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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-6887
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BANCORP HAWAII, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
HAWAII 99-0148992
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
130 MERCHANT STREET, 96813
HONOLULU, HAWAII (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(808) 537-8111
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
COMMON STOCK, $2 PAR VALUE
NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
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, 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 (Section 229.405 of this chapter) 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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing price of said stock on the New York Stock
Exchange on January 31, 1995 ($27.00 per share): $1,116,587,133
As of February 28, 1995, 41,804,761 shares of Common Stock, $2 par value, of
the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Annual Meeting of
Shareholders to be held April 26, 1995, are incorporated by reference into Part
III of this Report.
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PART I
ITEM 1. BUSINESS
Bancorp Hawaii, Inc., (Bancorp) was organized on August 12, 1971, as the
first bank holding company in the State of Hawaii.
Bancorp provides varied financial services to customers in Hawaii, other
areas of the Pacific Basin, and selected markets with economies similar to
those in the Pacific Basin. It is the largest of the bank holding companies
headquartered in the State of Hawaii. The principal subsidiaries of Bancorp are
Bank of Hawaii and Bancorp Pacific, Inc. (formerly known as FirstFed America,
Inc.)
In 1993, Bank of Hawaii finalized its acquisition of American Financial
Services of Hawaii, Inc. (AFS), a trust holding company. Bank of Hawaii's
strategy was to integrate the operations of these companies into its other
trust subsidiary--Hawaiian Trust Company, Limited. In 1994, AFS was merged into
Hawaiian Trust Company, Limited. With one trust operation, the company can
focus its efforts on building its base of customers.
In October 1994, Bank of Hawaii International, Inc. finalized its purchase of
51% of the National Bank of Solomon Islands (NBSI). NBSI is headquartered in
Honiara, Solomon Islands and has ten branches and 50 agencies throughout the
Solomons. Total assets were $50.3 million at year-end 1994 and have been
included in the consolidated financial statements.
Bancorp's organization chart at December 31, 1994 is included as Exhibit 21.
The percentages indicate the proportion of total assets that each group of
entities contributed to Bancorp's consolidated financial position at December
31, 1994. All of the subsidiaries are wholly owned except as otherwise noted
for the Pacific affiliate banks and except for those entities whose directors
own qualifying shares. All the entities are consolidated with the immediate
parent company. Bank of Hawaii International, Inc.'s investments in Pacific
affiliate banks are accounted for under the equity method, except Banque
d'Hawaii (Vanuatu) and NBSI which are included in the consolidated financial
statements of Bancorp Hawaii, Inc.
At December 31, 1994, Bancorp and its subsidiaries employed 4,488 persons on
a full-time or part-time basis.
The following is a description of each of Bancorp's subsidiaries.
Bank of Hawaii was organized under the laws of Hawaii on December 17, 1897,
and has been continuously in business since. Its headquarters are in Honolulu,
Hawaii, and its deposits are insured by the Federal Deposit Insurance
Corporation (FDIC). It is not a member of the Federal Reserve System.
Bancorp and 18 directors of Bank of Hawaii (each of whom holds 125 qualifying
shares) own 100% of the outstanding shares. There are two (2) directors of Bank
of Hawaii who do not hold qualifying shares. The legal requirement for
directors to hold qualifying shares was recently changed. Directors currently
holding these shares will retain them until they retire or resign from the
Board.
Bank of Hawaii provides customary commercial banking services through branch
offices in the State of Hawaii and branches or representative offices in
American Samoa, Bahamas (Nassau), Commonwealth of the Northern Mariana Islands
(Saipan), Federated States of Micronesia (Pohnpei, Kosrae, and Yap), Guam, Hong
Kong, Korea (Seoul), Philippines (Manila, Davao, and Cebu), Republic of Fiji
(Suva and Nadi), Republic of the Marshall Islands (Majuro), Republic of Palau
(Koror), Japan (Tokyo), Singapore, and Taiwan (Taipei). Bank of Hawaii also has
affiliates in New Caledonia, Solomon Islands, Tahiti, Tonga, Vanuatu and
Western Samoa.
Bank of Hawaii owns all of the outstanding stock of Hawaiian Trust Company,
Limited; Bancorp Leasing of Hawaii, Inc.; Bank of Hawaii International, Inc.;
Bank of Hawaii International Corporation, New
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York; Bancorp Investment Group, Limited; Bankoh Investment Advisory Services
Limited; Realty and Mortgage Investors of the Pacific, Limited; and Bankoh
Corporation (formerly known as Hawaiian Hong Kong Holdings, Ltd.). The
operations of the original Bankoh Corporation were merged into the Bank and the
original Bankoh Corporation was dissolved in December 1993. In 1994, Hawaiian
Hong Kong Holdings, Ltd. (an inactive corporation) was renamed Bankoh
Corporation. A brief discussion of other Bank subsidiaries follows:
Hawaiian Trust Company, Limited (HTCo) was acquired by Bancorp in 1985. HTCo
was incorporated in Hawaii on August 10, 1898. It offers trust services
primarily in Hawaii and Guam. In 1987, Bancorp contributed the stock of HTCo to
Bank of Hawaii. As a result, HTCo became a wholly owned subsidiary of Bank of
Hawaii. In 1994, AFS, which the Bank had acquired during the previous year,
along with its subsidiaries Bishop Trust and American Trust Company of Hawaii,
were all merged into HTCo. At year-end 1994, trust assets under administration
were $11.9 billion for HTCo.
Bancorp Leasing of Hawaii, Inc. (BLH), formed in 1973, provides leasing and
leasing services, mainly to the commercial sector in Hawaii. BLH has several
subsidiaries that are "specific purpose leasing vehicles." These subsidiaries
include Bankoh Equipment Leasing Corporation; S.I.L., Inc.; Arbella Leasing
Corporation; Bancorp Leasing of America, Inc.; and Bancorp Leasing
International, Inc. Bancorp Leasing of America, Inc. remains inactive. On a
consolidated basis, BLH's assets represented 1.0% of Bancorp's total assets at
year-end 1994.
Bank of Hawaii International, Inc. (BOHI) was formed in 1968. BOHI holds
equity interests in the following foreign financial institutions (in the
percentages indicated): Bank of Tonga-30%; Banque de Nouvelle Caledonie, New
Caledonia-21%; Banque de Tahiti-38%; Pacific Commercial Bank, Limited, Western
Samoa-43%; Banque d'Hawaii (Vanuatu), Limited-80%; National Bank of the Solomon
Islands-51%; and Hawaii Financial Corporation (Hong Kong) Limited-100%, which
is a registered deposit-taking company and owns 100% of Bonsphere, Ltd., a
trade re-invoicing company. Substantially all the assets and liabilities of HFC
were transferred to Bank of Hawaii's new Hong Kong Branch in 1994. It is
anticipated HFC will be dissolved upon receipt of regulatory approval. In 1994,
BOHI acquired 51% of NBSI as mentioned earlier. BOHI's total assets represented
1.3% of Bancorp's total assets at year-end 1994.
Bank of Hawaii International Corporation, New York (BOHICNY), was organized
in 1982 as an Edge Act corporation. Bank of Hawaii International Corporation,
New York, provides payment, clearing, and settlement services with the New York
Clearing House and Clearing House Interbank Payment Service (CHIPS) for both
affiliated and unaffiliated banks. BOHICNY had total assets representing 0.9%
of Bancorp's total assets at year-end 1994.
Bancorp Investment Group, Limited was formed in 1991 to provide full service
brokerage and other investment services. The company has been operational since
February of 1992. In 1994, Bancorp contributed the stock of Bancorp Investment
Group, Limited to Bank of Hawaii. As a result, Bancorp Investment Group,
Limited became a wholly owned subsidiary of Bank of Hawaii.
Bankoh Investment Advisory Services, Limited (formerly known as Bankoh
Advisory Corporation) was reactivated in 1991 to provide advisory services for
businesses seeking to operate in Hawaii. The activity of this company has been
very limited during 1994.
Hawaiian Hong Kong Holdings, Ltd. was incorporated in 1984 to acquire certain
foreign real estate expected to be obtained through foreclosure. The
transaction never took place and the company remained inactive until 1994. In
1994, the name was changed to Bankoh Corporation, with very limited activity.
Realty and Mortgage Investors of the Pacific, Limited (RAMPAC), a wholly
owned subsidiary, was organized in 1992 as a financial services company in the
State of Hawaii. Its activity is focused on commercial real estate lending in
Hawaii, and it does not accept deposits. Total assets at year-end 1994 were
$50.8 million.
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In 1994, Bank of Hawaii organized Pan-Ocean Insurance Agency, Inc. (Pan-
Ocean) as a wholly owned subsidiary. Pan-Ocean will engage in a general
insurance agency, insurance sub agency and general insurance brokerage business
to the extent permitted under applicable federal and state laws. In 1994,
activity has been limited to organization. Business activity is anticipated to
begin in 1995.
Also in 1994, Bank of Hawaii organized Pacific Capital Asset Management, Inc.
(PCAM) as a wholly owned subsidiary. PCAM will act as an investment advisor,
primarily to institutional investors, registered with the Securities and
Exchange Commission. Activity has been limited to organizing in 1994. PCAM will
commence its business operations in 1995.
Bancorp also holds all of the outstanding stock, except as noted, of the
corporations listed below:
Bancorp Pacific, Inc., formerly known as FirstFed America, Inc., was
incorporated under Delaware law in July 1986 for the purpose of becoming a
savings and loan holding company to own the outstanding stock of First Federal
Savings and Loan Association (First Federal) upon its conversion from a
federally chartered mutual savings and loan association to a federally
chartered stock savings and loan association.
Bancorp Pacific Inc.'s only significant business is conducted through its
wholly owned subsidiary, First Federal, and First Federal's subsidiary, First
Savings and Loan Association of America (First Savings).
First Federal, a federally chartered stock savings and loan association, has
been in operation since 1904. First Federal in 1978 merged with Island Federal
Savings and Loan Association of Honolulu, Hawaii, and during the 1980s acquired
several smaller savings and loan associations. First Federal operates 24 full
service offices throughout Hawaii. Its deposits are also insured by the FDIC.
Total assets for First Federal represented 7.6% of Bancorp's total assets at
year-end 1994.
First Savings operates in a market area that includes the entire island of
Guam and the island of Saipan in the Commonwealth of the Northern Mariana
Islands (located approximately 120 miles northeast of Guam). First Savings
operates three full-service offices in Guam and one in Saipan. Its deposits are
insured by the FDIC. The stock of Bancorp Finance of Hawaii--(Guam), Inc. (BFH-
Guam) was contributed to First Savings in 1991. BFH-Guam, which changed its
name from Bankoh Finance, Inc., in 1984, was formed in 1979 through the
purchase of the assets of an industrial loan company based in Guam. BFH-Guam
has deposit-taking authority under Guam law, but in 1984, BFH-Guam discontinued
accepting new deposits and has had no deposit liabilities since 1987. On a
consolidated basis, First Savings' assets represented 1.3% of Bancorp's total
assets at year-end 1994.
First National Bank of Arizona (FNBA) was acquired by Bancorp in October
1987. Bancorp and the directors of FNBA (each of whom holds 1,000 qualifying
shares) own 100% of the outstanding shares of FNBA. FNBA is organized under the
laws of the United States. Its deposits are insured by the FDIC, and it is a
member of the Federal Reserve System. FNBA provides customary commercial
banking services through four branch offices located in the State of Arizona.
During 1994, FNBA sold its Sun City branch and opened a new branch in
Scottsdale. FNBA had total assets representing 0.8% of Bancorp's total assets
at year-end 1994.
Bancorp Life Insurance Company of Hawaii, Inc., was incorporated in 1981 in
the State of Arizona to underwrite as a reinsurer the credit life and credit
accident and health insurance sold in conjunction with Bank of Hawaii's short-
term consumer lending activities. Bancorp Insurance Agency of Hawaii, Inc., was
formed in 1982 to act as an agent for the sale of all credit life and credit
accident and health insurance that is reinsured with Bancorp Life Insurance
Company of Hawaii, Inc.
In 1989, Bancorp established a wholly owned captive insurance company,
Bancorp Hawaii Insurance Services, Ltd. (BHISL). With BHISL's formation,
Bancorp became the first Hawaii corporation to establish a Hawaii captive
insurance company for its self-insurance needs. BHISL provides bankers
professional
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liability insurance exclusively to Bancorp and its subsidiaries and affiliates.
In 1992, BHISL began providing workers compensation insurance for Bancorp and
its subsidiaries. BHISL's formation provides Bancorp with greater flexibility
and stability in controlling insurance coverages and premium costs. BHISL also
provides Bancorp with the opportunity to design self-insurance programs not
otherwise available in the conventional insurance market.
Bancorp Hawaii Small Business Investment Company, Inc., was formed in
September 1983 in the State of Hawaii as a small business investment company.
Its investment and lending activities were very limited in 1994.
Three inactive Bancorp subsidiaries were dissolved in 1994. These
subsidiaries were Bancorp Business Systems of Hawaii, Inc., Bancorp Hawaii
Service Corp., and Bancorp Investment Advisory Services, Inc. Investors Pacific
Limited remains the only inactive company and will be dissolved in 1995.
REGULATION AND COMPETITION
EFFECT OF GOVERNMENTAL POLICIES
The earnings of Bancorp and its principal subsidiaries are affected not only
by general economic conditions, both domestic and foreign, but also by the
monetary and fiscal policies of the United States and its agencies,
particularly the Federal Reserve System, and foreign governments and their
agencies. The monetary policies of the Federal Reserve System influence to a
significant extent the overall growth of loans, investments, deposits, interest
rates charged on loans, and interest rates paid on deposits. The nature and
impact of future changes in monetary policies are often not predictable.
Flexibility is a key attribute in successfully responding to these varied
forces.
COMPETITION
The financial services industry has become highly competitive. Bancorp, Bank
of Hawaii, and First Federal compete with local financial institutions as well
as institutions located in the major financial centers of the world. These
financial institutions include not only banks and savings associations, but
also insurance companies, brokerage houses, mortgage companies, merchandise
retailers, consumer finance companies, credit unions, and diversified financial
services companies that provide many or all of the services offered by
commercial banks and savings institutions but operate without a banking charter
and thus free of most of the associated regulatory requirements.
The State of Hawaii is served by eight commercial banks, six savings
associations, approximately nine deposit-taking financial services loan
companies, approximately 124 credit unions, and scores of mortgage companies
and other financial services firms. The State is also served by a large number
of out-of-state institutions and foreign banks. Bank of Hawaii is the largest
Hawaii based financial services firm operating in the market. Outside of
Hawaii, Bank of Hawaii's primary competition in the Pacific Basin comes from
several major U.S. Mainland and foreign banks that operate in those areas.
First Federal is the third largest savings association in Hawaii.
Additional financial institution holding companies or their subsidiaries may
enter markets served by Bancorp and thereby provide additional competition.
Likewise, if Bancorp, Bank of Hawaii, First Federal, and their subsidiaries
pursue additional business opportunities, they will encounter significant
competition from other businesses, including ones not associated with banks or
financial institution holding companies.
SUPERVISION AND REGULATION
Bancorp is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHC Act") and, as such, is subject to the
Act and regulations issued thereunder by the Board
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of Governors of the Federal Reserve System (the "Board of Governors"). Bancorp
is also registered as a bank holding company under the Hawaii Code of
Financial Institutions (the "Code") and, as such, is subject to the
registration, reporting, and examination requirements of the Code.
The BHC Act requires prior approval of the Board of Governors of the
acquisition by Bancorp of more than 5% of the voting shares of any bank or any
other bank holding company. The BHC Act also prohibits until September 29,
1995 the acquisition of more than 5% of the stock of Bancorp by a bank holding
company whose operations are principally conducted in a state other than
Hawaii, and the acquisition by Bancorp of more than 5% of the stock of any
bank located in a state other than Hawaii unless the statutory law of the
state in which such bank is located specifically authorizes such acquisition.
Certain aspects of this prohibition may be relaxed in the event of supervised
takeovers of troubled financial institutions. Beginning September 29, 1995,
and subject to certain limits, the BHC Act will allow adequately capitalized
and adequately managed bank holding companies to acquire control of banks in
any state. Thus, assuming it is judged to be adequately capitalized and
adequately managed, Bancorp will no longer be disabled by the BHC Act from
acquiring control of banks in any state, and bank holding companies whose
operations are principally conducted in states other than Hawaii will no
longer be disabled by the BHC Act from acquiring control of Bancorp. An
interstate acquisition may not be approved, however, if immediately before the
acquisition the acquirer controls an FDIC-insured institution or branch in the
state of the institution to be acquired, and if immediately following the
acquisition the acquirer would control 30 percent or more of the total FDIC-
insured deposits in that state; but a state may waive the 30 percent
limitation by statute, regulation, or order, or by certain nondiscriminatory
administrative approvals.
Beginning on June 1, 1997, and earlier if expressly permitted by a
nondiscriminatory state law, an adequately capitalized and adequately managed
bank may apply for permission to merge with an out-of-state bank and convert
all branches of both parties into branches of a single bank. States retain the
authority to prohibit such mergers if between September 29, 1994 and June 1,
1997 they enact a statute expressly prohibiting them and that statute applies
equally to all out-of-state banks. An interstate merger may not be approved,
however, if immediately before the acquisition the acquirer controls an FDIC-
insured institution or branch in the state of the institution to be acquired,
and if immediately following the acquisition the acquirer would control 30
percent or more of the total FDIC-insured deposits in that state; but a state
may waive the 30 percent limitation by statute, regulation, or order, or by
certain nondiscriminatory administrative approvals. Banks are also permitted
to open newly-established branches in any state that expressly permits all
out-of-state banks to open newly-established branches, if the law applies
equally to all banks.
The BHC Act also prohibits, with certain exceptions, Bancorp from acquiring
direct or indirect control of more than 5% of the voting shares of any company
that is not a bank or bank holding company and from engaging directly or
indirectly in any activity other than those of banking, managing or
controlling banks or other subsidiaries authorized under the BHC Act, or
furnishing services to or performing services for its subsidiaries. Among the
permitted activities is the ownership of shares of any company the activities
of which the Board of Governors determines to be so closely related to banking
or managing or controlling banks as to be a proper incident thereto. In making
this determination, the Board of Governors is required to weigh the expected
benefits to the public, such as greater convenience, increased competition, or
gains in efficiency, against the risks of possible adverse effects, such as
undue concentration of resources, decreased or unfair competition, conflicts
of interest, or unsound banking practices. The Board of Governors has adopted
regulations that specify various activities as being so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
The exact nature and scope of such activities have been the subject of intense
national debate, and thus, they may change and become more broad as they
evolve over time.
In 1989 Congress expanded the authority of bank holding companies to acquire
savings associations, subject to approval by the Board of Governors. Bank
holding companies may acquire healthy as well as failed or failing savings
associations in any state, without regard to whether the bank holding company
can operate a bank in that state.
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Congress in 1989 restructured the regulation of the savings and loan industry
and its deposit insurance and provided a new regulatory structure for the
resolution of troubled and insolvent savings associations. Congress in 1989
also increased the insurance premiums to be paid by FDIC-insured institutions
and permitted the FDIC to impose cross-guarantee liability on insured
institutions for any cost or loss incurred by the FDIC in connection with the
default by, or assistance to, a commonly controlled institution.
By virtue of Section 23A of the Federal Reserve Act and Section 18(j) of the
Federal Deposit Insurance Act, Bancorp and its subsidiaries are "affiliates" of
Bank of Hawaii and FNBA and are subject to the provisions of Section 23A, which
limit the amount of and require substantial security for loans and extensions
of credit by Bank of Hawaii or FNBA to, and investments in, Bancorp or certain
of its subsidiaries and the amount of advances to third parties collateralized
by the securities and obligations of Bancorp or certain of its subsidiaries.
Sections 23A and 18(j) are designed to assure that the capital of depository
institutions such as Bank of Hawaii and FNBA is not put at risk to support
their non-bank affiliates. A similar provision, Section 11 of the Home Owners'
Loan Act, subjects the thrift subsidiaries of Bancorp to essentially the same
limitations in their transactions with their "affiliates," including Bancorp.
Also, Bancorp and its subsidiaries are prohibited from engaging in certain
"tie-in" arrangements in connection with extensions of credit or provision of
property or services.
Bank of Hawaii is subject to supervision and examination by the FDIC and the
Department of Commerce and Consumer Affairs of the State of Hawaii. FNBA is
subject to supervision and examination by the Comptroller of the Currency and
in certain respects the FDIC.
Banks, including Bank of Hawaii and FNBA, are subject to extensive federal
and (in the case of Bank of Hawaii) state statutes and regulations that
significantly affect their business and activities. Banks must file reports
with their regulators concerning their activities and financial condition and
obtain regulatory approval to enter into certain transactions. Banks are also
subject to periodic examinations by their regulators to ascertain compliance
with various regulatory requirements. Other applicable statutes and regulations
relate to insurance of deposits, allowable investments, loans, acceptance of
deposits, trust activities, mergers, consolidations, payment of dividends,
capital requirements, reserves against deposits, establishment of branches and
certain other facilities, foreign and international operations, limitations on
loans to one borrower and loans to affiliated persons, and other aspects of the
business of banks. Recent federal legislation has instructed federal agencies
to adopt standards or guidelines governing banks' internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation and benefits,
asset quality, earnings and stock valuation, and other matters. Similar
provisions subject savings associations, including First Federal, to comparable
requirements and restrictions. Legislation adopted in 1994 gives the federal
banking agencies greater flexibility in implementing standards on asset
quality, earnings, and stock valuation. Regulatory authorities have broad
authority to initiate proceedings designed to prohibit banks and savings
associations from engaging in unsafe and unsound banking practices.
Bancorp Pacific, as a savings and loan holding company, is subject to
supervision by the Office of Thrift Supervision ("OTS"), and its thrift
subsidiaries are subject to supervision by the OTS and in certain respects the
FDIC. As owner of all of the stock of Bancorp Pacific, Bancorp is itself
registered with the OTS as a savings and loan holding company and in such
capacity is subject to various OTS regulations, examinations, and reporting
requirements.
The Home Owners' Loan Act and regulations issued thereunder generally
prohibit a savings and loan holding company, directly or indirectly, from (i)
acquiring control of an insured savings institution or its holding company
without prior OTS approval; (ii) acquiring more than 5% of the voting shares of
an insured savings institution or holding company that is not a subsidiary; or
(iii) acquiring control of an uninsured savings institution. No director or
officer of a savings and loan holding company or person owning or controlling
more than 25% of its voting shares may, except with the prior approval of the
OTS, acquire control of an insured savings association that is not a subsidiary
of that holding company.
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Congress adopted legislation in 1991 to permit the FDIC to increase deposit
insurance assessment rates for insured banks and to levy emergency special
assessments against insured institutions. In response, the FDIC adopted a risk-
based premium schedule which increased the assessment rates for most FDIC-
insured depository institutions. At the present time, the premiums range from
$.23 to $.31 for every $100 of deposits. As the FDIC increases its insurance
reserves, a future reduction in assessment rates, particularly for the best
managed banks, becomes more likely. The actual assessment rate for a particular
institution depends in part upon the risk classification the FDIC assigns to
that institution. The FDIC may raise an institution's insurance premiums or
terminate insurance altogether upon a finding that the institution has engaged
in unsafe and unsound practices. The United States Congress may consider
further measures to strengthen the insurance funds administered by the FDIC,
particularly the Savings Association Insurance Fund which generally insures the
deposits of savings associations, or to defray the costs of FDIC operations, or
for other purposes. Implementation of such measures may change assessment rates
or modify the extent or nature of insurance coverage, or merge the bank and
savings association insurance funds.
The Federal Deposit Insurance Corporation Improvements Act of 1991 ("FDICIA")
requires the federal banking regulators to take "prompt corrective action" in
respect of depository institutions that do not meet minimum capital
requirements and imposes certain restrictions upon banks which meet minimum
capital requirements but are not "well capitalized" for purposes of FDICIA.
FDICIA generally prohibits a depository institution from paying any dividend or
making any capital distribution or paying any management fee to its holding
company if the depository institution would thereafter be undercapitalized.
Undercapitalized institutions are subject to regulatory monitoring and may be
required to divest themselves of or liquidate subsidiaries. Holding companies
of such institutions may be required to divest themselves of such institutions
or divest themselves of or liquidate nondepository affiliates. Critically
undercapitalized institutions are prohibited from making payments of principal
and interest on subordinated debt and are generally subject to the mandatory
appointment of a conservator or receiver.
Further, a bank that is not well capitalized is generally subject to various
restrictions on "pass through" insurance coverage for certain of its accounts
and is generally prohibited from accepting brokered deposits and offering
interest rates on any deposits significantly higher than the prevailing rate.
Such banks and their holding companies are also required to obtain regulatory
approval before retaining senior executive officers.
Subject to certain exceptions, FDICIA (as modified in 1992) restricts certain
investments and activities as principal by state nonmember banks (including
Bank of Hawaii) and requires the federal banking regulators to prescribe
standards for extensions of credit secured by real estate or made to finance
improvements to real estate, loans to bank insiders, regulatory accounting and
reports, internal control reports, independent audits, and other matters, and
requires that insured depository institutions generally be examined on-site by
federal or state personnel at least once every twelve months.
Federal legislation enacted in 1992 affords the federal banking agencies
limited discretion to provide relief from certain regulatory requirements to
depository institutions doing business or seeking to do business in an
emergency or major disaster area. The Omnibus Budget Reconciliation Act of 1993
affects the amortization of intangible assets by banks, requires securities
dealers (including banks) to adopt mark-to-market accounting with respect to
certain of their securities in calculating income taxes, and establishes a
preference for depositors in liquidations of FDIC-insured banks.
Bills are now pending or expected to be introduced in the United States
Congress that contain proposals for altering the structure, regulation, and
competitive relationships of the nation's financial institutions. If enacted,
these bills could increase or decrease the cost of doing business, limit or
expand permissible activities (including activities in the insurance and
securities fields), or affect the competitive balance among banks, savings
associations, and other financial institutions. Some of these bills would
reduce the extent of federal deposit insurance, broaden the powers of bank
holding companies, promote more open financial markets for U.S. banks and
financial companies in foreign nations, regulate banks' derivatives activities
and sales of investment products such as mutual fund shares, and realign the
structure and jurisdiction of various financial
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institution regulatory agencies. Whether or in what form any such legislation
may be adopted or the extent to which the business of Bancorp might be affected
thereby cannot be predicted.
ITEM 2. PROPERTIES
Note D to the Audited Financial Statements on pages 52 to 53.
ITEM 3. LEGAL PROCEEDINGS
Note J to the Audited Financial Statements on page 56.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1994 to a vote of
security holders through the solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common Stock Listing
The common stock of Bancorp Hawaii, Inc., is traded over the counter on the
New York Stock Exchange and quoted daily in leading financial publications.
NYSE Symbol: BOH
Market Prices, Book Values, and Common Stock Dividends--Table 2 on page 10.
ITEM 6. SELECTED FINANCIAL DATA
Year-End Summary--Table 23 on page 39.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
PERFORMANCE HIGHLIGHTS
Bancorp Hawaii, Inc. (Bancorp) reported earnings of $117.7 million for 1994,
down 11.2% from $132.6 million reported for 1993. The decline ended Bancorp's
impressive 17 year series of earnings increases and was attributable to a
significant rise in interest rates, coupled with a very sluggish Hawaii
economy.
A discretionary restructuring of the "available for sale" securities
portfolio accounted for $9.3 million of the earnings decline. Bancorp sold $350
million par value of securities and reinvested most of the proceeds in shorter
term assets at higher yields. The transactions reduced Bancorp's earnings
sensitivity to rising interest rates, while increasing the yield on the assets
exchanged by 150 basis points.
For reasons stated above, Bancorp did not meet its 1994 earnings targets of
10%--12% earnings growth, a 1.00% or higher return on average assets (ROAA) and
a 16% or higher return on average equity (ROAE). In 1994, earnings growth was
negative, ROAA was 0.93% and ROAE was 12.13%. Bancorp did exceed its
capitalization targets, achieving an average equity to average asset ratio of
7.71%, relative to a 6% minimum target and it did easily maintain its
regulatory designation as a "well capitalized" financial institution.
Asset quality reflected significant improvement during 1994 from already
strong levels at the end of 1993. Total Non-Performing Assets (including loans
90+ days past due) declined to $64.8 million, 0.82% of total loans at year-end
1994, reflecting a 17.8% decrease from $78.8 million reported at year-end 1993.
Relative to outstanding loans, Non-Performing Assets (NPA) (excluding loans 90+
days past due) dropped to 0.67% as of year-end, down from 0.95% at year-end
1993 and 1.34% at year-end 1992. Bancorp has generally maintained a level of
NPA to outstanding loans of under 1% and the improvement for 1994 reflects the
result of continuing the aggressive management of NPA and an aggressive charge-
off strategy. The effects of that strategy, while conservative, have a positive
aspect as seen in the higher level of recoveries reported in 1994. Recoveries
totaled $25.3 million for the year, up from $8.2 million in 1993.
Correspondingly, net charge-offs were minimal in 1994 at $0.1 million, compared
with $57.5 million or 0.82% of average loans in 1993. As expected, we realized
approximately $12.3 million in recoveries relative to the $45.7 million unusual
leasehold property charge-offs realized in 1992 and 1993. Finally, the reserve
for loan losses totaled $148.5 million at the end of 1994, representing 1.92%
of loans outstanding, up from $125.3 million and 1.76%, respectively at year-
end 1993.
Bancorp recognized non-interest income, excluding securities gains and
losses, of $146.2 million, representing a 16.5% increase over 1993. The large
increase was fueled by increases in fees, exchange and
9
<PAGE>
other service charge income. Trust income showed strong growth with an increase
of 18.9% over 1993. This growth reflects the benefits of the full year
inclusion of income from American Financial Services acquired in May of 1993.
Additionally in 1994, Bancorp announced two programs to repurchase some of
its common shares of stock. The first program amounted to approximately 750
thousand shares and was completed prior to year-end 1994. In December, the
Board of Directors approved another repurchase program for up to 2 million
shares. Bancorp has recognized that in a sluggish Hawaiian economy,
opportunities to employ incremental capital at attractive returns may not be
plentiful and that its best alternative use for the capital may be the purchase
of Bancorp common stock.
PERFORMANCE HIGHLIGHTS
TABLE 1
<TABLE>
<CAPTION>
1994 1993
--------------------------- -------------- FIVE-YEAR
PERCENT COMPOUND
EARNINGS MEASURES AMOUNT CHANGE AMOUNT GROWTH
----------------- -------------- ----------- -------------- ------------
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net Income.............. $ 117.74 -11.2% $ 132.57 8.1%
Earnings Per Common
Share.................. 2.75 -11.0 3.09 5.1
Average Assets.......... 12,596.6 + 0.1 12,585.8 12.4
Average Loans........... 7,393.7 + 5.8 6,991.0 11.1
Average Deposits........ 7,295.2 - 3.1 7,532.4 4.3
Average Shareholders'
Equity................. 970.9 + 8.7 892.9 16.9
<CAPTION>
FIVE-YEAR
PERFORMANCE RATIOS OBJECTIVE 1994 1993 AVERAGE
------------------ -------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Return on Average As-
sets................... 1.00% 0.93% 1.05% 1.03%
Return on Average Equi-
ty..................... 16.00% 12.13 14.85 15.36
Average Equity to Aver-
age Assets Ratio....... 6.00% 7.71 7.09 6.79
Loss Reserve to Loans
Outstanding............ 1.92 1.76 1.78
Tier I Capital Ratio.... 6.0 10.39 10.79
Total Capital Ratio..... 10.0 12.99 13.60
Leverage Ratio Require-
ment................... 5.0 7.28 6.89
</TABLE>
MARKET PRICES, BOOK VALUES AND COMMON STOCK DIVIDENDS
TABLE 2
<TABLE>
<CAPTION>
MARKET PRICE (MP) RANGE HIGH MP AS
----------------------------- A PERCENT
YEAR HIGH LOW BOOK VALUE (BV) OF BV DIVIDEND
---- ------ ------ --------------- ---------- --------
<S> <C> <C> <C> <C> <C>
1990.......................... $24.55 $14.00 $15.38 160 $ .70
1991.......................... $31.83 $18.89 $17.45 182 $ .78
1992.......................... $34.67 $26.83 $19.68 176% $ .85
1993.......................... $35.92 $26.67 $22.00 163% $ .90
First Quarter............... 35.92 28.83 .21
Second Quarter.............. 35.59 28.42 .23
Third Quarter............... 30.17 26.67 .23
Fourth Quarter.............. 30.00 26.75 .23
1994.......................... $34.75 $24.13 $23.10 150% $1.04
First Quarter............... 31.88 26.92 .26
Second Quarter.............. 34.75 29.38 .26
Third Quarter............... 34.00 29.25 .26
Fourth Quarter.............. 30.38 24.13 .26
</TABLE>
10
<PAGE>
BANCORP'S MARKETS
Bank of Hawaii, Bancorp Hawaii's primary subsidiary, expanded its operations
beyond Hawaii and opened its first branch in the Marshall Islands in 1959.
Since then Bancorp's presence across the Asia-Pacific Rim has expanded steadily
and developed into distinct markets that have each contributed to the company's
overall performance. Foremost among these markets is Hawaii. Three other
markets include the Intra-Pacific Region, Asian Rim and the U.S. Mainland.
Hawaii is Bancorp's oldest and largest market. For the past 98 years, the
bank has provided financial services to the people of Hawaii and earned its
position as Hawaii's largest financial organization. Throughout the years,
Bancorp has continued to offer financial products and services to meet the
needs of Hawaii's growing economy. In contrast to the latter half of the 1980s,
when Hawaii registered growth above the national average, Hawaii's economy in
the early 1990s was one of slow growth. Now, Hawaii is beginning to experience
a gradual recovery from that period with the growth in real Gross State Product
(GSP) for 1994 estimated at 1% and 1995 real GSP forecast between 1.5 and 2.5%.
Of the state's three largest economic sectors, tourism, construction and
federal expenditures, tourism's performance was the strongest in 1994.
Construction is expected to stabilize in 1995. Within this sector, residential
housing demand remains strong despite the changing interest rate environment.
In 1993, the federal government expended more than $7 billion in Hawaii, with a
similar total estimated for 1994. Approximately $4 billion are federal civilian
expenditures which includes a federal workforce of about 32,000 people in
Hawaii. Federal military expenditures totaled approximately $3 billion in 1993.
Although national reductions in military spending are expected to continue,
Hawaii has had minimal cuts to date, which is expected to continue as Hawaii
remains a significant and strategic location for military presence in the
Pacific.
Tourism is beginning its recovery from a three-year decline which began with
the Gulf War. For 1994, the Hawaii Visitors Bureau (HVB) estimates a 5.4%
increase in total arrivals. The positive outlook extends to 1995 with the HVB
expecting a 2 to 4% growth in visitor arrivals which would bring approximately
6.5 to 6.7 million tourists to Hawaii. Both Eastbound (primarily Japan) and
Westbound (mainly U.S. Mainland) visitor travel rose in 1994. The HVB expects
1994 to be a record year in Japanese tourists to Hawaii. With the recovery of
tourism, hotel occupancy levels are estimated to be 76.5% in 1994 and 78% in
1995. These positive trends also point to an estimated increase in visitor
expenditures of 8.8% in 1994 and 4 to 5% in 1995.
Bancorp has been a player in the Intra-Pacific region for nearly four
decades. This market spans island nations across the South and West Pacific
that have become participants in the economic growth occurring within the Asia-
Pacific Rim. Bancorp is the only Hawaii-based financial organization to have
such a broad presence in this region. With 13 office locations and six Pacific
Island affiliates, Bancorp continues to see opportunities for growth and
expansion. The largest and most established of our operations are Bancorp's
branches on Guam, which have greatly benefited from the economic growth in
Asia. Our most recent expansion occurred in 1994 as Bancorp acquired 51% of the
National Bank of Solomon Islands (NBSI) with ten branches and 50 agencies
across the Solomon Islands. Also in 1994, additional branches were opened in
Fiji and Saipan. As the economic role of nations in the Intra-Pacific increases
Bancorp will continue to benefit from the increased trade flows between these
island nations and Asian countries.
The Asian Rim is another market that Bancorp has developed over the last
three decades. Beginning with Japan in the 1970s, Bancorp's Asian foothold now
includes Hong Kong, Korea, Philippines, Singapore and Taiwan. Activities in
this market focus primarily on trade financing that involves flows of funds,
such as letters of credit. Bancorp has been successful in meeting the trade
financing needs of its customers interested in participating in Asia's growth.
Bancorp also provides correspondent banking services and selected lending
services to this market. Providing services to investors looking for
investments in Hawaii is the focus of Bankoh Investment Advisory Services. The
International Banking Division which oversees our operations in Asia assists
the wide range of customers through specific units such as the Japan, China,
Korea and Philippine Marketing Groups. These groups are located in Hawaii and
provide new customers with bankers who speak their language and understand
their culture, making business transactions flow more smoothly.
11
<PAGE>
The U.S. Mainland is a market that provides opportunities for continued loan
growth. Bancorp's focus in this market continues to be companies that have
interests in the Pacific, Fortune 1000 companies with interests in the Pacific,
and the media and communications industry. In the media and communications
industry, Bancorp has developed a niche market and established itself as a
knowledgeable and responsive lender. For companies that have a Pacific
orientation, Bancorp's presence throughout the Pacific is invaluable. In
working with these borrowers, Bancorp continues to adhere to its strict lending
policies. As indicated earlier, the U.S. Mainland market focuses on Fortune
1000 companies which Bancorp will continue to pursue. First National Bank of
Arizona (FNBA) continues its growth focusing on the commercial/small business
area.
SUBSIDIARY ACTIVITY
Bank of Hawaii is the largest of Bancorp's subsidiaries. Bank of Hawaii
reported total assets of $11.3 billion at year-end 1994, 89.4% of Bancorp's
total assets. Since Bank of Hawaii represents a large component of Bancorp,
much of the discussion in the following sections reflect the Bank's operations.
The following paragraphs are discussions of the other subsidiary activity.
The merging of American Financial Services, Inc. (AFS) (acquired in 1993) and
the integration of accounting systems, trust procedures and staff was completed
in 1994. A critical mass of assets under administration has reached a combined
$11.9 billion. The impact of the acquisition and consolidation of AFS and
Hawaiian Trust Company, Limited (HTCo) can clearly be seen in the growth in
trust income. Trust income approached $50 million ending 1994 at $48.6 million,
an increase of 18.9% over 1993's $40.9 million, and a sizable increase over
1992's $30.5 million.
Bancorp Pacific, Inc. (formerly known as FirstFed America, Inc.), a thrift
subsidiary, continues to be a consistent contributor to Bancorp's earnings
through its subsidiary First Federal Savings and Loan Association of America
(First Federal). First Federal's earnings for 1994 were $18.4 million, a slight
decrease of 2.7% from 1993's total earnings of $18.9 million. This was
accomplished with an asset base of $1.1 billion at year-end 1994, which
translated into ROAA of 1.73%. Credit quality remained strong, with NPA of only
0.46% of total loans outstanding (primarily secured by residential real estate)
and a reserve ratio of 0.86% of outstanding loans at year-end 1994. At year-end
1994, First Federal reported a total risk-based capital ratio of 17.9%, which
far exceeds statutory minimums and ratios at peer savings and loan companies.
Driven by improved loan quality and a resurgent Arizona economy, FNBA again
reported improved results for 1994. Net income exceeded one million for 1994 at
$1.7 million, compared to $735,000 for 1993. Lending activity at FNBA in
Arizona has increased with loans growing to $94.0 million at year-end 1994. NPA
also continues to improve and as a percent of total loans outstanding, were
1.48% at year-end 1994 compared to 1.83% at the end of 1993. The ratio of
reserves to loans outstanding was 8.89% at year-end 1994, compared to 9.64% at
year-end 1993. FNBA's total risk-based capital ratio exceeded regulatory
minimums at 12.03%.
