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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to__________________.
Commission file number 0-7949
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BANCWEST CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 99-0156159
(State of incorporation) (I.R.S. Employer
Identification No.)
999 BISHOP STREET, HONOLULU, HAWAII 96813
(Address of principal executive offices) (Zip Code)
(808) 525-7000
(Registrant's telephone number, including area code)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or l5(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's
classes of common stock as of July 31, 2000 was:
Class Outstanding
- ------------------------------------- -----------------
Common Stock, $1.00 Par Value 68,615,403 Shares
Class A Common Stock, $1.00 Par Value 56,074,874 Shares
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 2000, December 31, 1999 and
June 30, 1999 2 - 3
Consolidated Statements of Income for the three and six months ended
June 30, 2000 and 1999 4
Consolidated Statements of Changes in Stockholders' Equity for the six months
ended June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7 - 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11 - 29
Item 3. Quantitative and Qualitative Disclosures About Market Risk 29
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 6. Exhibits and Reports on Form 8-K 31
SIGNATURES 32
EXHIBIT INDEX
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BancWest Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS (Unaudited)
JUNE 30, December 31, June 30,
2000 1999 1999
----------- ----------- -----------
(in thousands)
ASSETS
Cash and due from banks $ 754,176 $ 809,961 $ 667,457
Interest-bearing deposits in other banks 251,335 9,135 276,054
Federal funds sold and securities purchased
under agreements to resell 129,000 71,100 168,003
Investment securities:
Held-to-maturity 109,201 142,868 208,492
Available-for-sale 1,978,354 1,868,003 1,424,072
Loans and leases:
Loans and leases 13,385,312 12,524,039 12,328,916
Less allowance for credit losses 169,340 161,418 160,433
----------- ----------- -----------
Net loans and leases 13,215,972 12,362,621 12,168,483
----------- ----------- -----------
Premises and equipment 273,611 281,665 280,155
Customers' acceptance liability 887 1,039 1,463
Core deposit intangible 61,078 65,092 69,519
Goodwill 612,355 613,620 623,244
Other real estate owned and repossessed
personal property 27,800 28,429 32,462
Other assets 423,282 427,489 351,201
----------- ----------- -----------
TOTAL ASSETS $17,837,051 $16,681,022 $16,270,605
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Domestic:
Noninterest-bearing demand $ 1,672,734 $ 1,577,042 $ 1,418,423
Interest-bearing demand 300,170 315,786 289,083
Savings 5,181,513 4,921,146 5,042,588
Time 6,083,765 5,825,330 5,429,828
Foreign 273,359 238,648 229,956
----------- ----------- -----------
Total deposits 13,511,541 12,877,952 12,409,878
----------- ----------- -----------
Federal funds purchased and securities sold
under agreements to repurchase 641,557 485,088 743,735
Other short-term borrowings 9,429 18,889 8,568
Acceptances outstanding 887 1,039 1,463
Other liabilities 689,210 653,532 509,951
Long-term debt 981,664 701,792 692,430
Guaranteed preferred beneficial interests
in Company's junior subordinated debentures 100,000 100,000 100,000
----------- ----------- -----------
TOTAL LIABILITIES $15,934,288 $14,838,292 $14,466,025
----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
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BancWest Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED (Unaudited)
JUNE 30, December 31, June 30,
2000 1999 1999
------------ ------------ ------------
(in thousands)
Stockholders' equity:
Preferred stock - par value $1 per share,
Authorized and unissued - 50,000,000 shares at June 30, 2000,
December 31, 1999 and June 30, 1999 $ -- $ -- $ --
Class A common stock - par value $1 per share,
Authorized - 75,000,000 shares at June 30, 2000,
December 31, 1999 and June 30, 1999
Issued - 56,074,874, 51,629,536 and 25,814,768 shares
at June 30, 2000, December 31, 1999 and June 30, 1999, respectively 56,075 51,630 25,815
Common stock - par value $1 per share,
Authorized - 200,000,000 shares at June 30, 2000,
December 31, 1999 and June 30, 1999
Issued - 71,018,144, 75,418,850 and 37,562,614 shares at
June 30, 2000, December 31, 1999 and June 30, 1999, respectively 71,018 75,419 37,563
Surplus 1,124,783 1,124,512 1,186,258
Retained earnings 699,720 638,687 593,810
Accumulated other comprehensive income (11,546) (9,873) (75)
Treasury stock, at cost - 2,414,185, 2,437,556 and 1,256,368 shares
of common stock at June 30, 2000, December 31, 1999 and
June 30, 1999, respectively (37,287) (37,645) (38,791)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,902,763 1,842,730 1,804,580
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,837,051 $ 16,681,022 $ 16,270,605
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
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BancWest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(in thousands, except number of shares and per share data)
INTEREST INCOME
Interest and fees on loans $ 250,438 $ 220,958 $ 484,583 $ 441,231
Lease financing income 31,797 27,597 62,451 54,623
Interest on investment securities:
Taxable interest income 35,377 23,698 68,639 48,326
Exempt from Federal income taxes 221 276 496 551
Other interest income 6,426 5,509 9,477 9,972
------------- ------------- ------------- -------------
Total interest income 324,259 278,038 625,646 554,703
------------- ------------- ------------- -------------
INTEREST EXPENSE
Deposits 110,313 89,507 209,811 177,380
Short-term borrowings 10,652 7,925 19,616 17,036
Long-term debt 16,565 11,863 30,218 23,172
------------- ------------- ------------- -------------
Total interest expense 137,530 109,295 259,645 217,588
------------- ------------- ------------- -------------
Net interest income 186,729 168,743 366,001 337,115
Provision for credit losses 16,250 13,345 29,180 23,570
------------- ------------- ------------- -------------
Net interest income after provision for
credit losses 170,479 155,398 336,821 313,545
------------- ------------- ------------- -------------
NONINTEREST INCOME
Service charges on deposit accounts 18,445 16,774 35,437 33,002
Trust and investment services income 8,723 8,274 17,783 16,818
Securities losses, net (31) (8) (31) (20)
Other service charges and fees 18,480 18,090 36,468 33,895
Other 12,591 6,491 18,588 12,744
------------- ------------- ------------- -------------
Total noninterest income 58,208 49,621 108,245 96,439
------------- ------------- ------------- -------------
NONINTEREST EXPENSE
Salaries and wages 45,219 45,830 90,557 91,255
Employee benefits 13,914 13,796 27,761 26,576
Occupancy expense 15,559 14,823 30,916 29,903
Outside services 12,091 9,617 24,130 20,987
Intangible amortization 9,162 8,929 18,302 17,859
Equipment expense 7,158 7,790 14,344 15,635
Stationery and supplies 5,074 5,409 9,779 11,134
Advertising and promotion 4,325 3,948 8,404 8,332
Merger-related charges -- 632 -- 1,418
Other 22,941 19,937 42,827 37,980
------------- ------------- ------------- -------------
Total noninterest expense 135,443 130,711 267,020 261,079
------------- ------------- ------------- -------------
Income before income taxes 93,244 74,308 178,046 148,905
Provision for income taxes 39,262 29,789 74,633 61,880
------------- ------------- ------------- -------------
NET INCOME $ 53,982 $ 44,519 $ 103,413 $ 87,025
============= ============= ============= =============
PER SHARE DATA(1) :
BASIC EARNINGS $ .43 $ .36 $ .83 $ .70
============= ============= ============= =============
DILUTED EARNINGS $ .43 $ .36 $ .83 $ .70
============= ============= ============= =============
CASH DIVIDENDS $ .17 $ .15 $ .34 $ .30
============= ============= ============= =============
AVERAGE SHARES OUTSTANDING(1) 124,658,343 123,672,724 124,643,846 123,582,652
============= ============= ============= =============
(1) Per share data and average shares outstanding were computed on a combined
basis using average Class A common stock and common stock.
The accompanying notes are an integral part of these consolidated financial
statements.
