (60) days after submission to the Committee, may submit the
claim to the Trustee. The Trustee shall give written notice of the claim to the
Committee. If the Trustee receives no written response from the Committee within
thirty (30) days after the date the Committee is given written notice of the
claim, the Trustee shall pay the Participant the amount claimed. If a written
response is received within such thirty (30) days, the Trustee shall designate
an Expert to consider the claim pursuant to 2.06-2. If the merits of the claim
depend on compensation, service or other data in the possession of the Company
and it is not provided, the Expert may rely upon information provided by the
Participant. Any benefit enhancement or right with respect to the Plans which is
provided under employment or severance agreements of Participants shall be taken
into account in making the foregoing determination.
3.03-2 The Trustee shall give written notice to the Participant and the
Committee of the Expert's decision on the claim. If the decision is to grant the
claim, the Trustee shall make payment to the Participant.
Either the Participant or the Company may challenge the Expert's
decision by filing suit in a court of competent jurisdiction. If no such suit is
filed within sixty (60) days after delivery of written notice of the Expert's
decision, the decision shall become final and binding on all parties.
3.03-3 If the Committee opposes a claim presented under 3.03-1 and the
Trustee ultimately pays the claim from trust assets, the Trustee shall reimburse
the Participant's expenses in pursuing the claim, including attorneys fees, from
the assets of the Trust. The Company shall reimburse the trust fund within
thirty (30) days after receipt of a bill from the Trustee for any such
Participant's expenses which are reimbursed by the Trustee.
3.04 Records
3.04-1 The Trustee shall keep complete records on the trust fund open
to inspection by the Company, Committee and Participants at all reasonable
times. In addition to accountings required below, the Trustee shall furnish to
the Company, Committee and Participants any information reasonably requested
about the trust fund.
3.05 Accountings
3.05-1 The Trustee shall furnish the Company with a complete statement
of accounts annually within sixty (60) days after the end of the trust year
showing assets and liabilities and income and expense for the year of the Trust
and each Subtrust. The Trustee shall also furnish the Company with accounting
statements at such other times as the Company may reasonably request. The form
and content of the statement of accounts shall be sufficient for the Company to
include in computing its taxable income and credits the income, deductions and
credits against tax that are attributable to the trust fund.
3.05-2 The Company may object to an accounting within one hundred
twenty (120) days after it is furnished and require that it be settled by audit
by a qualified, independent certified public accountant selected by mutual
agreement of the Company and the Trustee. Either the Company or the Trustee may
require that the account be settled by a court of competent jurisdiction, in
lieu of or in conjunction with the audit. All expenses of any audit or court
proceedings, including reasonable attorneys' fees, shall be allowed as
administrative expenses of the Trust.
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<PAGE> 28
3.05-3 If the Company does not object to an accounting within the time
provided, the account shall be settled for the period covered by it.
3.05-4 When an account is settled, it shall be final and binding on all
parties, including all Participants and persons claiming through them.
3.06 Expenses and Fees
3.06-1 The Trustee shall be reimbursed for all reasonable expenses and
shall be paid a reasonable fee fixed by agreement with the Company from time to
time. No increase in the fee shall be effective before thirty (30) days after
the Trustee gives written notice to the Company of the increase. The Trustee
shall notify the Company periodically of expenses and fees.
3.06-2 Trustee and other administrative and valuation fees and expenses
shall be paid from the trust fund, unless otherwise paid by the Company. The
Company shall reimburse the trust fund within thirty (30) days after receipt of
a bill from the Trustee for any fees and expenses paid out of the trust fund.
ARTICLE IV--LIABILITY
4.01 Indemnity
4.01-1 Subject to such limitations as may be imposed by applicable law,
the Company shall indemnify and hold harmless the Trustee from any claim, loss,
liability or expense, including reasonable attorneys' fees, which the Trustee
may incur or pay out by reason of any alleged or actual act or failure to act on
the part of any person authorized to act with respect to the Plans or the Trust
created hereunder, including without limitation any claim, loss, liability or
expense, including reasonable attorneys' fees, arising from any action or
inaction in administration of this Trust based on direction or information
provided to the Trustee from either the Company, Committee, any Investment
Manager, any Expert, or any other person authorized to act hereunder, absent
willful misconduct, gross negligence or bad faith on the part of the Trustee. If
the Trustee's actions or inactions are determined to be a result of willful
misconduct, gross negligence or bad faith, the Trustee shall indemnify and hold
harmless the Company from any claim, loss, liability or expense, including
reasonable attorneys' fees, which the Company may incur or pay out by reason of
any alleged or actual act or failure to act on the part of the Trustee. All
indemnities provided herein shall survive termination of this Agreement.
4.02 Bonding
4.02-1 The Trustee need not give any bond or other security for
performance of its duties under this Trust.
ARTICLE V--INSOLVENCY
5.01 Trustee Responsibility Regarding Payments When Company Is Insolvent
5.01-1 The Trustee shall cease payment of benefits to Participants and
their beneficiaries if the Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust
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<PAGE> 29
Agreement if (i) the Company is unable to pay its debts as they become due or
(ii) the Company is subject to a pending proceeding as a debtor under the United
States Bankruptcy Code.
5.01-2 At all times during the continuance of this Trust, the principal
and income of the Trust shall be subject to claims of general creditors of the
Company under federal and state law as set forth below.
(a) The Board of Directors and the Chief Executive Officer
of the Company shall have the duty to inform the Trustee in writing of
the Company's Insolvency. If a person claiming to be a creditor of the
Company alleges in writing to the Trustee that the Company has become
Insolvent, the Trustee shall determine whether the Company is Insolvent
and, pending such determination, the Trustee shall discontinue payment
of benefits to Participants or their beneficiaries.
(b) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person
claiming to be a creditor alleging that the Company is Insolvent, the
Trustee shall have no duty to inquire whether the Company is Insolvent.
The Trustee may in all events rely on such evidence concerning the
Company's solvency as may be furnished to the Trustee and that provides
the Trustee with a reasonable basis for making a determination
concerning the Company's solvency.
(c) If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall discontinue payments to
Participants or their beneficiaries and shall hold the assets of the
Trust for the benefit of the Company's general creditors. Nothing in
this Trust Agreement shall in any way diminish any rights of
Participants or their beneficiaries to pursue their rights as general
creditors of the Company with respect to benefits due under the Plans
or otherwise.
(d) The Trustee shall resume the payment of benefits to
Participants or their beneficiaries in accordance with Article III of
this Trust Agreement only after the Trustee has determined that the
Company is not Insolvent (or is no longer Insolvent).
(e) The expenses of any determination of Insolvency or
solvency shall be allowed as administrative expenses of the Trust.
5.01-3 Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to 5.01-2 hereof
and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to
Participants or their beneficiaries under the terms of the Plans for the period
of such discontinuance, less the aggregate amount of any payments made to
Participants or their beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
5.02 Insolvency Administration
5.02-1 While the Company is Insolvent, the Trustee shall hold the trust
fund for the benefit of the creditors of the Company and make payments only in
accordance with 5.01 and 5.02-2. The Participants and beneficiaries shall have
no greater rights than general creditors of the Company. The Trustee shall
continue the investment of the trust fund in accordance with 2.02.
5.02-2 The Trustee shall make payments out of the trust fund in one (1)
or more of the following ways:
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<PAGE> 30
(a) To creditors in accordance with instructions from a
court, or a person appointed by a court, having jurisdiction over the
Company's condition of Insolvency;
(b) To Participants and beneficiaries in accordance with
such instructions; or
(c) In payment of its own fees or expenses.
5.02-3 The Trustee shall have a priority claim against the trust fund
with respect to its own fees and expenses.
5.03 Termination of Insolvency Administration
5.03-1 Insolvency Administration shall terminate when the Trustee
determines that the Company:
(a) Is not Insolvent, in response to a notice or allegation
of insolvency under 5.01;
(b) Has ceased to be Insolvent; or
(c) Has been determined by a court of competent jurisdiction
not to be Insolvent or to have ceased to be Insolvent.
5.03-2 Upon termination of Insolvency Administration under 5.03-1, the
trust fund shall continue to be held for the benefit of the Participants and
beneficiaries under the Plans. Benefit payments due during the period of
Insolvency Administration shall be made as soon as practicable, together with
interest from the due dates, as directed by the Committee, based upon the
following rates:
(a) For deferred compensation or other defined contribution
plans, the rate credited on the Participant's account under the Plan
or, if greater, the rate provided under subparagraph (b) below.
(b) For supplemental retirement or other defined benefit
plans, a rate equal to the average PBGC rate applicable to immediate
annuities during the period while benefit payments were suspended.
5.04 Creditors' Claims During Solvency
5.04-1 During periods of solvency, the Trustee shall hold the trust
fund exclusively to pay Plan benefits and fees and expenses of the Trust until
all Plan benefits have been paid. Creditors of the Company shall not be paid
during solvency from the trust fund, which may not be seized by or subjected to
the claims of such creditors in any way.
5.04-2 A period of solvency is any period when the Company is not
Insolvent.
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ARTICLE VI--SUCCESSOR TRUSTEES
6.01 Resignation and Removal
6.01-1 The Trustee may resign at any time by written notice to the
Company, which shall be effective in sixty (60) days unless the Company and the
Trustee agree otherwise.
6.01-2 The Trustee may be removed by the Company on sixty (60) days'
written notice or shorter notice accepted by the Trustee, provided that after a
Special Circumstance (or while a Potential Change in Control exists), the
Trustee may be removed only with the Written Consent of Participants.
6.01-3 When resignation or removal is effective, the Trustee shall
begin transfer of assets to the successor Trustee as soon as practicable.
6.02 Appointment of Successor
6.02-1 The Company may appoint any national or state bank or trust
company that is unrelated to the Company as a successor to replace the Trustee
upon resignation or removal. The appointment shall be effective when accepted in
writing by the new Trustee, which shall have all of the rights and powers of the
former Trustee, including ownership rights in the Trust assets. The former
Trustee shall execute any instruments necessary or reasonably requested by the
Company or the successor Trustee to evidence the transfer. After a Special
Circumstance (or while a Potential Change in Control exists), a successor
Trustee may be appointed by the Company only with the Written Consent of
Participants.
6.02-2 The successor Trustee need not examine the records and acts of
any prior Trustee and may retain or dispose of existing Trust assets, subject to
Article II. The successor Trustee shall not be responsible for, and the Company
shall indemnify and hold harmless the successor Trustee from any claim or
liability because of, any action or inaction of any prior Trustee or any other
past event, any existing condition or any existing assets.
6.03 Accountings; Continuity
6.03-1 A Trustee who resigns or is removed shall submit a final
accounting to the Company as soon as practicable. The accounting shall be
received and settled as provided in 3.05 for regular accountings.
6.03-2 No resignation or removal of the Trustee or change in identity
of the Trustee for any reason shall cause a termination of the Plans or this
Trust.
ARTICLE VII--GENERAL PROVISIONS
7.01 Interests Not Assignable
7.01-1 The interest of a Participant in the Trust may not be assigned,
pledged or otherwise encumbered, seized by legal process, transferred or
subjected to the claims of the Participant's creditors in any way.
In particular, no amount payable to or in respect of any Participant
shall be subject in any manner to alienation by anticipation, sale, transfer,
assignment, bankruptcy, pledge, attachment, charge or
25
<PAGE> 32
encumbrance of any kind, and any attempt to do so will be void. The Trust corpus
or income shall in no manner be liable for or subject to the debts or
liabilities of Participants or their beneficiaries. No Participant or
beneficiary (or any party related to either of the foregoing) may have any
interest in the Trust's assets either as an owner, a nominee, or otherwise. It
is the intention that establishment of this Trust will not cause the Plans to be
funded for federal income tax purposes or for purposes of Title I of the
Employee Retirement Income Security Act of 1974, as amended, and the assets of
this Trust shall be subject to the claims of general creditors of the Company
when the Company is or becomes Insolvent.
7.01-2 The Company may not create a security interest in the trust fund
in favor of any of its creditors. The Trustee shall not make payments from the
trust fund of any amounts to creditors of the Company other than Participants,
except as provided in 5.01 and 5.02.
7.01-3 The Participants shall have no interest in the assets of the
trust fund beyond the right to receive payment of Plan benefits and
reimbursement of expenses from such assets, subject to the limitations during
Insolvency referred to in 5.01 and 5.02. During Insolvency Administration the
Participants' rights to Trust assets shall not be superior to those of any other
general creditors of the Company.
7.02 Amendment
7.02-1 The Company and the Trustee may amend this Trust Agreement at
any time by a written instrument executed by both parties, except that no
amendment shall (i) conflict with the terms of the Plans, (ii) make this Trust
revocable after occurrence of a Special Circumstance, or while a Potential
Change in Control exists, or (iii) have retroactive effect so as to deprive any
Participant or beneficiary of any benefit which has previously been paid to such
Participant or beneficiary from Trust assets. Except as provided below, any
amendment after a Special Circumstance (or while a Potential Change in Control
exists) may be made only with the Written Consent of Participants.
Notwithstanding the foregoing, any amendment may be made by written agreement of
the Company and the Trustee without the Written Consent of Participants if such
amendment will not have a material adverse effect on the rights of any
Participant hereunder or is necessary to comply with any laws, regulations or
other legal requirements.
7.03 Applicable Law
7.03-1 This Trust shall be governed, construed and administered
according to the laws of Hawaii, except as preempted by ERISA.
7.04 Agreement Binding on All Parties
7.04-1 This Trust Agreement shall be binding upon the heirs, personal
representatives, successors and assigns of any and all present and future
parties.
7.05 Notices and Directions
7.05-1 Any certificates, notices, orders, requests, instructions,
directions or objections of the Company, Committee or an Investment Manager
pursuant to this Trust Agreement shall be satisfactorily evidenced to the
Trustee by a written statement (provided, however, that the Trustee may, in its
sole discretion, accept oral notices, orders, requests, instructions, directions
and objections subject to confirmation in writing). The Trustee may act upon any
certificate, notice, order, request, instruction, direction or objection
purporting to have been signed on behalf of the Company, Committee or an
Investment Manager which the Trustee believes to be genuine and to have been
executed by the Company, Committee or an Investment Manager, or by any person
whose authority to act for the Company, Committee or an In-
26
<PAGE> 33
vestment Manager has been certified to the Trustee by the Company, Committee or
an Investment Manager, as the case may be, and shall be fully protected for
acting in accordance therewith or for failing to act in the absence thereof.
Communications to the Trustee shall be sent to the Trustee's office as set forth
below or to such other address as the Trustee shall specify in writing, and such
communications to the Trustee shall be effective when received by the Trustee.
7.05-2 Any notice or direction under this Trust Agreement shall be in
writing and shall be effective when actually received. Notices sent to a party
shall be directed to the address stated below or to such other address as either
party may specify by notice to the other party. Notices to the Committee shall
be sent to the address of the Company. Notices to Participants who have
submitted claims under 3.03 shall be mailed to the address shown in the claim
submission. Until notice is given to the contrary, notices to the Company and
the Trustee shall be addressed as follows:
Company: BancWest Corporation
999 Bishop Street
Honolulu, Hawaii 96813
Attention: Chief Financial Officer
Trustee: Wachovia Bank, N.A.
301 N Main Street
Winston-Salem, North Carolina 27150-3099
Attention: Executive Services
7.06 No Implied Duties
7.06-1 The duties of the Trustee shall be those stated in this Trust,
and no other duties shall be implied.
7.07 Gender, Singular and Plural
7.07-1 All pronouns and any variations thereof shall be deemed to refer
to the masculine or feminine, as the identity of the person or persons may
require. As the context may require, the singular may be read as the plural and
the plural as the singular.
7.08 Counterparts
7.08-1 This Trust Agreement may be executed in counterparts, each of
which shall be deemed an original, and said counterparts shall constitute one
(1) and the same instrument, which may be sufficiently evidenced by any one (1)
counterpart.
ARTICLE VIII--INSURER
8.01 Insurer Not a Party
8.01-1 Any Insurer shall not be deemed to be a party to this Trust
Agreement, and its obligations shall be measured and determined solely by the
terms of its Contracts and other agreements executed by it.
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<PAGE> 34
8.02 Authority of Trustee
8.02-1 Any Insurer shall accept the signature of the Trustee on any
documents or papers executed in connection with any Contract. The signature of
the Trustee shall be conclusive proof to the Insurer that the person on whose
life an application is being made is eligible to have such Contract issued on
his life and is eligible for a Contract of the type and amount requested.
8.03 Contract Ownership
8.03-1 Any Insurer shall deal with the Trustee as the sole and absolute
owner of the Trust's interests in such Contracts and shall have no obligation to
inquire whether any action or failure to act on the part of the Trustee is in
accordance with or authorized by the terms of the Plans or this Trust Agreement.
8.04 Limitation of Liability
8.04-1 Any Insurer shall be fully discharged from any and all liability
for any action taken or any amount paid in accordance with the direction of the
Trustee and shall have no obligation to see to the proper application of the
amounts so paid. Any Insurer shall have no liability for the operation of this
Trust Agreement or the Plans, whether or not in accordance with their terms and
provisions.
8.05 Change of Trustee
8.05-1 Any Insurer shall be fully discharged from any and all liability
for dealing with a party or parties indicated on its records to be the Trustee
until such time as it shall receive at its home office written notice from the
Company of the appointment and qualification of a successor Trustee.
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<PAGE> 35
IN WITNESS WHEREOF, the Company and the Trustee have caused this Trust
Agreement to be executed by their respective duly authorized officers on the
dates set forth below.
BANCWEST CORPORATION
By:/s/ HOWARD H. KARR
---------------------------------------------
Howard H. Karr
Executive Vice President and
Its:Chief Financial Officer
---------------------------------------------
Executed: October 28, 1999
---------------------------------------------
WACHOVIA BANK, N.A.
By:/s/ BEVERLY H. WOOD
---------------------------------------------
Beverly H. Wood
Its:Senior Vice President
---------------------------------------------
Executed: November 23, 1999
---------------------------------------------
29
<PAGE> 36
APPENDIX A
Assumptions and Methodology for
Calculations Required Under 2.01 and 2.04
1. The liability for benefits under each Plan will be calculated as of the
applicable date under 2.01 or 2.04.
2. Calculations will be based upon the most valuable optional form of payment
available to the Participant.
3. The liability for benefits under deferred compensation or other defined
contribution Plans shall be equal to the deferral or other account balances
(vested and unvested) of Participants as of the applicable date. Account
balances of Participants under a Plan shall be calculated based on
crediting the account with the highest amount of interest which may become
payable on such account under the Plan.
4. The liability for benefits under supplemental retirement or other defined
benefit Plans shall be equal to the present value of accrued benefits
(vested and unvested) of Participants as of the relevant dates under 1
above, discounted in accordance with paragraph 8 below.
5. The liability for benefits under each Plan shall be calculated by assuming
that each Participant is terminated at a time when he is entitled to
receive any benefit enhancement provided by the Plan upon a change in
control (as defined by that Plan). Any benefit enhancement or right with
respect to a Plan which is provided under an employment or severance
agreement of a Participant shall also be taken into account in calculating
the liability for benefits for that Participant, insofar as it may increase
the Participant's benefits under the Plan.
6. The liability for benefits under all Plans shall also include the present
value (discounted to the applicable date in accordance with paragraph 8
below) of any survivor benefits which exceed the account balances or other
accrued benefits of Participants and are not covered by death benefits
payable under insurance contracts held in the Trust.
7. No mortality is assumed prior to the commencement of benefits, except for
purposes of calculating any additional accrued liability under paragraph 6
above. Future mortality is assumed to occur in accordance with the 1983
Group Annuity Mortality Table after the commencement of benefits.
8. The present value of amounts under 2.01-3 shall be determined using a
discount rate equal to the lesser of (i) the immediate annuity interest
rate for termination of single-employer plans established by the Pension
Benefit Guaranty Corporation (PBGC), or (ii) the interest rate (or series
of interest rates) used to determine the amount of a lump sum payment under
the applicable Plan.
9. Where left undefined above, calculations will be performed in accordance
with generally accepted actuarial principles.
<PAGE> 37
SCHEDULE I
Plans and Agreements
Covered by Trust Agreement
BancWest Corporation Supplemental Executive Retirement Plan
BancWest Corporation Deferred Compensation Plan
<PAGE> 1
EXHIBIT 10.19
Draft of May 24, 1999
BANCWEST CORPORATION
SPLIT-DOLLAR PLAN FOR EXECUTIVES
PROLOGUE
BancWest Corporation hereby adopts the BancWest Corporation
Split-Dollar Plan for Executives effective as of January 1, 1999.
Unless otherwise specifically provided for herein or by law, the
provisions set forth herein shall determine as of January 1, 1999 the rights and
benefits of all participants who terminate employment on or after said date.
ARTICLE I
DEFINITIONS
As used herein the following terms shall have the following meanings
unless the context clearly requires otherwise.
1.1 "Committee" means the Executive Compensation Committee of the
Company.
1.2 "Company" means BancWest Corporation.
1.3 "Participant" means any employee of a Participating Company who has
received a Split-Dollar Agreement.
1.4 "Participating Employer" means the Company and any other employer
which, with the Company's permission, elects to adopt the Plan for the benefit
of some or all of its employees.
1.5 "Plan" means the BancWest Corporation Split-Dollar Plan for
Executives as set forth herein and any amendments hereto as may be made from
time to time.
1.6 "Split-Dollar Agreement" means an agreement between the Participant
and the Participating Employer that relates to the payment of
<PAGE> 2
premiums on a "split-dollar" basis for a life insurance policy on the life of
the Participant.
ARTICLE II
PARTICIPATION AND BENEFITS
Section 2.1 Participation.
The Committee shall determine from time to time employees who shall be
eligible to be Participants.
Section 2.2 Benefits.
The Committee shall determine the terms of the Split-Dollar Agreement
to be entered into with each Participant.
Section 2.3 Prior Agreements.
By adopting the Plan as a Participating Employer, the Participating
Employer affirms that any Split-Dollar Agreements between it and any employee
that were entered into prior to the effective date of this Plan shall be
regarded as issued pursuant to this Plan.
ARTICLE III
ADMINISTRATION
Section 3.1 Committee.
Subject to the limitations of this Plan and unless otherwise determined
by the Board, the Committee shall have the power and the duty to take all
actions and to make all decisions necessary or proper to administer this Plan,
including:
(1) To require as a condition to receiving any benefits under
this Plan, any person to furnish such information that the Committee may
reasonably
2
<PAGE> 3
request for the purpose of the proper administration of this Plan;
(2) To make and enforce such rules and regulations and
prescribe the use of such forms as it of this Plan;
(3) To decide questions concerning the interpretation of this
Plan, including the eligibility of any person for benefits under this Plan;
(4) To determine the amount of benefits that shall be payable
to any person in accordance with the provisions of this Plan;
(5) To delegate responsibility for performance of ministerial
functions necessary for the administration of the Plan to such employees of the
Company or a Participating Employer, including Participants, as the Committee
shall deem appropriate; and
(6) To employ the services of such other persons as the
Committee may deem necessary or desirable in connection with this Plan,
including but not limited to an actuary, legal counsel, an independent
accountant, agents, and such clerical, medical, and accounting services as it
may require in carrying out the provisions of this Plan or in complying with the
requirements of ERISA.
Section 3.2 Indemnification, Insurance.
The Participating Employers shall indemnify and save harmless and/or
insure each fiduciary who is an employee or a director of a Participating
Employer or an Affiliate (as defined in the BancWest Corporation Defined
Contribution Plan) against any and all claims, loss, damages, expense, and
liability arising from his responsibilities in connection with this Plan, if the
fiduciary acted in good faith and in a manner the fiduciary reasonably believed
to be in or not opposed to the best interests of the Plan.
Section 3.3 Claims Procedure.
3
<PAGE> 4
Unless otherwise specifically provided otherwise in the Split-Dollar
Agreement, the procedure for claiming benefits under this Plan shall be as
follows:
(a) The Committee (or its designee) shall determine the benefits due
hereunder to a Participant or his beneficiary or beneficiaries, but a
Participant or his beneficiary or beneficiaries may file a claim for benefits by
written notice to the Committee.
(b) If a claim is denied in whole or in part, the Committee shall give
the claimant written notice of such denial, within a reasonable period of time
following the filing of the claim. Such notice shall (i) specify the reason or
reasons for the denial, (ii) refer to the pertinent Plan provisions on which the
denial is based, (iii) describe any additional material or information necessary
to perfect the claim and explain the need therefor, and (iv) explain the review
procedure described in subparagraph (c) hereof.
(c) The claimant may then appeal the denial of the claim to the
Committee by filing written notice of such appeal with the Committee within 90
days after receipt of the notice of denial. The claimant or any authorized
representative may, before or after filing notice of appeal, review any
documents pertinent to the claim and submit issues and comments in writing. The
Committee shall make its decision on such appeal within 60 days after receipt of
the appeal (unless a longer period is requested by the claimant), and shall
forthwith give written notice of such decision.
ARTICLE IV
AMENDMENT, TERMINATION, MERGER
Section 4.1 Amendment.
The Board may at any time amend this Plan.
4
<PAGE> 5
Section 4.2 Termination or Partial Termination.
This Plan may be terminated in full or in part by the Board. The board
of directors of a Participating Employer may terminate this Plan as to such
Participating Employer.
ARTICLE V
MISCELLANEOUS
Section 5.1 Unfunded Plan.
(a) The Plan is intended to be an unfunded plan maintained primarily to
provide deferred compensation benefits for a select group of "management or
highly-compensated employees" within the meaning of Sections 201, 301, and 401
of ERISA, and therefore exempt from the provisions of Parts 2, 3, and 4 of Title
I of ERISA. Accordingly, the Plan shall terminate and no further benefits shall
accrue hereunder if it is determined by a court of competent jurisdiction or by
an opinion of counsel that the Plan constitutes an employee pension benefit plan
within the meaning of Section 3(2) of ERISA that is not so exempt. In the event
of such termination, all ongoing accruals shall terminate, no additional
benefits shall accrue under the Plan, and the amount of each Participant's
vested interest in the Plan shall be distributed to such Participant at such
time and in such manner as the Committee, in its sole discretion, determines.
(b) In the event of the Company's or a Participating Employer's
insolvency, Participants and their beneficiaries, heirs, successors, and assigns
shall have no legal or equitable rights, interest, or claims in any property or
assets of the Company or a Participating Employer. The Company's and the
Participating Employers' obligations under the Plan shall be that of an unfunded
and unsecured promise to pay money in the future.
5
<PAGE> 6
Section 5.2 Rights of Participants.
(a) No Participant shall, by reason of his participation in this Plan,
have any interest in (i) any specific asset or assets of a Participating
Employer or an Affiliate (as defined in the BancWest Corporation Defined
Contribution Plan) or (ii) any stock rights of any kind.
(b) Neither the adoption of this Plan nor any action of a board of
directors or the Committee in connection with the Plan shall be held or
construed to confer upon any person any legal right to be continued as an
officer or employee of a Participating Employer or an Affiliate (as defined in
the BancWest Corporation Defined Contribution Plan).
Section 5.3 Misc. Rules.
(a) Wherever used herein the masculine gender shall include the
feminine and the singular number shall include the plural, unless the context
clearly indicates otherwise.
(b) The headings of articles and sections are included herein solely
for convenience of reference, and if there is any conflict between such headings
and the text of the Plan, the text shall be controlling.
(c) Wherever a Participating Employer, the Company, or a board of
directors is permitted or required to do or perform any act, matter, or thing
under the terms of the Plan, it may be done and performed by any officer of a
Participating Employer or the Company thereunto duly authorized.
(d) To the extent not preempted by the Employee Retirement Income
Security Act of 1974, as amended, the Plan shall be governed, construed,
administered, and regulated according to the laws of the State of Hawaii.
(e) All consents, elections, applications, designations, etc. required
or permitted under the Plan must be made on forms prescribed by the Committee,
and shall be recognized only if properly completed, executed, and filed with the
Committee.
6
<PAGE> 7
(f) A Participating Employer may assign a Split-Dollar Agreement (and
any related collateral assignment of policy or similar document) to another
Participating Employer upon such terms and conditions as the Participating
Employers may agree, provided that the assignee Participating Employer shall
agree to be bound by all of the terms and conditions of such Split-Dollar
Agreement that affect the Participant's benefits thereunder.
TO RECORD the adoption of this amendment and restatement, BancWest
Corporation has executed this document this 17th day of June, 1999.
BANCWEST CORPORATION
By /s/ Herbert E. Wolff
-------------------------------------
Its Senior Vice President and
Secretary
7
<PAGE> 1
EXHIBIT 12. STATEMENT RE: COMPUTATION OF RATIOS
BANCWEST CORPORATION AND SUBSIDIARIES
Computation of Consolidated Ratios of Earnings to Fixed Charges
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income before income taxes $296,129 $144,901 $138,185 $123,716 $127,286
-------- -------- -------- -------- --------
Fixed charges (1):
Interest expense 446,877 315,822 281,232 270,755 279,269
Rental expense 15,017 13,659 12,502 6,574 6,345
-------- -------- -------- -------- --------
461,894 329,481 293,734 277,329 285,614
Less interest on deposits 368,621 253,860 220,116 199,094 188,744
-------- -------- -------- -------- --------
Net fixed charges 93,273 75,621 73,618 78,235 96,870
-------- -------- -------- -------- --------
Earnings, excluding
interest on deposits $389,402 $220,522 $211,803 $201,951 $224,156
======== ======== ======== ======== ========
Earnings, including
interest on deposits $758,023 $474,382 $431,919 $401,045 $412,900
======== ======== ======== ======== ========
Ratio of earnings to fixed charges:
Excluding interest
on deposits 4.17X 2.92x 2.88x 2.58x 2.31x
Including interest
on deposits 1.64X 1.44x 1.47x 1.45x 1.45x
</TABLE>
(1) For purposes of computing the consolidated ratios of earnings to fixed
charges, earnings represent income before income taxes and 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, consist of the foregoing items plus interest on
deposits.
<PAGE> 1
EXHIBIT 13
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
FOR THE YEAR:
Net income .............................................. $ 172,378 $ 84,284 $ 93,209
Operating earnings (1), (2) ............................ 184,008 106,150 93,209
Cash earnings (3) ...................................... 204,886 95,366 99,832
Operating cash earnings (1), (2), (3) .................. 216,516 117,232 99,832
Return on average total assets (1), (2) ................ 1.13% 1.06% 1.08%
Return on average tangible total assets (4) ............ 1.39 1.19 1.17
Return on average stockholders' equity (1), (2) ........ 10.26 11.32 11.86
Return on average tangible stockholders' equity (4) ..... 19.70 16.31 15.14
----------- ----------- ----------
PER SHARE: (5)
Diluted earnings ........................................ $ 1.38 $ 1.05 $ 1.29
Diluted operating earnings (1), (2) ..................... 1.48 1.32 1.29
Diluted cash earnings (3) .............................. 1.64 1.19 1.38
Diluted operating cash earnings (1), (2), (3) .......... 1.74 1.46 1.38
Cash dividends .......................................... .62 .58 .58
----------- ----------- ----------
AT YEAR END:
Total assets ............................................ $16,681,022 $15,929,064 $8,879,838
Loans and leases ........................................ 12,524,039 11,964,563 6,792,394
Deposits ................................................ 12,877,952 12,042,872 6,790,201
Stockholders' equity .................................... 1,842,730 1,746,156 801,084
----------- ----------- ----------
Tier 1 capital ratio .................................... 8.80% 8.32% 9.63%
Total risk-based capital ratio .......................... 10.56 10.18 11.87
Tier 1 leverage ratio ................................... 8.11 9.13 9.09
----------- ----------- ----------
Book value per share (5) ............................... $ 14.79 $ 14.15 $ 11.30
Market price per share (5) ............................. 19.50 24.00 19.88
Market capitalization ................................... 2,429,911 2,962,464 1,409,558
=========== =========== ==========
</TABLE>
On July 1, 1999, we acquired SierraWest Bancorp. That merger was accounted for
as a pooling of interests. Therefore, all financial information has been
restated for all periods presented.
(1) Excluding after-tax restructuring, merger-related and other nonrecurring
costs of $11.630 million in connection with the acquisition of SierraWest
Bancorp and the consolidation of data centers in 1999.
(2) Excluding after-tax restructuring, merger-related and other nonrecurring
costs of $21.866 million in connection with the merger of the former
BancWest Corporation with and into First Hawaiian, Inc. on November 1, 1998
("BancWest Merger").
(3) Excluding amortization of goodwill and core deposit intangible.
(4) Defined as operating cash earnings as a percentage of average total assets
or average stockholders' equity minus average goodwill and core deposit
intangible.
(5) All per share data have been calculated to include both common and Class A
common shares and have been adjusted to give retroactive effect to the
two-for-one stock split in the fourth quarter of 1999.