The following sections will cover in more detail, Bancorp's performance and
activities during 1994. The areas that will be covered include:
. Risk Elements Involved in Lending Activities
. Asset-Liability Management
. Capital Adequacy
. Interest Rate Risk and Derivatives
. Liquidity Management
. Control of Net Overhead
. Income Taxes
. Fourth Quarter Results
12
<PAGE>
RISK ELEMENTS INVOLVED IN LENDING ACTIVITIES
RISK PROFILE OF LENDING ACTIVITY
The lending environment over the last year has been challenging. The interest
rate changes and the slowed Hawaii economy have affected a large part of
Bancorp's lending activities reflected in the low rate of increase of the loan
portfolio and yields on loans. The economic recovery on the U.S. Mainland has
resulted in new challenges; along with many financial institutions across the
nation, lending focused on Fortune 1000 companies. The result was increased
competition for these loans and reduced spreads. At year-end 1994, $1.3
billion, or 16.4% of Bancorp's total loan portfolio was to U.S. Mainland based
companies as compared to $1.3 billion at year-end 1993 and $1.2 billion at
year-end 1992. Many of these companies are active in Hawaii and the Pacific.
In 1994, certain sections of the loan portfolio saw increased activity and
growth. Mortgage lending, mainly residential, started 1994 at a brisk pace
which tapered off as rates began to rise. Other loan categories saw various
levels of growth. The categories reporting declines were the leasing and
construction loan portfolios.
Table 3 presents the year-end balances broken down into the various loan
categories. The activity mentioned earlier has changed the mix of loans in
Bancorp's portfolio. Real estate loans continue to comprise a large portion of
the loan portfolio. Real estate loans made up 53.8% of the total at year-end
1994 compared with 53.4% at year-end 1993. Within the real estate category,
mortgage-residential loans represented 36.4% of total loans, while mortgage-
commercial loans represented 15.7% of total loans at year-end 1994. Table 4
presents the geographic distribution of the loan portfolio based on the major
markets in which Bancorp operates. The distribution remained relatively
constant between 1994 and 1993.
LOAN PORTFOLIO BALANCES
TABLE 3
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Domestic Loans
Commercial and Industrial....... $1,830.8 $1,709.2 $1,864.1 $1,746.9 $1,639.8
Real Estate
Construction--Commercial...... 113.1 136.2 220.2 229.4 205.6
Residential....................... 17.9 35.1 40.4 42.0 69.3
Mortgage--Commercial.......... 1,241.0 1,230.6 991.9 1,021.9 952.4
Residential....................... 2,872.8 2,476.0 2,189.1 2,003.5 1,937.3
Installment..................... 741.6 676.2 655.9 651.3 712.0
Lease Financing................. 378.1 401.6 393.4 357.1 341.5
-------- -------- -------- -------- --------
Total Domestic.............. 7,195.3 6,664.9 6,355.0 6,052.1 5,857.9
Foreign Loans
Government and Official Institu-
tions.......................... -- -- -- -- 0.4
Bank and Other Financial Insti-
tutions........................ 299.0 295.8 285.6 384.3 390.9
Commercial and Industrial....... 364.2 259.4 288.5 284.6 234.9
All Others...................... 33.5 38.3 34.5 38.1 29.1
-------- -------- -------- -------- --------
Total Foreign............... 696.7 593.5 608.6 707.0 655.3
-------- -------- -------- -------- --------
TOTAL LOANS............... $7,892.0 $7,258.4 $6,963.6 $6,759.1 $6,513.2
======== ======== ======== ======== ========
</TABLE>
13
<PAGE>
The following sections discuss the different loan categories.
COMMERCIAL AND INDUSTRIAL LOANS
As shown on Table 3, the commercial and industrial loan (C&I) portfolio,
which includes commercial, financial and agricultural loans, was $1.8 billion,
up 7.1% from year-end 1993. This portfolio which makes up 23.2% of the total
loans consists of lending to individuals and companies on both a secured and
unsecured basis for business purposes. Customers and collateral vary based on
the type of business involved. The portfolio is made up of approximately 6,700
loans. Approximately 88% of these loans have balances less than $500,000, most
of which would be classified as small customers. Larger customers, such as
multi-national corporations and large U.S. mainland companies represent
approximately 81% of the total C&I loan balance.
Bancorp's focus in lending to companies on the U.S. Mainland is to Fortune
1000 companies, companies with a Pacific orientation and selected niches where
lending expertise has developed over the years. The communication/media
portfolio is considered such a niche. Total loans and leases of this type stood
at $526.4 million at year-end 1994, an increase of 22.5% from year-end 1993.
This category can be refined further into cable television, publishing,
telecommunications and diversified media/entertainment, which represented
respectively, 12.0%, 4.1%, 4.9% and 7.8% of the total C&I loan portfolio at
year-end 1994. At year-end 1994, there were no loans in the communication/media
portfolio which were classified as NPA.
C&I loans that were classified as non-performing totaled $20.3 million or
38.2% of total NPA at year-end 1994. For comparative purposes, $16.7 million
and $52.6 million were classified as NPA at year-ends 1993 and 1992,
respectively.
LEASING ACTIVITIES
Equipment leases have been an important component of the overall loan
portfolio by providing customers with an alternative to traditional lending
products. The tax benefit received by Bancorp is also an important component of
Bancorp's tax planning strategy. Activity in the leasing portfolio has also
been limited by the slowing economy and strong competition. Leases outstanding
declined to $378.1 million, down 5.9% from year-end 1993. The lease portfolio
remains diversified, with various types of equipment under lease. Leased
equipment include aircraft, ships, automobiles and trucks, office equipment,
computers and others. NPA in the leasing category were $0.8 million, $0.3
million, and $0.07 million at year-ends 1994, 1993 and 1992, respectively.
REAL ESTATE LOANS
At year-end 1994, Bancorp's total real estate loan portfolio stood at $4.2
billion, up 9.5% from year-end 1993. Real estate loans represented 53.8% of the
total loan portfolio at year-end 1994. The real estate loan portfolio is
divided into construction and mortgages as shown on Table 3.
The largest individual component of the real estate loan portfolio are loans
secured by 1-to-4 family residential property. At $2.9 billion, this group
represented 67.7% of total real estate loans at year-end 1994 and 36.4% of
total loans outstanding. About 90% of these loans are secured by real estate in
Hawaii (see Table 4). Approximately 70% of the 1-to-4 family residential
mortgage loans are underwritten on a floating rate basis. The average 1-to-4
family mortgage loan has been outstanding about 5.6 years with an outstanding
balance of $129,000. For 1994, Bancorp's average principal mortgage loan amount
originated was $186,000, up from the $166,000 average for 1993 and the $181,000
average for 1992. The 1994 average loan origination at First Federal was
$166,000 compared with $202,000 for Bank of Hawaii. The median single family
home price on Oahu was $360,000, $358,000 and $349,000 in 1994, 1993 and 1992,
respectively.
In January 1995, Bank of Hawaii securitized $412.2 million of its adjustable
rate mortgage loans through Federal National Mortgage Association (FNMA) to
create greater liquidity. See a further discussion in the liquidity section.
14
<PAGE>
Also included in the real estate portfolio are home equity creditlines.
Available credit under these lines was $490.4 million at year-end 1994.
Outstandings have declined from $334.3 million at year-end in 1993 to $323.4
million at year-end 1994. These creditlines are underwritten based on repayment
ability rather than the value of the underlying property. However, home equity
creditlines are generally limited to 75% of the value of the collateral
including prior liens. At year-end, home equity creditline balances past due 90
days or more totaled $0.8 million, compared with $0.4 million at year-end 1993.
At year-end 1994, NPAs in the mortgage-residential category (excluding
construction loans) totaled $15.1 million, or 28.4% of total NPA.
Comparatively, mortgage-residential NPA totaled $16.4 million and $17.7 million
at year-ends 1993 and 1992, respectively. Foreclosed real estate, at year-end
1994, was an insignificant $0.6 million, which consisted of only seven
properties, most of which are in Hawaii.
The commercial real estate portfolio (excluding construction loans) totaled
$1.2 billion at year-end 1994, increasing 0.8% from year-end 1993. Table 3
presents the balances outstanding in this portfolio over the last five years.
Of the properties collateralizing Bancorp's commercial real estate loans, about
78.3% were located in Hawaii.
The commercial real estate loan portfolio is diversified in the types of
property securing the obligations. Of the $1.2 billion in total commercial real
estate loans at year-end 1994, $263.2 million represented loans secured by
shopping centers; $202.3 million represented loans secured by
commercial/industrial/warehouse facilities; and $199.3 million represented
loans secured by office buildings. Generally, loans secured by
commercial/industrial/warehouse facilities and office buildings are either
solely or partially owner-occupied.
Non-performing commercial real estate loans at year-end 1994 totaled $14.1
million or 26.5% of total NPA. Comparatively, commercial real estate NPA at
year-ends 1993 and 1992 totaled $13.1 million and $11.4 million, respectively.
Foreclosed real estate, at year-end 1994 included no commercial properties.
Total commercial construction loans were $113.1 million at year-end 1994, a
17.0% decrease from year-end 1993. The trend in this portfolio has been
declining since 1991 reflecting the economic conditions and Bancorp's lending
policy. Bancorp maintains a conservative underwriting policy, as these loans by
their nature have greater risk. For the majority of these loans, Bancorp looks
to the cash flow of the completed projects and committed permanent financing
for repayment, rather than the value of the property. A dissection of the
construction lending portfolio at year-end 1994 shows commercial land
development, $10.6 million; housing construction, $17.9 million; tract and land
development for residential housing, $29.2 million; retail facilities, $29.2
million; industrial projects, $23.5 million and commercial offices, $5.8
million. These loans were concentrated in property located in Hawaii ($103.9
million).
At the end of 1994, construction non-performing loans totaled $1.5 million or
2.8% of total NPA, compared to year-end 1993 when $17.7 million was reported
and year-end 1992 when there were no construction NPA reported.
CONSUMER LOANS
Total consumer loans (excluding residential mortgage and home equity loans)
increased to $741.6 million, up 9.7% from year-end 1993. In 1994, Bancorp
opportunistically sought to increase this category of loans implementing
programs directly targeted to increase credit card balances and consumer
installment loans. Looking to Table 3 and the five year trend, there is a
growth trend reflecting Bancorp's effort in this category.
Bancorp issues Classic and Gold VISA credit cards which are held by more than
146,000 cardholders. In January 1995, Bank of Hawaii announced the co-branding
of its VISA card with Continental Airlines. Offering the cards, which include
frequent flyer credits, in Hawaii, Guam and the Federated States of Micronesia,
is expected to increase the number of cardholders and balances in 1995.
Outstanding balances
15
<PAGE>
for VISA cards totaled $239.4 million at year-end 1994, an increase of 17.3%
from year-end 1993. The average credit limit on these accounts was $6,200 for
1994 with an average outstanding balance of $1,600, compared with an average
outstanding balance of $1,400 for 1993 and $1,320 for 1992. At year-end 1994,
0.9% of the accounts (based on balances) were delinquent more than 90 days,
compared with 0.6% at both year-end 1993 and 1992.
INTERNATIONAL LENDING
Foreign loans at the end of 1994 totaled $696.7 million, up 17.4% from year-
end 1993. Bancorp maintains a cautious approach to the international
marketplace with a lending strategy that focuses primarily on short term trade
finance and working capital loans for companies doing business in the Pacific
and the Asian Rim. The lending activities in Japan, Korea and Singapore remain
the most significant with U.S. dollar equivalent loans outstanding at year-end
1994 at branches in these countries of $356.9 million, $96.3 million, and
$106.7 million, respectively. Foreign loan totals include the U.S. dollar
equivalent loans of Fiji branches of Bank of Hawaii, NBSI and Banque d'Hawaii
(Vanuatu) Limited which aggregated $30.6 million at year-end 1994. Long term
exposure to less developed countries (LDC) remain modest and stood at $1.0
million at year-end 1994.
Loans to other foreign countries remain modest. Table 10 presents the
outstanding cross-border exposures that exceed 0.75% of Bancorp's total assets
at year-end 1994.
NPA in the international portfolio have remained at low levels. At year-end
1994, there were $0.3 million in international NPA, compared to no NPA reported
at year-end 1993 and $5.0 million at year-end 1992. As indicated on Table 7,
losses in the international portfolio have decreased in 1994 to $0.7 million,
0.1% of outstanding international loans.
GEOGRAPHIC DISTRIBUTION OF THE LOAN PORTFOLIO
The distribution of the loan portfolio by geographic areas is presented in
Table 4. The majority of Bancorp's loans (64.7%) were located in Hawaii at
year-end 1994. The balances reflected in the West and South Pacific include
Guam and other Pacific Islands where both Bank of Hawaii and First Federal's
subsidiary, First Savings and Loan Association of America, have branches. U.S.
dollar equivalent loans of NBSI and Banque d'Hawaii (Vanuatu) Limited are also
included in these totals. The modest real estate loans in the U.S. mainly
represent mortgage lending in Arizona.
GEOGRAPHIC DISTRIBUTION OF LOAN PORTFOLIO
TABLE 4
<TABLE>
<CAPTION>
TOTAL WEST &
YEAR-END SOUTH MAINLAND
1994 HAWAII PACIFIC U.S. JAPAN OTHER
-------- -------- ------- -------- ------ ------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, Financial and
Agricultural............ $1,830.8 $ 795.2 $142.0 $ 893.6 $ -- $ --
Real Estate
Construction--
Commercial............ 113.1 103.9 1.6 7.6 -- --
Residential............ 17.9 12.6 5.3 -- -- --
Mortgage--Commercial... 1,241.0 971.2 177.4 92.4 -- --
Residential............ 2,872.8 2,550.7 290.5 31.6 -- --
Installment.............. 741.6 587.0 150.6 4.0 -- --
Foreign.................. 696.7 -- 38.7 -- 356.9 301.1
Lease Financing.......... 378.1 82.0 9.4 263.0 -- 23.7
-------- -------- ------ -------- ------ ------
Total.................. $7,892.0 $5,102.6 $815.5 $1,292.2 $356.9 $324.8
-------- -------- ------ -------- ------ ------
Percentage of Total...... 100.0% 64.7% 10.3% 16.4% 4.5% 4.1%
======== ======== ====== ======== ====== ======
</TABLE>
16
<PAGE>
NON-PERFORMING ASSETS AND PAST DUE LOANS
Non-performing assets (which include non-accrual loans, restructured loans
and foreclosed real estate) totaled $53.2 million at year-end 1994, compared to
$68.8 million at the end of 1993. The decrease from year-end 1993 reflects the
continuing aggressive posture on handling NPA further described below. Table 6
presents this ratio for the last 5 years with the accompanying graph depicting
the ratio of the Montgomery Securities Regional Bank Proxy for the same period.
As indicated earlier in this report, Bancorp strives to identify and handle
potential problem loans at an early stage. This allows time to work with
borrowers and resolve problems before they result in losses. Bancorp's policy
is to place loans on non-accrual as soon as a loan is delinquent over 90 days,
unless unusual treatment is indicated by the type of borrowing agreement and/or
collateral. At the time a loan is placed on non-accrual, all accrued but unpaid
interest is reversed against current earnings.
At year-end 1994, NPA loans secured by real estate totaled $30.7 million or
57.7% of total NPAs; of this total, $26.2 million or 85.3% of these loans were
secured by real estate in Hawaii. NPA in the West and South Pacific and Asia
were minimal. A focus on quality credits and cautious asset growth remains the
objective in Arizona. NPA in Arizona has improved, and represented 2.6% of
total NPA or $1.4 million at year-end 1994, compared to $2.0 million and 2.91%
of total NPA at year-end 1993. FNBA's loan quality has improved considerably
over the last several years and at the end of 1994 NPA was 1.48% of total loans
outstanding compared with 1.83% and 4.00% at year-ends 1993 and 1992,
respectively.
First Federal's NPA totaled $4.8 million at year-end 1994, one third of the
$13.4 million reported at year-end 1993. The decrease reflects the
reclassification of a restructured loan and the charge-off of several credits.
Total NPA at First Federal represented 0.46%, 1.47% and 1.20% of total loans
outstanding at year-ends 1994, 1993 and 1992, respectively.
Bancorp had no restructured loans to report at year-end 1994. The efforts of
negotiating workout agreements with loans in the NPA category has been
aggressive. Negotiation of these workouts continue to demand limited
concessions and seek market rates of interest. Comparatively, restructured
loans totaled $6.3 million at year-end 1993 and $8.6 million at year-end 1992.
Bancorp has made good progress in handling of foreclosed real estate.
Balances have been reduced to $0.6 million at year-end 1994. This reflects
Bancorp's ability to liquidate the collateral and avoid taking possession of
new foreclosed real estate. In 1994, losses on the sale of foreclosed real
estate were $700,000. Foreclosed real estate for Bancorp at year-end 1994
represents only seven properties, most of which are in Hawaii.
Loans past due 90+ days totaled $11.6 million at year-end 1994, a modest
increase from year-end 1993 when $10.0 million was reported. This is less than
half the $24.2 million reported at year-end 1992 and reflects a return to
levels experienced in earlier years (see Table 6). The largest category of past
due loans is installment loans which reported $5.9 million past due at year-end
1994, 0.8% of total outstanding installment loans. Residential mortgage loans
reported $3.9 million in past due loans, 0.1% of outstanding residential
mortgages at year-end 1994. The largest single loan past due 90 days at year-
end was $486,000 in the residential mortgage category.
In 1994, Bancorp recorded $79,000 in interest reversals relating to non-
accrual loans compared to $700,000 in 1993. In 1994, $4.0 million in interest
was collected on previously non-accrual and charged off loans, an increase from
the $2.5 million collected in 1993.
17
<PAGE>
FOREGONE INTEREST ON NON-ACCRUALS
YEARS ENDED DECEMBER 31
TABLE 5
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Interest Income Which Would Have Been Recorded Under
Original Terms:
Domestic........................................... $5.4 $5.3 $7.0 $4.2 $3.2
Foreign............................................ 0.1 -- 0.3 -- --
Interest Income Recorded During the Current Year on
Non-Accruals:
Domestic........................................... 1.0 0.9 3.4 1.0 1.3
Foreign............................................ 0.1 -- 0.2 -- --
</TABLE>
18
<PAGE>
NON-PERFORMING ASSETS AND ACCRUING LOANS
PAST DUE 90 DAYS OR MORE
TABLE 6
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----- ----- ------ ----- -----
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans
Commercial and Industrial................ $20.3 $15.7 $ 47.2 $ 6.5 $ 8.2
Real Estate
Construction........................... 1.5 17.7 -- 2.9 4.6
Commercial............................. 14.1 7.8 8.2 15.0 8.2
Residential............................ 15.1 16.4 17.7 11.2 4.5
Other.................................... 1.3 0.8 -- -- --
Foreign.................................. 0.3 -- 5.0 -- --
----- ----- ------ ----- -----
Subtotal............................. 52.6 58.4 78.1 35.6 25.5
----- ----- ------ ----- -----
Restructured Loans
Commercial and Industrial................ -- 1.0 5.4 1.1 0.1
Real Estate
Construction........................... -- -- -- -- --
Commercial............................. -- 5.3 3.2 3.1 4.0
Residential............................ -- -- -- -- 3.7
Other.................................... -- -- -- 0.2 --
Foreign.................................. -- -- -- -- --
----- ----- ------ ----- -----
Subtotal............................. -- 6.3 8.6 4.4 7.8
----- ----- ------ ----- -----
Foreclosed Real Estate
Domestic................................. 0.6 4.1 6.3 2.0 1.6
Foreign.................................. -- -- -- -- --
----- ----- ------ ----- -----
Subtotal............................. 0.6 4.1 6.3 2.0 1.6
----- ----- ------ ----- -----
Total Non-Performing Assets........ $53.2 $68.8 $ 93.0 $42.0 $34.9
----- ----- ------ ----- -----
Loans Past Due 90 Days
Commercial and Industrial................ 1.0 0.3 0.5 2.9 3.8
Real Estate
Construction........................... -- -- -- 0.2 0.2
Commercial............................. 0.7 1.9 5.8 0.3 1.2
Residential............................ 3.9 4.1 13.0 2.0 2.2
Other.................................... 6.0 3.7 4.6 3.0 4.0
Foreign.................................. -- -- 0.3 -- --
----- ----- ------ ----- -----
Subtotal............................. 11.6 10.0 24.2 8.4 11.4
----- ----- ------ ----- -----
Total.............................. $64.8 $78.8 $117.2 $50.4 $46.3
----- ----- ------ ----- -----
Ratio of Non-Performing Assets to Total
Loans..................................... 0.67% 0.95% 1.34% 0.62% 0.54%
----- ----- ------ ----- -----
Ratio of Non-Performing Assets and Accruing
Loans Past Due 90 Days or More to Total
Loans..................................... 0.82% 1.09% 1.68% 0.75% 0.71%
----- ----- ------ ----- -----
</TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE
At the end of 1994, the reserve for loan losses stood at $148.5 million,
compared with $125.3 million at year-end 1993 and $128.6 million at year-end
1992. The ratio of reserves to outstanding loans at year-end 1994 was 1.92%,
improving from the 1.76% reported at year-end 1993. At year-end 1992, the ratio
of reserves to outstanding loans was 1.89%. Loan loss provisions for 1994 were
$21.9 million compared with $54.2
19
<PAGE>
million and $50.0 million for 1993 and 1992, respectively. The reduction in the
provisions for loan loss in 1994 reflects the improvement in loan quality
measured by the decline in NPA, the reduced level of gross charge-offs, and the
record increase in loan recoveries. Table 7 shows the activity through the
reserve. The levels of the loan loss reserve are primarily derived from an
extensive review of the loan portfolio with a strong emphasis on the line
driven loan grading system for the larger commercial loans in Bank of Hawaii
and FNBA. This loan grading system was implemented in 1985 and is continuously
monitored for accuracy by the Loan Review department. In addition, actual
charge-offs, delinquency data, recoveries and historical trends are considered
in the analysis.
The ratio of reserves to loans outstanding is one measure of the adequacy of
the reserve; however, the absolute dollar amount of the reserve and its
relationship to non-performing loans and historical charge-offs are perhaps
more valid measures. Gross charge-offs for 1994 represented 0.3% of average
outstanding loans and 17.1% of the reserve at the end of 1994, compared to
0.94% and 52.4%, respectively at year-end 1993 and 0.67% and 34.2% reported at
year-end 1992. Charge-offs for 1994 returned to lower levels due to the $25.7
million charge-off related to the leasehold credit recorded in 1993. Net
charge-offs for 1994 were $0.1 million, compared with $57.5 million for 1993
and $37.0 million for 1992. In the last ten years the reserve to charge-off
ratio has never been less than 1.9 times in any year and has averaged 3.9 times
over the same period. At the end of 1994, the reserve was 2.8 times non-
performing loans and 5.8 times charge-offs.
Recoveries of previously charged-off loans attained record levels in 1994.
Recoveries for 1994 totaled $25.3 million, up significantly from $8.2 million
in 1993 and $7.0 million in 1992. Recoveries in 1994 have increased
significantly as approximately $12.3 million was recovered of the $45.7 million
charged-off in 1992 and 1993 relating to one credit. Further recoveries are
anticipated as efforts to recover amounts charged-off continue. At this point,
it is difficult to determine the amount of any future recovery.
20
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
TABLE 7
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Average Amount of Loans
Outstanding................ $7,393.7 $6,991.0 $6,601.9 $6,484.1 $5,532.4
======== ======== ======== ======== ========
Balance of Reserve for
Possible Loan Losses at
Beginning of Period........ $ 125.3 $ 128.6 $ 115.6 $ 101.9 $ 84.4
Loans Charged-Off
Commercial and Industrial. 11.3 43.9 29.5 11.0 11.6
Real Estate--
Construction............ 0.1 0.5 -- -- --
Mortgage(1)--Commercial. 3.5 2.7 4.2 1.8 1.0
--Residential...... 0.7 0.4 0.5 0.9 --
Installment............... 8.7 8.6 8.7 8.3 7.0
Foreign................... 0.7 7.5 1.0 -- 0.2
Leases.................... 0.4 2.1 0.1 0.2 0.1
-------- -------- -------- -------- --------
Total Charged-Off........... 25.4 65.7 44.0 22.2 19.9
Recoveries on Loans
Previously Charged-Off
Commercial and Industrial. 19.5 3.9 3.0 2.6 2.7
Real Estate--
Construction............ 0.2 -- -- 0.2 --
Mortgage(1)--Commercial. 0.9 0.7 0.2 0.1 0.8
--Residential...... 0.2 0.3 0.3 0.5 --
Installment............... 3.2 3.2 3.0 3.0 2.3
Foreign................... 0.5 -- 0.4 0.4 0.3
Leases.................... 0.8 0.1 0.1 0.1 --
-------- -------- -------- -------- --------
Total Recoveries............ 25.3 8.2 7.0 6.9 6.1
-------- -------- -------- -------- --------
Net Loans Charged-Off....... (0.1) (57.5) (37.0) (15.3) (13.8)
Provisions Charged to
Operating Expenses......... 21.9 54.2 50.0 29.6 28.0
Reserves Acquired (Sold).... 1.4 -- -- (0.6) 3.3
-------- -------- -------- -------- --------
Balance at End of Period.... $ 148.5 $ 125.3 $ 128.6 $ 115.6 $ 101.9
======== ======== ======== ======== ========
Ratio of Net Charge-Offs to
Average Loans Outstanding.. -- 0.82% 0.56% 0.24% 0.25%
Ratio of Reserve to Loans
Outstanding................ 1.92% 1.76% 1.89% 1.74% 1.60%
</TABLE>
The details of the Foreign Reserve for Loan Losses, which are included in the
table above, are:
<TABLE>
<S> <C> <C> <C> <C> <C>
Beginning Balance.............. $ 10.5 $ 14.2 $ 14.0 $ 13.1 $ 19.1
Charge-Offs.................. 0.7 7.5 1.0 -- 0.2
Recoveries................... 0.5 -- 0.4 0.4 0.3
-------- -------- -------- -------- --------
Net Charge-Offs.............. (0.2) (7.5) (0.6) 0.4 0.1
Provisions................... 1.2 3.8 0.8 0.5 0.5
Excess to General Reserve.... -- -- -- -- (6.6)
Reserves Acquired............ 1.4 -- -- -- --
-------- -------- -------- -------- --------
Ending Balance................. $ 12.9 $ 10.5 $ 14.2 $ 14.0 $ 13.1
======== ======== ======== ======== ========
</TABLE>
--------
(1) For 1990, detailed breakdown not available and is reported as Commercial.
21
<PAGE>
ALLOCATION OF LOAN LOSS RESERVE
TABLE 8
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------------- ---------------- ---------------- ---------------- ----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OUT- OF OUT- OF OUT- OF OUT- OF OUT-
STANDING STANDING STANDING STANDING STANDING
RESERVE LOAN RESERVE LOAN RESERVE LOAN RESERVE LOAN RESERVE LOAN
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
Industrial............. $ 59.5 3.25% $ 51.2 3.00% $ 54.0 2.90% $ 30.5 1.75% $ 27.8 1.70%
Real Estate--
Construction.......... 2.6 2.00 4.3 2.51 2.6 1.00 5.4 2.20 5.5 2.00
Commercial............ 18.6 1.50 15.4 1.25 19.8 2.00 25.5 2.50 19.1 2.00
Residential........... 21.6 0.75 18.5 0.75 16.4 0.75 16.0 0.75 9.7 0.50
Installment............. 18.5 2.50 13.5 2.00 10.0 1.55 10.0 1.55 10.7 1.50
Foreign................. 12.9 1.85 10.5 1.77 14.2 2.33 14.0 2.00 13.1 2.00
Leases.................. 1.9 0.50 2.0 0.50 3.9 1.00 5.0 1.40 5.1 1.50
Not allocated........... 12.9 -- 9.9 -- 7.7 -- 9.2 -- 10.9 --
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
$148.5 1.92% $125.3 1.76% $128.6 1.89% $115.6 1.74% $101.9 1.60%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
INTERNATIONAL OPERATIONS
Bancorp's international presence is extensive and provides opportunities to
take part in both lending and deposit-taking activities mainly in the Pacific
Rim. These endeavors have proven important in the strategy of bridging
customers across the Pacific to the U.S. Mainland and Europe. Bancorp pursues
this strategy on three fronts: the International Division; the South Pacific
Division; and the Western Pacific Region (Westpro).
Through the International Division of Bank of Hawaii, Bancorp offers
international banking services to its corporate, financial institution and
individual customers in some of the world's major financial centers. During
1994, Bancorp converted its deposit taking company, Hawaii Financial
Corporation (Hong Kong), Ltd., to a branch of Bank of Hawaii. This conversion
will allow our customers to deal directly with the Bank of Hawaii and have
easier access to services provided by the Bank. As of year-end 1994, Bancorp
had offices in Hong Kong, the Philippines (Manila, Cebu, and Davao), Korea,
Singapore, Japan, Taiwan and New York.
The International Division of Bank of Hawaii continues to focus on trade-
related financing activities and lending to customers with which it has a
direct relationship rather than participation in syndicated loans. Bancorp's
foreign lending consists of both local currency and cross-border lending. Local
currency loans are those that are funded and will be repaid in the currency of
the borrower's country and involve the same types of risk as domestic lending.
Cross-border lending, on the other hand, involves loans that will be repaid in
currencies other than that of the borrower's country. This type of lending
involves greater risk because the borrower's ability to repay is additionally
dependent on the availability of foreign exchange in the host country.
Bancorp controls its exposure to the risks of international lending by
evaluating the political and economic factors that bear on a country's ability
to meet its foreign debt obligations. Based on these analyses, maximum credit
limits (both short and long term) are established for each country to ensure
that the international portfolio is diversified and that exposure is limited in
countries that may experience future problems. These credit limits are reviewed
on a regular basis so that exposures are understood and properly assessed.
Bancorp's strategy for foreign lending is to deal on a direct basis primarily
with countries and companies that have a strong interest in Hawaii, the South
and West Pacific, or the Asian Rim.
22
<PAGE>
The South Pacific Region is made up of the investments in the affiliated
banks in the South Pacific and Bancorp's operations in Fiji. Investments in
affiliate banks in the South Pacific include banks in Tahiti, Tonga, New
Caledonia, Vanuatu, Solomon Islands and Western Samoa. Total assets at year-end
1994 of all such affiliates were $1.1 billion. All of these investments in
affiliate banks, except those in Vanuatu and the Solomon Islands, are accounted
for using the equity method. Both NBSI's and Banque d'Hawaii (Vanuatu)
Limited's financial statements are consolidated with Bancorp's financial
statements. Bancorp expanded its investments in this area of the world by
acquiring 51% of the NBSI in 1994. NBSI had assets of USD$50.3 million at year-
end 1994. Bank of Hawaii's investments in these affiliate banks are all
considered international.
In 1993, Bank of Hawaii opened its first branch in Suva, Fiji. Since Fiji
uses its own currency, it is included with the other foreign operations and is
considered international, even though its operations are reflective of
consumer/small business activities much like domestic branches. The activity in
Suva, Fiji exceeded expectations and a second branch in Nadi, Fiji was opened
in 1994. A third branch in Lautoka, Fiji has received regulatory approvals and
will be opened in 1995.
The operations of the South Pacific Region, since they are largely
investments, are monitored on a regular basis. The countries in which the
affiliates are located are also evaluated on a periodic basis. Exposure, in
terms of foreign currency fluctuations, is limited as each affiliate primarily
deals in its own currency. The carrying value of the investments in affiliates,
accounted for using the equity method, was $23.8 million at year-end 1994. For
NBSI and Banque d'Hawaii (Vanuatu) Limited, combined assets of $120.5 million
are included in the consolidated totals.
Bank of Hawaii also operates branches and offices in several Pacific Island
locations, offering traditional banking services. At Bank of Hawaii, this area
has been designated Westpro. Westpro activities are located in Guam, Saipan,
Palau, Yap, Majuro, Kosrae, Pohnpei and American Samoa. Since the U.S. dollar
is used in these locations, all are considered domestic operations.
Table 9 summarizes key totals for International Operations of Bancorp for
1994. Net income for 1994 decreased to $7.1 million, compared to the $8.5
million in 1993. This translates into a return on assets for these operations
of 0.42%, down from the 0.45% for 1993. The reduction in income for
international operations was due to declines in net interest margin and a
decline in total earning assets.
At year-end 1994, international assets represented 13.5% of Bancorp's total
average assets, a decrease from 15.2% at year-end 1993. Cross-border interbank
placements accounted for $1.0 billion or 58.0% of total average international
assets at year-end 1994. Table 10 presents individual countries for which
Bancorp has cross-border exposures exceeding 0.75% of total assets, at the
respective year-end periods. As Table 10 indicates, $883.4 million or 7.0% was
with such countries as Japan, Taiwan, Thailand and Korea.
Long-term cross-border outstandings to lesser developed countries (LDC) at
year-end 1994 was $1.0 million. Such exposure was entirely in the Philippines.
The foreign reserve for losses is considered by management to be adequate to
absorb any credit or country risk of the remaining LDC exposure (both term and
trade credits).
SUMMARY OF INTERNATIONAL ASSETS, LIABILITIES, AND INCOME AND PERCENT OF
CONSOLIDATED TOTALS
TABLE 9
<TABLE>
<CAPTION>
1994 1993 1992
---------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Average Assets............... $1,699.2 13.5% $1,908.9 15.2% $1,864.9 16.0%
Average Liabilities.......... 1,647.9 14.2 1,863.3 15.9 1,793.4 16.5
Operating Revenue............ 97.1 10.1 94.1 10.0 105.7 11.2
Net Income................... 7.1 6.1 8.5 6.4 11.5 9.0
</TABLE>
23
<PAGE>
GEOGRAPHIC DISTRIBUTION OF CROSS-BORDER INTERNATIONAL ASSETS
TABLE 10
<TABLE>
<CAPTION>
GOVERNMENT
AND OTHER BANKS AND COMMERCIAL
OFFICIAL OTHER FINANCIAL AND INDUSTRIAL
INSTITUTIONS INSTITUTIONS COMPANIES TOTAL
------------ --------------- -------------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
at December 31, 1994
Japan.................... $ -- $ 118.2 $185.1 $ 303.3
Taiwan................... -- 259.5 4.4 263.9
Korea.................... -- 98.3 104.5 202.8
Thailand................. -- 113.4 -- 113.4
All Others............... 1.0 396.0 90.7 487.7
----- -------- ------ --------
$ 1.0 $ 985.4 $384.7 $1,371.1
===== ======== ====== ========
at December 31, 1993
Japan.................... $ -- $ 166.8 $178.3 $ 345.1
Taiwan................... -- 271.3 -- 271.3
Korea.................... -- 61.6 79.8 141.4
Thailand................. -- 110.5 -- 110.5
Italy.................... -- 110.0 -- 110.0
All Others............... 1.0 465.2 114.1 580.3
----- -------- ------ --------
$ 1.0 $1,185.4 $372.2 $1,558.6
===== ======== ====== ========
at December 31, 1992
Japan.................... $ -- $ 237.8 $189.5 $ 427.3
Taiwan................... -- 195.6 -- 195.6
France................... -- 149.0 9.4 158.4
Italy.................... -- 142.0 -- 142.0
Australia................ -- 69.1 32.1 101.2
Canada................... -- 100.0 -- 100.0
Sweden................... -- 100.0 -- 100.0
All Others............... 13.0 671.3 65.4 749.7
----- -------- ------ --------
$13.0 $1,664.8 $296.4 $1,974.2
===== ======== ====== ========
</TABLE>
POTENTIAL PROBLEM ASSETS
Bancorp's management emphasizes the importance of early recognition and
monitoring of loans as a means to control delinquency. Demonstrating this
commitment, management continuously reviews loans to various borrowers and
industry segments that may be experiencing financial difficulties even if these
loans have been generally current as to their terms. As mentioned earlier, a
loan grading system, which has been in place for several years, provides the
process for this early warning system. Loans are graded by lending officers and
validated by an independent Loan Review department to assure accuracy in the
grades. This process is also utilized to determine the adequacy of the reserve
for losses. As of December 31, 1994, there was a real estate investment
identified as a potential problem asset. The property is located on Oahu,
outside of Honolulu, and has been affected by the vacancies of commercial
space. The value of the asset is monitored on a regular basis and has been
written down to its appraised value of $14.4 million.
24
<PAGE>
ASSET AND LIABILITY MANAGEMENT
Assets and liabilities are managed to maximize long term risk adjusted
returns to our shareholders. The asset and liability management process is one
of financial risk management. Risk in the form of capital adequacy, interest
rate sensitivity, liquidity and operating efficiency is balanced with expected
return so as to yield high relative earnings performance and market value of
equity, while limiting the volatility of each. This process is carried out
through regular meetings of divisional management.
CAPITAL ADEQUACY
At year-end 1994, Bancorp's equity was $966.8 million, a 3.1% increase from
$938.1 million at year-end 1993. Bancorp's capital ratios at year-end 1994
were: Tier 1 Capital ratio of 10.39%, Total Capital ratio of 12.99%, and
leverage ratio of 7.28%. All three exceeded the minimum threshold levels to
qualify as well capitalized. Under those minimum threshold levels implemented
in 1993 by bank regulators, capital must exceed the following standards--Tier 1
Capital 6%; Total Capital 10%; and the leverage ratio 5%. Bancorp's strategy is
to maintain its capital at a level to qualify as well capitalized. The
financial and regulatory impact of maintaining this status is important to
Bancorp. The financial impact is reflected in lower deposit insurance premiums,
while the regulatory impact allows for fewer restrictions on activities.
It is not, however, Bancorp's strategy to be significantly overcapitalized.
With the slowing of loan demand and asset growth, the current need for
continuing to build capital has diminished. Meanwhile, the dividend
reinvestment plan, profit sharing plan, and stock option plan provide a
consistent source of new capital. Rather than disrupting these long established
programs by revising them, Bancorp has embarked on a stock repurchase program.
This program to repurchase stock has had the benefit of enhancing shareholder
value while still maintaining capital ratios that exceed well capitalized
guidelines. Under previously announced plans more than 1.4 million shares were
repurchased in 1994. In December 1994, Bancorp's Board approved and announced a
program to repurchase up to 2.0 million shares of Bancorp stock. This program
is in concert with an existing strategy to repurchase Bancorp shares in the
market to offset the needs of the plans previously mentioned. Table 11 presents
an analysis of the changes in equity over the last five years.
