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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ............. to ...............
Commission file number 0-7949
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FIRST HAWAIIAN, INC.
(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.)
1132 BISHOP STREET, HONOLULU, HAWAII 96813
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (808) 525-7000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
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None Not Applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $5.00 Par Value
(Title of class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to
file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 26, 1996 was $525,935,000.
The number of shares outstanding of each of the registrant's classes of
common stock as of February 26, 1996 was:
Title of Class Number of Shares Outstanding
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Common Stock, $5.00 Par Value 31,117,863 Shares
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference in this Form 10-K:
DOCUMENTS FORM 10-K REFERENCE
First Hawaiian, Inc. Annual Report 1995 Parts I and II
First Hawaiian, Inc. Proxy Statement dated
March 1, 1996 for the Annual Meeting
of Stockholders Part III
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INDEX
PART I
PAGE
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 12
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . 15
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . 15
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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PART I
ITEM 1. BUSINESS
FIRST HAWAIIAN, INC. -
First Hawaiian, Inc. (the "Corporation"), a Delaware corporation, is a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended. As a bank holding company, the Corporation is allowed to acquire or
invest in the securities of companies that are engaged in banking or in
activities closely related to banking as authorized by the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board"). The Corporation
is also a registered savings and loan holding company under section 10 of the
Home Owner's Loan Act, as amended. The Corporation, through its subsidiaries,
operates a general commercial banking business and other businesses related to
banking. Its principal assets are its investments in First Hawaiian Bank (the
"Bank"), a State of Hawaii chartered bank; First Hawaiian Creditcorp, Inc.
("Creditcorp") and First Hawaiian Leasing, Inc. ("FHL"), each a financial
services loan company; and Pioneer Federal Savings Bank ("Pioneer"), a
federally chartered savings bank. The Bank, Creditcorp, FHL and Pioneer are
wholly-owned subsidiaries of the Corporation. At December 31, 1995, the
Corporation had consolidated total assets of $7.6 billion, total deposits of
$5.4 billion and total stockholders' equity of $649.5 million.
Based on assets as of June 30, 1995, the Corporation was the 77th largest bank
holding company in the United States as reported in the American Banker.
FIRST HAWAIIAN BANK -
The Bank, the oldest financial institution in Hawaii, was established as Bishop
& Co. in 1858 in Honolulu. After several corporate mergers and other changes,
the Bank is now a state chartered bank. The Bank is not a member of the
Federal Reserve System. The deposits of the Bank are insured by the Bank
Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation (the
"FDIC") to the extent and subject to the limitations set forth in the Federal
Deposit Insurance Act, as amended.
The Bank is a full-service bank conducting a general commercial and consumer
banking business and offering trust services. Its banking activities include
receiving demand, savings and time deposits for personal and commercial
accounts; making commercial, agricultural, real estate and consumer loans;
acting as a United States tax depository facility; providing money transfer and
cash management services; selling traveler's checks, personal money orders,
mutual funds and annuities; issuing letters of credit; handling domestic and
foreign collections; providing safe deposit and night depository facilities;
lease financing; and investing in U.S. Treasury securities and securities of
other U.S. government agencies and corporations and state and municipal
securities.
As of December 31, 1995, the Bank had total deposits of $4.5 billion and total
assets of $6.2 billion, making it the second largest bank in Hawaii.
DOMESTIC SERVICES -
The domestic operations of the Bank are carried out through its main banking
office located in Honolulu, Hawaii and other banking offices located
throughout the State of Hawaii. During 1995, the Bank had 60 other banking
offices in Hawaii. On March 15, 1996, the Bank closed three of these branch
offices after transferring a substantial portion of the branches' loans and
deposits to Finance Factors, Limited. The sale completed a commitment to the
Federal Reserve Board and the United States Department of Justice to divest the
branches. The agreement was reflected in a final judgment entered by
stipulation with the United States Department of Justice in 1991 to resolve an
antitrust lawsuit arising out of the Corporation's acquisition of First
Interstate of Hawaii, Inc. All but one of the banking offices are equipped with
automatic teller machines which provide 24-hour service to customers wishing to
make withdrawals from and deposits to their personal checking accounts, to
transfer funds between checking and savings accounts, to make balance inquiries,
to obtain interim bank statements, and to make utility and loan payments.
Twenty-nine nonbranch locations provide balance inquiry and withdrawal
transaction services only. The Bank is a member of the CIRRUS(R)/MasterCard(R),
Plus(R)/VISA(R) and Star System(R) automatic teller machine networks, providing
its customers with access to their funds nationwide and in selected foreign
countries.
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LENDING ACTIVITIES -
The Bank engages in a broad range of lending activities, including making real
estate, commercial and consumer loans and leases. At December 31, 1995, the
Bank's loans totalled $4.2 billion, representing 67.0% of total assets. At
that date, 51.6% of the loans were construction, commercial and residential
real estate loans, 25.3% were commercial loans, 12.9% were consumer loans, 6.9%
were foreign loans and 3.3% were leases.
REAL ESTATE LENDING--CONSTRUCTION. The Bank provides construction financing
for a variety of commercial and residential single-family subdivision and
multi-family developments. At December 31, 1995, approximately 11.2% of the
Bank's total real estate loans were collateralized by properties under
construction.
REAL ESTATE LENDING--COMMERCIAL. In the commercial real estate area, the Bank
provides permanent financing for a variety of commercial developments, such as
various retail facilities, warehouses, and office buildings. At December 31,
1995, approximately 36.4% of the Bank's total real estate loans were
collateralized by commercial properties.
REAL ESTATE LENDING--RESIDENTIAL. The Bank makes residential real estate
loans, including home equity loans, to enable borrowers to purchase, refinance
or improve residential real property. The loans are collateralized by mortgage
liens on the related property, substantially all of which is located in Hawaii.
At December 31, 1995, approximately 52.4% of the Bank's total real estate loans
were collateralized by single-family and multi-family residences.
COMMERCIAL LENDING. The Bank is a major lender to primarily small- and
medium-sized businesses (including local subsidiaries and operations of foreign
companies) in Hawaii and Hawaii companies doing business overseas with
particular emphasis on those companies in the Asia-Pacific region.
CONSUMER LENDING. The Bank offers many types of loans and credits to
consumers. The Bank provides lines of credit, uncollateralized or
collateralized, and provides various types of personal and automobile loans.
The Bank also provides indirect consumer automobile financing on new and used
autos by purchasing finance contracts from dealers. The Bank's Dealer Center
is the largest commercial bank automobile lender in the State of Hawaii. The
Bank is the largest issuer of MasterCard(R) credit cards and the second largest
issuer of VISA(R) credit cards in Hawaii.
INTERNATIONAL BANKING SERVICES -
The Bank maintains an International Banking Division which provides
international banking products and services through the Bank's branch system,
international banking headquarters in Honolulu, a Grand Cayman branch, two Guam
branches and a representative office in Tokyo, Japan. The Bank maintains a
network of correspondent banking relationships throughout the world.
The Bank's international banking activities are primarily trade-related and are
concentrated in the Asia-Pacific area. The Bank has no loans to lesser
developed countries.
TRUST SERVICES -
The Bank's Trust and Investments Division (formerly known as the Asset
Management Division) offers a full range of trust and investment management
services. The Division provides asset management, advisory and administrative
services for estates, trusts and individuals. It also acts as trustee and
custodian of retirement and other employee benefit plans. As of December 31,
1995, the Trust and Investments Division had 5,451 accounts with a market value
of $7.2 billion. Of this total, $5.2 billion represented assets in nonmanaged
accounts and $2.0 billion were managed assets.
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The Trust and Investments Division maintains custodial accounts under which it
acts as agent for customers in rendering a variety of services, including
dividend and interest collection, collection under installment obligations, and
rent collection.
The Trust and Investments Division also acts as corporate trustee or co-trustee
for bond issues totaling $2.0 billion in principal amount. However, the
Division is in the process of transferring substantially all of these trustee
accounts to Bank of New York. The transfer, subject to approval or consent of
the issuers in some cases, is expected to be completed in 1996.
FIRST HAWAIIAN CREDITCORP, INC. -
Creditcorp is a financial services loan company with 12 branch offices located
throughout the four major islands of the State of Hawaii, a commercial loan
production office in Honolulu and a loan production office in Guam.
The lending activities of Creditcorp are concentrated in both consumer and
commercial financing which are primarily collateralized by real estate.
Creditcorp's primary source of funds is time and savings deposits from the
general public. The deposits are insured by the FDIC to the extent and subject
to the limitations set forth in the Federal Deposit Insurance Act, as amended.
Creditcorp also utilizes borrowings as an additional source of funding for its
loan portfolio and is a member of the Federal Home Loan Bank of Seattle (the
"FHLB of Seattle") which provides a central credit facility for member
institutions. As of December 31, 1995, Creditcorp was required, in accordance
with the rules and regulations of the FHLB of Seattle, to maintain a minimum
level of capital stock ownership of $2.7 million in this regional facility. As
of December 31, 1995, Creditcorp's investment in the capital stock of the FHLB
of Seattle totalled $7.3 million and advances from the FHLB of Seattle
aggregated $34.5 million.
At December 31, 1995, Creditcorp had total deposits of $353.9 million, total
loans and leases of $413.7 million and total assets of $441.1 million.
FIRST HAWAIIAN LEASING, INC. -
FHL, a financial services loan company, primarily finances and leases personal
property including equipment and vehicles, and acts as an agent, broker or
advisor in the leasing or financing of such property for affiliates as well as
third parties. Through a special purpose subsidiary, FHL finances and leases
selected real property.
As of December 31, 1995, FHL's net investment in leases amounted to $104.4
million and total assets were $130.9 million. FHL's primary source of funds is
borrowings from the Corporation and the Bank.
PIONEER FEDERAL SAVINGS BANK -
On August 6, 1993, the Corporation acquired for cash all of the outstanding
stock of Pioneer Fed BanCorp, Inc. ("Pioneer Holdings") at a purchase price of
$87 million through the merger of Pioneer Holdings with and into the
Corporation (the "Merger"). As a result of the Merger, Pioneer became a
wholly-owned subsidiary of the Corporation (see "Note 1. Acquisitions -
Pioneer Federal Savings Bank" (page 45) in the Financial Review section of the
Corporation's Annual Report 1995, which is incorporated herein by reference
thereto).
Pioneer is a federally chartered savings bank operating in the State of Hawaii.
Pioneer, the oldest savings bank in Hawaii, was chartered in 1890 by King David
Kalakaua. Presently, Pioneer maintains 19 branch offices located on the four
major islands of the State of Hawaii. At December 31, 1995, Pioneer had total
assets of $800.4 million. Based on total assets at December 31, 1995, Pioneer
was the fourth largest of six Savings Association Insurance Fund ("SAIF") -
insured institutions operating in the State of Hawaii.
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Pioneer is primarily engaged in attracting deposits from the general public
through a variety of deposit products. Together with borrowings, principally
from the FHLB of Seattle, and funds from ongoing operations, these resources
are invested in the origination of conventional adjustable and fixed rate, 1-4
family residential mortgage loans. Pioneer is also engaged in other types of
mortgage lending, including home equity loans, loans on smaller multi-family
projects and, to a lesser extent, in other consumer lending activities.
Mortgage lending activity, both origination and purchases, has been limited to
loans collateralized by property in the State of Hawaii. As of December 31,
1995, Pioneer was required, in accordance with the rules and regulations of the
FHLB of Seattle, to maintain a minimum level of capital stock ownership of $8.1
million in this regional facility. As of December 31, 1995, Pioneer's
investment in the capital stock of the FHLB of Seattle totalled $28.8 million
and advances from the FHLB of Seattle aggregated $166.0 million.
At December 31, 1995, Pioneer had total deposits of $462.5 million, total loans
of $565.0 million and total assets of $800.4 million.
HAWAII COMMUNITY REINVESTMENT CORPORATION -
In an effort to support affordable housing and as part of the Bank's,
Creditcorp's and Pioneer's community reinvestment program, the Bank, Creditcorp
and Pioneer are members of the Hawaii Community Reinvestment Corporation (the
"HCRC"). The HCRC is a consortium of local financial institutions and provides
$50 million in permanent long-term financing for affordable housing rental
projects throughout Hawaii for low and moderate income residents.
The $50 million loan pool is funded by the member financial institutions which
participate pro rata (based on deposit size) in each HCRC loan. The Bank's,
Creditcorp's and Pioneer's participations in these HCRC loans are included in
each of these companies' loan portfolio.
HAWAII INVESTORS FOR AFFORDABLE HOUSING INC. -
To further enhance the Bank's, Creditcorp's and Pioneer's community
reinvestment program and provide support for the development of additional
affordable housing rental units in Hawaii, the Bank, Creditcorp, and Pioneer,
together with eight other HCRC member institutions, have subscribed to a $19.7
million tax credit equity fund.
The $19.7 million Hawaii Affordable Housing Fund I (the "Fund") has been
established to invest in qualified low income housing tax credit rental
projects and insure that these projects are maintained as low income housing
throughout the required compliance period. The Bank's, Creditcorp's and
Pioneer's investments in this Fund will be included in each of the companies'
investment portfolio.
EMPLOYEES -
As of December 31, 1995, the Corporation had 2,990 full-time equivalent
employees. The Bank employed 2,662 persons and nonbank subsidiaries employed
328 persons. None are represented by any collective bargaining agreements and
relations with employees are considered excellent.
MONETARY POLICY AND ECONOMIC CONDITIONS -
The earnings and growth of the Corporation are affected not only by general
economic conditions, but also by the monetary policies of various governmental
regulatory authorities, particularly the Federal Reserve Board. The
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Federal Reserve Board implements national monetary policy by its open market
operations in United States Government securities, control of the discount
rate, and establishment of reserve requirements against both member and
nonmember financial institutions' deposits. These actions have a significant
effect on the overall growth and distribution of loans, investments and
deposits as well as the rates earned on loans, or paid on deposits.
It is not possible to predict the effect of future changes in monetary policies
upon the operating results of the Corporation.
COMPETITION -
Competition in the financial services industry in Hawaii is intense.
Hawaii-based commercial banks, savings institutions, financial services loan
companies and credit unions compete against one another. Based upon the latest
available figures, total deposits of all financial institutions in Hawaii as of
September 30, 1995 amounted to approximately $22 billion. The two largest bank
holding companies, Bancorp Hawaii, Inc. and the Corporation, accounted for 27%
and 19% of total deposits (including domestic, foreign and public deposits),
respectively. The next largest competitors were American Savings Bank, F.S.B.
and Bank of America, F.S.B., with 10% and 7%, respectively, of total deposits.
In addition, out-of-state mutual funds, insurance companies, brokerage firms
and other financial services providers also compete for consumer and commercial
business in Hawaii.
Foreign (non-Hawaii) banks and other financial institutions are able to make
loans in Hawaii through Edge Act subsidiaries, finance and mortgage company
subsidiaries and by loan participations with local banks. United States
domestic banks and other financial institutions may make loans directly in
Hawaii by qualifying as "foreign lenders" in Hawaii. Foreign banks currently
conduct various banking activities in Hawaii, except for retail deposit-taking.
Banks and bank holding companies organized under the laws of Pacific Ocean
jurisdictions with United States dollar-based economies may acquire Hawaii
banks or establish branches in Hawaii, although none have done so to date.
Banks and similar financial institutions of countries other than the United
States may and do have representative offices or agencies in Hawaii. Under the
rules of the Office of Thrift Supervision (the "OTS"), federally-chartered
savings associations may open branches in, or merge with another savings
association located in, any state (including Hawaii), subject to certain
conditions.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, among
other things, eliminated substantially all state law barriers to the
acquisition of banks by out-of-state bank holding companies, effective
September 29, 1995. The law will also permit interstate branching by banks
effective as of June 1, 1997, subject to the ability of states to opt-out
completely or to set an earlier effective date. The Hawaii State Legislature
has not taken any action on the opt-out or early opt-in elections. The effect
of the new law may be to increase competition within the markets in which the
Corporation now operates, although the Corporation cannot predict whether and
to what extent competition will increase in these markets.
SUPERVISION AND REGULATION -
As a bank holding company, the Corporation is subject to supervision and
examination by the Federal Reserve Board under the Bank Holding Company Act of
1956, as amended. The Corporation is also regulated and supervised by the OTS
as a savings and loan holding company by virtue of its ownership of Pioneer.
The various subsidiaries of the Corporation are subject to regulation and
supervision by the state banking authorities of Hawaii, the Federal Reserve
Board, the FDIC, the OTS and various other regulatory agencies.
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HOLDING COMPANY STRUCTURE. In general, the Bank Holding Company Act of 1956,
as amended, limits the business of bank holding companies to owning or
controlling banks and engaging in such other activities as the Federal Reserve
Board may determine to be so closely related to banking as to be a proper
incident thereto. The Corporation must obtain the prior approval of the
Federal Reserve Board before acquiring direct or indirect ownership or control
of any voting shares of any bank if after such acquisition it would own or
control, directly or indirectly, more than 5% of the voting shares of such
bank; before merging or consolidating with another bank holding company; and
before acquiring substantially all of the assets of any additional bank. With
certain exceptions, the Bank Holding Company Act of 1956, as amended, prohibits
bank holding companies from acquiring direct or indirect ownership or control
of more than 5% of any class of voting shares in any company which is not a
bank or a bank holding company, unless the Federal Reserve Board determines
that the activities of such company are so closely related to banking as to be
a proper incident thereto. In making such determinations, the Federal Reserve
Board considers, among other things, whether the performance of such activities
by a bank holding company would offer benefits to the public that outweigh
possible adverse effects. In addition, all acquisitions are reviewed by the
Department of Justice for antitrust considerations.
As a holding company, the principal source of the Corporation's cash revenue
has been dividends and interest received from the Bank and other subsidiaries
of the Corporation. Under Hawaii law, the Bank is prohibited from declaring or
paying any dividends in excess of its retained earnings. Pioneer and
Creditcorp are also subject to regulatory limitations on the amount of
dividends they may declare and pay. At December 31, 1995, the aggregate amount
of dividends that such subsidiaries could pay to the Corporation under the
foregoing limitations without prior regulatory approval was $316.0 million.
There are also statutory limits on the transfer of funds to the Corporation and
certain of its nonbanking subsidiaries by the Bank, Pioneer or Creditcorp,
whether in the form of loans or other extensions of credit, investments or
asset purchases. Such transfers by the Bank to the Corporation or any such
nonbanking subsidiary are limited in amount to 10% of the Bank's capital and
surplus, or 20% in the aggregate. Pioneer and Creditcorp are subject to
comparable limitations. Furthermore, such loans and extensions of credit are
required to be collateralized in specified amounts.
If, in the opinion of the applicable regulatory authority, a bank under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the bank, could
include the payment of dividends), such authority may require, after notice and
hearing, that such bank cease and desist from such practice. The Federal
Reserve Board and the FDIC have issued policy statements which provide that, as
a general matter, insured banks and bank holding companies should only pay
dividends out of current operating earnings. In addition, the regulatory
capital requirements of the Federal Reserve Board, the FDIC and the OTS may
limit the ability of the Corporation and its insured depository subsidiaries to
pay dividends. See "Federal Deposit Insurance Corporation Improvement Act of
1991" and "Capital Requirements," below.
Under Federal Reserve Board policy, a bank holding company is expected to act
as a source of financial strength to each subsidiary bank and to make capital
infusions into a troubled subsidiary bank, and the Federal Reserve Board may
charge the bank holding company with engaging in unsafe and unsound practices
for failure to commit resources to a subsidiary bank. This capital infusion
may be required at times when the Corporation may not have the resources to
provide it. Any capital loans by the Corporation to its subsidiary bank would
be subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In connection with its application to
the Federal Reserve Board for authority to acquire Pioneer, the Corporation
committed that Pioneer will meet all present and future minimum capital ratios
adopted for savings associations by the OTS or the FDIC. In the event of the
bankruptcy of the Corporation, this commitment would be assumed by the
bankruptcy trustee and be entitled to a priority of payment.
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In addition, depository institutions insured by the FDIC can be held liable for
any losses incurred by, or reasonably expected to be incurred by, the FDIC
after August 9, 1989 in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC-insured depository institution in
danger of default. "Default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a "default" is likely to occur
in the absence of regulatory assistance. Accordingly, in the event that any
insured subsidiary of the Corporation causes a loss to the FDIC, other insured
subsidiaries of the Corporation could be required to compensate the FDIC by
reimbursing it for the amount of such loss. Any such obligation by the
Corporation's insured subsidiaries to reimburse the FDIC would rank senior to
their obligations, if any, to the Corporation.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. A central
feature of the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") is the requirement that the federal banking agencies take "prompt
corrective action" with respect to insured depository institutions that do not
meet minimum capital requirements. FDICIA established five capital levels
applicable to such institutions (including the Bank, Pioneer and Creditcorp):
"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." Under the
regulations adopted by the federal banking agencies to implement these
provisions of FDICIA, a depository institution is "well capitalized" if it has
(i) a total risk-based capital ratio of 10% or greater, (ii) a Tier 1
risk-based capital ratio of 6% or greater, (iii) a leverage ratio of 5% or
greater and (iv) is not subject to any written agreement, order or directive to
meet and maintain a specific capital level for any capital measure. An
"adequately capitalized" institution is defined as one that has (i) a total
risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based capital
ratio of 4% or greater and (iii) a leverage ratio of 4% or greater (or 3% or
greater in the case of a bank with a composite CAMEL rating of 1). A
depository institution is considered (i) "undercapitalized" if it has (A) a
total risk-based capital ratio of less than 8%, (B) a Tier 1 risk-based capital
ratio of less than 4% or (C) a leverage ratio of less than 4% (or 3% in the
case of an institution with a CAMEL rating of 1), (ii) "significantly
undercapitalized" if it has (A) a total risk-based capital ratio of less than
6%, (B) a Tier 1 risk-based capital ratio of less than 3% or (C) a leverage
ratio of less than 3% and (iii) "critically undercapitalized" if it has a ratio
of tangible equity to total assets equal to or less than 2%. An institution
may be deemed by the regulators to be in a capitalization category that is
lower than is indicated by its actual capital position if, among other things,
it receives an unsatisfactory examination rating. At December 31, 1995, all of
the Corporation's subsidiary depository institutions were "well capitalized".
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a cash dividend) or paying any management
fees to its holding company if the depository institution is, or would
thereafter be, undercapitalized. Undercapitalized depository institutions are
subject to growth limitations and are required to submit a capital restoration
plan. The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic
assumptions and is likely to succeed in restoring the depository institution's
capital. In addition, for a capital restoration plan to be acceptable, the
depository institution's parent holding company must guarantee that the
institution will comply with such capital restoration plan. The aggregate
liability of the parent holding company under such guarantee is limited to the
lesser of (i) an amount equal to 5% of the depository institution's total
assets at the time it became undercapitalized, or (ii) the amount which is
necessary (or would have been necessary) to bring the institution into
compliance with all capital standards applicable to such institution as of the
time it fails to comply with the plan. If a depository institution fails to
submit an acceptable plan, it is treated as if it is significantly
undercapitalized.
7
10
Significantly undercapitalized depository institutions may be subject to a
number of other requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to
reduce total assets and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized institutions are subject to the appointment
of a receiver or conservator, generally within 90 days of the date such
institution becomes critically undercapitalized. In addition, the FDIC has
adopted regulations under FDICIA prohibiting an insured depository institution
from accepting brokered deposits (as defined by the regulations) unless the
institution is "well capitalized" or is "adequately capitalized" and receives a
waiver from the FDIC.
The FDIC has implemented a risk-based deposit insurance assessment system under
which the assessment rate for an insured institution may vary according to the
regulatory capital levels of the institution and other factors (including
supervisory evaluations). Effective January 1, 1996, depository institutions
insured by the BIF which are ranked in the top risk classification category are
required to pay only the statutory minimum assessment of $2,000 annually for
deposit insurance while all other banks are required to pay premiums ranging
from .03% to .30% of domestic deposits. Depository institutions insured by the
SAIF will continue to be assessed at rates ranging from .23% to .31% of
domestic deposits, depending upon their risk classification. These rate
schedules are subject to future adjustments by the FDIC. In addition, the FDIC
has authority to impose special assessments from time to time.
Because of the disparity between assessment rates for BIF and SAIF insured
institutions, and because the SAIF has been unable to attain its statutorily
mandated reserve ratio of 1.25% of insured deposits, Congress has considered
proposals to require all SAIF member institutions to pay a one-time special
assessment (currently estimated to be approximately 80 - 85 basis points of
insured deposits) which would be sufficient to bring the reserve ratio of the
SAIF to the statutorily mandated level. Legislation providing for a
recapitalization of the SAIF by means of such a special assessment was passed
by Congress in late 1995, but vetoed by the President for reasons unrelated to
the SAIF recapitalization. The Corporation cannot predict at this time whether
or when legislation will be adopted to recapitalize the SAIF or what the terms
of such legislation will be.
CAPITAL REQUIREMENTS. The Corporation and certain of its subsidiaries are
subject to regulatory capital guidelines issued by the federal banking
agencies. Information with respect to the applicable capital requirements is
included in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" (page 35) in the Financial Review section of the
Corporation's Annual Report 1995, and is incorporated herein by reference
thereto.
FDICIA required each federal banking agency to revise its risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risk of nontraditional activities,
as well as reflect the actual performance and expected risk of loss on
multi-family mortgages. On December 15, 1994, the federal banking agencies
adopted amendments to their respective risk-based capital requirements that
explicitly identify concentration of credit risk and certain risks arising from
nontraditional activities, and the management of such risks, as important
factors to consider in assessing an institution's overall capital adequacy.
The amendments do not, however, mandate any specific adjustments to the
risk-based capital calculations as a result of such factors. On August 2,
1995, the federal banking agencies published amendments to their risk-based
capital rules that, effective September 1, 1995, include interest rate risk as
a qualitative factor to be considered in assessing capital adequacy.
Concurrent with the publication of the amendments, the federal banking agencies
proposed a system for measuring interest rate risk and announced their
intention, after a trial period to evaluate the reliability and accuracy of the
proposed system, to initiate a rulemaking process for the purpose of amending
the risk-based capital rules to include an explicit capital charge for interest
rate risk that will be based upon the level of a bank's measured interest rate
risk exposure.
8
11
On July 14, 1995, the federal banking regulators issued a proposal to amend
their risk-based capital rules to incorporate a measure for market risk in
foreign exchange and commodity activities and in the trading of debt and equity
instruments. Under the proposal, banks with relatively large trading
activities would calculate their capital charges for market risk using their
own internal value-at-risk models (subject to parameters set by the
regulators) or, alternatively, risk management techniques developed by the
regulators. The effect of the proposed rules would be that, in addition to
existing capital requirements for credit risk, certain institutions would be
required to hold capital based on the measure of their market risk exposure.
These institutions would be able to satisfy this additional requirement, in
part, by issuing short-term subordinated debt that qualifies as Tier 3 capital.
The proposed rule would go into effect at the end of 1997.
9
12
STATISTICAL DISCLOSURES -
Guide 3 of the "Guides for the Preparation and Filing of Reports and
Registration Statements" under the Securities Act of 1933 sets forth certain
statistical disclosures to be included in the "Description of Business" section
of bank holding company filings with the Securities and Exchange Commission.
Except for the Schedule of Investment Securities by Book Value on the following
page, the balance of the statistical information required is presented in the
tables shown below in the Corporation's Annual Report 1995, which tables are
incorporated herein by reference thereto. The tables and information contained
therein have been prepared by the Corporation and have not been audited or
reported upon by the Corporation's independent accountants.
Information in response to the following applicable sections of Guide 3 is
included in the Financial Review section of the Corporation's Annual Report
1995, and is incorporated herein by reference thereto:
PAGE NUMBERS IN
-------------------
FIRST HAWAIIAN, INC.
ANNUAL REPORT 1995
DISCLOSURE REQUIREMENTS (EXHIBIT 13)
----------------------- --------------------
I. Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential -
A. Average balance sheets 23 - 24
B. Analysis of net interest earnings 23 - 24
C. Dollar amount of change in interest income and interest expense 25
II. Investment Portfolio -
B. Investment securities by maturities and weighted average yields 37
C. Investment securities in excess of 10% of stockholders' equity 46
III. Loan and Lease Portfolio -
A. Types of loans and leases 30
B. Maturities and sensitivities of loans to changes in interest rates 31, 34
C. Risk elements
1. Nonaccrual, past due and restructured loans and leases 31 - 32, 43
2. Foreign outstandings 53
3. Loan concentrations 30 - 31
IV. Summary of Loan and Lease Loss Experience -
A. Analysis of loss experience 26 - 27, 44
B. Breakdown of the allowance for loan and lease losses 28
V. Deposits -
A. Average amount and average rate paid on deposits 32
D. Maturity distribution of domestic time certificates of deposits
of $100,000 or more 32
E. Time certificates of deposit in denominations of $100,000 or more
issued by foreign offices 48
VI. Return on Equity and Assets 20
VII. Short-Term Borrowings 48
10
13
II. INVESTMENT SECURITIES PORTFOLIO
Table I presents Item II.A of Guide 3, the book value of investment securities,
by the following major categories at year-end for the years indicated.
