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1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ----------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 ----------------------- BANCWEST CORPORATION (Exact name of registrant as specified in its charter) ----------------------- 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 October 31, 2000 was: Class Outstanding ------------------------------------- ----------------- Common Stock, $1.00 Par Value 68,654,179 Shares Class A Common Stock, $1.00 Par Value 56,074,874 Shares ================================================================================
2 PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets at September 30, 2000, December 31, 1999 and September 30, 1999 2 - 3 Consolidated Statements of Income for the quarter and nine months ended September 30, 2000 and 1999 4 Consolidated Statements of Changes in Stockholders' Equity for the nine months ended September 30, 2000 and 1999 5 Consolidated Statements of Cash Flows for the nine months ended September 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 6. Exhibits and Reports on Form 8-K 30 SIGNATURES 31 EXHIBIT INDEX 1
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BancWest Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (Unaudited) SEPTEMBER 30, December 31, September 30, 2000 1999 1999 ------------ ------------ ------------ (in thousands) ASSETS Cash and due from banks $ 652,126 $ 809,961 $ 693,001 Interest-bearing deposits in other banks 158,722 9,135 387,626 Federal funds sold and securities purchased under agreements to resell 348,700 71,100 444,950 Investment securities: Held-to-maturity 99,905 142,868 161,450 Available-for-sale 1,920,127 1,868,003 1,538,811 Loans and leases: Loans and leases 13,565,820 12,524,039 12,315,651 Less allowance for credit losses 171,386 161,418 161,543 ------------ ------------ ------------ Net loans and leases 13,394,434 12,362,621 12,154,108 ------------ ------------ ------------ Premises and equipment 274,178 281,665 278,787 Customers' acceptance liability 667 1,039 1,221 Core deposit intangible 58,865 65,092 67,305 Goodwill 605,428 613,620 619,380 Other real estate owned and repossessed personal property 31,300 28,429 31,801 Other assets 428,129 427,489 344,515 ------------ ------------ ------------ TOTAL ASSETS $ 17,972,581 $ 16,681,022 $ 16,722,955 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Domestic: Noninterest-bearing demand $ 1,723,385 $ 1,577,042 $ 1,657,938 Interest-bearing demand 275,219 315,786 307,655 Savings 5,193,765 4,921,146 5,002,089 Time 6,332,757 5,825,330 5,765,089 Foreign 318,897 238,648 255,132 ------------ ------------ ------------ Total deposits 13,844,023 12,877,952 12,987,903 ------------ ------------ ------------ Federal funds purchased and securities sold under agreements to repurchase 458,581 485,088 525,736 Other short-term borrowings 7,502 18,889 14,929 Acceptances outstanding 667 1,039 1,221 Other liabilities 736,640 653,532 566,094 Long-term debt 878,628 701,792 706,796 Guaranteed preferred beneficial interests in Company's junior subordinated debentures 100,000 100,000 100,000 ------------ ------------ ------------ TOTAL LIABILITIES $ 16,026,041 $ 14,838,292 $ 14,902,679 ------------ ------------ ------------ The accompanying notes are an integral part of these consolidated financial statements. 2
4 BancWest Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS - CONTINUED (Unaudited) SEPTEMBER 30, December 31, September 30, 2000 1999 1999 ------------ ------------ ------------ (in thousands) Stockholders' equity: Preferred stock - par value $1 per share Authorized and unissued - 50,000,000 shares $ -- $ -- $ -- Class A common stock - par value $1 per share Authorized - 75,000,000 shares Issued - 56,074,874, 51,629,536 and 25,814,768 shares at September 30, 2000, December 31, 1999 and September 30, 1999, respectively 56,075 51,630 25,815 Common stock - par value $1 per share Authorized - 200,000,000 shares Issued - 71,037,884, 75,418,850 and 37,683,988 shares at September 30, 2000, December 31, 1999 and September 30, 1999, respectively 71,038 75,419 37,684 Surplus 1,124,931 1,124,512 1,187,684 Retained earnings 735,330 638,687 611,372 Accumulated other comprehensive income (4,020) (9,873) (4,098) Treasury stock, at cost - 2,383,705, 2,437,556 and 1,236,118 shares of common stock at September 30, 2000, December 31, 1999 and September 30, 1999, respectively (36,814) (37,645) (38,181) ------------ ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 1,946,540 1,842,730 1,820,276 ------------ ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,972,581 $ 16,681,022 $ 16,722,955 ============ ============ ============ The accompanying notes are an integral part of these consolidated financial statements. 3
5 BancWest Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (Unaudited) QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------- ------------- ------------- ------------- (in thousands, except number of shares and per share data) INTEREST INCOME Interest and fees on loans $ 263,955 $ 225,044 $ 748,538 $ 666,275 Lease financing income 32,549 28,702 95,000 83,325 Interest on investment securities: Taxable interest income 34,229 25,719 102,868 74,045 Exempt from Federal income taxes 136 278 632 829 Other interest income 7,197 8,556 16,674 18,528 ------------- ------------- ------------- ------------- Total interest income 338,066 288,299 963,712 843,002 ------------- ------------- ------------- ------------- INTEREST EXPENSE Deposits 120,389 93,677 330,200 271,057 Short-term borrowings 10,220 6,877 29,836 23,913 Long-term debt 17,617 12,240 47,835 35,412 ------------- ------------- ------------- ------------- Total interest expense 148,226 112,794 407,871 330,382 ------------- ------------- ------------- ------------- Net interest income 189,840 175,505 555,841 512,620 Provision for credit losses 14,800 11,835 43,980 35,405 ------------- ------------- ------------- ------------- Net interest income after provision for credit losses 175,040 163,670 511,861 477,215 ------------- ------------- ------------- ------------- NONINTEREST INCOME Service charges on deposit accounts 19,263 17,058 54,700 50,060 Trust and investment services income 9,451 8,109 27,234 24,927 Securities losses, net (28) (1) (59) (21) Other service charges and fees 18,093 14,489 54,561 48,384 Other 6,788 6,828 25,376 19,572 ------------- ------------- ------------- ------------- Total noninterest income 53,567 46,483 161,812 142,922 ------------- ------------- ------------- ------------- NONINTEREST EXPENSE Salaries and wages 46,652 45,133 137,209 136,388 Employee benefits 13,559 14,050 41,320 40,626 Occupancy expense 15,836 15,141 46,752 45,044 Outside services 11,001 11,470 35,131 32,457 Intangible amortization 9,141 8,953 27,443 26,812 Equipment expense 7,310 7,683 21,654 23,318 Stationery and supplies 5,230 5,243 15,009 16,377 Advertising and promotion 3,993 4,056 12,397 12,388 Merger-related charges -- 16,116 -- 17,534 Other 18,757 17,232 61,584 55,212 ------------- ------------- ------------- ------------- Total noninterest expense 131,479 145,077 398,499 406,156 ------------- ------------- ------------- ------------- Income before income taxes 97,128 65,076 275,174 213,981 Provision for income taxes 40,316 28,221 114,949 90,101 ------------- ------------- ------------- ------------- NET INCOME $ 56,812 $ 36,855 $ 160,225 $ 123,880 ============= ============= ============= ============= PER SHARE DATA(1) : BASIC EARNINGS $ .46 $ .30 $ 1.29 $ 1.00 ============= ============= ============= ============= DILUTED EARNINGS $ .45 $ .29 $ 1.28 $ .99 ============= ============= ============= ============= CASH DIVIDENDS $ .17 $ .15 $ .51 $ .45 ============= ============= ============= ============= AVERAGE SHARES OUTSTANDING(1) 124,708,668 124,432,800 124,665,611 123,869,150 ============= ============= ============= ============= (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. 4