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BancWest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Accumulated
Class A Other
Common Common Retained Comprehensive Treasury
Stock Stock Surplus Earnings Income Stock Total
------- -------- ----------- --------- ------------- -------- -----------
(in thousands, except per share data)
Balance, December 31, 1999 $51,630 $ 75,419 $ 1,124,512 $ 638,687 $ (9,873) $(37,645) $ 1,842,730
Comprehensive income:
Net income -- -- -- 103,413 -- -- 103,413
Unrealized valuation adjustment,
net of tax and reclassification
adjustment -- -- -- -- (1,673) -- (1,673)
------- -------- ----------- --------- -------- -------- -----------
Comprehensive income -- -- -- 103,413 (1,673) -- 101,740
------- -------- ----------- --------- -------- -------- -----------
Conversion of common stock to
Class A common stock 4,445 (4,445) -- -- -- -- --
Issuance of common stock -- 44 305 -- -- -- 349
Incentive Plan for Key Executives -- -- (2) -- -- 58 56
Issuance of treasury stock under
Stock Incentive Plan -- -- (32) -- -- 300 268
Cash dividends ($.34 per share) -- -- -- (42,380) -- -- (42,380)
------- -------- ----------- --------- -------- -------- -----------
BALANCE, JUNE 30, 2000 $56,075 $ 71,018 $ 1,124,783 $ 699,720 $(11,546) $(37,287) $ 1,902,763
======= ======== =========== ========= ======== ======== ===========
Balance, December 31, 1998 $25,815 $ 37,538 $ 1,183,274 $ 543,755 $ 6,228 $(50,454) $ 1,746,156
Comprehensive income:
Net income -- -- -- 87,025 -- -- 87,025
Unrealized valuation adjustment,
net of tax and reclassification
adjustment -- -- -- -- (6,303) -- (6,303)
------- -------- ----------- --------- -------- -------- -----------
Comprehensive income -- -- -- 87,025 (6,303) -- 80,722
------- -------- ----------- --------- -------- -------- -----------
Issuance of common stock -- 25 3,061 -- -- 10,808 13,894
Incentive Plan for Key Executives -- -- -- -- -- (63) (63)
Issuance of treasury stock under
Stock Incentive Plan -- -- (77) -- -- 918 841
Cash dividends ($.30 per share) -- -- -- (36,970) -- -- (36,970)
------- -------- ----------- --------- -------- -------- -----------
Balance, June 30, 1999 $25,815 $ 37,563 $ 1,186,258 $ 593,810 $ (75) $(38,791) $ 1,804,580
======= ======== =========== ========= ======== ======== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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BancWest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED JUNE 30,
----------------------------
2000 1999
----------- ---------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 103,413 $ 87,025
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 29,180 23,570
Net (gain) loss on disposition of assets (1,218) 1,277
Depreciation and amortization 35,570 32,804
Income taxes 53,938 46,920
Increase in interest receivable (10,454) (4,534)
Decrease in interest payable (11,266) (4,025)
Increase in prepaid expenses (7,602) (11,437)
Merger-related charges -- 1,418
Other 8,725 (34,284)
----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 200,286 138,734
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in interest-bearing deposits
in other banks (242,200) 2,401
Net increase in Federal funds sold and
securities purchased under agreements to resell (57,900) (101,503)
Proceeds from maturity of held-to-maturity
investment securities 33,667 121,467
Purchase of held-to-maturity investment securities -- (39,037)
Proceeds from maturity of available-for-sale
investment securities 324,264 365,307
Purchase of available-for-sale investment securities (444,418) (346,696)
Proceeds from sale of available-for-sale
investment securities 7,025 27,828
Net increase in loans and leases to customers (890,120) (389,998)
Purchase of premises and equipment (4,381) (6,495)
Other (771) (1,529)
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES (1,274,834) (368,255)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 633,589 367,006
Net increase (decrease) in Federal funds purchased and securities
sold under agreements to repurchase 156,454 (146,160)
Net decrease in other short-term borrowings (9,445) (24,404)
Proceeds from long-term debt, net 279,872 58,062
Cash dividends paid (42,380) (36,970)
Proceeds from issuance of common stock 349 922
Proceeds from issuance of treasury stock 324 13,750
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,018,763 232,206
----------- ---------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (55,785) 2,685
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 809,961 664,772
----------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 754,176 $ 667,457
=========== =========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 270,911 $ 221,613
=========== =========
Income taxes paid $ 20,695 $ 14,960
=========== =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Loans converted into other real estate owned and
repossessed personal property $ 10,792 $ 7,580
=========== =========
Loans made to facilitate the sale of other real estate owned $ 3,203 $ 3,366
=========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
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BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of BancWest Corporation and
Subsidiaries (the "Company" or "we/our") conform with generally accepted
accounting principles and practices within the banking industry. The following
is a summary of significant accounting policies:
CONSOLIDATION
The consolidated financial statements of the Company include the
accounts of BancWest Corporation ("BWE") and its wholly-owned subsidiaries:
First Hawaiian Bank and its wholly-owned subsidiaries ("First Hawaiian"); Bank
of the West and its wholly-owned subsidiaries ("Bank of the West"); FHL Lease
Holding Company, Inc. and its wholly-owned subsidiary; First Hawaiian Capital I
(of which BWE owns all the common securities); and FHI International, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation. In the opinion of management, all adjustments (which included
only normal recurring adjustments) necessary for a fair presentation are
reflected in the consolidated financial statements.
RECLASSIFICATIONS AND RESTATEMENTS
Certain amounts in the 1999 consolidated financial statements were
reclassified in certain respects to conform to the 2000 presentation. Such
reclassifications did not have a material effect on the consolidated financial
statements.
In addition, consolidated financial statements for all periods presented
have been restated to include the results of operations, financial position and
cash flows for the 1999 acquisition of SierraWest Bancorp, which was accounted
for as a pooling of interests. See Note 6.
2. NEW PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires the recognition of all derivative instruments in the
statement of financial position as either assets or liabilities and the
measurement of derivative instruments at fair value. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." The
original effective date for SFAS No. 133 was for all fiscal quarters of all
fiscal years beginning after June 15, 1999. As a result of SFAS No. 137, the
effective date for SFAS No. 133 is for all fiscal quarters of all fiscal years
beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
An Amendment of FASB Statement No. 133." SFAS No. 138 addresses certain issues
relating to the implementation of SFAS No. 133. The adoption of SFAS No. 133, as
amended by SFAS Nos. 137 and 138, is not expected to have a material effect on
the Company's financial statements.
3. COMMON STOCK INFORMATION
In the fourth quarter of 1999, our Board of Directors approved a
two-for-one stock split of the total issued shares of our common stock and Class
A common stock. In addition, the stock split increased the number of treasury
shares. The stock split did not cause any changes in the $1 par value per share
of the common stock, the $1 par value per share of the Class A common stock or
in total consolidated stockholders' equity. All per share information has been
restated for the stock split and has been computed to include both common and
Class A common shares.
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BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following is a reconciliation of the numerators and denominators used to
calculate the Company's basic and diluted earnings per share for the periods
indicated:
THREE MONTHS ENDED JUNE 30,
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2000 1999
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INCOME AVERAGE SHARES PER SHARE Income Average Shares Per Share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) Amount
----------- -------------- --------- ----------- -------------- ---------
(in thousands, except number of shares and per share data)
Basic:
Net income $53,982 124,658,343 $.43 $44,519 123,672,724 $.36
Effect of dilutive securities -
Stock Incentive
Plan options -- 353,956 -- -- 671,361 --
------- ----------- ---- ------- ----------- ----
Diluted:
Net income and
assumed conversions $53,982 125,012,299 $.43 $44,519 124,344,085 $.36
======= =========== ==== ======= =========== ====
SIX MONTHS ENDED JUNE 30,
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2000 1999
------------------------------------- -------------------------------------
INCOME AVERAGE SHARES PER SHARE Income Average Shares Per Share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) Amount
----------- -------------- --------- ----------- -------------- ---------
(in thousands, except number of shares and per share data)
Basic:
Net income $103,413 124,643,846 $.83 $87,025 123,582,652 $.70
Effect of dilutive securities -
Stock Incentive
Plan options -- 201,202 -- -- 805,356 --
-------- ----------- ---- ------- ----------- ----
Diluted:
Net income and
assumed conversions $103,413 124,845,048 $.83 $87,025 124,388,008 $.70
======== =========== ==== ======= =========== ====
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BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
4. IMPAIRED LOANS
The following table summarizes impaired loan information as of and for
the six months ended June 30, 2000 and 1999 and as of and for the year ended
December 31, 1999:
JUNE 30, 2000 December 31, 1999 June 30, 1999
------- -------- --------
(in thousands)
Impaired loans $87,574 $ 95,421 $111,783
Impaired loans with related allowance for credit
losses calculated under SFAS No. 114 $80,207 $ 72,258 $ 77,446
Total allowance for credit losses on impaired loans $15,066 $ 15,833 $ 19,875
Average impaired loans $91,186 $107,948 $110,327
Interest income recognized on impaired loans $ 1,682 $ 4,349 $ 444
We consider loans to be impaired when it is probable that the Company
will be unable to collect all amounts due according to the contractual terms of
the loan agreement, including scheduled interest payments. For a loan that has
been restructured, the contractual terms of the loan agreement refer to the
terms of the original loan agreement. Not all impaired loans are necessarily
placed on nonaccrual status; for example, restructured loans performing under
restructured terms beyond a specific period may be classified as accruing, but
may still be deemed impaired. Impaired loans without a related allowance for
credit losses are generally collateralized by assets with fair values in excess
of the recorded investment in the loans. Interest payments on impaired loans are
generally applied to reduce the outstanding principal amounts of such loans.
5. MERGER WITH BANCWEST CORPORATION AND RELATED MATTERS
On November 1, 1998, we consummated the merger (the "BancWest Merger")
of the former BancWest Corporation, parent company of Bank of the West, with and
into First Hawaiian, Inc. ("FHI"). FHI, the surviving corporation of the
BancWest Merger, changed its name to BancWest Corporation on November 1, 1998.
We recorded pre-tax restructuring, BancWest Merger-related and other
nonrecurring costs totaling $25.527 million in 1998. In connection with
recording these costs, a liability of $11.302 million was recorded in 1998, of
which $4.698 million remained accrued as of December 31, 1999. During the first
six months of 2000, this liability was reduced by $984,100 related to excess
leased commercial properties. As of June 30, 2000, $3.452 million related to
excess leased commercial properties and $262,000 in other restructuring,
merger-related and other nonrecurring costs remained accrued and unpaid.
On July 19, 1999, we announced plans to consolidate our three existing
data centers into a single data center in Honolulu. The consolidation is being
accomplished through a facilities management contract with a service provider
assuming management of First Hawaiian's existing information technology center.
