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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
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FORM 8-K/A
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NOVEMBER 1, 1998
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BANCWEST CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 0-7949 99-0156159
(State of incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
999 BISHOP STREET 96813
HONOLULU, HAWAII (Zip Code)
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (808) 525-7000
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This Current Report on Form 8-K/A amends and supplements the
Current Report on Form 8-K filed on November 5, 1998.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
The merger (the "Merger") of BancWest Corporation ("Old
BancWest"), a California corporation and a subsidiary of Banque Nationale de
Paris, a limited liability banking corporation organized under the laws of the
Republic of France ("BNP"), into First Hawaiian, Inc. (now known as BancWest
Corporation), a Delaware corporation (the "Company"), became effective on
November 1, 1998. As a result of the Merger, the outstanding shares of common
stock of Old BancWest were canceled and converted into 25.8 million shares of a
newly-created class of the Company's common stock, designated as "Class A Common
Stock", which constitute 45% of the aggregate outstanding voting power of the
Company. The Class A Common Stock (which generally may be owned only by BNP and
its affiliates) has the same rights and privileges generally as the Company's
existing common stock, except that the Class A stockholders will be able to
elect a number of directors proportionate to their equity interest in the
Company. In connection with the Merger, the Company and BNP entered into related
agreements, including a Standstill and Governance Agreement dated as of November
1, 1998 (the "Standstill Agreement"), a copy of which is attached to the Current
Report on Form 8-K filed on November 5, 1998 as Exhibit 4(i) and is incorporated
herein by reference, and a Registration Rights Agreement dated as of November 1,
1998, a copy of which is attached to the Current Report on Form 8-K filed on
November 5, 1998 as Exhibit 4(ii) and is incorporated herein by reference.
The Company effected various amendments to its certificate of
incorporation (the "Certificate of Incorporation") and by-laws (the "By-Laws")
in order to create the Class A Common Stock and a related class of directors and
to provide for various governance and other matters contemplated by the
Standstill Agreement and related arrangements between the parties. A copy each
of the Certificate of Incorporation and the By-Laws are attached to the Current
Report on Form 8-K filed on November 5, 1998 as Exhibits 3(i) and 3(ii),
respectively and are incorporated herein by reference.
In connection with the Merger, the Company changed its name from
First Hawaiian, Inc. to BancWest Corporation to reflect its new regional scope,
pursuant to the approval of its stockholders.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Audited consolidated balance sheets as of December 31, 1997 and
December 31, 1996 and audited consolidated statements of income,
stockholders' equity and cash flows for the years ended December
31, 1997, December 31, 1996 and December 31, 1995 of Old BancWest
and Subsidiary are filed as Exhibit 99.1 to this Current Report
on Form 8-K/A and are incorporated herein by reference.
Unaudited consolidated balance sheet as of September 30, 1998 and
unaudited consolidated statements of income and cash flows for
the nine-month interim periods ended September 30, 1998 and
September 30, 1997 of Old BancWest and Subsidiary are filed as
Exhibit 99.2 to this Current Report on Form 8-K/A and are
incorporated herein by reference.
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(b) Pro Forma Financial Information.
Unaudited pro forma combined balance sheet as of September 30,
1998 and unaudited pro forma combined statements of income for
the nine-month interim period ended September 30, 1998 and for
the year ended December 31, 1997 of BancWest Corporation
(formerly First Hawaiian, Inc.) and Subsidiaries are filed as
Exhibit 99.3 to this Current Report on Form 8-K/A and are
incorporated herein by reference.
(c) Exhibits.
3(i) Certificate of Incorporation of BancWest Corporation
(formerly First Hawaiian, Inc.) is incorporated by
reference to Exhibit 3(i) to the Current Report on Form
8-K filed on November 5, 1998, as filed with the
Securities and Exchange Commission ("SEC") (File No.
0-7949).
3(ii) Amended and Restated By-Laws of BancWest Corporation
(formerly First Hawaiian, Inc.) is incorporated by
reference to Exhibit 3(ii) to the Current Report on Form
8-K filed on November 5, 1998, as filed with the SEC (File
No. 0-7949).
4(i) Standstill and Governance Agreement between First
Hawaiian, Inc. and Banque Nationale de Paris, dated as of
November 1, 1998, is incorporated by reference to Exhibit
4(i) to the Current Report on Form 8-K filed on November
5, 1998, as filed with the SEC (File No. 0-7949).
4(ii) Registration Rights Agreement between First Hawaiian, Inc.
and Banque Nationale de Paris, dated as of November 1,
1998, is incorporated by reference to Exhibit 4(ii) to the
Current Report on Form 8-K filed on November 5, 1998, as
filed with the SEC (File No. 0-7949).
23.1 Consent of independent accountants -- Pricewaterhouse
Coopers LLP.
23.2 Consent of independent accountants -- Deloitte & Touche
LLP.
99.1 Audited consolidated balance sheets as of December 31,
1997 and December 31, 1996 and audited consolidated
statements of income, stockholders' equity and cash flows
for the years ended December 31, 1997, December 31, 1996
and December 31, 1995 of Old BancWest and Subsidiary.
99.2 Unaudited consolidated balance sheet as of September 30,
1998 and unaudited consolidated statements of income and
cash flows for the nine-month interim periods ended
September 30, 1998 and September 30, 1997 of Old BancWest
and Subsidiary.
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99.3 Unaudited pro forma combined balance sheet as of September
30, 1998 and unaudited pro forma combined statements of
income for the nine-month interim period ended September
30, 1998 and for the year ended December 31, 1997 of
BancWest Corporation (formerly First Hawaiian, Inc.) and
Subsidiaries.
SIGNATURE
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 hereunto duly authorized.
BANCWEST CORPORATION
Dated: December 30, 1998 By: /s/ HOWARD H. KARR
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Name: Howard H. Karr
Title: Executive Vice President and Chief
Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
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3(i) Certificate of Incorporation of BancWest Corporation
(formerly First Hawaiian, Inc.) is incorporated by
reference to Exhibit 3(i) to the Current Report on Form
8-K filed on November 5, 1998, as filed with the SEC
(File No. 0-7949).
3(ii) Amended and Restated By-Laws of BancWest Corporation
(formerly First Hawaiian, Inc.) is incorporated by
reference to Exhibit 3(ii) to the Current Report on
Form 8-K filed on November 5, 1998, as filed with the
SEC (File No. 0-7949).
4(i) Standstill and Governance Agreement between First
Hawaiian, Inc. and Banque Nationale de Paris, dated as
of November 1, 1998, is incorporated by reference to
Exhibit 4(i) to the Current Report on Form 8-K filed on
November 5, 1998, as filed with the SEC (File No.
0-7949).
4(ii) Registration Rights Agreement between First Hawaiian,
Inc. and Banque Nationale de Paris, dated as of
November 1, 1998, is incorporated by reference to
Exhibit 4(ii) to the Current Report on Form 8-K filed
on November 5, 1998, as filed with the SEC (File No.
0-7949).
23.1 Consent of independent accountants -- PricewaterhouseCoopers LLP.
23.2 Consent of independent accountants -- Deloitte & Touche LLP.
99.1 Audited consolidated balance sheets as of December 31, 1997 and
December 31, 1996 and audited consolidated statements of income,
stockholders' equity and cash flows for the years ended December 31,
1997, December 31, 1996 and December 31, 1995 of Old BancWest and
Subsidiary.
99.2 Unaudited consolidated balance sheet as of September
30, 1998 and unaudited consolidated statements of
income and cash flows for the nine-month interim
periods ended September 30, 1998 and September 30, 1997
of Old BancWest and Subsidiary.
99.3 Unaudited pro forma combined balance sheet as of
September 30, 1998 and unaudited pro forma combined
statements of income for the nine-month interim period
ended September 30, 1998 and for the year ended
December 31, 1997 of BancWest Corporation (formerly
First Hawaiian, Inc.) and Subsidiaries.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 33-66400 and 333-22107) of BancWest Corporation
(formerly First Hawaiian, Inc.) of our report dated January 20, 1998 relating
to the financial statements of BancWest Corporation, which appears as Exhibit
99.1 of this Form 8-K/A.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
December 30, 1998
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements No.
33-66400 and 333-22107 of First Hawaiian, Inc. (now known as BancWest
Corporation) on Forms S-8 of our report dated January 19, 1996 (relating to the
financial statements of BancWest Corporation and its subsidiaries not presented
separately herein) appearing in this Current Report on Form 8-K/A of BancWest
Corporation as of November 1, 1998.
DELOITTE & TOUCHE LLP
December 30, 1998
San Francisco, California
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EXHIBIT 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of BancWest Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
BancWest Corporation and subsidiary (the "Company") at December 31, 1997 and
1996, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
January 20, 1998
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors
BancWest Corporation:
We have audited the consolidated statements of income, stockholders'
equity, and cash flows of BancWest Corporation and subsidiaries (the "Company")
for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of BancWest Corporation and subsidiaries for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
January 19, 1996
San Francisco, California
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BANCWEST CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
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1997 1996
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ASSETS
Cash and due from banks................................... $ 311,392 $ 264,259
Funds sold................................................ 17,000 --
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Total cash and cash equivalents................... 328,392 264,259
Investment securities:
Held-to-maturity (market value -- $312,154 and $265,294
at December 31, 1997 and 1996)........................ 313,114 270,742
Available-for-sale..................................... 545,572 661,065
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Total investment securities....................... 858,686 931,807
Loans held for sale....................................... 5,757 --
Loans and leases held for investment:
Commercial, financial and agricultural................. 217,853 225,295
Real estate -- construction............................ 184,535 118,712
Real estate -- mortgage................................ 1,638,529 1,587,503
Consumer............................................... 1,551,916 1,310,065
Lease financing........................................ 751,509 530,716
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Total loans and leases, net....................... 4,344,342 3,772,291
Allowance for credit losses............................ (51,608) (46,758)
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Loans and leases, net of allowance for credit losses... 4,292,734 3,725,533
Customers' acceptance liability........................ 37 717
Premises and equipment, net............................ 34,909 36,581
Foreclosed property, net............................... 4,329 6,800
Interest receivable and other assets................... 58,122 51,940
Goodwill, net.......................................... 60,132 53,940
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Total Assets...................................... $5,643,098 $5,071,577
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing....................................... $1,001,550 $ 848,384
Interest-bearing....................................... 3,571,400 3,333,697
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Total deposits.................................... 4,572,950 4,182,081
Short-term borrowings..................................... 184,418 216,379
Acceptances outstanding................................... 37 717
Interest payable and other liabilities.................... 100,654 72,767
Long-term borrowings...................................... 309,949 161,950
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Total Liabilities................................. 5,168,008 4,633,894
COMMITMENTS AND CONTINGENT LIABILITIES (NOTES 2 & 15)..... -- --
STOCKHOLDERS' EQUITY
Non-cumulative preferred stock -- no par value:
Series A of Bank of the West; 1,000,000 shares
authorized; 200,000 outstanding....................... 20,000 20,000
Series A of BancWest; 1,000,000 shares authorized;
75,000 outstanding.................................... 75,000 75,000
Common stock -- $5 par value; 2,500,000 shares authorized
1,733,430 shares outstanding at December 31, 1997 and
1,632,262 outstanding at December 31, 1996................ 8,667 8,161
Additional paid-in capital................................ 228,392 208,898
Retained earnings......................................... 142,121 125,013
Net unrealized gains on investment securities
available-for-sale, net of taxes of $606 in 1997 and $390
in 1996................................................... 910 611
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Total Stockholders' Equity........................ 475,090 437,683
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Total Liabilities and Stockholders' Equity........ $5,643,098 $5,071,577
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See accompanying notes to consolidated financial statements.