6 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 -- -- -- 160,225 -- -- 160,225 Unrealized valuation adjustment, net of tax and reclassification adjustment -- -- -- -- 5,853 -- 5,853 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Comprehensive income -- -- -- 160,225 5,853 -- 166,078 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Conversion of common stock to Class A common stock 4,445 (4,445) -- -- -- -- -- Issuance of common stock -- 64 492 -- -- -- 556 Incentive Plan for Key Executives -- -- (2) -- -- 58 56 Issuance of treasury stock under Stock Incentive Plan -- -- (71) -- -- 773 702 Cash dividends ($.51 per share) -- -- -- (63,582) -- -- (63,582) ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, SEPTEMBER 30, 2000 $ 56,075 $ 71,038 $ 1,124,931 $ 735,330 $ (4,020) $ (36,814) $ 1,946,540 =========== =========== =========== =========== =========== =========== =========== Balance, December 31, 1998 $ 25,815 $ 37,538 $ 1,183,274 $ 543,755 $ 6,228 $ (50,454) $ 1,746,156 Comprehensive income: Net income -- -- -- 123,880 -- -- 123,880 Unrealized valuation adjustment, net of tax and reclassification adjustment -- -- -- -- (10,326) -- (10,326) ----------- ----------- ----------- ----------- ----------- ----------- ----------- Comprehensive income -- -- -- 123,880 (10,326) -- 113,554 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Issuance of common stock -- 146 4,509 -- -- 10,808 15,463 Incentive Plan for Key Executives -- -- -- -- -- (63) (63) Issuance of treasury stock under Stock Incentive Plan -- -- (99) -- -- 1,528 1,429 Cash dividends ($.45 per share) -- -- -- (56,263) -- -- (56,263) ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance, September 30, 1999 $ 25,815 $ 37,684 $ 1,187,684 $ 611,372 $ (4,098) $ (38,181) $ 1,820,276 =========== =========== =========== =========== =========== =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 5
7 BancWest Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 2000 1999 ----------- ----------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 160,225 $ 123,880 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 43,980 35,405 Net (gain) loss on disposition of assets (1,218) 1,277 Depreciation and amortization 52,791 50,031 Income taxes 82,648 81,040 Increase in interest receivable (12,353) (8,568) Increase in interest payable 11,743 6,368 Increase in prepaid expenses (12,428) (14,070) Merger-related charges -- 17,534 Other 423 (24,505) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 325,811 268,392 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Net increase in interest-bearing deposits in other banks (149,587) (109,171) Net increase in Federal funds sold and securities purchased under agreements to resell (277,600) (378,450) Proceeds from maturity of held-to-maturity investment securities 42,963 145,329 Purchase of held-to-maturity investment securities -- (15,857) Proceeds from maturity of available-for-sale investment securities 391,753 398,822 Purchase of available-for-sale investment securities (444,213) (473,801) Proceeds from sale of available-for-sale investment securities 10,054 -- Net increase in loans and leases to customers (1,087,738) (390,041) Purchase of premises and equipment (11,213) (7,507) Other (810) (5,310) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (1,526,391) (835,986) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 966,071 945,031 Net decrease in Federal funds purchased and securities sold under agreements to repurchase (26,507) (364,159) Net decrease in other short-term borrowings (11,387) (18,043) Proceeds from long-term debt 277,074 72,428 Payments on long-term debt (100,238) -- Cash dividends paid (63,582) (56,263) Proceeds from issuance of common stock 556 15,463 Proceeds from issuance of treasury stock 758 1,366 ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,042,745 595,823 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (157,835) 28,229 CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 809,961 664,772 ----------- ----------- CASH AND DUE FROM BANKS AT END OF PERIOD $ 652,126 $ 693,001 =========== =========== SUPPLEMENTAL DISCLOSURES: Interest paid $ 396,128 $ 324,014 =========== =========== Income taxes paid $ 32,301 $ 9,061 =========== =========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Loans converted into other real estate owned and repossessed personal property $ 15,645 $ 11,627 =========== =========== Loans made to facilitate the sale of other real estate owned $ 3,700 $ 4,830 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 6
8 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. All per share information has been restated to reflect a two-for-one stock split done in the fourth quarter of 1999. In addition, all per share computations include both common and Class A common shares. 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. The accounting for the gains or losses resulting from changes in the value of those derivatives will depend on the intended use of the derivative and whether it qualifies for hedge accounting. The transition adjustments resulting from adopting SFAS No. 133 will be reported in net income or accumulated other adjustments to stockholders' equity, as appropriate, as the effect of a change in accounting principle and presented in a manner similar to the cumulative effect of a change in accounting principle. 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. Although considerable progress has been made in preparing for SFAS No. 133, interpretative guidance continues to be issued by the FASB that may significantly affect certain activities. As a result, we are developing and implementing strategies to adopt SFAS No. 133 for activities for which no further FASB interpretative guidance is expected. For certain other activities, contingency plans are being developed, and FASB actions are being closely monitored for indications of final rulings. 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 consolidated financial statements. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (a replacement of SFAS No. 125). This statement revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS No. 125's provisions without reconsideration. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This statement is effective for recognition and reclassification of collateral and for disclosure relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of SFAS No. 140 is not expected to have a material effect on the Company's consolidated financial statements. 7