EQUITY CAPITAL
TABLE 11
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Source of Common Equity
Net Income................... $ 117.7 $ 132.6 $ 127.5 $ 112.7 $ 95.7
Dividends Paid............... (44.0) (38.4) (35.4) (32.4) (27.6)
Dividend Reinvestment
Program..................... 7.4 7.7 8.1 6.3 4.8
Stock Repurchases............ (44.3) (2.0) (0.6) -- (1.6)
1.5 Million Share Public
Offering.................... -- -- -- -- 72.5
Other(1)..................... (8.1) 9.9 4.7 7.2 3.8
-------- -------- -------- -------- --------
Annual Increase in Equity.... $ 28.7 $ 109.8 $ 104.3 $ 93.8 $ 147.6
Year-End Common Equity....... 966.8 $ 938.1 $ 828.3 $ 724.0 $ 630.3
Less: Intangibles.......... 64.6 72.0 18.8 20.6 21.0
Unrealized Valuation
Adjustments............... (17.3) 3.9 -- -- --
-------- -------- -------- -------- --------
Tier I Capital............... 919.5 862.2 809.5 703.4 609.3
Allowable Loan Loss
Reserve................... 111.1 100.2 99.3 95.1 85.6
Subordinated Debt.......... 118.6 124.6 -- -- --
-------- -------- -------- -------- --------
Total Capital............ $1,149.2 $1,087.0 $ 908.8 $ 798.5 $ 694.9
======== ======== ======== ======== ========
Risk Weighted Assets... $8,848.6 $7,990.4 $7,911.8 $7,585.1 $6,830.5
======== ======== ======== ======== ========
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----- ----- ----- ----- -----
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Key Ratios
Growth in Common Equity...................... 3.1% 13.3% 14.4% 14.9% 30.6%
Average Equity/Average Assets Ratio.......... 7.71% 7.09% 6.74% 6.31% 6.09%
Tier I Capital Ratio......................... 10.39% 10.79% 10.23% 9.27% 8.92%
Total Capital Ratio.......................... 12.99% 13.60% 11.49% 10.53% 10.17%
Leverage Ratio............................... 7.28% 6.89% 6.37% 6.17% 5.70%
Average Long-Term Debt/Equity................ 54.26% 21.43% 11.82% 13.30% 13.30%
===== ===== ===== ===== =====
</TABLE>
--------
(1) Includes profit-sharing, stock options and valuation adjustments for
investment securities and foreign exchange translation.
INTEREST RATE RISK AND DERIVATIVES
For financial institutions, interest rate movements can have an impact on
earnings depending on the position of the balance sheet. At Bancorp, interest
sensitivity analysis is coupled with computer simulation techniques to measure
the exposure of our earnings to interest rate movements. The major factors used
to manage interest rate risk include the mix of fixed and floating interest
rates, pricing, and maturity patterns for all asset and liability accounts, as
well as off-balance sheet interest rate swaps. The objective of this process is
to position the balance sheet to optimize earnings without unduly increasing
risk.
Table 12 presents the possible exposure to interest rate movements for
various time frames at year-end 1994. The distribution in the interest rate
sensitivity table consists of a combination of maturities, call provisions,
repricing frequency and prepayment patterns. Bancorp constantly analyzes and
estimates, based on historic data, the interest rate sensitivity
characteristics of all balance sheet items. For example, a substantial portion
of Bancorp's interest bearing demand and savings balances are relatively
insensitive to changes in interest rates. Consequently, Bancorp has allocated
significant portions of those balances to longer term rate sensitivity periods.
At December 31, 1994, Bancorp's one year cumulative liability sensitive gap
totaled $0.2 billion, representing 1.8% of total assets. The one year gap is a
commonly referred to time frame for benchmarking interest rate risk. Throughout
the year, Bancorp's liability sensitive gap position slowly declined from 5.5%
of total assets at year-end, 1993. During the last quarter of 1994, the
investment portfolio was restructured with the sale of $350 million of
available for sale securities at an after tax loss of $9.3 million and the
purchase of generally shorter term securities. With these portfolio
restructuring transactions, Bancorp's one year gap position is now closer to
neutrality. Nevertheless, Bancorp's liability sensitivity during the year has
had an impact on net interest income. Average net interest margin declined from
3.95% in 1993 to 3.82% in 1994.
Bancorp uses swaps as a cost effective risk management tool for dealing with
movements in interest rates. Notional amounts of interest rate swaps at year-
end 1994 totaled $1.6 billion compared with $1.4 billion at year-end 1993 and
$0.2 billion at year-end 1992. Credit exposure on interest rate swaps is
determined and monitored according to the same strict standards and policies
applied to Bancorp's commercial lending activity.
Bancorp's policy is to utilize interest rate swaps for purposes other than
trading. Bancorp utilizes interest rate swaps to alter the interest rate
characteristics of identified groups of assets or liabilities. Limits on the
total notional amounts of contracts outstanding at any time have been
established. Limits have also been established for each counter party. Activity
is monitored on a weekly basis in conjunction with normal asset/liability
management committee meetings. Further disclosure of Bancorp's interest rate
swap activity is included in the footnotes to its audited financial statements.
26
<PAGE>
INTEREST RATE SENSITIVITY
TABLE 12
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------------
1- OVER NON-INT.
0-90 DAYS 91-365 DAYS 5 YEARS 5 YEARS BEARING
--------- ----------- -------- ------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Assets(1)
Investment Securities..... $ 1,262.1 $ 917.8 $ 777.2 $193.8 $ --
Short-Term Investments.... 36.4 2.9 -- -- --
International Assets...... 918.2 219.7 8.0 -- 83.3
Domestic Loans(2)......... 3,066.8 2,143.9 1,306.1 626.1 52.3
Trading Securities........ -- -- 13.7 -- --
Other Assets.............. -- -- -- -- 958.1
--------- -------- -------- ------ --------
Total Assets............ $ 5,283.5 $3,284.3 $2,105.0 $819.9 $1,093.7
========= ======== ======== ====== ========
Liabilities and Capital(1)
Non-Interest Bearing
Demand(3)................ $ 258.6 $ 258.6 $ 919.5 $ -- $ --
Interest-Bearing
Demand(3)................ 349.5 349.5 1,048.5 -- --
Savings(3)................ 250.9 250.9 638.6 -- --
Time Deposits............. 491.4 571.8 527.0 49.3 --
Foreign Deposits.......... 751.0 373.9 1.0 -- 25.0
Short-Term Borrowings..... 1,996.0 1,339.3 5.0 -- --
Long-Term Debt............ 579.6 -- 162.5 119.5 --
Other Liabilities......... -- -- -- -- 302.7
Capital................... -- -- -- -- 966.8
--------- -------- -------- ------ --------
Total Liabilities and
Capital................ $ 4,677.0 $3,144.0 $3,302.1 $168.8 $1,294.5
========= ======== ======== ====== ========
Interest Rate Swaps......... $(1,071.2) $ 93.5 $ 977.7 $ -- $ --
--------- -------- -------- ------ --------
Interest Sensitivity Gap.... $ (464.7) $ 233.8 $ (219.4) $651.1 $ (200.8)
Cumulative Gap.............. $ (464.7) $ (230.9) $ (450.3) $200.8 $ --
Percentage of Total Assets.. 3.7% 1.8% 3.6% 1.6% --
========= ======== ======== ====== ========
</TABLE>
Assumptions used:
--------
(1) Based on repricing date.
(2) Includes the effect of estimated amortization.
(3) Historical analysis shows that these deposit categories, while technically
subject to immediate withdrawal, actually display sensitivity
characteristics that generally fall within one and five years. The
allocation presented is based on that historic analysis.
27
<PAGE>
CONSOLIDATED AVERAGE BALANCES, INCOME AND EXPENSE SUMMARY, AND YIELDS AND RATES
(TAXABLE EQUIVALENT)
TABLE 13
<TABLE>
<CAPTION>
1994 1993 1992
------------------------- ------------------------- -------------------------
AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/
BALANCES EXPENSE RATES BALANCES EXPENSE RATES BALANCES EXPENSE RATES
--------- ------- ------- --------- ------- ------- --------- ------- -------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets
Interest-Bearing
Deposits.............. $ 812.6 $ 36.4 4.48% $ 1,140.1 $ 43.0 3.77% $ 1,200.6 $ 53.1 4.43%
Investment
Securities--Held to
Maturity
--Taxable............ 2,463.3 135.0 5.48 3,513.0 203.0 5.78 2,622.0 191.0 7.29
--Tax-Exempt......... 18.7 2.6 14.03 29.3 3.6 12.25 57.1 6.6 11.54
Investment Securities--
Available for Sale..... 1,064.0 54.0 5.07 69.1 5.9 8.61 15.9 0.6 3.49
Funds Sold............. 52.5 2.3 4.33 146.0 5.2 3.56 463.1 20.5 4.43
Loans(1)
--Domestic........... 6,725.9 517.6 7.70 6,324.9 476.3 7.53 6,011.9 488.3 8.12
--Foreign............ 667.8 35.2 5.27 666.1 29.9 4.48 590.0 33.2 5.63
Loan Fees.............. 31.7 37.9 33.3
--------- ------ ----- --------- ------ ----- --------- ------ -----
Total Earning Assets. 11,804.8 814.8 6.90 11,888.5 804.8 6.77 10,960.6 826.6 7.54
Cash and Due From Banks. 449.1 413.2 396.0
Other Assets............ 342.7 284.1 288.4
--------- --------- ---------
Total Assets......... $12,596.6 $12,585.8 $11,645.0
========= ========= =========
Interest-Bearing
Liabilities
Domestic Deposits
--Demand............. $ 1,895.4 41.1 2.17 $ 2,032.3 45.1 2.22 $ 2,039.6 64.4 3.16
--Savings............ 1,232.3 29.1 2.36 1,239.4 32.6 2.63 1,035.3 39.5 3.81
--Time............... 1,544.8 65.9 4.27 1,711.9 77.7 4.54 3,294.0 159.4 4.84
--------- ------ ----- --------- ------ ----- --------- ------ -----
Total Domestic.......... 4,672.5 136.1 2.91 4,983.6 155.4 3.12 6,368.9 263.3 4.13
Total Foreign........... 1,236.7 53.4 4.32 1,223.9 43.2 3.52 816.9 36.3 4.45
--------- ------ ----- --------- ------ ----- --------- ------ -----
Total Deposits....... 5,909.2 189.5 3.21 6,207.5 198.6 3.20 7,185.8 299.6 4.17
Short-Term Borrowings.. 3,600.6 143.9 4.00 3,725.5 122.9 3.30 2,047.2 79.8 3.90
Long-Term Debt......... 526.8 30.3 5.76 250.4 13.8 5.50 118.3 7.1 6.00
--------- ------ ----- --------- ------ ----- --------- ------ -----
Total Interest-
Bearing Liabilities. 10,036.6 363.7 3.62 10,183.4 335.3 3.29 9,351.3 386.5 4.13
========= ====== ===== ========= ====== ===== ========= ====== =====
Net Interest Income..... 451.1 3.28 469.5 3.48 440.1 3.41
------ ----- ------ ----- ------ -----
Spread on Earning
Assets................. 3.82% 3.95% 4.01%
----- ----- -----
Demand Deposits
--Domestic........... 1,386.0 1,324.9 1,231.9
Other Liabilities....... 203.1 184.6 277.2
Shareholders' Equity.... 970.9 892.9 784.6O
--------- --------- ---------
Total Liabilities &
Equity.............. $12,596.6 $12,585.8 $11,645.0
========= ========= =========
Provision for Loan
Losses................. 21.9 54.2 50.1
Net Overhead............ 232.0 200.6 197.8
------ ------ ------
Income Before Income
Taxes.................. 197.2 214.7 192.2
Provision for Income
Taxes.................. 77.7 79.8 72.2
Tax Equivalency
Adjustment(2).......... 1.8 2.3 3.3
------ ------ ------
Income Before Cumulative
Effect of Accounting
Change................. 117.7 132.6 116.7
Cumulative Effect of
Accounting Change...... -- -- 10.8
------ ------ ------
Net Income.............. $117.7 $132.6 $127.5
====== ====== ======
</TABLE>
-------
(1) Includes non-accrual loans.
(2) Based upon a statutory tax rate of 35% for 1994 and 1993 and 34% for 1992.
28
<PAGE>
LIQUIDITY MANAGEMENT
Liquidity is managed to ensure that Bancorp has continuous access to
sufficient, reasonably priced funding to conduct its normal course of business.
At year-end 1994, deposits increased to $7.1 billion from $7.0 billion at the
end of 1993. Although reflecting a modest year-to-year increase, average
deposits for 1994 were below the average for 1993. Table 21 presents the
average deposits by category. The decline in average deposits reflects the
lower rates paid in 1994 and the competitive nature of the market as nonbank
banks continue to actively pursue deposits.
Repos are supported by the same type of collateral that supports governmental
deposits, but are not insured by the FDIC. At year-end 1994 repos totaled $2.1
billion compared to $2.5 billion at year-end 1993 and $2.2 billion at year-end
1992.
At year-end 1994, the ratio of net purchased liabilities to net assets (short
term borrowings less short term assets divided by total assets less short term
assets) was 36.3%. This proxy for liquidity is tracked by Salomon Brothers Inc,
which publishes bank comparative figures annually. For the five years ending
December 31, 1993, their 50-Bank Composite ratio averaged 29.0%. Bancorp's
ratio is higher than the average, due to the level of state and local
government funds. Historically, these governmental customers have been a stable
source of funds.
The balance sheet for Bancorp is somewhat unique given the high level of
state and local government funds and the requirement to collateralize these
funds. Initially, these funds were held as deposits and, in 1991, migrated to
repos. As these governmental funds began to grow, given the collateral
requirements, the investment securities portfolio grew at a similar rate. In
January 1995, Bank of Hawaii converted $412.2 million of its adjustable rate
mortgage loans to investment securities through FNMA. This securitization
effectively allows pledging a portfolio of loans which previously did not
qualify as collateral. This provides greater leverage of the asset base and an
improvement in Bancorp's overall liquidity.
Bancorp presently only issues commercial paper in the Hawaii market-place. As
an alternative, Bancorp maintains its access to the mainland market. At year-
end 1994 commercial paper outstanding totaled $69.1 million compared to $141.6
million at year-end 1993. The short term notes are rated A-1 by Standard and
Poor's and P-1 by Moody's.
Bancorp also maintains a line of credit for working capital purposes. The
line is for $50 million and is subject to annual renewals. Fees are paid on the
unused balance of the line. At year-end, there was no outstanding balance.
In 1994, Bank of Hawaii became a member of the Federal Home Loan Bank (FHLB)
joining Bancorp Pacific as a member. This allows Bank of Hawaii access to a new
source of medium term funding. At year-end 1994, Bank of Hawaii had borrowed
$25.0 million from the FHLB, collateralized by mortgage loans and FHLB stock,
for a term of 15 months. Bancorp Pacific also increased their borrowings from
the FHLB. At year-end 1994, their FHLB advances totaled $227.1 million,
compared to $151.2 million at year-end 1993.
Long term debt on December 31, 1994 was $861.6 million compared to $378.2
million at year-end 1993. During 1994, the Bank issued an additional $550.0
million in notes under the bank note program allowing for the issuance of up to
$750 million established in 1993. Proceeds were used for general corporate
purposes with original maturities of three years or less. At December 31, 1994,
there were $649.4 million in notes outstanding under this program, of which
$549.4 million were issued on a floating rate basis. The bank notes have been
rated A by Standard and Poor's and Aa-3 by Moody's.
CONTROL OF NET OVERHEAD
At Bancorp, net overhead is defined as the ratio of non-interest expense to
non-interest income. Bancorp's objective is to continually improve this ratio
by controlling expenses and taking advantage of fee
29
<PAGE>
income opportunities. For 1994, Bancorp's net overhead ratio was 2.81, compared
with 2.48 and 2.68 in 1993 and 1992, respectively on the restated basis.
Bancorp's long term goal is to have a ratio of 2 to 1, where fee income
offsets at least half of the cost of operations. With the slowdown in the
economy of Hawaii, and increased competition for deposits, the efficient
managing of the net overhead ratio grows in importance. Trust operations,
electronic financial services, insurance and annuity sales, and brokerage
services are expected to make significant contributions to this process.
The challenge of rising staff costs for salaries and benefits have focused
Bancorp's management on the ratio of net income per full-time equivalent staff
(FTE). Bancorp's objective is to improve productivity with existing staff
levels. This emphasis balances Bancorp's tight expense control philosophy with
the commitment to still spend money on staffing and technology if such
expenditures will produce greater productivity and revenues. For 1994, net
income per FTE (excluding securities gains/losses) was $29,700, compared to
$29,500 in 1993 and $30,600 for 1992.
In January 1995, Bancorp announced a restructuring of its retirement program.
The revision calls for the curtailment of the defined benefit plan freezing
benefits as of December 31, 1995. The plan will be replaced by a new defined
contribution plan and an enhancement to its existing 401(k) plan. One component
of the enhancement is being referred to as a "super match." Bancorp will match
$1.25 for every dollar contributed by the staff member to their 401(k) account
up to 2% of their compensation. There are also other changes which are expected
to be revenue neutral in terms of annual costs.
As this revision has an impact to those staff close to retirement, Bancorp
also provided for an early retirement option. The early retirement option is
available for all staff over the age of 50 and nine years of service. Bancorp's
management will take this opportunity to reduce ongoing staff costs by
carefully reviewing the replacement of retiring staff members. The costs
associated with this early retirement offer will be incurred by the defined
benefit plan and may ultimately have a positive affect on income in 1995. The
final financial impact of this curtailment and early retirement program will
not be determined until the third quarter of 1995.
NON-INTEREST INCOME
For 1994, total non-interest income was $128.4 million, compared with $135.5
million in 1993 and $117.4 million in 1992. The decrease in non-interest income
for 1994 was the result of the net securities losses incurred. Excluding the
securities transactions, non-interest income increased 16.5% over 1993. The
growth in non-interest income (excluding securities transactions) has been
consistent for Bancorp over the past five years, with the average growth rate
of 13.2% for the same period. In 1994, this ratio was been restated for a
reclassification of certain fees relating to the discounts on VISA drafts
earned from Bancorp's merchants. Appropriate changes for all years have been
made to provide proper comparisons. Table 14 presents the details of non-
interest income for the last five years.
In 1993, Bank of Hawaii acquired American Financial Services which was merged
into Hawaiian Trust Company, Limited in 1994. The synergies gained in this
acquisition and other opportunities have resulted in increasing trust income to
$48.6 million in 1994 an increase of 18.9% from $40.9 million in 1993. This
strong increase comes on top of a 33.9% increase in trust income between 1993
and 1992. Since many fees are based on trust assets under administration, it is
a benchmark for trust fees. Total assets being administered by Hawaiian Trust
Company, Limited increased to $11.9 billion at year-end 1994, from $11.1
billion at year-end 1993 and $8.0 billion at year-end 1992.
Service charges on deposit accounts increased to $28.3 million, a 6.8%
increase over 1993. Bancorp regularly reviews its fee schedules (including
exchange and service charges on deposit accounts) to assure competitive pricing
and acceptable level of profitability.
30
<PAGE>
Fees, exchange and other service charges increased to $42.5 million in 1994,
from $37.7 million in 1993 and $35.9 million in 1992. As mentioned earlier, the
fee schedules are regularly reviewed. Bancorp's involvement in trade finance in
the Asian Rim countries has steadily increased over the years as its network of
offices and branches in the area has grown. Reflecting the continuing increase
in international activity, fees for letters of credit, export bill collection,
and acceptances have increased to $7.8 million in 1994, compared with $7.3
million and $7.1 million in 1993 and 1992, respectively.
Also included in fees, exchange and other service charges are fees earned
through Bancorp's ATM network. During 1994, 45 new ATMs were added to Bancorp's
network, bringing the total in service to 282 at year-end 1994. The fees
generated by this network totaled $6.6 million in 1994, an increase of 24.5%
over the $5.3 million reported in 1993. Most of Bancorp's ATMs are located in
Hawaii and the Western Pacific. The ATMs in Hawaii have high percentage of
usage by visitors through the American Express, Armed Forces Financial Network,
Cirrus, Discover Card, Plus Network, STAR and VISA networks, all of which
Bancorp is a member. The volumes of transactions handled by these ATMs have
increased steadily over the years.
Bancorp has been actively providing new products to migrate our customer base
toward electronic transactions. In this effort, Bancorp has two specific
products currently in use. Access Card reintroduced in 1991 and Isle Pay cards
introduced in 1992 are direct deposit point of sale cards and are reporting
increased acceptance. Ongoing emphasis is increasing transaction volumes. At
year-end 1994, the base of cards in these programs have increased to 240,000.
The volume of transactions has also increased dramatically, more than doubling
in 1994 to over 3.0 million transactions. This card base has generated fees in
1994 exceeding $500,000.
Cash management products are also utilized to allow the processing of
electronic transactions. Products like lock box services, payroll processing
services and touch tone phone transfer transactions are included as cash
management products. In 1994, $1.1 million in fees for these services was
earned, compared with $1.1 million and $0.8 million for 1993 and 1992,
respectively.
The annuity, brokerage, and insurance sales groups also continue to affect
the increase in non-interest income. For 1994, fees earned by these groups
totaled $5.3 million, a 1.3% increase over 1993, which was compounded on a
28.0% increase over 1992. The full service brokerage subsidiary contributed
more than $1.3 million in other operating income in 1994, an increase of 8.3%
over 1993, its first full year of operations.
Investment securities activity for 1994 resulted in a net (pre-tax)
securities loss of $17.8 million for the year. The net securities loss, as
explained in the performance highlights section, reflected the restructuring of
the available for sale portfolio to reduce the liability sensitivity of
Bancorp. On a pre-tax basis, total net securities losses in 1994 compare with
net security gains of $10.0 million and $3.4 million recognized in 1993 and
1992, respectively.
31
<PAGE>
NON-INTEREST INCOME
TABLE 14
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------------
1994 1993 1992 1991 1990
--------------- -------------- ------ ------ ------
PERCENT PERCENT
AMOUNT CHANGE AMOUNT CHANGE AMOUNT AMOUNT AMOUNT
------ ------- ------ ------- ------ ------ ------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Trust Income............... $ 48.6 + 18.8% $ 40.9 + 34.1% $ 30.5 $ 26.5 $25.2
Service Charges on Deposit
Accounts.................. 28.3 + 6.8 26.5 + 6.4 24.9 22.4 18.4
Fees, Exchange and Other
Service Charges Letters of
Credit and Acceptance
Fees...................... 7.8 + 6.8 7.3 + 2.8 7.1 5.9 5.0
Profit on Foreign
Currency................. 4.3 - 6.5 4.6 - 22.0 5.9 6.8 4.2
Exchange Fees............. 4.0 + 37.9 2.9 -- 2.9 2.8 3.5
Escrow Fees............... 0.8 - 20.0 1.0 -- 1.0 0.8 1.8
Mortgage Servicing Fees... 2.9 + 20.8 2.4 + 4.3 2.3 2.0 1.5
Card Fees................. 8.3 + 12.2 7.4 + 21.3 6.1 8.6 8.6
Payroll Services.......... 2.1 + 16.7 1.8 + 5.9 1.7 1.7 1.6
ATM....................... 6.6 + 24.5 5.3 + 35.9 3.9 2.7 1.6
Cash Management........... 1.1 -- 1.1 + 37.5 0.8 0.5 0.5
Other Fees................ 4.6 + 17.9 3.9 - 7.1 4.2 3.3 4.3
Other Operating Income..... 23.4 + 30.7 17.9 - 9.6 19.8 12.6 11.7
Cash Basis Interest........ 3.4 + 41.7 2.4 - 17.2 2.9 1.0 1.2
Investment Securities Gains
(Losses).................. (17.8) -278.0 10.0 +194.1 3.4 2.8 0.7
------ ------ ------ ------ ------ ------ -----
Total.................... $128.4 - 5.2% $135.4 + 15.3% $117.4 $100.4 $89.8
====== ====== ====== ====== ====== ====== =====
</TABLE>
NON-INTEREST EXPENSE
The control of expenses is a key part of Bancorp's financial strategy. A
lower percentage of non-interest expense to net operating revenue (net interest
income plus non-interest income before securities transactions) is a
productivity indication, commonly called an efficiency ratio. For 1994,
Bancorp's percentage was 60.5% compared to 56.7% and 57.2% for 1993 and 1992,
respectively. The increase in Bancorp's efficiency ratio is primarily due to
deliberate investments in technology and non-interest income generating
capacity. The Salomon Brothers Inc 1993 50-bank composite percentage was
62.05%.
Total non-interest expense for 1994, 1993 and 1992 were $360.4 million,
$336.1 million and $314.6 million, respectively. The largest component of non-
interest expense is salary expense, which was $138.0 million, $134.6 million
and $126.0 million in 1994, 1993 and 1992, respectively. Bancorp's average
annual salary per full time equivalent staff was $31,900 in 1994. For 1993 and
1992, the average was $31,400 and $30,700, respectively. Bancorp considers
improving the productivity of existing staff as a way to control salary
expense.
On an international level, Bancorp's strategy has been to identify and
develop local staff to manage operations across the Pacific and Asia to keep
the number of expatriates and their higher costs at an acceptable level. At
year-end 1994, Bancorp had only 18 expatriates at foreign locations.
For 1994, total average FTE staff count was 4,324 compared with the year-end
1993 total FTE of 4,354, indicating a fairly stable staff level in 1994.
Pension and other benefit costs remained flat at $42.4 million, compared to
1993. Expenses driven by the achievement of profitability measures (including
profit sharing and incentive compensation) decreased as earnings declined.
These two expenses decreased more than $6.7 million in 1994.
32
<PAGE>
Occupancy expense for 1994 also remained fairly stable at $37.4 million, up
1.1% from 1993. The nominal change reflects the stabilization of the expansions
reported in 1992 and 1993. In 1992 and 1993, nine branches were opened, the
largest expansion in Bancorp's recent history.
Net equipment expense increased 11.7% over 1993 to $30.5 million. The
increase in net equipment expense largely reflects Bancorp's continuing
investment in technological enhancements to maintain the appropriate level of
efficiency. The increase also marks the initial phases of Bancorp's commitment
to upgrade its information systems. The focus is to provide access to much more
information to service customers more accurately and efficiently.
The other expense category increased from $94.7 million in 1993 to $112.0
million in 1994. For 1992, other expenses totaled $90.9 million. The increase
in this expense category of 18.2% for 1994 is due to a number of expense
increases. Reflecting the acquisitions made in 1993 and 1994, the amortization
of intangibles was $9.3 million for 1994, $7.2 million for 1993 and $5.1
million for 1992. Legal and professional fees increased to $18.2 million in
1994 from $11.9 million in 1993 and $11.8 million in 1992. The demand for legal
and professional services, mainly legal, has continued to increase.
NON-INTEREST EXPENSE
TABLE 15
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------
1994 1993 1992 1991 1990
-------------- -------------- ------ ------ ------
PERCENT PERCENT
AMOUNT CHANGE AMOUNT CHANGE AMOUNT AMOUNT AMOUNT
------ ------- ------ ------- ------ ------ ------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries.................... $138.0 +2.5% $134.6 +6.8% $126.0 $115.8 $102.4
Pension and Other Employee
Benefits................... 42.4 -- 42.4 +8.2 39.2 35.6 30.4
Net Occupancy Expense....... 37.4 +1.1 37.0 +9.8 33.7 28.2 24.1
Net Equipment Expense....... 30.5 +11.7 27.3 +10.1 24.8 22.6 18.9
Other Operating Expense
FDIC Insurance............ 13.6 -9.9 15.1 -12.2 17.2 16.1 7.8
Legal and Professional.... 18.2 +52.9 11.9 +0.8 11.8 10.8 12.5
Advertising............... 10.3 +6.2 9.7 +15.5 8.4 8.4 8.0
Stationery and Supplies... 8.8 +17.3 7.5 +4.2 7.2 7.0 7.0
Other..................... 61.2 +20.9 50.6 +9.3 46.3 43.6 36.8
------ ----- ------ ----- ------ ------ ------
Total................... $360.4 +7.2% $336.1 +6.8% $314.6 $288.1 $247.9
====== ===== ====== ===== ====== ====== ======
</TABLE>
INCOME TAXES
The 1994 tax provision reflects an effective tax rate of 39.7% compared with
37.6% in 1993. The change in the effective tax rate is partly due to the
recognition of the tax liability on the liquidation of Hawaii Financial Corp.
(Hong Kong), Limited as the accumulated earnings are repatriated.
The average tax-exempt securities portfolio has been reduced to less than
$18.7 million for 1994 and had a minimal impact on Bancorp's effective tax
rate. In prior years, leasing activities created a large benefit as investment
tax credits (ITC) reduced the effective tax rate. With the elimination of ITC,
Bancorp's leasing activity provides shelter by deferring taxes rather than
creating credits, thereby increasing Bancorp's effective tax rate. The low
income housing credits remain the only means of reducing the effective tax
rate. Presently, the amount of credits available is limited as Bancorp has
focused its low income housing investments to those available in Hawaii.
33
<PAGE>
Bancorp's tax planning also tries to avoid the alternative minimum tax (AMT).
At the end of 1994, Bancorp was not subject to the AMT. Bancorp continuously
seeks opportunities for managing its tax liability.
FOURTH QUARTER RESULTS
Earnings for the fourth quarter of 1994 totaled $17.2 million, a significant
decrease from the $35.7 million reported in the same quarter of 1993. This
decrease is mainly due to the large loss in investment securities recorded in
the fourth quarter of 1994 and the compression of spread discussed below.
Earnings per share were $0.41 and $0.83 for the fourth quarter of 1994 and
1993, respectively.
Spread for the fourth quarter was 3.61%, compared to 3.96% for the fourth
quarter of 1993. The decline in spread is caused by the rapid rise in interest
rates and the liability sensitive position of Bancorp's balance sheet in 1994.
The earning asset yield increased to 7.17% from 6.62% comparing the fourth
quarters of 1994 and 1993. The cost of funds rate increased to 4.19% from 3.12%
between the same periods.
The provision for loan losses totaled $4.6 million for the quarter,
significantly less than the $9.1 million in the fourth quarter of 1993. The
fourth quarter 1994 provision was influenced by the large recoveries received
and the level of charge-offs experienced during the quarter.
CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS
TABLE 16
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------
1994 1993
------------------------------ ---------------------------
MAR. JUN. SEPT. DEC. MAR. JUN. SEPT. DEC.
------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Interest Income... $193.7 $201.5 $204.3 $213.4 $202.6 $200.9 $201.8 $197.3
Total Interest Expense.. 77.8 85.3 94.5 106.1 88.5 85.2 82.1 79.6
Net Interest Income..... 115.9 116.2 109.8 107.3 114.1 115.7 119.7 117.7
Provision for Possible
Loan Losses............ 8.3 6.0 3.0 4.6 9.0 12.2 23.9 9.1
Investment Securities
Gains (Losses)......... (1.0) (0.6) (0.7) (15.5) 1.3 1.6 6.7 0.3
Other Non-Interest
Income................. 37.0 35.1 36.5 37.6 29.1 29.7 33.1 33.5
Total Non-Interest
Expense................ 88.3 89.7 88.9 93.4 83.5 81.7 85.0 85.8
------ ------ ------ ------ ------ ------ ------ ------
Income Before Income
Taxes.................. 55.3 55.0 53.7 31.4 52.0 53.1 50.6 56.6
Provision for Income
Taxes.................. 20.9 20.8 21.7 14.2 19.0 19.3 20.5 20.9
------ ------ ------ ------ ------ ------ ------ ------
Net Income.............. $ 34.4 $ 34.2 $ 32.0 $ 17.2 $ 33.0 $ 33.8 $ 30.1 $ 35.7
====== ====== ====== ====== ====== ====== ====== ======
Earnings Per Common
Share.................. $ 0.80 $ 0.79 $ 0.75 $ 0.41 $ 0.77 $ 0.79 $ 0.70 $ 0.83
------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
34
<PAGE>
SUPPLEMENTARY DATA
MATURITY DISTRIBUTION, MARKET VALUE AND WEIGHTED-AVERAGE YIELD TO MATURITY OF
SECURITIES
TABLE 17
<TABLE>
<CAPTION>
AT YEAR-END DECEMBER 31
-----------------------------------------------------------
WITHIN 1-5 5-10 OVER APPROXIMATE
1 YEAR YEARS YEARS 10 YEARS TOTAL MARKET VALUE
-------- -------- ------ -------- -------- ------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Maturity Distribution
Based on Book Value
U.S. Treasury Securi-
ties................... $ 538.7 $ 256.9 $ -- $ -- $ 795.6 $ 780.8
Obligations of Other
U.S. Government Agen-
cies and Corporations.. 64.1 83.7 -- 76.6 224.4 218.3
Obligations of States
and Political Subdivi-
sions.................. 2.9 25.9 8.4 0.3 37.5 38.1
Corporate Securities.... -- -- -- 49.2 49.2 49.2
Mortgage Backed Securi-
ties................... 15.2 282.4 145.2 180.8 623.6 594.1
Other................... 30.7 25.0 -- -- 55.7 56.2
Securities Available for
Sale(2)................ 516.5 142.8 15.5 690.1 1,364.9 1,364.9
Trading Securities...... 0.3 11.9 -- 1.5 13.7 13.7
-------- -------- ------ ------ -------- --------
Total--1994........... $1,168.4 $ 828.6 $169.1 $998.6 $3,164.6 $3,115.3
--1993................ $1,385.2 $1,219.0 $222.6 $894.6 $3,721.4 $3,759.1
--1992................ $ 677.2 $1,772.9 $148.3 $437.8 $3,036.2 $3,109.2
-------- -------- ------ ------ -------- --------
Weighted-Average
Yield(1) to Maturity
U.S. Treasury Securi-
ties................... 4.5% 5.2% -- % -- % 4.8%
Obligations of Other
U.S. Government Agen-
cies and Corporations.. 5.7 5.9 -- 6.3 6.0
Obligations of States
and Political Subdivi-
sions.................. 7.9 6.9 11.6 8.0 8.0
Corporate Securities.... -- -- -- 6.1 6.1
Mortgage Backed Securi-
ties................... 6.7 5.7 6.2 7.4 6.3
Other................... 11.2 7.3 -- -- 9.4
Securities Available for
Sale................... 6.5 7.1 6.3 5.3 5.9
Trading Securities...... 4.0 4.3 -- 5.8 4.5
-------- -------- ------ ------ --------
Total--1994........... 5.7% 5.9% 6.5% 5.8% 5.8%
======== ======== ====== ====== ========
Tax Equivalent Adjust-
ment Amount............ $ 0.1 $ 0.2 $ 0.2 $ -- $ 0.5
</TABLE>
--------
(1) Tax equivalent at 35% tax rate
(2) Reports current balance at contractual maturity and does not anticipate
reductions for periodic paydowns.
35
<PAGE>
AVERAGE ASSETS
TABLE 18
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------------- --------------- --------- --------- --------
AMOUNT MIX AMOUNT MIX AMOUNT AMOUNT AMOUNT
--------- ----- --------- ----- --------- --------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Bearing
Deposits............... $ 812.6 6.5% $ 1,140.1 9.1% $ 1,200.6 $ 923.8 $ 787.9
Investment Securities
--Held to Maturity.... 2,482.1 19.7 3,542.3 28.1 2,679.1 2,332.2 1,681.2
--Available for Sale.. 1,063.9 8.4 69.1 0.5 15.9 -- --
Funds Sold.............. 52.5 0.4 146.0 1.2 463.1 434.3 610.2
Loans................... 7,393.7 58.7 6,991.0 55.6 6,601.9 6,484.1 5,532.5
Total Earning Assets.. 11,804.8 93.7 11,888.5 94.5 10,960.6 10,174.4 8,611.8
Non-Earning Assets...... 791.8 6.3 697.3 5.5 684.4 651.8 590.0
--------- ----- --------- ----- --------- --------- --------
Total............... $12,596.6 100.0% $12,585.8 100.0% $11,645.0 $10,826.2 $9,201.8
========= ===== ========= ===== ========= ========= ========
</TABLE>
AVERAGE LOANS
TABLE 19
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------------- -------------- -------- -------- --------
AMOUNT MIX AMOUNT MIX AMOUNT AMOUNT AMOUNT
-------- ----- -------- ----- -------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial and
Industrial............. $1,681.1 22.7% $1,695.5 24.3% $1,738.2 $1,617.6 $1,496.8
Real Estate
Construction.......... 145.2 2.0 181.1 2.6 266.3 272.7 229.0
Mortgage.............. 3,840.1 52.0 3,419.2 48.9 3,019.0 2,953.8 2,334.5
Installment............. 686.7 9.3 639.5 9.1 629.8 641.3 669.4
Foreign(1).............. 667.8 9.0 666.1 9.5 590.0 659.7 496.1
Lease Financing......... 372.8 5.0 389.6 5.6 358.6 339.0 306.7
-------- ----- -------- ----- -------- -------- --------
Total............... $7,393.7 100.0% $6,991.0 100.0% $6,601.9 $6,484.1 $5,532.5
======== ===== ======== ===== ======== ======== ========
</TABLE>
--------
(1) See section entitled International Operations for definition of Foreign.
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES (1)
TABLE 20
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------
DUE IN ONE DUE IN ONE DUE AFTER
YEAR OR LESS TO FIVE YEARS(2) FIVE YEARS(2) TOTAL
------------ ---------------- ------------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Commercial, Financial and
Agricultural............. $1,246.3 $ 522.0 $ 62.5 $1,830.8
Real Estate--Construction. 52.5 20.1 58.4 131.0
Other Loans............... 1,205.5 1,447.4 2,580.6 5,233.5
Foreign Loans............. 696.7 -- -- 696.7
-------- -------- -------- --------
Total................. $3,201.0 $1,989.5 $2,701.5 $7,892.0
======== ======== ======== ========
</TABLE>
--------
(1) Based on contractual maturities
(2) As of December 31, 1994, of the loans maturing after one year, $3,176.3
million have floating rates and $1,514.7 million have fixed rates.
36
<PAGE>
AVERAGE DEPOSITS
TABLE 21
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------------- -------------- -------- -------- --------
AMOUNT MIX AMOUNT MIX AMOUNT AMOUNT AMOUNT
-------- ----- -------- ----- -------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Domestic
Non-Interest Bearing
Demand Accounts...... $1,386.0 19.0% $1,324.9 17.6% $1,231.9 $1,134.6 $1,103.4
Interest-Bearing
Demand Accounts...... 1,895.4 26.0 2,032.3 27.0 2,039.6 1,927.4 1,682.2
Regular Savings
Accounts............. 1,232.3 16.9 1,239.4 16.5 1,035.3 734.5 613.8
Private Time
Certificates of
Deposit ($100,000 or
More)................ 476.8 6.5 489.4 6.5 547.6 652.6 619.9
Public Time
Certificates of
Deposit ($100,000 or
More)................ 64.6 0.9 143.4 1.9 1,573.2 2,066.2 1,671.7
Bearer Certificates of
Deposit.............. 5.0 0.1 5.0 0.1 5.0 5.0 5.0
All Other Time and
Savings Certificates. 998.4 13.6 1,074.1 14.2 1,168.2 1,288.2 1,070.0
-------- ----- -------- ----- -------- -------- --------
Total Domestic...... 6,058.5 83.0 6,308.5 83.8 7,600.8 7,808.5 6,766.0
-------- ----- -------- ----- -------- -------- --------
Foreign (1)............. 1,236.7 17.0 1,223.9 16.2 816.9 822.2 1,085.8
-------- ----- -------- ----- -------- -------- --------
Total............... $7,295.2 100.0% $7,532.4 100.0% $8,417.7 $8,630.7 $7,851.8
======== ===== ======== ===== ======== ======== ========
</TABLE>
--------
(1) See section entitled International Operations for definition of Foreign.