FIRST HAWAIIAN, INC. AND SUBSIDIARIES
TABLE I
SCHEDULE OF INVESTMENT SECURITIES BY BOOK VALUE
DECEMBER 31,
----------------------------------------------
1995 1994 1993
------ ------ ------
(in millions)
U.S. Treasury and other U.S. Government
agencies and corporations $ 859 $ 844 $ 918
States and political subdivisions 55 166 204
Other 261 138 108
------ ------ ------
Total $1,175 $1,148 $1,230
====== ====== ======
11
14
ITEM 2. PROPERTIES
A subsidiary of the Bank is the sole general partner in a Hawaii limited
partnership which owns all of a city block in downtown Honolulu containing
55,775 square feet. The Bank's interest in the limited partnership is 99.25%.
The administrative headquarters of the Corporation and the main branch of the
Bank were formerly located on a portion of the city block. The buildings were
demolished and the Bank has begun construction of a modern banking center on
this city block. The new headquarters building will include 418,000 square
feet of gross office space, including the Bank's main branch and administrative
headquarters of the Corporation and the Bank. The new building is anticipated
to be completed in 1996. Information about the lease financing of the new
headquarters building is included in "Note 15. Lease Commitments" (page 53) in
the Financial Review section of the Corporation's Annual Report 1995, which is
incorporated herein by reference thereto. Commencing in March 1993, the Bank
leased approximately 119,000 square feet in another office building for use as
an interim administrative headquarters and main branch until completion of the
new structure. The interim office building is approximately a block and a half
from the old administrative headquarters and main branch.
Seventeen of the Bank's offices in Hawaii are located on land owned in fee
simple by the Bank. The other branches of the Bank, Pioneer and Creditcorp are
situated in leasehold premises or in buildings constructed by the Bank or
Creditcorp on leased land (see "Note 15. Lease Commitments" (pages 53 through
54) in the Financial Review section of the Corporation's Annual Report 1995,
which is incorporated herein by reference thereto). In early 1993, the Bank
completed construction of an operations center located on 125,919 square feet
of land owned in fee simple by the Bank in an industrial area near downtown
Honolulu. The Bank occupies all of the four-story building.
The Bank completed construction of a new five-story, 75,000 square foot office
building, including a branch, on property owned in fee simple in Maite, Guam to
replace its Agana, Guam Branch in late 1994.
ITEM 3. LEGAL PROCEEDINGS
Various legal proceedings are pending against the Corporation or its
subsidiaries. In the opinion of management, based upon advice of counsel, the
aggregate liability, if any, resulting from these proceedings would not have a
material effect on the Corporation's consolidated financial position or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1995.
12
15
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the executive officers of the Corporation with their
positions, age and business experience during the past five years:
BUSINESS EXPERIENCE DURING LAST 5 YEARS
(ALL WITH THE CORPORATION AND THE BANK
OFFICER AGE EXCEPT AS OTHERWISE INDICATED)
---------------------------------- --- ---------------------------------------------------------------
Walter A. Dods, Jr. 54 Chairman of the Board and Chief Executive Officer of the
Chairman, Chief Executive Corporation since 1989; President of the Corporation from 1989
Officer and Director -1991; Executive Vice President of the Corporation from 1982 -
1989; Director of the Corporation since 1983; Chairman of the
Board and Chief Executive Officer of the Bank since 1989;
President of the Bank from 1984 - 1989; Director of the Bank
since 1979. Mr. Dods has been with the Bank since 1968.
John K. Tsui 57 President and Director of the Corporation since April and July
President and Director 1995, respectively; Director, President and Chief Operating
Officer of the Bank since July 1994; Director, Chairman and
Chief Executive Officer of FHL since December 1994. Mr. Tsui
was Executive Vice President of Bancorp Hawaii, Inc. from 1986
- June 1994 and was Vice Chairman of Bank of Hawaii from 1989
- June 1994. Mr. Tsui was with Bancorp Hawaii, Inc. from 1984
- June 1994.
Donald G. Horner 45 Executive Vice President of the Corporation since 1989; Vice
Executive Vice President President of the Corporation from 1987 - 1989; Vice Chairman
of the Bank since July 1994; Executive Vice President of the
Bank from 1993 - 1994; Chairman of Creditcorp since 1993;
Chairman and Chief Executive Officer of Creditcorp from 1992 -
1993; Director of Creditcorp since 1985; President of
Creditcorp from 1985 - 1992; Director of FHL since 1983;
President of FHL from 1985 - 1994. Mr. Horner has been with
the Bank since 1978.
Howard H. Karr 53 Executive Vice President and Treasurer of the Corporation
Executive Vice President and since 1990; Vice President and Treasurer of the Corporation
Treasurer from 1978 - 1990; Vice Chairman, Chief Financial Officer and
Treasurer of the Bank since September 1993; Vice Chairman and
Chief Financial Officer of the Bank from 1992 - 1993;
Executive Vice President and Chief Financial Officer of the
Bank from 1989 - 1991; Senior Vice President and Controller of
the Bank from 1979 - 1989. Mr. Karr has been with the Bank
since 1973.
There are no family relationships among any of the executive officers of the
Corporation. There is no arrangement or understanding between any such
executive officer and another person pursuant to which he was elected as an
officer. The term of office of each officer is at the pleasure of the Board of
Directors of the Corporation.
13
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Required information is included in "Common Stock Information" (page 19) in the
Financial Review section of the Corporation's Annual Report 1995, and is
incorporated herein by reference thereto.
ITEM 6. SELECTED FINANCIAL DATA
Required information is included in "Summary of Selected Consolidated Financial
Data" (page 20) in the Financial Review section of the Corporation's Annual
Report 1995, and is incorporated herein by reference thereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Required information is included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" (pages 21 through 35) in the
Financial Review section of the Corporation's Annual Report 1995, and is
incorporated herein by reference thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information is included in the Financial Review section of the
Corporation's Annual Report 1995, which is incorporated herein by reference
thereto as follows:
PAGE NUMBER
-----------
Report of Independent Accountants 38
First Hawaiian, Inc. and Subsidiaries:
Consolidated Balance Sheets at December 31, 1995 and 1994 39
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993 40
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993 41
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 42
First Hawaiian, Inc. (Parent Company):
Balance Sheets at December 31, 1995 and 1994 56
Statements of Income for the years ended December 31, 1995,
1994 and 1993 56
Statements of Changes in Stockholders' Equity for the
years ended December 31, 1995, 1994 and 1993 41
Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993 57
Notes to Financial Statements 43 - 57
Summary of Quarterly Financial Data (Unaudited) 36
Supplementary Data 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Required information relating to directors is included in "Election of
Directors" and "Directors Continuing in Office and Executive Officers" (pages 3
through 8) of the Corporation's Proxy Statement, and is incorporated herein by
reference thereto. Required information relating to executive officers is
included in Part I of this Form 10-K in the section entitled "Executive
Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Required information is included in "Compensation of Directors" and "Executive
Compensation" (pages 8 through 20) of the Corporation's Proxy Statement, and is
incorporated herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Required information is included in "Outstanding Shares; Voting Rights,"
"Election of Directors" and "Directors Continuing in Office and Executive
Officers" (pages 2 through 8) of the Corporation's Proxy Statement, and is
incorporated herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Required information is included in "Certain Transactions" (pages 20 and 21) of
the Corporation's Proxy Statement, and is incorporated herein by reference
thereto.
15
18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE NUMBER IN
---------------
FIRST HAWAIIAN,
INC. ANNUAL
REPORT 1995
(EXHIBIT 13)
---------------
(a) 1. Financial Statements
The following financial statements are incorporated by reference in Part II
(Item 8) of this Form 10-K:
Report of Independent Accountants 38
First Hawaiian, Inc. and Subsidiaries:
Consolidated Balance Sheets at December 31, 1995 and 1994 39
Consolidated Statements of Income for the
years ended December 31, 1995, 1994 and 1993 40
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993 41
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 42
First Hawaiian, Inc. (Parent Company):
Balance Sheets at December 31, 1995 and 1994 56
Statements of Income for the years ended
December 31, 1995, 1994 and 1993 56
Statements of Changes in Stockholders' Equity for the
years ended December 31, 1995, 1994 and 1993 41
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 57
Notes to Financial Statements 43 - 57
2. Financial Statement Schedules
Schedules to the consolidated financial statements required by Article 9 of Regulation S-X are not required under the
related instructions, or the information is included in the consolidated financial statements, or are inapplicable, and
therefore have been omitted.
3. Exhibits
Exhibit 3 (i) Certificate of Incorporation - Incorporated by reference to Exhibit 3 to the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1990 as filed with the
Securities and Exchange Commission.
(ii) Bylaws - Incorporated by reference to Exhibit 3 to the Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987 as filed with the Securities and Exchange
Commission.
16
19
Exhibit 4 Instruments defining rights of security holders, including indentures.
(i) Equity - Incorporated by reference to Exhibit 3(i) hereto.
(ii) Debt - Indenture, dated as of August 9, 1993 between First Hawaiian, Inc. and The First National
Bank of Chicago, Trustee is incorporated by reference to Exhibit 4(ii) to the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993 as filed with the
Securities and Exchange Commission.
Exhibit 10 Material contracts
(i) Lease dated September 13, 1967, as amended April 21, 1987, between the Trustees under the Will
and of the Estate of Samuel M. Damon, Deceased, and First National Bank of Hawaii (predecessor
of the Bank) is incorporated by reference to Exhibit 10 to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1987 as filed with the Securities and Exchange
Commission.
(ii) Lease dated May 20, 1982, as amended April 23, 1987, between the Trustees under the Will and of
the Estate of Samuel M. Damon, Deceased, and First Hawaiian Bank is incorporated by reference to
Exhibit 10 to the Corporation's Annual Report on Forms 10-K for the fiscal years ended December
31, 1987, 1985 and 1980 as filed with the Securities and Exchange Commission.
(iii) Lease Agreement dated as of December 1, 1993 between REFIRST, Inc. and First Hawaiian Bank is
incorporated by reference to Exhibit 10(iii) to the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 as filed with the Securities and Exchange Commission.
(iv) Construction Management, Escrow and Development Agreement dated as of December 1, 1993 among
REFIRST, Inc., First Hawaiian Bank and First Fidelity Bank, N.A., Pennsylvania is incorporated
by reference to Exhibit 10(iv) to the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 as filed with the Securities and Exchange Commission.
(v) Ground Lease dated as of December 1, 1993 among First Hawaiian Center Limited Partnership, FH
Center, Inc. and REFIRST, Inc. is incorporated by reference to Exhibit 10(v) to the
Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 as filed
with the Securities and Exchange Commission.
17
20
(vi) Stock Incentive Plan of First Hawaiian, Inc. dated November 22, 1991 is incorporated by
reference to Exhibit 10 to the Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 as filed with the Securities and Exchange Commission.
(vii) Long-Term Incentive Plan of First Hawaiian, Inc. effective January 1, 1992 is incorporated by
reference to Exhibit 10 to the Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 as filed with the Securities and Exchange Commission.
(viii) First Hawaiian, Inc. Supplemental Executive Retirement Plan, as amended and restated as of
January 1, 1996.
(ix) First Hawaiian, Inc. Deferred Compensation Plan, as amended and restated as of January 1, 1996.
(x) First Hawaiian, Inc. Incentive Plan for Key Executives, as amended through December 13, 1989 is
incorporated by reference to Exhibit 10 to the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 as filed with the Securities and Exchange Commission.
(xi) Directors' Retirement Plan, effective as of January 1, 1992 is incorporated by reference to
Exhibit 10 to the Corporation's Annual Report on Form 10-K for the fiscal year ended December
31, 1992 as filed with the Securities and Exchange Commission.
Exhibit 12 Statement re: computation of ratios.
Exhibit 13 Annual report to security holders - Corporation's Annual Report 1995.
Exhibit 21 Subsidiaries of the registrant.
Exhibit 27 Financial data schedule.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the last quarter of the fiscal year ended
December 31, 1995.
(c) The exhibits listed in Item 14(a)3 are incorporated by reference or attached hereto.
(d) Response to this item is the same as Item 14(a)2.
18
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST HAWAIIAN, INC.
(Registrant)
By /s/ HOWARD H. KARR
--------------------------------------
HOWARD H. KARR
EXECUTIVE VICE PRESIDENT AND TREASURER
Date: March 21, 1996
19
22
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ WALTER A. DODS, JR. Chairman, March 21, 1996
- ---------------------------------------------------- Chief Executive Officer -------------------------
Walter A. Dods, Jr. & Director Date
/s/ JOHN W. A. BUYERS Director March 21, 1996
- ---------------------------------------------------- -------------------------
John W. A. Buyers Date
/s/ JOHN C. COUCH Director March 21, 1996
- ---------------------------------------------------- -------------------------
John C. Couch Date
/s/ JULIA ANN FROHLICH Director March 21, 1996
- ---------------------------------------------------- -------------------------
Julia Ann Frohlich Date
/s/ PAUL MULLIN GANLEY Director March 21, 1996
- ---------------------------------------------------- -------------------------
Paul Mullin Ganley Date
/s/ DAVID M. HAIG Director March 21, 1996
- ---------------------------------------------------- -------------------------
David M. Haig Date
/s/ JOHN A. HOAG Director March 21, 1996
- ---------------------------------------------------- -------------------------
John A. Hoag Date
/s/ BERT T. KOBAYASHI, JR. Director March 21, 1996
- ---------------------------------------------------- -------------------------
Bert T. Kobayashi, Jr. Date
/s/ RICHARD T. MAMIYA Director March 21, 1996
- ---------------------------------------------------- -------------------------
Richard T. Mamiya Date
/s/ FUJIO MATSUDA Director March 21, 1996
- ---------------------------------------------------- -------------------------
Fujio Matsuda Date
/s/ RODERICK F. McPHEE Director March 21, 1996
- ---------------------------------------------------- -------------------------
Roderick F. McPhee Date
/s/ GEORGE P. SHEA, JR. Director March 21, 1996
- ---------------------------------------------------- -------------------------
George P. Shea, Jr. Date
/s/ JOHN K. TSUI President March 21, 1996
- ---------------------------------------------------- & Director -------------------------
John K. Tsui Date
/s/ FRED C. WEYAND Director March 21, 1996
- ---------------------------------------------------- -------------------------
Fred C. Weyand Date
/s/ ROBERT C. WO Director March 21, 1996
- ---------------------------------------------------- -------------------------
Robert C. Wo Date
/s/ HOWARD H. KARR Executive Vice President March 21, 1996
- ---------------------------------------------------- & Treasurer -------------------------
Howard H. Karr (Principal financial and Date
accounting officer)
20
23
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3 (i) Certificate of Incorporation - Incorporated by reference to Exhibit
3 to the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 as filed with the Securities and
Exchange Commission.
(ii) Bylaws - Incorporated by reference to Exhibit 3 to the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1987 as filed with the Securities and Exchange
Commission.
4 Instruments defining rights of security holders, including
indentures.
(i) Equity - Incorporated by reference to Exhibit 3(i) hereto.
(ii) Debt - Indenture, dated as of August 9, 1993 between First
Hawaiian, Inc. and The First National Bank of Chicago, Trustee is
incorporated by reference to Exhibit 4(ii) to the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993 as filed with the Securities and Exchange Commission.
10 Material contracts
(i) Lease dated September 13, 1967, as amended April 21, 1987, between
the Trustees under the Will and of the Estate of Samuel M. Damon,
Deceased, and First National Bank of Hawaii (predecessor of the
Bank) is incorporated by reference to Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1987 as filed with the Securities and Exchange
Commission.
(ii) Lease dated May 20, 1982, as amended April 23, 1987, between the
Trustees under the Will and of the Estate of Samuel M. Damon,
Deceased, and First Hawaiian Bank is incorporated by reference to
Exhibit 10 to the Corporation's Annual Report on Forms 10-K for the
fiscal years ended December 31, 1987, 1985 and 1980 as filed with
the Securities and Exchange Commission.
(iii) Lease Agreement dated as of December 1, 1993 between REFIRST, Inc.
and First Hawaiian Bank is incorporated by reference to Exhibit
10(iii) to the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 as filed with the Securities
and Exchange Commission.
21
24
(iv) Construction Management, Escrow and Development Agreement dated as
of December 1, 1993 among REFIRST, Inc., First Hawaiian Bank and
First Fidelity Bank, N.A., Pennsylvania is incorporated by
reference to Exhibit 10(iv) to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 as filed with
the Securities and Exchange Commission.
(v) Ground Lease dated as of December 1, 1993 among First Hawaiian
Center Limited Partnership, FH Center, Inc. and REFIRST, Inc. is
incorporated by reference to Exhibit 10(v) to the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993 as filed with the Securities and Exchange Commission.
(vi) Stock Incentive Plan of First Hawaiian, Inc. dated November 22,
1991 is incorporated by reference to Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991 as filed with the Securities and Exchange
Commission.
(vii) Long-Term Incentive Plan of First Hawaiian, Inc. effective
January 1, 1992 is incorporated by reference to Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991 as filed with the Securities and Exchange
Commission.
(viii) First Hawaiian, Inc. Supplemental Executive Retirement Plan, as
amended and restated as of January 1, 1996.
(ix) First Hawaiian, Inc. Deferred Compensation Plan, as amended and
restated as of January 1, 1996.
(x) First Hawaiian, Inc. Incentive Plan for Key Executives, as amended
through December 13, 1989 is incorporated by reference to Exhibit
10 to the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 as filed with the Securities and
Exchange Commission.
(xi) Directors' Retirement Plan, effective as of January 1, 1992 is
incorporated by reference to Exhibit 10 to the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992 as
filed with the Securities and Exchange Commission.
12 Statement re: computation of ratios.
13 Annual report to security holders - Corporation's Annual Report
1995.
21 Subsidiaries of the registrant.
27 Financial data schedule.
22
1
Exhibit 10(viii)
FIRST HAWAIIAN, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Amended and Restated as of January 1, 1996)
2
TABLE OF CONTENTS
Page
----
PROLOGUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II - PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III - SUPPLEMENTAL ACCOUNTS
Section 3.1 Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2 Time of Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.3 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.4 Valuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.5 Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.6 No Withdrawals Or Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV - SUPPLEMENTAL ACCRUED BENEFIT
Section 4.1 Amount of Supplemental Accrued Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.2 Vesting in Supplemental Accrued Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.3 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.4 Pre-Retirement Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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Page
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Section 4.5 Actuarial Equivalence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.6 No Withdrawals Or Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V - NO CONTRIBUTIONS
Section 5.1 No Contributions By Participating Employers . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.2 Benefits Payable From General Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI - CERTAIN CONTRACTS AND PRIOR EMPLOYERS
Section 6.1 Additional Benefits Under Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.2 First Interstate Bank of Hawaii . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.3 Pioneer Federal Savings Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VII - ADMINISTRATION
Section 7.1 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.2 Indemnification, Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.3 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VIII - AMENDMENT, TERMINATION, MERGER
Section 8.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.2 Termination or Partial Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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Page
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Section 8.3 Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.4 Change In Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IX - MISCELLANEOUS
Section 9.1 Rights of Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.2 Misc. Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
EXHIBIT I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
iii
5
FIRST HAWAIIAN, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PROLOGUE
The First Hawaiian, Inc. Supplemental Executive Retirement Plan is
hereby amended and restated in its entirety effective as of January 1, 1996.
Unless otherwise specifically provided for herein or by law, the
provisions set forth herein shall determine as of January 1, 1996 the rights
and benefits of all participants who terminate employment on or after said
date. Unless otherwise specifically provided herein or by law, the rights and
benefits of participants who terminated employment on or before December 31,
1995 shall be determined in accordance with the provisions of this Plan as in
effect on the date their employment terminated.
1
6
ARTICLE I
DEFINITIONS
As used herein the following terms shall have the following meanings
unless the context clearly requires otherwise.
1.1 "Accrued Benefit" means an annual retirement allowance
commencing on the Participant's Normal Retirement Date (as defined in the
Retirement Plan) determined at any time in accordance with the Retirement Plan.
1.2 "Affiliate" means an Affiliate as defined in the Profit
Sharing Plan.
1.3 "Beneficiary" means the person or persons designated by the
Participant in writing on a form furnished by and filed with the Committee.
The form of such Beneficiary designation is attached as Exhibit I. If a
Participant fails to make any designation, the person so designated shall not
survive the Participant, or the legal entity so designated shall no longer be
in existence or shall be legally incapable of receiving benefits hereunder,
Beneficiary shall mean the estate of the Participant.
1.4 "Board" means the Board of Directors of the Company.
1.5 "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or such other provision of law of similar purport as may at
any time be substituted therefor.
1.6 "Committee" means the Executive Compensation Committee of the
Company.
1.7 "Company" means First Hawaiian, Inc.
2
7
1.8 "Compensation" means the base salary or wages plus any
commissions, overtime pay, shift and other premiums, short-term incentive pay,
and the annual bonus earned under the Company's Incentive Plan for Key
Employees (or any successor to such plan) paid by a Participating Employer to
an Employee while he is an active member of the Profit Sharing Plan and/or the
Retirement Plan. Such items of Compensation shall include any amount that is
contributed by a Participating Employer pursuant to a salary reduction
agreement and is not includible in the Participant's gross income under Section
125, 402(e)(3), 402(h)(1)(B), or 403(b) of the Code and any salary reduction
elected by a Participant under a nonqualified plan. Such items of Compensation
shall not include the cash portion of the Company's broad-based annual profit
sharing program, contributions to employee benefit plans, lump sum vacation
cashouts, and other extraordinary items not specifically included as
Compensation in this Section 1.8.
1.9 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any other provision of law of similar
purport as may at any time be substituted therefor.
1.10 "Participant" means any person who has satisfied the
eligibility requirements of Article II.
1.11 "Participating Employer" means the Company and any other
employer which, with the Company's permission, elects to adopt the Plan for the
benefit of some or all of its Employees.
1.12 "Plan" means the First Hawaiian, Inc. Supplemental Executive
Retirement Plan as set forth herein and any amendments hereto as may be made
from time to time.
3
8
1.13 "Profit Sharing Account" means an account maintained for a
Participant under the Profit Sharing Plan that represents the value of his
proportion of the value of the assets of the Trust Fund arising from Profit
Sharing Contributions.
1.14 "Profit Sharing Contribution" means a contribution to the
Profit Sharing Plan pursuant to Section 4.4 thereof.
1.15 "Profit Sharing Plan" means the First Hawaiian, Inc. Profit
Sharing Plan, including such amendments as may be made from time to time.
1.16 "Plan Year" means the calendar year.
1.17 "Retirement Plan" means the Employees' Retirement Plan of
First Hawaiian, Inc., including such amendments as may be made from time to
time.
1.18 "Supplemental Account" means an account recording the amount
allocated to a Participant pursuant to Section 4.2 of this Plan as it existed
as of December 31, 1995 and such additional amounts as may be allocated to a
Participant under 3.1 herein, as adjusted from time to time pursuant to the
provisions of this Plan.
1.19 "Supplemental Accrued Benefit" means a benefit determined
pursuant to Section 4.1 of this Plan.
4
9
ARTICLE II
PARTICIPATION
An employee who was a Participant in this Plan as of December 31, 1995
shall remain a Participant in this Plan. No other person shall become a
Participant in this Plan.
5
10
ARTICLE III
SUPPLEMENTAL ACCOUNTS
Section 3.1 Allocations.
(a) For each Plan Year commencing after December 31, 1995, the
Participating Employers shall allocate to the Supplemental Account of a
Participant the amount, if any, equal to the difference between (i) the amount
of the Profit Sharing Contributions allocable to him for such Plan Year without
giving effect to Sections 401(a)(17) and 415 of the Code and using the
definition of Compensation in this Plan and (ii) the amount of the Profit
Sharing Contributions actually allocated to him under the Profit Sharing Plan
for such Plan Year. The amount to be allocated to any of the Supplemental
Accounts shall not be reduced by the amount the Participating Employers are
required by law to pay to a governmental taxing authority as the Participant's
portion of any withholding taxes, including taxes imposed on employees by the
Federal Insurance Contributions Act of Chapter 21 of the Code.
(b) A Participant shall be entitled to an allocation under this
Section 3.1 for a Plan Year only if one of the following conditions is
satisfied:
(1) He is employed by a Participating Employer or an
Affiliate as of the last day of such Plan Year;
(2) He died while in the employ of a Participating
Employer or an Affiliate during such Plan Year;
(3) He terminated employment due to a Disability (as
defined in the Profit Sharing Plan) during such Plan Year; or
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11
(4) He was on a leave of absence at the close of such
Plan Year and received Compensation during such Plan Year.
Section 3.2 Time of Allocation.
The Participating Employers shall make allocations to the
Participants' Supplemental Accounts for a Plan Year as of the last day of such
Plan Year.
Section 3.3 Vesting.
A Participant's vested interest in his Supplemental Account shall be
the same percentage as his vested interest in his Profit Sharing Account.
Section 3.4 Valuations.
As of the last day of each Plan Year the Committee shall adjust the
balance, if any, of the Participant's Supplemental Account as follows:
(a) First, the balance of the Participant's Supplemental Account
as of the last day of the preceding Plan Year shall be adjusted by multiplying
such balance by a number equal to one plus the decimal equivalent of the
percentage yield as of the first week of the Plan Year on Treasury notes having
five year maturities. The amount so credited shall not be reduced by the
amount, if any, the Participating Employers are required by law to pay to a
governmental taxing authority as the Participant's portion of any withholding
taxes, including taxes imposed on employees by the Federal Insurance
Contributions Act of Chapter 21 of the Code.
(b) Second, the Committee shall credit such adjusted balance with
the allocation, if any, to the Participant's Supplemental
7
12
Account under Section 3.1 for such Plan Year.
Section 3.5 Distribution.
(a) A Participant shall be entitled to commence distribution of
his Supplemental Account during the Plan Year following his termination of
employment with the Participating Employers and the Affiliates. In the case of
the death of a Participant, distribution of the vested balance of a
Participant's Supplemental Account shall be made to his Beneficiary as soon as
practicable after the Participant's death.
(b) A Participant's Supplemental Account shall be distributed in
such form (including, but not limited to, a lump sum or periodic payments) as
the Committee shall determine in its sole discretion. A Participant may
request in a writing filed with the Committee prior to his termination of
employment with the Participating Employers and the Affiliates that the
Committee authorize a distribution of his Supplemental Account in a specific
form. A Beneficiary may make a similar request prior to commencement of
distribution of the Participant's Supplement Account. The Committee, in its
sole discretion, shall determine whether to grant any such request.
(c) All distributions under the Plan shall be reduced by any
amount of withholding taxes that the Participating Employers are required by
law to withhold.
Section 3.6 No Withdrawals Or Loans.
Withdrawals and loans shall not be permitted from any Supplemental
Accounts.
8
13
ARTICLE IV
SUPPLEMENTAL ACCRUED BENEFIT
Section 4.1 Amount of Supplemental Accrued Benefit.
A Participant shall be credited with a Supplemental Accrued Benefit
equal to the difference, if any, between (i) the amount of the Participant's
vested Accrued Benefit under the Retirement Plan prior to application of
Sections 401(a)(17) and 415 of the Code and using the definition of
Compensation in this Plan and (ii) the amount of the Participant's vested
Accrued Benefit under the Retirement Plan. Clause (i) of the prior sentence
shall be determined as though Section 1.2 of the Retirement Plan had not been
amended by the Board on September 21, 1995.
Section 4.2 Vesting in Supplemental Accrued Benefit.
A Participant's vested interest in his Supplemental Accrued Benefit
shall be the same percentage as the Participant's vested interest in his
Accrued Benefit.
Section 4.3 Distributions.
(a) (1) A Participant shall be entitled to commence
distribution of his Supplemental Accrued Benefit as soon as practicable after
the later of age 65 or his Late Retirement Date (as defined in the Retirement
Plan).
(2) If a Participant is eligible to retire on an Early
Retirement Date (as defined in the Retirement Plan), he may request in writing
filed with the Committee to have his Supplemental Accrued Benefit commence at a
designated date before his 65th birthday. The Committee, in its sole
discretion, shall determine whether to grant such request.
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14
(b) A Participant's Supplemental Accrued Benefit shall be
distributed in such form (including, but not limited to, a lump sum or periodic
payments, with or without survivor rights) as the Committee shall determine in
its sole discretion. A Participant may request in a writing filed with the
Committee prior to his termination of employment with the Participating
Employers and the Affiliates that the Committee authorize a distribution of his
Supplemental Accrued Benefit in a specific form. The Committee, in its sole
discretion, shall determine whether to grant such a request.
(c) All distributions under the Plan shall be reduced by any
amount of withholding taxes that the Participating Employers are required by
law to withhold.
Section 4.4 Pre-Retirement Death Benefit.
(a) If a married Participant with a vested interest in his
Supplemental Accrued Benefit dies prior to commencement of the distribution
thereof, his surviving spouse shall be entitled to one-half of the
Participant's Supplemental Accrued Benefit that would have been payable to the
Participant if the Participant had retired on the day before his death.
(b) A surviving spouse's interest in the Participant's
Supplemental Accrued Benefit shall be distributed in such form (including, but
not limited to, a lump sum or periodic payments) as the Committee shall
determine in its sole discretion. A surviving spouse may request in a writing
filed with the Committee that the Committee authorize such a distribution in a
specific form. The Committee, in its sole discretion, shall determine whether
to grant such a request.
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15
(c) All distributions under the Plan shall be reduced by any
amount of withholding taxes that the Participating Employers are required by
law to withhold.
Section 4.5 Actuarial Equivalence.