9 BancWest Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. COMMON STOCK INFORMATION The following tables present per share information that has been restated to reflect the two-for-one stock split effectuated in December 1999, and includes both common and Class A common shares. 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: QUARTER ENDED SEPTEMBER 30, ------------------------------------------------------------------------------------ 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 $ 56,812 124,708,668 $.46 $ 36,855 124,432,800 $.30 Effect of dilutive securities - Stock Incentive Plan options -- 425,256 -- -- 721,456 -- ----------- ----------- ---- ----------- ----------- ---- Diluted: Net income and assumed conversions $ 56,812 125,133,924 $.45 $ 36,855 125,154,256 $.29 =========== =========== ==== =========== =========== ==== NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------------------------------- 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 $ 160,225 124,665,611 $1.29 $ 123,880 123,869,150 $1.00 Effect of dilutive securities - Stock Incentive Plan options -- 263,227 -- -- 662,714 -- ----------- ----------- ----- ----------- ----------- ----- Diluted: Net income and assumed conversions $ 160,225 124,928,838 $1.28 $ 123,880 124,531,864 $ .99 =========== =========== ===== =========== =========== ===== 8
10 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 nine months ended September 30, 2000 and 1999 and as of and for the year ended December 31, 1999: SEPTEMBER 30, December 31, September 30, 2000 1999 1999 ------------- ------------ ------------- (in thousands) Impaired loans $ 81,419 $ 95,421 $104,503 Impaired loans with related allowance for credit losses calculated under SFAS No. 114 $ 68,415 $ 72,258 $ 78,816 Total allowance for credit losses on impaired loans $ 14,744 $ 15,833 $ 20,676 Average impaired loans $ 88,742 $107,948 $105,760 Interest income recognized on impaired loans $ 2,986 $ 4,349 $ 430 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 nine months of 2000, this liability was reduced by $1.466 million related to excess leased commercial properties. As of September 30, 2000, $2.970 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 nine months of 2000, $1.006 million in other nonrecurring costs and $364,000 for employee severance were paid, further reducing this liability. At September 30, 2000, the remaining amounts accrued and unpaid for restructuring and other nonrecurring costs related to the consolidation of data centers were $1.072 million for employee severance costs and $176,000 for other nonrecurring costs. 6. MERGER WITH SIERRAWEST BANCORP In connection with our 1999 acquisition of SierraWest Bancorp, 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 nine months of 2000, we paid $439,000 in severance and other employee benefits and $267,000 in other restructuring, merger-related and other nonrecurring costs, further reducing this liability. At September 30, 2000, approximately $243,000 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. 9
11 BancWest Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 8. OPERATING SEGMENTS As of September 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 quarter and nine months ended September 30, 2000 and 1999, respectively. QUARTER ENDED SEPTEMBER 30, ----------------------------------------------------------------- BANK OF THE FIRST RECONCILING CONSOLIDATED WEST HAWAIIAN OTHER ITEMS TOTALS -------- -------- ----- ----------- ------------ (in millions) 2000 NET INTEREST INCOME $ 107 $ 84 $ (1) $ -- $ 190 NET INCOME 29 29 (1) -- 57 SEGMENT ASSETS 10,643 7,301 2,836 (2,807) 17,973 1999 Net interest income $ 98 $ 79 $ (2) $ 1 $ 176 Net income 17 21 (3) 2 37 Segment assets 9,515 7,139 2,698 (2,629) 16,723 NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------------------------------- BANK OF THE FIRST RECONCILING CONSOLIDATED WEST HAWAIIAN OTHER ITEMS TOTALS -------- -------- ----- ----------- ------------ (in millions) 2000 NET INTEREST INCOME $ 314 $ 246 $ (4) $ -- $ 556 NET INCOME 82 83 (5) -- 160 SEGMENT ASSETS 10,643 7,301 2,836 (2,807) 17,973 1999 Net interest income $ 284 $ 234 $ (6) $ 1 $ 513 Net income 59 69 (5) 1 124 Segment assets 9,515 7,139 2,698 (2,629) 16,723 The reconciling items in the tables above are primarily inter-company eliminations. 10
12 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) whether Bank of the West completes as anticipated its expected acquisition of New Mexico and Nevada branches and is successful in retaining and further developing related loan, deposit, customer and employee relationships; (10) whether Bank of the West experiences delay or difficulty in completing New Mexico and Nevada branch conversions; (11) 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; (12) our reliance on third parties to provide certain critical services, including data processing; (13) 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; (14) technological changes; (15) any delay or inability to complete the merger between Star Systems, Inc. and Concord EFS, Inc.; (16) 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 (17) 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) - ----------------------------------------------------------------------------------------------------------------------------------- QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, --------------------------- ------------------------------- (dollars in thousands, except per share data) 2000 1999 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- EARNINGS AND DIVIDENDS: Net income $56,812 $36,855 $160,225 $123,880 Operating earnings(1) $56,812 $47,127 $160,225 $135,510 Cash earnings(2) $64,985 $45,033 $184,766 $148,210 Operating cash earnings(1),(2) $64,985 $55,305 $184,766 $159,840 Cash dividends $21,202 $19,293 $ 63,582 $ 56,263 PER SHARE DATA(3): Diluted: Earnings $ .45 $ .29 $ 1.28 $ .99 Operating earnings(1) $ .45 $ .38 $ 1.28 $ 1.09 Cash earnings(2) $ .52 $ .36 $ 1.48 $ 1.19 Operating cash earnings(1),(2) $ .52 $ .44 $ 1.48 $ 1.28 Cash dividends $ .17 $ .15 $ .51 $ .45 Book value (at September 30) $ 15.61 $ 14.62 Market price (NYSE close at September 30) $ 19.44 $ 20.31 SELECTED FINANCIAL RATIOS: Return on average total assets (ROA) 1.23% 1.02% Operating return on average total assets (ROA)(1) 1.23% 1.12% Return on average tangible assets(1),(4) 1.48% 1.38% Return on average stockholders' equity (ROE) 11.37% 9.30% Operating return on average stockholders' equity (ROE)(1) 11.37% 10.18% Return on average tangible stockholders' equity(1),(4) 20.48% 19.74% Net interest margin (taxable-equivalent basis) 4.78% 4.76% Allowance for credit losses to total loans and leases (at September 30) 1.26% 1.31% Nonperforming assets to total assets (at September 30) .67% .80% Allowance for credit losses to nonperforming loans and leases (at September 30) 193.4% 158.1% (1) Excluding after-tax restructuring merger-related and other nonrecurring costs of $10,272,000 in July 1999 and $1,358,000 recorded in prior months of 1999. (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 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 quarter and nine months ended September 30, 