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BANCWEST CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
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INTEREST INCOME
Loans and leases....................................... $ 348,002 $ 296,622 $ 245,609
Investment securities.................................. 56,567 55,479 61,345
Other.................................................. 953 846 765
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Total interest income........................ 405,522 352,947 307,719
INTEREST EXPENSE
Deposits............................................... 136,906 117,225 101,512
Short-term borrowings.................................. 9,784 15,294 17,724
Long-term and other borrowings......................... 16,332 6,571 5,618
---------- ---------- ----------
Total interest expense....................... 163,022 139,090 124,854
---------- ---------- ----------
Net interest income.................................... 242,500 213,857 182,865
Provision for credit losses............................ 19,750 16,500 14,500
---------- ---------- ----------
Net interest income after provision for credit
losses............................................... 222,750 197,357 168,365
OTHER INCOME
Service fees on deposit accounts....................... 27,714 22,365 21,519
Commissions and other fees............................. 4,488 3,486 1,803
Trust fees............................................. 2,622 2,443 2,196
Gains on sale of securities, net....................... 81 30 72
Gains on sale of loans, net............................ 1,629 -- --
Foreign exchange gains, net............................ 1,615 1,360 1,309
Other.................................................. 7,204 6,556 5,338
---------- ---------- ----------
Total other income........................... 45,353 36,240 32,237
OTHER EXPENSE
Salaries and employee benefits......................... 74,830 70,130 64,095
Net occupancy expense.................................. 21,255 20,686 20,257
Furniture and equipment expenses....................... 7,846 7,779 7,767
Contracted data processing............................. 14,339 12,695 13,883
Other contracted services.............................. 6,808 6,737 5,441
FDIC insurance premiums and special assessment......... 1,434 12,636 5,585
Legal and litigation expenses, net of recoveries....... 1,832 3,106 1,300
Provision for losses on foreclosed property............ 60 1,085 767
Advertising and marketing.............................. 4,602 4,209 3,546
Amortization of goodwill............................... 4,143 3,585 3,111
Other.................................................. 23,382 22,007 20,823
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Total other expense.......................... 160,531 164,655 146,575
Income before income taxes............................. 107,572 68,942 54,027
Provision for income taxes............................. 44,714 25,139 21,970
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NET INCOME............................................. $ 62,858 $ 43,803 $ 32,057
========== ========== ==========
Basic earnings per common share........................ $ 33.29 $ 25.15 $ 21.61
========== ========== ==========
Cash dividends per share............................... $ 11.30 $ -- $ 7.71
========== ========== ==========
Average shares outstanding............................. 1,687,000 1,545,000 1,426,000
========== ========== ==========
See accompanying notes to consolidated financial statements.
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BANCWEST CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
NET
UNREALIZED
GAINS
BANK OF THE WEST BANCWEST (LOSSES) ON
SERIES A SERIES A INVESTMENT
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL SECURITIES
----------------- --------------- ----------------- PAID-IN RETAINED AVAILABLE-
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS FOR-SALE TOTAL
------- ------- ------ ------- --------- ------ ---------- -------- ----------- --------
JANUARY 1, 1995........... 200,000 $20,000 -- -- 1,424,152 $7,121 $169,212 $108,655 $(6,071) $298,917
Stock dividend............ 54,250 271 11,229 (11,500) --
Common dividends.......... (11,000) (11,000)
Preferred dividends....... (1,247) (1,247)
Net change in unrealized
gains (losses) on
investment securities
available-for-sale
(Notes 1 and 4)......... 8,128 8,128
Net income................ 32,057 32,057
------- ------- ------ ------- --------- ------ -------- -------- ------- --------
DECEMBER 31, 1995......... 200,000 $20,000 -- -- 1,478,402 $7,392 $180,441 $116,965 $ 2,057 $326,855
Issuance of BancWest
Series A preferred
stock................... 75,000 $75,000 75,000
BancWest Series A
preferred stock issuance
cost.................... (1,584) (1,584)
Stock dividend............ 153,860 769 30,041 (30,810) --
Preferred dividends....... (4,945) (4,945)
Net change in unrealized
gains on investment
securities available-
for-sale (Notes 1 and
4)...................... (1,446) (1,446)
Net income................ 43,803 43,803
------- ------- ------ ------- --------- ------ -------- -------- ------- --------
DECEMBER 31, 1996......... 200,000 $20,000 75,000 $75,000 1,632,262 $8,161 $208,898 $125,013 $ 611 $437,683
Stock dividend............ 101,168 506 19,494 (20,000) --
Common dividends.......... (19,058) (19,058)
Preferred dividends....... (6,692) (6,692)
Net change in unrealized
gains on investment
securities available-
for-sale (Notes 1 and
4)...................... 299 299
Net income................ 62,858 62,858
------- ------- ------ ------- --------- ------ -------- -------- ------- --------
DECEMBER 31, 1997......... 200,000 $20,000 75,000 $75,000 1,733,430 $8,667 $228,392 $142,121 $ 910 $475,090
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BANCWEST CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 62,858 $ 43,803 $ 32,057
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses............................... 19,750 16,500 14,500
Provision for losses on foreclosed property............... 60 1,085 767
Gains on sale of securities, net.......................... (81) (30) (72)
Loans held for sale originated or purchased, net.......... (5,210) -- --
Depreciation and amortization............................. 10,589 10,158 9,466
Deferred income taxes..................................... 23,564 15,951 13,585
(Increase) decrease in interest receivable and other assets,
net of effects of acquisitions............................ (4,789) 465 1,132
Increase in interest payable and other liabilities, net of
effects of acquisitions................................... 4,093 7,659 1,470
Other increases, net...................................... 2,131 858 4,432
--------- --------- ---------
Net cash provided by operating activities................. 112,965 96,449 77,337
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and paydowns of investment
securities held-to-maturity............................. 34,430 41,110 45,514
Proceeds from sales, maturities and paydowns of investment
securities available-for-sale............................. 349,498 241,295 184,033
Purchases of held-to-maturity securities.................. (77,106) -- --
Purchases of available-for-sale investment securities, net
of effects of acquisitions................................ (235,236) (238,592) (162,711)
Loans and leases held for investment originated or
purchased, net of collections, transfers to foreclosed
property and acquisitions................................. (590,096) (447,968) (373,664)
Purchases of premises and equipment, net of effects of
acquisitions............................................ (5,331) (7,082) (5,187)
Proceeds from sales of foreclosed property and premises
and equipment........................................... 5,572 7,038 9,156
Acquisitions -- cash received (paid) in excess of cash and
cash equivalents acquired................................. 10,792 (34,229) --
--------- --------- ---------
Net cash used by investing activities..................... (507,477) (438,428) (302,859)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of preferred stock, net of issuance costs.......... -- 73,416 --
Net increase in deposits, net of effects of acquisitions.... 369,453 278,203 236,064
Net (decrease) increase in short-term borrowings, net of
effects of acquisitions................................... (31,961) (171,074) 28,952
Increase in long-term borrowings, net of effects of
acquisitions............................................ 146,903 100,000 --
Cash dividends............................................ (25,750) (3,576) (12,247)
--------- --------- ---------
Net cash provided by financing activities................. 458,645 276,969 252,769
--------- --------- ---------
Increase (decrease) in cash and cash equivalents.......... 64,133 (65,010) 27,247
Cash and cash equivalents, January 1...................... 264,259 329,269 302,022
--------- --------- ---------
Cash and cash equivalents, December 31.................... $ 328,392 $ 264,259 $ 329,269
========= ========= =========
OTHER CASH FLOW INFORMATION
Interest paid............................................... $ 161,358 $ 139,188 $ 122,825
Income taxes paid........................................... 22,881 6,658 7,320
NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of investment securities from held-to-maturity to
available-for-sale........................................ $ -- $ -- $ 283,568
See Note 2 relating to acquisitions.
See accompanying notes to consolidated financial statements.
7
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BancWest Corporation (the "Company") is a bank holding company based in San
Francisco, California. All of the common stock of the Company is wholly-owned by
Banque Nationale de Paris ("BNP"), an international banking company organized
under the laws of the Republic of France. The Company serves as the United
States domestic holding company for Bank of the West (the "Bank"), a California
state chartered commercial bank. The Bank is community-oriented with 105
branches primarily in northern California providing a wide range of financial
services to both consumers and businesses. Lending and other services focus on
consumer and smaller middle market business, primarily in areas served by the
branch network, with the exception of consumer installment lending and leasing
which is national in scope.
In 1995, BNP approved a plan for the formation of the Company and the
conversion of each share of outstanding Bank of the West common stock into one
share of Company common stock. Effective December 1, 1995, the Company issued
1,424,152 shares of its common stock for all of the outstanding common stock of
Bank of the West. This transfer has been accounted for as a combination of
companies under common control, similar to a pooling of interests in that the
historical cost basis of the Bank has been carried forward.
The Company has two outstanding preferred stock issuances. The Bank of the
West Series A (the "Bank Series A") is non-voting and wholly-owned by French
American Banking Corporation ("FABC") which in turn is a wholly-owned subsidiary
of BNP. The BancWest Series A (the "Company Series A") preferred stock was
offered and sold to certain qualified institutions and accredited investors as
defined by Rule 144A and Rule 501(a) under the Securities Act of 1933.
The Bank Series A preferred stock accrues dividends at a rate adjusted
quarterly based on changes in rates on certain United States Government
securities. The dividend rate at December 31, 1997 was 6% of stated value. In no
event will the dividend rate be lower than 6% or greater than 13% of stated
value. Subsequent to December 31, 1998, the Bank Series A preferred stock is
redeemable at the option of Bank of the West, as a whole or in part, at $100 per
share plus accrued and unpaid dividends.
The Company Series A preferred stock accrues dividends at 7.30% of stated
value through July 1, 2006. Thereafter, dividends will accrue at a rate adjusted
quarterly based on certain indexes of United States Government securities.
Subsequent to July 1, 2006, in no event will the dividend rate be lower than
7.375% of stated value or greater value than 13.375% of stated value. The amount
of dividends payable is subject to adjustment in the event of certain amendments
to the Internal Revenue Code with respect to the dividends received deduction.
The Company Series A preferred stock is not redeemable by the Company prior to
July 1, 2006, at which time it will be redeemable, in whole or in part, at the
option of the Company at $1,000 per share, plus accrued and unpaid dividends.
The Series A preferred stock may also be redeemed prior to July 1, 2006, in
whole, at the Company's option, in the event of certain amendments to the
Internal Revenue Code relating to the dividends received deduction. The Series A
preferred stock is subject to purchase by BNP in whole, at BNP's option, if any
one or more of certain events are determined by the board of directors of the
Company to have occurred, including BNP's having provided funds to the Company
pursuant to a support agreement or any change of control with respect to the
Company.
Redemption of either the Bank Series A or Company Series A preferred stock
would be subject to regulatory review, and both issues have parity with respect
to dividend and liquidation preferences.