As a result of this consolidation effort, we recorded pre-tax restructuring and
other nonrecurring costs of $6.854 million in the third quarter of 1999. Those
costs were comprised of $3.777 million for the write-off of capitalized
information technology costs, $1.454 million for employee severance costs and
$1.623 million for other nonrecurring costs. At December 31, 1999, the amount of
the outstanding liability relating to these costs was $2.618 million. During the
first six months of 2000, $878,000 in other nonrecurring costs and $272,000 for
employee severance were paid, further reducing this liability. At June 30, 2000,
the remaining amounts accrued and unpaid for restructuring and other
nonrecurring costs related to the consolidation of data centers were $1.182
million for employee severance costs and $286,000 for other nonrecurring costs.
6. MERGER WITH SIERRAWEST BANCORP
On July 1, 1999, we completed our acquisition of SierraWest Bancorp
("SierraWest"). SierraWest and its subsidiary, SierraWest Bank, were merged into
Bank of the West, resulting in the issuance of approximately 4.40 million shares
(pre-split basis) of our common stock to the shareholders of SierraWest. The
acquisition was accounted for using the pooling-of-interests method of
accounting. In this report, we have restated all historical financial
information presented to include SierraWest. No material adjustments were
required to be recorded to conform SierraWest's accounting policies with ours.
In connection with the SierraWest merger, we recorded pre-tax
restructuring, merger-related and other nonrecurring costs of $10.680 million in
1999. These costs were comprised of $3.358 million in severance and other
employee benefits, $1.648 million in equipment and occupancy expense, $4.219
million in expenses for legal and other professional services and $1.455 million
in other nonrecurring costs. As of December 31, 1999, $949,000 of these costs
remained accrued. During the first six months of 2000, we paid $411,000 in
accrued severance and other employee benefits and $267,000 in other
restructuring, merger-related and other nonrecurring costs, further reducing
this liability. At June 30, 2000, approximately $271,000 of severance and other
employee benefits remained accrued and unpaid.
7. TERMINATION OF BRANCH ACQUISITION AGREEMENTS
In January 2000, we agreed to acquire branches being divested as part of
a now cancelled merger between Zions Bancorporation and First Security
Corporation. In the second quarter of 2000, BancWest received $5.0 million in
termination fees called for in the agreements with Zions and First Security.
During the second quarter of 2000, we recognized approximately $3.0 million in
costs related to the cancelled branch acquisitions.
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BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
8. OPERATING SEGMENTS
As of June 30, 2000, we had two reportable operating segments: Bank of
the West and First Hawaiian. The Bank of the West segment operates primarily on
the mainland United States. The First Hawaiian segment operates primarily in the
State of Hawaii.
The financial results of our operating segments are presented on an
accrual basis. There are no significant differences between the accounting
policies of the segments as compared to the Company's consolidated financial
statements. We evaluate the performance of these segments and allocate resources
to them based on net interest income and net income. There are no material
intersegment revenues.
The tables below present information about the Company's operating
segments as of or for the three and six months ended June 30, 2000 and 1999,
respectively.
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------
BANK
OF THE FIRST RECONCILING CONSOLIDATED
WEST HAWAIIAN OTHER ITEMS TOTALS
------- -------- ------- ----------- ------------
(in millions)
2000
NET INTEREST INCOME $ 105 $ 83 $ (1) $-- $ 187
NET INCOME 28 28 (2) -- 54
SEGMENT ASSETS 10,530 7,389 2,865 (2,947) 17,837
1999
Net interest income $ 94 $ 77 $ (2) $-- $ 169
Net income 22 24 (1) -- 45
Segment assets 9,113 7,098 2,590 (2,530) 16,271
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------
BANK
OF THE FIRST RECONCILING CONSOLIDATED
WEST HAWAIIAN OTHER ITEMS TOTALS
------- -------- ------- ----------- ------------
(in millions)
2000
NET INTEREST INCOME $ 207 $ 162 $ (3) $-- $ 366
NET INCOME 53 54 (4) -- 103
SEGMENT ASSETS 10,530 7,389 2,865 (2,947) 17,837
1999
Net interest income $ 186 $ 155 $ (4) $-- $ 337
Net income 42 48 (2) (1) 87
Segment assets 9,113 7,098 2,590 (2,530) 16,271
The reconciling items in the tables above are primarily inter-company
eliminations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain matters contained in this filing are "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. BancWest's
forward-looking statements (such as those concerning its plans, expectations,
estimates, strategies, projections and goals) involve risks and uncertainties
that could cause actual results to differ materially from those discussed in the
statements. Readers should carefully consider those risks and uncertainties in
reading this report. Factors that could cause or contribute to such differences
include, but are not limited to: (1) global, national and local economic and
market conditions; (2) the level and volatility of interest rates and currency
values; (3) government fiscal and monetary policies; (4) credit risks inherent
in the lending process; (5) loan and deposit demand in the geographic regions
where we conduct business; (6) the impact of intense competition in the rapidly
evolving banking and financial services business; (7) extensive federal and
state regulation of our business, including the effect of current and pending
legislation and regulations; (8) whether expected revenue enhancements and cost
savings are realized within expected time frames; (9) matters relating to the
integration of BancWest's business with that of past and future merger partners,
including the impact of combining these businesses on revenues, expenses,
deposit attrition, customer retention and financial performance; (10) our
reliance on third parties to provide certain critical services, including data
processing; (11) the proposal or adoption of changes in accounting standards by
the Financial Accounting Standards Board, the Securities and Exchange Commission
or other standard setting bodies; (12) technological changes; (13) other risks
and uncertainties discussed in this document or detailed from time to time in
other Securities and Exchange Commission filings that we make, including our
1999 Annual Report on Form 10-K; and (14) management's ability to manage risks
that result from these and other factors.
BancWest's forward-looking statements are based on management's current views
about future events. Those statements speak only as of the date on which they
are made. We do not intend to update forward-looking statements, and we disclaim
any obligation or undertaking to update or revise any such statements to reflect
any change in our expectations or any change in events, conditions,
circumstances or assumptions on which forward-looking statements are based.
11
13
BANCWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------- -------------------------------
(dollars in thousands, except per share data) 2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
EARNINGS AND DIVIDENDS:
Net income $ 53,982 $ 44,519 $ 103,413 $ 87,025
Operating earnings(1) $ 53,982 $ 45,121 $ 103,413 $ 88,383
Cash earnings(2) $ 62,169 $ 52,595 $ 119,781 $ 103,177
Operating cash earnings(1),(2) $ 62,169 $ 53,197 $ 119,781 $ 104,535
Cash dividends $ 21,193 $ 17,791 $ 42,380 $ 36,970
PER SHARE DATA(3):
Diluted:
Earnings $ .43 $ .36 $ .83 $ .70
Operating earnings(1) $ .43 $ .36 $ .83 $ .71
Cash earnings(2) $ .50 $ .42 $ .96 $ .83
Operating cash earnings(1),(2) $ .50 $ .43 $ .96 $ .84
Cash dividends $ .17 $ .15 $ .34 $ .30
Book value (at June 30) $ 15.26 $ 14.52
Market price (NYSE close at June 30) $ 16.44 $ 18.56
SELECTED FINANCIAL RATIOS:
Return on average total assets (ROA) 1.21% 1.09%
Operating return on average total assets
(ROA)(1) 1.21% 1.11%
Return on average tangible assets(1),(4) 1.46% 1.37%
Return on average stockholders' equity
(ROE) 11.14% 9.92%
Operating return on average stockholders'
equity (ROE)(1) 11.14% 10.08%
Return on average tangible stockholders'
equity(1),(4) 20.35% 19.75%
Net interest margin (taxable-equivalent basis) 4.80% 4.77%
Allowance for credit losses to total loans and
leases (at June 30) 1.27% 1.30%
Nonperforming assets to total assets
(at June 30) .69% .82%
Allowance for credit losses to nonperforming
loans and leases (at June 30) 179.0% 159.4%
(1) Excluding after-tax SierraWest merger-related costs of $756,000 and $602,000
in the first and second quarter of 1999, respectively.
(2) Excluding amortization of goodwill and core deposit intangibles.
(3) All per share data have been calculated to include both common shares and
Class A common shares and have been adjusted to give retroactive effect to
the two-for-one stock of these shares split in the fourth quarter of 1999.
(4) Defined as operating cash earnings as a percentage of average total assets
or average stockholders' equity minus average goodwill and core deposit
intangibles.
12
14
NET INCOME
The following table compares net income, operating earnings, cash earnings and
operating cash earnings for the three and six months ended June 30, 2000 to the
same periods in 1999:
SIX MONTHS ENDED JUNE 30, 2000 1999 % Change
-------- -------- --------
(in thousands)
Net income $103,413 $ 87,025 18.8%
Operating earnings(1) 103,413 88,383 17.0
Cash earnings(2) 119,781 103,177 16.1
Operating cash earnings(1),(2) 119,781 104,535 14.6
THREE MONTHS ENDED JUNE 30,
Net income $ 53,982 $ 44,519 21.3%
Operating earnings(1) 53,982 45,121 19.6
Cash earnings(2) 62,169 52,595 18.2
Operating cash earnings(1),(2) 62,169 53,197 16.9
(1) Excluding after-tax SierraWest merger-related costs.
(2) Excluding amortization of goodwill and core deposit intangibles.