2000 to the same periods in 1999: NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 % Change -------- -------- -------- (in thousands) Net income $160,225 $123,880 29.3% Operating earnings(1) 160,225 135,510 18.2 Cash earnings(2) 184,766 148,210 24.7 Operating cash earnings(1),(2) 184,766 159,840 15.6 QUARTER ENDED SEPTEMBER 30, Net income $56,812 $36,855 54.2% Operating earnings(1) 56,812 47,127 20.6 Cash earnings(2) 64,985 45,033 44.3 Operating cash earnings(1),(2) 64,985 55,305 17.5 (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 nine months of 2000 compared to the same period in 1999 were primarily due to higher revenues, with net interest income increasing by 8.4%, or $43.221 million, and noninterest income increasing by 8.9%, or $12.672 million, excluding the $5.0 million in termination fees relating to the termination of our agreement to acquire branches from Zions Bancorporation and First Security 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 2.1%, or $8.189 million, for the first nine 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; $17.534 million for the consolidation of data centers and the SierraWest merger in 1999; and $1.277 million for the charitable donation of a recreational center in the second quarter of 1999. The improved quarterly results in the third quarter of 2000 compared to the same period in 1999 were primarily caused by (1) higher net income, primarily from loan growth in the mainland United States; (2) higher noninterest income; and (3) containment of noninterest expense. The following table shows diluted earnings, operating earnings, cash earnings and operating cash earnings per share for the quarter and nine months ended September 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 ---- ---- -------- NINE MONTHS ENDED SEPTEMBER 30, Diluted earnings $1.28 $ .99 29.3% Diluted operating earnings(1) 1.28 1.09 17.4 Diluted cash earnings(2) 1.48 1.19 24.4 Diluted operating cash earnings(1),(2) 1.48 1.28 15.6 QUARTER ENDED SEPTEMBER 30, Diluted earnings $ .45 $ .29 55.2% Diluted operating earnings(1) .45 .38 18.4 Diluted cash earnings(2) .52 .36 44.4 Diluted operating cash earnings(1),(2) .52 .44 18.2 (1) Excluding after-tax SierraWest merger-related costs. (2) Excluding amortization of goodwill and core deposit intangibles. All per share earnings for the quarter and nine months ended September 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 shows 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 nine months of 2000 compared 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 intangibles. 2000 1999 % Change ---- ---- -------- Return on average total assets 1.23% 1.02% 20.6% Operating return on average total assets(1) 1.23 1.12 9.8 Return on average tangible assets(1) 1.48 1.38 7.2 Return on average stockholders' equity 11.37 9.30 22.3 Operating return on average stockholders' equity(1) 11.37 10.18 11.7 Return on average tangible stockholders' equity(1) 20.48 19.74 3.7 (1) Ratios are computed excluding after-tax SierraWest merger-related and other nonrecurring costs. The increases in the above returns 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 nine 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 quarter and nine months ended September 30, 2000 to the same periods in 1999: NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 % Change ---- ---- -------- (in thousands) Net interest income $555,841 $512,620 8.4% QUARTER ENDED SEPTEMBER 30, Net interest income $189,840 $175,505 8.2% The increase in net interest income in the first nine months of 2000 over the same period in 1999 was primarily due to a 45-basis-point rise (1% equals 100 basis points) in the yield on average earning assets and an increase in average earning assets of 8.0%, or $1.152 billion, in the first nine months of 2000, partially offset by a 43-basis-point increase in the rate paid on funding sources. The increase in net interest income for the quarter ended September 30, 2000 over the same period in 1999 was primarily due to a 61-basis-point rise (1% equals 100 basis points) in the yield on average earning assets and an increase in average earning assets of 9.1%, or $1.330 billion, for the quarter ended September 30, 2000, partially offset by a 64-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 quarter and nine months ended September 30, 2000 to the same periods in 1999: NINE MONTHS ENDED SEPTEMBER 30, Change (basis 2000 1999 points) ---- ---- ------- Yield on average earning assets 8.28% 7.83% 45 Rate paid on funding sources 3.50 3.07 43 Net interest margin 4.78 4.76 2 QUARTER ENDED SEPTEMBER 30, Yield on average earning assets 8.41% 7.80% 61 Rate paid on funding sources 3.69 3.05 64 Net interest margin 4.72 4.75 (3) The increase in the net interest margin in the first nine months of 2000 over the same period in 1999 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 September 30, 2000 of the six interest rate increases by the Federal Reserve Bank in the past 12 months. The decrease in the net interest margin in the third quarter of 2000 as compared to the same period in 1999 is primarily due to the 64-basis-point increase in the rate paid on funding sources, reflecting the multiple rate increases by the Federal Reserve in recent months. This increase was partially offset by the 61-basis-point increase on the yield on average earning assets. The interest rate spread, the difference between the yield on average earning assets and the rate paid on interest-bearing deposits and liabilities, has decreased by 21 basis points to 4.05% in the third quarter of 2000, as compared to the same period in 1999. NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 % Change ---- ---- -------- (in thousands) Average earning assets $15,553,376 $14,401,788 8.0% Average loans and leases 13,109,103 12,240,119 7.1 Average interest-bearing deposits and liabilities 13,222,282 12,345,678 7.1 QUARTER ENDED SEPTEMBER 30, Average earning assets $15,993,383 $14,663,764 9.1% Average loans and leases 13,510,874 12,300,752 9.8 Average interest-bearing deposits and liabilities 13,534,780 12,642,962 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 and leases 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. QUARTER ENDED SEPTEMBER 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 $ 178,460 $ 3,031 6.76% $ 375,888 $ 5,069 5.35% Federal funds sold and securities purchased under agreements to resell 248,986 4,166 6.66 259,902 3,487 5.32 Investment securities 2,055,063 34,444 6.67 1,727,222 26,154 6.01 Loans and leases(2),(3) 13,510,874 296,505 8.73 12,300,752 253,748 8.18 ----------- ----------- ----------- ----------- Total earning assets 15,993,383 338,146 8.41 14,663,764 288,458 7.80 ----------- ----------- Nonearning assets 1,819,847 1,757,709 ----------- ----------- Total assets $17,813,230 $16,421,473 =========== =========== NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------------------------------------- 2000 1999 ------------------------------------------------------------------------------------------- INTEREST Interest AVERAGE INCOME/ YIELD/ Average Income/ Yield/ BALANCE EXPENSE RATE(1) Balance Expense Rate(1) ASSETS ----------- ----------- -------- ----------- ----------- -------- (dollars in thousands) Earning assets: Interest-bearing deposits $ 203,344 $ 9,731 6.39% $ 304,190 $ 11,878 5.22% in other banks Federal funds sold and securities purchased under agreements to 144,355 6,943 6.42 177,082 6,650 5.02 resell 2,096,574 103,845 6.62 1,680,397 75,313 5.99 Investment securities 13,109,103 843,541 8.60 12,240,119 749,613 8.19 Loans and leases(2),(3) ----------- ----------- ----------- ----------- 15,553,376 964,060 8.28 14,401,788 843,454 7.83 Total earning assets ----------- ----------- 1,839,590 1,767,604 Nonearning assets ----------- ----------- $17,392,966 $16,169,392 Total assets =========== =========== (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 $8,521 and $24,059 for the quarter and nine months ended September 30, 2000, respectively, and $9,176 and $25,406 for the quarter and nine months ended September 30, 1999, respectively. 16