The Company's primary regulators are the Federal Reserve Bank (the "FRB"),
the Federal Deposit Insurance Corporation (the "FDIC") and the California State
Banking Department. The Company maintains insurance on its customer deposit
accounts with the FDIC, which requires quarterly payments of deposit insurance
premiums.
8
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The accounting and reporting practices of the Company and its subsidiary
conform with generally accepted accounting principles and general practice in
the banking industry. All material intercompany transactions between the Company
and its subsidiary have been eliminated in consolidation. Below is a summary of
the more significant accounting policies and reporting methods used by the
Company. 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
disclosure 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.
Unless the context indicates otherwise, the term "Company" when used
herein, shall include the Bank.
Cash, Cash Equivalents and Statement of Cash Flows:
Cash and due from banks includes deposits with the Federal Reserve Bank.
Funds sold includes federal funds sold and securities purchased under agreements
to resell. The Company is required to maintain on deposit with the Federal
Reserve Bank noninterest-bearing cash reserves equal to a percentage of certain
deposits. The average reserve balances were $26.7 million and $47.3 million for
the years ended December 31, 1997 and 1996, respectively. At December 31, 1997,
the Company had balances on deposit with the Federal Reserve Bank of $6.2
million.
For purposes of reporting cash flows, cash and cash equivalents include
balances due from depository institutions, federal funds sold and securities
purchased under agreements to resell. Cash equivalents have remaining terms to
maturity of three months or less from the date of acquisition. Proceeds from and
repayments of short-term borrowings having an original term-to-maturity of three
months or less are netted in the accompanying consolidated statements of cash
flows.
Investment Securities:
Securities that are bought and held principally for the purpose of selling
them in the near term are classified as trading securities and are reported at
aggregate fair value. Unrealized gains or losses on trading securities are
included in other income.
Investment securities that the Company has the positive intent and ability
to hold to maturity are classified as held-to-maturity and are carried at cost,
adjusted for amortization of premiums and accretion of discounts to maturity.
Investment securities not classified as trading or held-to-maturity are
classified as available-for-sale securities and are reported at fair value, with
unrealized gains and losses excluded from earnings and reported net of taxes as
a separate component of stockholders' equity. Realized gains or losses, if any,
are included in other income.
The cost of investments sold in each category is determined using the
specific identification method.
Loans and Leases:
Loans held for sale are recorded at the lower of cost or fair value, net of
discounts and premiums, deferred costs and fees and unearned income. Gains on
loans held for sale are recognized at the time of transfer to the buyer and to
the extent that consideration for the transferred loans is received.
Loans and leases held for investment are recorded at cost, net of discounts
and premiums, commitments to extend credit, deferred costs and fees and unearned
income. The Company holds loans and leases receivable
9
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
primarily for investment purposes and has the intent and believes it has the
ability to hold these loans and leases for the foreseeable future or until
maturity.
Interest income is accrued using methods which approximate a level yield on
the principal outstanding, based on the contractual terms of the loan or lease.
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("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 Disclosure." These statements address the accounting and
reporting by creditors for impairment of certain loans. In general, a loan is
impaired when, based upon current information and events, it is probable that a
creditor will be unable to collect all amounts due according to the contractual
terms of the loan agreement. These statements are applicable to all loans,
uncollateralized as well as collateralized, except large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment. Impairment is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate, except that as a
practical expedient, the Company may measure impairment based on a loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. Loans are measured for impairment as part of the Company's
normal internal asset review process. The effect of adopting SFAS 114 and SFAS
118 was not material to the Company's 1995 financial position or results of
operations.
It is the Company's policy to place loans that are delinquent 90 days or
more as to principal or interest on nonaccrual status unless secured and in the
process of collection, and to reverse from current income accrued but
uncollected interest. Cash payments subsequently received on nonaccrual or
impaired loans are recognized as income only where the future collection of
principal is considered by management to be probable.
Loan Fees:
The Company generally charges fees for originating loans and leases, and
for commitments to extend credit. Origination fees, net of direct costs of
underwriting, closing costs and premiums, are deferred and amortized to interest
income using methods which approximate a level yield, adjusted for actual
prepayment experience. Unamortized fees and premiums on loans paid in full are
recognized as a component of interest income. The Company also charges other
loan fees consisting of delinquent payment charges and other common loan
servicing fees, including fees for servicing loans sold to third parties. Such
fees are recognized as income when earned.
Allowance for Credit Losses:
The Company charges current earnings with a provision for credit losses on
loans and leases receivable, guarantees and commitments to extend credit. The
provision considers both specifically identified problem loans and credit risks
not specifically identified in the portfolios. The determination of the
allowance for credit losses takes into consideration numerous factors including
the financial condition of the borrowers, the estimated fair value of the
collateral, recourse to guarantors, if any, the estimated net cost of holding
and maintaining properties and collateral prior to the anticipated date of sale,
analysis of delinquency trends, geographic and collateral-type concentrations,
past loss experience, and other factors affecting the adequacy of the allowance.
Losses are recognized through charges to the allowance and any subsequent
recoveries are credited to the allowance.
Foreclosed Property:
Foreclosed property consists of real estate acquired in settlement of loans
and is carried at the lower of cost or fair value less estimated selling costs.
Losses recognized at the time of foreclosure in full or partial
10
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
satisfaction of loans are charged against the allowance for credit losses. The
Company charges current earnings with a provision for losses on foreclosed
property for any subsequent declines in fair value.
Premises and Equipment:
Premises, equipment, and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization is
charged on a straight-line basis over the estimated useful lives of the various
classes of assets (generally 3 to 7 years), or, in the case of leasehold
improvements, the shorter of the estimated useful life of the leasehold
improvement or the remaining term of the lease. Maintenance and repairs are
charged to expense in the period incurred.
Interest Receivable and Other Assets:
Interest receivable and other assets include accrued interest receivable on
loans and investments, personal property acquired in settlement of installment
loans and leases, and other prepaid assets.
Goodwill:
Goodwill is the excess of the cost of acquisitions over the estimated fair
value of the net assets acquired. Goodwill is amortized on a straight-line basis
over the estimated period of benefit ranging from 7 to 40 years, depending upon
the acquisition.
Short-term Borrowings:
Short-term borrowings include federal funds purchased, securities sold
under agreements to repurchase, and treasury tax and loan deposits. Securities
sold under agreements to repurchase are treated as financings and the obligation
to repurchase these same securities is reflected as a liability in the
consolidated balance sheets. The securities underlying the repurchase agreements
have been delivered to securities dealers. These dealers may have loaned the
securities to other parties in the normal course of their operation, but all
agreements require the dealers to resell to the Company the identical securities
at the maturities of the agreements.
Trust Property:
Trust property, other than cash deposits held by the Company in fiduciary
or agency capacities for its customers, is not included in the accompanying
consolidated balance sheets because such items are not assets of the Company.
Foreign Exchange Activities and Translation:
The Company enters into commitments to purchase or sell foreign currencies
on behalf of its customers. These commitments are generally matched through
offsetting positions. Foreign exchange positions are valued monthly with the
resulting gain or loss included in foreign exchange gains as incurred. Assets
and liabilities denominated in foreign currencies are translated at current
rates of exchange. The resulting exchange gains and losses are reported in
income as incurred. The Company is subject to potential credit risk from the
possible inability of counterparties to meet the terms of their contracts and
from movements in foreign exchange values and interest rates.
11
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest Rate Swaps:
Interest rate swaps are agreements in which the Company and another party
agree to exchange interest payments (one at a variable rate, the other at a
fixed rate) on notional principal amounts. The Company enters into interest rate
swaps for purposes other than trading to assist in matching interest expense on
specific interest-bearing liabilities with the interest rate adjustments on
specific interest earning assets. The effect on interest expense from interest
rate swaps held for purposes other than trading is recognized as periodic net
cash settlements accrue.
Income Taxes:
The Company calculates income taxes under SFAS No. 109 -- "Accounting for
Income Taxes." Under SFAS 109, deferred taxes are determined based on the
liability method. Deferred taxes arise from the effect of temporary differences
between the tax basis of assets and liabilities and their reported amounts in
the financial statements based on currently enacted tax laws. These deferred tax
amounts are adjusted for tax rate changes and changes in tax laws as they occur.
The Company files a consolidated federal tax return with its subsidiaries.
The Company files a California franchise tax return on the basis of a combined
"waters-edge" election with BNP's United States affiliates. The provision for
state income taxes is calculated based on this waters-edge election.
Financial Instruments with Off-Balance-Sheet Risk:
The Company is party to financial instruments with off-balance-sheet risk
in the normal course of business and to meet the financial needs of its
customers. Financial instruments include commitments to extend credit, the
issuance of commercial and standby letters of credit, interest rate swaps, and
commitments to purchase or sell foreign currencies, investment securities and
loans and leases. These instruments may involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in a particular
class of financial instrument.
The Company generally uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments, which
may require that it obtain collateral that will reduce its exposure to credit
loss. The exposure to credit loss, in the event of nonperformance by a
counterparty to a financial instrument, for commitments to extend credit, and
for letters of credit, is represented by the difference between the contractual
commitment amount of those instruments and the estimated fair value of the
collateral.
If there is no collateral, or if the underlying collateral is determined to
have little or no value, or the Company is unable to obtain possession of the
collateral, the maximum exposure to credit loss is represented by the
contractual commitment. The type and nature of collateral held will vary and may
include, but is not limited to, accounts receivable, inventory, property, plant
and equipment, income producing properties and real estate. Standby letters of
credit and commitments to extend credit generally have fixed expiration dates or
other termination clauses. Because many of the standby letters of credit and
commitments to extend credit are expected to expire without being drawn upon,
total guarantee and commitment amounts do not necessarily represent future cash
requirements.
12
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Share:
On January 1, 1997, the Company adopted SFAS No. 128, "Earnings Per Share",
which specifies the computation presentation and disclosure requirements for
earnings per share ("EPS"). Prior period EPS have been expanded to comply with
these provisions. Basic EPS is computed by dividing net income available to
common shares outstanding (which excludes preferred stock dividends) by the
weighted average number of shares outstanding for the period. No differences
exist between the calculation of basic and diluted EPS for the Company.
New Pronouncements:
In 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 states that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 131 requires disclosures regarding segments
of an enterprise and related information that reflects the different types of
business activities in which the enterprise engages and the different economic
environments in which it operates. The adoption of these standards is not
expected to have a material effect on the Company's consolidated financial
statements.
Reclassifications:
Certain 1996 and 1995 amounts were reclassified to conform to the 1997
presentation.
NOTE 2 -- ACQUISITIONS
On October 1, 1997, the Company, through its wholly-owned bank subsidiary,
Bank of the West, purchased the outstanding common stock of Essex Credit
Corporation ("Essex") for $10 million plus an obligation to make certain
contingent payments to the former stockholders of Essex depending on the
financial performance of Essex. Essex originates marine and recreational vehicle
loans through a nationwide network of sales offices and sells the loans to
various funding sources for a fee. The $8.7 million of purchase price over the
fair value of the net assets acquired was recorded as goodwill which is being
amortized on a straight-line basis over 15 years.
On June 13, 1997, the Company purchased a retail branch with deposits of
$21.5 million from Coast Federal Bank, F.S.B.. The $1.4 million of purchase
price over the fair value of net assets acquired was recorded as goodwill which
is being amortized on a straight-line basis over 15 years.
