UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549


FORM 10-K

(Mark One)

 
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DecemberFOR THE FISCAL YEAR ENDED DECEMBER 31, 20012004

OR

 
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from                          to                          FOR THE TRANSITION PERIOD FROMTO:

Commission file number 0-7949


BANCWEST CORPORATION

(Exact name of registrant as specified in its charter)


   
Delaware
99-0156159
(State of incorporation) 99-0156159
(I.R.S. Employer
Identification No.)
 Identification No.)
999 Bishop Street, Honolulu, Hawaii
96813
(Address of principal executive offices) 96813
(Zip Code)

Registrant’s telephone number, including area code: (808) 525-7000


Securities registered pursuant to Section 12(b) of the Act:
9.50% Quarterly Income Preferred Securities
None


Securities registered pursuant to Section 12(g) of the Act:


None



(Title of class)
class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yeso Noo

Yes [X]     No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [N/A]o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yeso Noþ

The aggregate market value of the common stock held by nonaffiliates of the registrant
as of January 31, 2002the last business day of the registrant’s most recently completed second fiscal quarter was $0.$0.

The number of shares outstanding of each of the registrant’s classes of common stock
as of January 31, 2002March 15, 2005 was:

   
Title of Class Number of Shares Outstanding


Class A Common Stock, $0.01 Par Value 56,074,874 Shares106,859,123


DOCUMENTS INCORPORATED BY REFERENCE

Documents Incorporated by Reference
Portions of the following documents are incorporated by reference in this Form 10-K:
None




BancWest Corporation and Subsidiaries

TABLE OF CONTENTS

Page
Business1
Item 1. BusinessGeneral1
Item 2. PropertiesEmployees3
Item 3. Legal ProceedingsMonetary Policy and Economic Conditions3
Competition3
Supervision and Regulation3
Future Legislation7
Foreign Operations7
Operating Segments7
Properties7
Legal Proceedings8
Submission of Matters to a Vote of Security Holders
PART II8
Market for Registrant’s Common Equity and Related Stockholder Matters8
Selected Financial Data9
Management’s Discussion and Analysis of Financial Condition and Results of Operations10
Forward-Looking Statements10
Overview11
Critical Accounting Estimates13
Financial Overview14
Results of Operations15
Net Interest Income15
Noninterest Income19
Noninterest Expense20
Operating Segments21
Securities Available For Sale25
Loans and leases25
Nonperforming Assets and Restructured Loans28
Provision and Allowance for Loan and Lease Losses30
Deposits33
Capital33
Income Taxes33
Off-Balance Sheet Arrangements34
Contractual Obligations35
Liquidity Management35
Credit Management37
Recent Accounting Standards37
Quantitative and Qualitative Disclosures about Market Risk38
Item 8.Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure94
Controls and Procedures94
Part III
Item 11. Executive Compensation
Item 12. Security Ownership Of Certain Beneficial Owners And Management
Item 13. Certain Relationships and Related Transactions; Compensation Committee Interlocks and Insider Participation
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
SIGNATURES
EXHIBIT 3.1
EXHIBIT 3.2
EXHIBIT 12
EXHIBIT 21


Index
   
Page

PART I
Item 1.Business3
Item 2.Properties12
Item 3.Legal Proceedings13
Item 4.Submission of Matters to a Vote of Security Holders13
PART II
Item 5.Market for Registrant’s Common Equity and Related Stockholder Matters13
Item 6.Selected Financial Data14
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations16
Item 7A.Quantitative and Qualitative Disclosures about Market Risk35
Item 8.Financial Statements and Supplementary Data41
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure71
PART III
Directors and Executive Officers of the Registrant7195
Executive Compensation7499
Security Ownership of Certain Beneficial Owners and Management80103
Certain Relationships and Related Transactions80104
PART IVPrincipal Accountant Fees and Services105
Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K82
   
Exhibits and Financial Statement Schedules106
  83109
EXHIBITS  112
GLOSSARY OF FINANCIAL TERMSSignatures92
EXHIBIT 12
EXHIBIT 21
85EXHIBIT 31
EXHIBIT 32

2i


BancWest Corporation and Subsidiaries
PART I

PART I

Item 1. Business

GENERAL

BancWest Corporation

     BancWest Corporation, a Delaware corporation (“BancWest,” the “Corporation,” the “Company”(the “Parent” or “we/our”“BancWest”), is a registered financial holding company under the Gramm-Leach-Bliley Act (the “GLBA”).and is a wholly owned subsidiary of BNP Paribas. As a financial holding company, we arethe Parent is allowed to acquire or invest in the securities of companies in a broad range of financial activities. The Corporation,Parent, through its subsidiaries, operates a general commercial banking business and other businesses related to banking. Its principal assets are its investments in Bank of the West, (“Bank of the West” or “BOW”) a State of California-chartered bank; First Hawaiian Bank (��(“First Hawaiian” or “FHB”), a State of Hawaii-chartered bank; and FHL Lease Holding Company, Inc. (“FHL”), a financial services loan company; BancWest Capital I (“BWE Trust”) andcompany. First Hawaiian Capital I (“FH Trust”), both Delaware business trusts.and FHL are wholly owned subsidiaries of the Parent. At December 31, 2004 BancWest held 87.721% of the outstanding common stock of Bank of the West, First Hawaiian, FHL, BWE Trust and FH Trust are wholly-owned subsidiariesWest. The balance of Bank of the Corporation.West’s common stock is held by BNP Paribas as collateral for debt. See Note 4 (Transactions with Affiliates) to the Consolidated Financial Statements for additional information. In this report BancWest Corporation and subsidiaries is referred to as the “Company,” “we” or “our.” At December 31, 2001,2004, the CorporationCompany had consolidated total assets of $21.6$50.1 billion, total loans and leases of $15.2$32.7 billion, total deposits of $15.3$33.6 billion and total stockholder’s equity of $2$5.7 billion. Based on assets as of December 31, 2001, BancWest Corporation was the 32nd largest bank holding company in the United States.

     On December 20, 2001, Chauchat L.L.C., a Delaware limited liability company (“Merger Sub”November 1, 2004, the Company acquired Community First Bankshares, Inc.(“Community First”), merged (the “BNP Paribas Merger”) with and into BancWest pursuant to an Agreement and Plan of Merger, dated as of May 8, 2001, as amended and restated as of July 19, 2001, by and among BancWest, BNP Paribas, a société anonyme or limited liability banking corporation organized under the laws of the Republic of France (“BNP Paribas”), and Merger Sub (the “Merger Agreement”). Merger Sub was a wholly-owned subsidiary of BNP Paribas.

     At the effective time of the BNP Paribas Merger, all outstanding shares of common stock, par value $1 per share (“Company Common Stock”), of BancWest were cancelled and converted solely into the right to receive $35 per share in cash, without interest thereon.

     Pursuant to the Merger Agreement,for $32.25 for each share of Class ACommunity First’s common stock par value $1 per share, of BancWest owned by BNP Paribas and French American Banking Corporation, a wholly-owned subsidiary of BNP Paribas, remained outstanding as one share of Class A Common Stock and all of the units of Merger Sub were cancelled without any consideration becoming payable therefor. Concurrent with the BNP Paribas Merger, the par value of the Class A common stock was changed to $.01. As a result of the Merger, BancWest became a wholly-owned subsidiary of BNP Paribas.

     In December 2001, BNP Paribas signed a definitive agreement with Tokyo-headquartered UFJBank Ltd. to acquire its wholly-owned subsidiary, United California Bank (“UCB”), forin a cash purchase pricetransaction valued at $1.2 billion. The branches of $2.4 billion. On February 20, 2002, BNP Paribas and the Company received approval from the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) for the acquisition. The transaction closed on March 15, 2002. Following the acquisition, BancWest had $34 billion in assets, 1.5 million customers and more than 350 branches in California, six other Western states, Guam and Saipan. United California Bank branches will become part ofCommunity First were fully merged into Bank of the West.

West in the fourth quarter of 2004. Also on November 1, 2004, the Company acquired USDB Bancorp (“USDB”). The branches of USDB were fully merged into Bank of the West in January 2005.

Bank of the West

     Bank of the West is a State of California-chartered bank that is not a member of the Federal Reserve System. The deposits of Bank of the West are insured by the Bank Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“SAIF”) of the Federal Deposit Insurance Corporation (“FDIC”) to the extent and subject to the limitations set forth in the Federal Deposit Insurance Act (“FDIA”). The predecessor of Bank of the West, “The Farmers“Farmers National Gold Bank,” was chartered as a national banking association in 1874 in San Jose, California.

     On July 1, 1999, SierraWest Bancorp and SierraWest Bank were merged with and into Bank of the West. As a result of the SierraWest merger, 20 SierraWest branches in California and Nevada became branches of Bank of the West.

     In the first quarter of 2001,At December 31, 2004, Bank of the West acquired 23 branches in New Mexico and seven branches in Nevada that were being divested as part ofwas the merger between First Security Corporation and Wells Fargo & Company. These branches became branches of Bank of the West.

     At December 31, 2001, Bank of the West is the fourththird largest commercial bank headquartered in California, with total assets of approximately $13.4$38.8 billion, total loans and leases of $10.1$26.6 billion, total deposits of approximately $9.2$25.1 billion and total stockholder’sstockholders’ equity of $1.8$6.5 billion. Bank of the West conducts a general commercial banking business, providing retail and corporate banking, trust and trustinsurance services to individuals, institutions, businesses and governments through 193480 banking locations (466 full service retail branches and 14 limited service retail offices) and other commercial banking offices located primarily in the San Francisco Bay area and elsewhere in the Northern and Central Valley regions ofArizona, California, and in Oregon, Washington,Colorado, Idaho, Iowa, Minnesota, Nebraska, Nevada, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, Wisconsin and Nevada.Wyoming. Bank of the West also originates indirect automobile loans and leases, recreational

3


Part I(continued)

vehicle loans, recreational marine vessel loans, equipment leases and deeds of trust on single-family residences through a network of manufacturers, dealers, representatives and brokers in all 50 states. Bank of the West’s principal subsidiary is Essex Credit Corporation (“Essex”), is a Connecticut corporation. Essex isBank of the West subsidiary engaged primarily in the business of originating and selling consumer loans on a nationwide basis, such loans being made for the purpose of acquiring or refinancing pleasure boats or recreational vehicles. Essex generally sells the loans that it makes to various banks and other financial institutions, on a servicing released basis. In 2004 Essex began retaining certain types of loans in its own portfolio. Essex has a network of 11 regional direct lending offices located in the following states: California, Connecticut, Florida, Maryland, Massachusetts, New Jersey, New York, Texas and Washington.

Trinity Capital Corporation is a leasing subsidiary that specializes in nationwide vendor leasing programs for manufacturers in specific markets. Bank of the West also offers various insurance products through BW Insurance Agency, Inc., (“BWI”, formerly Community Banking

     The focusFirst Insurance), which was acquired as part of the acquisition of Community First. BWI engages in the sale of property, casualty, life, accident and crop hail insurance. In February 2005, BancWest Investment Services, Inc. (“BWIS”) became a subsidiary of Bank of the West’s community banking strategy is primarily in Northern California, Nevada,West. BWIS was previously a direct subsidiary of BancWest Corporation. BWIS sells mutual funds and annuities to the Pacific Northwest region and New Mexico. The Northern California market region is comprisedgeneral public from branches of the San Francisco Bay area and the Central Valley area of California. The San Francisco Bay area is one of California’s wealthiest regions, and the Central Valley of California is an area which has been experiencing rapid transition from a largely agricultural base to a mix of agricultural and commercial enterprises. The Pacific Northwest region includes Oregon, Washington and Idaho. The SierraWest Merger expanded the region Bank of the West services into Nevada. Theand First Security Corporation branch acquisition expanded our presence to Las Vegas, Nevada and New Mexico.Hawaiian.

     Bank of the West utilizes its branch network as its principal funding source. A key element of Bankhas been a leader in the improvement of the West’s community banking strategy is to seek to distinguish itself as the providersocial and economic health of the “best value”communities in community banking services. To this end,which it operates. The Bank has a long commitment to the development of the West seeks to position itself within its marketshousing for low-to-moderate income people through loans, investment in

1


BancWest Corporation and Subsidiaries
PART I

intermediaries and volunteer participation in such organizations as an alternative to both the higher-priced, smaller “boutique” commercial banksCalifornia Community Reinvestment Corporation, California Environmental Redevelopment Fund and the larger money center commercial banks, which may be perceived as offering lower service and lower prices on a “mass market” basis.Low Income Housing Fund.

     In pursuing the California, Pacific Northwest, Nevada and New Mexico community banking markets, Bank of the West seeks to serve a broad customer base by furnishing a wide range of retail and commercial banking products. Through its branch network, Bank of the West originates a variety of consumer loans, including direct vehicle loans, lines of credit and second mortgages. In addition, Bank of the West originates and holds a small portfolio of first mortgage loans on one-to-four-family residences. Through its commercial banking operations conducted from its branch network, Bank of the West offers a wide range of basic commercial banking products intended to serve the needs of smaller community-based businesses. These loan products include in-branch originations of standardized products for businesses with relatively simple banking and financing needs. More complex and customized commercial banking services are offered through Bank of the West’s regional banking centers, which serve clusters of branches and provide lending, deposit and cash management services to companies operating in the relevant market areas. Bank of the West also provides a number of fee-based products and services such as annuities, insurance and securities brokerage.

Professional Banking, Trust Services

     The Professional Banking and Trust & Investment Services areas within the Community Banking Division provide a wide range of products to targeted markets. The Professional Banking Group, headquartered in San Francisco, serves the banking needs of attorneys, doctors and other working professionals. The Trust & Investment Services Group, headquartered in San Francisco, and with offices in San Jose, Sacramento and Portland, provides a full range of trust services and individual investment management services.

Commercial Banking

     Bank of the West’s Business Banking Division supports commercial lending activities for middle market business customers through 13 regional lending centers located in Northern California, Central California, Oregon, Nevada, New Mexico, Idaho and Washington. Each regional office provides a wide range of loan and deposit services to medium-sized companies with borrowing needs of $500,000 to $25 million. Lending services include receivable and inventory financing, equipment term loans, letters of credit, agricultural loans and trade finance. Other banking services include cash management, insurance products, trust, investment, foreign exchange and various international banking services.

     The Specialty Lending Division seeks to provide focused banking services and products to specifically targeted markets where Bank of the West’s resources, experience and technical expertise give it a competitive advantage. Through operations conducted in this division,     Bank of the West has established itself as the national leader among those commercial banks which are lenders to religious organizations. In addition, leasing operations within Specialty Lending have made Bankset a goal of the West a significant provider of equipment lease

4


Part I(continued)

financing, including both standard and tax-oriented products, to a wide array of clients. To support the cash management needs of both Bank of the West’s corporate banking customers and large private and public deposit relationships maintained with Bank of the West, the Specialty Lending Division operates a Cash Management Group which provides a full range of innovative and relationship-focused cash management services.

     The Real Estate Industries Division, whose primary markets are Northern and Central California, Nevada and Oregon, originates$30 billion in loans, investments, contributions and services construction, short-termto low- and permanent loans to residential developers, commercial buildersmoderate-income individuals, small businesses and investors. The division is particularly activecommunity-based organizations over a 10-year period. Since the announcement of this initiative in financing the construction of detached residential subdivisions. Other construction lending activities include low-income housing, industrial development, apartment, retail and office projects. The division also originates single-family home loans sourced through Bank of the West’s Community Bank branch network.

Consumer Finance

     The Consumer Finance Division targets the production of auto loans and leases in the Western United States, and recreational vehicle and marine loans nationwide, with emphasis on originating credits at the high end of the credit spectrum. The Consumer Finance Division originates recreational vehicle and marine credits on a nationwide basis through sales representatives located throughout the country servicing a network of over 1,900 recreational vehicle and marine dealers and brokers. Essex primarily focuses on the origination and sale of loans in the broker marine market and also originates and sells loans to finance the acquisition of recreational vehicles.

     The division’s auto lending activity is primarily focused in the Western United States. Bank of the West originates loans and leases to finance the purchase of new and used autos, light trucks and vans through a network of more than 2,000 dealers and brokers in California, Nevada, New Mexico, Oregon, Arizona, Washington, Utah and Colorado.

Small Business Administration Lending

     Bank of the West operates in California, Nevada, Oregon, Arizona, Florida, Georgia, Illinois and Tennessee under the Preferred Lender Program of the Small Business Administration (“SBA”), which is headquartered in Washington, D.C. This designation is the highest lender status granted by the SBA.March 2002, Bank of the West has over 18 years of experience and expertise in the generation and sale of SBA guaranteed loans.

Community Reinvestmentcontributed $18 billion.

     Bank of the West provided direct capital investments and grants that totaled more than $34 million to organizations that provide benefits to low-and-moderate-income areas and people in the form of affordable housing and small business opportunity. It also made grants and/or contributions of $550,000 to a variety of qualifying community development organizations, which provide a wide array of benefits and services for low-and-moderate-income areas and people within Bank of the West’s assessment areas.

     In addition, Bank of the West has funded, both on its own and through lender consortia, numerous construction, short-term and permanent loans for affordable housing, economic development and community facilities. Bank of the West is also an active participant in the Federal Home Loan Bank of San Francisco’s Affordable Housing Program. As previously stated, Bank of the West is the nation’s largest bank lender to religious organizations. Most, if not all of these loans are community development loans as they finance facilities for various community services.

First Hawaiian Bank

     First Hawaiian Bank is a State of Hawaii-chartered bank that is not a member of the Federal Reserve System. At December 31, 2004, First Hawaiian was the largest bank in Hawaii in terms of total assets and total deposits. The deposits of First Hawaiian are insured by the BIF and the SAIF of the FDIC to the extent and subject to the limitations set forth in the FDIA. First Hawaiian, the oldest financial institution in Hawaii, was established as Bishop & Co. in 1858 in Honolulu.

     At December 31, 2001,2004, First Hawaiian had total assets of $8.7$10.6 billion, total loans and leases of $5.1$5.5 billion, total deposits of $6.2$7.7 billion and stockholder’s equity of $1.6 billion, making it the largest bank in Hawaii based on domestic deposits from individuals, corporations and partnerships.$2.0 billion.

     First Hawaiian is a full-service bank conducting a general commercial and consumer banking business and offering trust and insurance services to individuals, institutions, businesses and governments.

     On November 9, 2001, First Hawaiian completed its acquisition of Union Bank of California’s network in Guam and Saipan, along with associated loan and deposit accounts.

Retail Community Banking

     First Hawaiian’s Retail Banking Group operates its main banking office in Honolulu, Hawaii, and 55 other banking offices located throughout Hawaii. First Hawaiian also operates twogovernments through 61 branches in Guam and two branches in Saipan.

5


Part I(continued)

     The focus of First Hawaiian’s retail/community banking strategy is primarily in Hawaii, where it has a significant market share — 41% of the domestic bank deposits by individuals, corporations and partnerships in the state. The predominant economic force in Hawaii is tourism, although there have been significant recent efforts to diversify the economy into high-tech and other industries.

     In pursuing the community banking markets in Hawaii, Guam and Saipan, First Hawaiian seeks to serve a broad customer base by furnishing a range of retail and commercial banking products. Through its branch network, First Hawaiian generates first-mortgage loans on residences and a variety of consumer loans, consumer lines of credit and second mortgages. Through commercial banking operations conducted from its branch network, First Hawaiian offers a wide range of banking products intended to serve the needs of smaller, community-based businesses. First Hawaiian also provides a number of fee-based products and services such as annuities and mutual funds, insurance and securities brokerage.Saipan.

     First Hawaiian’s principal funding source is its 60-branch network. Thanks to its significant market share in Hawaii, First Hawaiian already has product or service relationships with a majority of the households in the state. Therefore, a key goal of its retail community banking strategy is to build those relationships by cross-selling additional products and services to existing individual and business customers.

     First Hawaiian’s goal is to become each customer’s primary bank, using core products such as demand deposit (checking) accounts as entry points to generate cross-sales and develop a multi-product relationship with individual and business customers. Toward this goal, employees in First Hawaiian’s branch network focuses on selling bank, trust, investment and insurance products to meet customers’ needs and build on those existing relationships.

     To complement its branch network and serve these customers, First Hawaiian operates a system of automated teller machines, a 24-hour Phone Center in Honolulu and a full-service Internet banking system.

Private Banking Services

     The Private Banking Department within First Hawaiian’s Retail Banking Group provides a wide range of products to high-net-worth individuals.

Lending Activities

     First Hawaiian engages in a broad range of lending activities. The majority of First Hawaiian’s loans are for construction, commercial, and residential real estate. Commercial loans also comprise a major portion of the loan portfolio, with consumer and foreign loans and leases accounting for the balance of the portfolio.

Real Estate Lending — Construction.First Hawaiian provides construction financing for a variety of commercial and residential single-family subdivision and multi-family developments.

Real Estate Lending — Commercial.First Hawaiian provides permanent financing for a variety of commercial developments, such as retail facilities, warehouses and office buildings.

Real Estate Lending — Residential.First Hawaiian makes residential real estate loans, including home equity loans, to enable borrowers to purchase, refinance or improve residential real property. The loans are collateralized by mortgage liens on the related property, substantially all located in Hawaii.

Commercial Lending.First Hawaiian is a major lender to small- and medium-sized businesses in Hawaii and Guam. Lending services include receivable and inventory financing, equipment term loans, letters of credit, dealer vehicle flooring financing and trade financing. Other banking services include insurance products, trust, investment, foreign exchange and various international banking services. To support the cash management needs of both commercial banking customers and large private and public deposit relationships maintained with the bank, First Hawaiian operates a Cash Management Department which provides a full range of innovative and relationship-focused cash management services.

Syndicated and Media Lending.First Hawaiian, through its Wholesale Loan Group, participates in syndicated lending to primarily large corporate entities on the Mainland United States. The Wholesale Loan Group also participates in syndicated lending to the media and telecommunications industries located in the Mainland United States, a targeted specialty market where First Hawaiian’s resources, experience and technical expertise give it a competitive advantage.

Consumer Lending.First Hawaiian offers many types of loans and credits to consumers, including lines of credit (uncollateralized or collateralized) and various types of personal and automobile loans. First Hawaiian also provides indirect consumer automobile financing on new and used autos by purchasing finance contracts from dealers. First Hawaiian’s Dealer Center is the largest commercial bank automobile lender in the state of Hawaii. First Hawaiian is the largest issuer of MasterCard® credit cards and VISA® credit cards in Hawaii.

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Part I(continued)

International Banking Services

     First Hawaiian maintains an International Banking Division which provides international banking products and services through First Hawaiian’s branch system, its international banking headquarters in Honolulu, a Grand Cayman branch, two Guam branches, two branches in Saipan and a representative office in Tokyo, Japan. First Hawaiian maintains a network of correspondent banking relationships throughout the world.

     First Hawaiian’s international banking activities are primarily trade-related and are concentrated in the Asia-Pacific area.

Trust and Investment Services

     First Hawaiian’s Financial Management Group offers a full range of trust and investment management services, and also seeks to reinforce customer relationships developed by or in conjunction with the Retail Banking Group. The Financial Management Group provides asset management, advisory and administrative services for estates, trusts and individuals. It also acts as trustee and custodian of retirement and other employee benefit plans. At December 31, 2001, the Trust and Investments Division had over 5,000 accounts with a market value of $9.6 billion. Of this total, $7.0 billion represented assets in nonmanaged accounts and $2.6 billion were managed assets.

     The Trust and Investments Division maintains custodial accounts pursuant to which it acts as agent for customers in rendering a variety of services, including dividend and interest collection, collection under installment obligations and rent collection.

Securities and Insurance Services

     First Hawaiian, through a wholly-owned subsidiary, First Hawaiian Insurance, Inc., provides personal, business and estate insurance to its customers. First Hawaiian Insurance offers insurance needs analysis for individuals, families and businesses, as well as life, disability and long-term care insurance products. In association with an independent registered broker-dealer, First Hawaiian offers mutual funds, annuities and other securities in its branches.

Other Subsidiaries

     First Hawaiian also conducts business through the following wholly-owned subsidiaries:subsidiaries include:

 Bishop Street Capital Management Corporation,a registered investment adviser whichthat serves the institutional and high net worth investment markets primarily in Hawaii and the Western United States. It is also the advisor to the Bishop Street Funds mutual fund family.
 
 FH Center,First Hawaiian Insurance, Inc.,which owns certain real property in connection with First Hawaiian Center, the Company’s headquarters.an insurance agency, and
 
 FHB Properties, Inc.,which holds title to certain property and premises used by First Hawaiian.
First Hawaiian Leasing, Inc.,which engages in commercial equipment and vehicle leasing.
Real Estate Delivery, Inc.,which holds title to certain real property acquired by First Hawaiian in business activities.

FHL Lease Holding Company, Inc.

     FHL primarily finances and leases personal and real property, including equipment and vehicles. FHL is in a run-off mode and all new leveraged and direct financing leases are recorded by First Hawaiian Leasing, Inc. At December 31, 2001, FHL’s net investment in leases amounted to $57 million and total assets were $59 million.

BancWest Capital I

     BWE Trust is a Delaware business trust which was formed in November 2000. BWE Trust exchanged $150 million of its BancWest Capital I Quarterly Income Preferred Securities (the “BWE Capital Securities”), as well as all outstanding common securities of BWE Trust, for 9.5% junior subordinated deferrable interest debentures of the Corporation. The Corporation sold to the public $150 million of BWE Capital Securities. The BWE Capital Securities qualify as Tier 1 capital of the Corporation and are solely, fully and unconditionally guaranteed by the Corporation. All of the common securities of the BWE Trust are owned by the Corporation.

     At December 31, 2001, the BWE Trust’s total assets were $155.9 million, comprised primarily of the Corporation’s junior subordinated debentures.

First Hawaiian Capital I

     FH Trust is a Delaware business trust which was formed in 1997. FH Trust issued $100 million of its Capital Securities (the “FH Capital Securities”) and used the proceeds therefrom to purchase junior subordinated deferrable interest debentures of the Corporation. The FH Capital Securities qualify as Tier 1 capital of the Corporation and are solely, fully and unconditionally guaranteed by the Corporation. All of the common securities of the FH Trust are owned by the Corporation.

     At December 31, 2001, the FH Trust’s total assets were $107.4 million, comprised primarily of the Corporation’s junior subordinated debentures.

Hawaii Community Reinvestment Corporation

     In an effort to     To support affordable housing and as part of First Hawaiian’sits community reinvestment program, First Hawaiian is a member of the Hawaii Community Reinvestment Corporation (the “HCRC”(“HCRC”). The HCRC is, a nonprofit consortium of localHawaii financial institutions that provides $50 million in permanent long-term financ-

7


Part I(continued)

ingfinancing for affordable housing rental projects throughout Hawaii for low- and moderate-income residents.

The $50 million loan pool is funded by the member financial institutions, which participate pro rata (based on deposit size) in each HCRC loan. First Hawaiian’s participation in these HCRC loans is included in its loan portfolio.

Hawaii Investors for Affordable Housing, Inc.

     To further enhance First Hawaiian’s community reinvestment program and provide support for the development of additional affordable-housing rental units in Hawaii, First Hawaiian and other HCRC member institutions have subscribed toto: (i) a $19.7-million-tax credit equity fund (“Hawaii Affordable Housing Fund I”) and a $20$20.0 million tax-credit equity fund (“Hawaii Affordable Housing Fund II”). Efforts are now underway to create, (ii) a third$12.5 million tax-credit equity fund to continue the support of additional affordable housing projects.(“Hawaii Affordable Housing Fund III”), and (iii) a $15.15 million tax-credit equity fund (“Hawaii Equity Fund IV, LLC (Class A)”). In addition, a subscription in a $35.9 million tax-credit equity fund (“Hawaii Equity Fund IV, LLC (Class B)”) is being finalized.

     Hawaii Affordable Housing Fund I andII, Hawaii Affordable Housing Fund IIIII, and Hawaii Equity Fund IV, LLC (Class A) (the “Funds”) have been established to invest in qualified low-income housing tax credit rental projects and to ensure that these projects are maintained as low-income housing throughout the required compliance period. First Hawaiian’s investments in these Funds are included in other assets. The investment in projects associated with the Affordable Housing Fund I was sold in 2003.

EmployeesFHL Lease Holding Company, Inc. (“FHL”)

     FHL, a direct subsidiary of BancWest, primarily finances and leases personal and real property, including equipment and vehicles. FHL is in a run-off mode and has ceased entering into new leases. At December 31, 2004, FHL’s net investment in leases amounted to $34.7 million and its total assets were $35.6 million.

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BancWest Corporation and Subsidiaries
PART I

EMPLOYEES

     At December 31, 2001,2004, the Corporation had 5,4679,829 full-time equivalent employees. Bank of the West and First Hawaiian employed 3,230Bank had 8,049 and 2,237 persons,2,227 employees, including part-time employees, respectively. None of our employees are represented by any collective bargaining agreements and our relations with employees are considered excellent.

Monetary Policy and Economic ConditionsMONETARY POLICY AND ECONOMIC CONDITIONS

     Our earnings and businesses are affected not only by general economic conditions (both domestic and international), but also by the monetary policies of various governmental regulatory authorities of (i) the United States and foreign governments and (ii) international agencies. In particular, our earnings and growth may be affected by actions of the Federal Reserve Board in connection with its implementation of national monetary policy through its open market operations in United States Government securities, control of the discount rate and establishment of reserve requirements against both member and non-member financial institutions’ deposits. These actions may have a significant effect on the overall growth and distribution of loans and leases, investments and deposits, as well as on the rates earned on investment securities, loans and leases or paid on deposits. It is difficult to predict future changes in monetary policies.

CompetitionCOMPETITION

     Competition in the financial services industry is intense. We compete with a large number of commercial banks (including domestic, foreign and foreign-affiliated banks), savings institutions, finance companies, leasing companies, credit unions and other entities that provide financial services such as mutual funds, insurance companies and brokerage firms.brokerage. Many of these competitors are significantly larger and have greater financial resources than the Corporation.resources. In addition, the increasing use of the Internet and other electronic distribution channels has resulted in increased competition with respect to many of the products and services that we offer. As a result, we compete with financial service providers located not only in our home markets but also those elsewhere in the United States that are able to offer their products and services through electronic and other non-conventional distribution channels.

     Changes in federal law over the past several years have also made it easier for out-of-state banks to enter and compete in the states in which our bank subsidiaries operate. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”), among other things, eliminated substantially all state law barriers to the acquisition of banks by out-of-state bank holding companies. A bank holding company may now acquire banks in states other than its home state, without regard to the permissibility of such acquisitions under state law, but subject to any state requirement that the acquired bank has been organized and operating for a minimum period of time (not to exceed five years), and the requirement that the acquiring bank holding company, prior to or following the proposed acquisition, controls no more than 10 percent of the total amount of deposits of insured depository institutions in the United States and no more than 30 percent of such deposits in that state (or such lesser or greater amount as may be established by state law).

     The Riegle-Neal Act also permits interstate branching by banks in all states other than those which have “opted out.” Since June 1, 1997, the Riegle-Neal Act has allowed banks to acquire branches located in another state by purchasing or merging with a bank chartered in that state or a national banking association having its headquarters located in that state. However, banks are not permitted to establishde novobranches or purchase individual branches located in other states unless expressly permitted by the laws of those other states. None of the states in which our banking subsidiaries operate have elected to “opt out” of the provisions of the Riegle-Neal Act permitting interstate branching through acquisition or mergers, although most do not permitde novobranching.

8


Part ISUPERVISION AND REGULATION(continued)

Supervision and Regulation

     As a registered financial holding company, we are subject to regulation and supervision by the Federal Reserve Board. Our subsidiaries are subject to regulation and supervision by the banking authorities of Arizona, California, Colorado, Hawaii, Idaho, Iowa, Minnesota, Nebraska, Nevada, Washington, Oregon, Idaho, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, Wisconsin, Wyoming, Guam and the Commonwealth of the Northern Mariana Islands, as well as by the FDIC (which is the primary federal regulator of our two bank subsidiaries) and various other regulatory agencies.

     The consumer lending and finance activities of the Corporation’sParent’s subsidiaries are also subject to extensive regulation under various Federal laws, including the Truth-in-Lending, Equal Credit Opportunity, Fair Credit Reporting, Fair Debt Collection Practice and Electronic Funds Transfer Acts, as well as various state laws. These statutes impose requirements on the making, enforcement and collection of consumer loans and on the types of disclosures that need to be made in connection with such loans.

     Holding Company Structure.On November 12, 1999, the GLBAGramm-Leach-Bliley Act (“GLBA”) was signed into law. The GLBA permits bank holding companies that qualify for, and elect to be regulated as, financial holding companies, to engage in a wide range of financial activities, including certain activities, such as insurance, merchant banking and real estate investment that are not permissible for other bank holding companies. Each activity is to be conducted in a separate subsidiary that is regulated by a functional regulator: a state insurance regulator in the case of an insurance subsidiary,activities, the Securities and Exchange Commission in the case of a broker-dealer or investment advisory subsidiary,activities, or the appropriate federal banking regulator in the case of a bank or thrift institution. The Federal Reserve Board is the “umbrella” supervisor of financial holding companies. Section 23A of the Federal Reserve Act, which severely restricts lending by an insured bank subsidiary to nonbank affiliates, remains in place.

     Financial holding companies are permitted to acquire nonbank companies without the prior approval of the Federal Reserve Board, but approval of the Federal Reserve Board continues to be required before acquiring more than 5% of the voting shares of another bank or bank holding company, before merging or consolidating with another bank holding company andor before acquiring substantially all the assets of any additional bank.bank or savings association. In addition, all acquisitions are reviewed by the Department of Justice for antitrust considerations. In conjunction with the 2001 BNP Paribas Merger, we elected to become a financial holding corporation.company.

3


BancWest Corporation and Subsidiaries
PART I

     Dividend Restrictions.As a holding company, the principal source of our cash revenue has been dividends and interest received from our bank subsidiaries. Each of the bank subsidiaries is subject to various federal regulatory restrictions relating to the payment of dividends. For example, if, in the opinion of the FDIC, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which depending on the financial condition of the bank, could include the payment of dividends), the FDIC may require, after notice and hearing, that such bank cease and desist from such practice. In addition, the Federal Reserve Board has issued a policy statement which provides that, as a general matter, insured banks and bank holding companies should only pay dividends out of current operating earnings. The regulatory capital requirements of the Federal Reserve Board and the FDIC also may limit the ability of the Corporation and its insured depository subsidiaries to pay dividends. See “Prompt Corrective Action” and “Capital Requirements” below.

     There are also statutory limits on the transfer of funds to the Corporation and its nonbanking subsidiaries by its banking subsidiaries, whether in the form of loans or other extensions of credit, investments or asset purchases. Such transfers by a bank subsidiary to any single affiliate are limited in amount to 10% of the bank’s capital and surplus, or 20% in the aggregate to all affiliates. Furthermore, such loans and extensions of credit are required to be collateralized in specified amounts.

     Under Federal Reserve Board policy, a bankfinancial holding company is expected to act as a source of financial strength to each subsidiary bank and to make capital infusions into a troubled subsidiary bank. The Federal Reserve Board may charge a bankfinancial holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank. This capital infusion may be required at times when a bankfinancial holding company may not have the resources to provide it. Any capital loansloan by us to one of our subsidiary banks would be subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank.

     In addition, depository institutions insured by the FDIC can be held liable for any losses incurred, or reasonably expected to be incurred, by the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. “Default” is defined generally as the appointment of a conservator or receiver and “in danger of default” is

9


Part I(continued)

defined generally as the existence of certain conditions indicating that a “default” is likely to occur in the absence of regulatory assistance. Accordingly, in the event that any insured subsidiary of the Corporation causes a loss to the FDIC, other insured subsidiaries of the Corporation could be required to compensate the FDIC by reimbursing it for the amount of such loss. Any such obligation by our insured subsidiaries to reimburse the FDIC would rank senior to their obligations, if any, to the Corporation.

     Prompt Corrective Action.Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), the federal banking agencies are required to take “prompt corrective action” with respect to insured depository institutions that do not meet minimum capital requirements. FDICIA established a five-tier framework for measuring the capital adequacy of insured depository institutions (including Bank of the West and First Hawaiian)Hawaiian Bank), with each depository institution being classified into one of the following categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.”

     Under the regulations adopted by the federal banking agencies to implement these provisions of FDICIA (commonly referred to as the “prompt corrective action” rules), a depository institution is “well capitalized” if it has (i) a total risk-based capital ratio of 10% or greater, (ii) a Tier 1 risk-based capital ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv) is not subject to any written agreement, order or directive to meet and maintain a specific capital level for any capital measure. An “adequately capitalized” depository institution is defined as one that has (i) a total risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater and (iii) a leverage ratio of 4% or greater (or 3% or greater in the case of a bank rated a composite 1 under the Uniform Financial Institution Rating System, “CAMELS rating,” established by the Federal Financial Institution Examinations Council). A depository institution is considered (i) “undercapitalized” if it has (A) a total risk-based capital ratio of less than 8%, (B) a Tier 1 risk-based capital ratio of less than 4% or (C) a leverage ratio of less than 4% (or 3% in the case of an institution with a CAMELS rating of 1), (ii) “significantly undercapitalized” if it has (A) a total risk-based capital ratio of less than 6%, (B) a Tier 1 risk-based capital ratio of less than 3% or (C) a leverage ratio of less than 3% and (iii) “critically undercapitalized” if it has a ratio of tangible equity to total assets equal to or less than 2%. An institution may be deemed by the regulators to be in a capitalization category that is lower than is indicated by its actual capital position if, among other things, it receives an unsatisfactory examination rating. At December 31, 2001,2004, all of the Corporation’s subsidiary depository institutions were “well capitalized.”

     FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a cash dividend) or paying any management fees to its holding company if the depository institution is, or would thereafter be, undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic

4


BancWest Corporation and Subsidiaries
PART I

assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company under such guarantee is limited to the lesser of (i) an amount equal to 5% of the depository institution’s total assets at the time it became undercapitalized, or (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized.

     Significantly undercapitalized depository institutions may be subject to a number of other requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions may not make any payments of interest or principal on their subordinated debt and are subject to the appointment of a conservator or receiver, generally within 90 days of the date such institution becomes critically undercapitalized. In addition, the FDIC has adopted regulations under FDICIA prohibiting an insured depository institution from accepting brokered deposits (as defined by the regulations) unless the institution is “well capitalized” or is “adequately capitalized” and receives a waiver from the FDIC.

     FDIC Insurance Assessments.The FDIC has implemented a risk-based deposit insurance assessment system under which the assessment rate for an insured institution may vary according to the regulatory capital levels of the institution and other factors (including supervisory evaluations). Depository institutions insured

10


Part I(continued)

by the BIF which are ranked in the least risky category currently have no annual assessment for deposit insurance while all other banks are required to pay premiums ranging from .03%3 to .27%27 basis points of domestic deposits. As a result of the enactment on September 30, 1996 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (the “Deposit(“the Deposit Funds Act”), the deposit insurance premium assessment rates for depository institutions insured by the SAIF were reduced, effective January 1, 1997, to the same rates that were applied to depository institutions insured by the BIF. The Deposit Funds Act also provided for a one-time assessment of 65.7 basis points on all SAIF-insured deposits in order to fully recapitalize the SAIF (which assessment was paid by the Corporation in 1996), and imposes annual assessments on all depository institutions to pay interest on bonds issued by the Financing Corporation (the “FICO”) in connection with the resolution of savings association insolvencies occurring prior to 1991. The FICO assessment rate for the first quarter of 20022005 was 1.81.44 basis points.points annualized. These rate schedules are adjusted quarterly by the FDIC. In addition, the FDIC has authority to impose special assessments from time to time, subject to certain limitations specified in the Deposit Funds Act.

     Capital Requirements.Under the GLBA, our insured depository institutions are subject to regulatory capital guidelines issued by the federal banking agencies. Information with respect to the applicable capital requirements is included in Note 1316, Regulatory Capital Requirements, on pages 59 and 60.Requirements.

     FDICIA required each federal banking agency to revise its risk-based capital standards to ensure that those standards take adequate account of interest rate risk, concentration of credit risk and the risk of nontraditional activities, as well as reflect the actual performance and expected risk of loss on multi-family mortgages. The federal banking agencies have adopted amendments to their respective risk-based capital requirements that explicitly identify concentrations of credit risk and certain risks arising from nontraditional activities, and the management of such risks, as important factors to consider in assessing an institution’s overall capital adequacy. The amendments do not, however, mandate any specific adjustments to the risk-based capital calculations as a result of such factors.

     In August 1996, the federal banking regulators adopted amendments to their risk-based capital rules to incorporate a measure for market risk in foreign exchange and commodity activities and in the trading of debt and equity instruments. Under these amendments, which became effective in 1997, banking institutions with relatively large trading activities are required to calculate their capital charges for market risk using their own internal value-at-risk models (subject to parameters set by the regulators) or, alternatively, risk management techniques developed by the regulators. As a result, these institutions are required to hold capital based on the measure of their market risk exposure in addition to existing capital requirements for credit risk. These institutions are able to satisfy this additional requirement, in part, by issuing short-term subordinated debt that qualifies as Tier 3 capital. The adoption of these amendments did not have a material effect on the Corporation’s business or operations.

     On November 29, 2001, the federal bank regulatory agencies published a final regulation that addresses the capital treatment of recourse arrangements, direct credit substitutes and residual interests. “Recourse” means any retained credit risk associated with any asset transferred by a banking organization that exceeds a pro rata share of the banking organization’s remaining claim on the asset, if any. “Direct credit substitute” means any assumed credit risk associated with any asset or other claim not previously owned by a banking organization that exceeds the banking organization’s pro rata share of the asset or claim, if any. “Residual interest” means any on-balanceon-

5


BancWest Corporation and Subsidiaries
PART I

balance sheet asset that representrepresents interests retained by a banking organization after a transfer of financial assets that qualifies as a sale for purposes of generally accepted accounting principles, which interests are structured to absorb more than a pro rata share of credit loss relating to the transferred assets. “Residual interests” do not include interests purchased from a third party, except for credit-enhancing interest-only strips (credit-enhancing I/O strips).

     The new regulation assesses risk-based capital requirements on recourse obligations, residual interests (except credit-enhancing I/O strips), direct credit substitutes, and senior and subordinated securities in asset securitizations based on ratings assigned by nationally recognized statistical rating agencies. The risk weights range from 20% for a position that is rated AA or better, to 200% for a position that is rated BB. A banking organization that holds a recourse obligation or a direct credit substitute (other than a residual interest) that does not qualify for the ratings-based approach is required by the new regulation to maintain capital against that position and all senior positions in the securitization, but is not required to hold more capital than if assets had not been transferred. A banking organization that holds a residual interest that does not qualify for the ratings-based approach is required to hold capital on a dollar-for-dollar basis against the position and all senior positions, even if

11


Part I(continued)

the capital charge exceeds the full risk-based capital charge that would have been held against the transferred assets.

     The new regulation limits credit-enhancing I/O strips, whether retained or purchased, to 25% of Tier 1 capital, with any excess amount to be deducted from Tier 1 capital and from assets. (The deducted amount is not subject to the dollar-for-dollar capital charge discussed above.) Credit-enhancing I/O strips are not aggregated with non-mortgage servicing assets and purchased credit card relationships for purposes of calculating the 25% limit. The new regulation became effective on January 1, 2002 for transactions settled on or after that date and becomesbecame effective December 31, 2002 for all other transactions. The Corporation doesregulation did not believe the new regulation will have a material effect on itsthe Corporation’s operations or financial position.

     On January 16, 2001,The U.S. federal bank regulatory agencies’ risk-based capital guidelines are based upon the 1988 capital accord of the Basel Committee on Banking Supervision (the “Committee”“Basel Committee”) proposed. The Basel Committee is a committee of central banks and bank supervisors from the major industrialized countries that develops broad policy guidelines that each country’s supervisors can use to determine the supervisory policies they apply. The Basel Committee released a proposal to replace the 1988 capital accord with a new capital adequacy frameworkaccord titled “Basel II.” The goal for Basel II is to replacepromote the framework adoptedadequate capitalization of banks and to encourage improvements in 1988. Underrisk management. The Basel Committee believes the new framework, risk weights for certain typesstandards are necessary due to the adoption of claims, including corporate credits, would be based on ratings assigned by rating agencies. Certain low quality exposures would be assigned a risk weight greater than 100%. Short-term commitments to lend, which currently do not require capital, would be subject to a 20% conversion factor. In addition to this “standardized” approach, banks with more advanced risk management capabilities, which can meet rigorous supervisory standards, can makemeasurement techniques and the use of an internal ratings-based approach under which some of the key elements of creditsophisticated risk such as the probability of default,management practices. Basel II will be estimated internally by a bank.accomplished through the introduction of three pillars that reinforce each other, while creating incentives for banks to enhance the quality of their control processes. The Committee also proposesthree pillars are as follows: (1) minimum capital charges for operational risk.requirements (2) supervisory oversight and (3) heightened market discipline. The Committee indicatedUnited States bank regulatory agencies recently stated that it intends to finalize the proposed new capital adequacy requirement by the end of 2001, with implementation in 2005. If adopted by the Committee,they anticipate that the new accord would then bebecome effective in the subjectUnited States in January 2008. The new capital requirements could increase minimum capital requirements applicable to the Company.

     In order for us to remain a financial holding company, Bank of rulemakingthe West and First Hawaiian Bank (as well as each foreign bank that is controlled by BNP Paribas and that has a branch, agency or bank subsidiary in the United States) must remain “well capitalized” and “well managed.” In the case of Bank of the West and First Hawaiian Bank, “well capitalized” has the same meaning as under the “prompt corrective action” guidelines described above and “well managed” means that at their most recent examination the banks received at least a satisfactory composite rating and at least a satisfactory rating for management.

The USA PATRIOT Act.On October 26, 2001, President Bush signed into law the USA PATRIOT Act of 2001 (the “Act”). The Act includes numerous provisions designed to fight international money laundering and to block terrorist access to the U.S. bank regulatory agencies. Because the timing and final contentfinancial system. The provisions of the proposal are not yet clear,Act generally affect banking institutions, broker-dealers and certain other financial institutions, and require all “financial institutions,” as defined in the Corporation cannot predict at this timeAct, to establish anti-money laundering compliance and due diligence programs. The Act also grants the potential effect thatSecretary of the adoption of such a proposal will have on its regulatory capitalTreasury broad authority to establish regulations and to impose requirements and financial position.restrictions on subsidiary operations. We believe the Corporation’s programs satisfy the requirements of the Act.

     Real Estate Activities.The FDIC adopted regulations, effective January 1, 1999, that make it significantly easier for state non-member banks to engage in a variety of real estate investment activities. These regulations generally allow a majority-owned corporate subsidiary of a state non-member bank to make equity investments in real estate if the bank complies with certain investment and transaction limits and satisfies certain capital requirements (after giving effect to its investment in the majority-owned subsidiary). In addition, the regulations permit a subsidiary of an insured state non-member bank to act as a lessor under a real property lease that is the equivalent of a financing transaction, meets certain criteria applicable to the lease and the underlying real estate and does not represent a significant risk to the deposit insurance funds.

Future Legislation6


BancWest Corporation and Subsidiaries
PART I

FUTURE LEGISLATION

     Legislation relating to banking and other financial services has been introduced from time to time in Congress and is likely to be introduced in the future. If enacted, such legislation could significantly change the competitive environment in which we and our subsidiaries operate. Management cannot predict whether these or any other proposals will be enacted or the ultimate impact of any such legislation on our competitive situation, financial condition or results of operations.

Foreign OperationsFOREIGN OPERATIONS

     Foreign outstandings are defined as the balances outstanding of cross-border loans, acceptances, interest-bearing deposits with other banks, other interest-bearing investments and any other monetary assets. At December 31, 2001, 20002004, 2003 and 1999,2002, we had no foreign outstandings to any country which exceeded 1% of total assets. Additional information concerning foreign operations is also included in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 20 International Operations, on pages 65 and 66.

Operating SegmentsOPERATING SEGMENTS

     Information regarding the Corporation’s operating segments is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 19 Operating Segments,20 (Operating Segments) to the Consolidated Financial Statements.

     We make available free of charge on pages 20our website (www.bancwestcorp.com) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and 64amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act. These reports are posted on our website as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the Securities and 65, respectively.

Exchange Commission.

Item 2. Properties

     Bank of the West leases a site in Walnut Creek, California, which is its primary administrative headquarters. The administrative headquarters office is a 132,000-square-foot,133,000-square-foot, three-story building. Bank of the West also leases 48,382approximately 64,000 square feet of executive office space in downtown San Francisco in the same building that houses its San Francisco Main Branch at 180 Montgomery Street. See Note 21 Lease Commitments (page 66). Approximately 30,396

     Through the acquisition of Community First Bankshares, Inc., Bank of the West acquired two large facilities in Fargo, North Dakota. One office is located at 520 Main Avenue, consists of approximately 105,000 square feet, of leasedand is currently utilized as a branch, regional headquarters for our Midwest operations and space at 180 Montgomery Streetfor sublease. The second office is subleased to BNP Paribas.approximately 47,000 square feet and is used as a data center.

     As of December 31, 2001, 662004, 236 of Bank of the West’s active branches arewere located on land owned by Bank of the West. The remaining 127214 active branches arewere located on leasehold properties. Bank of the West also has 12

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Part I(continued)

14 surplus branch properties, 11seven of which are currently leasedsubleased to others. In addition, Bank of the West leases 2541 properties that are utilized for administrative (including warehouses), lease support, management information systems and regional management services. See Note 21 Lease Commitments (page 66).purposes.

     First Hawaiian indirectly (through two subsidiaries) owns allIn addition, through the acquisition of a city block in downtown Honolulu.USDB Bancorp (USDB), we acquired 19 branches and four administrative facilities. In January 2005, when USDB was merged into Bank of the West, three branches and three administrative facilities were closed.

     The administrative headquarters of theBancWest Corporation and First Hawaiian, as well as the First Hawaiian main branch, of First Hawaiian are located in a modern banking center situated on thisa city block. The headquarters building includes 418,000 square feet of gross office space. Information about the lease financing of the headquarters building is includedblock in Note 21 Lease Commitments (page 66).

     As of December 31, 2001, 19 of First Hawaiian’s offices in Hawaii are located on landdowntown Honolulu owned in fee simple by First Hawaiian. The other branches ofThat headquarters building, First Hawaiian in Hawaii and one branch each in Guam and Saipan are situated on leasehold premises or in buildings constructed on leased land. See Note 21 Lease Commitments (page 66). In addition,Center, includes 418,000 square feet of office space. First Hawaiian owns an operations center which is located on 125,919approximately 126,000 square feet of land owned in fee simple by First Hawaiianland in an industrial area near downtown Honolulu. First Hawaiian occupies most of this four-story building.

On Guam, First Hawaiian owns a five-story, 75,000-square-foot office building, including a branch, which is situated on propertyfee simple property.

     As of December 31, 2004, 21 of First Hawaiian Bank offices in Hawaii and in Guam are located on land owned in fee simple by First Hawaiian. It had 40 branches in Maite,Hawaii, in Guam where it maintains a branch.and in Saipan situated on leasehold premises or in buildings constructed on leased land.

     See Note 10 (Premises and Equipment) to the Consolidated Financial Statements for further information.

7


Item 3. Legal Proceedings

BancWest Corporation and Subsidiaries
PART I

     The information required by this Item is set forth in Note 2221 (Litigation) to the Consolidated Financial Statements on page 67 of this Form 10-K, and is incorporated herein by reference.

Statements.

Item 4. Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2001.2004.

PART II

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

     BancWest is a wholly-ownedwholly owned subsidiary of BNP Paribas and there is no public trading market for BancWest’s common equity. BancWest has no compensation plans that provide for issuance of its equity securities.

     State regulations place restrictions on the ability of our bank subsidiaries to pay dividends. Under Hawaii law, First Hawaiian Bank is prohibited from declaring or paying any dividends in excess of its retained earnings. California law generally prohibits Bank of the West from paying cash dividends to the extent such payments exceed the lesser of retained earnings and net income for the three most recent fiscal years (less any distributions to stockholders during such three-year period). At December 31, 2001,2004, the aggregate amount of dividends that such subsidiaries could pay to the CorporationParent under the foregoing limitations without prior regulatory approval was $10.5$823.2 million.

     Here are     During the years ended December 31, 2004, 2003 and 2002, no quarterly andor annual cash dividends were paid per share data, computed usingon the common stock and Class A common shares and restated for the effects of a two-for-one stock split:

      
   Cash
   Dividends
   Paid
   
2001
    
First Quarter
 $.19 
Second Quarter
  .19 
Third Quarter
  .19 
Fourth Quarter
  .23 
   
 
 
Annual
 $.80 
   
 
2000    
First Quarter $.17 
Second Quarter  .17 
Third Quarter  .17 
Fourth Quarter  .17 
   
 
 Annual $.68 
   
 
1999 $.62 
1998 $.58 
1997 $.58 
   
 
stock.

On July 1, 1999, we acquired SierraWest Bancorp. That merger was accounted for as a pooling of interests. Therefore, all financial information has been restated for all periods presented.8

     As we no longer have outstanding shares of common stock, future dividends will be paid only on Class A common shares. The declaration and payment of cash dividends are subject to future earnings, capital requirements, financial condition and certain limitations as described in Note 14 to the Consolidated Financial Statements on page 60.

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BancWest Corporation and Subsidiaries
PART II

Part II(continued)

Item 6. Selected Financial Data

                     
  Year Ended December 31, 
  2004  2003  2002  2001  2000 
   
Earnings:
                    
(dollars in thousands)                    
Interest income $1,795,163  $1,678,790  $1,656,185  $1,323,649  $1,309,856 
Interest expense  442,825   385,207   465,330   507,135   562,922 
                
Net interest income  1,352,338   1,293,583   1,190,855   816,514   746,934 
Provision for loan and lease losses  49,219   81,295   95,356   103,050   60,428 
Noninterest income  431,500   392,179   335,901   308,398   216,076 
Noninterest expense  962,549   892,835   836,074   595,746   533,961 
                
Income before income taxes and cumulative effect of accounting change  772,070   711,632   595,326   426,116   368,621 
Provision for income taxes  298,693   272,698   233,994   171,312   152,227 
                
Income before cumulative effect of accounting change  473,377   438,934   361,332   254,804   216,394 
Cumulative effect of accounting change, net of tax(1)
     2,370          
                
Net income
 $473,377  $436,564  $361,332  $254,804  $216,394 
                
Cash dividends
 $  $  $  $99,772  $84,731 
                
Balance Sheet Data Averages:
                    
(dollars in millions)                    
Average assets $41,307  $35,898  $31,370  $19,461  $17,600 
Average securities available for sale at cost  6,324   4,737   3,154   2,267   2,089 
Average loans and leases(2)
  27,752   24,756   22,340   14,586   13,286 
Average deposits  28,454   24,911   22,300   14,550   13,380 
Average long-term debt and capital securities  4,988   3,880   2,541   1,074   817 
Average stockholder’s equity  4,631   4,063   3,441   2,079   1,903 
Balance Sheet Data At Year End:
                    
(dollars in millions)                    
Assets $50,054  $38,352  $34,749  $21,647  $18,457 
Securities available for sale  7,955   5,773   3,941   2,542   1,961 
Loans and leases(2)
  32,760   25,773   24,231   15,224   13,972 
Deposits  33,614   26,403   24,557   15,334   14,128 
Long-term debt and capital securities  6,305   4,221   3,636   2,463   882 
Stockholder’s equity  5,730   4,263   3,867   2,002   1,989 
Selected Financial Ratios For the Year Ended:
                    
Return on average total assets (ROA)  1.15%  1.22%  1.15%  1.31%  1.23%
Return on average stockholder’s equity (ROE)  10.22   10.74   10.50   12.25   11.37 
Net interest margin (taxable-equivalent basis)  3.88   4.31   4.57   4.73   4.75 
Net loans and leases charged off to average loans and leases  0.23   0.30   0.53   0.56   0.37 
Efficiency ratio(3)
  53.96   52.96   54.76   52.96   55.45 
Average equity to average total assets  11.21   11.32   10.97   10.68   10.81 
At year end:
                    
Allowance for loan and lease losses to total loans and leases  1.33   1.52   1.59   1.28   1.24 
Nonperforming assets to total loans and leases and other real estate owned and repossessed personal property  0.45   0.59   1.02   0.79   0.87 
Allowance for loan and lease losses to nonaccruing loans and leases  3.49x  2.93x  1.70x  2.00x  1.84x
Regulatory Capital Ratios:
                    
Leverage Ratio(4):
                    
Bank of the West  9.69%  9.55%  9.17%  7.18%  7.95%
First Hawaiian Bank  10.39   9.91   9.21   8.39   8.99 
Union Safe Deposit Bank(5)
  8.16             
Tier 1 capital (risk-based):                    
Bank of the West  10.57   10.72   9.93   7.85   8.78 
First Hawaiian Bank  13.62   12.85   11.19   9.52   9.19 
Union Safe Deposit Bank(5)
  11.02             
Total capital (risk-based):                    
Bank of the West  12.41   12.94   12.23   10.90   11.72 
First Hawaiian Bank  15.86   15.21   13.56   11.81   11.27 
Union Safe Deposit Bank(5)
  11.83             

     On December 20, 2001, BNP Paribas acquired all of the outstanding common shares of BancWest. As a result of the transaction, BancWest became a wholly-owned subsidiary of BNP Paribas. The business combination was accounted for as a purchase with BNP Paribas’ accounting basis being “pushed down” to BancWest. See Note 2 to the Consolidated Financial Statements for additional information regarding this business combination. It is generally not appropriate to combine pre- and post-“push down” periods; however, for purposes of comparison only, the following tables combine our results of operations from December 20, 2001 through December 31, 2001 with those for the period January 1, 2001 through December 19, 2001. The combined results will generally serve as comparable amounts to the 12-month period ended December 31, 2000 and will be utilized for purposes of providing discussion and analysis of results of operations.

                     
(dollars in thousands) 2001 2000 1999 1998 1997

 
 
 
 
 
Income Statements and Dividends
                    
Interest income $1,323,649  $1,309,856  $1,135,711  $749,541  $651,048 
Interest expense  507,135   562,922   446,877   315,822   281,232 
   
   
   
   
   
 
Net interest income  816,514   746,934   688,834   433,719   369,816 
Provision for credit losses  103,050   60,428   55,262   30,925   20,010 
Noninterest income  308,398   216,076   197,632   134,182   110,550 
Noninterest expense  595,746   533,961   535,075   392,075   322,171 
   
   
   
   
   
 
Income before income taxes  426,116   368,621   296,129   144,901   138,185 
Provision for income taxes  171,312   152,227   123,751   60,617   44,976 
   
   
   
   
   
 
Net income $254,804  $216,394  $172,378  $84,284  $93,209 
   
   
   
   
   
 
Cash dividends $99,772  $84,731  $77,446  $40,786  $41,116 
   
   
   
   
   
 
Supplemental Non-GAAP Data (1)
                    
Operating earnings (2) $257,146  $217,149  $184,008  $106,150  $93,209 
   
   
   
   
   
 
Cash earnings (3) $291,610  $249,131  $204,886  $95,366  $99,832 
   
   
   
   
   
 
Operating cash earnings (2), (3) $293,952  $249,886  $216,516  $117,232  $99,832 
   
   
   
   
   
 

On July 1, 1999, we acquired SierraWest Bancorp. That merger was accounted for as a pooling of interests. Therefore, all financial information has been restated for all periods presented.

(1)Information presented was not calculated under generally accepted accounting principles (“GAAP”). Information is disclosed to improve readers’ understanding of how management views the results of our operations.
(2)Excluding after-tax restructuring, integration and other nonrecurring costs of:


 (a)(1)$2.3 millionThe Company adopted the consolidation provisions of FIN 46 in the firstthird quarter of 2001 for the acquisition of branches in New Mexico and Nevada,one variable interest entity (REFIRST, Inc.) formed prior to February 1, 2003.
 
 (b)(2)$755,000 in 2000These balances include loans held-for-sale and are not adjusted for the acquisition of branches in Nevadaloan and New Mexico completed in the first quarter of 2001,lease losses.
 
 (c)(3)$11.6 million in connection with the acquisitionThe efficiency ratio is noninterest expense as a percentage of SierraWest Bancorp and the consolidation of data centers in 1999, andnet interest income plus noninterest income.
 
 (d)(4)$21.9 million in connection with the merger of the former BancWest Corporation with and into First Hawaiian, Inc.The capital leverage ratios are based on November 1, 1998 (“BancWest Merger”).

(3)Excluding amortization of goodwill and core deposit intangible.

14


Part II(continued)

Item 6. Selected Financial Data(continued)

                      
   2001 2000 1999 1998 1997
   
 
 
 
 
Balance Sheets(in millions)
                    
Average balances:                    
 Total assets $19,461  $17,600  $16,294  $10,033  $8,635 
 Total earning assets  17,297   15,742   14,492   9,036   7,768 
 Loans and leases  14,586   13,286   12,291   7,659   6,477 
 Deposits  14,550   13,380   12,517   7,710   6,541 
 Long-term debt and capital securities  1,074   817   790   354   279 
 Stockholder’s equity  2,079   1,903   1,793   938   786 
At December 31:                    
 Total assets  21,647   18,457   16,681   15,929   8,880 
 Loans and leases  15,224   13,972   12,524   11,965   6,792 
 Deposits  15,334   14,128   12,878   12,043   6,790 
 Long-term debt and capital securities  2,463   882   802   734   324 
 Stockholder’s equity  2,002   1,989   1,843   1,746   801 
    
   
   
   
   
 
Selected Ratios
                    
Return on average:                    
 Total assets  1.31%  1.23%  1.06%  .84%  1.08%
 Stockholder’s equity  12.25   11.37   9.61   8.99   11.86 
Supplemental Non-GAAP Data (1)
                    
Return on average:                    
 Tangible total assets (2)  1.56%  1.48%  1.39%  1.19%  1.17%
 Tangible stockholder’s equity (2)  22.53   20.32   19.70   16.31   15.14 
Other Selected Data
                    
Average stockholder’s equity to average total assets  10.68%  10.81%  11.00%  9.35%  9.10%
Year ended December 31:                    
 Net interest margin  4.73   4.75   4.76   4.81   4.77 
 Net loans and leases charged off to average loans and leases  .55   .37   .42   .31   .33 
 Efficiency ratio (3)  51.24   51.53   54.47   62.50   65.53 
At December 31:                    
 Allowance for credit losses to total loans and leases  1.28   1.23   1.29   1.32   1.33 
 Nonperforming assets to total loans and leases and other real estate owned and repossessed personal property  .78   .86   1.01   1.11   1.42 
 Allowance for credit losses to nonperforming loans and leases  2.00x  1.84x  1.64x  1.61x  1.40x
    
   
   
   
   
 

On July 1, 1999, we acquired SierraWest Bancorp. That merger was accounted for as a pooling of interests. Therefore, all financial information has been restated for all periods presented.