Operating Cash Earnings and Operating Earnings
($ in millions)
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Operating Cash Earnings (1), (2), (3).......... 84.5 90.8 99.8 117.2 216.5
Operating Earnings (1), (2).................... 80.3 85.2 93.2 106.2 184.0
</TABLE>
Diluted Operating Earnings and Cash Dividends Per Share
($)
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Diluted Operating Earnings (1), (2)............ 1.12 1.20 1.29 1.32 1.48
Cash Dividends Per Share....................... .56 .57 .58 .58 .62
</TABLE>
Return on Average Tangible Total Assets and Average Total Assets
(%)
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Amount in Percent)
<S> <C> <C> <C> <C> <C>
Return on Average Tangible Total Assets (4).... 1.07 1.11 1.17 1.19 1.39
Return on Average Total Assets (1), (2)........ 1.00 1.03 1.08 1.06 1.13
</TABLE>
Return on Average Tangible Stockholders' Equity and Average Stockholders' Equity
(%)
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Amount in Dollars)
<S> <C> <C> <C> <C> <C>
Return on Average Tangible Stockholders'
Equity (4)................................. 14.32 14.94 15.14 16.31 19.70
Return on Average Stockholders' Equity
(1), (2)................................... 11.80 11.82 11.86 11.32 10.26
</TABLE>
1
<PAGE> 2
SENIOR ADMINISTRATIVE OFFICERS
- --------------------------------------------------------------------------------
BANCWEST CORPORATION
Walter A. Dods, Jr.
Chairman & Chief Executive Officer
Don J. McGrath
President & Chief Operating Officer
John K. Tsui
Vice Chairman & Chief Credit Officer
Joel Sibrac
Vice Chairman
Howard H. Karr
Executive Vice President &
Chief Financial Officer
Douglas C. Grigsby
Executive Vice President & Treasurer
Bernard Brasseur
Executive Vice President &
Risk Manager
Donald G. Horner
Executive Vice President
BANK OF THE WEST
Don J. McGrath
President & Chief Executive Officer
Frank J. Bonetto
Senior Executive Vice President,
Community Banking Group
Joel Sibrac
Senior Executive Vice President,
Commercial Banking Group
Bernard Brasseur
Risk Manager
Douglas C. Grigsby
Chief Financial Officer
Christian A. Morio
Chief Inspector
EXECUTIVE VICE PRESIDENTS
Thomas J. Burns
Credit Administration
Scott J. Germer
Business Banking
Stephen C. Glenn
Chief Administrative Officer
James R. Henry
Specialty Lending
Richard T. McGoldrick
Consumer Credit
Barbara S. Tomber
Commercial Banking
Donald R. Ward
Operations & Systems
Donald E. Weyant
Real Estate Industries
Richard C. Williamson
Northwest Regional Executive
SENIOR VICE PRESIDENTS
Kevin F. Ames
Controller
Richard W. Aubrey
Treasurer
Mark R. Beecher
Consumer Credit Loan Production
Fred W. Bergemann
Credit Administration - Northwest
Bradley J. Bleything
Community Banking - Northwest
Arthur J. Crawford
Consumer Credit Asset Recovery
John H. Dimalanta
Trust
James W. Forsloff
Business Banking - Northwest
Kenneth T. Fujihara
Community Banking - South Bay
Charlotte A. Gallagher
Real Estate Industries - Northwest
Robert J. Galli
Business Banking - South Bay
Lawrence A. Heaton
Human Resources
Shirley A. Horeff
Operations & Systems
James R. Kennedy
Cash Management
James L. Loos
Consumer Credit
Frances E. Lopez-Cooper
Community Banking - Administration
Daniel A. Mikes
Religious Lending
James L. Mullins
Special Assets
Paul H. Nakae
Real Estate Industries
James G. Newell
Equipment Leasing
Robert S. Raye
Marketing
Michael R. Robinson
Community Banking - Valley
W. Gordon Smith
Compliance
Kathy Schueler
Foreign Exchange
Lisa M. Standen
Investment Products
Calvin Y. Tabata
Community Banking - Northwest
Norma J. Waters
Community Banking - North Bay
Susan J. Wheeler
Risk Management Administration
Paul T. Wible
Consumer Credit Operations
John B. Wojcik
Chief Auditor
Gina M. Wolley
Operations & Systems
Michael V. Wood
Community Banking - East Bay
William L. Zillman
General Counsel
Jerry Zuspan
Consumer Credit Collections
ESSEX CREDIT CORPORATION
Gene Schiavone
Chairman & Chief Executive Officer
<PAGE> 3
FIRST HAWAIIAN BANK
Walter A. Dods, Jr.
Chairman & Chief Executive Officer
John K. Tsui
President & Chief Operating Officer
Donald G. Horner
Vice Chairman,
Retail Banking Group
Howard H. Karr
Vice Chairman,
Administration & Finance Group
Lily Yao
Vice Chairman,
Government & Community Relations
EXECUTIVE VICE PRESIDENTS
Robert A. Alm
Financial Management Group
William E. Atwater
General Counsel
Gary L. Caulfield
Information Management Group
Anthony R. Guerrero, Jr.
Branch Banking Group
William B. Johnstone, III
Treasurer
John W. Landgraf
Commercial Real Estate
David W. Madison
Branch Loan Administration
Gerald M. Pang
Chief Credit Officer
Sheila M. Sumida
Human Resources
Barbara S. Tomber
Wholesale Loan Group
Albert M. Yamada
Chief Financial Officer
SENIOR VICE PRESIDENTS
Sharon S. Brown
Sales & Service
Winston K. H. Chow
Branch Banking - Hawaii
Linda B. Cornejo
Branch Loan Administration
Koren K. Dreher
Commercial Real Estate
Brandt G. Farias
Marketing Communications
Mark H. Felmet
Retail Loans
Robert T. Fujioka
Main Banking Center
Gary Y. Fujitani
Business Services
Gisela O. Gere
Cash Management
Anthony D. Goo
Trust Investments
Alfred R. Gross
Managed Assets
Edmund H. Kajiyama
Branch Support
Corbett A. K. Kalama
Branch Banking - Oahu
Gerald J. Keir
Corporate Communications
John K. Lee, Jr.
Branch Banking - Guam
George H. Lumsden
General Auditor
Roger P. MacArthur
Branch Banking - Maui
Kristi L. Maynard
Treasury & Investment
Melvin W. Y. Mow
Branch Loan Administration
Michael J. Murakoshi
Private Banking &
Branch Banking - Kauai
Francis T. Natori
Information Technology
Glen R. Okazaki
Controller's Division
Vernon T. Omori
Residential Real Estate
Raymond S. Ono
University Banking Center
Curt T. Otaguro
Operations Research & Development
Kenneth C. S. Pai
Commercial Real Estate
Edward Y. W. Pei
Electronic Banking
Frederick J. Shine, III
Managed Assets
Michael G. Taylor
First Hawaiian Insurance, Inc.
James M. Wayman
Bank Properties
Gary D. Williams
Corporate Services
Steve J. Williams
Branch Banking - Maui
Douglas D. Wilson
Trust Business Development
Herbert E. Wolff
Corporate Secretary
Donald C. Young
Media Finance
FIRST HAWAIIAN LEASING, INC./
FHL LEASE HOLDING CO., INC.
John K. Tsui
Chairman & Chief Executive Officer
Stephen J. Marcuccilli
President
15
<PAGE> 4
BOARDS OF DIRECTORS
BANCWEST CORPORATION
Jacques Ardant
Director, International Banking &
Finance, North America Area,
Banque Nationale de Paris
John W. A. Buyers
Chairman & Chief Executive Officer,
C. Brewer & Company, Limited
Walter A. Dods, Jr.
Chairman & Chief Executive Officer,
BancWest Corporation &
First Hawaiian Bank
Dr. Julia Ann Frohlich
President, Blood Bank of Hawaii
Robert A. Fuhrman
Chairman, Bank of the West
Vice Chairman, President &
Chief Operating Officer (Retired),
Lockheed Corporation
Paul Mullin Ganley
Trustee, Estate of S. M. Damon
Partner, Carlsmith Ball
David M. Haig
Trustee, Estate of S. M. Damon
John A. Hoag
Chairman, Hawaii Reserves, Inc.
Vice Chairman (Retired),
First Hawaiian Bank
Bert T. Kobayashi, Jr.
Principal, Kobayashi, Sugita & Goda
Michel Larrouilh
Chairman & Chief Executive Officer
(Retired), Old BancWest Corporation
Chief Executive Officer (Retired),
Bank of the West
Pierre Mariani
Executive Vice President,
International Retail Banking,
Banque Nationale de Paris
Yves Martrenchar
Executive Vice President,
Products and Markets,
Banque Nationale de Paris
Dr. Fujio Matsuda
Chairman, Pacific International Center
for High Technology Research
Don J. McGrath
President & Chief Operating Officer,
BancWest Corporation
President & Chief Executive Officer,
Bank of the West
Rodney R. Peck
Senior Partner,
Pillsbury, Madison & Sutro LLP
Joel Sibrac
Vice Chairman, BancWest Corporation
Senior Executive Vice President,
Commercial Banking Group,
Bank of the West
John K. Tsui
Vice Chairman & Chief Credit Officer,
BancWest Corporation
President & Chief Operating Officer,
First Hawaiian Bank
Jacques Henri Wahl
Director & Senior Advisor
to the Chief Executive Officer,
Banque Nationale de Paris
General Fred C. Weyand
Trustee, Estate of S. M. Damon
General (Retired), U.S. Army
Robert C. Wo
President & Secretary,
BJ Management Corporation
Chairman, C. S. Wo & Sons, Ltd.
BANK OF THE WEST
Jacques Ardant
David W. Clark
Walter A. Dods, Jr.
Robert A. Fuhrman
Stuart A. Hall
Jerrold T. Henley
Michel Larrouilh
A. Ewan Macdonald
Pierre Mariani
Yves Martrenchar
Don J. McGrath
Otis W. Mitchell
Rodney R. Peck
Donald A. Pelton
Joel Sibrac
Jean Thomazeau
Robert L. Toney
Jacques Henri Wahl
FIRST HAWAIIAN BANK
John W. A. Buyers
W. Allen Doane
Walter A. Dods, Jr.
Dr. Julia Ann Frohlich
Michael K. Fujimoto
Paul Mullin Ganley
David M. Haig
Warren H. Haruki
Howard K. Hiroki
John A. Hoag
David C. Hulihee
Glenn A. Kaya
Dr. Richard R. Kelley
Bert T. Kobayashi, Jr.
Dr. Richard T. Mamiya
Dr. Fujio Matsuda
Leighton S. L. Mau
Don J. McGrath
Dr. Roderick F. McPhee
Wesley T. Park
George P. Shea, Jr.
R. Dwayne Steele
John K. Tsui
Jenai Sullivan Wall
General Fred C. Weyand
James C. Wo
Robert C. Wo
16
<PAGE> 5
INDEX TO FINANCIAL REVIEW
18 CORPORATE ORGANIZATION
19 COMMON STOCK INFORMATION
21 SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
22 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
43 REPORT OF INDEPENDENT ACCOUNTANTS
CONSOLIDATED FINANCIAL STATEMENTS:
44 Consolidated Balance Sheets
45 Consolidated Statements of Income
46 Consolidated Statements of Changes
in Stockholders' Equity
47 Consolidated Statements of Cash Flows
48 Notes to Consolidated Financial Statements
73 GLOSSARY OF FINANCIAL TERMS
74 SUPPLEMENTAL INFORMATION
INSIDE BACK COVER:
CORPORATE ADDRESSES
17
<PAGE> 6
CORPORATE ORGANIZATION
BANCWEST CORPORATION
BancWest Corporation (the "Company" or "we/our") is a registered bank
holding company under the Bank Holding Company Act of 1956, as amended (the
"BHCA"). The Company is incorporated under the laws of the State of Delaware. As
a bank holding company, the Company is allowed to acquire or invest in the
securities of companies engaged in banking or in activities closely related to
banking as authorized by the Federal Reserve Board. Pursuant to amendments to
the BHCA enacted as part of the Gramm-Leach-Bliley Act, the Company expects to
qualify as a financial holding company, which, effective March 13, 2000, will be
permitted to engage in a broad range of financial activities, including
insurance and merchant banking.
In November 1998, the merger of the former BancWest Corporation, parent
company of Bank of the West, with and into First Hawaiian, Inc. ("FHI") was
consummated ("BancWest Merger"). FHI, the surviving corporation of the BancWest
Merger, changed its name to "BancWest Corporation."
Our organization consists of the following wholly-owned subsidiaries:
BANK OF THE WEST
Bank of the West was founded in 1874 and is the third-oldest bank in
California. It is a full-service bank conducting general commercial and consumer
banking business and offering trust and investment services. Bank of the West,
California's fourth-largest bank, had total assets of approximately $9.6 billion
and total deposits of approximately $7.4 billion at December 31,1999.
The executive office is located in San Francisco, California. Bank of
the West has 162 branch offices located in five Western states--118 in Northern
California, 30 in Oregon, nine in Washington state, three in Idaho and two in
Nevada.
Bank of the West receives demand, savings and time deposits; makes
commercial, agricultural, real estate, small business and consumer loans and
leases; sells cash management services, trust services, insurance products,
mutual funds, annuities, traveler's checks and personal money orders; issues
letters of credit; handles domestic and foreign collections; and rents safe
deposit boxes.
Bank of the West also generates indirect automobile loans and leases,
recreational vehicle loans, recreational marine vessel loans and equipment
leases through a network of manufacturers, dealers, representatives and brokers
in all 50 states.
Nationally, Bank of the West, through its principal subsidiary, Essex
Credit Corporation ("Essex"), originates and sells consumer loans for acquiring
or refinancing pleasure boats or recreational vehicles. Essex has 10 regional
offices located in Northern California, Southern California, Connecticut,
Florida, Maryland, Massachusetts, New York, New Jersey, Texas and Washington.
Bank of the West, through its SierraWest SBA lending division, is one of
the top originators of U.S. Small Business Administration ("SBA") loans in the
nation with ten lending offices located in California, Nevada, Oregon,
Washington, Colorado and Tennessee.
FIRST HAWAIIAN BANK
First Hawaiian Bank ("First Hawaiian") was founded in 1858 and is the
oldest financial institution in Hawaii. First Hawaiian is a full-service bank
conducting general commercial and consumer banking business and offering trust,
investment and insurance services. First Hawaiian, Hawaii's second-largest bank,
had approximately $7.1 billion in total assets and $5.5 billion in total
deposits at December 31, 1999.
First Hawaiian's main office is located in Honolulu, Hawaii. Its other
banking offices are in the State of Hawaii (56 offices), Guam (two offices), and
Saipan, Northern Mariana Islands (one office). First Hawaiian also has an
offshore branch in Grand Cayman, British West Indies; a representative office in
Tokyo, Japan; and a worldwide network of correspondent banks.
First Hawaiian receives demand, savings and time deposits; makes
commercial, agricultural, real estate and consumer loans; sells cash management
services, trust services, insurance products, mutual funds, annuities,
traveler's checks and personal money orders; issues letters of credit; handles
domestic and foreign collections; and rents safe deposit boxes.
First Hawaiian also conducts business through the following wholly-owned
subsidiaries:
- FH CENTER, INC., which owns certain real property in connection with
First Hawaiian Center, the Company's headquarters.
- FHB PROPERTIES, INC., which holds title to certain property and
premises used by First Hawaiian.
- FIRST HAWAIIAN LEASING, INC., which engages in commercial equipment
and vehicle leasing.
- REAL ESTATE DELIVERY, INC., which holds title to certain real property
acquired by First Hawaiian in business activities.
- FIRST HAWAIIAN INSURANCE, INC., which provides personal, business and
estate insurance to its customers.
18
<PAGE> 7
CORPORATE ORGANIZATION (continued)
FHL LEASE HOLDING COMPANY, INC.
FHL Lease Holding Company, Inc. is a financial services loan company in
Hawaii primarily engaged in commercial equipment and vehicle leasing.
FIRST HAWAIIAN CAPITAL I
First Hawaiian Capital I is a Delaware business trust (the "Trust")
which was formed in 1997. The Trust issued $100 million of its Capital
Securities (the "Capital Securities") and used the proceeds to purchase junior
subordinated deferrable interest debentures (the "Debentures") of the Company.
The Capital Securities qualify as Tier 1 Capital of the Company and are fully
and unconditionally guaranteed by the Company.
The Capital Securities accrue and pay interest semi-annually at an
annual interest rate of 8.343%. The Capital Securities are redeemable upon
maturity of the Debentures on July 1, 2027, or upon earlier redemption in whole
or in part as provided for in the governing indenture.
COMMON STOCK INFORMATION
Our common stock is traded on the New York Stock Exchange under the symbol
BWE. At December 31, 1999, there were 5,392 holders of record of the common
stock. A large number of shares are also held in the names of nominees and
brokers for individuals and institutions.
At December 31, 1999, there was one holder of record of our Class A
common stock. All Class A common shares were issued to Banque Nationale de Paris
("BNP") in conjunction with the BancWest Merger. A share of Class A common stock
is generally the same as a share of common stock in all respects, except that
holders of the Class A common stock have the right to elect a separate class of
directors (the "Class A Directors"), and to vote as a class on certain
fundamental corporate actions. The number of Class A Directors will generally be
comparable to the percentage of Class A common shares in relation to total stock
outstanding (common stock plus Class A common stock). Note 12 to the
Consolidated Financial Statements on page 60 discusses key terms of the Class A
common stock. The Class A common stock is not publicly traded.
BNP is bound by a standstill and governance agreement. Among the key
features of this agreement are provisions that: (1) limit BNP's ability to
acquire, directly or indirectly, additional common stock that would result in
its ownership of more than 45% of the outstanding voting stock of the Company;
(2) restrict BNP's ability to transfer its shares; (3) restrict BNP's ability to
exercise control over the Company or our Board of Directors (the "Board"), other
than through its representation on the Board; and (4) create various other
restrictions. Note 12 to the Consolidated Financial Statements on page 60
contains additional information.
At December 31, 1999, a total of 75,418,850 shares of common stock were
issued, including 2,437,556 shares in the treasury stock account.
On November 18, 1999, our Board approved a two-for-one stock split of
the total issued shares of the Company's common stock and Class A common stock.
The additional shares issued as a result of the stock split were distributed on
December 15, 1999, to stockholders of record at the close of business on
December 1, 1999. A total of 63,522,968 shares of common stock and Class A
common stock were issued in connection with the stock split. In addition, due to
the stock split, treasury shares increased by 1,220,408 shares. As a result of
the stock split, $63.523 million was reclassified from capital surplus to common
stock and Class A common stock. The stock split did not cause any changes in the
$1 par value per share of the common stock, the $1 par value per share of the
Class A common stock or in total stockholders'equity.
Unless otherwise noted, the number of common shares and per common share
amounts include Class A common shares and have been restated to reflect the
effects of the stock split.
On November 1, 1998, in connection with the merger of the former
BancWest Corporation with and into First Hawaiian, Inc., as described in Note 2
to the Consolidated Financial Statements on page 53, we issued 25,814,768 shares
of Class A common stock, which now constitute 51,629,536 shares due to the
two-for-one stock split. All of these shares remained outstanding at December
31, 1999.
19
<PAGE> 8
COMMON STOCK INFORMATION (continued)
Here are quarterly and annual per share data, computed using the common
stock and Class A common shares and restated for the effects of a two-for-one
stock split:
<TABLE>
<CAPTION>
Cash Market Price
Diluted Dividends -------------------------------------
Earnings Paid High Low Close
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1999
FIRST QUARTER $.34 $.15 $24-1/4 $19-7/16 $21-1/4
SECOND QUARTER .36 .15 21-7/32 18-1/2 18-9/16
THIRD QUARTER .29(1) .15 22-1/32 18-9/16 20-5/16
FOURTH QUARTER .39 .17 22-3/4 19-1/16 19-1/2
-------- ----
ANNUAL $1.38(1) $.62 24-1/4 18-1/2 19-1/2
======== ====
1998
First Quarter $ .32 $.14 $21 $17-5/16 $20
Second Quarter .31 .14 20-1/2 17-5/32 18-3/16
Third Quarter .35 .15 19 13-13/16 17
Fourth Quarter .07(2) .15 24 15-5/8 24
-------- ----
Annual $1.05(2) $.58 24 13-13/16 24
======== ====
1997 $1.29 $.58 21-15/16 14-5/16 19-7/8
1996 $1.20 $.57 18-3/8 12-7/8 17-1/2
1995 $1.12 $.56 15-5/8 11-1/2 15
======== ====
</TABLE>
On July 1, 1999, we acquired SierraWest Bancorp. That merger was accounted for
as a pooling of interests. Therefore, all financial information has been
restated for all periods presented.
(1) Amounts include after-tax restructuring, merger-related and other
nonrecurring costs of $11.630 million in connection with the acquisition of
SierraWest Bancorp and the consolidation of data centers. Excluding those
costs, adjusted diluted earnings per share were $.39 for the quarter ended
September 30, 1999, and $1.48 for the year ended December 31, 1999.
(2) Amounts include after-tax restructuring, merger-related and other
nonrecurring costs of $21.866 million in connection with the merger of the
former BancWest Corporation with and into First Hawaiian, Inc. on November
1, 1998. Excluding those costs, adjusted diluted earnings per share were
$.34 for the 1998 fourth quarter and $1.32 for the year ended December 31,
1998.
We expect to continue our policy of paying quarterly cash dividends. The
declaration and payment of cash dividends are subject to our future earnings,
capital requirements, financial condition and certain limitations as described
in Note 14 to the Consolidated Financial Statements on page 62.
20
<PAGE> 9
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENTS AND DIVIDENDS (in thousands)
Interest income ..................................... $1,135,711 $749,541 $651,048 $620,511 $598,098
Interest expense .................................... 446,877 315,822 281,232 270,755 279,269
---------- -------- -------- -------- --------
Net interest income ................................. 688,834 433,719 369,816 349,756 318,829
Provision for credit losses ......................... 55,262 30,925 20,010 25,048 39,701
Noninterest income .................................. 197,632 134,182 110,550 95,575 91,175
Noninterest expense, without restructuring,
merger-related and other nonrecurring costs ........ 517,541 366,548 322,171 296,567 243,017
Restructuring, merger-related and other
nonrecurring costs ................................. 17,534 25,527 -- -- --
---------- -------- -------- -------- --------
Income before income taxes .......................... 296,129 144,901 138,185 123,716 127,286
Provision for income taxes .......................... 123,751 60,617 44,976 38,533 46,960
---------- -------- -------- -------- --------
NET INCOME .......................................... $ 172,378 $ 84,284 $ 93,209 $ 85,183 $ 80,326
========== ======== ======== ======== ========
OPERATING EARNINGS (1), (2) ......................... $ 184,008 $106,150 $ 93,209 $ 85,183 $ 80,326
========== ======== ======== ======== ========
CASH EARNINGS (3) ................................... $ 204,886 $ 95,366 $ 99,832 $ 90,845 $ 84,503
========== ======== ======== ======== ========
OPERATING CASH EARNINGS (1), (2), (3) .............. $ 216,516 $117,232 $ 99,832 $ 90,845 $ 84,503
========== ======== ======== ======== ========
CASH DIVIDENDS ...................................... $ 77,446 $ 40,786 $ 41,116 $ 38,946 $ 38,461
========== ======== ======== ======== ========
COMMON STOCK DATA (5)
Per share:
Basic earnings ..................................... $ 1.39 $ 1.06 $ 1.31 $ 1.24 $ 1.16
Diluted earnings ................................... 1.38 1.05 1.29 1.20 1.12
Diluted operating earnings (1), (2) ............... 1.48 1.32 1.29 1.20 1.12
Diluted cash earnings (3) ......................... 1.64 1.19 1.38 1.28 1.18
Diluted operating cash earnings (1), (2), (3) ..... 1.74 1.46 1.38 1.28 1.18
Cash dividends ..................................... .62 .58 .58 .57 .56
Book value (at December 31) ....................... 14.79 14.15 11.30 10.85 10.20
Market price (close at December 31) ............... 19.50 24.00 19.88 17.50 15.00
Average shares outstanding (in thousands) .......... 124,048 79,516 70,939 68,738 69,250
---------- -------- -------- -------- --------
BALANCE SHEETS (in millions)
Average balances:
Total assets ....................................... $ 16,294 $ 10,033 $ 8,635 $ 8,306 $ 8,002
Total earning assets ............................... 14,492 9,036 7,768 7,558 7,260
Loans and leases ................................... 12,291 7,659 6,477 5,907 5,774
Deposits ........................................... 12,517 7,710 6,541 6,102 5,563
Long-term debt and capital securities .............. 790 354 279 265 245
Stockholders' equity ............................... 1,793 938 786 720 681
At December 31:
Total assets ....................................... $ 16,681 $ 15,929 $ 8,880 $ 8,642 $ 8,063
Loans and leases ................................... 12,524 11,965 6,792 6,243 5,610
Deposits ........................................... 12,878 12,043 6,790 6,507 5,793
Long-term debt and capital securities .............. 802 734 324 218 249
Stockholders' equity ............................... 1,843 1,746 801 753 692
---------- -------- -------- -------- --------
SELECTED RATIOS
Return on average:
Total assets ....................................... 1.06% .84% 1.08% 1.03% 1.00%
Tangible total assets (4) ......................... 1.39 1.19 1.17 1.11 1.07
Stockholders' equity ............................... 9.61 8.99 11.86 11.82 11.80
Tangible stockholders' equity (4) ................. 19.70 16.31 15.14 14.94 14.32
Dividend payout ratio ............................... 44.93 55.24 44.96 47.50 50.00
Average stockholders' equity to average total
assets ............................................. 11.00 9.35 9.10 8.67 8.51
Year ended December 31:
Net interest margin ................................ 4.76 4.81 4.77 4.63 4.39
Net loans and leases charged off to average
loans and leases .................................. .42 .31 .33 .42 .38
Efficiency ratio (1), (2), (3) .................... 54.47 62.50 65.53 64.54 63.07
At December 31:
Risk-based capital ratios:
Tier 1 ............................................ 8.80 8.32 9.63 8.49 9.13
Total ............................................. 10.56 10.18 11.87 11.93 12.06
Tier 1 leverage ratio .............................. 8.11 9.13 9.09 7.24 7.63
Allowance for credit losses to total loans
and leases ........................................ 1.29 1.32 1.33 1.46 1.49
Nonperforming assets to total loans and
leases and other real estate owned and
repossessed personal property ..................... 1.01 1.11 1.42 1.68 1.78
Allowance for credit losses to nonperforming
loans and leases .................................. 1.64x 1.61x 1.40x 1.15x .93x
</TABLE>
On July 1, 1999, we acquired SierraWest Bancorp. That merger was accounted for
as a pooling of interests. Therefore, all financial information has been
restated for all periods presented.
(1) Excluding after-tax restructuring, merger-related and other nonrecurring
costs of $11.630 million in connection with the acquisition of SierraWest
Bancorp and the consolidation of data centers in 1999.
(2) Excluding after-tax restructuring, BancWest Merger-related and other
nonrecurring costs of $21.866 million for the year ended December 31, 1998.
(3) Excluding amortization of goodwill and core deposit intangible.
(4) Defined as operating cash earnings as a percentage of average total assets
or average stockholders' equity minus average goodwill and core deposit
intangible.
(5) All per share data have been calculated to include both common and Class A
common shares and have been adjusted to give retroactive effect to the
two-for-one stock split in the fourth quarter of 1999.
21
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters contained in this report are forward-looking statements
involving certain risks and uncertainties that could cause the Company's actual
results to differ materially from those discussed in the statements. Readers
should carefully consider these risks and uncertainties in reading this report.
Factors that could cause or contribute to such differences include, but are not
limited to:
(1) global, national and local economic and market conditions;
(2) the level and volatility of interest rates and currency values;
(3) government fiscal and monetary policies;
(4) credit risks inherent in the lending processes;
(5) loan and deposit demand in the geographic regions where we conduct
business;
(6) the impact of intense competition in the rapidly evolving banking
and financial services business;
(7) the extensive federal and state regulation of the Company's
business, including the effect of current and pending legislation
and regulations;
(8) whether expected revenue enhancements and cost savings are realized
within expected time frames;
(9) matters relating to recent acquisitions relating to the integration
of the businesses of the Company, the former BancWest Corporation,
and SierraWest Bancorp, including the impact of combining these
businesses on revenues, expenses, deposit attrition, customer
retention and financial performance;
(10) other risks discussed below; and
(11) management's ability to manage these risks.
We expressly disclaim any obligation or undertaking to update or revise
any forward-looking statement to reflect any change in our expectations or any
change in events, conditions or circumstances on which any statement is based.
See "Glossary of Financial Terms" on page 73 for definitions of certain
terms used in this annual report.
OVERVIEW
Four key events affected the financial condition and results of
operations of the Company in 1999:
- - The continued impact of the BancWest Merger.
- - The acquisition of SierraWest Bancorp ("SierraWest") on July 1, 1999 (the
"SierraWest Merger"). The acquisition was accounted for as a pooling of
interests. Therefore, the financial information for all periods in this report
are restated to reflect the financial position and results of operations of
SierraWest.
- - We recorded pre-tax restructuring, merger-related and other nonrecurring costs
totaling $17.534 million (after-tax $11.630 million) in 1999. These costs
resulted from the SierraWest Merger and the consolidation of our three
existing data centers into a single facility in Honolulu, Hawaii.
- - The two-for-one stock split in December 1999 doubled the amount of our common
shares, including Class A common shares, issued and outstanding. Per share
information, such as earnings per share, dividends per share and book value
per share, were restated for all periods presented in this report.
For further information regarding the Company's mergers and
acquisitions, see Note 2 to the Consolidated Financial Statements on page 53.
For further information regarding the Company's restructuring, merger-related,
and other nonrecurring costs, see Note 3 to the Consolidated Financial
Statements on page 54. For additional information regarding the stock split, see
"Common Stock Information" on page 19 and Note 12 to the Consolidated Financial
Statements on page 60.
1999 VS. 1998
In most income and expense categories, the increases in the amounts we
reported for 1999 compared to the prior year resulted primarily from including
the results of operations of Bank of the West for a full year. The table below
compares our 1999 financial results to 1998. The improvement in our financial
performance can be primarily attributed to the inclusion of Bank of the West for
all of 1999 versus two months in 1998.
<TABLE>
<CAPTION>
1999 1998 Change
-------- -------- ------
(dollars in thousands,
except per share data)
<S> <C> <C> <C>
Consolidated net income .......... $172,378 $ 84,284 104.5%
Diluted earnings per share ....... 1.38 1.05 31.4
Operating earnings* .............. 184,008 106,150 73.3
Diluted operating earnings
per share* ...................... 1.48 1.32 12.1
Diluted operating cash
earnings per share* ** .......... 1.74 1.46 19.2
Return on average
tangible total assets* .......... 1.39% 1.19% 16.8
Return on average tangible
stockholders' equity* ........... 19.70% 16.31% 20.8
</TABLE>
*Excludes after-tax restructuring, merger-related and other nonrecurring costs
of $11.630 million in 1999 and $21.866 million in 1998.
** Operating earnings per share before amortization of goodwill and core deposit
intangible.
22
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
1998 VS. 1997
The BancWest Merger, which occurred on November 1, 1998, also caused
substantially all of the changes in our financial performance and income and
expense categories between 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997 Change
--------- -------- -------
(dollars in thousands,
except per share data)
<S> <C> <C> <C>
Consolidated net income ...... $ 84,284 $93,209 (9.6)%
Diluted earnings per share ... 1.05 1.29 (18.6)
Operating earnings ........... 106,150* 93,209 13.9
Diluted operating
earnings per share .......... 1.32* 1.29 2.3
Diluted operating cash
earnings per share** ........ 1.46* 1.38 5.8
Return on average
tangible total assets ....... 1.19%* 1.17% 1.7
Return on average tangible
stockholders' equity ........ 16.31%* 15.14% 7.7
</TABLE>
* Excludes after-tax restructuring, merger-related and other nonrecurring costs
of $21.866 million in 1998.
** Operating earnings per share before amortization of goodwill and core deposit
intangible.
NET INTEREST INCOME
1999 VS. 1998
<TABLE>
<CAPTION>
(in thousands) 1999 1998 Change
-------- -------- ------
<S> <C> <C> <C>
Net interest income ........ $688,834 $433,719 58.8%
</TABLE>
The increase in our net interest income in 1999 was principally the
result of a $5.456 billion, or 60.4%, increase in average earning assets. This
increase was partially offset by a five basis point (1% equals 100 basis points)
reduction in our net interest margin. The increase in our average earning assets
was primarily the result of the inclusion of Bank of the West for all of 1999 as
compared to two months in 1998. In addition to the increase caused by the
BancWest Merger, the economic expansion on the Mainland United States increased
our loan and lease volume. On the other hand, Hawaii is slowly recovering from
the prolonged economic downturn that it has experienced over the last nine
years, which has slowed growth in loans and leases, deposits and net interest
income.
1998 VS. 1997
<TABLE>
<CAPTION>
1998 1997 Change
-------- -------- -------
(in thousands)
<S> <C> <C> <C>
Net interest income ........ $433,719 $369,816 17.3%
</TABLE>
The addition of the results of operations of Bank of the West for the last
two months of 1998 was the primary reason for the increase in net interest
income in 1998 over 1997. Primarily due to the BancWest Merger, average earning
assets increased $1.268 billion, or 16.3%, in 1998. In addition to the increase
in average earning assets, the increase in the net interest margin of four basis
points also contributed to the increase in net interest income.
