1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . . . . to . . . . . . . .
Commission file number 0-7949
--------------------
FIRST HAWAIIAN, INC.
(Exact name of registrant as specified in its charter)
--------------------
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)
(808) 525-7000
(Registrant's telephone number, including area code)
--------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or l5(d) of the Securities
Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant
was required to file such reports), and
(2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock as of April 30, 1996 was:
Class Outstanding
------------------------------ ------------------
Common Stock, $5 Par Value 31,127,897 Shares
===============================================================================
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
----
Consolidated Balance Sheets at March 31, 1996, December 31, 1995
and March 31, 1995 2
Consolidated Statements of Income for the three months ended March 31, 1996
and 1995 3
Consolidated Statements of Cash Flows for the three months ended
March 31, 1996 and 1995 4
Consolidated Statements of Changes in Stockholders' Equity for the
three months ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBIT INDEX
1
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (Unaudited)
First Hawaiian, Inc. and Subsidiaries
MARCH 31, December 31, March 31,
------------ --------------- ----------
1996 1995 1995
------------ --------------- ----------
(in thousands)
ASSETS
Interest-bearing deposits in other banks $ 206,670 $ 244,570 $ 8,770
Federal funds sold and securities purchased
under agreements to resell 162,000 169,803 285,904
Investment securities:
Held-to-maturity (fair value of $817,206) -- -- 823,649
Available-for-sale 1,098,091 1,175,293 161,877
Loans and leases:
Loans and leases 5,206,288 5,259,545 5,713,570
Less allowance for loan and lease losses 79,585 78,733 61,236
------------ ------------ ------------
Net loans and leases 5,126,703 5,180,812 5,652,334
------------ ------------ ------------
Total earning assets 6,593,464 6,770,478 6,932,534
Cash and due from banks 329,951 304,051 267,313
Premises and equipment 241,800 241,987 245,320
Customers' acceptance liability 695 1,995 2,107
Core deposit premium 16,092 16,665 13,312
Goodwill 74,410 75,309 77,993
Other assets 170,317 154,024 164,848
------------ ------------ ------------
TOTAL ASSETS $ 7,426,729 $ 7,564,509 $ 7,703,427
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 817,220 $ 913,228 $ 833,175
Interest-bearing demand 1,130,067 1,073,136 1,128,513
Savings 1,106,610 1,147,997 1,155,446
Time 1,990,851 1,927,011 1,640,479
Foreign 242,392 296,941 467,543
------------ ------------ ------------
Total deposits 5,287,140 5,358,313 5,225,156
Short-term borrowings 1,013,178 1,083,179 1,395,182
Acceptances outstanding 695 1,995 2,107
Other liabilities 226,736 232,733 214,738
Long-term debt 241,751 238,752 228,283
------------ ------------ ------------
Total liabilities 6,769,500 6,914,972 7,065,466
------------ ------------ ------------
Stockholders' equity:
Common stock 162,713 162,713 162,713
Surplus 133,933 133,925 133,820
Retained earnings 396,999 385,976 355,675
Unrealized valuation adjustment 2,371 5,489 (197)
Treasury stock (38,787) (38,566) (14,050)
------------ ------------ ------------
Total stockholders' equity 657,229 649,537 637,961
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,426,729 $ 7,564,509 $ 7,703,427
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
4
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
First Hawaiian, Inc. and Subsidiaries
THREE MONTHS ENDED MARCH 31,
------------------------------------------------
1996 1995
---------------- -----------------
(in thousands, except shares and per share data)
INTEREST INCOME
Interest and fees on loans $ 110,252 $ 118,656
Lease financing income 2,837 3,592
Interest on investment securities:
Taxable interest income 16,798 11,360
Exempt from Federal income taxes 860 1,654
Other interest income 5,032 3,332
---------------- -----------------
Total interest income 135,779 138,594
---------------- -----------------
INTEREST EXPENSE
Deposits 42,049 42,149
Short-term borrowings 13,834 20,513
Long-term debt 3,876 3,179
---------------- -----------------
Total interest expense 59,759 65,841
---------------- -----------------
Net interest income 76,020 72,753
Provision for loan and lease losses 3,322 3,340
---------------- -----------------
Net interest income after provision for
loan and lease losses 72,698 69,413
---------------- -----------------
NONINTEREST INCOME
Trust income 6,497 6,354
Service charges on deposit accounts 5,986 6,306
Other service charges and fees 9,817 8,254
Securities gains, net 20 1
Other 1,648 2,068
---------------- -----------------
Total noninterest income 23,968 22,983
---------------- -----------------
NONINTEREST EXPENSES
Salaries and wages 24,194 23,227
Employee benefits 9,178 7,234
Occupancy expense 6,445 6,426
Equipment expense 5,481 6,386
Other 22,108 20,072
---------------- -----------------
Total noninterest expenses 67,406 63,345
---------------- -----------------
Income before income taxes 29,260 29,051
Income taxes 9,057 10,281
---------------- -----------------
NET INCOME $ 20,203 $ 18,770
================ =================
PER SHARE DATA
NET INCOME $ .65 $ .59
================ =================
CASH DIVIDENDS $ .295 $ .295
================ =================
AVERAGE SHARES OUTSTANDING 31,119,485 32,021,262
================ =================
The accompanying notes are an integral part of these consolidated financial
statements.