(1)Information presented was not calculated under generally accepted accounting principles (“GAAP”). Information is disclosed to improve readers’ understanding of how management views the results of our operations.
(2)Defined as operating cash earnings as a percentage of average total assets or average stockholder’s equity minus average goodwill and core deposit intangible.
(3)Excluding after-tax restructuring, integration and other nonrecurring costs of:

(a)$2.3 million in the first quarter of 2001 for the acquisition of branches in New Mexico and Nevada,quarterly averages.
 
 (b)(5)$755,000 in 2000 for the acquisition of branches in Nevada and New Mexico completed in the first quarter of 2001,
(c)$11.6 million in connection with the acquisition of SierraWest Bancorp and the consolidation of data centers in 1999, and
(d)$21.9 million in connection with the merger of the former BancWest Corporation with and into First Hawaiian, Inc.Union Safe Deposit Bank was acquired on November 1, 1998 (“BancWest Merger”).2004. See Note 2 to the Consolidated Financial Statements for additional information.

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BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Part II(continued)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking StatementsFORWARD-LOOKING STATEMENTS

     Certain matters contained in this filing are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements (such as those concerning itsour plans, expectations, estimates, strategies, projections and goals) involve risks and uncertainties that could cause actual results to differ materially from those discussed in the statements. Readers should carefully consider those risks and uncertainties in reading this report. FactorsIn addition to factors discussed elsewhere in this report, other factors that could cause or contributeour results to such differencesdiffer include, but are not limited to:

(1)  global, national and local economic and market conditions, specifically with respect to changes in the United States economy;economy and geopolitical uncertainty;
 
(2)  the level and volatility of interest rates and currency values;
 
(3)  government fiscal and monetary policies;
 
(4)  credit risks inherent in the lending process;
 
(5)  loan and deposit demand in the geographic regions where we conduct business;
 
(6)  the impact of intense competition in the rapidly evolving banking and financial services business;
 
(7)  extensive federal and state regulation of our business, including the effecteffects of current and pending legislation and regulations;
 
(8)  whether expected revenue enhancements and cost savings are realized within expected time frames;
 
(9)risk and uncertainties regarding the purchase of UCB, including:

a)the possibility of customer or employee attrition following the UCB transaction;
b)lower than expected revenues following the transaction; and
c)problems or delays in bringing together UCB with BancWest/Bank of the West;

(10)  matters relating to the integration of our business with that of past and future merger partners, including the impact of combining these businesses on revenues, expenses, deposit attrition, customer retention and financial performance;
 
(11)(10)  our reliance on third parties to provide certain critical services, including data processing;
 
(12)(11)  the proposal or adoption of changes in accounting standards by the Financial Accounting Standards Board (“FASB”), the Securities and Exchange Commission (“SEC”) or other standard setting bodies;
 
(13)(12)  technological changes;
 
(14)(13)  other risks and uncertainties discussed in this document or detailed from time to time in other SEC filings that we make; and
 
(15)(14)  management’s ability to manage risks that result from these and other factors.

     Our forward-looking statements are based on management’s current views about future events. Those statements speak only as of the date on which they are made. We do not intend to update forward-looking statements, and, except as required by law, we disclaim any obligation or undertaking to update or revise any such statements to reflect any change in our expectations or any change in events, conditions, circumstances or assumptions on which forward-looking statements are based.

     The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

10


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Glossary

See “Glossary of Financial Terms” on page 70 for definitions of certain terms used in this annual report.

GAAP, Operating and Cash EarningsOVERVIEW

     We analyze our performance onBancWest Corporation (www.bancwestcorp.com) is a net income basis determinedfinancial holding company with assets of $50.1 billion. It is a wholly owned subsidiary of Paris-based BNP Paribas. The Company is headquartered in accordanceHonolulu, Hawaii, with generally accepted accounting principles (“GAAP”), as well as on an operating basis before merger-related, integration and other nonrecurring costs and/or the effectsadministrative headquarters in San Francisco, California. As of December 31, 2004, its principal subsidiaries were Bank of the amortization of intangible assets. We refer to the results as “operating” and “cash” earnings, respectively. Operating earnings, cash earnings and operating cash earnings (the combinationWest (Bank of the effect of adjustments for both cashWest or BOW) (466 full service retail branches and operating results),14 limited service retail offices in Arizona, California, Colorado, Idaho, Iowa, Minnesota, Nebraska, Nevada, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, Wisconsin and Wyoming) and First Hawaiian Bank (First Hawaiian or FHB) (61 branches in Hawaii, Guam and Saipan). In this report, BancWest Corporation and Subsidiaries is referred to as well“the Company,” “we” or “our.” BancWest Corporation alone is referred to as information calculated from them and related discussions, are presented as supplementary information in this analysis. This presentation is intended to enhance the readers’ understanding of, and highlight trends in, our core financial results excluding the effects of discrete business acquisitions and other transactions. We include these additional disclosures because this information is both relevant and useful in understanding the performance“the Parent.”

Acquisitions

Community First Bankshares Acquisition

     On November 1, 2004, we acquired 100 percent of the Company as management views it. Operating earningsoutstanding stock of Community First Bankshares, Inc., (Community First) a holding company that operated Community First National Bank (CFB). The purchase price of approximately $1.2 billion was paid in cash and cash earnings should not be viewed as a substitute for net income, among other gauges of performance, as determined in accordance with GAAP. Merger-related, integration and other nonrecurring costs, amortization of intangible assets and other items excluded from net income to derive operating and cash earnings may be significant and may not be comparable to those of other companies.

Basis of Presentation

     The BNP Paribas Merger was accounted for as a purchase in accordance with BNP Paribas’ accounting basis being “pushed down”Statement of Financial Accounting Standard No. 141 “Business Combinations” (FAS 141). Accordingly, the purchase price was allocated to BancWest Corporation. Although the assets acquired and the liabilities assumed based on their estimated fair values at the date of acquisition. We recorded $913 million of goodwill and $97 million of identifiable intangibles related to the Community First acquisition.

     The final allocation of the purchase price will be established after completing the analysis to determine the fair values of Community First’s tangible assets and liabilities and identifiable intangible assets and final decisions regarding integration activities have been made. The acquisition of Community First added 10 states to the Company’s footprint, and added to our market share in California and New Mexico. CFB operated 166 banking locations (153 full service retail branches and 13 limited service retail offices) in Arizona, California, Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota, South Dakota, Utah, Wisconsin and Wyoming. Community First’s retail operations complement BOW’s existing network in California, Nevada, New Mexico and the Pacific Northwest. At October 31, 2004, Community First had total assets of $5.5 billion, total deposits of $4.5 billion and loans of $3.4 billion. Beginning November 1, 2004, the results of operations of Community First were included in our Consolidated Financial Statements. Branches of CFB were fully integrated into BOW’s network in the fourth quarter of 2004.

     The Company adopted formal restructuring plans in the fourth quarter of 2004. These restructuring plans targeted areas where there is a significant amount of overlap between the two companies. This includes consolidating administrative and support services including data processing and marketing and to focus the Company’s resources on activities that will promote growth in the business. We will be consolidating excess facilities and evaluating areas where we will be able to take advantage of existing facilities. We have estimated net cost savings of approximately $50 million per year beginning in 2006 from restructuring efforts. In 2005, the Company expects to realize net cost savings of more than $35 million. Exit costs related to Community First activities are expected to approximate $25 million and are accrued as a liability. Approximately 200 employees have been or will be displaced in conjunction with the acquisition. We are also expecting to incur conversion and restructuring expenses totaling approximately $18 million. In 2004, the Company incurred approximately $14 million of restructuring expenses related to the Community First acquisition. We anticipate that cash outlays for exit and restructuring costs should be substantially completed by the end of 2005.

USDB Bancorp Acquisition

     On November 1, 2004, we also acquired USDB Bancorp (USDB), parent company of Union Safe Deposit Bank. USDB was a holding company headquartered in Stockton, California, and operated 19 Union Safe Deposit Bank branches in San Joaquin and Stanislaus Counties in the Central Valley of California. The purchase price of approximately $245 million was paid in cash to acquire 100% of the outstanding stock of USDB and was accounted for as a purchase in accordance with FAS 141. Accordingly, the purchase price was preliminarily allocated to the assets acquired and the liabilities assumed based on their estimated fair values. In addition, the

11


BancWest Corporation wasand Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Company expects to accrue approximately $25 million related to change of control payments. We recorded $170 million of goodwill and $15 million of identifiable intangibles related to the surviving entityUSDB acquisition.

     As of October 31, 2004, USDB had total assets of $1.2 billion, total deposits of $899 million and total loans of $676 million. Exit costs related to USDB activities are expected to be approximately $7 million and are accrued as a liability. Approximately 160 employees have been or will be displaced in conjunction with the acquisition. The Company is also expecting to incur conversion and restructuring expenses totaling approximately $4 million. In 2004, the Company incurred approximately $2 million in restructuring expenses. We anticipate that cash outlays for exit and restructuring costs should be substantially completed by the end of 2005.

     The conversion and merger of Union Safe Deposit Bank into Bank of the West occurred in January of 2005. Expanding Bank of the West’s presence in California has been one of the Company’s strategic goals. This acquisition gives us the opportunity to service a broader region of the Central Valley. The Company has estimated net cost savings of approximately $20 million per year beginning in 2006 from restructuring efforts. In 2005, the Company expects to realize net cost savings of more than $15 million.

Strategic Initiatives

     The Company has continued to implement a series of initiatives that are designed to improve customer service and expand our physical footprint through branch expansion and acquisitions. The focus of the Company is to promote long-lasting customer service relationships through upgrading technology and implementing new training vehicles. The Company strives for a “high touch” personalized marketing position, promoting brand recognition through logos and community outreach. The Company is expanding its line of financial services to its customers through internal initiatives as well as acquisitions. This includes insurance services that it attained through its acquisition of Community First. Bank of the West currently operates 57 insurance agencies in eight states and is planning to expand the insurance operations through acquisitions.

     Bank of the West’s Commercial Banking Group is planning to expand geographically and also increase its product offering for the Commercial Banking Division, the Agribusiness Banking Division and the Real Estate Industries Division. The Commercial Banking Group has created two new departments, National Middle Market Leasing and the Commercial Finance Department. The Government Banking Department is in the BNP Paribas Merger,process of expanding to include a Public Finance program. The geographic expansion plans will include locations in Colorado as a first step, and one or two other states to be determined. Denver will be the initial location for the first office to take advantage of the new footprint as a result of the merger with Community First. National Middle Market Leasing will originate lease transactions nationwide, targeting middle market companies with sales of $25 million - $500 million. The focus will be on leases of $250 thousand - $10 million.

     Bank of the West’s Consumer Finance Group is planning to expand geographically and also increase its ownership changedproduct offerings. The geographic expansion includes the Midwest and other states in the new footprint resulting from the merger with Community First. Additional expansion of the auto loan product in adjacent markets is also being considered.

     First Hawaiian Bank’s focus is on its core markets of Hawaii, Guam and Saipan. The primary effort is to deepen our relationships with existing customers by offering new products and aggressively attempting to meet their needs. In addition, due to improving economic conditions in Hawaii, Guam and Saipan, First Hawaiian Bank seeks to increase loan and deposit volumes by developing relationships with new customers. Also, as part of the effort to focus on our core markets First Hawaiian Bank’s Commercial Banking Group has nearly completed its planned reduction in the Media Finance and Corporate National areas.

     First Hawaiian Bank’s Consumer Banking Group is growing its commercial card business, offering sophisticated credit card products to serve the needs of our business customers at both First Hawaiian Bank and Bank of the West. Investments are being made in this business line to enhance customer service and improve staff efficiencies.

     First Hawaiian Bank’s Financial Management Group will also be making investments in technology to enhance customer service and create synergies to develop new business. In addition, on June 1, 2004, Bishop Street Capital Management, the investment management subsidiary of First Hawaiian Bank, acquired CIC/HCM Asset Management, Inc., the largest independent institutional fixed-income specialist in Hawaii with $300 million under management. The acquisition reaffirms First Hawaiian Bank’s commitment to expanding its strong, Hawaii-based investment team.

     Key among the elements of the Company’s profitability has been the interest rate environment, from both a deposit and loan pricing standpoint. As an industry, banks and other financial intermediaries have seen net interest margins decline over the past year

12


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

principally as a result of the absolute level and shape of the yield curve. We manage the interest rate and market risks inherent in our asset and liability balances, while ensuring ample liquidity and diverse funding.

CRITICAL ACCOUNTING ESTIMATES

     The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in our Consolidated Financial Statements and accompanying notes. We believe that the judgments, estimates and assumptions used in the preparation of our Consolidated Financial Statements are appropriate given the factual circumstances as of December 31, 2004. We have policies and procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. However, given the sensitivity of our Consolidated Financial Statements to these accounting policies, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition.

     Our accounting policies are discussed in detail in Note 1 (Summary of Significant Accounting Policies) to the Consolidated Financial Statements. Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. We have identified the following accounting estimates that we believe are material due to the transaction. Priorlevels of subjectivity and judgment necessary to the BNP Paribas Merger, BancWest

16


Part II(continued)

Corporation was 55% publicly owned and 45% owned by BNP Paribas (“Predecessor” basis). Starting on December 20, 2001, BancWest Corporation’s financial statements reflected BNP Paribas’ “pushed-down basis.” See Note 2 of the Consolidated Financial Statementsaccount for additional information regarding this business combination.

     It is generally not appropriateuncertain matters or where these matters are particularly subject to combine pre- and post-“push-down” periods; however, for purposes of comparison only, certain information presented in this section combines BancWest Corporation’s results of operations from December 20, 2001 through December 31, 2001 with those of the Predecessor for the period from January 1, 2001 through December 19, 2001. The combined results will generally serve as comparable amounts to the 12-month period ended December 31, 2000 and will be utilized for purposes of providing discussion and analysis of results of operations. In addition, annual average balances discussed in this section were computed on a similarly combined basis.

Overview

     Thanks to strong performances in both West Coast and Hawaii operations, our operating earnings during 2001 increased 18.4% over 2000 to a record $257.1 million. These were some of the key events affecting our financial statements:

The BNP Paribas Merger significantly affected our financial statements. “Push-down” accounting was required for this business combination. Essentially, this resulted in three major changes to our balance sheet:
change.

 a)•  Purchase price adjustmentsAllowance for loan and new intangibles: As partlease losses (the “Allowance”): The Company’s allowance for loan and lease losses represents management’s best estimate of purchase accounting,probable losses inherent in the assetsexisting loan and liabilitieslease portfolio as of the Predecessor were adjustedbalance sheet date. The determination of the adequacy of the Allowance is ultimately one of management judgment, which includes consideration of many factors such as: (1) the amount of problem and potential problem loans and leases; (2) net charge-off experience; (3) changes in the composition of the loan and lease portfolio by type and location of loans and leases; (4) changes in overall loan and lease risk profile and quality; (5) general economic factors; (6) specific regional economic factors; and (7) the fair value of collateral. Using this methodology, we allocate the Allowance to fair value. Among the items adjusted were identifiable intangible assets related to our core deposits,individual loans and leases property and equipment, deposits, pension assetsto the categories of loans and liabilitiesleases representing probable losses based on available information. At least quarterly, we conduct internal credit analyses to determine which loans and leases are impaired. As a result, we allocate specific amounts of the Allowance to individual loan and lease relationships. Note 1 (Summary of Significant Accounting Policies) to the Consolidated Financial Statements describes how we evaluate loans for impairment. Some categories of loans and leases are not subjected to a loan-by-loan credit analysis. Management makes an allocation to these categories based on our analysis of historic trends of impairment and charge-offs of such loans and leases. Additionally, we allocate a portion of the Allowance based on risk classifications of certain loan and lease types. If general or specific regional economic factors were to improve or deteriorate significantly, we may need to revise our loss factors, thereby decreasing or increasing our allowance. Furthermore, the estimated fair value of collateral may differ from what is realized upon the sale of that collateral. Due to the subjective nature of estimating an adequate allowance for loan and lease losses, economic uncertainties and other items. After making thesefactors, some of the allowance is not allocated to specific categories of loans and leases. The Corporation monitors differences between estimated and actual incurred loan and lease losses. This monitoring process includes periodic assessments by senior management of credit portfolios and the methodologies used to estimate incurred losses in those portfolios. In management’s judgment, the Allowance has historically been adequate to absorb losses inherent in the loan and lease portfolios. However, changes in prevailing economic conditions in our markets could result in changes in the level of nonperforming loans and leases, and charge-offs in the future. We will continue to monitor economic developments closely and make necessary adjustments to the Predecessor balance sheet, the amount that the purchase price exceeded the value of purchased asset and liabilities assumed was recorded as goodwill. As of December 20, 2001, the Company had $2.062 billion in goodwill resulting from the BNP Paribas Merger.Allowance accordingly.
 
 b)•  New debt: As partGoodwill: Goodwill recorded on the books of the BNP Paribas Merger, we assumed $1.55 billion in new debtCompany resulted from business acquisitions. It arose when the Merger Sub. This debt is betweenpurchase price exceeded the Company and another subsidiary of BNP Paribas. The proceeds from this debt and $1.0 billion in cash equity from BNP Paribas were exchanged for all outstanding common stock and optionsassigned value of the Predecessor.
c)New equity basis: Duenet assets of acquired businesses. In each situation, it was based on estimates and assumptions that were subject to management’s judgment and was recorded at its estimated fair value at the usetime purchase accounting estimates of “push-down” accounting in the BNP Paribas Merger, the equity balances at December 31, 2001 reflect BNP Paribas’ basis in BancWest Corporation. On December 20, 2001, BNP Paribas’ net purchase price of $1.985 billion was recorded. All amounts related to common and treasury stock of the Predecessoracquired entities were eliminated.

Due to the BNP Paribas Merger occurring within 11 daysconcluded. As of December 31, 2001,2004, we had $4.3 billion in goodwill on our Consolidated Balance Sheet. The value of this goodwill is supported by the purchase price adjustments, amortizationrevenue we generate from our business segments. A decline in earnings as a result of new core deposit intangiblesmaterial lack of growth, or our inability to deliver services in a cost-effective manner over a long time period could lead to possible impairment of goodwill, and interest expense related tothis would be booked as a write-down in our income statement. We perform an impairment test for goodwill annually, or as circumstances dictate. The evaluation methodology for potential impairment is centered on the additional debt, among other things, did not have aprojection of cash flows into the future using present value techniques and, as such, involves significant impactmanagement judgment in the resultsmodeling of our operations for year ended December 31, 2001.
Growth in loansestimates and leases, primarily in our Bank ofassumptions. If the West operating segment, and other earning assets, contributed to higherprojected net interest income. In addition to organic growth, loans and leases and deposits also grew due to the branch acquisitions in Nevada, New Mexico, Guam and Saipan.
We realized a pre-tax gain on the sale of Concord EFS, Inc. (“Concord”) shares of $59.8 million. We received the shares in exchange for our approximate 5% ownership of Star Systems, Inc., which merged with Concord in 2001. Partially offsetting this gain was $33.2 million in additional provision for credit losses that we recorded in response to unidentified inherent losses in our loan and lease portfolio caused by the steadily worsening economic conditions in the national and regional economies throughout 2001. Also offsetting the gain on the sale of Concord stock was a charitable contribution of $5 million to First Hawaiian Foundation, a private non-profit charitable foundation and other items totaling $398,000. The net after-tax increase to our net income was $14.9 million.cash flow

     For further information regarding13


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

assumptions are too high, or if the Company’s mergersdiscount rate used is too low, there is a risk that impairment should have been recognized, but was not recorded. We use a two-step process to evaluate possible impairment. The first step compares the fair value of a reporting unit, which is an individual business segment of the Company, to its carrying amount. If the fair value exceeds the carrying amount, no impairment exists. If the carrying amount exceeds the fair value, then a second step is conducted whereby we assign fair values to identifiable assets and acquisitions, see Note 2liabilities, leaving an implied fair value for goodwill. The implied fair value of goodwill is compared with the carrying amount of goodwill. If the implied fair value of goodwill is less than the carrying amount, an impairment loss is recognized. We performed the impairment testing of goodwill required under FAS No. 142 for the year ended December 31, 2004, in the fourth quarter. Due to the Consolidated Financial Statementsinherent imprecision of projections used in the impairment test, a number of different scenarios were used. In addition to using anticipated balance sheet growth, scenarios for 25% more and 20% less than the anticipated growth were used. Furthermore, in projecting cash flows, a continuing value scenario as well as a terminal value scenario were used. Finally, two separate discount rate scenarios were used. The first discount rate used was the weighted average cost of capital, which is a composite of the after-tax cost of debt and cost of equity. The second discount rate was the cost of equity using a capital asset pricing model. The conclusion after testing under each of these scenarios was that there was no impairment of goodwill.

FINANCIAL OVERVIEW

Income Statement Analysis

2004 compared with 2003

     The Company reported net income of $473.4 million for the year ended December 31, 2004, compared with $436.6 million for the year ended December 31, 2003. Net interest income was $1,352 million compared with $1,294 million, primarily due to an increase in interest earning assets resulting from organic growth and the acquisitions of Community First and USDB. Average loans increased by $3.0 billion; average securities available for sale increased by $1.6 billion. The Company increased its consumer lending and purchased residential mortgage loans and securities in a year when commercial borrowing was still relatively slow. The acquisitions of Community First and USDB also contributed to the increase in both average loans and leases and average investment securities. The net interest margin decreased 43 basis points (1% equals 100 basis points) as a result of the effects of a flattening yield curve in which short-term rates have risen more quickly than long-term rates. Noninterest income was $431.5 million compared with $392.2 million. The increase was predominately due to the requirement of accounting for certain automobile leases as operating leases rather than direct finance leases, increased service charges on pages 51 through 53. For further information regarding the Company’s restructuring, integration,deposit accounts and other nonrecurring costs, see Note 3service charges and fees as well as increased revenue from the sales of other real estate owned and miscellaneous assets. The increase in noninterest income was also impacted by the acquisitions of Community First and USDB in November 2004. Noninterest expense was $962.5 million compared with $892.8 million, with the increase primarily due to increased salaries and wages expense resulting from a higher full-time equivalent employee count that resulted from the acquisitions, restructuring expenses related to the Consolidated Financial Statements on page 53. For additional information regarding net interest income, see Net Interest Incomeacquisitions of Community First and Table 1 on pages 22USDB and 23, respectively. For additional information on nonperformingvehicle depreciation incurred from the change in accounting for auto leases.

Balance Sheet Analysis

     The Company had total assets see Nonperforming Assets and Past Dueof $50.1 billion at December 31, 2004, up 30.5% from a year earlier. Securities available for sale totaled $8.0 billion, an increase of 37.8% from the same date in 2003. Loans and Leases on pages 32leases totaled $32.7 billion, up 27.1% from the prior year. Deposits were $33.6 billion, up 27.3% from a year earlier. The increases were due to both internal growth and 33.

2001 vs. 2000the acquisitions of Community First and USDB.

     Nonperforming assets were reduced to 0.45% of loans, leases and foreclosed properties at December 31, 2004, an improvement from 0.59% at December 31, 2003. The table below compares our 2001 financial results to 2000. The improvement in our financial results is primarily attributed to higher net interest income, caused mainly by increasedallowance for loan and lease losses was 1.33% of total loans and deposit volume, increased noninterest income, a result of our continuing effortsleases at December 31, 2004, compared with 1.52% at December 31, 2003. The decrease in nonperforming assets was primarily due to diversify our revenue base,loan repayments and controlled noninterest expense. In addition,sales. Loan and lease charge-offs and workouts also contributed to the gain on the sale ofdecrease.

1714


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Part IIRESULTS OF OPERATIONS(continued)

Concord, net of additional provision and other nonrecurring items, contributed $14.9 million to our net and operating income.

             
(dollars in thousands) 2001 2000 Change

 
 
 
Consolidated net income $254,804  $216,394   17.8%
Operating earnings*  257,146   217,149   18.4 
Return on average tangible total assets*  1.56%  1.48%  5.4 
Return on average tangible stockholder’s equity*  22.53   20.32   10.9 
   
   
   
 
Net Interest Income

*Excludes after-tax restructuring, integration and other nonrecurring costs of $2.3 million and $755,000 in 2001 and 2000, respectively.2004 compared with 2003

2000 vs. 1999

     The table below compares our 2000 financial results to 1999. The improvement in our financial results is primarily attributed to higher net     Net interest income caused mainly by increased loan and lease and deposit volume, increased noninterest income, a result of our continuing efforts to diversify our revenue base, and controlled noninterest expense. In addition, the $11.6$1,352 million after-tax restructuring, merger-related and other nonrecurring costs that we incurred in 1999 for the SierraWest Merger and the consolidation of data centers are reflected in the results for 1999. The $755,000 in after-tax other nonrecurring costs related to the New Mexico and Nevada branch acquisition are included in the results for 2000.

             
(dollars in thousands) 2000 1999 Change

 
 
 
Consolidated net income $216,394  $172,378   25.5%
Operating earnings*  217,149   184,008   18.0 
Return on average tangible total assets*  1.48%  1.39%  6.5 
Return on average tangible stockholder’s equity*  20.32   19.70   3.1 
   
   
   
 

*Excludes after-tax restructuring, integration and other nonrecurring costs of $755,000 in 2000 and $11.6 million in 1999.

Net Interest Income

2001 vs. 2000

             
(in thousands) 2001 2000 Change

 
 
 
Net interest income $816,514  $746,934   9.3%
   
   
   
 
from $1,294 million.

     The increase in net interest income was primarily the result of a $4.8 billion, or 16.1%, increase in average earning assets. The increase in our average earning assets was predominately the result of growth in loans (from originations and purchases) and securities available for sale. The effect of the increase from average earning assets was offset by a 43 basis point reduction in our net interest margin. The effect of a flattening yield curve has continued to hold down the yield on earning assets while rates paid on sources of funds fell only slightly from prior year.

2003 compared with 2002

     Net interest income for the year ended December 31, 2003 increased 8.6% to $1,294 million as compared with $1,191 million for the prior year.

     The increase in 2001net interest income was principally the result of a $1.5$4.0 billion, or 9.7%15.3%, increase in average earning assets. The increase in our average earning assets was primarily athe result of internal growth in ourloans, leases and securities available for sale as well as the earning assets obtained from United California Bank of the West operating segment(“UCB”) contributing for a full year during 2003 versus only nine and branch acquisitions in Nevada, New Mexico, Guam and Saipan.one half months during 2002. The increase in average earning assets was partially offset by a two-basis-point (1% equals 10026 basis points)point reduction in our net interest margin. The Federal Reserve Board’s Federal Open Market Committee has reduced the key Federal Funds rate 11 times by a total of 425 basis points in 2001. Thecontinuing effect of these decreases hashistorically low interest rates reduced the yield on earning assets but also theto a greater extent than rates paid on sources of funds.

2000 vs. 1999

             
(in thousands) 2000 1999 Change

 
 
 
Net interest income $746,934  $688,834   8.4%
   
   
   
 

     The increase in our net interest income in 2000 was principally the result of a $1.3 billion, or 8.7%, increase in average earning assets. The increase in our average earning assets was primarily a result of growth in our Bank of the West operating segment. This increase was partially offset by a one-basis-point reduction in our net interest margin. The rebound in Hawaii has stopped the nearly decade-long economic decline, leading to a double-digit increase in the earnings of our First Hawaiian operating segment.

Noninterest Income

             
(in thousands) 2001 2000 Change

 
 
 
Noninterest income $308,398  $216,076   42.7%
   
   
   
 

     Key components of noninterest income that increased in 2001 over 2000 include: (1) a $71.8 million increase in the net gain on sale of investment securities, primarily from the $59.8 million pre-tax gain on the sale of Concord stock and the sale of securities in our available-for-sale investment portfolio; (2) higher service charges and fees for deposits and miscellaneous items, due to higher fees and increased volume from our larger customer base and (3) a $4 million gain on the sale of a leveraged lease. These increases were partially offset by a decrease in trust and investment income, primarily due to the decrease in the equity markets in the United States.

Noninterest Expense

             
(in thousands) 2001 2000 Change

 
 
 
Noninterest expense $595,746  $533,961   11.6%
   
   
   
 

     The increase in noninterest expense in 2001 was primarily due to the additional costs related to our larger branch network because of branch acquisitions in Nevada, New Mexico, Guam and Saipan. Excluding the pre-tax restructuring, integration and other nonrecurring costs of $3.9 million in 2001 and $1.3 million in 2000, noninterest expense increased by 10.7%, due primarily to an increase in salaries and employee benefits and an increase in occupancy expense, primarily due to continued expansion in our Bank of the West operating segment. The increase in our intangible amortization expense is due to additional amounts of intangible assets recorded related to our branch acquisitions in Nevada, New Mexico, Guam and Saipan.

18


Part II(continued)

Efficiency Ratio

             
  2001 2000 1999
  
 
 
Efficiency ratio*  51.24%  51.53%  54.47%
   
   
   
 

*Calculated as noninterest expense (exclusive of nonrecurring costs) minus the amortization of goodwill and core deposit intangible as a percentage of total operating revenue (net interest income plus noninterest income, exclusive of nonrecurring items).

     Our efficiency ratio improved in 2001 over 2000 principally because of increased revenue from higher net interest income, primarily from more earning assets, and higher noninterest income. In addition, the containment of noninterest expense contributed to the improvement in our efficiency ratio.

Credit Quality

     The provision for credit losses increased in 2001 over 2000 primarily because of the 9.8% increase in average total loans and leases outstanding in 2001 over 2000 and additional amounts taken in response to macroeconomic trends. The improvement in the ratio of non-performing assets to total loans and leases, OREO and repossessed personal property in 2001 compared to 2000 was primarily due to the increase in average total loans and leases, as well as the reduction of restructured loans and leases and OREO and repossessed personal property, partially offset by an increase in nonaccrual loans and leases. Net charge-offs increased primarily due to increased charge-offs in the commercial, financial and agricultural and consumer loan and lease categories. The overall increase in charge-offs reflect the effects of the slowing national and regional economies.

             
(dollars in thousands) 2001 2000 1999

 
 
 
Provision for credit losses $103,050  $60,428  $55,262 
Net charge-offs to average loans & leases  .55%  .37%  .42%
Allowance for credit losses (year end) $194,654  $172,443  $161,418 
Allowance for credit losses as % of total loans & leases (year end)  1.28%  1.23%  1.29%
Nonperforming assets* as % of total loans & leases, OREO & repossessed personal property (year end)  .78   .86   1.01 
   
   
   
 

*Principally loans and leases collateralized by real estate.

Net Interest Margin

2001 vs. 2000

                               
  2001 2000 Change
  
 
 
Net interest margin  4.73%  4.75% -2 basis pts.
   
   
   
 
2004 compared with 2003

     The net interest margin decreased by 243 basis points due primarily to the effects of the flattening yield curve, which had the effect of reducing our yield on earning assets by 44 basis points to 5.15% from 5.59%, while it decreased our rates paid on sources of funds by only one basis point to 1.27% from 1.28%. The decrease in 2001 from 2000the yield on average earning assets was partially offset by an increase of $1,058 million, or 14.8%, in average noninterest-bearing deposits.

2003 compared with 2002

     The net interest margin decreased by 26 basis points due primarily to the effects of the decreasing interest rate environment that was experienced for most of 2001. Althoughcontinued into 2003. While the decreasing rate environment reduced our yield on earning assets by 6676 basis points to 7.66% in 20015.59% from 8.32% in 2000,6.35%, it also decreased our rate paid on sources of funds by 6450 basis points to 2.93% in 20011.28% from 3.57% in 2000. Therefore, our net interest margin decreased by two basis points in 2001. Partially1.78%. Also offsetting the decrease in the yield on average earning assets, average noninterest-bearing deposits maintained by retail and commercial customers in both banks increased by $431 million,$1.4 billion, or 15.8%,25.5%. Higher yielding average domestic time deposits decreased 7.7% due, in 2001 comparedpart, to 2000.

2000 vs. 1999

                               
  2000 1999 Change
  
 
 
Net interest margin  4.75%  4.76% -1 basis pt.
   
   
   
 

     The net interest margin decreased by one basis pointmaturities of certificates originated in 2000 from 1999 primarily due to the effects of the increasinga higher interest rate environment that was experienced for most of 2000. Although the increasing rate environment raised our yield on earning assets by 48 basis points to 8.32% in 2000 over 7.84% in 1999, it also raised our rate paid on sources of funds by 49 basis points to 3.57% in 2000 over 3.08% in 1999. Therefore, our net interest margin decreased by one basis point in 2000. Partially offsetting the increase on the rate paid on sources of funds, average noninterest-bearing deposits increased in 2000 by $262.5 million, or 10.7%, compared to 1999.environment.

Average Earning Assets

2001 vs. 2000

             
(in thousands) 2001 2000 Change

 
 
 
Average earning assets $17,273,697  $15,752,238   9.7%
   
   
   
 
2004 compared with 2003

     The continuing growth of our Bank of the West operating segment and our branch acquisitions in Nevada, New Mexico, Guam and Saipan are primarily responsible for the increase in average earning assets. In particular,assets was predominately due to internal growth in the $1.3average loan and lease portfolio, higher average securities available for sale and the acquisitions of Community First and USDB in the fourth quarter of 2004. The $3.0 billion, or 8.1%12.1%, increase in average total loans and leases was primarily due to increased consumer lending, purchased residential mortgages and loans and leases acquired from Community First and USDB. Consumer loans continue to grow due to the strength in the consumer market and the low interest rates on consumer loans. As growth in commercial lending was relatively low during the Western United States.past year, funds were used to purchase residential mortgages as well as securities available for sale. Average total investment securities also increased by $177.5 million,available for sale were $6.3 billion, up $1.6 billion, or 8.5%33.5%, primarily due to $2.3 billion in 2001 over 2000.internal growth and the two acquisitions.

2000 vs. 1999

             
(in thousands) 2000 1999 Change

 
 
 
Average earning assets $15,752,238  $14,491,126   8.7%
   
   
   
 
15

19


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Part II(continued)2003 compared with 2002

     The full-year contribution of earning assets from the UCB acquisition, continuing internal growth of our Bank of the West operating segment isWest’s loan and lease portfolio and higher levels of investment securities in both Banks, are primarily responsible for the increase in average earning assets. In particular, the $994.5 million,The $2.4 billion, or 8.1%10.8%, increase in average total loans and leases primarily due to increased consumer lending, purchased residential mortgages and the UCB acquisition. As commercial lending was relatively slow in 2003, funds were used to purchase residential mortgages as well as securities available for sale. Consequently, average total securities available for sale also increased to $4.7 billion, up $1.6 billion, or 50.2%.

Average Loans and Leases

2004 compared with 2003

     A significant portion of the increase was due to loans and leases acquired from Community First and USDB. Average consumer loans increased $1.4 billion, or 20.7%, primarily due to growth in financing for autos, recreational vehicles and pleasure boats, while loan purchases increased the Western United States.average residential mortgage portfolio. Average total investment securities alsoresidential real estate loans increased by $370.4 million, or 21.5%,$0.7 billion. The modest increase in commercial, financial and agricultural loans in both banks also contributed to $2.1 billion in 2000 over 1999.the increase.

Average Loans and Leases

2001 vs. 2000

             
(in thousands) 2001 2000 Change

 
 
 
Average loans and leases $14,585,712  $13,285,586   9.8%
   
   
   
 
2003 compared with 2002

     The increase in average loans and leases was primarily due to growth from ourthe full-year contribution of loans acquired through UCB and internal growth. Average consumer loans within Bank of the West operating segment’s consumer loan and lease financing portfolios. In additionincreased approximately $1.0 billion, or 18.9%, primarily due to growth from their existing branch network,in financing for autos, recreational vehicles and pleasure boats, while purchases increased the average loans and leases in the Bank of the West operating segment also increased due to the acquisition of branches in Nevada and New Mexico.residential mortgage portfolio. Average loans and leases in the First Hawaiian operating segmentBank decreased in 2001 as compared to 2000,slightly, primarily due to the planned reduction in certain syndicated national credits, partially offset by loans and leases acquired in the Guam and Saipan branch acquisition.increased consumer loans.

2000 vs. 1999

             
(in thousands) 2000 1999 Change

 
 
 
Average loans and leases $13,285,586  $12,291,095   8.1%
   
   
   
 

     The increase in average loans and leases was primarily due to growth from our Bank of the West operating segment’s commercial real estate, consumer loan and lease financing portfolios. In addition, the rebounding economy in Hawaii led to a modest increase in average loans and leases in our First Hawaiian operating segment.

Average Interest-Bearing Deposits and Liabilities

2001 vs. 2000

             
(in thousands) 2001 2000 Change

 
 
 
Average interest-bearing deposits and liabilities $13,366,544  $12,289,972   8.8%
   
   
   
 
2004 compared with 2003

     The $3.9 billion, or 16.6%, increase in average interest-bearing deposits and liabilities was substantially due to growth in our customer deposit base and an increase in average long-term debt and average short-term borrowings. Average deposits increased substantially due to internal growth in the regular and money market savings, foreign and time deposits, demand deposit and interest-bearing checking portfolios and partly due to the Community First and USDB acquisitions. Borrowings from the Federal Home Loan Bank increased average long-term debt, while overnight Federal funds purchases were largely responsible for the increase in short-term borrowings.

2003 compared with 2002

     The increase in average interest-bearing deposits and liabilities was primarily due to an increase in 2001 over 2000 was principally caused byaverage long-term debt and growth in our customer deposit base, primarily in our Bank of the West operating segment. Our averagebase. Average interest-bearing deposits also increased due to branch acquisitionsthe full-year contribution to averages from the UCB acquisition, as well as internal growth in Nevada, New Mexico, Guamthe demand deposit and Saipan.interest-bearing checking, regular and money market savings portfolios. These increases were partially offset by a decrease in average certificates of deposit. Average long-term debt and capital securities increased in 2001 over 2000short-term borrowings decreased primarily due to the inclusionreplacement of the $150$800 million in BWE Capital Securities for all of 2001, as opposed to only a portion of December 2000. Also affecting average long-term debt was the $1.550 billion in long-term debtshort-term financing, entered into with BNP Paribas in conjunction with the BNP Paribas Merger.

2000 vs. 1999

             
(in thousands) 2000 1999 Change

 
 
 
Average interest-bearing deposits and liabilities $12,289,972  $11,494,121   6.9%
   
   
   
 

Merger, with long-term financing in November 2002. The increasereduction of this short-term borrowing for all of 2003, as opposed to only a portion of 2002, is partially responsible for the decrease in average interest-bearing deposits and liabilities in 2000 over 1999 was principally caused by growth in our customer deposit base, primarily in ourshort-term debt, while increasing average long-term debt. Long-term borrowings from the Federal Home Loan Bank of the West operating segment. In addition, we grew deposits by initiating various deposit product programs. Also, wealso increased our utilization of negotiable and brokered time certificates of deposits.average long-term debt.

Operating Segments Results16

     As detailed in Note 19 to the Consolidated Financial Statements on pages 64 and 65, our operations are managed principally through our two major bank subsidiaries, Bank of the West and First Hawaiian. Bank of the West operates primarily in California, Oregon, Washington, Idaho, New Mexico and Nevada. It also conducts business nationally through its Consumer Finance Division and its Essex Credit Corporation subsidiary. First Hawaiian’s primary base of operations is in Hawaii, Guam and Saipan. It also has significant operations extending nationally, and to a lesser degree internationally, through its media finance, national corporate lending and leveraged leasing operations. The “other” category in the table below consists principally of BancWest Corporation (Parent Company), FHL Lease Holding Company, Inc., BancWest Capital I and First Hawaiian Capital I. The reconciling items are principally consolidating entries to eliminate intercompany balances and transactions. The following table summarizes significant financial information, as of or for years ended December 31, of our reportable segments:

               
(in millions) 2001 2000 1999

 
 
 
Net Interest Income
            
 Bank of the West $503  $423  $384 
 First Hawaiian  330   329   312 
 Other  (16)  (5)  (7)
   
   
   
 
  
Consolidated Total
 $817  $747  $689 
   
   
   
 
Net Income
            
 Bank of the West $140  $110  $84 
 First Hawaiian  125   112   94 
 Other  (10)  (6)  (6)
   
   
   
 
  
Consolidated Total
 $255  $216  $172 
   
   
   
 
Year End Segment Assets
            
 Bank of the West $13,412  $11,159  $9,571 
 First Hawaiian  8,682   7,452   7,081 
 Other  4,759   3,215   2,747 
 Reconciling items  (5,206)  (3,369)  (2,718)
   
   
   
 
  
Consolidated Total
 $21,647  $18,457  $16,681 
   
   
   
 

20


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Part II(continued)

2001 vs. 2000

Our net interest income for 2001 increased over 2000, principally due to the growth in loan and lease volume in the Western United States and increase in noninterest-bearing deposits. Bank of the West’s annual average loans outstanding increased in 2001 by 19.3% over 2000. First Hawaiian’s 0.3% increase in net interest income between 2001 and 2000 was primarily due to an increase in investment securities and lower cost on deposits, partially offset by a decrease in loans and leases.
Our net income for 2001 increased over 2000, primarily due to: (1) higher net interest income from both Bank of the West and First Hawaiian; (2) higher noninterest income from a $59.8 million pre-tax gain from the sale of Concord stock and from service charges on deposit accounts, annuity and mutual fund sales and other service charges and fees; (3) contribution from acquired New Mexico and Nevada branches and Union Bank of California’s branch network in Guam and Saipan.
Our total assets at December 31, 2001 grew by 17.3% over December 31, 2000, predominantly due to the 20.2% growth in Bank of the West’s assets. An increase in earning assets, mainly commercial real estate, consumer loans and lease financing, contributed to Bank of the West’s growth. The 16.5% increase in First Hawaiian’s assets in 2001 from 2000 was principally due to increases in intangible assets from the BNP Paribas Merger.

2000 vs. 1999

Our net interest income for 2000 increased over 1999, principally due to the growth in loan and lease volume in the Western United States and an increase in noninterest-bearing deposits. Bank of the West’s annual average loan volume increased in 2000 by 14.4% over 1999. First Hawaiian’s 5.4% increase in net interest income between 2000 and 1999 was primarily due to higher net interest margins.
Our net income for 2000 increased over 1999, primarily due to: (1) higher net interest income from both Bank of the West and First Hawaiian; (2) lower restructuring, integration and other nonrecurring costs in 2000 compared to 1999; (3) higher noninterest income in 2000 over 1999 for both Bank of the West and First Hawaiian, such as income from service charges on deposit accounts, trust and investment services, annuity and mutual fund sales and other service charges and fees; and (4) controlled noninterest expense growth.
Our total assets at December 31, 2000 grew by 10.6% over December 31, 1999, predominantly due to the 16.6% growth in Bank of the West’s assets. An increase in earning assets, mainly consumer loans and lease financing, contributed to Bank of the West’s growth. The 5.2% increase in First Hawaiian’s assets in 2000 from 1999 was principally due to an increase in commercial, financial and agricultural loans, reflecting a rebounding Hawaii economy.

21


Part II(continued)

Table 1: Average Balances, Interest Income and Expense, and Yields and Rates (Taxable-Equivalent Basis)

     On December 20, 2001, BNP Paribas acquired all of the outstanding common shares of BancWest Corporation. As a result of the transaction, the Predecessor became a wholly-owned subsidiary of BNP Paribas. The business combination was accounted for as a purchase with BNP Paribas’ accounting basis being “pushed down” to BancWest Corporation. See Note 2 to the Consolidated Financial Statements for additional information regarding this business combination. It is generally not appropriate to combine pre- and post-“push-down” periods; however, for purposes of comparison only, the following tables combine our consolidated results of operations from December 20, 2001 through December 31, 2001 with those for the period January 1, 2001 through December 19, 2001. The combined results will generally serve as comparable amounts to the 12-month period ended December 31, 2000 and will be utilized for purposes of providing discussion and analysis of consolidated results of operations.

     The following table sets forthpresents the condensed consolidated average balance sheets, an analysis of interest income/expense and average yield/rate for each major category of earning assets and interest-bearing deposits and liabilities for the years indicated on a taxable-equivalent basis. The taxable-equivalent adjustment is made for items exempt from Federal income taxes (assuming a 35% tax rate for 2001, 20002004, 2003 and 1999)2002) to make them comparable with taxable items before any income taxes are applied.

                                                        
 2001 2000 1999 Year Ended December 31, 
 
 
 
 2004 2003 2002 
 Interest Interest Interest  Interest Interest Interest   
 Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ 
(dollars in thousands)(dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate 


 
 
 
 
 
 
 
 
 
  
ASSETS
ASSETS
  
Earning assets:Earning assets:  
Interest-bearing deposits in other banks: 
Domestic $5,493 $44  0.80% $7,154 $48  0.67% $4,391 $157  3.58%
Foreign 302,019 4,480 1.48 196,247 2,335 1.19 155,821 2,789 1.79 
             
Total interest-bearing deposits in other banks 307,512 4,524 1.47 203,401 2,383 1.17 160,212 2,946 1.84 
Federal funds sold and securities purchased under agreements to resell 344,528 5,292 1.54 200,456 2,379 1.19 258,890 4,401 1.70 
Trading assets 7,722 171 2.21 50,598 1,329 2.63 30,018 1,160 3.86 
Securities available for sale(1):
 
Taxable 6,303,327 219,052 3.48 4,722,007 174,187 3.69 3,141,352 146,346 4.66 
Exempt from Federal income taxes 21,012 665 3.16 15,233 898 5.90 12,529 1,158 9.24 
             
Total securities available for sale 6,324,339 219,717 3.47 4,737,240 175,085 3.70 3,153,881 147,504 4.68 
Loans and leases (2),(3):
 
Domestic 27,387,252 1,536,239 5.61 24,398,117 1,468,447 6.02 21,958,985 1,464,188 6.67 
Foreign 364,378 24,101 6.61 357,565 24,848 6.95 380,856 28,369 7.45 
             
Total loans and leases 27,751,630 1,560,340 5.62 24,755,682 1,493,295 6.03 22,339,841 1,492,557 6.68 
Other interest earning assets 173,546 6,335 3.65 123,635 5,623 4.55 135,894 8,437 6.21 
             
Total earning assets 34,909,277 1,796,379 5.15 30,071,012 1,680,094 5.59 26,078,736 1,657,005 6.35 
             
Noninterest-bearing assets: 
Cash and due from banks 1,475,906 1,386,492 1,385,444 
Premises and equipment 555,859 462,804 378,991 
Other intangibles 192,853 198,681 201,238 
Goodwill 3,409,012 3,227,064 3,129,507 
Other assets 763,998 552,002 196,135 
       
Total noninterest-bearing assets 6,397,628 5,827,043 5,291,315 
       
Total assets $41,306,905 $35,898,055 $31,370,051 
       
 
LIABILITIES AND STOCKHOLDER’S EQUITY
 
Interest-bearing deposits and liabilities: 
Deposits: 
Domestic: 
Interest-bearing demand $318,431 $308  0.10% $276,309 $345  0.12% $334,522 $915  0.27%
Savings 11,459,360 66,898 0.58 10,195,940 64,906 0.64 8,435,637 94,327 1.12 
Time 7,273,233 121,811 1.67 6,707,813 109,622 1.63 7,265,406 177,137 2.44 
Foreign 1,207,794 14,390 1.19 594,351 5,359 0.90 576,862 9,087 1.58 
             
Total interest-bearing deposits 20,258,818 203,407 1.00 17,774,413 180,232 1.01 16,612,427 281,466 1.69 
Short-term borrowings 2,179,392 29,285 1.34 1,875,304 21,424 1.14 2,016,947 34,152 1.69 
Long-term debt and capital securities 4,987,503 210,133 4.21 3,879,639 183,551 4.73 2,541,319 149,712 5.89 
             
Total interest-bearing deposits and 
liabilities 27,425,713 442,825 1.61 23,529,356 385,207 1.64 21,170,693 465,330 2.20 
                   
Interest rate spread  3.54%  3.95%  4.15%
Noninterest-bearing deposits 8,195,163 7,137,066 5,687,550 
Other liabilities 1,054,894 1,168,446 1,070,679 
       
Total liabilities 36,675,770 31,834,868 27,928,922 
Stockholder’s equity 4,631,135 4,063,187 3,441,129 
       
Total liabilities and stockholder’s equity $41,306,905 $35,898,055 $31,370,051 
       
Impact of noninterest-bearing sources  0.34%  0.36%  0.42%
Net interest income and margin on total earning assets 1,353,554  3.88% 1,294,887  4.31% 1,191,675  4.57%
Tax equivalent adjustment 1,216 1,304 820 
       
Net interest income $1,352,338 $1,293,583 $1,190,855 
Interest-bearing deposits in other banks:        
 Domestic $7,320 $405  5.54% $5,405 $233  4.30% $3,712 $156  4.22%
 Foreign  188,105  8,797  4.68 172,265 11,228 6.52 291,097 15,096 5.19 
 
 
 
 
 
 
 
 Total interest-bearing deposits in other banks  195,425  9,202  4.71 177,670 11,461 6.45 294,809 15,252 5.17 
 
 
 
 
 
 
 
Federal funds sold and securities purchased under agreements to resell  226,032  9,360  4.14 199,970 13,016 6.51 186,569 9,537 5.11 
 
 
 
 
 
 
 
Investment securities (1): 
Taxable  2,257,162  136,185  6.03 2,074,238 136,295 6.57 1,695,460 101,706 6.00 
Exempt from Federal income taxes  9,366  778  8.31 14,774 1,168 7.91 23,193 1,699 7.33 
 
 
 
 
 
 
 
 Total investment securities  2,266,528  136,963  6.04 2,089,012 137,463 6.58 1,718,653 103,405 6.02 
 
 
 
 
 
 
 
Loans and leases (2),(3): 
Domestic  14,238,553  1,138,044  7.99 12,941,488 1,117,404 8.63 11,933,259 977,575 8.19 
Foreign  347,159  30,409  8.76 344,098 30,934 8.99 357,836 30,553 8.54 
 
 
 
 
 
 
 
 Total loans and leases  14,585,712  1,168,453  8.01 13,285,586 1,148,338 8.64 12,291,095 1,008,128 8.20 
 
 
 
 
 
 
 
 
Total earning assets
  17,273,697  1,323,978  7.66 15,752,238 1,310,278 8.32 14,491,126 1,136,322 7.84 
 
 
 
 
 
 
 
Cash and due from banks  693,489 632,780 621,964 
Premises and equipment  286,914 277,831 280,587 
Core deposit intangible  73,256 60,887 69,050 
Goodwill  712,198 612,284 624,886 
Other assets  421,887 263,959 205,902 
 
 
 
 
 
Total assets
 $19,461,441 $17,599,979 $16,293,515 
 
 
 
 

Notes:


(1)
For the years ended December 31, 2001, 2000, and 1999, average Average debt investment securities available for sale were computed based on historical amortized cost, excluding the effectseffect of SFASFAS No. 115 adjustments.
 
(2)
Nonaccruing loans and leases, areand loans held for sale have been included in the average loan and lease balances.
 
(3)
Interest income for loans and leases includeincluded loan and lease fees of $37,834, $32,811$44.4 million, $62.7 million and $32,803$53.8 million for 2001, 20002004, 2003 and 1999,2002, respectively.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Part II(continued)
                                        
     2001 2000 1999
     
 
 
         Interest         Interest         Interest    
     Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands)��Balance Expense Rate Balance Expense Rate Balance Expense Rate

 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDER’S EQUITY                                    
Interest-bearing deposits and liabilities:                                    
 Deposits:                                    
  Domestic:                                    
   Interest-bearing demand $315,997  $1,878   .59% $289,317  $3,546   1.23% $289,142  $3,609   1.25%
   Savings  4,576,588   86,082   1.88   4,062,828   98,876   2.43   4,067,056   93,100   2.29 
   Time  6,281,175   298,353   4.75   6,083,739   345,939   5.69   5,497,583   264,336   4.81 
  Foreign  222,708   6,951   3.12   222,351   9,843   4.43   203,846   7,576   3.72 
   
   
       
   
       
   
     
   Total interest-bearing deposits  11,396,468   393,264   3.45   10,658,235   458,204   4.30   10,057,627   368,621   3.67 
 Short-term borrowings  896,405   34,955   3.90   814,271   49,298   6.05   646,576   30,326   4.69 
 Long-term debt and capital securities  1,073,671   78,916   7.35   817,466   55,420   6.78   789,918   47,930   6.07 
   
   
       
   
       
   
     
   
Total interest-bearing deposits and liabilities
  13,366,544   507,135   3.79   12,289,972   562,922   4.58   11,494,121   446,877   3.89 
   
   
   
   
   
   
   
   
   
 
   Interest rate spread          3.87%          3.74%          3.95%
           
           
           
 
Noninterest-bearing deposits  3,153,164           2,721,818           2,459,305         
Other liabilities  862,404           685,563           547,128         
   
           
           
         
   Total liabilities  17,382,112           15,697,353           14,500,554         
Stockholder’s equity  2,079,329           1,902,626           1,792,961         
   
           
           
         
   
Total liabilities and stockholder’s equity
 $19,461,441          $17,599,979          $16,293,515         
   
           
           
         
   
Net interest income and margin on total earning assets
      816,843   4.73%      747,356   4.75%      689,445   4.76%
           
           
           
 
   Tax-equivalent adjustment      329           422           611     
       
           
           
     
   
Net interest income
     $816,514          $746,934          $688,834     
      
   
       
   
       
   
     

     
  ($ in billions)
1997  8.9 
1998  15.9 
1999  16.7 
2000  18.5 
2001  21.6 

     
  ($ in billions)
1997  6.8 
1998  12.0 
1999  12.5 
2000  14.0 
2001  15.2 

         
  Noninterest Net Interest
  Income Income
  
 
  ($ in millions)
1997  110.6   369.8 
1998  134.2   433.7 
1999  197.6   688.8 
2000  216.1   746.9 
2001  308.4   816.5 

     
  (%)
1997  4.77 
1998  4.81 
1999  4.76 
2000  4.75 
2001  4.73 

23


Part II(continued)

Table 2: Analysis of Changes in Net Interest Income (Taxable-Equivalent Basis)

     The following table analyzes the dollar amount of change (on a taxable-equivalent basis) in interest income and expense and the changes in dollar amounts attributable to:

 (a)  changes in volume (changes in volume times the prior year’s rate),
 
 (b)  changes in rates (changes in rates times the prior year’s volume), and
 
 (c)  changes in rate/volume (change in rate times change in volume).

     In this table, the dollar change in rate/volume is prorated to volume and rate proportionately.

                         
  Year Ended December 31, 
  2004 vs. 2003  2003 vs. 2002 
  Increase (Decrease) Due To  Increase (Decrease) Due To 
          Net Increase          Net Increase 
(dollars in thousands) Volume  Rate  (Decrease)  Volume  Rate  (Decrease) 
                 
INTEREST INCOME
                        
Interest-bearing deposits in other banks:                        
Domestic $(12) $8  $(4) $64  $(173) $(109)
Foreign  1,472   673   2,145   618   (1,072)  (454)
                   
Total interest-bearing deposits in other banks  1,460   681   2,141   682   (1,245)  (563)
Federal funds sold and securities purchased under agreements to resell  2,067   846   2,913   (865)  (1,157)  (2,022)
Trading assets  (977)  (181)  (1,158)  622   (453)  169 
Securities available for sale(1):
                        
Taxable  55,452   (10,587)  44,865   62,794   (34,953)  27,841 
Exempt from Federal income taxes  270   (503)  (233)  216   (476)  (260)
                   
Total securities available for sale  55,722   (11,090)  44,632   63,010   (35,429)  27,581 
Loans and leases(2) (3):
                        
Domestic  172,038   (104,246)  67,792   154,199   (149,940)  4,259 
Foreign  467   (1,214)  (747)  (1,679)  (1,842)  (3,521)
                   
Total loans and leases  172,505   (105,460)  67,045   152,520   (151,782)  738 
Other interest earning assets  1,969   (1,257)  712   (711)  (2,103)  (2,814)
                   
Total earning assets  232,746   (116,461)  116,285   215,258   (192,169)  23,089 
                   
INTEREST EXPENSE
                        
Deposits:                        
Domestic:                        
Interest-bearing demand  48   (85)  (37)  (138)  (432)  (570)
Savings  7,643   (5,651)  1,992   16,917   (46,338)  (29,421)
Time  9,418   2,771   12,189   (12,748)  (54,767)  (67,515)
Foreign  6,887   2,144   9,031   268   (3,996)  (3,728)
                   
Total interest-bearing deposits  23,996   (821)  23,175   4,299   (105,533)  (101,234)
Short-term borrowings  3,767   4,094   7,861   (2,260)  (10,468)  (12,728)
Long-term debt and capital securities  48,266   (21,684)  26,582   67,543   (33,704)  33,839 
                   
Total interest-bearing deposits and liabilities  76,029   (18,411)  57,618   69,582   (149,705)  (80,123)
                   
Increase (decrease) in net interest income $156,717  $(98,050) $58,667  $145,676  $(42,464) $103,212 
                   
 

     The taxable-equivalent adjustment is made for items exempt from Federal income taxes (assuming a 35% tax rate for 2001, 2000 and 1999) to make them comparable with taxable items before any income taxes are applied.

                             
      2001 Compared to 2000— 2000 Compared to 1999—
      Increase (Decrease) Due to: Increase (Decrease) Due to:
      
 
              Net Increase         Net Increase
(in thousands) Volume Rate (Decrease) Volume Rate (Decrease)

 
 
 
 
 
 
Interest earned on:                        
 Interest-bearing deposits in other banks:                        
   Domestic $96  $76  $172  $73  $4  $77 
   Foreign  960   (3,391)  (2,431)  (7,134)  3,266   (3,868)
   
   
   
   
   
   
 
    Total interest-bearing deposits in other banks  1,056   (3,315)  (2,259)  (7,061)  3,270   (3,791)
   
   
   
   
   
   
 
 Federal funds sold and securities purchased under agreements to resell  1,534   (5,190)  (3,656)  724   2,755   3,479 
   
   
   
   
   
   
 
 Investment securities:                        
  Taxable  11,510   (11,620)  (110)  24,241   10,348   34,589 
  Exempt from Federal income taxes  (447)  57   (390)  (657)  126   (531)
   
   
   
   
   
   
 
    Total investment securities  11,063   (11,563)  (500)  23,584   10,474   34,058 
   
   
   
   
   
   
 
 Loans and leases (1):                        
  Domestic  107,214   (86,574)  20,640   85,314   54,515   139,829 
  Foreign  273   (798)  (525)  (1,199)  1,580   381 
   
   
   
   
   
   
 
    Total loans and leases  107,487   (87,372)  20,115   84,115   56,095   140,210 
   
   
   
   
   
   
 
    Total earning assets  121,140   (107,440)  13,700   101,362   72,594   173,956 
   
   
   
   
   
   
 
Interest paid on:                        
 Deposits:                        
  Domestic:                        
   Interest-bearing demand  301   (1,969)  (1,668)  2   (65)  (63)
   Savings  11,488   (24,282)  (12,794)  (97)  5,873   5,776 
   Time  10,922   (58,508)  (47,586)  30,081   51,522   81,603 
  Foreign  16   (2,908)  (2,892)  730   1,537   2,267 
   
   
   
   
   
   
 
    Total interest-bearing deposits  22,727   (87,667)  (64,940)  30,716   58,867   89,583 
 Short-term borrowings  4,582   (18,925)  (14,343)  8,944   10,028   18,972 
 Long-term debt and capital securities  18,522   4,974   23,496   1,717   5,773   7,490 
   
   
   
   
   
   
 
    Total interest-bearing deposits and liabilities  45,831   (101,618)  (55,787)  41,377   74,668   116,045 
   
   
   
   
   
   
 
    
Increase (decrease) in net interest income
 $75,309  $(5,822) $69,487  $59,985  $(2,074) $57,911 
   
   
   
   
   
   
 

Note:


(1) Debt securities available for sale volume was computed based on historical amortized cost, excluding the effect of FAS No. 115 adjustments.
 
(2) Nonaccruing loans and leases, and loans held for sale have been included in the computations of volume balances.
(3)Interest income for loans and leases includeincluded loan and lease fees of $37,834, $32,811,$44.4 million, $62.7 million and $32,803$53.8 million, for 2001, 20002004, 2003 and 1999,2002, respectively.

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BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Part II(continued)NONINTEREST INCOME

Noninterest Income

     Components     The following table reflects the key components of and changes in noninterest income are reflected below for the years indicated:

                             
              2001/2000 Change 2000/1999 Change
              
 
(dollars in thousands) 2001 2000 1999 Amount % Amount %

 
 
 
 
 
 
 
Service charges on deposit accounts $89,175  $74,718  $67,674  $14,457   19.3% $7,044   10.4%
Trust and investment services income  32,330   36,161   32,644   (3,831)  (10.6)  3,517   10.8 
Other service charges and fees  78,787   73,277   65,484   5,510   7.5   7,793   11.9 
Securities gains, net  71,797   211   16   71,586   N/M   195   1,218.8 
Other  36,309   31,709   31,814   4,600   14.5   (105)  (0.3)
   
   
   
   
       
     
Total noninterest income
 $308,398  $216,076  $197,632  $92,322   42.7% $18,444   9.3%
   
   
   
   
   
   
   
 

N/M — Not Meaningful.

2001 vs. 2000

                             
  Year Ended December 31  2004/2003 Change  2003/2002 Change 
(dollars in thousands) 2004  2003  2002  Amount  %  Amount  % 
 
Service charges on deposit accounts $163,679  $155,243  $139,030  $8,436   5.4% $16,213   11.7%
Trust and investment services income  40,580   38,045   37,198   2,535   6.7   847   2.3 
Other service charges and fees  153,911   142,030   127,297   11,881   8.4   14,733   11.6 
Net gains on securities available for sale  873   4,289   1,953   (3,416)  (79.6)  2,336   119.6 
Vehicle and equipment leases income  17,092         17,092          
Other  55,365   52,572   30,423   2,793   5.3   22,149   72.8 
                        
Total noninterest income
 $431,500  $392,179  $335,901  $39,321   10.0% $56,278   16.8%
                      
 

     AsIncluded in other service charges and fees are loan prepayment fees, substantially all of which are related to commercial loans, of $7.5 million, $8.3 million and $5.2 million for the table above showsyears ended December 31, 2004, 2003 and 2002, respectively. These fees generally arise during a falling interest rate environment as those customers who prefer fixed-rate loans seek to refinance with other lenders. The fees are cyclical and typically lower during an increasing interest rate environment.