NONINTEREST INCOME
<TABLE>
<CAPTION>
1999 1998 Change
-------- -------- ------
(in thousands)
<S> <C> <C> <C>
Noninterest income ......... $197,632 $134,182 47.3%
</TABLE>
In addition to the effects of the BancWest Merger, noninterest income
increased due to higher: (1) trust and investment services income; (2) service
charges on deposit accounts; and (3) other service charges and fees.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
1999 1998 Change
-------- -------- -------
(in thousands)
<S> <C> <C> <C>
Noninterest expense ........ $535,075 $392,075 36.5%
</TABLE>
The increase in noninterest expense in 1999 was primarily due to
including the results of operations of Bank of the West for a full year. The
addition of Bank of the West significantly increased employee compensation,
occupancy expense and intangible amortization.
EFFICIENCY RATIO
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ------
<S> <C> <C> <C>
Efficiency ratio* .......... 54.47% 62.50% 65.53%
</TABLE>
*Calculated as noninterest expense (exclusive of nonrecurring costs) minus the
amortization of goodwill and core deposit intangible as a percentage of total
operating revenue.
Our efficiency ratio improved in 1999 over 1998 principally because the
BancWest Merger allowed us to increase our revenue and gain efficiencies in
operating expenses such as salaries and benefits, occupancy and equipment
expenses.
NONPERFORMING ASSETS
The provision for credit losses increased in 1999 over 1998 primarily
because of the inclusion of an entire year of the operations of Bank of the
West. The improvement in the ratio of nonperforming assets to total loans and
leases, OREO and repossessed personal property in 1999 over 1998 was primarily
due to increased charge-offs, repayments and an improvement in asset quality due
to the BancWest Merger. Net charge-offs increased due primarily to the inclusion
of Bank of the West's net charge-offs for an entire year in 1999 versus two
months in 1998 and the write-down of certain real estate loans in 1999.
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- --------
(dollars in thousands)
<S> <C> <C> <C>
Provision for credit losses ...... $ 55,262 $ 30,925 $20,010
Net charge-offs to
average loans & leases .......... .42% .31% .33%
Allowance for credit losses
(year end) ...................... $161,418 $158,294 $90,487
Allowance for credit losses
as % of total loans & leases
(year end) ...................... 1.29% 1.32% 1.33%
Nonperforming assets* as
% of total loans & leases, OREO
& repossessed personal property
(year end) ...................... 1.01% 1.11% 1.42%
</TABLE>
* Principally loans and leases collateralized by real estate.
23
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
CAPITAL RATIOS
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Tier 1 capital to risk-weighted assets..... 8.80% 8.32%
Total capital to risk-weighted assets...... 10.56% 10.18%
Tier 1 capital to average assets........... 8.11% 9.13%
</TABLE>
These ratios were in excess of the minimum required for capital adequacy
purposes of 4.00%, 8.00% and 4.00%, respectively, specified by the Federal
Reserve Board.
NET INTEREST MARGIN
1999 VS. 1998
<TABLE>
<CAPTION>
1999 1998 Change
----- ----- -------------
<S> <C> <C> <C>
Net interest margin ........ 4.76% 4.81% -5 basis pts.
</TABLE>
The net interest margin decreased by five basis points in 1999 from 1998
due primarily to the continuing effects of the lower interest rate environment
that began in the second half of 1998. Although we paid 41 basis points less for
sources of funds used for average earning assets, the yield on our average
earning assets fell by 46 basis points. Partially offsetting the decline on the
yield of average earning assets, average noninterest-bearing deposits increased
in 1999 by $364.365 million, or 30.9%, compared to 1998.
1998 VS. 1997
<TABLE>
<CAPTION>
1998 1997 Change
----- ----- -------------
<S> <C> <C> <C>
Net interest margin ........ 4.81% 4.77% +4 basis pts.
</TABLE>
The net interest margin increased between 1998 and 1997 by four basis
points. We paid 13 basis points less for sources of funds used for average
earning assets, which was partially offset by a nine-basis-point decrease in the
yield on average earning assets. Contributing to the increase in the net
interest margin between 1998 and 1997 was the change in the mix of earning
assets, with higher-yielding average loans and leases increasing to 84.8% of
total earning assets from 83.4% in 1997. The increase in average loans and
leases was accompanied by a decrease in lower-yielding average interest-bearing
deposits in other banks and average total investment securities in 1998 compared
to 1997. The lower cost of funds to source the average earning assets was
attributable to the 24.7% increase in average noninterest-bearing demand
deposits. The net interest margin in 1998 was not significantly impacted by the
BancWest Merger.
AVERAGE EARNING ASSETS
1999 VS. 1998
<TABLE>
<CAPTION>
1999 1998 Change
----------- ---------- ------
(in thousands)
<S> <C> <C> <C>
Average earning assets ......... $14,491,524 $9,035,712 60.4%
</TABLE>
The BancWest Merger significantly increased our average earning assets
due to the inclusion of Bank of the West average balances for all of 1999. The
increase in average earning assets was primarily due to increases in average
total loans and leases of $4.632 billion, or 60.5%, and average total investment
securities of $740.806 million, or 75.7%.
In addition, the mix of earning assets continues to change, with average
investment securities representing 11.9% of average earning assets for 1999 as
compared to 10.8% for 1998.
1998 VS. 1997
<TABLE>
<CAPTION>
1998 1997 Change
---------- ---------- ------
(in thousands)
<S> <C> <C> <C>
Average earning assets ......... $9,035,712 $7,767,715 16.3%
</TABLE>
The increase in average earning assets was primarily due to the BancWest
Merger. Excluding the effects of the BancWest Merger, average earning assets
increased primarily because of an increase in average loans and leases of
$368.419 million, or 5.7%, over 1997. Offsetting that increase was a decrease in
the average investment securities portfolio of $176.361 million, or 17.5%,
compared to 1997. The investment securities portfolio decreased because of a
change in the collateral requirements for state and local government funds.
AVERAGE LOANS AND LEASES
1999 VS. 1998
<TABLE>
<CAPTION>
1999 1998 Change
----------- ---------- ------
(in thousands)
<S> <C> <C> <C>
Average loans and leases .......... $12,291,095 $7,658,998 60.5%
</TABLE>
The inclusion of Bank of the West balances for an entire year was the
primary reason for the increase in average loans and leases. The growth in loan
and lease volumes outside of Hawaii was also a factor in the increase in average
loans and leases.
1998 VS. 1997
<TABLE>
<CAPTION>
1998 1997 Change
---------- ---------- ------
(in thousands)
<S> <C> <C> <C>
Average loans and leases ........ $7,658,998 $6,476,822 18.3%
</TABLE>
The increase in average loans and leases in 1998 over 1997 was primarily
due to the BancWest Merger. Excluding the effects of the BancWest Merger,
average loans and leases increased by $368.419 million, or 5.7%, from 1997 to
1998. The increase was primarily due to growth in automobile financing in
California and Oregon and credit extensions to companies in the media and
telecommunications industries on the Mainland United States.
24
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
INTEREST-BEARING DEPOSITS AND LIABILITIES
1999 VS. 1998
<TABLE>
<CAPTION>
1999 1998 Change
----------- ---------- ------
(in thousands)
<S> <C> <C> <C>
Average interest-bearing
deposits and liabilities ......... $12,409,543 $7,610,964 63.0%
</TABLE>
The increase in average interest-bearing deposits and liabilities in
1999 over 1998 was principally caused by the effects of having Bank of the West
balances included for an entire year, as well as growth in our customer deposit
base.
1998 VS. 1997
<TABLE>
<CAPTION>
1998 1997 Change
---------- ---------- ------
(in thousands)
<S> <C> <C> <C>
Average interest-bearing
deposits and liabilities .......... $7,610,964 $6,667,892 14.1%
</TABLE>
The increase in average interest-bearing deposits and liabilities in
1998 over 1997 was primarily due to the BancWest Merger and the issuance in
mid-1997 of Capital Securities with an aggregate liquidation amount of $100
million.
OPERATING SEGMENTS RESULTS
As detailed in Note 19 to the Consolidated Financial Statements on page
68, our operations are managed principally through our two major bank
subsidiaries, Bank of the West and First Hawaiian. Bank of the West operates
primarily in five western states. It also conducts business nationally through
its Consumer Finance Division and its Essex Credit Corporation subsidiary. First
Hawaiian's primary base of operations is in Hawaii. It also has significant
operations extending nationally, and to a lesser degree internationally, through
its media finance, national corporate lending and leveraged leasing
operations. The "other" category in the table below consists principally of
BancWest Corporation (Parent Company), FHL Lease Holding Company, Inc. and First
Hawaiian Capital I. The reconciling items are principally consolidating entries
to eliminate intercompany balances and transactions. The following table
summarizes significant financial information, as of or for years ended December
31, of our reportable segments:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(in millions)
<S> <C> <C> <C>
NET INTEREST INCOME
Bank of the West ............ $384 $126 $ 73
First Hawaiian .............. 312 322 310
Other ....................... (7) (14) (13)
---- ---- ----
CONSOLIDATED TOTAL ......... $689 $434 $370
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in millions)
<S> <C> <C> <C>
NET INCOME
Bank of the West .......... $ 84 $ 18 $ 14
First Hawaiian ............ 94 75 86
Other ..................... (6) (9) (7)
------- ------- -------
CONSOLIDATED TOTAL ....... $ 172 $ 84 $ 93
======= ======= =======
YEAR END SEGMENT ASSETS
Bank of the West .......... $ 9,571 $ 8,603 $ 1,702
First Hawaiian ............ 7,081 7,248 7,072
Other ..................... 2,747 2,458 1,436
Reconciling items ......... (2,718) (2,380) (1,330)
------- ------- -------
CONSOLIDATED TOTAL ....... $16,681 $15,929 $ 8,880
======= ======= =======
</TABLE>
- - Our net interest income for 1999 increased over 1998, principally due to the
inclusion of an entire year of Bank of the West operations in 1999 as opposed
to two months for the year ended December 31, 1998. First Hawaiian's 3.1%
decrease in net interest income between 1999 and 1998 reflects the effects of
the slow recovery from the prolonged economic downturn in Hawaii, which
decreased loan and lease volume.
- - Our net income for 1999 increased over 1998, primarily due to the inclusion of
Bank of the West's results for an entire year. The 25.3% increase in First
Hawaiian's net income was primarily due to: (1) lower restructuring,
merger-related and other nonrecurring costs in 1999 compared to 1998; (2)
higher noninterest income in 1999 over 1998, such as income from trust and
investment products and services; and (3) a reduction in noninterest expense,
achieved through efficiencies gained from the BancWest Merger and cost
containment initiatives.
- - Our total assets at December 31, 1999, grew by 4.7% over December 31, 1998,
predominantly due to the 11.3% growth in Bank of the West's assets. An
increase in earning assets, mainly consumer loans and lease financing,
contributed to Bank of the West's growth. The 2.3% decrease in First
Hawaiian's assets in 1999 from 1998 was principally due to a decline in loans,
reflecting the challenging economy in Hawaii.
- - Our net interest income for 1998 increased over 1997, principally due to the
inclusion of two months of Bank of the West's operations in 1998. Net interest
income for First Hawaiian for 1998 remained relatively unchanged compared to
1997.
- - Our net income in 1998 decreased from 1997, principally as a result of
after-tax restructuring, BancWest Merger-related and other nonrecurring costs
of $21.866 million in 1998 recorded by First Hawaiian and Bank of the West.
- - Our total assets at December 31, 1998, increased over December 31,
1997, primarily due to the BancWest Merger.
25
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
TABLE 1: AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AND YIELDS AND RATES
(TAXABLE-EQUIVALENT BASIS)
The following table sets forth the condensed consolidated average
balance sheets, an analysis of interest income/expense and average yield/rate
for each major category of earning assets and interest-bearing deposits and
liabilities for the years indicated on a taxable-equivalent basis. The
taxable-equivalent adjustment is made for items exempt from Federal income taxes
(assuming a 35% tax rate for 1999, 1998 and 1997) to make them comparable with
taxable items before any income taxes are applied.
<TABLE>
<CAPTION>
1999 1998
----------------------------------- ---------------------------------
INTEREST Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
BALANCE EXPENSE RATE Balance Expense Rate
----------- ----------- ------ ---------- -------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Interest-bearing deposits in other banks:
Domestic ................................. $ 3,712 $ 156 4.22% $ 60,824 $ 3,641 5.99%
Foreign .................................. 291,097 15,096 5.19 115,576 6,448 5.58
----------- ---------- ----------- --------
Total interest-bearing
deposits in other banks .............. 294,809 15,252 5.17 176,400 10,089 5.72
----------- ---------- ----------- --------
Federal funds sold and
securities purchased under
agreements to resell ...................... 186,569 9,537 5.11 222,069 11,932 5.37
----------- ---------- ----------- --------
Investment securities:
Taxable ................................... 1,695,858 101,706 6.00 958,996 60,938 6.35
Exempt from Federal
income taxes ............................. 23,193 1,699 7.33 19,249 1,426 7.41
----------- ---------- ----------- --------
Total investment
securities ............................ 1,719,051 103,405 6.02 978,245 62,364 6.38
----------- ---------- ----------- --------
Loans and leases(1), (2):
Domestic .................................. 11,933,259 977,575 8.19 7,281,289 632,245 8.68
Foreign ................................... 357,836 30,553 8.54 377,709 33,453 8.86
----------- ---------- ----------- --------
Total loans and leases .................. 12,291,095 1,008,128 8.20 7,658,998 665,698 8.69
----------- ---------- ----------- --------
TOTAL EARNING ASSETS .................... 14,491,524 1,136,322 7.84 9,035,712 750,083 8.30
----------- ---------- ----------- --------
Cash and due from banks...................... 621,964 343,029
Premises and equipment....................... 280,587 259,130
Core deposit intangible...................... 69,050 21,868
Goodwill..................................... 624,886 197,178
Other assets................................. 205,504 175,641
----------- -----------
TOTAL ASSETS............................. $16,293,515 $10,032,558
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------
Interest
Average Income/ Yield/
Balance Expense Rate
---------- -------- ------
(dollars in thousands)
<S> <C> <C> <C>
ASSETS
Earning assets:
Interest-bearing deposits in other banks:
Domestic ................................. $ 50,894 $ 3,088 6.07%
Foreign .................................. 40,315 2,282 5.66
---------- --------
Total interest-bearing
deposits in other banks .............. 91,209 5,370 5.89
---------- --------
Federal funds sold and
securities purchased under
agreements to resell ...................... 193,700 10,636 5.49
---------- --------
Investment securities:
Taxable ................................... 985,219 64,608 6.56
Exempt from Federal
income taxes ............................. 20,765 1,871 9.01
---------- --------
Total investment
securities ............................ 1,005,984 66,479 6.61
---------- --------
Loans and leases(1), (2):
Domestic .................................. 6,170,221 541,679 8.78
Foreign ................................... 306,601 27,847 9.08
---------- --------
Total loans and leases .................. 6,476,822 569,526 8.79
---------- --------
TOTAL EARNING ASSETS .................... 7,767,715 652,011 8.39
---------- --------
Cash and due from banks...................... 310,361
Premises and equipment....................... 261,614
Core deposit intangible...................... 27,733
Goodwill..................................... 100,019
Other assets................................. 168,050
----------
TOTAL ASSETS............................. $8,635,492
==========
</TABLE>
Notes:
(1) Nonaccruing loans and leases are included in the average loan and lease
balances.
(2) Interest income for loans and leases include loan fees of $32,803, $32,133
and $26,362 for 1999, 1998 and 1997, respectively.
26
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
<TABLE>
<CAPTION>
1999 1998
------------------------------------ ------------------------------------
INTEREST Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
BALANCE EXPENSE RATE Balance Expense Rate
----------- ----------- ------- ----------- --------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits
and liabilities:
Deposits:
Domestic:
Interest-bearing demand ....... $ 289,142 $ 3,609 1.25% $ 534,967 $ 11,743 2.20%
Savings ....................... 4,982,479 93,100 1.87 2,564,765 65,665 2.56
Time .......................... 5,497,583 264,336 4.81 3,202,516 166,860 5.21
Foreign ........................ 203,846 7,576 3.72 228,333 9,592 4.20
----------- ------- ----------- -------
Total interest-bearing
deposits ..................... 10,973,050 368,621 3.36 6,530,581 253,860 3.89
Short-term borrowings ........... 646,576 30,326 4.69 726,119 36,727 5.06
Long-term debt and
capital securities ............. 789,917 47,930 6.07 354,264 25,235 7.12
----------- ------- ----------- -------
TOTAL INTEREST-BEARING
DEPOSITS AND LIABILITIES...... 12,409,543 446,877 3.60 7,610,964 315,822 4.15
----------- ------- ----------- -------
Noninterest-bearing
demand deposits ................. 1,543,883 1,179,518
Other liabilities ................ 547,128 304,018
----------- -----------
Total liabilities ............. 14,500,554 9,094,500
Stockholders' equity ............. 1,792,961 938,058
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ......... $16,293,515 $10,032,558
=========== ===========
NET INTEREST INCOME
AND MARGIN ON TOTAL
EARNING ASSETS ............... 689,445 4.76% 434,261 4.81%
Tax-equivalent
adjustment ................... 611 542
-------- --------
NET INTEREST INCOME ........... $688,834 $433,719
======== ========
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------
Interest
Average Income/ Yield/
Balance Expense Rate
---------- -------- -------
(dollars in thousands)
<S> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits
and liabilities:
Deposits:
Domestic:
Interest-bearing demand ....... $ 521,683 $ 11,365 2.18%
Savings ....................... 2,187,288 57,032 2.61
Time .......................... 2,672,058 142,370 5.33
Foreign ........................ 214,482 9,349 4.36
---------- -------
Total interest-bearing
deposits ..................... 5,595,511 220,116 3.93
Short-term borrowings ........... 793,642 41,527 5.23
Long-term debt and
capital securities ............. 278,739 19,589 7.03
---------- -------
TOTAL INTEREST-BEARING
DEPOSITS AND LIABILITIES...... 6,667,892 281,232 4.22
---------- -------
Noninterest-bearing
demand deposits ................. 945,867
Other liabilities ................ 235,966
----------
Total liabilities ............. 7,849,725
Stockholders' equity ............. 785,767
----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ......... $8,635,492
==========
NET INTEREST INCOME
AND MARGIN ON TOTAL
EARNING ASSETS ............... 370,779 4.77%
Tax-equivalent
adjustment ................... 963
--------
NET INTEREST INCOME ........... $369,816
========
</TABLE>
TOTAL ASSETS
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ----- -----
($ in billions)
<S> <C> <C> <C> <C> <C>
DECEMBER 31 ...... 8.06 8.64 8.88 15.93 16.68
</TABLE>
LOANS AND LEASES
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ----- -----
($ in billions)
<S> <C> <C> <C> <C> <C>
DECEMBER 31 ...... 5.61 6.24 6.79 11.97 12.52
</TABLE>
TOTAL REVENUE--NET INTEREST INCOME AND NONINTEREST INCOME
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ----- ----- ----- -----
($ in millions)
<S> <C> <C> <C> <C> <C>
Net interest income ....... 318.8 349.8 369.8 433.7 688.8
Noninterest income ........ 91.2 95.6 110.6 134.2 197.6
</TABLE>
NET INTEREST MARGIN(%)
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
NET INTEREST MARGIN ...... 4.39 4.63 4.77 4.81 4.76
</TABLE>
27
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
TABLE 2: ANALYSIS OF CHANGES IN NET INTEREST INCOME (TAXABLE-EQUIVALENT BASIS)
The following table analyzes the dollar amount of change (on a
taxable-equivalent basis) in interest income and expense and the changes in
dollar amounts attributable to:
(a) changes in volume (changes in volume times the prior year's rate),
(b) changes in rates (changes in rates times the prior year's
volume),and
(c) changes in rate/volume (change in rate times change in volume).
In this table, the dollar change in rate/volume is prorated to volume
and rate proportionately.
The taxable-equivalent adjustment is made for items exempt from Federal
income taxes (assuming a 35% tax rate for 1999, 1998 and 1997) to make them
comparable with taxable items before any income taxes are applied.
<TABLE>
<CAPTION>
1999 COMPARED TO 1998-- 1998 Compared to 1997--
INCREASE (DECREASE) DUE TO: Increase (Decrease) Due to:
------------------------------------ -----------------------------------
NET INCREASE Net Increase
VOLUME RATE (DECREASE) Volume Rate (Decrease)
-------- -------- ------------ -------- ------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits in other banks:
Domestic .................................... $ (2,646) $ (839) $ (3,485) $ 595 $ (42) $ 553
Foreign ..................................... 9,133 (485) 8,648 4,199 (33) 4,166
-------- -------- -------- -------- ------- -------
Total interest-bearing deposits
in other banks ........................... 6,487 (1,324) 5,163 4,794 (75) 4,719
-------- -------- -------- -------- ------- -------
Federal funds sold and securities
purchased under agreements to resell ......... (1,836) (559) (2,395) 1,529 (233) 1,296
-------- -------- -------- -------- ------- -------
Investment securities:
Taxable ...................................... 44,371 (3,603) 40,768 (1,695) (1,975) (3,670)
Exempt from Federal income taxes ............. 289 (16) 273 (130) (315) (445)
-------- -------- -------- -------- ------- -------
Total investment securities ................ 44,660 (3,619) 41,041 (1,825) (2,290) (4,115)
-------- -------- -------- -------- ------- -------
Loans and leases (1):
Domestic ..................................... 382,948 (37,618) 345,330 96,537 (5,971) 90,566
Foreign ...................................... (1,723) (1,177) (2,900) 6,313 (707) 5,606
-------- -------- -------- -------- ------- -------
Total loans and leases ..................... 381,225 (38,795) 342,430 102,850 (6,678) 96,172
-------- -------- -------- -------- ------- -------
Total earning assets ....................... 430,536 (44,297) 386,239 107,348 (9,276) 98,072
-------- -------- -------- -------- ------- -------
Interest paid on:
Deposits:
Domestic:
Interest-bearing demand ..................... (4,195) (3,939) (8,134) 291 87 378
Savings ..................................... 48,902 (21,467) 27,435 9,681 (1,048) 8,633
Time ........................................ 111,249 (13,773) 97,476 27,701 (3,211) 24,490
Foreign ...................................... (972) (1,044) (2,016) 590 (347) 243
-------- -------- -------- -------- ------- -------
Total interest-bearing deposits ............ 154,984 (40,223) 114,761 38,263 (4,519) 33,744
Short-term borrowings ......................... (3,847) (2,554) (6,401) (3,448) (1,352) (4,800)
Long-term debt and capital securities ......... 26,929 (4,234) 22,695 5,376 270 5,646
-------- -------- -------- -------- ------- -------
Total interest-bearing deposits
and liabilities .......................... 178,066 (47,011) 131,055 40,191 (5,601) 34,590
-------- -------- -------- -------- ------- -------
INCREASE (DECREASE) IN NET
INTEREST INCOME ........................... $252,470 $ 2,714 $255,184 $ 67,157 $(3,675) $63,482
======== ======== ======== ======== ======= =======
</TABLE>
Note:
(1) Interest income for loans and leases include loan fees of $32,803, $32,133
and $26,362 for 1999, 1998 and 1997, respectively.
28
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
NONINTEREST INCOME
Components of and changes in noninterest income are reflected below for the
years indicated:
<TABLE>
<CAPTION>
1999/98 CHANGE 1998/97 Change
------------------ -----------------
1999 1998 1997 AMOUNT % Amount %
-------- -------- -------- -------- ---- -------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Trust and investment services income ........ $ 32,644 $ 26,971 $ 25,115 $ 5,673 21.0% $ 1,856 7.4%
Service charges on deposit accounts ......... 67,674 39,545 31,983 28,129 71.1 7,562 23.6
Other service charges and fees .............. 65,484 39,770 33,793 25,714 64.7 5,977 17.7
Securities gains, net ....................... 16 441 321 (425) (96.4) 120 37.4
Other ....................................... 31,814 27,455 19,338 4,359 15.9 8,117 42.0
-------- -------- -------- -------- --------
TOTAL NONINTEREST INCOME .................... $197,632 $134,182 $110,550 $ 63,450 47.3% $ 23,632 21.4%
======== ======== ======== ======== ==== ======== ====
</TABLE>
1999 VS. 1998
The 47.3% increase in total noninterest income from 1998 to 1999 (as shown
in more detail in the table above) was primarily due to the inclusion of the
results of operations for an entire year of Bank of the West versus two months
in 1998, as well as the following factors:
- - Trust and investment services income increased, primarily due to higher
investment and trust management fees earned.
- - Service charges on deposit accounts increased, primarily due to higher
service charges.
- - Other service charges and fees increased, primarily due to higher mortgage
servicing fees for mortgage loans that were originated and sold with
servicing retained, higher ATM-convenience fee income and higher
merchant-discount fees.
- - Other noninterest income increased, primarily due to increases in foreclosed
property income and miscellaneous service charges and fees. In addition, we
recognized a gain on the transfer of rights associated with the termination
of a leveraged lease of approximately $4.952 million in 1999. It should be
noted that 1998's other noninterest income total included a $3.907 million
gain on the sale of a corporate aircraft and a $2.115 million gain on the
sale of a regional manager's residence.
1998 VS. 1997
The 21.4% increase in total noninterest income from 1997 to 1998 was
primarily due to the BancWest Merger and to the following factors:
- - Trust and investment services increased, primarily the result of an increase
in investment management fees resulting from new business and an increase in
the market value of managed assets.
- - Service charges on deposit accounts increased, primarily due to an increase
in fees on checks returned and paid.
- - Other service charges and fees increased, primarily due to higher
commissions from annuity and mutual fund sales.
- - Other noninterest income increased, primarily due to: (1) a $3.907 million
gain on sale of a corporate aircraft; (2) a $2.115 million gain on sale of a
regional manager's residence; and (3) income earned on bank-owned life
insurance on certain officers (a program started in May 1997). It should be
noted that 1997's other noninterest income total included a $2.500 million
gain on the sale of a leasehold interest in a former branch.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS TO TOTAL
ALLOWANCE FOR CREDIT LOSSES NET LOANS AND LEASES LOANS AND LEASES AND OTHER REAL
TO TOTAL LOANS AND LEASES CHARGED OFF TO AVERAGE ESTATE OWNED AND REPOSSESSED
(%) LOANS AND LEASES (%) PERSONAL PROPERTY (%)
DECEMBER 31 DECEMBER 31
- ---------------------------- ---------------------------- ----------------------------
95 96 97 98 99 95 96 97 98 99 95 96 97 98 99
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.49 1.46 1.33 1.32 1.29 .38 .42 .33 .31 .42 1.78 1.68 1.42 1.11 1.01
</TABLE>
29
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The following sets forth the activity in the allowance for credit losses
for the years indicated:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------ ----------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
LOANS AND LEASES OUTSTANDING (END OF YEAR) ....... $ 12,524,039 $ 11,964,563 $ 6,792,394 $ 6,243,124 $ 5,609,906
============ ============ =========== =========== ===========
AVERAGE LOANS AND LEASES OUTSTANDING ............. $ 12,291,095 $ 7,658,998 $ 6,476,822 $ 5,906,929 $ 5,774,417
============ ============ =========== =========== ===========
Allowance for credit losses:
Balance at beginning of year .................... $ 158,294 $ 90,487 $ 90,895 $ 83,736 $ 65,904
------------ ------------ ----------- ----------- -----------
Loans and leases charged off:
Commercial, financial and agricultural ......... 7,715 6,440 7,487 10,671 8,246
Real estate:
Commercial .................................... 6,385 740 1,150 1,883 2,906
Construction .................................. 3,646 -- 180 1,450 1,466
Residential ................................... 5,539 4,217 3,731 2,937 2,707
Consumer ....................................... 27,927 17,911 13,994 10,957 8,134
Lease financing ................................ 9,111 1,385 105 117 276
Foreign ........................................ 1,222 458 197 415 417
------------ ------------ ----------- ----------- -----------
Total loans and leases charged off ............ 61,545 31,151 26,844 28,430 24,152
------------ ------------ ----------- ----------- -----------
Recoveries on loans and leases previously
charged off:
Commercial, financial and agricultural ........ 1,761 1,314 1,830 1,199 375
Real estate:
Commercial ................................... 311 821 310 112 239
Construction ................................. 18 1,244 -- 117 --
Residential .................................. 1,101 250 985 234 43
Consumer ...................................... 5,681 3,040 2,347 1,706 1,610
Lease financing ............................... 1,397 253 26 3 16
Foreign ....................................... 163 124 64 64 --
------------ ------------ ----------- ----------- -----------
Total recoveries on loans and leases
previously charged off ....................... 10,432 7,046 5,562 3,435 2,283
------------ ------------ ----------- ----------- -----------
Net charge-offs ............................... (51,113) (24,105) (21,282) (24,995) (21,869)
Provision for credit losses ..................... 55,262 30,925 20,010 25,048 39,701
Transfer of allowance allocated to
securitized loans .............................. (1,025) -- -- -- --
Allowances of subsidiaries purchased(1) ........ -- 60,987 864 7,106 --
------------ ------------ ----------- ----------- -----------
BALANCE AT END OF YEAR .......................... $ 161,418 $ 158,294 $ 90,487 $ 90,895 $ 83,736
============ ============ =========== =========== ===========
Net loans and leases charged off to
average loans and leases ........................ .42% .31% .33% .42% .38%
Net loans and leases charged off to
allowance for credit losses ..................... 31.66% 15.23% 23.52% 27.50% 26.12%
Allowance for credit losses to total
loans and leases (end of year) .................. 1.29% 1.32% 1.33% 1.46% 1.49%
Allowance for credit losses to
nonperforming loans and leases (end of year):
Excluding 90 days or more past due
accruing loans and leases ...................... 1.64X 1.61x 1.40x 1.15x .93x
Including 90 days or more past due
accruing loans and leases ...................... 1.39X 1.16x .91x .81x .70x
============ ============ =========== =========== ===========
</TABLE>
Note:
(1) Allowance for credit losses of $60,987 in 1998, $864 in 1997 and $7,106 in
1996 were related to the BancWest Merger, a SierraWest Bancorp merger and
the 1996 acquisition of divested branches in the Pacific Northwest,
respectively.
30
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
We have allocated a portion of the allowance for credit losses according to
the amount deemed to be reasonably necessary to provide for the possibility of
losses being incurred within the various loan and lease categories as of
December 31 for the years indicated:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ------------------------- ------------------------
PERCENT OF Percent of Percent of
LOANS/LEASES Loans/Leases Loans/Leases
IN EACH in Each in Each
CATEGORY Category Category
ALLOWANCE TO TOTAL Allowance to Total Allowance to Total
AMOUNT LOANS/LEASES Amount Loans/Leases Amount Loans/Leases
-------- ------------ --------- ------------ --------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial,
financial and
agricultural ....... $ 19,175 18% $ 28,988 19% $17,113 25%
Real estate:
Commercial ......... 10,275 19 13,245 19 5,829 22
Construction ....... 4,755 3 4,899 4 570 3
Residential ........ 12,305 19 12,009 22 8,779 30
Consumer ............. 34,200 24 32,251 22 15,464 10
Lease financing ...... 12,855 14 9,992 11 546 5
Foreign .............. 850 3 1,435 3 1,405 5
Unallocated .......... 67,003 N/A 55,475 N/A 40,781 N/A
-------- --- -------- --- ------- ---
TOTAL .............. $161,418 100% $158,294 100% $90,487 100%
======== === ======== === ======= ===
</TABLE>
<TABLE>
<CAPTION>
1996 1995
------------------------ -------------------------
Percent of Percent of
Loans/Leases Loans/Leases
in Each in Each
Category Category
Allowance to Total Allowance to Total
Amount Loans/Leases Amount Loans/Leases
--------- ------------ --------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Domestic:
Commercial,
financial and
agricultural ....... $17,091 24% $18,483 25%
Real estate:
Commercial ......... 8,111 23 3,485 21
Construction ....... 414 4 4,262 5
Residential ........ 6,407 32 4,509 32
Consumer ............. 11,130 9 9,636 9
Lease financing ...... 894 4 763 4
Foreign .............. 1,540 4 1,430 4
Unallocated .......... 45,308 N/A 41,168 N/A
------- --- ------- ---
TOTAL .............. $90,895 100% $83,736 100%
======= === ======= ===
</TABLE>
The provision for credit losses is based on management's judgment as to the
adequacy of the allowance for credit losses (the "Allowance") to absorb future
losses. Management uses a systematic methodology to determine the related
provision for credit losses to be reported for financial statement purposes. The
determination of the adequacy of the Allowance is ultimately one of management
judgment, which includes consideration of many factors such as: (1) the amount
of problem and potential problem loans and leases; (2) net charge-off
experience; (3) changes in the composition of the loan and lease portfolio by
type and location of loans and leases; (4) changes in overall loan and lease
risk profile and quality; (5) general economic factors; and (6) the fair value
of collateral.
Using this methodology, we allocate the Allowance to individual loans and
leases and to categories of loans and leases, representing probable losses based
on available information. At least quarterly, we make internal credit analyses
to determine which loans and leases are impaired. As a result, we allocate
specific amounts of the Allowance to individual loan and lease relationships.