3
5
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
First Hawaiian, Inc. and Subsidiaries
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
1996 1995
---------------- ---------------
(in thousands)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR $ 304,051 $ 262,894
---------------- ---------------
Cash flows from operating activities:
Net income 20,203 18,770
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan and lease losses 3,322 3,340
Depreciation and amortization 8,094 6,757
Income taxes 8,314 8,265
Decrease (increase) in interest receivable 4,036 (3,333)
Increase (decrease) in interest payable (6,427) 7,921
Decrease in prepaid expenses 114 1,304
Other (27,428) (42,084)
---------------- ---------------
Net cash provided by operating activities 10,228 940
---------------- ---------------
Cash flows from investing activities:
Net decrease in interest-bearing deposits
in other banks 37,900 2,900
Net decrease (increase) in Federal funds sold and securities
purchased under agreements to resell 7,803 (105,904)
Purchase of held-to-maturity investment securities -- (44,031)
Proceeds from maturity of held-to-maturity
investment securities -- 216,269
Purchase of available-for-sale investment securities (168,232) (10,962)
Proceeds from maturity of available-for-sale
investment securities 240,257 1,077
Net decrease (increase) in loans and leases
to customers 50,059 (183,860)
Capital expenditures (3,247) (4,579)
Other (1,300) (5,103)
---------------- ---------------
Net cash provided by (used in) investing activities 163,240 (134,193)
---------------- ---------------
Cash flows from financing activities:
Net increase (decrease) in deposits (71,173) 72,943
Net increase (decrease) in short-term borrowings (70,001) 65,366
Proceeds from long-term debt 3,000 8,955
Payments on long-term debt (1) (3)
Cash dividends paid (9,180) (9,434)
Repurchased common stock (213) (155)
---------------- ---------------
Net cash provided by (used in) financing activities (147,568) 137,672
---------------- ---------------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 329,951 $ 267,313
================ ===============
Supplemental disclosures:
Interest paid $ 66,186 $ 57,920
================ ===============
Net income taxes paid $ 743 $ 2,016
================ ===============
The accompanying notes are an integral part of these consolidated financial
statements.
4
6
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
First Hawaiian, Inc. and Subsidiaries
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
1996 1995
---------------- -----------------
(in thousands)
BALANCE, BEGINNING OF PERIOD $ 649,537 $ 627,944
Net income 20,203 18,770
Purchase of treasury stock (213) (155)
Unrealized valuation adjustment (3,118) 836
Cash dividends paid (9,180) (9,434)
---------------- ----------------
BALANCE, END OF PERIOD $ 657,229 $ 637,961
================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
First Hawaiian, Inc. and Subsidiaries
1. BASIS OF PRESENTATION
The consolidated financial statements of the Company include the
accounts of First Hawaiian, Inc. and its wholly-owned subsidiaries - First
Hawaiian Bank and its wholly-owned subsidiaries; Pioneer Federal Savings Bank
and its wholly-owned subsidiary; First Hawaiian Creditcorp, Inc.; First
Hawaiian Leasing, Inc.; and FHI International, Inc. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts in the consolidated financial statements for 1995 have
been reclassified to conform with the 1996 presentation. Such
reclassifications had no effect on the consolidated net income as previously
reported.
In the opinion of management, all adjustments (which included only
normal recurring adjustments) necessary for a fair presentation are reflected
in the consolidated financial statements.
2. ACCOUNTING CHANGES
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("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. The adoption
of this standard did not have a material effect on the consolidated financial
statements of the Company.
Effective January 1, 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." SFAS No. 114 requires that impaired loans be measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate, or at the loan's observable market price, or at the
fair value of the collateral if the loan is collateral dependent. The adoption
of SFAS No. 114 did not result in additional provisions 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 provision for loan and lease losses charged to expense is based
upon the Company's historical loss experience and estimates of future loan and
lease losses in the current loan and lease portfolio, including the evaluation
of impaired loans in accordance with SFAS No. 114. A loan is considered to be
impaired when, based upon current information and events, it is probable that
the Company will be unable to collect all amounts due according to the
contractual terms of the loan. Impairment is primarily measured based on the
fair value of the collateral. Impairment losses are included in the provision
for loan and lease losses. SFAS No. 114 does not apply to large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment, except for those loans restructured under a troubled debt
structuring. Loans collectively evaluated for impairment include certain
smaller balance commercial loans, consumer loans and residential real estate
loans, and are not included in the data that follows.
5
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
First Hawaiian, Inc. and Subsidiaries
The following table summarizes impaired loan information as of March 31, 1996:
(in thousands)
Impaired loans $78,334
Impaired loans with related allowance for loan and
lease losses calculated under SFAS No. 114 48,975
Interest payments on impaired loans are applied to principal.