2004 compared with 2003

     A significant portion of the increase in more detail,service charges on deposit accounts was due to higher fee income from overdraft and nonsufficient fund transactions, the effect of having acquired Community First and USDB deposit accounts in November 2004 and an increase in average deposit balances of approximately 14.2%, offset by lower servicing fee income.

     The increase in trust and investment services income was predominately due to higher income from fees on trust accounts acquired from Community First and higher income resulting from new business.

     The increase in other service charges and fees was partially attributed to higher merchant services fees resulting from an increase in the number of retail merchant accounts and higher retail sales volume. Higher fees from debit card and ATM transactions also contributed to the increase.

     Net gains on securities available for sale totaled $0.9 million, compared with net gains of $4.3 million. The higher gains in 2003 were due to portfolio restructuring activities.

     The increase in vehicle and equipment operating lease income was due to accounting for auto leases originated from February through July 2004 as operating leases rather than direct finance leases.

     A significant portion of the increase in other noninterest income was attributed to gains on the disposal of certain fixed assets and higher gains on the sale of other real estate owned, partially offset by reduced gains on the sale of residential loans, lower gains on the sale of a leveraged lease and lower income from the sale of loans in the Essex subsidiary as Essex continued to retain loans in its portfolio rather than selling them.

2003 compared with 2002

     The increase in service charges on deposit accounts was primarily attributed to an increase in average deposit balances of approximately 11.7%, higher servicing fee income as a result of repricing changes in account analysis, higher fee income from overdraft and nonsufficient fund transactions and the full year effect of acquired UCB deposit accounts instead of only nine and a half months as in 2002.

     The increase in other service charges and fees was primarily due to increased $92.3revenue resulting from a concentrated effort in growing the sales of investment products, higher commissions from the issuance of letters of credit, higher merchant services fees resulting from an increase in the number of retail merchant accounts and higher retail sales volume, higher income from debit and

19


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

credit card transactions as a result of increased utilization of existing and new VISA® and MasterCard® accounts, higher income from non yield related fees on commercial loans and higher rental income resulting from surplus properties acquired from UCB.

     The increase in net gains on securities available for sale was due to portfolio restructuring activities.

     The increase in other noninterest income was partially attributed to higher gains on the sale of lease residual interests, other real estate owned and miscellaneous assets as well as increased revenue from derivative sale activities and the full year impact of the UCB acquisition.

NONINTEREST EXPENSE

     The following table reflects the key components of the change in noninterest expense for the years indicated:

                             
  Year Ended December 31,  2004/2003 Change  2003/2002 Change 
(dollars in thousands) 2004  2003  2002  Amount  %  Amount  % 
 
Personnel:                            
Salaries and wages $359,480  $342,985  $327,648  $16,495   4.8% $15,337   4.7%
Employee benefits  141,104   139,198   111,810   1,906   1.4   27,388   24.5 
                        
Total personnel expense  500,584   482,183   439,458   18,401   3.8   42,725   9.7 
 
Occupancy  91,770   87,514   85,821   4,256   4.9   1,693   2.0 
Outside services  85,222   85,315   78,803   (93)  (0.1)  6,512   8.3 
Intangible amortization  26,535   23,054   20,047   3,481   15.1   3,007   15.0 
Equipment  49,814   47,197   48,259   2,617   5.5   (1,062)  (2.2)
Depreciation-vehicle and equipment operating leases  15,275         15,275          
Stationery and supplies  25,054   25,416   29,016   (362)  (1.4)  (3,600)  (12.4)
Advertising and promotions  26,717   23,535   27,420   3,182   13.5   (3,885)  (14.2)
Restructuring and integration costs  16,144      17,595   16,144      (17,595)   
Other  125,434   118,621   89,655   6,813   5.7   28,966   32.3 
                        
Total noninterest expense
 $962,549  $892,835  $836,074  $69,714   7.8% $56,761   6.8%
                      
 

2004 compared with 2003

     The increase in salaries and wages expense was attributable to a higher full-time equivalent employee count partly due to the acquisitions of Community First and USDB.

     The increase in occupancy expense was substantially due to the acquisitions of Community First and USDB.

     The increase in amortization of intangible assets was predominately a result of the amortization of the core deposit and insurance intangibles resulting from the Community First and USDB acquisitions.

     The increase in depreciation on vehicle and equipment operating leases was the result of vehicle depreciation costs incurred from the change in accounting for auto leases originated from February through July 2004 as operating leases rather than direct finance leases. See Note 9 (Operating Leases) to the Consolidated Financial Statements for additional information.

     The increase in advertising and promotion expenses was due to higher advertising activities in 2004 related to deposit campaigns and campaigns to promote brand recognition.

     The $16.1 million in restructuring and integration costs were related to the acquisitions of Community First and USDB ($10.9 million in contracted services, $1.7 million in travel related expenses, $1.6 million in stationery and supplies, $0.6 million in salaries and benefits, $0.6 million in advertising and promotions and $0.7 million in other miscellaneous expenses).

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CONDITION AND RESULTS OF OPERATIONS

     The increase in other noninterest expense was partially due to higher fees resulting from increased transaction volume related to airline branded credit cards, significantly offset by a decrease in the residual value of certain leveraged leases in 2003 and lower split dollar life insurance expenses as a result of marking policies to cash surrender value.

2003 compared with 2002

     The increase in salaries and wages expense was primarily attributable to the full year impact of the acquisition of UCB and normal salary increases.

     The increase in employee benefits expense was primarily due to higher group healthcare insurance, increased incentive compensation, higher pension and retirement plan expense due to a recognized actuarial loss, and higher worker’s compensation insurance as a result of increased costs as well as the full year impact of UCB.

     The increase in outside services expense was primarily due to higher data processing and contracted services expense resulting from the full year effect of the UCB acquisition.

     The increase in amortization of intangible assets was primarily a result of the full year amortization of the core deposit intangibles resulting from the acquisition of UCB.

     The decrease in advertising and promotion expenses was primarily the result of higher advertising and promotion expenses in 2002 to promote brand recognition and retain the customer base acquired through the acquisition of UCB.

     The increase in other noninterest expense was primarily attributable to higher depreciation expense on software incurred as a result of the conversion of UCB operating systems, higher general liability and property insurance, higher co-branded partner fees due to increased transaction volume related to airline branded credit cards, increased charitable contributions, as well as $4.7 million in costs associated with restructuring certain leverage leases in 2003. The increase was partially offset by lower travel and restructuring costs incurred during the UCB integration as well as lower outside legal and professional expense, lower collection and repossession expense, and lower check printing charges.

OPERATING SEGMENTS

     Our operations are managed principally through our two major bank subsidiaries, Bank of the West and First Hawaiian Bank. See Note 20 (Operating Segments) to the Consolidated Financial Statements for additional information.

Bank of the West

Regional Banking

2004 compared with 2003

     The Regional Banking segment’s net income increased $2.4 million, or 42.7%1.8% from $135.7 million to $138.1 million. Net interest income increased $15.1 million or 3.1% from last year. The increase is primarily related to the larger transfer pricing adjustment in the current year, offset by a 68 basis point decrease in the margin on demand deposits. Noninterest income increased $13.4 million or 8.2%. The increase is primarily due to increased service charges on deposit accounts, an increase in debit card interchange revenue and investment sales fees. Noninterest expense increased $31.2 million or 7.4%. The increase is primarily due to an increase in compensation expenses; direct occupancy costs related to two de novo branches and increased third party vendor contracts.

     Average loans and leases increased $806 million or 14.7%. The increase is primarily due to real estate residential loan purchases throughout the year and from the Community First acquisition in the fourth quarter of 2004.

     Average deposits increased $1.2 billion or 8.5%. The increase is primarily due to growth in core deposits and the Community First acquisition in 2004.

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CONDITION AND RESULTS OF OPERATIONS

2003 compared with 2002

     The Regional Banking segment’s net income increased $5.9 million in 2003, from $129.8 million in 2002, to $135.7 million . Net interest income increased $11.7 million or 2.4%. This increase included the impact of the acquisition of UCB in March of 2002, offset by margin compression. Noninterest income increased $19.4 million, or 13.5%, from $216.110.9% growth in average deposit balances and repricing of our fee structures. Growth in debit card interchange revenue from increased utilization of existing and new VISA® and MasterCard® accounts contributed to the increase in noninterest income. Noninterest expense increased $28.7 million, or 7.3%, compared to the prior year. Noninterest expense increased in 2003 due to the acquisition of UCB and increases in employee benefit expenses for group insurance. The provision for loan and lease losses decreased $4.0 million, or 26.0%, from the prior year due to higher recoveries of previously charged off loans. The growth in deposit balances was driven by core deposits, offset by a decline in certificates of deposits.

Commercial Banking

2004 compared with 2003

     The Commercial Banking segment’s net income decreased to $152.7 million, down $1.2 million, or 0.8%, from $153.9 million. Net interest income increased $2.9 million, or 0.9%. Noninterest income increased $4.7 million, or 9.7%. The increase is partially related to increased commission fees, syndication fees and gains on the sale of SBA loans from the growth in the SBA portfolio, offset by decreased service charges and SBA servicing income. Noninterest expense increased $2.7 million, or 2.3%. The increase is partly due to higher compensation and employee healthcare benefits. Provision for credit losses increased by $2.0 million in 20002004 to $308.4$1.4 million primarily related to a large recovery in 2003.

     Average loans and leases in 2004 increased 9.8% from 2003 to $7.7 billion. The increase was partly due to new equipment leases and SBA lending. The interest margin on loans and leases decreased 11 basis points to 2.75% during 2004 due to declining margins in all product categories.

     Average deposits increased 17.5% to $3.6 billion in 2004. The increase was partly due to higher core deposits and shorter-term negotiable CD’s. The deposit margin decreased 67 basis points to 1.66% in 2004. The decrease in deposit margin from the prior year is due to a decrease in transfer pricing on demand deposit accounts, which declined by 68 basis points, and a 75 basis point decline in margin on money market savings accounts.

2003 compared with 2002

     The Commercial Banking segment’s net income increased to $153.9 million, up $45.0 million, or 41.3%, from $108.9 million. Net interest income increased $54.0 million, or 20.6%. Noninterest income increased $16.6 million, or 52.4%. Noninterest expense increased $15.8 million or 15.6%. The provision for loan and lease losses decreased $15.3 million due to improved credit quality and a large increase in recoveries of loans previously charged off.

     Commercial Banking achieved growth in loans, deposits, and net income due to strong performances in SBA lending, church lending, healthcare, and cash management, as well as the acquisitions of UCB and Trinity Capital. Interest margins on loans and leases decreased, as maturing higher yielding loans and leases were replaced by lower yielding loans and leases. Deposit margins decreased due to a declining interest rate environment. Noninterest income growth was driven by the UCB and Trinity acquisitions, loan prepayment fees, lease servicing, and strong growth in cash management, derivatives, and foreign exchange revenues. Commercial Banking pursued a strategy of leveraging efficiencies gained through the expanded resources resulting from the UCB and Trinity Capital acquisitions, while focusing on niche markets where there is a competitive advantage, such as equipment leasing, SBA lending and church lending.

Consumer Finance

2004 compared with 2003

     The Consumer Finance segment’s net income increased $12.4 million, or 19.7% to $75.4 million compared to $63.0 million in 2001. Factors causing2003. Net interest income was $212.2 million, compared to $207.1 million in 2003, an increase of 2.5%. Noninterest income

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CONDITION AND RESULTS OF OPERATIONS

increased $12.6 million, or 106.8% to $24.4 million. The increase is partially due to recording lease payments as noninterest income for all auto leases booked under the operating method of accounting from February through July 2004. This increase was partially offset by lower gains on sales of loans through our Essex subsidiary, which were down $5.0 million in 2004. In February 2004 Essex began retaining a percentage of new loan originations in its own portfolio. In previous years Essex sold 100% of its loan originations. Noninterest expense increased $21.3 million to $81.6 million in 2004. The increase is due primarily to higher employee salaries and healthcare benefits, a decrease in deferred loan origination costs and higher depreciation expense as a result of the accounting for certain vehicle leases as operating leases. The provision for credit losses decreased $25.1 million from $54.6 million in 2003 to $29.5 million in 2004, due to an improvement in credit quality.

     Average assets in 2004 were $8.5 billion compared to $7.6 billion in 2003, an increase of 12.5%. This increase is due to increased indirect loan production and the addition of assets from the acquisition of Community First in the fourth quarter of 2004.

2003 compared with 2002

     Net income was $63.0 million compared to $56.0 million. Net interest income was $207.1 million, compared to $183.1 million, an increase of 13.1%. This was the result of increased interest income generated from a larger asset base which resulted from higher loan origination volumes. Noninterest income remained flat from 2002. Essex experienced lower production levels in early 2003 as significant focus was placed on relocation of the operations and staffing changes. Noninterest expense increased $4.5 million, or 8.1%. This increase was primarily due to greater staff and occupancy requirements associated with growth in the loan origination and servicing areas. Additionally, increases in the cost of employee benefits and an increase in the use of outside services related to higher production volumes contributed to the higher expenses in 2003.

     The Consumer Finance segment remained very competitive in the indirect lending market and experienced strong production volumes in 2003, which positively impacted the segment’s total assets. Average assets for 2003 were $7.6 billion compared to $6.7 billion, an increase of $0.9 billion, or 13.4% over 2002. This increase is due to both the UCB acquisition that took place in 2002 and increased indirect loan production. The provision for loan and lease losses increased $9.4 million from $45.2 million in 2002 to $54.6 million in 2003. The provision was increased in response to the increase included:in Consumer Finance’s loan and lease credit exposures.

First Hawaiian Bank

Retail Banking

2004 compared with 2003

     The Retail Banking segment’s net income increased to $76.5 million, up $6.9 million, or 9.9%. Net interest income increased $14.7 million, or 6.4%, partially due to higher balances in earning assets. Noninterest income increased $0.4 million, or 0.7%. Noninterest expense increased $2.5 million, or 1.5%. Noninterest expense increased due to higher allocated expenses, partially offset by a decrease in occupancy expense corresponding to the purchase of the First Hawaiian Center in December 2003. The provision for credit losses decreased $1.4 million, or 22.2%. The decrease in the provision for credit losses was a result of improved credit quality which has led to a decrease in nonperforming assets and lower net charge offs.

     Average assets increased 11.6% to $3.8 billion, primarily due to increases in loans of $313 million. Average deposits increased to $7.1 billion, primarily due to an increase in core deposits.

2003 compared with 2002

     Net income decreased to $69.6 million, down $1.7 million, or 2.4%. Net interest income decreased $4.3 million, or 1.8%, primarily due to a decrease in the net interest margin. Noninterest income increased $4.9 million, or 9.4% due to higher account analysis fees. Noninterest expense increased $6.5 million, or 4.0%, primarily the result of higher retirement plan expense.

     Average assets increased 1.8% to $3.4 billion, primarily due to higher commercial loan balances. Average deposits increased 8.0% to $6.5 billion, primarily due to an increase in core deposits.

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BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Consumer Finance

2004 compared with 2003

     Consumer Finance net income decreased to $36.7 million, down $0.6 million, or 1.6%. Net interest income was $87.7 million compared to $81.0 million, an increase of 8.3%. This was the result of increased interest income on higher loan balances. Noninterest income decreased $4.3 million, or 12.7%. The decrease was caused by lower gains on the sale of mortgages in 2004, compared with those of 2003. Noninterest expense increased $0.8 million, or 1.7%, primarily due to an increase in co-branded partner fees in 2004.

     Average assets increased 8.2% to $1.5 billion, partly due to increases in consumer and dealer flooring loans.

2003 compared with 2002

     Net income increased to $37.3 million, up $7.7 million, or 26.0%. Net interest income increased $8.5 million, or 11.7%, primarily due to higher interest income on mortgage loans. Noninterest income increased $7.2 million, or 27.1%, due to gains on mortgage loan sales and fee income. Noninterest expense increased $4.0 million, or 9.6%, primarily due to higher incentive compensation and higher retirement plan expense.

     Average assets increased 4.5% to $1.4 billion, primarily due to higher balances in consumer and real estate mortgage loans.

Commercial Banking

2004 compared with 2003

     Commercial Banking’s net income decreased to $20.4 million, down $0.4 million, or 1.9%. Net interest income decreased $4.6 million, or 13.6%, partially due to lower earning assets. Noninterest income increased $0.9 million, or 7.3%, partly due to a $6.9 million fee on the sale of a lease in the second quarter of 2004, partially offset by a $4.1 million net gain on sale of the net investment in a lease and a gain on sale of low-income housing investments in 2003. Noninterest expense decreased $1.5 million, or 11.7%. The provision for credit losses decreased $3.9 million, or 88.6%, due to an improvement in credit quality.

2003 compared with 2002

     Net income increased to $20.8 million, up $5.0 million, or 31.6%. Net interest income increased $10.6 million, or 45.5%, primarily due to higher interest income on commercial and mortgage loans. Noninterest income increased $6.2 million, or 100%, primarily due to a $4.1 million net gain on sale of a lease and a gain on sale of low-income housing projects and equipment. Noninterest expense increased $6.1 million, or 91.0%, primarily due to a $4.1 million pretax reduction in net investment of certain leveraged leases.

     Average assets increased 30.1% to $1.2 billion due to an increase in loans.

Financial Management

2004 compared with 2003

     The Financial Management segment’s net income was $2.7 million in 2004 and $2.6 million in 2003. Net interest income remained flat. Noninterest income increased by $0.5 million, or 1.7%. Noninterest expense increased $0.3 million, or 1.2%.

2003 compared with 2002

     Net income increased to $2.6 million, up $0.7 million, or 36.8%. Net interest income remained flat. Noninterest income increased $2.8 million, or 10.4% primarily due to higher investment management fees. Investment fees were positively impacted by the economic upturn in the equity markets. Noninterest expense increased by $1.4 million, or 5.9%, primarily due to higher employee salaries and benefits.

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BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

SECURITIES AVAILABLE FOR SALE

     The Company focuses on the following four objectives for its available-for-sale portfolio:

  Service charges onSupport its need for liquidity to fund loans or to meet unexpected deposit accounts increased, primarily due to higher levelsrunoff. Liquidity can be met by having investments with relatively short maturities and/or a high degree of deposits caused by the expansion of our customer deposit base in our Bank of the West operating segment, including the deposits from the 30 branches acquired in Nevada and New Mexico in the first quarter of 2001.marketability.
 
  Trust and investment services income decreased, primarily dueAct as a vehicle to decreased investment management fee income resulting from a lower valuation of investments under management.make meaningful shifts in the Company’s overall interest rate risk profile.
 
  Other service charges and fees increased, primarily dueProvide collateral to higher merchant services fees resulting from higher fee charges, increased volume and more merchant outlets, higher bank card and ATM convenience fee income and higher miscellaneous service fees.secure the Company’s public funds-taking activities.
 
  The Concord stock securities gain was primarily responsible forProvide the increase in securities gains.
Other noninterest income increased by 14.5% compared to 2000. Significant items in 2001 included an approximately $4 million gain on salemaximum level of a leveraged lease.after-tax earnings consistent with the safety factors of quality, maturity, marketability and risk diversification.

2000 vs. 1999     The recent increases in the investment portfolio are directly related to strong deposit growth and slow loan growth in certain loan categories.

LOANS AND LEASES

     The following table presents the major categories of the loan and lease portfolio as of December 31 for the years ended:

                     
(dollars in millions) 2004  2003  2002  2001  2000 
 
Commercial, financial and agricultural $6,027  $4,492  $4,803  $2,388  $2,605 
Real estate:                    
Commercial  6,707   5,146   4,806   2,957   2,618 
Construction  1,494   953   972   464   406 
Residential  6,700   5,020   4,749   2,228   2,315 
                
Total real estate loans  14,901   11,119   10,527   5,649   5,339 
Consumer  9,244   7,345   6,021   4,462   3,593 
Lease financing  2,133   2,417   2,399   2,293   2,038 
Foreign loans  384   349   396   386   345 
                
Total loans and leases  32,689   25,722   24,146   15,178   13,920 
Less allowance for loan and lease losses  437   392   384   195   172 
                
Total net loans and leases $32,252  $25,330  $23,762  $14,983  $13,748 
                
Total loans and leases to:                    
Total assets  65.3%  67.1%  69.5%  70.1%  75.4%
Total interest earning assets  78.0%  79.5%  84.3%  83.8%  85.2%
Total deposits  97.2%  97.4%  98.3%  99.0%  98.5%
 

     We continue our efforts to diversify our loan and lease portfolio, both geographically and by industry. Our overall growth in loan and lease volume came primarily from internal growth and the acquisitions of Community First and USDB in the fourth quarter of 2004.

     The loan and lease portfolio is the largest component of total earning assets and accounts for the greatest portion of total interest income. Total loans and leases increased by 27.1% from December 31, 2003 to December 31, 2004. The increase was substantially due to increases in consumer and real estate loans, with customers taking advantage of the low interest rate environment, and from the acquisitions in the fourth quarter of 2004. Real estate and consumer loans increased 34.0% and 25.9%, or $3.8 billion and $1.9 billion, respectively. Commercial, financial and agricultural loans increased 34.2% from last year. In the context of interest rate trends and the broader economy, we continuously monitor the mix in our loan portfolio.

     Total loans and leases increased by 6.5% from December 31, 2002 to December 31, 2003, primarily due to an increase in consumer and real estate loans as a result of the low interest rate environment.

Commercial, Financial and Agricultural Loans

     As of December 31, 2004, commercial, financial and agricultural loans represented 18.4% of total loans and leases, compared with 17.5% at December 31, 2003. The increase was mostly due to the table above showsacquisitions of Community First and USDB.

     As of December 31, 2003, commercial, financial and agricultural loans totaled 17.5% of total loans and leases, compared with 19.9% at December 31, 2002. The decrease was partially due to a planned reduction in more detail, noninterest income increased $18.4 million, or 9.3%, from $197.6 millionFirst Hawaiian’s media and syndicated national credits. We have also decreased exposures in 1999certain commercial, financial and agricultural loans in response to $216.1 million in 2000. Factors causing the increase included:

Service charges on deposit accounts increased, primarily due to higher levels of deposits caused by the expansion of our customer deposit base in our Bank of the West operating segment.
Trust and investment services income increased, primarily due to increased money management services to both retail and institutional clients, reflecting our continuing efforts to strengthen and diversify our revenue base.
Other service charges and fees increased, primarily due to higher merchant services fees, higher bank card fees, higher ATM convenience fee income, higher annuity and mutual fund sales and higher miscellaneous service fees.
Other noninterest income decreased by 0.3% compared to 1999. Significant items in 2000 included $5 million in termination fees from the cancelled First Security Corporation and Zions Bancorp merger and a gain on the sale of the former SierraWest Bank headquarters of $1.2 million in 2000. It should be noted that 1999’s other noninterest income total included a gain on the transfer of rights associated with the termination of a leveraged lease of approximately $5 million.

     
  (%)
1997  1.33 
1998  1.32 
1999  1.29 
2000  1.23 
2001  1.28 

     
  (%)
1997  0.33 
1998  0.31 
1999  0.42 
2000  0.37 
2001  0.55 

     
  (%)
1997  1.42 
1998  1.11 
1999  1.01 
2000  0.86 
2001  0.78 
concentration levels.

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BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Part II(continued)     We seek to maintain reasonable levels of risk in commercial, financial and agricultural lending by following prudent underwriting guidelines primarily based on cash flow. Most commercial, financial and agricultural loans are collateralized and/or supported by guarantors judged to have adequate net worth. We make unsecured loans to customers based on character, net worth, liquidity and repayment ability.

ProvisionReal Estate Loans

     Real estate loans represented 45.6% and Allowance43.2% of total loans and leases at December 31, 2004 and 2003, respectively. Real estate loans increased 34.0%, or $3.8 billion, primarily from the acquisitions in the fourth quarter of 2004. A significant portion of the increase is also due to customers taking advantage of the low interest rate environment and greater loan purchases during the current year.

     Real estate loans increased $592 million, or 5.6%, from 2002 to 2003. Real estate loans represented 43.2% and 43.6% of total loans and leases at December 31, 2003 and 2002, respectively. We have maintained the concentration of loans in this area primarily through the purchase of pools of residential loans and the origination of commercial real estate loans.

     We seek to maintain reasonable levels of risk in real estate lending by financing projects selectively, by adhering to prudent underwriting guidelines and by closely monitoring general economic conditions affecting local real estate markets. In purchasing existing residential real estate loans, we are able to diversify our geographic exposure.

Multifamily and commercial real estate loans.We analyze each application to assess the project’s economic viability, the loan-to-value ratio of the real estate securing the financing and the underlying financial strength of the borrower. In this type of lending, we will generally: (1) lend no more than 80% of the appraised value of the underlying project or property; and (2) require a minimum debt service ratio of 1.15.

Single-family residential loans.We will generally lend no more than 80% of the appraised value of the underlying property. Although the majority of our loans adhere to that limit, loans made in excess of that limit are generally covered by third-party mortgage insurance that reduces our equivalent risk to an 80% loan-to-appraised-value ratio.

Home equity loans.We generally lend up to 75% of appraised value or tax assessed value for Credit Lossesfirst mortgages, otherwise 80-100% depending on the amount of the loan. The debt-to-income ratio should not exceed 45% and a good credit history is required.

Consumer Loans

     Consumer loans consist primarily of open- and closed-end direct and indirect loans for personal, automobile, recreational vehicle, pleasure boat and household purchases. We seek to maintain reasonable levels of risk in consumer lending by following prudent underwriting guidelines which include an evaluation of: (1) personal credit history; (2) personal cash flow; and (3) collateral values based on existing market conditions.

     Consumer loans, including financing of automobiles, recreational vehicles and pleasure boats, totaled 28.3% of total loans and leases at December 31, 2004 compared to 28.6% in 2003. The balance increased $1.9 billion or 25.9% from last year. This increase is primarily due to higher confidence in the consumer market and attractive interest rates. A significant portion of the increase is also due to the acquisitions of Community First and USDB. Low interest rates have made purchase financing for automobiles more attractive than leasing.

     Consumer loans increased $1.3 billion or 22.0% from 2002 to 2003. The increase was primarily due to confidence in the consumer market and attractive interest rates on consumer lending.

Lease Financing

     Lease financing as of December 31, 2004 decreased from last year due to a change in the method of accounting for new vehicle leases from finance leases to operating leases during the period of February through July 2004 as we did not obtain residual insurance on an individual lease basis. These auto leases were accounted for as operating leases that are reflected in other assets on our balance sheet and are depreciated over their useful lives. Income from these auto leases was reported as noninterest income. Prior to February

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BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

and after July 2004, we accounted for vehicle leases as direct financing leases as we obtained residual insurance on an individual lease basis. Unearned income on financing leases is accreted over the lives of the leases to provide a constant periodic rate of return on the net investment in the lease.

In 2004 lease financing represented 6.5% of total loans and leases as compared to 9.4% in 2003, and 9.9% in 2002. Consumer lease financing is declining in response to the decline in interest rates which has changed consumer preferences away from lease financing. The proportionate decrease was also due to the acquisitions of Community First and USDB, in which the lease financing obtained was a small percentage of the total loans acquired.

Loan and Lease Concentrations

     Loan and lease concentrations exist when there are loans to multiple borrowers who are engaged in similar activities and thus would be impacted by the same economic or other conditions. At December 31, 2004, we did not have a concentration of loans and leases greater than 10% of total loans and leases which were not otherwise disclosed as a category in the table above.

     The loan and lease portfolio is predominately located in California, Hawaii, and other states in the Western United States. We also lend, to a lesser extent, nationally and in Guam and Saipan. The risk inherent in the portfolio is dependent upon both the economic stability of the areas in which we lend and the financial well-being and creditworthiness of the borrowers.

Loan and Lease Maturities

     The contractual maturities of loans and leases (shown in the table below) do not necessarily reflect the actual maturities of our loan and lease portfolio. In our experience, the average life of residential real estate and consumer loans is substantially less than their contractual terms because borrowers prepay loans.

     In general, the average life of real estate loans tends to increase when current interest rates exceed rates on existing loans. In contrast, borrowers are more likely to prepay loans when current interest rates are below the rates on existing loans. The volume of such prepayments depends upon changes in both the absolute level of interest rates, the relationship between fixed and adjustable-rate loans and the relative values of the underlying collateral. As a result, the average life of our fixed-rate real estate loans has varied widely.

     At December 31, 2004, loans and leases with contractual maturities of over one year were comprised of fixed-rate loans totaling $15.9 billion and floating or adjustable-rate loans totaling $9.8 billion.

     The following table sets forth the activitycontractual maturities of our loan and lease portfolio by category at December 31, 2004. Demand loans are included as due within one year.

                 
      After One       
  Within  And Within  After    
(dollars in millions) One Year  Five Years  Five Years  Total 
 
Commercial, financial and agricultural $2,901  $2,098  $1,028  $6,027 
Real estate:                
Commercial  1,096   2,568   3,043   6,707 
Construction  804   600   90   1,494 
Residential  365   1,601   4,734   6,700 
Consumer  1,269   4,108   3,867   9,244 
Lease financing  509   1,177   447   2,133 
Foreign  84   180   120   384 
             
Total $7,028  $12,332  $13,329  $32,689 
             
 

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BancWest Corporation and Subsidiaries
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CONDITION AND RESULTS OF OPERATIONS

NONPERFORMING ASSETS AND RESTRUCTURED LOANS

     Nonperforming assets and restructured loans are reflected below:

                     
  Year Ended December 31,
(dollars in thousands) 2004  2003  2002  2001  2000 
 
Nonperforming assets:                    
Nonaccrual:                    
Commercial, financial and agricultural $51,793  $66,100  $145,920  $37,477  $43,016 
Real estate:                    
Commercial  47,385   41,508   48,071   30,587   22,386 
Construction  2,386            403 
Residential  6,862   8,176   5,460   9,260   12,458 
                
Total real estate loans  56,633   49,684   53,531   39,847   35,247 
                
Consumer  4,477   3,634   4,769   6,144   3,257 
Lease financing  8,138   8,038   11,532   9,570   6,532 
Foreign  4,138   6,341   10,088   4,074   5,496 
                
Total nonaccrual loans and leases  125,179   133,797   225,840   97,112   93,548 
                
Other real estate owned and repossessed personal property  21,653   17,387   19,613   22,321   27,479 
                
Total nonperforming assets $146,832  $151,184  $245,453  $119,433  $121,027 
                
Past due loans and leases(1) :
                    
Commercial, financial and agricultural $6,140  $17,545  $9,005  $11,134  $6,183 
Real estate:                    
Commercial  2,119   7,410   2,952   385   1,987 
Construction  506             
Residential  1,112   1,084   5,743   3,770   3,886 
                
Total real estate loans  3,737   8,494   8,695   4,155   5,873 
                
Consumer  2,243   2,559   1,984   3,323   3,719 
Lease financing  79   127   232   146   113 
Foreign  216   651   1,181   2,023   1,321 
                
Total past due loans and leases $12,415  $29,376  $21,097  $20,781  $17,209 
                
Accruing Restructured Loans and Leases:                    
Commercial, financial and agricultural  36   60   69   107    
Commercial real estate  429   1,616   4,570   6,301   7,316 
                
Total accruing restructured loans and leases $465  $1,676  $4,639  $6,408  $7,316 
                
Nonperforming assets to total loans and leases and other real estate owned and repossessed personal property (end of year):                    
Excluding past due loans and leases  0.45%  0.59%  1.02%  0.79%  0.87%
Including past due loans and leases  0.49   0.70   1.10   0.92   0.99 
Nonperforming assets to total assets (end of year):                    
Excluding past due loans and leases  0.29   0.39   0.71   0.55   0.66 
Including past due loans and leases  0.32   0.47   0.77   0.65   0.75 
 


(1) Represents loans and leases which are past due 90 days or more as to principal and/or interest, are still accruing interest, are adequately collateralized and are in the process of collection.

Nonperforming Assets

     We generally place a loan or lease on nonaccrual status when we believe that collection of principal or interest has become doubtful or when loans or leases are 90 days past due as to principal or interest, unless they are well secured and in the process of collection. We may make an exception to the general 90-day-past-due rule when the fair value of the collateral exceeds our recorded investment in the loan.

     Consumer loans and leases are subject to our general policies regarding nonaccrual loans and substantially all past-due consumer loans and leases are charged off upon reaching a predetermined delinquency status varying from 120 to 180 days, depending on product type.

     When we place a loan or lease on nonaccrual status, previously accrued and uncollected interest is reversed against interest income of the current period. When we receive a cash payment on a nonaccrual loan, we apply it as a reduction of the principal balance when we have doubts about the ultimate collection of the principal. Otherwise, we record such payments as income.

     Nonaccrual loans and leases are generally returned to accrual status when they: (1) become current as to principal and interest and have demonstrated a sustained period of payment performance or (2) become both well secured and in the process of collection.

28


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

     Nonperforming assets at December 31, 2004 were $146.8 million, or 0.45%, of total loans and leases, other real estate owned, and repossessed personal property, as compared to 0.59% at December 31, 2003 and 1.02% at December 31, 2002. Nonperforming assets at December 31, 2004 were 0.29% of total assets, compared to 0.39% at December 31, 2003 and 0.71% at December 31, 2002.

2004 compared to 2003

     Total nonaccrual loans and leases decreased $8.6 million. Nonaccrual loans for commercial, financial and agricultural lending decreased $14.3 million. The decrease from the prior year for nonaccruing commercial, financial and agricultural loans was due to the resolution of problem relationships. Foreign nonaccruing loans decreased by $2.2 million. Our overall foreign loan portfolio, composed primarily of loans in Guam and Saipan, represents a relatively small component (1.2%) of our total loan portfolio. In addition, there was a decrease in nonaccrual residential real estate loans of $1.3 million. The decrease was the result of the resolution of problem relationships. These decreases were partially offset by an increase in total nonaccrual commercial and construction real estate loans of $8.3 million, which was partially due to the acquisitions of Community First and USDB in the fourth quarter of 2004.

2003 compared to 2002

     Total nonaccrual loans and leases decreased $92.0 million. Nonaccrual loans for commercial, financial and agricultural lending decreased $79.8 million. The decrease from the prior year for nonaccruing commercial, financial and agricultural loans was due to the resolution of problem relationships. Total nonaccrual real estate loans have decreased $3.8 million. Within the nonaccrual real estate loan category, decreases in commercial real estate loans of $6.6 million were partially offset by increases in nonaccrual residential real estate loans of $2.7 million. These decreases resulted from the resolution of problem relationships.

     Foreign nonaccruing loans decreased by $3.7 million. Our overall foreign loan portfolio, composed primarily of loans in Guam and Saipan, represented a relatively small component (1.4%) of our total loan portfolio.

     The following table presents information related to nonaccrual and restructured loans and leases as of December 31, 2004:

             
(dollars in thousands) Domestic  Foreign  Total 
 
Interest income which would have been recorded if loans had been current $4,431  $989  $5,420 
          
Interest income recorded during the year $3,661  $26  $3,687 
          
 

     First Hawaiian has credit exposure to an airline of $7.7 million (including $60,000 on leases) as of February 28, 2005. As a result of the borrower’s Chapter 11 reorganization filing on December 30, 2004, First Hawaiian has downgraded all of the borrower’s loans and leases to doubtful and placed all loans and leases on nonaccrual status. Based on management’s analysis of the borrower’s collateral, no specific reserve is required on the borrower’s outstanding balances. The borrower remained contractually current on all principal and interest payments through December 2004. The Cash Collateral Order through March 21, 2005, approved by the bankruptcy court requires the borrower to pay currently all interest and fees due First Hawaiian and the other secured lenders.

29


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The changes in the allowance for creditloan and lease losses for the years indicated:

                         
(dollars in thousands) 2001 2000 1999 1998 1997

 
 
 
 
 
Loans and leases outstanding (end of year)
 $15,223,732  $13,971,831  $12,524,039  $11,964,563  $6,792,394 
   
   
   
   
   
 
Average loans and leases outstanding
 $14,585,712  $13,285,586  $12,291,095  $7,658,998  $6,476,822 
   
   
   
   
   
 
Allowance for credit losses:                    
 Balance at beginning of year $172,443  $161,418  $158,294  $90,487  $90,895 
   
   
   
   
   
 
 Provision for credit losses  103,050   60,428   55,262   30,925   20,010 
 Loans and leases charged off:                    
  Commercial, financial and agricultural  25,855   8,693   7,715   6,440   7,487 
  Real estate:                    
   Commercial  1,193   2,715   6,385   740   1,150 
   Construction     3,480   3,646      180 
   Residential  2,920   6,589   5,539   4,217   3,731 
  Consumer  40,076   28,331   27,927   17,911   13,994 
  Lease financing  21,658   10,202   9,111   1,385   105 
  Foreign  1,438   2,121   1,222   458   197 
   
   
   
   
   
 
   Total loans and leases charged off  93,140   62,131   61,545   31,151   26,844 
   
   
   
   
   
 
 Recoveries on loans and leases previously charged off:                    
   Commercial, financial and agricultural  1,045   1,954   1,761   1,314   1,830 
   Real estate:                    
    Commercial  137   178   311   821   310 
    Construction  321   751   18   1,244    
    Residential  618   1,143   1,101   250   985 
   Consumer  7,028   6,261   5,681   3,040   2,347 
   Lease financing  2,459   2,018   1,397   253   26 
   Foreign  693   423   163   124   64 
   
   
   
   
   
 
   Total recoveries on loans and leases previously charged off  12,301   12,728   10,432   7,046   5,562 
   
   
   
   
   
 
   Net charge-offs  (80,839)  (49,403)  (51,113)  (24,105)  (21,282)
 Transfer of allowance allocated to securitized loans        (1,025)      
 Allowances of subsidiaries purchased (1)           60,987   864 
   
   
   
   
   
 
 
Balance at end of year
 $194,654  $172,443  $161,418  $158,294  $90,487 
   
   
   
   
   
 
Net loans and leases charged off to average loans and leases  .55%  .37%  .42%  .31%  .33%
Net loans and leases charged off to allowance for credit losses  41.53   28.65   31.66   15.23   23.52 
Allowance for credit losses to total loans and leases (end of year)  1.28   1.23   1.29   1.32   1.33 
Allowance for credit losses to nonperforming loans and leases (end of year):                    
 Excluding 90 days or more past due accruing loans and leases  2.00x   1.84x   1.64x   1.61x   1.40x 
 Including 90 days or more past due accruing loans and leases  1.65   1.56   1.39   1.16   .91 
   
   
   
   
   
 
indicated were:
                     
  Year Ended December 31,
(dollars in thousands) 2004  2003  2002  2001  2000 
 
Allowance for loan and lease losses:
                    
Balance at beginning of year
 $391,699  $384,081  $194,654  $172,443  $161,418 
Allowance arising from business combinations(1)
  59,392      212,660       
Provision for loan and lease losses  49,219   81,295   95,356   103,050   60,428 
Loans and leases charged off:                    
Commercial, financial and agricultural  15,521   38,621   68,497   25,855   8,693 
Real estate:                    
Commercial  2,704   1,622   3,287   1,193   2,715 
Construction              3,480 
Residential  761   930   1,307   2,920   6,589 
Consumer  58,608   56,489   50,155   40,076   28,331 
Lease financing  21,196   26,338   22,399   21,658   10,202 
Foreign  1,649   2,498   1,741   1,438   2,121 
                
Total loans and leases charged off  100,439   126,498   147,386   93,140   62,131 
                
Recoveries on loans and leases:                    
Commercial, financial and agricultural  11,444   31,843   10,479   1,045   1,954 
Real estate:                    
Commercial  412   568   999   137   178 
Construction  1,016   132   306   321   751 
Residential  806   1,264   608   618   1,143 
Consumer  13,950   12,041   10,331   7,028   6,261 
Lease financing  8,344   6,429   5,582   2,459   2,018 
Foreign  548   544   492   693   423 
                
Total recoveries on loans and leases  36,520   52,821   28,797   12,301   12,728 
                
Net charge-offs  (63,919)  (73,677)  (118,589)  (80,839)  (49,403)
                
Balance at end of year
 $436,391  $391,699  $384,081  $194,654  $172,443 
                
Net loans and leases charged off to average loans and leases  0.23%  0.30%  0.53%  0.56%  0.37%
Net loans and leases charged off to allowance for loan and lease losses  14.65   18.81   30.88   41.53   28.65 
Allowance for loan and lease losses to total loans and leases (end of year)  1.33   1.52   1.59   1.28   1.24 
Allowance for loan and lease losses to nonaccruing loans and leases (end of year):                    
Excluding 90 days past due accruing loans and leases  3.49x  2.93x  1.70x  2.00x  1.84x
Including 90 days past due accruing loans and leases  3.17x  2.40x  1.56x  1.65x  1.56x
 

Note:


(1) Allowance for credit losses of $60,987 in 1998 and $864 in 1997 wereThe 2004 balance was related to the BancWest Mergeracquisitions of Community First and a SierraWest Bancorp merger.USDB. The 2002 balance was related to the acquisitions of United California Bank and Trinity Capital Corporation.

2630


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Part II(continued)

     We have allocated a portion of the allowance for creditloan and lease losses according to the amount deemed to be reasonably necessary to provide for the possibility ofinherent losses being incurred within the various loan and lease categories as of December 31 for the years indicated:

                                           
    2001 2000 1999 1998 1997
    
 
 
 
 
        Percent of     Percent of     Percent of     Percent of     Percent of
        Loans/Leases     Loans/Leases     Loans/Leases     Loans/Leases     Loans/Leases
        in Each     in Each     in Each     in Each     in Each
        Category     Category     Category     Category     Category
    Allowance to Total Allowance to Total Allowance to Total Allowance to Total Allowance to Total
(dollars in thousands) Amount Loans/Leases Amount Loans/Leases Amount Loans/Leases Amount Loans/Leases Amount Loans/Leases

 
 
 
 
 
 
 
 
 
 
Domestic:                                        
 Commercial, financial and agricultural $42,130   16% $22,185   19% $19,175   18% $28,988   19% $17,113   25%
 Real estate:                                        
  Commercial  17,575   19   11,030   19   10,275   19   13,245   19   5,829   22 
  Construction  2,820   3   3,780   3   4,755   3   4,899   4   570   3 
  Residential  6,320   15   7,055   17   12,305   19   12,009   22   8,779   30 
 Consumer  45,210   29   39,025   26   34,200   24   32,251   22   15,464   10 
 Lease financing  22,315   15   16,295   14   12,855   14   9,992   11   546   5 
Foreign  2,915   3   1,400   2   850   3   1,435   3   1,405   5 
Unallocated  55,369   N/A   71,673   N/A   67,003   N/A   55,475   N/A   40,781   N/A 
   
   
   
   
   
   
   
   
   
   
 
  
Total
 $194,654   100% $172,443   100% $161,418   100% $158,294   100% $90,487   100%
   
   
   
   
   
   
   
   
   
   
 
                     
  December 31,
(dollars in thousands) 2004  2003  2002  2001  2000 
 
Commercial, financial and agricultural $83,293  $81,248  $96,171  $42,130  $22,185 
Real estate:                    
Commercial  66,420   24,189   22,524   17,575   11,030 
Construction  8,824   6,016   4,572   2,820   3,780 
Residential  38,673   11,995   9,378   6,320   7,055 
Consumer  94,415   64,192   66,388   45,210   39,025 
Lease financing  24,906   35,512   19,588   22,315   16,295 
Foreign  6,652   9,191   256   2,915   1,400 
                
Total Allocated  323,183   232,343   218,877   139,285   100,770 
Unallocated  113,208   159,356   165,204   55,369   71,673 
                
Total
 $436,391  $391,699  $384,081  $194,654  $172,443 
                
 

                                         
  December 31,
(dollars in thousands) 2004  2003  2002  2001  2000 
  Alloc.  Loan  Alloc.  Loan  Alloc.  Loan  Alloc.  Loan  Alloc.  Loan 
  allow.  catgry  allow.  catgry  allow.  catgry  allow.  catgry  allow.  catgry 
  as %  as %  as %  as %  as %  as %  as %  as %  as %  as % 
  of loan  of total  of loan  of total  of loan  of total  of loan  of total  of loan  of total 
  catgry  loans  catgry  loans  catgry  loans  catgry  loans  catgry  loans 
Commercial, financial and agricultural  1.4%  18.4%  1.8%  17.5%  2.0%  19.9%  1.8%  15.7%  0.9%  18.7%
Real estate:                                        
Commercial  1.0   20.5   0.5   20.0   0.5   19.9   0.6   19.5   0.4   18.8 
Construction  0.6   4.6   0.6   3.7   0.5   4.0   0.6   3.1   0.9   2.9 
Residential  0.6   20.5   0.2   19.5   0.2   19.7   0.3   14.7   0.3   16.7 
Consumer  1.0   28.3   0.9   28.6   1.1   24.9   1.0   29.4   1.1   25.8 
Lease financing  1.2   6.5   1.5   9.4   0.8   9.9   1.0   15.1   0.8   14.6 
Foreign  1.7   1.2   2.6   1.3   0.1   1.7   0.8   2.5   0.4   2.5 
                                    
       100.0%      100.0%      100.0%      100.0%      100.0%
                                    
 

     The provision for creditloan and lease losses is based on management’s judgment as to the adequacy of the allowance for credit losses (the “Allowance”).Allowance. Management uses a systematic methodology to determine the related provision for creditloan and lease losses to be reported for financial statement purposes. The determination of the adequacy of the Allowance is ultimately one of management judgment, which includes consideration of many factors such as: (1) the amount of problem and potential problem loans and leases; (2) net charge-off experience; (3) changes in the composition of the loan and lease portfolio by type and location of loans and leases; (4) changes in overall loan and lease risk profile and quality; (5) general economic factors; (6) specific regional economic factors; and (7) the fair value of collateral.

     Using this methodology, we allocate the Allowance to individual loans and leases and to categories of loans and leases representing probable losses based on available information. At least quarterly, we conduct internal credit analyses to determine which loans and leases are impaired. As a result, we allocate specific amounts of the Allowance to individual loan and lease relationships. Each impaired relationship over $1,000,000 and classified substandard or doubtful is evaluated quarterly on a case-by-case basis. Note 1 to the Consolidated Financial Statements on pages 45 through 51 describes how we evaluate loans for impairment. Note 78 to the Consolidated Financial Statements on page 56 details additional information regarding the Allowance and impaired loans.

     Some categories of loans and leases are not subjected to a loan-by-loan credit analysis. Management makes an allocation to these categories based on our statistical analysis of historic trends of impairment and charge-offs of such loans and leases. Additionally, we allocate a portion of the Allowance based on risk classifications of certain loan types. Some of the Allowance is not allocated to specific impaired loans because of the subjective nature of the process of estimating an adequate allowance for creditloan and lease losses, economic uncertainties and other factors.

     AsThe allocated component of the tableallowance increased $90.8 million from 2003 to 2004. The increase reflected management’s ongoing process of refining its allocation methodology with respect to specific loan products and risk pools. Changes in the allocated

31


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

loan and lease loss allowance reflect management’s judgment concerning the effect of trends in borrower performance and recent economic activity on page 26 illustrates,portfolio performance.

     The unallocated component of the provision forallowance decreased $46.1 million from 2003 to 2004, primarily due to the improvement in our loan portfolio’s credit losses for 2001 was $103.1 million, an increasequality, which required less reliance on judgmental assumptions built into the unallocated component of $42.6 million, or 70.5%, over 2000.the allowance.

     Although we have taken substantial effort toWe continually analyze our processes and portfolio in an attempt to mitigate risk within our loan portfolio, a confluence of events in 2001 has made it prudent to increase our provision for credit losses.portfolio. While we have not specifically identified creditsloans or leases that are currently losses or potential problem loans (other than those identified in our discussion of nonperforming assets on page 33)assets), certain events make it probable that there are losses inherent in our portfolio. These events include:

  The rapid and sharp economic slowdown in certain key sectors ofWhile the economy within the United States economy, in particular, manufacturing and technology. The slowing conditions of the national and regional economies were further exacerbated by the unforeseen and devastating effects of the terrorist attacks on September 11, 2001. These external events may proveappears to be improving, the catalyst foreconomic recovery has not yet fully taken hold and some areas remain sluggish. The unemployment rate remains high and job creation is slower than anticipated. A lack of strength in the labor market could negatively impact one of our key customer groups, consumers, potentially resulting in a longerdetrimental effect on the credit quality of our loan and more severe economic downturn than was previously expected.lease portfolio.
 
  The steep declineUnsettled geopolitical events, including tensions in Iraq and North Korea, could negatively impact the current economic improvement. International disputes and other factors could stall the economic recovery for an indeterminate amount of the equity marketstime, or even prompt a return to economic slowdown in the United States in 2001 has erased a substantial portion of household net worth that was accumulated throughout most of the 1990s. The decline could affect our portfolio in the form of increased charge-offs and nonaccrual loans in the coming months.

27


Part II(continued)

The purchase of branches in Nevada and New Mexico necessitated additional provision for credit losses, due to a deterioration of economic conditions since their purchase.States.
 
  The attacks on September 11th,Energy costs are increasing due to tension in the responseMiddle East. As we experienced during the energy crisis in California a few years ago, higher energy costs can negatively impact the economic conditions of the United States military and the economic aftershocks caused by these events continue to broadly impact the national and regional economies. Due to measures thatmarkets we took earlier in the year in response to deteriorating conditions prior to September 11th, our allowance for credit losses should be able to adequately absorb the initial effects of these events. However, we will continue to closely monitor the current and potential impact that this unfolding crisis has on our loan and lease portfolio. Worsening economic conditions may warrant additional amounts for the provision for credit losses in future periods.

Net Charge-Offs

2001 vs. 2000

             
(in thousands) 2001 2000 Change

 
 
 
Net charge-offs $80,839  $49,403   63.6%
   
   
   
 

     In 2001, net charge-offs increased by $31.4 million compared to 2000 due to the following factors:

Commercial, financial and agricultural net charge-offs increased primarily due to the write-off of $4.4 million in agricultural credits in the Pacific Northwest, the write-off of commercial, financial and agricultural loans totaling $6.9 million and $2.5 million for commercial fraud-related losses. In addition, the higher charge-offs resulted from the larger loan portfolio of our Bank of the West operating segment.serve.
 
  Consumer net charge-offs increased due to increased losses inherentCalifornia is one of our key geographical markets. The economic slowdown experienced in our larger loan portfolio and the effects of the declining national and regional economy.
Lease financing net charge-offs increased in 2001 over 2000 by 134.6% or $11 million, primarilyrecent years was particularly severe in the Bank oftechnology field, which is heavily based in California. The Californian economic slowdown, and other external factors including the West operating segment. The charge-offs were primarily inpreviously mentioned energy crisis, contributed to the consumer and equipment areas.State experiencing a substantial budget deficit. Actions the State may, or may not, take to address its deficit issue could affect the customers the Company serves or the Company directly.

     These increases were partially offset byWe will continue to closely monitor the following:

Real estate — commercial net charge-offs decreased by $1.5 million, primarily due to fewer charge-offs of nonperforming loans in Hawaii.
Real estate — residential net charge-offs decreased by $3.1 million, primarily due to decreased charge-offs of nonperforming residential loans in our First Hawaiian operating segment.
Foreign net charge-offs decreased in 2001 compared to 2000 by $1 million, or 56.1%, primarily due to decreased charge-offs in Guam and Saipan.

2000 vs. 1999

             
(in thousands) 2000 1999 Change

 
 
 
Net charge-offs $49,403  $51,113   (3.3)%
   
   
   
 

     In 2000, net charge-offs decreased by $1.7 million compared to 1999 due tocurrent and potential impact that these factors have on our loan and lease portfolio. Worsening economic conditions may warrant additional amounts for the following factors:

Real estate — commercial net charge-offs decreased by $3.5 million, primarily due to fewer charge-offs of nonperforming loans in Hawaii. The decrease in nonperforming loans reflected the rebound in Hawaii’s commercial property values.
Real estate — residential net charge-offs increased by $1 million, primarily due to increased charge-offs of nonperforming residential loans in our First Hawaiian operating segment.
Lease financing net charge-offs increased in 2000 over 1999 by 6.1%, or $470,000, primarily in the Bank of the West operating segment. The charge-offs were primarily in the consumer and equipment areas.
Foreign net charge-offs increased in 2000 over 1999 by $639,000, or 60.3%, primarily due to increased charge-offs in Guam and Saipan.

Allowance for Credit Losses

2001 vs. 2000

             
(dollars in thousands) 2001 2000 Change

 
 
 
Allowance for credit losses (year end) $194,654  $172,443   12.9%
Allowance for credit losses as a % of total loans and leases (year end)  1.28%  1.23%  4.1%
Allowance for credit losses to nonperforming loans and leases, excluding 90 days or more past due accruing loans and leases (year end)  2.00x  1.84x  8.7%
   
   
   
 

     The percentage of the Allowance compared to total loans and leases increased in 2001 from 2000, primarily due to additional provisioning done in response to negative macroeconomic trends in 2001. The ratio of the Allowance to nonperforming loans and leases increased to 2.00x in 2001 compared to 1.84x in 2000. The increase is primarily attributable to an increase in the allowanceprovision for credit losses in 2001.future periods.

Net Charge-Offs

2004 compared to 2003

     Net charge-offs were $63.9 million, a decrease of $9.8 million. Total loans and leases charged off decreased $26.1 million. This decrease was primarily due to a $23.1 million decrease in charge-offs for commercial, financial and agricultural loans partially offset by an increase of $2.1 million in consumer loan charge-offs, which was primarily due to the increased size of the overall consumer loan portfolio.

     Net charge-offs were 0.23% of average loans and leases compared to 0.30%.

2003 compared to 2002

     Net charge-offs were $73.7 million, a decrease of $44.9 million. Total loans and leases charged off decreased $20.9 million. This decrease was primarily due to a $29.9 million decrease in charge-offs for commercial, financial and agricultural loans partially offset by an increase of $6.3 million in consumer loan charge-offs, which was primarily due to the increased size of the overall consumer loan portfolio, and a $3.9 million increase in lease financing charge-offs. Recoveries increased by $24.0 million. Charge-offs were higher in 2002 primarily due to charge-offs required in late March 2002 on the acquired UCB portfolio. These charge-offs were contested with UFJ and settled in the first quarter of 2003, resulting in $13.6 million of recoveries primarily in commercial, financial and agricultural loans. For more information on this see Note 2 (Mergers and Acquisitions) to the Consolidated Financial Statements.

     Net charge-offs were 0.30% of average loans and leases compared to 0.53%.

32


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Allowance for Loan and Lease Losses

     The Company uses a systematic methodology to determine the adequacy of the Allowance and related provision for loan and lease losses to be reported for financial statement purposes. The determination of the adequacy of the Allowance is ultimately one of judgment, which includes consideration of many factors, including, among other things, the amount of problem and potential problem loans and leases, net charge-off experience, changes in the composition of the loan and lease portfolio by type and location, changes in overall risk profile and quality, general economic factors and the fair value of collateral.

     In management’sour judgment, the Allowance iswas adequate to absorb losses inherent in the loan and lease portfolio at December 31, 2001.2004. However, ifchanges in prevailing economic conditions in our markets change,could result in changes in the Allowance,level of nonperforming assets and charge-offs could change as a result.in the future and, accordingly, changes in the Allowance. We will continue to closely monitor economic developments and make adjustments to the Allowance accordingly.

28


Part II(continued)

Noninterest Expense

     The table below shows the categories of noninterest expense and how they have changed between 2001 and 2000, and between 2000 and 1999:
                              
               2001/2000 Change 2000/99 Change
               
 
(in thousands) 2001 2000 1999 Amount % Amount %

 
 
 
 
 
 
 
Personnel:                            
 Salaries and wages $207,054  $184,901  $181,914  $22,153   12.0% $2,987   1.6%
 Employee benefits  72,442   55,362   52,103   17,080   30.9   3,259   6.3 
   
   
   
   
       
     
Total personnel expense  279,496   240,263   234,017   39,233   16.3   6,246   2.7 
Occupancy expense  66,233   62,715   60,056   3,518   5.6   2,659   4.4 
Outside services  47,658   45,924   44,697   1,734   3.8   1,227   2.7 
Intangible amortization  43,618   36,597   35,760   7,021   19.2   837   2.3 
Equipment expense  30,664   29,241   30,422   1,423   4.9   (1,181)  (3.9)
Stationery and supplies  22,004   20,286   21,275   1,718   8.5   (989)  (4.6)
Advertising and promotion  17,066   16,950   15,788   116   0.7   1,162   7.4 
Restructuring, integration and other nonrecurring costs  3,935   1,269   17,534   2,666   210.1   (16,265)  (92.8)
Other  85,072   80,716   75,526   4,356   5.4   5,190   6.9 
   
   
   
   
       
     
Total noninterest expense
 $595,746  $533,961  $535,075  $61,785   11.6% $(1,114)  (0.2)%
    
   
   
   
   
   
   
 

2001 vs. 2000
2004 compared to 2003

     Total noninterest expenseThe allowance for 2001loan and lease losses was $595.7$436.4 million, an increase of $61.8 million,$44.7 million. The increase was due to the acquisitions of Community First and USDB, offset by a reduction in the BancWest level due to improvement in credit quality.

     The Allowance increased to 3.49 times nonaccruing loans and leases (excluding 90 days or 11.6%, over 2000. Significant factors for the increase included:

Total personnel expense increased by $39.2 million, or 16.3%,more past due accruing loans and leases) from 2.93 times primarily due to increased staffing as a result of the Nevada and New Mexico branch acquisitions in the first quarter of 2001, higher incentive benefits in 2001, and lower net periodic pension benefit credits in 2001.
Occupancy expense increased by $3.5 million, or 5.6%, due to higher building maintenance and rent expense for certain facilities.
Intangible amortization increased by $7 million, or 19.2%, due to the Nevada and New Mexico branch acquisitions. We recorded an additional $113 million in goodwill and core deposit intangibles at acquisition.
The restructuring, merger-related and other nonrecurring costs in 2001 were related to the 30 branches acquired in Nevada and New Mexico in the first quarter of 2001.
Other noninterest expense increased by $4.4 million, or 5.4%, primarily due to a $5 million charitable contribution made to the First Hawaiian Foundation, a charitable arm of First Hawaiian that supports non profit and community organizations in the markets where it operates. The amount of the increase was partially offset by $3 million in expenses recognized in 2000 related to the planned acquisition of divested branches resulting from the terminated merger of Zions Bancorporation and First Security Corporation.

2000 vs. 1999

     Total noninterest expense for 2000 was $534 million, a decrease of $1.1 million, or 0.2%, from 1999. The main factor causing the decrease was pre-tax restructuring, merger-relatedin nonaccruing loans and other nonrecurring costs of $1.3 million in 2000leases.

2003 compared to $17.52002

     The allowance for loan and lease losses was $391.7 million, in 1999. Excluding pre-tax restructuring, merger-related and other nonrecurring costs, noninterest expense was $532.7 million in 2000, an increase of $15.2 million, or 2.9%, over $517.5 million in 1999. Significant factors for the difference included:

Total personnel expense increased by $6.2 million, or 2.7%, due to the larger number of employees, primarily in our Bank of the West operating segment because of the need for increased staffing as a result of our continuing expansion. The increase was partially offset by higher net periodic pension benefit credits and a decrease in personnel expense for First Hawaiian employees affected by the ALLTEL facilities management agreement.
Occupancy expense increased by $2.7 million, or 4.4%, due to higher building maintenance and rent expense for certain facilities.
Equipment expense decreased by $1.2 million, or 3.9%, due to the transfer of certain assets to the outside service provider under the ALLTEL facilities management agreement for the consolidation and operation of a single data center.
Outside services increased by $1.2 million, or 2.7%, primarily due to the fees paid for the ALLTEL facilities management agreement.
Other noninterest expense increased by $5.2 million, or 6.9%, primarily due to $3 million in expenses related to the terminated branch purchase agreement resulting from the cancellation of the merger between Zions Bancorporation and First Security Corporation.

29


Part II(continued)

Loans and Leases

     The following table shows the major categories in the loan and lease portfolio as of December 31 for the years indicated:

                        
(in millions) 2001 2000 1999 1998 1997

 
 
 
 
 
Domestic:                    
 Commercial, financial and agricultural $2,388  $2,605  $2,213  $2,233  $1,710 
 Real estate:                    
  Commercial  2,957   2,618   2,467   2,284   1,509 
  Construction  464   406   408   430   228 
  Residential  2,264   2,360   2,363   2,692   1,980 
 Consumer  4,472   3,600   2,987   2,583   689 
 Lease financing  2,293   2,038   1,738   1,361   338 
Foreign:                    
 Commercial and industrial  81   66   65   81   68 
 Other  305   279   283   301   270 
   
   
   
   
   
 
   
Total loans and leases
 $15,224  $13,972  $12,524  $11,965  $6,792 
   
   
   
   
   
 

Income Taxes$7.6 million.

     The provision for income taxes as shown in the Consolidated Statements of Income on page 42 represents 40.2%, 41.3% and 41.8% of pre-tax income for 2001, 2000 and 1999, respectively. Additional information on our consolidated income taxes is provided in Note 18Allowance increased to the Consolidated Financial Statements on pages 63 and 64.

Loans and Leases

     We continue our efforts to diversify our loan and lease portfolio, both geographically and by industry. Our overall growth in loan and lease volume was primarily in our Mainland United States operations.

     The loan and lease portfolio is the largest component of total earning assets and accounts for the greatest portion of total interest income. As the table above shows, total2.93 times nonaccruing loans and leases increased by 9.0% at December 31, 2001 over December 31, 2000. The increase was(excluding 90 days or more past due accruing loans and leases) from 1.70 times primarily due to increasesthe resolution of certain higher risk factors inherent in the volume ofUCB’s commercial real estate, consumer loans and leases, mainly due to the increased lending in the Western United States and the Nevada and New Mexico branch acquisitions. The increase was partially offset by decreases in the amount of residential real estate loans and commercial, financial and agricultural loans in the First Hawaiian operating segment. The decrease in the real estate residential loan category in the First Hawaiian operating segment relates primarily to increased refinancing activity due to the lower interest rate environment. The decrease in commercial, financial and agricultural loans in the First Hawaiian operating segment primarily reflects a planned reduction in syndicated national credits.