For purposes of determining an actuarial equivalent form of a
Supplemental Accrued Benefit, the definition of "Actuarial Equivalent" in the
Retirement Plan shall apply, provided that the amount of lump sum payments
under this Plan shall be determined by using the applicable mortality table and
the applicable interest rate. The term "applicable mortality table" means the
table prescribed by the Secretary of the Treasury, which table shall be based
on the prevailing commissioners' standard table (described in Section
807(d)(5)(A) of the Code) used to determine reserves for group annuity
contracts issued on the date as of which present value is being determined
(without regard to any other subparagraph of Section 807(d)(5) of the Code).
The term "applicable interest rate" means the annual rate of interest on
30-year Treasury securities for the first full calendar month preceding the
first day of the Plan Year in which the lump sum distribution occurs.
Section 4.6 No Withdrawals Or Loans.
Withdrawals and loans shall not be permitted from any Supplemental
Accrued Benefit.
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16
ARTICLE V
NO CONTRIBUTIONS
Section 5.1 No Contributions By Participating Employers.
No contributions to a trust fund shall be required of or made by any
Participating Employer. No contributions shall be required or permitted of
Participants.
Section 5.2 Benefits Payable From General Assets.
The amount of any of the Supplemental Account benefit or the
Supplemental Accrued Benefit payable to a Participant shall remain part of the
general funds of the Participating Employers. No Participant or Beneficiary
shall acquire any property interest in his Supplemental Account, Supplemental
Accrued Benefit, or any other assets of any Participating Employer. A
Participant's or Beneficiary's right hereunder shall be limited to receiving
from the Participating Employer deferred payments measured as set forth in this
Plan, which right is conditioned upon continued compliance with the terms and
conditions of this Plan. To the extent that any Participant or Beneficiary
acquires a right to receive benefits under this Plan, such right shall be no
greater than the right of any unsecured general creditor of a Participating
Employer.
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17
ARTICLE VI
CERTAIN CONTRACTS AND PRIOR EMPLOYERS
Section 6.1 Additional Benefits Under Contracts.
In addition to the benefits described in Articles III and IV, this
Plan incorporates the provisions of any individual contract between a
Participating Employer and a Participant to the extent such contract provides
earlier vesting or additional benefits for the Participant under this Plan.
This Section 6.1 shall be interpreted and administered so that it neither
conflicts with the contractual provisions that promise earlier vesting or
additional benefits under this Plan nor results in the payment of duplicate
benefits when payments under this Plan and under the contractual provision are
considered together.
Section 6.2 First Interstate Bank of Hawaii.
As of July 1, 1992, the First Interstate Bank of Hawaii Supplemental
Retirement Plan (the "FIHI Plan") was merged into this Plan. Benefits accrued
under the FIHI Plan prior to its merger into this Plan shall be preserved under
a separate benefit schedule of this Plan maintained by the Committee and shall
be coordinated with other Plan benefits as follows. After the merger of the
FIHI Plan into this Plan, no new benefits shall accrue under the provisions of
the FIHI Plan or the separate benefit schedule pertaining to it hereunder. In
addition, there shall be no duplication of the benefits accrued under the FIHI
Plan prior to the merger and benefits that are provided for the same period of
service to the same individuals under this Plan. To this end, any payments
owed under the separate benefit schedule for the former FIHI Plan shall be
determined when Plan benefits are about to commence, and the determination
shall be made after reducing the tentative amount of such payments (but not
below zero) by the
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18
amount of any benefits that are payable to the same individual for the same
period of service under other provisions of this Plan.
Section 6.3 Pioneer Federal Savings Bank.
If a Participant's Accrued Benefit includes amounts that accrued prior
to January 1, 1994 under the Retirement Pension Plan of Pioneer Federal Savings
Bank, his Supplemental Accrued Benefit shall be determined under Section 4.1,
provided that the Participant's Accrued Benefit and Supplemental Accrued
Benefit shall be based only on Credited Service (as defined in the Retirement
Plan) earned after December 31, 1993.
14
19
ARTICLE VII
ADMINISTRATION
Section 7.1 Committee.
Subject to the limitations of this Plan and unless otherwise
determined by the Board, the Committee shall have the power and the duty to
take all actions and to make all decisions necessary or proper to administer
this Plan, including:
(1) To require as a condition to receiving any benefits
under this Plan, any person to furnish such information that the Committee may
reasonably request for the purpose of the proper administration of this Plan;
(2) To make and enforce such rules and regulations and
prescribe the use of such forms as it shall deem necessary for the efficient
administration of this Plan;
(3) To decide questions concerning the interpretation of
this Plan, including the eligibility of any person for benefits under this
Plan;
(4) To determine the amount of benefits that shall be
payable to any person in accordance with the provisions of this Plan;
(5) To delegate responsibility for performance of
ministerial functions necessary for the administration of the Plan to such
employees of the Company or a Participating Employer, including Participants,
as the Committee shall deem appropriate; and
15
20
(6) To employ the services of such other persons as the
Committee may deem necessary or desirable in connection with this Plan,
including but not limited to an actuary, legal counsel, an independent
accountant, agents, and such clerical, medical, and accounting services as it
may require in carrying out the provisions of this Plan or in complying with
the requirements of ERISA.
Section 7.2 Indemnification, Insurance.
The Participating Employers shall indemnify and save harmless and/or
insure each fiduciary who is an employee or a director of a Participating
Employer or an Affiliate against any and all claims, loss, damages, expense,
and liability arising from their responsibilities in connection with this Plan,
if the fiduciary acted in good faith and in a manner the fiduciary reasonably
believed to be in or not opposed to the best interests of the Plan.
Section 7.3 Claims Procedure.
The procedure for claiming benefits under this Plan shall be as
follows:
(a) The Committee shall determine the benefits due hereunder to a
Participant or his beneficiary or beneficiaries, but a Participant or his
beneficiary or beneficiaries may file a claim for benefits by written notice to
the Committee.
(b) If a claim is denied in whole or in part, the Committee shall
give the claimant written notice of such denial, within a reasonable period of
time following the filing of the claim. Such notice shall (i) specify the
reason or reasons for the denial, (ii) refer to the pertinent Plan provisions
on which the denial is based, (iii) describe any additional material or
information necessary to perfect the claim and explain the need therefor, and
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21
(iv) explain the review procedure described in subparagraph (c) hereof.
(c) The claimant may then appeal the denial of the claim to the
Committee by filing written notice of such appeal with the Committee within 90
days after receipt of the notice of denial. The claimant or any authorized
representative may, before or after filing notice of appeal, review any
documents pertinent to the claim and submit issues and comments in writing.
The Committee shall make its decision on such appeal within 60 days after
receipt of the appeal (unless a longer period is requested by the claimant),
and shall forthwith give written notice of such decision.
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22
ARTICLE VIII
AMENDMENT, TERMINATION, MERGER
Section 8.1 Amendment.
(a) The Board may at any time amend this Plan.
(b) No Plan amendment shall adversely affect Participants who
shall have retired under this Plan prior to such action, nor shall any such
amendment have the effect of decreasing the vested percentage or the amount of
a Participant's Supplemental Account or Supplemental Accrued Benefit.
Section 8.2 Termination or Partial Termination.
(a) This Plan may be terminated in full or in part by the Board.
The board of directors of a Participating Employer may terminate this Plan as
to such Participating Employer.
(b) Upon a full or partial termination of this Plan, (i) the
Supplemental Account and Supplemental Accrued Benefit of each Participant or
retired Participant (or if the Participant or retired Participant has died, the
portion of his Supplemental Account and Supplemental Accrued Benefit to which
his spouse or other beneficiary is entitled) shall become vested and
nonforfeitable and (ii) the value of his Supplemental Account and the Actuarial
Equivalent value of his Supplemental Accrued Benefit shall be distributed in a
lump sum to the Participant or retired Participant (or if the Participant or
retired Participant has died, his spouse or other beneficiary) within 30 days
of the date of the resolution that terminates this Plan.
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23
Section 8.3 Merger or Consolidation.
If this Plan is merged into or consolidated with, or if its assets or
liabilities are transferred to, any other plan, the provisions of such
subsequent plan must provide that each Participant of this Plan would, if the
subsequent plan then terminated, receive a benefit immediately after the
merger, consolidation, or transfer, that is equal to or greater than the
benefit he would have been entitled to immediately before the merger,
consolidation, or transfer.
Section 8.4 Change In Control.
If the terms of a Change in Control provide that this Plan shall be
assumed by the successor organization, then this Plan shall continue in
accordance with its terms. If, however, the terms of a Change in Control do
not so provide, then immediately prior to the occurrence of such a Change in
Control the Plan shall automatically terminate and each Participant shall
receive immediately prior to such Change in Control a lump sum distribution of
his Supplemental Account and Supplemental Accrued Benefit. For purposes of
this Section 8.4, "Change in Control" is as defined in the First Hawaiian, Inc.
Stock Incentive Plan.
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ARTICLE IX
MISCELLANEOUS
Section 9.1 Rights of Participants.
(a) No Participant shall, by reason of his participation in this
Plan, have any interest in (i) any specific asset or assets of a Participating
Employer or an Affiliate or (ii) any stock rights of any kind.
(b) Neither the adoption of this Plan, the making of any
allocation or accrual under this Plan, nor any action of a board of directors
or the Committee in connection with the Plan shall be held or construed to
confer upon any person any legal right to be continued as an officer or
employee of a Participating Employer or an Affiliate.
(c) No Participant shall have the right to assign, pledge,
encumber, or otherwise dispose of (except to a Beneficiary upon his death) any
of his interest in this Plan; nor shall his interest be subject to garnishment,
attachment, transfer by operation of law, or any legal process.
Section 9.2 Misc. Rules.
(a) Wherever used herein the masculine gender shall include the
feminine and the singular number shall include the plural, unless the context
clearly indicates otherwise.
(b) The headings of articles and sections are included herein
solely for convenience of reference, and if there is any conflict between such
headings and the text of the Plan, the text shall be controlling.
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25
(c) Wherever a Participating Employer, the Company, or a board of
directors is permitted or required to do or perform any act, matter, or thing
under the terms of the Plan, it may be done and performed by any officer of a
Participating Employer or the Company thereunto duly authorized.
(d) To the extent not preempted by ERISA, the Plan shall be
governed, construed, administered, and regulated according to the laws of the
State of Hawaii.
(e) All consents, elections, applications, designations, etc.
required or permitted under the Plan must be made on forms prescribed by the
Committee, and shall be recognized only if properly completed, executed, and
filed with the Committee.
TO RECORD the adoption of this document, First Hawaiian, Inc. has
executed this document this 15th day of February, 1996.
FIRST HAWAIIAN, INC.
By /s/ HERBERT E. WOLFF
--------------------------------------
Its Senior Vice President & Secretary
By
---------------------------------------
Its
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26
EXHIBIT I
FORM OF BENEFICIARY DESIGNATION
FIRST HAWAIIAN, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
I hereby direct that, if I die prior to the payment in full of my
vested interest in my Supplemental Account in the First Hawaiian, Inc.
Supplemental Executive Retirement Plan (hereinafter the "Plan"), any unpaid
balance be paid to:
Name: ______________________________
Address: ______________________________
______________________________
This beneficiary designation revokes any and all other
beneficiary designations under the Plan made prior to the date of this
designation.
Dated:__________________ _________________________
Participant
Receipt acknowledged:
Committee
By______________________
Dated:__________________
22
1
Exhibit 10(ix)
FIRST HAWAIIAN, INC.
DEFERRED COMPENSATION PLAN
(Amended and Restated as of January 1, 1996)
2
TABLE OF CONTENTS
Page
----
PROLOGUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III - DEFERRALS
Section 3.1 Deferral Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3.2 Length of Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.3 Memorandum Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.4 Discretionary Investment
by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.5 Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.6 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV - NO CONTRIBUTIONS
Section 4.1 No Contributions By
Participating Employers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.2 Benefits Payable From
General Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V - ADMINISTRATION
Section 5.1 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.2 Indemnification, Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.3 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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Page
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ARTICLE VI - AMENDMENT, TERMINATION, MERGER
Section 6.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.2 Termination or Suspension . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.3 Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VII - MISCELLANEOUS
Section 7.1 Rights of Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.2 Misc. Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
EXHIBIT I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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FIRST HAWAIIAN, INC.
DEFERRED COMPENSATION PLAN
PROLOGUE
The First Hawaiian, Inc. Deferred Compensation Plan (this "Plan")
permits eligible employees to defer payment of certain compensation. This Plan
is an unfunded deferred compensation arrangement solely for a select group of
management or highly compensated employees of First Hawaiian, Inc. and its
affiliates.
This Plan is hereby amended and restated in its entirety. Unless
otherwise specifically provided for herein or by law, the provisions set forth
herein shall be effective as of January 1, 1996.
ARTICLE I
DEFINITIONS
As used herein the following terms shall have the following meanings
unless the context clearly requires otherwise.
1.1 "Affiliate" means Affiliate as defined in the First Hawaiian,
Inc. Profit Sharing Plan.
1.2 "Beneficiary" means the person, persons, or legal entity
designated by the Participant to receive his benefits under this Plan in the
event of his death. If a Participant fails to make any designation, the person
so designated shall not survive the Participant, or the legal entity so
designated shall no longer be in existence or shall be legally incapable of
receiving benefits hereunder, Beneficiary shall mean the
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Participant's surviving spouse, or if there is no surviving spouse, the estate
of the Participant.
1.3 "Board" means the Board of Directors of the Company.
1.4 "Change in Control" means Change in Control as defined in the
First Hawaiian, Inc. Stock Incentive Plan.
1.5 "Committee" means the Executive Compensation Committee of the
Board.
1.6 "Company" means First Hawaiian, Inc.
1.7 "Disability" means Disability as defined in the First
Hawaiian, Inc. Profit Sharing Plan.
1.8 "IPKE" means the First Hawaiian, Inc. Incentive Plan for Key
Executives, as amended from time to time.
1.9 "LTIP" means the First Hawaiian, Inc. Long-Term Incentive
Plan, as amended from time to time.
1.10 "Memorandum Account" means an account recording the amount
allocated to a Participant pursuant to Article III of this Plan, as adjusted
from time to time pursuant to the provisions of this Plan.
1.11 "Participant" means any person selected for participation
pursuant to Article II.
1.12 "Participating Employer" means the Company or
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any other employer which, with the Company's permission, elects to adopt the
Plan.
1.13 "Plan" means the First Hawaiian, Inc. Deferred Compensation
Plan, as set forth herein and as amended from time to time.
1.14 "Special Deferral" means a deferral pursuant to Section 3.2
that is payable on a specified date other than the Participant's termination of
employment.
ARTICLE II
PARTICIPATION
The Committee shall select the employees of a Participating Employer
eligible to be Participants. Participants shall be selected from executive and
other key employees who because of their management or staff positions have the
principal responsibility for the management, direction, and success of the
Company or a Participating Employer. A director of a Participating Employer
who is a full-time employee of the Participating Employer shall be eligible to
participate in the Plan.
ARTICLE III
DEFERRALS
Section 3.1 Deferral Election.
(a) A Participant may elect one or more of the following deferrals
for which he is eligible.
(1) On a date prior to December 1 of each year, a
Participant who is eligible for IPKE may elect to defer the payment of all or a
portion of his IPKE cash bonus for the
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then current fiscal year.
(2) On a date that is at least three months before the
end of a "Performance Period" under the LTIP, a Participant who may become
entitled to receive payment of an award for such period under such plan may
elect to defer all or part of any payment of such award.
(3) On a date prior to January 1, a Participant may elect
to defer the payment of a percentage (not in excess of 25 percent) of his base
salary for the next calendar year.
(b) The deferral election shall be irrevocable and shall be made
on a form prescribed by the Committee. Any annual cash bonus under IPKE, any
base salary, and any award under the LTIP for which a Participant has not
elected to defer under this Plan shall be paid without regard to this Plan.
(c) The amount to be credited to a Memorandum Account shall be
subject to reduction by the amount the Participating Employer is required by
law to pay to a governmental taxing authority as the Participant's portion of
any withholding taxes, including taxes imposed on employees by the Federal
Insurance Contributions Act of Chapter 21 of the Internal Revenue Code. The
Committee may authorize a Participant to satisfy such withholding tax payment
in a manner that does not reduce the amount credited to his Memorandum Account.
Section 3.2 Length of Deferrals.
(a) If a deferral is elected, the period of deferral shall (except
as provided in Section 3.2(b)) end with the Participant's retirement, death,
Disability, resignation, or
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other termination of employment with the Company, the Participating Employers,
and the Affiliates.
(b) The Committee may, in its sole discretion, approve Special
Deferrals. Such Special Deferrals shall be subject to the same rules as in
Section 3.1 above, except for the time of payment.
Section 3.3 Memorandum Account.
(a) The Committee shall cause a Participating Employer to
establish a Memorandum Account for each Participant employed by it who has
elected a deferral under this Plan. A Participant shall be fully vested in his
Memorandum Account at all times. A separate Memorandum Account shall be kept
for any deferral that may be paid in a different manner or may be paid
commencing on a different date from other deferrals. The Memorandum Account
balances of a Participant shall represent the Participating Employer's
obligation to pay the deferred amount to the Participant or his Beneficiary.
(b) A Memorandum Account shall be credited with assumed earnings
in accordance with this Section 3.3(b). In general, assumed earnings shall be
credited once annually, as of December 31 of each year, so that the earnings
for the current year are part of the opening balance of the next calendar year.
The Committee may, however, authorize the crediting of assumed earnings at
other dates during a calendar year, provided that any later calculation of
earnings during or at the end of the same calendar year shall be made in a
manner designed to produce approximately the same total earnings for the year
as would a one-time, December 31 calculation. Notwithstanding the foregoing,
earnings for a partial year
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shall be credited for the period up to the distribution date for a payment that
is made at any date during a year other than in January.
(c) In determining the balances on which earnings are credited,
once-a-year deferrals, such as deferrals of IPKE or LTIP awards, shall be
credited to the Memorandum Account as of the first of the month coinciding with
or following the cash payment date that would have applied absent the deferral.
Recurring deferrals, such as for base salary, shall be deemed to occur evenly
throughout the year (or the portion thereof) during which such deferrals are
occurring, and for purposes of crediting assumed earnings, 50% of the total of
such deferrals for the period may be treated as having been in the Memorandum
Account for the entire deferral period.
(d) The rate to be used in crediting assumed earnings for each
calendar year or partial year shall be the First Hawaiian Bank Prime Rate as in
effect at the beginning of the calendar year. When earnings are credited
during a year in conjunction with a payment at a time other than in January of
less than the entire remaining Memorandum Account balance, the determination of
such interim earnings shall be made in an administratively feasible manner that
prevents or minimizes the possibility of crediting additional earnings on the
interim earnings at the end of the year.
Section 3.4 Discretionary Investment by Company.
(a) The deferred amounts to be paid to Participants constitute an
unfunded obligation of the Participating Employer. The Committee may, however,
annually direct that an amount equal to the deferred amounts for that year be
invested
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by the Participating Employers as the Committee, in its sole discretion, shall
determine.
(b) The Committee may, in its sole discretion, determine that all
or a portion of the deferred amounts be paid into one or more grantor trusts
that may be established by the Participating Employer for the purpose of
providing a potential source of funds to pay Plan benefits. Moreover, such
payment of all previously deferred amounts to a grantor trust shall be required
in connection with a Change in Control.
(c) The Committee may designate an investment advisor to direct
the investment of funds that may be used to pay benefits, including the
investment of the assets of any grantor trusts hereunder.
Section 3.5 Change in Control.
If the terms of a Change in Control provide that this Plan shall be
assumed by the successor organization, then this Plan shall (subject to Section
3.4(b)) continue in accordance with its terms. If, however, the terms of a
Change in Control do not so provide, then immediately prior to the occurrence
of such a Change in Control, the Plan shall automatically terminate and each
Participant shall receive immediately prior to such Change in Control a lump
sum distribution of his Memorandum Account or Memorandum Accounts.
Section 3.6 Payment.
(a) Upon the retirement, death, Disability, resignation, or other
termination of employment of a Participant or upon a
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Special Deferral payment date, the Participant, or in the case of his death,
his Beneficiary, shall be paid an amount equal to the balance of the
Participant's Memorandum Account, plus assumed earnings (determined pursuant to
Section 3.3) to the date of distribution.
(b) Payment shall be made in cash in (i) a single lump sum or (ii)
installments payable once each calendar year over a specified period of up to
12 years. The first installment shall be paid as soon as practicable after the
Participant's termination of employment and each subsequent installment shall
be paid in the January following the immediately preceding payment. Such
installments shall be in substantially equal payments, except that the first
installment shall be prorated so that it bears the same proportion to a full
annual installment as the remainder of the year following the calculation date
bears to the full year.
(c) (1) Payment of a Special Deferral shall be made in a lump
sum on the specified payment date; installment payment of a Special Deferral
shall not be permitted.
(2) The Committee shall determine the form of payment of
any other deferrals, and prior to doing so, may consider an expression of the
Participant's preference that is made at any time up to one year before the
triggering event for the payment. Payment of such other deferrals shall be
made or commence as soon as practicable following the Participant's retirement,
death, Disability, resignation, or other termination of employment.
(d) The Committee, in its sole discretion, may accelerate
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the payment of the unpaid balance of a Participant's Memorandum Account in the
event of the Participant's retirement, death, Disability, resignation, or
termination of employment or upon its determination that the Participant (or
his Beneficiary in the case of his death) has incurred a severe, unforeseeable
financial hardship creating an immediate and heavy need for cash that cannot
reasonably be satisfied from sources other than an accelerated payment from
this Plan. The Committee in making its determination may consider such factors
and require such information as it deems appropriate.
(e) All payments under the Plan shall be subject to withholding
taxes that the Participating Employer is required by law to withhold.
ARTICLE IV
NO CONTRIBUTIONS
Section 4.1 No Contributions By Participating Employers.
No contributions to a trust fund shall be required of or made by any
Participating Employer.
Section 4.2 Benefits Payable From General Assets.
The amount of any Memorandum Account payable to a Participant shall
remain part of the general funds of the Participating Employers. No
Participant or Beneficiary shall acquire any property interest in his
Memorandum Account or any other assets of any Participating Employer. A
Participant's or Beneficiary's right hereunder shall be limited to receiving
from the Participating Employer deferred payments measured as set forth in this
Plan. To the extent that any Participant or
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Beneficiary acquires a right to receive benefits under this Plan, such right
shall be no greater than the right of any unsecured general creditor of a
Participating Employer.
ARTICLE V
ADMINISTRATION
Section 5.1 Committee.
Subject to the limitations of this Plan and unless otherwise
determined by the Board, the Committee shall have the power and the duty to
take all actions and to make all decisions necessary or proper to administer
this Plan, including:
(1) To require as a condition to receiving any benefits
under this Plan, any person to furnish such information that the Committee may
reasonably request for the purpose of the proper administration of this Plan;
(2) To make and enforce such rules and regulations and
prescribe the use of such forms as it shall deem necessary for the efficient
administration of this Plan;
(3) To decide questions concerning the interpretation of
this Plan, including the eligibility of any person for benefits under this
Plan;
(4) To determine the amount of benefits that shall be
payable to any person in accordance with the provisions of this Plan;
(5) To delegate responsibility for performance of
ministerial functions necessary for the administration of the
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Plan to such employees of the Company or a Participating Employer, including
Participants, as the Committee shall deem appropriate; and
(6) To employ the services of such other persons as the
Committee may deem necessary or desirable in connection with this Plan,
including but not limited to an actuary, legal counsel, an independent
accountant, agents, and such clerical, medical, and accounting services as it
may require in carrying out the provisions of this Plan or in complying with
the requirements of ERISA.
Section 5.2 Indemnification, Insurance.
The Participating Employers shall indemnify and save harmless and/or
insure each fiduciary who is an employee or a director of a Participating
Employer or an Affiliate against any and all claims, loss, damages, expense,
and liability arising from their responsibilities in connection with this Plan,
if the fiduciary acted in good faith and in a manner the fiduciary reasonably
believed to be in or not opposed to the best interests of the Plan.
Section 5.3 Claims Procedure.
(a) The procedure for claiming benefits under this Plan shall be
as follows:
(1) The Committee shall determine the benefits due
hereunder to a Participant or his beneficiary or beneficiaries, but a
Participant or his beneficiary or beneficiaries may file a claim for benefits
by written notice to the Committee.
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(2) If a claim is denied in whole or in part, the
Committee shall give the claimant written notice of such denial, within a
reasonable period of time following the filing of the claim. Such notice shall
(i) specify the reason or reasons for the denial, (ii) refer to the pertinent
Plan provisions on which the denial is based, (iii) describe any additional
material or information necessary to perfect the claim and explain the need
therefor, and (iv) explain the review procedure described in subparagraph (3)
hereof.
(3) The claimant may then appeal the denial of the claim
to the Committee by filing written notice of such appeal with the Committee
within 90 days after receipt of the notice of denial. The claimant or any
authorized representative may, before or after filing the notice of appeal,
review any documents pertinent to the claim and submit issues and comments in
writing. The Committee shall make its decision on such appeal within 60 days
after receipt of the appeal (unless a longer period is requested by the
claimant), and shall forthwith give written notice of such decision.
(b) (1) Notwithstanding Section 5.3(a), in the event of a
Change in Control a Participant may submit any claim for payment to arbitration
as follows. On or after the second day following the termination of the
Participant's employment or other event triggering a right to payment, a claim
may be filed orally with an arbitrator of the Participant's choice and
thereafter the Company shall be notified orally.
(2) The arbitrator must be (i) a member of the National
Academy of Arbitrators or a person who currently appears on arbitration panels
issued by the Federal Mediation
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and Conciliation Service or the American Arbitration Association or (ii) a
retired judge of the State of Hawaii who served at the appellate level.
(3) The arbitration hearing shall be held within 24 hours
(or as soon thereafter as possible) after filing of the claim unless the
Participant and the Company agree to a later date. No continuance of said
hearing shall be allowed without the mutual consent of the Participant and the
Company. Absence from or nonparticipation at the hearing by either party shall
not prevent the issuance of an award. Hearing procedures that expedite the
hearing may be ordered at the arbitrator's discretion, and the arbitrator may
close the hearing in his sole discretion upon deciding he has heard sufficient
evidence to satisfy issuance of an award. In reaching a decision, the
arbitrator shall be limited to interpreting this Plan; he shall have no
authority to ignore, change, modify, add to, or delete from any provision of
this Plan.
(4) The arbitrator's award shall be rendered as
expeditiously as possible, and in no event, later than seven days after the
close of the hearing. If the arbitrator finds that any payment is due to the
Participant under the Plan, the arbitrator shall order the Company or
Participating Employers to pay that amount to the Participant within 48 hours
after the decision is rendered. The award of the arbitrator shall be final and
binding upon the Participant and the Company and the Participating Employers.
Judgment upon the award rendered by the arbitrator may be entered in any court
in the State of Hawaii or in any other court of competent jurisdiction.
(5) In the case of any arbitration regarding this
Agreement, the Participant shall be awarded the Participant's
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costs, including attorney's fees. The Company shall pay the arbitrator's fee
and all necessary expenses of the hearing, including any stenographic reporter
so employed.
ARTICLE VI
AMENDMENT, TERMINATION, MERGER
Section 6.1 Amendment.
The Board may at any time amend this Plan. No Plan amendment shall
decrease the amount of a Participant's Memorandum Account or his right thereto.
Section 6.2 Termination or Suspension.
The Board may at any time terminate or suspend further deferrals to
this Plan. No termination or suspension shall decrease the Participant's
Memorandum Account or his right thereto.
Section 6.3 Merger or Consolidation.
If this Plan is merged into or consolidated with, or if its assets or
liabilities are transferred to, any other plan, the provisions of such
subsequent plan must provide that each Participant of this Plan would, if the
subsequent plan then terminated, receive a benefit immediately after the
merger, consolidation, or transfer, that is equal to or greater than the
benefit he would have been entitled to immediately before the merger,
consolidation, or transfer.
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ARTICLE VII
MISCELLANEOUS
Section 7.1 Rights of Participants.
(a) No Participant shall, by reason of his participation in this
Plan, have any interest in (i) any specific asset or assets of a Participating
Employer or an Affiliate or (ii) any stock rights of any kind.
(b) Neither the adoption of this Plan, the making of any deferrals
under this Plan, nor any action of the Board or the Committee in connection
with the Plan shall be held or construed to confer upon any person any legal
right to be continued as an officer or employee of a Participating Employer or
an Affiliate.
(c) No Participant shall have the right to assign, pledge,
encumber, or otherwise dispose of (except to a Beneficiary upon his death) any
of his interest in this Plan; nor shall his interest be subject to garnishment,
attachment, transfer by operation of law, or any legal process.
Section 7.2 Misc. Rules.
(a) Wherever used herein the masculine gender shall include the
feminine and the singular number shall include the plural, unless the context
clearly indicates otherwise.
(b) The headings of articles and sections are included herein
solely for convenience of reference, and if there is any conflict between such
headings and the text of the Plan, the text shall be controlling.
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(c) Wherever a Participating Employer, the Company, or the Board
is permitted or required to do or perform any act, matter, or thing under the
terms of the Plan, it may be done and performed by any officer of a
Participating Employer or the Company thereunto duly authorized.
(d) To the extent not preempted by ERISA, the Plan shall be
governed, construed, administered, and regulated according to the laws of the
State of Hawaii.
(e) All consents, elections, applications, designations, etc.
required or permitted under the Plan must be made on forms prescribed by the
Committee, and shall be recognized only if properly completed, executed, and
filed with the Committee.