6
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INCOME
The Company recorded consolidated net income for the first quarter of 1996 of
$20,203,000 compared to $18,770,000 for the first quarter of 1995, an increase
of 7.6%. On a per share basis, consolidated net income for the first quarter
of 1996 was $.65, an increase of 10.2% over the same period in 1995. The
proportionately greater increase in earnings per share was attributable to the
fewer average number of shares outstanding in 1996 as compared to 1995, as a
result of the Company's stock repurchase plan which authorized the total
repurchase of up to 1.6 million shares, or five percent of the Company's
approximately 31 million shares outstanding.
On an annualized basis, the Company's return on average total assets for the
first quarter of 1996 was 1.11% compared to 1.00% for the same period in 1995
and return on average stockholders' equity was 12.44% compared to 12.07% for
the same period in 1995. The increase in return on average total assets was
primarily attributable to the increase in earnings, coupled with a 3.3%
decrease in average total assets. The increase in return on average
stockholders' equity was due to the increase in earnings and the stock
repurchase plan previously discussed.
NET INTEREST INCOME
Net interest income, on a fully taxable equivalent basis, increased $2,265,000,
or 3.0%, to $76,606,000 for the three months ended March 31, 1996, up from
$74,341,000 for the same period in 1995. The net interest margin was 4.58% for
the first quarter of 1996, up 24 basis points (1% equals 100 basis points) over
the first quarter of 1995. Both the yield on average earning assets and rate
paid on funding sources decreased during the first quarter of 1996 as compared
with the same period in 1995 due to a lower interest rate environment.
However, the 27 basis point decrease in the rate paid on funding sources
outpaced the decrease in the yield on average earning assets of 3 basis points,
resulting in a favorable impact on the net interest margin. The decrease in
the rate paid on funding sources was due to interest rate swaps designed to
mitigate the impact on the net interest margin from declining interest rates.
Average earning assets decreased by $219,542,000, or 3.2%, for the first
quarter compared to the same period in 1995. In the second quarter of 1995,
the Company securitized approximately $490,000,000 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. The investment security portfolio reflected an increase of only
$53,174,000 over the same period in 1995 despite the reclassification of the
securitized loans. The investment portfolio was allowed to run-off as
securities matured since the securitized loans provided the necessary
collateral for public deposits. This accounts for the decline in average
earning assets for the quarter compared to the same period in 1995. In
addition, the increase in the overall yield on the investment security
portfolio, compared to the first quarter of 1995, was primarily attributable to
the higher percentage of mortgage pass-through certificates in the portfolio.
Excluding the effect of such securitization, average loans and leases for the
first quarter of 1996 reflected a slight increase over the same period in 1995.
The Company continues its efforts to diversify the loan portfolio, both
geographically and by industry. Also, the mix of average earning assets
continues to change (excluding the effect of the loan securitization), with
higher-yielding average loans and leases representing 83.4% of average earning
assets for the first quarter of 1996, as compared to 81.0% for the same period
in 1995.
Average interest-bearing deposits and liabilities decreased by $263,720,000, or
4.4%, for the first quarter of 1996, as compared to the same period in 1995.
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 37.0% of average interest-bearing deposits and
liabilities for the first quarter of 1996, up from 31.3% for the same period in
1995.
7
9
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 periods indicated on a taxable equivalent basis. The tax equivalent
adjustment is made for items exempt from Federal income taxes (assuming a 35%
tax rate for 1996 and 1995) to make them comparable with taxable items before
any income taxes are applied.
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
INTEREST Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
BALANCE EXPENSE RATE(1) Balance Expense Rate(1)
--------- --------- ------- -------- --------- -------
(dollars in thousands)
ASSETS
Earning assets:
Interest-bearing deposits
in other banks $ 207,550 $ 2,898 5.62% $ 10,462 $ 154 5.97%
Federal funds sold and
securities purchased
under agreements to resell 155,403 2,134 5.52 231,406 3,180 5.57
Investment securities 1,134,107 18,103 6.42 1,080,933 14,441 5.42
Loans and leases(2),(3) 5,232,681 113,230 8.70 5,626,482 122,407 8.82
------------ ---------- ------------ ---------
Total earning assets 6,729,741 136,365 8.15 6,949,283 140,182 8.18
---------- ---------
Nonearning assets 618,078 649,988
------------ ------------
Total assets $ 7,347,819 $ 7,599,271
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits
and liabilities:
Deposits $ 4,392,395 $ 42,048 3.85% $ 4,324,658 $ 42,149 3.95%
Short-term borrowings 1,045,268 13,834 5.32 1,399,720 20,513 5.94
Long-term debt 246,817 3,877 6.32 223,822 3,179 5.76
------------ ---------- ------------ ---------
Total interest-bearing
deposits and liabilities 5,684,480 59,759 4.23 5,948,200 65,841 4.49
---------- ---- --------- ----
Interest rate spread 3.92% 3.69%
==== ====
Noninterest-bearing demand
deposits 830,951 829,667
Other liabilities 179,069 190,889
------------ ------------
Total liabilities 6,694,500 6,968,756
Stockholders' equity 653,319 630,515
------------ ------------
Total liabilities and
stockholders' equity $ 7,347,819 $ 7,599,271
============ ============
Net interest income and
margin on earning assets 76,606 4.58% 74,341 4.34%
==== ====
Tax equivalent adjustment 586 1,588
---------- ---------
Net interest income $ 76,020 $ 72,753
========== =========
(1) Annualized.