Commercial, Financial and Agricultural Loans

     As of December 31, 2001, commercial, financial and agricultural loans totaled 15.7% of total loans and leases. Loan volume in this category was lower in 2001 than in 2000.

     We seek to maintain reasonable levels of risk in commercial and financial lending by following prudent underwriting guidelines primarily based on cash flow. Most commercial and financial loans are collateralized and/or supported by guarantors judged to have adequate net worth. We make unsecured loans to customers based on character, net worth, liquidity and repayment ability.

Real Estate Loans

     Real estate loans represented 37.3% and 38.5% of total loans and leases at December 31, 2001 and 2000, respectively. The decrease was primarily due to lower production resulting from the slowdown of the economy after September 11, 2001.

     We seek to maintain reasonable levels of risk in real estate lending by financing projects selectively, by adhering to prudent underwriting guidelines and by closely monitoring general economic conditions affecting local real estate markets.

Multifamily and commercial real estate loans.We analyze each application to assess the project’s economic viability, the loan-to-value ratio of the real estate securing the financing and the underlying financial strength of the borrower. In this type of lending, we will generally: (1) lend no more than 75% of the appraised value of the underlying project or property; and (2) require a minimum debt service ratio of 1.20.portfolios.

Single-family residential loans.We will generally lend no more than 80% of the appraised value of the underlying property. Although the majority of our loans

30


Part II(continued)

adhere to that limit, loans made in excess of that limit are generally covered by third-party mortgage insurance that reduces our equivalent risk to an 80% loan-to appraised-value ratio.

Home equity loans. We generally lend up to 75% of appraised value or tax assessed value for fee simple properties. This includes any senior mortgages. Debt-to-income ratio should not exceed 45% and good credit is required.

Consumer Loans

     Consumer loans, including credit cards, totaled 29.4% of total loans and leases at December 31, 2001. Balances in this category increased 24.2% from a year earlier, primarily due to the growth in the Bank of the West operating segment. Despite a decline in the level of economic growth in Bank of the West’s area of operation, the demand for consumer credit remained strong in 2001.

     Consumer loans consist primarily of open- and closed-end direct and indirect credit facilities for personal, automobile and household purchases. We seek to maintain reasonable levels of risk in consumer lending by following prudent underwriting guidelines which include an evaluation of: (1) personal credit history; (2) personal cash flow; and (3) collateral values based on existing market conditions.

Lease Financing

     Lease financing as of December 31, 2001 increased 12.5% from 2000. The increase was primarily due to an increased volume of consumer leases in the Bank of the West operating segment.

Loan and Lease Concentrations

     Loan and lease concentrations exist when there are loans to multiple borrowers who are engaged in similar activities and thus would be impacted by the same economic or other conditions. At December 31, 2001, we did not have a concentration of loans and leases greater than 10% of total loans and leases which were not otherwise disclosed as a category in the table on page 30.

     The loan and lease portfolio is principally located in California and Hawaii and, to a lesser extent, Oregon, Washington, Idaho, Nevada, New Mexico, Guam and Saipan. The risk inherent in the portfolio is dependent upon both the economic stability of those states and the financial well-being and creditworthiness of the borrowers.

Loan and Lease Maturities

     The contractual maturities of loans and leases (shown in the table below) do not necessarily reflect the actual term of our loan and lease portfolio. In our experience, the average life of residential real estate and consumer loans is substantially less than their contractual terms because borrowers prepay loans.

     In general, the average life of real estate loans tends to increase when current interest rates exceed rates on existing loans. In contrast, borrowers are more likely to prepay loans when current interest rates are below the rates on existing loans. The volume of such prepayments depends upon changes in both the absolute level of interest rates, the relationship between fixed and adjustable-rate loans and the relative values of the underlying collateral. As a result, the average life of our fixed-rate real estate loans has varied widely.

     We generally sell our fixed-rate residential loans on the secondary market, but retain variable-rate residential loans in our portfolio.

     At December 31, 2001, loans and leases with maturities over one year were comprised of fixed-rate loans totaling $7.9 billion and floating or adjustable-rate loans totaling $3.1 billion.

     The following table sets forth the contractual maturities of our loan and lease portfolio by category at December 31, 2001. Demand loans are included as due within one year.

                   
    Within After One But After    
(in millions) One Year Within Five Years Five Years Total

 
 
 
 
Commercial, financial and agricultural $1,268  $879  $241  $2,388 
Real estate:                
 Commercial  1,205   1,207   545   2,957 
 Construction  438   23   3   464 
 Residential  365   437   1,462   2,264 
Consumer  508   1,954   2,010   4,472 
Lease financing  390   1,461   442   2,293 
Foreign  72   200   114   386 
   
   
   
   
 
  
Total
 $4,246  $6,161  $4,817  $15,224 
   
   
   
   
 

31


Part II(continued)

Nonperforming Assets and Past Due Loans and Leases

     Nonperforming assets and past due loans and leases as of December 31 are reflected below for the years indicated:

                         
(dollars in thousands) 2001 2000 1999 1998 1997

 
 
 
 
 
Nonperforming assets:                    
 Nonaccrual:                    
  Commercial, financial and agricultural $35,908  $42,089  $22,222  $21,951  $10,372 
  Real estate:                    
   Commercial  27,568   15,331   25,790   23,128   9,941 
   Construction     403   2,990   485    
   Residential:                    
    Insured, guaranteed, or conventional  9,003   11,521   18,174   10,137   6,478 
    Home equity credit lines        940   527   50 
   
   
   
   
   
 
    Total real estate loans  36,571   27,255   47,894   34,277   16,469 
   
   
   
   
   
 
  Consumer  6,144   3,257   1,625   2,416   139 
  Lease financing  9,570   6,532   3,391   1,816   10 
  Foreign  4,074   5,496   2,162   1,174    
   
   
   
   
   
 
    Total nonaccrual loans and leases  92,267   84,629   77,294   61,634   26,990 
   
   
   
   
   
 
 Restructured:                    
  Commercial, financial and agricultural  1,569   927   1,004   3,894   1,532 
  Real estate:                    
   Commercial  3,019   7,055   7,905   17,161   18,241 
   Construction        11,024   14,524   14,524 
   Residential:                    
    Insured, guaranteed, or conventional  257   937   1,100   1,100   2,626 
    Home equity credit lines              559 
   
   
   
   
   
 
    Total real estate loans  3,276   7,992   20,029   32,785   35,950 
   
   
   
   
   
 
    Total restructured loans and leases  4,845   8,919   21,033   36,679   37,482 
   
   
   
   
   
 
    Total nonperforming loans and leases  97,112   93,548   98,327   98,313   64,472 
 Other real estate owned and repossessed personal property  22,321   27,479   28,429   34,440   32,294 
   
   
   
   
   
 
    
Total nonperforming assets
 $119,433  $121,027  $126,756  $132,753  $96,766 
   
   
   
   
   
 
Past due loans and leases (1):                    
 Commercial, financial and agricultural $11,134  $6,183  $1,280  $1,578  $3,158 
 Real estate:                    
  Commercial  385   1,987   1,436   5,212   866 
  Construction           440   447 
  Residential:                    
   Insured, guaranteed, or conventional  3,303   3,387   7,751   23,413   25,002 
   Home equity credit lines  467   499   575   1,710   2,077 
   
   
   
   
   
 
    Total real estate loans  4,155   5,873   9,762   30,775   28,392 
   
   
   
   
   
 
 Consumer  3,323   3,719   2,043   3,552   3,769 
 Lease financing  146   113   113   74   24 
 Foreign  2,023   1,321   4,824   1,816    
   
   
   
   
   
 
    
Total past due loans and leases
 $20,781  $17,209  $18,022  $37,795  $35,343 
   
   
   
   
   
 
Nonperforming assets to total loans and leases and other real estate owned and repossessed personal property (end of year):                    
  Excluding past due loans and leases  .78%  .86%  1.01%  1.11%  1.42%
  Including past due loans and leases  .92   .99   1.15   1.42   1.94 
Nonperforming assets to total assets (end of year):                    
  Excluding past due loans and leases  .55   .66   .76   .83   1.09 
  Including past due loans and leases  .65   .75   .87   1.07   1.49 
   
   
   
   
   
 
Note:                    
(1)Represents loans and leases which are past due 90 days or more as to principal and/or interest, are still accruing interest, are adequately collateralized and are in the process of collection.

32


Part II(continued)

Nonperforming Assets

     As shown in the table on page 32, nonperforming assets decreased by 1.3%, or $1.6 million, between December 31, 2000 and December 31, 2001. The decrease was principally due to the following:

A decrease in commercial, financial and agricultural nonaccrual loans, due to a loan returned to accrual status and partial charge-off and proceeds from sale of collateral.
A decrease in real estate-residential nonaccrual loans, the result of charge-offs, reflecting the effects of the prolonged economic downturn, exacerbated by the events of September 11th.
A decrease in foreign real estate-residential nonaccrual loans, due to three loans returned to accrual status, and payments on principal balances.
A decrease in restructured real estate-commercial loans, the result of charge-offs of two loans.

     These decreases were partially offset by:

An increase in real estate-commercial nonaccrual loans, primarily due to two loans placed on nonaccrual status during the year.
Increases in nonaccrual consumer loans and lease financing are the result of the increases in average consumer loan and lease financing balances.

Loans and Leases Past Due, Still Accruing

     Loans and leases past due 90 days or more and still accruing interest increased 20.8% between December 31, 2000 and December 31, 2001. All loans which are past due 90 days or more and still accruing interest are, in management’s judgment, adequately collateralized and in the process of collection.

Potential Problem Loans

     Other than the loans listed in the table on page 32, at December 31, 2001, we were not aware of any significant potential problem loans where possible credit problems of the borrower caused us to seriously question the borrower’s ability to repay the loan on existing terms.

     The following table presents information related to nonaccrual and nonaccrual restructured loans and leases as of December 31, 2001:

             
(in thousands) Domestic Foreign Total

 
 
 
Interest income which would have been recorded if loans had been current $5,829  $  $5,829 
   
   
   
 
Interest income recorded during the year $1,628  $  $1,628 
   
   
   
 

DepositsDEPOSITS

     Deposits are the largest component of our total liabilities and accountaccounted for the greatest portion45.9% of total interest expense.expense during the year ended December 31, 2004. At December 31, 2001,2004, total deposits were $15.3$33.6 billion, an increase of 8.5%27.3% over December 31, 2000.2003. The increase was primarily due to theour acquisitions of Community First and USDB, and growth inwithin our customer deposit base, primarily in the Bank of the West operating segment, and branch acquisitions in Nevada, New Mexico, Guam and Saipan. The decrease in all of thebase. In recent periods, rates paid on deposits reflects thewere reflective of a lower interest rate environment, caused primarily by rate decreases byenvironment. However, as evidenced in the Federal Reserve’s Open Market Committee.third and fourth quarters of 2004, rates paid on deposits have increased slightly based on new market conditions. Additional information on our average deposit balances and rates paid is provided in Table 1: Average Balances, Interest Income and Expense, and Yields and Rates (Taxable-Equivalent Basis).

CAPITAL

     BancWest uses capital to fund organic growth and acquire banks and other financial services companies. In 2004, no dividends were paid.

INCOME TAXES

     The provision for income taxes represented 38.7%, 38.3%, and 39.3% of pretax income for 2004, 2003 and 2002, respectively. Further information on pages 22our income taxes is provided in Note 19 (Income Taxes) to the Consolidated Financial Statements.

33


BancWest Corporation and 23.Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Accounting DevelopmentsOFF-BALANCE SHEET ARRANGEMENTS

Commitments and Guarantees

     In the normal course of 2001,business, we are a party to various off-balance sheet commitments entered into to meet the financing needs of our customers. These financial instruments include commitments to extend credit; standby and commercial letters of credit; and commitments to purchase or sell foreign currencies. These commitments involve, to varying degrees, elements of credit, interest rate and foreign exchange rate risks. We also enter into commitments which provide funding for our balance sheet and operations. These commitments include time deposits, short-term and long-term borrowings, leases and other financial obligations.

     The Company issues standby letters of credit, which include performance and financial guarantees, on behalf of customers in connection with contracts between the customers and third parties whereby the Company assures that the third parties will receive specified funds if customers fail to meet their contractual obligations. Standby letters of credit totaled $824.2 million at December 31, 2004, including financial guarantees of $774.9 million that the Company had issued or in which it purchased participations. A major portion of all fees received from the issuance of standby letters of credit are deferred and, at December 31, 2004, were immaterial to the Company’s financial statements. If the counterparty to a commitment to extend credit or to a standby or commercial letter of credit fails to perform, our exposure to loan and lease losses would be the contractual notional amount. Since these commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flows. For more information on our credit extension commitments please refer to Note 7 (Loans and Leases) to the Consolidated Financial Statements.

     The Company enters into indemnification agreements in the ordinary course of business under which the Company agrees to indemnify third parties against any damages, losses and expenses incurred in connection with legal and other proceedings arising from relationships or transactions with the Company. These relationships or transactions include those arising from service as a director or officer of the Company, underwriting agreements relating to the Company’s securities, securities lending, acquisition agreements, and various other business transactions or arrangements. Because the extent of the Company’s obligations under these indemnification agreements depends entirely upon the occurrence of future events, the Company’s potential future liability under these agreements is not determinable.

Retained or Contingent Interest

     The Company has provided liquidity facilities for our SBA loans. We retained a portion of the interest in the loans providing a cushion to the senior interests in the event that a portion of the receivables becomes uncollectible. Total outstanding risk is $1.4 million and has been recorded in the Company’s Consolidated Financial Statements.

     While not a major liquidity source, the Company sells residential mortgages and other loans and has in prior years sold securitized mortgage loans. Retained interests in securitized assets including debt securities, are initially recorded at their allocated carrying amounts based on the relative fair value of assets sold and retained. Retained interests in interest only strips are subsequently carried at fair value, which is generally estimated based on the present value of expected cash flows, calculated using management’s best estimates of key assumptions, including loan and lease losses, loan repayment speeds and discount rates commensurate with risks involved. Gains and losses related to the sales of retained interests are recorded in noninterest income.

     Off-balance sheet agreements are subject to the same credit and market risk limitations as those recorded on the balance sheet. Our testing to measure and monitor this risk, using net interest income simulations and market value of equity analysis, is conducted quarterly.

Variable Interest Entities

     The Company holds variable interests in certain special purpose entities that are not required to be consolidated. See Note 5 (Variable Interest Entities (VIEs)) to the Consolidated Financial Statements for additional information.

34


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

CONTRACTUAL OBLIGATIONS

     The following table provides the amounts due under specified contractual obligations for the periods indicated as of December 31, 2004:

                     
  Less than one  One to three  Three to five  More than five    
(dollars in millions) year  years  years  years  Total 
 
Time deposits(1)
 $8,079  $1,675  $143  $10  $9,907 
Borrowings(2)
  4,950   1,058   878   2,777   9,663 
Capital lease obligations  3   1   1   1   6 
Operating lease obligations  65   92   67   108   332 
Purchase obligations  73   95   64   31   263 
Other liabilities  17   34   33   317   401 
                
Total
 $13,187  $2,955  $1,186  $3,244  $20,572 
                
                     
 


(1)Excludes purchase accounting adjustments of $8 million.
(2)Excludes purchase accounting adjustments of $17 million.

     In the normal course of business, we enter into contractual arrangements whereby we commit to future purchases of products or services from unaffiliated parties. Obligations that are legally binding agreements whereby we agree to purchase products or services with a specific minimum quantity defined at a fixed, minimum or variable price over a specified period of time are defined as purchase obligations. These obligations are categorized by their contractual due dates. We may, at our option, prepay certain borrowings prior to their maturity date.

     The most significant of our vendor contracts include communication services, marketing and software contracts. Other liabilities include our obligations related to funded pension plans. Obligations to these plans are based on the current and projected obligations of the plans and performance of the plans’ assets. The “Other” category also includes a commitment to pay the former shareholders of Trinity one payment of $1.5 million in 2006, finalizing our obligations under the purchase agreement.

     First Hawaiian Bank processes credit card transactions and has loans outstanding to an airline, which filed a voluntary petition to reorganize under Chapter 11 of the Bankruptcy Code on December 30, 2004.

     Under the rules of VisaÒ and MasterCardÒ, First Hawaiian has certain contingent liabilities for transactions processed and could become responsible to pay charge backs with respect to tickets and coupons purchased should the airline not honor those tickets and coupons. Since the filing of its Chapter 11 petition, the airline has continued to operate and honor all tickets and coupons issued before its filing.

     As of February 28, 2005, First Hawaiian estimates that the cost of tickets and coupons purchased by the airline customers through VisaÒ and MasterCardÒ, but as yet unused, is approximately $47.4 million. As of February 28, 2005, First Hawaiian held cash or cash equivalents as collateral security for its potential charge back exposure to the airline customers in the amount of approximately $20.1 million. Based on the current circumstances of the airline and other information currently available to First Hawaiian, management does not believe it is probable that the Company will incur material loss as a result of charge backs from customers of the airline. A reserve for a portion of the exposure has been recorded in the Company’s financial statements as of December 31, 2004.

LIQUIDITY MANAGEMENT

     Liquidity refers to our ability to provide sufficient short- and long-term cash flows to fund operations and to meet obligations and commitments, including depositor withdrawals and debt service, on a timely basis at reasonable costs. We achieve our liquidity objectives with both assets and liabilities. Further, while liquidity positions are managed separately by the Company and its two subsidiary Banks, both short-term and long-term activities are usually coordinated between the two subsidiary Banks.

     We obtain secondary liquidity through our investment securities portfolio principally short-term securities which can be readily converted to cash. These liquid assets consist of cash and due from banks, interest-bearing deposits in other banks, Federal Funds sold,

35


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

trading assets, securities purchased under agreements to resell, securities available for sale and loans held for sale. Such assets represented 21.3% of total assets at the end of 2004 compared with 20.9% at the end of 2003.

     Intermediate- and longer-term asset liquidity is primarily provided by regularly scheduled maturities and cash flows from loans and securities. Additional liquidity is available from certain assets that can be sold, securitized or used as collateral for borrowings from the Federal Home Loan Banks such as consumer and mortgage loans.

     We obtain short-term, liability-based liquidity primarily from deposits. Average total deposits for 2004 increased 14.2% to $28.5 billion, primarily due to continued expansion of our customer base in the Western United States. Average total deposits funded 68.9% of average total assets for 2004 and 69.4% in 2003.

     We also obtain short-term and long-term liquidity from ready access to regional and national wholesale funding sources, including purchasing Federal funds, selling securities under agreements to repurchase, lines of credit from other banks and credit facilities from the Federal Home Loan Banks. The following table reflects immediately available borrowing capacity at the Federal Reserve Discount Window and the Federal Home Loan Banks and securities available for sale under repurchase agreements:

         
  December 31, 
(dollars in millions) 2004  2003 
 
Federal Reserve Discount Window $681  $574 
Federal Home Loan Banks  1,223   1,679 
Securities Available for Repurchase Agreements  3,048   2,987 
       
Total
 $4,952  $5,240 
       
 
 
 
 

     Further information on short-term borrowings is provided in Note 13 (Short-term Borrowings) to the Consolidated Financial Statements. Offshore deposits in the international market provide another available source of funds.

     Funds raised in the intermediate and longer-term markets are structured to avoid concentration of maturities and to reduce refinancing risk. We also attempt to diversify the types of instruments issued to avoid undue reliance on any one market or funding source.

     Liquidity for the Parent is primarily provided by dividend and interest income from its subsidiaries. Short-term cash requirements are met through liquidation of short-term investments. Longer-term liquidity is provided by access to the capital markets or from transactions with BancWest’s parent company, BNP Paribas.

     The Parent’s ability to pay dividends to BNP Paribas depends primarily upon dividends and other payments from its subsidiaries, which are subject to certain limitations as described in Note 17 (Limitation on Payments of Dividends) to the Consolidated Financial Statements.

     Our borrowing costs and ability to raise funds are a function of our credit ratings and any change in those ratings. The following table reflects the ratings of Bank of the West and First Hawaiian Bank:

Bank of the West/First Hawaiian Bank
Short-Term DepositLong-Term Deposit
Moody’sP-1Aa3
S & PA-1A+
Fitch, Inc.F1+AA-

36


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

CREDIT MANAGEMENT

     Our approach to managing exposure to credit risk involves an integrated program of setting appropriate standards for credit underwriting and diversification, monitoring trends that may affect the risk profile of the credit portfolio and making appropriate adjustments to reflect changes in economic and financial conditions that could affect the quality of the portfolio and loss probability. The components of this integrated program include:

•  Setting Underwriting and Grading Standards.Our loan grading system uses ten different principal risk categories where 1 is no risk and 10 is loss. We continue efforts to decrease our exposure to customers in the weaker credit categories. The cost of credit risk is an integral part of the pricing and evaluation of credit decisions and the setting of portfolio targets.
•  Diversification.We actively manage our credit portfolio to avoid excessive concentration by obligor, risk grade, industry, product and geographic location. As part of this process, we also monitor changes in risk correlation among concentration categories. In addition, we seek to reduce our exposure to concentrations by actively participating portions of our commercial and commercial real estate loans to other banks.
•  Risk Mitigation.We manage our exposure to higher risk areas through application of prudent underwriting policies.
•  Emphasis on Consumer Lending.Consumer loans represent our single largest category of loans and leases. We use formula-based approaches to calculate appropriate reserve levels that reflect historical loss experience. We generally do not participate in subprime lending activities. We also seek to reduce our credit exposures where feasible by obtaining third-party insurance or similar protections. For example, in our vehicle lease portfolio (which represents approximately 39.7% of our lease financing portfolio and 7.4% of our combined lease financing and consumer loans at December 31, 2004), we obtain third-party insurance for the estimated residual value of the leased vehicle, and set aside reserves to cover the uninsured portion.

RECENT ACCOUNTING STANDARDS

     We have adopted numerous new or modifications to existing standards, rules or regulations promulgated by various standard setting and regulatory bodies. Chief among these are the Federal financial institutions regulators, the SEC and the FASB. The following section highlights important developments in the area of accounting and disclosure requirements. This discussion is not intended to be a comprehensive listing of the impact of all standards and rules adopted in 2001. Additional informationadopted.

     In December 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 153,Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29, Accounting for new accounting pronouncements canNonmonetary Transactions,(FASB 153). This statement is based upon the principle that transactions involving nonmonetary assets should be found in Note 1 tomeasured based upon their fair market value. This statement is effective for fiscal years beginning after June 15, 2005. We do not believe this statement will have a material impact on our financial statements, as we do not frequently enter into nonmonetary transactions.

     In December 2004, the Consolidated Financial Statements on pages 50 and 51.

     We have adoptedFASB, issued Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting123 (revised 2004)Accounting for Derivative InstrumentsShare-Based Payment.This statement requires stock options awarded to employees to be expensed over the vesting period of the option, at the fair value at the grant date using an option-pricing model. This statement is effective for annual and Hedging Activities,”interim periods beginning after June 15, 2005. The Company currently accounts for stock based compensation under Accounting Principles Board Opinion No. 25 (APB 25)Accounting for Stock Issued to Employeesand related Interpretations, as amended, in 2001. Essentially SFAS No. 133, as amended, required thatallowed under FASB Statement 123,Accounting for Stock-Based Compensation. This pronouncement increases the amount of compensation expense per period, by the amount outlined within Note 1 (Summary of Significant Accounting Policies) to our Consolidated Financial Statements. However, we record previously off-balance-sheet derivative financial instruments used for risk management inbelieve this amount will have an immaterial effect on our financial statements. We do not extensively use derivative instruments

     On July 16, 2004, the FASB ratified the decisions reached by the Emerging Issues Task Force (EITF) with respect to Issue 02-14,Whether the Equity Method of Accounting Applies When an Investor Does Not Have an Investment in Voting Stock of an Investee but Exercises Significant Influence through Other Means.The EITF reached a consensus that an investor should apply the equity method of accounting when it has investments in either common stock or “in-substance common stock” of a corporation, provided that the investor has the ability to exercise significant influence over the operating and financial policies of the investee. In-substance common stock, as defined in the consensus, is an investment that has risk and reward characteristics, among other factors, that are substantially the same as common stock. The equity method of accounting must be applied for risk management. Therefore, the transition adjustment,all investments in which we recorded the fair values of the derivative instrument and the items that they hedged, was not material. After the initial adoption of SFAS No. 133, we are required to mark-to-market the fair value of both the derivative and the hedged item as of each measurement date. Conceptually, the fair value of an effective hedge derivative will be adjusted for an amount that closely correlates to the change in the fair value of the hedged item. Due to the nature of our derivatives, any difference between the fair value of the derivative and the hedged item is reflected in our Consolidated Statements of Income. For 2001, the effect of the adoption of SFAS No. 133 was not material.investor

3337


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Part II(continued)exercises significant influence over the investee and that qualify as in-substance common stock for reporting periods beginning after September 15, 2004. The adoption of this statement did not have a material effect on our financial statements.

     We adopted SFAS No. 141, “Business Combinations”In June 2004, the EITF published EITF 03-1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments(EITF 03-1). EITF 03-1 clarifies the impairment methodology used to determine when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. The guidance includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. EITF 03-1 applies to all investments accounted for in July 2001. SFAS No. 141 encompasses all business combinations initiated after June 30, 2001accordance with the provisions of FAS 115, certain debt and also business combinationsequity securities within the scope of Statement 124, and equity securities that are not subject to the scope of Statement 115 and not accounted for under the purchase method of accounting after July 1, 2001. Therefore, the BNP Paribas Merger was accounted for under the guidance in SFAS No. 141. A principal feature of SFAS No. 141 was the ending of the use of the pooling-of-interestequity method of accounting. On September 30, 2004, the FASB staff published FASB Staff Position (FSP) EITF 03-1-1. FSP EITF 03-1-1 delays the effective date for the measurement and recognition guidance contained in Paragraphs 10–20 of EITF Issue No. 03-1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,while the FASB considers application guidance. We havewill evaluate any new guidance on the above mentioned paragraphs upon final issuance.

     On March 9, 2004 the SEC released a Staff Accounting Bulletin: No. 105,Application of Accounting Principles to Loan Commitments (SAB 105), which provides guidance pertaining to interest rate locks of loan commitments accounted for as derivative instruments. It states that cash flows pertaining to mortgage servicing should not be included in the past usedvalue of the pooling-of-interest methodderivative. We account for such rate locks in accordance with SAB 105.

     In December 2003, the Accounting Standards Executive Committee of accountingthe American Institute of Certified Public Accountants, (AICPA) issued Statement of Position No. 03-3 (“SOP 03-3”),Accounting for certain of our mergers and acquisitions, namely the acquisition of SierraWest BancorpCertain Loans or Debt Securities Acquired in 1999. SFAS No. 141 does not require retroactive restatement of our financial statements.

     Concurrently with the adoption of SFAS No. 141, we also adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 replaces existing standards ona Transfer. SOP 03-3 addresses the accounting for goodwilldifferences between the contractual cash flows and other intangible assets. In summary, SFAS No. 142 eliminates the amortizationcash flows expected to be collected from purchased loans or debt securities if those differences are attributable, in part, to credit quality. SOP 03-3 requires purchased loans and debt securities to be recorded initially at fair value based on the present value of goodwillthe cash flows expected to be collected with no carryover of any valuation allowance previously recognized by the seller. Interest income should be recognized based on the effective yield from the cash flows expected to be collected. To the extent that the purchased loans experience subsequent deterioration in credit quality, a valuation allowance would be established for any additional cash flows that are not expected to be received. However, if more cash flows subsequently are expected to be received than originally estimated, the effective yield would be adjusted on a prospective basis. SOP 03-3 will be effective for loans and replaces it with annual tests for impairment. Priordebt securities acquired after December 15, 2004. The Company is not able to estimate the impact that the SOP will have on its financial statements as the effect will be specific to potential future loan purchases.

     On December 8, 2003 President Bush signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to plan sponsors that provide a benefit that is at least equivalent to Medicare. On May 19, 2004, the FASB issued staff Position 106-2,Accounting and Disclosure Requirements Related to the BNP Paribas Merger, we had a substantial amountMedicare Prescription Drug, Improvement and Modernization Act of intangible assets, mainly goodwill and core deposit intangibles. These intangible assets arose from previous mergers and acquisitions and were being amortized into net income. The total goodwill amortization expense for2003.There was no impact on the period from January 1, 2001 through December 19, 2001 was $31 million. As a result of the BNP Paribas Merger, we recorded $2.062 billion in goodwill, which will not be amortizing into net income. Had SFAS No. 142 not been adopted and assuming a 20-year amortization period, we would have recorded pre-tax goodwill amortization of approximately $103 million annually. Core deposit intangibles recorded as a result of the BNP Paribas Merger of $110.2 million will continue to be amortized.Company’s consolidated financial statements.

     We will perform the impairment testing of goodwill required under SFAS No. 142 by March 31, 2002, principally through the use of discounted cash flow modeling. In addition, SFAS No. 142 may require impairment analysis and disclosure of intangible balances at a level lower than the operating segments which we currently report, i.e. we may be required to test for impairment and report the intangibles of units within Bank of the West and First Hawaiian. We are in the process of determining the application of this part of SFAS No. 142.

Investment Securities by Maturities and Weighted Average Yields

     At December 31, 2001, the Company had no held-to-maturity investment securities. The following table presents the maturities of our available-for-sale investment securities and the weighted average yields (for obligations exempt from Federal income taxes on a taxable-equivalent basis assuming a 35% tax rate) of such securities at December 31, 2001. The tax-equivalent adjustment is made for items exempt from Federal income taxes to make them comparable with taxable items before any income taxes are applied.

Available-for-Sale

                                           
    Maturity        
    
        
    Within After One But After Five But After        
    One Year Within Five Years Within Ten Years Ten Years Total
    
 
 
 
 
(dollars in millions) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield

 
 
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S.                                        
 Government agencies and corporations $174   5.45% $618   4.01% $   % $3   7.27% $795   4.34%
Mortgage and asset-backed securities:                                        
 Government        57   5.99   122   5.25   745   6.10   924   5.98 
 Other  1   6.47   110   5.42   48   6.24   95   6.25   254   5.89 
Collateralized mortgage obligations              56   5.68   360   5.34   416   5.39 
States and political subdivisions              1   3.89   1   5.95   2   5.28 
   
       
       
       
       
     
  
Subtotal
 $175   5.45% $785   4.36% $227   5.57% $1,204   5.89%  2,391   5.32%
Securities with no stated maturity                                  138     
                                   
     
  
Total
                                 $2,529     
                                   
     


Note: The weighted average yields were calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security.

34


Part II(continued)

Special Purpose Entities

     A special purpose entity (“SPE”) is a separate legal entity created by a sponsor to carry out a specified purpose. We are involved in three special purpose entities:

BWE Trust and FH Trust are both fully consolidated subsidiaries of BancWest Corporation. The purpose of these entities was to allow for the issuance of capital securities that qualify for inclusion in Tier 1 regulatory capital. These entities are described in fuller detail in Note 11 to our Consolidated Financial Statements on pages 58 and 59. We have issued to BWE Trust and FH Trust junior subordinated deferrable interest debentures in return for either capital securities, which we then issued to the public, in the case of BWE Trust, or the proceeds from capital securities that were issued from FH Trust. We reported the debt issued to BWE Trust and FH Trust on our Consolidated Balance Sheets as “Guaranteed preferred beneficial interests in Company’s junior subordinated debentures.” We include the interest payments related to these debentures on our Consolidated Statements of Income and Consolidated Statements of Cash Flows as interest expense on long-term debt.
REFIRST, Inc. is an SPE that was created by a nonrelated third party to construct, finance and hold title to our administrative headquarters building in Honolulu, First Hawaiian Center (“FHC”). We entered into a noncancelable operating lease for FHC with REFIRST, Inc. that terminates on December 1, 2003. Additional information regarding the operating lease agreement for FHC can be found in Note 21 to our Consolidated Financial Statements on pages 66 and 67. Under current accounting guidance, we do not need to consolidate REFIRST, Inc. into our Consolidated Financial Statements. However, there are proposals currently being discussed that would change the requirements for consolidation to an approach that is less reliant on quantitative measures and based more on a qualitative assessment of “effective control.” In the event that consolidation of REFIRST, Inc. is required, FHC and the notes for its financing would be included in our Consolidated Balance Sheets. In addition, the depreciation expense of FHC and interest expense on the financing would be included on our Consolidated Statements of Income and Consolidated Statements of Cash Flows. These amounts are not determinable at this time. For the year ended December 31, 2001, we paid approximately $15.1 million for the lease of FHC. If FHC is sold at the end of the initial term of the operating lease, we have guaranteed to pay to REFIRST, Inc. the difference between the sales price and a specified residual value, such payment not to exceed $162 million.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

     In the normal course of business, we assume various types of risk, which include among others, interest rate risk, credit risk and liquidity risk. We have risk management processes designed to provide for risk identification, measurement and monitoring.

Interest Rate Risk Measurement and Management

     Interest rate risk, one of the leading risks in terms of potential earnings impact, is an essential element of being a financial intermediary. The Company’s net interest income of the Corporation is subject to interest rate risk to the extent our interest-bearing liabilities (primarily deposits and borrowings) mature or reprice on a different basis than itsour interest-earning assets (primarily loans, and leases and investment securities)securities available for sale). When interest-bearing liabilities mature or reprice more quickly than interest-earning assets during a given period, an increase in interest rates could reduce net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, a decrease in interest rates could have a negative impact on net interest income. In addition, the impact of interest rate swings may be exacerbated by factors such as our customers’ propensity to manage their demand deposit balances more or less aggressively or to refinance mortgageloans. Short and long-term market rates may change independent of each other consumer loans depending onresulting in changes to the interest rate environment.slope and absolute level of the yield curve.

     The Asset/Liability Committees of the CorporationBancWest and its major subsidiary companiessubsidiaries are responsible for managing interest rate risk. The frequency of meetings of the Asset/Liability Committees generally ranges frommeet monthly toor quarterly. Recommendations forThe committees may recommend changes to a particular

38


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

subsidiary’s interest rate profile should they be deemed necessary and exceed established policies, are made to their respective Board of Directors. Other than loansDirectors, should changes be necessary and leases that are originated and held for sale, commitments to purchase and sell foreign currencies and mortgage-backed securities, and certain interest rate swaps, the Corporation’s interest rate derivatives and other financial instruments are not entered into for trading purposes.depart significantly from established policies.

     Our exposure to interest rate risk is managed primarily by taking actions that impact certain balance sheet accounts (e.g., lengthening or shortening maturities in the investment portfolio, changing asset and/or liability mix - including increasing or decreasing the amount of fixed and/or variable instruments held by the Corporation —Company - to adjust sensitivity to interest rate changes) and/or utilizing off-balance-sheet instruments such as interest rate swaps, caps, floors, options or forwards.

     Derivatives entered into for trading purposes include commitments to purchase and sell foreign currencies and certain interest rate swaps and options. We also enter into customer accommodation interest rate swaps and foreign exchange spot and forward contracts as well as contracts to offset either the customer’s counter-position or our foreign currency denominated deposits. These contracts basically offset each other and they do not expose us to material losses resulting from interest rate or foreign currency fluctuations.

The CorporationCompany and its subsidiaries use computer simulation models itsto evaluate net interest income in order to quantify its exposure to changes in interest rates. Generally, the size of the balance sheet is held relatively constant and then subjected to interest rate shocks up in 100-basis-point increments and

35


Part II(continued)

down in 100 basis point50 basis-point increments. Each account-level item is repriced according to its respective contractual characteristics, including any imbeddedembedded options which might exist (e.g., periodic interest rate caps or floors or loans and leases which permit the borrower to prepay the principal balance of the loan or lease prior to maturity without penalty). Off-balance-sheetDerivative financial instruments such as interest rate swaps, swaptions, caps floors or forwardsfloors are included as part of the modeling process. For each interest rate shock scenario, net interest income over a 12-month horizon is compared against the results of a scenario in which no interest rate change occurs (a “flat(flat rate scenario”)scenario) to determine the level of interest rate risk at that time.

     The projected impact of theincremental increases and decreases in interest rates on ourthe Company’s consolidated net interest income over the next 12 months beginning January 1, 2002 and 20012005 is shown below.

                     
(dollars                    
in millions) +3% +2% +1% Flat -1%

 
 
 
 
 
2002
Net interest income
 $850.5  $855.5  $859.0  $857.9  $855.4 
Difference from flat
 $(7.4) $(2.4) $1.1  $  $(2.5)
% variance
  (0.9)%  0.3%  0.1%  %  (0.3)%
   
   
   
   
   
 
                     
2001 +2% +1% Flat -1% -2%

 
 
 
 
 
Net interest income $816.9  $829.2  $825.2  $811.0  $793.6 
Difference from flat $(8.3) $4.0  $  $(14.2) $(31.6)
% variance  (1.0)%  0.5%  %  (1.7)%  (3.8)%
   
   
   
   
   
 
                         
(dollars in millions) +3%  +2%  +1%  Flat  -0.5%  -1.0% 
             
Net interest income $1,637.8  $1,648.8  $1,657.0  $1,646.3  $1,625.3  $1,587.6 
Difference from flat  (8.5)  2.5   10.7      (21.0)  (58.7)
% variance  (0.5)%  0.2%  0.6%  %  (1.3)%  (3.6)%
             

     Because of the relatively low level of interest rates in 2002,2004, modeling below a 200 basis point100-basis-point decrease was deemed impractical.not meaningful. The changes in the models are due to differences in interest rate environments which include the absolute level of interest rates, the shape of the yield curve, and spreads between various benchmark rates.

Significant Assumptions Utilized and Inherent Limitations

     The significant net interest income changes for each interest rate scenario presented above include assumptions based on accelerating or decelerating mortgage and non-mortgage consumer loan prepayments in declining or rising scenarios, respectively, and adjusting deposit levels and mix in the different interest rate scenarios. The magnitude of changes to both areas in turn are based upon analyses of customers’ behavior in differing rate environments. However, these analyses may differ from actual future customer behavior. For example, actual prepayments may differ from current assumptions as prepayments are affected by many variables which cannot be predicted with certainty (e.g., prepayments of mortgages may differ on fixed and adjustable loans depending upon current interest rates, expectations of future interest rates, availability of refinancing, economic benefit to borrower, financial viability of borrower, etc.).

     As with any model for analyzing interest rate risk, certain limitations are inherent in the method of analysis presented above. For example, the actual impact on net interest income due to certain interest rate shocks may differ from those projections presented should market conditions vary from assumptions used in the analysis. Furthermore, the analysis does not consider the effects of a changed level of overall economic activity that could exist in certain interest rate environments. Moreover, the method of analysis used does not take into account the actions that management might take to respond to changes in interest rates because of inherent difficulties in determining the likelihood or impact of any such response.

Credit Risk Management39

     Our approach to managing exposure to credit risk involves an integrated program of setting appropriate standards for credit underwriting and diversification, monitoring trends that may affect the risk profile of the credit portfolio and making appropriate adjustments to reflect changes in economic and financial conditions that could affect the quality of the portfolio and loss probability. The components of this integrated program include:

Setting Underwriting and Grading Standards. In 1996, we refined our loan grading system to ten different principal risk categories where “1” is “no risk” and “10” is “loss” and began an effort to decrease our exposure to customers in the weaker credit categories. We also established risk parameters so that the cost of credit risk is an integral part of the pricing and evaluation of credit decisions and the setting of portfolio targets.
Diversification. We actively manage our credit portfolio to avoid excessive concentration by obligor, risk grade, industry, product and geographic location. As part of this process, we also monitor changes in risk correlation among concentration categories. In addition, we seek to reduce our exposure to concentrations by actively participating portions of our commercial and commercial real estate loans to other banks.
Risk Mitigation. Over the past few years, we have reduced our exposure to higher-risk areas such as real estate construction (which accounted for only 3.1% of total loans and leases at December 31, 2001), Hawaii commercial real estate, health care, hotel and agricultural loans.
Participation in Syndicated National Credits. In addition to providing back-up commercial paper facilities to primarily investment-grade companies, we participate in media finance credits in the national market. This is one of our traditional niches, in which we have developed a

36


BancWest Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Part II(continued)

special expertise over a long period of time and have experienced personnel. At December 31, 2001, the ratio of nonperforming shared national credits and media finance loans to total shared national credits and media finance loans outstanding was 2%.
Emphasis on Consumer Lending. Consumer loans represent our single largest category of loans and leases. We focus our consumer lending activities on loan grades with predictable loss rates. As a result, we are able to use formula-based approaches to calculate appropriate reserve levels that reflect historical loss experience. We generally do not participate in subprime lending activities. We also seek to reduce our credit exposures where feasible by obtaining third-party insurance or similar protections. For example, in our vehicle lease portfolio (which represents approximately 67% of our lease financing portfolio and 23% of our combined lease financing and consumer loans at December 31, 2001), we obtain third-party insurance for the estimated residual value of the leased vehicle. To the extent that these policies include deductible values, we set aside reserves to fully cover the uninsured portion.

Liquidity Risk Management

     Liquidity refers to our ability to provide sufficient short- and long-term cash flows to fund operations and to meet obligations and commitments, including depositor withdrawals and debt service, on a timely basis at reasonable costs. We achieve our liquidity objectives with both assets and liabilities.

     We obtain short-term, asset-based liquidity through our investment securities portfolio and short-term investments which can be readily converted to cash. These liquid assets consist of cash and due from banks, interest-bearing deposits in other banks, Federal funds sold, securities purchased under agreements to resell and investment securities. Such assets represented 16.7% of total assets at the end of 2001 compared to 17.6% at the end of 2000.

     Intermediate- and longer-term asset liquidity is primarily provided by regularly scheduled maturities and cash flows from our loans and investment securities. Additional liquidity is available from certain assets that can be sold or securitized, such as consumer and mortgage loans.

     We obtain short-term, liability-based liquidity primarily from deposits. Average total deposits for 2001 increased 8.7% to $14.5 billion, primarily due to continued expansion of our customer base in the Western United States and our branch acquisitions. Average total deposits funded 75% of average total assets for 2001 and 76% in 2000.

     We also obtain short-term liquidity from ready access to regional and national wholesale funding sources, including purchasing Federal funds, selling securities under agreements to repurchase, lines of credit from other banks and credit facilities from the Federal Home Loan Banks. Additional information on short-term borrowings is provided in Note 10 to the Consolidated Financial Statements on pages 57 and 58. Also, offshore deposits in the international market provide another available source of funds.

     Funds taken in the intermediate- and longer-term markets are structured to avoid concentration of maturities and to reduce refinancing risk. We also attempt to diversify the types of instruments issued to avoid undue reliance on any one market.

     Liquidity for the parent company is primarily provided by dividend and interest income from its subsidiaries. Short-term cash requirements are met through liquidation of short-term investments. Longer-term liquidity is provided by access to the capital markets.

     Our ability to pay dividends depends primarily upon dividends and other payments from our subsidiaries, which are subject to certain limitations as described in Note 14 to the Consolidated Financial Statements on page 60.

     Our subordinated debt is assigned a rating of A3 by Moody’s and A by S&P.

Contractual Obligations

The following is a table regarding our specific contractual obligations. Additionalestimated net fair value amounts of interest rate derivatives held for trading purposes have been determined by the Company using available market information regarding long-term debt can be found in Note 11 of our Consolidated Financial Statements on pages 58 and 59. Information regarding operating leases can be found in Note 21 on page 66. Information regarding our facilities management agreement can be found in Note 22 of our Consolidated Financial Statements on page 67.

                     
(in thousands) Within 1 Year 2 to 3 Years 4 to 5 Years After 5 Years Total

 
 
 
 
 
Long-term debt $319,358  $171,037  $52,090  $1,920,599  $2,463,084 
Operating leases  44,827   61,903   28,970   64,668   200,368 
Facilities management agreement  16,934   16,934   16,934   11,289   62,091 
   
   
   
   
   
 
Total contractual cash obligations
 $381,119  $249,874  $97,994  $1,996,556  $2,725,543 
   
   
   
   
   
 
appropriate valuation methodologies:
                                     
December 31, 2004 
(dollars in thousands) Net  Gross      Expected Maturity 
  Fair  Positive  Notional                      After 
Interest Rate Contracts Value  Value  Amount  2005  2006  2007  2008  2009  2009 
Pay-Fixed Swaps:
                                    
Contractual Maturities $(5,145) $4,425  $726,383  $112,381  $26,280  $41,684  $98,298  $102,343  $345,397 
Weighted Avg. Pay Rates          4.52%  3.99%  4.54%  5.37%  4.02%  4.67%  4.67%
Weighted Avg. Receive Rates          2.51%  2.41%  2.86%  2.81%  2.14%  2.32%  2.32%
                                     
Receive-Fixed Swaps
                                    
Contractual Maturities  12,442   14,211  $726,383  $112,381  $26,280  $41,684  $98,298  $102,343  $345,397 
Weighted Avg. Pay Rates          2.51%  2.39%  2.86%  2.81%  2.14%  2.32%  2.32%
Weighted Avg. Receive Rates          4.80%  4.26%  4.70%  5.67%  4.36%  5.02%  5.02%
                                     
Pay-Fixed Swaps:
                                    
(Forward Value Dated):
                                    
Contractual Maturities  (293)  53  $24,970                 $24,970 
Weighted Avg. Pay Rates          4.40%                 4.40%
Weighted Avg. Receive Rates          2.26%                 2.26%
                                     
Receive-Fixed Swaps
                                    
(Forward Value Dated):
                                    
Contractual Maturities  852   869  $24,970                 $24,970 
Weighted Avg. Pay Rates          2.26%                 2.26%
Weighted Avg. Receive Rates          4.97%                 4.97%
                                     
Caps/Collars
                                    
Contractual Maturities     203  $261,896  $3,848  $239,428        $15,000  $3,620 
Weighted Avg. Strike Rates          4.41%  5.85%  4.33%        4.85%  4.50%
Weighted Floor Rates                             
                           
Total interest rate contracts held for trading purposes $7,856  $19,761  $1,764,602                         
                                  

In addition to these contractual cash obligations, we have off-balance-sheet commitments and contingent liabilities that may or may not be required to be funded, but are current commitments and contingent liabilities. Additional detail for these amounts can be found in Note 22 to our Consolidated Financial Statements on page 67.40

37


BancWest Corporation and Subsidiaries

Part II(continued)REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Cash Flows

     The following is a summaryTo the Board of our cash flows for 2001, 2000 and 1999. (There is more detail in the Consolidated Statements of Cash Flows on page 44.)

             
(in thousands) 2001 2000 1999

 
 
 
Net cash provided by operating and financing activities $782,286  $1,839,752  $847,981 
Net cash used in investing activities $918,623  $1,776,114  $702,792 
   
   
   
 

     For the year ended December 31, 2001, due primarily to increased loan volume and purchases of investment securities, net cash decreased by $136.3 million compared to the year ended 2000. The net cash provided by operating and financing activities in 2001 was used principally to fund earning assets. In 2000, the increase in net cash of $63.6 million was primarily due to increased deposit volumeDirectors and the issuanceStockholder of $150 million in capital securities by BWE Trust. In 1999, the inclusion of the operations of Bank of the West for the entire year was the primary reason for net cash to increase by $145.2 million.

Interest Rate Sensitivity

     The table below presents our interest rate sensitivity position at December 31, 2001. The interest rate sensitivity gap, shown at the bottom of the table, refers to the difference between assets and liabilities subject to repricing, maturity, runoff and/or volatility during a specified period. The gap is adjusted for interest rate swaps, which are hedging certain assets or liabilities on the balance sheet. (For ease of analysis, all of these swap adjustments are consolidated into the “off-balance-sheet adjustment” line on the gap table.)

     Since all interest rates and yields do not adjust at the same velocity or magnitude, and since volatility is subject to change, the gap is only a general indicator of interest rate sensitivity. At December 31, 2001, we had a cumulative one-year gap that was a negative $1.2 billion, representing 5.47% of total assets.

                        
     Within After Three After One        
     Three But Within But Within After    
(dollars in thousands) Months 12 Months Five Years Five Years Total

 
 
 
 
 
Assets:
                    
 Interest-bearing deposits in other banks $109,835  $100  $  $  $109,935 
 Federal funds sold and securities purchased under agreements to resell  233,000            233,000 
 Investment securities:                    
  Held-to-maturity               
  Available-for-sale  332,217   478,618   1,417,525   313,813   2,542,173 
 Net loans and leases:                    
  Commercial, financial and agricultural  1,885,862   185,353   302,594   13,796   2,387,605 
  Real estate—construction  462,633   1,087   514   228   464,462 
  Foreign  129,064   84,816   161,378   10,290   385,548 
  Other  2,326,580   2,528,145   5,405,649   1,531,089   11,791,463 
   
   
   
   
   
 
   Total earning assets  5,479,191   3,278,119   7,287,660   1,869,216   17,914,186 
 Nonearning assets  366,121   316,329   743,423   2,306,455   3,732,328 
   
   
   
   
   
 
   
Total assets
 $5,845,312  $3,594,448  $8,031,083  $4,175,671  $21,646,514 
   
   
   
   
   
 
Liabilities and Stockholder’s Equity:
                    
 Interest-bearing deposits $4,730,555  $2,958,274  $3,125,598  $1,004,512  $11,818,939 
 Noninterest-bearing deposits  871,604   309,622   1,651,316   682,570   3,515,112 
 Short-term borrowings  624,874   326,561   2,885      954,320 
 Long-term debt and capital securities  309,746   2,837   224,394   1,926,107   2,463,084 
 Stockholder’s equity  15,630         1,986,290   2,001,920 
 Off-balance-sheet adjustment  (53,396)  (59,699)  73,559   39,536    
 Noncosting liabilities  273,347   313,659   1,389   304,744   893,139 
   
   
   
   
   
 
   
Total liabilities and stockholder’s equity
 $6,772,360  $3,851,254  $5,079,141  $5,943,759  $21,646,514 
   
   
   
   
   
 
Interest rate sensitivity gap $(927,048) $(256,806) $2,951,942  $(1,768,088)    
Cumulative gap $(927,048) $(1,183,854) $1,768,088  $     
Cumulative gap as a percent of total assets  (4.28)%  (5.47)%  8.17%  %    
   
   
   
   
   
 

38


Part II(continued)

Fourth Quarter Results

             
(dollars in thousands) 2001 2000 Change

 
 
 
Consolidated net income $63,467  $56,169   13.0%
Non-GAAP Information *
            
Operating earnings**  63,467   56,924   11.5 
Return on average tangible total assets (annualized)**  1.50%  1.48%  1.4 
Return on average tangible stockholder’s equity (annualized)**  24.22   19.89   21.8 
   
   
   
 


*Information presented was not calculated under generally accepted accounting principles (“GAAP”). Information is disclosed to improve readers’ understanding of how management views the results of our operation.
**Excludes after-tax other nonrecurring costs of $2.3 million in 2001 and $755,000 in 2000.

     Our consolidated net income in the fourth quarter of 2001 increased over the fourth quarter of 2000. Revenue growth was the major factor in the increase of net income and operating earnings for the period. Contribution from our newly acquired branches in Nevada, New Mexico, Guam and Saipan was a significant component for the increase in our revenues. Net interest income increased in the period over the same period last year on a higher volume of loans and leases. Noninterest income also increased in this period over the same period last year due primarily to increased service charges and fees and gains on the sale of securities. Partially offsetting the increase in net interest income and noninterest income was an increase in the provision for credit losses and in noninterest expense, mainly in higher salaries and benefits and occupancy expenses related to our larger branch structure.

Summary of Quarterly Financial Data (Unaudited)

     A summary of unaudited quarterly financial data for 2001 and 2000 is presented below:

                     
  Quarter    
  
 Annual
(in thousands) First Second Third Fourth Total

 
 
 
 
 
2001
                    
Interest income
 $338,851  $333,560  $331,330  $319,908  $1,323,649 
Interest expense
  149,478   134,872   119,929   102,856   507,135 
   
   
   
   
   
 
Net interest income
  189,373   198,688   211,401   217,052   816,514 
Provision for credit losses
  35,200   23,150   15,950   28,750   103,050 
Noninterest income
  98,499   79,796   61,161   68,942   308,398 
Noninterest expense
  150,088   147,716   148,684   149,258   595,746 
   
   
   
   
   
 
Income before income taxes
  102,584   107,618   107,928   107,986   426,116 
Provision for income taxes
  40,837   41,677   44,279   44,519   171,312 
   
   
   
   
   
 
Net income
 $61,747  $65,941  $63,649  $63,467  $254,804 
   
   
   
   
   
 
2000                    
Interest income $301,387  $324,259  $338,066  $346,144  $1,309,856 
Interest expense  122,115   137,530   148,226   155,051   562,922 
   
   
   
   
   
 
Net interest income  179,272   186,729   189,840   191,093   746,934 
Provision for credit losses  12,930   16,250   14,800   16,448   60,428 
Noninterest income  50,037   58,208   53,567   54,264   216,076 
Noninterest expense  131,577   135,443   131,479   135,462   533,961 
   
   
   
   
   
 
Income before income taxes  84,802   93,244   97,128   93,447   368,621 
Provision for income taxes  35,371   39,262   40,316   37,278   152,227 
   
   
   
   
   
 
Net income $49,431  $53,982  $56,812  $56,169  $216,394 
   
   
   
   
   
 

39


Part II(continued)

Item 8. Financial Statements and Supplementary Data

To the Stockholders
BancWest Corporation

In our opinion, the accompanying consolidated balance sheetsheets and the related consolidated statements of income, changes in stockholders’stockholder’s equity and comprehensive income and cash flows present fairly, in all material respects, the consolidated financial position of BancWest Corporation and its subsidiaries (a wholly owned subsidiary of BNP Paribas) at December 31, 2000,2004, and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period from January 1, 2001 to December 19, 2001 and for the years ended December 31, 2000 and 19992004; in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; ourmanagement. 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 auditing standards generally accepted inof the United States of America, whichPublic Company Accounting Oversight Board (United States). 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, 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 our opinion.

As discussed in Note 2 to the consolidated financial statements, on November 1, 1998 BNP Paribas acquired approximately 45% of the Company’s outstanding common stock. On December 20, 2001 BNP Paribas acquired the remaining shares of the Company’s outstanding common stock that it did not already own. The consolidated financial statements for the period subsequent to December 19, 2001 have been prepared on the basis of accounting arising from these acquisitions. The consolidated financial statements for the period from January 1, 2001 to December 19, 2001 and for the years ended December 31, 2000 and 1999 are presented on the Company’s previous basis of accounting./s/ PricewaterhouseCoopers LLP
San Francisco, California
March 22, 2005

41

Honolulu, Hawaii
January 16, 2002

To the Stockholder
BancWest Corporation

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, changes in stockholder’s equity and cash flows present fairly, in all material respects, the consolidated financial position of BancWest Corporation and its subsidiaries (a wholly-owned subsidiary of BNP Paribas) at December 31, 2001, and the consolidated results of their operations and their cash flows for the period from December 20, 2001 to December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards generally accepted in the United States of America, 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 audit provides a reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, on November 1, 1998 BNP Paribas acquired approximately 45% of the Company’s outstanding common stock. On December 20, 2001 BNP Paribas acquired the remaining shares of the Company’s outstanding common stock that it did not already own. The consolidated financial statements for the period subsequent to December 19, 2001 have been prepared on the basis of accounting arising from these acquisitions. The consolidated financial statements for the period from January 1, 2001 to December 19, 2001 and for the years ended December 31, 2000 and 1999 are presented on the Company’s previous basis of accounting.