The increases in net income, operating earnings, cash earnings and operating
cash earnings for the first six months of 2000 compared to the same period in
1999 were primarily due to higher revenues, with net interest income increasing
by 8.6%, or $28.886 million, and noninterest income increasing by 5.8%, or
$5.588 million, excluding the $5.0 million in termination fees relating to the
termination of our agreement to acquire branches from Zions Bancorporation and
First Securities Corporation and a gain on sale of surplus property of $1.218
million in the second quarter of 2000. Revenues increased mainly because of the
growth in loan volumes in the mainland United States, higher net interest margin
and increased noninterest income. We also increased net income and operating
earnings by containing noninterest expense to an increase of 2.2%, or $5.786
million, for the first six months of 2000 compared to the same period in 1999,
excluding merger-related charges and nonrecurring expenses of approximately $3.0
million related to the cancelled branch acquisition in 2000 and $1.277 million
for the charitable donation of a recreational center in the second quarter of
1999. Including merger-related charges, noninterest expense increased by 1.7%,
or $4.368 million.
The following table shows diluted earnings, operating earnings, cash earnings
and operating cash earnings per share for the three and six months ended June
30, 2000 compared to the same periods in 1999. All per share data have been
calculated to include both common and Class A common shares and have been
adjusted to give retroactive effect to the two-for-one stock split in the fourth
quarter of 1999:
2000 1999 % Change
---- ---- ----
SIX MONTHS ENDED JUNE 30,
Diluted earnings $.83 $.70 18.6%
Diluted operating earnings(1) .83 .71 16.9
Diluted cash earnings(2) .96 .83 15.7
Diluted operating cash earnings(1),(2) .96 .84 14.3
THREE MONTHS ENDED JUNE 30,
Diluted earnings $.43 $.36 19.4%
Diluted operating earnings(1) .43 .36 19.4
Diluted cash earnings(2) .50 .42 19.0
Diluted operating cash earnings(1),(2) .50 .43 16.3
(1) Excluding after-tax SierraWest merger-related costs.
(2) Excluding amortization of goodwill and core deposit intangibles.
All per share earnings for the three and six months ended June 30, 2000
increased over the same periods in 1999, due to higher net income and operating
earnings in 2000.
13
15
NET INCOME, CONTINUED
The table below compares the return on average total assets, the return on
average tangible assets, the return on average stockholders' equity and the
return on average tangible stockholders' equity for the first six months of 2000
to the same period in 1999. The return on average tangible assets is defined as
cash earnings as a percentage of average total tangible assets. The return on
average tangible stockholders' equity is defined as cash earnings as a
percentage of average stockholders' equity minus average goodwill and core
deposit tangibles.
2000 1999 % Change
----- ----- -----
Return on average total assets 1.21% 1.09% 11.0%
Operating return on average total assets(1) 1.21 1.11 9.0
Return on average tangible assets(1) 1.46 1.37 6.6
Return on average stockholders' equity 11.14 9.92 12.3
Operating return on average stockholders' equity(1) 11.14 10.08 10.5
Return on average tangible stockholders' equity(1) 20.35 19.75 3.0
(1) Ratios are computed excluding after-tax SierraWest merger-related
and other nonrecurring costs.
The increases in the return on average total assets, average tangible assets,
average stockholders' equity and average tangible stockholders' equity were a
result of the higher profitability of our assets and stockholders' equity, with
revenues increasing at a faster pace than expenses for the first six months of
2000 compared to the same period in 1999.
NET INTEREST INCOME
The following table compares net interest income on a taxable-equivalent basis
for the three and six months ended June 30, 2000 to the same periods in 1999:
SIX MONTHS ENDED JUNE 30, 2000 1999 % Change
-------- -------- --------
(in thousands)
Net interest income $366,269 $337,408 8.6%
THREE MONTHS ENDED JUNE 30,
Net interest income $186,832 $168,887 10.6%
The increase in net interest income in the first six months of 2000 over the
same period in 1999 was primarily due to a 37-basis-point rise (1% equals 100
basis points) in the yield on average earning assets and an increase in average
earning assets of 7.4%, or $1.062 billion, in the first six months of 2000,
partially offset by a 34-basis-point increase in the rate paid on funding
sources.
The increase in net interest income for the three months ended June 30, 2000
over the same period in 1999 was primarily due to a 57-basis-point rise (1%
equals 100 basis points) in the yield on average earning assets and an increase
in average earning assets of 8.8%, or $1.267 billion, for the three months ended
June 30, 2000, partially offset by a 48-basis-point increase in the rate paid on
funding sources.
14
16
NET INTEREST INCOME, CONTINUED
The following table compares net interest margin for the three and six months
ended June 30, 2000 to the same periods in 1999:
SIX MONTHS ENDED JUNE 30, Change
2000 1999 (basis points)
---- ---- --------------
Yield on average earning assets 8.21% 7.84% 37
Rate paid on funding sources 3.41 3.07 34
Net interest margin 4.80 4.77 3
THREE MONTHS ENDED JUNE 30,
Yield on average earning assets 8.31% 7.74% 57
Rate paid on funding sources 3.52 3.04 48
Net interest margin 4.79 4.70 9
The increase in the net interest margin was primarily due to increases in the
yield on average earning assets, partially offset by increases in the rate paid
on funding sources. Both the yield on average earning assets and the rate paid
on funding sources reflect the cumulative effect through June 30, 2000 of the
six interest rate increases by the Federal Reserve Bank in the past 12 months.
SIX MONTHS ENDED JUNE 30, 2000 1999 % Change
----------- ----------- -----------
(in thousands)
Average earning assets $15,330,954 $14,268,630 7.4%
Average loans and leases 12,906,009 12,209,301 5.7
Average interest-bearing
deposits and liabilities 13,064,316 12,194,573 7.1
THREE MONTHS ENDED JUNE 30,
Average earning assets $15,690,894 $14,423,905 8.8%
Average loans and leases 13,156,686 12,345,144 6.6
Average interest-bearing
deposits and liabilities 13,368,543 12,484,057 7.1
The increase in average earning assets was primarily due to increases in average
loans and leases and investment securities. The increase in average loans was
primarily due to the growth of our Bank of the West operating segment's loan and
lease portfolio. Significant increases in consumer loan and lease financing
volumes reflect the continued economic strength of the Northern California and
Pacific Northwest regions.
The increase in average interest-bearing deposits and liabilities was primarily
due to an increase in interest-bearing deposits. Expansion of our customer
deposit base and more time deposits, primarily from our Bank of the West
operating segment, contributed to the increase.
15
17
The following table sets forth consolidated average balance sheets, an analysis
of interest income/expense and average yield/rate for each major category of
interest-earning assets and interest-bearing liabilities for the periods
indicated on a taxable equivalent basis. The tax equivalent adjustment is made
for items exempt from Federal income taxes (assuming a 35% tax rate for 2000 and
1999) to make them comparable with taxable items before any income taxes are
applied.
THREE MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------- -------------------------------------------
INTEREST Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
ASSETS BALANCE EXPENSE RATE (1) Balance Expense Rate (1)
----------- ----------- -------------- ----------- -------- --------------
(dollars in thousands)
Earning assets:
Interest-bearing deposits
in other banks $ 310,738 $ 5,065 6.56% $ 303,989 $ 3,874 5.11%
Federal funds sold and
securities purchased
under agreements to
resell 85,235 1,361 6.42 140,236 1,635 4.68
Investment securities 2,138,235 35,700 6.72 1,634,536 24,115 5.92
Loans and leases (2),(3) 13,156,686 282,236 8.63 12,345,144 248,558 8.08
----------- ----------- ----------- --------
Total earning assets 15,690,894 324,362 8.31 14,423,905 278,182 7.74
----------- --------
Nonearning assets 1,849,715 1,773,961
----------- -----------
Total assets $17,540,609 $16,197,866
=========== ===========
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------------------------------
2000 1999
------------------------------------------- ----------------------------------------------
INTEREST Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
ASSETS BALANCE EXPENSE RATE (1) Balance Expense Rate (1)
----------- -------- -------------- ----------- ----------- --------------
(dollars in thousands)
Earning assets:
Interest-bearing deposits
in other banks $ 215,923 $ 6,699 6.24% $ 267,747 $ 6,809 5.13%
Federal funds sold and
securities purchased
under agreements to
resell 91,465 2,778 6.11 134,986 3,163 4.73
Investment securities 2,117,557 69,401 6.59 1,656,596 49,159 5.98
Loans and leases (2),(3) 12,906,009 547,036 8.52 12,209,301 495,865 8.19
----------- -------- ----------- -----------
Total earning assets 15,330,954 625,914 8.21 14,268,630 554,996 7.84
-------- -----------
Nonearning assets 1,849,570 1,772,633
----------- -----------
Total assets $17,180,524 $16,041,263
=========== ===========
(1) Annualized.
(2) Nonaccruing loans and leases have been included in the computations of
average loan and lease balances.
(3) Interest income for loans and leases included loan fees of $8,181 and
$15,538 for the three and six months ended June 30, 2000, respectively, and
$7,517 and $16,230 for the three and six months ended June 30, 1999,
respectively.