(2) Nonaccruing loans and leases have been included in computations of average
loan and lease balances.
(3) Interest income for loans and leases included loans fees of $5,618 and
$5,915 for 1996 and 1995, respectively.
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10
INVESTMENT SECURITIES
Comparative book and fair values of held-to-maturity investment securities at
March 31, 1995 were as follows:
March 31,
1995
--------
(in thousands)
Book value $ 823,649
Unrealized gains 2,243
Unrealized losses (8,686)
-----------
Fair value $ 817,206
===========
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 amortized cost and fair values of
available-for-sale investment securities for the periods indicated:
MARCH 31, December 31, March 31,
1996 1995 1995
------------- ------------- -------------
(in thousands)
Amortized cost $ 1,094,152 $ 1,166,178 $ 162,205
Unrealized gains 5,311 9,920 43
Unrealized losses (1,372) (805) (371)
------------- ------------- ------------
Fair value $ 1,098,091 $ 1,175,293 $ 161,877
============= ============= ============
Gross realized gains and losses for the three months ended March 31, 1996 and
1995 were as follows:
1996 1995
---- ----
(in thousands)
Realized gains $ 29 $ 3
Realized losses (9) (2)
--------- ---------
Securities gains, net $ 20 $ 1
========= =========
Gains and losses realized on the sales of investment securities are determined
using the specific identification method.
9
11
LOANS
The following table sets forth the loan portfolio by major categories and loan
mix at March 31, 1996, December 31, 1995 and March 31, 1995:
MARCH 31, 1996 December 31, 1995 March 31, 1995
------------------- ------------------- -------------------
AMOUNT % Amount % Amount %
-------- ----- ---------- ----- -------- -----
(dollars in thousands)
Commercial, financial
and agricultural $1,303,453 25.0% $1,315,736 25.0% $1,461,574 25.6%
Real estate:
Commercial 1,065,006 20.5 996,715 18.9 947,867 16.6
Construction 204,052 3.9 256,943 4.9 308,521 5.4
Residential:
Insured, guaranteed
or conventional 1,298,390 24.9 1,334,063 25.4 1,671,164 29.2
Home equity
credit lines 420,711 8.1 432,229 8.2 384,332 6.8
--------- ---- ---------- ---- --------- -----
Total real estate loans 2,988,159 57.4 3,019,950 57.4 3,311,884 58.0
--------- ---- ---------- ---- --------- -----
Consumer 477,082 9.2 473,909 9.0 465,534 8.1
Lease financing 224,259 4.3 241,721 4.6 228,859 4.0
Foreign 213,335 4.1 208,229 4.0 245,719 4.3
--------- ---- ---------- ---- --------- -----
Total loans and leases 5,206,288 100.0% 5,259,545 100.0% 5,713,570 100.0%
===== ===== =====
Less allowance for loan and
lease losses 79,585 78,733 61,236
--------- ---------- ----------
Total net loans
and leases $5,126,703 $5,180,812 $5,652,334
========= ========== ==========
The loan and lease portfolio is the largest component of earning assets and
accounts for the greatest portion of total interest income. At March 31, 1996,
total loans and leases were $5,206,288,000, a decrease of 1.0% from December
31, 1995. The decrease was primarily due to paydown of a large real estate -
construction loan. In June 1995, the Company securitized $490,000,000 in
adjustable rate mortgage loans in an effort to increase its funding capacity
and liquidity. These loans were reclassified in the investment securities
portfolio at March 31, 1996 and December 31, 1995. If these securitized loans
had been included in the loan category at March 31, 1996, total loans and
leases at that date would have reflected a slight decrease from March 31, 1995.
Total loans and leases at March 31, 1996, represented 70.1% of total assets,
79.0% of total earning assets and 98.5% of total deposits compared to 69.5% of
total assets, 77.7% of total earning assets and 98.2% of total deposits at
December 31, 1995.
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 March 31, 1996,
commercial real estate loans totalled $1,065,006,000, or 20.5%, of total loans
and leases. The Company has selectively participated as a lender on commercial
properties on the mainland United States, principally on the west coast. Such
loans totalled $47,541,000 at March 31, 1996, a slight decrease from December
31, 1995. At March 31, 1996, the largest concentration of commercial real
estate loans to a single borrower was $34,524,000.