At December 31, 1995, the Company had entered into an Agreement and Plan of
Merger with Northbay Financial Corporation ("Northbay"), that called for the
Company to acquire through a merger with a merger subsidiary the outstanding
common stock of Northbay for approximately $43 million in cash. The transaction
was completed on April 26, 1996. Total assets acquired were valued at $377
million and total liabilities were valued at $349 million. The $15 million of
purchase price over the fair value of the net assets acquired was recorded as
goodwill which is being amortized on a straight-line basis over 15 years.
NOTE 3 -- TRANSACTIONS WITH AFFILIATES
The Company has participated and continues to participate in various
transactions with BNP and its affiliates. These transactions are subject to
review by the Federal Reserve Board, the FDIC and other regulatory authorities
and are required to be on terms at least as favorable to the Company as those
prevailing
13
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 3 -- TRANSACTIONS WITH AFFILIATES (CONTINUED)
at the time for similar non-affiliate transactions. These transactions have
included the sales and purchases of assets, foreign exchange activities,
financial guarantees, international services, interest rate swaps and
intercompany deposits and borrowings. It is not practical to quantify all such
transactions. However, amounts due to and from affiliates at December 31, 1997
and 1996 were included in the balance sheet accounts as illustrated below:
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
Cash and due from banks..................................... $ 4,206 $11,217
Interest receivable and other assets........................ 92 656
Noninterest-bearing deposits................................ 2,767 1,920
Interest-bearing deposits................................... -- 50,000
Short-term borrowings....................................... 60,237 3,365
Interest payable and other liabilities...................... 2,687 3,469
Subordinated capital notes included in long-term
borrowings................................................ 50,000 50,000
Series A preferred stock.................................... 20,000 20,000
Off-balance-sheet transactions:
Notional amount of interest rate swap..................... -- 50,000
Standby letters of credit issued.......................... 9,892 5,000
The subordinated capital notes were sold directly to BNP, are subordinated
to the claims of depositors and creditors, and qualify for inclusion as a
component of risk-based capital under current FDIC guidelines for assessing
capital adequacy. For further information regarding regulation and capital
adequacy, see Note 11 to the consolidated financial statements.
In connection with the sale of the Company Series A preferred stock, BNP
and the Company executed a Support Agreement (the "Agreement"). Pursuant to the
Agreement, BNP will provide the Company with sufficient funds to enable the
Company, at the time of any payment of dividends on the Series A preferred
stock, or any redemption thereof or any liquidation or dissolution of the
Company, to meet the minimum regulatory capital ratios applicable to the Company
and enable the Company to have the necessary funds to pay the full amount of
dividends declared on the Series A preferred stock. During 1997, there were no
payments made to the Company under the terms of the Agreement.
During 1995, the Company entered into an interest rate swap with a notional
amount of $50 million with BNP. The swap assisted in matching interest expense
on specific interest-bearing liabilities with interest rate adjustments on
certain interest-earning assets, and called for the Company to pay to BNP a
fixed rate of interest of 7.75%, and receive from BNP the 3-month London
Inter-bank Offered Rate ("LIBOR") on the notional amount until maturity in
January 1997, adjusted quarterly. There were no fees paid or received in this
transaction and no collateral was maintained.
14
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 4 -- INVESTMENT SECURITIES
A comparison of amortized cost and estimated fair value of held-to-maturity
and available-for-sale investment securities as of December 31, 1997 and 1996,
by type, is illustrated below:
DECEMBER 31, 1997
--------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE AMOUNT
--------- ---------- ---------- --------- --------
(DOLLARS IN THOUSANDS)
HELD-TO-MATURITY INVESTMENT
SECURITIES
U.S. Treasury....................... $ 80,597 $ 579 $ (9) $ 81,167 $ 80,597
Mortgage-backed and other
asset-backed securities........... 232,517 538 (2,068) 230,987 232,517
-------- ------ ------- -------- --------
Total Held-to-Maturity Investment
Securities........................ 313,114 1,117 (2,077) 312,154 313,114
-------- ------ ------- -------- --------
AVAILABLE-FOR-SALE INVESTMENT
SECURITIES
U.S. Treasury....................... 25,048 194 -- 25,242 25,242
U.S. Government agencies............ 32,115 140 -- 32,255 32,255
Mortgage-backed and other
asset-backed securities........... 464,359 1,942 (760) 465,541 465,541
FHLB stock.......................... 22,534 -- -- 22,534 22,534
-------- ------ ------- -------- --------
Total Available-for-Sale
Investment Securities.......... 544,056 2,276 (760) 545,572 545,572
-------- ------ ------- -------- --------
Total Investment
Securities.............. $857,170 $3,393 $(2,837) $857,726 $858,686
======== ====== ======= ======== ========
DECEMBER 31, 1996
--------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE AMOUNT
--------- ---------- ---------- --------- --------
(DOLLARS IN THOUSANDS)
HELD-TO-MATURITY INVESTMENT
SECURITIES
U.S. Treasury....................... $ 81,020 $ 638 $ (267) $ 81,391 $ 81,020
Mortgage-backed and other
asset-backed securities........... 189,722 118 (5,937) 183,903 189,722
-------- ------ ------- -------- --------
Total Held-to-Maturity Investment
Securities........................ 270,742 756 (6,204) 265,294 270,742
-------- ------ ------- -------- --------
AVAILABLE-FOR-SALE INVESTMENT
SECURITIES
U.S. Treasury....................... 169,557 745 (106) 170,196 170,196
U.S. Government agencies............ 70,571 340 (30) 70,881 70,881
Mortgage-backed and other
asset-backed securities........... 405,406 1,694 (1,642) 405,458 405,458
FHLB stock.......................... 14,530 -- -- 14,530 14,530
-------- ------ ------- -------- --------
Total Available-for-Sale
Investment Securities.......... 660,064 2,779 (1,778) 661,065 661,065
-------- ------ ------- -------- --------
Total Investment
Securities.............. $930,806 $3,535 $(7,982) $926,359 $931,807
======== ====== ======= ======== ========
15
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 4 -- INVESTMENT SECURITIES (CONTINUED)
At December 31, 1997, the amortized cost and fair value of held-to-maturity
and available-for-sale investment securities have contractual maturities and
yields as illustrated below. Actual maturities of mortgage-backed and other
asset-backed securities will differ from contractual maturities because of the
right to call or prepay obligations with or without call or prepayment
penalties:
HELD-TO-MATURITY AVAILABLE-FOR-SALE
------------------------------ ------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE YIELD COST VALUE YIELD
--------- -------- ----- --------- -------- -----
(DOLLARS IN THOUSANDS)
Within one year $ 24,953 $ 25,067 6.72%
After one but within five
years......................... $ 80,597 $ 81,167 6.20% 78,176 78,748 6.49
After five but within ten
years......................... -- -- 29,104 29,156 6.53
After ten years................. 232,517 230,987 6.24 411,823 412,601 6.56
-------- -------- ---- -------- -------- ----
Total................. $313,114 $312,154 6.23% $544,056 $545,572 6.55%
======== ======== ==== ======== ======== ====
The carrying value of securities pledged to secure public deposits,
securities sold under agreements to repurchase, and FHLB borrowings totaled $530
million and $488 million at December 31, 1997 and 1996, respectively.
During 1995, the FASB issued a Special Report, "A Guide to Implementation
of Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." The Special Report provided a one-time opportunity to reassess the
appropriateness of designations of securities subject to the accounting and
reporting requirements of Statement 115, without calling into question the
intent to hold other debt securities to maturity in the future. In accordance
with this Special Report, in December 1995, the Company transferred the
following securities from Held-to-Maturity to Available-for-Sale:
AMORTIZED UNREALIZED
COST GAIN (LOSS)
--------- -----------
(DOLLARS IN THOUSANDS)
U.S. Treasury............................................... $170,763 $ 1,787
U.S. Government agencies.................................... 61,660 833
Mortgage-backed securities.................................. 51,145 (1,819)
-------- -------
Total............................................. $283,568 $ 801
======== =======
NOTE 5 -- LOANS AND LEASES
The Company originates loans with customers through its branch network and
regional loan offices in northern California. Customers for certain installment
loans, and automobile and equipment leases are referred to the Company by
brokers, equipment dealers and automobile, recreational vehicle and marine
retailers for a fee. California customers represent the Company's major lending
market with approximately $3.5 billion and $3.2 billion of the outstanding loans
and leases at December 31, 1997 and 1996, respectively, made to borrowers
located within the state.
Unearned income and discounts on loans were $32.3 million and $38.0 million
at December 31, 1997 and 1996, respectively. Net deferred origination costs and
premiums on loans were $33.6 million and $27.9 million at December 31, 1997 and
1996, respectively.
The Company's leasing activities consist of leasing automobiles and various
types of commercial equipment. Lessees are responsible for all maintenance,
taxes and insurance on the leased property. The leases
16
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 5 -- LOANS AND LEASES (CONTINUED)
are classified as direct financing leases, and are reported net of unearned
income of $168.1 million and $110.1 million, and deferred origination costs and
premiums of $13.0 million and $8.7 million at December 31, 1997 and 1996,
respectively. At December 31, 1997, minimum lease payments for the five
succeeding years are $220.4 million in 1998, $189.5 million in 1999, $176.3
million in 2000, $147.7 million in 2001 and $135.1 million in 2002.
Loans and leases on which accrual of interest has been discontinued
averaged $24.2 million and $25.1 million during 1997 and 1996, respectively. If
the contractual rate of interest had been accrued, interest income would have
increased approximately $2.1 million, $2.2 million and $2.3 million for the
years ended December 31, 1997, 1996 and 1995, respectively. The Company's total
recorded investment in impaired loans, as defined in SFAS 114 was $15.1 million
and $13.1 million for which there was a related allowance for credit losses of
$3.5 million and $3.8 million at December 31, 1997 and 1996, respectively. The
average recorded investment in impaired loans was $15.3 million, $16.5 million
and $19.7 million during 1997, 1996 and 1995, respectively, and the amount of
income recognized was not significant in any of those years. There were no
significant commitments to lend additional funds to borrowers whose loans were
classified as nonaccrual or impaired at December 31, 1997.
The Company acts as servicer for certain real estate and installment loans
on behalf of investors. The installment loan servicing agreements require the
Company to maintain credit enhancements in the form of letters of credit. The
Company was servicing real estate loans on behalf of others totaling $56.0
million and $62.9 million at December 31, 1997 and 1996, respectively. The
Company was servicing installment loans on behalf of others totaling $4.4
million and $15.4 million, with associated letters of credit from BNP totaling
$10.4 million and $20.1 million at December 31, 1997 and 1996, respectively. The
book value of loans pledged to secure FHLB borrowings totaled approximately $438
million at December 31, 1997.