37
<PAGE>
INTEREST DIFFERENTIAL
TABLE 22
<TABLE>
<CAPTION>
1994 COMPARED TO 1993 1993 COMPARED TO 1992
------------------------- -------------------------
VOLUME(1) RATE(1) TOTAL VOLUME(1) RATE(1) TOTAL
--------- ------- ------ --------- ------- ------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Change in Interest Income:
Interest Bearing
Deposits:
Foreign................ $(13.7) $ 7.2 $ (6.5) $ (2.6) $ (7.6) $(10.2)
Investment Securities--
Held to Maturity
Taxable................ (58.0) (10.0) (68.0) 56.7 (44.6) 12.1
Tax-Exempt............. (1.4) 0.4 (1.0) (3.4) 0.4 (3.0)
Investment Securities--
Available for Sale...... 51.4 (3.4) 48.0 3.7 1.6 5.3
Funds Sold............... (3.8) 0.9 (2.9) (11.9) (3.4) (15.3)
Loans, Net of Unearned
Income:
Domestic............... 32.5 2.5 35.0 26.4 (33.6) (7.2)
Foreign................ 0.1 5.2 5.3 3.9 (7.4) (3.5)
------ ------ ------ ------ ------ ------
Total Interest
Income.............. $ 7.1 $ 2.8 $ 9.9 $ 72.8 $(94.6) $(21.8)
====== ====== ====== ====== ====== ======
Change in Interest Expense:
Interest Bearing
Deposits:
Demand Deposits........ $ (3.0) $ (1.0) $ (4.0) $ (0.2) $(19.0) $(19.2)
Savings Deposits....... (0.2) (3.4) (3.6) 6.8 (13.6) (6.8)
Time Deposits.......... (7.3) (4.5) (11.8) (72.4) (9.3) (81.7)
Deposits in Foreign
Offices............... 0.4 9.8 10.2 15.5 (8.7) 6.8
Short-Term Borrowings.... (4.3) 25.2 20.9 57.0 (13.8) 43.2
Long-Term Debt........... 15.9 0.7 16.6 7.3 (0.6) 6.7
------ ------ ------ ------ ------ ------
Total Interest
Expense............. $ 1.5 $ 26.8 $ 28.3 $ 14.0 $(65.0) $(51.0)
====== ====== ====== ====== ====== ======
Net Interest Differential:
Domestic................. $ 19.6 $(26.6) $ (7.0) $ 73.0 $(23.3) $ 49.7
Foreign.................. (14.0) 2.6 (11.4) (14.2) (6.3) (20.5)
------ ------ ------ ------ ------ ------
Total Interest
Differential........ $ 5.6 $(24.0) $(18.4) $ 58.8 $(29.6) $ 29.2
====== ====== ====== ====== ====== ======
</TABLE>
--------
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
38
<PAGE>
YEAR-END SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
TABLE 23
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET TOTALS
Net Loans............... $ 7,599.5 $ 6,983.1 $ 6,691.7 $ 6,517.2 $ 6,286.1
Assets.................. 12,586.4 12,462.1 12,713.1 11,409.3 10,683.0
Deposits................ 7,115.1 7,005.0 7,890.5 8,666.2 8,785.0
Long-Term Debt.......... 861.6 378.2 119.4 119.4 121.4
Shareholders' Equity.... 966.8 938.1 828.3 724.0 630.3
OPERATING RESULTS
Total Interest Income... $ 813.0 $ 802.6 $ 822.6 $ 922.4 $ 864.4
Net Interest Income..... 449.3 467.2 436.1 401.3 343.5
Provision for Possible
Loan Losses............ 21.9 54.2 50.1 29.6 28.0
Net Income.............. 117.7 132.6 127.5 112.7 95.7
Earnings Per Share...... $ 2.75 $ 3.09 $ 3.00 $ 2.69 $ 2.42
Cash Dividends Paid--
Common Stock........... $ 1.04 $ 0.90 $ 0.85 $ 0.78 $ 0.70
NON-FINANCIAL DATA
Common Shareholders of
Record at Year-End..... 6,947 8,315 5,814 5,553 5,378
Average Common Shares
Outstanding............ 42,824,531 42,967,790 42,527,466 41,847,234 39,502,790
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Quarterly Results of Operations--Table 16 and narrative on page
34.
39
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Bancorp Hawaii, Inc.
We have audited the accompanying consolidated statements of condition of
Bancorp Hawaii, Inc. and subsidiaries as of December 31, 1994, 1993 and 1992,
and the related consolidated statements of income, shareholders' equity, and
cash flows for the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bancorp Hawaii,
Inc. and subsidiaries at December 31, 1994, 1993 and 1992, and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
As discussed in Notes A and N to the financial statements, in 1993 and 1992
the Company changed its method of accounting for certain investments in debt
and equity securities and income taxes, respectively.
/s/ Ernst & Young, LLP
Honolulu, Hawaii
January 19, 1995
40
<PAGE>
BANCORP HAWAII, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS OF DOLLARS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Interest Income
Interest on Loans.......................... $ 538,725 $ 488,530 $ 503,317
Loan Fees.................................. 31,666 37,900 33,283
Income on Lease Financing.................. 13,218 16,632 17,002
Interest and Dividends on Investment
Securities ............................... 135,040 203,068 191,036
Taxable Non-Taxable...................... 1,710 2,331 4,355
Income on Investment Securities Available
for Sale.................................. 53,960 5,947 --
Interest on Deposits....................... 36,408 42,974 53,134
Interest on Security Resale Agreements..... -- 2,934 12,507
Interest on Funds Sold..................... 2,270 2,265 8,005
---------- ---------- ----------
Total Interest Income....................... 812,997 802,581 822,639
Interest Expense
Interest on Deposits....................... 189,513 198,657 299,599
Interest on Security Repurchase
Agreements................................ 98,625 87,229 37,577
Interest on Funds Purchased................ 25,303 24,136 27,977
Interest on Short-Term Borrowings.......... 19,954 11,565 14,225
Interest on Long-Term Debt................. 30,330 13,781 7,099
---------- ---------- ----------
Total Interest Expense...................... 363,725 335,368 386,477
---------- ---------- ----------
Net Interest Income......................... 449,272 467,213 436,162
Provision for Possible Loan Losses.......... 21,921 54,188 50,071
---------- ---------- ----------
Net Interest Income After Provision for
Possible Losses............................ 427,351 413,025 386,091
Non-Interest Income
Trust Income............................... 48,591 40,855 30,519
Service Charges on Deposit Accounts........ 28,303 26,518 24,843
Fees, Exchange and Other Service Charges... 42,492 37,788 35,918
Other Operating Income..................... 26,769 20,338 22,712
Investment Securities Gains (Losses)....... (17,761) 9,985 3,410
---------- ---------- ----------
Total Non-Interest Income................... 128,394 135,484 117,402
Non-Interest Expense
Salaries................................... 137,968 134,568 125,942
Pensions and Other Employee Benefits....... 42,421 42,399 39,232
Net Occupancy Expense of Premises.......... 37,436 37,026 33,647
Net Equipment Expense...................... 30,502 27,347 24,801
Other Operating Expense.................... 112,039 94,762 90,937
---------- ---------- ----------
Total Non-Interest Expense.................. 360,366 336,102 314,559
---------- ---------- ----------
Income Before Taxes......................... 195,379 212,407 188,934
Provision for Taxes......................... 77,641 79,840 72,172
---------- ---------- ----------
Net Income Before Cumulative Effect of Ac-
counting Change............................ 117,738 132,567 116,762
---------- ---------- ----------
Cumulative Effect of Accounting Change...... -- -- 10,762
---------- ---------- ----------
Net Income.................................. $ 117,738 $ 132,567 $ 127,524
========== ========== ==========
Earnings Per Common Share and Common Share
Equivalents Before Cumulative Effect of Ac-
counting Change............................ $ 2.75 $ 3.09 $ 2.75
Cumulative Effect of Accounting Change...... -- -- 0.25
Earnings Per Common Share and Common Share
Equivalents................................ $ 2.75 $ 3.09 $ 3.00
---------- ---------- ----------
Average Common Shares and Average Common
Share Equivalents.......................... 42,824,531 42,967,790 42,527,466
---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
41
<PAGE>
BANCORP HAWAII, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Assets
Interest-Bearing Deposits............... $ 727,016 $ 837,704 $ 1,432,498
Investment Securities
--Held to Maturity (Market Value of
$1,736,659, $2,791,328 and
$3,109,193, respectively)............ 1,785,960 2,753,590 3,036,238
--Available for Sale.................. 1,364,925 893,453 --
Securities Purchased Under Agreements to
Resell................................. -- -- 420,000
Funds Sold.............................. 54,167 57,699 184,474
Loans................................... 7,891,993 7,258,368 6,963,582
Unearned Income....................... (144,034) (149,949) (143,265)
Reserve for Possible Loan Losses...... (148,508) (125,284) (128,626)
----------- ----------- -----------
Net Loans............................... 7,599,451 6,983,135 6,691,691
----------- ----------- -----------
Total Earning Assets................ 11,531,519 11,525,581 11,764,901
Cash and Non-Interest Bearing Deposits.. 508,762 395,315 393,555
Premises and Equipment.................. 221,806 167,260 156,383
Customers' Acceptance Liability......... 17,776 8,475 26,041
Accrued Interest Receivable............. 77,340 82,023 94,409
Other Real Estate....................... 594 4,123 6,318
Intangibles, Including Goodwill......... 94,515 102,929 52,971
Trading Securities...................... 13,696 74,351 111,820
Other Assets............................ 120,342 102,070 106,736
----------- ----------- -----------
Total Assets........................ $12,586,350 $12,462,127 $12,713,134
=========== =========== ===========
Liabilities
Domestic Deposits
Demand--Non-Interest Bearing.......... $ 1,436,794 $ 1,405,540 $ 1,256,617
--Interest Bearing................. 1,747,514 1,931,807 2,052,599
Savings............................... 1,140,402 1,251,876 1,167,289
Time.................................. 1,639,497 1,581,534 2,249,809
Foreign Deposits........................ 1,150,847 834,218 1,164,177
----------- ----------- -----------
Total Deposits...................... 7,115,054 7,004,975 7,890,491
Securities Sold Under Agreements to
Repurchase............................. 2,136,204 2,509,550 2,232,508
Funds Purchased......................... 609,574 743,915 1,091,556
Short-Term Borrowings................... 594,475 579,966 256,073
Bank's Acceptances Outstanding.......... 17,776 8,475 26,041
Accrued Pension Costs................... 23,510 24,367 25,324
Accrued Interest Payable................ 49,253 34,347 31,774
Accrued Taxes Payable................... 133,720 154,291 126,265
Other Liabilities....................... 78,424 85,967 85,374
Long-Term Debt.......................... 861,572 378,170 119,400
----------- ----------- -----------
Total Liabilities................... 11,619,562 11,524,023 11,884,806
----------- ----------- -----------
Shareholders' Equity
Common Stock ($2 par value), authorized
100,000,000 shares; issued and
outstanding, 41,851,466; 28,425,038;
and 28,056,190, respectively........... 83,703 56,850 56,112
Surplus................................. 260,040 284,886 272,810
Unrealized Valuation Adjustments........ (18,122) 537 (2,271)
Retained Earnings....................... 641,167 595,831 501,677
----------- ----------- -----------
Total Shareholders' Equity.......... 966,788 938,104 828,328
----------- ----------- -----------
Total Liabilities and Shareholders'
Equity............................. $12,586,350 $12,462,127 $12,713,134
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
42
<PAGE>
BANCORP HAWAII, INC. AND SUBSIDIARIES (AND PARENT COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
COMMON VALUATION RETAINED
TOTAL STOCK SURPLUS ADJUSTMENT EARNINGS
-------- ------- -------- ---------- --------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991. $724,030 $55,337 $260,920 $ (1,731) $409,504
Changes During 1992
Net Income................. 127,524 -- -- -- 127,524
Sale of Common Stock
68,809 Profit Sharing
Plan.................... 3,168 138 3,030 -- --
147,534 Stock Option
Plan.................... 2,059 295 1,764 -- --
185,274 Dividend
Reinvestment Plan....... 8,095 370 7,725 -- --
Stock Repurchased.......... (657) (28) (629) -- --
Unrealized Valuation
Adjustments
Investment Securities.... 338 -- -- 338 --
Foreign Exchange
Translation Adjustment.. (878) -- -- (878) --
Cash Dividends Paid of $0.85
Per Share................... (35,351) -- -- -- (35,351)
-------- ------- -------- -------- --------
Balance at December 31, 1992. $828,328 $56,112 $272,810 $ (2,271) $501,677
Changes During 1993
Net Income................. 132,567 -- -- -- 132,567
Sale of Common Stock
85,515 Profit Sharing
Plan.................... 3,849 171 3,678 -- --
151,543 Stock Option
Plan.................... 3,288 303 2,985 -- --
180,390 Dividend
Reinvestment Plan....... 7,729 361 7,368 -- --
Stock Repurchased.......... (2,052) (97) (1,955) -- --
Unrealized Valuation
Adjustments
Investment Securities.... 2,878 -- -- 2,878 --
Foreign Exchange
Translation Adjustment.. (70) -- -- (70) --
Cash Dividends Paid of $0.90
Per Share................... (38,413) -- -- -- (38,413)
-------- ------- -------- -------- --------
Balance at December 31, 1993. $938,104 $56,850 $284,886 $ 537 $595,831
Changes During 1994
Net Income................. 117,738 -- -- -- 117,738
Sale of Common Stock
250,286 Profit Sharing
Plan.................... 7,708 501 7,207 -- --
204,909 Stock Option
Plan.................... 2,907 410 2,497 -- --
239,211 Dividend
Reinvestment Plan....... 7,401 478 6,923 -- --
Stock Repurchased.......... (44,297) (2,824) (41,473) -- --
Unrealized Valuation
Adjustments
Investment Securities.... (21,119) -- -- (21,119) --
Foreign Exchange
Translation Adjustment.. 2,460 -- -- 2,460 --
50 Percent Stock Dividend.... (59) 28,288 -- -- (28,347)
Cash Dividends Paid of $1.04
Per Share................... (44,055) -- -- -- (44,055)
-------- ------- -------- -------- --------
Balance at December 31, 1994. $966,788 $83,703 $260,040 $(18,122) $641,167
======== ======= ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
43
<PAGE>
BANCORP HAWAII, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------
1994 1993 1992
----------- ---------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating Activities
Net Income.............................. $ 117,738 $ 132,567 $ 127,524
Adjustments to Reconcile Net Income to
Net Cash
Provided by Operating Activities:
Provision for Loan Losses.............. 21,921 54,188 50,071
Depreciation and Amortization.......... 30,321 25,681 22,631
Deferred Income Taxes.................. (16,034) 21,865 8,212
Realized and Unrealized Investment
Security Gains........................ -- (97) (1,890)
Realized (Gains) Losses on Investment
Securities Available for Sale......... 14,980 (9,025) --
Net (Increase) Decrease in Trading
Securities............................ 655 (2,482) 3,061
Amortization of Lease Income........... (26,425) (30,196) (21,255)
Amortization of Loan Fee Income........ (13,813) (15,945) (17,358)
Decrease (Increase) in Interest
Receivable............................ 4,683 12,386 (165)
Increase (Decrease) in Interest
Payable............................... 14,906 2,573 (12,908)
Decrease (Increase) in Other Assets.... 765 10,921 (44,248)
Increase (Decrease) in Other
Liabilities........................... (6,067) (7,797) 7,378
----------- ---------- -----------
Net Cash Provided by Operating
Activities........................... 143,630 194,639 121,053
----------- ---------- -----------
Investing Activities
Proceeds from Redemptions of Investment
Securities Held to Maturity............ 1,514,596 957,408 952,816
Purchases of Investment Securities Held
to Maturity............................ (546,966) (1,565,051) (1,441,520)
Proceeds from Sales of Investment
Securities Available for Sale.......... 573,057 849,853 --
Proceeds from Redemptions of Investment
Securities Available for Sale.......... 96,019 -- --
Purchases of Investment Securities
Available for Sale..................... (1,102,871) (697,892) (100,043)
Net (Decrease) Increase in Interest-
Bearing Deposits Placed in Other
Banks.................................. 110,688 594,794 (308,529)
Decrease (Increase) in Funds Sold....... 3,532 443,882 (271,338)
Increase in Loans, Net.................. (569,901) (299,491) (185,978)
Purchases of Premises and Equipment..... (72,798) (28,426) (29,311)
Proceeds from Sale of Premises and
Equipment.............................. 1,178 170 778
Purchase of American Financial Services
of Hawaii, Inc., Net of Cash and Non-
Interest Bearing Deposits Acquired..... -- (48,990) --
Purchase of Banque d'Hawaii (Vanuatu),
Ltd., Net of Cash and Non-Interest
Bearing Deposits Acquired.............. 39,963 -- --
Purchase of National Bank of Solomon
Islands, Net of Cash and Non-Interest
Bearing Deposits Acquired.............. (315) -- --
----------- ---------- -----------
Net Cash Provided (Used) by Investing
Activities........................... 46,182 206,257 (1,383,125)
----------- ---------- -----------
Financing Activities
Net Increase (Decrease) in Demand,
Savings, and Time Deposits............. 1,346 (885,516) (775,661)
Proceeds from Lines of Credit and Long-
Term Debt.............................. 510,049 294,846 47,000
Principal Payments on Lines of Credit
and Long-Term Debt..................... (26,647) (21,076) (38,421)
Net Increase (Decrease) in Short-Term
Borrowings............................. (493,178) 238,279 1,960,341
Proceeds from Sale of Common Stock...... 18,016 14,866 13,322
Stock Repurchased....................... (44,297) (2,052) (657)
Cash Dividends.......................... (44,114) (38,413) (35,351)
----------- ---------- -----------
Net Cash Provided (Used) by Financing
Activities........................... (78,825) (399,066) 1,170,573
----------- ---------- -----------
Effect of Exchange Rate Changes on
Cash................................... 2,460 (70) (878)
----------- ---------- -----------
Increase (Decrease) in Cash and Non-
Interest Bearing Deposits............ 113,447 1,760 (92,377)
----------- ---------- -----------
Cash and Non-Interest Bearing Deposits
at Beginning of Year................... 395,315 393,555 485,932
----------- ---------- -----------
Cash and Non-Interest Bearing Deposits
at End of Year....................... $ 508,762 $ 395,315 $ 393,555
=========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
44
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting principles followed by Bancorp Hawaii, Inc., and its
subsidiaries (Bancorp), and the methods of applying those principles conform
with generally accepted accounting principles and with general practice within
the banking industry. Certain accounts have been reclassified to conform with
the 1994 presentation. The significant policies are summarized below.
CONSOLIDATION
The consolidated financial statements include the accounts of Bancorp; its
principal subsidiaries, Bank of Hawaii; Bancorp Pacific, Inc.; and their
subsidiaries. Significant intercompany accounts have been eliminated in
consolidation.
ACCOUNTING CHANGES
In May 1993, the Financial Accounting Standards Board (FASB) issued Statement
No. 114, "Accounting by Creditors for Impairment of a Loan." The statement
addresses the accounting by creditors for impairment of certain loans and
requires these loans be measured based on the present value of expected future
cash flows or if the loan is collateral dependent, the fair value of the
collateral. This is a significant change from the currently applied rules for
both Generally Accepted Accounting Principles and regulatory reporting. In
October 1994, the FASB issued Statement No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures," that amended
Statement No. 114 by eliminating provisions for reporting income on impaired
loans by creditors and clarifying disclosure requirements. Bancorp has elected
to implement the provisions of Statement No. 114, as amended, effective January
1, 1995. At this time, the impact of adopting the new rules on Bancorp's
financial position or results of operation is not expected to be material.
ACQUISITION
In December 1994, Bank of Hawaii acquired a 51% interest in the National Bank
of Solomon Islands (NBSI) for $4.8 million. The acquisition has been accounted
for using the purchase method. At year-end, NBSI financial results have been
included in the consolidated totals. Total assets of NBSI were $50.3 million at
year-end 1994. Goodwill recorded in this transaction was $2.4 million and is
being amortized over 15 years.
On May 7, 1993, Bank of Hawaii finalized the purchase of 100% of the shares
of American Financial Services of Hawaii, Inc. (AFS), a trust holding company
whose wholly owned subsidiaries are Bishop Trust Limited and American Trust
Company of Hawaii, Inc. AFS administered $2.7 billion in trust assets at the
acquisition date. The acquisition has been accounted for under the purchase
method, for the approximately $4 million of assets of AFS. Goodwill recorded in
this transaction is being amortized on a straight line basis over 15 years. In
1994, AFS was merged into Hawaiian Trust Company, Limited.
Also in December 1993, Bank of Hawaii acquired 80% of Banque Indosuez
Vanuatu, Limited for $12.1 million. Its name was changed to Banque d'Hawaii
(Vanuatu), Limited. Banque d'Hawaii (Vanuatu), Limited has been accounted for
as a purchase as of January 1, 1994 and is included in the consolidated
financial statements.
In conjunction with these acquisitions, liabilities were assumed as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Assets Acquired.................................. $132,855 $ 65,002 --
Cash Paid for Capital Stock...................... (16,913) (51,500) --
---------- ---------- -----
Liabilities Assumed.............................. $115,942 $ 13,502 --
========== ========== =====
</TABLE>
45
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CASH AND NON-INTEREST BEARING DEPOSITS
Cash and non-interest bearing deposits include the amounts due from other
financial institutions as well as in-transit clearings. Under the terms of the
Depository Institutions Deregulation and Monetary Control Act, the Bank is
required to place reserves with the Federal Reserve Bank based on the amount of
deposits held. Bank of Hawaii, along with the other banks in the State of
Hawaii, was allowed to phase into this reserve requirement, with such phase-in
completed in 1993. For 1994, 1993 and 1992, the average amount of these reserve
balances was $157,486,000; $165,616,000 and $135,010,000, respectively.
EARNINGS PER SHARE
The earnings per common share of Bancorp are based on the average common
shares outstanding and the average common share equivalents. The earnings per
common share of Bancorp are based on shares of 42,824,531, 42,967,790 and
42,527,466 in 1994, 1993 and 1992, respectively.
INCOME TAXES
Bancorp files a consolidated federal income tax return with the Bank of
Hawaii, FirstFed and its other domestic subsidiaries. Deferred income taxes are
provided to reflect the tax effect of temporary differences between financial
statement carrying amounts and the corresponding tax bases of assets and
liabilities.
Bancorp's tax sharing policy provides for the settlement of income taxes
between each subsidiary as if each subsidiary had filed a separate return.
Payments are made to Bancorp by each subsidiary with tax liabilities and
subsidiaries which generate tax benefits receive payments for the benefits as
used. Deferred taxes are recorded on the books of the subsidiary which
generated the temporary differences.
For lease arrangements, which are accounted for by the financing method,
investment tax credits are deferred and amortized over the lives of the
respective leases.
INTANGIBLE ASSETS AND AMORTIZATION
The excess of the cost over the fair market value of tangible assets and
liabilities purchased in various transactions by Bancorp and the Bank of Hawaii
is being amortized using the straight-line method over various periods not
exceeding 15 years. Intangibles are reviewed periodically for other than
temporary impairment based on comparisons with underlying financial assets. The
amortization expense of these intangibles was $9,315,000; $7,161,000 and
$5,083,000 for 1994, 1993 and 1992, respectively. As of December 31, 1994, the
accumulated amortization totaled $33,884,000.
INTEREST RATE/FOREIGN CURRENCY RISK MANAGEMENT
Bancorp has entered into various off-balance-sheet transactions, primarily
interest rate swap agreements, for interest rate risk exposure management
purposes. A primary objective of Bancorp in managing interest-rate exposure is
to maintain a targeted mix of assets and liabilities that mature or reprice
over a one year time horizon. However, the extent of rate sensitivity can vary
within the intervening time periods. Interest rate swaps are primarily used to
modify the interest rate sensitivity of short term assets or long term
liabilities (both deposits and debt).
As a result of having various foreign operations, Bancorp is exposed to the
effect of foreign exchange rate fluctuations on the U.S. dollar value. Bancorp
has purchased foreign currency forward contracts to minimize the effect of
fluctuating foreign currencies on its reported income. The forward contracts
qualify as
46
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
hedges for financial reporting purposes as they are tied to specific foreign
loans and their repayment. Although the volatility of income over the entire
twelve month period is reduced, increased volatility may be reported during
interim periods.
Valuation adjustments on foreign exchange swap and forward contracts are
recognized through the income statement as a component of foreign currency gain
or loss.
INTERNATIONAL OPERATIONS
International operations include certain activities located domestically in
the International Division, as well as branches and subsidiaries domiciled
outside the United States. The operations of Bank of Hawaii and FirstFed
located in the Southern and Western Pacific which are denominated in U.S.
dollars are classified as domestic.
INVESTMENT SECURITIES
The method followed in determining the cost of investments sold was based on
identified certificates for each of the three years ending December 31, 1994,
1993 and 1992. Bancorp adopted the provisions of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," affecting the Statement of
Condition as of December 31, 1993 by reclassifying investment securities into
the following categories.
Investment Securities Held to Maturity are securities intended to be held for
the full term of the security. These securities are stated at cost adjusted for
amortization of premium and accretion of discount. Restricted equity securities
represent Federal Home Loan Bank and Federal Reserve Bank shares, recorded at
par, which is fair value.
Investment Securities Available for Sale are recorded at market value with
the unrealized gains and losses recorded as an unrealized valuation adjustment
in equity, net of taxes. The market value of mortgage-backed securities are
based on quoted market prices. In 1993 and 1992, these assets were recorded at
the lower of cost or market with valuation adjustments reflected as a charge
against income.
Trading Securities are securities purchased and held principally for the
purpose of selling them in the near term. The trading securities portfolio was
comprised primarily of debt securities which have been recorded at market
value. Changes in market value are recognized as a securities gain or loss
through the income statement. During 1994 and 1993, the net gain (loss) from
the trading securities portfolio was $(740,000) and $997,000, respectively, and
is recognized as a component of investment securities gains/losses in the
income statement. Income from the trading securities was $604,000 and $660,000
for 1994 and 1993, respectively, and is included as part of other operating
income.
LOANS
Loans are carried at the principal amount outstanding. Interest income is
generally recognized on the accrual basis. Loan fees are considered in the
yields and amortized.
Bancorp's policy is to place loans on non-accrual as soon as a loan is
delinquent over 90 days, unless unusual treatment is indicated by the type of
borrowing agreement and/or collateral. At the time a loan is placed on non-
accrual, all accrued but unpaid interest is reversed against current earnings.
Subsequent payments received are generally applied to reduce the principal
balance.
OTHER REAL ESTATE
Other real estate is comprised of properties acquired through foreclosure
proceedings and abandoned bank premises. These properties are carried at the
lower of cost or fair market value based on current
47
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
appraisals less selling costs. Losses arising at the time of acquisition of
such property acquired through foreclosure are charged against the reserve for
possible loan losses. Subsequent re-evaluation of the properties, which
indicate reduced value and carrying costs, are recognized through charges to
operating expenses.
PREMISES AND EQUIPMENT
Premises and equipment includes the cost of land, buildings, machinery and
equipment, and significant improvements thereto. They are stated on the basis
of cost less allowances for depreciation and amortization.
The annual provisions for depreciation on premises and improvements, and
equipment, have been computed using lives of two to fifty years and three to
ten years, respectively, under the straight-line method.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses is maintained at a level considered
adequate to provide for potential losses. The provision charged to operating
expenses is based on management's evaluation of potential losses in the loan
and lease portfolios and consideration of economic conditions.
NOTE B INVESTMENT SECURITIES
The following presents the details of the investment portfolio:
<TABLE>
<CAPTION>
GROSS GROSS AGGREGATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
At December 31, 1994
Securities Held to Maturity:
Restricted Equity Securities..... $ 49,200 $ -- $ -- $ 49,200
Debt Securities Issued by the
U.S. Treasury and Agencies...... 1,019,903 316 (21,124) 999,095
Debt Securities Issued by State
and Municipalities of the United
States.......................... 37,578 1,367 (805) 38,140
Debt Securities Issued by Foreign
Governments..................... 35,672 533 -- 36,205
Corporate Debt Securities........ -- -- -- --
Mortgage Backed-Securities....... 623,565 1,718 (31,219) 594,064
Other Debt Securities............ 20,042 12 (99) 19,955
---------- ------ -------- ----------
Totals......................... $1,785,960 $3,946 $(53,247) $1,736,659
========== ====== ======== ==========
Securities Available for Sale:
Equity Securities................ $ 1,113 $ 390 $ -- $ 1,503
Debt Securities Issued by the
U.S. Treasury and Agencies...... 615,001 201 (9,359) 605,843
Debt Securities Issued by State
and Municipalities of the United
States.......................... 3,560 8 (151) 3,417
Debt Securities Issued by Foreign
Governments..................... -- -- -- --
Corporate Debt Securities........ 3,878 2 (141) 3,739
Mortgage Backed-Securities....... 716,581 50 (20,903) 695,728
Other Debt Securities............ 53,637 1,552 (494) 54,695
---------- ------ -------- ----------
Totals......................... $1,393,770 $2,203 $(31,048) $1,364,925
========== ====== ======== ==========
</TABLE>
48
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS AGGREGATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
At December 31, 1993
Securities Held to Maturity:
Restricted Equity Securities..... $ 13,654 $ -- $ -- $ 13,654
Debt Securities Issued by the
U.S. Treasury and Agencies...... 2,144,180 24,266 -- 2,168,446
Debt Securities Issued by State
and Municipalities of the United
States.......................... 40,566 3,260 (3) 43,823
Debt Securities Issued by Foreign
Governments..................... 9,175 -- -- 9,175
Corporate Debt Securities........ -- -- -- --
Mortgage Backed-Securities....... 516,001 10,111 (989) 525,123
Other Debt Securities............ 30,014 1,093 -- 31,107
---------- ------- ------- ----------
Totals......................... $2,753,590 $38,730 $ (992) $2,791,328
========== ======= ======= ==========
Securities Available for Sale:
Equity Securities................ $ 1,008 $ -- $ -- $ 1,008
Debt Securities Issued by the
U.S. Treasury and Agencies...... 229,314 7,235 (52) 236,497
Debt Securities Issued by State
and Municipalities of the United
States.......................... 881 38 (1) 918
Debt Securities Issued by Foreign
Governments..................... -- -- -- --
Corporate Securities............. 6,201 57 (13) 6,245
Mortgage Backed-Securities....... 649,094 2,139 (4,062) 647,171
Other Debt Securities............ 1,614 -- -- 1,614
---------- ------- ------- ----------
Totals......................... $ 888,112 $ 9,469 $(4,128) $ 893,453
========== ======= ======= ==========
</TABLE>
The book values and estimated market values of investment securities as of
December 31, 1992 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
United States Treasury Securities.. $1,808,747 $39,312 $ (561) $1,847,498
Securities of Other United States
Government Corporations and Agen-
cies.............................. 589,828 12,430 (901) 601,357
Obligations of States and Political
Subdivisions...................... 59,774 2,549 (302) 62,021
Debt Securities Issued by Foreign
Governments....................... 1,897 -- -- 1,897
Corporate Securities............... 8,358 6,871 (14) 15,215
Mortgage-Backed Securities......... 493,449 14,118 (3,115) 504,452
Other Securities................... 74,185 2,568 -- 76,753
---------- ------- ------- ----------
Totals......................... $3,036,238 $77,848 $(4,893) $3,109,193
========== ======= ======= ==========
</TABLE>
49
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following presents an analysis of the contractual maturities of the
investment securities portfolio as of December 31, 1994:
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
------------ ---------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Securities Held to Maturity
Due in One Year or Less............................ $ 636,425 $ 632,798
Due After One Year Through Five Years.............. 391,510 374,324
Due After Five Years Through Ten Years............. 8,455 9,739
Due After Ten Years................................ 76,805 76,535
------------ ------------
1,113,195 1,093,396
Mortgage-Backed Securities........................... 623,565 594,064
Restricted Equity Securities......................... 49,200 49,200
------------ ------------
$1,785,960 $1,736,660
============ ============
Securities Available for Sale
Due in One Year or Less............................ $ 517,540 $ 516,537
Due After One Year Through Five Years.............. 150,753 142,804
Due After Five Years Through Ten Years............. 6,272 5,751
Due After Ten Years................................ 1,511 2,602
------------ ------------
676,076 667,694
Mortgage-Backed Securities........................... 716,581 695,728
Equity Securities.................................... 1,113 1,503
------------ ------------
$1,393,770 $1,364,925
============ ============
</TABLE>
Proceeds from sales and maturities of investment securities available for
sale during 1994 were $526,044,000. Gross gains of $281,000 and gross losses of
$17,350,000 were realized on those sales. The cumulative investment valuation
reserve was $(17,264,000) (net of taxes) as of December 31, 1994.
Investment securities carried at $3,056,198,000, $3,396,469,000 and
$3,418,254,000 were pledged to secure deposits of certain public (governmental)
entities, repurchase agreements and swap agreements at December 31, 1994, 1993
and 1992, respectively. The December 31, 1994 amount included investment
securities with a carrying value of $2,368,669,000 and a market value of
$2,330,632,000 which were pledged solely for repurchase agreements.
50
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE C LOANS
Loans consisted of the following at year-end:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Domestic Loans
Commercial and Industrial................. $1,830,803 $1,709,194 $1,864,102
Real Estate
Construction--Commercial................ 113,089 136,225 220,212
Residential................................. 17,882 35,078 40,422
Mortgage--Commercial.................... 1,240,959 1,230,558 991,821
Residential................................. 2,872,824 2,475,971 2,189,098
Installment............................... 741,612 676,170 655,861
---------- ---------- ----------
Total Domestic Loans........................ 6,817,169 6,263,196 5,961,516
---------- ---------- ----------
Foreign Loans............................... 696,734 593,497 608,633
---------- ---------- ----------
Subtotal.................................... 7,513,903 6,856,693 6,570,149
---------- ---------- ----------
Lease Financing
Direct.................................... 103,462 119,908 129,178
Leveraged................................. 274,628 281,767 264,255
---------- ---------- ----------
Lease Financing............................. 378,090 401,675 393,433
---------- ---------- ----------
Total Loans................................. $7,891,993 $7,258,368 $6,963,582
========== ========== ==========
Transactions in the reserve for possible loan losses were as follows:
<CAPTION>
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Balance at Beginning of Year................ $125,284 $128,626 $115,571
Provision Charged to Operations............. 21,921 54,188 50,071
Reserves Acquired........................... 1,437 -- --
Charge-Offs................................. (25,437) (65,732) (43,982)
Recoveries.................................. 25,303 8,202 6,966
---------- ---------- ----------
Net Charge-Offs........................... (134) (57,530) (37,016)
---------- ---------- ----------
Balance at End of Year.................... $148,508 $125,284 $128,626
========== ========== ==========
</TABLE>
Commercial and mortgage loans totaling $576,333,000 were pledged to secure
certain public deposits and Federal Home Loan Bank advances at December 31,
1994.
Certain directors and executive officers of Bancorp, its subsidiary
companies, companies in which they are principal owners, and trusts in which
they are involved, were loan customers of the Bank of Hawaii during 1994, 1993
and 1992. These loans were made in the ordinary course of business at normal
credit terms, including interest rate and collateral requirements, and do not
represent more than a normal risk of collection. Such loans at December 31,
1994, 1993 and 1992 amounted to $79,244,000, $83,877,000 and $91,084,000,
respectively. During 1994, the activity in these loans included new borrowings
of $29,967,000 and repayments of $29,923,000, and other adjustments of
$4,677,000 relating to the changes in directors and the companies and trusts in
which they are involved.
51
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE D PREMISES AND EQUIPMENT
Bancorp and its affiliates own and lease premises consisting primarily of
operating facilities, the great majority of which are located in Hawaii.
Bancorp has four significant properties all of which are in downtown Honolulu.
The largest is the condominium units in the Financial Plaza of the Pacific in
which the Bank of Hawaii's head office is situated. The capital leases are for
portions (less than 12.0%) of the Financial Plaza of the Pacific. The terms of
the leases are 60 years, further details of the capital lease are included in
the long term debt footnote. In addition, Bancorp owns a two-story building on
the outskirts of downtown Honolulu which houses data processing and certain
other operational functions, a five-story building which houses administrative
departments and FirstFed's five-story headquarters building. In 1993, the Bank
entered into a contract to build a 248,000 square foot facility in the Kapolei
area on Oahu. The building will be primarily used as an operations facility and
will also house a Bank of Hawaii branch. The contracts for construction of the
building total $43 million, $33.7 of which has been included as part of
premises and equipment. Depreciation will commence when the building is placed
in service in late 1995.
The following is a summary of data for major categories of premises and
equipment:
<TABLE>
<CAPTION>
ACCUMULATED NET
DEPRECIATION AND BOOK
COST AMORTIZATION VALUE
-------- ---------------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
December 31, 1994
Premises..................................... $236,619 $ (67,792) $168,827
Equipment.................................... 122,678 (73,806) 48,872
Capital Leases............................... 4,464 (357) 4,107
-------- --------- --------
$363,761 $(141,955) $221,806
======== ========= ========
December 31, 1993
Premises..................................... $187,614 $ (60,588) $127,026
Equipment.................................... 107,167 (66,933) 40,234
-------- --------- --------
$294,781 $(127,521) $167,260
======== ========= ========
December 31, 1992
Premises..................................... $172,614 $ (53,762) $118,852
Equipment.................................... 100,554 (63,023) 37,531
-------- --------- --------
$273,168 $(116,785) $156,383
======== ========= ========
</TABLE>
The amounts of depreciation and amortization (including capital lease
amortization) included in consolidated expense were $21,006,000, $18,520,000
and $16,551,000 in 1994, 1993 and 1992, respectively.
Bancorp's operating leases are for certain branch premises and data
processing equipment. The majority of the premise leases provide for a base
rent for a stipulated period with various renewal options. Portions of certain
properties are subleased to others for periods expiring in various years
through 2000. Lease terms generally provide for the lessee to pay operating
costs such as taxes and maintenance.
52
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum payments, by year and in the aggregate, for noncancelable
operating leases with initial or remaining terms of one year or more and
capital leases consisted of the following at December 31, 1994:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------ -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
1995................................................ $ 7 $ 13,154
1996................................................ 7 10,069
1997................................................ 7 8,553
1998................................................ 7 7,899
1999................................................ 7 6,713
Thereafter.......................................... 34,945 93,342
------------ -------------
Total Minimum Lease Payments........................ $ 34,980 $ 139,730
Amounts Representing Interest....................... 29,858 --
------------ -------------
Present Value of Net Minimum Lease Payments......... $ 5,122 --
============ =============
</TABLE>
Minimum future rentals receivable under subleases for noncancelable operating
leases at December 31, 1994, amounted to $2,554,000.
Rental expense for all operating leases consisted of:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Minimum Rentals................................... $ 21,219 $ 22,592 $ 19,793
Sublease Rental Income............................ (634) (583) (526)
-------- -------- --------
$ 20,585 $ 22,009 $ 19,267
======== ======== ========
</TABLE>
NOTE E DEPOSITS
Interest on deposit liabilities in 1994, 1993 and 1992 consisted of the
following:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Domestic Interest-Bearing Demand Accounts........... $ 42,321 $ 45,136 $ 64,381
Domestic Savings Accounts........................... 27,910 32,654 39,440
Domestic Time Accounts.............................. 65,908 77,736 159,433
Foreign Deposits.................................... 53,374 43,131 36,345
-------- -------- --------
$189,513 $198,657 $299,599
======== ======== ========
</TABLE>
Time deposits with balances of $100,000 or more in domestic banking offices
were $572,966,000 in 1994. Of this amount, $46,572,000 represents deposits of
public (governmental) entities which require collaterization by acceptable
securities. The majority of deposits in the foreign category are time deposits
in denominations of $100,000 or more.