Note 1 to the Consolidated Financial Statements on page 49 describes how we
evaluate loans for impairment. Note 7 to the Consolidated Financial Statements
on page 58 details additional information regarding the Allowance and impaired
loans.
Some categories of loans and leases are not subjected to a loan-by-loan
credit analysis. Management makes an allocation to these categories based on our
statistical analysis of historic trends of impairment and charge-offs of such
loans and leases. Additionally, we allocate a portion of the Allowance based on
risk classifications of certain loan types. Some of the Allowance is not
allocated to specific impaired loans because of the subjective nature of the
process of estimating an adequate allowance for credit losses, economic
uncertainties and other factors.
As the table on page 30 illustrates, the provision for credit losses for
1999 was $55.262 million, an increase of $24.337 million, or 78.7%, over 1998.
The increase was principally due to the inclusion of an entire year of Bank of
the West's provision for credit losses in 1999, versus two months in 1998.
The most notable factor causing the relatively high level of the provision
for credit losses, other than the effects of the BancWest Merger, was the still
challenging, but slowly rebounding, Hawaii economy and real estate market.
NET CHARGE-OFFS
1999 VS. 1998
<TABLE>
<CAPTION>
1999 1998 Change
-------- ------- ------
(in thousands)
<S> <C> <C> <C>
Net charge-offs ........................... $ 51,113 $24,105 112.0%
======== ======= ======
</TABLE>
In 1999, net charge-offs increased by $27.008 million over 1998 due to the
following factors:
- Real estate - commercial net charge-offs increased by $6.155 million,
primarily due to the write-down of values of certain nonperforming loans
in Hawaii. The charge-offs
31
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
reflected the lingering effect that the prolonged economic downturn in
Hawaii has on real estate property values.
- - Real estate - construction net charge-offs increased in 1999 over 1998 by
$4.872 million, primarily due to a partial writedown of a restructured loan
in Hawaii.
- - Consumer net charge-offs increased in 1999 over 1998 by $7.375 million, or
49.6%, primarily due to the BancWest Merger. The addition of Bank of the
West for an entire year, versus two months in 1998, was the main factor in
the increase in net charge-offs in this category.
- - Lease financing net charge-offs increased in 1999 over 1998 by $6.582
million, or 581.4%, primarily due to the BancWest Merger. The addition of
Bank of the West's lease financing portfolio for an entire year increased
the amount of charge-offs. The charge-offs were primarily in the consumer
and equipment lease areas.
1998 VS. 1997
<TABLE>
<CAPTION>
1998 1997 Change
------- ------- ------
(in thousands)
<S> <C> <C> <C>
Net charge-offs .............................. $24,105 $21,282 13.3%
======= ======= ====
</TABLE>
The addition of Bank of the West's net charge-offs in the last two months
increased 1998 charge-offs over 1997. Excluding the effects of the BancWest
Merger, the increase in net charge-offs in 1998 over 1997 was primarily due to
an increase in consumer loan net charge-offs of $1.348 million, or 11.6%. The
increase was caused by lingering effects of the sluggish Hawaii economy, which
produced more personal bankruptcies in Hawaii and a resulting increase in
write-offs of credit card loans. Smaller balance homogeneous credit card and
consumer loans are charged off at a predetermined delinquency status or earlier
if we determine that the loan is uncollectible.
ALLOWANCE FOR CREDIT LOSSES
1999 VS. 1998
<TABLE>
<CAPTION>
1999 1998 Change
-------- -------- ------
(dollars in thousands)
<S> <C> <C> <C>
Allowance for credit losses
(year end) ................................... $161,418 $158,294 2.0%
Allowance for credit losses
as a % of total loans and leases (year end) .. 1.29% 1.32% (2.3)%
Allowance for credit losses to
nonperforming loans and leases,
excluding 90 days or more past due
accruing loans and leases (year end) ......... 1.64x 1.61x 1.9%
======== ======== ====
</TABLE>
The percentage of the Allowance compared to total loans and leases declined
in 1999 from 1998, primarily due to the growth in loan and lease volume and
higher charge-offs in 1999. The ratio of the Allowance to nonperforming assets
increased to 1.64x in 1999 compared to 1.61x in 1998. The increase is primarily
attributable to the decrease in nonperforming assets in 1999.
In management's judgment, the Allowance is adequate to absorb potential
losses currently inherent in the loan and lease portfolio at December 31, 1999.
However, if economic conditions in our markets change, the Allowance,
nonperforming assets and charge-offs could change as a result.
NONINTEREST EXPENSE
The table below shows the categories of noninterest expense and how they
have changed between 1999 and 1998, and between 1998 and 1997:
<TABLE>
<CAPTION>
1999/98 CHANGE 1998/97 Change
------------------- ------------------
1999 1998 1997 AMOUNT % Amount %
-------- -------- -------- --------- ----- -------- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Personnel:
Salaries and wages .......................... $181,914 $130,986 $125,779 $ 50,928 38.9% $ 5,207 4.1%
Employee benefits ........................... 52,103 38,670 38,536 13,433 34.7 134 .3
-------- -------- -------- --------- --------
Total personnel expense ....................... 234,017 169,656 164,315 64,361 37.9 5,341 3.3
Occupancy expense ............................. 60,056 47,107 41,937 12,949 27.5 5,170 12.3
Equipment expense ............................. 30,422 29,125 27,577 1,297 4.5 1,548 5.6
Outside services .............................. 44,697 21,858 13,391 22,839 104.5 8,467 63.2
Intangible amortization ....................... 35,760 13,789 8,548 21,971 159.3 5,241 61.3
Restructuring, merger-related
and other nonrecurring costs ................ 17,534 25,527 -- (7,993) (31.3) 25,527 --
Stationery and supplies ....................... 21,275 12,958 12,835 8,317 64.2 123 1.0
Advertising and promotion ..................... 15,788 11,909 11,948 3,879 32.6 (39) (.3)
Other ......................................... 75,526 60,146 41,620 15,380 25.6 18,526 44.5
-------- -------- -------- --------- --------
TOTAL NONINTEREST EXPENSE ..................... $535,075 $392,075 $322,171 $ 143,000 36.5% $ 69,904 21.7%
======== ======== ======== ========= ===== ======== =====
</TABLE>
32
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
1999 VS. 1998
Total noninterest expense for 1999 was $535.075 million, an increase of
$143.0 million, or 36.5%, over 1998. The main reason was the inclusion of an
entire year of operations of Bank of the West in 1999 as opposed to only two
months in 1998. Major areas of difference between 1999 and 1998 were:
- - Total personnel expense increased $64.361 million, or 37.9%, due to the
larger number of employees. This increase was partially offset by: (1) lower
salaries and wages expense as a result of our reengineering and
consolidation efforts; and (2) higher net periodic pension benefit credits.
- - Occupancy expense increased by $12.949 million, or 27.5%, because we had
more facilities after the BancWest Merger.
- - Intangible amortization expense increased by $21.971 million, or 159.3%,
primarily due to an entire year of amortization of intangible assets
associated with the BancWest Merger.
- - Outside services increased by $22.839 million, or 104.5%, due in part to our
outsourcing of the data processing operations to a third-party facilities
management contractor.
The following factors also contributed to the increase:
- - We recorded restructuring, merger-related and other nonrecurring costs
totaling $17.534 million in 1999, primarily due to the merger with
SierraWest Bancorp and the consolidation of our three data centers into a
single facility in Honolulu.
- - Other noninterest expense increased by $15.380 million, or 25.6%, due to
write-downs and losses on the sale of certain OREO, higher foreclosed
property expenses and the charitable donation of an employee recreational
center to a community group in Hawaii, resulting in a pre-tax loss on
donation of $1.277 million, but a tax benefit of $2.425 million.
1998 VS. 1997
The primary cause of the $69.904 million, or 21.7%, increase in total
noninterest expense between 1998 and 1997 was the BancWest Merger. Excluding the
effects of the BancWest Merger and restructuring and other nonrecurring costs,
total noninterest expense increased $11.181 million, or 3.5%, over 1997. Major
areas of difference between 1998 and 1997 were:
- - Total personnel expense decreased 5.1%, excluding the effects of the
BancWest Merger, principally because of: (1) lower salaries and wages
expense as a result of our continued reengineering; and (2) higher net
periodic pension benefit credits.
- - Restructuring, merger-related and other nonrecurring costs totaling $25.527
million in 1998.
- - Outside services expense increased 50.6%, excluding the effects of the
BancWest Merger, primarily due to our expenses to prepare for the year 2000.
- - Intangible amortization expense increased 61.3% over 1997, primarily due to
the BancWest Merger.
- - Advertising and promotion expense decreased 5.7%, excluding the effects of
the BancWest Merger, principally due to more stringent cost controls and
lower levels of spending for advertising, direct mail, collateral and
marketing production.
Other noninterest expense increased 27.0%, excluding the effects of the
BancWest Merger, due to higher foreclosed property expenses and write-downs of
certain OREO. This increase was partially offset by losses on sales of a loan
and certain OREO in 1997.
INCOME TAXES
The provision for income taxes as shown in the Consolidated Statements of
Income on page 45 represents 41.8% of pre-tax income for 1999 and 1998, and
32.5% for 1997.
On a taxable-equivalent basis, the effective tax rate was 41.9% for 1999,
42.1% for 1998 and 33.0% for 1997. Additional information on our consolidated
income taxes is provided in Note 18 to the Consolidated Financial Statements on
page 67.
The 1999 and 1998 effective tax rates were higher than the 1997 rate
primarily due to the BancWest Merger, which resulted in: (1) the recognition of
increased goodwill amortization, for most of which we receive no tax benefit;
and (2) increased state income taxes, as a result of a higher apportionment of
total taxable income to California and a higher corporate tax rate than in
Hawaii. Additionally, in 1997 the tax rate was lowered because we recognized tax
credits that had not been previously recognized.
33
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
LOANS AND LEASES
The following table shows the major categories in the loan and lease
portfolio as of December 31 for the years indicated:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial, financial and agricultural ..... $ 2,213 $ 2,233 $1,710 $1,482 $1,396
Real estate:
Commercial ................................ 2,467 2,284 1,509 1,421 1,197
Construction .............................. 408 430 228 262 296
Residential ............................... 2,363 2,692 1,980 1,963 1,788
Consumer .................................... 2,987 2,583 689 590 480
Lease financing ............................. 1,738 1,361 338 245 245
Foreign:
Commercial and industrial .................. 65 81 68 55 19
Other ...................................... 283 301 270 225 189
-------- -------- ------ ------ ------
TOTAL LOANS AND LEASES ................... $ 12,524 $ 11,965 $6,792 $6,243 $5,610
======== ======== ====== ====== ======
</TABLE>
The BancWest Merger shows how we are continuing our efforts to diversify
our loan and lease portfolio, both geographically and by industry. Our overall
growth in loan and lease volume was primarily in our Mainland United States
operations. However, loan and lease volumes in Hawaii appear to be rebounding.
The loan and lease portfolio is the largest component of total earning
assets and accounts for the greatest portion of total interest income. As the
table above shows, total loans and leases increased by 4.7% at December 31, 1999
over December 31, 1998. The increase was primarily due to increases in the
volume of consumer loans and leases, mainly due to the increased lending in the
Mainland United States. The increase was partially offset by: (1) a decrease in
the amount of residential real estate loans, mainly in Hawaii, resulting from
the prolonged economic downturn experienced for most of the 1990's, from which
Hawaii is slowly rebounding; and (2) an increase in loan refinancing activity
due to the lower interest rate environment experienced in the beginning of 1999.
Excluding the effects of the BancWest Merger, total loans at December 31,
1998 increased 3.7% over December 31, 1997. The increase was primarily due to
increases in consumer loans and lease financing. The increase was partially
offset by decreases in real estate residential loans.
COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS
As of December 31, 1999, commercial, financial and agricultural loans
totaled 17.7% of total loans and leases. Loan volume in this category was
relatively unchanged between 1999 and 1998.
We seek to maintain reasonable levels of risk in commercial and financial
lending by following prudent underwriting guidelines primarily based on cash
flow. Most commercial and financial loans are collateralized and/or supported by
guarantors judged to have adequate net worth. We make unsecured loans to
customers based on character, net worth, liquidity and repayment ability.
REAL ESTATE LOANS
Real estate loans totaled 41.8% and 45.2% of total loans and leases at
December 31, 1999 and 1998, respectively. The percentage of real estate loans to
total loans and leases decreased by 7.5% from 1998 to 1999, primarily due to
increased refinancing due to the lower interest rate environment.
We seek to maintain reasonable levels of risk in real estate lending by
financing projects selectively, by adhering to prudent underwriting guidelines
and by closely monitoring general economic conditions affecting local real
estate markets.
MULTIFAMILY AND COMMERCIAL REAL ESTATE LOANS. We analyze each application
to assess the project's economic viability, the loan-to-value ratio of the real
estate securing the financing and the underlying financial strength of the
borrower. In this type of lending, we will generally: (1) lend no more than 75%
of the appraised value of the underlying project or property; and (2) require a
minimum debt service ratio of 1.20.
SINGLE-FAMILY RESIDENTIAL LOANS. We will generally lend no more than 80% of
the appraised value of the underlying property. Although the majority of our
loans adhere to that limit, loans made in excess of that limit are generally
covered by third-party mortgage insurance that reduces our equivalent risk to an
80% loan-to-appraised-value ratio.
34
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
HOME EQUITY LOANS. We generally lend up to 75% of appraised value or tax
assessed value for fee simple properties. This includes any senior mortgages.
Debt-to-income ratio should not exceed 45% and good credit is required.
CONSUMER LOANS
Consumer loans, including credit cards, totaled 23.9% of total loans and
leases at December 31, 1999. Balances in this category increased 15.6% from a
year earlier, primarily due to the BancWest Merger. The BancWest Merger
increased our consumer loan portfolio by expanding our market presence on the
West Coast. Further expansion in this market was aided by the robust economy in
this region.
Consumer loans consist primarily of open- and closed-end direct and
indirect credit facilities for personal, automobile and household purchases. We
seek to maintain reasonable levels of risk in consumer lending by following
prudent underwriting guidelines which include an evaluation of: (1) personal
credit history; (2) personal cash flow; and (3) collateral values based on
existing market conditions.
LEASE FINANCING
Lease financing as of December 31, 1999, increased 27.7% from 1998. The
increase is primarily due to an increased volume of consumer leases on the
Mainland United States. In addition, our leveraged lease portfolio increased in
1999, due to the addition of several new leveraged leases.
LOAN AND LEASE CONCENTRATIONS
Loan and lease concentrations exist when there are loans to multiple
borrowers who are engaged in similar activities and thus would be impacted by
the same economic or other conditions. At December 31, 1999, we did not have a
concentration of loans and leases greater than 10% of total loans and leases
which were not otherwise disclosed as a category in the table on page 34.
The loan and lease portfolio is principally located in Hawaii and
California and, to a lesser extent, Oregon, Washington, Idaho and Nevada. The
risk inherent in the portfolio is dependent upon both the economic stability of
those states and the financial well-being and creditworthiness of the borrowers.
LOAN AND LEASE MATURITIES
The contractual maturities of loans and leases (shown in the table below)
do not necessarily reflect the actual term of our loan and lease portfolio. In
our experience, the average life of residential real estate loans is
substantially less than their contractual terms because borrowers prepay loans
or we enforce due-on-sale clauses. A due-on-sale clause gives us the right to
declare a loan immediately due and payable if the borrower sells the real
property subject to the mortgage and the loan is not repaid.
In general, the average life of real estate loans tends to increase when
current interest rates exceed rates on existing loans. In contrast, borrowers
are more likely to prepay loans when current interest rates are below the rates
on existing loans. The volume of such prepayments depends upon changes in both
the absolute level of interest rates and the relationship between fixed and
adjustable-rate loans. As a result, the average life of our fixed-rate real
estate loans has varied widely.
We generally sell our fixed-rate residential loans on the secondary market,
but retain variable-rate residential loans in our portfolio.
At December 31, 1999, loans and leases with maturities over one year were
comprised of fixed-rate loans totaling $5.924 billion and floating or
adjustable-rate loans totaling $4.014 billion.
The following table sets forth the contractual maturities of our loan and
lease portfolio by category at December 31, 1999. Demand loans are included as
due within one year.
<TABLE>
<CAPTION>
Within After One But After
One Year Within Five Years Five Years Total
-------- ----------------- ---------- --------
(in millions)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural ............ $1,018 $ 893 $ 302 $ 2,213
Real estate:
Commercial ....................................... 399 1,179 889 2,467
Construction ..................................... 285 105 18 408
Residential ...................................... 122 602 1,639 2,363
Consumer .......................................... 455 1,342 1,190 2,987
Lease financing ................................... 229 1,065 444 1,738
Foreign ........................................... 78 196 74 348
------ ------ ------ --------
TOTAL ......................................... $2,586 $5,382 $4,556 $ 12,524
====== ====== ====== ========
</TABLE>
35
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
NONPERFORMING ASSETS AND PAST DUE LOANS AND LEASES
Nonperforming assets and past due loans and leases as of December 31 are
reflected below for the years indicated:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonperforming assets:
Nonaccrual:
Commercial, financial and agricultural .......................... $ 22,222 $ 21,951 $ 10,372 $ 21,648 $ 16,529
Real estate:
Commercial ..................................................... 25,790 23,128 9,941 10,736 46,165
Construction ................................................... 2,990 485 -- 2,173 10,265
Residential:
Insured, guaranteed, or conventional .......................... 18,174 10,137 6,478 13,815 12,628
Home equity credit lines ...................................... 940 527 50 489 541
-------- -------- -------- -------- --------
Total real estate loans ...................................... 47,894 34,277 16,469 27,213 69,599
-------- -------- -------- -------- --------
Consumer ........................................................ 1,625 2,416 139 92 111
Lease financing ................................................. 3,391 1,816 10 27 19
Foreign ......................................................... 2,162 1,174 -- -- --
-------- -------- -------- -------- --------
Total nonaccrual loans and leases ............................ 77,294 61,634 26,990 48,980 86,258
-------- -------- -------- -------- --------
Restructured:
Commercial, financial and agricultural .......................... 1,004 3,894 1,532 3,429 682
Real estate:
Commercial ..................................................... 7,905 17,161 18,241 25,853 3,048
Construction ................................................... 11,024 14,524 14,524 -- --
Residential:
Insured, guaranteed, or conventional .......................... 1,100 1,100 2,626 267 --
Home equity credit lines ...................................... -- -- 559 561 --
-------- -------- -------- -------- --------
Total real estate loans ...................................... 20,029 32,785 35,950 26,681 3,048
-------- -------- -------- -------- --------
Total restructured loans and leases .......................... 21,033 36,679 37,482 30,110 3,730
-------- -------- -------- -------- --------
Total nonperforming loans and leases ......................... 98,327 98,313 64,472 79,090 89,988
Other real estate owned and repossessed personal property ........ 28,429 34,440 32,294 26,170 10,252
-------- -------- -------- -------- --------
TOTAL NONPERFORMING ASSETS ................................... $126,756 $132,753 $ 96,766 $105,260 $100,240
======== ======== ======== ======== ========
Past due loans and leases (1):
Commercial, financial and agricultural ........................... $ 1,280 $ 1,578 $ 3,158 $ 8,818 $ 13,587
Real estate:
Commercial ...................................................... 1,436 5,212 866 8,527 2,601
Construction .................................................... -- 440 447 -- --
Residential:
Insured, guaranteed, or conventional ........................... 7,751 23,413 25,002 9,812 7,502
Home equity credit lines ....................................... 575 1,710 2,077 2,220 3,005
-------- -------- -------- -------- --------
Total real estate loans ...................................... 9,762 30,775 28,392 20,559 13,108
-------- -------- -------- -------- --------
Consumer ......................................................... 2,043 3,552 3,769 3,164 3,168
Lease financing .................................................. 113 74 24 40 28
Foreign .......................................................... 4,824 1,816 -- -- --
-------- -------- -------- -------- --------
TOTAL PAST DUE LOANS AND LEASES .............................. $ 18,022 $ 37,795 $ 35,343 $ 32,581 $ 29,891
======== ======== ======== ======== ========
Nonperforming assets to total loans and leases
and other real estate owned and repossessed
personal property (end of year):
Excluding past due loans and leases ............................. 1.01% 1.11% 1.42% 1.68% 1.78%
Including past due loans and leases ............................. 1.15% 1.42% 1.94% 2.20% 2.32%
Nonperforming assets to total assets (end of year):
Excluding past due loans and leases ............................. .76% .83% 1.09% 1.22% 1.24%
Including past due loans and leases ............................. .87% 1.07% 1.49% 1.60% 1.61%
======== ======== ======== ======== ========
</TABLE>
Note:
(1) Represents loans and leases which are past due 90 days or more as to
principal and/or interest, are still accruing interest, are adequately
collateralized and are in the process of collection.
36
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
As shown in the table on page 36, nonperforming assets at December 31, 1999
decreased by 4.5%, or $5.997 million, between December 31, 1998 and December 31,
1999. The decrease was principally due to the following:
- - A decrease in the restructured real estate - commercial loan category,
primarily due to a $6.864 million restructured loan that was partially
charged off and paid down with remaining collateral transferred to other
real estate owned ("OREO") in the second quarter of 1999.
- - The decrease in restructured real estate - construction was principally due
to a $3.500 million partial write-down of a particular loan in 1999.
- - The decrease in OREO and repossessed personal property in 1999 of $6.011
million from 1998 is a sign that the economy in Hawaii is slowly rebounding,
as sales and values of Hawaii OREO in 1999 have improved.
- - The decreases were partially offset by an increase in nonaccrual residential
real estate loans of $8.450 million, or 79.2%, from 1998, reflecting the
lingering effects of the prolonged economic downturn, from which Hawaii is
slowly emerging.
IMPACT OF HAWAII ECONOMY
A nine-year economic downturn in Hawaii has increased the level of our
nonaccrual loans and leases and charge-offs during the 1990s. Hawaii's overall
economic growth and the level of growth in tourism reflected a slight increase
during 1999. Some improvement was seen in 1999 and 1998 in certain sectors of
the Hawaii real estate market. There was a continued increase in residential
real estate properties transferred to OREO in 1999 because of overall weakness
in the market, including declining leasehold real estate values. However, sales
of OREO began to increase in the second half of 1999.
IMPACT OF WESTERN REGION ECONOMY
Although Hawaii's recovery continues to be slow and protracted, the economy
in California and the Pacific Northwest continues to expand. As a result, there
has been an overall decline in the ratios of nonperforming assets to total loans
and leases, OREO and repossessed personal property. In January 2000, we further
increased our presence in the Western part of the Mainland United States by
agreeing to acquire 68 branches in Utah and Idaho. See further discussion in
Note 2 to the Consolidated Financial Statements on page 53.
ASIA-PACIFIC LOAN EXPOSURE
A number of countries in the Asia-Pacific region, including Japan,
experienced significant weaknesses in their economies beginning in 1998. Our
aggregate outstanding loans and leases to these countries totaled $53.200
million, or .32% of our total assets, at December 31, 1999. The economic
downturn in Asia has reduced the number of Asian visitors, especially from
Japan, to Hawaii. This in turn has hindered the recovery of Hawaii's economy. In
1999, signs of the slow recovery of Asian economies became evident.
The following table presents the direct claims on or claims guaranteed by
borrowers in the Asian countries indicated below at December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Outstanding
Commitment Balance
----------- -----------
(in thousands)
<S> <C> <C>
China .......................................... $ 163 $ 163
Hong Kong ...................................... 17,510 17,510
Indonesia ...................................... 376 286
South Korea .................................... 1,048 1,048
Philippines .................................... 1,271 1,271
Singapore ...................................... 1,728 1,078
Taiwan ......................................... 2,278 278
-------- --------
Total non-Japan .............................. 24,374 21,634
Japan .......................................... 40,602 31,566
-------- --------
TOTAL ........................................ $ 64,976 $ 53,200
======== ========
</TABLE>
Outstanding commitments of Asian countries other than Japan represented
.15% of total assets and 1.32% of total stockholders' equity. Including Japan,
exposures to Asian countries represented .39% of total assets and 3.53% of total
stockholders' equity. Loans to Asian countries are primarily collateralized by
certificates of deposit, Hawaii real estate, standby letters of credit issued by
Asian banks or guarantees by creditworthy Asian individuals and corporations.
LOANS PAST DUE, STILL ACCRUING
The BancWest Merger did not have a significant impact on loans past due 90
days or more and still accruing interest at December 31, 1999. Such loans
decreased 52.3% between December 31, 1999 and December 31, 1998. All 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.
POTENTIAL PROBLEM LOANS
Other than the loans listed in the table on page 36, at December 31, 1999,
we were not aware of any significant
37
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
potential problem loans where possible credit problems of the borrower caused us
to seriously question the borrower's ability to repay the loan on existing
terms.
The following table presents information related to nonaccrual and
nonaccrual restructured loans and leases as of December 31, 1999:
<TABLE>
<CAPTION>
Domestic Foreign TOTAL
-------- ------- ------
(in thousands)
<S> <C> <C> <C>
Interest income which
would have been recorded
if loans had been current ................... $7,764 $ -- $7,764
====== ==== ======
Interest income recorded
during the year ............................. $3,922 $ -- $3,922
====== ==== ======
</TABLE>
DEPOSITS
Deposits are the largest component of our total liabilities and account for
the greatest portion of total interest expense. At December 31, 1999, total
deposits were $12.878 billion, an increase of 6.9% over December 31, 1998. The
increase was primarily due to the growth in our customer deposit base, primarily
on the Mainland United States.
Here are the average amount and average rate paid on deposits for the years
indicated:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- -------------- --------------
AMOUNT RATE Amount Rate Amount Rate
-------- ---- ------ ---- ------ ----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Noninterest-
bearing demand ................ $ 1,494 --% $1,124 --% $ 894 --%
Interest-bearing
demand ........................ 289 1.25 535 2.20 522 2.18
Savings ........................ 4,982 1.87 2,565 2.56 2,187 2.61
Time ........................... 5,498 4.81 3,203 5.21 2,672 5.33
Foreign ......................... 254 2.98 283 3.38 266 3.52
-------- ------ ------
TOTAL ......................... $ 12,517 2.94% $7,710 3.29% $6,541 3.36%
======== ==== ====== ==== ====== ====
</TABLE>
INVESTMENT SECURITIES BY MATURITIES AND WEIGHTED AVERAGE YIELDS
The following tables present the maturities of held-to-maturity and
available-for-sale investment securities and the weighted average yields (for
obligations exempt from Federal income taxes on a taxable-equivalent basis
assuming a 35% tax rate) of such securities at December 31, 1999. 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.
HELD-TO-MATURITY
<TABLE>
<CAPTION>
Maturity
----------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years TOTAL
-------------- ----------------- ---------------- -------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies
and corporations .................... $ -- --% $ 16 5.53% $ -- --% $ -- --% $ 16 5.53%
Other asset-backed securities ........ -- -- -- -- -- -- 72 5.80 72 5.80
Collateralized mortgage obligations .. -- -- -- -- 9 5.72 46 6.04 55 5.99
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL .............................. $ -- --% $ 16 5.53% $ 9 5.72% $118 5.89% $143 5.84%
==== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
Note: The weighted average yields were calculated on the basis of the cost and
effective yields weighted for the scheduled maturity of each security.
38
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
Maturity
-----------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years TOTAL
-------------- ----------------- ---------------- -------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government agencies
and corporations ............ $300 5.56% $470 5.78% $ -- --% $ 6 5.85% $ 776 5.70%
Mortgage and asset-backed
securities:
Government .................. -- -- -- -- 14 6.55 542 7.06 556 7.05
Other ....................... -- -- 118 6.42 41 6.73 226 6.55 385 6.53
Collateralized mortgage
obligations ................. -- -- -- -- 9 5.71 7 6.95 16 6.20
States and political
subdivisions ................ -- -- 2 4.89 5 5.12 15 5.06 22 5.05
---- ---- ---- ---- ------
TOTAL ...................... $300 5.56% $590 5.91% $ 69 6.43% $796 6.87% $1,755 6.30%
==== ==== ==== ==== ==== ==== ==== ==== ====== ====
</TABLE>
Note: The weighted average yields were calculated on the basis of the cost and
effective yields weighted for the scheduled maturity of each security.
LIQUIDITY MANAGEMENT
Liquidity refers to our ability to provide sufficient cash flows to fund
operations and to meet obligations and commitments on a timely basis at
reasonable costs. We achieve our liquidity objectives from both assets and
liabilities.
We obtain asset-based liquidity from our investment securities portfolio
and short-term investments which can be readily converted to cash. These liquid
assets consist of cash and due from banks, interest-bearing deposits in other
banks, Federal funds sold, securities purchased under agreements to resell and
investment securities. Such assets represented 17.4% of total assets at the end
of 1999 compared to 17.5% at the end of 1998. Additional information related to
our off-balance-sheet instruments at December 31, 1999 and 1998 is included in
Note 22 to the Consolidated Financial Statements on page 70.
We obtain liability-based liquidity primarily from deposits. Average total
deposits for 1999 increased 62.3% to $12.517 billion, primarily due to the
BancWest Merger. Average total deposits funded 76.82% of average total assets
for 1999 and 76.85% in 1998.
We also obtain liquidity from short-term borrowings, including issuing our
own commercial paper, purchasing Federal funds, selling securities under
agreements to repurchase, lines of credit from other banks and credit facilities
from the Federal Home Loan Banks. Additional information on short-term
borrowings is provided in Note 10 to the Consolidated Financial Statements on
page 59. Also, offshore deposits in the international market provide another
available source of funds.
Our commercial paper is assigned a rating of A2 by Standard & Poor's
("S&P"). Our subordinated debt is assigned a rating of A3 by Moody's Investors
Service and BBB by S&P. We currently have a Thomson BankWatch, Inc. rating of
B/C.
CASH FLOWS
The following is a summary of our cash flows for 1999, 1998 and 1997.
(There is more detail in the Consolidated Statements of Cash Flows on page 47.)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net cash provided by operating and
financing activities .................. $847,981 $546,610 $266,801
Net cash used in investing activities.... $702,792 $223,088 $285,496
======== ======== ========
</TABLE>
For the year ended December 31, 1999, due primarily to the inclusion of the
operations of Bank of the West for an entire year, net cash increased by
$145.189 million over the year ended 1998. The net cash provided by operating
and financing activities in 1999 was used principally to fund earning assets. In
1998, the BancWest Merger significantly changed our cash flows, providing
$207.454 million out of the total increase of $323.522 million in net cash. In
1997, the Trust issued $100 million of Capital Securities and, in a related
transaction, we issued junior subordinated deferrable interest debentures to the
Trust. Our cash flows were positively impacted by these transactions. Among
other things, we used the net cash from these issuances to reduce short-term
borrowings and repurchase our common stock.
DIVIDENDS
Our ability to pay dividends depends primarily upon dividends and other
payments from our subsidiaries, which are subject to certain limitations as
described in Note 14 to the Consolidated Financial Statements on page 62.
39
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
ASSET/LIABILITY MANAGEMENT
We actively measure and manage our exposure to interest rate risk in order
to maintain a relatively stable net interest margin and to allow ourselves to
take advantage of profitable business opportunities.
Interest rate risk refers to the effects of future interest rate changes on
our earnings and capital. Usually on a quarterly basis, we carefully measure and
monitor our interest rate risk exposure using: (1) market value of equity
analysis; and (2) net interest income simulations.
MARKET VALUE OF EQUITY ANALYSIS. We examine the change in our economic
value due to changes in interest rates. Our guidelines allow for no more than a
decrease in value equal to 1% of total assets due to a 1% change in interest
rates. At December 31, 1999, we remained within these guidelines.
NET INTEREST INCOME SIMULATIONS. We look at how our net interest income is
affected by flat, rising or declining interest rates. Using the current balance
sheet, we simulate net interest income going forward two years in different
simulated interest rate environments. Our guidelines allow for no more than a
10% adverse change in net interest income for a 1% change in interest rates over
a one-year time period. Under these simulations, at December 31, 1999, our
exposure to changes in interest rates was within these guidelines.
Interest rate risk exposure is managed primarily through the use of
off-balance-sheet instruments such as swaps, caps, floors and options on
mortgage-backed securities and through extending or shortening the duration of
the investment securities portfolio.