10
12
NONPERFORMING ASSETS
A summary of nonperforming assets at March 31, 1996, December 31, 1995 and
March 31, 1995 follows:
MARCH 31, December 31, March 31,
1996 1995 1995
--------- ------------ ---------
(dollars in thousands)
Nonperforming loans and leases:
Nonaccrual:
Commercial, financial and agricultural $ 16,800 $ 16,229 $ 7,915
Real estate:
Commercial 36,789 40,664 38,673
Construction 7,544 9,697 2,260
Residential:
Insured, guaranteed, or conventional 12,073 12,238 5,023
Home equity credit lines 694 496 519
--------- ---------- ---------
Total real estate loans 57,100 63,095 46,475
--------- ---------- ---------
Consumer 377 390 216
Lease financing 8 19 210
--------- ---------- ---------
Total nonaccrual loans and leases 74,285 79,733 54,816
Renegotiated:
Real estate - commercial 2,500 2,500 2,500
Commercial, financial and agricultural 628 682 --
--------- ---------- ---------
Total nonperforming loans and leases 77,413 82,915 57,316
Other real estate owned 12,947 9,312 9,082
--------- ---------- ---------
Total nonperforming assets $ 90,360 $ 92,227 $ 66,398
========= ========== =========
Loans and leases past due 90 days or more
and still accruing interest $ 22,360 $ 28,790 $ 44,701
========= ========== =========
Nonperforming assets to total loans and leases
and other real estate owned (end of period):
Excluding 90 days past due accruing loans
and leases 1.73% 1.75% 1.16%
Including 90 days past due accruing loans
and leases 2.16% 2.30% 1.94%
Nonperforming assets to total assets
(end of period):
Excluding 90 days past due accruing loans
and leases 1.22% 1.22% .86%
Including 90 days past due accruing loans
and leases 1.52% 1.60% 1.44%
11
13
NONPERFORMING ASSETS, Continued
Nonperforming assets decreased from $92,227,000 at December 31, 1995 to
$90,360,000 at March 31, 1996.
The decrease in the nonaccrual real estate - commercial category and
corresponding increase in the other real estate owned category were due to the
foreclosure of a real estate - commercial loan with a carrying value of
$4,064,000 in March 1996. In addition, partial paydowns on two nonaccrual real
estate - commercial loans totalling $6,552,000 contributed to the decrease in
nonperforming assets.
Loans and leases past due 90 days or more and still accruing interest totalled
$22,360,000 at March 31, 1996, a decrease of $6,430,000, or 22.3%, compared to
December 31, 1995. The decrease was primarily due to various loans totalling
$6,376,000 which were placed on nonaccrual status at March 31, 1996. 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.
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.
12
14
DEPOSITS
The following table sets forth the average balances and the average rates paid
on deposits for the periods indicated:
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------
1996 1995
-------------------------- -------------------------
AVERAGE AVERAGE Average Average
BALANCE RATE(1) Balance Rate(1)
----------- -------- ----------- ---------
(dollars in thousands)
Interest-bearing demand $ 1,125,142 2.60% $ 1,185,041 2.68%
Savings 1,163,995 2.13 1,274,973 3.22
Time 2,103,258 5.47 1,864,644 5.26
------------ ------------
Total interest-bearing deposits 4,392,395 3.85 4,324,658 3.95
Noninterest-bearing demand 830,951 -- 829,667 --
------------ ------------
Total deposits $ 5,223,346 3.24% $ 5,154,325 3.32%
============ ============
Average interest-bearing deposits increased $67,737,000, or 1.6%, over the
first quarter of 1995. The increase in average interest-bearing deposits was
due to the purchase of deposits from a financial services loan company in the
fourth quarter of 1995 and various deposit product programs initiated by the
Company in the latter part of 1995 and the first quarter of 1996, both of which
increased the overall interest rates paid on time certificate of deposits.
With the purchase of deposits and depositors seeking higher yields through the
aforementioned deposit product programs, the mix of average interest-bearing
deposits changed, with higher yielding average time certificate of deposits
representing 47.9% of average interest-bearing deposits in the first quarter of
1996 as compared to 43.1% in the first quarter of 1995.
(1) Annualized.
13
15
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The following table sets forth the activity in the allowance for loan and lease
losses for the periods indicated:
THREE MONTHS ENDED MARCH 31,
--------------------------------------------
1996 1995
------------- --------------
(dollars in thousands)
Loans and leases outstanding (end of period) $ 5,206,288 $ 5,713,570
============== ==============
Average loans and leases outstanding $ 5,232,681 $ 5,626,482
============== ==============
Allowance for loan and lease losses:
Balance at beginning of period $ 78,733 $ 61,250
-------------- --------------
Loans and leases charged off:
Commercial, financial and agricultural 418 833
Real estate:
Commercial 46 596
Construction -- 827
Residential 210 117
Consumer 2,462 1,482
Foreign 62 --
-------------- --------------
Total loans and leases charged off 3,198 3,855
-------------- --------------
Recoveries on loans and leases previously charged off:
Commercial, financial and agricultural 80 28
Real estate:
Commercial 1 1
Construction -- 5
Residential 53 17
Consumer 584 450
Lease financing 2 --
Foreign 8 --
-------------- --------------
Total recoveries on loans and leases
charged off 728 501
-------------- --------------
Net charge-offs 2,470 3,354
Provision charged to expense 3,322 3,340
-------------- --------------
Balance at end of period $ 79,585 $ 61,236
============== ==============
Net loans and leases charged off to
average loans and leases .19%(1) .24%(1)
Net loans and leases charged off to
allowance for loan and lease losses 12.48%(1) 22.21%(1)
Allowance for loan and lease losses to
total loans and leases (end of period) 1.52% 1.07%
Allowance for loan and lease losses to
nonperforming loans and leases (end of period):
Excluding 90 days past due accruing loans and leases 1.03X 1.07x
Including 90 days past due accruing loans and leases .80X .60x
(1)Annualized.