53
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maturities of domestic time deposits of $100,000 or more at December 31,
1994, are summarized as follows:
<TABLE>
<CAPTION>
DOMESTIC
-------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C>
Under 3 Months........................................ $290,370
4 to 6 Months......................................... 93,335
7 to 12 Months........................................ 84,943
Over 12 Months........................................ 104,318
--------
$572,966
========
</TABLE>
NOTE F SHORT-TERM BORROWINGS
Details of short-term borrowings for 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
SECURITIES
SOLD UNDER OTHER
FUNDS AGREEMENTS COMMERCIAL SHORT-TERM
PURCHASED TO REPURCHASE PAPER BORROWINGS
---------- ------------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
1994
Amounts Outstanding December
31............................ $ 609,574 $2,136,204 $ 69,113 $525,362
Average Amount Outstanding
During Year................... 593,019 2,404,401 107,537 495,673
Maximum Amount Outstanding at
Any Month's End............... 655,026 2,730,270 176,072 557,293
Weighted-Average Interest Rate
During Year*.................. 4.27% 4.10% 3.44% 3.28%
Weighted-Average Interest Rate
on Balance Outstanding at End
of Year....................... 5.79% 5.26% 4.24% 3.92%
---------- ---------- -------- --------
1993
Amounts Outstanding December
31............................ $ 743,915 $2,509,550 $141,627 $438,339
Average Amount Outstanding
During Year................... 754,051 2,644,935 92,092 234,450
Maximum Amount Outstanding at
Any Month's End............... 967,121 2,995,725 141,627 507,356
Weighted-Average Interest Rate
During Year*.................. 3.20% 3.30% 2.96% 4.49%
Weighted-Average Interest Rate
on Balance Outstanding at End
of Year....................... 3.15% 3.35% 2.89% 2.79%
---------- ---------- -------- --------
1992
Amounts Outstanding December
31............................ $1,091,556 $2,232,508 $ 89,017 $167,056
Average Amount Outstanding
During Year................... 766,622 1,019,007 79,958 181,601
Maximum Amount Outstanding at
Any Month's End............... 1,091,556 2,232,508 93,346 240,024
Weighted-Average Interest Rate
During Year*.................. 3.65% 3.69% 4.15% 7.19%
Weighted-Average Interest Rate
on Balance Outstanding at End
of Year....................... 3.37% 3.39% 3.21% 3.73%
---------- ---------- -------- --------
</TABLE>
--------
* Average rates for the year are computed by dividing actual interest expense
on borrowings by average daily borrowings.
Funds purchased generally mature on the day following the date of purchase.
Commercial paper is issued by the parent corporation in various denominations
generally maturing 90 days or less from date of issuance.
Securities sold under agreements to repurchase were treated as financings and
the obligations to repurchase the identical securities sold were reflected as a
liability with the dollar amount of securities
54
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
underlying the agreements remaining in the asset accounts. At December 31,
1994, the weighted average contractual maturity of these agreements was 90 days
and represent investments by public (governmental) entities, primarily the
State of Hawaii ($1.3 billion) and a local municipality ($0.6 billion). A
schedule of maturities of these agreements are as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS
OF
DOLLARS)
<S> <C>
Overnight........................................ $ --
Less than 30 days................................ 361,222
30 to 90 days.................................... 938,170
Over 90 days..................................... 836,812
----------
$2,136,204
==========
</TABLE>
A line of credit totaling $50,000,000 is used to back up commercial paper
issued in the name of Bancorp. At December 31, 1994, there was no balance
outstanding. Fees on the unused amount of this line totaled $103,000.
Other short-term borrowings consist mainly of Foreign Call Deposits which
generally mature in 90 days and bear interest rates reflecting such maturities.
The Federal Home Loan Bank advances (secured by certain mortgage loans and FHLB
stock) mature within one year and bear interest rates between 5.91% and 6.80%.
There was also a one year Bank note for $100 million bearing a fixed interest
rate of 3.55% which matured in January 1995.
NOTE G LONG-TERM DEBT
Amounts outstanding as of year-end were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Medium-Term Notes................................... $604,441 $149,830 $ 85,000
Federal Home Loan Bank Advances..................... 133,400 103,500 33,500
Subordinated Notes.................................. 118,609 124,840 900
Capitalized Lease Obligations....................... 5,122 -- --
-------- -------- --------
$861,572 $378,170 $119,400
======== ======== ========
</TABLE>
The medium-term notes, which were issued in 1990, 1993, and 1994 are
unsecured. The 1990 notes carry five year terms and the 1993 notes carry two
year terms. The 1994 notes carry eighteen and twenty-four month terms. The
1990, 1993, and 1994 (with twenty-four month term) notes have floating interest
rates which are tied to the three-month LIBOR rate. These rates are adjusted
quarterly. The 1994 notes with the eighteen month terms have a fixed interest
rate of 5.68%.
The Federal Home Loan Bank advances bear interest at rates from 4.40% to
8.15%. The advances mature from 1995 through 2000. At December 31, 1994, loans
totaling $160,000,000 were pledged to secure these advances along with FHLB
stock.
The subordinated notes, which were issued in 1993, have a fixed interest rate
of 6.875% and mature in 2003.
The capitalized lease obligations are for certain condominium units in the
Financial Plaza of the Pacific. The leases have 60 year terms. The lease
payments allocated to the capital leases are fixed at $7,000 per year until
2002; $605,000 per year from 2003 to 2007 and $665,000 per year from 2008 to
2012. The rates are negotiable thereafter.
55
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt maturities for the five years succeeding December 31, 1994,
are $157,432,000 in 1995; $493,523,000 in 1996; $24,007,000 in 1997;
$28,007,000 in 1998 and $34,007,000 in 1999.
Interest paid on long-term debt in 1994 totaled $26,164,000.
NOTE H SHAREHOLDERS' EQUITY
Certain of Bancorp's consolidated subsidiaries (including Bank of Hawaii and
FirstFed) are subject to regulatory restrictions that limit cash dividends and
loans to Bancorp. As of December 31, 1994, approximately $387,795,000 of
undistributed earnings of Bancorp's consolidated subsidiaries were available
for distribution to Bancorp without prior regulatory approval.
The following is a breakdown of the unrealized valuation adjustment component
of shareholders' equity as of December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Foreign Exchange Translation Adjustment......... $ (858) $ (3,318) $ (3,248)
Investment Securities........................... (17,264) 3,855 977
--------- -------- --------
Unrealized Valuation Adjustments................ $ (18,122) $ 537 $ (2,271)
========= ======== ========
</TABLE>
NOTE I INTERNATIONAL OPERATIONS
The following table provides certain selected financial data for Bancorp's
international operations for the years ended:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
International
Average Assets............................... $1,699,168 $1,908,883 $1,864,876
Average Loans................................ 667,828 666,091 589,974
Average Deposits............................. 1,240,692 1,259,042 860,773
Operating Revenue............................ 97,134 94,096 105,652
Income Before Taxes.......................... 12,000 13,425 17,865
Net Income................................... 7,137 8,528 11,457
</TABLE>
Average assets primarily consist of short-term interest-bearing deposits with
foreign branches of U.S. banks and large international banks. On average, these
deposits were $802,833,000, $1,086,554,000 and $1,118,977,000 during 1994, 1993
and 1992, respectively.
To measure international profitability, Bancorp maintains an internal
transfer pricing system for the use of domestic funds and makes certain income
and expense allocations. Interest rates used in determining charges on advances
of funds are based on prevailing deposit rates. Overhead is allocated to
reflect services rendered by administration units to profit centers.
NOTE J CONTINGENT LIABILITIES
Bancorp is a defendant in various legal proceedings and, in addition, there
are various other contingent liabilities arising in the normal course of
business. After consultation with legal counsel, management does not anticipate
that disposition of these proceedings and contingent liabilities will have a
material effect upon the consolidated financial statements.
56
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE K RETIREMENT, POSTRETIREMENT BENEFITS AND PROFIT-SHARING PLANS
Bancorp has a non-contributory, defined-benefit retirement plan (Plan) which
covers salaried employees of Bancorp and participating subsidiaries who have
met the Plan's eligibility requirements. Benefits are based on years of service
and average final compensation. Bancorp's funding policy is to contribute
annually an amount that falls within the minimum to maximum amount that can be
deductible for income tax purposes. Plan assets are managed by investment
advisors in accordance with investment policies established by the Plan
Trustees. Investments are generally marketable securities including stocks,
bonds and money market funds.
Bancorp has a non-qualified Excess Benefits Plan which covers all employees
of Bancorp and participating subsidiaries who have met eligibility
requirements. The unfunded Excess Benefits Plan recognizes the liability to
Plan participants for amounts exceeding those allowed to be included in the
qualified defined benefit Plan. The table below includes the status of this
Excess Benefit Plan.
In January 1995, Bancorp announced a restructuring of these plans. The
benefits provided by the plans will be "frozen" as of December 31, 1995 with a
phase out provided to certain groups of staff members. In conjunction with this
restructuring, qualifying staff have been offered an early retirement option.
The option for staff members who are at least 50 years of age with 9 years or
more of eligible service provides an extra 5 years of service and 5 years of
age for benefit calculation purposes. In addition, the staff member will
receive $250.00 per month until age 65 to defray medical benefit costs. At this
point, it is not certain as to how many of these qualifying staff members will
accept the offer of early retirement and the ultimate financial impact is not
determinable. The restructuring will be accounted for as a curtailment.
The following table sets forth the Plans' funded status and amounts
recognized in Bancorp's statement of condition at December 31.
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
----------------------------
<S> <C> <C> <C>
Actuarial Present Value of Benefit Obligations:
Vested Benefit Obligation...................... $ 59,208 $ 56,553 $ 44,369
======== ======== ========
Accumulated Benefit Obligation................. $ 63,445 $ 61,038 $ 48,154
======== ======== ========
Projected Benefit Obligation................... $ 98,443 $ 99,831 $ 83,614
Plan Assets (Primarily Marketable Securities) at
Fair Value...................................... 78,689 73,064 59,456
-------- -------- --------
Projected Benefit Obligation in Excess of Plan
Assets.......................................... (19,754) (26,767) (24,158)
Unrecognized Net (Gain)/Loss..................... (3,766) 2,287 (1,892)
Unrecognized Net Obligation at January 1, 1985
Being Recognized Over 15 Years.................. (1,841) (2,220) (2,600)
Prior Service Cost Not Yet Recognized in Net
Periodic Pension Cost........................... 1,907 2,333 3,121
-------- -------- --------
Accrued Pension Liability Recognized in the
Statement of Condition.......................... $(23,454) $(24,367) $(25,529)
======== ======== ========
</TABLE>
57
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net pension costs included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service Cost--Benefits Earned During the Period... $ 7,561 $ 6,803 $ 6,172
Interest Cost on Projected Benefit Obligation..... 7,299 6,626 5,786
Actual Return on Assets........................... 1,533 (5,992) (2,548)
Net Amortization and Deferral..................... (8,080) 557 (2,096)
-------- -------- --------
Net Periodic Pension Cost......................... $ 8,313 $ 7,994 $ 7,314
======== ======== ========
</TABLE>
Assumptions used in the accounting were as follows:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Weighted-Average Discount Rates............ 8.25% 7.5% 8.0%
Rates of Increase in Compensation Levels... 5.0% 5.0% 5.5%
Expected Long-Term Rate of Return on As-
sets...................................... 8.5% 8.5% 8.5%
===== ==== ====
</TABLE>
There is a deferred-compensation profit-sharing plan (Profit Sharing Plan)
for the benefit of all employees of Bancorp and its subsidiaries who have met
the Profit Sharing Plan's eligibility requirements. The Profit Sharing Plan
provides for annual contributions based on a schedule of performance levels.
The schedule establishes the percentage of adjusted net income to be
contributed based on Adjusted Returns on Equity. Members of the Profit Sharing
Plan are permitted to elect to invest their annual allocation in shares of
common stock of Bancorp Hawaii, Inc., and to receive up to 50% of their annual
allocation in cash. Bancorp contributions amounted to $7,344,000 in 1994;
$9,602,000 in 1993 and $9,886,000 in 1992.
The restructuring of the defined benefit plan, mentioned earlier will affect
the Profit Sharing Plan. The Profit Sharing Plan will be enhanced with a
company matching of the 401(k) contribution of $1.25 for each $1.00 contributed
by the staff member up to 2% of their compensation. Bancorp will also establish
a new defined contribution plan for which it will contribute 4% of annual
compensation to staff members meeting certain eligibility and vesting
requirements. These changes are expected to be implemented on January 1, 1996.
Bancorp adopted SFAS No. 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions" (SFAS 106) as of January 1, 1993. The defined
benefit Plan provides group life, dental and medical insurance coverage for
retirees. Over the last several years, the programs have been modified to
provide a "sharing of costs" where both the employer and employees pay a
portion of the premium costs. Most of the employees of Bancorp and its
subsidiaries are covered who have met the eligibility requirements. Bancorp has
elected to recognize the transition obligation over 20 years as allowed upon
adoption of SFAS 106. Bancorp has no segregated assets to provide
postretirement benefits as of December 31, 1994 and 1993.
58
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following schedule presents the funded status of the liability as of
December 31, 1994 and 1993 (in thousands of dollars).
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation
Retirees......................................... (8,785) (8,869)
Other Fully Eligible Plan Participants........... (6,243) (6,038)
Other Active Plan Participants................... (8,863) (9,447)
------------ ------------
Total.......................................... (23,891) (24,354)
Plan Assets........................................ 0 0
------------ ------------
Accumulated Postretirement Benefit Obligation in
Excess of Plan Assets........................... (23,891) (24,354)
Unrecognized Transition Obligation Being Amortized
Over 20 Years..................................... 13,166 13,337
Unrecognized Net Gain/Loss......................... (2,833) 699
------------ ------------
Accrued Postretirement Benefit Liability....... (13,558) (10,318)
============ ============
The Net Periodic Postretirement Benefit Cost was:
<CAPTION>
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Service Cost....................................... $ 1,089 $ 1,151
Interest Cost...................................... 1,820 1,678
Amortization of Transition Obligation.............. 731 702
------------ ------------
Net Periodic Postretirement Benefit Cost......... $ 3,640 $ 3,531
============ ============
</TABLE>
The following table presents the assumptions utilized to determine the
expense and liability:
<TABLE>
<S> <C> <C>
Health Care Cost Trend Rate......................................... 15.0% 15.0%
Dental Care Cost Trend Rate......................................... 7.5% 7.5%
Weighted Average Discount Rate...................................... 7.5% 7.5%
Rate of Increase in Compensation Level.............................. 5.0% 5.0%
</TABLE>
The health care cost trend rate is projected at 15.0% per year until the year
2000 leveling to the ultimate 7.0%. A one percent increase in that trend rate
of assumption (with all other assumptions remaining constant) would increase
the service and interest cost components of the net periodic postretirement
cost from $2,909,000 to $3,336,000. The impact of this one percent increase in
the trend rates on the accumulated postretirement benefit obligation would be
an increase to $26,681,000 at December 31, 1994.
NOTE L STOCK OPTION PLANS
The Bancorp Stock Option Plans (the Plans) are administered by the
Compensation Committee appointed by Bancorp's Board of Directors. The Plans,
which are identical, allow participants to purchase shares of common stock for
a specified exercise price anytime beginning one year after the option has been
granted and expiring 10 years thereafter. The exercise price is equal to the
fair market value of the stock on the date the option was granted. At year-end,
the exercise price (per share) of options outstanding were between $10.03 and
$32.50. The price (per share) range of options exercised during 1994 were
between $7.00 and $29.50 on an actual price basis. The following table presents
the activity of Stock Option Plans for the years indicated:
59
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES UNDER STOCK OPTION PLANS
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding at beginning of year............ 1,340,967 1,254,880 1,276,969
Add (Deduct):
Granted (Including Stock Dividends)....... 812,685 269,000 192,000
Canceled or Surrendered................... (71,117) (31,370) (31,305)
Exercised................................. (240,496) (151,543) (182,784)
---------- ---------- ----------
Outstanding at End of Year.................. 1,842,039 1,340,967 1,254,880
---------- ---------- ----------
Options Exercisable......................... 1,721,288 1,013,451 846,696
Shares Available for Future Grants.......... 1,820,346 23,173 270,293
========== ========== ==========
</TABLE>
NOTE M OTHER OPERATING EXPENSES
Other operating expenses at year-end were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
FDIC Insurance..................................... $ 13,592 $ 15,119 $ 17,162
Legal and Other Professional Fees.................. 18,209 11,847 11,844
Advertising........................................ 10,288 9,675 8,433
Stationery and Supplies............................ 8,769 7,485 7,199
Other.............................................. 61,181 50,636 46,299
--------- -------- --------
Total............................................ $ 112,039 $ 94,762 $ 90,937
========= ======== ========
</TABLE>
NOTE N INCOME TAXES
Effective January 1, 1992, Bancorp adopted Financial Accounting Standards
Board Statement No. 109, "Accounting for Income Taxes," and has reported the
cumulative effect of that change in the method of accounting for income taxes
in the 1992 Consolidated Statement of Income.
The income tax provision includes the following components:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current............................................ $ 93,675 $ 57,975 $ 63,960
Deferred........................................... (16,034) 21,865 8,212
-------- -------- --------
Provision for Income Taxes......................... $ 77,641 $ 79,840 $ 72,172
======== ======== ========
</TABLE>
60
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The 1994, 1993 and 1992 tax provision includes state tax expense of
$13,786,000, $14,719,000 and $13,012,000, respectively. The current provision
also includes taxes on the gains and losses on the sale of securities of
$(7,051,000); $3,495,000 and $1,159,000 for 1994, 1993 and 1992, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of December 31, 1994,
1993 and 1992 reclassified based on the tax returns as filed, are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Deferred tax liabilities:
Lease transactions.............................. $175,350 $166,511 $152,257
Deferred investment tax credits................. 7,318 7,652 7,809
Accelerated depreciation........................ 1,567 2,335 2,244
Core deposit intangible......................... 11,270 12,335 13,400
-------- -------- --------
Total deferred tax liabilities................ 195,505 188,833 175,710
-------- -------- --------
Deferred tax assets:
Reserve for loan losses......................... 53,683 45,223 46,692
Accrued pension cost............................ 7,728 7,227 7,968
Net operating loss carry forwards............... 2,245 3,988 2,898
Securities valuation reserve.................... 11,871 (2,110) --
Other--net...................................... 2,694 1,690 4,869
-------- -------- --------
Total deferred tax assets..................... 78,221 56,018 62,427
Valuation allowance for deferred tax assets..... (1,523) (2,026) (2,898)
-------- -------- --------
Net deferred tax assets....................... 76,698 53,992 59,529
-------- -------- --------
Net deferred tax liabilities.................... $118,807 $134,841 $116,181
======== ======== ========
</TABLE>
For financial statement purposes, Bancorp had deferred investment tax credits
for property purchased for lease to customers of $7,318,000, $7,652,000 and
$7,809,000 at December 31, 1994, 1993 and 1992, respectively. In 1994, 1993 and
1992, investment tax credits included in the computation of the provision for
income taxes were $334,000; $157,000 and $568,000, respectively.
The following analysis reconciles the Federal statutory income tax rate to
the effective consolidated income tax rate:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory Federal Income Tax Rate............................ 35.0% 35.0% 34.0%
Increase (Decrease) in Tax Rate Resulting From:
State Taxes, Net of Federal Income Tax and Foreign Tax
Adjustments............................................... 4.6 4.5 4.5
Tax-Exempt Interest Income................................. (0.5) (0.6) (1.1)
Effect of Tax Rate Change on Deferred Tax Assets and
Liabilities............................................... -- 0.2 --
Low Income Housing and Investment Tax Credit............... (0.4) (0.5) (0.3)
Other...................................................... 1.0 (1.0) 1.1
---- ---- ----
Effective Tax Rate........................................... 39.7% 37.6% 38.2%
==== ==== ====
</TABLE>
FirstFed has qualified under provisions of the Internal Revenue Code that
permit federal income taxes to be computed after deduction of additions to bad
debt reserves. These deductions are subject to the
61
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
alternative minimum tax and are computed as a percentage of taxable income,
subject to certain limitations based on aggregate loans and savings deposits.
The percentage of taxable income bad debt deduction available to FirstFed was
8.0% of taxable income for 1994, 1993 and 1992. For financial statement
purposes, no deferred income tax liability has been recorded for tax bad debt
reserves that arose in tax years beginning before December 31, 1987. Such tax
bad debt reserves total approximately $18.2 million for which no provision for
federal income taxes has been provided. If these amounts are used for purposes
other than to absorb bad debt losses, they will be subject to federal income
taxes at the then applicable rates.
NOTE O FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Bancorp is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
to manage its own exposure to fluctuations in interest and foreign exchange
rates. These financial instruments include commitments to extend credit,
foreign exchange contracts, standby letters of credit, and interest rate swaps.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statements of condition.
The contract or notional amounts of those instruments reflect the extent of
involvement Bancorp has in particular classes of financial instruments. The
FASB has segregated certain of these off balance sheet financial instruments
which includes foreign exchange and interest rate swap type of instruments as
derivative financial instruments. FASB has further categorized these derivative
financial instruments into "held or issued for purposes other than trading" or
"trading." Bancorp does not currently utilize these derivative financial
instruments for trading purposes.
Bancorp's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual or notional amount
of those instruments. Bancorp uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
For derivative financial instruments, the contract or notional amounts do not
represent exposure to credit loss. Bancorp controls the credit risk of these
instruments through credit approvals, limits, and monitoring procedures.
Descriptions of these financial instruments with off balance sheet risks
follows:
Traditional Off Balance Sheet Risk Instruments
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any terms or conditions established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. Bancorp evaluates each customer's credit worthiness on an
individual basis. The amount of collateral obtained is based on management's
credit evaluation of the customer. Collateral held varies, but may include
cash, accounts receivable, inventory, and property, plant, and equipment.
Standby letters of credit are conditional commitments issued by Bancorp to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support borrowing agreements. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. Bancorp holds cash and deposits as collateral
supporting those commitments for which collateral is deemed necessary.
Derivative Financial Instruments Held or Issued for Other Than Trading
Foreign exchange contracts are contracts for delayed delivery of a foreign
currency in which the seller agrees to make delivery at a specified future date
at a specified price. Risks arise from the possible inability of
62
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
counterparties to meet the terms of their contracts and from movements in
exchange rates and interest rates. Collateral is generally not required for
these transactions. Net revenue (loss) on foreign exchange contracts totaled
$0.2 million, $1.2 million and $(1.0) million for 1994, 1993 and 1992,
respectively.
Bancorp enters into various interest-rate swaps in managing its interest-rate
risk. In these swaps, Bancorp agrees to exchange, at specified intervals, the
difference between fixed- and floating-interest amounts calculated on an
agreed-upon notional principal amount. Bancorp used swap agreements to
effectively convert portions of its floating rate loans to a fixed rate basis.
These swap transactions allowed Bancorp to better match the funding source
which is a portion of Bancorp's core deposit base. The core deposit base,
although subject to immediate withdrawal, displays a longer term fixed
character. At December 31, 1994, $1.5 billion of such "receive-fixed" swaps
were in effect. In addition, Bancorp had entered into "pay fixed" swap
agreements, prior to 1994, that effectively converted a portion of its floating
rate liabilities to a fixed rate basis. These swap transactions were entered
into to fix the funding costs for specific term loans. At December 31, 1994,
$119.3 million of such "pay fixed" swaps were in effect. The net amount payable
or receivable from interest-rate swap agreements is accrued as an adjustment to
interest income. The related amount payable or receivable from counter parties
is included in accrued interest payable or receivable. The fair value of the
swap agreements are not recognized in the financial statements.
Bancorp's current credit exposure on swaps is limited to the value of
interest-rate swaps that have become favorable to Bancorp. At December 31,
1994, the market value of pay fixed interest-rate swaps was $1.8 million and
the market value of receive fixed interest rate swaps was $(93.2) million. The
net fair value of all positions was $(91.4) million. Net revenue on interest
rate swap agreements totaled $7.7 million, $14.1 million and $0.03 million for
1994, 1993 and 1992, respectively.
The table below summarizes by notional amounts the activity for each major
category of swaps. Bancorp had no deferred gains or losses relating to
terminated swap contracts in 1994.
<TABLE>
<CAPTION>
RECEIVE PAY
FIXED FIXED
------------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Balance, December 31, 1991.......................... $ -- $ 43,103
Additions......................................... 150,000 --
Maturities/amortizations.......................... -- (7,627)
------------- -----------
Balance, December 31, 1992.......................... $ 150,000 $ 35,476
Additions......................................... 1,250,000 100,000
Maturities/amortizations.......................... (121,231) (15,655)
------------- -----------
Balance, December 31, 1993.......................... $ 1,278,769 $ 119,821
Additions......................................... 350,000 --
Maturities/amortizations.......................... (156,719) (524)
------------- -----------
Balance, December 31, 1994.......................... $ 1,472,050 $ 119,297
============= ===========
</TABLE>
63
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The approximate annual maturities of swap agreements outstanding as of
December 31, 1994 were:
<TABLE>
<CAPTION>
NOTIONAL PRINCIPAL EXPECTED TO MATURE IN
---------------------------------------------------------
1995 1996 1997 1998 1999 TOTAL
-------- -------- -------- -------- ------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Pay-Fixed Interest Rate
Swaps:
Fixed Maturity........ $100,000 $ 15,000 $ -- $ -- $ -- $115,000
Pay Rate............. 4.03% 8.35% -- % -- % -- %
Receive Rate......... 6.78% -- % -- % -- % -- %
Amortizing (1)........ -- 4,000 -- -- -- 4,000
Pay Rate............. -- % 7.49% -- % -- % -- %
Receive Rate......... 6.50% -- % -- % -- % -- %
Receive-Fixed Interest
Rate Swaps:
Fixed Maturity........ $300,000 $260,000 $240,000 $150,000 $ -- $950,000
Pay Rate............. 7.02% -- % -- % -- % -- %
Receive Rate......... 6.12% 5.17% 4.94% 5.32% -- %
Amortizing (1)........ 61,000 53,000 67,000 211,000 130,000 522,000
Pay Rate............. 6.00% -- % -- % -- % -- %
Receive Rate......... 5.09% 5.10% 5.41% 5.05 5.31%
</TABLE>
--------
(1) Amortization estimated utilizing average prepayment speeds provided by
various dealers in these instruments.
NOTE P FAIR VALUES OF FINANCIAL INSTRUMENTS
In December 1991, the FASB issued SFAS No. 107, "Disclosures about Fair Value
of Financial Instruments." This statement requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
Statement 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of Bancorp.
The following methods and assumptions were used by Bancorp in estimating its
fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amounts reported in the balance
sheet for cash and short-term investments approximate those assets' fair
values.
Investment Securities Held to Maturity, Investment Securities Available for
Sale and Trading Securities: Fair values for 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: Fair values for loans are estimated for portfolios of loans with
similar financial characteristics. Loans are segregated by type such as
commercial, real estate, consumer, and foreign. Each loan category is
further segmented into fixed and adjustable rate interest terms and by
performing and non-performing
64
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
categories. Fair values are calculated by discounting scheduled cash flows
through the estimated maturity using estimated discount rates which reflect
credit and interest rate risks inherent in the loan.
Deposit Liabilities: Fair values for non-interest bearing and interest
bearing demand deposits and savings are, by definition, equal to the amount
payable on demand at their reporting date (i.e., their carrying amounts).
Fair values for time deposits are estimated using discounted cash flow
analyses. Discount rates reflect rates currently offered for deposits of
similar remaining maturities.
Short-Term Borrowings: The carrying amounts of funds purchased, securities
sold under agreements to repurchase, commercial paper, and other short-term
borrowings approximate their fair values.
Long-Term Debt: Fair values for long-term debt are estimated using
discounted cash flow analyses, based on Bancorp's current incremental
borrowing rates for similar types of borrowings.
Off-Balance Sheet Instruments: Fair values for off-balance sheet
instruments (e.g., commitments to extend credit, standby letters of credit,
commercial letters of credit, foreign exchange and swap contracts, and
interest rate swap agreements) are based on fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing, current settlement
values, or quoted market prices of comparable instruments.
The following table presents the fair values of Bancorp's financial
instruments at December 31, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
1994 1993 1992
--------------------- --------------------- ---------------------
BOOK BOOK BOOK
OR OR OR
NOTIONAL FAIR NOTIONAL FAIR NOTIONAL FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL INSTRUMENTS--
ASSETS
Loans(1)................ $7,327,700 $7,364,800 $6,704,100 $6,901,000 $6,407,000 $6,403,900
Investment
Securities(2).......... 3,150,900 3,101,600 3,647,000 3,684,800 3,036,200 3,109,200
Other Financial Assets
(3).................... 794,900 794,900 969,800 969,800 2,148,800 2,148,800
FINANCIAL INSTRUMENTS--
LIABILITIES
Deposits................ 7,115,100 7,055,900 7,005,000 7,019,700 7,890,500 7,896,000
Short Term
Borrowings(4).......... 3,340,300 3,340,300 3,833,400 3,833,400 3,580,100 3,580,100
Long Term Debt (5)...... 856,500 821,300 378,200 400,200 119,400 119,300
FINANCIAL INSTRUMENTS--
OFF-BALANCE SHEET
Financial Instruments
Whose Contract Amounts
Represent Credit Risk:
Commitments to Extend
Credit................ 3,187,455 9,548 2,692,081 8,113 2,211,870 6,438
Standby Letters of
Credit................ 233,276 4,416 245,383 4,599 254,909 4,759
Commercial Letters of
Credit................ 144,319 210 102,349 177 98,664 164
Financial Instruments
Whose Notional or
Contract Amounts Exceed
the Amount of Credit
Risk:
Foreign Exchange and
Swap Contracts........ 285,390 229 339,882 61 407,901 (806)
Interest Rate Swap
Agreements............ 1,591,347 (91,420) 1,398,590 (277) 185,476 (967)
</TABLE>
--------
(1) Includes all loans, net of reserve for loan losses, and excludes leases.
(2) Includes both held to maturity and available for sale securities.
(3) Includes interest bearing deposits, securities purchased under agreements
to resell, funds sold and trading securities.
(4) Includes security sold under agreements to repurchase, funds purchased and
short term borrowings.
(5) Excludes capitalized lease obligations.
65
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE Q PARENT COMPANY FINANCIAL STATEMENTS
Condensed financial statements of Bancorp Hawaii, Inc. only follow:
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Dividends From
Bank Subsidiaries............................... $ 69,416 $ 36,599 $ 34,475
Other Subsidiaries.............................. 34,000 39,500 2,700
Interest Income
From Subsidiaries............................... 4,873 3,219 4,048
From Others..................................... 1,029 824 890
Other Income...................................... 47 77 84
Securities Gains (Losses)......................... 10 (67) 1,061
-------- -------- --------
Total Income.................................... 109,375 80,152 43,258
Interest Expense.................................. 6,505 5,914 8,418
Other Expense..................................... 7,323 6,532 7,710
-------- -------- --------
Total Expense................................... 13,828 12,446 16,128
Income Before Income Taxes and Equity in
Undistributed Income of Subsidiaries............. 95,547 67,706 27,130
Income Tax Benefits............................... 2,084 2,427 2,585
-------- -------- --------
Income Before Equity in Undistributed Income...... 97,631 70,133 29,715
Equity in Undistributed Income of Subsidiaries
Bank Subsidiaries............................... 32,044 79,310 79,898
Other Subsidiaries.............................. (11,937) (16,876) 17,911
-------- -------- --------
20,107 62,434 97,809
-------- -------- --------
Net Income...................................... $117,738 $132,567 $127,524
======== ======== ========
</TABLE>
66
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Assets
Cash in Bank of Hawaii........................ $ 160 $ 188 $ 174
Investment Securities Available for Sale...... 1,503 1,008 1,008
Securities Purchased from Bank Subsidiaries
Under Agreements to Resell................... -- -- 63,900
Equity in Net Assets of Bank Subsidiaries..... 788,864 774,493 692,086
Equity in Net Assets of Other Subsidiaries.... 134,810 147,719 164,708
Interest Bearing Deposits from Bank........... 79,200 146,700 --
Advances to Other Subsidiaries................ -- -- 18,000
Net Loans..................................... 12,963 16,364 20,216
Trading Securities............................ 472 876 --
Other Assets.................................. 84,367 55,160 57,709
---------- ---------- ----------
Total Assets................................ $1,102,339 $1,142,508 $1,017,801
========== ========== ==========
Liabilities and Shareholders' Equity
Commercial Paper and Short-Term Borrowings.... $ 69,114 $ 141,627 $ 89,017
Long-Term Debt................................ 55,000 50,000 85,000
Other Liabilities............................. 11,437 12,777 15,456
Shareholders' Equity.......................... 966,788 938,104 828,328
---------- ---------- ----------
Total Liabilities and Shareholders' Equity.. $1,102,339 $1,142,508 $1,017,801
========== ========== ==========
</TABLE>
67
<PAGE>
BANCORP HAWAII, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating Activities
Net Income..................................... $117,738 $132,567 $127,524
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Provision for Loan Losses and Amortization
Expense...................................... 4,730 4,301 5,047
Undistributed Income from Subsidiaries........ (20,107) (62,434) (97,809)
Net Decrease (Increase) in Trading Securities. 403 (876) 3,702
Other Assets and Liabilities, Net............. (35,349) (4,432) 521
-------- -------- --------
Net Cash Provided by Operating Activities..... 67,415 69,126 38,985
Investing Activities
Investment Securities Transactions, Net........ -- -- (1,008)
Securities Purchased Under Agreements to
Resell, Net................................... -- 63,900 100
Interest Bearing Deposits...................... 67,500 (146,700) --
Loan Transactions, Net......................... 3,214 3,852 (12,530)
Capital Contributions to Subsidiaries, Net..... (249) (175) (10)
Repayments from (Advances Made) to
Subsidiaries, Net............................. -- 18,000 39,830
-------- -------- --------
Net Cash Provided (Used) by Investing
Activities.................................. 70,465 (61,123) 26,382
Financing Activities
Net Proceeds (Repayments) from Borrowings...... (67,513) 17,610 (42,571)
Proceeds from Sale of Stock.................... 18,016 14,866 13,322
Stock Repurchased.............................. (44,297) (2,052) (657)
Cash Dividends Paid............................ (44,114) (38,413) (35,351)
-------- -------- --------
Net Cash Used by Financing Activities........ (137,908) (7,989) (65,257)
Increase (Decrease) in Cash.................. (28) 14 110
Cash at Beginning of Year...................... 188 174 64
-------- -------- --------
Cash at End of Year.......................... $ 160 $ 188 $ 174
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
68
<PAGE>
PART III
The following information required by the Instructions to Form 10-K is
incorporated herein by reference from various pages of Bancorp Hawaii, Inc.
Proxy Statement for the annual meeting of shareholders to be held on April 26,
1995, as summarized below:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Election of Directors on pages 2-8. Disclosure of Compliance with section 16
(a) of the Securities Exchange Act on page 5.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation on pages 10-20.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Voting Securities and Principal Holders Thereof and Election of Directors on
pages 1-8.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others on pages 20, 22-23.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
The following consolidated financial statements of Bancorp Hawaii, Inc.
and subsidiaries are included in Item 8:
Consolidated balance sheets--December 31, 1994, 1993, and 1992
Consolidated statements of income--Years ended December 31, 1994,
1993, and 1992
Consolidated statements of shareholders' equity--Years ended
December 31, 1994, 1993, and 1992
Consolidated statements of cash flows--Years ended December 31,
1994, 1993, and 1992
Notes to consolidated financial statements--December 31, 1994
All other schedules to the consolidated financial statements stipulated
by Article 9 of Regulation S-X and all other schedules to the financial
statements of the registrant required by Article 5 of Regulation S-X
are not required under the related instructions or are inapplicable and
therefore have been omitted.
Financial statements (and summarized financial information) of (1)
unconsolidated subsidiaries or (2) 50% or less owned persons accounted
for by the equity method have been omitted because they do not,
considered individually or in the aggregate, constitute a significant
subsidiary.
69
<PAGE>
EXHIBIT INDEX
The following exhibits are submitted herewith:
Exhibit #10--Material Contracts
(a) Bancorp Hawaii, Inc., One-Year Incentive Plan Effective January 1,
1994
(b) Bancorp Hawaii, Inc., Executive Officer One-Year Incentive Plan
Effective January 1, 1995
(c) Bancorp Hawaii, Inc., One-Year Incentive Plan Effective January 1,
1995
(d) Bancorp Hawaii, Inc., Sustained Profit Growth Plan Effective
January 1, 1995
(e) Form of Amended Key Executive Change-in-Control Severance
Agreement--October 1994 for
R. J. Dahl
T. J. Kappock
(f) Form of Key Executive Change-in-Control Severance Agreement--
October 1994 for A. Kuioka
(g) Form of Executive Change-in-Control Severance Agreement for D.
Houle
Exhibit #11--Statement Regarding Computation of Per Share Earnings.
Exhibit #21--Corporate Organization Chart, Subsidiaries of the
Registrant
Exhibit #23--Consent of Independent Auditors
Exhibit #27--Financial Data Schedule
The following exhibits are incorporated herein by reference:
Exhibit #3--Articles of Incorporation and By-laws Exhibit #3 of Form
10-K for fiscal year ended December 31, 1990.
Exhibit #10--Material Contracts
. Bancorp Hawaii, Inc. Stock Option Plan of 1983 Exhibit 4(a) of
Registration No. 2-841164.
. Bancorp Hawaii, Inc. Stock Option Plan of 1988 Exhibit 4(a) of
Registration No. 33-23495.
. Bancorp Hawaii, Inc. Stock Option Plan of 1994 Exhibit 4(a) of
Registration No. 33-54777.
. Bancorp Hawaii, Inc. Sustained Profit Growth Plan Effective
January 1, 1993 Exhibit 10(b) of Bancorp Hawaii, Inc. Form 10K
for the fiscal year ended December 31, 1993.
. Bancorp Hawaii, Inc., One-Year Executive Incentive Plan Effective
January 1, 1994.
--Exhibit B of Bancorp Hawaii, Inc. 1994 Proxy Statement dated
March 10, 1994.
. Bancorp Hawaii, Inc., Sustained Profit Growth Plan Effective
January 1, 1994.
--Exhibit C of Bancorp Hawaii, Inc. 1994 Proxy Statement dated
March 10, 1994.
. Form of Key Executive Severance Agreement Exhibit 19(e) of
Bancorp Hawaii, Inc. Form 10K for the fiscal year ended December
31, 1989 for L. M. Johnson
(b) Registrant did not file a Form 8-K during the quarter ended December 31,
1994.
(c) Response to this item is the same as Item 14(a).
(d) Response to this item is the same as Item 14(a).
70
<PAGE>
STATISTICAL DISCLOSURES
CONTENTS AND REFERENCE
The following statistical disclosures required by the Instructions to Form
10-K are summarized below:
ITEM I. DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY; INTEREST
RATES AND INTEREST
DIFFERENTIAL
Interest Differential--Table 22 on page 38.
Consolidated Average Balances, Income and Expense, and Yield and Rates--
Taxable Equivalent--Table 13 on page 28.
Average Loans--Table 19 on page 36.
Average Deposits--Table 21 on page 37.
ITEM II. INVESTMENT PORTFOLIO
Note B to the Audited Financial Statements on pages 48-50.
Maturity Distribution--Table 17 on page 35.
ITEM III. LOAN PORTFOLIO
Loan Portfolio Balances--Table 3 on page 13.
Interest Rate Sensitivity--Table 20 on page 36.
Non-Performing Assets and Accruing Loans Past Due 90 Days or More--Table 6
on page 19.
Foregone Interest on Non-Accruals--Table 5 on page 18.
Potential Problem Loans--Narrative on page 24.
Geographic Distribution of International Assets--Table 10 on page 24.
ITEM IV. SUMMARY OF LOAN LOSS EXPERIENCE
Summary of Loan Loss Experience--Table 7 on page 21.
Allocation of Loan Loss Reserve--Table 8 on page 22.
Narrative on pages 19 to 20.
ITEM V. DEPOSITS
Consolidated Average Balances, Income and Expense, and Yield and Rates--
Taxable Equivalent--Table 13 on page 28.
Note E to the Audited Financial Statements on pages 53-54.
ITEM VI. RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Return on Assets........................................ 0.93% 1.05% 1.10%
Return on Equity........................................ 12.13% 14.85% 16.25%
Dividend Payout Ratio................................... 37.82% 29.37% 28.22%
Equity to Assets Ratio.................................. 7.71% 7.09% 6.74%
</TABLE>
ITEM VII. SHORT-TERM BORROWINGS
Note F to the Audited Financial Statements on pages 54-55.
71
<PAGE>
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.