INTEREST RATE SENSITIVITY
The table below presents our interest rate sensitivity position at December
31, 1999. The interest rate sensitivity gap, shown at the bottom of the table,
refers to the difference
<TABLE>
<CAPTION>
Within After Three After One
Three But Within But Within After
Months 12 Months Five Years Five Years TOTAL
----------- ----------- ---------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS:
Interest-bearing deposits in other banks .... $ 4,035 $ 5,100 $ -- $ -- $ 9,135
Federal funds sold and securities
purchased under agreements to resell ....... 71,100 -- -- -- 71,100
Investment securities:
Held-to-maturity ........................... 28,440 35,194 66,994 12,240 142,868
Available-for-sale ......................... 451,865 450,417 813,738 151,983 1,868,003
Net loans:
Commercial, financial and agricultural ..... 1,778,812 249,680 161,077 23,188 2,212,757
Real estate--construction .................. 368,515 2,552 26,307 10,704 408,078
Foreign .................................... 108,026 82,987 151,571 5,614 348,198
Other ...................................... 1,875,516 2,104,779 4,407,525 1,005,768 9,393,588
----------- ----------- ---------- ----------- -----------
Total earning assets ...................... 4,686,309 2,930,709 5,627,212 1,209,497 14,453,727
Nonearning assets ........................... 276,672 397,203 806,643 746,777 2,227,295
----------- ----------- ---------- ----------- -----------
TOTAL ASSETS .............................. $ 4,962,981 $ 3,327,912 $6,433,855 $ 1,956,274 $16,681,022
=========== =========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing deposits ................... $ 4,102,930 $ 3,285,963 $2,854,685 $ 1,006,829 $11,250,407
Noninterest-bearing deposits ................ 271,909 161,659 862,183 331,794 1,627,545
Short-term borrowings ....................... 361,760 135,818 6,399 -- 503,977
Long-term debt and capital securities ....... 79,133 413,513 106,134 203,012 801,792
Stockholders' equity ........................ 1,266 -- -- 1,841,464 1,842,730
Off-balance-sheet adjustment ................ (49,034) (64,996) 55,837 58,193 --
Noncosting liabilities ...................... 161,072 238,103 2,365 253,031 654,571
----------- ----------- ---------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY ................................... $ 4,929,036 $ 4,170,060 $3,887,603 $ 3,694,323 $16,681,022
=========== =========== ========== =========== ===========
Interest rate sensitivity gap ................ $ 33,945 $ (842,148) $2,546,252 $(1,738,049)
Cumulative gap ............................... $ 33,945 $ (808,203) $1,738,049 $ --
Cumulative gap as a percent of
total assets ................................ .20% (4.85)% 10.42% --%
=========== =========== ========== =========== ===========
</TABLE>
40
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
between assets and liabilities subject to repricing, maturity, runoff and/or
volatility during a specified period. The gap is adjusted for interest rate
swaps, which are hedging certain assets or liabilities on the balance sheet.
(For ease of analysis, all of these swap adjustments are consolidated into the
"off-balance-sheet adjustment" line on the gap table.)
Since all interest rates and yields do not adjust at the same velocity or
magnitude, and since volatility is subject to change, the gap is only a general
indicator of interest-rate sensitivity. At December 31, 1999, we had a
cumulative one-year gap that was a negative $808.203 million, representing 4.85%
of total assets.
YEAR 2000 ISSUES
BACKGROUND. Our year 2000 programs have been conducted by our subsidiary
banks, Bank of the West and First Hawaiian. Those programs were undertaken to
address issues arising from the inability of certain computer and infrastructure
systems to process dates into the year 2000 and beyond.
Both banks' programs were conducted to comply with guidelines established
by the Federal Financial Institutions Examination Council (the "FFIEC"). Those
programs addressed the banks' own systems, as well as the compliance efforts and
year 2000 exposure of external parties, funds providers, funds users and
counterparties. The banks also developed and tested contingency plans to
minimize the possibility and potential impact of operational disruptions caused
by year 2000 issues.
TRANSITION TO THE YEAR 2000. The transition to the year 2000 went smoothly
for both banks. Neither bank experienced infrastructure failures or received
reports of significant customer impact problems related to the year 2000
rollover. The banks completed extensive validation to confirm that their systems
were operating normally.
As of the date of this report, we are not aware of any significant issues
related to the year 2000. However, the FFIEC has identified additional critical
dates during and beyond the year 2000, and the banks will monitor activities
related to those dates. As part of their normal business operations, appropriate
areas of each bank will also continue monitoring of internal systems, borrowers
and other customers, and external parties.
BUDGET. Our current estimate of total costs related solely to our year 2000
programs is $10.2 million through June 30, 2000. Additionally, we estimate a
total of $4.9 million in expenditures through June 30, 2000, for accelerated
purchase and installation of new or replacement systems or equipment to address
year 2000 issues. The source of these funds has been and will continue to be
operating cash flows. Through December 31, 1999, an aggregate of $9.4 million
has been expended on costs related solely to year 2000 compliance efforts, and
$4.2 million has been spent on the planning and accelerated installation of
systems and applications to address year 2000 issues. For the twelve months
ended December 31, 1999, we expended $3.1 million on costs related solely to
year 2000 compliance and $1.4 million on accelerated systems and applications.
41
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
FOURTH QUARTER RESULTS
<TABLE>
<CAPTION>
1999 1998 Change
---------- ---------- ----------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Consolidated net income ...... $ 48,498 $ 14,098 244.0%
Diluted earnings per share ... .39 .07 457.1%
Operating earnings ........... 48,498 35,964* 34.9%
Diluted operating
earnings per share .......... .39 .34* 14.7%
Diluted operating cash
earnings per share** ........ .46 .40* 15.0%
Return on average tangible
total assets (annualized) ... 1.41% 1.29%* 9.3%
Return on average tangible
stockholders' equity
(annualized) ................ 19.58% 21.18%* (7.6)%
---------- ---------- ----------
</TABLE>
*Excludes after-tax restructuring, BancWest Merger-related and other
nonrecurring costs of $21.866 million in 1998.
**Operating earnings per share before amortization of goodwill and core deposit
intangible.
Our consolidated net income in the fourth quarter of 1999 increased over
the fourth quarter of 1998 primarily due to after-tax restructuring, BancWest
Merger-related and other nonrecurring costs of $21.866 million in 1998 and an
additional month of Bank of the West income in the fourth quarter of 1999
compared to the fourth quarter of 1998.
The increase in operating earnings for the fourth quarter of 1999 as
compared to the fourth quarter of 1998 was primarily due to three months of
income for Bank of the West in the fourth quarter of 1999 versus only two months
in 1998.
SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of unaudited quarterly financial data for 1999 and 1998 is
presented below:
<TABLE>
<CAPTION>
Quarter
---------------------------------------------------------- Annual
First Second Third Fourth Total
---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
1999
INTEREST INCOME ................................. $ 276,665 $ 278,038 $ 288,299 $ 292,709 $1,135,711
INTEREST EXPENSE ................................ 108,293 109,295 112,794 116,495 446,877
---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME ............................. 168,372 168,743 175,505 176,214 688,834
PROVISION FOR CREDIT LOSSES ..................... 10,225 13,345 11,835 19,857 55,262
NONINTEREST INCOME .............................. 46,818 49,621 46,483 54,710 197,632
NONINTEREST EXPENSE, WITHOUT RESTRUCTURING,
MERGER-RELATED AND OTHER NONRECURRING COSTS .... 129,582 130,079 128,961 128,919 517,541
RESTRUCTURING, MERGER-RELATED AND
OTHER NONRECURRING COSTS ....................... 786 632 16,116 -- 17,534
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES ...................... 74,597 74,308 65,076 82,148 296,129
PROVISION FOR INCOME TAXES ...................... 32,091 29,789 28,221 33,650 123,751
---------- ---------- ---------- ---------- ----------
NET INCOME ...................................... $ 42,506 $ 44,519 $ 36,855 $ 48,498 $ 172,378
---------- ---------- ---------- ---------- ----------
BASIC EARNINGS PER SHARE ........................ $ .34 $ .36 $ .30 $ .39 $ 1.39
DILUTED EARNINGS PER SHARE ...................... .34 .36 .29 .39 1.38
---------- ---------- ---------- ---------- ----------
1998
Interest income ................................. $ 167,337 $ 168,669 $ 171,516 $ 242,019 $ 749,541
Interest expense ................................ 71,966 72,688 72,977 98,191 315,822
---------- ---------- ---------- ---------- ----------
Net interest income ............................. 95,371 95,981 98,539 143,828 433,719
Provision for credit losses ..................... 4,921 8,421 6,719 10,864 30,925
Noninterest income .............................. 28,258 35,489 30,113 40,322 134,182
Noninterest expense, without restructuring,
merger-related and other nonrecurring costs .... 82,151 88,781 81,825 113,791 366,548
Restructuring, merger-related and
other nonrecurring costs ....................... -- -- -- 25,527 25,527
---------- ---------- ---------- ---------- ----------
Income before income taxes ...................... 36,557 34,268 40,108 33,968 144,901
Provision for income taxes ...................... 13,310 12,679 14,758 19,870 60,617
---------- ---------- ---------- ---------- ----------
Net income ...................................... $ 23,247 $ 21,589 $ 25,350 $ 14,098 $ 84,284
---------- ---------- ---------- ---------- ----------
Basic earnings per share ........................ $ .33 $ .31 $ .35 $ .07 $ 1.06
Diluted earnings per share ...................... .32 .31 .35 .07 1.05
---------- ---------- ---------- ---------- ----------
</TABLE>
42
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE STOCKHOLDERS
BANCWEST CORPORATION
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in stockholders' equity and cash
flows present fairly, in all material respects, the consolidated financial
position of BancWest Corporation and its subsidiaries at December 31, 1999 and
1998, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Honolulu, Hawaii
January 18, 2000
43
<PAGE> 32
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
------------ ------------
(in thousands, except number of
shares and per share data)
<S> <C> <C>
ASSETS
Cash and due from banks ............................................................ $ 809,961 $ 664,772
Interest-bearing deposits in other banks ........................................... 9,135 278,455
Federal funds sold and securities purchased under agreements to resell ............. 71,100 66,500
Investment securities (note 5):
Held-to-maturity (fair value of $139,102 in 1999 and $291,414 in 1998) ............ 142,868 290,922
Available-for-sale ................................................................ 1,868,003 1,480,976
Loans and leases:
Loans and leases (note 6) ......................................................... 12,524,039 11,964,563
Less allowance for credit losses (note 7) ......................................... 161,418 158,294
------------ ------------
Net loans and leases ............................................................... 12,362,621 11,806,269
------------ ------------
Premises and equipment, net (note 8) ............................................... 281,665 283,881
Customers' acceptance liability .................................................... 1,039 1,377
Core deposit intangible (net of accumulated amortization of
$24,995 in 1999 and $16,448 in 1998) .............................................. 65,092 73,946
Goodwill (net of accumulated amortization of $61,056 in 1999 and $27,013 in 1998) .. 613,620 636,677
Other real estate owned and repossessed personal property .......................... 28,429 34,440
Other assets ....................................................................... 427,489 310,849
------------ ------------
TOTAL ASSETS ....................................................................... $ 16,681,022 $ 15,929,064
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Domestic:
Noninterest-bearing demand ....................................................... $ 1,577,042 $ 2,195,920
Interest-bearing demand .......................................................... 315,786 585,219
Savings .......................................................................... 4,921,146 3,911,237
Time (fair value of $5,815,195 in 1999 and $5,111,338 in 1998) (note 9) .......... 5,825,330 5,093,933
Foreign (fair value of $238,535 in 1999 and $256,830 in 1998) (note 9) ............ 238,648 256,563
------------ ------------
Total deposits ..................................................................... 12,877,952 12,042,872
------------ ------------
Short-term borrowings (note 10) .................................................... 503,977 922,867
Acceptances outstanding ............................................................ 1,039 1,377
Long-term debt (note 11) ........................................................... 701,792 634,368
Guaranteed preferred beneficial interests in Company's junior subordinated
debentures (note 11) .............................................................. 100,000 100,000
Other liabilities .................................................................. 653,532 481,424
------------ ------------
Total liabilities .................................................................. 14,838,292 14,182,908
------------ ------------
Commitments and contingent liabilities (notes 15, 21 and 22)
Stockholders' equity:
Preferred stock, par value $1 per share
Authorized and unissued--50,000,000 shares in 1999 and 1998 ...................... -- --
Class A common stock, par value $1 per share (notes 2 and 12)
Authorized--75,000,000 shares in 1999 and 1998
Issued--51,629,536 shares in 1999 and 25,814,768 shares in 1998 .................. 51,630 25,815
Common stock, par value $1 per share (notes 2, 12 and 16)
Authorized--200,000,000 shares in 1999 and 1998
Issued--75,418,850 shares in 1999 and 37,537,814 shares in 1998 .................. 75,419 37,538
Surplus ........................................................................... 1,124,512 1,183,274
Retained earnings (note 14) ....................................................... 638,687 543,755
Accumulated other comprehensive income ............................................ (9,873) 6,228
Treasury stock, at cost--2,437,556 shares in 1999 and 1,635,397 shares in 1998 .... (37,645) (50,454)
------------ ------------
Total stockholders' equity ......................................................... 1,842,730 1,746,156
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......................................... $ 16,681,022 $ 15,929,064
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
44
<PAGE> 33
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
(in thousands, except number of
shares and per share data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ............................................ $ 895,079 $ 632,634 $ 553,965
Lease financing income ................................................ 113,035 32,983 15,202
Interest on investment securities:
Taxable interest income 101,706 60,938 64,608
Exempt from Federal income taxes ..................................... 1,102 965 1,267
Other interest income ................................................. 24,789 22,021 16,006
------------ ------------ ------------
Total interest income ................................................. 1,135,711 749,541 651,048
------------ ------------ ------------
INTEREST EXPENSE
Deposits (note 9) ..................................................... 368,621 253,860 220,116
Short-term borrowings ................................................. 30,326 36,727 41,527
Long-term debt ........................................................ 47,930 25,235 19,589
------------ ------------ ------------
Total interest expense ................................................ 446,877 315,822 281,232
============ ============ ============
Net interest income ................................................... 688,834 433,719 369,816
Provision for credit losses (note 7) .................................. 55,262 30,925 20,010
------------ ------------ ------------
Net interest income after provision for credit losses ................. 633,572 402,794 349,806
------------ ------------ ------------
NONINTEREST INCOME
Trust and investment services income .................................. 32,644 26,971 25,115
Service charges on deposit accounts ................................... 67,674 39,545 31,983
Other service charges and fees ........................................ 65,484 39,770 33,793
Securities gains, net (note 5) ........................................ 16 441 321
Other ................................................................. 31,814 27,455 19,338
------------ ------------ ------------
Total noninterest income .............................................. 197,632 134,182 110,550
============ ============ ============
NONINTEREST EXPENSE
Salaries and wages .................................................... 181,914 130,986 125,779
Employee benefits (note 15) ........................................... 52,103 38,670 38,536
Occupancy expense (notes 8 and 21) .................................... 60,056 47,107 41,937
Equipment expense (notes 8 and 21) .................................... 30,422 29,125 27,577
Outside services ...................................................... 44,697 21,858 13,391
Intangible amortization ............................................... 35,760 13,789 8,548
Restructuring, merger-related and other nonrecurring costs (note 3) ... 17,534 25,527 --
Other (note 17) ....................................................... 112,589 85,013 66,403
------------ ------------ ------------
Total noninterest expense ............................................. 535,075 392,075 322,171
============ ============ ============
Income before income taxes ............................................ 296,129 144,901 138,185
Provision for income taxes (note 18) .................................. 123,751 60,617 44,976
------------ ------------ ------------
NET INCOME ............................................................ $ 172,378 $ 84,284 $ 93,209
------------ ------------ ------------
PER SHARE DATA:
Basic earnings (note 12) ............................................. $ 1.39 $ 1.06 $ 1.31
Diluted earnings (note 12) ........................................... $ 1.38 $ 1.05 $ 1.29
============ ============ ============
CASH DIVIDENDS ........................................................ $ .62 $ .58 $ .58
============ ============ ============
AVERAGE SHARES OUTSTANDING ............................................ 124,047,664 79,515,996 70,939,308
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45
<PAGE> 34
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A
Common Stock Common Stock
---------------------------- ----------------------------
Shares Amount Shares Amount Surplus
----------- ----------- ----------- ----------- -----------
(in thousands, except number of shares and per share data)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ........ -- $ -- 36,137,454 $ 180,687 $ 156,887
Comprehensive income:
Net income ....................... -- -- -- -- --
Unrealized valuation
adjustment, net of tax and
reclassification adjustment ..... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Comprehensive income .............. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Issuance of common stock (1) ...... -- -- 105,780 529 1,099
Issuance of common stock on
conversion of debentures (1) ..... -- -- 763,628 3,819 5,265
Issuance of common stock
for acquisition (1) .............. -- -- 140,220 701 2,616
Stock dividend on common
stock (1) ........................ -- -- 159,080 795 3,898
Purchase of treasury stock, net ... -- -- -- -- (31)
Cash dividends
($.58 per share) (note 14) ....... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 ........ -- -- 37,306,162 186,531 169,734
Comprehensive income:
Net income ....................... -- -- -- -- --
Unrealized valuation
adjustment, net of tax and
reclassification adjustment ..... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Comprehensive income .............. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Reduction in par value of
common stock (note 12) ........... -- -- -- (149,225) 149,225
Issuance of Class A common
stock (notes 2 and 12) ........... 25,814,768 25,815 -- -- 858,115
Issuance of common stock (1) ...... -- -- 102,912 103 1,451
Issuance of common stock on
conversion of debentures (1) ..... -- -- 128,740 129 2,152
Purchase of treasury stock, net ... -- -- -- -- (25)
Issuance of treasury stock
(note 12) ........................ -- -- -- -- 2,622
Cash dividends
($.58 per share) (note 14) ....... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 ........ 25,814,768 25,815 37,537,814 37,538 1,183,274
COMPREHENSIVE INCOME:
NET INCOME ....................... -- -- -- -- --
UNREALIZED VALUATION
ADJUSTMENT, NET OF TAX
AND RECLASSIFICATION
ADJUSTMENT ...................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
COMPREHENSIVE INCOME .............. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
ISSUANCE OF COMMON STOCK
FOR TWO-FOR-ONE STOCK SPLIT
(NOTE 12) ........................ 25,814,768 25,815 37,708,200 37,708 (63,523)
ISSUANCE OF COMMON STOCK .......... -- -- 172,836 173 4,887
ISSUANCE OF TREASURY STOCK
(NOTE 12) ........................ -- -- -- -- (126)
CASH DIVIDENDS
($.62 PER SHARE) (NOTE 14) ....... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 ........ 51,629,536 $ 51,630 75,418,850 $ 75,419 $ 1,124,512
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Com-
Retained prehensive Treasury
Earnings Income Stock Total
----------- ----------- ----------- -----------
(in thousands, except number of shares and per share data)
<S> <C> <C> <C> <C>
Balance, December 31, 1996 ........ $ 452,857 $ 1,545 $ (38,807) $ 753,169
Comprehensive income:
Net income ....................... 93,209 -- -- 93,209
Unrealized valuation
adjustment, net of tax and
reclassification adjustment ..... -- (1,149) -- (1,149)
----------- ----------- ----------- -----------
Comprehensive income .............. 93,209 (1,149) -- 92,060
----------- ----------- ----------- -----------
Issuance of common stock (1) ...... -- -- -- 1,628
Issuance of common stock on
conversion of debentures (1) ..... -- -- -- 9,084
Issuance of common stock
for acquisition (1) .............. -- -- -- 3,317
Stock dividend on common
stock (1) ........................ (4,693) -- -- --
Purchase of treasury stock, net ... -- -- (17,027) (17,058)
Cash dividends
($.58 per share) (note 14) ....... (41,116) -- -- (41,116)
----------- ----------- ----------- -----------
Balance, December 31, 1997 ........ 500,257 396 (55,834) 801,084
Comprehensive income:
Net income ....................... 84,284 -- -- 84,284
Unrealized valuation
adjustment, net of tax and
reclassification adjustment ..... -- 5,832 -- 5,832
----------- ----------- ----------- -----------
Comprehensive income .............. 84,284 5,832 -- 90,116
----------- ----------- ----------- -----------
Reduction in par value of
common stock (note 12) ........... -- -- -- --
Issuance of Class A common
stock (notes 2 and 12) ........... -- -- -- 883,930
Issuance of common stock (1) ...... -- -- -- 1,554
Issuance of common stock on
conversion of debentures (1) ..... -- -- -- 2,281
Purchase of treasury stock, net ... -- -- (7,297) (7,322)
Issuance of treasury stock
(note 12) ........................ -- -- 12,677 15,299
Cash dividends
($.58 per share) (note 14) ....... (40,786) -- -- (40,786)
----------- ----------- ----------- -----------
Balance, December 31, 1998 ........ 543,755 6,228 (50,454) 1,746,156
COMPREHENSIVE INCOME:
NET INCOME ....................... 172,378 -- -- 172,378
UNREALIZED VALUATION
ADJUSTMENT, NET OF TAX
AND RECLASSIFICATION
ADJUSTMENT ...................... -- (16,101) -- (16,101)
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME .............. 172,378 (16,101) -- 156,277
----------- ----------- ----------- -----------
ISSUANCE OF COMMON STOCK
FOR TWO-FOR-ONE STOCK SPLIT
(NOTE 12) ........................ -- -- -- --
ISSUANCE OF COMMON STOCK .......... -- -- 10,808 15,868
ISSUANCE OF TREASURY STOCK
(NOTE 12) ........................ -- -- 2,001 1,875
CASH DIVIDENDS
($.62 PER SHARE) (NOTE 14) ....... (77,446) -- -- (77,446)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 ........ $ 638,687 $ (9,873) $ (37,645) $ 1,842,730
=========== =========== =========== ===========
</TABLE>
(1) Transaction is a SierraWest Bancorp restatement item reported under the
pooling-of-interests method of accounting.
The accompanying notes are an integral part of these consolidated financial
statements.
46
<PAGE> 35
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................................ $ 172,378 $ 84,284 $ 93,209
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses ...................................................... 55,262 30,925 20,010
Net gain on sale of assets ....................................................... (3,675) (6,022) (2,500)
Depreciation and amortization .................................................... 67,484 35,437 33,493
Income taxes ..................................................................... 111,285 53,371 25,957
Decrease (increase) in interest receivable ....................................... (6,848) (1,328) 3,073
Increase (decrease) in interest payable .......................................... 28,145 (2,408) 9,956
Decrease (increase) in prepaid expense ........................................... (15,264) 608 1,720
Restructuring, merger-related and other nonrecurring costs ....................... 17,534 25,527 --
Other ............................................................................ (2,231) 4,937 (11,705)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................................... 424,070 225,331 173,213
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in interest-bearing deposits in other banks ............... 269,320 (136,711) (67,800)
Net decrease (increase) in Federal funds sold and securities
purchased under agreements to resell ............................................. (4,600) 90,049 24,021
Proceeds from maturity of held-to-maturity investment securities .................. 163,906 14,172 1,012
Purchase of held-to-maturity investment securities ................................ (15,852) -- --
Proceeds from maturity of available-for-sale investment securities ................ 526,621 421,571 360,394
Proceeds from sale of available-for-sale investment securities .................... 27,828 41,428 394,001
Purchase of available-for-sale investment securities .............................. (968,209) (446,432) (415,414)
Purchase of bank-owned life insurance ............................................. (50,000) -- (30,000)
Net increase in loans to customers ................................................ (627,239) (372,387) (566,577)
Net cash provided by acquisitions ................................................. -- 207,454 5,269
Proceeds from sale of premises and equipment ...................................... -- 11,402 4,074
Purchase of premises and equipment ................................................ (38,823) (18,599) (19,723)
Other ............................................................................. 14,256 (35,035) 25,247
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES .............................................. (702,792) (223,088) (285,496)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits .......................................................... 835,080 402,118 245,798
Net decrease in short-term borrowings ............................................. (418,890) (5,989) (228,099)
Proceeds from long-term debt ...................................................... 94,483 -- 192,700
Payments on long-term debt ........................................................ (27,059) (27,836) (59,707)
Cash dividends paid ............................................................... (77,446) (40,786) (41,116)
Proceeds from issuance of common stock ............................................ 4,934 1,094 1,070
Issuance (purchase) of treasury stock, net ........................................ 12,809 (7,322) (17,058)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......................................... 423,911 321,279 93,588
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS ................................. 145,189 323,522 (18,695)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR ....................................... 664,772 341,250 359,945
----------- ----------- -----------
CASH AND DUE FROM BANKS AT END OF YEAR ............................................. $ 809,961 $ 664,772 $ 341,250
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES:
Interest paid ..................................................................... $ 418,732 $ 307,139 $ 273,761
Income taxes paid ................................................................. $ 12,466 $ 13,289 $ 27,231
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Loans converted into other real estate owned and repossessed
personal property ................................................................ $ 10,931 $ 18,020 $ 23,753
Issuance of common stock in connection with convertible debentures ................ $ -- $ 2,281 $ 9,084
----------- ----------- -----------
IN CONNECTION WITH MERGERS, THE FOLLOWING LIABILITIES WERE ASSUMED:
Fair value of assets acquired ..................................................... $ -- $ 6,425,007 $ 36,039
Cash received ..................................................................... -- 207,454 5,269
Issuance of Class A common stock .................................................. -- (883,930) --
Issuance of treasury stock ........................................................ -- (15,299) --
Issuance of common stock .......................................................... -- -- (3,317)
----------- ----------- -----------
LIABILITIES ASSUMED ................................................................ $ -- $ 5,733,232 $ 37,991
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
47
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF OPERATIONS
BancWest Corporation is a bank holding company headquartered in Honolulu,
Hawaii and incorporated under the laws of the State of Delaware. Through our
principal subsidiaries, Bank of the West and First Hawaiian Bank, we provide
commercial and consumer banking services, engage in commercial and equipment and
vehicle leasing and offer trust and insurance products. BancWest Corporation's
subsidiaries operate 221 offices in the states of California, Hawaii, Oregon,
Washington, Idaho and Nevada and in Guam and Saipan.
The accounting and reporting policies of BancWest Corporation and
Subsidiaries (the "Company" or "we/our") conform with generally accepted
accounting principles and practices within the banking industry. The following
is a summary of the significant accounting policies:
CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of BancWest Corporation (the "Parent") and its wholly-owned subsidiary
companies:
- - Bank of the West and its wholly-owned subsidiaries ("Bank of the West");
- - First Hawaiian Bank and its wholly-owned subsidiaries ("First Hawaiian");
- - FHL Lease Holding Company, Inc. and its wholly-owned subsidiary ("Leasing");
- - First Hawaiian Capital I; and
- - FHI International, Inc.
All significant intercompany balances and transactions have been eliminated
in consolidation.
RECLASSIFICATIONS AND RESTATEMENTS
The 1998 and 1997 Consolidated Financial Statements were reclassified in
certain respects to conform to the 1999 presentation. Such reclassifications did
not have a material effect on the Consolidated Financial Statements.
In addition, Consolidated Financial Statements for all periods presented
have been restated to include the results of operations, financial position and
cash flows for the 1999 acquisition of SierraWest Bancorp, which was accounted
for as a pooling of interests.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. These estimates and assumptions also affect the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CASH AND DUE FROM BANKS
Cash and due from banks include amounts from other financial institutions
as well as in-transit clearings. Under the terms of the Depository Institutions
Deregulation and Monetary Control Act, the Company is required to place reserves
with the Federal Reserve Bank based on the amount of deposits held. The average
amounts of these reserve balances were $192.040 million for 1999, $113.495
million for 1998 and $99.380 million for 1997.
INVESTMENT SECURITIES
Investment securities consist principally of debt and asset-backed
securities issued by the U.S. Treasury and other U.S. Government agencies and
corporations and state and local government units. These securities have been
adjusted for amortization of premiums or accretion of discounts using the
interest method.
Investment securities are classified into 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. These securities are
reported at amortized cost.
(2) Trading securities are debt securities which are bought and held
principally for the purpose of selling them in the near term. These
securities are reported at fair value, with unrealized gains and losses
included in current earnings.
(3) Available-for-sale securities are debt and equity securities not classified
as either held-to-maturity or trading securities. Available-for-sale
securities are reported at fair value, with unrealized gains and losses
excluded from current earnings. The unrealized gains and losses are
reported as a separate component of stockholders' equity.
Gains and losses realized on the sales of investment securities are
determined using the specific identification method.
LOANS AND LEASES
Loans are stated at the principal amounts outstanding, net of any unearned
income or discounts. Interest income is accrued and recognized on the principal
amount outstanding unless the loan is determined to be impaired and placed
48
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
on nonaccrual status. (See Impaired and Nonaccrual Loans below.) Loans
identified as held for sale are carried at the lower of cost or market value and
are included in other assets on the Consolidated Balance Sheets.
We provide lease financing under a variety of arrangements, primarily
consumer automobile leases, commercial equipment leases and leveraged leases.
- - Leases for consumer automobiles and commercial equipment are classified as
direct financing leases. Unearned income on direct financing leases is
accreted over the lives of the leases to provide a constant periodic rate of
return on the net investment in the lease.
- - Leveraged lease transactions are subject to outside financing through one or
more participants, without recourse to the Company. These transactions are
accounted for by recording as the net investment in each lease the aggregate
of rentals receivable (net of principal and interest on the related
nonrecourse debt) and the estimated residual value of the equipment less the
unearned income. Income from these lease transactions is recognized during
the periods in which the net investment is positive.
IMPAIRED AND NONACCRUAL LOANS
We evaluate loans for impairment on a case-by-case basis. We consider a
loan to be impaired when it is probable that we will be unable to collect all
amounts due according to the contractual terms of the loan. We measure
impairment based on the present value of the expected future cash flows
discounted at the loan's effective interest rate, except for
collateral-dependent loans. For collateral-dependent loans, we measure
impairment based on the fair value of the collateral. On a case-by-case basis,
we may measure impairment based upon a loan's observable market price.
Based primarily on historical loss experience for each portfolio, we
collectively evaluate for impairment large groups of homogeneous loans with
smaller balances. Examples of such small balance portfolios are credit cards and
consumer loans and leases, including 1-4 family mortgage loans with balances
less than $250,000. Impairment losses are charged against the allowance for
credit losses.
We generally place a loan or lease on nonaccrual status:
- - When management believes that collection of principal or income has become
doubtful; or
- - When a loan is first classified as impaired; or
- - When loans or leases are 90 days past due as to principal or income, unless
they are well secured and in the process of collection. We may make an
exception to the general 90-day-past-due rule when the fair value of the
collateral exceeds our recorded investment in the loan or when other factors
indicate that the borrower will shortly bring the loan current.
While the majority of consumer loans and leases are subject to our general
policies regarding nonaccrual loans, certain past due consumer loans and leases
are not placed on nonaccrual status because they are charged off upon reaching a
predetermined delinquency status varying from 120 to 180 days, depending on
product type.
When we place a loan or lease on nonaccrual status, previously accrued and
uncollected interest is reversed against interest income of the current period.
When we receive a cash interest payment on a nonaccrual loan, we apply it as a
reduction of the principal balance when we have doubts about the ultimate
collection of the principal. Otherwise, we record such payments as income.
Nonaccrual loans and leases are generally returned to accrual status when
they: (1) become current as to principal and interest; or (2) become both well
secured and in the process of collection.
LOAN FEES
We generally charge fees for originating loans and leases and for
commitments to extend credits. Origination fees (net of direct costs of
underwriting, closing costs and premiums) are deferred and amortized to interest
income, using methods which approximate a level yield, adjusted for actual
prepayment experience. We recognize unamortized fees and premiums on loans paid
in full as a component of interest income.
We also charge other loan fees consisting of delinquent payment charges and
other common loan servicing fees, including fees for servicing loans sold to
third parties. We recognize these fees as income when earned.
ALLOWANCE FOR CREDIT LOSSES
We maintain the allowance for credit losses (the "Allowance") at a level
which, in management's judgment, is adequate to absorb losses in the Company's
loan and lease portfolio. While the Company has a formalized methodology for
determining an adequate and appropriate level of the Allowance, estimates of
inherent credit losses involve judgment and assumptions as to various factors
which deserve current recognition in the Allowance. Principal factors considered
by management in determining the Allowance include historical loss experience,
the value and adequacy of collateral, the level of nonperforming loans, the
growth and composition of the portfolio, periodic review of loan delinquency,
results of examinations of
49
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
individual loans and/or evaluation of the overall portfolio by senior credit
personnel, internal auditors and regulators, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay
and general economic conditions.
The Allowance is increased by provisions for credit losses and reduced by
charge-offs, net of recoveries. Charge-offs for loans and leases that are
evaluated for impairment are made based on impairment evaluations as described
above. Consumer loans and leases are generally charged off upon reaching a
predetermined delinquency status that ranges from 120 to 180 days and varies by
product type. Other loans and leases are charged off to the extent they are
classified as loss, either internally or by the Company's regulators. Recoveries
of amounts that have previously been charged off are credited to the Allowance
and are generally recorded only to the extent that cash is received.
The provision for credit losses reflects management's judgment of the
current-period cost of credit risk inherent in the Company's loan and lease
portfolio. Specifically, the provision for credit losses represents the amount
charged against current-period earnings to achieve an allowance for credit
losses that in management's judgment is adequate to absorb losses inherent in
the Company's loan and lease portfolio. Accordingly, the provision for credit
losses will vary from period to period based on management's ongoing assessment
of the adequacy of the Allowance.
OTHER REAL ESTATE OWNED AND REPOSSESSED PERSONAL PROPERTY
Other real estate owned and repossessed personal property is primarily
comprised of properties that we acquired through foreclosure proceedings. We
value these properties at the lower of cost or fair value at the time we acquire
them, which establishes their new cost basis. We charge against the Allowance
any losses arising at the time of acquisition of such properties. After we
acquire them, we carry such properties at the lower of cost or fair value less
estimated selling costs. If we record any write-downs or losses from the
disposition of such properties after acquiring them, we include this amount in
other noninterest expense.