NOTE 6 -- ALLOWANCE FOR CREDIT LOSSES
An analysis of activity in the allowance for credit losses is illustrated
below:
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
Balance, January 1.......................................... $46,758 $37,765 $32,553
Acquired allowance for credit losses (Note 2)............... -- 2,345 --
Provision for credit losses................................. 19,750 16,500 14,500
Loans and leases charged off................................ (19,120) (14,480) (14,505)
Recoveries.................................................. 4,220 4,628 5,217
------- ------- -------
Balance, December 31........................................ $51,608 $46,758 $37,765
======= ======= =======
17
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 7 -- PREMISES AND EQUIPMENT
The components of premises and equipment are illustrated below:
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
Land and buildings.......................................... $ 22,497 $ 22,425
Leasehold improvements...................................... 28,620 29,478
Furniture and equipment..................................... 47,223 43,032
-------- --------
Total............................................. 98,340 94,935
Accumulated depreciation and amortization................... (63,431) (58,354)
-------- --------
Premises and equipment, net............................... $ 34,909 $ 36,581
======== ========
Depreciation and amortization expense on premises and equipment was $6.4
million, $6.6 million and $6.4 million for the years ended December 31, 1997,
1996 and 1995, respectively.
The Company rents premises under long-term, non-cancelable leases. Minimum
rents may be adjusted for changes in the lessors' operating costs and/or changes
in the Consumer Price Index or other indices. In addition, the Company pays
common area maintenance, property taxes and insurance under certain premises
leases. Rental expense was $13.4 million, $12.6 million and $12.2 million for
the years ended December 31, 1997, 1996 and 1995, respectively. Rental income
from subleasing arrangements was $1.4 million for the year ended December 31,
1997 and $1.1 million for both years ended December 31, 1996 and 1995.
Future minimum lease commitments under non-cancelable operating leases at
December 31, 1997 are as illustrated below:
NON-CANCELABLE
OPERATING SUBLEASE
LEASES AMOUNTS TOTAL
-------------- -------- -------
(DOLLARS IN THOUSANDS)
1998....................................................... $14,097 $ 679 $13,418
1999....................................................... 12,951 630 12,321
2000....................................................... 12,268 640 11,628
2001....................................................... 11,511 607 10,904
2002....................................................... 10,436 608 9,828
Thereafter................................................. 34,763 1,590 33,173
------- ------ -------
Total minimum lease payments..................... $96,026 $4,754 $91,272
======= ====== =======
18
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 8 -- DEPOSITS
Interest-bearing deposits include certificates of deposit in amounts of
$100 thousand or more. These certificates and their remaining maturities are
illustrated below:
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
Three months or less........................................ $447,885 $424,489
Over three, through six months.............................. 198,643 120,208
Over six, through twelve months............................. 130,998 76,161
Over twelve months.......................................... 60,351 35,391
-------- --------
Total............................................. $837,877 $656,249
======== ========
NOTE 9 -- SHORT-TERM BORROWINGS
Short-term borrowings consist of the following:
DECEMBER 31,
--------------------------------------------
1997 1996
-------------------- --------------------
AVERAGE AVERAGE
INTEREST INTEREST
BALANCE RATE BALANCE RATE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Federal funds purchased............................ $143,224 6.16% $ 38,247 5.67%
Securities sold under agreements to repurchase..... 39,614 5.72 171,102 6.34
Other.............................................. 1,580 6.01 7,030 5.59
-------- --------
Total.................................... $184,418 6.06% $216,379 6.20%
======== ========
Federal funds purchased generally mature within one to four days from the
transaction date. Securities sold under agreements to repurchase generally
mature within three months of the transaction date.
Information concerning securities sold under agreements to repurchase and
federal funds purchased is summarized below:
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Average daily balance during the year.................. $146,790 $187,285
Average interest rate during the year.................. 5.31% 5.22%
Maximum month-end balance during the year.............. $253,583 $276,227
FEDERAL FUNDS PURCHASED
Average daily balance during the year.................. $ 36,365 $104,581
Average interest rate during the year.................. 5.37% 5.20%
Maximum month-end balance during the year.............. $210,925 $236,200
19
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 10 -- LONG-TERM BORROWINGS
Long-term borrowings consist of the following:
DECEMBER 31,
--------------------------------------------
1997 1996
-------------------------------- --------
FLOATING FIXED
RATE RATE TOTAL TOTAL
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
FHLB borrowings:
Due in 1997.................................... $ 2,000
Due in 1998.................................... $50,900 $102,000 $152,900 102,900
Due in 1999.................................... -- 1,000 1,000 1,000
Due in 2000.................................... 1,000 2,058 3,058 3,058
Due in 2001.................................... -- 670 670 670
Due in 2002.................................... -- 100,093 100,093 --
Thereafter..................................... -- 2,228 2,228 2,322
------- -------- -------- --------
Total FHLB borrowings.................. 51,900 208,049 259,949 111,950
Subordinated capital notes, 7.50%, interest only,
due August 2002................................ -- 50,000 50,000 50,000
------- -------- -------- --------
Total long-term borrowings............. $51,900 $258,049 $309,949 $161,950
======= ======== ======== ========
At December 31, 1997, fixed rate FHLB borrowings had interest rates ranging
from 5.78% to 9.23%, with a weighted average interest rate of 5.92%. At December
31, 1997, floating rate FHLB borrowings had interest rates ranging from 5.48% to
5.99%, with a weighted average interest rate of 5.50%. The floating rates are
based on either the Eleventh District Cost of Funds Index, LIBOR or the prime
rate. At the option of the Company, FHLB borrowings can be repaid prior to
maturity by paying a prepayment fee.
The Company is required to pledge loans and/or investments with a
collateral value determined by the FHLB to be at least equal to its outstanding
FHLB borrowings. At December 31, 1997, the Company had pledged loans and
investments that would collateralize an additional $230 million in FHLB
borrowings.
NOTE 11 -- REGULATORY MATTERS AND CAPITAL ADEQUACY
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative measures
of the Company's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company's capital amounts
and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by the Federal Deposit Insurance
Corporation Improvement Act ("FDICIA") to ensure capital adequacy require the
Company to maintain minimum amounts and ratios (set forth in the following
table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to total
assets (as defined). To be categorized as adequately capitalized under FDICIA,
the Company must maintain total risk-based, Tier I risk-based and Tier I
leverage ratios of 8%, 4% and 4%, respectively. To be categorized as
well-capitalized, the Company must maintain total
20
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 11 -- REGULATORY MATTERS AND CAPITAL ADEQUACY (CONTINUED)
risk-based, Tier I risk-based and Tier I leverage ratios of 10%, 6% and 5%,
respectively. Set forth in the following table are the Company's actual capital
amounts and ratios as of December 31, 1997 and 1996:
DECEMBER 31, 1997 DECEMBER 31, 1996
REGULATORY CAPITAL REGULATORY CAPITAL
------------------------------ ------------------------------
TOTAL TOTAL
CAPITAL/ TIER I/ CAPITAL/ TIER I/
RISK- RISK- TIER I/ RISK- RISK- TIER I/
BASED BASED TANGIBLE BASED BASED TANGIBLE
ASSETS ASSETS ASSETS ASSETS ASSETS ASSETS
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Stockholders' equity per
consolidated financial
statements....................... $475,090 $475,090 $475,090 $437,683 $437,683 $437,683
Capital adjustments, as defined:
Goodwill...................... (60,132) (60,132) (60,132) (53,940) (53,940) (53,940)
Allowance for loan and lease
losses...................... 51,608 -- -- 46,758 -- --
Qualifying portion of
subordinated capital
notes....................... 40,000 -- -- 50,000 -- --
Net unrealized gains on
investment securities
available-for-sale, net of
taxes....................... (910) (910) (910) (611) (611) (611)
Other......................... (1,998) (36) (36) (1,943) (102) (102)
-------- -------- -------- -------- -------- --------
Regulatory capital............... $503,658 $414,012 $414,012 $477,947 $383,030 $383,030
Adequately-capitalized, as defined
by FDICIA........................ 372,995 186,509 223,255 320,410 160,205 199,103
-------- -------- -------- -------- -------- --------
Excess........................ $130,663 $227,503 $190,757 $157,537 $222,825 $183,927
======== ======== ======== ======== ======== ========
At December 31, 1997 and 1996, the
Company had regulatory capital
ratios, as defined, of:.......... 10.80% 8.88% 7.42% 11.93% 9.56% 7.70%
As illustrated, the Company's capital ratios were in excess of the
well-capitalized minimums as defined by FDICIA. The capital ratios of the Bank
are substantially equal to those of the Company presented above.
As of the most recent notification, the Federal Reserve Bank categorized
the Company as well-capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that notification
that management believes have changed the institution's category.
The Federal Reserve Board generally prohibits a bank holding company from
declaring or paying a cash dividend which would impose undue pressure on the
capital of subsidiary banks or would be funded only through borrowing or other
arrangements that might adversely affect a bank holding company's financial
position. The Federal Reserve's policy is that a bank holding company should not
continue its existing rate of cash dividends on its common stock unless its
income is sufficient to fully fund cash dividends and its prospective rate of
earnings retention appears consistent with its capital needs, asset quality and
overall financial condition. State banking regulations also impose certain
restrictions on the payment of dividends by the Bank. Retained earnings of $95
million were not restricted and are available for the payment of dividends at
December 31, 1997.
21
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 12 -- INCOME TAXES
The components of the provision for income taxes are illustrated below:
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
CURRENT
Federal..................................................... $14,595 $ 7,602 $ 5,967
State....................................................... 6,555 1,586 2,418
DEFERRED
Federal..................................................... 21,403 16,123 12,239
State....................................................... 2,161 (172) 1,346
------- ------- -------
Provision for income taxes.................................. $44,714 $25,139 $21,970
======= ======= =======
The following analysis reconciles the federal statutory income tax rate to
the effective income tax rate:
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
---- ---- ----
Federal statutory income tax rate........................... 35.0% 35.0% 35.0%
State and local income and franchise taxes, net of federal
tax benefit............................................... 5.3 4.2 4.5
Goodwill amortization....................................... 1.0 1.4 1.5
Effect of tax law changes and prior year adjustments........ .2 (4.0) (.7)
Other....................................................... .1 (.1) .4
---- ---- ----
Effective income tax rate................................... 41.6% 36.5% 40.7%
==== ==== ====
The provision for deferred income taxes and the balances of deferred income
tax assets and liabilities result principally from differing methods in
reporting the provision for credit losses, lease financing income, state
franchise taxes, loan origination fees and costs, and the provision for losses
on anticipated sale of foreclosed property.
22
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 12 -- INCOME TAXES (CONTINUED)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are presented below:
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
DEFERRED TAX ASSETS:
Provision for credit losses and taxable accrued interest
on non-performing loans................................ $21,277 $18,845
Deferred compensation expenses............................ 1,974 1,865
Deferred income and expenses, principally due to loan fee
income and accrued expenses to foreign parent.......... 4,434 5,112
Book depreciation greater than tax depreciation........... 2,932 2,543
Amortization of intangible assets and purchase accounting
valuation adjustments.................................. 748 1,022
Foreclosed and repossessed property, principally due to
valuation reserves..................................... 458 1,820
State taxes............................................... 2,283 2,384
Credits, principally alternative minimum tax credits...... 402 4,542
Other..................................................... 335 448
------- -------
Total deferred income tax assets.......................... 34,843 38,581
======= =======
DEFERRED TAX LIABILITIES:
Leases.................................................... 79,830 58,040
Deferred loan origination costs........................... 11,608 12,785
Tax depreciation greater than book depreciation........... 2,724 3,018
Investments, principally due to FHLB stock dividends and
unrealized gain on securities available for sale....... 1,778 1,510
Other..................................................... 3,812 3,631
------- -------
Total deferred income tax liabilities..................... 99,752 78,984
------- -------
NET DEFERRED TAX LIABILITY.................................. $64,909 $40,403
======= =======
Net deferred income tax liabilities are included in other liabilities on
the consolidated balance sheet. There were no valuation adjustments at December
31, 1997 or 1996. Deferred income tax liabilities include $.6 million and $.4
million at December 31, 1997 and 1996, respectively, related to the tax effect
of unrealized gains on investment securities available for sale.