(f) (1) Every person receiving or claiming benefits under the
Plan shall be conclusively presumed to be mentally competent and of age until
the date on which the Committee receives a written notice, in a form and manner
acceptable to the Committee, that such person is incompetent or a minor for
whom a guardian or other person legally vested with the care of his person or
estate has been appointed. If, however, the Committee finds that any person to
whom a benefit is payable under the Plan is unable to care for his affairs
because of incompetency or because he or she is a minor, any payment due
(unless a prior claim therefor shall have been made by a duly appointed legal
representative) may be paid to the spouse, a child, a parent, a brother or
sister, or to any person or institution considered by the Committee to have
incurred expense for such person otherwise entitled to payment. To the extent
permitted by law, any such payment so made shall be a complete discharge of
liability therefor under the Plan.
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(2) If a guardian of the estate of any person receiving
or claiming benefits under the Plan is appointed by a court of competent
jurisdiction, benefit payments may be made to such guardian provided that
proper proof of appointment and continuing qualification is furnished in a form
and manner acceptable to the Committee. In the event a person claiming or
receiving benefits under the Plan is a minor, payment may be made to the
custodian of an account for such person under the Uniform Gifts to Minors Act.
To the extent permitted by law, any such payment so made shall be a complete
discharge of any liability therefor under the Plan.
TO RECORD the adoption of this document, First Hawaiian, Inc. has
executed this document this 15th day of February, 1996.
FIRST HAWAIIAN, INC.
By /s/ HERBERT E. WOLFF
-------------------------------------
Its Senior Vice President & Secretary
By
-------------------------------------
Its
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EXHIBIT I
FORM OF BENEFICIARY DESIGNATION
FIRST HAWAIIAN, INC.
DEFERRED COMPENSATION PLAN
I hereby direct that, if I die prior to the payment in full of my
vested interest in my Memorandum Account in the First Hawaiian, Inc. Deferred
Compensation Plan (hereinafter the "Plan"), any unpaid balance be paid to:
Name: ______________________________
Address: ______________________________
______________________________
This beneficiary designation revokes any and all other
beneficiary designations under the Plan made prior to the date of this
designation.
Dated:__________________ _________________________
Participant
Receipt acknowledged:
Committee
By______________________
Dated:__________________
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EXHIBIT 12
Statement re: Computation of Ratios
FIRST HAWAIIAN, INC. AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
(dollars in thousands)
Income before income taxes
and cumulative effect of a
change in accounting principle $ 122,138 $ 111,501 $ 119,105 $ 127,880 $ 120,200
---------- ----------- ---------- ---------- -----------
Fixed charges:(1)
Interest expense 265,297 179,688 163,541 217,693 270,851
Rental expense 4,600 5,355 4,013 5,801 2,914
---------- ----------- ---------- ---------- -----------
269,897 185,043 167,554 223,494 273,765
Less interest on deposits 176,048 120,289 129,719 186,725 255,099
---------- ----------- ----------- ----------- -----------
Net fixed charges 93,849 64,754 37,835 36,769 18,666
---------- ----------- ---------- ---------- -----------
Earnings, excluding
interest on deposits $ 215,987 $ 176,255 $ 156,940 $ 164,649 $ 138,866
========== =========== ========== ========== ===========
Earnings, including
interest on deposits $ 392,035 $ 296,544 $ 286,659 $ 351,374 $ 393,965
========== =========== ========== ========== ===========
Ratio of earnings to
fixed charges:
Excluding interest
on deposits 2.30 X 2.72 x 4.15 x 4.48 x 7.44 x
Including interest
on deposits 1.45 X 1.60 x 1.71 x 1.57 x 1.44 x
(1) For purposes of computing the above ratios, earnings represent income
before income taxes and cumulative effect of a change in accounting
principle plus fixed charges. Fixed charges, excluding interest on
deposits, include interest (other than on deposits), whether expensed
or capitalized, and that portion of rental expense (generally one
third) deemed representative of the interest factor. Fixed charges,
including interest on deposits, include all interest, whether expensed
or capitalized, and that portion of rental expense (generally one
third) deemed representative of the interest factor.
1
EXHIBIT 13
1
CONSOLIDATED FINANCIAL HIGHLIGHTS First Hawaiian, Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1995 1994 Change
- ------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
EARNINGS AND DIVIDENDS
Net income $ 77,005 $ 72,511 6.2%
Cash dividends 37,368 38,008 (1.7)
PER SHARE
Net income $ 2.43 $ 2.25 8.0%
Cash dividends 1.18 1.18 --
Book value 20.86 19.61 6.4
FINANCIAL RATIOS
Return on average total assets 1.02% 1.01% 1.0%
Return on average stockholders' equity 12.03 11.73 2.6
FINANCIAL POSITION AT DECEMBER 31
Total assets $7,564,509 $7,535,144 .4%
Loans and leases 5,259,545 5,533,565 (5.0)
Deposits 5,358,313 5,152,213 4.0
Stockholders' equity 649,537 627,944 3.4
Tier 1 leverage ratio 7.72% 7.51% 2.8
Risk-based capital ratios:
Tier 1 9.03 9.31 (3.0)
Total 11.88 12.06 (1.5)
============================================================================================================
[GRAPH]
NET INCOME NET INCOME CASH DIVIDENDS RETURN ON AVERAGE RETURN ON AVERAGE
(in thousands) PER SHARE PER SHARE TOTAL ASSETS STOCKHOLDERS' EQUITY
1995 $77,005 $2.43 1.18 1.02% 12.03%
1994 $72,511 $2.25 1.18 1.01% 11.73%
1993 $81,857 $2.52 1.135 1.21% 14.01%
1992 $86,900 $2.70 1.06 1.33% 16.52%
1991 $81,710 $2.55 .95 1.36% 17.38%
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SENIOR ADMINISTRATIVE OFFICERS
- --------------------------------------------------------------------------------
FIRST HAWAIIAN, INC.
Walter A. Dods, Jr.
Chairman & Chief Executive Officer
John K. Tsui
President
Donald G. Horner
Executive Vice President
Howard H. Karr
Executive Vice President & Treasurer
Herbert E. Wolff
Senior Vice President & Secretary
FIRST HAWAIIAN BANK
Walter A. Dods, Jr.
Chairman & Chief Executive Officer
John K. Tsui
President & Chief Operating Officer
Donald G. Horner
Vice Chairman,
Retail Banking Group
Howard H. Karr
Vice Chairman, Chief Financial Officer &
Treasurer, Administration & Finance Group
Gary L. Caulfield
Executive Vice President,
Information Management Group
Anthony R. Guerrero, Jr.
Executive Vice President,
Branch Banking Group
Gerald M. Pang
Executive Vice President &
Chief Credit Officer
N. W. "Red" Pope
Executive Vice President,
Marketing Group
Robert A. Alm
Senior Vice President,
Financial Management Group
Thomas P. Huber
Senior Vice President & General Counsel,
Legal Group
Barbara S. Tomber
Senior Vice President & Group Manager,
Media Finance, Corporate &
International Banking Divisions
Sharon S. Brown
Senior Vice President,
Sales & Service Division
Norman K. Y. Ching
Senior Vice President & Administrative
Assistant to the Chairman
Raymond M. H. Choo
Senior Vice President,
Consumer Service Division
Brandt G. Farias
Senior Vice President,
Marketing Communications Division
Mark H. Felmet
Senior Vice President,
Retail Loan Division
Melvin T. Freitas
Vice President,
Dealer Center Division
Gary Y. Fujitani
Senior Vice President,
Business Services Division
Alfred R. Gross
Senior Vice President,
Corporate & International Banking Division
Dean K. Hirata
Senior Vice President & Controller,
Controller's Division
William B. Johnstone, III
Senior Vice President,
Portfolio Management Division
Edmund H. Kajiyama
Senior Vice President,
Branch Support Division
Gerald J. Keir
Senior Vice President,
Corporate Communications Division
Roy E. King, Jr.
Senior Vice President,
Human Resources Division
John W. Landgraf
Senior Vice President,
Commercial Real Estate Division &
Japan Business Development
George H. Lumsden
Vice President & General Auditor,
Audit Division
David W. Madison
Senior Vice President,
Branch Loan Administration Division
Vernon T. Omori
Senior Vice President,
Residential Real Estate Division
Curt T. Otaguro
Vice President,
Operations Research & Development Division
Edward Y. W. Pei
Senior Vice President,
Electronic Banking Division
James M. Wayman
Senior Vice President,
Bank Properties Division
Herbert E. Wolff
Senior Vice President & Secretary,
Corporate Secretary
PIONEER FEDERAL SAVINGS BANK
Lily K. Yao
Chairman & Chief Executive Officer
Albert M. Yamada
President & Chief Operating Officer
Joyce W. Borthwick
Senior Vice President,
Real Estate Lending Division
Janie L. Mishima
Senior Vice President,
Retail Banking & Marketing Division
Ronald L. Texeira
Senior Vice President,
Real Estate Lending Division
FIRST HAWAIIAN CREDITCORP, INC.
Donald G. Horner
Chairman
Harriet M. Aoki
President & Chief Executive Officer
Winston K. H. Chow
Executive Vice President
Romeo B. Estepa
Senior Vice President & Controller,
Controller's Division
Calvin H. Umamoto
Vice President/Bank Secrecy Officer,
Operations Division
FIRST HAWAIIAN LEASING, INC.
John K. Tsui
Chairman & Chief Executive Officer
Stephen J. Marcuccilli
President
PACIFIC ONE BANK
(A BANK IN ORGANIZATION)
Walter A. Dods, Jr.
Chairman-designate
Richard C. Williamson
President & Chief Executive Officer-designate
3
17
FIRST HAWAIIAN, INC. FINANCIAL REVIEW 1995 Index to Financial Review
- --------------------------------------------------------------------------------
18 Corporate Organization
19 Common Stock Information
20 Summary of Selected Consolidated Financial Data
21 Management's Discussion and Analysis of Financial
Condition and Results of Operations
36 Summary of Quarterly Financial Data (Unaudited)
37 Supplementary Data
38 Report of Independent Accountants
Financial Statements:
39 Consolidated Balance Sheets
40 Consolidated Statements of Income
41 Consolidated Statements of
Changes in Stockholders'
Equity
42 Consolidated Statements of Cash Flows
43 Notes to Financial Statements
58 Corporate Addresses
59 Supplemental Information
4
18
CORPORATE ORGANIZATION First Hawaiian, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
FIRST HAWAIIAN, INC.
First Hawaiian, Inc. (the "Company") is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended, and is incorporated under the
laws of the State of Delaware. As a bank holding company, the Company is
allowed to acquire or invest in the securities of companies that are engaged in
banking or in activities closely related to banking as authorized by the
Federal Reserve Board. The Company is also registered with the Office of Thrift
Supervision as a savings and loan holding company as a result of its ownership
of Pioneer Federal Savings Bank ("Pioneer").
The Company's organization consists of the following wholly-owned
subsidiaries:
FIRST HAWAIIAN BANK
First Hawaiian Bank (the "Bank") was founded in 1858 and is the oldest
financial institution in Hawaii. The Bank is a full-service bank conducting
general commercial and consumer banking business and offering trust services.
The Bank's activities include receiving demand, savings and time deposits;
making commercial, agricultural, real estate and consumer loans; selling
traveler's checks, personal money orders, mutual funds and annuities; issuing
letters of credit; handling domestic and foreign collections; renting safe
deposit boxes; and providing data processing services to customers.
The Bank's main office is located in Honolulu, Hawaii, with 60 other banking
offices located throughout the State of Hawaii. It also has two banking offices
in Guam, an offshore branch in Grand Cayman, British West Indies, a
representative office in Tokyo, Japan, and a worldwide network of correspondent
banks.
Deposits in the Bank are insured by the Federal Deposit Insurance
Corporation (the "FDIC") to the extent, and subject to the limitations, set
forth in the Federal Deposit Insurance Act, as amended (the "Act"). The Bank is
a State of Hawaii chartered bank and is not a member of the Federal Reserve
System.
The Bank also conducts business through the following wholly-owned
subsidiaries:
o FH CENTER, INC.
FH Center, Inc. owns certain real property in connection with the
construction of First Hawaiian Center, which will serve as the
Company's new headquarters upon completion in late 1996.
o FHB PROPERTIES, INC. AND
AMERICAN SECURITY PROPERTIES, INC.
FHB Properties, Inc. and American Security Properties, Inc. hold title
to certain property and premises upon which the Bank's business is
conducted.
o FIRST HAWAIIAN DEALER CENTER, INC.
First Hawaiian Dealer Center, Inc. is engaged in the business of
automobile financing and related business activities.
o REAL ESTATE DELIVERY, INC.
Real Estate Delivery, Inc. holds title to certain real property
acquired by the Bank in ordinary business activities.
PIONEER FEDERAL SAVINGS BANK
Pioneer is a federally chartered savings bank headquartered in Honolulu,
Hawaii. Pioneer, chartered in 1890, currently conducts its business through 19
full-service offices located throughout the four major islands of the State of
Hawaii.
Pioneer's principal business consists of attracting deposits from the
general public through a variety of deposit products. The deposits are insured
by the Savings Association Insurance Fund ("SAIF") of the FDIC to the extent,
and subject to the limitations, set forth in the Act. The deposits, together
with borrowings, principally from the Federal Home Loan Bank (the "FHLB") of
Seattle, and funds from ongoing operations, are used in the origination of 1-4
family residential mortgage loans and, to a lesser extent, consumer loans and
other mortgage loans.
FIRST HAWAIIAN CREDITCORP, INC.
First Hawaiian Creditcorp, Inc. ("Creditcorp") is a financial services loan
company operating in the State of Hawaii and in Guam.
The lending activities of Creditcorp are concentrated in both consumer and
commercial financing, primarily collateralized by real estate.
The primary source of funds for Creditcorp is from savings and time deposits
received from the general public. The deposits are insured by the FDIC to the
extent, and subject to the limitations, set forth in the Act.
Creditcorp has 12 branch offices located throughout the four major islands
of the State of Hawaii, a commercial office in Honolulu and a loan production
office in Guam.
FIRST HAWAIIAN LEASING, INC.
First Hawaiian Leasing, Inc. is a financial services loan company in the State
of Hawaii primarily engaged in commercial equipment and vehicle leasing and
financing.
FHI INTERNATIONAL, INC.
FHI International, Inc. was organized to engage in consumer financing services
and related activities outside the United States.
5
19
COMMON STOCK INFORMATION First Hawaiian, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The common stock of the Company is traded on The Nasdaq Stock Market under the
symbol FHWN. As of December 31, 1995, there were 4,966 holders of record of the
Company's common stock. A large number of shares are also held in the names of
nominees and brokers for individuals and institutions.
At December 31, 1995, the Company had 1,397,957 shares of common stock
in the treasury stock account. The Board of Directors (the "Board") has
authorized the total repurchase of up to 1.6 million shares, or five percent of
the Company's 31 million shares outstanding, to be held by the Company or used
for corporate purposes as designated by the Board. Through December 31, 1995,
the Company had repurchased 1,075,940 shares of common stock under such
authorization. Future purchases will be dependent upon authorization by the
Board in appropriate circumstances. These purchases are not expected to have a
material effect on the Company's liquidity, financial position or results of
operations.
A compilation of certain quarterly and annual per share data is presented
below:
- ----------------------------------------------------------------------------------------------------------------
Market Price
Net Dividends -------------------------------------
Income Paid High Low Close
- ----------------------------------------------------------------------------------------------------------------
1995
FIRST QUARTER $ .59 $ .295 $ 27 $ 23 $ 24 1/2
SECOND QUARTER .59 .295 28 24 1/2 26 3/4
THIRD QUARTER .62 .295 31 1/4 24 3/4 29 1/2
FOURTH QUARTER .63 .295 30 27 7/8 30
- ----------------------------------------------------------------
ANNUAL $ 2.43 $ 1.180 31 1/4 23 30
================================================================
1994
First Quarter $ .58 $ .295 27 1/4 24 1/4 26 1/4
Second Quarter .59 .295 28 1/2 25 1/2 28 1/2
Third Quarter .61 .295 31 1/4 28 28
Fourth Quarter .47 .295 28 3/4 23 23 3/4
- ----------------------------------------------------------------
Annual $ 2.25 $ 1.180 31 1/4 23 23 3/4
================================================================
1993 $ 2.52 $ 1.135 30 3/4 23 3/4 24 3/4
1992 $ 2.70 $ 1.06 29 3/4 23 1/2 28 3/4
1991 $ 2.55 $ .95 31 1/4 17 3/4 27 3/4
================================================================================================================
The Company expects to continue its policy of paying quarterly cash dividends.
The declaration and payment of cash dividends are subject to the Company's
future earnings, capital requirements, financial condition and certain
limitations as described in Note 10 to the Financial Statements.
6
20
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA First Hawaiian, Inc. and Subsidiaries
- ---------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
INCOME STATEMENTS AND DIVIDENDS
(in thousands)
Total interest income $559,957 $475,760 $428,931 $475,574 $517,019
Total interest expense 265,297 179,688 150,709 206,783 264,043
- ---------------------------------------------------------------------------------------------------------------
Net interest income 294,660 296,072 278,222 268,791 252,976
Provision for loan and lease losses 38,107 22,922 13,262 12,812 10,252
Total noninterest income 94,878 86,672 79,587 69,597 61,963
Total noninterest expenses 229,293 248,321 225,442 197,696 184,487
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of a change in accounting principle 122,138 111,501 119,105 127,880 120,200
Income taxes 45,133 38,990 40,898 40,980 38,490
- ---------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of a change in accounting principle 77,005 72,511 78,207 86,900 81,710
Cumulative effect of a change
in accounting principle -- -- 3,650 -- --
- ---------------------------------------------------------------------------------------------------------------
NET INCOME $ 77,005 $ 72,511 $ 81,857 $ 86,900 $ 81,710
===============================================================================================================
CASH DIVIDENDS $ 37,368 $ 38,008 $ 36,821 $ 34,161 $ 30,395
===============================================================================================================
COMMON STOCK DATA
Per share:
Income before cumulative effect
of a change in accounting principle $ 2.43 $ 2.25 $ 2.41 $ 2.70 $ 2.55
Net income 2.43 2.25 2.52 2.70 2.55
Cash dividends 1.18 1.18 1.135 1.06 .95
Book value (at December 31) 20.86 19.61 18.69 17.30 15.53
Market price (close at December 31) 30.00 23.75 24.75 28.75 27.75
Average shares outstanding (in thousands) 31,735 32,259 32,505 32,225 32,079
BALANCE SHEETS (in millions)
Average balances:
Total assets $7,528 $7,200 $6,755 $6,537 $6,007
Total earning assets 6,876 6,558 6,106 5,966 5,538
Loans and leases 5,461 5,172 4,619 4,358 3,837
Deposits 5,178 5,082 5,069 5,084 5,159
Stockholders' equity 640 618 584 526 470
At December 31:
Total assets $7,565 $7,535 $7,269 $6,553 $6,511
Loans and leases 5,260 5,534 5,067 4,396 4,329
Deposits 5,358 5,152 5,220 5,088 5,337
Long-term debt 239 219 222 71 62
Stockholders' equity 650 628 608 562 498
SELECTED RATIOS
Return on average:
Total assets 1.02% 1.01% 1.21% 1.33% 1.36%
Total stockholders' equity 12.03% 11.73% 14.01% 16.52% 17.38%
Dividend payout ratio 48.56% 52.44% 45.04% 39.26% 37.25%
Average stockholders' equity
to average total assets 8.50% 8.58% 8.65% 8.05% 7.82%
Year ended December 31:
Net interest margin 4.36% 4.63% 4.69% 4.62% 4.74%
Net loans and leases charged off to
average loans and leases .38% .46% .27% .27% .13%
At December 31:
Tier 1 leverage ratio 7.72% 7.51% 7.45% 7.72% 6.80%
Risk-based capital ratios:
Tier 1 9.03% 9.31% 9.80% 10.49% 9.03%
Total 11.88% 12.06% 12.84% 11.67% 10.17%
Allowance for loan and lease losses to
total loans and leases 1.50% 1.11% 1.23% 1.28% 1.27%
Nonperforming assets to total loans
and leases and other real estate owned 1.75% 1.14% 1.44% 1.65% .90%
Allowance for loan and lease losses to
nonperforming loans and leases .95x 1.04x 1.03x .79x 1.49x
===============================================================================================================
7
21
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
OVERVIEW
The Company recorded consolidated net income for 1995 of $77,005,000, an
increase of 6.2%, or $4,494,000, from $72,511,000 in 1994. On a per share
basis, consolidated net income for 1995 was $2.43, an increase of 8.0% over
1994. The proportionately greater increase in earnings per share was
attributable to the fewer average number of shares outstanding in 1995 as a
result of the stock repurchase program previously mentioned.
The Company increased its earnings in 1995, while also bolstering its
allowance for loan and lease losses to 1.50% of total loans and leases as of
December 31, 1995, due to three nonrecurring items. These were: (1) a pre-tax
gain of $20,766,000 (recorded as a pension credit in the employee benefits line
of the Consolidated Statements of Income) in connection with the curtailment of
the Company's noncontributory pension plan; (2) the decrease in FDIC insurance
expense of $5,198,000 primarily as a result of a reduction in the insurance
premiums from 23 cents to 4 cents per $100 of deposits effective June 1, 1995;
and (3) the receipt of insurance proceeds and reversal of accruals totalling
$4,700,000 related to losses in the trust area recognized in 1994. In December
1994, the Company recognized a pre-tax charge of $5,000,000 to cover estimated
losses attributable to investments in the trust area that were outside of
certain clients' express investment guidelines.
In recent years, the level of the Company's nonperforming assets and
charge-offs has been adversely affected by the prolonged economic downturn in
Hawaii and related weakness in the local real estate market. The Company's
nonperforming assets, principally real estate assets, increased from 1.14% of
total loans and leases and other real estate owned as of December 31, 1994, to
1.75% as of December 31, 1995. Net charge-offs to average loans and leases were
.38% for 1995 and .46% for 1994 compared to .27% in 1993. As a result, the
provision for loan and lease losses in 1995 was $38,107,000 (including
approximately $26,000,000 on a nonrecurring basis), an increase of 66.2% over
the provision for loan and lease losses in 1994.
Net income for 1994 decreased by $9,346,000, or 11.4%, compared to 1993. Net
income per share for 1994 was $2.25 compared to $2.52 in 1993. The decline in
earnings was primarily due to a higher provision for loan and lease losses of
$9,660,000 attributable to the write-off of certain problem loans and the
nonrecurring charge of $5,000,000 in the trust area previously mentioned. In
addition, net income for 1993 included a nonrecurring income tax benefit of
$3,650,000 attributable to an income tax accounting change and the $5,444,000
write-off of the undepreciated cost of certain structures in connection with
the Company's redevelopment of its former downtown headquarters block.
At December 31, 1995, the Company's ratios of Tier 1 Capital to
risk-weighted assets and Total Capital to risk-weighted assets were 9.03% and
11.88%, respectively, compared with 9.31% and 12.06%, respectively, at December
31, 1994. These ratios are well in excess of the minimum ratios of 4.00% and
8.00%, respectively, specified by the Federal Reserve Board.
PROPOSED ACQUISITION
On December 4, 1995, the Company entered into certain Branch Purchase and
Assumption Agreements to purchase certain assets, principally loans, and assume
certain liabilities, principally deposit accounts, of U.S. Bancorp and West One
Bancorp as described in Note 1 to the Financial Statements. The Company
anticipates that this acquisition will be completed during the second quarter
of 1996.
[GRAPH]
ASSETS LOANS
(in millions) (in millions)
1995 $7,565 $5,260
1994 $7,535 $5,534
1993 $7,269 $5,067
1992 $6,553 $4,396
1991 $6,511 $4,329
8
22
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
NET INTEREST INCOME
As reflected in Table 1, net interest income, on a taxable equivalent basis,
decreased $3,717,000, or 1.2%, from $303,424,000 in 1994 to $299,707,000 in
1995. This decrease was primarily due to a 27 basis point (1% equals 100 basis
points) decrease in the net interest margin, partially offset by a 4.8%
increase in average earning assets, reflecting significant growth in loans and
leases. Net interest income increased by $17,031,000, or 5.9%, from 1993 to
1994 primarily due to a 7.4% increase in average earning assets (principally as
a result of the Pioneer acquisition in August 1993), offset by a 6 basis point
decrease in the net interest margin. Tables 1 and 2 present an analysis of the
components and changes in net interest income for 1995, 1994 and 1993.
The net interest margin was 4.36% for 1995, down 27 basis points compared to
1994. Both the cost of funds and yield on average earning assets increased
during 1995 over the prior year due to a higher interest rate environment
throughout most of the year and the continuing shift of the Company's assets
into loans and leases (excluding the effect of the mortgage securitization
described below). However, the 112 basis point increase in the rate paid for
sources of funds used for such earning assets (reflecting among other things
various deposit programs to fund loan growth and a decrease in average
noninterest-bearing demand deposits of $45,211,000, or 5.2%) outpaced the
increase in the yield on average earning assets of 85 basis points, resulting
in an unfavorable impact on the net interest margin. In 1995, the yield on
average earning assets was also adversely impacted by the: (1) reversal of
$1,806,000 in previously recognized interest income on certain loans placed on
nonaccrual status; (2) write-off of $743,000 in lease finance interest income
for the remaining net investment in certain leveraged leases, exclusive of the
residual values, as a result of the early termination of these leases; and (3)
decrease in loan fees of $5,366,000 as compared to 1994.
In 1994, as a result of increases in prevailing interest rates, the yield on
average earning assets increased 21 basis points and the rate paid for sources
of funds used for such earning assets increased 27 basis points, which resulted
in a decrease in the net interest margin from 4.69% to 4.63%.
Average earning assets increased by $317,978,000, or 4.8%, in 1995 over
1994. In the second quarter of 1995, the Company securitized approximately
$461,449,000 of adjustable rate mortgage loans with the Federal National
Mortgage Association ("FNMA") in an effort to increase its funding capacity and
liquidity. The securities backed by these loans are held by the Company and
were reclassified to the investment security portfolio. Excluding the effect
of such securitization, average loans and leases increased 10.1% in 1995 over
1994. The increase was primarily due to efforts to diversify the loan
portfolio, both geographically and by industry. Credit extensions to companies
in the media and telecommunications industry located on the mainland United
States accounted for the majority of the increase. As a result (excluding the
effect of the loan securitization), the mix of average earning assets changed,
with average loans and leases representing 82.8% of average earning assets for
1995 as compared to 78.9% in 1994.
Average earning assets increased by $452,160,000, or 7.4%, in 1994 over
1993. In addition, the mix of earning assets changed slightly, as the Company
increased the amount of average loans and leases in its portfolio, from 75.7%
of average earning assets in 1993 to 78.9% in 1994. Average loans and leases
increased by $552,739,000, or 12.0%, from 1993 to 1994, principally as a result
of the Pioneer acquisition.
Average interest-bearing deposits and liabilities increased by $294,061,000,
or 5.3%, in 1995 over 1994. As a result of depositors seeking higher yields,
the mix of average interest-bearing deposits and liabilities changed with
higher-yielding average time deposits representing 33.9% of average
interest-bearing deposits and liabilities in 1995 as compared to 27.1% in 1994.
As reflected in Table 2, the increase in total interest expense of $85,609,000
from 1994 to 1995 consisted of an increase of $63,872,000 due to higher
interest rates and an increase of $21,737,000 due to higher average balances.
Average interest-bearing deposits and liabilities increased by $469,204,000,
or 9.2%, in 1994 over 1993, principally as a result of the Pioneer acquisition.
As reflected in Table 2, the increase in total interest expense of $28,979,000
from 1993 to 1994 was comprised of an increase of $22,281,000 due to higher
average balances and an increase of $6,698,000 due to higher interest rates.
[GRAPH]
NET INTEREST INCOME* AVERAGE EARNING ASSETS
(in millions) (in billions)
1995................................... $299.7 $6.88
1994................................... 303.4 6.56
1993................................... 286.4 6.11
1992................................... 275.8 5.97
1991................................... 262.7 5.54
* taxable equivalent basis
9
23
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
TABLE 1: AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AND YIELDS AND RATES
(TAXABLE EQUIVALENT BASIS)
The following table sets forth the condensed consolidated average balance
sheets, an analysis of interest income/expense and average yield/rate for each
major category of earning assets and interest-bearing deposits and liabilities
for the years indicated on a taxable equivalent basis. The tax equivalent
adjustment is made for items exempt from Federal income taxes (assuming a 35%
tax rate for 1995, 1994 and 1993) to make them comparable with taxable items
before any income taxes are applied.