PREMISES AND EQUIPMENT
Premises and equipment, including leasehold improvements, are stated at
cost less accumulated depreciation and amortization. Depreciation and
amortization are computed on a straight-line basis over the estimated useful
lives of 10-40 years for premises, 3-13 years for equipment and the lease term
for leasehold improvements.
CORE DEPOSIT AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
Core deposit and other identifiable intangible assets are amortized on the
straight-line method over the period of benefit, generally 10 years. We review
core deposit and other identifiable intangible assets for impairment whenever
events or changes in circumstances indicate that we may not recover our
investment in the underlying assets or liabilities which gave rise to such core
deposit and other identifiable intangible assets.
GOODWILL
Goodwill represents the cost of acquired companies in excess of the fair
value of net assets acquired. This excess is being amortized on the
straight-line method over 25 years. It is our policy to review goodwill for
impairment whenever events or changes in circumstances indicate that we may not
recover our investment in the underlying assets/businesses which gave rise to
such goodwill. Should such an evaluation of impairment become necessary, we will
evaluate the performance of such acquired business on an undiscounted basis.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
We apply a control-oriented, financial-components approach to
financial-asset-transfer transactions by: (1) recognizing the financial and
servicing assets we control and the liabilities we have incurred; (2)
derecognizing financial assets only when control has been surrendered; and (3)
derecognizing liabilities once they are extinguished.
Control is considered to have been surrendered only if: (i) the transferred
assets have been isolated from the transferor and its creditors, even in
bankruptcy or other receivership; (ii) the transferee has the unconditional
right to pledge or exchange the transferred assets, or is a qualifying
special-purpose entity and the holders of beneficial interests in that entity
have the unconditional right to pledge or exchange those interests; and (iii)
the transferor does not maintain effective control over the transferred assets
through: (a) an agreement that both entitles and obligates it to repurchase or
redeem those assets prior to maturity; or (b) an agreement which both entitles
and obligates it to repurchase or redeem those assets if they were not readily
obtainable elsewhere. If any of these conditions are not met, we account for the
transfer as a secured borrowing.
Securities purchased under agreements to resell and securities sold under
agreements to repurchase generally qualify as financing transactions under
generally accepted accounting principles. We carry such securities at the
amounts at which they subsequently will be resold or
50
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
reacquired as specified in the respective agreements, including accrued
interest.
Repurchase and reverse-repurchase agreements are presented in the
accompanying Consolidated Balance Sheets where net presentation is consistent
with generally accepted accounting principles. It is our policy to take
possession of securities purchased under agreements to resell. We monitor the
fair value of the underlying securities as compared to the related receivable,
including accrued interest and as necessary we request additional collateral.
Where deemed appropriate, our agreements with third parties specify our rights
to request additional collateral. All collateral is held by the Company or a
custodian.
SERVICING ASSETS
Servicing assets primarily consist of originated mortgage servicing rights
which are capitalized and included in other assets in the Consolidated Balance
Sheets. These rights are recorded based on the relative fair values of the
servicing rights and the underlying loan. They are amortized over the period of
the related loan-servicing income stream. We reflect amortization of these
rights in our Consolidated Statements of Income under the caption "other service
charges and fees." We evaluate servicing assets for impairment in accordance
with generally accepted accounting principles. For the years presented,
servicing assets and the related amortization were not material.
TRUST PROPERTY
We do not include in our Consolidated Balance Sheets trust property, other
than cash deposits which we hold as fiduciaries or agents for our customers,
because such items are not assets of the Company.
INCOME TAXES
We recognize deferred income tax liabilities and assets for the expected
future tax consequences of events that we include in our financial statements or
tax returns. Under this method, we determine deferred income tax liabilities and
assets based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
We account for excise tax credits relating to premises and equipment under
the flow-through method, recognizing the benefit in the year the asset is placed
in service. The excise tax credits related to lease equipment, except for excise
tax credits that are passed on to lessees, are recognized during the periods in
which the net investment is positive.
We file a consolidated Federal income tax return. Amounts equal to income
tax benefits of those subsidiaries having taxable losses or credits are
reimbursed by other subsidiaries which would have incurred current income tax
liabilities.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which
established standards for reporting comprehensive income (defined to include net
income, unrealized gains and losses on available-for-sale investment securities,
foreign currency adjustments and certain other items not included in the income
statement). Accumulated other comprehensive income consists of unrealized
holding gains on available-for-sale investment securities and interest-only
strips receivable. The activity for the years presented (gross unrealized
holding gains/losses and realized gains/losses, net of tax effects) was not
significant.
DERIVATIVES
Periodically, we may:
- - Manage our interest rate risk by using interest rate swaps, caps and floors;
- - Manage our residential mortgage loan origination pipeline by using
over-the-counter options on mortgage-backed securities; and
- - Manage foreign exchange activities by using commitments to purchase or sell
foreign currencies and foreign exchange activities.
The criteria that must be satisfied for accrual accounting treatment are:
(1) the transaction to be hedged exposes the Company to interest rate or foreign
exchange risk; (2) the hedge acts to reduce the interest rate or foreign
exchange risk by moving closer to being insensitive to interest or foreign
exchange rate changes; and (3) the derivative is designed and is effective as a
hedge of the transaction.
The following additional criteria apply to hedges of anticipated
transactions: (1) the significant characteristics and expected terms of the
anticipated transaction must be identified; and (2) it must be probable that the
anticipated transaction will occur. We would carry at market value any
derivative products that do not satisfy the hedging criteria above, recognizing
any change in market value in noninterest income. For the years presented, all
interest rate derivative products met the criteria for accrual accounting
treatment. All option and forward positions for the years
51
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
presented were marked to market and reflected in our Consolidated Statements of
Income.
At the date of termination, we record to income or expense gains or losses
resulting from early termination of derivatives and the designated hedge. Gains
or losses on the termination of anticipatory hedges would be amortized over the
remaining life of the designated hedged item.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, we are a party to various financial
instruments "designated" or "entered into" to meet the financing needs of our
customers and to reduce our own exposure to fluctuations in interest rates and
foreign exchange rates. These financial instruments include commitments to
extend credit; standby and commercial letters of credit; interest rate swaps,
caps and floors; options on mortgage-backed securities; and commitments to
purchase or sell foreign currencies. These instruments involve, to varying
degrees, elements of credit, interest rate and foreign exchange risk in excess
of the amounts recognized in the Consolidated and Parent Company Balance Sheets
(see Note 24 on page 71). The contract or notional amounts of those instruments
reflect the extent of involvement that we have in particular classes of
financial instruments.
If a counterparty to a commitment to extend credit or to a standby or
commercial letter of credit fails to perform, our exposure to credit losses
would be the contractual notional amount. Since these commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash flows. For interest rate swap transactions, the notional
amounts do not represent exposure to credit losses.
Options on mortgage-backed securities allow us to decide to make or take
delivery of certain mortgage-backed securities. The notional amount of
securities covered by the amount of the contracts does not represent exposure to
credit losses.
Commitments to purchase or sell foreign currencies obligate us to take or
make delivery of a foreign currency. Risks in such instruments arise from
fluctuations in foreign exchange rates and the ability of counterparties to
fulfill the terms of the contracts.
Off-balance-sheet instruments must meet the same criteria of acceptable
risk established for our lending and other financing activities. We manage the
credit risk of counterparty defaults in these transactions by:
- - Limiting the total amount of outstanding arrangements, both by the
individual counterparty and in the aggregate;
- - Monitoring the size and maturity structure of the off-balance-sheet
portfolio; and
- - Applying the uniform credit standards maintained for all of our credit
activities, including, in some cases, taking collateral to secure the
counterparty obligations.
We enter into interest rate swap agreements as an end-user only. These
instruments are used as hedges against various balance sheet accounts. The net
interest payable or receivable is accrued and recognized as an adjustment to the
interest expense or interest income of the hedged item.
We enter into commitments to purchase or sell foreign currencies on behalf
of our customers. These commitments are generally matched through offsetting
positions. Foreign exchange positions are valued monthly with the resulting gain
or loss recognized as incurred.
We use short-term (60 days or less) options on mortgage-backed securities
to hedge the market risk associated with timing differences between the
commitment of the interest rate, documentation and subsequent sale of
residential real estate loans. We value these option contracts monthly and
recognize the gain or loss in noninterest income, if the options are exercised.
We monitor and manage interest rate and market risk in conjunction with our
overall interest rate risk position. Off-balance-sheet agreements are not
entered into if they would increase our interest rate risk above approved
guidelines. Our testing to measure and monitor this risk, using net interest
income simulations and market value of equity analysis, is usually conducted
quarterly.
FAIR VALUE OF FINANCIAL INSTRUMENTS
We use the following methods and assumptions to estimate the fair value of
our financial instruments:
CASH AND DUE FROM BANKS: The carrying amounts reported in the Consolidated
Balance Sheets of cash and short-term instruments approximate fair values.
INVESTMENT SECURITIES: Fair values of investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
LOANS AND LEASES: Fair values are estimated for portfolios of performing
loans and leases with similar characteristics. For variable-rate loans that
reprice frequently and with no significant change in credit risk, fair values
are based on carrying values. We use discounted cash flow analyses, which
utilize interest rates currently being offered for loans with
52
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
similar terms to borrowers of similar credit quality, to estimate the fair
values of: (1) fixed-rate commercial and industrial loans; (2) financial
institution loans; (3) agricultural loans; (4) certain mortgage loans (e.g., 1-4
family residential, commercial real estate and rental property); (5) credit card
loans; (6) leases; and (7) other consumer loans. The carrying amount of accrued
interest approximates its fair value.
DEPOSITS: The fair value of deposits with no maturity date (e.g., interest
and noninterest-bearing checking, passbook savings, and certain types of money
market accounts) are, according to generally accepted accounting principles,
equal to the amount payable on demand at the reporting date (i.e., their
carrying amounts). Fair values of fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
SHORT-TERM BORROWINGS: The carrying amounts of overnight Federal funds
purchased, borrowings under repurchase agreements and other short-term
borrowings approximate their fair values.
LONG-TERM DEBT AND CAPITAL SECURITIES: The fair values of our long-term
debt (other than deposits) and capital securities are estimated using discounted
cash flow analyses based on our current incremental borrowing rates for similar
types of borrowing arrangements.
OFF-BALANCE-SHEET COMMITMENTS AND CONTINGENT LIABILITIES: Fair values are
based upon: (1) quoted market prices of comparable instruments (options on
mortgage-backed securities and commitments to buy or sell foreign currencies);
(2) fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the counterparties' credit standing
(letters of credit and commitments to extend credit); or (3) pricing models
based upon brokers' quoted markets, current levels of interest rates and
specific cash flow schedules (interest rate swaps).
NEW PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS No. 133 requires recognition of all
derivative instruments in the statement of financial position as either assets
or liabilities and the measurement of derivative instruments at fair value. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133." The original effective date for SFAS No. 133 was for all fiscal years
beginning after June 15, 1999. As a result of the issuance of SFAS No. 137, the
effective date for SFAS No. 133 is for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133, as amended by SFAS
No. 137, is not expected to have a material effect on the Consolidated Financial
Statements.
In January 1999, we adopted SFAS No. 134, "Accounting of Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise, an amendment to SFAS No. 65." SFAS No. 134
requires mortgage banking enterprises to classify loans held for sale that they
have securitized, based on their intent to sell or hold these investments. The
adoption of SFAS No. 134 did not have a material effect on the Consolidated
Financial Statements.
2. MERGERS AND ACQUISITIONS
SIERRAWEST BANCORP
On July 1, 1999, the Company completed its acquisition of SierraWest
Bancorp ("SierraWest"). SierraWest was merged with and into the Company and its
subsidiary, SierraWest Bank, was merged with and into Bank of the West (the
"SierraWest Merger") resulting in the issuance of approximately 4.40 million
shares of our common stock to the shareholders of SierraWest. The acquisition
was accounted for using the pooling-of-interests method of accounting.
Historical financial information presented herein is restated to include
SierraWest. No material adjustments were required to conform SierraWest's
accounting policies with those of the Company.
In connection with the SierraWest merger, the Company recorded pre-tax
restructuring, merger-related and other nonrecurring costs totaling $10.680
million in 1999 as described in Note 3 on page 54.
The following table sets forth the results of operations of SierraWest and
the Company for the six months ended June 30, 1999. These six-month results are
included in the consolidated results of operations for the year ended December
31, 1999, presented in the accompanying Consolidated Statements of Income.
53
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
--------------------------------------
SierraWest Company Combined
---------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net interest income ... $ 21,703 $315,412 $337,115
Net income ............ $ 4,765 $ 82,260 $ 87,025
========== ======== ========
</TABLE>
The following table reconciles the net interest income and net income
previously reported by the Company with the combined amounts presented in the
accompanying Consolidated Statements of Income for the years ended December 31,
1998 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------
SierraWest Company Combined
---------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net interest income ... $ 39,482 $394,237 $433,719
Net income ............ $ 7,678 $ 76,606 $ 84,284
========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------
SierraWest Company Combined
---------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net interest income ... $ 35,344 $334,472 $369,816
Net income ............ $ 8,948 $ 84,261 $ 93,209
========== ======== ========
</TABLE>
BANCWEST CORPORATION
On November 1, 1998, for a purchase price of $905.729 million, BancWest
Corporation ("Old BancWest"), parent company of Bank of the West, was merged
with and into First Hawaiian, Inc. ("FHI") (the "BancWest Merger"). At that
date, Bank of the West, headquartered in San Francisco, was California's
fifth-largest bank with approximately $6.1 billion in assets and 103 branches in
21 counties in Northern and Central California.
Prior to the BancWest Merger, Old BancWest was wholly-owned by Banque
Nationale de Paris ("BNP"). BNP is part of The BNP Paribas Group, the largest
commercial bank in France, and among the largest in Europe. In the BancWest
Merger, BNP received approximately 25.815 million shares (51.630 million shares
after adjustment for the two-for-one stock split in December 1999) of the
Company's newly authorized Class A common stock (representing approximately 45%
of the outstanding voting stock). The transaction was accounted for using the
purchase method of accounting and results of operations were included in the
Consolidated Statements of Income from the date of acquisition. The excess of
cost over fair value of net assets acquired amounted to approximately $599.0
million. FHI, the surviving corporation of the BancWest Merger, changed its name
to "BancWest Corporation" on November 1, 1998.
The Company recorded pre-tax restructuring, merger-related and other
nonrecurring costs totaling $25.527 million in 1998 as described in Note 3.
UTAH AND IDAHO BRANCH ACQUISITIONS
In January 2000, the Company agreed to acquire 68 branches in Utah and
Idaho. These branches have approximately $2.1 billion in deposits and $660.0
million in loans and are being divested due to the pending merger between Zions
Bancorporation and First Security Corporation. The acquisition is expected to
close in the second quarter of 2000.
STANDARD FINANCIAL CORPORATION ACQUISITION
In December 1999, the Company agreed to assume deposits and purchase
selected loans of Standard Financial Corporation of Honolulu. Standard Financial
Corporation has total deposits of approximately $17.8 million and loans of
approximately $16.0 million in three branches in Hawaii. The Company will not
purchase or assume any lease of branch facilities. The acquisition is expected
to close in the second quarter of 2000.
3. RESTRUCTURING, MERGER-RELATED AND OTHER NONRECURRING COSTS
SIERRAWEST BANCORP MERGER
In connection with the SierraWest Merger, the Company recorded pre-tax
restructuring, merger-related and other nonrecurring costs of $10.680 million in
1999. These costs were comprised of: (1) $3.358 million in severance and other
employee benefits; (2) $1.648 million in equipment and occupancy expense; (3)
$4.219 million in expenses for legal and other professional services; and (4)
$1.455 million in other nonrecurring costs. During 1999, we wrote off $1.648
million of capitalized equipment and occupancy expense, paid $2.670 million in
accrued severance and other employee benefits and paid $5.413 million in legal
and other professional services and other nonrecurring costs. At December 31,
1999, $682,000 of severance and other employee benefits and $267,000 in other
costs remained accrued.
BANCWEST MERGER
The Company recorded pre-tax restructuring, BancWest Merger-related and
other nonrecurring costs totaling $25.527 million in 1998. Restructuring and
BancWest Merger-related costs of $20.043 million included: (1) severance and
termination payments to employees of $2.211 million; (2) data processing
contract termination penalties of $2.083 million; (3) write-off of capitalized
software costs of $2.755 million; (4) write-downs or losses associated with
excess leased commercial properties of $8.179 million; (5) write-off of signage,
forms, prepaid expenses and other miscellaneous assets total-
54
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ing $3.828 million; and (6) other integration costs of $987,000. Other
nonrecurring costs included impairment charges of $5.484 million related to
intangible assets associated with earlier acquisitions.
As a result of the restructuring, BancWest Merger-related and other
nonrecurring costs of $25.527 million, a liability of $11.302 million was
recorded in 1998. During 1999, this liability was reduced by a total of $6.604
million, as a result of: (1) $2.024 million for the payment of data processing
contract termination penalties; (2) $2.036 million for severance payments; (3)
$1.944 million related to excess leased commercial properties; and (4) $600,000
for payments on other costs. The remaining amount accrued is $4.698 million at
December 31, 1999.
On July 19, 1999, the Company announced plans to consolidate its three
existing data centers into a single data center in Honolulu. The consolidation
will be accomplished through a facilities management contract with a service
provider which has assumed management of First Hawaiian's existing data center.
As a result of this consolidation effort, the Company recorded pre-tax
restructuring and other nonrecurring costs of $6.854 million in the third
quarter of 1999. Those costs are comprised of: (1) $3.777 million for the
write-off of capitalized information technology costs; (2) $1.454 million for
employee severance costs; and (3) $1.623 million in other nonrecurring costs.
During 1999, we wrote off $3.777 million in capitalized information technology
costs and paid $459,000 in other nonrecurring costs. At December 31, 1999, the
remaining amount accrued for restructuring and other nonrecurring costs related
to the consolidation of data centers was $2.618 million. See Note 22 to the
Consolidated Financial Statements on page 70 for additional information.
4. TRANSACTIONS WITH AFFILIATES
Bank of the West participates in various transactions with BNP and its
affiliates. These transactions are subject to review by the Federal Deposit
Insurance Corporation (the "FDIC") and other regulatory authorities. The
transactions are required to be on terms at least as favorable to Bank of the
West as those prevailing at the time for similar non-affiliate transactions.
These transactions have included the sales and purchases of assets, foreign
exchange activities, financial guarantees, international services, interest rate
swaps and intercompany deposits and borrowings. Amounts due to and from
affiliates and off-balance-sheet transactions at December 31, 1999 and 1998 were
as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Cash and due from banks ........... $ 3,520 $ 498
Noninterest-bearing demand
deposits ......................... 4,618 4,189
Short-term borrowings ............. -- 150,000
Other liabilities ................. 161 1,420
Subordinated capital notes
included in long-term debt ....... 51,783 53,837
Off-balance-sheet transactions:
Standby letters of credit ........ 7,626 9,542
Guarantees received .............. 24,168 893
Commitments to purchase
foreign currencies .............. 5,464 6,586
Commitments to sell foreign
currencies ...................... 901 5,463
======== ========
</TABLE>
The subordinated capital notes were sold directly to BNP. They are
subordinated to the claims of depositors and creditors and qualify for inclusion
as a component of risk-based capital under current FDIC guidelines for assessing
capital adequacy.
5. INVESTMENT SECURITIES
HELD-TO-MATURITY
Amortized cost and fair value of held-to-maturity investment securities at
December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999
--------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C>
U.S. TREASURY
AND OTHER U.S.
GOVERNMENT
AGENCIES AND
CORPORATIONS ....... $ 15,985 $ -- $ 543 $ 15,442
OTHER ASSET-BACKED
SECURITIES ......... 72,388 -- 1,557 70,831
COLLATERALIZED
MORTGAGE
OBLIGATIONS ........ 54,495 2 1,668 52,829
--------- ---------- ---------- ---------
TOTAL HELD-TO-
MATURITY
INVESTMENT
SECURITIES ......... $142,868 $ 2 $ 3,768 $139,102
========= ========== ========== ==========
</TABLE>
55
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
1998
-------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury
and other U.S.
Government
agencies and
corporations ....... $ 80,174 $ 456 $ -- $ 80,630
Other asset-backed
securities ......... 111,130 387 141 111,376
Collateralized
mortgage
obligations ........ 99,618 231 441 99,408
--------- ---------- ---------- ----------
Total held-to-
maturity
investment
securities ......... $290,922 $ 1,074 $ 582 $291,414
======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury
and other U.S.
Government
agencies and
corporations ..... $1,000 $ -- $ -- $1,000
------- -------- ------ ------
Total held-to-
maturity
investment
securities ....... $1,000 $ -- $ -- $1,000
======= ======== ====== ======
</TABLE>
The amortized cost and fair value of held-to-maturity investment securities
at December 31, 1999, by contractual maturity, were as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- --------
(in thousands)
<S> <C> <C>
Due within one year .................. $ -- $ --
Due after one but within five years .. 15,985 15,442
Due after five but within ten years .. 8,585 8,451
Due after ten years .................. 118,298 115,209
--------- --------
TOTAL HELD-TO-MATURITY
INVESTMENT SECURITIES .............. $142,868 $139,102
========= ========
</TABLE>
AVAILABLE-FOR-SALE
Amortized cost and fair value of available-for-sale investment securities
at December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. TREASURY
AND OTHER U.S.
GOVERNMENT
AGENCIES AND
CORPORATIONS .......... $ 775,778 $ 38 $ 7,672 $ 768,144
MORTGAGE AND
ASSET-BACKED
SECURITIES:
GOVERNMENT ............ 556,735 5,043 6,746 555,032
OTHER ................. 384,378 118 4,244 380,252
COLLATERALIZED
MORTGAGE
OBLIGATIONS ........... 16,374 6 334 16,046
STATES AND POLITICAL
SUBDIVISIONS .......... 22,104 205 670 21,639
OTHER ................... 126,896 3 9 126,890
---------- ---------- ---------- ----------
TOTAL AVAILABLE-FOR-
SALE INVESTMENT
SECURITIES ............ $1,882,265 $ 5,413 $19,675 $1,868,003
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury
and other U.S.
Government
agencies and
corporations .......... $ 529,164 $ 2,187 $ 436 $ 530,915
Mortgage and
asset-backed
securities:
Government ............ 547,025 7,084 1,226 552,883
Other ................. 247,483 2,091 362 249,212
Collateralized
mortgage
obligations ........... 685 -- -- 685
States and political
subdivisions .......... 37,370 1,222 42 38,550
Other ................... 108,729 2 -- 108,731
---------- ---------- ---------- ----------
Total available-for-
sale investment
securities ............ $1,470,456 $12,586 $ 2,066 $1,480,976
========== ========== ========== ==========
</TABLE>
56
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
1997
---------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury
and other U.S.
Government
agencies and
corporations ..... $445,384 $ 747 $ 345 $445,786
Mortgage and
asset-backed
securities:
Government ....... 335,731 637 1,227 335,141
Collateralized
mortgage
obligations ...... 1,399 -- 2 1,397
States and political
subdivisions ..... 16,559 530 229 16,860
Other .............. 86,357 1 109 86,249
-------- -------- -------- --------
Total available-for-
sale investment
securities ....... $885,430 $ 1,915 $ 1,912 $885,433
======== ======== ======== ========
</TABLE>
The amortized cost and fair value of available-for-sale investment
securities at December 31, 1999, by contractual maturity, excluding securities
which have no stated maturity, were as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- ----------
(in thousands)
<S> <C> <C>
Due within one year ..... $ 299,860 $ 298,968
Due after one but within
five years ............ 589,746 582,611
Due after five but within
ten years ............. 69,366 68,740
Due after ten years ..... 796,397 790,794
---------- ----------
TOTAL AVAILABLE-FOR-SALE
INVESTMENT SECURITIES . $1,755,369 $1,741,113
========== ==========
</TABLE>
The Company held no trading securities at December 31, 1999, 1998 and 1997.
Investment securities with an aggregate book value of $1.354 billion at
December 31, 1999, were pledged to secure public deposits, repurchase agreements
and Federal Home Loan Bank advances.
We held no investment securities of any single issuer (other than the U.S.
Government and its agencies) which were in excess of 10% of consolidated
stockholders' equity at December 31, 1999.
Gross gains of $38,000, $462,000 and $1.139 million and gross losses of
$22,000, $21,000 and $818,000 were realized on sales of investment securities
during 1999, 1998 and 1997, respectively.
6. LOANS AND LEASES
At December 31, 1999 and 1998, loans and leases were comprised of the
following:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
BOOK VALUE FAIR VALUE Book Value Fair Value
----------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Commercial,
financial and
agricultural $ 2,212,757 $ 2,232,619 $ 2,232,821 $ 2,271,650
Real estate:
Commercial .. 2,466,822 2,480,255 2,284,236 2,588,081
Construction 408,078 406,465 429,674 434,979
Residential . 2,362,789 2,282,095 2,691,640 2,440,649
Consumer ..... 2,987,347 3,014,161 2,583,725 2,582,154
Lease
financing ... 1,738,048 1,701,850 1,360,885 1,356,249
Foreign ...... 348,198 329,985 381,582 396,640
----------- ----------- ----------- -----------
TOTAL LOANS
AND LEASES .. $12,524,039 $12,447,430 $11,964,563 $12,070,402
=========== =========== =========== ===========
</TABLE>
The loan and lease portfolio is principally located in Hawaii and
California and, to a lesser extent, Oregon, Washington, Nevada and Idaho. The
risk inherent in the portfolio depends upon both the economic stability of those
states, which affects property values, and the financial well being and
creditworthiness of the borrowers.
At December 31, 1999, loans and leases of $98.327 million were on a
nonaccrual status or restructured; at December 31, 1998, loans and leases of
$98.313 million were on a nonaccrual status or restructured.
Our leasing activities consist primarily of: (1) leasing automobiles and
commercial equipment; and (2) leveraged leases. Lessees are responsible for all
maintenance, taxes and insurance on the leased property. The leases are reported
net of unearned income of $390.999 million at December 31, 1999, and $372.656
million at December 31, 1998. At December 31, 1999, minimum lease receivables
for the five succeeding years were as follows:
- - 2000 -- $363.317 million
- - 2001 -- $345.683 million
- - 2002 -- $341.052 million
- - 2003 -- $293.537 million
- - 2004 -- $239.418 million
In the normal course of business, the Company and its subsidiaries make
loans to executive officers and directors of the Company and its subsidiaries
and to entities and individuals affiliated with those executive officers and
directors. Those loans were made on terms no less favorable to the Company and
its subsidiaries than those prevailing at the time for comparable transactions
with other persons or, in the case of certain residential real estate
57
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
loans, on terms that were widely available to employees of the Company or its
subsidiaries who were not directors or executive officers. Changes in the loans
to such executive officers, directors and affiliates during 1999 were as
follows:
<TABLE>
<CAPTION>
1999
--------
(in thousands)
<S> <C>
Balance at beginning of year $238,290
New loans made ............ 60,269
Less repayments ........... 31,362
--------
BALANCE AT END OF YEAR ..... $267,197
========
</TABLE>
At December 31, 1999, loans to such parties by the Parent were $4.457
million; at December 31, 1998, $5.776 million. Interest income related to these
loans was $323,000 in 1999, $576,000 in 1998, and $782,000 in 1997.
Real estate loans totaling $1.385 billion were pledged to collateralize the
Company's borrowing capacity at the Federal Home Loan Bank at December 31, 1999.
7. PROVISION AND ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses were as follows for the years
indicated:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 158,294 $ 90,487 $ 90,895
Net charge-offs:
Loans and leases
charged off ............. (61,545) (31,151) (26,844)
Recoveries on loans
and leases previously
charged off ............. 10,432 7,046 5,562
--------- --------- ---------
Net charge-offs ........ (51,113) (24,105) (21,282)
--------- --------- ---------
Provision for credit losses 55,262 30,925 20,010
Transfer of allowance allo-
cated to securitized loans (1,025) -- --
Allowance of subsidiaries
purchased ................ -- 60,987 864
--------- --------- ---------
BALANCE AT END OF YEAR ..... $ 161,418 $ 158,294 $ 90,487
========= ========= =========
</TABLE>
The following table presents information related to impaired loans as of
and for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Impaired loans ........... $ 95,421 $109,368 $ 81,651
Impaired loans with
related allowance for
credit losses calculated
under SFAS No. 114 ...... 72,258 76,513 45,178
Total allowance for credit
losses on impaired loans 15,833 19,710 10,124
Average impaired loans ... 107,948 88,736 97,701
Interest income
recognized on
impaired loans .......... 4,349 3,295 1,251
======== ======== ========
</TABLE>
Impaired loans without a related allowance for credit losses are generally
collateralized by assets with fair values in excess of the recorded investment
in the loans. Interest payments on impaired loans are generally applied to
reduce the outstanding principal amounts of such loans.
8. PREMISES AND EQUIPMENT
At December 31, 1999 and 1998, premises and equipment were comprised of the
following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Premises .................... $282,066 $263,540
Equipment ................... 176,437 178,053
-------- --------
Total premises and equipment 458,503 441,593
Less accumulated depreciation
and amortization .......... 176,838 157,712
-------- --------
NET BOOK VALUE .............. $281,665 $283,881
======== ========
</TABLE>
Occupancy and equipment expenses include depreciation and amortization
expenses of $24.334 million for 1999, $22.585 million for 1998 and $19.873
million for 1997.
9. DEPOSITS
Interest expense related to deposits for the years indicated was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Domestic:
Interest-bearing demand $ 3,609 $ 11,743 $ 11,365
Savings ............... 93,100 65,665 57,032
Time--Under $100 ...... 136,797 94,037 80,562
Time--$100 and over ... 127,539 72,823 61,808
Foreign ................ 7,576 9,592 9,349
-------- -------- --------
TOTAL INTEREST EXPENSE
ON DEPOSITS .......... $368,621 $253,860 $220,116
======== ======== ========
</TABLE>
58
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents the maturity distribution of domestic time
certificates of deposits of $100,000 or more at December 31 for the years
indicated:
<TABLE>
<CAPTION>
1999 1998
------ ------
(in millions)
<S> <C> <C>
3 months or less .............. $1,980 $1,453
Over 3 months through 6 months 738 477
Over 6 months through 12 months 371 348
Over 1 year through 2 years ... 110 79
Over 2 years through 3 years .. 24 34
Over 3 years through 4 years .. 5 6
Over 4 years through 5 years .. 3 2
Over 5 years .................. 1 --
------ ------
TOTAL ..................... $3,232 $2,399
====== ======
</TABLE>
Time certificates of deposits in denominations of $100,000 or more at
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(in thousands)
<S> <C> <C>
Domestic $3,231,994 $2,399,369
Foreign 76,259 89,971
========== ==========
</TABLE>
10. SHORT-TERM BORROWINGS
At December 31 for the years indicated, short-term borrowings were
comprised of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
BancWest Corporation (Parent):
Commercial paper ............ $ 2,600 $ 13,903 $ 1,800
Bank of the West:
Federal funds purchased ..... 2,095 209,070 --
Securities sold under
agreements to
repurchase ................. 142,842 68,696 --
Advances from Federal
Home Loan Bank of
San Francisco .............. -- 1,000 --
Other short-term
borrowings ................. 16,274 4,069 --
First Hawaiian:
Federal funds purchased ..... 38,595 164,462 99,167
Securities sold under
agreements to
repurchase ................. 301,571 447,667 495,054
Advances from Federal
Home Loan Bank of
Seattle .................... -- 14,000 99,000
-------- -------- --------
TOTAL SHORT-TERM
BORROWINGS .................. $503,977 $922,867 $695,021
======== ======== ========
</TABLE>
Weighted average interest rates and weighted average and maximum balances
for these short-term borrowings were as follows for the years indicated:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ---------- --------
(dollars in thousands)
<S> <C> <C> <C>
Commercial paper:
Weighted average interest
rate at December 31 ............. 6.1% 4.9% 5.2%
Highest month-end balance ........ $ 9,400 $ 13,903 $ 6,226
Weighted average daily
outstanding balance ............. $ 4,962 $ 4,265 $ 5,017
Weighted average daily
interest rate paid .............. 4.9% 5.0% 5.3%
Notes payable:
Weighted average interest
rate at December 31 ............. --% --% --%
Highest month-end balance ........ $ -- $ -- $ 50,000
Weighted average daily
outstanding balance ............. $ -- $ -- $ 31,742
Weighted average daily
interest rate paid .............. --% --% 6.0%
Federal funds purchased:
Weighted average interest
rate at December 31 ............. 4.7% 4.6% 5.7%
Highest month-end balance ........ $392,325 $ 373,532 $116,450
Weighted average daily
outstanding balance ............. $138,101 $ 85,405 $ 76,164
Weighted average daily
interest rate paid .............. 4.9% 5.2% 6.2%
Securities sold under
agreements to repurchase:
Weighted average interest
rate at December 31 ............. 5.1% 4.5% 5.3%
Highest month-end balance ........ $564,207 $ 552,921 $715,554
Weighted average daily
outstanding balance ............. $499,728 $ 505,529 $593,061
Weighted average daily
interest rate paid .............. 4.6% 5.1% 5.0%
Advances from Federal Home
Loan Banks of Seattle and
San Francisco:
Weighted average interest
rate at December 31 ............. --% 5.4% 5.7%
Highest month-end balance ........ $ 1,000 $ 441,089 $100,500
Weighted average daily
outstanding balance ............. $ 414 $ 130,804 $ 87,658
Weighted average daily
interest rate paid .............. 6.3% 4.8% 5.5%
Other short-term borrowings:
Weighted average interest
rate at December 31 ............. 5.5% 4.1% --%
Highest month-end balance ........ $ 25,085 $ 4,069 $ --
Weighted average daily
outstanding balance ............. $ 2,959 $ 116 $ --
Weighted average daily
interest rate paid .............. 5.6% 4.7% --%
======== ========== ========
</TABLE>
We treat securities sold under agreements to repurchase as financings. We
reflect the obligations to repurchase the identical securities sold as
liabilities, with the dollar amount
59
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
of securities underlying the agreements remaining in the asset accounts. At
December 31, 1999, the weighted average maturity of these agreements was 70 days
and primarily represented investments by public (governmental) entities.