Honolulu, Hawaii
January 16, 2002

40


BancWest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME

             
  Year Ended December 31, 
(dollars in thousands) 2004  2003  2002 
 
Interest Income
            
Loans $1,444,629  $1,358,146  $1,347,373 
Lease financing  114,693   134,098   145,020 
Securities available for sale  219,519   174,832   146,848 
Other  16,322   11,714   16,944 
          
Total interest income  1,795,163   1,678,790   1,656,185 
          
Interest expense
            
Deposits  203,407   180,232   281,466 
Short-term borrowings  29,285   21,424   34,152 
Long-term debt  210,133   183,551   149,712 
          
Total interest expense  442,825   385,207   465,330 
          
Net interest income
  1,352,338   1,293,583   1,190,855 
Provision for loan and lease losses  49,219   81,295   95,356 
          
Net interest income after provision for loan and lease losses 1,303,119  1,212,288   1,095,499 
          
Noninterest income
            
Service charges on deposit accounts  163,679   155,243   139,030 
Trust and investment services income  40,580   38,045   37,198 
Other service charges and fees  153,911   142,030   127,297 
Net gains on securities available for sale  873   4,289   1,953 
Vehicle and equipment operating lease income  17,092       
Other  55,365   52,572   30,423 
          
Total noninterest income  431,500   392,179   335,901 
          
Noninterest expense
            
Salaries and wages  359,480   342,985   327,648 
Employee benefits  141,104   139,198   111,810 
Occupancy  91,770   87,514   85,821 
Outside services  85,222   85,315   78,803 
Intangible amortization  26,535   23,054   20,047 
Equipment  49,814   47,197   48,259 
Depreciation-vehicle and equipment operating leases  15,275       
Restructuring and integration costs  16,144      17,595 
Stationery and supplies  25,054   25,416   29,016 
Advertising and promotions  26,717   23,535   27,420 
Other  125,434   118,621   89,655 
          
Total noninterest expense  962,549   892,835   836,074 
          
Income before income taxes and cumulative effect of accounting change  772,070   711,632   595,326 
Provision for income taxes  298,693   272,698   233,994 
          
Income before cumulative effect of accounting change  473,377   438,934   361,332 
          
Cumulative effect of accounting change, net of tax     2,370    
          
Net income
 $473,377  $436,564  $361,332 
          
         
 

Consolidated Balance Sheets

           
    Company Predecessor
    
 
    December 31,
(in thousands) 2001 2000

 
 
Assets
        
Cash and due from banks $737,262  $873,599 
Interest-bearing deposits in other banks  109,935   5,972 
Federal funds sold and securities purchased under agreements to resell  233,000   307,100 
Investment securities (note 5):        
 Held-to-maturity (fair value of $91,625 in 2000)     92,940 
 Available-for-sale  2,542,173   1,960,780 
Loans and leases:        
 Loans and leases (note 6)  15,223,732   13,971,831 
 Less allowance for credit losses (note 7)  194,654   172,443 
   
   
 
Net loans and leases  15,029,078   13,799,388 
   
   
 
Premises and equipment, net (note 8)  273,035   276,012 
Customers’ acceptance liability  1,498   1,080 
Core deposit intangible (net of accumulated amortization of $458 in 2001 and $33,882 in 2000)  110,239   56,640 
Goodwill (net of accumulated amortization of $88,766 in 2000)  2,061,805   599,139 
Other real estate owned and repossessed personal property  22,321   27,479 
Other assets  526,168   456,937 
   
   
 
Total assets
 $21,646,514  $18,457,066 
   
   
 
Liabilities and Stockholder’s Equity
        
Deposits:        
 Domestic:        
  Interest-bearing $11,453,882  $10,899,009 
  Noninterest-bearing  3,407,209   2,955,880 
 Foreign  472,960   273,250 
   
   
 
Total deposits  15,334,051   14,128,139 
   
   
 
Short-term borrowings (note 10)  954,320   669,068 
Acceptances outstanding  1,498   1,080 
Long-term debt (note 11)  2,197,954   632,423 
Guaranteed preferred beneficial interests in Company’s junior subordinated debentures (note 11)  265,130   250,000 
Other liabilities  891,641   786,863 
   
   
 
Total liabilities  19,644,594   16,467,573 
   
   
 
Commitments and contingent liabilities (notes 15, 21 and 22)        
Stockholder’s equity:        
 Class A common stock, par value $.01 per share in 2001 and $1 per share in 2000 (note 2) Authorized— 150,000,000 shares in 2001 and 75,000,000 shares in 2000
Issued— 56,074,874 shares in 2001 and 2000
  561   56,075 
 Common stock, par value $1 per share (notes 2 and 16)
Authorized— 200,000,000 shares in 2000
Issued— 71,041,450 shares in 2000
     71,041 
 Surplus  1,985,275   1,125,652 
 Retained earnings (note 14)  8,302   770,350 
 Accumulated other comprehensive income, net (note 12)  7,782   7,601 
 Treasury stock, at cost—2,565,581 shares in 2000     (41,226)
   
   
 
Total stockholder’s equity  2,001,920   1,989,493 
   
   
 
Total liabilities and stockholder’s equity
 $21,646,514  $18,457,066 
   
   
 

The accompanying notes are an integral part of these consolidated financial statements.statements

4142


BancWest Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS

         
  December 31, 
(dollars in thousands, except share data) 2004  2003 
 
Assets
        
Cash and due from banks $1,676,056  $1,538,004 
Interest-bearing deposits in other banks  16,531   189,687 
Federal funds sold and securities purchased under agreements to resell  937,875   444,100 
Trading assets  4,685   19,109 
Securities available for sale  7,954,563   5,772,679 
Loans held for sale  71,402   51,007 
Loans and leases:        
Loans and leases  32,688,843   25,722,079 
Less allowance for loan and lease losses  436,391   391,699 
       
Net loans and leases  32,252,452   25,330,380 
       
Vehicle and equipment operating leases, net  132,539    
Premises and equipment, net  684,783   530,153 
Customers’ acceptance liability  12,841   30,078 
Other intangibles, net  272,490   187,357 
Goodwill  4,312,800   3,226,871 
Other real estate owned and repossessed personal property  21,653   17,387 
Other assets  1,703,356   1,015,403 
       
Total assets
 $50,054,026  $38,352,215 
       
Liabilities and Stockholder’s Equity
        
Deposits:        
Interest-bearing $23,553,861  $18,347,730 
Noninterest-bearing  10,059,918   8,055,387 
       
Total deposits  33,613,779   26,403,117 
       
Federal funds purchased and securities sold under agreements to repurchase  2,050,344   1,174,877 
Short-term borrowings  1,330,845   1,197,809 
Acceptances outstanding  12,841   30,078 
Long-term debt  6,305,040   4,221,025 
Other liabilities  1,011,142   1,062,437 
       
Total liabilities
 $44,323,991  $34,089,343 
       
Stockholder’s equity:        
Class A common stock, par value $.01 per share Authorized – 150,000,000 shares Issued and outstanding – 106,859,123 shares at December 31, 2004 and 85,759,123 shares at December 31, 2003 $1,069  $858 
Additional paid-in capital  4,475,006   3,419,927 
Retained earnings  1,279,575   806,198 
Accumulated other comprehensive income  (25,615)  35,889 
       
Total stockholder’s equity
  5,730,035   4,262,872 
       
Total liabilities and stockholder’s equity
 $50,054,026  $38,352,215 
       
         
 

Consolidated Statements of Income

                  
   Company Predecessor
   
 
   December 20, 2001 January 1, 2001        
   through through Year Ended December 31,
(in thousands) December 31, 2001 December 19, 2001 2000 1999

 
 
 
 
Interest income
                
Interest and fees on loans $31,385  $989,200  $1,019,301  $895,079 
Lease financing income  4,875   142,990   129,032   113,035 
Interest on investment securities:                
 Taxable interest income  4,390   131,795   136,295   101,706 
 Exempt from Federal income taxes  7   445   751   1,102 
Other interest income  221   18,341   24,477   24,789 
   
   
   
   
 
Total interest income  40,878   1,282,771   1,309,856   1,135,711 
   
   
   
   
 
Interest expense
                
Deposits (note 9)  8,466   384,797   458,204   368,621 
Short-term borrowings  1,160   33,796   49,298   30,326 
Long-term debt  5,341   73,575   55,420   47,930 
   
   
   
   
 
Total interest expense  14,967   492,168   562,922   446,877 
   
   
   
   
 
Net interest income  25,911   790,603   746,934   688,834 
Provision for credit losses (note 7)  2,419   100,631   60,428   55,262 
   
   
   
   
 
Net interest income after provision for credit losses  23,492   689,972   686,506   633,572 
   
   
   
   
 
Noninterest income
                
Service charges on deposit accounts  2,912   86,263   74,718   67,674 
Trust and investment services income  830   31,500   36,161   32,644 
Other service charges and fees  2,248   76,539   73,277   65,484 
Securities gains, net (note 5)  (31)  71,828   211   16 
Other  878   35,431   31,709   31,814 
   
   
   
   
 
Total noninterest income  6,837   301,561   216,076   197,632 
   
   
   
   
 
Noninterest expense
                
Salaries and wages  6,991   200,063   184,901   181,914 
Employee benefits (note 15)  2,199   70,243   55,362   52,103 
Occupancy expense (notes 8 and 21)  1,652   64,581   62,715   60,056 
Outside services  1,523   46,135   45,924   44,697 
Intangible amortization  458   43,160   36,597   35,760 
Equipment expense (notes 8 and 21)  887   29,777   29,241   30,422 
Restructuring, integration and other nonrecurring costs (note 3)     3,935   1,269   17,534 
Other (note 17)  3,610   120,532   117,952   112,589 
   
   
   
   
 
Total noninterest expense  17,320   578,426   533,961   535,075 
   
   
   
   
 
Income before income taxes  13,009   413,107   368,621   296,129 
Provision for income taxes (note 18)  4,707   166,605   152,227   123,751 
   
   
   
   
 
Net income
 $8,302  $246,502  $216,394  $172,378 
   
   
   
   
 

The accompanying notes are an integral part of these consolidated financial statements.statements

4243


BancWest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDER
S EQUITY AND COMPREHENSIVE INCOME

                         
                  Accumulated    
  Class A  Additional      Other    
  Common Stock  Paid-in-  Retained  Comprehensive    
(dollars in thousands, except share data) Shares  Amount  Capital  Earnings  Income  Total 
 
BALANCE, DECEMBER 31, 2001  56,074,874  $561  $1,985,275  $8,302  $7,782  $2,001,920 
                   
Comprehensive income:                        
Net income            361,332      361,332 
Unrealized net gains on securities available for sale arising during the year              41,723   41,723 
Reclassification of net realized gain on securities available for sale included in net income              (1,166)  (1,166)
Unrealized net gains on cash flow derivative hedges arising during the year              40,230   40,230 
Reclassification of net realized gains on cash flow derivative hedges included in net income               (11,506)  (11,506)
                   
Comprehensive income           361,332   69,281   430,613 
                   
Class A common stock issued  29,684,249   297   1,599,703         1,600,000 
Adjustment to pushdown of parent company’s basis        (167,476)        (167,476)
Discounted share purchase plan        2,425         2,425 
                   
BALANCE, DECEMBER 31, 2002  85,759,123  $858  $3,419,927  $369,634  $77,063  $3,867,482 
                   
Comprehensive income:                        
Net income           436,564      436,564 
Unrealized net losses on securities available for sale arising during the period              (37,854)  (37,854)
Reclassification of net realized gains on securities available for sale included in net income              (2,552)  (2,552)
Unrealized net gains on cash flow derivative hedges arising during the year              12,777   12,777 
Reclassification of net realized gains on cash flow derivative hedges included in net income              (13,545)  (13,545)
                   
Comprehensive income           436,564   (41,174)  395,390 
                   
BALANCE, DECEMBER 31, 2003
  85,759,123  $858  $3,419,927  $806,198  $35,889  $4,262,872 
                   
Comprehensive income:
                        
Net income
           473,377      473,377 
Minimum pension liability adjustment
              (5,139)  (5,139)
Unrealized net losses on securities available for sale arising during the year
              (39,504)  (39,504)
Reclassification of net realized gains on securities available for sale included in net income
              (515)  (515)
Unrealized net losses on cash flow derivative hedges arising during the year
              (4,845)  (4,845)
Reclassification of net realized gains on cash flow derivative hedges included in net income
               (11,501)  (11,501)
                   
Comprehensive income
           473,377   (61,504)  411,873 
                   
Other
        290         290 
Class A common stock issued
  21,100,000   211   1,054,789         1,055,000 
                   
BALANCE, DECEMBER 31, 2004
  106,859,123  $1,069  $4,475,006  $1,279,575  $(25,615) $5,730,035 
                   
                         
 

Consolidated Statements of Changes
In Stockholder’s Equity

                                      
                           (note 12)        
   Class A                 Accumulated        
(in thousands, except Common Stock Common Stock         Other Com-        
number of shares and 

     Retained prehensive Treasury    
per share data) Shares Amount Shares Amount Surplus Earnings Income, net Stock Total

 
 
 
 
 
 
 
 
 
Predecessor:                                    
Balance, December 31, 1998  25,814,768  $25,815   37,537,814  $37,538  $1,183,274  $543,755  $6,228  $(50,454) $1,746,156 
Comprehensive income:                                    
 Net income                 172,378         172,378 
 Unrealized valuation adjustment, net of tax and reclassification adjustment                    (16,101)     (16,101)
   
   
   
   
   
   
   
   
   
 
Comprehensive income                 172,378   (16,101)     156,277 
   
   
   
   
   
   
   
   
   
 
Issuance of common stock for two-for-one stock split  25,814,768   25,815   37,708,200   37,708   (63,523)            
Issuance of common stock        172,836   173   4,887         10,808   15,868 
Issuance of treasury stock              (126)        2,001   1,875 
Cash dividends ($.62 per share) (note 14)                 (77,446)        (77,446)
   
   
   
   
   
   
   
   
   
 
Balance, December 31, 1999  51,629,536   51,630   75,418,850   75,419   1,124,512   638,687   (9,873)  (37,645)  1,842,730 
Comprehensive income:                                    
 Net income                 216,394         216,394 
 Unrealized valuation adjustment, net of tax and reclassification adjustment                    17,474      17,474 
   
   
   
   
   
   
   
   
   
 
Comprehensive income                 216,394   17,474      233,868 
   
   
   
   
   
   
   
   
   
 
Conversion of common stock to Class A common stock  4,445,338   4,445   (4,445,338)  (4,445)               
Issuance of common stock        67,938   67   518            585 
Issuance of treasury stock              (475)        3,901   3,426 
Purchase of treasury stock, net                       (7,482)  (7,482)
Income tax benefit from stock-based compensation              1,097            1,097 
Cash dividends ($.68 per share) (note 14)                 (84,731)        (84,731)
   
   
   
   
   
   
   
   
   
 
Balance, December 31, 2000  56,074,874   56,075   71,041,450   71,041   1,125,652   770,350   7,601   (41,226)  1,989,493 
   
   
   
   
   
   
   
   
   
 
Comprehensive income:
                                    
 
Net income
                 246,502         246,502 
 
Unrealized valuation adjustment, net of tax and reclassification adjustment
                    (5,129)     (5,129)
   
   
   
   
   
   
   
   
   
 
Comprehensive income
                 246,502   (5,129)     241,373 
   
   
   
   
   
   
   
   
   
 
Issuance of common stock
        63,952   64   (95)           (31)
Issuance of treasury stock, net
              (141)        3,531   3,390 
Income tax benefit from stock-based compensation
              2,435            2,435 
Cash dividends ($.80 per share) (note 14)
                 (99,772)        (99,772)
   
   
   
   
   
   
   
   
   
 
Balance, December 19, 2001
  56,074,874  $56,075   71,105,402  $71,105  $1,127,851  $917,080  $2,472  $(37,695) $2,136,888 
   
   
   
   
   
   
   
   
   
 
Company:
                                    
Balance, December 20, 2001
    $561     $  $1,985,275  $  $  $  $1,985,836 
   
   
   
   
   
   
   
   
   
 
Comprehensive income:
                                    
 
Net income
                 8,302         8,302 
 
Unrealized valuation adjustment, net of tax and reclassification adjustment
                    7,782      7,782 
   
   
   
   
   
   
   
   
   
 
Balance, December 31, 2001
    $561     $  $1,985,275  $8,302  $7,782  $  $2,001,920 
   
   
   
   
   
   
   
   
   
 

The accompanying notes are an integral part of these consolidated financial statements.statements

4344


BancWest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS

             
  Year Ended December 31,
(dollars in thousands) 2004  2003  2002 
 
Cash flows from operating activities:
            
Net income $473,377  $436,564  $361,332 
Adjustments to reconcile net income to net cash provided by operating activities:            
Cumulative effect of accounting change, net of tax     2,370    
Depreciation and amortization  94,756   64,381   67,987 
Deferred income taxes  (6,357)  5,873   138,003 
Provision for loan and lease losses  49,219   81,295   95,356 
Decrease (increase) in trading assets  14,424   24,321   (43,430)
Decrease (increase) in loans held for sale  (20,395)  34,267   (39,215)
Gains on sales of securities available for sale  (873)  (4,289)  (1,953)
Increase in accrued income taxes payable  17,320   37,140   12,840 
Decrease (increase) in interest receivable  (47,268)  8,298   (58,027)
Increase (decrease) in interest payable  (8,013)  13,621   14,291 
Increase in prepaid expense  (56,892)  (2,484)  (32,582)
Cash paid for BNP Paribas’ cancellation of stock options        (83,347)
Other  (144,698)  (84,845)  (198,865)
          
Net cash provided by operating activities
  364,600   616,512   232,390 
          
Cash flows from investing activities:
            
Proceeds from maturity of securities available for sale  1,960,483   2,303,050   911,748 
Proceeds from sale of securities available for sale  715,296   446,515   323,321 
Purchases of securities available for sale  (3,114,398)  (4,800,194)  (2,044,022)
Proceeds from sale of loans  330,869   826,776   581,176 
Purchases of loans  (1,616,077)  (1,212,644)  (60,745)
Net increase in loans resulting from originations and collections  (1,630,656)  (1,263,569)  (734,517)
Net increase in origination of vehicle and equipment operating leases  (147,753)      
Net cash paid for acquisitions  (1,166,933)     (1,724,563)
Purchases of premises and equipment  (59,330)  (42,795)  (15,466)
Other  (347,957)  16,496   (538)
          
Net cash used in investing activities
  (5,076,456)  (3,726,365)  (2,763,606)
          
Cash flows from financing activities:
            
Net increase in deposits  1,798,802   1,845,638   1,016,493 
Net increase (decrease) in short-term borrowings  592,489   847,936   (5,391)
Proceeds from issuance of long-term debt and capital securities  2,982,305   765,310   1,503,718 
Repayments of long-term debt  (1,258,069)  (370,655)  (472,811)
Proceeds from issuance of common stock  1,055,000      1,600,000 
Discounted share purchase plan        2,425 
          
Net cash provided by financing activities
  5,170,527   3,088,229   3,644,434 
          
Net increase (decrease) in cash and cash equivalents
  458,671   (21,624)  1,113,218 
Cash and cash equivalents at beginning of period
  2,171,791   2,193,415   1,080,197 
          
Cash and cash equivalents at end of period
 $2,630,462  $2,171,791  $2,193,415 
          
Supplemental disclosures:
            
Interest paid $450,839  $371,586  $451,039 
Income taxes paid  427,592   217,463   84,730 
Supplemental schedule of noncash investing and financing activities:
            
Transfers from loans to foreclosed properties  12,163   9,154   16,815 
Financed acquisition of building:            
Fixed asset acquired     159,910    
Debt assumed     193,900    
In connection with acquisitions, the following liabilities were assumed:
            
Fair value of assets acquired  7,742,237      11,719,382 
Cash (paid) received  (1,439,891)     (2,418,208)
          
Fair value of liabilities assumed
 $6,302,346  $  $9,301,174 
          
             
 

Consolidated Statements of Cash Flows

                   
    Company Predecessor    
    
 
    
    December 20, 2001 January 1, 2001        
    through through Year Ended December 31,
(in thousands) December 31, 2001 December 19, 2001 2000 1999

 
 
 
 
Cash flows from operating activities:
                
 Net income $8,302  $246,502  $216,394  $172,378 
 Adjustments to reconcile net income to net cash provided by operating activities:                
  Provision for credit losses  2,419   100,631   60,428   55,262 
  Net gain on sale of assets        (1,218)  (3,675)
  Depreciation and amortization  1,016   75,339   70,142   67,484 
  Deferred income taxes  1,971   69,762   112,848   95,231 
  Increase in accrued income taxes payable  2,736   18,178   3,295   16,054 
  Decrease (increase) in interest receivable  (4,688)  16,457   (16,868)  (6,848)
  Increase (decrease) in interest payable  (9,893)  (39,371)  14,497   28,145 
  Decrease (increase) in prepaid expense  24,127   (7,044)  (16,208)  (15,264)
  Restructuring, integration and other nonrecurring costs     3,935   1,269   17,534 
  Other  1,187   4,001   (12,534)  (2,231)
   
   
   
   
 
Net cash provided by operating activities
  27,177   488,390   432,045   424,070 
   
   
   
   
 
Cash flows from investing activities:
                
 Net decrease (increase) in interest-bearing deposits in other banks  (42,806)  (61,157)  3,163   269,320 
 Net decrease (increase) in Federal funds sold and securities purchased under agreements to resell  (77,988)  442,100   (236,000)  (4,600)
 Proceeds from maturity of held-to-maturity investment securities     35,066   49,928   163,906 
 Purchase of held-to-maturity investment securities     (33,079)     (15,852)
 Proceeds from maturity of available-for-sale investment securities  28,669   1,120,487   809,692   526,621 
 Proceeds from sale of available-for-sale investment securities     559,220   136,345   27,828 
 Purchase of available-for-sale investment securities  (24,795)  (2,312,508)  (1,009,802)  (968,209)
 Proceeds from sale of Concord stock     45,359       
 Purchase of bank-owned life insurance     (109,360)     (50,000)
 Net increase in loans to customers  (42,381)  (1,049,984)  (1,509,172)  (627,239)
 Net cash provided by acquisitions     632,965       
 Purchase of premises and equipment  (1,012)  (20,369)  (10,120)  (38,823)
 Other  (37)  (7,013)  (10,148)  14,256 
   
   
   
   
 
Net cash used in investing activities
  (160,350)  (758,273)  (1,776,114)  (702,792)
   
   
   
   
 
Cash flows from financing activities:
                
 Net increase (decrease) in deposits  356,822   (406,479)  1,250,187   835,080 
 Net increase (decrease) in short-term borrowings  114,575   170,677   80,091   (418,890)
 Proceeds from long-term debt and capital securities     337,579   265,949   94,483 
 Payments on long-term debt  (245,684)  (50,140)  (100,318)  (27,059)
 Cash dividends paid     (99,772)  (84,731)  (77,446)
 Cash received from BNP Paribas for cancellation of stock options  83,347          
 Proceeds from issuance (payments on exercise) of common stock     (31)  585   4,934 
 Issuance (purchase) of treasury stock, net     5,825   (4,056)  12,809 
   
   
   
   
 
Net cash provided by (used in) financing activities
  309,060   (42,341)  1,407,707   423,911 
   
   
   
   
 
Net increase (decrease) in cash and due from banks
  175,887   (312,224)  63,638   145,189 
Cash and due from banks at beginning of period
  561,375   873,599   809,961   664,772 
   
   
   
   
 
Cash and due from banks at end of period
 $737,262  $561,375  $873,599  $809,961 
   
   
   
   
 
Supplemental disclosures:
                
 Interest paid $24,860  $525,003  $548,425  $418,732 
 Income taxes paid $  $78,665  $36,084  $12,466 
Supplemental schedule of noncash investing and financing activities:
                
 Loans converted into other real estate owned and repossessed personal property $298  $13,152  $5,800  $10,931 
   
   
   
   
 
In connection with acquisitions, the following liabilities were assumed:
                
 Fair value of assets acquired $  $14,682  $  $ 
 Cash received     632,965       
   
   
   
   
 
Liabilities assumed
 $  $647,647  $  $ 
   
   
   
   
 

The accompanying notes are an integral part of these consolidated financial statements.statements

4445


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Description of Operations

     BancWest Corporation is a financial holding company headquartered in Honolulu, Hawaii and incorporated under the laws of the State of Delaware. Through our principal subsidiaries, Bank of the West and First Hawaiian Bank, we provide commercial and consumer banking services, engage in commercial, and equipment and vehicle leasing and offer trust and insurance products. BancWest Corporation’s subsidiaries operate 253 offices527 branches in the states of Arizona, California, Colorado, Hawaii, Oregon, Washington, Idaho, Iowa, Minnesota, Nebraska, Nevada, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, Wisconsin and NevadaWyoming and in Guam and Saipan. BancWest Corporation and Subsidiaries is referred to as the “Company,” “we” or “our.” BancWest Corporation alone is referred to as “the Parent” or “BancWest.” BancWest Corporation is a wholly owned subsidiary of Paris-based BNP Paribas (BNPP).

     The accounting and reporting policies of BancWest Corporation and Subsidiaries (the “Company” or “we/our”)the Company conform with generally accepted accounting principles (GAAP) and practices within the banking industry. The following is a summary of the significant accounting policies:

Consolidation

     The consolidated financial statementsConsolidated Financial Statements of the Company include the accounts of BancWest Corporation (the “Parent”) and its wholly-owned subsidiary companies:

  Bank of the West and its wholly-ownedwholly owned subsidiaries (“Bank of the West” or “BOW”);
 
  First Hawaiian Bank and its wholly-ownedwholly owned subsidiaries (“First Hawaiian” or “FHB”);
 
•  USDB Bancorp and its wholly owned subsidiaries;
  FHL Lease Holding Company, Inc. and its wholly-ownedwholly owned subsidiary (“Leasing”);
BancWest Capital I (“BWE Trust”);
First Hawaiian Capital I (“FH Trust”); and
 
  FHI International,BancWest Investment Services, Inc. (“BWIS”)

     All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of PresentationReclassifications

     On December 20, 2001, BNP Paribas, a société anonyme or limited liability banking corporation organized underCertain amounts in the laws offinancial statements for prior years have been reclassified to conform with the Republic of France, acquired all of the outstanding common stock of the Parent. As a result of the transaction, the Parent became a wholly-owned subsidiary of BNP Paribas. The business combination wascurrent financial statement presentation.

Business Combinations

     Business combinations are accounted for using the purchase method of accounting with BNP Paribas’ accounting basis being “pushed down” to the Parent. Prior to the close of business on December 19, 2001, the Parent was 55% publicly owned and 45% owned by BNP Paribas (“Predecessor” basis). Starting on December 20, 2001, the Company’s financial statements reflected BNP Paribas’ “pushed-down basis.” See Note 2 of the consolidated financial statements for additional information regarding this business combination.

     It is generally not appropriate to combine pre- and post- “push-down” periods; however, for items that were clearly not material, certain information presented in this section combines the Company’s consolidated results of operations from December 20, 2001 to December 31, 2001 with those of the Predecessor for the period from January 1, 2001 to December 19, 2001.

Reclassifications

     The 2000 and 1999 Consolidated Financial Statements were reclassified in certain respects to conform to the 2001 presentation. Such reclassifications did not have a material effect on the Consolidated Financial Statements.

Business Combinations

     In business combinations accounted for as a pooling of interests, the financial position and results of operations and cash flows of the respective companies are restated as though the companies were combined for all historical periods.

     In business combinations accounted for using the purchase method of accounting, the net assets of the companies acquired are recorded at their fair values at the date of acquisition. The results of operations of the acquired companies are included from the date of acquisition.

     See also “New Pronouncements” below for more discussion.

Use of Estimates in the Preparation of Financial Statements

     The preparation of financial statements in conformityaccordance with accounting principles generally accepted accounting principlesin the United States requires management to make estimates and assumptions that affect the amounts reported amountsin our consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of assetscurrent events and liabilitiesactions that may impact the Company in the future, actual results may be different from the estimates. Our critical accounting policies are those that affect our financial statements materially and disclosures of contingent assetsinvolve difficult, subjective or complex judgments by management.

46


BancWest Corporation and liabilities at the date of the financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Due from Banks

     Cash and due from banks includeincludes amounts from other financial institutions as well as in-transit clearings. Under the terms of the Depository Institutions Deregulation and Monetary Control Act, the Company is required to place reserves with the Federal Reserve Bank based on the amount of deposits held. The average amount of these reserve balances were $226.8including coin and currency was $562.3 million for 2001, $205.32004, $528.0 million for 20002003 and $192$307.9 million for 1999.

Investment Securities2002.

     InvestmentFor purposes of the consolidated statements of cash flows, the Company considers cash and due from banks, interest-bearing deposits in other banks, Federal Funds sold and securities purchased under agreements to resell (with original maturities of less than three months) to be cash equivalents.

Securities

     Securities consist principallypredominately of debt and asset-backed securities issued by the U.S. Treasury, and other U.S. Government agencies and corporations, government sponsored agencies and state and local government units. These securities have

45


Notes to Consolidated Financial Statements(continued)

been adjusted for amortization of premiums or accretion of discounts using the constant yieldinterest method.

     Investment All securities are recorded on a trade date basis. Securities are classified into three categories and accounted for in accordance to SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” These categories are as follows:

(1)  Held-to-maturity securities are debt securities whichthat the Company has the positive intent and ability to hold to maturity. These securities are reported at amortized cost.
 
(2)  Trading securities are debt and equity securities whichthat are bought and held principally for the purpose of selling them in the near term. These securities are reported at fair value, with unrealized gains and losses included in current earnings.
 
(3)Available-for-sale securitiesSecurities available for sale are debt and equity securities not classified as either held-to-maturity or trading securities. Available-for-sale securities are reported at fair value, with unrealized gains and losses excluded from current earnings. The unrealized gains and losses are reported in other comprehensive income as a separate component of stockholder’s equity.

Gains and losses realized on the sales of investment securities are determined using the specific identification method.

Loans Held for Sale

     Loans held for sale are recorded at the lower of aggregate cost or fair value.

Loans and Leases

     Loans and leasesheld in portfolio are statedrecorded at the principal amountsamount outstanding, net of deferred loan costs or fees and any unearned incomediscounts or discounts.premiums on purchased loans. Deferred costs or fees, discounts and premiums are amortized using the interest method over the contractual term of the loan adjusted for actual prepayments.

     We recognize unamortized fees and premiums on loans and leases paid in full as a component of interest income. Interest income is accrued and recognized on the principal amount outstanding unless the loan is determined to be impaired and placed on nonaccrual status. (See Impaired and Nonaccrual Loans and Leases below.) Loans identified

     We also charge other loan and lease fees consisting of delinquent payment charges and other common loan and lease servicing fees, including fees for servicing loans sold to third parties. We recognize these fees as held-for-sale are carried at the lower of cost or market value and are included in other assets on the Consolidated Balance Sheets.income when earned.

     We provide lease financing under a variety of arrangements, primarily consumer automobile leases, commercial equipment leases and leveraged leases.

Leases for consumer automobiles and commercial equipment are classified as direct financing leases. Unearned income on direct financing leases is accreted over the lives of the leases to provide a constant periodic rate of return on the net investment in the lease.
 
  Leveraged lease transactions are subject to outside financing through one or more participants, without recourse to the Company. These transactions are accounted for by recording as the net investment in each lease the aggregate of rentals receivable (net of principal and interest on the related nonrecourse debt) and the estimated residual value of the equipment less the unearned income. Income from these lease transactions is recognized during the periods in which the net investment is positive.

47


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

principal and interest on the related nonrecourse debt) and the estimated residual value of the equipment less the unearned income. Income from these lease transactions is recognized during the periods in which the net investment is positive.

Impaired and Nonaccrual Loans and Leases

     We evaluate certain loans and leases for impairment on a case-by-case basis. Examples of such loans and leases include commercial loans, commercial real estate loans and construction loans. We consider a loan or lease to be impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan or lease.loan. We measure impairment based on the present value of the expected future cash flows discounted at the loan or lease’sloan’s effective interest rate, except for collateral-dependent loans and leases.loans.

     For collateral-dependent loans, and leases, we measure impairment based on the fair value of the collateral. On a case-by-case basis, we may measure impairment based upon a loan or lease’sloan’s observable market price.

     Based primarily on historical loss experience for each portfolio, weWe collectively evaluate for impairment large groups or pools of homogeneous loans and leases with smaller balances that are not evaluated on a case-by-case basis. Examples of such small balance portfolios are credit cards and consumer loans, and leases, including 1-4 familyresidential mortgage loans with balances less than $250,000.and small business loans. The risk assessment process includes the use of estimates to determine the inherent loss in these portfolios. Loss forecast estimates are utilized for consumer products which consider a variety of factors including, but not limited to, historical loss experience, estimated defaults or foreclosures based on portfolio trends and delinquencies. These factors are updated frequently to capture changes in the characteristics of subject portfolios and changes in the Company’s business strategies.

     We generally place a loan or lease on nonaccrual status:

  When management believes that collection of principal or income has become doubtful; or
 
  When loans or leases are 90 days past due as to principal or income,interest, unless they are well secured and in the process of collection. We may make an exception to the general 90-day-past-due rule when the fair value of the collateral exceeds our recorded investment in the loan or lease or when other factors indicate that the borrower will shortly bring the loan or lease current.

     While the majority of consumerNot all impaired loans and leases are subject to our general policies regarding nonaccrual loans and leases, certain past-due consumer loans and leases are notnecessarily placed on nonaccrual status because theystatus; for example, restructured loans performing under restructured terms beyond a specific period may be classified as accruing, but may still be deemed impaired. Impaired loans without a related allowance for loan and lease losses are charged off upon reaching a predetermined delinquency status varying from 120generally collateralized by assets with fair values in excess of the recorded investment in the loans. We generally apply interest payments on impaired loans to 180 days, depending on product type.reduce the outstanding principal amount of such loans.

     When we place a loan or lease on nonaccrual status, previously accrued and uncollected interest is reversed against interest income of the current period. When we receive a cash interest payment on a nonaccrual loan or lease, we apply it as a reduction of the principal balance when we have doubts about the ultimate collection of the principal. Otherwise, we record such payments as income.

     Nonaccrual loans and leases are generally returned to accrual status when they: (1) become current as to principal and interest;interest and have demonstrated a sustained period of payment performance; or (2) become both well secured and in the process of collection.

Allowance for Loan and Lease Fees

     We generally charge fees for originating loans and leases and for commitments to extend credits.

46


Notes to Consolidated Financial Statements(continued)

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. We recognize unamortized fees and premiums on loans and leases paid in full as a component of interest income.

     We also charge other loan and lease fees consisting of delinquent payment charges and other common loan and lease servicing fees, including fees for servicing loans sold to third parties. We recognize these fees as income when earned.

Allowance for Credit Losses

     We maintain the allowance for creditloan and lease losses (the “Allowance”) at a level which, in management’s judgment, is adequate to absorb probable losses in the Company’s loan and lease portfolio. While the Company has a formalized methodology for determining an adequate and appropriate level of the Allowance, estimates of inherent creditloan and lease losses involve judgment and assumptions as to various factors which deserve current recognition in the Allowance. Principal factors considered by management in determining the Allowance include historical loss experience, the value and adequacy of collateral, the level of nonperforming loans and leases, the growth and composition of the portfolio, periodic review of loan and lease delinquencies, results of examinations of individual loans and leases and/or evaluation of the overall portfolio by senior credit personnel, internal auditors and regulators, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay and general economic conditions.

     The Allowance consists of two components, allocated and unallocated. The allocated portion of the allowance includes reserves that are allocated based on impairment analyses of specific loans or pools of loans as described under “Impaired and Nonaccrual Loans and Leases” above. The unallocated portion of the allowance for loan and lease losses is maintained to cover uncertainties in the range of probable outcomes inherent in the estimate of inherent losses. These uncertainties include the imprecision inherent in the forecasting methodologies and certain industry and geographic concentrations (including global economic uncertainty). Management

48


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

assesses each of these components to determine the overall level of the unallocated portion. The relationship of the unallocated component to the total allowance for loan and lease losses may fluctuate from period to period. Management evaluates the adequacy of the allowance for loan and lease losses based on the combined total of allocated and unallocated components.

     The Allowance is increased by provisions for creditloan and lease losses and reduced by charge-offs, net of recoveries. Charge-offs for loans and leases that are evaluated for impairment are made based on impairment evaluations as described above. Consumer loans and leases are generally charged off upon reaching a predetermined delinquency status that ranges from 120 to 180 days and varies by product type. Other loans and leases aremay be charged off to the extent they are classified as loss, either internally or by the Company’s regulators. Recoveries of amounts that have previously been charged off are credited to the Allowance and are generally recorded only to the extent that cash is received.

     The provision for creditloan and lease losses reflects management’s judgment of the current period cost of credit risk inherent in the Company’s loan and lease portfolio. Specifically, the provision for creditloan and lease losses represents the amount charged against current period earnings to achieve an allowance for creditloan and lease losses that in management’s judgment is adequate to absorb probable losses inherent in the Company’s loan and lease portfolio. Accordingly, the provision for creditloan and lease losses will vary from period to period based on management’s ongoing assessment of the adequacy of the Allowance.

Premises and Equipment

     Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of 10-50 years for premises, 3-25 years for equipment and the lower of the lease term or remaining life for leasehold improvements.

Operating Lease Assets

     Operating lease rental income for leased assets, generally automobiles, is recognized on a straight-line basis. Related depreciation expense is recorded on a straight-line basis over the life of the lease taking into account the estimated residual value of the leased asset. On a periodic basis, leased assets are reviewed for impairment. Impairment loss is recognized if the carrying amount of leased assets exceeds their fair value and is not recoverable. The carrying amount of leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment. Auto lease receivables are written off when 120 days past due.

Core Deposit and Other Identifiable Intangible Assets

     Core deposit and other identifiable intangible assets are amortized over the period of benefit. In September 2001, the FASB issued SFAS No. 141,Business Combinationswhich supersedes Accounting Principles Board (“APB”) Opinion No. 16,Business Combinations, and addresses financial accounting and reporting for business combinations. All business combinations in the scope of SFAS No. 141 are to be accounted for using the purchase method of accounting. We follow the guidance set forth in SFAS No. 141 for initial recognition of goodwill and intangible assets acquired in a business combination. Included in the provisions of SFAS No. 141 are criteria for identifying and recognizing intangible assets apart from goodwill and additional disclosure requirements concerning the primary reasons for a business combination and the allocation of the purchase price for the assets acquired and liabilities assumed. After initial recognition, intangible assets are accounted for under the provisions of SFAS No. 142, which supersedes APB Opinion No. 17,Intangible Assets, and addresses the accounting and reporting for goodwill and other intangible assets acquired individually or with a group of other assets (but not those acquired in a business combination) at and subsequent to acquisition. Under the provisions of SFAS No. 142, goodwill and certain other intangible assets, which do not possess finite lives, are no longer amortized into net income over an estimated life but rather will be tested at least annually for impairment. Intangible assets determined to have finite lives continue to be amortized over their estimated useful lives and also continue to be subject to impairment testing. We review core deposit and other identifiable intangible assets for impairment whenever events or changes in circumstances indicate that we may not recover our investment in the underlying assets or liabilities which gave rise to such core deposit and other identifiable intangible assets.

Goodwill

     Goodwill represents the cost of acquired companies in excess of the fair value of net assets of those acquired companies. Goodwill is subject to a two-step impairment test in accordance with SFAS 142,Goodwill and Other Intangible Assets.The first step of impairment testing compares the fair value of the reporting unit, which is an individual business segment of the Company (refer to

49


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20), to the carrying amount. If the carrying amount exceeds the fair value, then a second step is conducted whereby we assign fair values to identifiable assets and liabilities, leaving an implied fair value for goodwill. The implied fair value is compared with the carrying amount of the goodwill. If the implied fair value of the goodwill is less than the carrying amount, an impairment loss is recognized. Goodwill is tested for impairment on an annual basis, and between annual tests if circumstances change that would reduce the fair value of goodwill below its carrying value. Goodwill was subjected to a transitional impairment test during the quarter ended March 31, 2002 and none was identified. The Company’s goodwill was subsequently tested for impairment as of October 31, 2004, 2003 and 2002 and none was identified.

Other Real Estate Owned and Repossessed Personal Property

     Other real estate owned (“OREO”) and repossessed personal property (“OREO”) is primarily comprised of properties that we acquired through foreclosure proceedings. We value these properties at the lower of cost or fair value at the time we acquire them, which establishes their new cost basis. We charge against the Allowance any losses arising at the time of acquisition of such properties. After we acquire them, we carry such properties at the lower of cost or fair value less estimated selling costs. If we record any write-downs or losses from the disposition of such properties after acquiring them, we include this amount in other noninterest expense.

PremisesTransfers and EquipmentServicing of Financial Assets

     Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed onA transfer of financial assets is accounted for as a straight-line basissale when control is surrendered over the estimated useful lives of 10-40 years for premises, 3-25 years for equipment and up to the lease term for leasehold improvements.

Core Deposit and Other Identifiable Intangible Assets

     Core depositassets transferred. Servicing rights and other identifiable intangibleretained interests in the assets sold are recorded by allocating the previously recorded investment between the asset sold and the interest retained based on their relative fair values, if practicable to determine, at the date of transfer. Fair values of servicing rights and other retained interests are determined using present value of estimated future cash flows valuation techniques, incorporating assumptions that market participants would use in their estimates of values.

     The Company recognizes as assets the retained rights to service loans for others resulting from sales of loan originations. These rights are periodically assessed for impairment. Any such indicated impairment is recognized in income, during the period in which it occurs. Servicing rights are amortized on the straight-line method over the period of benefit, generally 10 years. We review core depositestimated net servicing income. The amortization takes into account prepayment assumptions and is included in the consolidated statement of income under the caption, “other service charges and fees.” For the years presented, servicing assets, the related amortization and other identifiable intangible assets for impairment whenever events or changes in circumstances indicate that we may not recover our investment in the underlying assets or liabilities which gave rise to such core deposit and other identifiable intangible assets.

Goodwill

     Goodwill represents the cost of acquired companies in excess of the fair value of net assets acquired. It is our policy to review goodwill for impairment whenever events or changes in circumstances indicate that we may not recover our investment in the underlying assets/businesses which gave rise to such goodwill.

Repurchase and Reverse Repurchase Agreements

     We apply a control-oriented, financial-components approach to financial-asset-transfer transactions by: (1) recognizing the financial and servicing assets we control and the liabilities we have incurred; (2) derecognizing financial assets only when control has been surrendered; and (3) derecognizing liabilities once they are extinguished.

     Control is considered to have been surrendered only if: (i) the transferred assets have been isolated from the trans-

47


Notes to Consolidated Financial Statements(continued)

feror and its creditors, even in bankruptcy or other receivership; (ii) the transferee has the unconditional right to pledge or exchange the transferred assets, or is a qualifying special-purpose entity and the holders of beneficialretained interests in that entity have the unconditional right to pledge or exchange those interests; and (iii) the transferor does not maintain effective control over the transferred assets through: (a) an agreement that both entitles and obligates it to repurchase or redeem those assets prior to maturity; or (b) an agreement which both entitles and obligates it to repurchase or redeem those assets if they were not readily obtainable elsewhere. If none of these conditions are met, we account for the transfer as a secured borrowing.material.

     Securities purchased under agreements to resell and securities sold under agreements to repurchase generally qualify as financing transactions under generally accepted accounting principles. We carry such securities at the amounts at which they subsequently will be resold or reacquired as specified in the respective agreements, including accrued interest.

     Repurchase and reverse-repurchase agreements are presented in the accompanying Consolidated Balance Sheets where net presentation is consistent with generally accepted accounting principles. It is our policy to take possession of securities purchased under agreements to resell. We monitor the fair value of the underlying securities as compared to the related receivable, including accrued interest and as necessary we request additional collateral. Where deemed appropriate, our agreements with third parties specify our rightsright to request additional collateral. All collateral is held by theThe Company or a custodian.custodian holds all collateral.

Servicing Assets

     Servicing assets primarily consist of originated mortgage servicing rights which are capitalized and included in other assets in the accompanying Consolidated Balance Sheets. These rights are recorded based on the relative fair values of the servicing rights and the underlying loan. They are amortized over the period of the related loan-servicing income stream. We reflect amortization of these rights in our Consolidated Statements of Income under the caption “other service charges and fees.” We evaluate servicing assets for impairment in accordance with generally accepted accounting principles. For the years presented, servicing assets and the related amortization were not material.

Trust Property

     We do not include in our Consolidated Balance Sheets trust property, other than cash deposits which we hold as fiduciaries or agents for our customers, because such items are not assets of the Company.

Income Taxes

     We recognize deferred income tax liabilities and assets for the expected future tax consequences of events that we include in our financial statements or tax returns. Under this method, we determine deferred income tax liabilities and assets based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

     We account for excise tax credits relating to premises and equipment under the flow-through method, recognizing the benefit in the year the asset is placed in service. The excise tax credits related to leaseleased equipment, except for excise tax credits that are passed on to lessees, are recognized during the periods in which the net investment is positive.

     We file a consolidated Federal income tax return. Amounts equal to income tax benefits of those subsidiaries having taxable losses or credits are reimbursed by other subsidiaries which would have incurred current income tax liabilities. We follow a similar arrangement for state taxes where we file consolidated or combined income tax returns. Separate state tax liabilities are borne by the entities filing in those states.

50


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation

     Statement of Financial Accounting Standards, (FAS) No. 148,Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure requirements to include prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

     As allowed under the provisions of FAS No. 123,Accounting for Stock-Based Compensation,the Company has chosen to recognize compensation expense using the intrinsic value-based method of valuing stock options prescribed in Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employeesand related interpretations. Under the intrinsic value-based method, compensation cost is measured as the amount by which the quoted market price at the date of grant exceeds the stock option exercise price.

     Certain members of BancWest’s senior management team received stock option awards from BNPP on March 24, 2004 and March 21, 2003. The options do not vest until after the fourth year, at which time they are exercisable from the fourth anniversary through the tenth anniversary date. Stock options awarded under the 2003 plan have been reflected in compensation expense. No compensation expense was recognized for the 2004 plan, as the grant price was greater than the market price.

     The following table is a summary of our stock option activity.

             
          Weighted 
      Weighted  average 
      average  remaining 
      exercise  contractual life 
  Number  price  (in years) 
   
Options outstanding as of December 31, 2002    $     
             
2003:            
Granted  275,000   39.07     
           
Options outstanding as of December 31, 2003  275,000  $39.07   9.22 
          
             
2004:
            
Granted
  80,000   60.45     
Forfeited
  (1,000)  39.07     
           
Options outstanding as of December 31, 2004
  354,000  $43.90   8.44 
          
             
 

     The following table illustrates the effect on net income if the Company had applied the fair value recognition provisions of FAS No. 123 to stock-based employee compensation.

             
  Year Ended December 31,
(dollars in thousands) 2004  2003  2002 
 
Net Income (as reported)
 $473,377  $436,564  $361,332 
Add: Stock-based compensation expense recognized during period, net of tax effects  96   75    
Less: Stock-based employee compensation expense determined under fair value-based method, net of taxes  (960)  (681)   
          
Pro Forma Net Income
 $472,513  $435,958  $361,332 
          
             
 

51


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The fair value of each stock option was estimated on the date of grant using a trinomial tree pricing model. The fair value of the 2004 and 2003 grants was $10.57 and $21.26, respectively. The following table presents the weighted-average assumptions used.

         
  Year Ended December 31,
  2004   2003
     
Dividend yield  3.02%  3.18%
Expected volatility  17.18   48.16 
Risk free interest rate  3.80   4.30 
Expected life (in years)  10   10 
     

Discounted Share Purchase Plan

     The 2002 Discounted Share Purchase Plan (“2002 DSPP”) provided to U.S. resident employees of BNP Paribas, including employees of the Company, an opportunity to acquire shares in BNP Paribas. The purpose of the plan is to provide an increased incentive for these employees to contribute to the future success and prosperity of BNP Paribas. Eligible U.S. employees were those who were employed on March 6, 2002 and remained employed until at least June 3, 2002. Participants were allowed to purchase shares, up to specified limits, at a discount of 20% of the market value on February 28, 2002. In addition, the participants were granted shares, based on the number they purchased, paid for by the Company.

     The shares under the DSPP plan must be held by the participants for a minimum of five years or until employment is terminated. In June 2002, a total of 124,763 shares were purchased by the Company’s employees, and an additional 30,490 shares were granted to these participants. The fair value of each share on the issue date was $51.81. The Company recognized a related compensation and benefits expense of $4.4 million in 2002.

Derivative Instruments and Hedging Activities

     The Company maintains an overall interest rate risk management strategy that incorporatesDerivatives are recognized on the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. The Company’s goal is to manage interest rate sensitivity by modifying the re-pricing or maturity characteristics of certain assets and liabilities so that the Company’s net interest margin is not, on a material basis, adversely affected by movements in interest rates. The Company considers its limited use of derivatives to be a prudent method of managing interest rate sensitivity, as it prevents earnings from being exposed to undue risk posed by changes in interest rates.

     By using derivative instruments, the Company exposes itself to credit and market risk. If a counterparty fails to fulfill its performance obligations under a derivative contract, the Company’s credit risk will equal theconsolidated balance sheet at fair value gain in a derivative. Generally, when the fair value of a derivative contract is positive, this indicates that the counterparty owes the Company, thus creating a repayment risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, assumes no repayment risk. Derivative instruments must meet the same criteria of acceptable risk established for our lending and other financing activities. We manage the credit risk of counterparty defaults in these transactions by: (1) Limiting the total amount of outstanding arrangements, both by the individual counterparty and in the aggregate; (2) Monitoring the size and

48


Notes to Consolidated Financial Statements(continued)

maturity structure of the derivative instruments; and (3) Applying the uniform credit standards maintained for all of our credit activities, including, in some cases, taking collateral to secure the counterparty obligations.

value. On the date that the Company enters into a derivative contract, itthe Company designates the derivative instrument as (1) a hedge of the fair value of a recognized asset or liability (a “fairor of an unrecognized firm commitment (“fair value” hedge);, (2) a hedge of a forecasted transaction or the variability of cash flows that are to be received or paid in connection withrelated to a recognized asset or liability (a “cash(“cash flow” hedge); or (3) a foreign currency fair value or cash flow hedge (a “foreign currency” hedge); or (4) an instrument that is held for trading, customer accommodation or non-hedging purposes (a “trading” or “non-hedging” instrument)not qualifying for hedge accounting (“free-standing derivative instruments”). ChangesFor a fair value hedge, changes in the fair value of athe derivative that is highly effective as a fair value hedge, along withinstrument and changes in the fair value of the hedged asset or liability that areor of an unrecognized firm commitment attributable to the hedged risk are recorded in current period earnings. Changesincome. For a cash flow hedge, changes in the fair value of athe derivative that is highly effective as a cash flow hedge,instrument to the extent that the hedgeit is effective are recorded in other comprehensive income until earningswithin stockholder’s equity and subsequently reclassified to net income in the same period(s) that the hedged transaction impacts net income in the same financial statement category as the hedged item. For freestanding derivative instruments, changes in the fair values are affected byreported in current period income. The Company formally documents the variability of cash flowsrelationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as hedges to specific assets and liabilities on the consolidated balance sheet, an unrecognized firm commitment or a forecasted transaction. The Company also formally assesses, both at the inception of the hedge and on an ongoing basis, whether the derivative instruments used are highly effective in offsetting changes in fair values of hedged transaction.items. Any portion of the changes in fair value of derivatives designated as a hedge ineffectivenessthat is deemed ineffective is recorded in current period earnings. Changesearnings; this amount was not material in 2004, 2003 or 2002.

     The Company occasionally purchases or originates financial instruments that contain an embedded derivative instrument. At the inception of the financial instrument, the Company assesses whether the economic characteristics of the embedded derivative instrument are clearly and closely related to the economic characteristics of the financial instrument (host contract), whether the financial instrument that embodies both the embedded derivative instrument and the host contract is currently measured at fair value with changes in fair value reported in earnings and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative thatinstrument. If the embedded derivative instrument is highly effectivedetermined not to be clearly and closely related to the host contract, is not currently measured at fair value with changes in fair value reported in earnings, and the embedded derivative instrument would qualify as a foreign currency hedgederivative instrument, the embedded derivative instrument is recorded in either current period earnings or other comprehensive income, depending on whetherseparated from the hedging relationship satisfies the criteria for ahost contract and carried at fair value or cash flow hedge. Changes in the fair value of derivative trading and non-hedging instruments are reportedwith changes recorded in current period earnings.

     During the year ended December 31, 2001, the Company used interest rate swaps to hedge the fair values of certain loans against changes in interest rates. The Company entered into interest rate swaps to convert the characteristics of certain non-prepayable fixed rate loans to variable rate loans. For the year ended December 31, 2001, the amount of hedge ineffectiveness recorded in the Company’s consolidated statement of income was not material. Furthermore, for the year ended December 31, 2001, there was no gain or loss recorded by the Company as a result of fair value hedges that no longer qualified as fair value hedge items.

     During the year ended December 31, 2001, the Company also used interest rate swaps for trading purposes. Trading activities, which do not qualify for hedge accounting, primarily involve derivative products to accommodate customers. For the year ended December 31, 2001, the change in the fair value of the Company’s derivative trading instruments was not material.52

     During the year ended December 31, 2001, the Company held certain options on interest rate swaps and options on securities purchased under agreements to resell as non-hedging derivatives. The change in the fair value of the Company’s non-hedging derivatives for the year ended December 31, 2001 was not material.

     The Company held no cash flow or foreign currency hedges during the year ended December 31, 2001.

Off-Balance-Sheet Commitments

     In the normal course of business, we are a party to various off-balance sheet commitments entered into to meet the financing needs of our customers. These financial instruments include commitments to extend credit; standby and commercial letters of credit; and commitments to purchase or sell foreign currencies. These commitments involve, to varying degrees, elements of credit, interest rate and foreign exchange rate risk.

     If a counterparty to a commitment to extend credit or to a standby or commercial letter of credit fails to perform, our exposure to credit losses would be the contractual notional amount. Since these commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flows.

     Commitments to purchase or sell foreign currencies obligate us to take or make delivery of a foreign currency. Risks in such instruments arise from fluctuations in foreign exchange rates and the ability of counterparties to fulfill the terms of the contracts.

     We enter into commitments to purchase or sell foreign currencies for our own account and on behalf of our customers. These commitments are generally matched through offsetting positions. Foreign exchange positions are valued monthly with the resulting gain or loss recognized as incurred.

     We monitor and manage interest rate and market risk in conjunction with our overall interest rate risk position. Off-balance-sheet agreements are not entered into if they would increase our interest rate risk above approved guidelines. Our testing to measure and monitor this risk, using net interest income simulations and market value of equity analysis, is usually conducted quarterly.

Advertising and Promotions

     Expenditures for advertising and promotions are expensed as incurred. Such expenses are included under the caption “other noninterest expense” in the accompanying Consolidated Statements of Income.

Fair Value of Financial Instruments

     Financial instruments include such items as loans, deposits, investment securities, interest rate and foreign exchange contracts and swaps.

     Disclosure of fair values is not required for certain items such as lease financing, investments accounted for

49


NotesBancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Mergers and Acquisitions

     During 2004, the Company acquired Community First Bankshares, Inc. and USDB Bancorp. BNPP funded these acquisitions by providing short-term debt financing of $590 million. In addition, BNPP and one of its subsidiaries contributed capital of $1,055 million to the Company.

Community First Bankshares Acquisition

     On November 1, 2004, the Company completed its acquisition of 100 percent of the outstanding stock of Community First Bankshares, Inc. (Community First), a holding company that operated Community First National Bank (CFB). At the date of the acquisition, CFB operated 166 banking locations (153 full service retail branches and 13 limited service retail offices) in Arizona, California, Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota, South Dakota, Utah, Wisconsin and Wyoming. Community First’s retail operations expanded the Company’s existing network in California, Hawaii, Nevada, New Mexico and the Pacific Northwest. The results of operations of Community First were included in our Consolidated Financial Statements(continued)

under the equity method beginning November 1, 2004. Branches of accounting, obligations for pension and other postretirement benefits, premises and equipment, OREO, prepaid expenses, core deposit intangibles and other customer relationships, other intangible assets and income tax assets and liabilities. Accordingly, the aggregate fair value amounts presented do not purport to represent, and should not be considered representativeCFB were fully integrated into Bank of the underlying “market” or franchise valueWest’s branch network in the fourth quarter of 2004, at which time Community First merged with and into Bank of the Company.

     Because the standard permits many alternative calculation techniques and because numerous assumptions have been used to estimate our fair values, reasonable comparisonsWest. The purchase price of our fair value information with that of other financial institutions cannot necessarily be made.

     We use the following methods and assumptions to estimate the fair value of our financial instruments:

Cash and due from banks:The carrying amounts reportedapproximately $1.2 billion was paid in the Consolidated Balance Sheets of cash and short-term instruments approximate fair values.

Investment securities:Fair values of investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans:Fair values are estimatedwas accounted for portfolios of performing loans with similar characteristics. For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. We use discounted cash flow analyses, which utilize interest rates currently being offered for loans with similar terms to borrowers of similar credit quality, to estimate the fair values of: (1) fixed-rate commercial and industrial loans; (2) financial institution loans; (3) agricultural loans; (4) certain mortgage loans (e.g., 1-4 family residential, commercial real estate and rental property); (5) credit card loans; and (6) other consumer loans. For certain loans, we may estimate fair value based uponas a loan’s observable market price. The carrying amount of accrued interest approximates its fair value.

Deposits:The fair value of deposits with no maturity date (e.g., interest and noninterest-bearing checking, passbook savings, and certain types of money market accounts) are, according to generally accepted accounting principles, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-term borrowings:The carrying amounts of overnight Federal funds purchased, borrowings under repurchase agreements and other short-term borrowings approximate their fair values.

Long-term debt and capital securities:The fair values of our long-term debt (other than deposits) and capital securities are estimated using quoted market prices or discounted cash flow analyses based on our current incremental borrowing rates for similar types of borrowing arrangements.

Derivative, Off-balance-sheet commitments and contingent liabilities:Fair values are based upon: (1) quoted market prices of comparable instruments (options on mortgage-backed securities and commitments to buy or sell foreign currencies); (2) fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing (letters of credit and commitments to extend credit); or (3) pricing models based upon quoted markets, current levels of interest rates and specific cash flow schedules (interest rate swaps and options on interest rate swaps).

New Pronouncementspurchase.

     On JanuaryThe following table summarizes the Community First Balance Sheet on November 1, 2001,2004, including the Company adoptedeffects of purchase accounting adjustments:

     
(dollars in thousands)    
Assets
    
Cash and cash equivalents $228,233 
Securities available for sale  1,458,677 
Net loans and leases  3,394,490 
Intangibles  1,010,255 
Other assets  313,041 
    
Total Assets
 $6,404,696 
    
     
Liabilities and Stockholder’s Equity
    
Deposits  4,511,754 
Debt  604,275 
Other liabilities  93,761 
    
Total Liabilities  5,209,790 
Stockholder’s equity  1,194,906 
    
Total Liabilities and Stockholder’s Equity
 $6,404,696 
    
     
 

     The acquisition is being accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”)Standard No. 133, “Accounting for Derivative Instruments141 “Business Combinations” (FAS 141). Accordingly, the purchase price was preliminarily allocated to the assets acquired and Hedging Activities,” as amended by SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities— Deferral of the Effective Date of FASB Statement No. 133” and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities— An Amendment of FASB Statement No. 133.” At the time of adoption, the Predecessor designated certain derivative instruments used for risk management into hedging relationships in accordance with the requirements of the new standard. The transition adjustment resulting from the adoption of SFAS No. 133, as amended by SFAS Nos. 137 and 138, associated with establishing theliabilities assumed based on their estimated fair values of derivatives and hedged items onat the Company’s consolidated balance sheet was not material because the Company does not engage in significant transactions using derivative financial instruments.

     In September 2000, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (a replacement of SFAS No. 125).acquisition date as summarized below. The provisions in SFAS No. 140, while not changing most of the guidance originally issued in SFAS No. 125, revised the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain additional disclosures related to transferred assets. Certain provisions of the statement, related to the recognition, reclassification and disclosure of collateral, as well as the disclosure of securitization transactions, became effective for fiscal years ending after December 15, 2000. Other

50


Notes to Consolidated Financial Statements(continued)

provisions related to the transfer and servicing of financial assets and extinguishments of liabilities became effective for transactions occurring after March 31, 2001. The adoption of SFAS No. 140 did not have a material effect on the Company’s Consolidated Financial Statements.

     In July 2001, the FASB issued SFAS No. 141, “Business Combinations.” SFAS No. 141, which supersedes Accounting Principles Board (“APB”) Opinion No. 16, “Business Combinations,” addresses financial accounting and reporting for business combinations. All business combinations in the scope of SFAS No. 141 are to be accounted for using the purchase method of accounting. Also included in the provisions of SFAS No. 141 are new criteria for identifying and recognizing intangible assets apart from goodwill and additional disclosure requirements concerning the primary reasons for a business combination and thefinal allocation of the purchase price will be determined after completion of a final analysis to determine the fair values of Community First’s tangible assets and liabilities and identifiable intangible assets, as well as final decisions regarding integration activities.

53


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     
(dollars in thousands)    
Total purchase price of Community First, including transaction costs $1,199,173 
Equity of Community First prior to acquisition by BancWest  352,693 
    
Excess of pushed down equity over the carrying value of net assets acquired  846,480 
    
Estimated adjustments to reflect assets acquired and liabilities assumed at fair value:    
Sublease loss reserve  1,196 
Loans and leases  27,104 
Premises and equipment  (4,053)
Other assets  3,648 
Severance and employee relocation  9,614 
Contract cancellations  5,810 
Identifiable intangibles  (4,218)
Deposits  8,985 
Debt  16,050 
Other liabilities and taxes  2,618 
    
Estimated fair value adjustments related to net assets acquired  66,754 
    
Estimated goodwill resulting from the merger with Community First $913,234 
    
         
 

     The following unaudited proforma condensed financial information presents the results of operations of the Company had the Community First acquisition occurred as of January 1, 2003, after giving effect to certain adjustments. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations which may occur in the future or which would have occurred had the Community First acquisition been consummated as of January 1, 2003.

         
  (Unaudited)  (Unaudited) 
  Year Ended  Year Ended 
(dollars in thousands) December 31, 2004  December 31, 2003 
     
Net interest income $1,553,212  $1,553,802 
Provision for loan and lease losses  56,626   93,897 
Noninterest income  507,660   484,872 
Noninterest expense  1,128,849   1,156,147 
       
Income before income taxes and cumulative effect of accounting change  875,397   788,630 
Provision for income taxes  338,667   302,204 
       
Income before cumulative effect of accounting change
 $536,730  $486,426 
       
         
 

     As of December 31, 2004, $25.2 million of exit costs related to Community First activities were recorded as purchase accounting adjustments resulting in an increase to Goodwill. Included in the $25.2 million were $7.4 million for severance and relocation charges, $5.8 million for contract terminations, $1.2 million for sublease loss reserves and $10.8 million for write downs to equipment and prepaids. Approximately 200 employees have been or will be displaced in conjunction with the acquisition.

     We anticipate that cash outlays for exit and restructuring costs should be substantially completed by the end of 2005.

USDB Bancorp Acquisition

     On November 1, 2004, the Company completed its acquisition of USDB Bancorp (USDB), parent company of Union Safe Deposit Bank. USDB was a holding company headquartered in Stockton, California, and operated 19 Union Safe Deposit Bank branches in San Joaquin and Stanislaus Counties in the Central Valley of California. The purchase price of $245 million was paid in cash to acquire 100% of the outstanding stock of USDB and was accounted for as a purchase in accordance with FAS 141. Accordingly, the purchase price was preliminarily allocated to the assets acquired and the liabilities assumed.assumed based on their estimated fair values. The provisionsfinal allocation of SFAS No. 141 applythe purchase price will be determined after completion of a final analysis to all business combinations initiated after June 30, 2001,determine the fair values of USDB's tangible assets and liabilities and identifiable assets, as well as to all business combinations accounted for usingfinal decisions regarding integration activities. The fair value of assets acquired was approximately $1.2 billion, the purchase methodfair value of accounting for which the dateloans was approximately $670 million and fair value of acquisition is July 1, 2001 or later. The Company adopted the provisionsdeposits was approximately $895 million. We recorded $170 million of SFAS No. 141 concurrent with the acquisition of the Parent by BNP Paribas. See further discussion in Note 2.

     In July 2001, the FASB also issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142, which supersedes APB Opinion No. 17, “Intangible Assets,” addresses the accounting and reporting for goodwill, and other intangible assets acquired individuallyapproximately $15 million of identifiable intangibles related to this acquisition. Approximately 160 employees have been or with a group of other assets (but not those acquired in a business combination) at and subsequent to acquisition. Under the provisions of SFAS No. 142, goodwill and certain other intangible assets which do not possess finite lives will no longer be amortized into net income over an estimated life but rather will be tested at least annuallydisplaced in conjunction with this acquisition.

     We anticipate that cash outlays for impairment based on specific guidance provided in the new standard. Intangible assets determined to have finite lives will continue toexit and restructuring costs should be amortized over their estimated useful lives and also continue to be subject to impairment testing. The provisions of SFAS No. 142 will be appliedsubstantially completed by the Company beginning January 1, 2002, except with regard to any goodwillend of 2005.

54


BancWest Corporation and intangible assets acquired after June 30, 2001, which will be subjectSubsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating results for USDB Bancorp were not significant to the new provisions of the standard immediately from the date of acquisition. Goodwill and other indefinite lived intangible assets will be subjected to a transitional impairment test within the first half of 2002 and any related impairment losses will be reported as a cumulative effect of a change in accounting principle. Application of the non-amortization provisions of this statement was effective with the acquisition of the Parent by BNP Paribas. The amortization of goodwill arising from the BNP Paribas Merger of approximately $3.4 million (assuming an amortization period of 20 years) wasconsolidated operating results; therefore, proforma results are not recorded on the Company’s consolidated financial statements from December 20, 2001 to December 31, 2001. For the period from January 1, 2001 to December 19, 2001, the Company recognized goodwill amortization expense of $31 million. Such expense will not be recorded in fiscal 2002 under this new standard. Management has not yet determined what the effect, if any, of the required impairment tests will be on the Company’s consolidated results of operations and financial position.presented.

     In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for the recognition and measurement of the impairment of long-lived assets to be held and used and the measurement of long-lived assets to be disposed of by sale. The scope of SFAS No. 144 excludes goodwill and other non-amortizable intangible assets to be held and used as well as goodwill associated with a reporting unit to be disposed of. The provisions of SFAS No. 144 are effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 is not expected to have a material effect on the Company’s Consolidated Financial Statements.

2. Mergers and Acquisitions

United California Bank Acquisition

     On March 15, 2002, BancWest Corporation (“BancWest”), a wholly-owned subsidiary of BNP Paribas, completed its acquisition of all the outstanding common stock of United California Bank (“UCB”) from UFJ Bank Ltd. of Japan. UCB was subsequently merged with and into Bank of the West in April 2002 and its branches were integrated into Bank of the West’s branch network system in the third quarter of 2002. On March 15, 2002,the date of acquisition by BancWest, UCB had 115 branches (located exclusively in California), total assets of $10.1 billion, net loans of $8.5 billion and total deposits of $8.3 billion and a total of 115 branches.$8.2 billion. The preceding amounts do not include final purchase price accounting adjustments. Results of operations of UCB are included in our Consolidated Financial Statements beginning on March 15, 2002. The purchase price of approximately $2.4 billion was paid in cash and accounted for as a purchase. BNP Paribas funded BancWest’s acquisition of UCB by providing $1.6 billion of additional capital to BancWest and by lending it $800 million.

     BancWest incurred expenses associated with exiting certain branches, operational centers and technology platforms, as well as other conversion and restructuring expense of $18 million. In conjunction with the acquisition, approximately 750 employees throughout the combined organization have been displaced. Exit costs associated with UCB were considered as part of the purchase accounting for the acquisition and we established a severance reserve of $40.5 million. In addition to the severance reserve, we recorded the following accruals: $34.5 million for losses on subleases, $8.0 million for contract cancellations and $1.3 million for relocation and other. Since the date of acquisition, we made the following adjustments to the reserves: $6.9 million increase for severance, $7.5 million decrease for losses on subleases, $4.9 million increase for contract cancellations and $0.2 million decrease for relocation. As of December 31, 2004, these initiatives are complete except for the remaining accrual for sublease losses of $8.7 million, which is expectedbeing amortized over the lease period.