1995 1994 1993
-------------------------- ------------------------- ---------------------------
INTEREST Interest Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) BALANCE EXPENSE RATE Balance Expense Rate Balance Expense Rate
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Earning assets:
Interest-bearing deposits
in other banks:
Domestic $ 11,849 $ 771 6.51% $ 12,078 $ 615 5.09% $ 21,098 $ 633 3.00%
Foreign 50,613 2,956 5.84 55,214 2,011 3.64 211,543 6,666 3.15
- ----------------------------------------------- ------------------- --------------------
Total interest-
bearing deposits
in other banks 62,462 3,727 5.97 67,292 2,626 3.90 232,641 7,299 3.14
- ----------------------------------------------- ------------------- --------------------
Federal funds sold and
securities purchased
under agreements to
resell 207,237 12,003 5.79 127,821 5,179 4.05 160,647 5,097 3.17
Held-to-maturity securities:
U.S. Treasury and other
U.S. Government
agencies and
corporations 705,996 37,358 5.29 803,544 34,530 4.30 803,096 39,537 4.92
States and political
subdivisions 104,336 8,043 7.71 163,769 9,874 6.03 184,678 9,988 5.41
Other 172,725 11,320 6.55 95,793 5,574 5.82 54,476 3,879 7.12
- ----------------------------------------------- ------------------- --------------------
Total held-to-maturity
securities 983,057 56,721 5.77 1,063,106 49,978 4.70 1,042,250 53,404 5.12
- ----------------------------------------------- ------------------- --------------------
Available-for-sale
securities 162,417 10,485 6.46 127,517 6,354 4.98 50,777 1,950 3.84
Loans and leases: (1) (2)
Domestic 5,239,888 461,067 8.80 4,953,951 400,003 8.07 4,412,653 352,045 7.98
Foreign 220,793 21,001 9.51 218,189 18,972 8.69 206,748 17,307 8.37
- ----------------------------------------------- ------------------- --------------------
Total loans
and leases 5,460,681 482,068 8.83 5,172,140 418,975 8.10 4,619,401 369,352 8.00
- ----------------------------------------------- ------------------- --------------------
TOTAL EARNING
ASSETS 6,875,854 565,004 8.22 6,557,876 483,112 7.37 6,105,716 437,102 7.16
- ----------------------------------------------- ------------------- --------------------
Cash and due from banks 242,412 265,103 298,765
Premises and equipment 243,579 250,391 230,547
Core deposit premium 13,672 14,588 13,156
Goodwill 76,893 79,178 67,678
Other assets 76,086 33,077 39,390
- -------------------------------------- ---------- ----------
TOTAL ASSETS $7,528,496 $7,200,213 $6,755,252
====================================== ========== ==========
Notes:
(1) Nonaccruing loans and leases have been included in the computations of
average loan and lease balances.
(2) Interest income for loans and leases included loan fees of $23,951,
$29,317 and $25,145 for 1995, 1994 and 1993, respectively.
10
24
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
1995 1994 1993
----------------------------- ----------------------------- -------------------------------------
INTEREST Interest Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) BALANCE EXPENSE RATE Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits
and liabilities:
Deposits:
Interest-bearing
demand $1,114,737 $ 30,034 2.69% $1,206,562 $ 25,383 2.10% $1,247,954 $ 26,652 2.14%
Savings 1,177,277 34,272 2.91 1,422,297 30,865 2.17 1,544,694 33,259 2.15
Time 1,707,967 92,942 5.44 1,369,020 56,254 4.11 1,223,151 53,162 4.35
Foreign (interest-
bearing) 346,886 18,800 5.42 207,655 7,787 3.75 127,830 3,814 2.98
- ------------------------------------------------ --------------------- ------------------------
Total interest-bearing
deposits 4,346,867 176,048 4.05 4,205,534 120,289 2.86 4,143,629 116,887 2.82
Short-term borrowings 1,271,981 74,369 5.85 1,136,361 47,813 4.21 814,843 26,477 3.25
Long-term debt 230,394 14,880 6.46 213,286 11,586 5.43 127,505 7,345 5.76
- ------------------------------------------------ --------------------- ------------------------
TOTAL INTEREST-
BEARING DEPOSITS
AND LIABILITIES 5,849,242 265,297 4.54 5,555,181 179,688 3.23 5,085,977 150,709 2.96
- ------------------------------------------------ --------------------- ------------------------
Noninterest-bearing
demand deposits 831,485 876,696 925,497
Other liabilities 207,619 149,922 159,403
- -------------------------------------- ---------- ----------
Total liabilities 6,888,346 6,581,799 6,170,877
Stockholders' equity 640,150 618,414 584,375
- -------------------------------------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $7,528,496 $7,200,213 $6,755,252
====================================== ========== ==========
NET INTEREST INCOME
AND MARGIN ON
EARNING ASSETS 299,707 4.36% 303,424 4.63% 286,393 4.69%
Tax equivalent
adjustment 5,047 7,352 8,171
- --------------------------- -------- -------- --------
NET INTEREST INCOME $294,660 $296,072 $278,222
==============================================================================================================================
11
25
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
TABLE 2: ANALYSIS OF CHANGES IN NET INTEREST INCOME (TAXABLE EQUIVALENT BASIS)
The following table analyzes the dollar amount of change (on a taxable
equivalent basis) in interest income and expense and the changes in dollar
amounts attributable to (a) changes in volume (change in volume times prior
year's rates), (b) changes in rates (change in rate times prior year's volume),
and (c) changes in rate/volume (change in rate times change in volume). In this
table, the dollar change in rate/volume is prorated to volume and rate
proportionately. The tax equivalent adjustment is made for items exempt from
Federal income taxes (assuming a 35% tax rate for 1995, 1994 and 1993) to make
them comparable with taxable items before any income taxes are applied.
1995 COMPARED TO 1994 -- 1994 Compared to 1993 --
INCREASE (DECREASE) DUE TO: Increase (Decrease) Due to:
------------------------------------- ----------------------------------
NET INCREASE Net Increase
(in thousands) VOLUME RATE (DECREASE) Volume Rate (Decrease)
- ------------------------------------------------------------------------------------------------------------------
Interest earned on:
Interest-bearing deposits
in other banks:
Domestic $ (12) $ 168 $ 156 $ (494) $ 476 $ (18)
Foreign (180) 1,125 945 (5,325) 670 (4,655)
- -----------------------------------------------------------------------------------------------------------------
Total interest-
bearing deposits
in other banks (192) 1,293 1,101 (5,819) 1,146 (4,673)
- -----------------------------------------------------------------------------------------------------------------
Federal funds sold and
securities purchased under
agreements to resell 4,035 2,789 6,824 (1,164) 1,246 82
Held-to-maturity securities:
U.S. Treasury and other
U.S. Government
agencies and
corporations (4,525) 7,353 2,828 22 (5,029) (5,007)
States and political
subdivisions (4,148) 2,317 (1,831) (1,195) 1,081 (114)
Other 4,967 779 5,746 2,509 (814) 1,695
- -----------------------------------------------------------------------------------------------------------------
Total held-to-maturity securities (3,706) 10,449 6,743 1,336 (4,762) (3,426)
- -----------------------------------------------------------------------------------------------------------------
Available-for-sale securities 1,986 2,145 4,131 3,680 724 4,404
Loans and leases: (1)
Domestic 23,899 37,165 61,064 43,660 4,298 47,958
Foreign 228 1,801 2,029 980 685 1,665
- -----------------------------------------------------------------------------------------------------------------
Total loans and leases 24,127 38,966 63,093 44,640 4,983 49,623
- -----------------------------------------------------------------------------------------------------------------
Total earning assets 26,250 55,642 81,892 42,673 3,337 46,010
- -----------------------------------------------------------------------------------------------------------------
Interest paid on:
Deposits:
Interest-bearing demand (2,047) 6,698 4,651 (875) (394) (1,269)
Savings (5,926) 9,333 3,407 (2,654) 260 (2,394)
Time 15,883 20,805 36,688 6,103 (3,011) 3,092
Foreign (interest-bearing) 6,618 4,395 11,013 2,815 1,158 3,973
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 14,528 41,231 55,759 5,389 (1,987) 3,402
Short-term borrowings 6,227 20,329 26,556 12,210 9,126 21,336
Long-term debt 982 2,312 3,294 4,682 (441) 4,241
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits
and liabilities 21,737 63,872 85,609 22,281 6,698 28,979
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET INTEREST INCOME
(TAXABLE EQUIVALENT BASIS) $ 4,513 $ (8,230) $(3,717) $20,392 $ (3,361) $17,031
=================================================================================================================
Note:
(1) Interest income for loans and leases included loan fees of $23,951,
$29,317 and $25,145 for 1995, 1994 and 1993, respectively.
12
26
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
NONINTEREST INCOME
Total noninterest income increased $8,206,000, or 9.5%, from $86,672,000 in
1994 to $94,878,000 in 1995.
Trust fees increased $187,000, or .8%, from 1994 to 1995 and $1,446,000, or
6.8%, from 1993 to 1994. The increase was primarily the result of increases in
fees from pension plans and irrevocable trusts and investment management fees
resulting from new business.
Service charges on deposit accounts increased $136,000, or .6%, from 1994 to
1995 and $2,223,000, or 10.2%, from 1993 to 1994. Excluding a $1,000,000 fee
received in 1994 in connection with the renewal of a certain contract, service
charges on deposit accounts increased 4.9% over 1994. The increase is
attributable to an increase in fees on checks returned and paid. In addition
to the fee mentioned above, the increase from 1993 to 1994 was also due to an
increase in service charges on checking accounts by Pioneer.
Other service charges and fees increased $3,614,000, or 11.3%, from 1994 to
1995 and $4,277,000, or 15.5%, from 1993 to 1994. The increase from 1994 to
1995 was primarily as a result of higher merchant discount fees and commissions
from annuity and mutual fund sales. Increases in fee income from loan
servicing and credit cards, miscellaneous commissions and the Pioneer
acquisition accounted for the increase from 1993 to 1994.
Securities gains, net remained relatively constant between 1995 and 1994,
but decreased $1,777,000, or 90.9%, from 1993 to 1994. The Company sold its
Federal National Mortgage Association and Student Loan Marketing Association
stock and recognized a gain of $1,873,000 in 1993.
Other noninterest income increased $4,304,000, or 55.9%, from 1994 to 1995
and $916,000, or 13.5%, from 1993 to 1994. The increase from 1994 to 1995 was
primarily attributable to the receipt of insurance proceeds and reversal of
accruals totalling $4,700,000 in 1995 related to losses in the trust area
recognized in 1994. In December 1994, the Company recognized a nonrecurring
pre-tax charge of $5,000,000 (recorded in other noninterest expenses) to cover
estimated losses attributable to investments made in the trust area that were
outside of certain clients' express investment guidelines.
Components of and changes in noninterest income are reflected below for the
years indicated:
- --------------------------------------------------------------------------------------------------------------
1995/94 CHANGE 1994/93 Change
----------------- -----------------
(in thousands) 1995 1994 1993 AMOUNT % Amount %
- --------------------------------------------------------------------------------------------------------------
Trust income $23,034 $22,847 $21,401 $ 187 .8% $ 1,446 6.8%
Service charges on deposit accounts 24,150 24,014 21,791 136 .6 2,223 10.2
Other service charges and fees 35,551 31,937 27,660 3,614 11.3 4,277 15.5
Securities gains, net 144 178 1,955 (34) (19.1) (1,777) (90.9)
Other 11,999 7,696 6,780 4,303 55.9 916 13.5
- -------------------------------------------------------------------------------- -------
TOTAL NONINTEREST INCOME $94,878 $86,672 $79,587 $8,206 9.5% $ 7,085 8.9%
==============================================================================================================
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses is based upon management's judgment as
to the adequacy of the allowance to absorb future losses. In assessing the
adequacy of the allowance for loan and lease losses, management's methodology
takes into consideration the factors described in the Notes to the Financial
Statements. This assessment is performed on a quarterly basis.
The provision for loan and lease losses for 1995 was $38,107,000, an
increase of 66.2%, or $15,185,000, over 1994. The increase reflects, among
other factors, the Company's evaluation of economic conditions and trends in
Hawaii (in particular, the relatively slow improvement in the Hawaii economy
following the recent recession), the increase in net charge-offs in recent
years and higher levels of nonperforming assets that the Company has had over
the past several years. Based on these continuing factors, the Company's
near-term goal was to increase the allowance for loan and lease losses to 1.50%
of total loans and leases, which was accomplished in the fourth quarter of
1995.
Net charge-offs in 1995 totalled $20,624,000 compared to $23,925,000 in
1994. Net charge-offs in 1995 and 1994 represented .38% and .46%, respectively,
of average outstanding loans and leases.
At December 31, 1995, the allowance for loan and lease losses totalled
$78,733,000 and represented 1.50% of total outstanding loans and leases
compared to $61,250,000 and 1.11% as of December 31, 1994.
The allowance for loan and lease losses decreased to 95.0% of nonperforming
loans and leases at December 31, 1995 (excluding 90 days or more past due
accruing loans and leases) from 103.9% at December 31, 1994, reflecting the
increase in nonperforming loans and leases (a majority of which are
collateralized by real estate) in 1995 over 1994. In management's judgment, the
allowance for loan and lease losses is adequate to absorb potential losses
currently inherent in the portfolio, however, changes in prevailing economic
conditions in the Company's markets could result in changes in the level of
nonperforming assets and charge-offs in the future and, accordingly, changes in
the allowance for loan and lease losses.
13
27
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
The provision for loan and lease losses in 1994 was $22,922,000, an increase
of 72.8%, or $9,660,000, compared to 1993, reflecting, among other factors the
high levels of charge-offs in 1994. Net charge-offs in 1994 totalled
$23,925,000 compared to $12,619,000 in 1993.
The following sets forth the activity in the allowance for loan and lease
losses for the years indicated:
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
Loans and leases outstanding (end of year) $5,259,545 $5,533,565 $5,066,809 $4,396,018 $4,329,321
==========================================================================================================================
Average loans and leases outstanding $5,460,681 $5,172,140 $4,619,401 $4,358,363 $3,836,844
==========================================================================================================================
Allowance for loan and lease losses:
Balance at beginning of year $ 61,250 $ 62,253 $ 56,385 $ 55,134 $ 39,847
Allowance applicable to loans
of purchased company (1) -- -- 5,225 -- 10,141
Loans and leases charged off:
Commercial, financial and agricultural 7,197 11,307 3,004 2,110 758
Real estate:
Construction 1,466 7,178 4,506 3,932 --
Commercial 2,763 1,500 125 250 294
Residential 2,707 588 562 -- --
Consumer 8,019 6,542 6,839 7,093 5,481
Lease financing 276 -- 27 25 --
Foreign 417 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total loans and leases charged off 22,845 27,115 15,063 13,410 6,533
- --------------------------------------------------------------------------------------------------------------------------
Recoveries on loans and leases previously
charged off:
Commercial, financial and agricultural 327 1,229 235 349 313
Real estate:
Construction -- 205 -- -- 1
Commercial 239 9 321 1 42
Residential 43 92 207 35 --
Consumer 1,596 1,639 1,667 1,456 1,066
Lease financing 16 16 14 8 5
- --------------------------------------------------------------------------------------------------------------------------
Total recoveries on loans and leases
previously charged off 2,221 3,190 2,444 1,849 1,427
- --------------------------------------------------------------------------------------------------------------------------
Net charge-offs (20,624) (23,925) (12,619) (11,561) (5,106)
Provision charged to expense 38,107 22,922 13,262 12,812 10,252
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 78,733 $ 61,250 $ 62,253 $ 56,385 $ 55,134
==========================================================================================================================
Net loans and leases charged off
to average loans and leases .38% .46% .27% .27% .13%
Net loans and leases charged off to
allowance for loan and lease losses 26.19% 39.06% 20.27% 20.50% 9.26%
Allowance for loan and lease losses to
total loans and leases (end of year) 1.50% 1.11% 1.23% 1.28% 1.27%
Allowance for loan and lease losses to
nonperforming loans and leases:
Excluding 90 days or more past due accruing
loans and leases .95x 1.04x 1.03x .79x 1.49x
Including 90 days or more past due accruing
loans and leases .70x .66x .62x .44x .86x
==========================================================================================================================
Note:
(1) Allowances of $5,225 in 1993 and $10,141 in 1991 were related to the
acquisitions of Pioneer Federal Savings Bank and First Interstate Bank
of Hawaii, respectively.
14
28
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
The Company has allocated a portion of the allowance for loan and lease losses
according to the amount deemed to be reasonably necessary to provide for the
possibility of losses being incurred within the various loan and lease
categories as of December 31 for the years indicated:
- ---------------------------------------------------------------------------------
1995 1994
-------------------------- --------------------------
PERCENT OF Percent of
LOANS/LEASES Loans/Leases
IN EACH in Each
CATEGORY Category
ALLOWANCE TO TOTAL Allowance to Total
(in thousands) AMOUNT LOANS/LEASES Amount Loans/Leases
- ---------------------------------------------------------------------------------
Domestic:
Commercial,
financial
and agricultural $15,325 25% $16,610 23%
Real estate:
Construction 4,035 5 7,010 6
Commercial 2,320 19 4,700 18
Residential 4,260 34 9,510 37
Consumer 9,550 9 8,040 8
Lease financing 645 4 600 4
Foreign 1,430 4 1,085 4
General allowance 41,168 N/A 13,695 N/A
- --------------------------------------------------------------------------------
CONSOLIDATED $78,733 100% $61,250 100%
================================================================================
- -------------------------------------------------------------------------------------------------------
1993 1992 1991
---------------------------- ----------------------- --------------------------
Percent of Percent of Percent of
Loans/Leases Loans/Leases Loans/Leases
in Each in Each in Each
Category Category Category
Allowance to Total Allowance to Total Allowance to Total
(in thousands) Amount Loans/Leases Amount Loans/Leases Amount Loans/Leases
- -------------------------------------------------------------------------------------------------------
Domestic:
Commercial,
financial
and agricultural $13,000 24% $14,700 27% $14,335 26%
Real estate:
Construction 11,850 7 4,400 10 7,719 11
Commercial 3,400 17 5,400 16 1,785 17
Residential 4,700 35 3,000 28 2,626 25
Consumer 7,500 9 7,100 10 7,121 11
Lease financial 1,350 4 1,300 4 1,367 5
Foreign 1,600 4 1,700 5 500 5
General allowance 18,853 N/A 18,785 N/A 19,681 N/A
- -------------------------------------------------------------------------------------------------------
CONSOLIDATED $62,253 100% $56,385 100% $55,134 100%
=======================================================================================================
[GRAPH]
ALLOWANCE AS A % YEAR-END ALLOWANCE
OF LOANS AND LEASES FOR LOAN AND LEASE
OUTSTANDING LOSSES (in millions)
1995 1.27% 1995 $55.1
1994 1.28% 1994 $56.4
1993 1.23% 1993 $62.3
1992 1.11% 1992 $61.3
1991 1.50% 1991 $78.7
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan," amended in October 1994 by SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures." The adoption
of SFAS No. 114 did not result in an increase in the allowance for loan and
lease losses primarily because the majority of impaired loan valuations
continue to be based on the fair value of the collateral.
NONINTEREST EXPENSES
Total noninterest expenses for 1995 totalled $229,293,000, a decrease of
$19,028,000, or 7.7%, from 1994.
Total personnel expenses for 1995 decreased $17,393,000, or 14.7%, compared
to 1994. The decrease was primarily due to a nonrecurring gain of $20,766,000
recognized in 1995 in connection with the curtailment of the Company's
noncontributory pension plan. The decrease was partially offset by higher
salaries and wages reflecting normal merit increases.
Occupancy expense increased $2,426,000, or 10.4%, over 1994 primarily as a
result of higher depreciation, insurance and rental expenses. The increase in
depreciation and insurance expenses was primarily attributable to the
construction of a new five-story, 75,000-square-foot office building, including
a branch, on property owned in fee simple in Maite, Guam, in late 1994.
Equipment expense decreased $905,000, or 3.6%, compared to 1994. The
decrease was due to the completion of the Company's migration from a Unisys to
an IBM information technology platform and improvements in the delivery and
processing systems.
Deposit insurance expense decreased $5,198,000, or 45.6%, compared to 1994.
The decrease was due to the reduction in the FDIC assessment rate from 23 cents
to 4 cents per $100 effective June 1, 1995. In addition, current legislative
discussion associated with the undercapitalized SAIF could potentially result
in a one-time assessment to the Company's SAIF-insured deposits. Although
uncertain, the timing of the assessment may be as early as the first quarter of
1996.
In 1994, the Company recognized a nonrecurring charge of $5,000,000 to cover
estimated losses attributable to investments made in the trust area that were
outside of certain clients' express investment guidelines.
Other expenses increased $7,721,000, or 16.0%, over 1994 as a result of
higher software depreciation expense in connection with the aforementioned
migration from Unisys
15
29
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
to IBM, interchange fees, outside services and legal fees for certain
delinquent and/or nonaccrual loans and other real estate owned.
Noninterest expenses increased $22,879,000, or 10.1%, from 1993 to 1994.
This increase was primarily due to higher personnel expenses and rental
expenses, partly as a result of the Pioneer acquisition, higher depreciation,
rental expense and maintenance service contracts in connection with the
previously mentioned conversion from a Unisys to IBM information technology
platform, the previously mentioned trust loss, a loss of $1,409,000 on the
disposition of certain other real estate owned, higher outside services,
utility charges, professional fees, the Pioneer acquisition and lower interest
capitalization on construction in progress. This increase was partially offset
by the write-off of $5,444,000 for the undepreciated cost of certain structures
on the Company's redevelopment block in 1993.
In October 1995, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
provides for, but does not require the use of, an alternative method of
accounting for stock-based employee compensation plans (the "fair value based
method"). The Company presently utilizes the "intrinsic value based method" of
accounting prescribed in Accounting Principles Board Opinion ("APBO") No. 25,
"Accounting for Stock Issued to Employees." For companies electing to remain
with the accounting prescribed in APBO No. 25, certain pro forma disclosures
of net income and earnings per share will be required, as if the fair value
based method of accounting defined in SFAS No. 123 had been applied. SFAS
No. 123 applies to fiscal years beginning after December 15, 1995. The Company
does not intend to change its method of accounting and will instead provide
pro forma disclosures in the notes to the financial statements as if the fair
value based method had been applied. Accordingly, the adoption of this
standard will not have an effect on the consolidated financial statements of
the Company.
Components of and changes in noninterest expenses are reflected below for the
years indicated:
- -----------------------------------------------------------------------------------------------------------
1995/94 CHANGE 1994/93 Change
---------------- -----------------
(in thousands) 1995 1994 1993 AMOUNT % Amount %
- -----------------------------------------------------------------------------------------------------------
Personnel:
Salaries and wages $ 94,119 $ 92,237 $ 86,011 $ 1,882 2.0 % $ 6,226 7.2%
Employee benefits 7,209 26,484 24,783 (19,275) (72.8) 1,701 6.9
- ---------------------------------------------------------------------------- -------
Total personnel expenses 101,328 118,721 110,794 (17,393) (14.7) 7,927 7.2
Occupancy expense 25,706 23,280 20,416 2,426 10.4 2,864 14.0
Equipment expense 23,907 24,812 20,243 (905) (3.6) 4,569 22.6
Deposit insurance 6,190 11,388 11,122 (5,198) (45.6) 266 2.4
Stationery and supplies 8,645 9,055 8,430 (410) (4.5) 625 7.4
Advertising and promotion 7,476 7,745 6,911 (269) (3.5) 834 12.1
Trust loss -- 5,000 -- (5,000) (100.0) 5,000 --
Write-off of building costs -- -- 5,444 -- -- (5,444)(100.0)
Other 56,041 48,320 42,082 7,721 16.0 6,238 14.8
- ---------------------------------------------------------------------------- -------
TOTAL NONINTEREST EXPENSES $229,293 $248,321 $225,442 $(19,028) (7.7)% $22,879 10.1%
==========================================================================================================
INCOME TAXES
The provision for income taxes as shown in the Consolidated Statements of
Income represents 37.0% of pre-tax income for 1995, compared with 35.0% and
34.3% for 1994 and 1993, respectively.
On a taxable equivalent basis, the effective tax rate for 1995, 1994 and
1993 was 41.1%, 41.6% and 38.6%, respectively. Additional information on the
Company's income taxes is provided in Note 13 to the Financial Statements.
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes," the cumulative effect of which was the recognition of an income
tax benefit of $3,650,000 in the first quarter of 1993. Under SFAS No. 109, the
effect of changes in tax rates is recognized in income in the period that
includes the enactment date. On August 10, 1993, the Omnibus Budget
Reconciliation Act of 1993 was signed into law, increasing the Federal
corporate tax rate from 34% to 35%, retroactive to January 1, 1993. As a
result, the Company recognized retroactive adjustments to its deferred tax
liability and current tax provision of $1,520,000 and $402,000, respectively,
in 1993.
16
30
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
LOANS
The following table sets forth the loan portfolio by major categories and loan
mix as of December 31 for the years indicated:
- --------------------------------------------------------------------------------
(in millions) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
Domestic:
Commercial, financial and agricultural $1,316 $1,264 $1,166 $1,175 $1,149
Real estate:
Construction 257 321 317 438 484
Commercial 997 965 883 720 739
Residential 1,766 2,049 1,829 1,217 1,060
Consumer 307 309 312 326 355
Credit cards 167 159 148 148 142
Lease financing 242 231 201 171 181
Foreign:
Governments and official institutions -- 1 2 3 22
Commercial and industrial 19 50 79 78 74
Other 189 185 130 120 123
- --------------------------------------------------------------------------------------------------------------
TOTAL LOANS AND LEASES $5,260 $5,534 $5,067 $4,396 $4,329
==============================================================================================================
The loan and lease portfolio is the largest component of earning assets and
accounts for the greatest portion of total interest income. At December 31,
1995, total loans and leases were $5,259,545,000, a decrease of 5.0% from
December 31, 1994.
In 1995, the Company securitized $461,449,000 in adjustable rate mortgage
loans in an effort to increase its funding capacity and liquidity. These
securitized loans were classified in the investment securities portfolio at
December 31, 1995. If these securitized loans had been included within the loan
category at December 31, 1995, the loan growth over December 31, 1994 would
have been 2.7%.
Total loans and leases at December 31, 1995, represented 69.5% of total
assets, 77.7% of total earning assets and 98.2% of total deposits compared to
73.4% of total assets, 81.2% of total earning assets and 107.4% of total
deposits at December 31, 1994. The decreases in percentages compared to
December 31, 1994 were due to the aforementioned loan securitization.
Governmental and certain other time deposits were shifted into security
repurchase agreements at December 31, 1995 and 1994 to reduce the Company's
deposit insurance premiums. If these repurchase agreements had been included in
the deposit base, total loans and leases as a percentage of total deposits
would represent 85.7% and 92.6%, respectively, at such dates.
Commercial, financial and agricultural loans as of December 31, 1995,
increased $51,579,000, or 4.1%, to $1,315,736,000 from 1994. The increase
reflects efforts to diversify the loan portfolio, both geographically and by
industry. Credit extensions in the media and telecommunications industry
located on the mainland United States accounted for the majority of the
increase.
The Company's real estate loans totalled $3,019,950,000, or 57.4% of total
loans at December 31, 1995 and represented a decrease of 9.5% compared to
December 31, 1994. Excluding the loan securitization mentioned above, real
estate loan growth over December 31, 1994 would have been 3.3%.
The Company's primary goal in real estate lending is to maintain reasonable
levels of risk by avoiding speculative real estate transactions, such as the
financing of raw land acquisitions, by adhering to underwriting guidelines and
by closely monitoring general economic conditions impacting local real estate
markets. The Company's multifamily and commercial real estate loans, both
construction and permanent, are analyzed on the basis of the economic viability
of the specific project or property for which financing is sought as well as
the loan-to-value ratio of the real estate securing the financing and the
underlying financial strength of the borrower. In its multifamily and
commercial real estate lending, the Company will generally not lend in excess of
75% of the appraised value of the underlying project or property; it generally
also requires a debt service ratio of 1.20. In its single-family residential
lending, the Company will generally not lend in excess of 80% of the appraised
value of the underlying property. Loans made in excess of that limit are
generally covered by third-party mortgage insurance that reduces the Company's
equivalent risk to an 80% loan-to-appraised value ratio.
Consumer loans consist primarily of automobile secured loans supported by
underwriting guidelines which management believes to be conservative and which
are based primarily on satisfactory credit history, down payment, and
sufficient income to service the monthly payments.
17
31
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
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 December 31, 1995,
commercial real estate loans totalled $996,715,000, or 19.0%, of total loans
and leases, an increase of $31,957,000, or 3.3%, over December 31, 1994. The
Company has selectively participated as a lender on commercial properties on
the mainland United States, principally on the west coast. Such loans totalled
$47,606,000 and $58,421,000 at December 31, 1995 and 1994, respectively. At
December 31, 1995, the largest concentration of commercial real estate loans to
a single borrower was $34.3 million.
At December 31, 1995, commercial, financial and agricultural, real
estate-construction and foreign loans with maturities over one year were
comprised of fixed rate loans totalling $115,339,000 and floating or adjustable
rate loans totalling $869,435,000.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights." SFAS 122 amends SFAS No. 65, "Accounting for Certain
Mortgage Banking Activities," to require that mortgage banking enterprises
recognize as separate assets rights to service mortgage loans for others. SFAS
No. 122 also requires that mortgage banking enterprises assess capitalized
mortgage servicing rights based on the fair value of those rights on a
disaggregated basis. SFAS No. 122 applies to fiscal years beginning after
December 15, 1995. The adoption of this standard is not expected to have a
material effect on the consolidated financial statements of the Company.