16
18
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------- -----------------------------------------
INTEREST Interest
LIABILITIES AND AVERAGE INCOME/ YIELD/ Average Income/ Yield/
STOCKHOLDERS' EQUITY BALANCE EXPENSE RATE(1) Balance Expense Rate(1)
----------- ----------- ----------- ----------- --------- -----------
(dollars in thousands)
Interest-bearing deposits
and liabilities:
Deposits $11,634,291 $ 110,313 3.81% $10,995,478 $ 89,507 3.27%
Short-term borrowings 710,999 10,652 6.03 702,456 7,925 4.53
Long-term debt and
capital securities 1,023,253 16,565 6.51 786,123 11,863 6.05
----------- ----------- ----------- ----------- -------- -----------
Total interest-bearing
deposits and
liabilities 13,368,543 137,530 4.14 12,484,057 109,295 3.51
----------- ----------- -------- -----------
Interest rate spread 4.17% 4.23%
=========== ===========
Noninterest-bearing demand
deposits(2) 1,629,070 1,393,308
Other liabilities 661,407 540,309
----------- -----------
Total liabilities 15,659,020 14,417,674
Stockholders' equity 1,881,589 1,780,192
----------- -----------
Total liabilities and
stockholders' equity $17,540,609 $16,197,866
=========== ===========
Net interest income
and margin on
earning assets 186,832 4.79% 168,887 4.70%
=========== ===========
Tax equivalent adjustment 103 144
----------- --------
Net interest income $ 186,729 $168,743
=========== ========
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- -------------------------------------------
INTEREST Interest
LIABILITIES AND AVERAGE INCOME/ YIELD/ Average Income/ Yield/
STOCKHOLDERS' EQUITY BALANCE EXPENSE RATE(1) Balance Expense Rate(1)
----------- ----------- ----------- ----------- ----------- -----------
(dollars in thousands)
Interest-bearing deposits
and liabilities:
Deposits $11,437,533 $ 209,811 3.69% $10,676,099 $ 177,380 3.35%
Short-term borrowings 679,968 19,616 5.80 751,602 17,036 4.57
Long-term debt and
capital securities 946,815 30,218 6.42 766,872 23,172 6.09
----------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing
deposits and
liabilities 13,064,316 259,645 4.00 12,194,573 217,588 3.60
----------- ----------- ----------- -----------
Interest rate spread 4.21% 4.24%
=========== ===========
Noninterest-bearing demand
deposits(2) 1,601,209 1,559,025
Other liabilities 649,018 518,842
----------- -----------
Total liabilities 15,314,543 14,272,440
Stockholders' equity 1,865,981 1,768,823
----------- -----------
Total liabilities and
stockholders' equity $17,180,524 $16,041,263
=========== ===========
Net interest income
and margin on
earning assets 366,269 4.80% 337,408 4.77%
=========== ===========
Tax equivalent adjustment 268 293
----------- -----------
Net interest income $ 366,001 $ 337,115
=========== ===========
(1) Annualized.
(2) Average noninterest-bearing demand deposits increased over prior year by a
greater amount for the three months ended June 30, 2000 than for the six
months ended June 30, 2000, primarily due to reclassification in the first
quarter of 1999 of certain portions of noninterest-bearing demand deposit
accounts to the interest-bearing deposits category for reserve requirement
purposes.
17
19
INVESTMENT SECURITIES
HELD-TO-MATURITY
The following table presents the amortized cost and fair values of
held-to-maturity investment securities as of the dates indicated:
JUNE 30, December 31, June 30,
2000 1999 1999
--------- --------- ---------
(in thousands)
Amortized cost $ 109,201 $ 142,868 $ 208,492
Unrealized gains - 2 101
Unrealized losses (5,055) (3,768) (2,330)
--------- --------- ---------
Fair value $ 104,146 $ 139,102 $ 206,263
========= ========= =========
Gross realized gains and losses for the six months ended June 30, 2000 and 1999
were not significant. Held-to-maturity investment securities decreased to
$109,201,000 at June 30, 2000 by $33,667,000, or 23.6%, from December 31, 1999,
principally due to maturities of the investment securities.
AVAILABLE-FOR-SALE
The following table presents the amortized cost and fair values of
available-for-sale investment securities as of the dates indicated:
JUNE 30, December 31, June 30,
2000 1999 1999
----------- ----------- -----------
(in thousands)
Amortized cost $ 1,995,924 $ 1,882,265 $ 1,424,648
Unrealized gains 7,397 5,413 7,598
Unrealized losses (24,967) (19,675) (8,174)
----------- ----------- -----------
Fair value $ 1,978,354 $ 1,868,003 $ 1,424,072
=========== =========== ===========
Gross realized gains and losses on available-for-sale investment securities for
the six months ended June 30, 2000 and 1999 were as follows:
2000 1999
---- ----
(in thousands)
Realized gains $ 18 $ 2
Realized losses (49) (22)
---- ----
Securities losses, net $(31) $(20)
==== ====
Gains and losses realized on the sales of available-for-sale investment
securities are determined using the specific identification method.
18
20
LOANS AND LEASES
The following table sets forth the loan and lease portfolio by major categories
and loan and lease mix at June 30, 2000, December 31, 1999 and June 30, 1999:
JUNE 30, 2000 December 31, 1999 June 30, 1999
-------------------------- -------------------------- --------------------------
AMOUNT % Amount % Amount %
----------- ----------- ----------- ----------- ----------- -----------
(dollars in thousands)
Commercial, financial and agricultural $ 2,514,516 18.8% $ 2,212,757 17.7% $ 2,318,824 18.8%
Real estate:
Commercial 2,544,947 19.0 2,466,822 19.7 2,367,213 19.2
Construction 400,704 3.0 408,078 3.3 439,543 3.6
Residential:
Insured, guaranteed or
conventional 1,916,442 14.3 1,915,516 15.3 2,022,180 16.4
Home equity credit lines 444,124 3.3 447,273 3.5 465,774 3.8
----------- ----------- ----------- ----------- ----------- -----------
Total real estate loans 5,306,217 39.6 5,237,689 41.8 5,294,710 43.0
----------- ----------- ----------- ----------- ----------- -----------
Consumer 3,346,504 25.0 2,987,347 23.8 2,788,290 22.6
Lease financing 1,875,605 14.0 1,738,048 13.9 1,573,919 12.8
Foreign 342,470 2.6 348,198 2.8 353,173 2.8
----------- ----------- ----------- ----------- ----------- -----------
Total loans and leases 13,385,312 100.0% 12,524,039 100.0% 12,328,916 100.0%
=========== =========== ===========
Less allowance for credit losses 169,340 161,418 160,433
----------- ----------- -----------
Total net loans and leases $13,215,972 $12,362,621 $12,168,483
=========== =========== ===========
Total loans and leases to:
Total assets 75.0% 75.1% 75.8%
Total earning assets 85.3% 86.6% 86.5%
Total deposits 99.1% 97.3% 99.3%
The loan and lease portfolio is the largest component of total earning assets
and accounts for the greatest portion of total interest income. At June 30,
2000, total net loans and leases were $13.216 billion, representing increases of
6.9% and 8.6% over December 31, 1999 and June 30, 1999, respectively. The
increase from June 30, 2000 as compared to June 30, 1999, was primarily due to
increases in consumer loans and lease financing, primarily in our Bank of the
West operating segment. The increase was partially offset by decreases in all
real estate loan categories and certain consumer loans in our First Hawaiian
operating segment.
Commercial, financial and agricultural loans as of June 30, 2000 increased
$301.759 million, or 13.6%, over December 31, 1999, and increased $195.692
million, or 8.4%, over June 30, 1999. The Company continues its efforts to
diversify its loan and lease portfolio, both geographically and by industry,
with credit extensions on the mainland United States accounting for the majority
of the increase in loan and lease balances and the geographic and industry
diversification during the six months ended June 30, 2000. Overall loan volume
in the First Hawaiian operating segment increased modestly, reflecting a slow
rebound in the Hawaii economy.
Insured, guaranteed or conventional residential real estate loans increased
$926,000, or .05%, from December 31, 1999, and decreased $105.738 million, or
5.2%, from June 30, 1999. The rising interest rate environment, which has
resulted in a decrease in the production of new loans and payoffs/paydowns, was
the primary reason for the decrease from June 30, 1999. The modest increase over
December 31, 1999 was primarily due to the effects of the slowly strengthening
Hawaiian economy.
19
21
LOANS AND LEASES, CONTINUED
Consumer loans as of June 30, 2000 increased $359.157 million, or 12.0%, over
December 31, 1999, and $558.214 million, or 20.0%, over June 30, 1999. Consumer
loans consist primarily of direct and indirect automobile, recreational vehicle,
marine, credit card and unsecured financing. The increase in consumer loans at
June 30, 2000 as compared to December 31, 1999 and June 30, 1999 was primarily a
result of growth in our Bank of the West operating segment on the mainland
United States.
Lease financing as of June 30, 2000 increased $137.557 million, or 7.9%, over
December 31, 1999, and $301.686 million, or 19.2%, over June 30, 1999. The
increase in lease financing from June 30, 1999 was primarily due to an increase
in the automobile lease portfolio in our Bank of the West operating segment. The
increase in lease financing at June 30, 2000 as compared to December 31, 1999,
was primarily due to increases on the mainland United States.
The Company's foreign loans are principally in Guam and Saipan. Foreign loans as
of June 30, 2000 decreased $5.728 million, or 1.6%, compared to December 31,
1999, with approximately 92% domiciled in Guam and Saipan.
Loan concentrations are considered to exist when there are amounts loaned to
multiple borrowers engaged in similar activities, which would cause them to be
similarly impacted by economic or other conditions. At June 30, 2000, we did not
have a concentration of loans greater than 10% of total loans which is not
otherwise disclosed as a category of loans as shown in the above table.