14
16
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES, Continued
For the first quarter of 1996, the provision for loan and lease losses was
$3,322,000, a decrease of $18,000, or .5%, as compared to the same period in
1995. Net charge-offs for the first quarter of 1996 were $2,470,000, a
decrease of $884,000, or 26.4%, compared to the same period in 1995. The
allowance for loan and lease losses increased to 103% of nonperforming loans
and leases at March 31, 1996 (excluding 90 days past due accruing loans and
leases) compared to 95% at December 31, 1995, reflecting the decrease in
nonperforming loans and leases in the first quarter of 1996.
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.
NONINTEREST INCOME
Exclusive of securities transactions, noninterest income totalled $23,948,000
for the first quarter of 1996, an increase of 4.2% over the same period in
1995.
Trust and Investments Division income increased $143,000, or 2.3%, for the
first quarter of 1996 compared to the same period in 1995.
Service charges on deposit accounts decreased $320,000, or 5.1%, for the first
quarter of 1996 compared to the same period in 1995. This decrease was
primarily attributable to a decrease in fees earned on corporate demand deposit
accounts in the first quarter of 1996.
Other service charges and fees increased $1,563,000, or 18.9%, for the first
quarter of 1996 over the same period in 1995. This increase was primarily the
result of higher merchant discount fees and annuity and mutual fund sales.
Security transactions resulted in net pre-tax gains of $20,000 for the first
quarter of 1996 compared to net pre-tax gains of $1,000 for the same period in
1995.
Other noninterest income decreased $420,000, or 20.3%, for the first quarter of
1996 compared to the same period in 1995. This decrease was primarily
attributable to a decrease in lease termination and origination fee income.
15
17
NONINTEREST EXPENSES
Noninterest expenses totalled $67,406,000 for the first quarter of 1996, an
increase of 6.4% over the first quarter of 1995.
Total personnel expenses (salaries and wages and employee benefits) increased
$2,911,000, or 9.6%, for the first quarter of 1996 as compared to the same
period in 1995. The increase was primarily due to an increase in costs
associated with the curtailment of a noncontributory pension plan in the fourth
quarter of 1995, which was replaced with a 401(k) match and a money purchase
plan, effective January 1, 1996. Also, the higher salaries and wages reflect
normal merit increases.
Occupancy expense for the first quarter of 1996 increased $19,000, or .3%, over
the same period in 1995.
Equipment expense decreased $905,000, or 14.2%, for the first quarter of 1996
compared to the same period in 1995, primarily as a result of lower building
maintenance and service contract expenses in 1996.
Other noninterest expenses for the first quarter of 1996 increased $2,036,000,
or 10.1%, over the same period in 1995, primarily as a result of a pre-tax loss
of $1,925,000 recognized on the sale of a certain leveraged lease. On an
after-tax basis the Company recorded a gain of $399,000 due to a net tax
benefit of $2,344,000 resulting from the reversal of the related tax
liabilities. Excluding the aforementioned pre-tax loss, other noninterest
expenses increased $111,000, or .6%, over the same period in 1995.
16
18
INCOME TAXES
The Company's effective income tax rate (exclusive of the tax equivalent
adjustment) for the first quarter of 1996 was 31.0% as compared to 35.4% for
the same period in 1995. The decrease in the effective income tax rate was
primarily due to the reversal of deferred tax benefits (reflecting a change in
the State tax laws) related to the aforementioned leveraged lease sale.
LIQUIDITY AND CAPITAL
Stockholders' equity was $657,229,000 at March 31, 1996, a 1.2% increase from
$649,537,000 at December 31, 1995. Average stockholders' equity represented
8.89% of average total assets for the first quarter of 1996 compared to 8.30%
in the same quarter last year. There was no significant change in the
Company's liquidity position during the first quarter of 1996.