18 QUARTER ENDED SEPTEMBER 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 $11,851,955 $ 120,389 4.04% $11,252,696 $ 93,677 3.30% Short-term borrowings 653,458 10,220 6.22 578,505 6,877 4.72 Long-term debt and capital securities 1,029,367 17,617 6.81 811,761 12,240 5.98 ----------- ----------- ----------- ----------- Total interest-bearing deposits and liabilities 13,534,780 148,226 4.36 12,642,962 112,794 3.54 ------- ---- ------- ---- Interest rate spread 4.05% 4.26% ==== ==== Noninterest-bearing demand deposits(2) 1,667,031 1,431,358 Other liabilities 695,527 544,205 ----------- ----------- Total liabilities 15,897,338 14,618,525 Stockholders' equity 1,915,892 1,802,948 ----------- ----------- Total liabilities and stockholders' equity $17,813,230 $16,421,473 =========== =========== Net interest income and margin on earning assets 189,920 4.72% 175,664 4.75% ==== ==== Tax equivalent adjustment 80 159 ----------- ----------- Net interest income $ 189,840 $ 175,505 =========== =========== NINE MONTHS ENDED SEPTEMBER 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 $11,576,682 $ 330,200 3.81% $10,870,410 $ 271,057 3.33% Short-term borrowings 671,066 29,836 5.94 693,268 23,913 4.61 Long-term debt and capital securities 974,534 47,835 6.56 782,000 35,412 6.05 ----------- ----------- ----------- ----------- Total interest-bearing deposits and liabilities 13,222,282 407,871 4.12 12,345,678 330,382 3.58 ------- ---- ------- ---- Interest rate spread 4.16% 4.25% ==== ==== Noninterest-bearing demand deposits(2) 1,623,310 1,516,002 Other liabilities 664,635 527,389 ----------- ----------- Total liabilities 15,510,227 14,389,069 Stockholders' equity 1,882,739 1,780,323 ----------- ----------- Total liabilities and stockholders' equity $17,392,966 $16,169,392 =========== =========== Net interest income and margin on earning assets 556,189 4.78% 513,072 4.76% ==== ==== Tax equivalent adjustment 348 452 ----------- ----------- Net interest income $ 555,841 $ 512,620 =========== =========== (1) Annualized. (2) Average noninterest-bearing demand deposits increased over prior year by a greater amount for the three months ended September 30, 2000 than for the nine months ended September 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: SEPTEMBER 30, December 31, September 30, 2000 1999 1999 ------------ ----------- ------------- (in thousands) Amortized cost $ 99,905 $ 142,868 $ 161,450 Unrealized gains -- 2 10 Unrealized losses (2,876) (3,768) (2,719) --------- --------- --------- Fair value $ 97,029 $ 139,102 $ 158,741 ========= ========= ========= There were no realized gains and losses on held-to-maturity securities for the nine months ended September 30, 2000 and 1999. At September 30,2000, held-to-maturity investment securities decreased by $42.963 million, or 30.1%, to $99.905 million from December 31, 1999, principally due to maturities of 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: SEPTEMBER 30, December 31, September 30, 2000 1999 1999 ------------- ------------ ------------- (in thousands) Amortized cost $ 1,925,264 $ 1,882,265 $ 1,543,619 Unrealized gains 8,280 5,413 7,656 Unrealized losses (13,417) (19,675) (12,464) ----------- ----------- ----------- Fair value $ 1,920,127 $ 1,868,003 $ 1,538,811 =========== =========== =========== Gross realized gains and losses on available-for-sale investment securities for the nine months ended September 30, 2000 and 1999 were as follows: 2000 1999 ---- ---- (in thousands) Realized gains $ 38 $ 2 Realized losses (97) (23) ---- ---- Securities losses, net $(59) $(21) ==== ==== 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 at September 30, 2000, December 31, 1999 and September 30, 1999: SEPTEMBER 30, 2000 December 31, 1999 September 30, 1999 ----------------------- ----------------------- ----------------------- AMOUNT % Amount % Amount % ----------- ----- ----------- ----- ----------- ----- (dollars in thousands) Commercial, financial and agricultural $ 2,475,096 18.2% $ 2,212,757 17.7% $ 2,147,270 17.4% Real estate: Commercial 2,548,303 18.8 2,466,822 19.7 2,447,207 19.9 Construction 430,765 3.2 408,078 3.3 421,314 3.4 Residential: Insured, guaranteed or conventional 1,929,500 14.2 1,915,516 15.3 1,972,599 16.0 Home equity credit lines 443,635 3.3 447,273 3.5 451,340 3.7 ----------- ----- ----------- ----- ----------- ----- Total real estate loans 5,352,203 39.5 5,237,689 41.8 5,292,460 43.0 ----------- ----- ----------- ----- ----------- ----- Consumer 3,462,373 25.5 2,987,347 23.8 2,858,183 23.2 Lease financing 1,931,934 14.2 1,738,048 13.9 1,669,040 13.6 Foreign 344,214 2.6 348,198 2.8 348,698 2.8 ----------- ----- ----------- ----- ----------- ----- Total loans and leases 13,565,820 100.0% 12,524,039 100.0% 12,315,651 100.0% ===== ===== ===== Less allowance for credit losses 171,386 161,418 161,543 ----------- ----------- ----------- Total net loans and leases $13,394,434 $12,362,621 $12,154,108 =========== =========== =========== Total loans and leases to: Total assets 75.5% 75.1% 73.6% Total earning assets 85.2% 86.6% 83.9% Total deposits 98.0% 97.3% 94.8% The loan and lease portfolio is the largest component of total earning assets and accounts for the greatest portion of total interest income. At September 30, 2000, total net loans and leases were $13.394 billion, representing increases of 8.3% and 10.2% over December 31, 1999 and September 30, 1999, respectively. The increase from September 30, 2000, as compared to September 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 September 30, 2000 increased $262.339 million, or 11.9%, over December 31, 1999, and increased $327.826 million, or 15.3%, over September 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 nine months ended September 30, 2000. Overall loan volume in the First Hawaiian operating segment increased modestly, reflecting the growing rebound in the Hawaii economy. Insured, guaranteed or conventional residential real estate loans increased $13.984 million, or .7%, from December 31, 1999, and decreased $43.099 million, or 2.2%, from September 30, 1999. The rising interest rate environment, which has resulted in a decrease in the production of new loans as well as payoffs/paydowns, were the primary reasons for the decrease from September 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 September 30, 2000 increased $475.026 million, or 