20
22
DEPOSITS
The following table sets forth the average balances and the average rates paid
on deposits for the periods indicated:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------------- --------------------------------------------
2000 1999 2000 1999
--------------------- ---------------------- --------------------- ---------------------
AVERAGE AVERAGE Average Average AVERAGE AVERAGE Average Average
BALANCE RATE(1) Balance Rate(1) BALANCE RATE(1) Balance Rate(1)
----------- -------- ----------- --------- ----------- -------- ----------- --------
(dollars in thousands)
Interest-bearing demand $ 311,433 1.20% $ 302,508 1.19% $ 313,325 1.32% $ 309,575 1.20%
Savings 5,199,353 1.91 5,157,850 1.84 5,136,682 1.87 4,929,386 1.92
Time 6,123,505 5.56 5,535,120 4.71 5,987,526 5.37 5,437,138 4.77
----------- ----------- ----------- -----------
Total interest-bearing deposits 11,634,291 3.81 10,995,478 3.27 11,437,533 3.69 10,676,099 3.35
Noninterest-bearing demand 1,629,070 -- 1,393,308 -- 1,601,209 -- 1,559,025 --
----------- ----------- ----------- -----------
Total deposits $13,263,361 3.35% $12,388,786 2.90% $13,038,742 3.24% $12,235,124 2.92%
=========== =========== =========== ===========
Average interest-bearing deposits increased $638.813 million, or 5.8%, and
$761.434 million, or 7.1%, for the three and six months ended June 30, 2000,
respectively, over the same periods in 1999. The increases were due primarily to
the growth in our customer deposit base, primarily in the Bank of the West
operating segment, and various deposit product programs that we initiated. In
addition, time deposits increased due to our funding asset growth by utilizing
negotiable and brokered time certificates of deposits. The increases in nearly
all of the rates paid on deposits reflect the higher interest rate environment,
caused primarily by rate increases by the Federal Reserve.
Average noninterest-bearing demand products increased $235.762 million, or
16.9%, and $42.184 million, or 2.7%, for the three and six months ended June 30,
2000, respectively, over the same periods in 1999. The increases were primarily
due to growth in noninterest-bearing demand accounts, primarily in the Bank of
the West operating segment, reflecting the overall strength of the economy in
its area of operation and specialized promotional efforts. The increase for the
three months ended June 30, 2000 was higher than for the six months ended June
30, 2000, compared to the same periods in 1999, because of the reclassification
in the first quarter of 1999 of certain portions of noninterest-bearing demand
deposit accounts to the savings deposit category for reserve requirement
purposes.
(1) Annualized.
21
23
NONPERFORMING ASSETS
Nonperforming assets at June 30, 2000, December 31, 1999 and June 30, 1999 are
as follows:
JUNE 30, December 31, June 30,
2000 1999 1999
-------- -------- --------
(dollars in thousands)
Nonperforming Assets
Nonaccrual:
Commercial, financial and agricultural $ 18,201 $ 22,222 $ 23,781
Real estate:
Commercial 27,140 25,790 27,259
Construction 678 2,990 1,006
Residential:
Insured, guaranteed or conventional 14,848 18,174 16,195
Home equity credit lines 463 940 569
-------- -------- --------
Total real estate loans 43,129 47,894 45,029
-------- -------- --------
Consumer 2,199 1,625 2,294
Lease financing 5,768 3,391 2,573
Foreign 4,724 2,162 1,515
-------- -------- --------
Total nonaccrual loans and leases 74,021 77,294 75,192
-------- -------- --------
Restructured:
Commercial, financial and agricultural 927 1,004 2,137
Real estate:
Commercial 9,791 7,905 7,720
Construction 8,774 11,024 14,524
Residential:
Insured, guaranteed or conventional 1,108 1,100 1,101
-------- -------- --------
Total real estate loans 19,673 20,029 23,345
-------- -------- --------
Total restructured loans and leases 20,600 21,033 25,482
-------- -------- --------
Total nonperforming loans and leases 94,621 98,327 100,674
Other real estate owned and repossessed personal property 27,800 28,429 32,462
-------- -------- --------
Total nonperforming assets $122,421 $126,756 $133,136
======== ======== ========
Past due loans and leases(1):
Commercial, financial and agricultural $ 4,489 $ 1,280 $ 1,589
Real estate:
Commercial 2,772 1,436 9,029
Construction 583 -- 618
Residential:
Insured, guaranteed or conventional 4,925 7,751 12,586
Home equity credit lines 525 575 1,501
-------- -------- --------
Total real estate loans 8,805 9,762 23,734
-------- -------- --------
Consumer 2,434 2,043 2,306
Lease financing 104 113 694
Foreign 786 4,824 1,666
-------- -------- --------
Total past due loans and leases $ 16,618 $ 18,022 $ 29,989
======== ======== ========
Nonperforming assets to total loans and leases
and other real estate owned and repossessed
personal property (end of period):
Excluding past due loans and leases .91% 1.01% 1.08%
Including past due loans and leases 1.04% 1.15% 1.32%
Nonperforming assets to total assets (end of period):
Excluding past due loans and leases .69% .76% .82%
Including past due loans and leases .78% .87% 1.00%
(1) Represents loans and leases which are past due 90 days as to principal
and/or interest, are still accruing interest and are adequately
collateralized and in the process of collection.
22
24
NONPERFORMING ASSETS, CONTINUED
Nonperforming assets at June 30, 2000 were $122.421 million, or .91% of total
loans and leases and other real estate owned ("OREO") and repossessed personal
property, and .69% of total assets, as compared to 1.08% and .82%, respectively,
at June 30, 1999.
Nonperforming assets at June 30, 2000 decreased by $4.335 million, or 3.4%, from
December 1999. The decrease was primarily attributable to decreases in
nonaccrual commercial, financial and agricultural loans and real estate-
residential loans. The decrease in nonaccrual commercial, financial and
agricultural loans was primarily due to the transfer of a loan totaling $4.692
million to accrual status. The decrease in real estate - residential loans was
primarily attributable to the transfer of nonaccrual loans and leases to OREO,
payoffs and partial paydowns of nonaccrual loans and leases. These decreases
were partially offset by an increase in the lease financing and foreign
components of nonaccrual loans and leases.
Nonperforming assets at June 30, 2000 decreased by $10.715 million, or 8.0%,
from June 30, 1999. The decrease was primarily attributable to decreases in
restructured loans and leases and other real estate owned and repossessed
personal property. The decrease in restructured loans and leases was primarily
due to the partial charge-off of a real estate - construction loan with a
carrying value of $5.750 million partially offset by an addition of a real
estate - commercial loan. The reduction in OREO was the result of increased
sales of these properties, primarily in Hawaii, due to the strengthening
economy. These decreases were partially offset by an increase in the lease
financing and foreign components of nonaccrual loans and leases.
We generally place a loan or lease on nonaccrual status (1) when management
believes that collection of principal or income has become doubtful, (2) when a
loan is first classified as impaired, or (3) when loans and leases are 90 days
past due as to principal or income, unless they are well secured and in the
process of collection. We may make an exception to the general 90-day-past-due
rule when the fair value of the collateral exceeds our recorded investment in
the loan or when other factors indicate that the borrower will shortly bring the
loan current. The majority of consumer loans and leases are subject to our
general policies regarding nonaccrual loans. However, instead of placing certain
past-due consumer loans and leases on nonaccrual status, we charge them off when
they reach a predetermined delinquency status varying from 120 to 180 days,
depending on product type (or earlier if we determine that the loan is
uncollectible). When we place a loan or lease on nonaccrual status, previously
accrued and uncollected interest is reversed against interest income of the
current period. When we receive a cash interest payment on a nonaccrual loan, we
apply it as a reduction of the principal balance when we have doubts about the
ultimate collection of the principal. Otherwise, we record such payments as
income.
Nonaccrual loans and leases are generally returned to accrual status when they
become (1) current as to principal and interest or (2) both well secured and in
the process of collection.
Other than the loans listed in the table on page 22, at June 30, 2000, we were
not aware of any significant potential problem loans where possible credit
problems of the borrower caused us to seriously question the borrower's ability
to repay the loan under existing terms.
Loans past due 90 days or more and still accruing totaled $16.618 million at
June 30, 2000, a decrease of $13.371 million, or 44.6%, from June 30, 1999.
Loans past due 90 days or more and still accruing interest decreased by $1.404
million, or 7.8%, from December 31, 1999 to June 30, 2000. The decreases are
primarily due to lower real estate loan delinquencies. All of the loans that are
past due 90 days or more and still accruing interest are, in management's
judgment, adequately collateralized and in the process of collection.
Hawaii has finally begun to show signs of recovery from the economic stagnation
that plagued it through much of the 1990's. This improvement in Hawaii's
economic condition is one of the factors that led to the decrease in
nonperforming assets in the First Hawaiian operating segment. Also, the
economies in California and the Pacific Northwest, the Bank of the West
operating segment's primary areas of operation, continue to expand. These
economic trends have helped to bring about the decline in nonperforming assets
since June 30, 1999.