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets and past due loans and leases are reflected below for the
years indicated:
- --------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
Nonperforming loans and leases:
Nonaccrual:
Commercial, financial and agricultural $16,229 $ 7,972 $13,823 $24,563 $11,389
Real estate:
Construction 9,697 7,038 28,571 41,018 23,298
Commercial 40,664 35,290 12,145 3,250 2,199
Residential:
Insured, guaranteed, or conventional 12,238 4,649 5,473 2,221 --
Home equity credit lines 496 520 255 269 --
- --------------------------------------------------------------------------------------------------------------
Total real estate loans 63,095 47,497 46,444 46,758 25,497
Consumer 390 143 45 106 86
Lease financing 19 212 -- 27 --
- --------------------------------------------------------------------------------------------------------------
Total nonaccrual loans and leases 79,733 55,824 60,312 71,454 36,972
Renegotiated:
Commercial real estate 2,500 3,128 -- -- --
Commercial, financial and agricultural 682 -- 20 77 136
- --------------------------------------------------------------------------------------------------------------
Total nonperforming loans and leases 82,915 58,952 60,332 71,531 37,108
Other real estate owned 9,312 4,160 13,034 1,211 1,811
- --------------------------------------------------------------------------------------------------------------
TOTAL NONPERFORMING ASSETS $92,227 $63,112 $73,366 $72,742 $38,919
==============================================================================================================
PAST DUE LOANS AND LEASES (1) $28,790 $33,367 $40,285 $55,704 $26,726
==============================================================================================================
Nonperforming assets to total loans and leases
and other real estate owned (end of year):
Excluding past due loans and leases 1.75% 1.14% 1.44% 1.65% .90%
Including past due loans and leases 2.30% 1.74% 2.24% 2.92% 1.52%
Nonperforming assets to total assets (end of year):
Excluding past due loans and leases 1.22% .84% 1.01% 1.11% .60%
Including past due loans and leases 1.60% 1.28% 1.56% 1.96% 1.01%
==============================================================================================================
Note:
(1) Represents loans and leases which are past due 90 days or more as to
principal or interest and which are still accruing interest.
18
32
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
Nonperforming assets at December 31, 1995 were $92,227,000, or 1.75% of total
loans and leases and other real estate owned ("OREO") and 1.22% of total
assets. These levels compared to total nonperforming assets at December 31,
1994 of $63,112,000, or 1.14% of total loans and leases and OREO and .84% of
total assets. The increase in nonperforming assets of $29,115,000, or 46.1%,
was principally experienced in the Company's two largest portfolios, the
commercial, financial and agricultural portfolio, increasing $8,257,000, or
103.6% and the real estate portfolio increasing $15,598,000, or 32.8%. In
recent years, the level of the Company's nonperforming assets and charge-offs
has been adversely affected by the prolonged economic downturn in Hawaii and
related weakness in the local real estate market. Although the Company believes
that the Hawaii economy has begun to show signs of improvement, and certain
local real estate sectors evidence signs of having stabilized, the recovery of
the Hawaii economy has been slow and the effects of the economic downturn may
continue to affect the level of nonperforming assets and related charge-offs in
future periods.
Loans and leases past due 90 days or more and still accruing interest
totalled $28,790,000 at December 31, 1995, a decrease of 13.7% from December
31, 1994. All of the loans which are past due 90 days or more and still
accruing interest are in management's judgment adequately collateralized and
in the process of collection.
The following table presents information related to loans and leases on a
nonaccrual basis for the year ended December 31, 1995:
- --------------------------------------------------------
(in thousands) Domestic Foreign Total
- --------------------------------------------------------
Interest income which
would have been recorded
if loans and leases had
been current $9,435 $ -- $9,435
========================================================
Interest income recorded
during the year $2,366 $ -- $2,366
========================================================
DEPOSITS
Deposits are the largest component of the Company's liabilities and account for
the greatest portion of total interest expense. At December 31, 1995, total
deposits were $5,358,313,000, an increase of $206,100,000, or 4.0%, from
December 31, 1994. The increase was primarily due to the purchase of deposits
of $180,388,000 in November 1995 from a local financial services loan company.
For 1995, average deposits increased $96,122,000, or 1.9%, over 1994.
For 1994, average deposits increased $13,104,000, or .3%, over 1993.
Exclusive of the average deposits of Pioneer for the year ended December 31,
1994, average deposits decreased $213,559,000, or 4.4%.
The following table presents the average amount and average rate paid on
deposits for the years indicated:
- ---------------------------------------------------------------------------------------------------------
1995 1994 1993
--------------------- ---------------------- ------------------
(dollars in millions) AMOUNT RATE Amount Rate Amount Rate
- ---------------------------------------------------------------------------------------------------------
Domestic:
Noninterest-
bearing
demand $ 831 --% $ 877 --% $ 925 --%
Interest-bearing
demand 1,115 2.69 1,207 2.10 1,248 2.14
Savings 1,177 2.91 1,422 2.17 1,545 2.15
Time 1,708 5.44 1,369 4.11 1,223 4.35
Foreign 347 5.42 207 3.75 128 2.98
- ----------------------------------------- ------ ------
TOTAL $5,178 4.05% $5,082 2.86% $5,069 2.82%
===========================================================================================================
The following table presents the maturity distribution of domestic time
certificates of deposits of $100,000 or more at December 31 for the years
indicated:
- ----------------------------------------------------------------------------
(in millions) 1995 1994 1993
- ----------------------------------------------------------------------------
3 months or less $337 $236 $231
Over 3 months through 6 months 177 104 66
Over 6 months through 12 months 183 189 97
Over 12 months 164 83 129
- ----------------------------------------------------------------------------
TOTAL $861 $612 $523
============================================================================
[GRAPH]
DEPOSITS
(in millions)
1995 $5,337
1994 $5,088
1993 $5,220
1992 $5,152
1991 $5,358
19
33
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
LIQUIDITY MANAGEMENT
Liquidity refers to the Company's ability to provide sufficient cash flows to
fund operations and to meet obligations and commitments on a timely basis at
reasonable costs. The Company achieves its liquidity objectives from both
assets and liabilities.
Asset-based liquidity is derived from its investment securities portfolio
and short-term investments which can be readily converted to cash. These liquid
assets consist of cash and due from banks, interest-bearing deposits, Federal
funds sold, securities purchased under agreements to resell and investment
securities. The aggregate of these assets represented 25.0% of total assets at
the end of 1995 compared to 21.3% at the end of 1994. Additional information
related to the Company's off-balance sheet instruments at December 31, 1995 and
1994 is included in Note 16 to the Financial Statements.
Liability-based liquidity is provided primarily from deposits. Average total
deposits for 1995 increased $96,122,000, or 1.9%, to $5,178,352,000. Average
total deposits for 1995 and 1994 funded 68.8% and 70.6%, respectively, of
average total assets.
Additional liquidity was provided from short-term borrowings, which
consisted of commercial paper issued by the Company, Federal funds purchased
and securities sold under agreements to repurchase, lines of credit from other
banks and credit facilities from the FHLB. Additional information on short-term
borrowings is provided in Note 7 to the Financial Statements. Also, the Company
has access to offshore deposits in the international market which provides
another available source of funds.
The Company's commercial paper is assigned a rating of A2 by Standard &
Poor's ("S&P"). The Company's subordinated debt is assigned a rating of Baa-1
by Moody's Investors Service and BBB by S&P. The Company currently has a
Thomson BankWatch, Inc. rating of B.
As indicated in the Consolidated Statements of Cash Flows, net cash provided
by operating activities was $129,840,000 and net cash used in investing and
financing activities was $88,683,000 for 1995. For 1994, net cash provided by
operating and financing activities was $305,940,000 and net cash used in
investing activities was $479,175,000. For 1993, net cash provided by operating
and financing activities was $197,721,000 and net cash used in investing
activities was $87,251,000.
The Company's ability to pay dividends depends primarily upon dividends and
other payments from its subsidiaries, which are subject to certain limitations
as described in Note 10 to the Financial Statements.
ASSET/LIABILITY MANAGEMENT
The Company actively measures and manages its exposure to interest rate risk in
order to maintain a relatively stable net interest margin and to allow it to
take advantage of profitable business opportunities.
Interest rate risk refers to the exposure to earnings and capital arising
from changes in future interest rates. The Company carefully measures and
monitors its interest rate risk exposure using gap analysis, market value of
equity analysis, and net interest income simulations.
The net interest income simulations are usually done on a quarterly basis,
or more frequently if there have been major changes to the balance sheet or
interest rates. These simulations look at how the Company's net interest income
is affected from flat, rising, or declining rates using the current balance
sheet and simulating net interest income going forward two years. Under these
simulations, at December 31, 1995, the Company's exposure to changes in
interest rates was well within current guidelines which allow for no more than
a 10% adverse change in net interest income for a 1% change in rates over one
year.
Interest rate risk exposure is managed through the use of off-balance sheet
instruments such as swaps or floors and through extending or shortening the
duration of the investment securities portfolio.
20
34
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY
The Company's interest rate sensitivity position as of December 31, 1995, is
presented below. The interest rate sensitivity gap, shown at the bottom of the
table, refers to the difference between assets and liabilities subject to
repricing, maturity, runoff and/or volatility during a specified period. The
gap is adjusted for interest rate swaps which are hedging certain assets or
liabilities on the balance sheet. (For ease of analysis, all of the off-balance
sheet adjustments are consolidated into one line on the gap table.)
Since all interest rates and yields do not adjust at the same velocity or
magnitude, and since volatility is subject to change, the gap is only a general
indicator of interest rate sensitivity. At December 31, 1995, the cumulative
one-year gap for the Company was a negative $226.2 million, representing 2.99%
of total assets. This remains well within the Company's current guidelines of
+/-10% of total assets for the cumulative one-year gap.
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 0-3 Months 4-12 Months 1-5 Years Over 5 Years Total
- --------------------------------------------------------------------------------------------------------------------------
Assets:
Interest-bearing deposits in
other banks $ 244,570 $ -- $ -- $ -- $ 244,570
Federal funds sold and securities
purchased under agreements to resell 169,803 -- -- -- 169,803
Investment securities 435,778 324,380 270,727 144,408 1,175,293
Net loans and leases:
Commercial, financial and agricultural 925,697 198,018 73,911 65,936 1,263,562
Real estate -- construction 223,334 11,670 19,662 2,445 257,111
Foreign 75,263 62,021 70,572 11,151 219,007
Other 1,228,975 1,119,876 699,539 392,741 3,441,131
- --------------------------------------------------------------------------------------------------------------------------
Total earning assets 3,303,420 1,715,965 1,134,411 616,681 6,770,477
Noninterest-earning assets 238,377 -- -- 555,655 794,032
- --------------------------------------------------------------------------------------------------------------------------
Total assets $3,541,797 $1,715,965 $1,134,411 $1,172,336 $7,564,509
==========================================================================================================================
Liabilities and stockholders' equity:
Interest-bearing deposits $3,207,653 $ 841,345 $ 324,712 $ 30,315 $4,404,025
Noninterest-bearing deposits 184,053 -- -- 770,235 954,288
Short-term borrowings 812,995 263,334 6,850 -- 1,083,179
Long-term debt 50,000 -- 88,000 100,752 238,752
Stockholders' equity -- -- -- 649,537 649,537
Off-balance sheet adjustment 126,187 (59,077) (139,828) 72,718 --
Noninterest-bearing liabilities 57,426 -- -- 177,302 234,728
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $4,438,314 $1,045,602 $ 279,734 $1,800,859 $7,564,509
==========================================================================================================================
Interest sensitivity gap $ (896,517) $ 670,363 $ 854,677 $ (628,523)
Cumulative gap $ (896,517) $ (226,154) $ 628,523 $ --
Cumulative gap as a percent of total assets (11.85)% (2.99)% 8.31% --%
==========================================================================================================================
21
35
First Hawaiian, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
LEASE COMMITMENT
In December 1993, the Company entered into a noncancelable agreement to lease a
certain office building that is currently under construction on the site of its
former downtown headquarters block, which it owns in fee simple. Concurrently,
the Company entered into a ground lease of the land to the lessor of the
building. Rent obligation for the building will commence on December 1, 1996
and will expire on December 1, 2003. The lease agreement is not anticipated to
have a material impact on the results of operations in the future. Additional
information on the lease agreement is provided in Note 15 to the Financial
Statements.
CAPITAL REQUIREMENTS
Bank holding companies are required to comply with risk-based capital
guidelines as established by the Federal Reserve Board. The guidelines define
qualifying capital (Tier 1 Capital and Total Capital) and risk-weighted assets.
Tier 1 Capital includes stockholders' equity less unrealized valuation
adjustment and goodwill and, beginning in 1993, all other intangibles, subject
to certain exceptions described below.
Total Capital includes, in addition to Tier 1 Capital, subordinated and
other qualifying term debt and a portion of the allowance for loan and lease
losses. The Tier 1 component must comprise at least 50% of qualifying Total
Capital. Risk-based capital ratios are calculated with reference to
risk-weighted assets which include both on- and off-balance sheet exposures. A
company's risk-based capital ratio is calculated by dividing its qualifying
capital (the numerator of the ratio) by its risk-weighted assets (the
denominator). The minimum required qualifying Total Capital ratio is 8%, of
which at least 4% must consist of Tier 1 Capital.
In addition, bank holding companies are required to maintain a minimum
leverage ratio of Tier 1 Capital to average quarterly total assets (net of
goodwill and other intangibles, subject to certain exceptions). The Federal
Reserve Board has stated that the minimum leverage ratio is 3% for the most
highly-rated banking organizations which are not experiencing or anticipating
significant growth. Other banking organizations are expected to maintain
leverage ratios of at least one to two percent higher.
The following tables present the Company's regulatory capital position at
December 31, 1995:
RISK-BASED CAPITAL RATIOS
- ----------------------------------------------------------------------------------
(dollars in thousands) AMOUNT RATIO
- ----------------------------------------------------------------------------------
Tier 1 Capital $ 565,366 9.03%
Tier 1 Capital minimum requirement 250,301 4.00
- ----------------------------------------------------------------------------------
EXCESS $ 315,065 5.03%
==================================================================================
Total Capital $ 743,585 11.88%
Total Capital minimum requirement 500,602 8.00
- ----------------------------------------------------------------------------------
EXCESS $ 242,983 3.88%
==================================================================================
RISK-WEIGHTED ASSETS $6,257,529
===================================================================
LEVERAGE RATIO
- ----------------------------------------------------------------------------------
(dollars in thousands) AMOUNT RATIO
- ----------------------------------------------------------------------------------
Tier 1 Capital to average quarterly
total assets (net of certain intangibles)
(Tier 1 Leverage Ratio) $ 565,366 7.72%
Minimum leverage requirement 219,829 3.00
- ----------------------------------------------------------------------------------
EXCESS $ 345,537 4.72%
==================================================================================
AVERAGE QUARTERLY TOTAL ASSETS
(NET OF CERTAIN INTANGIBLES) $7,327,647
===================================================================
22
36
First Hawaiian, Inc. and Subsidiaries
SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
FOURTH QUARTER RESULTS
Earnings for the fourth quarter of 1995 were $19,696,000, an increase of
$4,699,000, or 31.3%, over the $14,997,000 earned during the same quarter in
1994. Earnings per share for the fourth quarter of 1995 were up 34.0% to $.63,
compared to $.47 for the year-earlier period. Earnings increased while also
increasing the provision for loan and lease losses by approximately
$17,500,000, due to two nonrecurring items. These were: (1) a pre-tax gain of
$20,766,000 (recorded as a pension credit in total noninterest expenses below)
in connection with the curtailment of the Company's noncontributory pension
plan; and (2) the decrease in FDIC insurance expense of $2,228,000 primarily as
a result of a reduction in the insurance premiums from 23 cents to 4 cents per
$100. The earnings for the fourth quarter of 1994 included a pre-tax loss of
$5,000,000 related to estimated losses attributable to investments made in the
trust area that were outside of certain clients' express investment guidelines.
A summary of unaudited quarterly financial data for 1995 and 1994 is presented
below:
- -------------------------------------------------------------------------------------------------------------
Quarter
--------------------------------------------------- Annual
(in thousands, except per share data) First Second Third Fourth Total
- -------------------------------------------------------------------------------------------------------------
1995
INTEREST INCOME $138,594 $141,645 $140,024 $139,694 $559,957
INTEREST EXPENSE 65,841 70,228 65,026 64,202 265,297
- -------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 72,753 71,417 74,998 75,492 294,660
PROVISION FOR LOAN AND LEASE LOSSES 3,340 3,341 10,699 20,727 38,107
TOTAL NONINTEREST INCOME 22,983 21,700 27,466 22,729 94,878
TOTAL NONINTEREST EXPENSES 63,345 60,335 61,457 44,156 229,293
- -------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 29,051 29,441 30,308 33,338 122,138
INCOME TAXES 10,281 10,573 10,637 13,642 45,133
- -------------------------------------------------------------------------------------------------------------
NET INCOME $ 18,770 $ 18,868 $ 19,671 $ 19,696 $ 77,005
=============================================================================================================
NET INCOME PER SHARE $.59 $.59 $.62 $.63 $2.43
=============================================================================================================
1994
Interest income $110,044 $114,560 $120,925 $130,231 $475,760
Interest expense 38,961 41,560 44,649 54,518 179,688
- -------------------------------------------------------------------------------------------------------------
Net interest income 71,083 73,000 76,276 75,713 296,072
Provision for loan and lease losses 3,843 3,288 6,548 9,243 22,922
Total noninterest income 23,069 21,099 21,105 21,399 86,672
Total noninterest expenses 61,404 61,578 60,489 64,850 248,321
- -------------------------------------------------------------------------------------------------------------
Income before income taxes 28,905 29,233 30,344 23,019 111,501
Income taxes 10,168 10,233 10,567 8,022 38,990
- -------------------------------------------------------------------------------------------------------------
Net income $ 18,737 $ 19,000 $ 19,777 $ 14,997 $ 72,511
=============================================================================================================
Net income per share $.58 $.59 $.61 $.47 $2.25
=============================================================================================================
23
37
First Hawaiian, Inc. and Subsidiaries
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES BY MATURITIES AND WEIGHTED AVERAGE YIELDS
In December 1995, the Company made a one-time reclassification of its
investment securities portfolio from held-to-maturity to available-for-sale as
allowed by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The following table presents the maturities of available-for-sale
investment securities, excluding securities which have no stated maturity at
December 31, 1995, and the weighted average yields (for obligations exempt from
Federal income taxes on a taxable equivalent basis assuming a 35% tax rate) of
such securities. The tax equivalent adjustment is made for items exempt from
Federal income taxes to make them comparable with taxable items before any
income taxes are applied.
MATURITY
--------------------------------------------------------------
AFTER ONE AFTER FIVE
WITHIN BUT WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
------------- ------------ ------------- ------------- -------------
(dollars in millions) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
- --------------------------------------------------------------------------------------------------------------
U.S. Treasury and other U.S.
Government agencies
and corporations $ 193 5.11% $ 227 5.88% $ 1 6.75% $ 335 7.45% $ 756 6.38%
States and political
subdivisions 22 8.01 31 7.13 -- -- 1 5.71 54 7.44
Collateralized mortgage
obligations -- -- 28 4.51 -- -- 69 5.18 97 4.99
Other 12 6.22 -- -- -- -- 191 6.33 203 6.32
- ------------------------------------ ----- ---- ----- ------
Total $ 227 5.45% $ 286 5.88% $ 1 6.75% $ 596 6.82% $1,110 6.30%
==============================================================================================================
Note:
The weighted average yields were calculated on the basis of the cost and
effective yields weighted for the scheduled maturity of each security.
24
38
REPORT OF INDEPENDENT ACCOUNTANTS First Hawaiian, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
TO THE STOCKHOLDERS
FIRST HAWAIIAN, INC.
We have audited the accompanying consolidated balance sheets of First Hawaiian,
Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of First
Hawaiian, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note 13 to the financial statements, the Company changed its
method of accounting for income taxes in 1993.
[COOPERS & LYBRAND SIG]
Honolulu, Hawaii
January 17, 1996
25
39
CONSOLIDATED BALANCE SHEETS First Hawaiian, Inc. and Subsidiaries
DECEMBER 31,
----------------------------
(in thousands, except number of shares and per share data) 1995 1994
- --------------------------------------------------------------------------------------------------------------
ASSETS
Interest-bearing deposits in other banks $ 244,570 $ 11,670
Federal funds sold and securities purchased under agreements to resell 169,803 180,000
Investment securities:
Held-to-maturity (fair value of $981,651 in 1994) (note 2) -- 995,887
Available-for-sale (note 2) 1,175,293 151,992
Loans and leases:
Loans and leases (note 3) 5,259,545 5,533,565
Less allowance for loan and lease losses (note 4) 78,733 61,250
- --------------------------------------------------------------------------------------------------------------
Net loans and leases 5,180,812 5,472,315
- --------------------------------------------------------------------------------------------------------------
Total earning assets 6,770,478 6,811,864
Cash and due from banks 304,051 262,894
Premises and equipment (note 5) 241,987 245,338
Customers' acceptance liability 1,995 732
Core deposit premium (net of accumulated amortization of
$6,634 in 1995 and $4,889 in 1994) (note 1) 16,665 13,722
Goodwill (net of accumulated amortization of
$13,453 in 1995 and $9,866 in 1994) (note 1) 75,309 78,896
Other assets 154,024 121,698
- --------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $7,564,509 $7,535,144
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 913,228 $ 861,869
Interest-bearing demand 1,073,136 1,160,219
Savings 1,147,997 1,226,877
Time (fair value of $1,937,858 in 1995 and $1,508,630 in 1994) (note 6) 1,927,011 1,503,347
Foreign (fair value of $297,984 in 1995 and $400,900 in 1994) (note 6) 296,941 399,901
- --------------------------------------------------------------------------------------------------------------
Total deposits 5,358,313 5,152,213
- --------------------------------------------------------------------------------------------------------------
Short-term borrowings (note 7) 1,083,179 1,329,816
Acceptances outstanding 1,995 732
Other liabilities 232,733 205,108
Long-term debt (note 8) 238,752 219,331
- --------------------------------------------------------------------------------------------------------------
Total liabilities 6,914,972 6,907,200
==============================================================================================================
Commitments and contingent liabilities (notes 11, 15 and 16)
Stockholders' equity:
Common stock $5 par value (notes 9 and 11)
Authorized -- 100,000,000 shares
Issued -- 32,542,797 shares in 1995 and 1994 162,713 162,713
Surplus 133,925 133,820
Retained earnings (note 10) 385,976 346,339
Unrealized valuation adjustment 5,489 (1,033)
Treasury stock, at cost -- 1,397,957 shares in 1995 and 516,623 shares
in 1994 (38,566) (13,895)
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 649,537 627,944
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,564,509 $7,535,144
==============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
26
40
CONSOLIDATED STATEMENTS OF INCOME First Hawaiian, Inc. and Subsidiaries
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------
(in thousands, except number of shares and per share data) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $470,110 $407,531 $355,961
Lease financing income 11,334 10,844 12,722
Interest on investment securities:
Taxable interest income 57,890 45,248 44,667
Exempt from Federal income taxes 4,893 4,332 3,185
Other interest income 15,730 7,805 12,396
- --------------------------------------------------------------------------------------------------------------
Total interest income 559,957 475,760 428,931
- --------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits (note 6) 176,048 120,289 116,887
Short-term borrowings 74,370 47,813 26,477
Long-term debt 14,879 11,586 7,345
- --------------------------------------------------------------------------------------------------------------
Total interest expense 265,297 179,688 150,709
- --------------------------------------------------------------------------------------------------------------
Net interest income 294,660 296,072 278,222
Provision for loan and lease losses (note 4) 38,107 22,922 13,262
- --------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan and
lease losses 256,553 273,150 264,960
- --------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust income 23,034 22,847 21,401
Service charges on deposit accounts 24,150 24,014 21,791
Other service charges and fees 35,551 31,937 27,660
Securities gains, net (note 2) 144 178 1,955
Other 11,999 7,696 6,780
- --------------------------------------------------------------------------------------------------------------
Total noninterest income 94,878 86,672 79,587
- --------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and wages 94,119 92,237 86,011
Employee benefits (note 11) 7,209 26,484 24,783
Occupancy expense (notes 5 and 15) 25,706 23,280 20,416
Equipment expense (notes 5 and 15) 23,907 24,812 20,243
Other (note 12) 78,352 81,508 73,989
- --------------------------------------------------------------------------------------------------------------
Total noninterest expenses 229,293 248,321 225,442
- --------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect
of a change in accounting principle 122,138 111,501 119,105
- --------------------------------------------------------------------------------------------------------------
INCOME TAXES (note 13)
Provision before effect of change in tax rate 45,133 38,990 38,976
Adjustment to deferred tax liability and
current tax provision for change in tax rate -- -- 1,922
- --------------------------------------------------------------------------------------------------------------
Total income taxes 45,133 38,990 40,898
- --------------------------------------------------------------------------------------------------------------
Income before cumulative effect of a
change in accounting principle 77,005 72,511 78,207
Cumulative effect of a change in accounting
principle (note 13) -- -- 3,650
- --------------------------------------------------------------------------------------------------------------
Net income $ 77,005 $ 72,511 $ 81,857
==============================================================================================================
PER SHARE DATA
Income before cumulative effect of a
change in accounting principle $2.43 $2.25 $2.41
Cumulative effect of a change in accounting principle -- -- .11
- --------------------------------------------------------------------------------------------------------------
NET INCOME $2.43 $2.25 $2.52
==============================================================================================================
CASH DIVIDENDS $1.18 $1.18 $1.135
==============================================================================================================
AVERAGE SHARES OUTSTANDING 31,734,669 32,259,321 32,505,109
==============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
27
41
First Hawaiian, Inc. and Subsidiaries and First Hawaiian, Inc. (Parent Company)
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Common Stock Unrealized
(in thousands, except number of ------------------- Retained Valuation Treasury
shares and per share data) Shares Amount Surplus Earnings Adjustment Stock Total
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 32,501,611 $162,507 $132,889 $266,800 $ -- $ -- $562,196
Net income -- 1993 -- -- -- 81,857 -- -- 81,857
Incentive Plan for Key Executives
(note 11) -- -- 137 -- -- -- 137
Cash dividends ($1.135 per share)
(note 10) -- -- -- (36,821) -- -- (36,821)
Issuance of common stock
(note 9) 41,186 206 794 -- -- -- 1,000
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 32,542,797 162,713 133,820 311,836 -- -- 608,369
Net income -- 1994 -- -- -- 72,511 -- -- 72,511
Purchase of treasury stock -- -- -- -- -- (13,895) (13,895)
Cash dividends ($1.18 per share)
(note 10) -- -- -- (38,008) -- -- (38,008)
Unrealized valuation adjustment
(note 2) -- -- -- -- (1,033) -- (1,033)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 32,542,797 162,713 133,820 346,339 (1,033) (13,895) 627,944
Net income -- 1995 -- -- -- 77,005 -- -- 77,005
Purchase of treasury stock -- -- -- -- -- (24,671) (24,671)
Cash dividends ($1.18 per share)
(note 10) -- -- -- (37,368) -- -- (37,368)
Unrealized valuation adjustment
(note 2) -- -- -- -- 6,522 -- 6,522
Incentive Plan for Key Executives
(note 11) -- -- 105 -- -- -- 105
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 32,542,797 $162,713 $133,925 $385,976 $ 5,489 $(38,566) $649,537
==========================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
28
42
First Hawaiian, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------
(in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR $ 262,894 $ 436,129 $ 325,659
- ------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income 77,005 72,511 81,857
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan and lease losses 38,107 22,922 13,262
Depreciation and amortization 27,798 24,766 20,765
Gain on curtailment of noncontributory pension plan (20,766) -- --
Income taxes 20,953 6,826 (5,415)
Adjustment to deferred tax liability and
current tax provision for change in tax rate -- -- 1,922
Cumulative effect of a change in accounting
principle -- -- (3,650)
Decrease (increase) in interest receivable (5,154) (7,646) 170
Increase (decrease) in interest payable 7,655 7,956 1,424
Decrease (increase) in prepaid expenses (48) 2,184 (1,031)
Write-off of building costs -- -- 5,444
Other (15,710) 36,204 20,136
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 129,840 165,723 134,884
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net decrease (increase) in interest-bearing deposits
in other banks (232,900) 105,066 39,580
Net decrease (increase) in Federal funds sold and
securities purchased under agreements to resell 10,197 (145,000) 370,000
Purchase of held-to-maturity investment securities (247,559) (240,706) (940,385)
Proceeds from maturity of held-to-maturity investment
securities 690,357 376,844 821,173
Purchase of available-for-sale investment securities (29,921) (115,032) (263,828)
Proceeds from sale of available-for-sale investment
securities 15,000 15,195 137,709
Proceeds from maturity of available-for-sale investment
securities 17,020 45,265 27,666
Net increase in loans and leases to customers (210,274) (493,871) (166,146)
Capital expenditures (13,072) (36,634) (60,067)
Purchase of Pioneer Fed BanCorp, Inc.,
net of cash acquired of $18,157 -- -- (68,950)
Other (4,376) 9,698 15,997
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,528) (479,175) (87,251)
- ------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 206,100 (67,915) (293,973)
Net increase (decrease) in short-term borrowings (246,637) 237,134 309,631
Proceeds from long-term debt 19,447 21,500 108,000
Payments on long-term debt (26) (936) (21,525)
Cash dividends paid (37,368) (38,008) (36,821)
Repurchased common stock (24,671) (11,558) (2,475)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (83,155) 140,217 62,837
- ------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF YEAR $ 304,051 $ 262,894 $ 436,129
============================================================================================================
Supplemental disclosures:
Interest paid $ 256,906 $ 171,732 $ 160,551
Net income taxes paid $ 24,181 $ 24,311 $ 40,945
Supplemental schedule of noncash investing activities:
Loans exchanged for mortgage-backed securities $ 461,449 $ -- $ --
Transfer of securities from held-to-maturity to
available-for-sale, at estimated fair value $1,023,144 $ -- $ --
============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
29
43
NOTES TO FINANCIAL STATEMENTS First Hawaiian, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Hawaiian, Inc. and Subsidiaries
(the "Company") conform with generally accepted accounting principles and
practices within the banking industry. The following is a summary of the
significant accounting policies:
RECLASSIFICATIONS
Certain reclassifications were made to the 1994 and 1993 Financial Statements
to conform to the 1995 presentation. Such reclassifications did not have a
material effect on the Financial Statements.
CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
First Hawaiian, Inc. (the "Parent") and its wholly-owned subsidiary companies
- -- First Hawaiian Bank and its wholly-owned subsidiaries (the "Bank"); Pioneer
Federal Savings Bank ("Pioneer") and its wholly-owned subsidiary; First
Hawaiian Creditcorp, Inc. ("Creditcorp"); First Hawaiian Leasing, Inc.
("Leasing"); and FHI International, Inc. All significant intercompany balances
and transactions have been eliminated in consolidation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENT SECURITIES
Investment securities consist principally of debt instruments issued by the
U.S. Treasury and other U.S. Government agencies and corporations, state and
local government units and asset-backed securities.
Investments in and obligations to individual counterparties are presented
as net amounts in the consolidated financial statements of the Company only if
the conditions specified in Financial Accounting Standards Board ("FASB")
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts," are
met. No such netting occurred as of December 31, 1995.
As of December 31, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." In accordance with SFAS No. 115, investment
securities are classified in three categories and accounted for as follows: (1)
held-to-maturity securities are debt securities, which the Company has the
positive intent and ability to hold to maturity, and are reported at amortized
cost; (2) trading securities are debt securities that are bought and held
principally for the purpose of selling them in the near term and are reported at
fair value, with unrealized gains and losses included in current earnings; and
(3) available-for-sale securities are debt securities not classified as either
held-to-maturity securities or trading securities and are reported at fair
value, with unrealized gains and losses excluded from current earnings and
reported in a separate component of stockholders' equity.
In December 1995, the Company made a one-time reclassification of its
investment securities portfolio from held-to-maturity to available-for-sale as
allowed by SFAS No. 115 which resulted in an unrealized gain of $8,606,000.
Gains and losses realized on the sales of investment securities are
determined using the specific identification method.
LOANS AND LEASE FINANCING
Loans are stated at their principal outstanding amounts, net of any unearned
discounts. Interest income on loans is accrued and recognized on the principal
amount outstanding.
Loan origination fees and substantially all loan commitment fees are
deferred and accounted for as an adjustment of the yield.
Lease financing transactions consist of two types:
(1) Equipment without outside financing is accounted for using the direct
financing method with income recognized over the life of the lease based upon a
constant periodic rate of return on the net investment in the lease.
(2) Leveraged lease transactions are subject to outside financing through
one or more participants, without recourse to the Company. These transactions
are accounted for by recording as the net investment in each lease the
aggregate of rentals receivable (net of principal and interest on the related
nonrecourse debt) and estimated residual value of the equipment less the
unearned income. Income from these lease transactions is recognized during the
periods in which the net investment is positive.
Loans and leases are placed on nonaccrual status when serious doubt exists
as to the collectibility of the principal and/or interest. When loans are
placed on nonaccrual status, any accrued and unpaid interest is reversed
against interest income of the current period. Interest payments received on
nonaccrual loans and leases are applied as a reduction of the principal when
concern exists as to the ultimate collection of the principal; otherwise, such
payments are recorded as income. Loans and leases are removed from nonaccrual
status when they become current as to both principal and interest and when
concern no longer exists as to the collectibility of principal and interest.
30
44
First Hawaiian, Inc. and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
ALLOWANCE FOR LOAN AND LEASE LOSSES
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," amended in October 1994 by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures." Under the new standard, a loan is impaired, based on current
information and events, if it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan.
Impairment is based on the present value of expected future cash flows
discounted at the historical effective interest rate, except that all
collateral-dependent loans are measured for impairment based on the fair value
of the collateral. Impairment losses are included in the provision for loan and
lease losses. The adoption of SFAS No. 114 did not result in an additional
provision for loan and lease losses primarily because the majority of impaired
loan valuations continue to be based on the fair value of the collateral.
The allowance for loan and lease losses (the "Allowance") is maintained at a
level which, in management's judgment, is adequate to absorb future losses.
Estimates of future loan and lease losses involve judgment and assumptions as
to various factors which, in management's judgment, deserve current recognition
in estimating such losses and in determining the adequacy of the Allowance.
Principal factors considered by management include the historical loss
experience, the value and adequacy of collateral, the level of nonperforming
(nonaccrual and renegotiated) loans and leases, loan concentrations, the growth
and composition of the portfolio, the review of monthly delinquency reports,
the results of examinations of individual loans and leases and/or evaluation of
the overall portfolio by senior credit personnel, internal auditors, and
Federal and State regulatory agencies, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay
and general economic conditions.
The Allowance is reduced by loans and leases charged off when collectibility
becomes doubtful and the underlying collateral, if any, is considered
inadequate to liquidate the outstanding debt. Recoveries on loans and leases
previously charged off are added to the Allowance.
OTHER REAL ESTATE OWNED
Other real estate owned, included in other assets, is comprised of properties
acquired primarily through foreclosure proceedings. When acquired, these
properties are valued at fair value which establishes the new cost basis of
other real estate owned. Losses arising at the time of acquisition of such
properties are charged against the Allowance. Subsequent to acquisition, such
properties are carried at the lower of cost or fair value less estimated
selling costs. Write-downs or losses from the disposition of such properties
subsequent to the date of acquisition are included in other noninterest
expenses.
PREMISES AND EQUIPMENT
Premises and equipment, including leasehold improvements, are stated at cost
less accumulated depreciation and amortization. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives of 10-40
years for premises, 3-13 years for equipment and the lease term for leasehold
improvements.
CORE DEPOSIT PREMIUM AND GOODWILL
The core deposit premium is being amortized on the straight-line method over
various lives ranging from 9 to 20 years. The excess of the purchase price over
the fair value of the net assets acquired is accounted for as goodwill and is
being amortized on the straight-line method over 25 years.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS No. 121 applies to fiscal years beginning after December 15,
1995. The adoption of this standard is not expected to have a material effect
on the Company's financial position or results of operations.
INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes," which requires recognition of deferred income tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred income tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Excise tax credits relating to premises and equipment are accounted for
under the flow-through method which recognizes the benefit in the year the
asset is placed in service. The investment and excise tax credits related to
lease equipment, except for investment and excise tax credits that are passed
on to lessees, are recognized during the periods in which the net investment is
positive.
A consolidated Federal income tax return is filed for the Company. Amounts
equal to income tax benefits of those companies having taxable losses or
credits are reimbursed by other companies which would have incurred current
income tax liabilities.
INTEREST RATE SWAPS AND FLOORS
The Company engages in interest rate swap and floor activities in managing its
interest rate risk. Premiums for purchased floors are amortized over the life
of the con-
31
45
First Hawaiian, Inc. and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
tracts. Since the contracts represent an exchange of interest payments and
the underlying principal balances are not affected, there is no effect on the
total assets or liabilities of the Company. The income or expense from these
contracts is included as part of the interest income or expense for the
corresponding asset or liability being hedged.
PER SHARE DATA
Net income per share is computed by dividing net income by the average number
of shares outstanding during the year.
The impact of common stock equivalents, such as stock options, is not
material; therefore, they are not included in the computation.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
the fair value of financial instruments:
Cash and due from banks: The carrying amounts reported in the
Consolidated Balance Sheets of cash and short-term instruments approximate
fair values.
Investment securities (including mortgage-backed securities): Fair
values of investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based
on quoted market prices of comparable instruments.
Loans and leases: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on
carrying values. The fair values of commercial and industrial loans,
financial institution loans, agricultural loans, certain mortgage loans
(e.g. 1-4 family residential, commercial real estate and rental property),
credit card loans, and other consumer loans are estimated using discounted
cash flow analyses, which utilize interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality. The
carrying amount of accrued interest approximates its fair value.
Off-balance sheet commitments and contingent liabilities: Fair values
of off-balance sheet commitments and contingent liabilities are based upon
quoted market prices of comparable instruments (interest rate floors); fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing
(letters of credit and commitments to extend credit); or, pricing models
based upon brokers' quoted markets, current levels of interest rates, and
specific cash flow schedules (interest rate swaps).
Deposits: The fair values of demand deposits (e.g., interest and
noninterest checking, passbook savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). Fair values of fixed-rate
certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
Short-term borrowings: The carrying amounts of overnight Federal funds
purchased, borrowings under repurchase agreements, and other short-term
borrowings approximate their fair values.
Long-term debt: The fair values of the Company's long-term debt (other
than deposits) are estimated using discounted cash flow analyses, based on
the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
1. ACQUISITIONS
PACIFIC NORTHWEST
On December 4, 1995, the Company entered into certain Branch Purchase and
Assumption Agreements to purchase certain assets, principally loans, and assume
certain liabilities, principally deposit accounts, of U.S. Bancorp and West One
Bancorp. Under the agreement, the Company will purchase a total of 31 branches,
25 in Oregon, five in Washington and one in Idaho and will pay a deposit
premium of 5.25% on approximately $741 million in deposits. Total loans to be
purchased approximate $426 million.
The Company will account for the proposed acquisition utilizing the purchase
method. The proposed acquisition is contingent on the approval of certain
regulatory agencies, including but not limited to, the Board of Governors of
the Federal Reserve System, the Federal Deposit Insurance Corporation, the
Office of Thrift Supervision and state regulatory authorities. The Company
anticipates that this acquisition will be completed during the second quarter
of 1996.
PIONEER FEDERAL SAVINGS BANK
On August 6, 1993, the Company acquired for cash all of the outstanding stock
of Pioneer Fed BanCorp, Inc. ("Pioneer Holdings") at a purchase price of $87
million through the merger of Pioneer Holdings with and into the Company (the
"Merger"). As a result of the Merger, Pioneer Federal Savings Bank, a savings
bank with 19 branches statewide, became a wholly-owned subsidiary of the
Company. The acquisition was accounted for using the purchase method of
accounting and the results of operations of Pioneer are included in the
Consolidated Statements of Income from the date of acquisition. The excess of
cost over fair value of net assets acquired amounted to approximately $22
million.
32
46
First Hawaiian, Inc. and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
The following unaudited pro forma information shows the consolidated results
of operations as though the above acquisition of Pioneer Holdings, including
the related purchase accounting adjustments, had been made at the beginning of
1993:
- ------------------------------------------------------------------
(in thousands, except per share data) 1993
- ------------------------------------------------------------------
Interest income $469,413
Interest expense $183,860
Noninterest income $ 72,313
Noninterest expenses $227,473
Net income $ 81,419
Earnings per share $ 2.50
==================================================================
2. INVESTMENT SECURITIES
AVAILABLE-FOR-SALE
Amortized cost and fair values of available-for-sale investment securities at
December 31, 1995 and 1994 were as follows:
1995
--------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
(in thousands) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------
U.S. TREASURY
AND OTHER U.S.
GOVERNMENT
AGENCIES AND
CORPORATIONS $ 755,322 $6,931 $101 $ 762,152
COLLATERALIZED
MORTGAGE
OBLIGATIONS 97,360 1 386 96,975
STATES AND POLITICAL
SUBDIVISIONS 54,176 1,129 224 55,081
OTHER 259,320 1,859 94 261,085
- --------------------------------------------------------------------------------------------------
TOTAL AVAILABLE-FOR-
SALE INVESTMENT
SECURITIES $1,166,178 $9,920 $805 $1,175,293
==================================================================================================
1994
--------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------
U.S. Treasury
and other U.S.
Government
agencies and
corporations $ 50,047 $ -- $ 922 $ 49,125
Collateralized
mortgage
obligations 25,961 -- 371 25,590
States and political
subdivisions 11,700 -- 423 11,277
Other 66,000 -- -- 66,000
- --------------------------------------------------------------------------------------------------
Total available-for-
sale investment
securities $153,708 $ -- $1,716 $151,992
==================================================================================================
The amortized cost and fair values of available-for-sale investment securities
at December 31, 1995, by contractual maturity, excluding securities which have
no stated maturity, were as follows:
- ------------------------------------------------------------------------------------
AMORTIZED FAIR
(in thousands) COST VALUE
- ------------------------------------------------------------------------------------
DUE WITHIN ONE YEAR $ 226,580 $ 227,101
DUE AFTER ONE BUT WITHIN FIVE YEARS 286,126 288,876
DUE AFTER FIVE BUT WITHIN TEN YEARS 1,204 1,197
DUE AFTER TEN YEARS 595,787 601,638
- ------------------------------------------------------------------------------------
TOTAL AVAILABLE-FOR-SALE
INVESTMENT SECURITIES $1,109,697 $1,118,812
====================================================================================
The Company held no trading securities as of December 31, 1995 and 1994.
Investment securities with an aggregate book value of $1,064,987,000 at
December 31, 1995 were pledged to secure public deposits and repurchase
agreements as required by law.
The Company did not hold investment securities of any single issuer (other
than the U.S. Government and its agencies) which were in excess of 10% of
stockholders' equity at December 31, 1995.
Gross gains of $224,000, $180,000 and $2,038,000 and gross losses of
$80,000, $2,000 and $83,000 were realized on sales of investment securities
during 1995, 1994 and 1993, respectively.
At December 31, 1995, collateralized mortgage obligations were comprised of
$77,311,000 planned amortization class bonds with an estimated average life of
.2 years and $20,049,000 floating rate bonds with an estimated average life of
2.2 years.
HELD-TO-MATURITY
At December 31, 1995 there were no investment securities classified as
held-to-maturity. Book and fair values of held-to-maturity investment
securities at December 31, 1994 were as follows:
1994
------------------------------------------------------------
Book Unrealized Unrealized Fair
(in thousands) Value Gains Losses Value
- --------------------------------------------------------------------------------------------------
U.S. Treasury
and other U.S.
Government
agencies and
corporations $568,894 $ -- $10,924 $557,970
Collateralized
mortgage
obligations 200,420 -- 5,689 194,731
States and political
subdivisions 154,493 3,600 1,087 157,006
Other 72,080 -- 136 71,944
- --------------------------------------------------------------------------------------------------
Total held-to-maturity
investment
securities $995,887 $ 3,600 $17,836 $981,651
==================================================================================================
33
47
First Hawaiian, Inc. and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
3. LOANS AND LEASES
At December 31, 1995 and 1994, loans and leases were comprised of the
following:
- ---------------------------------------------------------------------------------------------------
1995 1994
------------------------ ------------------------
(in thousands) BOOK VALUE FAIR VALUE Book Value Fair Value
- ---------------------------------------------------------------------------------------------------
Commercial,
financial and
agricultural $1,315,736 $1,308,078 $1,264,157 $1,216,000
Real estate:
Construction 256,943 257,033 320,783 319,575
Commercial 996,715 1,026,412 964,758 1,073,744
Residential 1,766,292 1,745,777 2,049,489 1,998,346
Consumer 473,909 480,452 467,827 467,792
Lease financing 241,721 242,402 230,587 230,598
Foreign 208,229 209,481 235,964 230,455
- ---------------------------------------------------------------------------------------------------
TOTAL LOANS
AND LEASES $5,259,545 $5,269,635 $5,533,565 $5,536,510
==================================================================================================
At December 31, 1995 and 1994, loans and leases aggregating $82,915,000 and
$58,952,000, respectively, were on a nonaccrual basis.
In the normal course of business, the Company makes loans to its executive
officers and directors, and to companies and individuals affiliated with
executive officers and directors of the Company. Changes in the loans to such
parties were as follows:
- -------------------------------------------------------------------------------
(in thousands) 1995 1994
- -------------------------------------------------------------------------------
Balance at beginning of year $296,248 $314,988
New loans made 54,623 53,734
Repayments (53,889) (72,474)
- -------------------------------------------------------------------------------
BALANCE AT END OF YEAR $296,982 $296,248
===============================================================================
At December 31, 1995 and 1994, loans to such parties by the Parent were
$15,480,000 and $17,005,000, respectively, and the income related to these
loans was $1,143,000, $1,089,000 and $920,000 for 1995, 1994 and 1993,
respectively.
4. ALLOWANCE FOR LOAN AND LEASE LOSSES
Changes in the allowance for loan and lease losses were as follows for the
years indicated:
- --------------------------------------------------------------------------------------
(in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------
Balance at beginning of year $61,250 $62,253 $56,385
Provision charged to expense 38,107 22,922 13,262
Net charge-offs:
Loans and leases charged off (22,845) (27,115) (15,063)
Recoveries on loans and
leases charged off 2,221 3,190 2,444
- --------------------------------------------------------------------------------------
Net charge-offs (20,624) (23,925) (12,619)
- --------------------------------------------------------------------------------------
Allowance applicable to loans
of purchased company -- -- 5,225
- --------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $78,733 $61,250 $62,253
======================================================================================
The following table presents information related to impaired loans as of and
for the year ended December 31, 1995:
- ----------------------------------------------------------------------------------
(in thousands)
- ----------------------------------------------------------------------------------
IMPAIRED LOANS $97,915
IMPAIRED LOANS WITH RELATED ALLOWANCE FOR LOAN AND
LEASE LOSSES CALCULATED UNDER SFAS NO. 114 65,430
AVERAGE IMPAIRED LOANS 82,304
INTEREST INCOME RECORDED DURING THE YEAR 3,454
==================================================================================
Interest payments on impaired loans are applied to principal.
5. PREMISES AND EQUIPMENT
At December 31, 1995 and 1994, premises and equipment were comprised of the
following:
- ------------------------------------------------------------------------
(in thousands) 1995 1994
- ------------------------------------------------------------------------
Premises $229,629 $227,277
Equipment 136,062 126,207
- ------------------------------------------------------------------------
365,691 353,484
Less accumulated depreciation
and amortization 123,704 108,146
- ------------------------------------------------------------------------
NET BOOK VALUE $241,987 $245,338
========================================================================
Occupancy and equipment expenses include depreciation and amortization expenses
of $17,649,000, $17,572,000 and $15,133,000 for 1995, 1994 and 1993,
respectively.
34
48
First Hawaiian, Inc. and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
6. DEPOSITS
For 1995, 1994 and 1993, interest expense related to deposits was as follows:
- ---------------------------------------------------------------------------------
(in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------
Interest-bearing demand $ 30,034 $ 25,383 $ 26,652
Savings 34,272 30,865 33,259
Time -- Under $100 52,260 31,666 29,581
Time -- $100 and over 40,682 24,588 23,581
Foreign 18,800 7,787 3,814
- ---------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE
ON DEPOSITS $176,048 $120,289 $116,887
=================================================================================
Time deposits in denominations of $100,000 or more at December 31, 1995 and
1994 were as follows:
- ----------------------------------------------------
(in thousands) 1995 1994
- ----------------------------------------------------
Domestic $861,409 $611,757
Foreign $166,404 $270,234
====================================================
7. SHORT-TERM BORROWINGS
At December 31, 1995 and 1994, short-term borrowings were comprised of the
following:
- -----------------------------------------------------------------------------
(in thousands) 1995 1994
- -----------------------------------------------------------------------------
First Hawaiian Bank:
Federal funds purchased $ 19,586 $ 195,859
Securities sold under agreements
to repurchase 838,026 823,248
Advances from Federal Home
Loan Bank of Seattle 100,000 50,000
First Hawaiian, Inc. (Parent) --
Commercial paper 13,777 46,723
Nonbank subsidiaries --
Advances from Federal Home
Loan Bank of Seattle 111,790 213,986
- -----------------------------------------------------------------------------
TOTAL SHORT-TERM BORROWINGS $1,083,179 $1,329,816
=============================================================================
Average rates and average and maximum balances for these short-term borrowings
were as follows for the years indicated:
- --------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------
Federal funds purchased:
Average interest rate at
December 31 5.9% 5.8% 2.7%
Highest month-end balance $270,927 $217,535 $172,215
Average daily outstanding
balance $161,602 $155,852 $ 98,042
Average daily interest rate paid 6.3% 4.4% 2.8%
Securities sold under
agreements to repurchase:
Average interest rate at
December 31 5.4% 5.4% 3.2%
Highest month-end balance $909,867 $883,036 $871,891
Average daily outstanding
balance $823,506 $792,790 $660,474
Average daily interest rate paid 5.6% 4.0% 3.2%
Commercial paper:
Average interest rate at
December 31 5.3% 6.2% 4.0%
Highest month-end balance $ 49,102 $ 46,723 $ 11,271
Average daily outstanding
balance $ 26,875 $ 14,092 $ 8,430
Average daily interest rate paid 6.2% 4.7% 3.1%
Advances from Federal Home
Loan Bank of Seattle:
Average interest rate at
December 31 5.9% 6.0% 4.3%
Highest month-end balance $322,661 $279,437 $111,265
Average daily outstanding
balance $259,998 $153,008 $ 43,499
Average daily interest rate paid 6.8% 5.5% 4.6%
======================================================================================
Securities sold under agreements to repurchase were treated as financings and
the obligations to repurchase the identical securities sold were reflected as
liabilities with the dollar amount of securities underlying the agreements
remaining in the asset accounts. At December 31, 1995, the weighted average
maturity of these agreements was 131 days and primarily represents investments
by public (governmental) entities. A schedule of maturities of these agreements
is as follows:
- ----------------------------------------------------
(in thousands)
- ----------------------------------------------------
OVERNIGHT $ --
LESS THAN 30 DAYS 408,128
30 TO 90 DAYS 225,714
OVER 90 DAYS 204,184
- ----------------------------------------------------
TOTAL $838,026
====================================================
The Parent had $70,000,000 in unused lines of credit with unaffiliated banks to
support its commercial paper borrowings as of December 31, 1995.
35
49
First Hawaiian, Inc. and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
8. LONG-TERM DEBT
At December 31, 1995 and 1994, long-term debt was comprised of the following:
First Hawaiian, Inc.
(Parent):
Note due 1997 $ 50,000 $ 50,015 $ 50,000 $ 49,988
6.25% subordinated
notes due 2000 100,000 97,364 100,000 97,555
Nonbank subsidiaries --
4.45%-7.70% notes
due through 2000 88,752 87,873 69,331 68,959
- ----------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $238,752 $235,252 $219,331 $216,502
===============================================================================================
FIRST HAWAIIAN, INC. (PARENT)
The note due in 1997 represents two separate drawings of $24,000,000 and
$26,000,000 on a $50,000,000 unsecured commitment with interest payable at
preselected intervals of one, two, three or six months at London Interbank
Offered Rate ("LIBOR") plus .225% ($24,000,000 at 6.0375% and $26,000,000 at
6.19375% at December 31, 1995).
The 6.25% subordinated notes due in 2000 are unsecured obligations with
interest payable semiannually.
NONBANK SUBSIDIARIES
The 4.45%-7.70% notes due through 2000 represent advances from the Federal Home
Loan Bank of Seattle to the Company's nonbank subsidiaries (Creditcorp and
Pioneer) with interest payable monthly.
As of December 31, 1995, the principal payments due on these borrowed funds
were as follows:
- -------------------------------------------------------------------------------
First
Hawaiian, Inc. Nonbank
(in thousands) (Parent) Subsidiaries Total
- -------------------------------------------------------------------------------
1997 $ 50,000 $46,028 $ 96,028
1998 -- 36,016 36,016
1999 -- 2,018 2,018
2000 100,000 4,690 104,690
- -------------------------------------------------------------------------------
TOTAL $150,000 $88,752 $238,752
===============================================================================
9. COMMON STOCK
On December 1, 1993, the Bank purchased certain assets and assumed certain
liabilities of GKN, Inc., which did business as Phoenix Financial Services
("Phoenix"), for $1,000,000 in the form of an exchange for 41,186 newly-issued
shares of the Company's common stock. In May 1995, the operations of Phoenix
were merged into the Bank.
10. LIMITATIONS ON PAYMENT OF DIVIDENDS
The primary source of funds for the dividends paid by the Company to its
stockholders is dividends received from its subsidiaries. The Bank, Pioneer
and Creditcorp are subject to regulatory limitations on the amount of dividends
they may declare or pay. At December 31, 1995, the aggregate amount available
for payment of dividends by such subsidiaries without prior regulatory approval
was $315,965,000.
11. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has a noncontributory pension plan which was frozen as of December
31, 1995. The curtailment gain due to the freeze of the pension plan was
$20,766,000. As a result of the freeze, there will be no future accruals and no
additional participants. The pension plan was replaced with a 401(k) match and
a money purchase plan to which the Company will begin contributing in 1996.
These plans cover all employees who satisfy the age and length of service
requirements except for key executives who are eligible for the Company's
unfunded supplemental employee retirement plan.
The net pension expense (credit) for 1995, 1994 and 1993 included the
following components:
- ----------------------------------------------------------------------------
(in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------
Service cost-benefits earned
during the period $ 4,018 $ 3,832 $3,955
Interest cost on projected
benefit obligation 6,862 6,294 6,553
Actual loss (return) on
plan assets (18,476) 3,593 (3,810)
Net amortization and deferral 10,197 (12,123) (3,577)
Curtailment gain due to
pension plan freeze (20,766) -- --
- ----------------------------------------------------------------------------
NET PENSION EXPENSE (CREDIT) $(18,165) $ 1,596 $3,121
============================================================================
No further contributions should be required because the pension plan is heavily
overfunded and there will be no future benefit accruals.
36
50
First Hawaiian, Inc. and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
The following table sets forth the reconciliation of the funded status of
the plans at December 31, 1995 and 1994:
- -------------------------------------------------------------------------------------
(in thousands) 1995 1994
- -------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested benefits $78,182 $62,900
Nonvested benefits 100 3,100
- -------------------------------------------------------------------------------------
Accumulated benefit obligation $78,282 $66,000
=====================================================================================
Plan assets at fair value (primarily listed
stocks and fixed income securities) $98,220 $84,044
Projected benefit obligation 88,784 91,944
- -------------------------------------------------------------------------------------
Plan assets in excess of (less than) projected
benefit obligation 9,436 (7,900)
Unrecognized net gain (1,232) (736)
Unrecognized prior service cost 7,623 6,959
Unrecognized net asset (7,199) (8,264)
- -------------------------------------------------------------------------------------
PREPAID PENSION COST (PENSION LIABILITY) $ 8,628 $(9,941)
=====================================================================================
Plan assets included 587,856 shares of common stock of the Company with a fair
value of $17,636,000 and $13,962,000 at December 31, 1995 and 1994,
respectively.
The weighted average discount rate was 7.0% as of December 31, 1995, and
7.5% as of December 31, 1994. For both years, the rate of increase in future
compensation used in determining the projected benefit obligation was 5.0% for
the qualified pension plan and 7.0% for the unfunded supplemental retirement
plan. The expected long-term rate of return on plan assets was 8.5% for both
years.
The Company has unfunded postretirement medical and life insurance plans
which are available to retirees who have satisfied age and length of service
requirements. The following table sets forth the reconciliation of the funded
status of the plan at December 31, 1995 and 1994:
- -------------------------------------------------------------------------------------
(in thousands) 1995 1994
- -------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Retirees $ 3,528 $ 3,196
Other fully eligible plan participants 1,382 1,248
Other active plan participants 2,076 1,775
- -------------------------------------------------------------------------------------
TOTAL $ 6,986 $ 6,219
=====================================================================================
Funded status $ 6,986 $ 6,219
Unrecognized transition obligation (2,429) (2,572)
Unrecognized prior service cost (71) (77)
Unrecognized net loss (575) (214)
- -------------------------------------------------------------------------------------
ACCRUED POSTRETIREMENT BENEFIT COST $ 3,911 $ 3,356
=====================================================================================
Service cost $ 189 $ 187
Interest cost 453 430
Amortization of:
Transition obligation 143 143
Unrecognized prior service cost 6 6
- -------------------------------------------------------------------------------------
NET PERIODIC POSTRETIREMENT BENEFIT COST $ 791 $ 766
=====================================================================================
The assumed health care cost trend is not applicable since the medical plan
provides a flat dollar commitment. Thus, there is no effect due to a
one-percentage-point increase in the trend rate.
The weighted average discount rate was 7.0% as of December 31, 1995, and
7.5% as of December 31, 1994. For both years, the rate of increase in future
compensation used in determining the accumulated postretirement benefit
obligation was 5.0%.
PROFIT SHARING AND CASH BONUS PLANS
The profit sharing and cash bonus plans cover substantially all employees,
after satisfying age and length of service requirements. Annual contributions
to the plans are based upon a formula and are limited to the total amount
deductible under the applicable provisions of the Internal Revenue Code. The
profit sharing and cash bonus formula provides that 50% of the Company's
contribution be paid directly to eligible members as a year-end cash bonus and
the other 50%, less forfeitures, be paid into the profit sharing trust fund.
The profit sharing contribution and cash bonus (reflected in salaries and
wages) for 1995, 1994 and 1993 totalled $5,545,000, $5,127,000 and $4,328,000,
respectively.