Date: March 17, 1995 Bancorp Hawaii, Inc.
/s/ Lawrence M. Johnson
By:__________________________________
LAWRENCE M. JOHNSON,
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
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 IN THE CAPACITIES AND ON THE DATE INDICATED.
/s/ Lawrence M. Johnson /s/ H. Howard Stephenson
------------------------------------- -------------------------------------
LAWRENCE M. JOHNSON H. HOWARD STEPHENSON
DIRECTOR DIRECTOR
/s/ Peter D. Baldwin /s/ Fred E. Trotter
------------------------------------- -------------------------------------
PETER D. BALDWIN FRED E. TROTTER
DIRECTOR DIRECTOR
/s/ Mary G. F. Bitterman /s/ Charles R. Wichman
------------------------------------- -------------------------------------
MARY G. F. BITTERMAN CHARLES R. WICHMAN
DIRECTOR DIRECTOR
/s/ Thomas B. Hayward /s/ K. Tim Yee
------------------------------------- -------------------------------------
THOMAS B. HAYWARD K. TIM YEE
DIRECTOR DIRECTOR
/s/ David A. Heenan /s/ David A. Houle
------------------------------------- -------------------------------------
DAVID A. HEENAN DAVID A. HOULE
DIRECTOR CHIEF FINANCIAL OFFICER
/s/ Stuart T. K. Ho /s/ Denis K. Isono
------------------------------------- -------------------------------------
STUART T. K HO DENIS K. ISONO
DIRECTOR CHIEF ACCOUNTING OFFICER
/s/ Herbert M. Richards, Jr.
-------------------------------------
HERBERT M. RICHARDS, JR.
DIRECTOR
72
<PAGE>
Exhibit 10(a)
BANCORP HAWAII, INC.
ONE-YEAR INCENTIVE PLAN
-----------------------
Effective January 1, 1994
SECTION 1. ESTABLISHMENT AND PURPOSES.
--------------------------
1.01 Bancorp Hawaii, Inc. hereby establishes the 1994 One-Year
Incentive Plan.
1.02 The purpose of this Plan is to advance the interests of Bancorp
Hawaii, Inc. by (i) motivating special achievement by Eligible Employees upon
whose judgment, initiative and efforts Bancorp Hawaii, Inc. is largely dependent
for the successful conduct of its business through a compensation program
emphasizing performance objectives; (ii) supplementing other compensation plans;
and (iii) assisting Bancorp Hawaii, Inc. in retaining and attracting such
employees.
SECTION 2. DEFINITIONS.
-----------
As used herein, the following terms shall have the following meanings
unless a different meaning is plainly required in the context:
2.01 "Board" shall mean the Board of Directors of the Holding
Company.
2.02 "Committee" shall mean the Compensation Committee of the Holding
Company.
2.03 "Contingent Award" shall mean an award to an Eligible Employee
expressed as a percentage of Salary for the Incentive Period.
2.04 "Earnings Growth" shall mean the percentage change in Earnings
Per Share for the Incentive Period as compared to the year immediately prior to
the Incentive Period.
2.05 "Earnings Per Share" (EPS) shall mean fully diluted Earnings Per
Share as reported by the Holding Company in its annual report (or as otherwise
reported to shareholders) adjusted as described in this Section 2.05. The
Holding Company's reported net income shall be adjusted for the following in
computing EPS:
<PAGE>
a. Any extraordinary or unusual gain or loss transactions,
b. Securities gains or losses,
c. Incentive Salary Expense, and
d. Dividends on preferred shares, if any, of the Holding Company.
The Committee will, in its sole discretion, determine any adjustments to be made
pursuant to this Section 2.05. In the event of a stock dividend or stock split
during the Incentive Period, Earnings Growth shall be recomputed to take into
account the effects of such stock dividend or stock split.
2.06 "Eligible Employees" shall mean Key Employees of the Holding
Company or of a Subsidiary who, in the opinion of the Committee, are or give
promise of becoming of exceptional importance to the Holding Company or any
Subsidiary, and of making substantial contributions to the success, growth and
profit of the Holding Company and its Subsidiaries.
2.07 "Ending Value Multiplier", with respect to any Contingent Award,
shall mean an amount determined by multiplying the Financial Performance Factor
times the Individual Performance Factor.
2.08 "Financial Performance Factor" shall mean an amount ranging from
zero to 1.4, as determined by applying the Performance Matrix as described in
Section 6 (or, in certain events, of Section 9.02) of the Plan.
2.09 "Holding Company" shall mean Bancorp Hawaii, Inc.
2.10 "Incentive Period", with respect to any Contingent Award, shall
mean the Holding Company's fiscal year.
2.11 "Incentive Salary Expense" shall mean the pre-tax amount accrued
for this Plan during the Incentive Period.
2.12 "Individual Performance Factor" shall mean an amount as
determined by following the procedures described in Section 7 of the Plan.
2.13 "Key Employees" shall mean officers or other employees of the
Holding Company or any Subsidiary, including directors who are also officers or
other employees of the Holding Company or of a Subsidiary.
2.14 "Net Income" shall mean the Holding Company's consolidated net
income for the Incentive Period, as reported in the annual report to
shareholders (or
<PAGE>
as otherwise reported to shareholders) adjusted in the same manner as EPS.
2.15 "Participant" shall mean a person that the Committee, in its
sole discretion, selects from among the Eligible Employees to be awarded a
Contingent Award.
2.16 "Performance Matrix" shall mean the matrix shown in Section 6 by
which the Financial Performance Factor under this Plan is calculated.
2.17 "Plan" shall mean this 1994 One-Year Incentive Plan, as it may
be amended from time to time.
2.18 "Return on Average Equity" (ROAE) shall mean Net Income of the
Holding Company for the Incentive Period divided by Average Total Equity for the
Incentive Period. Average Total Equity shall be as reported in the Holding
Company's annual report to shareholders (or as otherwise reported to
shareholders) less the average amount of any preferred stock.
2.19 "Salary" shall mean actual base salary for the Incentive Period.
2.20 "Subsidiary" or "Subsidiaries" shall mean any corporation(s) in
which the Holding Company or any Subsidiary (as defined hereby) owns, at the
time of making a Contingent Award hereunder, stock possessing 50% or more of the
total combined voting power of all classes of stock in such corporation.
SECTION 3. ELIGIBILITY.
-----------
3.01 Contingent Awards may be made only to Eligible Employees.
3.02 Neither members of the Committee nor any member of the Board who
is not an employee of the Holding Company or of a Subsidiary shall be an
Eligible Employee.
SECTION 4. ADMINISTRATION.
--------------
4.01 The Plan shall be administered by the Committee.
4.02 The Committee shall be vested with full authority to make such
rules and regulations as it deems necessary to administer the Plan and to
interpret the provisions of the Plan. Any determination, decision or action of
the Committee in connection with the construction, interpretation,
administration or application of the
<PAGE>
Plan shall be final, conclusive and binding upon all Eligible Employees,
Participants and any and all persons claiming under or through any Eligible
Employee or Participant, unless otherwise determined by the Board.
4.03 Any determination, decision or action of the Committee provided
for in this Plan may be made or taken by action of the Board if the Board so
determines with the same force and effect as if such determination, decision or
action had been made or taken by the Committee. No member of the Committee or
Board shall be liable for any determination, decision or action made in good
faith with respect to the Plan or any Contingent Award. The fact that a member
of the Board shall at the time be, or shall theretofore have been or thereafter
may be, an Eligible Employee or a Participant shall not disqualify him or her
from taking part in and voting at any time as a member of the Board in favor of
or against any amendment of the Plan.
SECTION 5. CONTINGENT AWARDS.
-----------------
5.01 The Committee may, from time to time, in its sole discretion,
award to each Participant a Contingent Award. The Committee shall cause notice
to be given to each Participant of his or her selection as soon as practicable
following the making of a Contingent Award.
5.02 The Contingent Award that may be awarded to any Participant
shall be a percentage of his or her Salary, which percentage shall be no greater
than the amounts set out in the table below.
<TABLE>
<CAPTION>
Contingent Award
Bank of Hawaii Officers As a % of Salary
----------------------- ----------------
<S> <C>
Executive Vice President 35%
Senior Vice President 30%
Vice President 20%
Other Subsidiary Officers 30%
-------------------------
</TABLE>
5.03 The Contingent Award shall be determined by multiplying the
Participant's Salary times the percentage specified for him or her by the
Committee. In any event, the maximum payout under this Plan shall be two times
the Contingent Award. For example, if the Participant has a Salary of $80,000
and the Contingent Award awarded to such Participant is 30%, the Contingent
Award is $24,000. In this example, the maximum payout under this Plan is two
times the Contingent Award, or
<PAGE>
$48,000.
SECTION 6. ENDING VALUE OF CONTINGENT AWARD.
--------------------------------
6.01 The Ending Value of a Contingent Award shall be determined by
multiplying the Contingent Award by the Ending Value Multiplier.
6.02 The Ending Value Multiplier is the product of the Financial
Performance Factor (determined from the Performance Matrix in this Section 6)
times the Individual Performance Factor (determined in accordance with Section 7
of the Plan).
6.03 The maximum Ending Value Multiplier under all circumstances is
2.000.
6.04 Performance Matrix:
<TABLE>
<CAPTION>
=============================================================
FINANCIAL PERFORMANCE FACTOR
=============================================================
<S> <C> <C> <C> <C> <C> <C>
R 16% 0.7 0.9 1.0 1.2 1.4
-------------------------------------------------------------
O 15% 0.6 0.8 1.0 1.2 1.4
-------------------------------------------------------------
A 14% 0.5 0.7 0.9 1.1 1.3
-------------------------------------------------------------
E 12% 0.4 0.5 0.8 1.0 1.3
=============================================================
2% 4% 6% 7% 8%
EARNINGS GROWTH
=============================================================
</TABLE>
6.05 Interpolation shall be made on a straight line basis,
rounded to three decimal places. For example, if ROAE is 13% and Earnings
Growth is 5%, the Financial Performance Factor is 0.725. (In certain
unusual cases, either ROAE or Earnings Growth may be below 12% and 2%
respectively. Proration will still be performed if at least one of these
factors is within the range indicated on the Performance Matrix.)
SECTION 7. INDIVIDUAL PERFORMANCE.
----------------------
7.01 After the Financial Performance Factor is calculated under
the provisions of Section 6, the Individual Performance Factor will be
established based on individual performance. This step shall appraise each
<PAGE>
Participant's performance of his or her assigned job responsibilities in
consideration of the economic and other circumstances with which each
Participant had to cope during the Incentive Period. For this purpose, a
Participant's performance appraisal will consider:
a. Formal goals established for the Incentive Period (including,
for example, TOPS).
b. How well basic responsibilities were carried out.
c. How well problems were anticipated and avoided or mollified.
d. How well unanticipated problems were overcome.
e. How well opportunities were identified and capitalized on.
The scope of circumstances to be considered shall include economic
conditions; cost considerations; political implications; revenue
generation; public, governmental, customer relations; and the like.
7.02 The Chairman and the President shall recommend an
Individual Performance Factor for each Participant to the Committee.
Individual Performance Factors will normally range from zero to a maximum
of 1.4. Under unusual circumstances, the Chairman and President may
recommend an Individual Performance Factor which exceeds 1.4, but in such a
case, the average of all Individual Performance Factors may not exceed 1.4.
The Committee shall make the final determination of awards and reserves the
right to add to or withhold all or any portion of an award at its sole
discretion.
SECTION 8. DETERMINATION AND PAYMENT OF AWARDS.
-----------------------------------
8.01 If the Ending Value as computed and adjusted in accordance
with Section 6 and 7 is zero, no payment shall be made, any Contingent
Awards shall terminate and all rights thereunder shall cease.
8.02 Subject to the provisions of Section 9 hereof, the Ending
Value, if any, of the Contingent Award for each Participant shall be
determined as per Sections 6 and 7. The amount determined for each
Participant shall be paid in cash in a lump sum (subject to withholding
requirements, if applicable) as soon as practicable after determination
thereof.
<PAGE>
However, a Participant may make a request, on a form approved by
the Committee, for the deferral of all or part of any payment he or she may
receive, provided that such request is delivered to the Human Resources
Division no later than November 1 of the Incentive Period.
The Committee may accept or reject any such request for a
deferral and may determine the conditions of such deferral at the
Committee's sole discretion.
SECTION 9. TERMINATION OF EMPLOYMENT.
-------------------------
9.01 Except as otherwise provided in Section 9.02 below, if a
Participant does not remain continuously in the employ of the Holding
Company or a Subsidiary until the expiration of the Incentive Period with
respect to any Contingent Award, such Contingent Award shall terminate and
all rights thereunder shall cease.
9.02 If the employment of a Participant with the Holding Company
or a Subsidiary terminates during the Incentive Period due to his or her
death, disability or retirement, the Committee shall determine the cash
payment to be made with respect to such Participant under the following
method:
Salary shall be annualized based on the number of whole
months of the Incentive Period prior to the Participant's
death, disability or retirement. The Ending Value of the
Contingent Award calculated under Sections 6, 7, and 8 shall
be multiplied by a fraction, the numerator of which shall be
the number of full months of the Incentive Period during
which Participant was an employee of the Holding Company or
Subsidiary, and the denominator of which shall be 12. This
calculation and the payment of any award necessarily must be
paid in accordance with Section 8.02.
SECTION 10. NON-TRANSFERABILITY OF CONTINGENT AWARDS.
----------------------------------------
No Contingent Award shall be sold, assigned, transferred,
encumbered, hypothecated or otherwise anticipated by a Participant, and
during the lifetime of a Participant, any payment shall be payable only to
the
<PAGE>
Participant. The Committee shall, if it so determines, adopt rules for
the designation by a Participant of a beneficiary to receive cash payments,
if any, that may become due pursuant to this Plan after the death of the
Participant.
SECTION 11. AMENDMENT OR TERMINATION OF THE PLAN.
------------------------------------
The Board or the Committee may, at any time, terminate or at any
time and from time to time amend, modify or suspend this Plan provided that
no such amendment, modification, suspension or termination of the Plan
shall in any
manner adversely affect any Contingent Award theretofore made under the
Plan without the consent of the Participant.
SECTION 12. CHANGES IN CAPITALIZATION.
-------------------------
In the event of a dissolution or liquidation of the Holding
Company, or a merger or consolidation in which the Holding Company is not
the surviving corporation, the amount of cash payable with respect to any
Contingent Award for an Incentive Period that will end after such event
shall be determined and payable as if the Incentive Period ended on the
date of such event and an Ending Value Multiplier of 2.00 shall be used in
calculating payments under this Plan, notwithstanding any other provisions
of this Plan. All Contingent Awards shall be calculated based on
annualized salary for such shortened Incentive Period and shall be paid to
such participants within ten days of the end of the shortened Incentive
Period.
<PAGE>
Exhibit 10(b)
BANCORP HAWAII, INC.
EXECUTIVE OFFICER ONE-YEAR INCENTIVE PLAN
-----------------------------------------
EFFECTIVE JANUARY 1, 1995
SECTION 1. ESTABLISHMENT AND PURPOSES.
--------------------------
1.01 Bancorp Hawaii, Inc. hereby establishes the Executive
Officer One-Year Incentive Plan.
1.02 The purpose of this Plan is to advance the interests of
Bancorp Hawaii, Inc. by (i) motivating special achievement by Eligible
Employees upon whose judgment, initiative and efforts Bancorp Hawaii, Inc.
is largely dependent for the successful conduct of its business through a
compensation program emphasizing performance objectives; (ii) supplementing
other compensation plans; and (iii) assisting Bancorp Hawaii, Inc. in
retaining and attracting such employees.
1.03 This Plan shall be effective as of January 1, 1995, and
shall operate on the basis of the current and succeeding Incentive Periods
until such time the Plan is terminated under Section 10.
SECTION 2. DEFINITIONS.
-----------
As used herein, the following terms shall have the following
meanings unless a different meaning is plainly required in the context:
2.01 "Board" shall mean the Board of Directors of the Holding
Company.
2.02 "Committee" shall mean the Compensation Committee of the
Holding Company.
2.03 "Contingent Award" shall mean an award to an Eligible
Employee expressed as a percentage of Salary for the Incentive Period.
2.04 "Earnings Per Share" (EPS) shall mean fully diluted
Earnings Per Share as reported by the Holding Company in its annual report
<PAGE>
(or as otherwise reported to shareholders) adjusted as described in this
Section 2.04. The Holding Company's reported net income shall be adjusted
for the following in computing EPS:
a. Any extraordinary or unusual gain or loss transactions,
b. Securities gains or losses,
c. Incentive Salary Expense, and
d. Dividends on preferred shares, if any, of the Holding
Company.
The Committee will, in its sole discretion, determine any adjustments to be
made pursuant to this Section 2.04. In the event of a stock dividend or
stock split during the Incentive Period, Earnings Per Share shall be
recomputed to take into account the effects of such stock dividend or stock
split.
2.05 "Eligible Employees" shall mean Key Employees of the
Holding Company or of a Subsidiary who, in the opinion of the Committee,
are or give promise of becoming of exceptional importance to the Holding
Company or any Subsidiary, and of making substantial contributions to the
success, growth and profit of the Holding Company and its Subsidiaries.
2.06 "Ending Value" shall be the amount as defined in Section
6.01.
2.07 "Ending Value Multiplier", with respect to any Contingent
Award, shall mean an amount determined by the Financial Performance Factor.
2.08 "Financial Performance Factor" shall mean an amount ranging
from zero to 2.0, as determined by applying the Performance Matrix as
described in Section 6 (or, in certain events, of Section 8.02) of the
Plan.
2.09 "Holding Company" shall mean Bancorp Hawaii, Inc.
2.10 "Incentive Period", with respect to any Contingent Award,
shall mean the Holding Company's fiscal year.
2.11 "Incentive Salary Expense" shall mean the pre-tax amount
accrued for this Plan during the Incentive Period.
<PAGE>
2.12 "Key Employees" shall mean executive officers as identified
under Section 5.02.
2.13 "Net Income" shall mean the Holding Company's consolidated
net income for the Incentive Period, as reported in the annual report to
shareholders (or as otherwise reported to shareholders) adjusted in the
same manner as EPS.
2.14 "Participant" shall mean a person that the Committee, in
its sole discretion, selects from among the Eligible Employees to be
awarded a Contingent Award.
2.15 "Performance Matrix" shall mean the matrix shown in Section
6 by which the Financial Performance Factor under this Plan is calculated.
2.16 "Plan" shall mean this Executive Officer One-Year Incentive
Plan, as it may be amended from time to time.
2.17 "Retirement" shall mean the termination of a Participant's
employment with the Holding Company or a Subsidiary under circumstances
where the Participant terminates on or after the retirement dates specified
under the Holding Company's retirement plan and the Participant's
withdrawal from any employment in the financial services industry in the
State of Hawaii during the Incentive Period.
2.18 "Return on Average Assets" (ROAA) shall mean Net Income of
the Holding Company for the Incentive Period divided by Average Total
Assets for the Incentive Period. Average Total Assets shall be as reported
in the Holding Company's annual report to shareholders (or as otherwise
reported to shareholders).
2.19 "Salary" shall mean actual base salary for the Incentive
Period.
2.20 "Subsidiary" or "Subsidiaries" shall mean any
corporation(s) in which the Holding Company or any Subsidiary (as defined
hereby) owns, at the time of making a Contingent Award hereunder, stock
possessing 50% or more of the total combined voting power of all classes of
stock in such corporation.
<PAGE>
SECTION 3. ELIGIBILITY.
-----------
3.01 Contingent Awards may be made only to Eligible Employees.
3.02 Neither members of the Committee nor any member of the
Board who is not an employee of the Holding Company or of a Subsidiary
shall be an Eligible Employee.
SECTION 4. ADMINISTRATION.
--------------
4.01 The Plan shall be administered by the Committee.
4.02 The Committee shall be vested with full authority to make
such rules and regulations as it deems necessary to administer the Plan and
to interpret the provisions of the Plan. Any determination, decision or
action of the Committee in connection with the construction,
interpretation, administration or application of the Plan shall be final,
conclusive and binding upon all Eligible Employees, Participants and any
and all persons claiming under or through any Eligible Employee or
Participant, unless otherwise determined by the Board.
4.03 Any determination, decision or action of the Committee
provided for in this Plan may be made or taken by action of the Board if
the Board so determines with the same force and effect as if such
determination, decision or action had been made or taken by the Committee.
No member of the Committee or Board shall be liable for any determination,
decision or action made in good faith with respect to the Plan or any
Contingent Award. The fact that a member of the Board shall at the time be,
or shall theretofore have been or thereafter may be, an Eligible Employee
or a Participant shall not disqualify him or her from taking part in and
voting at any time as a member of the Board in favor of or against any
amendment of the Plan.
SECTION 5. CONTINGENT AWARDS.
-----------------
5.01 The Committee may, from time to time, in its sole
<PAGE>
discretion, award to each Participant a Contingent Award. The Committee
shall cause notice to be given to each Participant of his or her selection
as soon as practicable following the making of a Contingent Award.
5.02 The Contingent Award that may be awarded to any Participant
shall be a percentage of his or her Salary, which percentage shall be no
greater than the amounts set out in the table below.
<TABLE>
<CAPTION>
CONTINGENT AWARD
BANCORP HAWAII, INC. OFFICERS AS A % OF SALARY
----------------------------- ----------------
<S> <C>
Chairman of the Board/CEO 50%
President or Vice Chairman 40%
</TABLE>
5.03 The Contingent Award shall be determined by multiplying the
Participant's Salary times the percentage specified for him or her by the
Committee. In any event, the maximum payout under this Plan shall be two
times the Contingent Award. For example, if the Participant has a Salary of
$80,000 and the Contingent Award awarded to such Participant is 30%, the
Contingent Award is $24,000. In this example, the maximum payout under this
Plan is two times the Contingent Award, or $48,000.
5.04 For the named executive officers, assessment of individual
performance may result in a downward adjustment of the maximum award, or
the entire elimination of this award. No upward adjustments based on
discretion are permitted beyond the maximum award for the named executive
officers. An adjustment under this Section 5.04 may be made prior to a
final determination of the award under Section 7.
SECTION 6. ENDING VALUE OF CONTINGENT AWARD.
--------------------------------
6.01 The Ending Value of a Contingent Award shall be determined
by multiplying the Contingent Award by the Ending Value Multiplier.
6.02 The Ending Value Multiplier is the Financial Performance
Factor (determined from the Performance Matrix in this Section 6).
6.03 The maximum Ending Value Multiplier under all
<PAGE>
circumstances is 2.000.
6.04 Performance Matrix:
<TABLE>
<CAPTION>
======================================================
FINANCIAL PERFORMANCE FACTOR
======================================================
<S> <C> <C> <C> <C> <C> <C>
R 1.10% .8 1.0 1.2 1.7 2.0
------------------------------------------------------
O 1.05% .7 .9 1.1 1.6 1.9
------------------------------------------------------
A 1.00% .6 .8 1.0 1.5 1.8
------------------------------------------------------
A 0.95% .5 .7 .9 1.4 1.7
------------------------------------------------------
0.90% .4 .6 .8 1.3 1.6
======================================================
$2.68 $2.74 $2.80 $2.86 $2.92
EARNINGS PER SHARE
======================================================
</TABLE>
6.05 Interpolation shall be made on a straight line basis. For
example, if ROAA is .98% and Earnings Per Share is $2.83, the Financial
Performance Factor is 1.21. (In certain unusual cases, either ROAA or Earnings
Per Share may be below .90% and $2.68 respectively. Proration will still be
performed if at least one of these factors is within the range indicated on the
Performance Matrix.)
SECTION 7. DETERMINATION AND PAYMENT OF AWARDS.
-----------------------------------
7.01 If the Ending Value as computed and adjusted in accordance with
Section 6 is zero, no payment shall be made, any Contingent Awards shall
terminate and all rights thereunder shall cease.
7.02 Subject to the provisions of Section 8 hereof, the Ending Value,
if any, of the Contingent Award for each Participant shall be determined as per
Sections 6. The amount determined for each Participant shall be paid, subject
to any adjustment by the Committee under Section 5.04, in cash in a lump sum
(subject to withholding requirements, if applicable) as soon as practicable
after determination thereof.
However, a Participant may make a request, on a form approved by the
Committee, for the deferral of all or part of any payment he or she may receive,
<PAGE>
provided that such request is delivered to the Human Resources Division no later
than November 1 of the Incentive Period.
The Committee may accept or reject any such request for a deferral and
may determine the conditions of such deferral at the Committee's sole
discretion.
7.03 Notwithstanding any other provision of this Plan, as the
Committee may determine, a Participant shall not be entitled to the payment of
any Ending Value amount to the extent that such payment, or any other
compensation paid to the Participant, would not be deductible under the
deduction limit of Section 162(m) of the Internal Revenue Code of 1986, as
amended ("Code"). Notwithstanding the conditions for deductibility of payments
under Code Section 162, the Holding Company need not, and is under no obligation
to, submit this Plan for shareholders' approval.
SECTION 8. TERMINATION OF EMPLOYMENT.
-------------------------
8.01 Except as otherwise provided in Section 8.02 below, if a
Participant does not remain continuously in the employ of the Holding Company or
a Subsidiary until the expiration of the Incentive Period with respect to any
Contingent Award, such Contingent Award shall terminate and all rights
thereunder shall cease.
8.02 If the employment of a Participant with the Holding Company or a
Subsidiary terminates during the Incentive Period due to his or her death,
disability or Retirement, the Committee shall determine the cash payment to be
made with respect to such Participant under the following method:
Salary shall be annualized based on the number of whole
months of the Incentive Period prior to the Participant's
death, disability or Retirement. The Ending Value of the
Contingent Award calculated under Sections 6 and 7 shall be
multiplied by a fraction, the numerator of which shall be
the number of full months of the Incentive Period during
which Participant was an employee of the Holding Company or
Subsidiary, and the denominator of which shall be 12. This
calculation and the payment of any award necessarily must be
paid after the termination of the Incentive Period in
accordance with Section 7.02.
<PAGE>
SECTION 9. NON-TRANSFERABILITY OF CONTINGENT AWARDS.
----------------------------------------
No Contingent Award shall be sold, assigned, transferred, encumbered,
hypothecated or otherwise anticipated by a Participant, and during the lifetime
of a Participant, any payment shall be payable only to the Participant. The
Committee shall, if it so determines, adopt rules for the designation by a
Participant of a beneficiary to receive cash payments, if any, that may become
due pursuant to this Plan after the death of the Participant.
SECTION 10. AMENDMENT OR TERMINATION OF THE PLAN.
------------------------------------
The Board or the Committee may, at any time, terminate or at any time
and from time to time amend, modify or suspend this Plan provided that no such
amendment, modification, suspension or termination of the Plan shall in any
manner adversely affect any Contingent Award theretofore made under the Plan
without the consent of the Participant.
SECTION 11. CHANGES IN CAPITALIZATION.
-------------------------
In the event of a dissolution or liquidation of the Holding Company,
or a merger or consolidation in which the Holding Company is not the surviving
corporation, the amount of cash payable with respect to any Contingent Award for
an Incentive Period that will end after such event shall be determined and
payable as if the Incentive Period ended on the date of such event and an Ending
Value Multiplier of 2.00 shall be used in calculating payments under this Plan,
notwithstanding any other provisions of this Plan. All Contingent Awards shall
be calculated based on annualized salary for such shortened Incentive Period and
shall be paid to such participants within ten days of the end of the shortened
Incentive Period.
<PAGE>
Exhibit 10(c)
BANCORP HAWAII, INC.
ONE-YEAR INCENTIVE PLAN
-----------------------
Effective January 1, 1995
SECTION 1. ESTABLISHMENT AND PURPOSES.
--------------------------
1.01 Bancorp Hawaii, Inc. hereby establishes the 1995 One-Year
Incentive Plan.
1.02 The purpose of this Plan is to advance the interests of Bancorp
Hawaii, Inc. by (i) motivating special achievement by Eligible Employees upon
whose judgment, initiative and efforts Bancorp Hawaii, Inc. is largely dependent
for the successful conduct of its business through a compensation program
emphasizing performance objectives; (ii) supplementing other compensation plans;
and (iii) assisting Bancorp Hawaii, Inc. in retaining and attracting such
employees.
1.03 This Plan shall be effective as of January 1, 1995 with the term
ending December 31, 1995.
SECTION 2. DEFINITIONS.
-----------
As used herein, the following terms shall have the following meanings
unless a different meaning is plainly required in the context:
2.01 "Board" shall mean the Board of Directors of the Holding
Company.
2.02 "Committee" shall mean the Compensation Committee of the Holding
Company.
2.03 "Contingent Award" shall mean an award to an Eligible Employee
expressed as a percentage of Salary for the Incentive Period.
2.04 "Earnings Per Share" (EPS) shall mean fully diluted Earnings Per
Share as reported by the Holding Company in its annual report (or as otherwise
reported to shareholders) adjusted as described in this Section 2.04. The
Holding
<PAGE>
Company's reported net income shall be adjusted for the following in computing
EPS:
a. Any extraordinary or unusual gain or loss transactions,
b. Securities gains or losses,
c. Incentive Salary Expense, and
d. Dividends on preferred shares, if any, of the Holding Company.
The Committee will, in its sole discretion, determine any adjustments to be made
pursuant to this Section 2.04. In the event of a stock dividend or stock split
during the Incentive Period, Earnings Per Share shall be recomputed to take into
account the effects of such stock dividend or stock split.
2.05 "Eligible Employees" shall mean Key Employees of the Holding
Company or of a Subsidiary who, in the opinion of the Committee, are or give
promise of becoming of exceptional importance to the Holding Company or any
Subsidiary, and of making substantial contributions to the success, growth and
profit of the Holding Company and its Subsidiaries.
2.06 "Ending Value" shall be the amount as defined in Section 6.01.
2.07 "Ending Value Multiplier", with respect to any Contingent Award,
shall mean an amount determined by multiplying the Financial Performance Factor
times the Individual Performance Factor.
2.08 "Financial Performance Factor" shall mean an amount ranging from
zero to 1.4, as determined by applying the Performance Matrix as described in
Section 6 (or, in certain events, of Section 9.02) of the Plan.
2.09 "Holding Company" shall mean Bancorp Hawaii, Inc.
2.10 "Incentive Period", with respect to any Contingent Award, shall
mean the Holding Company's fiscal year 1995.
2.11 "Incentive Salary Expense" shall mean the pre-tax amount accrued
for this Plan during the Incentive Period.
2.12 "Individual Performance Factor" shall mean an amount as
determined by following the procedures described in Section 7 of the Plan.
<PAGE>
2.13 "Key Employees" shall mean officers or other employees of the
Holding Company or any Subsidiary, including directors who are also officers or
other employees of the Holding Company or of a Subsidiary as identified under
Section 5.02. However, Key Employees shall not include participants of the
---
Executive Officer One-Year Incentive Plan.
2.14 "Net Income" shall mean the Holding Company's consolidated net
income for the Incentive Period, as reported in the annual report to
shareholders (or as otherwise reported to shareholders) adjusted in the same
manner as EPS.
2.15 "Participant" shall mean a person that the Committee, in its
sole discretion, selects from among the Eligible Employees to be awarded a
Contingent Award.
2.16 "Performance Matrix" shall mean the matrix shown in Section 6 by
which the Financial Performance Factor under this Plan is calculated.
2.17 "Plan" shall mean this 1995 One-Year Incentive Plan, as it may
be amended from time to time.
2.18 "Retirement" shall mean the termination of a Participant's
employment with the Holding Company or a Subsidiary under circumstances where
the Participant terminates on or after the retirement dates specified under the
Holding Company's retirement plan and the Participant's withdrawal from any
employment in the financial services industry in the State of Hawaii during the
Incentive Period.
2.19 "Return on Average Assets" (ROAA) shall mean Net Income of the
Holding Company for the Incentive Period divided by Average Total Assets for the
Incentive Period. Average Total Assets shall be as reported in the Holding
Company's annual report to shareholders (or as otherwise reported to
shareholders).
2.20 "Salary" shall mean actual base salary for the Incentive Period.
2.21 "Subsidiary" or "Subsidiaries" shall mean any corporation(s) in
which the Holding Company or any Subsidiary (as defined hereby) owns, at the
time of making a Contingent Award hereunder, stock possessing 50% or more of the
total combined voting power of all classes of stock in such corporation.
SECTION 3. ELIGIBILITY.
-----------
<PAGE>
3.01 Contingent Awards may be made only to Eligible Employees.
3.02 Neither members of the Committee nor any member of the Board who
is not an employee of the Holding Company or of a Subsidiary shall be an
Eligible Employee.
SECTION 4. ADMINISTRATION.
--------------
4.01 The Plan shall be administered by the Committee.
4.02 The Committee shall be vested with full authority to make such
rules and regulations as it deems necessary to administer the Plan and to
interpret the provisions of the Plan. Any determination, decision or action of
the Committee in connection with the construction, interpretation,
administration or application of the Plan shall be final, conclusive and binding
upon all Eligible Employees, Participants and any and all persons claiming under
or through any Eligible Employee or Participant, unless otherwise determined by
the Board.
4.03 Any determination, decision or action of the Committee provided
for in this Plan may be made or taken by action of the Board if the Board so
determines with the same force and effect as if such determination, decision or
action had been made or taken by the Committee. No member of the Committee or
Board shall be liable for any determination, decision or action made in good
faith with respect to the Plan or any Contingent Award. The fact that a member
of the Board shall at the time be, or shall theretofore have been or thereafter
may be, an Eligible Employee or a Participant shall not disqualify him or her
from taking part in and voting at any time as a member of the Board in favor of
or against any amendment of the Plan.
SECTION 5. CONTINGENT AWARDS.
-----------------
5.01 The Committee may, from time to time, in its sole discretion,
award to each Participant a Contingent Award. The Committee shall cause notice
to be given to each Participant of his or her selection as soon as practicable
following the making of a Contingent Award.
5.02 The Contingent Award that may be awarded to any Participant
shall be a percentage of his or her Salary, which percentage shall be no greater
than the amounts set out in the table below.
<PAGE>
<TABLE>
<CAPTION>
CONTINGENT AWARD
BANK OF HAWAII OFFICERS AS A % OF SALARY
----------------------- ----------------
<S> <C>
Executive Vice President 35%
Senior Vice President 30%
Vice President 20%
OTHER SUBSIDIARY OFFICERS 30%
-------------------------
</TABLE>
5.03 The Contingent Award shall be determined by multiplying the
Participant's Salary times the percentage specified for him or her by the
Committee. In any event, the maximum payout under this Plan shall be two times
the Contingent Award. For example, if the Participant has a Salary of $80,000
and the Contingent Award awarded to such Participant is 30%, the Contingent
Award is $24,000. In this example, the maximum payout under this Plan is two
times the Contingent Award, or $48,000.
SECTION 6. ENDING VALUE OF CONTINGENT AWARD.
--------------------------------
6.01 The Ending Value of a Contingent Award shall be determined by
multiplying the Contingent Award by the Ending Value Multiplier.
6.02 The Ending Value Multiplier is the product of the Financial
Performance Factor (determined from the Performance Matrix in this Section 6)
times the Individual Performance Factor (determined in accordance with Section 7
of the Plan).
6.03 The maximum Ending Value Multiplier under all circumstances is
2.000.
6.04 Performance Matrix:
<TABLE>
<CAPTION>
=================================================
FINANCIAL PERFORMANCE FACTOR
=================================================
<S> <C> <C> <C> <C> <C> <C>
R 1.10% 0.8 1.0 1.2 1.4 1.4
-------------------------------------------------
O 1.05% 0.7 0.9 1.1 1.3 1.4
-------------------------------------------------
A 1.00% 0.6 0.8 1.0 1.2 1.4
=================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A 0.95% 0.5 0.7 0.9 1.1 1.3
-------------------------------------------------
0.90% 0.4 0.6 0.8 1.0 1.2
=================================================
$2.68 $2.74 $2.80 $2.86 $2.92
EARNINGS PER SHARE
=================================================
</TABLE>
6.05 Interpolation shall be made on a straight line basis. For
example, if ROAA is .98 and Earnings Per Share is $2.83, the Financial
Performance Factor is 1.06. (In certain unusual cases, either ROAA or Earnings
Per Share may be below .90% and $2.68 respectively. Proration will still be
performed if at least one of these factors is within the range indicated on the
Performance Matrix.)
SECTION 7. INDIVIDUAL PERFORMANCE.
----------------------
7.01 After the Financial Performance Factor is calculated under the
provisions of Section 6, the Individual Performance Factor will be established
based on
individual performance. This step shall appraise each Participant's performance
of his or her assigned job responsibilities in consideration of the economic and
other circumstances with which each Participant had to cope during the Incentive
Period. For this purpose, a Participant's performance appraisal will consider:
a. 1995 Individual Performance Objectives (see Attachment A).
b. How well basic responsibilities were carried out.
c. How well problems were anticipated and avoided or mollified.
d. How well unanticipated problems were overcome.
e. How well opportunities were identified and capitalized on.
The scope of circumstances to be considered shall include economic conditions;
cost considerations; political implications; revenue generation; public,
governmental, customer relations; and the like.
7.02 The Chairman and the President shall recommend an Individual
Performance Factor for each Participant to the Committee. Individual
Performance Factors will normally range from zero to a maximum of 1.4. Under
unusual
<PAGE>
circumstances, the Chairman and President may recommend an Individual
Performance Factor which exceeds 1.4, but in such a case, the average of all
Individual Performance Factors may not exceed 1.4. The Committee shall make the
final determination of awards and reserves the right to add to or withhold all
or any portion of an award at its sole discretion.
SECTION 8. DETERMINATION AND PAYMENT OF AWARDS.
-----------------------------------
8.01 If the Ending Value as computed and adjusted in accordance with
Section 6 and 7 is zero, no payment shall be made, any Contingent Awards shall
terminate and all rights thereunder shall cease.
8.02 Subject to the provisions of Section 9 hereof, the Ending Value,
if any, of the Contingent Award for each Participant shall be determined as per
Sections 6 and 7. The amount determined for each Participant shall be paid in
cash in a lump sum (subject to withholding requirements, if applicable) as soon
as practicable after determination thereof.
However, a Participant may make a request, on a form approved by the
Committee, for the deferral of all or part of any payment he or she may receive,
provided that such request is delivered to the Human Resources Division no later
than November 1 of the Incentive Period.
The Committee may accept or reject any such request for a deferral and
may determine the conditions of such deferral at the Committee's sole
discretion.
SECTION 9. TERMINATION OF EMPLOYMENT.
-------------------------
9.01 Except as otherwise provided in Section 9.02 below, if a
Participant does not remain continuously in the employ of the Holding Company or
a Subsidiary until the expiration of the Incentive Period with respect to any
Contingent Award, such Contingent Award shall terminate and all rights
thereunder shall cease.
9.02 If the employment of a Participant with the Holding Company or a
Subsidiary terminates during the Incentive Period due to his or her death,
disability or Retirement, the Committee shall determine the cash payment to be
made with respect to such Participant under the following method:
Salary shall be annualized based on the number of whole
<PAGE>
months of the Incentive Period prior to the Participant's
death, disability or Retirement. The Ending Value of the
Contingent Award calculated under Sections 6, 7, and 8
shall be multiplied by a fraction, the numerator of which
shall be the number of full months of the Incentive Period
during which Participant was an employee of the Holding
Company or Subsidiary, and the denominator of which shall
be 12. This calculation and the payment of any award
necessarily must be paid after the termination of the
Incentive Period in accordance with Section 8.02.
SECTION 10. NON-TRANSFERABILITY OF CONTINGENT AWARDS.
----------------------------------------
No Contingent Award shall be sold, assigned, transferred, encumbered,
hypothecated or otherwise anticipated by a Participant, and during the lifetime
of a Participant, any payment shall be payable only to the Participant. The
Committee shall, if it so determines, adopt rules for the designation by a
Participant of a beneficiary to receive cash payments, if any, that may become
due pursuant to this Plan after the death of the Participant.