23
25
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The following table sets forth the activity in the allowance for credit losses
for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- -----------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(dollars in thousands)
Loans and leases outstanding (end of period) $ 13,385,312 $ 12,328,916 $ 13,385,312 $ 12,328,916
============ ============ ============ ============
Average loans and leases outstanding $ 13,156,686 $ 12,345,144 $ 12,906,009 $ 12,209,301
============ ============ ============ ============
Allowance for credit losses summary:
Balance at beginning of period $ 162,666 $ 159,488 $ 161,418 $ 158,294
------------ ------------ ------------ ------------
Transfer of allowance allocated
to securitized loans -- (1,025) -- (1,025)
Loans and leases charged off:
Commercial, financial and agricultural 906 2,094 2,889 3,969
Real estate:
Commercial 817 1,766 1,108 1,850
Construction 1,170 -- 2,355 21
Residential 1,506 1,033 3,177 1,937
Consumer 6,372 6,759 13,178 13,612
Lease financing 1,893 2,190 4,102 3,647
Foreign 210 172 522 260
------------ ------------ ------------ ------------
Total loans and leases charged off 12,874 14,014 27,331 25,296
------------ ------------ ------------ ------------
Recoveries on loans and leases previously
charged off:
Commercial, financial and agricultural 720 381 829 476
Real estate:
Commercial 78 99 95 179
Construction 24 -- 32 18
Residential 234 277 543 651
Consumer 1,729 1,478 3,345 2,797
Lease financing 460 403 1,054 763
Foreign 53 1 175 6
------------ ------------ ------------ ------------
Total recoveries on loans and leases
previously charged off 3,298 2,639 6,073 4,890
------------ ------------ ------------ ------------
Net charge-offs (9,576) (11,375) (21,258) (20,406)
------------ ------------ ------------ ------------
Provision for credit losses 16,250 13,345 29,180 23,570
------------ ------------ ------------ ------------
Balance at end of period $ 169,340 $ 160,433 $ 169,340 $ 160,433
============ ============ ============ ============
Net loans and leases charged off to average loans
and leases .29%(1) .37%(1) .33%(1) .34%(1)
Net loans and leases charged off to allowance for
credit losses 22.74%(1) 28.44%(1) 25.24%(1) 25.65%(1)
Allowance for credit losses to total
loans and leases (end of period) 1.27% 1.30% 1.27% 1.30%
Allowance for credit losses to nonperforming
loans and leases (end of period):
Excluding 90 days past due
accruing loans and leases 1.79X 1.59x 1.79X 1.59x
Including 90 days past due
accruing loans and leases 1.52X 1.23x 1.52X 1.23x
(1) Annualized.
24
26
PROVISION AND ALLOWANCE FOR CREDIT LOSSES, CONTINUED
The provision for credit losses for the first six months of 2000 was $29.180
million, an increase of $5.610 million, or 23.8%, over the same period in 1999.
The increase in the provision for credit losses for the first six months of 2000
over the same period in 1999, primarily reflects the larger loan portfolio
resulting from our continued loan volume growth.
The provision for credit losses is based upon management's judgment as to the
adequacy of the allowance for credit losses (the "Allowance") to absorb probable
losses inherent in the portfolio as of the balance sheet date. The Company uses
a systematic methodology to determine the adequacy of the Allowance and related
provision for credit losses to be reported for financial statement purposes. The
determination of the adequacy of the Allowance is ultimately one of management
judgment, which includes consideration of many factors, including, among other
things, the amount of problem and potential problem loans and leases, net
charge-off experience, changes in the composition of the loan and lease
portfolio by type and location of loans and leases and in overall loan and lease
risk profile and quality, general economic factors and the fair value of
collateral.
The Company's approach to managing its exposure to credit risk involves an
integrated program of setting appropriate standards for credit underwriting and
diversification, monitoring trends that may affect the risk profile of the
credit portfolio and making appropriate adjustments to reflect changes in
economic and financial conditions that could affect the quality of the portfolio
and loss probability. The components of this integrated program include:
- Setting Underwriting and Grading Standards. In 1996, we refined
our loan grading system to ten different principal risk
categories where "1" is "no risk" and "10" is "loss" and began
an effort to decrease our exposure to customers in the weaker
credit categories. We also established risk parameters so that
the cost of credit risk is an integral part of the pricing and
evaluation of credit decisions and the setting of portfolio
targets.
- Diversification. We actively manage our credit portfolio to
avoid excessive concentration by obligor, risk grade, industry,
product and geographic location. As part of this process, we
also monitor changes in risk correlation among concentration
categories. In addition, we seek to reduce our exposure to
concentrations by actively participating portions of our
commercial and commercial real estate loans to other banks.
- Risk Mitigation. Over the past few years, we have reduced our
exposure to higher-risk areas such as real estate construction
(which accounted for only 3% of total loans and leases at June
30, 2000), Hawaii commercial real estate, health care, hotel and
agricultural loans. We have also reduced our exposure in the
Asia Pacific region from $101.0 million at December 31, 1997 to
$48.4 million at June 30, 2000. These outstanding loans are
collateralized by Hawaii real estate and letters of credit.
- Restricted Participation in Syndicated National Credits. We
restrict our participation in syndicated national credits
primarily to providing back-up commercial paper facilities to
investment grade companies. In addition to the back-up
commercial paper facilities, we participate in media finance
credits in the national market, one of our traditional niches
where we have developed a special expertise over a long period
of time and with experienced personnel. At June 30, 2000, the
combined ratio of nonperforming assets to total loans for both
shared national credits and media finance aggregated .78%.
- Emphasis on Consumer Lending. Consumer loans represent our
single largest category of loans and leases. We focus our
consumer lending activities on loan grades with predictable loss
rates. As a result, we are able to use formula-based approaches
to calculate appropriate reserve levels that reflect
historical experience. We generally do not participate in
subprime lending activities. We also seek to reduce our credit
exposures where feasible by obtaining third party insurance or
similar protections. For example, in our vehicle lease portfolio
(which represents approximately 63% of our lease financing
portfolio and 23% of our combined lease financing and consumer
loans at June 30, 2000) we obtain third party insurance for the
estimated residual value of the leased vehicle. To the extent
that we use an estimated residual value that is above the range
set by industry standards (and is therefore not covered by
insurance) we set aside reserves to fully cover the uninsured
portion.
25
27
PROVISION AND ALLOWANCE FOR CREDIT LOSSES, CONTINUED
Charge-offs were $27.331 million for the first six months of 2000, an increase
of $2.035 million, or 8.0%, over the same period in 1999. The increase was
primarily due to charge-offs of one real estate - construction loan, two real
estate - commercial loans, several leases and consumer loans in the first six
months of 2000, totaling $20.216 million.
For the first six months of 2000, recoveries increased to $6.073 million, or
24.2%, over the same period in 1999. The increase in recoveries was primarily in
consumer, leasing and commercial, financial and agricultural loans.
The Allowance increased to 1.79 times nonperforming loans and leases (excluding
90 days or more past due accruing loans and leases) at June 30, 2000 from 1.59
times at June 30, 1999. The increase in the ratio is principally due to an
increase in the Allowance as a result of the growth in our loan portfolio and a
decrease in nonperforming loans and leases.
In management's judgment, the Allowance was adequate to absorb potential losses
currently inherent in the loan and lease portfolio at June 30, 2000. However,
changes in prevailing economic conditions in the Company's markets could result
in changes in the level of nonperforming assets and charge-offs in the future
and, accordingly, changes in the Allowance.
26
28
NONINTEREST INCOME
The following table reflects the key components of the change in noninterest
income for the three and six months ended June 30, 2000, as compared to the same
periods in 1999:
SIX MONTHS ENDED JUNE 30, 2000 1999 % Change
--------- --------- ---------
(in thousands)
Service charges on deposit accounts $ 35,437 $ 33,002 7.4%
Trust and investment services income 17,783 16,818 5.7
Securities losses, net (31) (20) N/M
Other service charges and fees 36,468 33,895 7.6
Other 18,588 12,744 45.9
--------- ---------
Total noninterest income $ 108,245 $ 96,439 12.2%
========= =========
THREE MONTHS ENDED JUNE 30,
Service charges on deposit accounts $ 18,445 $ 16,774 10.0%
Trust and investment services income 8,723 8,274 5.4
Securities losses, net (31) (8) N/M
Other service charges and fees 18,480 18,090 2.2
Other 12,591 6,491 94.0
--------- ---------
Total noninterest income $ 58,208 $ 49,621 17.3%
========= =========
N/M - Not Meaningful.
As the table above shows in more detail, noninterest income increased by 17.3%
and 12.2% for the three and six months ended June 30, 2000, compared to the same
periods in 1999. Factors causing the increases were:
- - In the second quarter of 2000, we received $5.0 million in termination fees
related to the previous plan to acquire branches that were to be divested
under the terminated Zions Bancorporation and First Security Corporation
merger. Also in the second quarter of 2000, we recorded the gain on the sale
of a surplus facility of $1.218 million. Both of these items were included
in other noninterest income. Excluding these two items, total noninterest
income increased by 4.8% and 5.8% for the three and six months ended June
30, 2000, compared to the same periods in 1999.
- - Trust and investment services income increased for the three and six months
ended June 30, 2000, compared to the same periods in 1999 primarily due to
higher annuity and mutual fund sales, reflecting our continuing efforts to
strengthen and diversify our revenue base.
- - Service charges on deposit accounts increased for the three and six months
ended June 30, 2000 compared to the same periods in 1999 primarily due to
higher levels of deposits caused by the expansion of our customer deposit
base, predominately in our Bank of the West operating segment.
- - Other service charges and fees increased for the three and six months ended
June 30, 2000 compared to the same periods in 1999, primarily due to: (1)
higher merchant services fees, due to higher fees charges, increased volume
and more merchant outlets; (2) higher bank card and ATM convenience fee
income; and (3) higher miscellaneous service fees.