INCENTIVE PLAN FOR KEY EXECUTIVES
The Company has an Incentive Plan for Key Executives (the "IPKE"), under which
awards of cash or common stock of the Company, or both, are made to key
executives. The IPKE limits the aggregate and individual value of the awards
that could be issued in any one fiscal year. Shares awarded under the Plan are
held in escrow and key executives concerned may not, under any circumstances,
voluntarily dispose or transfer such shares prior to the earliest of attaining
60 years of age, completion of 20 full years of employment with the Company,
retirement, death or termination of employment prior to retirement with the
approval of the Company. Additionally, there is a five year restriction from
the date of all subsequent shares awarded to those key executives who had
previously met the minimum restrictions of completion of 20 full years of
employment or attaining 60 years of age.
37
51
First Hawaiian, Inc. and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
STOCK INCENTIVE PLAN
In 1992, the stockholders approved a Stock Incentive Plan (the "SIP"), which
authorized the granting of up to 1,000,000 shares of common stock to key
employees. The purpose of the SIP is to promote the success and enhance the
value of the Company by providing additional incentives to selected key
employees in a way that links their interests with those of stockholders and
provides those employees with an incentive for outstanding performances. The
SIP is administered by the Executive Compensation Committee of the Board of
Directors. The SIP provides for grants of restricted stock, incentive stock
options, non-qualified stock options and reload options. Options are granted at
exercise prices not less than the fair market value of the common stock on the
date of grant. Options vest 25% per year after the date of grant. Stock
options have exercise periods no longer than ten years from the date of grant
and may not be exercised for six months after the date of grant and/or vesting.
Stock options can be exercised, in whole or in part, by payment of the option
price in cash or, if allowed under the option agreement, shares of common stock
already owned by the optionee (reload options). Upon the occurrence of a change
in control of the Company, as defined in the SIP, all options granted and held
at least six months become immediately vested and exercisable.
The following table summarizes activity under the SIP for 1995, 1994 and
1993 and the status at December 31, 1995:
Balance at
December 31, 1992 112,932 $26.00 -- $ --
Options granted 106,060 30.25 -- --
Became exercisable -- -- 28,422 26.00
Exercised (60) 26.00 (60) 26.00
Forfeitures (433) 26.00 -- --
- --------------------------------------------------------------------------------------
Balance at
December 31, 1993 218,499 28.06 28,362 26.00
Options granted 139,380 26.60 -- --
Became exercisable -- -- 54,938 28.05
Forfeitures (11,67) 27.53 -- --
- --------------------------------------------------------------------------------------
Balance at
December 31, 1994 346,204 27.49 83,300 27.35
Options granted 149,420 25.50 -- --
Became exercisable -- -- 89,782 27.49
Exercised (2,115) 26.09 (2,115) 26.09
Forfeitures (12,353) 27.28 -- --
- --------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1995 481,156 $26.88 170,967 $27.44
======================================================================================
At December 31, 1995, 516,669 stock options were available for future grants
under the SIP.
LONG-TERM INCENTIVE PLAN
The Company has a Long-Term Incentive Plan (the "LTIP") designed to reward key
executives for the Company's and individuals' performances measured over
three-year cycles; that is, 1993-1995, 1994-1996, 1995-1997 and so on. The
first three-year performance cycle (1991-1993) ended on December 31, 1993. The
threshold level specified in the LTIP was achieved during this cycle. In 1994,
payouts totalling $1,195,000 were made to various key executives for the
1991-1993 cycle. The threshold levels specified in the LTIP were not achieved
for the 1992-1994 and 1993-1995 cycles.
POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," which requires that the estimated cost
of benefits provided by an employer to former or inactive employees after
employment, but before retirement, be accounted for on an accrual basis. The
adoption of SFAS 112 did not have a material effect on the financial position
or results of operations of the Company.
12. OTHER NONINTEREST EXPENSES
For the years ended December 31, 1995, 1994 and 1993, other noninterest
expenses included the following:
- --------------------------------------------------------------------------------------
(in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------
Deposit insurance $ 6,190 $11,388 $11,122
Stationery and supplies 8,645 9,055 8,430
Advertising and promotion 7,476 7,745 6,911
Write-off of building costs -- -- 5,444
Trust loss -- 5,000 --
Other 56,041 48,320 42,082
- --------------------------------------------------------------------------------------
TOTAL OTHER NONINTEREST EXPENSES $78,352 $81,508 $73,989
======================================================================================
13. INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes," the cumulative effect of which was the recognition of an income
tax benefit of $3,650,000, or $.11 per share, in the first quarter of 1993.
Such amount has been reflected in the Consolidated Statements of Income as the
cumulative effect of a change in accounting principle. Under SFAS No. 109, the
effect of changes in tax rates is recognized in income in the period that
includes the enactment date. On August 10, 1993, the Omnibus Budget
Reconciliation Act of 1993 was signed into law, increasing the Federal
corporate tax rate from 34% to 35%, retroactive to January 1, 1993. As a
result, the Company recognized retroactive adjustments to its deferred tax
liability and current tax provision of $1,520,000 and $402,000, respectively,
in 1993.
38
52
First Hawaiian, Inc. and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
For the years ended December 31, 1995, 1994 and 1993, the provision for
income taxes was comprised of the following:
- --------------------------------------------------------------------------------------
(in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------
Current:
Federal $15,164 $24,822 $19,755
States and other 3,698 4,989 4,776
- --------------------------------------------------------------------------------------
Total current 18,862 29,811 24,531
- --------------------------------------------------------------------------------------
Deferred:
Federal 21,430 6,175 12,116
States and other 4,841 3,004 4,251
- --------------------------------------------------------------------------------------
Total deferred 26,271 9,179 16,367
- --------------------------------------------------------------------------------------
TOTAL INCOME TAX PROVISION $45,133 $38,990 $40,898
======================================================================================
The provision for income taxes has been reduced by investment, excise tax and
low income housing credits of $2,140,000, $1,769,000 and $1,000,000 in 1995,
1994 and 1993, respectively. The Company also has foreign tax credit
carryforwards amounting to $5,770,000 at December 31, 1995 which may be used to
offset future Federal income tax expense. The foreign tax credit carryover of
$1,040,000, $1,526,000, $1,597,000 and $1,607,000 will expire at the end of
1997, 1998, 1999 and 2000, respectively.
The components of net deferred income tax liabilities at December 31, 1995
and 1994 were as follows:
- ---------------------------------------------------------------------------------
DECEMBER 31
----------------------------
(in thousands) 1995 1994
- ---------------------------------------------------------------------------------
ASSETS
Federal and State income
tax credit carryovers $ 5,003 $ 3,180
Employee benefit deductions 3,489 10,340
Provision for loan and lease losses 36,897 32,706
Loan fees and other income 8,117 8,853
Hawaii State franchise taxes 6,628 5,007
- ---------------------------------------------------------------------------------
Total deferred income tax assets 60,134 60,086
- ---------------------------------------------------------------------------------
LIABILITIES
Lease expenses 152,799 120,933
Depreciation expense 12,705 19,975
Intangible assets-net premiums 2,502 3,429
Marketable securities-available for sale 3,626 683
Other 6,465 3,132
- ---------------------------------------------------------------------------------
Total deferred income tax liabilities 178,097 148,152
- ---------------------------------------------------------------------------------
NET DEFERRED INCOME TAX LIABILITIES $(117,963) $(88,066)
=================================================================================
Net deferred income tax liabilities are included in other liabilities in the
Consolidated Balance Sheets.
At December 31, 1995 and 1994, Federal income taxes had not been provided on
$2,832,000 of thrift bad debt deductions. If in the future, these amounts are
used for any purpose other than to absorb losses on bad debts, a tax liability
will be imposed on the Company for these amounts at the then current income tax
rates.
Effective January 1, 1996, the Hawaii Revised Statutes were amended to
require the apportionment and allocation of income according to the state where
the income has been generated. As such, 1996 and future state income and
franchise taxes will be computed accordingly. Management has not yet determined
the effect this change will have on the calculation and allocation of future
income tax provisions.
The following analysis reconciles the Federal statutory income tax rate to
the effective income tax rate for the years indicated:
- -------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
Municipal and other tax-
exempt income (2.7) (4.0) (4.4)
Hawaii State income and franchise
taxes, net of Federal tax benefit 4.5 4.7 4.9
Other .2 (0.7) (1.2)
- -------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATE 37.0% 35.0% 34.3%
===============================================================================
39
53
First Hawaiian, Inc., and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
14. INTERNATIONAL OPERATIONS
The Company's international operations, principally Guam and Grand Cayman,
British West Indies, involve foreign banking and international financing
activities, including short-term investments, loans, acceptances, letters of
credit financing and international funds transfers.
International activities are identified on the basis of the domicile of the
Company's customer.
Total revenue, income before income taxes, net income and total assets for
foreign, domestic and consolidated operations at and for the years ended
December 31, 1995, 1994 and 1993 were as follows:
- -------------------------------------------------------------------------------------
(in thousands) Foreign Domestic Consolidated
- -------------------------------------------------------------------------------------
1995
TOTAL REVENUE $ 38,669 $ 616,166 $ 654,835
INCOME BEFORE
INCOME TAXES $ 582 $ 121,556 $ 122,138
NET INCOME $ 379 $ 76,626 $ 77,005
TOTAL ASSETS $478,790 $7,085,719 $7,564,509
====================================================================================
1994
Total revenue $ 26,533 $ 535,899 $ 562,432
Income before
income taxes $ 1,496 $ 110,005 $ 111,501
Net income $ 972 $ 71,539 $ 72,511
Total assets $251,697 $7,283,447 $7,535,144
====================================================================================
1993
Total revenue $ 26,586 $ 481,932 $ 508,518
Income before
income taxes $ 2,726 $ 116,379 $ 119,105
Net income $ 1,772 $ 80,085 $ 81,857
Total assets $326,197 $6,942,934 $7,269,131
====================================================================================
Under current intercompany pricing procedures, transfers of funds are priced at
prevailing market rates. In general, the Company has allocated all direct
expenses and a proportionate share of general and administrative expenses to
the income derived from loans and transactions by the Company's international
operations.
The following presents the percentages of average total assets and total
liabilities attributable to foreign operations. For this purpose, assets
attributable to foreign operations are defined as assets in foreign offices and
loans and leases to and investments in customers domiciled outside the United
States. Deposits received and other liabilities are classified on the basis of
domicile of the creditor.
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Average foreign assets to
average total assets 3.61% 3.80% 6.19%
Average foreign liabilities to
average total liabilities 5.04% 3.15% 2.07%
================================================================================
The Company did not have any foreign outstandings to any individual country
which exceeded 1% of total assets at December 31, 1995, 1994 and 1993.
15. LEASE COMMITMENTS
Future minimum lease payments by year and in the aggregate under all
noncancelable operating leases having initial or remaining terms in excess of
one year consisted of the following at December 31, 1995:
- --------------------------------------------------------------------------------
Less Net
Operating Sublease Operating
(in thousands) Leases Income Leases
- --------------------------------------------------------------------------------
1996 $ 10,981 $ 1,236 $ 9,745
1997 24,137 4,490 19,647
1998 24,263 4,383 19,880
1999 24,573 4,450 20,123
2000 24,567 4,929 19,638
2001 and
thereafter 118,101 15,936 102,165
- --------------------------------------------------------------------------------
TOTAL $226,622 $35,424 $191,198
================================================================================
These premises and equipment leases extend for varying periods up to 39 years
and some of them may be renewed for periods ranging from 1 to 39 years. The
premises' leases also provide for payments of real property taxes, insurance
and maintenance.
In most cases, leases for the premises provide for periodic renegotiation of
the rents based upon a percentage of the appraised value of the leased
property. The renegotiated annual rent is usually not less than the annual
amount paid in the previous period. Where future commitments are subject to
appraisals, the minimum annual rental commitments are based on the latest
annual rents.
In December 1993, the Company entered into a noncancelable agreement to
lease a certain office building to be constructed on land owned in fee simple
by the Company. Concurrently, the Company entered into a ground lease of the
land to the lessor of the building. Rent obligation for the building will
commence on December 1, 1996 and will expire on December 1, 2003 (the "Primary
Term"). The Company is obligated to pay all taxes, insurance, maintenance and
other operating costs associated with the building during the Primary Term and
to assume certain responsibilities during the construction period. The Company
plans to occupy approximately 40% of the building and sublease the remaining
60% to third parties. As of December 31, 1995, the Company has executed certain
noncancelable subleases with third parties. These amounts are included in
sublease income in the above table.
At the end of the Primary Term, the Company may, at its option: (1) extend
the lease term at rents based on the lessor's cost of funds at the time of
renewal; (2) purchase the building for an amount approximately equal to that
expended by the lessor to construct the building; or (3) arrange for the sale
of the building to a third party on behalf of the lessor and pay to lessor any
shortfall between the sales proceeds and a specified residual value,
40
54
First Hawaiian, Inc. and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
such payment not to exceed $161,990,000. This lease is accounted for as an
operating lease.
For 1995, 1994 and 1993, rental expense was $14,525,000, $13,699,000 and
$8,782,000, respectively.
16. COMMITMENTS AND CONTINGENT LIABILITIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company is a party to various financial
instruments to meet the financing needs of its customers and to reduce its own
exposure to fluctuations in interest rates. These financial instruments include
commitments to extend credit, standby and commercial letters of credit and
interest rate swaps. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amounts recognized in the
Consolidated and Parent Company Balance Sheets. The contract or notional
amounts of those instruments reflect the extent of involvement the Company has
in particular classes of financial instruments.
The Company's exposure to credit losses in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
and standby and commercial letters of credit is represented by the contractual
notional amount of those instruments. Since these commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash flows. For interest rate swap transactions, the contract
or notional amounts do not represent exposure to credit losses.
Off-balance sheet instruments must meet the same criteria of acceptable risk
established for the Company's lending and other financing activities. The
Company manages the credit risk of counterparty defaults in these transactions
by limiting the total amount of outstanding arrangements, both by the
individual counterparty and in the aggregate, by monitoring the size and
maturity structure of the off-balance sheet portfolio, and by applying the
uniform credit standards maintained for all of its credit activities.
Off-balance sheet commitments and contingent liabilities at December 31,
1995 and 1994 were as follows:
- ----------------------------------------------------------------------------
1995 1994
----------- -----------
NOTIONAL/ Notional/
CONTRACT Contract
(in thousands) AMOUNT Amount
- ----------------------------------------------------------------------------
Commitments to extend credit $3,363,822 $2,801,502
Standby letters of credit $ 145,278 $ 154,221
Commercial letters of credit $ 18,028 $ 10,207
Interest rate swaps $1,093,867 $1,035,113
============================================================================
The Company enters into interest rate swap agreements as an end-user only.
These instruments are used as hedges against various balance sheet accounts.
Credit exposure is monitored under the same credit guidelines as are followed
for other extensions of credit. Interest rate and/or market risk is monitored
and managed in conjunction with the total interest rate risk position of the
Company as a whole. Off-balance sheet agreements are not entered into if they
would increase the Company's interest rate risk above approved guidelines.
Sensitivity testing to measure and monitor this risk is done quarterly using
net interest income simulations.
Variable rates for interest rate swap agreements are based either on LIBOR
or commercial paper rates as published by the Federal Reserve Board Statistical
Release H.15.
The following is a summary of the interest rate swap activity for 1995 and
1994:
ROLLFORWARD SCHEDULE
- --------------------------------------------------------------------------------------------------------------
Caps,
Receive Pay Floors or Variable/
(in millions) Fixed Fixed Collars Variable Total
- --------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1993 $361 $257 $300 $ -- $ 918
Additions -- 9 -- 700 709
Maturities/
amortizations 253 31 300 -- 584
Terminations -- 9 -- -- 9
- --------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1994 108 226 -- 700 1,034
Additions 200 32 -- -- 232
Maturities/
amortizations 48 124 -- -- 172
Terminations -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1995 $260 $134 $ -- $700 $1,094
==============================================================================================================
41
55
First Hawaiian, Inc. and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
The following is additional hedging information related to the Company's
interest rate swaps as of December 31, 1995:
HEDGING SUMMARY
- -----------------------------------------------------------------------------------------------------------------------------
Asset Yield/ Net Remain-
Notional Pay Receive Liability Yield/ Original ing
(dollars in millions) Amount Rate Rate Cost Cost Maturity Maturity
- -----------------------------------------------------------------------------------------------------------------------------
ASSET HEDGES:
Variable rate loans $ 200 5.9% 5.6% 7.1% 6.8% 2.0 yrs. 1.9 yrs.
Fixed rate loans 96 6.4 5.8 8.3 7.7 9.4 7.7
Construction fund
investments 59 5.9 4.3 5.7 4.1 3.0 0.9
Municipal security 15 5.7 6.0 5.9 6.2 5.0 1.8
- ----------------------------------------
Subtotal 370 6.0 5.5 7.1 6.6 4.2 3.2
- ----------------------------------------
LIABILITY HEDGES:
Savings deposits 700 5.4 6.0 3.0 2.4 2.6 0.8
Term debt 24 8.8 5.9 6.0 8.9 7.0 1.9
- ----------------------------------------
Subtotal 724 5.5 6.0 3.1 2.6 2.7 0.8
- ----------------------------------------
TOTAL $1,094 5.7% 5.8% N/A N/A 3.2 YRS. 1.6 YRS.
==============================================================================================================================
The following summarizes the impact of the Company's interest rate swap
activities on its weighted average borrowing rate and on interest income and
expense for the years ended December 31, 1995, 1994 and 1993:
- ------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Average borrowing rate:
Without interest rate swaps 4.49% 3.26% 3.11%
With interest rate swaps 4.54% 3.23% 2.96%
==============================================================================
Decrease in interest income $ 3,827 $10,352 $12,664
(Increase) decrease in interest
expense (2,926) 1,351 7,436
- ------------------------------------------------------------------------------
Interest rate swap expense, net $ 6,753 $ 9,001 $ 5,228
==============================================================================
LITIGATION
Various legal proceedings are pending against the Company. In the opinion of
management, based upon advice of counsel, the aggregate liability, if any,
resulting from these proceedings would not have a material effect on the
Company's consolidated financial position or results of operations.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents a summary of the book and fair values of the
Company's financial instruments at December 31, 1995 and 1994:
- --------------------------------------------------------------------------------------------------
1995
----------------------------------
(in thousands) BOOK VALUE FAIR VALUE
- --------------------------------------------------------------------------------------------------
FINANCIAL ASSETS
Cash and due from banks $ 304,051 $ 304,051
Interest-bearing deposits in other banks 244,570 244,570
Federal funds sold and securities
purchased under agreements to resell 169,803 169,803
Investment securities:
Available-for-sale (note 2) 1,175,293 1,175,293
Loans and leases (note 3) 5,259,545 5,269,635
Customers' acceptance liability 1,995 1,195
- --------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES
Deposits $5,358,313 $5,370,203
Short-term borrowings (note 7) 1,083,179 1,083,179
Acceptances outstanding 1,995 1,995
Long-term debt (note 8) 238,752 235,252
==================================================================================================
- --------------------------------------------------------------------------------------------------
1994
----------------------------------
(in thousands) Book Value Fair Value
- --------------------------------------------------------------------------------------------------
FINANCIAL ASSETS
Cash and due from banks $ 262,894 $ 262,894
Interest-bearing deposits in other banks 11,670 11,670
Federal funds sold and securities
purchased under agreements to resell 180,000 180,000
Investment securities:
Held-to-maturity (note 2) 995,887 981,651
Available-for-sale (note 2) 151,992 151,992
Loans and leases (note 3) 5,533,565 5,536,510
Customers' acceptance liability 732 732
- --------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES
Deposits $5,152,213 $5,158,495
Short-term borrowings (note 7) 1,329,816 1,329,816
Acceptances outstanding 732 732
Long-term debt (note 8) 219,331 216,502
==================================================================================================
The following table presents a summary of the fair values of the Company's
off-balance sheet financial instruments (note 16) at December 31, 1995 and
1994:
- --------------------------------------------------------------------------------------------------
FAIR VALUE
------------------------------
(in thousands) 1995 1994
- --------------------------------------------------------------------------------------------------
Commitments to extend credit $13,596 $11,489
Letters of credit 1,435 1,523
Interest rate swaps (1,158) (21,154)
==================================================================================================
42
56
First Hawaiian, Inc. and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
18. FIRST HAWAIIAN, INC. (PARENT COMPANY ONLY) FINANCIAL STATEMENTS
BALANCE SHEETS
- ------------------------------------------------------------------------------------------------
DECEMBER 31,
(in thousands, except number of -------------------------------
shares and per share data) 1995 1994
- ------------------------------------------------------------------------------------------------
ASSETS
Cash on deposit with First Hawaiian Bank $ 144 $ 110
Loans, net of allowance
for loan losses of $100 in 1995 15,480 17,005
Securities purchased from
First Hawaiian Bank 9,930 6,180
Investment in subsidiaries:
First Hawaiian Bank 587,009 597,252
Other subsidiaries 160,833 155,113
Due from:
First Hawaiian Bank 91,273 83,604
Other subsidiaries 59,102 61,825
Other assets 1,718 2,257
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS $925,489 $923,346
================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper $ 13,777 $ 46,723
Current and deferred income taxes 109,468 95,795
Other liabilities 2,707 2,884
Long-term debt 150,000 150,000
- ------------------------------------------------------------------------------------------------
Total liabilities 275,952 295,402
- ------------------------------------------------------------------------------------------------
Commitments and contingent liabilities
(notes 11, 15 and 16)
Stockholders' equity:
Common stock $5 par value
Authorized -- 100,000,000 shares
Issued -- 32,542,797 shares
in 1995 and 1994 162,713 162,713
Surplus 133,925 133,820
Retained earnings 385,976 346,339
Unrealized valuation adjustment 5,489 (1,033)
Treasury stock, 1,397,957 shares in 1995
and 516,623 shares in 1994, at cost (38,566) (13,895)
- ------------------------------------------------------------------------------------------------
Total stockholders' equity 649,537 627,944
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $925,489 $923,346
================================================================================================
STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------
(in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------
INCOME
Dividends from:
First Hawaiian Bank $84,660 $34,660 $33,551
Other subsidiaries 8,300 7,560 4,590
Interest from First Hawaiian Bank 520 448 419
Interest and fees from other
subsidiaries 3,043 799 321
Other interest and dividends 1,359 1,149 1,148
- ------------------------------------------------------------------------------------------------
Total income 97,882 44,616 40,029
- ------------------------------------------------------------------------------------------------
EXPENSES
Interest expense:
Commercial paper 1,669 663 259
Long-term debt 10,299 9,711 5,514
Other 114 107 254
Provision for loan losses 100 -- --
Professional services 494 289 493
Other 339 351 381
- ------------------------------------------------------------------------------------------------
Total expenses 13,015 11,121 6,901
- ------------------------------------------------------------------------------------------------
Income before income tax
benefit and equity in
undistributed income of
subsidiaries 84,867 33,495 33,128
Income tax benefit 3,178 3,344 1,763
- ------------------------------------------------------------------------------------------------
Income before equity in undistributed
income of subsidiaries 88,045 36,839 34,891
Equity in undistributed income
of subsidiaries:
First Hawaiian Bank (15,634) 26,713 38,620
Other subsidiaries 4,594 8,959 8,346
- ------------------------------------------------------------------------------------------------
NET INCOME $77,005 $72,511 $81,857
================================================================================================
43
57
NOTES TO FINANCIAL STATEMENTS (Continued) First Hawaiian, Inc. and Subsidiaries
STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------
(in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------
CASH AT BEGINNING OF YEAR $ 110 $ 250 $ 985
Cash flows from operating activities:
Net income 77,005 72,511 81,857
Excess of equity in earnings
of subsidiaries over
dividends received 11,040 (35,672) (46,966)
Other 449 (630) (439)
- -----------------------------------------------------------------------------------------------
Net cash provided by operating
activities 88,494 36,209 34,452
- -----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net change in:
Securities sold to (purchased
from) First Hawaiian Bank (3,750) 6,945 (2,545)
Loans made to directors and
executive officers 1,525 (1,246) (657)
Repayments from (advances to)
subsidiaries 8,750 (34,600) (100)
Sale of investment securities 43,490 5,000 --
Purchase of investment
securities (43,490) -- (5,000)
Purchase of Pioneer
Fed BanCorp, Inc. -- -- (87,107)
Other -- -- (343)
- -----------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 6,525 (23,901) (95,752)
- -----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in commercial
paper balances (32,946) 37,118 (632)
Proceeds from long-term debt -- -- 100,000
Cash dividends paid (37,368) (38,008) (36,821)
Issuance of common stock
under IPKE -- -- 493
Repurchase of common stock (24,671) (11,558) (2,475)
- -----------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (94,985) (12,448) 60,565
- -----------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 144 $ 110 $ 250
================================================================================================
Supplemental disclosures:
Interest paid $ 12,251 $ 10,338 $ 3,740
Net income taxes refunded $ (3,211) $ (2,502) $ (375)
================================================================================================
44
58
First Hawaiian, Inc. and Subsidiaries
CORPORATE ADDRESSES
FIRST HAWAIIAN, INC.
1132 Bishop Street
Honolulu, Hawaii 96813
or
P.O. Box 3200
Honolulu, Hawaii 96847
FIRST HAWAIIAN CREDITCORP, INC.
Interstate Building, Second Floor
1314 South King Street
Honolulu, Hawaii 96814
Telephone: (808) 593-5500
FIRST HAWAIIAN LEASING, INC.
Interstate Building, Second Floor
1314 South King Street
Honolulu, Hawaii 96814
Telephone: (808) 593-5300
PIONEER FEDERAL SAVINGS BANK
900 Fort Street
Honolulu, Hawaii 96813
Telephone: (808) 522-6777
FIRST HAWAIIAN BANK
1132 Bishop Street
Honolulu, Hawaii 96813
or
P.O. Box 3200
Honolulu, Hawaii 96847
Telephone: (808) 525-7000
Cable Address: FIRSTBANK (Honolulu, Hawaii)
S.W.I.F.T.: FHBKUS77
FedWire: ABA 121301015 FST HAW HONO
Internet's World Wide Web Address:
http://www.fhb.com/
Japan Representative Office
Yasutaka P. Onodera
Senior Vice President and Representative
Ohtemachi Building 6-1, Room 202
Ohtemachi 1-Chome, Chiyoda-Ku,
Tokyo 100, Japan
Telephone: (03) 3201-6081
Facsimile: (03) 3215-0566
45
59
First Hawaiian, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
First Hawaiian, Inc.'s shares are traded on The Nasdaq Stock Market under the
Nasdaq symbol: FHWN.
TRANSFER AGENT
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
FORM 10-K AND OTHER FINANCIAL INFORMATION
The Company's 1995 Form 10-K annual report, which is to be filed with the
Securities and Exchange Commission by March 30, 1996, will be available to
stockholders after that date. Analysts, investors and others seeking a copy of
the Form 10-K or any other financial information should write to:
Howard H. Karr
Executive Vice President and Treasurer
First Hawaiian, Inc.
P.O. Box 3200
Honolulu, Hawaii 96847
GENERAL INFORMATION
News media representatives and others seeking general information should
contact:
Gerry Keir
Senior Vice President
Corporate Communications
(808) 525-7086
ANNUAL MEETING
The annual meeting of stockholders of First Hawaiian, Inc. will be held on
Thursday, April 18, 1996 at 9:30 A.M. in the 20th floor Dining Room of The
Plaza Club, 900 Fort Street, Honolulu, Hawaii.
DIVIDEND REINVESTMENT PLAN
Stockholders may reinvest their dividends in additional shares of the First
Hawaiian, Inc. common stock through the Dividend Reinvestment Plan.
Stockholders wishing to participate in the Plan can receive a descriptive
brochure and authorization card by writing to:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
or calling toll free at 1-800-937-5449
1
60
EXHIBIT 21.
SUBSIDIARIES OF THE REGISTRANT
The Corporation or one of its wholly-owned subsidiaries beneficially owns 100%
of the outstanding capital stock and voting securities of the following
corporations. The Corporation is indirectly the sole general partner of First
Hawaiian Center Limited Partnership.
STATE OR OTHER
JURISDICTION OF
NAME INCORPORATION
---- -------------
First Hawaiian Bank Hawaii
First Hawaiian Overseas Corporation Hawaii
FIH International, Inc. Hawaii
American Security Properties, Inc. Hawaii
Real Estate Delivery, Inc. Hawaii
FH Center, Inc. Hawaii
FHB Mortgage Company, Inc. Hawaii
FHB Properties, Inc. Hawaii
First Hawaiian Center Limited Partnership Hawaii
First Hawaiian Dealer Center, Inc. Hawaii
OMP, Inc. Hawaii
2200 Main, Inc. Hawaii
First Hawaiian Creditcorp, Inc. Hawaii
First Hawaiian Leasing, Inc. Hawaii
FHL SPC One, Inc. Hawaii
FHI International, Inc. Hawaii
Pioneer Federal Savings Bank Federal
Pioneer Advertising Agency, Inc. Hawaii
All subsidiaries were included in the consolidated financial statements of the
Corporation.
9
1
U.S. DOLLARS
YEAR
DEC-31-1995
JAN-01-1995
DEC-31-1995
1
304,051
244,570
169,803
0
1,175,293
0
0
5,259,545
78,733
7,564,509
5,358,313
1,083,179
232,733
238,752
0
0
162,713
486,824
7,564,509
481,444
62,783
15,730
559,957
176,048
265,297
294,660
38,107
144
229,293
122,138
77,005
0
0
77,005
2.43
2.43
8.22
79,733
28,790
3,182
0
61,250
22,845
2,221
78,733
36,135
1,430
41,168