SECTION 11. AMENDMENT OR TERMINATION OF THE PLAN.
------------------------------------
The Board or the Committee may, at any time, terminate or at any time
and from time to time amend, modify or suspend this Plan provided that no such
amendment, modification, suspension or termination of the Plan shall in any
manner adversely affect any Contingent Award theretofore made under the Plan
without the consent of the Participant.
SECTION 12. CHANGES IN CAPITALIZATION.
-------------------------
In the event of a dissolution or liquidation of the Holding Company,
or a merger or consolidation in which the Holding Company is not the surviving
corporation, the amount of cash payable with respect to any Contingent Award
for an Incentive Period that will end after such event shall be determined and
payable as if the Incentive Period ended on the date of such event and an Ending
Value Multiplier of 2.00 shall be used in calculating payments under this Plan,
notwithstanding any other provisions of this Plan. All Contingent Awards shall
be calculated based on annualized salary for such shortened Incentive Period and
shall be paid to such
<PAGE>
participants within ten days of the end of the shortened Incentive Period.
<PAGE>
Exhibit 10(d)
BANCORP HAWAII, INC.
SUSTAINED PROFIT GROWTH PLAN
----------------------------
EFFECTIVE JANUARY 1, 1995
SECTION 1. ESTABLISHMENT AND PURPOSES.
--------------------------
1.01 Bancorp Hawaii, Inc. hereby establishes the 1995 Sustained
Profit Growth Plan.
1.02 The purpose of this Plan is to advance the interests of Bancorp
Hawaii, Inc. by (i) motivating special achievement by Eligible Employees upon
whose judgment, initiative and efforts Bancorp Hawaii, Inc. is largely dependent
for the successful conduct of its business through a compensation program
emphasizing long-term performance incentives; (ii) supplementing other
compensation plans; and (iii) assisting Bancorp Hawaii, Inc. in retaining and
attracting such employees.
1.03 This Plan shall be effective as of January 1, 1995, and shall
operate on the basis of the current and succeeding Incentive Periods until such
time the Plan is terminated under Section 10. This Plan constitutes an
extension of the prior version of the Plan effective January 1, 1994 that
received shareholder approval on April 27, 1994.
SECTION 2. DEFINITIONS.
-----------
As used herein, the following terms shall have the following meanings
unless a different meaning is plainly required in the context:
2.01 "Base Year" shall mean the fiscal year prior to the Incentive
Period.
2.02 "Board" shall mean the Board of Directors of the Holding
Company.
2.03 "Committee" shall mean the Compensation Committee of the Holding
Company.
<PAGE>
2.04 "Contingent Award" shall mean an award to an Eligible Employee
expressed as a percentage of average annual Salary for the Incentive Period.
2.05 "Eligible Employees" shall mean Key Employees of the Holding
Company or of a Subsidiary who, in the opinion of the Committee, are or give
promise of becoming of exceptional importance to the Holding Company or any
Subsidiary, and of making substantial contributions to the success, growth and
profit of the Holding Company and its Subsidiaries.
2.06 "Earnings Per Share" (EPS) shall mean fully diluted Earnings Per
Share as reported by the Holding Company in its annual report (or as otherwise
reported to shareholders) adjusted as described in this Section 2.06. The
Holding Company's reported net income shall be adjusted for the following in
computing EPS:
a. Any extraordinary or unusual gain or loss transactions,
b. Securities gains or losses,
c. Incentive Salary Expense, and
d. Dividends on preferred shares, if any, of the Holding Company.
The Committee will, in its sole discretion, determine any adjustments to be made
to EPS pursuant to this Section 2.06.
2.07 "Earnings Growth Rate" shall mean the growth of EPS during the
Incentive Period. For example, if EPS in the Base Year is $6.00 and EPS for the
third calendar year of the Incentive Period is $7.80, then the Earnings Growth
Rate is 30%. For purposes of this Plan, the Earnings Growth Rate shall be
rounded to the nearest one-tenth of one percent. In the event of a stock
dividend or stock split during the Incentive Period, Earnings Growth Rate shall
be restated to take into account the effect of such stock dividend or stock
split.
2.08 "Ending Value" shall be the amount as defined Section 6.01.
2.09 "Ending Value Multiplier", with respect to any Contingent Award,
shall mean an amount ranging from zero to 2.00 as determined by applying the
Performance Matrix as described in Section 6 (or in certain events, Section
9.02) of the Plan.
2.10 "FTE Staff" shall be sum of (i) the total number of hours worked
by part-time employees of the Holding Company and its Subsidiaries during the
<PAGE>
applicable fiscal year of the Incentive Period divided by 2,080 and (ii) the
average number of full-time staff members employed by the Holding Company and
the Subsidiaries during the same fiscal year.
2.11 "Growth in NIPE" or "NIPE Growth" shall mean the increase (if
any) in NIPE for the third year of the Incentive Period as compared to NIPE for
the Base Year. Growth in NIPE shall be expressed as a percentage to two decimal
places. For example, if NIPE in the Base Year is $25,000 and NIPE in the third
year of the Incentive Period is $35,000, then Growth in NIPE is 40%.
2.12 "Holding Company" shall mean Bancorp Hawaii, Inc.
2.13 "Incentive Period", with respect to any Contingent Award, shall
mean the Holding Company's fiscal years 1995 through 1997 inclusive, and each
succeeding three fiscal year period inclusive.
2.14 "Incentive Salary Expense" shall mean the pre-tax amount accrued
for this Plan and any other sustained profit growth plans of the Holding Company
during the Incentive Period.
2.15 "Key Employees" shall mean officers or other employees of the
Holding Company or any Subsidiary, including directors who are also officers or
other employees of the Holding Company or of a Subsidiary.
2.16 "Net Income per Employee" (NIPE) shall mean the Holding
Company's net income as reported in its annual report, or as otherwise reported
to shareholders (adjusted in the same manner as provided in Section 2.06),
divided by FTE Staff.
2.17 "Participant" shall mean a person that the Committee, in its
sole discretion, selects from among the Eligible Employees to be awarded a
Contingent Award.
2.18 "Performance Matrix" shall mean the matrix shown in Section 6
which is used in calculating Ending Value Multipliers under this Plan.
2.19 "Plan" shall mean this Sustained Profit Growth Plan, as it may
be amended from time to time.
2.20 "Retirement" shall mean the termination of a Participant's
employment with the Holding Company or a Subsidiary under circumstances where
<PAGE>
the Participant terminates on or after the retirement dates specified under the
Holding Company's retirement plan and the Participant's withdrawal from any
employment in the financial services industry in the State of Hawaii during the
Incentive Period.
2.21 "Salary" shall mean base salary only.
2.22 "Subsidiary" or "Subsidiaries" shall mean any corporation(s) in
which the Holding Company or any Subsidiary (as defined hereby) owns, at the
time of making a Contingent Award hereunder, stock possessing 50% or more of the
total combined voting power of all classes of stock in such corporation.
SECTION 3. ELIGIBILITY.
-----------
3.01 Contingent Awards may be made only to Eligible Employees.
3.02 Neither members of the Committee nor any member of the Board who
is not an employee of the Holding Company or of a Subsidiary shall be an
Eligible Employee.
SECTION 4. ADMINISTRATION.
--------------
4.01 The Plan shall be administered by the Committee.
4.02 The Committee shall be vested with full authority to make such
rules and regulations as it deems necessary to administer the Plan and to
interpret the provisions of the Plan. Any determination, decision or action of
the Committee in connection with the construction, interpretation,
administration or application of the Plan shall be final, conclusive and binding
upon all Eligible Employees, Participants and any and all persons claiming under
or through any Eligible Employee or Participant, unless otherwise determined by
the Board.
4.03 Any determination, decision or action of the Committee provided
for in this Plan may be made or taken by action of the Board if the Board so
determines with the same force and effect as if such determination, decision or
action had been made or taken by the Committee. No member of the Committee or
Board shall be liable for any determination, decision or action made in good
faith with respect to the Plan or any Contingent Award. The fact that a member
of the Board shall at the time be, or shall theretofore have been or thereafter
may be, an Eligible Employee or a Participant, shall not disqualify him or her
from taking part in and
<PAGE>
voting at any time as a member of the Board in favor of or against any amendment
of the Plan.
SECTION 5. CONTINGENT AWARDS.
-----------------
5.01 The Committee may, from time to time, in its sole discretion,
award to each Participant a Contingent Award. The Committee shall cause notice
to be given to each Participant of his or her selection as soon as practicable
following the making of a Contingent Award.
5.02 The Contingent Award that may be awarded to any Participant
shall be a percentage of his or her average annual Salary for the Incentive
Period, which percentage shall be no greater than the amounts set out in the
following table.
<TABLE>
<CAPTION>
HOLDING COMPANY/ CONTINGENT AWARD
BANK OF HAWAII OFFICERS AS A % OF SALARY
----------------------- ----------------
<S> <C>
Chairman of the Board/CEO 40%
President or Vice Chairman 35%
Executive Vice President 30%
Senior Vice President 25%
OTHER SUBSIDIARY OFFICERS 25%
-------------------------
</TABLE>
5.03 The Contingent Award shall be multiplied by the Participant's
average annual Salary for the Incentive Period. In any event, the maximum
payout under this Plan shall be two times the Contingent Award. For example, a
Participant with an average annual Salary of $80,000 might receive a Contingent
Award of 25% or $20,000. In this example, the maximum payout under this Plan
would be two times the Contingent Award, or $40,000.
SECTION 6. ENDING VALUE OF CONTINGENT AWARD.
--------------------------------
6.01 The Ending Value of a Contingent Award shall be determined by
multiplying the Contingent Award by the Ending Value Multiplier determined from
the Performance Matrix in Section 6.02.
6.02 Ending Value Multiplier:
<PAGE>
<TABLE>
<CAPTION>
================================================================================
NIPE EARNINGS GROWTH RATE
GROWTH 12% 14% 16% 18% 20% 22% 24% 26% 28%
================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
26% 1.000 1.125 1.250 1.375 1.500 1.625 1.750 1.875 2.000
--------------------------------------------------------------------------------
25% 0.875 1.000 1.125 1.250 1.375 1.500 1.625 1.750 1.875
--------------------------------------------------------------------------------
24% 0.750 0.875 1.000 1.125 1.250 1.375 1.500 1.625 1.750
--------------------------------------------------------------------------------
22% 0.625 0.750 0.875 1.000 1.125 1.250 1.375 1.500 1.625
--------------------------------------------------------------------------------
20% 0.500 0.625 0.750 0.875 1.000 1.125 1.250 1.375 1.500
--------------------------------------------------------------------------------
17% 0.375 0.500 0.625 0.750 0.875 1.000 1.125 1.250 1.375
--------------------------------------------------------------------------------
14% 0.250 0.375 0.500 0.625 0.750 0.875 1.000 1.125 1.250
--------------------------------------------------------------------------------
11% 0.125 0.250 0.375 0.500 0.625 0.750 0.875 1.000 1.125
--------------------------------------------------------------------------------
8% 0.000 0.125 0.250 0.375 0.500 0.625 0.750 0.875 1.000
================================================================================
</TABLE>
6.03 Interpolation between the points shown above shall be made on a
straight line basis rounded to three decimal places. For example, if NIPE
Growth is 23% and the Earnings Growth Rate is 27%, the Ending Value Multiplier
would be 1.625. The maximum Ending Value Multiplier under all circumstances
will be 2.00.
SECTION 7. CONDITIONS.
----------
The Chairman and the President shall prepare recommendations for the
Committee. The Committee shall make the final determination of the Ending Value
Multiplier and any awards, and reserves the right to add to or withhold all or
any portion of any or all award(s) at its sole discretion. However, with
respect to any Participant subject to the deduction limit of Section 162(m) of
the Internal Revenue Code of 1986, as amended, no upward adjustments based on
discretion are permitted beyond the maximum award for the Participants.
SECTION 8. DETERMINATION AND PAYMENT OF AWARDS.
-----------------------------------
8.01 If the Ending Value as computed and adjusted in accordance with
Section 6 and 7 is zero, no payment shall be made, any Contingent Awards shall
terminate and all rights thereunder shall cease.
<PAGE>
8.02 Subject to the provisions of Section 9 hereof, the Ending Value,
if any, of the Contingent Award for each Participant shall be determined as per
Sections 6 and 7. The amount determined for each Participant shall be paid in
cash in a lump sum (subject to withholding requirements, if applicable) as soon
as practicable after determination thereof.
However, a Participant may make a request, on a form approved by the
Committee, for the deferral of all or part of any payment he or she may receive,
provided that such request is delivered to the Human Resources Division no later
than November 1 of the last year of the Incentive Period.
The Committee may accept or reject any such request for a deferral and
may determine the conditions of such deferral at the Committee's sole
discretion.
SECTION 9. TERMINATION OF EMPLOYMENT.
-------------------------
9.01 Except as otherwise provided in Section 9.02 below, if a
Participant does not remain continuously in the employ of the Holding Company or
a Subsidiary until the expiration of the Incentive Period with respect to any
Contingent Award, such Contingent Award shall terminate and all rights
thereunder shall cease.
9.02 If the employment of a Participant with the Holding Company or a
Subsidiary terminates during the Incentive Period due to his or her death,
disability or Retirement, the Committee shall determine the cash payment to be
made with respect to such Participant under the following method:
The Contingent Award payable, if any, shall be based on the
annualized salary of the Participant as of the last January
1 prior to the Participant's death, disability or
Retirement. The Ending Value of the Contingent Award
calculated under Sections 6, 7 and 8 shall be multiplied by
a fraction, the numerator of which shall be the number of
full months of the Incentive Period during which Participant
was an employee of the Holding Company or Subsidiary, and
the denominator of which shall be 36. This calculation and
the payment of any award must be paid after the termination
of the Incentive Period in accordance with Section 8.02.
<PAGE>
SECTION 10. NON-TRANSFERABILITY OF CONTINGENT AWARDS.
----------------------------------------
No Contingent Award shall be sold, assigned, transferred, encumbered,
hypothecated or otherwise anticipated by a Participant, and during the lifetime
of a Participant, any payment shall be payable only to the Participant. The
Committee shall, if it so determines, adopt rules for the designation by a
Participant of a beneficiary to receive cash payments, if any, that may become
due pursuant to this Plan after the death of the Participant.
SECTION 11. AMENDMENT OR TERMINATION OF THE PLAN.
------------------------------------
The Board or the Committee may, at any time, terminate or at any time
and from time to time amend, modify or suspend this Plan provided that no such
amendment, modification, suspension or termination of the Plan shall in any
manner adversely affect any Contingent Award theretofore made under the Plan
without the consent of the Participant.
SECTION 12. CHANGES IN CAPITALIZATION.
-------------------------
In the event of a dissolution or liquidation of the Holding Company or
a merger or consolidation in which the Holding Company is not the surviving
corporation, the amount of cash payable with respect to any Contingent Award for
an Incentive Period that will end after such event shall be determined and
payable as if the Incentive Period ended on the date of such event and an Ending
Value Multiplier of 2.000 shall be used in calculating the award for this Plan,
notwithstanding any other provisions of this Plan. All Contingent Awards shall
be calculated based on the average annual Salary of the Participant for the
shortened Incentive Period, and shall be paid to such Participants within ten
days of the end of the shortened Incentive Period.
<PAGE>
Exhibit 10(e)
BANCORP HAWAII, INC.
FORM OF AMENDED KEY EXECUTIVE
CHANGE-IN-CONTROL SEVERANCE AGREEMENT
OCTOBER 1994
ARTICLE 1. ESTABLISHMENT AND PURPOSE
1.1 EFFECTIVE DATE. This Executive Change-in-Control Severance Agreement
(the "Agreement") is made and entered into pursuant to Bancorp's Key Executive
Severance Plan (the "Plan"), and constitutes an amendment of the severance
agreement dated January 25, 1991. This agreement is effective as of this
_________ day of _________________, 1994 (the "Effective Date"), by and between
Bancorp Hawaii, Inc. ("Bancorp"), a Hawaii corporation, and
______________________, an executive (the "Executive") of Bancorp and its
subsidiary, Bank of Hawaii (the "Bank"). This Agreement shall supersede and
replace any prior severance agreement entered into between Bancorp and the
Executive.
1.2 TERM OF THE AGREEMENT. The Agreement shall commence as of the
Effective Date written above, and shall continue until the Board of Directors of
Bancorp (the "Board") determines, in good faith and in its sole discretion, that
the Executive is no longer to be included in the Plan and so notifies in writing
the Executive during the term of this Agreement of such determination.
Provided, however, in the event that a Change in Control of Bancorp, as
defined in Section 2.1 herein, occurs during the term of this Agreement, this
Agreement shall remain irrevocably in effect for the greater of twenty-four (24)
months from the date of such Change in Control, or until all benefits have been
paid to the Executive hereunder.
Further, in the event that the Board has knowledge that a third party has
taken steps reasonably calculated to effect a Change in Control of Bancorp,
including, but not limited to the commencement of a tender offer for the voting
stock of Bancorp, or the circulation of a proxy to Bancorp's shareholders, then
this Agreement shall remain irrevocably in effect until the Board, in good
faith, determines that such third party has fully abandoned or terminated its
effort to effect a Change in Control of Bancorp.
1.3 PURPOSE OF THE AGREEMENT. The purpose of this Agreement pursuant to
the Plan, is to advance the interests of Bancorp and the Bank by assuring that
Bancorp and the Bank will have the continued employment and dedication of the
Executive and the availability of his advice and counsel in the event that an
acquisition or Change in Control of Bancorp occurs. This Agreement shall also
assure the Executive of equitable treatment
<PAGE>
during the period of uncertainty that surrounds an acquisition or Change in
Control, and allow the Executive to act at all times in the best interests of
Bancorp and its shareholders.
1.4 CONTRACTUAL RIGHT TO BENEFITS. This Agreement establishes and vests
in the Executive a contractual right to the benefits which he or she is entitled
hereunder, enforceable by the Executive against Bancorp. However, nothing
herein shall require Bancorp to segregate, earmark, or otherwise set aside any
funds or other assets to provide for any payments hereunder.
This Agreement shall be considered an unfunded agreement to provide
benefits to a select group of management or highly compensated employees and is
therefore intended to be a "top-hat" plan exempt from the requirements of the
provisions of Parts 2, 3, and 4 of Title I of ERISA.
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Whenever used in the Agreement, the following terms
shall have the meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized.
(a) "Base Salary" means the annualized salary at the beginning of each
Year, which includes all regular basic wages, before reduction for any
amounts deferred on a tax-qualified or nonqualified basis, payable in
cash to an Executive for services rendered during the Year. Base
Salary shall exclude bonuses, incentive compensation, special fees or
awards, commissions, allowances, or any other form of premium or
incentive pay, or amounts designated by Bancorp as payment toward or
reimbursement of expenses.
(b) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(c) "Beneficiary" with respect to an Executive means the persons or
entities designated or deemed designated by an Executive pursuant to
Section 8.2 herein.
(d) "Board" means the Board of Directors of Bancorp.
(e) "Change in Control" of Bancorp means any one or more of the following
occurrences:
(i) Any Person, including a "group" as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, becomes the beneficial owner
of shares of
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Bancorp having 25% or more of the total number of votes that may
be cast for the election of Directors of Bancorp; or
(ii) As the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing
transactions, the person who were Directors of Bancorp before the
transaction shall cease to constitute a majority of the Board of
Directors of Bancorp or any successor to Bancorp.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Bancorp" means Bancorp Hawaii, Inc., a Hawaii corporation, or any
successor thereto that adopts the Agreement, as provided in Section
8.1 herein.
(h) "Committee" means the Compensation Committee of the Board of Directors
of Bancorp or any other committee appointed by the Board to administer
this Agreement.
(i) "Disability" means a physical or mental condition which renders an
Executive unable to discharge his normal work responsibility with
Bancorp or the Bank and which, in the opinion of licensed physician
selected by the Executive, subject to reasonable approval by the
Committee based upon sufficient medical evidence, can be reasonably
expected to continue for a period of at least one full calendar year.
If an Executive fails to select a physician within ten (10) business
days of a written request made by Bancorp, then Bancorp may select a
physician for purposes of this paragraph.
(j) "Effective Date" means the date the Agreement is approved by the
Board, or such other date as the Board shall designate in its
resolution approving the Agreement, and as provided in Section 1.1
herein.
(k) "Effective Date of Termination" means the date on which a voluntary
employment termination or involuntary employment termination other
than for Just Cause occurs within twenty-four (24) months of a Change
in Control which triggers Severance Benefits hereunder.
(l) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor act thereto.
(m) "Expiration Date" means the date the Agreement expires,
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as provided in Section 1.2 herein.
(n) "Just Cause" means a termination of an Executive's employment by
Bancorp for which no Severance Benefits are payable hereunder, as
provided in Article 4 herein.
(o) "Normal Retirement" shall have the same meaning as under the
Employee's Retirement Plan of the Bank of Hawaii, or any successor
plan thereto.
(p) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).
(q) "Plan" means the Bancorp Hawaii, Inc. Key Executive Severance Plan,
adopted April 27, 1983.
(r) "Severance Benefit" means the payment of severance compensation as
provided in Article 3 herein.
(s) "Year" means the consecutive 12-month period beginning each January 1
and ending December 31.
2.2 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
2.3 SEVERABILITY. In the event any provision of the Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.
2.4 MODIFICATION. No express provisions of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is agreed to by the Executive in writing and approved by the Compensation
Committee of the Board of Directors.
2.5 APPLICABLE LAW. To the extent not preempted by the laws of the United
States, the laws of the State of Hawaii shall be the controlling law in all
matters relating to the Agreement.
ARTICLE 3. SEVERANCE BENEFITS
3.1 RIGHT TO SEVERANCE BENEFITS. The Executive shall be entitled to
receive from Bancorp Severance Benefits as described in Section 3.2 herein, if
there has been a Change in Control of Bancorp, as defined in Section 2.1(e)
herein, and if, within twenty-four (24) months thereafter, the Executive
voluntarily terminates employment or is involuntarily terminated without Just
Cause with Bancorp. An Executive shall not be entitled to
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receive Severance Benefits if the Executive's employment with Bancorp or Bank of
Hawaii ends due to an involuntary termination by Bancorp for Just Cause, as
provided under Article 4 herein.
3.2 DESCRIPTION OF SEVERANCE BENEFITS. In the event that an Executive
becomes entitled to receive Severance Benefits, as provided in Section 3.1
herein, Bancorp shall pay to the Executive and provide him with the following:
(a) An amount equal to three (3) times the Executive's highest annual Base
Salary earned during the three (3) complete fiscal years preceding the
Effective Date of Termination; and
(b) An amount equal to three (3) times the Executive's highest annual
bonus earned under the One-Year Incentive Plan during the three (3)
complete fiscal years prior to the Effective Date of Termination, or,
if shorter, over the Executive's entire period of employment.
However, if the Executive's period of employment is less than one
year, the bonus shall be considered zero (0); and
(c) An amount equal to three (3) times the Executive's highest annual
incentive compensation earned under the Bank of Hawaii Profit Sharing
Plan, the Sustained Profit Growth Plan, or any successor plans thereto
over the three (3) complete fiscal years prior to the Effective Date
of Termination, or, if shorter, over the Executive's entire period of
employment. However, if the Executive's period of employment is less
than one year, the average incentive compensation shall be considered
zero (0); and
(d) An amount equal to the excess of (i) the maximum payment the Executive
would have received under the One-Year Incentive Plan if he had
continued in the employment of Bancorp and The Bank through the end of
the performance period following the Effective Date of Termination,
and if The Bank had met its maximum performance goals as provided
under the terms of the Plan and the maximum amount payable to the
Executive had been paid, over (ii) the actual payout under the One-
Year Incentive Plan resulting from the Executive's termination of
employment; and
(e) A payout under the Sustained Profit Growth Plan, in accordance with
the terms of this Plan; and
(f) A continuation of all welfare benefits at no direct cost to the
Executive, including medical insurance, long-term disability, and
group term life insurance for
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three (3) full years from the Effective Date of Termination or until
the Executive reaches his Normal Retirement Date, whichever occurs
earlier.
3.3 REDUCTION OF SEVERANCE BENEFITS. In the event there are fewer than
thirty-six (36) whole or partial months remaining from the Executive's Effective
Date of Termination until the Executive's Normal Retirement Date, as defined
under the Employee's Retirement Plan of Bank of Hawaii (the "Retirement Plan"),
then the amounts provided for under Sections 3.2(a), (b), and (c) above shall be
reduced by a fraction, the numerator of which shall be the number of whole or
partial months remaining until the Executive's Normal Retirement Date, and the
denominator of which shall be thirty-six (36).
3.4 SPECIAL RETIREMENT BENEFITS. The Executive shall receive special
retirement benefits as provided below, so that the total retirement benefits
that the Executive receives will equal the retirement benefits that the
Executive would have received under the Retirement Plan had the Executive
continued in the employ of Bancorp and the Bank for three (3) years following
the Executive's Effective Date of Termination (or until his Normal Retirement
Date, whichever is earlier). In addition to special retirement benefits, the
Executive shall receive all other benefits he would have received had he
continued in the employ of Bancorp and the Bank for three years following his
employment termination (or until his Normal Retirement Date, whichever is
earlier) including, without limitation, all ancillary benefits, such as early
retirement and survivor rights and benefits available at retirement, including
hospital, medical-surgical, major medical and group life insurance. The amount
of special retirement benefits payable hereunder to the Executive or his
beneficiaries shall equal the excess of the amount specified in (a) over that in
(b) below:
(a) The total retirement benefits on a single-life basis that would be
paid to the Executive if the three (3) years (or the period to his
Normal Retirement date, if less) following the Executive's Effective
Date of Termination are added to his credited service under the
Retirement Plan.
(b) The total retirement benefits actually paid on a single-life basis to
the Executive under the Retirement Plan.
Such special retirement benefits shall be paid at the same time and in the
same form (e.g., single life or contingent annuitant basis) as the Executive's
retirement benefits under the Retirement Plan.
3.5 FRINGE BENEFITS. The Executive's participation in
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fringe benefits prior to the Executive's Effective Date of Termination shall be
continued, or equivalent benefits shall be provided, at no cost to the
Executive, for a period of three (3) years from the Executive's Effective Date
of Termination (or until he reaches his Normal Retirement Date, whichever occurs
earlier).
3.6 RELOCATION BENEFITS. Should the Executive move his residence in order
to pursue other business opportunities within two (2) years of Executive's
Effective Date of Termination, he shall be reimbursed for any moving expenses
(as defined in Section 217(b) of the Code) incurred in that relocation
(including taxes, if any, payable on the reimbursement) which are not reimbursed
by another employer. Benefits provided herein shall not exceed the assistance
and benefits customarily provided by Bancorp to transferred employees prior to
the Change in Control.
3.7 INCENTIVE COMPENSATION. Any deferred awards previously granted to the
Executive under Bancorp's incentive compensation plans and not previously paid
to the Executive shall immediately vest on the date of the Executive's Effective
Date of Termination and shall be paid no later than ninety (90) calendar days
following that date, and be included as compensation in the month paid.
3.8 STOCK OPTIONS AND SARS. Stock options ("options") and stock
appreciation rights ("SARs"), if any, granted to the Executive by Bancorp will
be exercisable pursuant to the terms of applicable plans.
ARTICLE 4. JUST CAUSE
4.1 JUST CASE. Nothing in this Agreement shall be construed to prevent
Bancorp or the Bank from terminating an Executive's employment for Just Cause.
In such case, no Severance Benefits shall be payable to the Executive under this
Agreement.
Just Cause shall mean the criminal conviction of the Executive for an act
of fraud, embezzlement, theft, or any other act constituting a felony.
The determination that the Executive's actions constitute Just Cause for
termination shall be made by the Board, acting in good faith.
ARTICLE 5. FORM AND TIMING OF SEVERANCE BENEFITS
5.1 FORM AND TIMING OF SEVERANCE BENEFITS. The Severance Benefits
described in Sections 3.4(a), (b), (c), (d), and 3.8 herein, shall be paid in
cash to the Executive in a single lump sum as soon as practicable following the
Executive's Effective Date of Termination, but in no event beyond ninety (90)
calendar
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days from such date.
The Severance Benefits described in Section 3.2(f) and 3.5 herein shall be
provided by Bancorp to the Executive immediately upon the Executive's Effective
Date of Termination and shall continue to be provided for three (3) full
calendar years from the Executive's Effective Date of Termination or until the
Executive reaches his Normal Retirement Date, whichever occurs earlier.
5.2 WITHHOLDING OF TAXES. Bancorp shall withhold from any amounts payable
under this Agreement all Federal, state, city, or other taxes as legally shall
be required.
ARTICLE 6. PARACHUTE PAYMENTS
6.1 EXCISE TAX CAP. In the event that a Change in Control of Bancorp
shall occur and a determination is made by Bancorp, pursuant to Sections 280G
and 4999 of the Code (and corresponding state law provisions) that a golden
parachute excise tax is due, the Executive's Severance Benefits under this Plan
shall be grossed up for the amount equal to and only equal to the amount
necessary to pay the excise tax.
6.2 SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service
adjusts the excise tax computation of Bancorp, as provided in Section 6.1
herein, such that the Executive is liable for the payment of a greater excise
tax under Sections 280G and 4999 of the Code, or such that the Executive does
not receive the full benefit that he would have received, Bancorp shall
reimburse the Executive for the full amount necessary to make the Executive
whole (less any amounts received by the Executive that he would not have
received had the computation initially been computed as subsequently adjusted),
including the value of the excise tax and all corresponding interest and
penalties due to the Internal Revenue Service.
ARTICLE 7. OTHER RIGHTS AND BENEFITS NOT AFFECTED
7.1 OTHER BENEFITS. Neither the provisions of this Agreement nor the
Severance Benefits provided for hereunder shall reduce any amounts otherwise
payable, or in any way diminish the Executive's rights as an employee of
Bancorp, whether existing now or hereafter, under any benefit, incentive,
retirement, stock option, stock bonus, stock purchase plan, or any employment
agreement, or other plan or arrangement.
7.2 EMPLOYMENT STATUS. This Agreement does not constitute a contract of
employment or impose on the Executive or Bancorp any obligation to retain the
Executive as an employee, to change the status of the Executive's employment, or
to change Bancorp's policies regarding termination of employment.
ARTICLE 8. SUCCESSORS
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8.1 SUCCESSORS. Bancorp will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) of all or
substantially all of the business and/or assets of Bancorp or of any division or
subsidiary thereof to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that Bancorp would be required to perform
it if no such succession had taken place. Failure of Bancorp to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Executive to compensation
from Bancorp in the same amount and on the same terms as they would be entitled
hereunder if terminated voluntarily following a Change in Control. Except for
the purposes of implementing the foregoing, the date on which any succession
becomes effective shall be deemed the Effective Date of Termination.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If an Executive should
die while any amount would still be payable to him hereunder had he continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement, to the Executive's devisee,
legatee, or other designee, or if there is no such designee, to the Executive's
estate.
8.2 BENEFICIARIES. The beneficiary of each Executive under the Retirement
Plan shall be the beneficiary of the Executive's benefits under this Agreement,
unless a beneficiary is otherwise designated by the Executive in the form of a
signed writing acceptable to the Committee. An Executive may make or change
such designation at any time.
ARTICLE 9. ADMINISTRATION
9.1 ADMINISTRATION. This Agreement shall be administered by the
Compensation Committee of the Board of Directors. The Committee is authorized
to interpret this Agreement, to prescribe and rescind rules and regulations, to
provide conditions and assurances deemed necessary and advisable, to protect the
interests of Bancorp, and to make all other determinations necessary or
advisable for the Agreement's administration.
In fulfilling its administrative duties hereunder, the Committee may rely
on outside counsel, independent accountants, or other consultants to render
advice or assistance.
9.2 INDEMNIFICATION AND EXCULPATION. The members of the Board, its agents
and officers, directors, and employees of Bancorp and its affiliates shall be
indemnified and held harmless by Bancorp against and from any and all loss,
cost, liability, or expense that may be imposed upon or reasonably incurred by
them in connection with or resulting from any claim, action, suit, or
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proceeding to which they may be a party or in which they may be involved by
reason of any action taken or failure to act under this Agreement and against
and from any and all amounts paid by them in settlement (with Bancorp's written
approval) or paid by them in satisfaction of a judgment in any such action,
suit, or proceeding. The foregoing provision shall not be applicable to any
person if the loss, cost, liability, or expense is due to such person's gross
negligence or willful misconduct.
ARTICLE 10. LEGAL FEES AND ARBITRATION
10.1 LEGAL FEES AND EXPENSES. Bancorp shall pay all reasonable legal fees,
costs of litigation, and other expenses incurred in good faith by the Executive
as a result of Bancorp's refusal to provide the Severance Benefits to which the
Executive becomes entitled under this Agreement, or as a result of Bancorp's
contesting the validity, enforceability, or interpretation of the Agreement.
Provided, however, that such payments shall not exceed the amount permitted by
law and Bancorp's Restated Articles of Incorporation.
IN WITNESS WHEREOF, Bancorp has caused this Agreement to be executed by a
resolution of the Board of Directors, as of the day and year first above
written.
Bancorp Hawaii, Inc.
By:_________________________
Its:________________________
By:_________________________
Executive
ATTEST:
__________________________
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Exhibit 10(f)
BANCORP HAWAII, INC.
FORM OF KEY EXECUTIVE
CHANGE-IN-CONTROL SEVERANCE AGREEMENT
OCTOBER 1994
ARTICLE 1. ESTABLISHMENT AND PURPOSE
1.1 EFFECTIVE DATE. This Executive Change-in-Control Severance Agreement
(the "Agreement") is made and entered into pursuant to Bancorp's Key Executive
Severance Plan (the "Plan"), and is effective as of this _______ day of
_________________, 1994 (the "Effective Date"), by and between Bancorp Hawaii,
Inc. ("Bancorp"), a Hawaii corporation, and ______________________, an executive
(the "Executive") of Bancorp and its subsidiary, Bank of Hawaii (the "Bank").
This Agreement shall supersede and replace any prior severance agreement entered
into between Bancorp and the Executive.
1.2 TERM OF THE AGREEMENT. The Agreement shall commence as of the
Effective Date written above, and shall continue until the Board of Directors of
Bancorp (the "Board") determines, in good faith and in its sole discretion, that
the Executive is no longer to be included in the Plan and so notifies in writing
the Executive during the term of this Agreement of such determination.
Provided, however, in the event that a Change in Control of Bancorp, as
defined in Section 2.1 herein, occurs during the term of this Agreement, this
Agreement shall remain irrevocably in effect for the greater of twenty-four (24)
months from the date of such Change in Control, or until all benefits have been
paid to the Executive hereunder.
Further, in the event that the Board has knowledge that a third party has
taken steps reasonably calculated to effect a Change in Control of Bancorp,
including, but not limited to the commencement of a tender offer for the voting
stock of Bancorp, or the circulation of a proxy to Bancorp's shareholders, then
this Agreement shall remain irrevocably in effect until the Board, in good
faith, determines that such third party has fully abandoned or terminated its
effort to effect a Change in Control of Bancorp.
1.3 PURPOSE OF THE AGREEMENT. The purpose of this Agreement pursuant to
the Plan, is to advance the interests of Bancorp and the Bank by assuring that
Bancorp and the Bank will have the continued employment and dedication of the
Executive and the availability of his advice and counsel in the event that an
acquisition or Change in Control of Bancorp occurs. This Agreement shall also
assure the Executive of equitable treatment during the period of uncertainty
that surrounds an acquisition or Change in Control, and allow the Executive to
act at all times in
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the best interests of Bancorp and its shareholders.
1.4 CONTRACTUAL RIGHT TO BENEFITS. This Agreement establishes and vests
in the Executive a contractual right to the benefits which he or she is entitled
hereunder, enforceable by the Executive against Bancorp. However, nothing
herein shall require Bancorp to segregate, earmark, or otherwise set aside any
funds or other assets to provide for any payments hereunder.
This Agreement shall be considered an unfunded agreement to provide
benefits to a select group of management or highly compensated employees and is
therefore intended to be a "top-hat" plan exempt from the requirements of the
provisions of Parts 2, 3, and 4 of Title I of ERISA.
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Whenever used in the Agreement, the following terms
shall have the meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized.
(a) "Base Salary" means the annualized salary at the beginning of each
Year, which includes all regular basic wages, before reduction for any
amounts deferred on a tax-qualified or nonqualified basis, payable in
cash to an Executive for services rendered during the Year. Base
Salary shall exclude bonuses, incentive compensation, special fees or
awards, commissions, allowances, or any other form of premium or
incentive pay, or amounts designated by Bancorp as payment toward or
reimbursement of expenses.
(b) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(c) "Beneficiary" with respect to an Executive means the persons or
entities designated or deemed designated by an Executive pursuant to
Section 8.2 herein.
(d) "Board" means the Board of Directors of Bancorp.
(e) "Change in Control" of Bancorp means any one or more of the following
occurrences:
(i) Any Person, including a "group" as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, becomes the beneficial owner
of shares of Bancorp having 25% or more of the total number of
votes that may be cast for the election of
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Directors of Bancorp; or
(ii) As the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing
transactions, the person who were Directors of Bancorp before the
transaction shall cease to constitute a majority of the Board of
Directors of Bancorp or any successor to Bancorp.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Bancorp" means Bancorp Hawaii, Inc., a Hawaii corporation, or any
successor thereto that adopts the Agreement, as provided in Section
8.1 herein.
(h) "Committee" means the Compensation Committee of the Board of Directors
of Bancorp or any other committee appointed by the Board to administer
this Agreement.
(i) "Disability" means a physical or mental condition which renders an
Executive unable to discharge his normal work responsibility with
Bancorp or the Bank and which, in the opinion of licensed physician
selected by the Executive, subject to reasonable approval by the
Committee based upon sufficient medical evidence, can be reasonably
expected to continue for a period of at least one full calendar year.
If an Executive fails to select a physician within ten (10) business
days of a written request made by Bancorp, then Bancorp may select a
physician for purposes of this paragraph.
(j) "Effective Date" means the date the Agreement is approved by the
Board, or such other date as the Board shall designate in its
resolution approving the Agreement, and as provided in Section 1.1
herein.
(k) "Effective Date of Termination" means the date on which a voluntary
employment termination or involuntary employment termination other
than for Just Cause occurs within twenty-four (24) months of a Change
in Control which triggers Severance Benefits hereunder.
(l) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor act thereto.
(m) "Expiration Date" means the date the Agreement expires, as provided in
Section 1.2 herein.
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(n) "Just Cause" means a termination of an Executive's employment by
Bancorp for which no Severance Benefits are payable hereunder, as
provided in Article 4 herein.
(o) "Normal Retirement" shall have the same meaning as under the
Employee's Retirement Plan of the Bank of Hawaii, or any successor
Plan thereto.
(p) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).
(q) "Plan" means the Bancorp Hawaii, Inc. Key Executive Severance Plan,
adopted April 27, 1983.
(r) "Severance Benefit" means the payment of severance compensation as
provided in Article 3 herein.
(s) "Year" means the consecutive 12-month period beginning each January 1
and ending December 31.
2.2 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
2.3 SEVERABILITY. In the event any provision of the Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.
2.4 MODIFICATION. No express provisions of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is agreed to by the Executive in writing and approved by the Compensation
Committee of the Board of Directors.
2.5 APPLICABLE LAW. To the extent not preempted by the laws of the United
States, the laws of the State of Hawaii shall be the controlling law in all
matters relating to the Agreement.