The following tables present the Company's regulatory capital position at March
31, 1996:
RISK-BASED CAPITAL RATIOS
AMOUNT RATIO
----------- ------
(dollars in thousands)
Tier 1 Capital $ 577,183 9.34%
Tier 1 Capital minimum requirement (1) 247,172 4.00
----------- ------
Excess $ 330,011 5.34%
=========== ======
Total Capital $ 754,453 12.21%
Total Capital minimum requirement (1) 494,344 8.00
----------- ------
Excess $ 260,109 4.21%
=========== ======
Risk-weighted assets $ 6,179,296
===========
LEVERAGE RATIO
AMOUNT RATIO
----------- ------
(dollars in thousands)
Tier 1 Capital to average quarterly total assets
(net of certain intangibles)
Tier 1 Leverage Ratio $ 577,183 7.94%
Minimum leverage requirement (2) 218,104 3.00
----------- ------
Excess $ 359,079 4.94%
=========== ======
Average quarterly total assets (net of certain intangibles) $ 7,270,144
===========
(1) Risk-based capital guidelines as established by the Federal Reserve
Board for bank holding companies require minimum Tier 1 and Total
capital ratios of 4% and 8%, respectively.
(2) The Federal Reserve Board has stated that the Leverage Ratio of 3% is
the minimum requirement 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.
17
19
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3(i) Certificate of Incorporation, as amended
through May 9, 1996.
Exhibit 4(i) Equity - Incorporated by reference to
Exhibit 3(i) hereto.
Exhibit 12 Statement regarding computation of ratios.
Exhibit 27 Financial data schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended March 31, 1996.
18
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST HAWAIIAN, INC.
(REGISTRANT)
Date May 13, 1996 By /s/ HOWARD H. KARR
---------------- ---------------------------------------------
HOWARD H. KARR
EXECUTIVE VICE PRESIDENT AND TREASURER
(PRINCIPAL FINANCIAL OFFICER)
19
21
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3(i) Certificate of Incorporation, as amended
through May 9, 1996.
4(i) Equity - Incorporated by reference to Exhibit
3(i) hereto.
12 Statement regarding computation of ratios.
27 Financial data schedule
1
Exhibit 3(i)
CERTIFICATE OF INCORPORATION
OF
FIRST HAWAIIAN, INC.
AS AMENDED THROUGH MAY 9, 1996
First. The name of the corporation is "First Hawaiian, Inc."
Second. The address of the corporation's registered office in the State of
Delaware is No. 100 West Tenth Street, in the City of Wilmington, County of New
Castle. The name and address of its resident agent is The Corporation Trust
Company, No. 100 West Tenth Street, Wilmington, Delaware.
Third. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
Fourth. The total number of shares of stock which this corporation shall have
authority to issue is One Hundred Fifty Million (150,000,000) shares having a
par value of Five Dollars ($5.00) per share, divided into two classes: One
Hundred Million (100,000,000) shares designated as Common Stock (hereinafter,
the "Common Stock"); and Fifty Million (50,000,000) shares designated as
Preferred Stock (hereinafter, the "Preferred Stock"). The Board of Directors of
the corporation is authorized to fix, by resolution or resolutions, the
designation of each series of Preferred Stock and the voting rights, preferences
as to dividends and in liquidation, conversion and other rights, qualifications,
limitations and restrictions thereof and such other subjects or matters as may
be fixed by resolution or resolutions of the Board of Directors under the
General Corporation Law of the State of Delaware.
Fifth. The name and mailing address of each incorporator is as follows:
Name Address
---- -------
John D. Bellinger 165 South King Street
Honolulu, Hawaii 96813
Hugh R. Pingree 165 South King Street
Honolulu, Hawaii 96813
G. Harry Hutaff 165 South King Street
Honolulu, Hawaii 96813
2
Sixth. The powers of the incorporators shall terminate upon the filing of
the Certificate of Incorporation. The names and mailing addresses of the
persons who are to serve as directors of the corporation until the first annual
meeting of shareholders or until their successors are elected and qualified are
as follows:
Name Address
- ---- -------
John D. Bellinger 165 South King Street
Honolulu, Hawaii 96813
Hugh R. Pingree 165 South King Street
Honolulu, Hawaii 96813
G. Harry Hutaff 165 South King Street
Honolulu, Hawaii 96813
There shall be a Board of Directors of the corporation consisting of not less
than three (3) nor more than twenty-five (25) members. The members of the
Board of Directors shall be elected or appointed at such times, in such manner,
and for such terms as may be prescribed by the Bylaws, which may also provide
for the filling of vacancies on the Board of Directors. All of the powers of
the corporation, exercisable by authority of law or under this Certificate of
Incorporation, or otherwise, shall be vested in and exercised by, or by the
authority of, the Board of Directors, except as limited by law or the
Certificate of Incorporation or the Bylaws of the corporation. The Board of
Directors may, by resolution or otherwise, create, or the Bylaws may provide
for, such committees of the Board of Directors as the Board shall see fit or
the Bylaws shall provide for, and such committees shall have and may exercise
any and all such powers as the Board of Directors, by resolution, or the
Bylaws, may provide.