27
29
NONINTEREST EXPENSE
The following table reflects the key components of the change in noninterest
expense for the three and six months ended June 30, 2000 as compared to the same
periods in 1999:
SIX MONTHS ENDED JUNE 30,
2000 1999 % Change
-------- -------- --------
(in thousands)
Salaries and wages $ 90,557 $ 91,255 (.8)%
Employee benefits 27,761 26,576 4.5
Occupancy expense 30,916 29,903 3.4
Outside services 24,130 20,987 15.0
Intangible amortization 18,302 17,859 2.5
Equipment expense 14,344 15,635 (8.3)
Stationery and supplies 9,779 11,134 (12.2)
Advertising and promotion 8,404 8,332 .9
Merger-related charges -- 1,418 N/M
Other 42,827 37,980 12.8
-------- --------
Total noninterest expense $267,020 $261,079 2.3%
======== ========
THREE MONTHS ENDED JUNE 30,
Salaries and wages $ 45,219 $ 45,830 (1.3)%
Employee benefits 13,914 13,796 .9
Occupancy expense 15,559 14,823 5.0
Outside services 12,091 9,617 25.7
Intangible amortization 9,162 8,929 2.6
Equipment expense 7,158 7,790 (8.1)
Stationery and supplies 5,074 5,409 (6.2)
Advertising and promotion 4,325 3,948 9.5
Merger-related charges -- 632 N/M
Other 22,941 19,937 15.1
-------- --------
Total noninterest expense $135,443 $130,711 3.6%
======== ========
N/M - Not Meaningful.
As the table above shows in more detail, noninterest expense increased by 3.6%
and 2.3% for the three and six months ended June 30, 2000, compared to the same
periods in 1999. Factors causing the increases were:
- - In the second quarter of 2000, we recognized approximately $3.0 million in
expenses related to the planned acquisition of divested branches resulting
from the terminated merger of Zions Bancorporation and First Security
Corporation. In the second quarter of 1999, we donated a recreation center
to a community group in Hawaii resulting in a pre-tax loss of $1.277
million. Both of these items were included in other noninterest expense in
the respective years. Excluding these two items and merger-related charges,
noninterest expense increased over the same periods in 1999 by 2.9% and 2.2%
for the three and six months ended June 30, 2000, respectively.
- - The reduction of equipment expenses and increase in outside service expense
are both related to the facilities management agreement that we have entered
into for the consolidation and operation of a single data center. The
decrease in equipment expense is due to the transfer of certain assets to
the outside service provider under the facilities management agreement. The
increase in the outside service expense is primarily due to the fee paid for
the facilities management agreement.
28
30
INCOME TAXES
The Company's effective income tax rates (exclusive of the tax equivalent
adjustment) for the three and six months ended June 30, 2000 was 42.1% and
41.9%, respectively, as compared to 40.1% and 41.6% for the same periods in
1999. The increase in the effective tax rate was primarily due to the tax
benefits related to the charitable donation of the recreation center in the
second quarter of 1999.
LIQUIDITY AND CAPITAL
Stockholders' equity was $1.903 billion at June 30, 2000, an increase of 3.3%
over $1.843 billion at December 31, 1999. Compared to June 30, 1999,
stockholders' equity at June 30, 2000 increased by $98.183 million, or 5.4%. The
increase was primarily due to net income for the respective periods.
Quantitative measures, as established by regulation to ensure capital adequacy,
require the Company to maintain minimum amounts and ratios (set forth in the
table below, at June 30, 2000) of Tier 1 and Total Capital to risk-weighted
assets, and of Tier 1 Capital to average assets (leverage). These ratios as of
June 30, 2000 are set forth below:
For Capital
Actual Adequacy Purposes
-------------------------- --------------------------
Amount Ratio Amount Ratio
---------- ---------- ---------- ----------
(dollars in thousands)
Tier 1 Capital to
Risk-Weighted
Assets $1,364,200 8.63% $ 632,419 4.00%
Total Capital to
Risk-Weighted
Assets $1,633,540 10.33% $1,264,838 8.00%
Tier 1 Capital to
Average Assets $1,364,200 8.08% $ 506,715 3.00%
As of June 30, 2000 the Company's depository institution subsidiaries were
categorized as well-capitalized under the applicable federal regulations
regarding the regulatory framework for prompt corrective action. To be
categorized as well-capitalized, a bank must have a Tier 1 risk-based capital
ratio of 6.00% or greater, a total risk-based capital ratio of 10.00% or
greater, a leverage ratio of 5.00% or greater and not be subject to any
agreement, order or directive to meet a specific capital level for any capital
measure.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 2000, there was no significant change in the Company's market risk
from the information provided with respect to "Quantitative and Qualitative
Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999. Quantitative and qualitative
disclosures regarding the Company's market risk are also included in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" (pages 39 through 41) and "Notes to Consolidated Financial
Statements" (pages 51 through 53) in the Financial Review section of the
Company's Annual Report 1999.
29
31
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders held on April 20, 2000, the
stockholders voted on the following matters:
(a) Election of four Non-Class A Directors for a term of three years
expiring in 2003, or until their successors are elected and
qualified:
Votes
--------------------------------------------------------------
Name For Withheld
----------- ---------------------------- -------------------------
John W. A. Buyers 63,572,028 (98.9%) 686,650 (1.1%)
David M. Haig 63,549,198 (98.9%) 709,481 (1.1%)
John A. Hoag 63,571,802 (98.9%) 686,877 (1.1%)
John K. Tsui 63,538,051 (98.9%) 720,628 (1.1%)
There were no abstentions.
The following persons continue as directors for the terms
indicated as follows:
Expiration of
Director Term of Office
-------- --------------
Dr. Julia Ann Frohlich 2001
Bert T. Kobayashi, Jr. 2001
Fred C. Weyand 2001
Robert C. Wo 2001
Walter A. Dods, Jr. 2002
Paul Mullin Ganley 2002
Dr. Fujio Matsuda 2002
(b) Approval of a policy addressing tax deductibility of awards to
certain executives under the Incentive Plan for Key Executives:
for - 115,932,171 (97.6%), against - 2,315,875 (1.9%), abstained
- 551,962 (.5%), unvoted - 12 (less than .1%).
(c) Election of PricewaterhouseCoopers LLP, as the auditor of the
Company to serve for the ensuing year: for - 118,576,670
(99.8%), against - 106,554 (.1%), abstained - 116,791 (.1%),
unvoted - 5 (less than .1%).
(d) Election of three Class A Directors for a term of three years
expiring in 2003, or until their successors are elected and
qualified:
Votes
----------------------------------------------
Name For Withheld
---------- ---------------------------- ----------
Michel Larrouilh 54,539,936 (100%) --
Joel Sibrac 54,539,936 (100%) --
Jacques Henri Wahl 54,539,936 (100%) --
The following persons continue as Class A Directors for the
terms indicated as follows:
Expiration of
Director Term of Office
----------------- --------------
Robert A. Fuhrman 2001
Pierre Mariani 2001
Rodney R. Peck 2001
Jacques Ardant 2002
Yves Martrenchar 2002
Don J. McGrath 2002
30
32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 12 Statement regarding computation of ratios.
Exhibit 23 Consent of independent accountants.
Exhibit 27 Financial data schedule.
(b) Reports on Form 8-K None.
31
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BANCWEST CORPORATION
(REGISTRANT)
Date August 11, 2000 By /s/ HOWARD H. KARR
-------------------------------- ------------------------------------
HOWARD H. KARR
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
32
34
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
12 Statement regarding computation of ratios.
23 Consent of independent accountants.
27 Financial data schedule.
1
EXHIBIT 12
STATEMENT RE: COMPUTATION OF RATIOS
BancWest Corporation and Subsidiaries
Computation of Consolidated Ratios of Earnings to Fixed Charges
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
(dollars in thousands)
Income before income taxes $ 93,244 $ 74,308 $178,046 $148,905
-------- -------- -------- --------
Fixed charges(1):
Interest expense 137,530 109,295 259,645 217,588
Rental expense 3,808 3,756 7,537 7,577
-------- -------- -------- --------
141,338 113,051 267,182 225,165
Less interest on deposits 110,313 89,507 209,811 177,380
-------- -------- -------- --------
Net fixed charges 31,025 23,544 57,371 47,785
-------- -------- -------- --------
Earnings, excluding
interest on deposits $124,269 $ 97,852 $235,417 $196,690
======== ======== ======== ========
Earnings, including
interest on deposits $234,582 $187,359 $445,228 $374,070
======== ======== ======== ========
Ratio of earnings to fixed charges:
Excluding interest on deposits 4.01X 4.16x 4.10X 4.12x
Including interest on deposits 1.66X 1.66x 1.67X 1.66x
(1) For purposes of computing the consolidated ratios of earnings to fixed
charges, earnings represent income before income taxes plus fixed charges.
Fixed charges, excluding interest on deposits, include interest (other than
on deposits), whether expensed or capitalized, and that portion of rental
expense (generally one third) deemed representative of the interest factor.
Fixed charges, including interest on deposits, consists of the foregoing
items plus interest on deposits.
1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statements on Form S-8 (Registration Nos. 33-66400, 333-22107 and 333-75483) and
the Post-Effective Amendment on Form S-8 to Form S-4 (Registration No.
333-76271) of BancWest Corporation of our report dated January 18, 2000 relating
to the consolidated financial statements of BancWest Corporation and
Subsidiaries as of December 31, 1999 and 1998, which appears in the 1999 Annual
Report to Shareholders, which is incorporated by reference in this Annual Report
on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Honolulu, Hawaii
March 17, 2000
9
3-MOS
DEC-31-1999
JAN-01-2000
JUN-30-2000
754,176
251,335
129,000
0
1,978,354
109,201
104,146
13,385,312
169,340
17,837,051
13,511,541
650,986
689,210
1,081,664
0
0
127,093
1,775,670
17,837,051
547,034
69,135
9,477
625,646
209,811
259,645
366,001
29,180
(31)
267,020
178,046
103,413
0
0
103,413
.83
.83
8.21
74,021
16,618
20,600
0
161,418
27,331
6,073
169,340
99,710
835
68,795