     The following unaudited pro forma financial information for the year December 31, 2002, assumes that the UCB acquisition occurred as of January 1, 2002, after giving effect to be mergedcertain adjustments. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations which may occur in the future or which would have occurred had the UCB acquisition been consummated as of January 1, 2002:

     
  (Unaudited) 
  Pro Forma Financial Information 
  for The Year Ended 
(dollars in thousands) December 31, 2002 
 
Net Interest Income $1,280,585 
Provision for Loan and Lease Losses  111,775 
Noninterest Income  352,290 
Noninterest Expense  895,305 
Income Tax Expense  244,410 
    
Net Income $381,385 
    
         

     In conjunction with the purchase of UCB from UFJ, there were certain items that were in dispute. The disputed items were related to UCB’s loan charge-offs and intoits deferred tax liability. In March 2003, an arbitrator decided in favor of BancWest on both matters. Interest on the disputed amounts totaled $0.8 million, which was recognized in other income during the first quarter of 2003. The resolution of the loan charge-off issue was a receivable due from UFJ of $8.9 million, an increase to our allowance for loan and lease losses of $13.6 million, representing recoveries of loans charged off by BancWest, and a related decrease to our deferred tax liability of $4.7 million. Upon resolution of the deferred tax issue during the first quarter of 2003, we reassessed the adequacy of UCB’s deferred tax liability and reduced the related goodwill by $14.9 million. All cash due from UFJ as a result of the arbitrator’s decision was received in April 2003.

Trinity Capital Corporation Acquisition

     On November 8, 2002, Bank of the West acquired Trinity Capital Corporation (“Trinity”), a subsidiaryprivately held equipment leasing company specializing in nationwide vendor leasing programs for manufacturers in specific markets. The purchase price was approximately $18.3 million including $7.3 million of BancWest Corporation, in the second quarter of 2002. Branches of UCB are expected to be fully integrated into thegoodwill. In addition, Bank of the West branch network system by late 2002.

BNP Paribas Merger

     On December 20, 2001, Chauchat L.L.C., a Delaware limited liability company (“Merger Sub”), merged (the “BNP Paribas Merger”) with and into the Parent pursuantwas obligated to an Agreement and Planmake two contingent payments based on performance, of Merger, dated as of May 8, 2001, as amended and restated as of July 19, 2001, by and among the Parent, BNP Paribas, and Merger Sub (the “Merger Agreement”).$1.5 million. The Merger Sub was a wholly-owned subsidiary of BNP Paribas.

     At the effective timefirst of the BNP Paribas Merger, all outstanding sharestwo contingent payments was paid on January 2, 2004. The second payment of common stock, par value $1 per

51


Notes to Consolidated Financial Statements(continued)

share (“Company Common Stock”), of the Parent were cancelled and converted solely into the right to receive $35 per share in cash, without interest thereon (except for shares held in the treasury of the Parent or by any wholly-owned subsidiary of the Parent and shares held in respect of a debt previously contracted which were cancelled without any consideration being payable therefor).

     Pursuant to the Merger Agreement, each share of Class A common stock, par value $1 per share, of the Parent owned by BNP Paribas and French American Banking Corporation, a wholly-owned subsidiary of BNP Paribas, remained outstanding as one share of Class A Common Stock and all of the units of the Merger Sub were cancelled without any consideration becoming payable therefor. Concurrent with the BNP Paribas Merger, the par value of the Class A common stock was changed to $.01. As a result of the BNP Paribas Merger, the Parent became a wholly-owned subsidiary of BNP Paribas. BNP Paribas believes that by acquiring full ownership of BancWest Corporation, it can increase its international retail banking franchise, permit it to benefit fully from our growth, diversify its earnings base, increase synergies and simplify its ownership structure, among other things.

$1.5 million will be paid on January 2, 2006. The BNP Paribas Merger significantly affected our financial statements. “Push-down” accounting was required for this business combination. Essentially, this resulted in three major changes to our balance sheet:

Purchase price adjustments and new intangibles: As part of purchase accounting, the assets and liabilities of the Predecessor were adjusted to fair value. Among the items adjusted were identifiable intangible assets related to our core deposits, loans and leases, property and equipment, deposits, pension assets and liabilities and other items. After making these adjustments to the Predecessor balance sheet, the amount that the purchase price exceeded the value of purchased assets and liabilities assumed was recorded as goodwill. As of December 20, 2001, the Company had $2.1 billion in goodwill, all of which is non-deductible for tax purposes.
New debt: As part of the BNP Paribas Merger, we assumed $1.55 billion in new debt from the Merger Sub. This debt is between the Company and another subsidiary of BNP Paribas. The proceeds from this debt and $1.0 billion in cash equity from BNP Paribas were exchanged for all of the outstanding common stock and options of the Predecessor.
New equity basis: Due to the use of “push-down” accounting in the BNP Paribas Merger, the equity balances at December 31, 2001 reflect BNP Paribas’ basis in the Company. On December 20, 2001, BNP Paribas’ net purchase price of $1.985 billion was recorded. All amounts related to common and treasury stock of the Predecessor were eliminated.

New Mexico, Nevada, Guam and Saipan Branch Acquisitions

     In the third quarter of 2000, we entered into an agreement to acquire 30 branches in New Mexico and Nevada being divested by First Security Corporation in connection with its merger with Wells Fargo & Company. At that date, those branches had approximately $1.1 billion in deposits and approximately $200 million in loans. The acquisition of the Nevada branches was completed in January 2001 and the acquisition of the New Mexico branches was completed in February 2001. The cash transaction was accounted for using the purchase method of accounting. We incurred pre-tax integration

55


BancWest Corporation and other nonrecurring costsSubsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Operating results for Trinity were not significant to the consolidated operating results; therefore, proforma results are not presented.

3. Derivative Financial Instruments

 ��   Any portion of $3.9the changes in the fair value of a derivative designated as a hedge that is deemed ineffective is recorded in current period earnings; this amount was not material in the years ended December 31, 2004, 2003 and 2002.

Fair Value Hedges

     The Company has various derivative instruments that hedge the fair values of recognized assets or liabilities or of unrecognized firm commitments. At December 31, 2004, the Company carried an interest rate swap of $2.7 million with a fair market value loss of $0.6 million that was categorized as a hedge for a commercial loan. The Company receives 1-month LIBOR and pays a fixed rate of 8.32%. At December 31, 2003, the Company carried $2.7 million of such swaps with a fair market value loss of $0.7 million. In addition, at December 31, 2004, the Company carried interest rate swaps totaling $77.3 million with market value gains of $0.2 million and $1.3fair value losses of $4.0 million in 2001that were categorized as fair value hedges for commercial and 2000, respectively, as described in Note 3.

     On November 9, 2001,commercial real estate loans. The Company receives 6-month LIBOR and pays fixed rates from 3.56% to 7.99%. At December 31, 2003, the Company completed its acquisitioncarried $87 million of Union Banksuch swaps with market value gains of California’s network in Guam and Saipan, along with associated loan and deposit accounts. First Hawaiian assumed branch deposits of approximately $200$0.1 million and also bought various loans frommarket value losses of $5.8 million.

     In November 20, 2002, BancWest Corporation executed a $150 million interest rate swap agreement with BNP Paribas to hedge the branches.

SierraWest Bancorp

     On July 1, 1999, the Company completed its acquisition of SierraWest Bancorp (“SierraWest”). SierraWest was merged with and into the Company and its subsidiary, SierraWest Bank, was merged with and into Bankfair value of the West9.5% BancWest Capital I Quarterly Income Preferred Securities (the “SierraWest Merger”)BWE Capital Securities) issued by BancWest Capital I. Following the adoption of FIN 46, BancWest Capital I was deconsolidated resulting in recognition of $150 million subordinated debt instead of the issuanceBWE Capital Securities. The terms of approximately 4.4 million shares (8.8 million shares, after adjustment for the two-for-one stock split in December 1999) of our common stock to the shareholders of SierraWest. The acquisition was accounted for using the pooling-of-interests method of accounting. No material adjustments were required to conform SierraWest’s accounting policies withsubordinated debt mirror those of the Company.

     In connectionBWE Capital Securities. Concurrent with the SierraWest Merger,deconsolidation of BancWest Capital I, the Bank redesignated the interest rate swap to hedge the subordinated debt. The derivative instrument is effective and all changes in the fair value of the hedge were recorded in current-period earnings together with the offsetting change in fair value of the hedged item attributable to the risk being hedged. We pay 3-month LIBOR plus 3.69% and receive fixed payments at 9.5%. The fair market value loss on the swap was $2.7 million and $3.5 million at December 31, 2004 and 2003, respectively.

     At December 31, 2004, the Company carried interest rate swaps totaling $8.6 million with a market value gain of $0.4 million that were categorized as fair value hedges for repurchase agreements. The Company pays 3-month LIBOR and receives fixed rates ranging from 8.29% to 8.37%. At December 31, 2003, the Company carried $8.6 million of such swaps with a market value gain of $0.7 million.

Cash Flow Hedges

     At December 31, 2004, the Company carried interest rate swaps of $600 million with a fair market value gain of $20.7 million which hedged our LIBOR-based commercial loans. The hedges had a fair market value gain of $47.0 million at December 31, 2003. The interest rate swaps were entered into during 2001 by UCB and mature in 2006. We pay 3-month LIBOR and receive fixed rates ranging from 5.64% to 5.87%. The net settlement on the $600 million swaps increased commercial loan interest income by $22.3 million during 2004 and by $24.0 million during 2003. The Company estimates net settlement gains, recorded pre-tax restructuring, merger-relatedas commercial loan interest income, of $13.0 million over the next twelve months resulting from these hedges.

     At December 31, 2004, the Company carried interest rate swaps totaling $100 million with fair market value gains of $3.5 million and other nonrecurring costs totaling $10.7fair market value losses of $0.2 million in 1999,order to reduce exposure to interest rate increases associated with short-term fixed rate liabilities. The swaps hedge forecasted transactions associated with short-term fixed rate liabilities. These swaps had a fair market value gain of $7.2 million at December 31, 2003. The swaps mature as describedfollows: $70 million in Note 3.2013, $20 million in 2018 and $10 million in 2023. We pay fixed rates ranging from 3.65% to 4.58% and receive 3-month LIBOR. The effect on pretax income from these swaps was a loss of $2.8 million and $1.2 million for the years ended December 31, 2004 and 2003, respectively. The Company estimates a net increase to interest expense of $1.9 million over the next twelve months resulting from these hedges.

Free-standing Derivative Instruments

     Free-standing derivative instruments include derivative transactions entered into for risk management purposes that do not otherwise qualify for hedge accounting. Interest rate lock commitments issued on residential mortgage loans intended to be held for resale are considered free-standing derivative instruments. Such commitments are stratified by rates and terms and are valued based on

56


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

market quotes for similar loans. Adjustments, including discounting the historical fallout rate, are then applied to estimated fair market value. Trading activities primarily involve providing various free-standing interest rate and foreign exchange derivative products to customers. Interest rate derivative instruments utilized by the Company in its trading operations include interest rate swaps, caps, floors and collars.

     The following table sets forth the results of operations of SierraWest andsummarizes derivatives held by the Company for the six months ended June 30, 1999. These six-month results are included in the consolidated results of operations for the year ended December 31, 1999, presented in the accompanying Consolidated Statements of Income.

Six Months Ended June 30, 1999

             
(in thousands) SierraWest Company Combined

 
 
 
Net interest income $21,703  $315,412  $337,115 
Net income $4,765  $82,260  $87,025 
   
   
   
 

52


Notes to Consolidated Financial Statements(continued)

BancWest Corporation

     On November 1, 1998, for a purchase price of $905.7 million, BancWest Corporation (“Old BancWest”), parent company of Bank of the West, was merged with and into First Hawaiian, Inc. (“FHI”) (the “BancWest Merger”). At that date, Bank of the West, headquartered in San Francisco, was California’s fifth-largest bank with approximately $6.1 billion in assets and 103 branches in 21 counties in Northern and Central California.

     Prior to the BancWest Merger, Old BancWest was wholly-owned by Banque Nationale de Paris, now BNP Paribas, one of the largest commercial banks in France and among the largest in Europe. In the BancWest Merger, BNP Paribas received approximately 25.815 million shares (51.630 million shares after adjustment for the two-for-one stock split in December 1999) of the Company’s newly authorized Class A common stock (representing approximately 45% of the outstanding voting stock). The transaction was accounted for using the purchase method of accounting. The excess of cost over fair value of net assets acquired amounted to approximately $599.0 million. FHI, the surviving corporation of the BancWest Merger, changed its name to “BancWest Corporation” on November 1, 1998.

     The Company recorded pre-tax restructuring, merger-related and other nonrecurring costs totaling $25.5 million in 1998, as described in Note 3.

3. Restructuring, Integration and Other Nonrecurring Costs

New Mexico and Nevada Branch Acquisitions

     In connection with the acquisition of 30 branches in New Mexico and Nevada, the Company recorded pre-tax integration costs of $1.3 million in 2000 and $3.9 million in 2001.

SierraWest Bancorp Merger

     In connection with the SierraWest Merger, the Company recorded pre-tax restructuring, merger-related and other nonrecurring costs of $10.7 million in 1999. These costs were comprised of: (1) $3.4 million in severance and other employee benefits; (2) $1.6 million in equipment and occupancy expense; (3) $4.2 million in expenses for legal and other professional services; and (4) $1.5 million in other nonrecurring costs. During 1999, we wrote off $1.6 million of capitalized equipment and occupancy expense, paid $2.7 million in accrued severance and other employee benefits and paid $5.4 million in legal and other professional services and other nonrecurring costs. At December 31, 1999, $682,000 of severance and other employee benefits and $267,000 in other nonrecurring costs remained accrued. During 2000, we paid $479,000 in severance and other employee benefits and paid $267,000 in other nonrecurring costs. As of December 31, 2000, accrued expenses related to the SierraWest Merger had been substantially paid.31:

                         
  2004  2003
      Credit          Credit    
  Notional  Risk  Net Fair  Notional  Risk  Net Fair 
  Amount  Amount  Value  Amount  Amount  Value 
 
(dollars in thousands)                        
Held for hedge purposes:                        
Interest rate swaps $938,534  $24,790  $17,327  $948,439  $54,999  $45,063 
Held for trading or free-standing:                        
Interest rate swaps  1,502,706   19,558   7,856   1,375,018   22,113   5,224 
Purchased interest rate options  143,251   203   203   22,318   187   187 
Written interest rate options  152,645      (203)  62,946      (187)
Forward interest rate options  22,000      (20)  217,930   782   732 
Commitments to purchase and sell foreign currencies  401,057   9,533   1,046   421,130   8,592   (48)
Purchased foreign exchange options  4,876   217   217   55,791   597   597 
Written foreign exchange options  4,876      (217)  55,791      (597)
 

BancWest Merger and Related Matters

     The Company recorded pre-tax restructuring, BancWest Merger-related and other nonrecurring costs totaling $25.5 million in 1998. As a result of these costs of $25.5 million, a liability of $11.3 million was recorded in 1998. During 1999, this liability was reduced by a total of $6.6 million, as a result of: (1) $2 million for the payment of data processing contract termination penalties; (2) $2 million for severance payments; (3) $2 million related to excess leased commercial properties; and (4) $600,000 for payments on other nonrecurring costs. The remaining amount accrued was $4.7 million at December 31, 1999. During 2000, this liability was reduced by a total of $2.2 million, as a result of: (1) $58,000 for the reversal of accrued data processing contract termination penalties; (2) $175,000 for reversal of accrued severance payments; (3) $1.9 million related to excess leased commercial properties; and (4) $30,000 for reversal of other accrued costs. The remaining amount accrued at December 31, 2000 was $2.5 million, primarily related to excess leased com- mercial properties. During 2001, this remaining amount was further amortized by $1.8 million, resulting in a balance of $700,000 at December 31, 2001. The majority of the amount related to excess leased commercial property will be fully amortized in 2002.

     On July 19, 1999, the Company announced plans to consolidate its three existing data centers into a single data center in Honolulu. The consolidation was accomplished through a facilities management contract with a service provider which has assumed management of First Hawaiian’s existing data center. As a result of this consolidation effort, the Company recorded pre-tax restructuring and other nonrecurring costs of $6.9 million in the third quarter of 1999. Those costs were comprised of: (1) $3.8 million for the write-off of capitalized information technology costs; (2) $1.5 million for employee severance costs; and (3) $1.6 million in other nonrecurring costs. During 1999, we wrote off $3.8 million in capitalized information technology costs and paid $459,000 in other nonrecurring costs. At December 31, 1999, the remaining amount accrued for these costs was $2.6 million. During 2000, we paid $970,000 in employee severance costs and $1 million in other nonrecurring costs. In addition, we reversed $465,000 in accrued employee severance costs and $135,000 in other nonrecurring costs. As of December 31, 2000, the amounts accrued related to the data center consolidation had been substantially paid. See Note 22 to the Consolidated Financial Statements on page 67 for additional information.

53


Notes to Consolidated Financial Statements(continued)

4. Transactions with Affiliates

     The Company and its subsidiaries participate in various transactions with BNP Paribas and its affiliates. Except for theThe $1.550 billion term note, $800 million repurchase agreement, $590 million short-term debt, $400 million of structured repurchase agreements and a $150 million swap that is used to hedge the subordinated debt related to trust preferred securities are between Parent and BNP Paribas. On March 17, 2005 the $590 million of short-term debt was extended to a maturity date of April 1, 2005 with a stated interest rate of 2.78%. It is the Company’s intent to convert the $590 million of short-term debt to long-term financing. Subordinated debt of $370 million is owed to the First Hawaiian Capital I, BancWest Capital I, CFB Capital III and CFB Capital IV trusts (see Note 14). The subordinated notes included in long-term debt were sold directly to BNP Paribas by Bank of the West. They are subordinated to the claims of depositors and BancWest Corporation, thecreditors and qualify for inclusion as a component of risk-based capital under current FDIC guidelines for assessing capital adequacy. The other items listed in the table below are between our banking subsidiaries and BNP Paribas and its affiliates. Transactions involving the Company’s bank subsidiaries and their non-banknonbank affiliates (including BancWest and BNP Paribas) are subject to review by the Federal Deposit Insurance Corporation (the “FDIC”) and other regulatory authorities. These transactions are required to be on terms at least as favorable to the bank as those prevailing at the time for similar non-affiliate transactions. Transactions have included the sales and purchases of assets, foreign exchange activities, financial guarantees, international services, interest rate swaps and intercompany deposits and borrowings.

57


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Amounts due to and from affiliates and off-balance-sheet transactions at December 31, 20012004 and 20002003 were as follows:

          
(in thousands) 2001 2000

 
 
Cash and due from banks $4,071  $1,278 
Noninterest-bearing demand deposits  2,494   3,529 
Short-term borrowings  8,000   50,000 
Time certificates of deposit  255,000   467,000 
Other liabilities  252   121 
Term note  1,550,000    
Subordinated capital notes included in long-term debt  52,828   51,595 
Off-balance-sheet transactions:        
 Standby letters of credit  2,501   7,473 
 Guarantees received  280   15,987 
 Commitments to purchase foreign currencies  35,808   20,144 
 Commitments to sell foreign currencies     2,680 
    
   
 
         
  Year Ended December 31,
(dollars in thousands) 2004  2003 
   
Cash and due from banks $540  $470 
Noninterest-bearing demand deposits  1,124   2,662 
Short-term borrowings  590,000   150,000 
Time certificates of deposit  20,427   420,750 
Other liabilities  8,077   36,228 
Term note  1,550,000   1,550,000 
Subordinated notes included in long-term debt  51,848   52,193 
Subordinated notes issued to trusts(1)
  384,158   252,785 
Repurchase agreement  800,000   800,000 
Structured repurchase agreements  400,000    
Off-balance sheet transactions:        
Standby letters of credit  26,611   8,121 
Guarantees received  2,683   615 
Commitments to purchase foreign currencies(2)  125,466   58,403 
Commitments to sell foreign currencies(2)  39,968   133,038 
Interest rate contracts(2)  662,071   398,174 
Foreign exchange options(2)  4,876   55,791 


(1)Includes purchase accounting adjustments of $13.8 million.
(2)Represents the notional amount of derivatives financial instruments that are carried on our balance sheet at fair value.

     In March 2002, BancWest borrowed $800 million from BNP Paribas under an interim financing arrangement as part of the United California Bank acquisition. In November 2002, the Corporation sold BNP Paribas 485,413 shares of the outstanding common stock of Bank of the West for $800 million, and used the proceeds to repay the interim debt. The subordinated capital notes wereCorporation and BNP Paribas also entered into a Stockholder’s Agreement that included put and call options. The call option gives BancWest the right on specified dates or events to repurchase all or a portion of the Bank of the West stock sold directly to BNP Paribas at a price equal (in the case of a purchase of all such shares) to $800 million, plus 4.39% per annum, less the aggregate amount of distributions paid on such shares to BNP Paribas (together with interest paid on such amounts at 4.39% per annum, compounded quarterly), plus $5.0 million. If BancWest does not exercise its call option by December 2011, or within 90 days after certain specified events or agreements, BNP Paribas can require the Corporation to repurchase the Bank of the West. They are subordinatedWest shares at a price equal to (in case of a purchase of all such shares) $800 million, plus 4.39% per annum, less the aggregate amount of distributions paid on such shares to BNP Paribas (together with interest on such amounts at 4.39% per annum, compounded quarterly), plus $50 million. Due to the claimsput and call arrangement, the $800 million repurchase agreement is considered a redeemable security and accordingly classified as debt. The Stockholder’s Agreement contains provisions for pro rata allocation of depositorsthe formula described above in the event the call option is exercised for less than the full amount of the Bank of the West stock. The specified events referred to above include potential changes in ownership of Bank of the West as well as legislative, regulatory or other related changes that could affect the transactions referred to above. The Stockholder’s Agreement also limits the transferability of the Bank of the West shares. No value has been attributed to the call or put options in the Company’s financial statements and creditorsthe Company does not expect to attribute a value to these options during the term of the Stockholder’s Agreement.

     At December 31, 2004, BancWest’s obligation to BNP Paribas under the Agreement (assuming the Call Option could have been exercised as of that date) would be calculated as $806.2 million. This obligation represents the original amount of $800 million, accrued interest of $1.2 million, plus the $5.0 million Call Option premium. At 2003, the obligation was $836.7 million, which included the original amount of $800 million, accrued interest of $31.7 million and the $5.0 million Call Option premium. The average balance of the obligation to BNP Paribas under the Agreement using the same calculation was $850.8 million and $820.8 million for the years ended December 31, 2004 and 2003, respectively.

     BNP Paribas received a tax opinion that this cross-border transaction should be treated for U.S. Federal tax purposes as a loan from BNP Paribas to the Company secured by the Bank of the West shares. Accordingly, the Company recognizes a U.S. tax benefit for the current deduction for interest paid under the terms of the Stockholder’s Agreement.

     At December 31, 2004, we carried a $150 million interest rate swap with BNP Paribas. See Note 3 for additional information.

58


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Interest expense to affiliates for 2004, 2003 and 2002 was $174.6 million, $156.2 million and $131.9 million, respectively. Income from affiliate transactions was $6.4 million for 2004, $6.7 million for 2003 and was not material for 2002.

5. Variable Interest Entities (VIEs)

     On June 23, 1997 and October 20, 2000, the Company formed two trusts, First Hawaiian Capital I (FH Trust) and BancWest Capital I (BWE Trust) (the Trusts), respectively. The Trusts issued preferred and common capital securities. The purpose of these entities is to allow for the issuance of preferred capital securities that qualify for inclusion in Tier 1 regulatory capital. Historically, the Trusts were consolidated and the related trust preferred securities have been treated as Tier 1 capital under Federal Reserve rules and regulations. The Company deconsolidated the Trusts as a componentresult of risk-basedthe adoption of FIN 46 in the preparation of its financial statements in October 2003. This deconsolidation had no material impact on the total assets or liabilities of BancWest. On March 1, 2005 the Federal Reserve Board issued final rules that will allow trust preferred securities to continue to be treated as Tier 1 capital, under current FDIC guidelinesbut in reduced amounts. After a five year transition period, the quantitative limitations for assessingthe amount of trust preferred securities that may be included in Tier 1 capital adequacy.

5. Investment Securities

Held-to-Maturityfor domestic bank holding companies will be reduced to 25% of core capital elements, net of goodwill less any associated deferred tax liability. In addition, during the last five years before maturity trust preferred securities will be treated as Tier 2 capital and require the same phase-out of capital credit as limited-life preferred stock.

     There were no held-to-maturity investmentBWE Trust is a Delaware business trust, which was formed in 2000 and exchanged $150 million of its BWE Capital Securities, as well as all outstanding common securities atof BWE Trust, for 9.5% junior subordinated deferrable interest debentures of BancWest. The Corporation sold the $150 million of BWE Capital Securities to the public. At December 31, 2001. Upon2004, BWE Trust’s total assets were $155.9 million, comprised predominately of BancWest’s junior subordinated debentures. The BWE Capital Securities and the purchasedebentures will mature on December 1, 2030, but on or after December 1, 2005 are subject to redemption in whole or in part at par plus accrued interest. They are solely, fully and unconditionally guaranteed by BNP Paribasthe Parent, representing the Company’s maximum liability for the securities. All of the remaining 55%common securities of outstanding common stock it did not already own, all securities previously considered held-to-maturity were reclassified to available-for-sale at their fair value. The amortized cost of securities reclassified at that time was $91 million,BWE Trust are owned by the Parent.

     FH Trust is a Delaware business trust which was formed in 1997, issued $100 million of its Capital Securities (the “FH Capital Securities”) and used the proceeds to purchase junior subordinated deferrable interest debentures of BancWest. The FH Capital Securities accrue and pay interest semiannually at an annual interest rate of 8.343%. The FH Capital Securities are mandatorily redeemable upon maturity date of July 1, 2027. However, they are subject to redemption on or after July 1, 2007, in whole or in part (subject to a prepayment penalty) as provided for in the governing indenture. At December 31, 2004, FH Trust’s total assets were $107.4 million, comprised predominately of BancWest’s junior subordinated debentures. The debentures and the associated interest expense make up the Company’s maximum exposure to losses for this trust. They are solely, fully and unconditionally guaranteed by the Parent, representing the Company’s maximum liability for the securities. All of the common securities of FH Trust are owned by the Parent.

     CFB Capital III Trust is a Delaware business trust which was formed in 2002 and issued $60 million of 8.125% Cumulative Capital Securities. The proceeds of the offering were invested by CFB Capital III in junior subordinated debentures of Community First, which were later assumed by BOW following the merger of Community First with and into BOW. At December 31, 2004, CFB Capital III Trust’s total assets were $62.9 million, comprised predominately of BOW’s junior subordinated debentures. The debentures and the associated interest expense make up BOW’s maximum exposure to losses for this trust. With regulatory approval, the debentures can be redeemed no earlier than April 15, 2007, and mature April 15, 2032. All of the common securities of CFB Capital III are owned by BOW, and therefore the preferred securities do not qualify as Tier 1 capital.

     CFB Capital IV Trust is a Delaware business trust which was formed in 2003 and issued $60 million of 7.60% Cumulative Capital Securities. The proceeds of the offering were invested by CFB Capital IV in junior subordinated debentures of Community First, which were later assumed by BOW following the merger of Community First with and into BOW. At December 31, 2004, CFB Capital IV Trust’s total assets were $62.5 million, comprised predominately of BOW’s junior subordinated debentures. The debentures and the associated interest expense make up BOW’s maximum exposure to losses for this trust. With regulatory approval, the new debentures may be redeemed no earlier than March 15, 2008, and mature March 15, 2033. All of the common securities of CFB Capital IV are owned by BOW, and therefore the preferred securities do not qualify as Tier 1 capital.

     The Company has identified investments that meet the definition of a VIE under FIN 46 but do not meet the requirements for consolidation. The Company owns several limited partnership interests in low-income housing developments in conjunction with the Community Reinvestment Act. Limited partners do not participate in the control of the partnerships’ businesses. The general partner exercises the day-to-day control and management of the projects. The general partners have exclusive control over the partnerships’ businesses and have all of the rights, powers, and authority generally conferred by law or necessary, advisable or consistent with

59


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

accomplishing the partnerships’ businesses. FIN 46 indicates that if an entity (e.g., limited partner) cannot sell, transfer, or encumber its interests in the VIE without the prior approval of an enterprise (e.g., general partner), the limited partner is deemed to be a de facto agent for the general partner. BancWest is considered to be a de facto agent for the general partner where BancWest has a limited partnership interest over 50%. BancWest is not the primary beneficiary for these partnerships or for those where its interest is less than 50%. The business purpose of these entities is to provide affordable housing within the Company’s service area in return for tax credits and tax loss deductions. At December 31, 2004 our subscription amount for these investments is approximately equal$112.0 million with approximately $37.5 million as the residual contribution outstanding. We are not obligated to their fair value.fund deficiencies of the limited partnerships and our maximum exposure to losses is limited to our subscription amount. Bargain purchase options are available for the general partners to purchase the Company’s portion of interests in the limited partnerships. These commitments were entered into from 1991 through 2004.

6. Securities Available for Sale

     Amortized cost and fair value of held-to-maturity investment securities available for sale at December 31, 20002004 and 19992003 were as follows:
                 
  2000
  
  Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value

 
 
 
 
U.S. Treasury and other U.S. Government agencies and corporations $15,990  $  $99  $15,891 
Other asset-backed securities  38,233   11   524   37,720 
Collateralized mortgage obligations  38,717   4   707   38,014 
   
   
   
   
 
Total held-to-maturity investment securities $92,940  $15  $1,330  $91,625 
   
   
   
   
 
                 
  1999
  
  Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value

 
 
 
 
U.S. Treasury and other U.S. Government agencies and corporations $15,985  $  $543  $15,442 
Other asset-backed securities  72,388      1,557   70,831 
Collateralized mortgage obligations  54,495   2   1,668   52,829 
   
   
   
   
 
Total held-to-maturity investment securities $142,868  $2  $3,768  $139,102 
   
   
   
   
 

                                 
  2004  2003 
  Amortized  Unrealized  Unrealized      Amortized  Unrealized  Unrealized    
(dollars in thousands) Cost  Gains  Losses  Fair Value  Cost  Gains  Losses(1)  Fair Value 
   
U.S. Treasury and other U.S. Government agencies and corporations $266,174  $263  $(1,745) $264,692  $187,468  $512  $(478) $187,502 
Government sponsored agencies  2,372,319   1,374   (14,868)  2,358,825   1,400,848   13,598   (1,778)  1,412,668 
Mortgage and asset-backed securities:                                
Government agencies  229,827   1,741   (450)  231,118   126,701   1,411   (55)  128,057 
Government sponsored agencies  3,185,857   10,733   (37,208)  3,159,382   2,229,914   21,986   (23,824)  2,228,076 
Other  487,250   3,177   (2,512)  487,915   691,510   7,990   (1,425)  698,075 
Collateralized mortgage obligations:                                
Government agencies  181,502      (2,311)  179,191   190,449   331   (2,246)  188,534 
Government sponsored agencies  603,173   420   (6,907)  596,686   601,543   1,784   (4,381)  598,946 
Other  568,724   154   (5,565)  563,313   274,686   496   (1,492)  273,690 
State and political subdivisions  56,081   627   (297)  56,411   15,925   355   (61)  16,219 
Other  59,311   103   (2,384)  57,030   41,367   173   (628)  40,912 
                         
Total securities available for sale $8,010,218  $18,592  $(74,247) $7,954,563  $5,760,411  $48,636  $(36,368) $5,772,679 
                         
 

Available-for-Sale


(1) At December 31, 2003, the Company held no securities that had been in a continuous unrealized loss position for 12 months or more.

     Amortized cost and fair value of available-for-sale investment securities at December 31, 2001, 2000 and 1999 were as follows:
                  
   2001
   
   Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value

 
 
 
 
U.S. Treasury and other U.S. Government agencies and corporations
 $794,991  $7,971  $2,777  $800,185 
Mortgage and asset-backed securities:
                
 
Government
  923,468   8,704   5,747   926,425 
 
Other
  253,939   3,796   745   256,990 
Collateralized mortgage obligations
  416,401   3,196   1,160   418,437 
States and political subdivisions
  1,793      158   1,635 
Other
  138,541   5   45   138,501 
   
   
   
   
 
Total available-for-sale investment securities
 $2,529,133  $23,672  $10,632  $2,542,173 
   
   
   
   
 
60

54


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes     The following table presents the unrealized gross losses and fair values of securities in the securities available for sale portfolio by length of time that individual securities in each category have been in a continuous loss position. Because the declines in fair value were a result of changes in market interest rates and the Company has both the ability and the intent to Consolidated Financial Statements(continued)
                  
   2000
   
   Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value

 
 
 
 
U.S. Treasury and other U.S. Government agencies and corporations $766,905  $3,868  $641  $770,132 
Mortgage and asset-backed securities:                
 Government  619,791   8,550   1,539   626,802 
 Other  345,229   3,251   676   347,804 
Collateralized mortgage obligations  77,529   243   144   77,628 
States and political subdivisions  9,871   22   183   9,710 
Other  128,704         128,704 
   
   
   
   
 
Total available-for-sale investment securities $1,948,029  $15,934  $3,183  $1,960,780 
   
   
   
   
 
                  
   1999
   
   Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value

 
 
 
 
U.S. Treasury and other U.S. Government agencies and corporations $775,778  $38  $7,672  $768,144 
Mortgage and asset-backed securities:                
 Government  556,735   5,043   6,746   555,032 
 Other  384,378   118   4,244   380,252 
Collateralized mortgage obligations  16,374   6   334   16,046 
States and political subdivisions  22,104   205   670   21,639 
Other  126,896   3   9   126,890 
   
   
   
   
 
Total available-for-sale investment securities $1,882,265  $5,413  $19,675  $1,868,003 
   
   
   
   
 
hold the securities until maturity or the fair value at least equals the recorded cost, no other-than-temporary impairment was recorded at December 31, 2004.

                         
  December 31, 2004
  Less Than 12 Months 12 Months or More Total
  Unrealized      Unrealized      Unrealized    
(dollars in thousands) Losses  Fair Value  Losses  Fair Value  Losses  Fair Value 
     
U.S. Treasury and other U.S. Government agencies and corporations $(1,455) $223,980  $(290) $32,851  $(1,745) $256,831 
Government sponsored agencies  (13,142)  1,945,187   (1,726)  73,230   (14,868)  2,018,417 
Mortgage and asset-backed securities:                        
Government agencies  (450)  71,905         (450)  71,905 
Government sponsored agencies  (18,230)  1,984,473   (18,978)  526,501   (37,208)  2,510,974 
Other  (1,788)  323,410   (724)  58,762   (2,512)  382,172 
Collateralized mortgage obligations:                        
Government agencies  (1,580)  138,412   (731)  40,109   (2,311)  178,521 
Government sponsored agencies  (3,585)  404,057   (3,322)  157,403   (6,907)  561,460 
Other  (5,556)  412,785   (9)  2,693   (5,565)  415,478 
State and political subdivisions  (284)  36,694   (13)  395   (297)  37,089 
Other  (2,070)  30,948   (314)  5,686   (2,384)  36,634 
                   
Total securities available for sale $(48,140) $5,571,851  $(26,107) $897,630  $(74,247) $6,469,481 
                   
 

Gross realized gains and losses on sales of securities available for sale for the periods indicated were as follows:

             
  Year Ended December 31,
(dollars in thousands) 2004  2003  2002 
 
Realized gains $1,058  $4,289  $2,084 
Realized losses  (185)     (131)
          
Realized net gains $873  $4,289  $1,953 
          
 

61


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The amortized cost, and fair value and yield of available-for-sale investment securities available for sale at December 31, 2001,2004, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowersdebt issuers may have the right to call or prepay obligations.

         
  Amortized Fair
(in thousands) Cost Value

 
 
Due within one year $174,534  $177,031 
Due after one but within five years  785,049   789,641 
Due after five but within ten years  226,937   226,072 
Due after ten years  1,204,072   1,210,928 
   
   
 
Subtotal  2,390,592   2,403,672 
Securities with no stated maturity  138,541   138,501 
   
   
 
Total available-for-sale investment securities
 $2,529,133  $2,542,173 
   
   
 
                                         
  December 31, 2004
          Remaining Contractual Principal Maturity
      Weighted          After One But  After Five Years But    
  Total  Average  Within One Year  Within Five Years  Within Ten Years  After Ten Years
(dollars in thousands) Amount  Yield  Amount  Yield  Amount  Yield  Amount YieldAmount  Yield 
 
U.S. Treasury and other U.S. Government agencies and corporations $264,692   2.14% $160,935   1.62% $79,981   3.02% $13,491   2.83% $10,285   2.41%
Government sponsored agencies  2,358,825   3.06   295,716   2.77   1,905,950   3.03   157,159   3.92       
Mortgage and asset-backed securities:                                        
Government agencies  231,118   3.45   31   3.39   77   3.19   178   8.66   230,832   3.64 
Government sponsored agencies  3,159,382   4.11         223,069   3.93   422,811   4.04   2,513,502   4.14 
Other  487,915   3.12   678   4.14   246,563   3.03   9,161   2.53   231,513   3.24 
Collateralized mortgage obligations:                                        
Government agencies  179,191   1.52                     179,191   1.52 
Government sponsored agencies  596,686   3.19         20,173   4.31   73,139   3.08   503,374   3.19 
Other  563,313   3.96         10,358   6.62         552,955   3.91 
State and political subdivisions(1)
  56,411   4.79   427   6.63   4,780   3.91   20,711   4.52   30,493   5.09 
                                    
Estimated fair value of debt securities(2)
 $7,897,533   3.52% $457,787   2.37% $2,490,951   3.14% $696,650   3.88% $4,252,145   3.81%
                                    
Total cost of debt securities $7,950,907      $459,191      $2,505,429      $698,067      $4,288,220     
                                    
 


(1)  The weighted average yields were calculated on a taxable equivalent basis.
(2)  The weighted average yield, except for yields of state and political subdivisions, were calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security.

     The Company held no trading securities at December 31, 2001, 2000 and 1999.

     Investment securitiesSecurities with an aggregate carrying value of $2.0$6.0 billion at December 31, 2001,and $4.3 billion were pledged to secure public deposits, repurchase agreements and Federal Home Loan Bank advances.advances at December 31, 2004 and 2003, respectively. Of these amounts the secured party had the right to repledge or resell $0.3 billion and zero at December 31, 2004 and 2003, respectively.

     We held no investment securities of any single issuer (other than the U.S. Government and itsgovernment sponsored agencies) which were in excess of 10% of consolidated stockholder’s equity at December 31, 2001.2004 and 2003.

     Gross gains62


BancWest Corporation and gross losses of $30.5 million and $51,000, respectively, were realized on the sales of investment securities during the period from January 1, 2001 to December 19, 2001. Gross realized gains and losses were $30,000 and $61,000, respectively, for the period from December 20, 2001 to December 31, 2001. Gross gains of $865,000 and $38,000 and gross losses of $654,000 and $22,000 were realized on sales of investment securities during 2000 and 1999, respectively.Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.7. Loans and Leases

     As part of the application of purchase price accounting, a discount of $26.5 million was recorded as a fair value adjustment and will be amortized on a level-yield basis over the average life of the loans and leases.

     At December 31, 20012004 and 2000,2003, loans and leases were comprised of the following:

          
(in thousands) 2001 2000

 
 
Commercial, financial and agricultural $2,387,605  $2,604,590 
Real estate:        
 Commercial  2,957,194   2,618,312 
 Construction  464,462   405,542 
 Residential  2,263,827   2,360,167 
Consumer  4,471,897   3,599,954 
Lease financing  2,293,199   2,038,516 
Foreign  385,548   344,750 
   
   
 
Total loans and leases
 $15,223,732  $13,971,831 
   
   
 
                 
  December 31, 
  2004  2003 
(dollars in thousands) Outstanding  Commitments(1)  Outstanding  Commitments(1) 
   
Commercial, financial and agricultural $6,027,376  $4,699,369  $4,492,319  $4,300,273 
Real estate:                
Commercial  6,706,882   550,343   5,146,077   379,044 
Construction  1,493,723   1,241,585   952,818   826,368 
Residential  6,700,462   1,354,046   5,019,625   1,084,614 
             
Total real estate  14,901,067   3,145,974   11,118,520   2,290,026 
Consumer  9,243,731   1,427,566   7,344,620   1,070,012 
Lease financing  2,132,578   12,923   2,417,310   8,793 
Foreign  384,091   43,531   349,310   33,015 
             
Total loans and leases
 $32,688,843  $9,329,363  $25,722,079  $7,702,119 
             
 


(1)Commitments to extend credit represent unfunded amounts and are reported net of participations sold to other lenders.

     The loan and lease portfolio is principally located in California, and Hawaii and other states in the Western United States. We also lend to a lesser extent Oregon, Washington, Nevada, New Mexico, Idaho,nationally and in Guam and Saipan. The risk inherent in the portfolio depends upon both the economic stability of those states,regions, which affects property values, and the financial well being and creditworthiness of the borrowers.

     Outstanding loan balances at December 31, 2004 and 2003 are net of unearned income, including net deferred loan fees, of $283.0 million and $386.4 million, respectively.

     Our leasing activities consist primarily of leasing automobiles, commercial equipment and leveraged leases. Lessees are responsible for all maintenance, taxes and insurance on the leased property. The leases are reported net of unearned income of $333.0 million and $393.1 million at December 31, 2004 and 2003, respectively.

    ��The following table lists the components of the net investment in financing leases:

         
  December 31,
(dollars in millions) 2004  2003 
 
Total minimum lease payments to be received $1,839  $1,970 
Estimated residual values of leased property  627   840 
Less: Unearned income  333   393 
       
Net investment in financing leases $2,133  $2,417 
       
 

63


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2001 and 2000, loans and2004, minimum lease receivables for the five succeeding years were as follows:

     
  Year Ended 
(dollars in millions) December 31, 2004 
 
Lease Receivables:
    
2005 $617.0 
2006  537.8 
2007  397.4 
2008  264.5 
2009  111.8 
Thereafter  537.1 
    
Gross minimum payments  2,465.6 
Less: unearned income  333.0 
    
Net minimum receivable $2,132.6 
    
 

     Our consolidated investment in leveraged leases of $97.1totaled approximately $368 million and $93.5$399 million respectively, wereat December 31, 2004 and 2003, respectively. For federal income tax purposes, we retain the tax benefit of depreciation on nonaccrual status or restructured.the entire leased unit and interest on the related long-term debt, which is non-recourse to the Company. Deferred tax liabilities arising from leveraged leases totaled approximately $327 million and $357 million at December 31, 2004 and 2003.

     Real estate loans totaling $1.4$4.3 billion were pledged to collateralize the Company’s borrowing capacity at the Federal Home Loan Bank at December 31, 2001.2004.

     Our leasing activities consist primarily of: (1) leasing automobiles and commercial equipment; and (2) leveraged leases. Lessees are responsible for all maintenance,

55


Notes to Consolidated Financial Statements(continued)

taxes and insurance on the leased property. The leases are reported net of unearned income of $490.2 million at December 31, 2001, and $452.2 million at December 31, 2000. At December 31, 2001, minimum lease receivables for the five succeeding years were as follows:

2002 — $545.1 million
2003 — $513.1 million
2004 — $476.4 million
2005 — $381.2 million
2006 — $280.3 million

     In the normal course of business, the Company makes loans to executive officers and directors of the Company and to entities and individuals affiliated with those executive officers and directors. Those loans were made on terms no less favorable to the Company than those prevailing at the time for comparable transactions with other persons or, in the case of certain residential real estate loans, on terms that were widely available to employees of the Company who were not directors or executive officers. Changes in the loans to such executive officers, directors and affiliates during 20012004 and 20002003 were as follows:

          
(in thousands) 2001 2000

 
 
Balance at beginning of year $263,835  $267,245 
 New loans made  19,470   34,763 
 Less repayments  138,972   38,173 
   
   
 
Balance at end of year
 $144,333  $263,835 
   
   
 
         
  Year Ended December 31,
(dollars in thousands) 2004  2003 
 
Balance at beginning of year $116,469  $112,955 
New loans made  31,709   22,021 
Less repayments  41,369   18,507 
       
Balance at end of year $106,809  $116,469 
       
 

     In the course of evaluating the credit risk presented by a customer and the pricing that will adequately compensate the Company for assuming that risk, management may require a certain amount of collateral support. The type of collateral held varies, but may include accounts receivable, inventory, land, buildings, equipment, income-producing commercial properties and residential real estate. The Company has the same collateral policy for loans whether they are funded immediately or on a delayed basis (commitment).

     A commitment to extend credit is a legally binding agreement to lend funds to a customer usually at a stated interest rate and for a specified purpose. Such commitments have fixed expiration dates and generally require a fee. The extension of a commitment gives rise to credit risk. The actual liquidity requirements or credit risk that the Company will experience will be lower than the contractual amount of commitments to extend credit because a significant portion of those commitments are expected to expire without being drawn upon. Certain commitments are subject to loan agreements containing covenants regarding the financial performance of the customer that must be met before the Company is required to fund the commitment. The Company uses the same credit policies in making commitments to extend credit as it does in making loans.

     In addition, the Company manages the potential credit risk in commitments to extend credit by limiting the total amount of arrangements, both by individual customer and in the aggregate, by monitoring the size and maturity structure of these portfolios, and by applying the same credit standards maintained for all of its related credit activities. At December 31, 2001,2004 and 2003, the Company did not have a concentration in any loan category or industry that exceeded 10% of total loans to such parties by and unfunded commitments that are not

64


BancWest Corporation were $402,000;and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

already reflected in the table above. The loan and lease portfolio is principally located in California, Hawaii and other states in the Western United States. The risk inherent in the portfolio depends upon both the economic stability of those states, which affects property values, and the financial well being and creditworthiness of the borrowers.

     Standby letters of credit totaled $824.2 million and $667.7 million at December 31, 2000, $1.6 million. Interest income related2004 and 2003, respectively. Standby letters of credit are issued on behalf of customers in connection with contracts between the customers and third parties. Under standby letters of credit, the Company assures that the third parties will receive specified funds if customers fail to these loans was $82,000meet their contractual obligations. The liquidity risk to the Company arises from its obligation to make payment in 2001, $112,000 in 2000the event of a customer’s contractual default. Standby letters of credit are reported net of participations sold to other institutions. The Company also had commitments for commercial and $109,000 in 1999.similar letters of credit of $77.0 million and $84.3 million at December 31, 2004 and 2003, respectively. The commitments outstanding as of December 31, 2004 have maturities ranging from January 1, 2005 to November 15, 2017. Substantially all fees received from the issuance of such commitments are deferred and amortized on a straight-line basis over the term of the commitment.

7. Provision and8. Allowance for CreditLoan and Lease Losses

     Changes in the allowance for creditloan and lease losses were as follows for the periods indicated:
                   
    Company Predecessor        
    
 
 Year ended
    Dec. 20, 2001 Jan. 1, 2001 December 31,
    through through 
(in thousands) Dec. 31, 2001 Dec. 19, 2001 2000 1999

 
 
 
 
Balance at beginning of year $199,860  $172,443  $161,418  $158,294 
 Provision for credit losses  2,419   100,631   60,428   55,262 
 Net charge-offs:                
 Loans and leases charged off  (7,929)  (85,211)  (62,131)  (61,545)
 Recoveries on loans and leases previously charged off  304   11,997   12,728   10,432 
   
   
   
   
 
  Net charge-offs  (7,625)  (73,214)  (49,403)  (51,113)
   
   
   
   
 
 Transfer of allowance allocated to securitized loans           (1,025)
   
   
   
   
 
Balance at end of year
 $194,654  $199,860  $172,443  $161,418 
   
   
   
   
 
for:

             
  Year Ended December 31,
(dollars in thousands) 2004  2003  2003 
 
Balance at beginning of year $391,699  $384,081  $194,654 
Allowance arising from business combinations  59,392      212,660 
Provision for loan and lease losses  49,219   81,295   95,356 
Loans and leases charged off:        
Commercial, financial and agricultural  15,521   38,621   68,497 
Real estate:            
Commercial  2,704   1,622   3,287 
Construction         
Residential  761   930   1,307 
          
Total real estate  3,465   2,552   4,594 
Consumer  58,608   56,489   50,155 
Lease financing  21,196   26,338   22,399 
Foreign  1,649   2,498   1,741 
          
Total loans and leases charged off  100,439   126,498   147,386 
             
Recoveries on loans and leases:            
Commercial, financial and agricultural  11,444   31,843   10,479 
Real estate:            
Commercial  412   568   999 
Construction  1,016   132   306 
Residential  806   1,264   608 
          
Total real estate  2,234   1,964   1,913 
Consumer  13,950   12,041   10,331 
Lease financing  8,344   6,429   5,582 
Foreign  548   544   492 
          
Total recoveries on loans and leases previously charged off  36,520   52,821   28,797 
Net charge-offs  (63,919)  (73,677)  (118,589)
          
 
Balance at end of year $436,391  $391,699  $384,081 
          
 

65


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following table presents information related to impaired loans as of and for the years ended December 31, 2001, 2000 and 1999:

             
(in thousands) 2001 2000 1999

 
 
 
Impaired loans with related allowance $89,279  $77,518  $72,258 
Impaired loans with no related allowance  8,253   35,358   23,163 
   
   
   
 
Total impaired loans $97,532  $112,876  $95,421 
   
   
   
 
Total allowance for credit losses on impaired loans $24,745  $14,702  $15,833 
Average impaired loans  118,497   93,572   107,948 
Interest income recognized on impaired loans  2,462   5,099   4,349 
   
   
   
 
loans:
             
  Year Ended December 31,
(dollars in thousands) 2004  2003  2002 
 
Impaired loans with related allowance $16,903  $82,272  $148,533 
Impaired loans with no related allowance  39,869   3,522   43,438 
          
Total impaired loans $56,772  $85,794  $191,971 
          
             
Total allowance for loan and lease losses on impaired loans $4,087  $21,377  $39,197 
Average impaired loans  72,839   139,301   164,038 
Interest income recognized on impaired loans  3,687   5,491   1,350 

     Impaired loans without the related allowance for creditloan and lease losses are generally collateralized by assets with fair values in excess of the recorded investment in the loans. Interest paymentsPayments on impaired loans are generally applied to reduce the outstanding principal balance of such loans.

8.     Total nonaccrual loans and leases were $125.2 million and $133.8 million for the years ended December 31, 2004 and 2003, respectively. Loans and leases that were 90 days or more past due, but still accruing were $12.4 million and $29.4 million for the same respective periods.

9. Operating Leases

     Prior to February 2004 and after July 2004, leases of vehicles to customers were treated as finance leases, as they qualified for such treatment under Statement of Financial Accounting Standards No. 13,Accounting for Leases. From February through July 2004, our automobile leases were treated as operating leases, as we did not obtain residual insurance on an individual lease basis.

     Operating lease rental income for leased assets, primarily vehicles, is recognized on a straight-line basis. Related depreciation expense is recorded on a straight-line basis over the life of the lease taking into account the estimated residual value of the leased asset. On a periodic basis, leased assets are reviewed for impairment. Impairment loss is recognized if the carrying amount of a leased asset exceeds its fair value and is not recoverable. The carrying amount of a leased asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment. Vehicle lease receivables are written off when 120 days past due.

     The following table shows future minimum lease receivables under leases with terms in excess of one year as of December 31, 2004:

     
(dollars in thousands) Rental Income 
2005 $29,328 
2006  29,378 
2007  25,239 
2008  26,726 
2009  52,042 
2010 and thereafter  1,518 
    
Total minimum payments $164,231 
    
 

66


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Premises and Equipment

     As part of the application of purchase price accounting, a discount of $9.4 million was recorded as a fair value adjustment on certain facilities and will be amortized over their remaining lives using the straight-line method.

     At December 31, 20012004 and 2000,2003, premises and equipment were comprised of the following:

         
(in thousands) 2001 2000

 
 
Premises $282,761  $278,979 
Equipment  178,559   194,404 
   
   
 
Total premises and equipment  461,320   473,383 
Less accumulated depreciation and amortization  188,285   197,371 
   
   
 
Net book value
 $273,035  $276,012 
   
   
 
         
  Year Ended December 31,
(dollars in thousands) 2004  2003 
 
Premises $827,639  $624,350 
Equipment  339,503   287,926 
       
Total premises and equipment  1,167,142   912,276 
Less accumulated depreciation and amortization  482,359   382,123 
       
Net book value $684,783  $530,153 
       
 

     Occupancy and equipment expenses include depreciation and amortization expenses of $27.6$43.2 million for 2001, $25.52004, $41.3 million for 20002003 and $24.3$41.0 million for 1999.

9. Deposits2002.

     As partThe Company is obligated under a number of capital and noncancelable operating leases for premises and equipment with terms, including renewal options, up to 35 years, many of which provide for periodic adjustment of rent based on changes in various economic indicators. Under the premises leases, we are also required to pay real property taxes, insurance and maintenance. The following table shows future minimum payments under leases with terms in excess of one year as of December 31, 2004:

                     
          Less  Net    
  Capital  Operating  Sublease  Lease  Rental 
(dollars in thousands) Leases  Leases  Income  Payments  Income(1) 
 
2005 $544  $64,483  $(6,134) $58,893  $7,485 
2006  526   49,719   (3,377)  46,868   7,216 
2007  526   42,427   (2,213)  40,740   2,555 
2008  488   36,296   (1,255)  35,529   479 
2009  385   30,708   (514)  30,579   324 
2010 and thereafter  2,176   108,448   (526)  110,098   1,334 
                
Total minimum payments $4,645  $332,081  $(14,019) $322,707  $19,393 
                
Minimum payments related to acquisitions(2)
  2,679                 
Less: interest on capital leases  1,524                 
                    
Total principal payable on capital leases $5,800                 
                    
 


(1)Excludes income from vehicle operating leases; see Note 9 for additional information.
(2)Payments related to leases terminated in January 2005. These leases were scheduled to be terminated as a result of the acquisition of Community First..

     Rental expense, net of rental income, for all noncancelable operating leases was $41.0 million, $45.9 million and $53.8 million for 2004, 2003 and 2002, respectively.

     In most cases, leases for premises provide for periodic renegotiation of rents based upon a percentage of the applicationappraised value of purchase price accounting,the leased property. The renegotiated annual rent is usually not less than the annual amount paid in the previous period. Where future commitments are subject to appraisals, the minimum annual rental commitments are based on the latest annual rents.

67


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Goodwill and Intangible Assets

     We performed the impairment testing of goodwill required under SFAS No. 142 for the years ended December 31, 2004, 2003 and 2002 in the fourth quarter of each year. No impairment of goodwill was found. The impairment analysis was performed using a premiumdiscounted cash flows model. The table below provides the breakdown of $29goodwill by reportable segment and the change during the year.

                                     
  Bank of the West  First Hawaiian Bank        
  Regional  Commercial  Consumer  Retail  Consumer  Commercial  Financial      Consolidated 
(dollars in millions) Banking  Banking  Finance  Banking  Banking  Banking  Management  BancWest  Totals 
      
Balance as of January 1, 2003: $1,215  $707  $308  $650  $216  $118  $10   5  $3,229 
Purchase accounting adjustments:                                    
UCB  (1)                       (1)
Trinity Capital     (1)                    (1)
                            
Balance as of December 31, 2003: $1,214  $706  $308  $650  $216  $118  $10  $5  $3,227 
                            
Purchase accounting adjustments:                                    
Trinity Capital     2                     2 
CIC/HCM Asset Management, Inc.                    1      1 
Community First  913                        913 
USDB                       170   170 
                            
Balance as of December 31, 2004: $2,127  $708  $308  $650  $216  $118  $11  $175  $4,313 
                            
 

     Amortization for intangible assets was $26.5 million was recorded as a fair value adjustment on certainin 2004, $23.1 million in 2003 and $20.0 million in 2002. The estimated annual amortization expense for finite-lived intangible assets, primarily core deposit intangibles was:

     
(dollars in thousands)    
Estimate for year ended December 31,    
2005 $41,559 
2006  38,474 
2007  35,756 
2008  33,532 
2009  31,709 

     The details of our finite-lived intangible assets are presented below:

             
  Gross Carrying  Accumulated  Net Book 
(dollars in thousands) Amount  Amortization  Value
Balance as of December 31, 2004:            
Core Deposits $330,206  $69,141  $261,065 
Other Intangible Assets  12,000   575   11,425 
          
Total $342,206  $69,716  $272,490 
          
Balance as of December 31, 2003:            
Core Deposits $230,538  $43,181  $187,357 
          
Total $230,538  $43,181  $187,357 
          
 

68


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Deposits

     The aggregate amount of time certificates of deposit and other time deposits issued by domestic offices was $8,750 million and will be amortized using$6,679 million at December 31, 2004 and 2003, respectively. Substantially all of those deposits were interest bearing. The contractual maturities of those deposits are shown in the straight-line method over the average remaining maturity of the certificates.following table.

             
  Greater than       
  or equal to  Less than    
(dollars in thousands) $100,000  $100,000  Total
Three months or less $3,351,763  $840,830  $4,192,593 
After three months through six months  547,867   633,589   1,181,456 
After six months through twelve months  714,183   853,369   1,567,552 
2006  573,544   720,853   1,294,397 
2007  160,960   194,605   355,565 
2008  31,031   43,370   74,401 
2009  19,451   47,136   66,587 
2010 and thereafter  8,044   1,639   9,683 
          
Total
 $5,406,843  $3,335,391  $8,742,234(1)
          
 


(1)Excludes purchase accounting adjustments of $7.9 million.

     Interest expense related to deposits for the periods

56


Notes to Consolidated Financial Statements(continued)

indicated was as follows:
                  
   Company Predecessor        
   
 
 Years Ended
   Dec. 20, 2001 Jan. 1, 2001 December 31,
   through through 
(in thousands) Dec. 31,2001 Dec. 19, 2001 2000 1999

 
 
 
 
Domestic:                
 Interest-bearing demand $23  $1,855  $3,546  $3,609 
 Savings  1,784   84,278   98,876   93,100 
 Time— under $100  3,386   153,926   150,797   136,797 
 Time— $100 and over  3,035   138,026   195,142   127,539 
Foreign  238   6,712   9,843   7,576 
    
   
   
   
 
Total interest expense on on deposits
 $8,466  $384,797  $458,204  $368,621 
   
   
   
   
 

     The following table presents the maturity distribution of domestic timeTime certificates of deposit and other time deposits issued by foreign offices with a denomination of $100,000 or more represent substantially all of the foreign deposit liabilities of $1,165 million and $395 million at December 31, for the years indicated:

          
(in millions) 2001 2000

 
 
3 months or less $2,103  $2,029 
Over 3 months through 6 months  546   917 
Over 6 months through 12 months  363   435 
Over 1 year through 2 years  286   179 
Over 2 years through 3 years  38   23 
Over 3 years through 4 years  15   6 
Over 4 years through 5 years  7   4 
Over 5 years  1   1 
   
   
 
 
Total
 $3,359  $3,594 
   
   
 
2004 and 2003, respectively.

     Time certificates of deposits in denominations of $100,000 or more     Demand deposit overdrafts that have been reclassified as loan balances were $20.9 million and $24.4 million at December 31, 20012004 and 2000 were as follows:

         
(in thousands) 2001 2000

 
 
Domestic $3,358,569  $3,593,563 
Foreign  146,384   87,990 
2003, respectively.

10.13. Short-Term Borrowings

     At December 31 for the years indicated, short-term     Short-term borrowings were comprised of the following:

              
(in thousands) 2001 2000 1999

 
 
 
BancWest Corporation (Parent):            
 Commercial paper $  $5,477  $2,600 
Bank of the West:            
 Securities sold under agreements to repurchase  246,480   215,767   142,842 
 Federal funds purchased  217,575   115,000   2,095 
 Advances from Federal Home Loan Bank of San Francisco  240,000   85,000    
 Other short-term borrowings  936   306   16,274 
First Hawaiian:            
 Securities sold under agreements to repurchase  238,279   241,929   301,571 
 Federal funds purchased  11,050   5,589   38,595 
    
   
   
 
Total short-term borrowings
 $954,320  $669,068  $503,977 
    
   
   
 
         
  Year Ended December 31,
(dollars in thousands) 2004  2003 
   
Federal funds purchased and securities sold under agreements to repurchase $2,050,344  $1,174,877 
Advances from Federal Home Loan Banks and other short-term borrowings  1,330,845   1,197,809 
       
Total short-term borrowings
 $3,381,189  $2,372,686 
       
 

     Weighted average interest rates69


BancWest Corporation and weighted average and maximum balancesSubsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The table below shows selected information for these short-term borrowings were as follows for the years indicated:
              
(dollars in thousands) 2001 2000 1999

 
 
 
Commercial paper:            
 Weighted average interest rate at December 31  %  6.0%  6.1%
 Highest month-end balance $6,102  $8,424  $9,400 
 Weighted average daily outstanding balance $3,307  $5,541  $4,962 
 Weighted average daily interest rate paid  4.2%  6.0%  4.9%
Securities sold under agreements to repurchase:            
 Weighted average interest rate at December 31  2.0%  6.1%  5.1%
 Highest month-end balance $523,631  $503,936  $564,207 
 Weighted average daily outstanding balance $492,044  $439,886  $499,728 
 Weighted average daily interest rate paid  3.7%  5.8%  4.6%
Federal funds purchased:            
 Weighted average interest rate at December 31  1.5%  6.4%  4.7%
 Highest month-end balance $437,405  $370,889  $392,325 
 Weighted average daily outstanding balance $266,224  $217,447  $138,101 
 Weighted average daily interest rate paid  3.6%  6.3%  4.9%
Advances from Federal Home Loan Banks of Seattle and San Francisco:            
 Weighted average interest rate at December 31  5.2%  6.2%  %
 Highest month-end balance $240,000  $358,481  $1,000 
 Weighted average daily outstanding balance $131,694  $146,462  $414 
 Weighted average daily interest rate paid  5.2%  6.2%  6.3%
Other short-term borrowings:            
 Weighted average interest rate at December 31  1.5%  6.5%  5.5%
 Highest month-end balance $24,601  $22,071  $25,085 
 Weighted average daily outstanding balance $3,135  $4,935  $2,959 
 Weighted average daily interest rate paid  3.2%  8.2%  5.6%
borrowings:

         
  Year Ended December 31,
(dollars in thousands) 2004  2003 
   
Federal funds purchased and securities sold under agreements to repurchase:        
Weighted average interest rate at December 31  1.7%  0.8%
Highest month-end balance $2,050,344  $1,386,714 
Weighted average daily outstanding balance $1,281,809  $1,021,248 
Weighted average daily interest rate paid  1.2%  1.0%
Advances from Federal Home Loan Banks and other short-term borrowings        
Weighted average interest rate at December 31  2.5%  1.2%
Highest month-end balance $1,330,845  $1,197,809 
Weighted average daily outstanding balance $897,583  $955,417 
Weighted average daily interest rate paid  1.5%  1.3%

     We treat securities sold under agreements to repurchase as collateralized financings. We reflect the obligations to repurchase the identical securities sold as liabilities, with the dollar amount of securities underlying the agreements remaining in the asset accounts.