At December 31, 1997, the Company has federal and California alternative
minimum tax credit carryforwards of approximately $323,000 and $79,000,
respectively, which may be used to offset future income tax liabilities. Such
credits have no expiration date. Management expects to generate sufficient
regular tax liability to utilize all credit carryforwards.
The Taxpayer Relief Act of 1997 had no material impact on the Company's
deferred tax assets or liabilities.
The Company has filed its California franchise tax return on the basis of a
combined "waters-edge" report with BNP's United States affiliates since 1992. In
1991 and prior years, the Company filed its California franchise tax returns on
a separate entity basis and the California Franchise Tax Board ("FTB") asserted
that the Company and BNP were engaged in a worldwide "unitary" business. The use
of the FTB's method of apportionment and its determination of worldwide income
could result in significant additional taxes due for years prior to 1992.
Management of the Company and BNP vigorously dispute and are protesting the
FTB's
23
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 12 -- INCOME TAXES (CONTINUED)
assertion of a worldwide unitary business and its method of determining and
apportioning worldwide income. Although the United States Supreme Court ruled in
favor of the FTB in a similar matter, management believes, with the advice of
its legal counsel, that the Company and BNP's factual situation is sufficiently
different so as to allow management to conclude that the ultimate resolution of
this matter will not be material to the Company's consolidated financial
statements.
NOTE 13 -- EMPLOYEE BENEFIT PLANS
The Company participates with certain other U.S. subsidiaries and agencies
of BNP in a noncontributory, defined benefit pension plan covering substantially
all employees. Contributions from all subsidiaries are commingled and can be
used to satisfy the vested obligations of any participant. The benefits are
based on years of service and the employees' compensation over their years of
employment. The Company's funding policy is to contribute annually such amounts
as are necessary on an actuarially determined basis to provide the plan with
assets sufficient to meet the participants' vested benefits. Contributions are
intended to provide for benefits attributable to both service to date and for
that expected to be earned in the future. Plan assets consist principally of
investments in insurance contracts, equities, bonds and other investments.
Pension cost is allocated to the participating entities based on demographic
data and actuarial assumptions.
Net pension expense allocated to the Company included the following
components:
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
(DOLLARS IN THOUSANDS)
Service cost -- benefits earned............................. $1,167 $1,454 $1,180
Interest cost on projected benefit obligation............... 1,971 2,241 2,098
Less return on plan assets.................................. (2,552) (2,752) (2,261)
Net amortization and deferral............................... 125 149 149
------ ------ ------
Net pension expense......................................... $ 711 $1,092 $1,166
====== ====== ======
For 1997, 1996 and 1995, the projected benefit obligation was actuarially
determined using a discount rate of 7.4%, an assumed increase in future
compensation levels of 4%, with an expected long-term rate of return on plan
assets of 9.5%.
The Company is the sponsor of a non-qualified, defined benefit pension plan
which became effective in 1987 for certain employees whose base compensation
exceeds the limit imposed by the Employee Retirement Income Security Act for
inclusion in the qualified pension plan. Pension expense attributable to this
plan was $.5 million in both 1997 and 1996 (none in 1995).
Salaried employees who have completed one year of service are eligible to
participate in the Company's defined contribution plan, which provides
tax-deferred investment opportunities. The Company's contribution to the plan,
based on participants' contributions and salaries, was $1.1 million in 1997 and
$.5 million in both 1996 and 1995.
The Company provides certain health care benefits for employees who meet
age, participation and length of service requirements at retirement. The Plan
pays stated percentages of covered expenses after annual deductibles have been
met. Benefits paid take into consideration payments by Medicare. The Plan is not
prefunded and the Company has the right to modify or terminate the plan.
During 1993, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS 106 requires accrual of the
expected cost of provided postretirement
24
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 13 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
health care benefits during the years that employees provide service.
Previously, retiree health care benefits were expensed as incurred. In adopting
this standard, the Company elected the delayed recognition method of recording
the accumulated postretirement benefit obligation ("APBO"). Postretirement
health care expense was $.6 million for the year ended 1997 and $.4 million in
both 1996 and 1995. The unamortized balance of the transition obligation was
$1.7 million, $1.9 million and $2.0 million at December 31, 1997, 1996 and 1995,
respectively.
The APBO was $3.4 million and $3.6 million as of December 31, 1997 and
1996, respectively. The assumed health care cost trend rate used in measuring
the 1997 and 1996 APBO was 7%, gradually declining to 4.25% in 2001 and
thereafter. A one percentage point increase in the trend rates would increase
the December 31, 1997 and 1996 APBO $.2 million and would not significantly
impact the expense in either year. The discount rate used to determine the APBO
was 7.40% in 1997 and 7.50% in 1996.
The Company has purchased life insurance policies that increase in value
while also providing life insurance benefits for its key executives. The
executives vest in these insurance benefits after attaining certain requirements
or in the event of a change in control of the Company. The vested benefits in
such policies have been accrued and related compensation expense was $.6 million
for the year ended December 31, 1997 (none in 1996 or 1995).
Under the Company's Long-Term Incentive Plan ("LTIP"), certain key
executives have been issued stock appreciation rights, the value of which are
based on the premium, if any, received by the Company's common shareholder upon
the sale of the Company. The stock appreciation rights have no value unless and
until there is a change of control of 50% or more of the common stock of the
Company, thus no compensation expense has been recorded related to these rights.
NOTE 14 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosure About Fair Value of Financial Instruments." The estimated fair value
amounts have been determined by using available market information and
appropriate valuation methodologies. However, considerable judgment is required
to interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented are not necessarily indicative of the amounts that could
be realized in a current market exchange. The use of different market
assumptions and/or estimation techniques may have a material effect on the
estimated fair value amounts.
25
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 14 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and cash equivalents (a)........... $ 328,392 $ 328,392 $ 264,259 $ 264,259
Investment securities (b)............... 858,686 857,726 931,807 926,359
Loans held for sale (c)................. 5,757 5,857 -- --
Loans and leases, net of allowance for
credit losses (d)..................... 4,292,734 4,347,690 3,725,533 3,745,135
Customers' acceptance liability (e)..... 37 37 717 717
LIABILITIES
Deposits: (f)
Non-interest bearing demand
deposits........................... 1,001,550 1,001,550 848,384 848,384
Interest bearing deposits without
fixed maturity dates............... 1,482,926 1,482,926 1,417,284 1,417,284
---------- ----------- ---------- -----------
Total deposits without fixed
maturity dates................... 2,484,476 2,484,476* 2,265,668 2,265,668*
Interest bearing deposits with fixed
maturity dates........................ 2,088,474 2,091,821 1,916,413 1,921,643
---------- ----------- ---------- -----------
Total deposits................ 4,572,950 4,576,297 4,182,081 4,187,311
Short-term borrowings (g)............... 184,418 184,418 216,379 216,379
Acceptances outstanding (e)............. 37 37 717 717
Long-term borrowings (h)................ 309,949 311,788 161,950 162,196
OFF-BALANCE-SHEET INSTRUMENTS,
[UNREALIZED GAINS AND (LOSSES)] (i)
Interest rate swap...................... -- -- -- (71)
Commitments to extend credit............ -- -- -- --
Standby letters of credit............... -- -- -- --
Commercial letters of credit............ -- -- -- --
Commitments to purchase foreign
currencies............................ (109) (109) (399) (399)
Commitments to sell foreign
currencies............................ 833 833 616 616
- ---------------
* As required by SFAS 107, the estimated fair value of deposits without fixed
maturity dates is the amount payable upon demand at the reporting date, and,
as such, may not represent the true market value of these liabilities.
(a) Cash and cash equivalents:
The carrying amount is a reasonable estimate of fair value.
(b) Investment securities:
Fair values of investment securities are based on quoted market prices or
dealer quotes.
(c) Loans held for sale:
Fair values of loans held for sale are based on observable market values.
26
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 14 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
(d) Loans and leases, net of allowance for credit losses:
Fair values were estimated for portfolios of performing loans and leases
with similar financial characteristics. For certain performing variable rate
loans that reprice frequently, estimated fair values are based on carrying
values, adjusted for credit quality, if no significant changes in credit
standing have occurred since origination and the interest rate adjustment
characteristics of the loan effectively adjust the interest rate to maintain a
market rate of return.
Fair values for certain performing fixed rate commercial, construction,
real estate, revolving credit and other loans and leases were estimated by
discounting the future cash flows using current rates at which similar loans
would be made to borrowers with similar credit ratings and maturities, adjusted
for the allowance for credit losses.
(e) Customers' acceptance liability and acceptances outstanding:
The carrying value is a reasonable estimate of fair value.
(f) Deposits:
The fair value of noninterest-bearing and adjustable rate deposits is the
amount payable upon demand at the reporting date. The fair value of fixed-rate
interest-bearing deposits with fixed maturity dates was estimated by discounting
the cash flows using rates currently offered for deposits of similar remaining
maturities.
(g) Short-term borrowings:
The carrying value is a reasonable estimate of fair value.
(h) Long-term borrowings:
The fair value was estimated by discounting the cash flows using rates
currently offered for borrowings of similar types and maturities.
(i) Off-balance-sheet instruments:
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present credit-worthiness of the
counterparties, reduced by the remaining net deferred income associated with
such commitments. The fair values of standby and commercial letters of credit
are based on fees currently charged for similar agreements or on the estimated
cost to terminate them or otherwise settle the obligations with the
counterparties reduced by the remaining net deferred income associated with such
obligations.
The fair value of the interest rate swap is the estimated amount that the
Company would pay to an unrelated third party to terminate the swap agreement at
the reporting date, taking into account current interest rates.
The fair value of commitments to purchase or sell foreign currencies is
based on quoted market prices.
27
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 15 -- COMMITMENTS AND CONTINGENT LIABILITIES
The following is a summary of the contractual or notional amount of
financial instruments with off-balance-sheet risk:
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
CONTRACTUAL AMOUNTS WHICH REPRESENT CREDIT RISK
Commitments to extend credit................................ $692,195 $607,638
Standby letters of credit................................... 40,068 39,951
Commercial and other letters of credit...................... 5,563 5,910
NOTIONAL OR CONTRACTUAL AMOUNTS WHICH DO NOT REPRESENT
CREDIT RISK
Commitments to purchase foreign currencies.................. 22,286 39,699
Commitments to sell foreign currencies...................... 23,671 37,688
Interest rate swap.......................................... -- 50,000
The Company is obligated under agreements with an independent provider of
certain data processing and other support services. The agreements, which expire
in August 1999, require monthly payments for both data processing and other
support services. The Company has the option to terminate these agreements by
paying a termination fee. As presently structured, minimum average monthly
payments through August 1999 are $.7 million for data processing services and
$.3 million for other support services. Minimum monthly payments may vary
depending upon the nature and volume of services provided, scheduled fee
increases and decreases, and other factors.