15.9%, over December 31, 1999, and $604.190 million, or 21.1%, over September 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 September 30, 2000 as compared to December 31, 1999 and September 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 September 30, 2000 increased $193.886 million, or 11.2%, over December 31, 1999, and $262.894 million, or 15.8%, over September 30, 1999. The increase in lease financing from September 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 September 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 September 30, 2000 decreased $3.984 million, or 1.1%, compared to December 31, 1999, with approximately 93% 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 September 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: QUARTER ENDED SEPTEMBER 30, --------------------------------------------------- 2000 1999 ----------------------- --------------------- AVERAGE AVERAGE Average Average BALANCE RATE(1) Balance Rate(1) ----------- ------- --------- ------- (dollars in thousands) Interest-bearing demand $ 309,401 1.06% $ 312,908 1.26% Savings 5,236,840 1.99 5,191,317 1.83 Time 6,305,714 5.89 5,748,471 4.74 ----------- ----------- Total interest-bearing deposits 11,851,955 4.04 11,252,696 3.30 Noninterest-bearing demand 1,667,031 -- 1,431,358 -- ----------- ----------- Total deposits $13,518,986 3.54% $12,684,054 2.93% =========== =========== NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------- 2000 1999 ----------------------- --------------------- AVERAGE AVERAGE Average Average BALANCE RATE(1) Balance Rate(1) ----------- ------- --------- ------- (dollars in thousands) Interest-bearing demand $ 312,007 1.24% $ 310,698 1.22% Savings 5,170,312 1.91 5,017,656 1.89 Time 6,094,363 5.55 5,542,056 4.76 ----------- ----------- Total interest-bearing deposits 11,576,682 3.81 10,870,410 3.33 Noninterest-bearing demand 1,623,310 -- 1,516,002 -- ----------- ----------- Total deposits $13,199,992 3.34% $12,386,412 2.93% =========== =========== Average interest-bearing deposits increased $599.259 million, or 5.3%, and $706.272 million, or 6.5%, for the quarter and nine months ended September 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 $235.673 million, or 16.5%, and $107.308 million, or 7.1%, for the quarter and nine months ended September 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 quarter ended September 30, 2000 was higher than for the nine months ended September 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. The total amounts reclassified for the quarter and nine months ended September 30, 2000 were $1.633 billion and $1.591 billion, respectively. In 1999, the amounts reclassified for the quarter and nine months ended September 30, 2000 were $1.499 billion and $1.353 billion, respectively. (1) Annualized. 21
23 NONPERFORMING ASSETS Nonperforming assets at September 30, 2000, December 31, 1999 and September 30, 1999 are as follows: SEPTEMBER 30, December 31, September 30, 2000 1999 1999 ------------ ----------- ------------- (dollars in thousands) Nonperforming Assets Nonaccrual: Commercial, financial and agricultural $ 18,874 $ 22,222 $ 20,727 Real estate: Commercial 21,108 25,790 29,481 Construction 666 2,990 1,076 Residential: Insured, guaranteed or conventional 13,382 18,174 18,696 Home equity credit lines 566 940 924 -------- -------- -------- Total real estate loans 35,722 47,894 50,177 -------- -------- -------- Consumer 3,418 1,625 2,426 Lease financing 6,108 3,391 3,495 Foreign 5,241 2,162 1,941 -------- -------- -------- Total nonaccrual loans and leases 69,363 77,294 78,766 -------- -------- -------- Restructured: Commercial, financial and agricultural 927 1,004 2,132 Real estate: Commercial 9,593 7,905 6,653 Construction 7,649 11,024 13,524 Residential: Insured, guaranteed or conventional 1,108 1,100 1,101 -------- -------- -------- Total real estate loans 18,350 20,029 21,278 -------- -------- -------- Total restructured loans and leases 19,277 21,033 23,410 -------- -------- -------- Total nonperforming loans and leases 88,640 98,327 102,176 Other real estate owned and repossessed personal property 31,300 28,429 31,801 -------- -------- -------- Total nonperforming assets $119,940 $126,756 $133,977 ======== ======== ======== Past due loans and leases(1): Commercial, financial and agricultural $ 4,227 $ 1,280 $ 3,303 Real estate: Commercial 2,206 1,436 5,591 Residential: Insured, guaranteed or conventional 3,472 7,751 8,677 Home equity credit lines 529 575 1,565 -------- -------- -------- Total real estate loans 6,207 9,762 15,833 -------- -------- -------- Consumer 2,549 2,043 2,135 Lease financing 254 113 142 Foreign 764 4,824 5,054 -------- -------- -------- Total past due loans and leases $ 14,001 $ 18,022 $ 26,467 ======== ======== ======== 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 .88% 1.01% 1.09% Including past due loans and leases .99% 1.15% 1.30% Nonperforming assets to total assets (end of period): Excluding past due loans and leases .67% .76% .80% Including past due loans and leases .75% .87% .96% (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 September 30, 2000 were $119.940 million, or .88% of total loans and leases and other real estate owned ("OREO") and repossessed personal property, compared to 1.09% at September 30, 1999. Nonperforming assets at September 30, 2000 were .67% of total assets, compared to .80% at September 30, 1999. Nonperforming assets at September 30, 2000 decreased by $6.816 million, or 5.4%, from December 31, 1999. The decrease was primarily attributable to decreases in nonaccrual commercial, financial and agricultural loans and all components of nonaccrual real estate 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 September 30, 2000 decreased by $14.037 million, or 10.5%, from September 30, 1999. The decrease was primarily attributable to decreases in nonaccrual real estate and restructured real estate - construction loans. The decrease in nonaccrual real estate was primarily attributable to the transfers of nonaccrual loans and leases to OREO, pay-offs and partial pay-downs of nonaccrual loans and leases. The decrease in restructured loans and leases was primarily due to the partial charge-offs of a real estate construction loan of $5.875 million. These decreases were partially offset by an increase in the lease financing and foreign components of nonaccrual loans and leases and restuctured real estate - commercial loans. 