Maturities of these agreements were as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Overnight ........ $142,465
Less than 30 days 75,581
30 through 90 days 84,150
Over 90 days ..... 142,217
--------
TOTAL ............ $444,413
========
</TABLE>
The Parent had $40.0 million in unused lines of credit with BNP to support
its commercial paper borrowings as of December 31, 1999.
11. LONG-TERM DEBT AND CAPITAL SECURITIES
At December 31 for the years indicated, long-term debt and Capital
Securities were comprised of the following:
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
BOOK FAIR Book Fair
VALUE VALUE Value Value
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
BancWest Corporation
(Parent):
6.25% subordinated
notes due 2000 ........ $100,000 $ 99,610 $100,000 $100,900
6.4375% note due
2004 .................. 50,000 49,858 50,000 50,031
7.375% subordinated
notes due 2006 ........ 50,000 49,025 50,000 53,930
Bank of the West:
4.60%-9.23% notes
due through 2014 ...... 497,316 494,007 404,887 407,722
First Hawaiian:
5.70%-5.84% notes
due 2000 .............. 4,476 4,500 29,481 28,850
-------- -------- -------- --------
Total long-term debt .... 701,792 697,000 634,368 641,433
Capital Securities ...... 100,000 95,782 100,000 115,206
-------- -------- -------- --------
TOTAL LONG-TERM DEBT
AND CAPITAL
SECURITIES ............. $801,792 $792,782 $734,368 $756,639
======== ======== ======== ========
</TABLE>
BANCWEST CORPORATION (PARENT)
The 6.25% subordinated notes due in 2000 and the 7.375% subordinated notes
due in 2006 are unsecured obligations with interest payable semiannually.
The 6.4375% note due in 2004 is unsecured and accrues interest at London
Interbank Offered Rates ("LIBOR") plus 0.25% per annum (6.4375% per annum at
December 31, 1999). Interest is paid on a quarterly basis.
BANK OF THE WEST
The 4.60%-9.23% notes due through 2014 primarily represent advances from
the Federal Home Loan Bank of San Francisco and $51.783 million in subordinated
capital notes sold to BNP. Interest on the Federal Home Loan Bank of San
Francisco advances is payable monthly. Interest on the subordinated capital
notes sold to BNP is payable semiannually.
FIRST HAWAIIAN
The 5.70%-5.84% notes due in 2000 primarily represent advances from the
Federal Home Loan Bank of Seattle with interest payable monthly.
FIRST HAWAIIAN CAPITAL I
In 1997, First Hawaiian Capital I, a Delaware business trust (the "Trust"),
issued Capital Securities (the "Capital Securities") with an aggregate
liquidation amount of $100 million. The proceeds were used to purchase junior
subordinated deferrable interest debentures (the "Debentures") of the Company.
These debentures are the sole assets of the Trust. The Capital Securities
qualify as Tier 1 Capital of the Company and are fully and unconditionally
guaranteed by the Company. The Company owns all the common securities issued by
the Trust.
The Capital Securities accrue and pay interest semiannually at an annual
interest rate of 8.343%. The Capital Securities are mandatorily redeemable upon
maturity of the Debentures on July 1, 2027, or upon earlier redemption in whole
or in part (subject to a prepayment penalty) as provided for in the governing
indenture.
As of December 31, 1999, the principal payments due on long-term debt and
Capital Securities were as follows:
<TABLE>
<CAPTION>
BancWest Bank First
Corporation of the First Hawaiian
(Parent) West Hawaiian Capital I Total
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
2000........ $100,000 $339,270 $ 4,000 $ -- $443,270
2001........ -- 101,951 12 -- 101,963
2002........ -- 185 13 -- 198
2003........ -- 1,988 15 -- 2,003
2004........ 50,000 1,387 16 -- 51,403
2005 and
thereafter.. 50,000 52,535 420 100,000 202,955
-------- -------- -------- -------- --------
TOTAL....... $200,000 $497,316 $ 4,476 $100,000 $801,792
======== ======== ======== ======== ========
</TABLE>
12. COMMON STOCK AND EARNINGS PER SHARE
There have been three significant stock-related issues since November 1998:
(1) In December 1999, the Company declared a two-for-one stock split which
doubled the amount of common and Class A common shares issued and outstanding.
Per share
60
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
information, such as earnings per share, dividends per share and book value per
share, was restated for all periods presented in this report.
(2) On July 1, 1999, the Company completed its acquisition of SierraWest. The
acquisition was accounted for using the pooling-of-interests method of
accounting. SierraWest and its subsidiary SierraWest Bank were merged with and
into Bank of the West, resulting in the issuance of approximately 4.40 million
shares of the Company's common stock to shareholders of SierraWest.
(3) On November 1, 1998, in connection with the BancWest Merger, the Company
issued approximately 25.815 million shares (51.630 million shares after
adjustment for the two-for-one stock split in December 1999) of newly authorized
Class A common stock to BNP and 411,049 shares of treasury stock to satisfy
stock appreciation rights of certain Bank of the West employees. The 441,049
shares were issued as dividend-paying restricted stock. If, prior to November 1,
2000, the holder voluntarily terminates employment with the Company or is
terminated for cause, the restricted stock will be forfeited. If, prior to that
date, the holder's employment terminates for other reasons, or if the holder
remains an employee until that date, the stock will become fully vested.
A share of Class A common stock is generally the same as a share of common
stock in all respects, except that holders of the Class A common stock have the
right to elect a separate class of directors (the "Class A Directors"), and the
Class A common stock is entitled to vote as a class on certain fundamental
corporate actions unless such actions have been approved by two-thirds of the
entire board of directors. The number of Class A Directors will generally be
comparable to the percentage of Class A common stock shares in relation to total
common stock outstanding (common stock plus Class A common stock).
As of December 31, 1999, the Class A common stock was entitled to elect
nine of the Company's 20 directors.
Shares of Class A common stock automatically convert to common stock under
certain circumstances, principally when they are transferred by BNP to a third
party.
Additionally, BNP is bound by a standstill and governance agreement that
governs most aspects of the relationship between BNP and the Company. The
standstill and governance agreement extends for a four-year period from the time
of the BancWest Merger, with certain provisions continuing beyond that initial
period. Among the key features of this agreement are provisions that:
- - Limit BNP's ability to acquire, directly or indirectly, additional common
stock that would result in its ownership of more than 45% of the
outstanding voting stock of the Company;
- - Restrict BNP's ability to transfer its shares;
- - Restrict BNP's ability to exercise control over the Company or the Board
(other than through its representation on the Board); and
- - Create various other restrictions.
Additionally, concurrent with the BancWest Merger, the Company increased
the number of authorized shares of common stock from 100,000,000 to 200,000,000,
while reducing the common stock's par value from $5.00 per share to $1.00 per
share.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share (includes both common and Class A common
shares):
<TABLE>
<CAPTION>
1999
-----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ----------- -----
(in thousands, except
number of shares
and per share data)
<S> <C> <C> <C>
BASIC NET INCOME ........ $ 172,378 124,047,664 $1.39
EFFECT OF DILUTIVE
SECURITIES--
STOCK INCENTIVE
PLAN OPTIONS .......... -- 651,729 --
----------- ----------- -----
DILUTED NET INCOME ...... $ 172,378 124,699,393 $1.38
=========== =========== =====
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ---------- -----
(in thousands, except
number of shares
and per share data)
<S> <C> <C> <C>
Basic net income ........ $ 84,284 79,515,996 $1.06
Effect of dilutive
securities--
Stock incentive
plan options .......... -- 853,890 --
---------- ---------- -----
Diluted net income ...... $ 84,284 80,369,886 $1.05
========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
1997
---------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ---------- -----
(in thousands, except
number of shares
and per share data)
<S> <C> <C> <C>
Basic net income ........ $ 93,209 70,939,308 $1.31
Effect of dilutive
securities--
Stock incentive
plan options .......... -- 1,470,500 --
---------- ---------- -----
Diluted net income ...... $ 93,209 72,409,808 $1.29
========== ========== =====
</TABLE>
61
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. REGULATORY CAPITAL REQUIREMENTS
The Company is subject to various regulatory capital requirements
administered by the Federal banking agencies. If we fail to meet minimum capital
requirements, these agencies can initiate certain discretionary (and, in the
case of the Company's depository institution subsidiaries, mandatory) actions.
Such regulatory actions could have a material effect on the Company's financial
statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and its depository institution
subsidiaries must each meet specific capital guidelines that involve
quantitative measures of their assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. These capital amounts
and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and its depository institution subsidiaries to
maintain minimum amounts and ratios of Tier 1 and Total capital to risk-weighted
assets, and of Tier 1 capital to average assets. The table below sets forth
those ratios at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
TO BE WELL-
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
---------------------- -------------------- -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------ ----- --------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
TIER 1 CAPITAL TO
RISK-WEIGHTED
ASSETS:
BANCWEST CORPORATION ..... $1,297,796 8.80% $ 590,165 4.00%
BANK OF THE WEST ......... 572,775 7.35 311,531 4.00 $ 467,296 6.00%
FIRST HAWAIIAN ........... 691,297 9.98 277,056 4.00 415,583 6.00
TOTAL CAPITAL TO
RISK-WEIGHTED ASSETS:
BANCWEST CORPORATION ..... $1,558,494 10.56% $1,180,329 8.00%
BANK OF THE WEST ......... 834,791 10.72 623,061 8.00 $ 778,827 10.00%
FIRST HAWAIIAN ........... 838,985 12.11 554,111 8.00 692,639 10.00
TIER 1 CAPITAL TO
AVERAGE ASSETS:
BANCWEST CORPORATION ..... $1,297,796 8.11% $ 640,281 4.00%(1)
BANK OF THE WEST ......... 572,775 6.39 358,269 4.00(1) $ 447,836 5.00%
FIRST HAWAIIAN ........... 691,297 9.92 278,725 4.00(1) 348,407 5.00
</TABLE>
<TABLE>
<CAPTION>
To Be Well-
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
---------------------- --------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ---------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Tier 1 Capital to
Risk-Weighted
Assets:
BancWest
Corporation ................. $1,156,499 8.32% $ 556,054 4.00%
Bank of the West ............. 496,246 7.36 269,871 4.00 $ 404,807 6.00%
First Hawaiian ............... 645,842 9.16 281,876 4.00 422,814 6.00
Total Capital to
Risk-Weighted
Assets:
BancWest Corporation ......... $1,414,622 10.18% $1,112,108 8.00%
Bank of the West ............. 705,264 10.45 539,743 8.00 $ 674,680 10.00%
First Hawaiian ............... 796,541 11.30 563,752 8.00 704,689 10.00
Tier 1 Capital to
Average Assets:
BancWest Corporation ......... $1,156,499 9.13% $ 506,626 4.00%(1)
Bank of the West ............. 496,246 8.80 225,459 4.00(1) $ 281,823 5.00%
First Hawaiian ............... 645,842 9.08 284,406 4.00(1) 355,507 5.00
</TABLE>
(1) The leverage ratio consists of a ratio of Tier 1 capital to average
assets. The minimum leverage ratio guideline is three percent for
banking organizations that do not anticipate or are not experiencing
significant growth, and that have well-diversified risk, excellent asset
quality, high liquidity, good earnings, a strong banking organization,
and rated a composite 1 under the Uniform Financial Institution Rating
System established by the Federal Financial Institution Examination
Council.
Pursuant to applicable law and regulations, each of the depository
institution subsidiaries have been notified by the Federal Deposit Insurance
Corporation ("FDIC") that each of them is deemed to be well-capitalized. To be
well-capitalized, a bank must have a total risk-based capital ratio of 10.00% or
greater, a Tier 1 risk-based capital ratio of 6.00% or greater, a leverage ratio
of 5.00% or greater and not be subject to any agreement, order or directive to
meet a specific capital level for any capital measure. Management believes that
no conditions or events have occurred since the respective notifications to
change the capital category of either of its depository institution
subsidiaries.
14. LIMITATIONS ON PAYMENT OF DIVIDENDS
The primary source of funds that we use to pay dividends to stockholders
are dividends the Parent receives
62
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
from its subsidiaries. Regulations limit the amount of dividends Bank of the
West and First Hawaiian may declare or pay. At December 31, 1999, the aggregate
amount available for payment of dividends by such subsidiaries without prior
regulatory approval was $365.525 million.
15. BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
In 1998, the Company adopted SFAS No. 132, "Employers' Disclosure about
Pension and Other Postretirement Benefits." SFAS No. 132 standardized disclosure
requirements for pension and other postretirement benefits and superseded the
disclosure requirements in SFAS No. 87, "Employers' Accounting for Pensions,"
SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS
No. 132 did not change existing measurement or recognition standards. The
adoption of SFAS No. 132 did not affect the Company's consolidated results of
operations or consolidated financial position as previously reported.
The Company has a noncontributory defined benefit pension plan that was
frozen as of December 31, 1995. As a result of the freeze, there will be no
further benefit accruals and no additional participants in the plan. Employees
are also covered under unfunded postretirement medical and life insurance plans.
In addition, a select group of key executives participates in an unfunded
supplemental executive retirement plan.
In connection with the BancWest Merger, the Company assumed the pension
and postretirement benefit obligations of Bank of the West. Bank of the West
employees participate in: (1) a noncontributory cash balance defined benefit
pension plan; (2) an unfunded excess benefit pension plan covering employees
whose pay or benefits exceed certain regulatory limits; (3) unfunded
postretirement medical and life insurance plans; and (4) a 401(k) savings plan.
In addition, certain key executives are eligible for a supplemental pension
benefit in the unfunded excess benefit pension plan if they meet certain age and
service conditions. In November 1999, the Bank of the West noncontributory cash
balance defined benefit pension plan was integrated with the Company's existing
noncontributory defined benefit pension plan. The benefit obligations assumed by
the Company in connection with the BancWest Merger have been reflected in the
following table.
The Company also has a non-qualified pension plan (the "Director's
Retirement Plan") that provides for eligible directors to qualify for retirement
benefits based on their service as a director. The Director's Retirement Plan's
benefit obligations have been reflected in the following table.
The following tables summarize changes to the benefit obligation and
fair value of plan assets for the years indicated:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------- ------------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Benefit obligation at
beginning of year ............ $ 148,206 $ 99,276 $ 16,174 $ 8,056
Service cost .................. 3,295 1,483 945 369
Interest cost ................. 9,909 7,345 1,000 623
Amendments .................... -- 1,981 517 --
Actuarial (gain) loss ......... (6,990) 4,145 (1,353) (13)
Acquisitions .................. -- 41,866 -- 7,637
Benefit payments .............. (12,319) (7,890) (632) (498)
--------- --------- --------- ---------
BENEFIT OBLIGATION
AT END OF YEAR ............... $ 142,101 $ 148,206 $ 16,651 $ 16,174
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------- ------------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Fair value of plan
assets at beginning of year .. $ 183,955 $ 125,293 $ -- $ --
Actual return on
plan assets .................. 23,334 29,941 -- --
Acquisitions .................. -- 35,261 -- --
Employer contributions ........ 1,511 1,350 632 498
Benefit payments .............. (12,319) (7,890) (632) (498)
--------- --------- --------- ---------
FAIR VALUE OF PLAN
ASSETS AT END OF YEAR ........ $ 196,481 $ 183,955 $ -- $ --
========= ========= ========= =========
</TABLE>
The following table summarizes the funded status of the plans and
amounts recognized/unrecognized in the Consolidated Balance Sheets:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------- ------------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Funded status ................. $ 54,380 $ 35,749 $ (16,651) $ (16,174)
Unrecognized net
(gain) loss ................. (38,546) (27,866) 1,057 362
Unrecognized prior
service cost ................. 6,772 7,559 517 353
Unrecognized
transition (asset)
obligation ................... (2,400) (3,600) 33 2,000
--------- --------- --------- ---------
PREPAID (ACCRUED)
BENEFIT COST ................. $ 20,206 $ 11,842 $ (15,044) $ (13,459)
========= ========= ========= =========
</TABLE>
Pension plan assets at December 31 include the following shares of
common stock of the Company:
<TABLE>
<CAPTION>
Shares Fair Value
--------- ----------
(dollars in thousands)
<S> <C> <C>
1999 1,175,712 $ 22,926
1998 1,175,712 $ 28,217
========= =========
</TABLE>
63
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Key provisions for the retirement plans as of December 31, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Projected benefit obligation ............... $113,670 $117,291
Accumulated benefit obligation ............. 112,765 116,876
Fair value of plan assets for the
retirement plan with plan assets
in excess of accumulated
benefit obligations ....................... 196,481 183,955
Prepaid benefit cost for the
overfunded plan ........................... 43,760 31,745
</TABLE>
The remaining plans had an accrued benefit liability.
The weighted average discount rate was 7.00% and 6.75% as of December
31, 1999 and 1998, respectively. In determining the 1999 net periodic benefit
cost, the expected return on plan assets was 8.70% for the noncontributory
defined benefit pension plan; the rate of increase in future compensation used
in determining the projected benefit obligation averaged 6.10% for the unfunded
supplemental executive retirement plan and 4.00% for the noncontributory cash
balance defined benefit pension plan.
For the subsidy for retirees under age 65, for First Hawaiian, a 7.50%
annual rate of increase in the per capita cost of covered health care benefits
was assumed for 1999. The rate was assumed to decrease gradually to 4% after
seven years and remain level at 4% thereafter. These assumptions are not
applicable for First Hawaiian retirees over age 65 because benefits are capped
at $50 per month. For Bank of the West, the annual rate was 6% for 1999, 5% for
2000 and 4.25% thereafter.
The following table sets forth the components of the net periodic
benefit cost (credit) for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------------------------- --------------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost ............. $ 3,295 $ 1,483 $ 1,182 $ 945 $ 369 $ 305
Interest cost ............ 9,909 7,345 6,636 1,000 623 519
Expected return
on plan assets .......... (15,773) (11,004) (9,120) -- -- --
Amortization
of transition
(asset)
obligation .............. (1,200) (1,200) (1,200) 3 143 143
Amortization of
prior service
cost .................... 851 886 746 -- 26 26
Recognized
net actuarial
(gain) loss ............. (3,934) (2,450) (291) 129 -- --
Curtailment loss ......... N/A N/A N/A 139 N/A N/A
-------- -------- -------- -------- -------- --------
NET PERIODIC BENEFIT
COST (CREDIT) ........... $ (6,852) $ (4,940) $ (2,047) $ 2,216 $ 1,161 $ 993
======== ======== ======== ======== ======== ========
</TABLE>
Assumed health care cost trend rates have an impact on the amounts
reported for the health care plans. A one-percentage-point change in the assumed
health care cost trend rates would have the following pre-tax effect:
<TABLE>
<CAPTION>
One-Percentage- One-Percentage-
Point Increase Point Decrease
-------------- --------------
(in thousands)
<S> <C> <C>
Effect on 1999 total of
service and interest
cost components .......................... $ 85 $ (74)
Effect on postretirement
benefit obligation at
December 31, 1999 ........................ 593 (530)
</TABLE>
MONEY PURCHASE AND 401(k) MATCH PLANS
Effective January 1, 1996, the Company began contributing to a defined
contribution money purchase plan. The Company also began matching employees'
contributions (up to 3% of pay) to an existing 401(k) component of the defined
contribution plan. The plans replace the noncontributory defined benefit pension
plan, which was "frozen" as of December 31, 1995. The plans cover substantially
all employees who satisfy applicable age and length-of-service requirements,
except for a select group of key executives who are eligible for the Company's
unfunded supplemental executive retirement plan.
For 1999, 1998 and 1997, the defined contribution money purchase plan
contributions were $5.005 million, $5.185 million and $5.351 million,
respectively. The matching employer contributions to the 401(k) plan were $1.975
million, $2.090 million and $2.154 million, respectively.
Effective July 1, 1999, the Bank of the West Savings Plan was merged
into the Company's defined contribution plan. Effective June 30, 1999,
SierraWest amended the SierraWest Bancorp KSOP Plan (the "KSOP") to cease all
contributions. Effective July 1, 1999, all eligible employees who participated
in the KSOP became eligible to participate in the Company's defined contribution
plan.
Effective January 1, 2000, the KSOP was divided into two separate plans:
(1) the SierraWest Bancorp Employee Stock Ownership Plan (the "ESOP"); and (2)
the SierraWest Bancorp Savings Plan (the "SierraWest Savings Plan") (together,
the "Plans"). The Plans will be separately submitted to the Internal Revenue
Service (the "IRS") for determination letters that they remain qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended. As soon as
administratively practicable following the favorable determination letters from
the IRS, the ESOP will be terminated as of an appropriate date and
64
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
its assets will be distributed to participants, and the SierraWest Savings Plan
will be merged into the Company's defined contribution plan.
PROFIT-SHARING AND CASH-BONUS PLANS
Previously, the profit-sharing and cash-bonus plans covered
substantially all employees who satisfied age and length-of-service
requirements. Annual contributions to the plans were based upon a formula and
were limited to the total amount deductible under the applicable provisions of
the Internal Revenue Code. The profit-sharing and cash-bonus formula provided
that:
- - 50% of the Company's contribution be paid directly to eligible members
as a year-end cash-bonus, and
- - The other 50%, less forfeitures, be paid into the profit-sharing trust
fund.
The profit-sharing contribution and cash-bonus (reflected in salaries
and wages) totaled:
- - $4.287 million for 1998, and
- - $5.537 million for 1997.
Contributions to the profit-sharing and cash-bonus plans have been
terminated for periods commencing after December 31, 1998.
INCENTIVE PLAN FOR KEY EXECUTIVES
The Company has an Incentive Plan for Key Executives (the "IPKE"), under
which awards of cash or our common stock, or both, are made to key executives.
The IPKE limits the aggregate and individual value of the awards that could be
issued in any one fiscal year. Shares of common stock awarded under the IPKE are
held in escrow. Key executives concerned may not, under any circumstances,
voluntarily dispose of or transfer such shares prior to the earliest of:
- - Attaining 60 years of age,
- - Completion of 20 full years of employment with the Company, or
- - Retirement, death or termination of employment prior to retirement with
the approval of the Company.
Additionally, any key executive who has met the minimum restrictions of
20 years of employment or 60 years of age may not voluntarily dispose of
subsequent shares awarded for a five-year period.
16. STOCK-BASED COMPENSATION
The Company has two Stock Incentive Plans, one effective in 1991 (the
"1991 SIP") and one effective in 1998 (the "1998 SIP" and, together with the
1991 SIP, the "SIP"). The SIP authorizes the grant of up to 6,000,000 shares of
common stock to selected key employees. The SIP aims to enhance the value of the
Company by providing additional incentives for outstanding performance to
selected key employees, linking their interests with those of our stockholders.
The SIP is administered by the Executive Compensation Committee of the Board.
The Company began administering the Sierra Tahoe Bancorp 1996 Stock
Option Plan, the Sierra Tahoe Bancorp 1998 Stock Option Plan, the California
Community BancShares Corporation 1993 Stock Option Plan and the Continental
Pacific Bank 1990 Amended Stock Option Plan (the "SierraWest Option Plans") as a
result of the SierraWest Merger. There will be no future options granted under
the SierraWest Option Plan.
The SIP provides for grants of restricted stock, incentive stock
options, non-qualified stock options and reload options. Options are granted at
exercise prices that are not less than the fair market value of the common stock
on the date of grant. Options vest at a rate of 25% per year after the date of
grant. Stock options must be exercised within ten years from the date of grant,
but may not be exercised for six months after the date of grant and/or vesting.
Stock options may be exercised, in whole or in part, by payment of the
option price in cash or, if allowed under the option agreement, shares of common
stock already owned by the optionee. If there is a change in control of the
Company, as defined in the SIP, all options granted and held at least six months
become immediately vested and exercisable. In 1998, concurrent with the BancWest
Merger, substantially all options outstanding became immediately vested and
exercisable.
In connection with the two-for-one stock split in December 1999, the
number of shares of the Company's common stock available for grants under the
SIP was doubled. Outstanding options under the SIP and SierraWest Option Plans
were adjusted by doubling the aggregate number of shares issuable under each
outstanding option and by halving their per share exercise price.
65
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes activity under the SIP and SierraWest
Option Plans for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------
Weighted
Average
Exercise
Shares Price
--------- ----------
<S> <C> <C>
Balance at December 31, 1996 ................ 1,045,087 $ 10.08
Granted ..................................... 363,297 15.50
Exercised ................................... (180,345) 7.80
Forfeited ................................... (18,158) 8.11
---------
Balance at December 31, 1997 ................ 1,209,881 12.08
Granted ..................................... 420,362 19.30
Exercised ................................... (118,753) 5.65
Forfeited ................................... (16,305) 10.58
---------
Balance at December 31, 1998 ................ 1,495,185 14.61
GRANTED ..................................... 2,183,567 20.08
EXERCISED ................................... (234,661) 10.00
FORFEITED ................................... (8,981) 19.71
---------
BALANCE AT DECEMBER 31, 1999 ................ 3,435,110 $ 18.31
========= ==========
</TABLE>
At December 31, 1999, 2,473,748 stock options (net of exercised options
of 317,872) were available for future grants under the SIP.
The following table summarizes SIP and SierraWest Option Plans options
outstanding and exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ -----------------------------
Weighted
Number Weighted Average Number Weighted
Range of of Average Remaining of Average
Exercise Shares Exercise Contractual Shares Exercise
Prices Outstanding Price Life(Years) Outstanding Price
- -------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Less than
$12.50............ 185,730 $ 7.58 6.00 185,377 $ 7.58
$12.50-$15.00 .... 940,226 13.60 4.64 940,226 13.60
$15.50-$17.50 .... 582,896 16.62 7.00 581,396 16.62
$18.00-$20.00 .... 1,726,258 19.89 8.49 540,960 18.82
--------- ---------
BALANCE AT
DECEMBER 31, 1999 3,435,110 $ 18.31 7.05 2,247,959 $ 15.14
========= ========= ====== ========= =========
</TABLE>
In accounting for our option plans, the Company applies Accounting
Principles Board ("APB") Opinion No. 25 and related interpretations. There has
been no compensation cost charged against income for the option plans, as
options are granted at exercise prices that are not less than the fair market
value of the common stock on the date of grant. Had compensation cost for the
option plans been determined in accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income and basic earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income:
As reported ............ $ 172,378 $ 84,284 $ 93,209
Pro forma .............. 171,543 81,544 92,563
Basic earnings per share:
As reported ............ $ 1.39 $ 1.06 $ 1.31
Pro forma .............. 1.38 1.03 1.30
</TABLE>
Under SFAS No. 123, the fair value of each grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for the grants:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Expected
dividend yield .............. 3.32% 3.20% 3.69%
Expected common
stock volatility ............ 22.58% 19.84% 18.07%
Risk-free interest rate ...... 5.47% 5.35% 6.49%
Expected life of
the options .............. 6 YEARS 6 years 6 years
</TABLE>
The weighted average grant date fair value of options granted was $4.45
in 1999, $4.01 in 1998 and $3.34 in 1997.
LONG-TERM INCENTIVE PLAN
We have a Long-Term Incentive Plan (the "LTIP") designed to reward
selected key executives for their performance and the Company's performance
measured over a three-year performance cycle. Due to the timing of the BancWest
Merger, the current cycle runs for two years (1999-2000). Concurrently, the
second and third cycles for three years (1999-2001 and 2000-2002) will be
running.
Even though the Company was the surviving corporation, the BancWest
Merger constituted a "Change in Control" as defined by the LTIP. As of the
effective date of an LTIP Change in Control, the LTIP provides that participants
will be deemed to have fully earned the maximum target value attainable for the
entire performance period, regardless of whether the Company met the target
levels.
Based on actual performance to November 1, 1998, it did not appear that
any payments would be made for either of the three-year performance periods that
began in 1996 and 1997. If the LTIP Change in Control provisions had been
implemented, on the other hand, participants
66
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
would have received maximum payments under the LTIP for the three-year periods
that began on January 1, 1996, 1997 and 1998.
We also recognized that, because of the BancWest Merger, the LTIP's
performance goals would no longer be appropriate. As a result, we amended the
LTIP to: (1) specify that the BancWest Merger would not be considered an LTIP
Change in Control for purposes of the LTIP; and (2) pay the maximum target value
attainable for one year of the three-year performance period that began on
January 1, 1998. A payment of $1.047 million, equal to one-third of the maximum
target value attainable for the 1998-2000 performance cycle, was made to
participants in the LTIP in January 1999. The payments were based upon 1998
compensation levels.
17. OTHER NONINTEREST EXPENSE
For the years indicated, other noninterest expense included the
following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Stationery and supplies ........... $ 21,275 $ 12,958 $ 12,835
Advertising and promotion ......... 15,788 11,909 11,948
Other ............................. 75,526 60,146 41,620
-------- -------- --------
TOTAL OTHER NONINTEREST EXPENSE ... $112,589 $ 85,013 $ 66,403
======== ======== ========
</TABLE>
18. INCOME TAXES
For the years indicated, the provision for income taxes was comprised of
the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Current:
Federal .......................... $ 22,075 $ 9,030 $ 12,525
States and other ................. 6,445 4,511 4,270
-------- -------- --------
Total current ................... 28,520 13,541 16,795
-------- -------- --------
Deferred:
Federal .......................... 76,184 33,491 26,805
States and other ................. 19,047 13,585 1,376
-------- -------- --------
Total deferred .................. 95,231 47,076 28,181
-------- -------- --------
TOTAL PROVISION FOR INCOME TAXES .. $123,751 $ 60,617 $ 44,976
======== ======== ========
</TABLE>
The provision for income taxes has been reduced by general business and
capital goods excise tax credits of:
- - $4.718 million in 1999,
- - $5.436 million in 1998, and
- - $4.360 million in 1997.
At December 31, 1999, the Company has no federal or state tax credit
carryforwards.
The components of net deferred income tax liabilities at December 31,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
ASSETS
Allowance for credit losses and
nonperforming assets ........... $ 71,894 $ 60,533
Deferred compensation expenses .. 10,835 13,128
State income and franchise taxes 841 1,829
Federal and state tax credit
carryforwards .................. -- 7,957
Other ........................... 19,361 --
-------- --------
Total deferred income tax assets 102,931 83,447
-------- --------
LIABILITIES
Leases .......................... 453,092 363,461
Intangible assets ............... 13,212 14,370
Investment securities ........... 12,493 4,777
Depreciation expense ............ 11,626 1,219
Net deferred income ............. -- 9,115
Other ........................... -- 12,530
-------- --------
Total deferred income tax liabilities 490,423 405,472
-------- --------
NET DEFERRED INCOME TAX LIABILITIES $387,492 $322,025
======== ========
</TABLE>
Net deferred income tax liabilities are included in other liabilities in
the Consolidated Balance Sheets.
The following analysis reconciles the Federal statutory income tax rate
to the effective income tax rate for the years indicated:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate . 35.0% 35.0% 34.9%
Foreign, state and local taxes, net
of Federal income tax benefit .... 6.0 5.0 3.3
Goodwill amortization ............. 3.5 1.9 1.0
Tax credits ....................... (2.1) (2.1) (3.1)
Other ............................. (.6) 2.0 (3.6)
---- ---- ----
EFFECTIVE INCOME TAX RATE ......... 41.8% 41.8% 32.5%
==== ==== ====
</TABLE>
The increase in the 1999 and 1998 effective tax rates as compared to
1997 was primarily due to the effects of the BancWest Merger which resulted in:
(1) the recognition of increased goodwill amortization, for which the Company
receives no income tax benefits; and (2) increased state income taxes, as a
result of a higher apportionment of California versus Hawaii income.
Additionally, we had a lower effective tax rate in 1997 because of the
recognition of previously unrecognized tax credits.
67
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
19. OPERATING SEGMENTS
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 superseded SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management" approach. Using the management
approach, we report the same operating segments that management uses to make
decisions and assess the Company's performance. SFAS No. 131 also requires
disclosures about products and services, geographic areas and major customers.