Seventh. The officers of the corporation shall be a President, one or more
Vice Presidents (one or more of whom may be designated an Executive Vice
President and one or more of whom may be designated a Senior Vice President),
Treasurer, Secretary, and such other officers as may be authorized pursuant to
the authority conferred by the Bylaws, all of whom shall be appointed by or by
the authority of the Board of Directors and serve at its pleasure. There may
be a Chairman of the Board of Directors who shall be appointed by the Board of
Directors from its own members and who shall have such powers as may be
prescribed by the Bylaws or, if and to the extent that the Bylaws shall not so
prescribe, by the Board of Directors.
Eighth. The corporation is to have perpetual existence.
3
Ninth. Upon any increase in the authorized capital stock of the corporation,
unless the resolution of the shareholders of the corporation authorizing said
increase shall otherwise provide, the Board of Directors shall first offer the
additional authorized stock pro rata to all shareholders of record at such
price and on such terms as the Board of Directors may in each instance fix.
Any shares still remaining unsold thirty (30) days after said offer may then be
sold to any person or persons, on the same terms or terms more favorable to the
corporation, as the Board of Directors may determine. In the event of the
issue of any additional stock of the corporation for the purposes of
accomplishing the merger with, or of acquiring, any other corporation, bank or
trust company, the directors may issue said stock without preferential
subscription rights to such extent and on such terms as the Board of Directors
may in each instance deem proper.
Tenth. Meetings of shareholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in law) outside the State of Delaware at
such place or places as may be designated from time to time by the Board of
Directors or in the Bylaws of the corporation.
Eleventh. The Board of Directors shall have the authority to make, alter or
repeal the Bylaws of the corporation.
Twelfth. No contract or other transaction between the corporation and any
other person, firm, corporation, association or other organization, and no act
of the corporation, shall in any way be affected or invalidated by the fact
that any of the directors or officers of the corporation are parties to such
contract, transaction or act or are pecuniarily or otherwise interested in the
same or are directors or officers or members of any such other firm,
corporation, association or other organization, provided that the interest of
such director shall be disclosed or shall have been known to the Board of
Directors authorizing or approving the same, or to a majority thereof. Any
director of the corporation who is a party to such transaction, contract, or
act or who is pecuniarily or otherwise interested in the same or is a director
or officer or member of such other firm, corporation, association or other
organization, may be counted in determining a quorum of any meeting of the
Board of Directors which shall authorize or approve any such contract,
transaction or act, and may vote thereon with like force and effect as if he
were in no way interested therein. Neither any director nor any officer of the
corporation, being so interested in any such contract, transaction or act of
the corporation which shall be approved by the Board of Directors of the
corporation, nor any such other person, firm, corporation, association or other
organization in which such director may be a director,
4
officer or member, shall be liable or accountable to the corporation, or to any
shareholder thereof, solely by reason of being an interested person, for any
loss incurred by the corporation pursuant to or by reason or such contract,
transaction or act, or for any gain received by any such other party pursuant
thereto or by reason thereof.
Thirteenth. To the fullest extent permitted by the Delaware General
Corporation Law as it exists or may hereafter be amended, a director of this
corporation shall not be liable to the corporation or its stockholders for
monetary damages for breach of a fiduciary duty as a director.
1
EXHIBIT 12. STATEMENT RE: COMPUTATION OF RATIOS
First Hawaiian, Inc. and Subsidiaries
Computation of Consolidated Ratios of Earnings to Fixed Charges
THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
----------- -----------
(dollars in thousands)
Income before income taxes $ 29,260 $ 29,051
----------- -----------
Fixed charges:(1)
Interest expense 59,759 65,841
Rental expense 1,202 1,211
----------- -----------
60,961 67,052
Less interest on deposits 42,049 42,149
----------- -----------
Net fixed charges 18,912 24,903
----------- -----------
Earnings, excluding
interest on deposits $ 48,172 $ 53,954
=========== ===========
Earnings, including
interest on deposits $ 90,221 $ 96,103
=========== ===========
Ratio of earnings to
fixed charges:
Excluding interest on deposits 2.55 X 2.17 x
Including interest on deposits 1.48 X 1.43 x
(1) For purposes of computing the above ratios, earnings represent income
before income taxes plus fixed charges. Fixed charges, excluding
interest on deposits, include interest (other than on deposits), whether
expensed or capitalized, and that portion of rental expense (generally
one third) deemed representative of the interest factor. Fixed charges,
including interest on deposits, include all interest, whether expensed
or capitalized, and that portion of rental expense (generally one third)
deemed representative of the interest factor.
9
3-MOS
DEC-31-1996
JAN-01-1996
MAR-31-1996
329,951
206,670
162,000
0
1,098,091
0
0
5,206,288
79,585
7,426,729
5,287,140
1,013,178
226,736
241,751
0
0
162,713
494,516
7,426,729
113,089
17,658
5,032
135,779
42,049
59,759
76,020
3,322
20
67,406
29,260
20,203
0
0
20,203
.65
.65
8.15
74,285
22,360
3,128
0
78,733
3,198
728
79,585
35,875
1,260
42,450