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 September 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 $14.001 million at September 30, 2000, a decrease of $12.466 million, or 47.1%, from September 30, 1999. Loans past due 90 days or more and still accruing interest decreased by $4.021 million, or 22.3%, from December 31, 1999 to September 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 recover 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 September 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: QUARTER ENDED SEPTEMBER 30, ----------------------------------- 2000 1999 ------------ ------------ (dollars in thousands) Loans and leases outstanding (end of period) $ 13,565,820 $ 12,315,651 ============ ============ Average loans and leases outstanding $ 13,510,874 $ 12,300,752 ============ ============ Allowance for credit losses summary: Balance at beginning of period $ 169,340 $ 160,433 ------------ ------------ Transfer of allowance allocated to securitized loans -- -- Loans and leases charged off: Commercial, financial and agricultural 1,337 1,326 Real estate: Commercial 1,448 257 Construction 1,125 1,000 Residential 1,633 1,620 Consumer 6,354 7,166 Lease financing 3,450 1,849 Foreign 553 366 ------------ ------------ Total loans and leases charged off 15,900 13,584 ------------ ------------ Recoveries on loans and leases previously charged off: Commercial, financial and agricultural 638 826 Real estate: Commercial 31 37 Construction 9 -- Residential 226 151 Consumer 1,644 1,418 Lease financing 493 427 Foreign 105 -- ------------ ------------ Total recoveries on loans and leases previously charged off 3,146 2,859 ------------ ------------ Net charge-offs (12,754) (10,725) ------------ ------------ Provision for credit losses 14,800 11,835 ------------ ------------ Balance at end of period $ 171,386 $ 161,543 ============ ============ Net loans and leases charged off to average loans and leases .38%(1) .35%(1) Net loans and leases charged off to allowance for credit losses 29.60%(1) 26.34%(1) Allowance for credit losses to total loans and leases (end of period) 1.26% 1.31% Allowance for credit losses to nonperforming loans and leases (end of period): Excluding 90 days past due accruing loans and leases 1.93X 1.58x Including 90 days past due accruing loans and leases 1.67X 1.26x NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------- 2000 1999 ------------ ------------ (dollars in thousands) Loans and leases outstanding (end of period) $ 13,565,820 $ 12,315,651 ============ ============ Average loans and leases outstanding $ 13,109,103 $ 12,240,119 ============ ============ Allowance for credit losses summary: Balance at beginning of period $ 161,418 $ 158,294 ------------ ------------ Transfer of allowance allocated to securitized loans -- (1,025) Loans and leases charged off: Commercial, financial and agricultural 4,226 5,295 Real estate: Commercial 2,556 2,107 Construction 3,480 1,021 Residential 4,810 3,557 Consumer 19,532 20,778 Lease financing 7,552 5,496 Foreign 1,075 626 ------------ ------------ Total loans and leases charged off 43,231 38,880 ------------ ------------ Recoveries on loans and leases previously charged off: Commercial, financial and agricultural 1,467 1,302 Real estate: Commercial 126 216 Construction 41 18 Residential 769 802 Consumer 4,989 4,215 Lease financing 1,547 1,190 Foreign 280 6 ------------ ------------ Total recoveries on loans and leases previously charged off 9,219 7,749 ------------ ------------ Net charge-offs (34,012) (31,131) ------------ ------------ Provision for credit losses 43,980 35,405 ------------ ------------ Balance at end of period $ 171,386 $ 161,543 ============ ============ Net loans and leases charged off to average loans and leases .35%(1) .34%(1) Net loans and leases charged off to allowance for credit losses 26.51%(1) 25.76%(1) Allowance for credit losses to total loans and leases (end of period) 1.26% 1.31% Allowance for credit losses to nonperforming loans and leases (end of period): Excluding 90 days past due accruing loans and leases 1.93X 1.58x Including 90 days past due accruing loans and leases 1.67X 1.26x (1) Annualized. 24
26 PROVISION AND ALLOWANCE FOR CREDIT LOSSES, CONTINUED The provision for credit losses for the first nine months of 2000 was $43.980 million, an increase of $8.575 million, or 24.2%, over the same period in 1999. The increase in the provision for credit losses for the first nine 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's 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. Our approach to managing 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 3.2% of total loans and leases at September 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 $46.3 million at September 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 September 30, 2000, the combined ratio of nonperforming assets to total loans for both shared national credits and media finance aggregated 0.78%. - 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 September 30, 2000), we obtain third-party insurance for the estimated residual value of the leased vehicle. To the extent that these policies include deductible values we set aside reserves to fully cover the uninsured portion. 25
27 PROVISION AND ALLOWANCE FOR CREDIT LOSSES, CONTINUED Charge-offs were $43.231 million for the first nine months of 2000, an increase of $4.351 million, or 11.2%, over the same period in 1999. The increase was primarily due to charge-offs of one real estate - construction loan, three real estate - commercial loans, several leases and consumer loans in the first nine months of 2000, totaling $31.663 million. For the first nine months of 2000, recoveries increased by $1.470 million, or 19.0%, 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 1.93 times nonperforming loans and leases (excluding 90 days or more past due accruing loans and leases) at September 30, 2000 from 1.58 times at September 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 September 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 quarter and nine months ended September 30, 2000, as compared to the same periods in 1999: NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 % Change --------- ---------- --------- (in thousands) Service charges on deposit accounts $ 54,700 $ 50,060 9.3% Trust and investment services income 27,234 24,927 9.3 Securities losses, net (59) (21) N/M Other service charges and fees 54,561 48,384 12.8 Other 25,376(1) 19,572 29.7 --------- --------- Total noninterest income $ 161,812 $ 142,922 13.2% ========= ========= (1) Excluding $5.0 million termination fees and $1.218 million gain on sale, other noninterest income decreased by 2.1%. QUARTER ENDED SEPTEMBER 30, Service charges on deposit accounts $ 19,263 $ 17,058 12.9% Trust and investment services income 9,451 8,109 16.5 Securities losses, net (28) (1) N/M Other service charges and fees 18,093 14,489 24.9 Other 6,788 6,828 (.6) -------- -------- Total noninterest income $ 53,567 $ 46,483 15.2% ======== ======== N/M - Not Meaningful. As the table above shows in more detail, noninterest income increased by 15.2% and 13.2% for the quarter and nine months ended September 30, 2000, respectively, compared to the same periods in 1999. Factors causing the increases include: - - 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 8.9% for the nine months ended September 30, 2000, compared to the same period in 1999. - - Service charges on deposit accounts increased for the quarter and nine months ended September 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. - - Trust and investment services income increased for the quarter and nine months ended September 30, 2000, compared to the same periods in 1999, primarily due to increased money management services to both retail and institutional clients, reflecting our continuing efforts to strengthen and diversify our revenue base. - - Other service charges and fees increased for the quarter and nine months ended September 30, 2000, compared to the same periods in 1999, primarily due to: (1) higher merchant services fees, due to higher fee charges, increased volume and more merchant outlets; (2) higher bank card and ATM convenience fee income; (3) higher miscellaneous service fees; and (4) higher annuity and mutual fund sales. BancWest and one of its bank subsidiaries hold about 5% of the shares of Star Systems, Inc. ("Star Systems"), the nation's largest PIN-secured payments network, which recently announced a merger agreement with Concord EFS, Inc. If the Star-Concord merger is completed as planned during the first half of 2001, Concord will issue 24.75 million unregistered shares to Star Systems shareholders. BancWest may earn significant noninterest income as a result of receiving these shares in the first half of 2001. 27