The Company maintains insurance on its customer deposits with the FDIC. The
FDIC manages the Bank Insurance Fund ("BIF"), which insures deposits of
commercial banks, and the Savings Association Insurance Fund ("SAIF"), which
insures deposits of savings associations. FDICIA mandated that the two funds
maintain reserves at 1.25% of their respective federally insured deposits.
During 1995, the FDIC announced that the BIF had reached its mandated reserve
level, reducing insurance premiums on BIF-insured deposits, and subsequently
announced that deposit insurance premiums on BIF-insured deposits would be
further reduced at December 31, 1995. At that time, the SAIF fund had not yet
met its mandated reserve level. As a result, deposit insurance premiums
attributable to BIF-insured deposits were less than those attributable to
SAIF-insured deposits.
At December 31, 1995, there were numerous regulatory proposals before
Congress to address the deposit insurance premium differential between BIF- and
SAIF-insured deposits. During 1996, Congress passed legislation resulting in a
one-time insurance premium charge attributable to SAIF insured deposits
sufficient to bring the SAIF fund up to its mandated reserve level. As a result,
the Company recorded a one-time deposit insurance premium expense of $9.6
million and at December 31, 1997 the disparity in premiums between BIF and SAIF
insured deposits has been reduced.
There are various legal actions pending against the Company arising from
the normal course of business. In the opinion of management, these legal actions
are expected to be resolved with no material adverse effect on the Company's
consolidated financial statements.
28
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 16 -- CONDENSED FINANCIAL INFORMATION OF BANCWEST (PARENT ONLY)
BALANCE SHEETS
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and due from banks..................................... $ 53 $ 61
Funds sold.................................................. 350 500
Premises and equipment, net................................. -- 4
Interest receivable and other assets........................ 1,408 1,423
Investment in subsidiary (Bank of the West)................. 454,594 416,942
-------- --------
Total Assets...................................... $456,405 $418,930
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Interest payable and other liabilities...................... $ 1,315 $ 1,247
-------- --------
Total Liabilities................................. 1,315 1,247
STOCKHOLDERS' EQUITY
Non-cumulative preferred stock -- no par value; Series A
1,000,000 shares authorized; 75,000 outstanding........... 75,000 75,000
Common stock -- no par value; 2,500,000 shares authorized;
1,733,430 outstanding at December 31, 1997 and 1,632,262
outstanding at December 31, 1996.......................... 8,667 8,161
Additional paid-in capital.................................. 228,392 208,898
Retained earnings........................................... 142,121 125,013
Net unrealized gains on subsidiary's available-for-sale
investment securities..................................... 910 611
-------- --------
Total Stockholders' Equity........................ 455,090 417,683
-------- --------
Total Liabilities and Stockholders' Equity........ $456,405 $418,930
======== ========
29
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 16 -- CONDENSED FINANCIAL INFORMATION OF BANCWEST (PARENT ONLY) (CONTINUED)
YEAR ENDED DECEMBER 31,
INCOME STATEMENTS -----------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
INTEREST INCOME
Investment securities....................................... $ 25 $ 31 $ --
------- ------- -------
Total interest income....................................... 25 31 --
Equity in earnings of subsidiary............................ 61,886 42,784 30,810
------- ------- -------
Total income...................................... 61,911 42,815 30,810
OTHER EXPENSE
Salaries and employee benefits.............................. 283 243
Occupancy expenses.......................................... 25 25
Furniture, equipment and other.............................. 113 87
------- ------- -------
Total other expense............................... 421 355 --
------- ------- -------
Income before income taxes.................................. 61,490 42,460 30,810
Income tax benefit.......................................... 151 123 --
------- ------- -------
NET INCOME.................................................. $61,641 $42,583 $30,810
======= ======= =======
YEAR ENDED DECEMBER 31,
STATEMENTS OF CASH FLOWS --------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................. $ 61,641 $ 42,583 $ 30,810
Adjustments to reconcile net income to net cash provided by
operating activities:
Excess of equity in earnings of subsidiary over dividends
received................................................. (37,353) (39,117) (30,810)
Other increases (decreases), net......................... 237 (1,274) (775)
-------- -------- --------
Net cash provided (used) by operating activities........... 24,525 2,192 (775)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of preferred stock, net of issuance costs......... 73,416
Cash dividends paid........................................ (24,533) (2,356)
Capital contribution (made) received....................... (73,416) 1,000
-------- -------- --------
Net cash provided (used) by financing activities........... (24,533) (2,356) 1,000
-------- -------- --------
Increase (decrease) in cash and cash equivalents........... (8) (164) 225
Cash and cash equivalents, January 1....................... 61 225 --
-------- -------- --------
Cash and cash equivalents, December 31..................... $ 53 $ 61 $ 225
======== ======== ========
OTHER CASH FLOW INFORMATION
Interest paid.............................................. $ -- $ -- $ --
Income tax refunds received................................ 123 -- --
During 1997, 1996 and 1995, the Company's principal activity consisted of
owning shares of the Bank.
1
EXHIBIT 99.2
BANCWEST CORPORATION AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
SEPTEMBER 30,
1998
-----------
ASSETS
Cash and due from banks $ 282,834
Funds sold 15,000
-----------
Total cash and cash equivalents 297,834
Investment securities:
Held-to-maturity 308,603
Available-for-sale 613,304
-----------
Total investment securities 921,907
Loans held for sale 7,016
Loans and leases held for investment:
Commercial, financial and agricultural 222,884
Real estate - construction 173,203
Real estate - mortgage 1,681,198
Consumer 1,735,494
Lease financing 924,324
-----------
Total loans and leases, net 4,737,103
Allowance for credit losses (56,879)
-----------
Loans and leases, net of allowance for credit losses 4,680,224
Customers' acceptance liability 117
Premises and equipment, net 35,563
Foreclosed property, net 3,366
Interest receivable and other assets 57,450
Goodwill, net 58,618
-----------
Total Assets $ 6,062,095
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 1,076,382
Interest-bearing 3,711,331
-----------
Total deposits 4,787,713
Short-term borrowings 315,800
Acceptances outstanding 117
Interest payable and other liabilities 114,838
Long-term borrowings 347,048
-----------
Total Liabilities 5,565,516
COMMITMENTS AND CONTINGENT LIABILITIES --
STOCKHOLDERS' EQUITY
Non-cumulative preferred stock - no par value:
Series A of Bank of the West 20,000
Series A of BancWest 75,000
Common stock 8,667
Additional paid-in capital 228,392
Retained earnings 162,209
Accumulated other comprehensive income, net of taxes 2,311
-----------
Total Stockholders' Equity 496,579
-----------
Total Liabilities and Stockholders' Equity $ 6,062,095
===========
See accompanying notes to unaudited consolidated financial statements.
-1-
2
BANCWEST CORPORATION AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except number of shares and per share amounts)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1998 1997
----------- -----------
INTEREST INCOME
Loans and leases $ 285,270 $ 256,057
Investment securities 39,224 43,274
Other 1,168 674
----------- -----------
Total interest income 325,662 300,005
INTEREST EXPENSE
Deposits 107,870 100,911
Short-term borrowings 7,253 8,251
Long-term borrowings 15,590 11,248
----------- -----------
Total interest expense 130,713 120,410
----------- -----------
Net interest income 194,949 179,595
Provision for credit losses 17,750 14,250
----------- -----------
Net interest income after provision for credit losses 177,199 165,345
OTHER INCOME
Service fees on deposit accounts 22,256 20,395
Commissions and other fees 4,142 3,233
Trust fees 2,344 1,954
Gains (losses) on sale of securities, net (77) 55
Gains on sale of loans, net 6,663 --
Foreign exchange gains, net 1,321 1,153
Other 6,359 4,968
----------- -----------
Total other income 43,008 31,758
OTHER EXPENSE
Salaries and employee benefits 61,281 54,848
Net occupancy expense 16,630 15,789
Furniture and equipment expenses 5,995 5,789
Contracted data processing 11,645 10,603
Other contracted services 5,757 5,018
FDIC insurance premiums 1,109 1,049
Legal and litigation expenses, net of recoveries 1,334 1,067
Provision for losses on foreclosed property 856 60
Advertising and marketing 4,439 3,520
Amortization of goodwill 3,583 2,990
Other 19,430 17,097
----------- -----------
Total other expense 132,059 117,830
Income before income taxes 88,148 79,273
Provision for income taxes 35,044 32,905
----------- -----------
NET INCOME $ 53,104 $ 46,368
=========== ===========
Basic earnings per common share $ 27.74 $ 24.73
=========== ===========
Cash dividends per share $ 16.15 $ 11.68
=========== ===========
Average shares outstanding 1,733,430 1,671,914
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
-2-
3
BANCWEST CORPORATION AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 53,104 $ 46,368
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses 17,750 14,250
Provision for losses on foreclosed property 856 60
(Gain) loss on sale of securities, net 77 (55)
Gain on sale of branch (212) --
Loans held for sale originated or purchased, net (1,259) --
Depreciation and amortization 8,423 7,805
Deferred income taxes 10,232 16,654
(Increase) decrease in interest receivable and other assets,
net of effects of acquisitions 3 (3,870)
Increase (decrease) in interest payable and other liabilities,
net of effects of acquisitions 3,020 (2,084)
Other decreases, net (29) (184)
--------- ---------
Net cash provided by operating activities 91,965 78,944
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and paydowns of investment
securities held-to-maturity 33,127 24,737
Proceeds from sales, maturities and paydowns of investment
securities available-for-sale 188,833 214,727
Purchases of held-to-maturity securities (28,616) (77,106)
Purchases of available-for-sale investment securities (254,309) (134,854)
Loans and leases held for investment originated or purchased, net
of collections, transfers to foreclosed property and acquisitions (405,709) (471,802)
Purchases of premises and equipment, net of effects
of acquisitions (4,937) (1,859)
Proceeds from sales of foreclosed property and premises
and equipment 1,165 3,058
Acquisitions - cash received in excess of cash and cash
equivalents acquired 24,510 20,112
Branch sale, cash paid, net of gain on sale (10,767) --
--------- ---------
Net cash used in investing activities (456,703) (422,987)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits, net of effects of acquisitions 198,635 195,557
Net increase in short-term borrowings 131,382 103,974
Increase in long-term borrowings 37,179 147,816
Cash dividends (33,016) (24,074)
--------- ---------
Net cash provided by financing activities 334,180 423,273
--------- ---------
(Decrease) increase in cash and cash equivalents (30,558) 79,230
Cash and cash equivalents, January 1 328,392 264,259
--------- ---------
Cash and cash equivalents, September 30 $ 297,834 $ 343,489
========= =========
OTHER CASH FLOW INFORMATION
Interest paid $ 130,974 $ 119,388
Income taxes paid 22,021 15,310
See accompanying notes to unaudited consolidated financial statements.
-3-
4
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of BancWest Corporation and
Subsidiary (the "Company") conform with generally accepted accounting principles
and practices within the banking industry. The following is a summary of the
significant accounting policies:
Consolidation:
The consolidated financial statements of the Company include the
accounts of BancWest Corporation and its wholly-owned subsidiary Bank of the
West (the "Bank"). All significant intercompany balances and transactions have
been eliminated in consolidation. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary for a fair
presentation are reflected in the consolidated financial statements.
Reclassifications:
Certain amounts in the consolidated financial statements for 1997 have
been reclassified to conform with the 1998 presentation. Such reclassifications
had no effect on the consolidated net income as previously reported.