The adoption of SFAS No. 131 did not affect consolidated results of operations
or consolidated financial position as previously reported.
The Company has determined that our reportable segments are the ones we use
in our internal reporting: Bank of the West and First Hawaiian. The Bank of the
West segment operates primarily on the Mainland United States. The Bank of the
West segment includes:
- - The operations acquired by the Company in the Pacific Northwest in 1996,
which were merged with the operations of Bank of the West on November 1,
1998, and
- - The operations acquired in the SierraWest Merger.
Although the First Hawaiian segment operates primarily in Hawaii, it also
has significant operations outside the state, such as media finance, leveraged
leases and international banking.
The financial results of these operating segments are presented on an
accrual basis. There are no significant differences among the accounting
policies of the segments as compared to the Consolidated Financial Statements.
The Company evaluates the performance of its segments and allocates resources to
them based on net interest income and net income. There are no material
intersegment revenues.
The tables below present information about the Company's operating segments
as of or for the years ended December 31:
<TABLE>
<CAPTION>
Bank Recon- Consoli-
of the First ciling dated
West Hawaiian Other Items Totals
------- ------- ------- ------- -------
(in millions)
<S> <C> <C> <C> <C> <C>
1999:
NET INTEREST INCOME ......................... $ 384 $ 312 $ (7) $ -- $ 689
PROVISION FOR CREDIT LOSSES ................. 28 27 -- -- 55
DEPRECIATION AND AMORTIZATION ............... 41 26 -- -- 67
RESTRUCTURING, MERGER-RELATED AND OTHER
NONRECURRING COSTS ........................ 11 7 -- -- 18
PROVISION FOR INCOME TAXES .................. 72 56 (4) -- 124
NET INCOME .................................. 84 94 (6) -- 172
SEGMENT ASSETS (YEAR END) ................... 9,571 7,081 2,747 (2,718) 16,681
CAPITAL EXPENDITURES ........................ 18 21 -- -- 39
======= ======= ======= ======= =======
1998:
Net interest income ........................ $ 126 $ 322 $ (14) $ -- $ 434
Provision for credit losses ................ 8 23 -- -- 31
Depreciation and amortization .............. 12 23 -- -- 35
Restructuring, merger-related and other
nonrecurring costs ........................ 10 16 -- -- 26
Provision for income taxes ................. 16 53 (6) (2) 61
Net income ................................. 18 75 (9) -- 84
Segment assets (year end) .................. 8,603 7,248 2,458 (2,380) 15,929
Capital expenditures ....................... 8 11 -- -- 19
======= ======= ======= ======= =======
1997:
Net interest income ........................ $ 73 $ 310 $ (13) $ -- $ 370
Provision for credit losses ................ 5 15 -- -- 20
Depreciation and amortization .............. 5 28 -- -- 33
Provision for income taxes ................. 9 41 (5) -- 45
Net income ................................. 14 86 (7) -- 93
Segment assets (year end) .................. 1,702 7,072 1,436 (1,330) 8,880
Capital expenditures ....................... 6 14 -- -- 20
======= ======= ======= ======= =======
</TABLE>
The Company also identifies business units based on the products or
services offered and the channels through which the products or services are
delivered. In addition to the operating segment information, the table below
presents selected Company-wide information regarding business units for the
respective years ended December 31:
<TABLE>
<CAPTION>
Reconciling Consolidated
Wholesale Retail Other Items Totals
--------- ------- ------- -------- -------
(in millions)
<S> <C> <C> <C> <C> <C>
Interest income:
1999 ............................. $ 410 $ 657 $ 91 $ (22) $ 1,136
1998 ............................. 281 465 16 (12) 750
1997 ............................. 241 410 10 (10) 651
======= ======= ======= ======= =======
</TABLE>
The reconciling items in the above tables are principally intercompany
eliminations.
68
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
20. INTERNATIONAL OPERATIONS
The Company's international operations are principally in Guam, Saipan and
Grand Cayman, British West Indies. These operations involve foreign banking and
international financing activities, including short-term investments, loans and
leases, acceptances, letters of credit financing and international funds
transfers.
We identify international activities on the basis of the domicile of the
customer.
The table below presents information about the Company's foreign, domestic
and consolidated operations as of or for the years ended December 31:
<TABLE>
<CAPTION>
Foreign Domestic Consolidated
----------- ----------- ------------
(in thousands)
<S> <C> <C> <C>
1999:
TOTAL REVENUE .......... $ 50,730 $ 1,282,613 $ 1,333,343
INCOME BEFORE
INCOME TAXES .......... 6,270 289,859 296,129
NET INCOME ............. 4,013 168,365 172,378
TOTAL ASSETS ........... 404,666 16,276,356 16,681,022
=========== =========== ===========
1998:
Total revenue .......... $ 45,197 $ 838,526 $ 883,723
Income before
income taxes .......... 4,274 140,627 144,901
Net income ............. 2,735 81,549 84,284
Total assets ........... 695,698 15,233,366 15,929,064
=========== =========== ===========
1997:
Total revenue .......... $ 38,056 $ 723,542 $ 761,598
Income before
income taxes .......... 4,666 133,519 138,185
Net income ............. 3,033 90,176 93,209
Total assets ........... 444,016 8,435,822 8,879,838
=========== =========== ===========
</TABLE>
Our current procedure is to price intercompany transfers of funds at
prevailing market rates. In general, we have allocated all direct expenses and a
proportionate share of general and administrative expenses to the income derived
from loans and leases and transactions by the Company's international
operations.
The following table presents the percentages of assets and liabilities
attributable to foreign operations. For this purpose, assets attributable to
foreign operations are defined as: (1) assets in foreign offices; and (2) loans
and leases to and investments in customers domiciled outside the United States.
Deposits received and other liabilities are classified on the basis of domicile
of the depositor/creditor.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Average foreign assets to
average total assets ............. 3.98% 4.92% 4.02%
Average foreign liabilities to
average total liabilities ........ 1.75 3.12 3.39
==== ==== ====
</TABLE>
21. LEASE COMMITMENTS
At December 31, 1999, we had the following future minimum lease payments
(by year and in the aggregate) under noncancelable operating leases having
initial or remaining terms in excess of one year:
<TABLE>
<CAPTION>
Less Net
Operating Sublease Operating
Leases Income Leases
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
2000 ........................ $ 42,267 $ 9,138 $ 33,129
2001 ........................ 40,028 8,825 31,203
2002 ........................ 36,048 7,868 28,180
2003 ........................ 31,574 6,267 25,307
2004 ........................ 14,059 5,691 8,368
2005 and thereafter ......... 69,477 12,414 57,063
-------- -------- --------
TOTAL ........................ $233,453 $ 50,203 $183,250
======== ======== ========
</TABLE>
These leases of premises and equipment extend for varying periods up to 42
years. Some of them may be renewed for periods ranging from one to 42 years.
Under the premises' leases, we are also required to pay real property taxes,
insurance and maintenance.
In most cases, leases for premises provide for periodic renegotiation of
rents based upon a percentage of the appraised value of the leased property. The
renegotiated annual rent is usually not less than the annual amount paid in the
previous period. Where future commitments are subject to appraisals, the minimum
annual rental commitments are based on the latest annual rents.
Rental expense for the years indicated was:
- - 1999: $45.051 million
- - 1998: $37.188 million
- - 1997: $34.049 million
In December 1993, the Company entered into a noncancelable agreement to
lease its administrative headquarters building on land owned in fee simple by
the Company. (Construction of the building was completed in September 1996.)
Also in December 1993, the Company entered into a ground lease of the land to
the lessor of the building.
Rent obligation for the building commenced on December 1, 1996 and will
expire on December 1, 2003 (the "Primary Term"). We are obligated to pay all
taxes, insurance, maintenance and other operating costs associated with the
building during the Primary Term. As of December 31, 1999, the Company has
executed certain noncancelable subleases with third parties. These amounts are
included in sublease income in the above table.
At the end of the Primary Term, the Company may decide whether to: (1)
extend the lease term at rents based on the lessor's cost of funds at the time
of renewal; (2) purchase the building for an amount approximately equal to that
69
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
expended by the lessor to construct the building; or (3) arrange for the sale of
the building to a third party on behalf of the lessor. If we choose option (3),
we must pay to lessor any shortfall between the sales proceeds and a specified
residual value, such payment not to exceed $161.990 million. This lease is
accounted for as an operating lease.
22. COMMITMENTS AND CONTINGENT LIABILITIES
Off-balance-sheet commitments and contingent liabilities were as follows at
December 31 for the years indicated:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
NOTIONAL/ Notional/
CONTRACT Contract
AMOUNT Amount
---------- ----------
(in thousands)
<S> <C> <C>
Contractual Amounts Which
Represent Credit Risk:
Commitments to extend
credit ........................... $5,552,476 $5,791,353
Standby letters of credit ......... 247,620 191,471
Commercial letters of
credit ........................... 7,150 16,738
Contractual Amounts Where
Credit Risk is Less Than
Contractual Amount:
Commitments to purchase
foreign currencies ............... 8,870 16,581
Commitments to sell
foreign currencies ............... 11,458 16,515
Interest rate swaps ............... 131,471 145,153
Forward contracts ................. 10,000 33,000
Put options ....................... 2,000 6,000
Guarantees received ............... 31,003 893
========== ==========
</TABLE>
ROLLFORWARD SCHEDULE
The following is a summary of the off-balance-sheet financial instruments
for 1999 and 1998:
<TABLE>
<CAPTION>
Receive Pay Variable/ Forward Forward
Fixed Fixed Variable Starting Con- Put
Swaps Swaps Swaps Swaps Floors tracts Options Total
------ ------ ------ ------ ------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December
31, 1997 .............. $ 320 $ 95 $ 10 $ -- $ 500 $ 16 $ 5 $ 946
Additions .............. -- 23 -- 4 -- 212 50 289
Maturities/
amortizations ......... 300 2 -- -- 500 195 49 1,046
Terminations ........... -- 5 -- -- -- -- -- 5
------ ------ ------ ------ ------ ------ ------ ------
Balance,
December
31, 1998 .............. 20 111 10 4 -- 33 6 184
ADDITIONS .............. -- 11 -- -- -- 130 29 170
MATURITIES/
AMORTIZATIONS ......... 20 4 -- -- -- 153 33 210
TERMINATIONS ........... -- 1 -- -- -- -- -- 1
------ ------ ------ ------ ------ ------ ------ ------
BALANCE,
DECEMBER
31, 1999 .............. $ -- $ 117 $ 10 $ 4 $ -- $ 10 $ 2 $ 143
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
HEDGING SUMMARY
The following is additional hedging information related to the Company's
interest rate swaps as of December 31, 1999:
<TABLE>
<CAPTION>
Notional Pay Receive Asset Net Original Remaining
Amount Rate Rate Yield Yield Maturity Maturity
-------- ----- ------- ----- ----- --------- ---------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Asset hedges:
Fixed rate loans ......... $117 6.31% 5.95% 8.03% 7.67% 10.1 YRS. 5.9 YRS.
==== ==== ==== ==== ==== ========= ========
</TABLE>
The following summarizes the impact of the Company's interest rate swap and
floor activities on its weighted average borrowing rate and on interest income
and expense for the years indicated:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ------
(dollars in thousands)
<S> <C> <C> <C>
Average borrowing rate:
Without interest rate swaps
and floors ............................ 3.60% 4.15% 4.22%
With interest rate swaps
and floors ............................ 3.60 4.15 4.22
--------- --------- ------
Decrease in interest income ............. $ 1,128 $ 1,256 $3,521
Decrease in interest expense ............ -- -- 42
--------- --------- ------
INTEREST RATE SWAP AND
FLOOR EXPENSE, NET ..................... $ 1,128 $ 1,256 $3,479
========= ========= ======
</TABLE>
FACILITIES MANAGEMENT AGREEMENT
In August 1999, the Company signed a facilities management agreement in
connection with the consolidation of the three data centers. At December 31,
1999, the Company had the following future minimum payments under this
noncancelable agreement:
<TABLE>
<CAPTION>
Minimum Payments
----------------
(in thousands)
<S> <C>
2000 ........................ $ 18,118
2001 ........................ 16,934
2002 ........................ 16,934
2003 ........................ 16,934
2004 ........................ 16,934
2005 and thereafter ......... 16,934
--------
TOTAL ........................ $102,788
========
</TABLE>
Expenses under this facilities management agreement for the year ended
December 31, 1999 were approximately $7.685 million.
LITIGATION
Various legal proceedings are pending against the Company. Our ultimate
liability, if any, cannot be determined at this time. Based upon consultation
with counsel, management does not expect that the aggregate liability, if any,
resulting from these proceedings would have a material effect on the Company's
consolidated financial position, results of operations or liquidity.
70
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
23. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents a summary of the book and fair value of the
Company's financial instruments at December 31 for the years indicated:
<TABLE>
<CAPTION>
1999
-----------------------------
BOOK VALUE FAIR VALUE
----------- -----------
(in thousands)
<S> <C> <C>
FINANCIAL ASSETS:
CASH AND DUE FROM BANKS ................... $ 809,961 $ 809,961
INTEREST-BEARING DEPOSITS IN
OTHER BANKS .............................. 9,135 6,979
FEDERAL FUNDS SOLD AND
SECURITIES PURCHASED UNDER
AGREEMENTS TO RESELL ..................... 71,100 71,100
INVESTMENT SECURITIES (NOTE 5):
HELD-TO-MATURITY ......................... 142,868 139,102
AVAILABLE-FOR-SALE ....................... 1,868,003 1,868,003
LOANS AND LEASES (NOTE 6) ................. 12,524,039 12,447,430
CUSTOMERS' ACCEPTANCE LIABILITY ........... 1,039 1,039
----------- -----------
FINANCIAL LIABILITIES:
DEPOSITS .................................. $12,877,952 $12,866,814
SHORT-TERM BORROWINGS(NOTE 10) ............ 503,977 503,977
ACCEPTANCES OUTSTANDING ................... 1,039 1,039
LONG-TERM DEBT (NOTE 11) .................. 701,792 697,000
GUARANTEED PREFERRED BENEFICIAL
INTERESTS IN JUNIOR SUBORDINATED
DEBENTURES (NOTE 11) ..................... 100,000 95,782
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------
Book Value Fair Value
----------- -----------
(in thousands)
<S> <C> <C>
Financial Assets:
Cash and due from banks ........................... $ 664,772 $ 664,772
Interest-bearing deposits in
other banks ...................................... 278,455 279,033
Federal funds sold and
securities purchased under
agreements to resell ............................. 66,500 66,500
Investment securities (note 5):
Held-to-maturity ................................. 290,922 291,414
Available-for-sale ............................... 1,480,976 1,480,976
Loans and leases (note 6) ......................... 11,964,563 12,070,402
Customers' acceptance liability ................... 1,377 1,377
----------- -----------
Financial Liabilities:
Deposits .......................................... $12,042,872 $12,060,600
Short-term borrowings
(note 10) ........................................ 922,867 922,867
Acceptances outstanding ........................... 1,377 1,377
Long-term debt (note 11) .......................... 634,368 641,433
Guaranteed preferred beneficial
interests in junior subordinated
debentures (note 11) ............................. 100,000 115,206
----------- -----------
</TABLE>
The following table presents a summary of the fair value of the Company's
off-balance-sheet financial instruments (Note 22) at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Commitments to extend credit .................... $ 26,850 $ 29,947
Standby letters of credit ....................... 2,433 1,873
Commercial letters of credit .................... 71 167
Commitments to purchase foreign
currencies ..................................... (90) 55
Commitments to sell foreign currencies .......... 333 (13)
Interest rate swaps ............................. 3,841 (6,008)
Forward contracts ............................... 141 (3)
Put options ..................................... 13 --
-------- --------
</TABLE>
24. BANCWEST CORPORATION (PARENT COMPANY ONLY) FINANCIAL STATEMENTS
In the financial statements presented below, the investment in
subsidiaries is accounted for under the equity method.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
----------- -----------
(in thousands, except number of
shares and per share data)
<S> <C> <C>
ASSETS:
Cash on deposit with First Hawaiian ..................... $ 207 $ 70
Interest-bearing deposits in other banks ................ -- 5,000
Loans, net of allowance for credit
losses of $120 in 1999 and 1998 ........................ 4,338 5,656
Available-for-sale investment securities ................ 300 300
Securities purchased from
First Hawaiian ......................................... 16,354 22,880
Investment in subsidiaries:
Bank of the West ....................................... 1,151,059 1,110,853
First Hawaiian ......................................... 761,688 725,812
Other subsidiaries ..................................... 15,565 15,929
Due from:
Bank of the West ....................................... 248,853 187,669
First Hawaiian ......................................... 236,094 176,592
Other subsidiaries ..................................... 97,191 82,472
Other assets ............................................ 1,618 2,088
----------- -----------
TOTAL ASSETS ............................................. $ 2,533,267 $ 2,335,321
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term borrowings (note 10) ......................... $ 2,600 $ 13,903
Current and deferred income taxes ....................... 375,384 264,626
Due to subsidiary ....................................... 103,093 103,093
Other liabilities ....................................... 9,460 7,543
Long-term debt (note 11) ................................ 200,000 200,000
----------- -----------
Total liabilities ...................................... 690,537 589,165
----------- -----------
Commitments and contingent liabilities
(notes 15, 21 and 22)
Stockholders' equity:
Preferred stock, par value $1 per share
Authorized and unissued--
50,000,000 shares in
1999 and 1998 ......................................... -- --
Class A common stock, par value $1
per share (notes 2 and 12)
Authorized--75,000,000 shares in
1999 and 1998
Issued--51,629,536 shares in 1999 and
25,814,768 shares in 1998 ............................. 51,630 25,815
Common stock, par value $1 per share
(notes 2, 12 and 16)
Authorized--200,000,000 shares in
1999 and 1998
Issued--75,418,850 shares in 1999
and 37,537,814 shares in 1998 ......................... 75,419 37,538
Surplus ................................................. 1,124,512 1,183,274
Retained earnings (note 14) ............................. 638,687 543,755
Accumulated other comprehensive
income ................................................. (9,873) 6,228
Treasury stock, at cost--2,437,556 shares
in 1999 and 1,635,397 shares in 1998 ................... (37,645) (50,454)
----------- -----------
Total stockholders' equity ............................. 1,842,730 1,746,156
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............... $ 2,533,267 $ 2,335,321
=========== ===========
</TABLE>
71
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
INCOME:
Dividends from:
Bank of the West ......................................... $ 31,366 $ 2,151 $ 2,904
First Hawaiian ........................................... 54,267 143,176 39,698
Other subsidiaries ....................................... 1,558 1,558 4,830
Interest and fees from:
Bank of the West ......................................... 7,182 907 --
First Hawaiian ........................................... 5,543 1,946 1,245
Other subsidiaries ....................................... 435 633 1,103
Other interest and
dividends ................................................ 354 3,830 3,312
--------- --------- ---------
Total income ............................................. 100,705 154,201 53,092
--------- --------- ---------
EXPENSE:
Interest expense:
Short-term borrowings .................................... 254 290 266
Long-term debt ........................................... 21,434 21,785 15,585
Other .................................................... -- -- 2,650
Professional services ..................................... 491 745 418
Other ..................................................... 2,580 1,053 310
--------- --------- ---------
Total expense ............................................ 24,759 23,873 19,229
--------- --------- ---------
Income before income
tax benefit and equity in
undistributed income
(loss) of subsidiaries .................................... 75,946 130,328 33,863
Income tax benefit ......................................... 4,282 6,332 5,246
--------- --------- ---------
Income before equity in
undistributed income
(loss) of subsidiaries .................................... 80,228 136,660 39,109
Equity in undistributed income (loss) of subsidiaries:
Bank of the West ......................................... 52,537 15,967 6,044
First Hawaiian ........................................... 40,108 (67,846) 39,135
Other subsidiaries ....................................... (495) (497) 8,921
--------- --------- ---------
NET INCOME ................................................. $ 172,378 $ 84,284 $ 93,209
========= ========= =========
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 172,378 $ 84,284 $ 93,209
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Deficiency (excess) of
equity in earnings
of subsidiaries over
dividends received ................................. (92,150) 52,407 (55,194)
Other ............................................... 3,071 (4,897) (596)
--------- --------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES .................................. 83,299 131,794 37,419
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in:
Interest-bearing deposits
in other banks ...................................... 5,000 65,000 (70,000)
Securities sold to
(purchased from)
First Hawaiian ...................................... 6,526 980 (16,785)
Loans repaid by directors
and executive officers .............................. 1,318 4,035 1,920
Repayments from
(advances to) subsidiaries .......................... (25,000) (167,000) 22,400
Purchase of available-for-sale
investment securities ................................ -- -- (300)
Investment in Pacific
Northwest Acquisitions ............................... -- -- (15,000)
Cash acquired in acquisition .......................... -- 57 --
Investment in
First Hawaiian Capital I ............................. -- -- (3,093)
--------- --------- ---------
NET CASH USED IN
INVESTING ACTIVITIES .................................. (12,156) (96,928) (80,858)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in
short-term borrowings ................................ (11,303) 12,103 (52,609)
Proceeds from long-term
debt and junior subordi-
nated debentures ..................................... -- -- 153,093
Cash dividends paid ................................... (77,446) (40,786) (41,116)
Proceeds from issuance
of common stock ...................................... 4,934 1,094 1,070
Issuance (purchase) of
treasury stock, net .................................. 12,809 (7,322) (17,058)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES .................................. (71,006) (34,911) 43,380
--------- --------- ---------
NET INCREASE (DECREASE)
IN CASH ............................................... 137 (45) (59)
CASH AT BEGINNING OF YEAR .............................. 70 115 174
--------- --------- ---------
CASH AT END OF YEAR .................................... $ 207 $ 70 $ 115
========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Interest paid ......................................... $ 21,422 $ 21,981 $ 14,528
Income taxes refunded ................................. $ 6,535 $ 2,018 $ 2,644
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock
in connection with
convertible debentures .............................. $ -- $ 2,281 $ 9,084
========= ========= =========
</TABLE>
72
<PAGE> 61
GLOSSARY OF FINANCIAL TERMS
BALANCE SHEET: A statement of financial position reflecting our assets,
liabilities and stockholders' equity at a particular point in time in accordance
with generally accepted accounting principles.
BASIS-POINT: A measure of the yield on a bond, note or other indebtedness
equal to 1/100th of a percentage point. For example, a yield of 5% is 500 basis
points.
CASH EARNINGS: Earnings before amortization of goodwill and core deposit
intangible.
COLLATERAL: An asset or property pledged to secure the payment of a debt or
performance of an obligation.
DEPRECIATION: A charge against our earnings that writes off the cost of a
capital asset over its estimated useful life.
DERIVATIVES: Financial instruments where the performance is derived from
the performance of another financial instrument or an interest rate, currency or
other index. Derivative instruments are used for asset and liability management
and to mitigate risks associated with other instruments that are reflected on
the balance sheet.
DIVIDEND: Usually a cash distribution to our stockholders of a portion of
our earnings.
EARNINGS PER SHARE: Basic earnings per share--earnings for the period
divided by the weighted-average number of shares of common stock outstanding for
the period. Diluted earnings per share--earnings for the period divided by the
weighted-average number of shares of common stock outstanding for the period,
including the treatment of all dilutive securities, such as options, warrants
and convertible debt.
EFFICIENCY RATIO: Noninterest expense (exclusive of nonrecurring costs)
minus the amortization of goodwill and core deposit intangible as a percentage
of total operating revenue.
HEDGE: A strategy used to avoid, reduce or transfer risk.
INCOME STATEMENT: A financial statement that reflects our performance by
measuring our revenues and expenses for the period.
INTEREST RATE RISK: The risk to earnings or capital arising from the
movement of interest rates.
INTEREST RATE SWAP: A contract used for the purpose of interest rate risk
management in which two parties agree to exchange interest payments of a
different character over a specified period based on an underlying notional
amount of principal. The term "notional principal" is the amount on which the
interest payments are calculated, as the swap contracts generally involve no
exchange of the principal.
LEVERAGE RATIO: Tier 1 Capital divided by the sum of average total assets
minus average allowance for credit losses and certain intangible assets.
LIQUIDITY: The ability of an entity to provide sufficient cash to fund its
operations and to pay its debts on a timely basis at a reasonable cost.
NET INTEREST INCOME: Interest income plus loan fees minus interest expense.
NET INTEREST MARGIN: Net interest income divided by average earning assets
(e.g., loans and investment securities).
NONACCRUAL LOANS AND LEASES: Loans and leases on which interest is not
being accrued for income statement purposes. Payments received on nonaccrual
loans and leases are applied against the principal balance.
NONINTEREST EXPENSE: Expenses for such items as salaries, benefits,
building occupancy and supplies, as opposed to interest expense paid for
deposits and other liabilities.
NONINTEREST INCOME: Income received from such sources as fees, charges and
commissions, as opposed to interest income received from loans and leases, and
investment securities.
NONPERFORMING ASSETS: Nonaccrual loans and leases plus restructured loans
and leases plus OREO (other real estate owned) and repossessed personal
property.
OPERATING EARNINGS: Earnings before restructuring, merger-related and other
nonrecurring costs.
OPERATING CASH EARNINGS: Earnings before restructuring, merger-related and
other nonrecurring costs and amortization of goodwill and core deposit
intangible.
OREO: Other real estate owned. Primarily includes foreclosed assets and
assets taken in lieu of foreclosure.
REPURCHASE AGREEMENTS, ALSO CALLED "REPOS": Agreement between a seller and
a buyer in which the seller agrees to repurchase the securities at an
agreed-upon price at a stated time. A repo is similar to a secured borrowing and
lending of funds equal to the sales price of the related collateral.
RETURN ON AVERAGE TOTAL ASSETS (ROA): Measures the productivity of assets.
Calculated by dividing net income by average total assets.
RETURN ON AVERAGE TANGIBLE TOTAL ASSETS: Calculated by dividing cash
earnings by average total assets minus average goodwill and core deposit
intangible.
RETURN ON AVERAGE STOCKHOLDERS' EQUITY (ROE): Measures the rate of return
on the stockholders' investment in the Company. Calculated by dividing net
income by average total stockholders' equity.
RETURN ON AVERAGE TANGIBLE STOCKHOLDERS' EQUITY: Calculated by dividing
cash earnings by average stockholders' equity minus average goodwill and core
deposit intangible.
RISK-BASED CAPITAL RATIOS: Equity measurements used by regulatory agencies
to assess capital adequacy. These ratios are: Tier 1 Capital divided by
risk-weighted assets; and Total Capital divided by risk-weighted assets.
STATEMENT OF CASH FLOWS: A financial statement that reflects cash flows
from operating, investing and financing activities, providing a comprehensive
view of changes in our cash and cash equivalents for the period.
STOCK OPTION: Form of employee incentive and compensation in which the
employee of the Company is given the right to purchase our shares at a
determinable price within a specified period of years.
TIER 1 CAPITAL: Common stockholders' equity plus perpetual preferred stock
and certain minority equity interests in subsidiaries, minus goodwill and
certain qualifying intangible assets.
TOTAL CAPITAL: Tier 1 Capital plus the allowance for credit losses (not to
exceed 1.25% of risk-weighted assets) plus qualifying subordinated debt, trust
preferred stock, convertible debt securities and certain hybrid investments.
73
<PAGE> 62
SUPPLEMENTAL INFORMATION
[BANCWEST LOGO]
BancWest Corporation's shares are traded on the New York Stock Exchange under
the symbol: BWE.
TRANSFER AGENT
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
DIVIDEND REINVESTMENT PLAN
Stockholders may reinvest their dividends in additional shares of BancWest
Corporation common stock through the Dividend Reinvestment Plan. Stockholders
wishing to participate in the Plan can receive a descriptive brochure and
authorization card by calling 1-800-937-5449 (toll free), writing to American
Stock Transfer & Trust Company at the address above or on the BancWest investor
relations website at www.bancwestcorp.com/investor/index.htm
FORM 10-K AND OTHER FINANCIAL INFORMATION
The Company's 1999 Form 10-K annual report, which is to be filed with the
Securities and Exchange Commission by March 30, 2000, will be available to
stockholders after that date. Analysts, investors and others seeking a copy of
the Form 10-K or any other financial information should write or e-mail to:
Howard H. Karr
Executive Vice President and Chief Financial Officer
BancWest Corporation
P.O. Box 3200
Honolulu, Hawaii 96847
E-mail: [email protected]
ANNUAL MEETING
The annual meeting of stockholders of BancWest Corporation will be held on
Thursday, April 20, 2000 at 9:00 a.m. Hawaii Time, in the 30th floor Board Room
of First Hawaiian Center, 999 Bishop Street, Honolulu, Hawaii.
STOCKHOLDER INFORMATION: AVAILABLE 24 HOURS, 7 DAYS
- - For recorded BancWest news, or to request copies of news releases and
financial reports by fax or mail, call toll-free 1-877-463-6293
(1-877-INFO-BWE).
- - To obtain the same information on the Internet, go to www.bancwestcorp.com,
then click Investor Relations.
GENERAL INFORMATION
News media representatives and others seeking general information should
contact:
Gerry Keir
Senior Vice President, Corporate Communications
(808) 525-7086; E-mail: [email protected]
74
<PAGE> 1
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT
The Corporation or one of its wholly owned subsidiaries beneficially owns 100%
of the outstanding capital stock, voting securities and ownership interests of
each of the corporations and limited partnerships listed below and all of the
common securities of First Hawaiian Capital I. The Corporation is indirectly the
sole general partner of First Hawaiian Center Limited Partnership.
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
NAME INCORPORATION
---- -------------
<S> <C>
Bank of the West California
Oakwood Financial Service Corporation California
First National Bancorporation California
Essex Credit Corporation Connecticut
First National Bancorp, Inc. California
CB Insurance Agency, Inc. California
Church Loan Corporation California
United Communities Corporation California
First Santa Clara Corporation California
Central Valley National Corporation California
First Hawaiian Bank Hawaii
Real Estate Delivery, Inc. Hawaii
FH Center, Inc. Hawaii
FHB Properties, Inc. Hawaii
First Hawaiian Center, L.P. Hawaii
Pacific One Dealer Center, Inc. Hawaii
The Bankers Club, Inc. Hawaii
Center Club, Inc. Hawaii
First Hawaiian Leasing, Inc. Hawaii
First Hawaiian Insurance, Inc. Hawaii
FHL Lease Holding Company, Inc. Hawaii
FHL SPC One, Inc. Hawaii
FHI International, Inc. Hawaii
First Hawaiian Capital I Delaware
</TABLE>
All subsidiaries were included in the consolidated financial statements of the
Corporation.
<PAGE> 1
EXHIBIT 23. CONSENT OF INDEPENDENT ACCOUNTANTS
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statements on Form S-8 (Registration Nos. 333-22107 and 333-75483) and the
Post-Effective Amendment on Form S-8 to Form S-4 (Registration No. 333-76271) of
BancWest Corporation of our report dated January 18, 2000 relating to the
consolidated financial statements of BancWest Corporation and Subsidiaries as of
December 31, 1999 and 1998, which appears in the 1999 Annual Report to
Shareholders, which is incorporated by reference in this Annual Report on Form
10-K.
/s/ PricewaterhouseCoopers LLP
Honolulu, Hawaii
March 17, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS CONTAINED IN THE CORPORATIONS'S 1999 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 809,961
<INT-BEARING-DEPOSITS> 9,135
<FED-FUNDS-SOLD> 71,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,868,003
<INVESTMENTS-CARRYING> 142,868
<INVESTMENTS-MARKET> 139,102
<LOANS> 12,524,039
<ALLOWANCE> 161,418
<TOTAL-ASSETS> 16,681,022
<DEPOSITS> 12,877,952
<SHORT-TERM> 503,977
<LIABILITIES-OTHER> 653,532
<LONG-TERM> 801,792
0
0
<COMMON> 127,049
<OTHER-SE> 1,715,681
<TOTAL-LIABILITIES-AND-EQUITY> 16,681,022
<INTEREST-LOAN> 1,008,114
<INTEREST-INVEST> 102,808
<INTEREST-OTHER> 24,789
<INTEREST-TOTAL> 1,135,711
<INTEREST-DEPOSIT> 368,621
<INTEREST-EXPENSE> 446,877
<INTEREST-INCOME-NET> 688,834
<LOAN-LOSSES> 55,262
<SECURITIES-GAINS> 16
<EXPENSE-OTHER> 535,075
<INCOME-PRETAX> 296,129
<INCOME-PRE-EXTRAORDINARY> 172,378
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172,378
<EPS-BASIC> 1.39
<EPS-DILUTED> 1.38
<YIELD-ACTUAL> 7.84
<LOANS-NON> 77,294
<LOANS-PAST> 18,022
<LOANS-TROUBLED> 21,033
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 158,294
<CHARGE-OFFS> 61,545
<RECOVERIES> 10,432
<ALLOWANCE-CLOSE> 161,418
<ALLOWANCE-DOMESTIC> 93,565
<ALLOWANCE-FOREIGN> 850
<ALLOWANCE-UNALLOCATED> 67,003
</TABLE>