     At December 31, 2001,2004, the weighted average maturity of these agreements was 4516 days and primarily represented investments by public

57


Notes to Consolidated Financial Statements(continued)

(governmental)non-governmental entities. Maturities of these agreements were as follows:

     
(in thousands)    
Overnight $241,215 
Less than 30 days  64,598 
30 through 90 days  89,682 
Over 90 days  89,264 
   
 
Total
 $484,759 
   
 
     
(dollars in thousands)    
Overnight $562,115 
Less than 30 days  124,831 
30 through 90 days  27,987 
Over 90 days  38,661 
    
Total $753,594 
    
 

11.70


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Long-Term Debt and Capital Securities

                 
          Year Ended December 31, 
(dollars in thousands) Maturity Date(s)  Interest Rate(s)  2004  2003 
Parent:                
Subordinated notes (1)(7)  2006   7.375% $51,041  $51,772 
Term note(2)(7)  2010   6.54%  1,550,000   1,550,000 
Repurchase agreement (2)(6)  2011   4.39%  800,000   800,000 
Junior subordinated notes (1)(2)(3)(7)  2027   8.343%  100,000   100,000 
Junior subordinated notes (1)(2)(3)(6)  2030   9.50%  150,378   152,785 
               
Total Parent          2,651,419   2,654,557 
               
                 
Bank of the West:                
Subordinated notes (1)(2)(7)  2009   7.35%  51,848   52,193 
Subordinated notes (1)(7)  2011   8.30%  54,337   54,904 
Federal Home Loan Bank advances (5)(6)(7)  2005-2034   1.34-7.96%  2,749,368   1,457,469 
Junior subordinated notes (2)(4)(6)  2032   8.125%  66,312    
Junior subordinated notes (2)(4)(6)  2033   7.60%  67,468    
Structured repurchase agreements (6)  2009   2.34%  100,000    
Structured repurchase agreements (2)(6)  2009   2.366%  400,000    
Capital leases (5) (Note 10)  2005-2012       5,416   1,502 
               
Total Bank of the West          3,494,749   1,566,068 
               
                 
Union Safe Deposit Bank Federal Home Loan Bank advances (5)  2005-2008   1.31-2.74%  158,488    
               
                 
First Hawaiian Bank:                
Capital leases (5) (Note 10)  2005-2022       384   400 
               
Total long-term debt         $6,305,040  $4,221,025 
               
 


(1)This debt is unsecured
(2)Affiliate transactions. See Note 4 for additional information.
(3)These notes are related to the BWE and FH Trusts. See Note 5 for additional information.
(4)These notes are related to the CFB Trusts. See Note 5 for additional information.
(5)Interest is payable monthly
(6)Interest is payable quarterly
(7)Interest is payable semi-annually

     As part of the application of purchase accounting, a premium of $33.1 million was recorded on certain long-term debt obligations and capital securities as a fair value adjustment. This premium will be amortized on a level-yield basis over the remaining maturity of the debt.

short-term borrowing arrangements, we were subject to various financial and operational covenants. At December 31, for the years indicated, long-term debt and capital securities2004, we were comprised of the following:

          
(dollars in thousands) 2001 2000

 
 
BancWest Corporation (Parent):        
 7.375% subordinated notes due 2006 $50,000  $50,000 
 7.00% note     50,000 
 6.54% term note due 2010  1,550,000    
Bank of the West:        
 6.33%-8.30% notes due through 2014  597,012   531,340 
 Capital leases due through 2012  480   613 
First Hawaiian:        
 Capital leases due through 2022  462   470 
   
   
 
Total long-term debt  2,197,954   632,423 
Capital Securities  265,130   250,000 
   
   
 
Total long-term debt and Capital Securities
 $2,463,084  $882,423 
   
   
 

BancWest Corporation (Parent)

     The 7.375% subordinated notes due in 2006 are unsecured obligationscompliance with interest payable semiannually.

     The 7.00% note was paid in full in 2001.

     The 6.54% term note due in 2010 is an unsecured obligation to BNP Paribas with interest payable semi- annually.

Bank of the West

     The 6.33%-8.30% notes due through 2014 primarily represent advances from the Federal Home Loan Bank of San Francisco and $52.8 million in subordinated capital notes sold to BNP Paribas. Interest on the Federal Home Loan Bank of San Francisco advances are payable monthly. Interest on the subordinated capital notes sold to BNP Paribas is payable semiannually.

BancWest Capital I

     In November 2000, the Company sold to the public $150 million in aggregate liquidation amount of BancWest Capital I Quarterly Income Preferred Securities (the “BWE Capital Securities”) issued by the BWE Trust, a Delaware business trust. The Company received the BWE Capital Securities (as well as all outstanding common securities of BancWest Capital I) in exchange for the Company’s 9.50% junior subordinated deferrable interest debentures, which are the sole assets of the BWE Trust. Holders of BWE Capital Securities are entitled to cumulative cash dividends at an annual rate of 9.50%, subject to possible deferral. The BWE Capital Securities and the debentures will mature on December 1, 2030, but on or after December 1, 2005 are subject to redemption in whole or in part at par plus accrued interest. The BWE Capital Securities qualify as Tier 1 capital of the Company, which has solely, fully and unconditionally guaranteed payment of all amounts due on the BWE Capital Securities to the extent the BWE Trust has funds available for payment of such distributions.

First Hawaiian Capital I

     In 1997, FH Trust, a Delaware business trust, issued capital securities (the “FH Capital Securities”) with an aggregate liquidation amount of $100 million. The proceeds were used to purchase junior subordinated deferrable interest debentures of the Company. These debentures are the sole assets of the FH Trust. The FH Capital Securities qualify as Tier 1 capital of the Company and are solely, fully and unconditionally guaranteed by the Company. The Company owns all the common securities issued by the FH Trust.covenants.

     The FH Capital Securities accrue and pay interest semi-annually at an annual interest rate of 8.343%. The FH Capital Securities are mandatorily redeemable upon maturity date of July 1, 2027, or upon earlier redemption in whole or in part (subject to a prepayment penalty) as provided for in the governing indenture.71

     Under the terms of both the BWE Capital Securities and the FH Capital Securities, the interest on the junior subordinated debentures is deferrable. If we defer interest payments on the capital securities, BWE Trust and FH Trust will also defer distributions on the capital securities. During any period in which we defer interest payments on the junior subordinated debentures, we will not and our subsidiaries will not do any of the following, with certain limited exceptions:

pay a dividend or make any other payment or distribution on our capital stock;
redeem, purchase or make a liquidation payment on any of our capital stock;
make an interest, principal or premium payment on, or repay, repurchase or redeem, any of our debt secu-

58


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements(continued)

rities that rank equally with or junior to the junior subordinated debentures; or

make any guarantee payment regarding any guarantee by us of debt securities of any of our subsidiaries, if the guarantee ranks equal with or junior to the junior subordinated debentures.

     As of December 31, 2001,2004, the principal payments due on long-term debt and capital securities were as follows:
                         
  BancWest Bank         First    
  Corporation of the First BancWest Hawaiian    
(in thousands) (Parent) West Hawaiian Capital I Capital I Total

 
 
 
 
 
 
2002 $  $319,345  $13  $  $  $319,358 
2003     168,640   15         168,655 
2004     2,366   16         2,382 
2005     993   18         1,011 
2006  50,000   1,060   19         51,079 
2007 and thereafter  1,550,000   105,088   381   165,130   100,000   1,920,599 
   
   
   
   
   
   
 
Total
 $1,600,000  $597,492  $462  $165,130  $100,000  $2,463,084 
   
   
   
   
   
   
 

                     
  BancWest             
  Corporation  Bank of the  First Hawaiian  Union Safe Deposit    
(dollars in thousands) (Parent)  West  Bank  Bank  Total
2005     1,443,928   18   128,000   1,571,946 
2006  50,000   899,274   19   8,000   957,293 
2007     93,810   21   7,000   100,831 
2008     71,313   24   14,200   85,537 
2009     793,249   26      793,275 
2010 and thereafter  2,600,000   178,450   276      2,778,726 
                
Total
 $2,650,000  $3,480,024  $384  $157,200  $6,287,608(1)
                
 

12.


(1)Excludes purchase accounting adjustments of $17.4 million.

15. Accumulated Other Comprehensive Income, Net

     Comprehensive income is defined as the change in equity from all transactions other than those with stockholders and it includesis comprised of net income and other comprehensive income. The Company’s only significant itemitems of other comprehensive income isare net unrealized gains or losses on certain debt and equity securities, net unrealized gains or losses on cash flow hedges and the related reclassification adjustments.a minimum pension liability adjustment. Reclassification adjustments include the gains or losses realized in the current period on certain assets that have been reclassified to net income that were previously included in accumulated other comprehensive income. Accumulated other comprehensive income atfor the beginning ofyears ending 2004, 2003 and 2002 are presented in the period.table below:

             
      Income Tax    
  Before-tax  (Expense)  After-tax 
(dollars in thousands) Amount  Benefit  Amount
Accumulated other comprehensive income, December 31, 2001 $13,040  $(5,258) $7,782 
             
Unrealized net gains on securities available for sale arising during the year  67,432   (25,709)  41,723 
Reclassification of net gains on securities available for sale included in net income  (1,953)  787   (1,166)
Unrealized net gains on cash flow derivative hedges arising during the year  67,613   (27,383)  40,230 
Reclassification of net gains on cash flow derivative hedges included in net income  (19,337)  7,831   (11,506)
          
Other comprehensive income  113,755   (44,474)  69,281 
          
Accumulated other comprehensive income, December 31, 2002 $126,795  $(49,732) $77,063 
             
Unrealized net losses on securities available for sale arising during the year  (63,620)  25,766   (37,854)
Reclassification of net gains on securities available for sale included in net income  (4,289)  1,737   (2,552)
Unrealized net gains on cash flow derivative hedges arising during the year  21,474   (8,697)  12,777 
Reclassification of net gains on cash flow derivative hedges included in net income  (22,765)  9,220   (13,545)
          
Other comprehensive income  (69,200)  28,026   (41,174)
          
Accumulated other comprehensive income, December 31, 2003 $57,595  $(21,706) $35,889 
             
Minimum pension liability adjustment
  (8,711)  3,572   (5,139)
Unrealized net losses on securities available for sale arising during the year
  (63,722)  24,218   (39,504)
Reclassification of net gains on securities available for sale included in net income
  (873)  358   (515)
Unrealized net losses on cash flow derivative hedges arising during the year
  (8,212)  3,367   (4,845)
Reclassification of net gains on cash flow derivative hedges included in net income
  (19,493)  7,992   (11,501)
          
Other comprehensive income
  (101,011)  39,507   (61,504)
          
Accumulated other comprehensive income, December 31, 2004
 $(43,416) $17,801  $(25,615)
          
 

     Accumulated other comprehensive income, net of tax, consisted of net unrealized gains (losses) on securities available for the periods presented below is as follows:
             
      Income    
      Tax    
  Pre-tax (Expense) After-tax
(in thousands) Amount Benefit Amount

 
 
 
Predecessor:            
Accumulated other comprehensive income, net, December 31, 1998 $10,520  $(4,292) $6,228 
Unrealized net holding loss arising in 1999  (27,119)  11,009   (16,110)
Reclassification adjustment for gains and losses realized in net income  16   (7)  9 
   
   
   
 
Accumulated other comprehensive income, net, December 31, 1999  (16,583)  6,710   (9,873)
Unrealized net holding gain arising in 2000  29,123   (11,773)  17,350 
Reclassification adjustment for gains and losses realized in net income  211   (87)  124 
   
   
   
 
Accumulated other comprehensive income, net, December 31, 2000  12,751   (5,150)  7,601 
Unrealized net holding gain arising from January 1, 2001 to December 19, 2001
  30,528   (12,292)  18,236 
Reclassification adjustment for gains and losses realized in net income
  (39,138)  15,773   (23,365)
   
   
   
 
Accumulated other comprehensive income, net, December 19, 2001
 $4,141  $(1,669) $2,472 
   
   
   
 
Company:
            
Accumulated other comprehensive income, net, December 20, 2001
 $  $  $ 
Unrealized net holding gain arising from December 20, 2001 to December 31, 2001
  13,071   (5,270)  7,801 
Reclassification adjustment for gains and losses realized in net income
  (31)  12   (19)
   
   
   
 
Accumulated other comprehensive income, net, December 31, 2001
 $13,040  $(5,258) $7,782 
   
   
   
 
sale of $(32,086), $7,933 and $48,339 at December 31, 2004, 2003 and 2002, respectively; and net unrealized gains (losses) on cash flow derivative hedges of $11,610, $27,956 and $28,724 at December 31, 2004, 2003 and 2002, respectively; and a net minimum pension liability adjustment of $(5,139) at December 31, 2004.

13.72


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. Regulatory Capital Requirements

     Due to the election to become a financial holding company done concurrent with the BNP Paribas Merger, only theThe Company’s depository institution subsidiaries are subject to various regulatory capital requirements administered by the Federal banking agencies. If they fail to meet minimum capital requirements, these agencies can initiate certain mandatory actions. Such regulatory actions could have a material effect on the Company’s financial statements.

     Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company’s depository institution subsidiaries must each meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. These capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

     Quantitative measures established by regulation to ensure capital adequacy require the Company’s depository institution subsidiaries to maintain minimum amounts and ratios of Tier 1 and Total capital to risk-weighted assets, and of Tier 1 capital to average assets. The table below sets forth those ratios at December 31, 20012004 and 2000.
                          
                   To Be Well-
                   Capitalized
                   Under Prompt
           For Capital Corrective Action
   Actual Adequacy Purposes Provisions
   
 
 
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio

 
 
 
 
 
 
As of December 31, 2001:
                        
Tier 1 Capital to Risk-Weighted Assets:
                        
 
Bank of the West
 $878,252   7.85% $447,542   4.00% $671,312   6.00%
 
First Hawaiian
  632,719   9.52   265,871   4.00   398,807   6.00 
Total Capital to Risk-Weighted Assets:
                        
 
Bank of the West
 $1,219,482   10.90% $895,083   8.00% $1,118,854   10.00%
 
First Hawaiian
  785,148   11.81   531,742   8.00   664,678   10.00 
Tier 1 Capital to Average Assets:
                        
 
Bank of the West
 $878,252   7.18% $489,540   4.00%(1) $611,926   5.00%
 
First Hawaiian
  632,719   8.39   301,818   4.00(1)  377,272   5.00 

59


Notes to Consolidated Financial Statements(continued)
                          
                   To Be Well-
                   Capitalized
                   Under Prompt
           For Capital Corrective Action
   Actual Adequacy Purposes Provisions
   
 
 
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio

 
 
 
 
 
 
As of December 31, 2000:                        
Tier 1 Capital to Risk-Weighted                        
 Assets:                        
 BancWest Corporation $1,597,992   9.73% $656,617   4.00%        
 Bank of the West  820,691   8.78   373,878   4.00  $560,818   6.00%
 First Hawaiian  648,751   9.19   282,500   4.00   423,750   6.00 
Total Capital to Risk-Weighted                        
 Assets:                        
 BancWest Corporation $1,870,435   11.39% $1,313,234   8.00%        
 Bank of the West  1,095,240   11.72   747,757   8.00  $934,696   10.00%
 First Hawaiian  795,657   11.27   564,999   8.00   706,249   10.00 
Tier 1 Capital to Average Assets:                        
 BancWest Corporation $1,597,992   9.09% $703,305   4.00%(1)        
 Bank of the West  820,691   7.95   413,174   4.00(1) $516,468   5.00%
 First Hawaiian  648,751   8.99   288,756   4.00(1)  360,945   5.00 
2003.

                         
                  To Be Well- Capitalized 
          For Capital  Under Prompt Corrective 
  Actual Adequacy Purposes Action Provisions
(dollars in thousands) Amount  Ratio Amount  Ratio Amount  Ratio
As of December 31, 2004:
                        
Tier 1 capital to risk-weighted assets:
                        
Bank of the West
 $3,183,632   10.57% $1,204,520   4.00% $1,806,780   6.00%
First Hawaiian Bank
  966,141   13.62   283,698   4.00   425,548   6.00 
Union Safe Deposit Bank
  96,890   11.02   35,175   4.00   52,762   6.00 
Total capital to risk-weighted assets:
                        
Bank of the West
 $3,738,401   12.41% $2,409,040   8.00% $3,011,300   10.00%
First Hawaiian Bank
  1,124,566   15.86   567,397   8.00   709,246   10.00 
Union Safe Deposit Bank
  103,991   11.83   70,350   8.00   87,937   10.00 
Tier 1 capital to average assets(leverage ratio) (1):
                        
Bank of the West
 $3,183,632   9.69% $1,314,000   4.00% $1,642,500   5.00%
First Hawaiian Bank
  966,141   10.39   372,014   4.00   465,017   5.00 
Union Safe Deposit Bank
  96,890   8.16   47,487   4.00   59,359   5.00 
As of December 31, 2003:                        
Tier 1 capital to risk-weighted assets:                        
Bank of the West $2,486,220   10.72% $927,778   4.00% $1,391,667   6.00%
First Hawaiian Bank  848,320   12.85   263,994   4.00   395,991   6.00 
Total capital to risk-weighted assets:                        
Bank of the West $3,001,394   12.94% $1,855,556   8.00% $2,319,445   10.00%
First Hawaiian Bank  1,004,127   15.21   527,988   8.00   659,986   10.00 
Tier 1 capital to average assets (leverage ratio)(1)
                        
Bank of the West $2,486,220   9.55% $1,040,985   4.00% $1,301,231   5.00%
First Hawaiian Bank  848,320   9.91   342,328   4.00   427,911   5.00 


(1) (1)The leverage ratio consists of a ratio of Tier 1 capital to average assets.assets excluding goodwill and certain other items. The minimum leverage ratio guideline is three percent for banking organizations that do not anticipate or are not experiencing significant growth, and that have well-diversified risk, excellent asset quality, high liquidity, good earnings, a strong banking organization, and rated a composite 1 under the Uniform Financial Institution Rating System established by the Federal Financial Institution Examination Council. For all others, the minimum ratio is 4%.

73


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Pursuant to applicable laws and regulations, each of the depository institution subsidiaries have been notified by the Federal Deposit Insurance Corporation (“FDIC”) that each of them is deemed to be well-capitalized. To be well-capitalized, a bank must have a total risk-based capital ratio of 10.00% or greater, a Tier 1 risk-based capital ratio of 6.00% or greater, a leverage ratio of 5.00% or greater and not be subject to any agreement, order or directive to meet a specific capital level for any capital measure. Management believes that no conditions or events have occurred since the respective notifications to change the capital category of either of its depository institution subsidiaries.

14.17. Limitations on Payment of Dividends

     The primary sourcesources of funds that we may use to pay dividends to stockholdersBNP Paribas are dividends the Parent receives from its subsidiaries. Regulations limit the amount of dividends Bank of the West and First Hawaiian Bank may declare or pay. At December 31, 2001,2004, the aggregate amount available for payment of dividends by such subsidiaries without prior regulatory approval was $10.5$823.2 million.

15.18. Benefit Plans

Pension and Other Postretirement Benefit Plans

     The Company sponsors a noncontributory defined benefit pension plan, which is a merger of two separate plans. The first plan, for First Hawaiian employees, was frozen at December 31, 1995. As a result of that freeze, there are no further benefit accruals for First Hawaiian employees in the merged plan. The second plan, for Bank of the West employees, was a cash balance pension plan. The merged employee retirement plan (“ERP”) continues to provide cash balance benefit accruals for eligible Bank of the West employees.

     The Company also sponsors an unfunded excess benefit pension plan covering employees whose pay or benefits exceed certain regulatory limits, unfunded postretirement medical and life insurance plans, and, for certain key executives, an unfunded supplemental executive retirement plan.plan (“SERP”).

     In addition,connection with the acquisition of United California Bank (“UCB”), the Company assumed the pension and postretirement obligations of UCB. UCB employees participated in a noncontributory final pay defined benefit pension plan, an unfunded excess benefit pension plan covering employees whose pay or benefits exceed certain regulatory limits, an unfunded postretirement medical plan, and a 401(k) savings plan. In addition, certain key executives were eligible for a supplemental pension benefit if they met certain age and service conditions. The UCB plans were curtailed on June 30, 2003. The Company integrated UCB employees into the Company’s existing benefit plan structure on July 1, 2003. UCB employees were guaranteed the benefits they acquired through the UCB plans up to the curtailment date. The curtailment reduced the projected benefit obligation of the UCB retirement plan by $29.5 million measured as of July 1, 2003, which did not exceed the unrecognized net loss as of that date. The projected benefit obligation related to the UCB supplemental plan decreased by $2.9 million due to the curtailment. This exceeded the unrecognized loss in that plan resulting in a curtailment gain of $0.15 million during 2003. Special benefits were provided to UCB participants meeting certain age and service requirements; this is reflected as a termination benefit and is included in the pension liability. The special benefits were accounted for as an adjustment to goodwill as a purchase accounting adjustment due to the business combination of UCB with Bank of the West. The benefit obligations assumed by the Company in connection with the acquisition and the effect of the curtailment have been reflected in the table below.

     BancWest also has a non-qualified pension plan (the “Director’s“Directors’ Retirement Plan”) that provides for eligible directors to qualify for retirement benefits based on their years of service as a director.

     The Director’s Retirement Plan’sCompany uses a December 31st measurement date for its pension and post retirement plans.

     Accounting for defined benefit obligations have been reflectedpension plans involves four key variables that are utilized in the following table.calculation of the Company’s annual pension costs. These factors include (1) size of the employee population and their estimated compensation increases, (2) actuarial assumptions and estimates, (3) expected long-term rate of return on plan assets and (4) the discount rate. Pension expense is directly affected by the number of employees eligible for pension benefits and their estimated compensation increases. Management is able to estimate compensation increases by reviewing the Company’s salary increases each year and comparing these figures with industry averages. In estimating the projected benefit obligation, actuaries base assumptions on factors such as the mortality rate, turnover rate, retirement rate, disability rate and other assumptions related to the population of individuals in the pension plan. The

74


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company calculates the expected return on plan assets each year based on the balance of the pension asset portfolio at the beginning of the year and the expected long-term rate of return on that portfolio in accordance with SFAS 87,Employers’ Accounting for Pensions. The long-term rate of return on assets was based on the compound average growth rate of the plan assets, excluding contributions, during the last fifteen years. The expected return on plan assets reflects asset allocations, investment strategy, historical returns and the views of managers and other large pension plan sponsors with regard to future return expectations.

The following tables summarize changes to the benefit obligation and fair value of plan assets for the years indicated:
                 
  Pension Benefits Other Benefits
  
 
(in thousands) 2001 2000 2001 2000

 
 
 
 
Benefit obligation at beginning of year $159,556  $142,101  $18,414  $16,651 
Service cost  4,039   3,594   1,269   888 
Interest cost  11,064   10,268   1,346   1,174 
Amendments  1,516   8,619      (42)
Actuarial loss  1,406   5,467   3,747   729 
Benefit payments  (9,076)  (10,493)  (1,030)  (986)
   
   
   
   
 
Benefit obligation at end of year
 $168,505  $159,556  $23,746  $18,414 
   
   
   
   
 
                 
  Pension Benefits Other Benefits
  
 
(in thousands) 2001 2000 2001 2000

 
 
 
 
Fair value of plan assets at beginning of year $175,970  $196,481  $  $ 
Actual return on plan assets  (14,397)  (11,035)      
Employer contributions  815   1,017   1,030   986 
Benefit payments  (9,076)  (10,493)  (1,030)  (986)
   
   
   
   
 
Fair value of plan assets at end of year
 $153,312  $175,970  $  $ 
   
   
   
   
 
assets:

                 
  Pension Benefits Other Benefits
(dollars in thousands) 2004  2003  2004  2003 
   
Benefit obligation at beginning of year $429,813  $408,059  $42,489  $41,765 
Service cost  8,583   10,316   1,705   2,066 
Interest cost  26,558   26,817   2,630   2,501 
Amendments        (9,593)   
Actuarial (gain)loss  39,162   28,765   7,910   (1,505)
Termination of benefits  239   6,597       
Curtailment of UCB plan     (32,409)      
Benefit payments  (20,680)  (18,332)  (2,986)  (2,338)
             
Benefit obligation at end of year
 $483,675  $429,813  $42,155  $42,489 
             
 

                 
  Pension Benefits Other Benefits
(dollars in thousands) 2004  2003  2004  2003 
   
Fair value of plan assets at beginning of year $372,176  $325,862  $  $ 
Actual return on plan assets  17,016   52,578       
Employer contributions  51,520   12,068   2,986   2,338 
Benefit payments  (20,680)  (18,332)  (2,986)  (2,338)
             
Fair value of plan assets at end of year
 $420,032  $372,176  $  $ 
             
 

60


Notes to Consolidated Financial Statements(continued)

     The following table summarizes the funded status of the plans and amounts recognized/unrecognized in the Consolidated Balance Sheets:

                                
 Pension Benefits Other Benefits Pension Benefits Other Benefits
 
 
(in thousands) 2001 2000 2001 2000
(dollars in thousands) 2004 2003 2004 2003 

 
 
 
 
  
Funded status $(15,193) $16,414 $(23,746) $(18,414) $(63,643) $(57,637) $(42,155) $(42,489)
Unrecognized net (gain) loss  1,012 1,008  (1) 1,627  98,401 50,305 11,412 3,991 
Unrecognized prior service cost  14,117  454     (8,938)  
Unrecognized transition (asset) obligation   (1,200)  3      
 
 
 
 
          
Prepaid (accrued) benefit cost
 $(14,181) $30,339 $(23,747) $(16,330) $34,758 $(7,332) $(39,681) $(38,498)
 
 
 
 
          


Amounts recognized in the Consolidated Statements of Income consist of:

                 
  Pension Benefits Other Benefits
(dollars in thousands) 2004  2003  2004  2003 
   
Prepaid benefit cost $100,511  $52,674  $  $ 
Accrued benefit liability  (74,464)  (60,006)  (39,681)  (38,498)
Accumulated other comprehensive income  8,711          
             
Net amount recognized
 $34,758  $(7,332) $(39,681) $(38,498)
             
 

     Unrecognized net gains or losses that exceed 5% of the greater of the projected benefit obligation or the market-related value of plan assets as of the beginning of the year, are amortized on a straight-line basis over five years. Amortization of the unrecognized net gain or loss is included as a component of net pension cost. If amortization results in an amount less than the minimum amortization required under generally accepted accounting principles, the minimum required amount is recorded.

75


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     As of December 31, 2004 and 2003, no BancWest stock was held by the pension plans.

     As part of the application of purchase price accounting for the UCB acquisition, a liability for the BancWest plans of $46$15.6 million was recorded as a fair value adjustment.adjustment in 2003.

     Pension plan assetsThe accumulated benefit obligation for all defined benefit pension plans was $473.8 million and $420.7 million at December 31, 2000 consisted of 1,175,712 shares of the Predecessor’s common stock with an aggregate fair value of $30.7 million.2004 and 2003, respectively.

     Key provisions for the merged pension planplans, excluding the unfunded plans, as of December 31, 20012004 and 20002003 were as follows:

         
(in thousands) 2001 2000

 
 
Projected benefit obligation $128,795  $125,608 
Accumulated benefit obligation  127,553   124,745 
Fair value of plan assets for the retirement plan with plan assets in excess of accumulated benefit obligations  153,312   175,970 
Prepaid benefit cost for the overfunded plan  25,545   57,601 
   
   
 
         
  December 31, 
(dollars in thousands) 2004  2003 
 
Projected benefit obligation $399,756  $361,846 
Accumulated benefit obligation  399,756   361,846 
Fair value of plan assets for the retirement plan with plan assets in excess of accumulated benefit obligations  420,032   372,176 

     Except for the mergedfunded pension plan,plans, the remaining plans had an accrued benefit liability. The projected benefit obligations for the unfunded plans were $83.9 million and $68.0 million at December 31, 2004 and 2003, respectively. The accumulated benefit obligation for the unfunded plans were $74.0 million and $58.8 million at December 31, 2004 and 2003, respectively.

     The weighted average discount rate was 7% asfollowing table sets forth the components of December 31, 2001 and 2000. In determining the 2001 net periodic benefit cost the expected return on plan assets was 9.5% for the funded defined benefit pension plan; the rate of increase in future compensation used in determining the projected benefit obligation averaged 4.5% for the unfunded supplemental executive retirement plan and 4% for the defined benefit pension plan.(credit):

                         
  Pension Benefits  Other Benefits 
(dollars in thousands) 2004  2003  2002  2004  2003  2002 
   
Service cost $8,583  $10,316  $10,223  $1,705  $2,066  $1,913 
Interest cost  26,558   26,817   22,451   2,630   2,501   2,135 
Expected return on plan assets  (32,708)  (30,196)  (27,869)         
Amortization of prior service cost           (655)      
Recognized net actuarial (gain) loss  6,755   11,296      489   (9)  (62)
Termination benefit  239                
Curtailment gain recognized     (150)            
                   
Total benefit cost
 $9,427  $18,083  $4,805  $4,169  $4,558  $3,986 
                   

     For measurement purposes, a 9% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2001. The rate was assumed to decrease gradually to 5% after 8 years and remain at 5% thereafter.

     The following table sets forth the components of the net periodic benefit cost (credit) for 2001, 2000our funded plans:

             
  Funded Pension Benefits 
(dollars in thousands) 2004  2003  2002 
 
Service cost $6,629  $8,527  $8,134 
Interest cost  22,170   22,730   19,355 
Expected return on plan assets  (32,708)  (30,196)  (27,869)
Recognized net actuarial (gain) loss  5,073   10,694    
          
Net periodic benefit cost (credit) $1,164  $11,755  $(380)
          

76


BancWest Corporation and 1999:
                         
  Pension Benefits Other Benefits
  
 
(in thousands) 2001 2000 1999 2001 2000 1999

 
 
 
 
 
 
Service cost $4,039  $3,594  $3,295  $1,269  $888  $945 
Interest cost  11,064   10,268   9,909   1,346   1,174   1,000 
Expected return on plan assets  (16,182)  (18,333)  (15,773)         
Amortization of transition (asset) obligation  (1,100)  (1,200)  (1,200)        3 
Amortization of prior service cost  1,528   1,278   851   93   51    
Recognized net actuarial (gain) loss  (6)  (4,723)  (3,934)  96   159   129 
Curtailment loss                 139 
   
   
   
   
   
   
 
Net periodic benefit cost (credit)
 $(657) $(9,116) $(6,852) $2,804  $2,272  $2,216 
   
   
   
   
   
   
 
Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assumptions

     Weighted-average assumptions used to determine benefit obligations were as follows at December 31:

                         
  ERP Pension Benefits  SERP Pension Benefits  Other Benefits 
  2004  2003  2004  2003  2004  2003 
Discount rate  5.75%  6.25%  5.75%  6.25%  5.75%  6.25%
Rate of compensation increase  4.00%  4.00%  4.00%  4.00% NA  NA 

Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31,

                                     
  ERP Pension Benefits  SERP Pension Benefits  Other Benefits 
  2004  2003  2002  2004  2003  2002  2004  2003  2002 
Discount rate  6.25%  6.75%  7.00%  6.25%  6.75%  7.00%  6.25%  6.75%  7.00%
Expected long-term return on plan assets  9.00%  9.50%  9.50% NA NA NA NA NA NA
Rate of compensation increase  4.00%  4.00%  4.00%  4.00%  4.00%  4.50% NA NA NA

Assumed health care cost trend rates at December 31,

                 
  Bank of the West  First Hawaiian Bank 
(dollars in thousands) 2004  2003  2004  2003 
   
Health care cost trend rate assumed for next year  8%  8%  9%  9%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)  5%  5%  5%  5%
Year that the rate reaches the ultimate trend rate  2010   2010   2011   2011 

     Assumed health care cost trend rates have an impact on the amounts reported for the health care plans. A one-percentage-pointone percentage point change in the assumed health care cost trend rates would have the following pre-taxpre tax effect:

         
  One-Percentage- One-Percentage-
(in thousands) Point Increase Point Decrease

 
 
Effect on 2001 total of service and interest cost components $221  $(190)
Effect on postretirement benefit obligation at December 31, 2001  1,527   (1,181)
   
   
 
         
  One Percentage  One Percentage 
(dollars in thousands) Point Increase  Point Decrease 
Effect on 2004 total of service and interest cost components $124  $(111)
Effect on postretirement benefit obligation at December 31, 2004 $1,567  $(1,410)

77


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Plan Assets

     BancWest’s pension plan asset allocations at December 31, 2004 and 2003 were as follows:

                 
  BancWest Plan Assets  UCB Plan Assets 
(dollars in thousands) 2004  2003  2004  2003 
 
Equity securities  69%  71%  38%  52%
Debt securities  26%  20%  48%  30%
Cash and cash equivalents  2%  5%  14%  18%
Other  3%  4%  %  %
             
Total
  100%  100%  100%  100%
             

     Equity securities in the BancWest and UCB plans did not include BancWest common stock at December 31, 2004 and 2003.

     The assets within the BancWest Employee Retirement Plan and the UCB Retirement Plan (“the Plans”) are managed in accordance with the Employee Retirement Income Security Act of 1974 (ERISA). The objective of the Plans is to achieve, over full market cycles, a compounded annual rate of return equal to or greater than the Plans’ expected long-term rates of return. The Plans’ committees recognize that capital markets can be unpredictable and that any investment could result in periods where the market value of the Plans’ assets will decline in value. The asset allocation is likely to be the primary determinant of the Plans’ return and the associated volatility of returns for the Plans. The Plans’ expected long-term rate of return was estimated to be 9.0% and 9.5% at December 31, 2004 and December 31, 2003, respectively.

     The UCB Retirement Plan assets are managed with a focus on asset allocation. Management’s assessment of the plan’s long-term needs for liquidity and income drives the asset allocation parameters. Asset allocation is also used to manage and limit volatility and risk within the plan. Given the curtailment of the UCB Retirement Plan, a more risk averse management approach was approved by management effective in November of 2003 and will be employed by the plan’s investment advisor henceforth. The UCB Retirement Plan uses proprietary mutual funds and a collective investment fund to invest in the equity and debt markets. The equity funds provide broad market exposure to both large and small cap, domestic and international stocks, while the debt fund provides exposure to the investment grade domestic bond market. The plan has not used derivative instruments in the past, and has no plans to utilize them in the future.

     The target asset allocations for the two plans for December 31, 2005 are as follows:

         
  BancWest  UCB 
  Plan  Plan 
 
Equity securities  50 – 70%  30 – 50%
Debt securities  20 – 40%  50 – 70%
Real estate  0 – 15%  0%
Cash  0%  0%
Other  0 – 15%  0%

Contributions

     BancWest expects to contribute $4.2 million to its defined benefit pension plans and $3.4 million to its other post retirement benefit plans in 2005. These contributions are estimated needs for the unfunded plans and may vary depending on retirements during 2005. No contributions to the pension trust for funded plans are expected to be made during 2005.

78


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Estimated Future Benefit Payments

     The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

         
    
(dollars in thousands) Pension Benefits  Other Benefits 
 
2005 $21,614  $3,382 
2006  22,149   3,367 
2007  23,714   3,420 
2008  24,922   3,390 
2009  26,918   3,475 
2010 - 2014  168,072   18,683 

Money Purchase and 401(k) Match Plans

     The Company contributes to a defined contribution money purchase plan. The Company also matches employees’employee contributions (upup to 3% of pay)pay to athe BancWest Corporation 401(k) component of theSavings Plan, a defined contribution plan. The plans cover substantiallyplan covers all employees who satisfy applicable age and length-of-service requirements, except foreligibility requirements. There is a select group of key executives who are participants in an unqualified grandfathered supplemental executive retirement plan who may participate in the 401(k) plan, but who are not eligible for the Company’s unfunded supplemental executive retirement plan.match.

     The Company also contributes to another defined contribution plan, a money purchase plan called the BancWest Corporation Future Plan. This plan covers all employees who satisfy the eligibility requirements at First Hawaiian Bank and subsidiaries, and a small group of Bank of the West employees in the Northwest Region who were former First Hawaiian Bank employees and who were fully vested in the plan at the time of the BNP Paribas merger.

     For 2001, 20002004, 2003 and 1999,2002, the money purchase plan contribution was $4.7$3.9 million, $4.5$3.9 million and $5$4.6 million, respectively. The matching employer contributions to the 401(k) plan for 2001, 20002004, 2003 and 19992002 were $4.1$7.7 million, $3.9$7.7 million and $2$5.4 million, respectively. Matching employer contributions for 20012003 and 20002002 reflect the addition of the Bank of the WestWest’s contributions to the United California Bank Premiere Savings Plan participants tofor the Company’s defined contribution plan.

     Effectiveperiod September 1, 2002 through June 30, 2003. As of July 1, 1999,2003, UCB employees were merged into the BancWest Corporation 401(k) Savings Plan. As of January 1, 2005 Community First and USDB employees were integrated into the BancWest Corporation 401(k) Savings Plans. Matching employer contributions for 2004 include Bank of the West Savings Plan was merged into the Company’s defined contribution

61


Notes to Consolidated Financial Statements(continued)

plan. Effective June 30, 1999, SierraWest amended the SierraWest Bancorp KSOP Plan (the “KSOP”) to cease all contributions. Effective July 1, 1999, all eligible employees who participated in the KSOP became eligible to participate in the Company’s defined contribution plan.

     Effective January 1, 2000, the KSOP was divided into two separate plans: (1) the SierraWest Bancorp Employee Stock Ownership Plan (the “ESOP”); and (2) the SierraWest Bancorp Savings Plan (the “SierraWest Savings Plan”) (together, the “Plans”). On August 15, 2000, the Plans were separately submittedWest’s contributions to the Internal Revenue Service (the “IRS”) for determination letters that they remain qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended.

     On June 19, 2001, favorable determination letters were received from the IRS that approved the qualification status of theCommunity First and USDB 401(k) Plans. OnEffective March 1, 2002, the2005 and April 2005, USDB and Community First 401(k) assets, of the SierraWest Savings Plan wererespectively, will be transferred into the Company’s defined contribution plan. The ESOP will be terminated and its assets distributed to participants before the end of 2002.

     On December 21, 2001, all share balances in the BancWest Corporation Stock Fund were liquidated and reinvested in the Putnam Stable Value Fund at the rate of $35 per share. On December 28, 2001, residual dividend balances were also liquidated and reinvested in the Putnam Stable Value Fund at the rate of $35 per share.401(k) Savings Plan.

Incentive Plan for Key Executives

     The Company has an Incentive Plan for Key Executives (the “IPKE”), under which cash awards are made to key executives. Prior to 2001, awards of cash or our common stock or both were made to key executives. Due to the BNP Paribas Merger, all shares of common stock awarded under the IPKE cashed out for $35 per share. The IPKE limits the aggregate and individual value of the awards that could be issued in any one fiscal year. Salary and employee benefits expense includes IPKE expense of $25 million for 2004, $23 million for 2003 and $17 million for 2002.

Long-Term Incentive Plan

     We have aThe Long-Term Incentive Plan (the “LTIP”) designedpays cash awards to reward selected key executives for theirif the Corporation achieves specified performance and the Company’s performance measuredlevels over multi-year performance cycles. Due to the timingchange-in-control provisions of the BancWest Merger,LTIP plan, as a result of the cycle that ended December 31, 2000 ran for two years (1999-2000).

     The threshold earnings per share level for the Company and specified levels relative to peer banks were achieved during this cycle. A payment of $5 million was made to participants in February 2001.

     The BNP Paribas Merger, constitutedthe Company paid a “Changemaximum award to the participants in Control” as defined by the LTIP. Aseach of the effective date of an LTIP Change in Control, the LTIP provides that participants will be deemed to have fully earned the maximum target values attainable for the entire performance period, regardless of whether the Company met the target levels. Accordingly, a payment of $19.9 million was made to participants in January 2002 for the three-year performance periodsthree open cycles that began in 1999, 2000 and 2001. New three-year LTIP cycles began on January 1, 2002, 2003 and 2004. Salary and employee benefits expense for the Company includes LTIP expense of $4 million for 2004, $4 million for 2003 and $5 million for 2002.

16. Stock-Based CompensationDiscounted Share Purchase Plan

     We previously had two Stock Incentive Plans, (the “SIP”). The SIP authorized the grant of upSee Note 1 to 6,000,000 shares of common stock to selected key employees. The SIP aimed to enhance our value by providing additional incentivesfinancial statements for outstanding performance to selected key employees. The SIP was administered by the Executive Compensation Committee of the Board.further information.

     We also began administering the Sierra Tahoe Bancorp 1996 Stock Option Plan, the Sierra Tahoe Bancorp 1998 Stock Option Plan, the California Community BancShares Corporation 1993 Stock Option Plan and the Continental Pacific Bank 1990 Amended Stock Option Plan (the “SierraWest Option Plans”) as a result of the SierraWest Merger. No options were granted under the SierraWest Option Plans after the SierraWest Merger.79

     The SIP provided for grants of restricted stock, incentive stock options and non-qualified stock options. Options were granted at exercise prices that were not less than the fair market value of the common stock on the date of grant. The exercise price for stock options could be paid in whole or in part in cash, by delivery or withholding of shares (if allowed by the option agreement) or by various other methods. Options generally vested at a rate of 25% per year after the date of grant and generally expired within ten years from the date of grant.

     In connection with the two-for-one stock split in December 1999, the number of shares of the Predecessor’s common stock available for grants under the SIP was doubled. Outstanding options under the SIP and SierraWest Option Plans were adjusted by doubling the aggregate number of shares issuable under each outstanding option and by halving their per share exercise price.

     Due to the BNP Paribas Merger, each vested and unvested option outstanding under our option plans was cancelled. We became obligated to pay our option holders $35 per share less the applicable option exercise price. Those payments were made in January 2002.

62


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements(continued)19. Income Taxes

     The following table summarizes activity underbelow excludes $1.7 million of tax expense resulting from the SIP and SierraWest Option Plans for 2001, 2000 and 1999:

             
  Options Outstanding
  
      Weighted
      Average
      Exercise
  Shares Price
  
 
Balance at December 31, 1998  1,495,185  $14.61 
Granted  2,183,567   20.08 
Exercised  (234,661)  10.00 
Forfeited  (8,981)  19.71 
   
     
Balance at December 31, 1999  3,435,110   18.31 
Granted  1,330,761   15.13 
Exercised  (297,678)  14.67 
Forfeited  (43,953)  20.52 
   
     
Balance at December 31, 2000  4,424,240   16.66 
Granted
  919,643   24.75 
Exercised
  (283,620)  15.28 
Forfeited
  (73,561)  20.37 
   
     
Balance at December 19, 2001
  4,986,702   18.49 
Cancellation of options
  (4,986,702)  18.49 
   
     
Balance at December 31, 2001
       
   
     

     In accounting for our option plans, we applied APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. There has been no compensation cost charged against income for the option plans, as options were granted at exercise prices no less than the fair market valuecumulative effect of the common stock on the dateadoption of grant. Had compensation cost for the option plans been determinedFIN 46 in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation,” the Predecessor’s net income would have been reduced to the pro forma amounts indicated below:

              
(in thousands) 2001 2000 1999

 
 
 
Net income:            
 As reported $246,502  $216,394  $172,378 
 Pro forma  239,835   214,978   171,543 
   
   
   
 

     Under SFAS No. 123, the fair value of each grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the grants:

             
  2001 2000 1999
  
 
 
Expected dividend yield  3.04%  3.27%  3.32%
Expected common stock volatility  27.67   24.76   22.58 
Risk-free interest rate  6.22   6.66   5.47 
Expected life of the options 6 years 6 years 6 years
   
   
   
 

     The weighted average grant date fair value of options granted was $6.98 in 2001, $3.98 in 2000 and $4.45 in 1999.

17. Other Noninterest Expense

     For the periods indicated, other noninterest expense included the following:
                 
  Company Predecessor        
  
 
 Year Ended
  Dec. 20, 2001 Jan. 1, 2001 December 31,
  through through 
(in thousands) Dec. 31, 2001 Dec. 19, 2001 2000 1999

 
 
 
 
Stationery and supplies $928  $21,076  $20,286  $21,275 
Advertising and promotions  666   16,400   16,950   15,788 
Other  2,016   83,056   80,716   75,526 
   
   
   
   
 
Total other noninterest expense
 $3,610  $120,532  $117,952  $112,589 
   
   
   
   
 

18. Income Taxes

2003. For the periods indicated, the provision for income taxes was comprised of the following:
                   
    Company Predecessor        
    
 
 Year Ended
    Dec. 20, 2001 Jan. 1, 2001 December 31,
    through through 
(in thousands) Dec. 31, 2001 Dec. 19, 2001 2000 1999

 
 
 
 
Current:                
 Federal $2,140  $75,733  $30,164  $22,075 
 States and other  596   21,110   9,215   6,445 
   
   
   
   
 
  Total current  2,736   96,843   39,379   28,520 
   
   
   
   
 
Deferred:                
 Federal  1,589   56,254   89,451   76,184 
 States and other  382   13,508   23,397   19,047 
   
   
   
   
 
  Total deferred  1,971   69,762   112,848   95,231 
   
   
   
   
 
Total provision for income taxes
 $4,707  $166,605  $152,227  $123,751 
   
   
   
   
 

63


Notes to Consolidated Financial Statements(continued)

             
  Year Ended December 31, 
(dollars in thousands) 2004  2003  2002 
 
Current:            
             
Federal $249,674  $214,911  $70,535 
States and other  55,376   51,914   25,456 
          
Total current  305,050   266,825   95,991 
          
Deferred:            
Federal  (8,277)  (3,127)  113,558 
States and other  1,920   9,000   24,445 
          
Total deferred  (6,357)  5,873   138,003 
          
Total provision for income taxes
 $298,693  $272,698  $233,994 
          

     At December 31, 2001,2004, the Company had no Federal or statefederal alternative minimum tax credit carryforwards and no state general business credit carryforwards.

There was a separate state net operating loss carryforward of $141,000 resulting from the acquisition of USDB. The components of the Company’s net deferred income tax liabilities at December 31, 20012004 and 20002003 were as follows:

           
(in thousands) 2001 2000

 
 
Assets
        
 Allowance for credit losses and nonperforming assets $86,765  $76,183 
 Deferred compensation expenses  75,171   4,325 
 Intangible assets  60,505    
 State income and franchise taxes  5,966   2,749 
   
   
 
  Total deferred income tax assets  228,407   83,257 
   
   
 
Liabilities
        
 Leases  649,733   561,009 
 Intangible assets     11,893 
 Investment securities  23,837   26,966 
 Depreciation expense  9,955   15,761 
 Other  10,207   13,977 
   
   
 
  Total deferred income tax liabilities  693,732   629,606 
   
   
 
Net deferred income tax liabilities
 $465,325  $546,349 
   
   
 
         
(dollars in thousands) 2004  2003 
Assets
        
Allowance for loan and lease losses and nonperforming assets $211,315  $181,844 
Deferred compensation expenses  88,291   61,065 
Securities available for sale  814    
State income and franchise taxes  17,535   11,951 
Other     22,732 
       
Total deferred income tax assets  317,955   277,592 
       
Liabilities
        
Leases  739,417   771,395 
Securities available for sale     37,340 
Depreciation expense  32,006   18,498 
Intangible assets  4,136   10,303 
Other  2,500    
       
Total deferred income tax liabilities  778,059   837,536 
       
Net deferred income tax liabilities
 $460,104  $559,944 
       

     Net deferred income tax liabilities are included in other liabilities in the Consolidated Balance Sheets.

80


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following analysis reconciles the Federal statutory income tax expenses and rate to the effective income tax expenses and rate for the periods indicated:
             
  Company Predecessor    
  
 
    
  Dec. 20, 2001 Jan. 1, 2001    
  through through    
(in thousands) Dec. 31, 2001 Dec. 19, 2001 %


 
 
Federal statutory income tax rate
 $4,098  $145,043   35.0%
Foreign, state and local taxes, net of Federal income tax benefit
  700   24,780   6.0 
Goodwill amortization
     10,866   2.5 
Tax credits
  (211)  (7,454)  (1.8)
Other
  120   (6,630)  (1.5)
   
   
   
 
Effective income tax rate
 $4,707  $166,605   40.2%
   
   
   
 

         
  Year Ended
  December 31, 2000
  
(dollars in thousands) Amount %

 
 
Federal statutory income tax rate $129,017   35.0%
Foreign, state and local taxes, net of Federal income tax benefit  22,113   6.0 
Goodwill amortization  10,784   2.9 
Tax credits  (7,467)  (2.0)
Other  (2,220)  (.6)
   
   
 
Effective income tax rate $152,227   41.3%
   
   
 
         
  Year Ended
  December 31, 1999
  
(dollars in thousands) Amount %

 
 
Federal statutory income tax rate $103,644   35.0%
Foreign, state and local taxes, net of Federal income tax benefit  17,678   6.0 
Goodwill amortization  10,469   3.5 
Tax credits  (6,214)  (2.1)
Other  (1,826)  (.6)
   
   
 
Effective income tax rate $123,751   41.8%
   
   
 
                         
  Year Ended December 31, 
  2004  2003  2002 
(dollars in thousands) Amount  %  Amount  %  Amount  % 
Federal statutory income tax expense and rate $270,225   35.0% $249,071   35.0% $208,364   35.0%
Foreign, state and local taxes, net of Federal income tax benefit  40,330   5.2   39,945   5.6   36,027   6.1 
Tax credits  (3,766)  (0.5)  (9,374)  (1.3)  (14,407)  (2.4)
Other  (8,096)  (1.0)  (6,944)  (1.0)  4,010   0.6 
                   
Effective income tax expense and rate $298,693   38.7% $272,698   38.3% $233,994   39.3%
                   

19. Operating Segments

     Lease-in/lease-out (LILO) transactions have recently been subject to review on a nationwide basis by the Internal Revenue Service (IRS) to determine whether the tax deductions connected with such transactions are allowable for U.S. Federal income tax purposes. The Company has determinedentered into several LILO transactions, which have been the subject of an audit by the IRS. In April 2004, the Company received a Revenue Agent’s Report (RAR) which disallowed all deductions associated with the LILO transactions. In order to avoid potential future interest and penalties, the Company has paid, under protest, the amounts claimed by the IRS and other tax authorities in the RAR. The Company continues to believe that ourit properly reported its LILO transactions and will contest the results of the IRS’s audit. Recently the IRS has identified sale-in/lease-out (SILO) transactions as listed transactions and is in the process of reviewing them to determine whether the deductions are allowable for tax purposes. The Company has entered into several SILOs, which are currently being audited by the IRS. At the present time, the Company cannot predict the outcome of these issues.

20. Operating Segments

     Our reportable segments are the onesoperating segments that we use in our internal reporting:reporting at Bank of the West and First Hawaiian. TheHawaiian Bank. Bank of the West’s segments operate primarily in Arizona, California, Colorado, Idaho, Iowa, Minnesota, Nebraska, Nevada, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, Wisconsin and Wyoming. As discussed below, certain Bank of the West segment operates primarily in California, Oregon, Washington, Idaho, New Mexico and Nevada.segments conduct business nationwide. Although the First Hawaiian segment operatesBank’s segments operate primarily in Hawaii, it also has significant operations outside the state, such as media finance, leveraged leases, and international banking and branches in Guam and Saipan.

     The financial results of these operating segmentseach segment are presented on an accrual basis. There are no significant differences among thedetermined by our management accounting policies of the segments as comparedprocess, which assigns balance sheet and income statement items to the Consolidated Financial Statements.each reporting segment. The Company evaluates the performance of its segments and allocates resources to them based on net interest income of each segment includes the results of the respective bank’s transfer pricing process, which assesses an internal funds charge on all segment assets and net income.a funds credit on all segment liabilities. The internal charges and credits assigned to each asset and liability are intended to match the maturity, repayment and interest rate characteristics of that asset or liability. With the exception of goodwill, assets are allocated to each business segment on the basis of assumed benefit to their business operations. Goodwill is assigned on the basis of projected future earnings of the segments. The process of management accounting is dynamic and subjective. There areis no material intersegment revenues.comprehensive or authoritative guidance which can be followed. Changes in management structure and/or the allocation process may result in changes in allocations and transfers. In that case, amounts for prior periods would be reclassified for comparability. Amounts for 2003 and 2002 have been reclassified to reflect changes in the transfer pricing methodology and noninterest income and expense allocation methodology applied in 2004.

64Bank of the West

     BOW manages its operations through three operating segments: Regional Banking, Commercial Banking and Consumer Finance.

Regional Banking

     Regional Banking seeks to serve a broad customer base by offering a wide range of retail and commercial banking products. Deposit products offered by this segment include checking accounts, savings deposits, market rate accounts, individual retirement accounts and time deposits. Regional Banking utilizes its branch network in sixteen states as its principal funding source. BOW’s telephone banking service, a network of automated teller machines and the online eTimeBanker service provide retail customers with other means of accessing and managing their accounts.

81


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes     Through its branch network, this business segment originates a variety of consumer loans, including real estate secured installment loans and lines of credit and, to Consolidateda lesser extent, other collateralized and non-collateralized installment loans. In addition, Regional Banking originates and holds a portfolio of first mortgage loans on 1-4 family residences. Through commercial banking operations conducted from its branch network, Regional Banking offers a wide range of commercial banking products intended to serve the needs of smaller community-based businesses. These include originations of standardized loan and deposit products for businesses with relatively simple banking and financing needs. Regional Banking also provides a number of fee-based products and private banking services including trust, insurance and investment services.

     More complex and customized commercial banking services are offered through the segment’s Business Banking Centers which serve clusters of branches and provide lending, deposit and cash management services to companies operating in the respective market areas. Business Banking Centers support commercial lending activities for middle market business customers in locations throughout California, as well as Portland, Oregon, Reno and Las Vegas, Nevada and Albuquerque and Las Cruces, New Mexico, and Salt Lake City, Utah.

     Through its insurance subsidiary, BW Insurance Agency, Regional Banking offers a wide variety of insurance services for both individuals and small businesses. The BW Insurance Agency product set includes auto, home and life, as well as numerous commercial insurance options. The company operates 57 insurance agencies in eight states including Colorado, Iowa, Minnesota, Nebraska, North Dakota, South Dakota, Utah and Wyoming.

     The Regional Banking Segment also includes a Pacific Rim Division which offers multilingual services through a branch network in predominately Asian American communities in California, with specialized domestic and international products and services for both individuals and companies.

Commercial Banking

     The Commercial Banking Segment is comprised of several divisions: Commercial Banking Division, Agribusiness Banking Division, Real Estate Industries Division and Specialty areas. The Commercial Banking Division supports business clients with revenues between $25 million and $500 million, focusing on relationship banking including deposit generation as well as lending activities. The Agribusiness Banking Division serves all agribusiness and rural commercial clients. The Real Estate Industries Division provides construction financing to large regional and national real estate developers for residential and commercial projects. Interim and permanent financing is available on these commercial real estate projects.

     The Commercial Banking Segment also includes specialty areas: Church Lending, Small Business Administration (SBA), Health Care, Leasing, Credit Union, Government, Correspondent Banking, Cash Management Services and Capital Markets. Equipment leasing is available through the Company’s commercial offices, branches and brokers across the nation. Its subsidiary, Trinity Capital, specializes in nationwide vendor leasing and servicing programs for manufacturers in specific markets.

     The Commercial Banking Segment also provides trade finance and functions as an agent in commercial, agribusiness and real estate syndication transactions.

Consumer Finance

     The Consumer Finance Segment targets the origination of auto loans and leases in the western and mid-western United States, and recreational vehicle and marine loans nationwide, with emphasis on originating credits at the high end of the credit spectrum. These loans and leases are originated through a network of auto dealers and recreational vehicle and marine dealers serviced by sales representatives located throughout the country. This segment also includes BOW’s wholly owned subsidiary, Essex Credit Corporation, which focuses on the origination of marine and recreational vehicle loans directly with customers. In February 2004, Essex began retaining certain types of loans in its own portfolio. In previous years, Essex sold substantially all of its loans to investors on a servicing released basis.

First Hawaiian Bank

     FHB manages its operations through the following business segments: Retail Banking, Consumer Finance, Commercial Banking and Financial Statements(continued)Management.

82


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Retail Banking

     FHB’s Retail Banking Segment operates through 56 banking offices located throughout Hawaii. FHB also operates three branches in Guam and two branches in Saipan.

     The tablesfocus of FHB’s retail/community banking strategy is primarily in Hawaii. Thanks to its significant market share in Hawaii, FHB already has product or service relationships with a majority of the households in the state. Therefore, a key goal of its retail community banking strategy is to build those relationships by cross-selling additional products and services to existing individual and business customers.

     In pursuing the community banking markets in Hawaii, Guam and Saipan, FHB seeks to serve a broad customer base by furnishing a full range of retail and commercial banking products. Through its branch network, FHB generates first-mortgage loans on residences and a variety of consumer loans, consumer lines of credit and second mortgages. To complement its branch network and serve these customers, FHB operates a system of automated teller machines, a 24-hour phone center in Honolulu and a full-service internet banking system. Through commercial banking operations conducted from its branch network, FHB offers a wide range of banking products intended to serve the needs of smaller, community-based businesses. FHB also provides a number of fee-based products and services such as annuities and mutual funds, insurance and securities brokerage. The First Investment Center of FHB makes available annuities, mutual funds and other securities through BancWest Investment Services, Inc., a registered broker-dealer, member NASD/SIPC.

     The private banking department within FHB’s Retail Banking Segment provides a wide range of private banking services and products to high-net-worth individuals.

Consumer Finance

     Consumer Finance offers many types of loans to consumers, including lines of credit (uncollateralized or collateralized) and various types of personal and automobile loans. FHB also provides indirect consumer automobile financing on new and used autos by purchasing finance contracts from dealers.

     Consumer Finance also makes residential real estate loans, including home-equity loans, to enable borrowers to purchase, refinance, improve or construct residential real property. The loans are collateralized by mortgage liens on the related property, substantially all located in Hawaii. FHB also originates residential real estate loans for sale on the secondary market.

Commercial Banking

     Commercial Banking is a major lender to small and medium-sized businesses in Hawaii, Guam and Saipan. Lending services include receivable and inventory financing, term loans for equipment acquisition and facilities expansion and trade finance letters of credit. To support the funds management needs of both commercial banking customers and large private and public deposit relationships maintained with the Company, FHB operates a Cash Management Department which provides a full range of innovative and relationship-focused cash management services.

     Real Estate Lending-Commercial provides interim construction, residential development and permanent financing for commercial real estate projects, including retail facilities, warehouses and office buildings. FHB also does lease-to-fee conversion financing for condominium associations and cooperatives.

     International Banking Services provides international banking products and services through FHB’s branch system, its Japan Business Development Department in Honolulu, a Grand Cayman branch, three Guam branches, two branches in Saipan and a representative office in Tokyo, Japan. FHB maintains a network of correspondent banking relationships throughout the world. FHB’s trade-related international banking activities are concentrated in the Asia-Pacific area.

     Leasing provides leasing services for businesses from heavy equipment to office computer and communication systems.

83


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Management

     The Financial Management Segment offers a full range of trust and investment management services, and also seeks to reinforce customer relationships developed by or in conjunction with the Retail Banking Segment. The Financial Management Segment provides asset management, advisory and administrative services for estates, trusts and individuals. It also acts as trustee and custodian of retirement and other employee benefit plans. At December 31, 2004, the Trust and Investments Division had approximately 4,000 accounts with a market value of $8.9 billion. In the asset total, $3.8 billion in assets are actively managed.

     Insurance services are provided through First Hawaiian Insurance, Inc., a wholly owned subsidiary of FHB. First Hawaiian Insurance provides insurance brokerage services for personal, business and estate insurance needs. It offers insurance needs analysis for individuals, families and businesses, as well as life, disability and long-term care insurance products.