2. ACCOUNTING CHANGES
The provisions of Statement of Financial Accounting Standards ("SFAS")
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," that were deferred by SFAS No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No. 125 - An
Amendment of FASB Statement No. 125," became effective as to repurchase
agreements, dollar rolls, securities lending and certain other transactions
after December 31, 1997. The Company requires delivery of collateral or other
security as a condition to entering into repurchase or reverse-repurchase
transactions.
SFAS No. 130, "Reporting Comprehensive Income," is effective for fiscal
years beginning after December 15, 1997. SFAS No. 130 establishes presentation
and disclosure requirements for comprehensive income; however, it does not
affect existing recognition or measurement standards. For the Company,
comprehensive income consists of net income and the change in unrealized gains
and losses on available-for-sale securities. Comprehensive income was
$54,505,000 and $46,745,000 for the nine months ended September 30, 1998 and
1997, respectively.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for fiscal years beginning after December 15, 1997.
SFAS No. 131 establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 does
not affect existing recognition or measurement standards. The provisions of SFAS
No. 131 need not be applied to interim financial statements in the initial year
of its application. Accordingly, such disclosures have not been presented
herein.
In February 1998, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," which standardized the disclosure requirements for
pensions and other post-retirement benefits. The Company plans to implement SFAS
No. 132 (which does not impact existing measurement or recognition standards) in
its consolidated financial statements for the year ending December 31, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133
requires the recognition of all derivative instruments as either assets or
liabilities in the statement of financial position and measurement of those
derivative instruments at fair value. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The adoption of this
standard is not expected to have a material effect on the Company's consolidated
financial statements.
Selected information - substantially all disclosures required by generally
accepted accounting principles are not included.
-4-
5
BANCWEST CORPORATION AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Recently, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise," which amends SFAS No. 65, "Accounting for
Certain Mortgage Backed Securities." SFAS No. 134 is effective for the first
fiscal quarter beginning after December 31, 1998. SFAS No. 134 specifies the
requirements for classification of securities which are retained following
securitization of mortgages previously held for resale. The Company does not
have securitized mortgage loans. Accordingly, management does not expect SFAS
No. 134 to affect the consolidated financial statements of the Company.
3. MERGER AGREEMENT WITH FIRST HAWAIIAN, INC.
On May 28, 1998, the Company signed a definitive agreement to merge
with First Hawaiian, Inc. ("FHI"), parent company of First Hawaiian Bank and
Pacific One Bank, in which FHI will be the surviving corporation. The surviving
corporation will change its name to "BancWest Corporation." All regulatory and
stockholder approvals have been received. The merger was completed on November
1, 1998 and will be accounted for using the purchase method of accounting.
First Hawaiian Bank is the second largest bank in the state of Hawaii,
with 60 branches in Hawaii, two in Guam, one in Saipan, and an offshore branch
in Grand Cayman, British West Indies. Pacific One Bank, which will be merged
into Bank of the West as part of the transaction, is based in Portland, Oregon
and has 38 branches in Oregon, Washington and Idaho.
Selected information - substantially all disclosures required by generally
accepted accounting principles are not included.
-5-
1
EXHIBIT 99.3
BANCWEST CORPORATION (FORMERLY FIRST HAWAIIAN, INC.) AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 1998
--------------------------------------------------------------
FHI & BancWest & Pro Forma Combined
Subsidiaries Subsidiary Adjustments Pro Forma
------------ ------------ ------------ ------------
(Dollars in thousands)
ASSETS:
Interest-bearing deposits in other banks $ 219,721 $ -- $ -- $ 219,721
Federal funds sold and securities purchased under
agreements to resell 195,000 15,000 -- 210,000
Investment securities 663,663 921,907 -- 1,585,570
Loans and leases, net of allowance 6,236,097 4,680,224 -- 10,916,321
Cash and due from banks 270,150 282,834 (14,781)(a) 463,203
(75,000)(a)
Premises and equipment 239,036 35,563 274,599
Core deposit premium 22,463 -- -- 22,463
Goodwill 93,074 58,618 (58,618)(c) 684,474
591,400 (c)
Other assets 245,070 67,949 -- 313,019
------------ ------------ ------------ ------------
Total Assets $ 8,184,274 $ 6,062,095 $ 443,001 $ 14,689,370
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits $ 6,195,852 $ 4,787,713 $ -- $ 10,983,565
Short-term borrowings 624,637 315,800 -- 940,437
Other liabilities 281,718 114,955 40,492 (b) 437,165
Long-term debt 313,485 347,048 -- 660,533
------------ ------------ ------------ ------------
Total Liabilities 7,415,692 5,565,516 40,492 13,021,700
------------ ------------ ------------ ------------
Stockholders' Equity:
Common stock 165,952 8,667 (8,667)(c) 59,005
25,815 (c)
(132,762)(d)
Preferred stock -- 95,000 (75,000)(a) --
(20,000)(c)
Surplus 148,151 228,392 (228,392)(c) 1,141,509
860,596 (c)
132,762 (d)
Retained earnings 510,122 162,209 (40,492)(b) 510,122
(14,781)(a)
(58,618)(c)
(48,318)(c)
Accumulated other comprehensive income 7,394 2,311 (2,311)(c) 7,394
Treasury stock (63,037) -- 12,677 (c) (50,360)
------------ ------------ ------------ ------------
Total Stockholders' Equity 768,582 496,579 402,509 1,667,670
------------ ------------ ------------ ------------
Total Liabilities and Stockholders' Equity $ 8,184,274 $ 6,062,095 $ 443,001 $ 14,689,370
============ ============ ============ ============
See Notes to Unaudited Pro Forma Combined Financial Information
2
BANCWEST CORPORATION (FORMERLY FIRST HAWAIIAN, INC.) AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
Year Ended December 31, 1997
--------------------------------------------------------------------
FHI & BancWest & Pro Forma Combined
Subsidiaries Subsidiary Adjustments Pro Forma
------------ ------------ ------------ --------
(Dollars in thousands, except per share amounts)
STATEMENT OF INCOME:
Total interest income $592,483 $405,522 $ -- $998,005
Total interest expense 258,011 163,022 -- 421,033
-------- -------- ------------ --------
Net interest income 334,472 242,500 -- 576,972
Provision for loan and lease losses 17,211 19,750 -- 36,961
-------- -------- ------------ --------
317,261 222,750 -- 540,011
Total noninterest income 98,513 45,353 -- 143,866
Total noninterest expense 292,210 160,531 27,276 (e) 480,017
-------- -------- ------------ --------
Income before income taxes 123,564 107,572 (27,276) 203,860
Income taxes 39,303 44,714 -- 84,017
-------- -------- ------------ --------
Net income 84,261 62,858 (27,276) 119,843
Preferred stock dividends -- 6,692 (6,692)(f) --
-------- -------- ------------ --------
Net income available to common stockholders $ 84,261 $ 56,166 $ (20,584) $119,843
======== ======== ============ ========
Per common share:
Basic:
Earnings $ 2.66 N/A N/A $ 2.07
Cash earnings(g) 2.86 N/A N/A 2.72
Diluted:
Earnings 2.64 N/A N/A 2.06
Cash earnings(g) 2.85 N/A N/A 2.71
Average shares outstanding:
Basic 31,726 N/A N/A 57,952
Diluted 31,876 N/A N/A 58,102
See Notes to Unaudited Pro Forma Combined Financial Information
3
BANCWEST CORPORATION (FORMERLY FIRST HAWAIIAN, INC.) AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
Nine Months Ended September 30, 1998
--------------------------------------------------------------------
FHI & BancWest & Pro Forma Combined
Subsidiaries Subsidiary Adjustments Pro Forma
------------ ------------ ------------ --------
(Dollars in thousands, except per share amounts)
STATEMENT OF INCOME:
Total interest income $458,890 $325,662 $ -- $784,552
Total interest expense 198,182 130,713 -- 328,895
-------- -------- ----------- --------
Net interest income 260,708 194,949 -- 455,657
Provision for loan and lease losses 18,191 17,750 -- 35,941
-------- -------- ----------- --------
242,517 177,199 -- 419,716
Total noninterest income 82,996 43,008 -- 126,004
Total noninterest expense 223,063 132,059 19,981 (e) 375,103
-------- -------- ----------- --------
Income before income taxes 102,450 88,148 (19,981) 170,617
Income taxes 37,024 35,044 -- 72,068
-------- -------- ----------- --------
Net income 65,426 53,104 (19,981) 98,549
Preferred stock dividends -- 5,016 (5,016)(f) --
-------- -------- ----------- --------
Net income available to common stockholders $ 65,426 $ 48,088 $ (14,965) $ 98,549
======== ======== =========== ========
Per common share:
Basic:
Earnings $ 2.10 N/A N/A $ 1.72
Cash earnings(g) 2.26 N/A N/A 2.21
Diluted:
Earnings 2.09 N/A N/A 1.71
Cash earnings(g) 2.25 N/A N/A 2.21
Average shares outstanding:
Basic 31,154 N/A N/A 57,380
Diluted 31,299 N/A N/A 57,525
See Notes to Unaudited Pro Forma Combined Financial Information
4
BANCWEST CORPORATION (FORMERLY FIRST HAWAIIAN, INC.) AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(a) Purchase of Fixed/Adjustable Rate Noncumulative Preferred Stock Series A,
without par value (the "BancWest Preferred Stock"), of BancWest Corporation
and Subsidiary ("BancWest"), $75 million aggregate liquidation amount and
payment of BancWest Preferred Stock purchase premium of $14.7 million as a
condition to consummation of the Merger.
(b) Adjustment to record liabilities of BancWest at estimated fair values.
Amount consists primarily of unfunded benefit plan obligations and
estimated restructuring liabilities (consisting of employee termination
costs and other costs to exit certain BancWest activities). Adjustment is a
preliminary estimate. The final amount could be materially different from
the preliminary estimate. Any difference between the preliminary estimate
and final amount will directly impact goodwill.
(c) Reflects the merger of First Hawaiian, Inc. and Subsidiaries (the
"Company") and BancWest for approximately $905.7 million:
o Issuance of 25,814,768 shares of Class A Common Stock by the
Company.
o Issuance of 411,049 shares of Common Stock by the Company related
to cancellation of Stock Appreciation Rights for certain BancWest
employees.
o Conversion of Series A Non-Cumulative Preferred Stock, without
par value (the "Bank of the West Preferred Stock"), of Bank of
the West, $20 million aggregate liquidation amount to Class A
Common Stock.
o Elimination of existing goodwill of $58.6 million on the books of
BancWest at September 30, 1998.
o Goodwill of $591.4 million which is the excess of the purchase
price of BancWest over the fair values of identifiable net assets
acquired. A core deposit premium study will be conducted which
will result in reallocating a portion of goodwill to core deposit
premium.
(d) Change in par value of Company's common stock from $5.00 to $1.00.
(e) Amortization of intangibles over estimated weighted average life of 23
years.
(f) Elimination of preferred stock dividend related to purchase of the BancWest
Preferred Stock and conversion of the Bank of the West Preferred Stock into
shares of Class A Common Stock.
(g) Cash earnings per share (which is unaudited) is defined as earnings per
share in accordance with generally accepted accounting principles plus the
after-tax amortization of intangibles that are deducted from regulatory
capital for risk-based capital purposes.