29 NONINTEREST EXPENSE The following table reflects the key components of the change in noninterest expense for the quarter and nine months ended September 30, 2000 as compared to the same periods in 1999: NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 % Change -------- -------- -------- (in thousands) Salaries and wages $137,209 $136,388 0.6% Employee benefits 41,320 40,626 1.7 Occupancy expense 46,752 45,044 3.8 Outside services 35,131 32,457 8.2 Intangible amortization 27,443 26,812 2.4 Equipment expense 21,654 23,318 (7.1) Stationery and supplies 15,009 16,377 (8.4) Advertising and promotion 12,397 12,388 0.1 Merger-related charges -- 17,534 N/M Other 61,584 55,212 11.5 -------- -------- Total noninterest expense $398,499 $406,156 (1.9)% ======== ======== QUARTER ENDED SEPTEMBER 30, Salaries and wages $ 46,652 $ 45,133 3.4% Employee benefits 13,559 14,050 (3.5) Occupancy expense 15,836 15,141 4.6 Outside services 11,001 11,470 (4.1) Intangible amortization 9,141 8,953 2.1 Equipment expense 7,310 7,683 (4.9) Stationery and supplies 5,230 5,243 (0.2) Advertising and promotion 3,993 4,056 1.6 Merger-related charges -- 16,116 N/M Other 18,757 17,232 8.8 -------- -------- Total noninterest expense $131,479 $145,077 (9.4)% ======== ======== N/M - Not Meaningful. As the table above shows in more detail, noninterest expense decreased by 9.4% and 1.9% for the quarter and nine months ended September 30, 2000, respectively, compared to the same periods in 1999. Factors causing the decreases include: - - 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 2.0% for the quarter and 2.1% for the nine months ended September 30, 2000. - - The reduction of equipment expenses and increase in outside service expense for the first nine months of 2000, as compared to the same period in 1999, 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. - - Occupancy expense increased for the first nine months and third quarter of 2000 over the same periods in 1999, due primarily to increases in rent expense for certain facilities. 28
30 INCOME TAXES The Company's effective income tax rates (exclusive of the tax equivalent adjustment) for the quarter and nine months ended September 30, 2000 were 41.5% and 41.8%, respectively, as compared to 43.4% and 42.1% for the same periods in 1999. The decrease in the effective tax rate was primarily due to certain non-deductible restructuring, merger-related and other nonrecurring cost incurred in 1999, partially offset by the tax benefits related to the charitable donation of the recreation center in the second quarter of 1999. LIQUIDITY AND CAPITAL Stockholders' equity was $1.947 billion at September 30, 2000, an increase of 5.6% over $1.843 billion at December 31, 1999. Compared to September 30, 1999, stockholders' equity at September 30, 2000 increased by $126.264 million, or 6.9%. The increase was primarily due to net income for the respective periods, less dividends paid. Under regulation established to ensure capital adequacy, the Company is required to maintain minimum amounts of Tier 1 and Total Capital and minimum ratios of Tier 1 Capital and Total Capital to risk-weighted assets, respectively, and of Tier 1 Capital to average assets (leverage). These amounts and ratios as of September 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 $1,409,080 8.79% $ 641,388 4.00% Total Capital to Risk-Weighted Assets $1,680,466 10.48% $1,282,777 8.00% Tier 1 Capital to Average Assets $1,409,080 8.21% $ 515,153 3.00% As of September 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. NEW MEXICO AND NEVADA BRANCH ACQUISITIONS In September 2000, Bank of the West entered into agreements to acquire branches in New Mexico and Nevada that are being divested by First Security Corporation in connection with its merger with Wells Fargo & Company. If the acquisition is completed Bank of the West will add 23 branches in New Mexico and seven in Nevada, along with approximately $1.2 billion in deposits and $300 million in commercial, consumer and agricultural loans. Bank of the West expects to incur pre-tax merger and integration charges of approximately $4 million during the fourth quarter of this year and the first quarter of 2001 for the integration of the branches. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At September 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 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 12 Statement regarding computation of ratios. Exhibit 27 Financial data schedule. (b) Reports on Form 8-K None. 30
32 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 November 13, 2000 By /s/ HOWARD H. KARR --------------------------------- ------------------------------- HOWARD H. KARR EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER) 31
33 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ------ ----------- 12 Statement regarding computation of ratios. 27 Financial data schedule.
1 EXHIBIT 12 EXHIBIT 12. STATEMENT RE: COMPUTATION OF RATIOS BancWest Corporation and Subsidiaries Computation of Consolidated Ratios of Earnings to Fixed Charges QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (dollars in thousands) Income before income taxes $ 97,128 $ 65,076 $275,174 $213,981 -------- -------- -------- -------- Fixed charges(1) : Interest expense 148,226 112,794 407,871 330,382 Rental expense 4,438 3,869 11,975 11,274 -------- -------- -------- -------- 152,664 116,663 419,846 341,656 Less interest on deposits 120,389 93,677 330,200 271,057 -------- -------- -------- -------- Net fixed charges 32,275 22,986 89,646 70,599 -------- -------- -------- -------- Earnings, excluding interest on deposits $129,403 $ 88,062 $364,820 $284,580 ======== ======== ======== ======== Earnings, including interest on deposits $249,792 $181,739 $695,020 $555,637 ======== ======== ======== ======== Ratio of earnings to fixed charges: Excluding interest on deposits 4.01X 3.83x 4.07X 4.03x Including interest on deposits 1.64X 1.56x 1.66X 1.63x (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.
9 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 652,126 158,722 348,700 0 1,920,127 99,905 97,029 13,565,820 171,386 17,972,581 13,844,023 466,083 736,640 978,628 0 0 127,113 1,819,427 17,972,581 843,538 103,500 16,674 963,712 330,200 407,871 555,841 43,980 (59) 398,499 275,174 160,225 0 0 160,225 1.29 1.28 8.28 69,363 14,001 19,277 0 161,418 43,231 9,219 171,386 168,505 835 169,340