ARTICLE 3. SEVERANCE BENEFITS
3.1 RIGHT TO SEVERANCE BENEFITS. The Executive shall be entitled to
receive from Bancorp Severance Benefits as described in Section 3.2 herein, if
there has been a Change in Control of Bancorp, as defined in Section 2.1(e)
herein, and if, within twenty-four (24) months thereafter, the Executive
voluntarily terminates employment or is involuntarily terminated without Just
Cause with Bancorp. An Executive shall not be entitled to receive Severance
Benefits if the Executive's employment with Bancorp or Bank of Hawaii ends due
to an involuntary termination
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by Bancorp for Just Cause, as provided under Article 4 herein.
3.2 DESCRIPTION OF SEVERANCE BENEFITS. In the event that an Executive
becomes entitled to receive Severance Benefits, as provided in Section 3.1
herein, Bancorp shall pay to the Executive and provide him with the following:
(a) An amount equal to three (3) times the Executive's highest annual Base
Salary earned during the three (3) complete fiscal years preceding the
Effective Date of Termination; and
(b) An amount equal to three (3) times the Executive's highest annual
bonus earned under the One-Year Incentive Plan during the three (3)
complete fiscal years prior to the Effective Date of Termination, or,
if shorter, over the Executive's entire period of employment.
However, if the Executive's period of employment is less than one
year, the bonus shall be considered zero (0); and
(c) An amount equal to three (3) times the Executive's highest annual
incentive compensation earned under the Bank of Hawaii Profit Sharing
Plan, the Sustained Profit Growth Plan, or any successor plans thereto
over the three (3) complete fiscal years prior to the Effective Date
of Termination, or, if shorter, over the Executive's entire period of
employment. However, if the Executive's period of employment is less
than one year, the average incentive compensation shall be considered
zero (0); and
(d) An amount equal to the excess of (i) the maximum payment the Executive
would have received under the One-Year Incentive Plan if he had
continued in the employment of Bancorp and The Bank through the end of
the performance period following the Effective Date of Termination,
and if The Bank had met its maximum performance goals as provided
under the terms of the Plan and the maximum amount payable to the
Executive had been paid, over (ii) the actual payout under the One-
Year Incentive Plan resulting from the Executive's termination of
employment; and
(e) A payout under the Sustained Profit Growth Plan, in accordance with
the terms of this Plan; and
(f) A continuation of all welfare benefits at no direct cost to the
Executive, including medical insurance, long-term disability, and
group term life insurance for three (3) full years from the Effective
Date of Termination or until the Executive reaches his Normal
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Retirement Date, whichever occurs earlier.
3.3 REDUCTION OF SEVERANCE BENEFITS. In the event there are fewer than
thirty-six (36) whole or partial months remaining from the Executive's Effective
Date of Termination until the Executive's Normal Retirement Date, as defined
under the Employee's Retirement Plan of Bank of Hawaii (the "Retirement Plan"),
then the amounts provided for under Sections 3.2(a), (b), and (c) above shall be
reduced by a fraction, the numerator of which shall be the number of whole or
partial months remaining until the Executive's Normal Retirement Date, and the
denominator of which shall be thirty-six (36).
3.4 SPECIAL RETIREMENT BENEFITS. The Executive shall receive special
retirement benefits as provided below, so that the total retirement benefits
that the Executive receives will equal the retirement benefits that the
Executive would have received under the Retirement Plan had the Executive
continued in the employ of Bancorp and the Bank for three (3) years following
the Executive's Effective Date of Termination (or until his Normal Retirement
Date, whichever is earlier). In addition to special retirement benefits, the
Executive shall receive all other benefits he would have received had he
continued in the employ of Bancorp and the Bank for three years following his
employment termination (or until his Normal Retirement Date, whichever is
earlier) including, without limitation, all ancillary benefits, such as early
retirement and survivor rights and benefits available at retirement, including
hospital, medical-surgical, major medical and group life insurance. The amount
of special retirement benefits payable hereunder to the Executive or his
beneficiaries shall equal the excess of the amount specified in (a) over that in
(b) below:
(a) The total retirement benefits on a single-life basis that would be
paid to the Executive if the three (3) years (or the period to his
Normal Retirement date, if less) following the Executive's Effective
Date of Termination are added to his credited service under the
Retirement Plan.
(b) The total retirement benefits actually paid on a single-life basis to
the Executive under the Retirement Plan.
Such special retirement benefits shall be paid at the same time and in the
same form (e.g., single life or contingent annuitant basis) as the Executive's
retirement benefits under the Retirement Plan.
3.5 FRINGE BENEFITS. The Executive's participation in fringe benefits
prior to the Executive's Effective Date of Termination shall be continued, or
equivalent benefits shall be
<PAGE>
provided, at no cost to the Executive, for a period of three (3) years from the
Executive's Effective Date of Termination (or until he reaches his Normal
Retirement Date, whichever occurs earlier).
3.6 RELOCATION BENEFITS. Should the Executive move his residence in order
to pursue other business opportunities within two (2) years of Executive's
Effective Date of Termination, he shall be reimbursed for any moving expenses
(as defined in Section 217(b) of the Code) incurred in that relocation
(including taxes, if any, payable on the reimbursement) which are not reimbursed
by another employer. Benefits provided herein shall not exceed the assistance
and benefits customarily provided by Bancorp to transferred employees prior to
the Change in Control.
3.7 INCENTIVE COMPENSATION. Any deferred awards previously granted to the
Executive under Bancorp's incentive compensation plans and not previously paid
to the Executive shall immediately vest on the date of the Executive's Effective
Date of Termination and shall be paid no later than ninety (90) calendar days
following that date, and be included as compensation in the month paid.
3.8 STOCK OPTIONS AND SARS. Stock options ("options") and stock
appreciation rights ("SARs"), if any, granted to the Executive by Bancorp will
be exercisable pursuant to the terms of applicable plans.
ARTICLE 4. JUST CAUSE
4.1 JUST CASE. Nothing in this Agreement shall be construed to prevent
Bancorp or the Bank from terminating an Executive's employment for Just Cause.
In such case, no Severance Benefits shall be payable to the Executive under this
Agreement.
Just Cause shall mean the criminal conviction of the Executive for an act
of fraud, embezzlement, theft, or any other act constituting a felony.
The determination that the Executive's actions constitute Just Cause for
termination shall be made by the Board, acting in good faith.
ARTICLE 5. FORM AND TIMING OF SEVERANCE BENEFITS
5.1 FORM AND TIMING OF SEVERANCE BENEFITS. The Severance Benefits
described in Sections 3.4(a), (b), (c), (d), and 3.8 herein, shall be paid in
cash to the Executive in a single lump sum as soon as practicable following the
Executive's Effective Date of Termination, but in no event beyond ninety (90)
calendar days from such date.
<PAGE>
The Severance Benefits described in Section 3.2(f) and 3.5 herein shall be
provided by Bancorp to the Executive immediately upon the Executive's Effective
Date of Termination and shall continue to be provided for three (3) full
calendar years from the Executive's Effective Date of Termination or until the
Executive reaches his Normal Retirement Date, whichever occurs earlier.
5.2 WITHHOLDING OF TAXES. Bancorp shall withhold from any amounts payable
under this Agreement all Federal, state, city, or other taxes as legally shall
be required.
ARTICLE 6. PARACHUTE PAYMENTS
6.1 EXCISE TAX CAP. In the event that a Change in Control of Bancorp
shall occur and a determination is made by Bancorp, pursuant to Sections 280G
and 4999 of the Code (and corresponding state law provisions) that a golden
parachute excise tax is due, the Executive's Severance Benefits under this Plan
shall be grossed up for the amount equal to and only equal to the amount
necessary to pay the excise tax.
6.2 SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service
adjusts the excise tax computation of Bancorp, as provided in Section 6.1
herein, such that the Executive is liable for the payment of a greater excise
tax under Sections 280G and 4999 of the Code, or such that the Executive does
not receive the full benefit that he would have received, Bancorp shall
reimburse the Executive for the full amount necessary to make the Executive
whole (less any amounts received by the Executive that he would not have
received had the computation initially been computed as subsequently adjusted),
including the value of the excise tax and all corresponding interest and
penalties due to the Internal Revenue Service.
ARTICLE 7. OTHER RIGHTS AND BENEFITS NOT AFFECTED
7.1 OTHER BENEFITS. Neither the provisions of this Agreement nor the
Severance Benefits provided for hereunder shall reduce any amounts otherwise
payable, or in any way diminish the Executive's rights as an employee of
Bancorp, whether existing now or hereafter, under any benefit, incentive,
retirement, stock option, stock bonus, stock purchase plan, or any employment
agreement, or other plan or arrangement.
7.2 EMPLOYMENT STATUS. This Agreement does not constitute a contract of
employment or impose on the Executive or Bancorp any obligation to retain the
Executive as an employee, to change the status of the Executive's employment, or
to change Bancorp's policies regarding termination of employment.
ARTICLE 8. SUCCESSORS
8.1 SUCCESSORS. Bancorp will require any successor (whether direct or
indirect, by purchase, merger, consolidation,
<PAGE>
or otherwise) of all or substantially all of the business and/or assets of
Bancorp or of any division or subsidiary thereof to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that Bancorp
would be required to perform it if no such succession had taken place. Failure
of Bancorp to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from Bancorp in the same amount and on the same terms
as they would be entitled hereunder if terminated voluntarily following a Change
in Control. Except for the purposes of implementing the foregoing, the date on
which any succession becomes effective shall be deemed the Effective Date of
Termination.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If an Executive should
die while any amount would still be payable to him hereunder had he continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement, to the Executive's devisee,
legatee, or other designee, or if there is no such designee, to the Executive's
estate.
8.2 BENEFICIARIES. The beneficiary of each Executive under the Retirement
Plan shall be the beneficiary of the Executive's benefits under this Agreement,
unless a beneficiary is otherwise designated by the Executive in the form of a
signed writing acceptable to the Committee. An Executive may make or change
such designation at any time.
ARTICLE 9. ADMINISTRATION
9.1 ADMINISTRATION. This Agreement shall be administered by the
Compensation Committee of the Board of Directors. The Committee is authorized
to interpret this Agreement, to prescribe and rescind rules and regulations, to
provide conditions and assurances deemed necessary and advisable, to protect the
interests of Bancorp, and to make all other determinations necessary or
advisable for the Agreement's administration.
In fulfilling its administrative duties hereunder, the Committee may rely
on outside counsel, independent accountants, or other consultants to render
advice or assistance.
9.2 INDEMNIFICATION AND EXCULPATION. The members of the Board, its agents
and officers, directors, and employees of Bancorp and its affiliates shall be
indemnified and held harmless by Bancorp against and from any and all loss,
cost, liability, or expense that may be imposed upon or reasonably incurred by
them in connection with or resulting from any claim, action, suit, or proceeding
to which they may be a party or in which they may be involved by reason of any
action taken or failure to act under
<PAGE>
this Agreement and against and from any and all amounts paid by them in
settlement (with Bancorp's written approval) or paid by them in satisfaction of
a judgment in any such action, suit, or proceeding. The foregoing provision
shall not be applicable to any person if the loss, cost, liability, or expense
is due to such person's gross negligence or willful misconduct.
ARTICLE 10. LEGAL FEES AND ARBITRATION
10.1 LEGAL FEES AND EXPENSES. Bancorp shall pay all reasonable legal fees,
costs of litigation, and other expenses incurred in good faith by the Executive
as a result of Bancorp's refusal to provide the Severance Benefits to which the
Executive becomes entitled under this Agreement, or as a result of Bancorp's
contesting the validity, enforceability, or interpretation of the Agreement.
Provided, however, that such payments shall not exceed the amount permitted by
law and Bancorp's Restated Articles of Incorporation.
IN WITNESS WHEREOF, Bancorp has caused this Agreement to be executed by a
resolution of the Board of Directors, as of the day and year first above
written.
Bancorp Hawaii, Inc.
By:_________________________
Its:________________________
By:_________________________
Executive
ATTEST:
__________________________
<PAGE>
Exhibit 10(g)
BANCORP HAWAII, INC.
FORM OF EXECUTIVE CHANGE-IN-CONTROL SEVERANCE AGREEMENT
OCTOBER 1994
ARTICLE 1. ESTABLISHMENT AND PURPOSE
1.1 EFFECTIVE DATE. This Executive Change-in-Control Severance Agreement
(the "Agreement") is made and entered into pursuant to Bancorp's Key Executive
Severance Plan (the "Plan"), and is effective as of this _________ day of
_________________, 1994 (the "Effective Date"), by and between Bancorp Hawaii,
Inc. ("Bancorp"), a Hawaii corporation, and ______________________, an executive
(the "Executive") of Bancorp and its subsidiary, Bank of Hawaii (the "Bank").
This Agreement shall supersede and replace any prior severance agreement entered
into between Bancorp and the Executive.
1.2 TERM OF THE AGREEMENT. The Agreement shall commence as of the
Effective Date written above, and shall continue until the Board of Directors of
Bancorp (the "Board") determines, in good faith and in its sole discretion, that
the Executive is no longer to be included in the Plan and so notifies in writing
the Executive during the term of this Agreement of such determination.
Provided, however, in the event that a Change in Control of Bancorp, as
defined in Section 2.1 herein, occurs during the term of this Agreement, this
Agreement shall remain irrevocably in effect for the greater of twenty-four (24)
months from the date of such Change in Control, or until all benefits have been
paid to the Executive hereunder.
Further, in the event that the Board has knowledge that a third party has
taken steps reasonably calculated to effect a Change in Control of Bancorp,
including, but not limited to the commencement of a tender offer for the voting
stock of Bancorp, or the circulation of a proxy to Bancorp's shareholders, then
this Agreement shall remain irrevocably in effect until the Board, in good
faith, determines that such third party has fully abandoned or terminated its
effort to effect a Change in Control of Bancorp.
1.3 PURPOSE OF THE AGREEMENT. The purpose of this Agreement pursuant to
the Plan, is to advance the interests of Bancorp and the Bank by assuring that
Bancorp and the Bank will have the continued employment and dedication of the
Executive and the availability of his advice and counsel in the event that an
acquisition or Change in Control of Bancorp occurs. This Agreement shall also
assure the Executive of equitable treatment during the period of uncertainty
that surrounds an acquisition or Change in Control, and allow the Executive to
act at all times in the best interests of Bancorp and its shareholders.
<PAGE>
1.4 CONTRACTUAL RIGHT TO BENEFITS. This Agreement establishes and vests
in the Executive a contractual right to the benefits which he or she is entitled
hereunder, enforceable by the Executive against Bancorp. However, nothing
herein shall require Bancorp to segregate, earmark, or otherwise set aside any
funds or other assets to provide for any payments hereunder.
This Agreement shall be considered an unfunded agreement to provide
benefits to a select group of management or highly compensated employees and is
therefore intended to be a "top-hat" plan exempt from the requirements of the
provisions of Parts 2, 3, and 4 of Title I of ERISA.
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Whenever used in the Agreement, the following terms
shall have the meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized.
(a) "Base Salary" means the annualized salary at the beginning of each
Year, which includes all regular basic wages, before reduction for any
amounts deferred on a tax-qualified or nonqualified basis, payable in
cash to an Executive for services rendered during the Year. Base
Salary shall exclude bonuses, incentive compensation, special fees or
awards, commissions, allowances, or any other form of premium or
incentive pay, or amounts designated by Bancorp as payment toward or
reimbursement of expenses.
(b) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(c) "Beneficiary" with respect to an Executive means the persons or
entities designated or deemed designated by an Executive pursuant to
Section 8.2 herein.
(d) "Board" means the Board of Directors of Bancorp.
(e) "Change in Control" of Bancorp means any one or more of the following
occurrences:
(i) Any Person, including a "group" as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, becomes the beneficial owner
of shares of Bancorp having 25% or more of the total number of
votes that may be cast for the election of Directors of Bancorp;
or
<PAGE>
(ii) As the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the
foregoing transactions, the person who were Directors of Bancorp
before the transaction shall cease to constitute a majority of
the Board of Directors of Bancorp or any successor to Bancorp.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Bancorp" means Bancorp Hawaii, Inc., a Hawaii corporation, or any
successor thereto that adopts the Agreement, as provided in Section
8.1 herein.
(h) "Committee" means the Compensation Committee of the Board of Directors
of Bancorp or any other committee appointed by the Board to administer
this Agreement.
(i) "Disability" means a physical or mental condition which renders an
Executive unable to discharge his normal work responsibility with
Bancorp or the Bank and which, in the opinion of licensed physician
selected by the Executive, subject to reasonable approval by the
Committee based upon sufficient medical evidence, can be reasonably
expected to continue for a period of at least one full calendar year.
If an Executive fails to select a physician within ten (10) business
days of a written request made by Bancorp, then Bancorp may select a
physician for purposes of this paragraph.
(j) "Effective Date" means the date the Agreement is approved by the
Board, or such other date as the Board shall designate in its
resolution approving the Agreement, and as provided in Section 1.1
herein.
(k) "Effective Date of Termination" means the date on which a qualifying
employment termination occurs.
(l) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor act thereto.
(m) "Expiration Date" means the date the Agreement expires, as provided in
Section 1.2 herein.
(n) "Just Cause" means a termination of an Executive's employment by
Bancorp for which no Severance Benefits are payable hereunder, as
provided in Article 4 herein.
(o) "Normal Retirement" shall have the same meaning as
<PAGE>
under the Employee's Retirement Plan of the Bank of Hawaii, or any
successor plan thereto.
(p) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).
(q) "Plan" means the Bancorp Hawaii, Inc. Key Executive Severance Plan,
adopted April 27, 1983.
(r) "Severance Benefit" means the payment of severance compensation as
provided in Article 3 herein.
(s) "Year" means the consecutive 12-month period beginning each January 1
and ending December 31.
2.2 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
2.3 SEVERABILITY. In the event any provision of the Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.
2.4 MODIFICATION. No express provisions of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is agreed to by the Executive in writing and approved by the Compensation
Committee of the Board of Directors.
2.5 APPLICABLE LAW. To the extent not preempted by the laws of the United
States, the laws of the State of Hawaii shall be the controlling law in all
matters relating to the Agreement.
ARTICLE 3. SEVERANCE BENEFITS
3.1 RIGHT TO SEVERANCE BENEFITS. The Executive shall be entitled to
receive from Bancorp Severance Benefits as described in Section 3.4 herein, if
there has been a Change in Control of Bancorp, as defined in Section 2.1(e)
herein, and if, within twenty-four (24) months thereafter, the Executive's
employment with Bancorp shall end for any reason specified in Section 3.2 herein
as being a Qualifying Termination. An Executive shall not be entitled to
receive Severance Benefits if the Executive's employment with Bancorp ends due
to an involuntary termination by Bancorp or Bank of Hawaii for Just Cause, as
provided under Article 4 herein, or if the Executive's employment terminates due
to death, Disability, or voluntary Normal Retirement.
3.2 QUALIFYING TERMINATION. The occurrence of any one or
<PAGE>
more of the following events within twenty-four (24) calendar months after a
Change in Control of Bancorp shall trigger the payment of Severance Benefits to
the Executive, as provided under Section 3.4 herein:
(a) Bancorp's or the Bank's involuntary termination of the
Executive's employment without Just Cause;
(b) The Executive's voluntary employment termination for Good Reason,
as defined by Section 3.3 herein;
(c) A successor company fails or refuses to assume Bancorp's
obligations under this Agreement in their entirety, as required
by Article 8 herein; or
(d) Bancorp, or any successor company, commits a material breach of
any of the provisions of this Agreement.
3.3 DEFINITION OF GOOD REASON. "Good Reason" means, without the
Executive's express written consent, the occurrence after a Change in Control of
Bancorp of any one or more of the following:
(i) The assignment of the Executive to duties materially inconsistent
with the Executive's authorities, duties, responsibilities, and
status (including offices, titles, and reporting requirements) as
an executive and/or officer of Bancorp or the Bank, or a material
reduction of the Executive's authorities, duties, or
responsibilities from those in effect as of ninety (90) days
prior to the Change in Control, other than an act that is
remedied by Bancorp or the Bank promptly after receipt of notice
thereof given by the Executive;
(ii) Bancorp or the Bank requiring the Executive to be based at a
location in excess of twenty-five (25) miles from the location of
the Executive's principal job location or office immediately
prior to the Change in Control; except for required travel on
Bank business to an extent substantially consistent with the
Executive's then present business travel obligations;
(iii) A reduction by Bancorp or the Bank of the Executive's annual
rate of Base Salary in effect as of ninety (90) days prior to the
Change in Control;
<PAGE>
(iv) The failure of Bancorp or the Bank to continue in effect any of
Bancorp's or the Bank's annual and long-term incentive
compensation plans, or employee benefit or retirement plans,
policies, practices, or other compensation arrangements in which
the Executive participates unless such failure to continue the
plan, policy, practice, or arrangement pertains to all plan
participants generally; or the failure by Bancorp or the Bank to
continue the Executive's participation therein on substantially
the same basis, both in terms of the amount of benefits provided
and the level of the Executive's participation relative to other
participants and commensurate with the Executive's responsibility
and duties; and
(v) The failure of Bancorp or the Bank to obtain a satisfactory
agreement from any successor to Bancorp to assume and agree to
perform Bancorp's obligations under this Agreement, as
contemplated in Article 8 herein.
3.4 DESCRIPTION OF SEVERANCE BENEFITS. In the event that an Executive
becomes entitled to receive Severance Benefits, as provided in Section 3.1
herein, Bancorp shall pay to the Executive and provide him with the following:
(a) An amount equal to two (2) times the Executive's annual rate of
Base Salary in effect upon the Effective Date of Termination; and
(b) An amount equal to two (2) times the Executive's target bonus
under the One-Year Incentive Plan for the fiscal year prior to
the Effective Date of Termination. However, if the Executive's
period of employment is less than one year, the bonus shall be
considered zero (0); and
(c) A payout under the One-Year Incentive Plan, in accordance with
the terms of this Plan; and
(d) A payout under the Sustained Profit Growth Plan, in accordance
with the terms of this plan; and
(e) A continuation of all welfare benefits at normal employee cost
including medical insurance, long-term disability, and group term
life insurance for two (2) full years from the Effective Date of
Termination or until the Executive reaches his Normal Retirement
date, whichever occurs earlier. However, these benefits will be
discontinued prior to the end of the two (2) years in the event
the
<PAGE>
Executive receives substantially similar benefits from a
subsequent employer, as determined by the Compensation Committee.
3.5 REDUCTION OF SEVERANCE BENEFITS. In the event there are fewer than
twenty-four (24) whole or partial months remaining from the Executive's
Effective Date of Termination until the Executive's Normal Retirement date, as
defined under the Employee's Retirement Plan of Bank of Hawaii (the "Retirement
Plan"), then the amounts provided for under Sections 3.4(a), (b), (c), and (d)
above shall be reduced by a fraction, the numerator of which shall be the number
of whole or partial months remaining until the Executive's Normal Retirement
date, and the denominator of which shall be twenty-four (24).
3.6 SPECIAL RETIREMENT BENEFITS. The Executive shall receive special
retirement benefits as provided below, so that the total retirement benefits
that the Executive receives will equal the retirement benefits that the
Executive would have received had the Executive continued in the employ of
Bancorp and the Bank of two (2) years following the Executive's Effective Date
of Termination (or until his Normal Retirement date, whichever is earlier) but
without regard to any ancillary benefits. The amount of special retirement
benefits payable hereunder to the Executive or his beneficiaries shall equal the
excess of the amount specified in (a) over that in (b) below:
(a) The total retirement benefits on a single-life basis that would
be paid to the Executive if the two (2) years (or the period to
his Normal Retirement date, if less) following the Executive's
Effective Date of Termination are added to his credited service
under the Retirement Plan.
(b) The total retirement benefits actually paid on a single-life
basis to the Executive under the Retirement Plan.
Such special retirement benefits shall be paid at the same time and in the
same form (e.g., single life or contingent annuitant basis) as the Executive's
retirement benefits under the Retirement Plan.
3.7 OUTPLACEMENT SERVICES. The Executive shall be entitled, at the
expense of Bancorp, to receive standard outplacement services from a nationally
recognized outplacement firm as selected by the Executive, for a period of up to
twenty-four (24) months from the Effective Date of Termination. However, such
services shall not exceed a maximum annual benefit of ten percent (10%) of the
Executive's annual rate of Base Salary as of the Effective Date of Termination.
<PAGE>
3.8 INCENTIVE COMPENSATION. Any deferred awards previously granted to the
Executive under Bancorp's incentive compensation plans and not previously paid
to the Executive shall immediately vest on the date of the Executive's Effective
Date of Termination and shall be paid no later than ninety (90) calendar days
following that date, and be included as compensation in the month paid.
3.9 STOCK OPTIONS AND SARS. Stock options ("options") and stock
appreciation rights ("SARs"), if any, granted to the Executive by Bancorp will
be exercisable pursuant to the terms of the applicable plans.
ARTICLE 4. JUST CAUSE
Nothing in this Agreement shall be construed to prevent Bancorp or the Bank
from terminating an Executive's employment for Just Cause. In such case, no
Severance Benefits shall be payable to the Executive under this Agreement.
Just Cause means: willful, malicious conduct by the Executive which is
detrimental to the best interests of Bancorp including theft, embezzlement, the
conviction of a criminal act, disclosure of trade secrets, a gross dereliction
of duty, or other grave misconduct on the part of the Executive which is
substantially injurious to the Company. Just Cause also shall include the
failure of the Executive to perform any and all covenants under this Agreement.
ARTICLE 5. FORM AND TIMING OF SEVERANCE BENEFITS
5.1 FORM AND TIMING OF SEVERANCE BENEFITS. The Severance Benefits
described in Section 3.4(a), (b), (c), (d), and 3.8 herein, shall be paid in
cash to the Executive in a single lump sum as soon as practicable following the
Executive's Effective Date of Termination, but in no event beyond ninety (90)
calendar days from such date.
The Severance Benefits described in Section 3.4(e) herein shall be provided
by Bancorp to the Executive immediately upon the Executive's Effective Date of
Termination and shall continue to be provided for two (2) full calendar years
from the Executive's Effective Date of Termination or until the Executive
reaches his Normal Retirement date, whichever occurs earlier. However, the
Severance Benefits described in Section 3.4(e) herein shall be discontinued
prior to the end of the two (2) year period immediately upon the Executive
receiving substantially similar benefits from a subsequent employer, as
determined by the Committee.
5.2 WITHHOLDING OF TAXES. Bancorp shall withhold from any amounts payable
under this Agreement all Federal, state, city, or other taxes as legally shall
be required.
<PAGE>
ARTICLE 6. PARACHUTE PAYMENTS
6.1 DETERMINATION OF ALTERNATIVE SEVERANCE BENEFIT LIMIT. Notwithstanding
any other provision of this Agreement, if any portion of the Severance Benefits
or any other payment under this Agreement, or under any other agreement with, or
plan of Bancorp (in the aggregate "Total Payments") would constitute an "excess
parachute payment," then the payments to be made to the Executive under this
Agreement shall be reduced such that the value of the aggregate Total Payments
that the Executive is entitled to receive shall be one dollar ($1) less than the
maximum amount which the Executive may receive without becoming subject to the
tax imposed by Section 4999 of the Code, or which Bancorp may pay without loss
of deduction under Section 280G(a) of the Code. However, such reduction in
Severance Benefits shall apply if, and only if, the resulting Severance Benefits
with such reduction is greater in value to the Executive than the value of the
Severance Benefits without a reduction, net of any tax imposed on the Executive
pursuant to Section 4999 of the Code.
For purposes of this Agreement, the terms "excess parachute payment" and
"parachute payments" shall have the meanings assigned to such terms in Section
280G of the Code, and such "parachute payments" shall be valued as provided
therein.
6.2 PROCEDURE FOR ESTABLISHING ALTERNATIVE LIMITATION. Within fifteen
(15) calendar days following delivery of the notice of qualifying termination
(as described in Section 3.2 herein) or notice by Bancorp to the Executive of
its belief that there is a payment or benefit due the Executive which will
result in an "excess parachute payment" as defined in Section 280G of the Code,
the Executive and Bancorp, at Bancorp's expense, shall obtain the opinion of
Bancorp's principal outside law firm, accounting firm, and/or compensation and
benefits consulting firm, which sets forth: (i) the amount of the Executive's
"annualized includible compensation for the base period" [as defined in Code
Section 280G(d)(1)]; (ii) the present value of the Total Payments; and (iii) the
amount and present value of any "excess parachute payment."
In the event that such opinion determines that there would be an "excess
parachute payment," such that a reduction in the Severance Benefits would result
in a greater net benefit to the Executive (as provided in Section 6.1 herein),
then the Severance Benefits hereunder or any other payment determined by such
counsel to be includible in Total Payments hall be reduced or eliminated as
specified by the Executive in writing delivered to Bancorp within ten (10)
calendar days of his receipt of such opinion, or, if the Executive fails to so
notify Bancorp, then as Bancorp shall reasonably determine, so that under the
basis of calculations set forth in such opinion, there will be no "excess
parachute payment."
<PAGE>
The provisions of this Section 6.2, including the calculations, notices,
and opinion provided for herein, shall be based upon the conclusive presumption
that the following amounts are reasonable: (i) the compensation and benefits
provided for in Article 3 herein; and (ii) any other compensation earned prior
to the Effective Date of Termination by the Executive pursuant to Bancorp's
compensation programs (if such payments would have been made in the future in
any event, even though the timing of such payment is triggered by the Change in
Control).
6.3 SUBSEQUENT IMPOSITION OF EXCISE TAX. If, notwithstanding compliance
with the provisions of Sections 6.1 and 6.2 herein, it is ultimately determined
by a court or pursuant to a final determination by the Internal Revenue Service
that any portion of the Total Payments is considered to be a "parachute
payment," subject to excise tax under Section 4999 of the Code, which was not
contemplated to be a "parachute payment" at the time of payment (so as to
accurately determine whether a limitation should have been applied to the Total
Payments to maximize the net benefit to the Executive, as provided in Sections
6.1 and 6.2 herein), the Executive shall be entitled to receive a lump sum cash
payment sufficient to place the Executive in the same net after-tax position,
computed by using the "Special Tax Rate" as such term is defined below, that the
Executive would have been in had such payment not been subject to such excise
tax, and had the Executive not incurred any interest charges or penalties with
respect to the imposition of such excise tax. For purposes of this Agreement,
the "Special Tax Rate" shall be the highest effective Federal and state marginal
tax rates applicable to the Executive in the year in which the payment
contemplated under the Section 6.3 is made.
ARTICLE 7. OTHER RIGHTS AND BENEFITS NOT AFFECTED
7.1 OTHER BENEFITS. Neither the provisions of this Agreement nor the
Severance Benefits provided for hereunder shall reduce any amounts otherwise
payable, or in any way diminish the Executive's rights as an employee of
Bancorp, whether existing now or hereafter, under any benefit, incentive,
retirement, stock option, stock bonus, stock purchase plan, or any employment
agreement, or other plan or arrangement.
7.2 EMPLOYMENT STATUS. This Agreement does not constitute a contract of
employment or impose on the Executive or Bancorp any obligation to retain the
Executive as an employee, to change the status of the Executive's employment, or
to change Bancorp's policies regarding termination of employment.
ARTICLE 8. SUCCESSORS
8.1 SUCCESSORS. Bancorp will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) of all or
substantially all of the business and/or assets of Bancorp or of any division or
subsidiary thereof to
<PAGE>
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that Bancorp would be required to perform it if no such
succession had taken place. Failure of Bancorp to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle the Executive to compensation from Bancorp in
the same amount and on the same terms as they would be entitled hereunder if
terminated voluntarily following a Change in Control. Except for the purposes
of implementing the foregoing, the date on which any succession becomes
effective shall be deemed the Effective Date of Termination.
This Agreement shall inure to the Benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, divisees, and legatees. If an Executive should
die while any amount would still be payable to him hereunder had he continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement, to the Executive's devisee,
legatee, or other designee, or if there is no such designee, to the Executive's
estate.
8.2 BENEFICIARIES. The beneficiary of each Executive under the Retirement
Plan shall be the beneficiary of the Executive's Severance Benefits under this
Agreement, unless a beneficiary is otherwise designated by the Executive in the
form of a signed writing acceptable to the Committee. An Executive may make or
change such designation at any time.
ARTICLE 9. ADMINISTRATION
9.1 ADMINISTRATION. This Agreement shall be administered by the
Compensation Committee of the Board of Directors. The Committee is authorized
to interpret this Agreement, to prescribe and rescind rules and regulations, to
provide conditions and assurances deemed necessary and advisable, to protect the
interests of Bancorp, and to make all other determinations necessary or
advisable for the Agreement's administration.
In fulfilling its administrative duties hereunder, the Committee may rely
on outside counsel, independent accountants, or other consultants to render
advice or assistance.
9.2 INDEMNIFICATION AND EXCULPATION. The members of the Board, its agents
and officers, directors, and employees of Bancorp and its affiliates shall be
indemnified and held harmless by Bancorp against and from any and all loss,
cost, liability, or expense that may be imposed upon or reasonably incurred by
them in connection with or resulting from any claim, action, suit or proceeding
to which they may be a party or in which they may be involved by reason of any
action taken or failure to act under this Agreement and against and from any and
all amounts paid by them in settlement (with Bancorp's written approval) or paid
by
<PAGE>
them in satisfaction of a judgment in any such action, suit, or proceeding. The
foregoing provision shall not be applicable to any person if the loss, cost,
liability, or expense is due to such person's gross negligence or willful
misconduct.
ARTICLE 10. LEGAL FEES AND ARBITRATION
10.1 LEGAL FEES AND EXPENSE. Bancorp shall pay all reasonable legal
fees, costs of litigation, and other expenses incurred in good faith by the
Executive as a result of Bancorp's refusal to provide the Severance Benefits to
which the Executive becomes entitled under this Agreement, or as a result of
Bancorp's contesting the validity, enforceability, or interpretation of the
Agreement. Provided, however, that such payments shall not exceed the amount
permitted by law and Bancorp's Restated Articles of Incorporation.
IN WITNESS WHEREOF, Bancorp has caused this Agreement to be executed by a
resolution of the Board of Directors, as of the day and year first above
written.
Bancorp Hawaii, Inc.
By:_________________________
Its:________________________
By:_________________________
Executive
ATTEST:
__________________________
<PAGE>
Exhibit 11
Bancorp Hawaii, Inc.
Statement Regarding Computation of Per Share Earnings
Years Ended December 31
<TABLE>
<CAPTION>
Fully
Primary Diluted
------- -------
<S> <C> <C>
1994
Net Income $117,738,000 $117,738,000
============ ============
Daily Average Shares Outstanding 42,356,253 42,356,253
Shares Assumed Issued for Stock Options 468,278 468,278
------------ ------------
42,824,531 42,824,531
============ ============
Earnings Per Common Share and
Common Share Equivalents $2.75 $2.75
============ ============
1993
Net Income $132,567,000 $132,567,000
============ ============
Daily Average Shares Outstanding 42,413,637 42,413,637
Shares Assumed Issued for Stock Options 554,153 554,153
------------ ------------
42,967,790 42,967,790
============ ============
Earnings Per Common Share and
Common Share Equivalents $3.09 $3.09
============ ============
1992
Net Income $127,524,000 $127,524,000
============ ============
Daily Average Shares Outstanding 41,828,413 41,828,413
Shares Assumed Issued for Stock Options 699,053 706,575
------------ ------------
42,527,466 42,534,988
============ ============
Earnings Per Common Share and
Common Share Equivalents $3.00 $3.00
============ ============
</TABLE>
<PAGE>
Exhibit 21
BANCORP HAWAII, INC., CORPORATE ORGANIZATION CHART
Bancorp's organizational structure at December 31, 1994 follows. All of the
subsidiaries are wholly owned except for those entities for which directors own
qualifying shares. All the entities are consolidated with the immediate parent
company.
BANCORP HAWAII, INC. (Parent)
Bank Holding Company
Subsidiaries:
BANCORP HAWAII INSURANCE SERVICES, LTD.
BANCORP INSURANCE AGENCY OF HAWAII, INC.
BANCORP LIFE INSURANCE COMPANY OF HAWAII, INC.
BANCORP PACIFIC, INC.
Subsidiaries:
Bancorp Finance of Hawaii-Guam, Inc.
First Federal Savings & Loan Association of America
First Savings & Loan Association of America (Guam)
BANK OF HAWAII
Subsidiaries:
Bank of Hawaii International Corp., New York - (Edge Act Office)
Bank of Hawaii International, Inc. - (Foreign Holding Company)
Subsidiaries:
Hawaii Financial Corp. (Hong Kong), Limited
Bancorp Investment Group, Ltd.
Bancorp Leasing of Hawaii, Inc. (Parent) - (Leasing)
Subsidiaries:
Arbella Leasing Corp.
Bancorp Leasing International, Inc.
<PAGE>
Bancorp Leasing of America, Inc.
Bankoh Equipment Leasing Corp.
BNE Airfleets Corporation
S.I.L., Inc.
Bankoh Corporation (fka Hawaiian Hong Kong Holdings, Ltd.)
Bankoh Investment Advisory Services, Ltd. - (Advisory
Services)
Hawaiian Trust Company, Limited - (Trust Services)
Pacific Capital Asset Management, Inc. - (Investment Advisory Services)
Pan-Ocean Insurance Agency, Inc. - (Insurance)
Realty and Mortgage Investors of the Pacific, Ltd. - (Real Estate Lending)
Inactive Subsidiaries:
Hawaii Financial Corp. (Hong Kong), Limited
Investors Pacific Limited
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements
(Form S-8 Nos. 2-96329, 33-29872, 2-63615, 2-84164, 33-23495, 33-49836, 33-54777
and 33-57267) and (Form S-3 Nos. 33-25036, 33-44395 and 33-54775) of Bancorp
Hawaii, Inc. and subsidiaries of our report dated January 19, 1995, with respect
to the consolidated financial statements of Bancorp Hawaii, Inc. and
subsidiaries included in this Annual Report (Form 10-K) for the year ended
December 31, 1994.
/s/Ernst & Young, LLP
Honolulu, Hawaii
March 28, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 508,762
<INT-BEARING-DEPOSITS> 727,016
<FED-FUNDS-SOLD> 54,167
<TRADING-ASSETS> 13,696
<INVESTMENTS-HELD-FOR-SALE> 1,364,925
<INVESTMENTS-CARRYING> 1,785,960
<INVESTMENTS-MARKET> 1,736,659
<LOANS> 7,891,993
<ALLOWANCE> 148,508
<TOTAL-ASSETS> 12,586,350
<DEPOSITS> 7,115,054
<SHORT-TERM> 3,340,253
<LIABILITIES-OTHER> 302,683
<LONG-TERM> 861,572
<COMMON> 83,703
0
0
<OTHER-SE> 883,085
<TOTAL-LIABILITIES-AND-EQUITY> 12,586,350
<INTEREST-LOAN> 583,609
<INTEREST-INVEST> 190,710
<INTEREST-OTHER> 38,678
<INTEREST-TOTAL> 812,997
<INTEREST-DEPOSIT> 189,513
<INTEREST-EXPENSE> 174,212
<INTEREST-INCOME-NET> 363,725
<LOAN-LOSSES> 21,921
<SECURITIES-GAINS> (17,761)
<EXPENSE-OTHER> 360,366
<INCOME-PRETAX> 195,379
<INCOME-PRE-EXTRAORDINARY> 195,379
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117,738
<EPS-PRIMARY> 2.75
<EPS-DILUTED> 2.75
<YIELD-ACTUAL> 3.82
<LOANS-NON> 52,662
<LOANS-PAST> 11,660
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 125,284
<CHARGE-OFFS> 25,437
<RECOVERIES> 25,303
<ALLOWANCE-CLOSE> 148,508
<ALLOWANCE-DOMESTIC> 122,710
<ALLOWANCE-FOREIGN> 12,890
<ALLOWANCE-UNALLOCATED> 12,908
</TABLE>