84


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The table below presentpresents information about the Company’s operating segments as of or for the periods indicated:
                      
   Bank                
   of the First     Reconciling Consolidated
(in millions) West Hawaiian Other Items Totals

 
 
 
 
 
Company:
                    
Dec. 20, 2001 through Dec. 31, 2001
                    
 
Net interest income
 $19  $11  $(4) $  $26 
 
Provision for credit losses
  2            2 
 
Depreciation and amortization
  1            1 
 
Provision for income taxes
  4   3   (2)     5 
 
Net income
  6   4   (2)     8 
 
Segment assets (year end)
  13,412   8,682   4,759   (5,206)  21,647 
 
Goodwill
  895   994   173      2,062 
 
Capital expenditures
  1            1 
   
   
   
   
   
 
Predecessor:
                    
Jan. 1, 2001 through Dec. 19, 2001
                    
 
Net interest income
 $484  $319  $(12) $  $791 
 
Provision for credit losses
  70   31         101 
 
Depreciation and amortization
  52   25         77 
 
Restructuring, integration, and other nonrecurring costs
  4            4 
 
Provision for income taxes
  101   71   (5)     167 
 
Net income
  134   121   (8)     247 
 
Capital expenditures
  23   9         32 
   
   
   
   
   
 
Year ended December 31, 2000:                    
 Net interest income $423  $329  $(5) $  $747 
 Provision for credit losses  38   22         60 
 Depreciation and amortization  43   27         70 
 Restructuring, merger-related and other nonrecurring costs  1            1 
 Provision for income taxes  85   71   (4)     152 
 Net income  110   112   (6)     216 
 Segment assets (year end)  11,159   7,452   3,215   (3,369)  18,457 
 Capital expenditures  24   7         31 
   
   
   
   
   
 
Year ended December 31, 1999:                    
 Net interest income $384  $312  $(7) $  $689 
 Provision for credit losses  28   27         55 
 Depreciation and amortization  41   26         67 
 Restructuring, merger-related and other nonrecurring costs  11   7         18 
 Provision for income taxes  72   56   (4)     124 
 Net income  84   94   (6)     172 
 Segment assets (year end)  9,571   7,081   2,747   (2,718)  16,681 
 Capital expenditures  18   21         39 
   
   
   
   
   
 
indicated

                                                 
  Bank of the West  First Hawaiian Bank          
  Regional  Commercial  Consumer      Retail  Consumer  Commercial  Financial      Other  Reconciling  Consolidated 
(dollars in millions) Banking  Banking  Finance  Other(1)  Banking  Finance  Banking  Management  Other(2)  BancWest(3)  Items(4)  Total 
Year Ended December 31, 2004:
                                                
Net interest income $510.1  $319.1  $212.2  $107.9  $244.7  $87.7  $29.3  $(0.3) $(22.1) $(136.3) $  $1,352.3 
Noninterest income  176.5   53.0   24.4   28.9   57.6   29.5   13.3   30.1   15.1   3.1      431.5 
Noninterest expense  454.5   119.7   81.6   56.8   170.8   46.6   11.3   25.4   (18.6)  14.4      962.5 
Provision for loan and lease losses  3.4   1.4   29.5   (0.2)  4.9   9.8   0.5      (0.4)  0.3      49.2 
Tax provision (benefit)  90.6   98.3   50.1   29.5   50.1   24.1   10.4   1.7   4.7   (60.8)     298.7 
                                     
Net income (loss) $138.1  $152.7  $75.4  $50.7  $76.5  $36.7  $20.4  $2.7  $7.3  $(87.1) $  $473.4 
                                     
Assets at December 31  12,679   9,994   9,279   6,815   4,021   1,595   1,181   20   3,792   10,393   (9,715)  50,054 
Goodwill at December 31  2,127   708   308      650   216   118   11      175      4,313 
Average assets  8,510   9,073   8,507   5,555   3,761   1,527   1,135   24   3,481   7,701   (7,967)  41,307 
Average loans and leases  6,283   7,737   8,099   310   2,772   1,340   956   7   134   149   (35)  27,752 
Average deposits  15,091   3,609   10   2,323   7,087   9   30   28   202   154   (89)  28,454 
                                                 
Year Ended December 31, 2003:
                                                
Net interest income $495.0  $316.2  $207.1  $75.8  $230.0  $81.0  $33.9  $(0.1) $(6.4) $(138.9) $  $1,293.6 
Noninterest income  163.1   48.3   11.8   22.6   57.2   33.8   12.4   29.6   13.3   0.1      392.2 
Noninterest expense  423.3   117.0   60.3   31.0   168.3   45.8   12.8   25.1   (4.3)  13.5      892.8 
Provision for loan and lease losses  11.4   (0.6)  54.6      6.3   9.5   4.4      (4.3)        81.3 
Tax provision (benefit)  87.7   94.2   41.0   29.1   43.0   22.2   8.3   1.8   7.4   (62.0)     272.7 
                                     
Income before cumulative effect of accounting change  135.7   153.9   63.0   38.3   69.6   37.3   20.8   2.6   8.1   (90.3)     439.0 
Cumulative effect of accounting change, net of tax                          (2.4)        (2.4)
                                     
Net income (loss) $135.7  $153.9  $63.0  $38.3  $69.6  $37.3  $20.8  $2.6  $5.7  $(90.3) $  $436.6 
                                     
Assets at December 31  7, 644   8,806   8,030   4,820   3,541   1,479   1,150   21   3,742   6,960   (7,841)  38,352 
Goodwill at December 31  1,214   706   308      650   216   118   10      5      3,227 
Average assets  7,501   8,377   7,564   3,728   3,369   1,411   1,154   17   3,412   6,743   (7,378)  35,898 
Average loans and leases  5,477   7,047   7,234      2,459   1,216   1,013   3   292   57   (42)  24,756 
Average deposits  13,910   3,071   12   1,202   6,540   9   22   49   163      (67)  24,911 
                                                 
Year Ended December 31, 2002:
                                                
Net interest income $483.3  $262.2  $183.1  $59.0  $234.3  $72.5  $23.3  $0  $1.0  $(127.8) $  $1,190.9 
Noninterest income  143.7   31.7   11.7   21.1   52.3   26.6   6.2   26.8   12.4   3.4      335.9 
Noninterest expense  394.6   101.2   55.8   47.0   161.8   41.8   6.7   23.7   (1.1)  4.6      836.1 
Provision for loan and lease losses  15.4   14.7   45.2      9.0   9.5   0.2      1.4         95.4 
Tax provision (benefit)  87.2   69.1   37.8   14.9   44.5   18.2   6.8   1.2   6.6   (52.3)     234.0 
                                     
Net income (loss) $129.8  $108.9  $56.0  $18.2  $71.3  $29.6  $15.8  $1.9  $6.5  $(76.7) $  $361.3 
                                     
 
 
 
 
 
 

     The “other” category in the table above consists primarily of the Parent, Leasing, BWE Trust and FH Trust.85

     The Company also identifies business units based on the products or services offered and the channels through which the products or services are delivered. In addition to the operating segment information, the table below presents selected Company-wide information regarding business units for the respective periods indicated:
                      
               Reconciling Consolidated
(in millions) Wholesale Retail Other Items Totals

 
 
 
 
 
Interest income:                    
Company:
                    
Dec. 20, 2001 through Dec. 31, 2001
 $12  $26  $7  $(4) $41 
Predecessor:
                    
Jan. 1, 2001 through Dec. 19, 2001
  356   775   198   (46)  1,283 
Year ended December 31, 2000  397   750   188   (25)  1,310 
Year ended December 31, 1999  352   657   149   (22)  1,136 
   
   
   
   
   
 

     Wholesale banking primarily provides commercial, financial, and agricultural, small business and commercial and construction real estate loans. It also includes equipment lease financing. Retail banking is primarily composed of consumer and residential real estate loans, credit card services and automobile leases. The “other” category is composed primarily of interest income from investments.

     The reconciling items in the above tables are principally intercompany eliminations.

20. International Operations

     The Company’s international operations are principally in Guam, Saipan and Grand Cayman, British West Indies. These operations involve foreign banking and international financing activities, including short-term investments, loans and leases, acceptances, letters of credit financing and international funds transfers.

     We identify international activities on the basis of the domicile of the customer.

65


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements(continued)

     The table below presents information about the Company’s foreign, domestic and consolidated operations as of or for the years ended December 31:
              
(in thousands) Foreign Domestic Consolidated

 
 
 
Company:
            
For the period from December 20 through December 31
            
 
Total revenue
 $1,324  $46,391  $47,715 
 
Income before income taxes
  260   12,749   4,707 
 
Net income
  189   8,113   8,302 
 
Total assets at December 31
  535,950   21,110,564   21,646,514 
Predecessor:
            
For the period from January 1 through December 19
            
 
Total revenue
  43,949   1,540,383   1,584,332 
 
Income before income taxes
  8,805   404,302   413,107 
 
Net income
  5,623   240,879   246,502 
   
   
   
 
2000:            
 Total revenue $47,747  $1,478,185  $1,525,932 
 Income before income taxes  6,674   361,947   368,621 
 Net income  4,271   212,123   216,394 
 Total assets  389,589   18,067,477   18,457,066 
   
   
   
 
1999:            
 Total revenue $50,730  $1,282,613  $1,333,343 
 Income before income taxes  6,270   289,859   296,129 
 Net income  4,013   168,365   172,378 
 Total assets  404,666   16,276,356   16,681,022 
   
   
   
 

     Our current procedure is to price intercompany transfers of funds at prevailing market rates. In general, we have allocated all direct expenses and a proportionate share of general and administrative expenses to the income derived from loans and leases and transactions by the Company’s international operations.

     The following table presents the percentages of assets and liabilities attributable to foreign operations. For this purpose, assets attributable to foreign operations are defined as: (1) assets in foreign offices; and (2) loans and leases to and investments in customers domiciled outside the United States. Deposits received and other liabilities are classified on the basis of domicile of the depositor/creditor.

             
  2001 2000 1999
  
 
 
Average foreign assets to average total assets  2.75%  2.93%  3.98%
Average foreign liabilities to average total liabilities  1.67   1.79   1.75 
   
   
   
 

21. Lease Commitments

     At December 31, 2001, we had the following future minimum lease payments (by year and in the aggregate) under noncancelable operating leases having initial or remaining terms in excess of one year:

             
      Less Net
  Operating Sublease Operating
(in thousands) Leases Income Leases

 
 
 
2002 $44,827  $10,296  $34,531 
2003  39,988   8,411   31,577 
2004  21,915   6,700   15,215 
2005  17,907   6,270   11,637 
2006  11,063   5,487   5,576 
2007 and thereafter  64,668   478   64,190 
   
   
   
 
Total
 $200,368  $37,642  $162,726 
   
   
   
 

     These leases of premises and equipment extend for varying periods up to 41 years. Some of them may be renewed for periods ranging from one to 41 years. Under the premises’ leases, we are also required to pay real property taxes, insurance and maintenance.

     In most cases, leases for premises provide for periodic renegotiation of rents based upon a percentage of the appraised value of the leased property. The renegotiated annual rent is usually not less than the annual amount paid in the previous period. Where future commitments are subject to appraisals, the minimum annual rental commitments are based on the latest annual rents.

     In 2001, as part of the application of purchase accounting, a liability of $15.3 million was recorded as a fair value adjustment and will be amortized on a straight-line basis over the life of the related lease.

     Rental expense for the years indicated was:


(1)The net interest income and noninterest income items in the Other column are related to Treasury activities of $106.6 million, $80.9 million and $43.6 million and unallocated other income of $3.5 million, $17.5 million and $36.5 million for 2004, 2003 and 2002, respectively.
 2001: $46.6The noninterest expense items in the Other column are primarily from Treasury activities of $18.6 million,
2000: $45.9 $15.7 million
1999: $45.1 and $11.6 million and unallocated administrative items of $20.0 million, $15.3 million and $35.4 million for 2004, 2003 and 2002, respectively.
In addition, amounts of $26.7 million for net interest income and noninterest income, and $18.2 million for noninterest expense are included in the other column relating to November operations of Community First in 2004.
The material average asset items in the Other column relate to unallocated Treasury securities for the periods presented.
The material average deposit items in the Other column relate to unallocated Treasury balances for the periods presented.
(2)The net interest income and noninterest income items in the Other column are related to Treasury activities of $12.5 million, $10.6 million and $9.5 million and unallocated other income and transfer pricing charges of $(19.5) million, $(3.7) million and $3.9 million for 2004, 2003 and 2002, respectively.
The noninterest expense items in the Other column are primarily from Treasury activities of $2.0 million, $2.1 million and $1.8 million and unallocated administrative items of $(20.6) million, $(6.4) million and $(2.9) million for 2004, 2003 and 2002, respectively.
The material average asset items in the Other column are related to unallocated Treasury securities for the periods presented.
The material average deposit items in the Other column are related to unallocated Treasury balances for the periods presented.
(3)The Other BancWest column consists primarily of BancWest Corporation (Parent Company), FHL Lease Holding Company, Inc., and BancWest Investment Services. It also contains the results for USDB Bancorp from November 1, 2004 through December 31, 2004.
(4)The reconciling items are intercompany eliminations.

     In December 1993, the Company entered into a noncancelable agreement to lease its administrative headquarters building on land owned in fee simple by the Company. (Construction of the building was completed in September 1996.) Also in December 1993, the Company entered into a ground lease of the land to the lessor of the building.86

     Rent obligation for the building commenced on December 1, 1996 and will expire on December 1, 2003 (the “Primary Term”). We are obligated to pay all taxes, insurance, maintenance and other operating costs associated with the building during the Primary Term. As of December 31, 2001, the Company has executed certain noncancelable subleases with third parties. These amounts are included in sublease income in the above table.

     At the end of the Primary Term, the Company may decide whether to: (1) extend the lease term at rents based on the lessor’s cost of funds at the time of renewal; (2) purchase the building for an amount approximately equal to that expended by the lessor to construct the building; or (3) arrange for the sale of the building to a third party on behalf of the lessor. If we choose option (3), we must pay to the lessor any shortfall between the sales proceeds and a specified residual value, such payment not to exceed $162 million. This lease is accounted for as an operating lease.

66


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements(continued)

22. Commitments and Contingent Liabilities

     Off-balance-sheet commitments were as follows at December 31 for the years indicated:

          
   2001 2000
   
 
   Notional/ Notional/
   Contract Contract
(in thousands) Amount Amount

 
 
Contractual Amounts Which Represent Credit Risk:        
 Commitments to extend credit $5,420,200  $5,573,817 
 Standby letters of credit  315,775   305,970 
 Commercial letters of credit  9,461   10,543 
Contractual Amounts Where Credit Risk is Less Than Contractual Amount:        
 Commitments to purchase foreign currencies  43,862   23,842 
 Commitments to sell foreign currencies  40,114   25,285 
   
   
 

Facilities Management Agreement

     In August 1999, the Company signed a six-year facilities management agreement in connection with the consolidation of its three data centers. At December 31, 2001, the Company had the following future minimum payments under this noncancelable agreement:

     
(in thousands) Minimum Payments

 
2002 $16,934 
2003  16,934 
2004  16,934 
2005  11,289 
   
 
Total
 $62,091 
   
 

     Expenses under this facilities management agreement for the years ended December 31, 2001, 2000 and 1999 were approximately $20.4 million, $18.2 million and $7.7 million, respectively.

21. Litigation

     In the course of normal business, the Company is subject to numerous pending and threatened lawsuits, some forof which seek substantial relief or damages are sought.damages. While the Company is not able to predict whether the outcome of such actions will materially affect our results of operation for a particular period, based upon consultation with counsel, management does not expect that the aggregate liability, if any, resulting from these proceedings would have a material effect on the Company’s consolidated financial position, results of operations or liquidity.

23.22. Fair Value of Financial Instruments

     SFAS 107,Disclosures about Fair Value of Financial Instruments, requires that we disclose estimated fair values for certain financial instruments. Financial instruments include such items as loans, deposits, securities, interest rate and foreign exchange contracts, swaps and other instruments as defined by the standard.

     Disclosure of fair values is not required for certain items such as lease financing, investments accounted for under the equity method of accounting, obligations for pension and other postretirement benefits, premises and equipment, other real estate owned, prepaid expenses, core deposit intangibles and other customer relationships, other intangible assets and income tax assets and liabilities. Accordingly, the aggregate fair value amounts presented do not purport to represent, and should not be considered representative of, the underlying “market” or franchise value of the Company.

     Because the standard permits many alternative calculation techniques and because numerous assumptions have been used to estimate our fair values, reasonable comparisons of our fair value information with that of other financial institutions cannot necessarily be made.

     We use the following methods and assumptions to estimate the fair value of our financial instruments:

Short-term Financial Assets:Short-term financial assets include cash and due from banks, federal funds sold and securities purchased under resale agreements and due from customers on acceptances. The followingcarrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

Trading Assets:Trading assets are carried at fair value. Fair values of trading assets are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Securities:Fair values of securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. See Note 6 for information related to fair value.

Loans:Fair values are estimated for portfolios of performing loans with similar characteristics. We use discounted cash flow analyses, which utilize interest rates currently being offered for loans with similar terms to borrowers of similar credit quality, to estimate the fair values of: (1) commercial and industrial loans; (2) financial institution loans; (3) agricultural loans; (4) certain mortgage loans (e.g., 1 - 4 family residential, commercial real estate and rental property); and (5) consumer loans. For certain loans, we may estimate fair value based upon a loan’s observable market price. The carrying amount of accrued interest approximates its fair value.

Deposits:The fair value of deposits with no maturity date (e.g., interest and noninterest-bearing checking, regular savings, and certain types of money market savings accounts) are, according to GAAP, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-term borrowings:The fair values of short-term borrowings are estimated using quoted market prices or discounted cash flow analyses based on our current incremental borrowing rates for similar types of borrowing arrangements.

Long-term debt:The fair values of our long-term debt (other than deposits) are estimated using quoted market prices or discounted cash flow analyses based on our current incremental borrowing rates for similar types of borrowing arrangements.

87


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Off-balance sheet and derivative financial instruments:Fair values are based upon: (1) quoted market prices of comparable instruments (e.g., options on mortgage-backed securities and commitments to buy or sell foreign currencies); (2) fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing (letters of credit and commitments to extend credit); or (3) pricing models based upon quoted markets, current levels of interest rates and specific cash flow schedules (e.g., interest rate swaps).

     As discussed above, some of our financial instruments are short-term, and therefore, the carrying amounts in the Consolidated Balance Sheets approximate fair value. Other significant assets and liabilities, which are not considered financial assets or liabilities and for which fair values have not been estimated, include premises and equipment, goodwill and other intangibles, deferred taxes and other liabilities. This table presentsis a summary of the bookfinancial instruments, as defined by FAS 107, excluding leases, short-term financial assets and liabilities, for which carrying amounts approximate fair value, of the Company’s financial instruments, excluding leases,trading assets, which are carried at December 31fair value, securities available for the years indicated:

           
    2001
    
(in thousands) Book Value Fair Value

 
 
Financial Assets:
        
 
Cash and due from banks
 $737,262  $737,262 
 
Interest-bearing deposits in other banks
  109,935   110,022 
 
Federal funds sold and securities purchased under agreements to resell
  233,000   233,000 
 
Investment securities (note 5):
        
  
Available-for-sale
  2,542,173   2,542,173 
 
Loans
  12,930,926   12,804,649 
 
Customers’ acceptance liability
  1,498   1,498 
   
   
 
Financial Liabilities:
        
 
Deposits
 $15,334,051  $15,344,410 
 
Short-term borrowings
  954,320   954,320 
 
Acceptances outstanding
  1,498   1,498 
 
Long-term debt
  2,197,954   2,199,261 
 
Guaranteed preferred beneficial interests in junior subordinated debentures
  265,130   264,140 
   
   
 
           
    2000
    
(in thousands) Book Value Fair Value

 
 
Financial Assets:        
 Cash and due from banks $873,599  $873,599 
 Interest-bearing deposits in other banks  5,972   6,329 
 Federal funds sold and securities purchased under agreements to resell  307,100   307,100 
 Investment securities (note 5):        
  Held-to-maturity  92,940   91,625 
  Available-for-sale  1,960,780   1,960,780 
 Loans  11,920,001   11,904,583 
 Customers’ acceptance liability  1,080   1,080 
   
   
 
Financial Liabilities:        
 Deposits $14,128,139  $14,149,011 
 Short-term borrowings  669,068   669,068 
 Acceptances outstanding  1,080   1,080 
 Long-term debt  632,423   646,864 
 Guaranteed preferred beneficial interests in junior subordinated debentures  250,000   251,650 
   
   
 
sale (Note 6) and derivatives (Note 3).
                 
  December 31, 
  2004  2003 
(dollars in thousands) Book Value  Fair Value  Book Value  Fair Value 
Financial Assets:                
Loans held for sale $71,402  $72,372  $51,007  $51,188 
Loans, net(1)
  30,144,780   30,219,249   22,948,582   25,523,306 
Financial Liabilities:                
Deposits $33,613,779  $33,666,915  $26,403,117  $26,432,808 
Short-term borrowings  3,381,189   3,378,501   2,372,686   2,373,412 
Long-term debt(2)
  6,299,240   6,497,229   4,219,123   4,458,831 


(1)Excludes net leases of $2,108 million and $2,382 million at December 31, 2004 and 2003, respectively.
(2)Excludes capital leases of $5.8 million and $1.9 million at December 31, 2004 and 2003 respectively.

     The following table presents a summary of the fair value of the Company’s off-balance-sheet financial instruments,off-balance sheet commitments and letters of credit excluding leases, (Note 22) at December 31, 2001 and 2000:

         
(in thousands) 2001 2000

 
 
Commitments to extend credit $25,015  $26,565 
Standby letters of credit  3,091   2,988 
Commercial letters of credit  94   105 
Commitments to purchase foreign currencies  (420)  978 
Commitments to sell foreign currencies  347   (936)
   
   
 
lease commitments:
         
  December 31, 
(dollars in thousands) 2004  2003 
 
Commitments to extend credit $56,520  $43,019 
Standby letters of credit  8,592   7,327 
Commercial letters of credit  339   792 

6788


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements(continued)
24.23. BancWest Corporation (Parent Company Only) Financial Statements

     In the financial statements presented below, the investment in subsidiaries is accounted for under the equity method.

Balance Sheets

           
    December 31,
    
(in thousands, except number of     
shares and per share data) 2001 2000

 
 
Assets:
        
 Cash on deposit with First Hawaiian $184  $246 
 Loans, net of allowance for credit losses of $120 in 2001 and 2000  2,626   3,875 
 Available-for-sale investment securities     300 
 Securities purchased from        
  First Hawaiian  99,061   15,665 
 Investment in subsidiaries:        
  Bank of the West  1,824,165   1,384,600 
  First Hawaiian  1,649,383   729,548 
  Other subsidiaries  20,646   19,636 
 Due from:        
  Bank of the West  312,291   307,783 
  First Hawaiian  312,932   351,654 
  Other subsidiaries  38,453   54,569 
 Goodwill  172,682    
 Other assets  4,491   7,744 
   
   
 
Total assets
 $4,436,914  $2,875,620 
   
   
 
Liabilities and Stockholder’s Equity:
        
 Short-term borrowings (note 10) $  $5,477 
 Current and deferred income taxes  452,850   515,271 
 Due to subsidiaries  272,862   257,732 
 Other liabilities  109,282   7,647 
 Long-term debt (note 11)  1,600,000   100,000 
   
   
 
  Total liabilities  2,434,994   886,127 
   
   
 
Commitments and contingent liabilities (notes 15, 21 and 22)        
Stockholder’s equity:        
 Class A common stock, par value $.01 per share in 2001 and $1 in 2000 (note 2)
Authorized— 150,000,000 shares in 2001 and 75,000,000 shares in 2000
Issued— 56,074,874 shares in 2001 and 2000
  561   56,075 
 Common stock, par value $1 per share (notes 2 and 16) Authorized— 200,000,000 shares in 2000
Issued— 71,041,450 shares in 2000
     71,041 
 Surplus  1,985,275   1,125,652 
 Retained earnings (note 14)  8,302   770,350 
 Accumulated other comprehensive income, net (note 12)  7,782   7,601 
 Treasury stock, at cost— 2,565,581 shares in 2000     (41,226)
   
   
 
  Total stockholder’s equity  2,001,920   1,989,493 
   
   
 
Total liabilities and stockholder’s equity
 $4,436,914  $2,875,620 
   
   
 

Statements of Income
                   
    Company Predecessor        
    
 
 Year Ended
    Dec. 20, 2001 Jan. 1, 2001 December 31,
    through through 
(in thousands) Dec. 31, 2001 Dec. 19, 2001 2000 1999

 
 
 
 
Income:
                
 Dividends from:                
  Bank of the West $  $54,756  $41,140  $31,366 
  First Hawaiian     77,444   147,384   54,267 
  Other subsidiaries     1,991   1,558   1,558 
 Interest and fees from:                
  Bank of the West  261   7,826   8,087   7,182 
  First Hawaiian  217   5,064   6,066   5,543 
  Other subsidiaries        37   435 
 Other interest and dividends  6   673   527   354 
   
   
   
   
 
  Total income  484   147,754   204,799   100,705 
   
   
   
   
 
Expense:
                
 Interest expense:                
  Short-term borrowings     160   360   254 
  Long-term debt  4,243   28,385   20,749   21,434 
 Professional services     249   147   491 
 Other  65   3,353   5,120   2,580 
   
   
   
   
 
  Total expense  4,308   32,147   26,376   24,759 
   
   
   
   
 
Income (loss) before income tax benefit and equity in undistributed income (loss) of subsidiaries  (3,824)  115,607   178,423   75,946 
Income tax benefit  1,516   7,253   4,487   4,282 
   
   
   
   
 
Income (loss) before equity in undistrib- uted income (loss) of subsidiaries  (2,308)  122,860   182,910   80,228 
Equity in undistributed income (loss) of subsidiaries:                
  Bank of the West  6,168   79,497   68,959   52,537 
  First Hawaiian  4,377   43,202   (35,035)  40,108 
  Other subsidiaries  65   943   (440)  (495)
   
   
   
   
 
Net income
 $8,302  $246,502  $216,394  $172,378 
   
   
   
   
 

             
  Year Ended December 31, 
(dollars in thousands) 2004  2003  2002 
   
Income:
            
Dividends from:            
Bank of the West $117,040  $57,667  $57,281 
First Hawaiian Bank  22,068   22,068   28,072 
Other subsidiaries     349   698 
Interest and fees from subsidiaries  12,862   13,110   12,775 
Other interest and dividends  623   479   699 
          
Total income  152,593   93,673   99,525 
          
Expense:
            
Interest expense:            
Short-term borrowings  2,187      11,625 
Long-term debt  156,925   155,797   129,627 
Salaries and benefits  3,292   2,897   1,884 
Professional services  221   1,109   877 
Other  2,401   1,953   1,482 
          
Total expense  165,026   161,756   145,495 
          
Income (loss) before income tax benefit and equity in undistributed income (loss) of subsidiaries  (12,433)  (68,083)  (45,970)
Income tax benefit  62,132   59,866   52,918 
          
Income (loss) before equity in undistributed income (loss) of subsidiaries  49,699   (8,217)  6,948 
Equity in undistributed income (loss) of subsidiaries:            
Bank of the West  299,902   333,199   255,633 
First Hawaiian Bank  121,507   114,008   97,087 
USDB Bancorp  2,004       
Other subsidiaries  265   (2,426)  1,664 
          
Net income
 $473,377  $436,564  $361,332 
          

6889


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to Consolidated Financial StatementsBalance Sheets(continued)

         
  December 31, 
(dollars in thousands, except share data) 2004  2003 
   
Assets:
        
Cash on deposit with subsidiary banks $31,957  $23,767 
Interest-bearing deposits in other banks  153   151 
Loans, net of allowance for loan and lease losses of $120 in 2004 and 2003  31   404 
Investment in subsidiaries:        
Bank of the West  6,452,229   4,834,983 
First Hawaiian Bank  1,970,803   1,869,027 
USDB Bancorp  281,139    
Other subsidiaries  15,071   12,880 
Due from:        
Bank of the West  126,009   125,084 
First Hawaiian Bank  78,973   75,781 
Other subsidiaries     3,026 
Goodwill  5,206   5,206 
Current and deferred income taxes  24,032   12,086 
Other assets  2,522   2,633 
       
Total assets
 $8,988,125  $6,965,028 
       
Liabilities and Stockholder’s Equity:
        
Short-term borrowings $590,000  $ 
Other liabilities  16,671   47,599 
Long-term debt  2,651,419   2,654,557 
       
Total liabilities $3,258,090  $2,702,156 
       
Commitments and contingent liabilities        
Stockholder’s equity:        
Class A common stock, par value $.01 per share        
Authorized-150,000,000 shares        
Issued and outstanding-106,859,123 shares at December 31, 2004 and 85,759,123 shares at December 31, 2003 $1,069  $858 
Additional paid-in capital  4,475,006   3,419,927 
Retained earnings  1,279,575   806,198 
Accumulated other comprehensive income  (25,615)  35,889 
       
Total stockholder’s equity  5,730,035   4,262,872 
       
Total liabilities and stockholder’s equity
 $8,988,125  $6,965,028 
       

90


BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Statements of Cash Flows
                    
     Company Predecessor        
     
 
 Year Ended
     Dec. 20, 2001 Jan. 1, 2001 December 31,
     through through 
(in thousands) Dec. 31, 2001 Dec. 19, 2001 2000 1999

 
 
 
 
Cash flows from operating activities:
                
 Net income $8,302  $246,502  $216,394  $172,378 
Adjustments to reconcile net income to net cash provided by operating activities:                
  Equity in undistributed income of subsidiaries  (10,610)  (123,642)  (33,484)  (92,150)
  Other   2,221   134   (5,795)  3,071 
   
   
   
   
 
Net cash provided by (used in) operating activities
  (87)   122,994   177,115   83,299 
   
   
   
   
 
Cash flows from investing activities:
                
 Net change in:                
 Interest-bearing deposits in other banks           5,000 
 Securities sold under agreements to repurchase  (83,400)  4   689   6,526 
 Loans repaid by directors and executive officers  1   1,249   463   1,318 
 Repayments from (advances to) subsidiaries     (25,015)  6,000   (25,000)
 Investment in Bank of the West        (150,000)   
 Proceeds from available-for-sale investment securities     300       
 Investment in BancWest Capital I        (4,639)   
   
   
   
   
 
Net cash used in investing activities
  (83,399)  (23,462)  (147,487)  (12,156)
   
   
   
   
 
                  
   Company Predecessor        
   
 
 Year Ended
   Dec. 20, 2001 Jan. 1, 2001 December 31,
   through through 
(in thousands) Dec. 31, 2001 Dec. 19,2001 2000 1999

 
 
 
 
Cash flows from financing activities:
                
 Cash received from BNP Paribas for cancellation of stock options  83,347          
 Net increase (decrease) in short-term borrowings     (5,477)  2,877   (11,303)
 Proceeds from (payments on) long-term debt and junior subordinated debentures        154,639    
 Payment on long-term debt        (100,000)   
 Cash dividends paid     (99,772)  (84,731)  (77,446)
 Proceeds from (payment on) issuance of common stock     (31)  585   4,934 
 Issuance (purchase) of treasury stock, net     3,390   (4,056)  12,809 
 Income tax benefit from stock-based compensation     2,435   1,097    
   
   
   
   
 
Net cash provided by (used in) financing activities
  83,347   (99,455)  (29,589)  (71,006)
   
   
   
   
 
Net increase (decrease) in cash
  (139)  77   39   137 
Cash at beginning of period
  323   246   207   70 
   
   
   
   
 
Cash at end of period
 $184  $323  $246  $207 
   
   
   
   
 
Supplemental disclosures:
                
 Interest paid $237  $29,167  $34,914  $21,422 
 Income taxes refunded $184  $6,766  $5,186  $6,535 
   
   
   
   
 

             
  Year Ended December 31, 
(dollars in thousands) 2004  2003  2002 
   
Cash flows from operating activities:
            
Net income $473,377  $436,564  $361,332 
Adjustments to reconcile net income to net cash provided by operating activities:            
Equity in undistributed income of subsidiaries  (423,678)  (444,780)  (348,402)
Cash paid for BNP Paribas cancellation of stock options        (83,347)
Other  (45,891)  12,009   (3,379)
          
Net cash provided by (used in) operating activities
  3,808   3,793   (73,796)
          
Cash flows from investing activities:
            
Loans repaid by directors and executive officers  373   1,701   50 
Advances to subsidiaries  (1,100)  (2,985)   
Investment in subsidiaries  (1,639,889)     (2,402,978)
Proceeds from sales of securities available for sale     22,073   76,988 
Investment in BancWest Investment Services     (766)   
          
Net cash provided by (used in) investing activities
  (1,640,616)  20,023   (2,325,940)
          
Cash flows from financing activities:
            
Net increase (decrease) in short-term borrowings  590,000       
Proceeds from issuance of long-term debt and junior subordinated debentures        1,600,000 
Repayment of long-term debt        (802,771)
Proceeds from issuance of common stock  1,055,000      1,600,000 
Discounted share purchase plan        2,425 
          
Net cash provided by (used in) financing activities
  1,645,000      2,399,654 
          
Net increase (decrease) in cash
  8,192   23,816   (82)
Cash at beginning of period
  23,918   102   184 
          
Cash at end of period
 $32,110  $23,918  $102 
          
Supplemental disclosures:
            
             
Interest paid $189,307  $128,210  $34,568 
Income taxes refunded  50,197   47,879   65,600 
 

6991


BancWest Corporation and Subsidiaries
SUMMARY OF QUARTERLY FINANCIAL DATA (Unaudited)

A summary of unaudited quarterly financial data for 2004 and 2003 is presented below:

                 
  Quarter 
(dollars in thousands) First  Second  Third  Fourth 
   
2004
                
Interest income $417,152  $419,868  $441,769  $516,374 
Interest expense  96,126   97,607   111,127   137,965 
             
Net interest income  321,026   322,261   330,642   378,409 
Provision for loan and lease losses  18,865   11,900   10,600   7,854 
Noninterest income  101,134   109,717   104,517   116,132 
Noninterest expense  218,578   231,920   234,192   277,859 
             
Income before income taxes  184,717   188,158   190,367   208,828 
Provision for income taxes  71,665   73,401   73,141   80,486 
             
Net income $113,052  $114,757  $117,226  $128,342 
             
                 
2003
                
Interest income $417,476  $417,908  $423,093  $420,313 
Interest expense  102,237   98,047   92,908   92,015 
             
Net interest income  315,239   319,861   330,185   328,298 
Provision for loan and lease losses  22,690   18,860   24,145   15,600 
Noninterest income  94,834   102,127   100,803   94,415 
Noninterest expense  220,660   229,878   222,963   219,334 
             
Income before income taxes and cumulative effect of accounting change  166,723   173,250   183,880   187,779 
Provision for income taxes  64,642   65,588   69,268   73,200 
             
Income before cumulative effect of accounting change  102,081   107,662   114,612   114,579 
Cumulative effect of accounting change, net of tax        2,370    
             
Net income $102,081  $107,662  $112,242  $114,579 
             
 

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BancWest Corporation and Subsidiaries

Glossary of Financial Terms

     Balance sheet:Basis point: A statement of financial position reflecting our assets, liabilities and stockholder’s equity at a particular point in time in accordance with generally accepted accounting principles.

Basis-point:A measure of the yield on a bond, note or other indebtedness equal to 1/100th of a percentage point. For example, a yield of 5% is 500 basis points.

Cash earnings: Earnings before amortization of goodwill and core deposit intangible.

     Collateral:An asset or property pledged to secure the payment of a debt or performance of an obligation.

     Depreciation:A charge against our earnings that writes off the cost of a capital asset over its estimated useful life.

     Derivatives:Financial instruments where the performance is derived from the performance of another financial instrument or an interest rate, currency or other index. Derivative instruments are used for asset and liability management and to mitigate risks associated with other instruments that are reflected on the balance sheet.

     Dividend:Effectiveness/ineffectiveness (of derivatives): UsuallyEffectiveness is the amount of gain or loss on a cash distribution to our stockholdershedging instrument that exactly offsets the loss or gain on the hedged item. Any difference that does arise would be the effect of a portion of ourhedge ineffectiveness, which consequently is recognized currently in earnings.

Earnings per share: Basic earnings per share— earnings for the period divided by the weighted-average number of shares of common stock outstanding for the period. Diluted earnings per share— earnings for the period divided by the weighted-average number of shares of common stock outstanding for the period, including the treatment of all dilutive securities, such as options, warrants and convertible debt.

     Efficiency ratio:Noninterest expense (exclusive of nonrecurring costs) minus the amortization of goodwill and core deposit intangible as a percentage of total operating revenue (net interest income plus noninterest income).income.)

     Hedge:A strategy used to avoid, reduce or transfer risk.

Income statement: A financial statement that reflects our performance by measuring our revenues and expenses for the period.

     Interest rate risk:The risk to earnings or capital arising from the movement of interest rates.

     Interest rate swap:A contract used for the purpose of interest rate risk management in which two parties agree to exchange interest payments of a different character over a specified period based on an underlying notional amount of principal. The term “notional principal” is the amount on which the interest payments are calculated, as the swap contracts generally involve no exchange of the principal.

     Leverage ratio:Tier 1 Capital divided by the sum of average total assets minus average allowance for credit losses and certain intangible assets.

     Liquidity:The ability of an entity to provide sufficient cash to fund its operations and to pay its debts on a timely basis at a reasonable cost.

     Net interest income:Interest income plus loan fees minus interest expense.

     Net interest margin:Net interest income divided by average earning assets (e.g., loans and leases and investment securities).

     Nonaccrual loans and leases:Loans and leases on which interest is not being accrued for income statement purposes. Payments received on nonaccrual loans and leases are applied against the principal balance.

     Noninterest expense:Expenses for such items as salaries, benefits, building occupancy and supplies, as opposed to interest expense paid for deposits and other interest-bearing liabilities.

     Noninterest income:Income received from such sources as fees, charges and commissions, as opposed to interest income received from loans and leases, and investment securities.

     Nonperforming assets:Nonaccrual loans and leases plus restructured loans and leases plus OREO (other real estate owned) and repossessed personal property.

Operating earnings: Earnings before restructuring, merger-related and other nonrecurring costs.

Operating cash earnings: Earnings before restructuring, merger-related and other nonrecurring costs and amortization of goodwill and core deposit intangible.

     OREO:Other real estate owned. Primarily includesOREO consists primarily of foreclosed assets and assets taken in lieu of foreclosure.assets.

     Repurchase agreements, also called “repos”:Agreement between a seller and a buyer in which the seller agrees to repurchase the securities at an agreed-upon price at a stated time. A repo is similar to a secured borrowing and lending of funds equal to the sales price of the related collateral.

     Return on average total assets (ROA):Measures the productivity of assets. Calculated by dividing net income by average total assets.

Return on average tangible total assets: Calculated by dividing cash earnings by average total assets minus average goodwill93


BancWest Corporation and core deposit intangible.Subsidiaries

     Return on average stockholder’s equity (ROE):Measures the rate of return on the stockholder’s investment in the Company. Calculated by dividing net income by average total stockholder’s equity.

Return on average tangible stockholder’s equity: Calculated by dividing cash earnings by average stockholder’s equity minus average goodwill and core deposit intangible.

     Risk-based capital ratios:Equity measurements used by regulatory agencies to assess capital adequacy. These ratios are: Tier 1 Capital divided by risk-weighted assets; and Total Capital divided by risk-weighted assets.

     Statement of cash flows:A financial statement that reflects cash flows from operating, investing and financing activities, providing a comprehensive view of changes in our cash and cash equivalents for the period.

     Stock option:Form of employee incentive and compensation in which the employee of the Company is given the right to purchase our shares of stock at a determinable price within a specified period of years.

Taxable equivalent basis:Basis of presentation of net interest income and the net interest margin adjusted to consistently reflect income from taxable and tax-exempt loans and securities based on a 35% marginal tax rate. The yield that tax-free investment would provide to an investor if the tax-free yield was “grossed up” by the amount of taxes not paid.

     Tier 1 Capital:Common stockholder’s equity plus perpetual preferred stock and certain minority equity interests in subsidiaries, minus goodwill and certain qualifying intangible assets.

     Total Capital:Tier 1 Capital plus the allowance for creditloan and lease losses (not to exceed 1.25% of risk-weighted assets) plus qualifying subordinated debt, trust preferred stock, convertible debt securities and certain hybrid investments.

70Variable interest entity (VIE):An entity in which (1) the equity investors do not have controlling financial interest or (2) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from any parties, including the equity holders.


Part II(continued)Yield curve (shape of the yield curve, flat yield curve):A graph showing the relationship between the yields on bonds of the same credit quality with different maturities. For example, a “normal” or “positive” yield curve exists when long-term bonds have higher yields than short-term bonds. A “flat” yield curve exists when yields are the same for short-term and long-term bonds. A “steep” yield curve exists when yields on long-term bonds are significantly higher than on short-term bonds.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

     As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s chief executive officer and its chief financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based upon that evaluation, its chief executive officer and its chief financial officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.

     No change in the Company’s internal control over financial reporting was identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) or Rule 15d-15(d) during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

     None.

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BancWest Corporation and Subsidiaries

PART III

PART III

Item 10. Directors and Executive Officers

Directors

     Set forth below are the ages, principal occupations, and certain other information regarding the current directors of BancWest Corporation (the “Corporation”).

     Jacques Ardant,Frank Bonetto, 49,54, has been a director and an Executive Vice President of the Corporation since January 2005. He has served as Vice Chairman, Regional Banking Group, of Bank of the West since 2002, and prior to 2002 was a Senior Executive Vice President of Bank of the West. He joined Bank of the West in 1992 as head of the bank’s retail branch network, and was previously a senior executive with Citibank and with American Savings Bank.

Francois Dambrine,56, has been a director of the Corporation and Bank of the West since August 2003. He has been Head of Retail Banking in the USA for BNP Paribas since June 2003, and is also a director of the BNP Paribas Lease Group. He was Chairman and Chief Executive Officer of Arval PHH, a subsidiary of BNP Paribas engaged in leasing and fleet management of corporate cars in Europe, from 2000 to 2003, and served as Chairman and Chief Executive Officer of UFB Locabail, a subsidiary of BNP Paribas engaged in business equipment leasing, from 1993 to 2000.

Gérard A. Denot,58, has been a director and Vice Chairman of the Corporation since April 2002, a director of Bank of the West and Vice Chairman of its Commercial Banking Group since March 2002, and a Vice Chairman of First Hawaiian Bank since May 2002. He was Bank of the West’s Chief Inspector from October 2001 to January 2002, and its Senior Executive Vice President, Commercial Banking Group, from January 2002 to March 2002. Mr. Denot was Head of Projects – Development for BNP Paribas International Retail Banking from June 2000 to October 2001, and General Manager of BNP Italy from December 1997 to June 2000.

W. Allen Doane, 57, has been a director of the Corporation since November 1998 and a director of Bank of the West since September 1998. He has been a member of the Executive Committee of International Retail Banking, BNP Paribas since September 1999, and Director for International Banking and Finance, North America Area, of BNP Paribas or Banque Nationale de Paris, the predecessor entity to BNP Paribas (“BNP”), since April 1997. He was Deputy General Manager of BNP Greece from 1994 to April 1997. He was Secretary Generale of BNP Italy from 1989 to 1994. He has been with BNP Paribas or BNP since 1978.

John W. A. Buyers, 73, has been a director of the Corporation since 19942002, and a director of First Hawaiian Bank since 1976. He1999. Since 1998, Mr. Doane has been Chairman of the Board andPresident, Chief Executive Officer and a director of D Buyers Enterprises, LLC, a tropical juice company,Alexander & Baldwin, Inc. (“A&B”), a diversified agriculture company, real estate company,ocean transportation, property development and managing company, since 2001. Hemanagement, and food products company. Mr. Doane has been Vice Chairman of the Board of C. Brewer andA&B’s subsidiary, Matson Navigation Company, Limited, a diversified agribusiness and specialty food company,Inc., since 1982. From 1992January 2004. He was Executive Vice President of A&B from August 1998 to 2002, he was Chairman andOctober 1998; Chief Executive Officer of A&B’s subsidiary, A&B-Hawaii, Inc. (“ABHI”), from January 1997 to December 1999; and President of ABHI from 1975, President and CEO of C. Brewer and Company, Limited, Hawaii’s oldest company. Since 1986, he has been Chairman of ML Resources, Inc., the managing general partner of ML Macadamia Orchards, L.P., a master limited partnership traded on the New York Stock Exchange. From 1993April 1995 to 1999, he served as Chairman and as a director of Hawaii Land and Farming Co., Inc., a publicly traded real estate development company. He is also a director of John B. Sanfilippo & Sons, Inc., a comprehensive nut company located in Elk Grove Village, Illinois.December 1999.

     Walter A. Dods, Jr., 60, 63, has been the non-executive Chairman of the Board of the Corporation and of First Hawaiian Bank since January 2005. He has been a director of the Corporation since 1983, a director of First Hawaiian Bank since 1979, and a director of Bank of the West since November 1998. He has beenwas Chairman of the Board and Chief Executive Officer of the Corporation and First Hawaiian Bank sincefrom September 1989 to December 2004, and has been Vice Chairman of the Board of Bank of the West since November 1998. He was President of the Corporation from March 1989 to March 1991. He was1991, President of First Hawaiian Bank from November 1984 to October 1989. He was1989, and an Executive Vice President of the Corporation from 1982 to 1989. He has been with First Hawaiian Bank since 1968. He is a trustee of the Estate of S.M. Damon and a director of Alexander & Baldwin, Inc., a diversified ocean transportation, property development and management, and food products company.

     Dr. Julia Ann Frohlich, 61,64, has been a director of the Corporation since 1992 and a director of First Hawaiian Bank since August 1991. She was a director of First Hawaiian Creditcorp, Inc. from 1990 to June 1998 and was a director of FHL Lease Holding Company, Inc. from 1990 to June 1997. She was President of the Blood Bank of Hawaii from 1985 to 2000, and is now its President Emeritus.

     Robert A. Fuhrman, 77,80, has been a director of the Corporation since November 1998 and a director of Bank of the West since August 1981. He has been Chairman of the Board of Directors of Bank of the West since April 1991. He is the retired Vice Chairman, President and Chief Operating Officer of Lockheed Corporation.

     Paul Mullin Ganley, 62,65, has been a director of the Corporation since 1991 and a director of First Hawaiian Bank since 1986. He is a trustee of the Estate of S.M. Damon and a partner in the law firm of Carlsmith Ball LLP, Honolulu, Hawaii.

     David M. Haig, 50,53, has been a director of the Corporation since 1989 and a director of First Hawaiian Bank since 1983. Mr. Haig is a beneficiary and, since 1982, has been a trustee of the Estate of S.M. Damon. He has served as Chairman of the Estate of S.M. Damon since 1993.

     John A. Hoag, 69,72, has been a director of the Corporation since 1991 and a director of First Hawaiian Bank since October 1989. He was President of the Corporation from 1991 until April 1995, and was an Executive Vice President of the Corporation from 1982 to 1991. From 1989 until June 1994, Mr. Hoag was President of First Hawaiian Bank. From that date until his retirement in June 1995, he was Vice Chairman of First Hawaiian Bank. Mr. Hoag is Chairman of the Board of Hawaii Reserves, Inc., a land management corporation that is a subsidiary of Deseret Management Corporation.

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BancWest Corporation and Subsidiaries
PART III (continued)

Part IIIDonald G. Horner,54, has been a director of the Corporation, and President and Chief Executive Officer of First Hawaiian Bank, since January 2005. He has been an Executive Vice President of the Corporation or its predecessor since 1989, and was President and Chief Operating Officer of First Hawaiian Bank from January 2003 to December 2004. He has been a director of First Hawaiian Bank since May 2002, served as Vice Chairman of First Hawaiian Bank from 1994 to 2002, and was an Executive Vice President of First Hawaiian Bank from 1993 to 1994. Mr. Horner has been with First Hawaiian Bank since 1978.

     Bert T. Kobayashi, Jr., 62,65, has been a director of the Corporation since 1991 and a director of First Hawaiian Bank since 1974. He is a principal of the law firm of Kobayashi, Sugita & Goda, Honolulu, Hawaii. He served asis a director of Schuler Homes,Hawaiian Holdings, Inc. from 1992 until that company’s merger with Western Pacific Housing in April 2001.

     Michel Larrouilh, 66,69, has been a director of the Corporation since November 1998, and served as a director of Bank of the West since February 1984.from 1984 to 2002. He was Chief Executive Officer of Bank of the West from February 1984 to December 1995. He was Chairman and Chief Executive Officer of Bank of the West’s holding company from January 1996 to December 1997. He was Chairman and Advisor to the Chief Executive Officer of Bank of the West’s holding company from January 1998 to October 1998. Mr. Larrouilh joined BNP Paribas in 1953.

     Pierre Mariani, 45,48, has been a director of the Corporation and of Bank of the West since December 1999. Mr. Mariani is Executive Vice President,Head of International Retail Banking,and Financial Services of BNP Paribas.Paribas, and has been a member of the Executive Committee of BNP Paribas since June 2003. He served as Senior Advisor and Chief of Staff of the Minister of Budget and Government Spokesman from 1993 to 1995; Chief Executive Officer and director of Societe D’investissements Immobiliers Et De Gestion, (SEFIMEG), a major French property company, from 1995 to 1996; and Chief Executive Officer and director of BANEXI, the investment bank of Banque Nationale de Paris (“BNP”),BNP, from 1996 to 1999.

     Fujio Matsuda, 77,80, has been a director of the Corporation since 1987 and a director of First Hawaiian Bank since 1985. He is a director (and from 1996-2001 was Chairman) of the Pacific International Center for High Technology Research.Research, and also served as Chairman of the Board from 1996 to 2004. He was President of the Japan-America Institute of Management Science from September 1994 to June 1996. He was Executive Director of the Research Corporation of the University of Hawaii from 1984 until 1994, and he was the President of the University of Hawaii from 1974 to 1984.

     Don J. McGrath, 53,56, has been President and Chief Executive Officer of the Corporation since January 2005, a director of the Corporation since November 1998, a director of Bank of the West since July 1989, and a director of First Hawaiian Bank since November 1998. He has beenwas President and Chief Operating Officer of the Corporation sincefrom November 1998 to December 2004, and has been President and Chief Executive Officer of Bank of the West since January 1996 and1996. He is Vice Chairman of the Board of First Hawaiian Bank and has served in that or similar capacities since November 1998. He was President and Chief Operating Officer of Bank of the West from 1991 to 1996. He has been with Bank of the West since 1975. Mr. McGrath becamehas been a public member of the Pacific Stock Exchange Board of Governors inDirectors since January 2001.2001, and is chairman of its Compensation Committee.

     Rodney R. Peck, 56,59, has been a director of the Corporation since November 1998 and a director of Bank of the West since July 1990. He is a Senior Partner with the law firm of Pillsbury Winthrop LLP, San Francisco, California.California, and New York, New York.

     Edouard A. Sautter, 65,68, has been a director of BancWest and Bank of the West since 2001. He was the head of Group Risk Management and a member of the Management Committee of BNP, or BNP Paribas, as the case may be, from October 1994 until his retirement in July 2000. From 1989 until 1994 he served as an Executive Vice President in charge of the Industry Research Department of BNP. He joined BNP in 1967. Mr. Sautter is a citizen of the Republic of France.

     Joel Sibrac,Eric K. Shinseki, 54,62, has been a director of the Corporation since November 1998June 2004. General Shinseki retired from the United States Army in 2003, after a distinguished 38-year military career that culminated in a four-year term as the United States Army Chief of Staff. He was born on the island of Kauai in Hawaii, and is the first person of Asian ancestry to lead one of the American military services. General Shinseki is also a director of BankHoneywell International, Inc. and of the West since January 1995. He has been Vice Chairman of the Corporation since November 1998. He has been Senior Executive Vice President, Commercial Banking Group, of Bank of the West since 1996. He was General Manager, North American Desk, of BNP from 1994 to 1996 and General Manager of BNP Italy from 1990 to 1994. He joined BNP in 1974.Grove Farm Company, Incorporated.

     John K. Tsui, 64,67, has been a director of the Corporation since July 1995 and a director of First Hawaiian Bank since July 1994. He has beenFrom November 1998 until December 2002, he was Vice Chairman and Chief Credit Officer of the Corporation since November 1998.Corporation. He was President of the Corporation from April 1995 through October 1998. He becameserved as President and Chief Operating Officer of First Hawaiian Bank infrom July 1994 and Vice Chairman of Bank of the West in November 1998.until December 2002. He was Executive Vice President of Bancorp Hawaii, Inc. (now known as Pacific Century Financial Corporation)Bank of Hawaii Corp.) from 1986 to June 1994 and Vice Chairman of Bank of Hawaii from 1984 to June 1994. Mr. Tsui has been Chairman of the Board of Towne Development of Hawaii, Inc. since March 2003. He has been a trustee of the Bishop Street Funds since January 2004.

     Jacques Henri Wahl, 70,73, has been a director of the Corporation since November 1998 and a director of Bank of the West since July 1982. He served as Senior Adviser to the Chief Executive Officer of BNP Paribas, and of BNP, from January 1997 until his retirement in February 2001. He was a member of the Managing Committee of the BNP Group, and a director of BNP, from January 1997 until May 2000. He served as Vice Chairman of BNP and Chairman of Banque Nationale de Paris Intercontinentale from 1993 to 1996. He was President and Chief Operating Officer of BNP from 1982 to 1993.

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PART III

Part III(continued)

Fred C. Weyand, 85, has been a director of the Corporation since 1986 and a director of First Hawaiian Bank since 1981. He was Vice President of the Corporation from 1976 to 1982, Senior Vice President of First Hawaiian Bank from 1980 to 1982 and Corporate Secretary from 1978 to 1981. He served as a commissioned officer in the United States Army from 1940 to 1976 and held the office of Chief of Staff as a member of the Joint Chiefs of Staff from 1974 to 1976. He is a trustee of the Estate of S.M. Damon.

     Robert C. Wo, 77, was80, has served as a director of the Corporation from 1974 to 1989 and again since 1992 and has been a director of First Hawaiian Bank since 1963. He has been President and Secretary of BJ Management Corporation, a management consulting company, since 1979. He has been Chairman of the Board of C.S. Wo & Sons, Ltd., a manufacturer and retailer of home furnishings, since 1973.

Compensation of Directors

     The Corporation pays retainers of $3,750$6,000 per quarter to directors who are not employees of the Corporation or its subsidiaries. It pays non-employee directors $800$1,200 for each board meeting attended and $700$1,200 for each committee meeting attended ($2,000 for committee chairs), and reimburses transportation and lodgingother expenses. The Corporation does not pay board or committee fees or retainers to directors who are employees of the Corporation or its subsidiaries. Mr. Dods serves as the non-executive Chairman of the Board of the Corporation and of First Hawaiian Bank, and as a director of the Corporation, Bank of the West and First Hawaiian Bank, pursuant to an agreement with BNP Paribas (an exhibit to this filing incorporated herein by reference) under which he receives an annual retainer of $300,000, normal meeting fees, medical insurance, and various allowances and perquisites he received prior to his retirement as the Corporation’s chief executive officer. The agreement is terminable by Mr. Dods or BNP Paribas on six months’ advance notice. Mr. McGrath’s employment agreement, summarized in Item 11 below, provides among other things that the Corporation will elect him to the Board of Directors of Bank of the West, and will use its best efforts to cause his election to the Corporation’s Board of Directors.

     The Corporation has a Directors’ Retirement Plan for directors of the Corporation and First Hawaiian Bank who are not employed by the Corporation or its affiliates and who are not covered by any of the Corporation’s employee retirement programs. Following retirement from one of those boards after reaching age 55 and serving at least 10 years as a director, a retired director or his or her beneficiary is entitled to receive monthly payments for a ten-year period at an annual rate equal to one-half of the annual retainer fee in effect at the time of the director’s retirement.

Audit Committee Members

     The Corporation has a standing audit committee, whose members are John A. Hoag (Chairman), W. Allen Doane and Robert A. Fuhrman. The Corporation’s Board of Directors has determined that all members of the committee are “audit committee financial experts” as defined in SEC regulations. All committee members are independent within the meaning of applicable standards.

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BancWest Corporation and Subsidiaries
PART III

Executive Officers

     Set forth below are the Corporation’s current executive officers, together with their ages and positions with the Corporation.

Corporation, and their occupations during the last five years.
   
Name, Age Positions and Offices With the Corporation

Name, Age
 
Walter A. Dods, Jr., 60Please see “Directors.”
Don J. McGrath, 53Please see “Directors.”
John K. Tsui, 64Please see “Directors.”
Joel Sibrac, 54Please see “Directors.”
Howard H. Karr, 59Executive Vice President and Chief Financial Officer of the Corporation since November 1998; Executive Vice President and Treasurer of the Corporation from 1989 to October 1998; Vice Chairman of First Hawaiian Bank since 1997; Vice Chairman, Chief Financial Officer and Treasurer of First Hawaiian Bank from September 1993 to 1997. Mr. Karr has been with First Hawaiian Bank since 1973.
Douglas C. Grigsby, 49Executive Vice President and Treasurer of the Corporation since November 1998 and Chief Financial Officer of Bank of the West since 1989. Mr. Grigsby joined Bank of the West in 1977.
Bernard Brasseur, 6366 Executive Vice President and Risk Manager of the Corporation, and Vice Chairman of First Hawaiian Bank, from 1998-2002 and since November 1998;2003; Risk Manager of Bank of the West since 1983; Vice Chairman of First Hawaiian Bank since November 1998.1983. Mr. Brasseur joined BNP in 1966, and Bank of the West in 1983.
Gérard A. Denot, 58Please see “Directors.”
Stephen C. Glenn, 59Executive Vice President-Administration of the Corporation since January 2005; Senior Vice President of the Corporation from 1998 to 2004; Vice Chairman and Chief Administrative Officer of Bank of the West, and Manager of its Wealth Management Division, since 2003; Senior Executive Vice President and Chief Administrative Officer of Bank of the West from 2002 to 2003; Executive Vice President and Chief Administrative Officer from 1992 to 2001. Mr. Glenn joined Bank of the West in 1975.
Douglas C. Grigsby, 52Chief Financial Officer of the Corporation since August 2002; Executive Vice President and Treasurer of the Corporation since 1998; Vice Chairman of Bank of the West since 2002; Chief Financial Officer of Bank of the West from 1989 to 2002. Mr. Grigsby joined Bank of the West in 1977.
Donald G. Horner, 5154Please see “Directors.
Don J. McGrath, 56Please see “Directors.
J. Michael Shepherd, 49 Executive Vice President, General Counsel and Secretary of the Corporation and of Bank of the West since 1989; Vice Chairman of First Hawaiian Bank since July 1994;December 2004; Executive Vice President, General Counsel and Secretary of First Hawaiianthe Bank of New York Company, Inc. from 19932001 to 1994. Mr. Horner has been with First Hawaiian Bank since 1978.2004; partner, Brobeck Phleger & Harrison, 1995 to 2000.

73     The Corporation has adopted a code of ethics that applies to its chief executive officer, chief financial officer, principal accounting officer or controller or persons performing similar functions. The code is posted on the Corporation’s website atwww.bancwestcorp.com.

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PartBancWest Corporation and Subsidiaries
PART III(continued)

Item 11. Executive Compensation

Summary Compensation Table

                                  
                       Long-Term Compensation
                       
   Annual Compensation(1)         Awards Payouts
   
         
 
Name             Other                
and             AnnualRestrictedSecurities     All Other
Principal             Compen- Stock Underlying LTIP Compen-
Position Year Salary Bonus(2) sation(3) Awards Options Payouts(4) sation(5)

 
 
 
 
 
 
 
 
Walter A. Dods, Jr.  2001  $1,022,225  $772,802  $135,825      158,600  $931,361  $227,469 
 Chairman, Chief  2000  $973,548  $637,868         203,914     $154,407 
 Executive Officer  1999  $927,188  $607,493         133,100  $280,933  $161,856 
 and Director                                
 
Don J. McGrath  2001  $791,690  $560,017  $889      98,488  $576,174  $77,272 
 President, Chief  2000  $733,346  $450,014  $2,077      128,929     $78,842 
 Operating Officer  1999  $650,016  $390,010         89,098     $76,044 
 and Director                                
 
John K. Tsui  2001  $670,474  $304,127  $5,640      65,016  $366,994  $179,956 
 Vice Chairman,  2000  $638,555  $289,645  $4,934      101,331     $186,474 
 Chief Credit  1999  $609,721  $280,875  $5,637      73,900  $131,026  $197,442 
 Officer and Director                                
 
Howard H. Karr  2001  $408,934  $185,492         31,723  $166,276  $75,939 
 Executive Vice  2000  $389,476  $176,659         49,451     $79,144 
 President and  1999  $370,643  $163,940         35,288  $55,860  $87,222 
 Chief Financial Officer                                
 
Donald G. Horner  2001  $373,183  $188,084  $16,006      28,950  $151,568  $74,789 
 Executive Vice  2000  $355,356  $179,128  $9,933      45,072     $88,386 
 President  1999  $337,523  $149,864  $10,650      31,986  $50,633  $92,381 
                                 
                  Long-Term Compensation 
  Annual Compensation (1)  Awards  Payouts 
Name             Other              
and             Annual  Restricted  Securities      All Other 
Principal             Compen-  Stock  Underlying  LTIP  Compen- 
Position Year  Salary  Bonus (2)  sation (3)  Awards  Options (4)  Payouts (5)  sation (6) 
Walter A. Dods, Jr. (7)  2004  $1,081,925  $1,081,925  $241,666           $30,317 
Chairman, Chief  2003  $1,081,925  $1,081,925  $233,628      30,000     $121,480 
Executive Officer and Director  2002  $1,073,338  $865,539  $188,138        $2,991,106  $133,268 
                                 
Don J. McGrath (7)  2004  $985,998  $1,000,008  $5,220           $25,954 
President, Chief  2003  $905,961  $824,353  $4,871      30,000     $65,088 
Operating Officer and Director  2002  $846,692  $642,020  $57,255        $1,942,733  $66,780 
                                 
Gérard A. Denot  2004  $344,146  $225,568  $236,302           $6,150 
Vice Chairman and Director  2003  $325,000  $198,000  $207,599      8,000     $10,386 
                                 
Donald G. Horner  2004  $512,917  $341,250  $14,066             
Executive Vice  2003  $452,500  $271,500  $19,116      8,000     $437,888 
President  2002  $398,111  $248,875  $28,413        $545,814  $74,343 
                                 
Douglas C. Grigsby  2004  $399,924  $201,252  $1,773           $11,043 
Executive Vice  2003  $385,144  $193,512  $177      8,000     $29,812 
President, Chief  2002  $352,600  $187,872  $7,537        $467,679  $30,440 
Financial officer and Treasurer                                

Notes to Summary Compensation Table:

   
Note (1) Includes amounts earned but deferred under the Corporation’s Deferred Compensation Plan (the “DCP”).
Note (2) Bonuses are reported for the year in which earned, even if paid in the following year, under the Corporation’s Incentive Plan for Key Executives (“IPKE”).
Note (3) The 2004 amounts shown for Mr. McGrath, Mr. TsuiHorner and Mr. HornerGrigsby are above-market interest accruals under the Deferred Compensation Plan.DCP. The 2004 amount shown for Mr. Dods isconsists of $52,193 in DCP accruals plus the aggregate incremental cost of perquisites and personal benefits (primarily(comprised primarily of $72,000 for a San Francisco residence and $38,014$41,897 for related income taxes). The annualamount for Mr. Denot consists of $32,524 paid to equalize French and U.S. taxes; $4,648 for French social security payments; plus the aggregate incremental cost of perquisites and personal benefits (comprised primarily of a $104,616 housing allowance and $50,256 for related income taxes). The aggregate incremental cost of perquisites and personal benefits for each other named executive officer was less thanthen $50,000.
Note (4) LTIP payoutsThe underlying securities were common shares of BNP Paribas.
Note (5)Payouts under the Long Term Incentive Plan (the “LTIP”) are reported infor the year payment is made, not the years for which payments are earned. For example,Because all LTIP participants employed by the Company at the time of its acquisition by BNP Paribas became entitled to receive their maximum LTIP awards for all open performance cycles, LTIP payouts shown for 2001 are amounts2002 include the maximum LTIP awards for the 1999-2001, 2000-2002 and 2001-2003 performance cycles, all of which were paid in February 2001 for the 1999-2000 LTIP performance cycle.January 2002.
Note (5)Includes (i) premiums for life insurance, including “gross-up” for income taxes; (ii) amounts related to split-dollar insurance agreements as discussed below; (iii) 401(k) matching contributions, if any, made on the executive’s behalf; and (iv) one-time payouts to terminate excess vacation days. Details of All Other Compensation received by the named executive officers for 2001 are as follows:

74


Part III(continued)

                         
      Split-Dollar Insurance            
      
 Profit        
  Life Term Interest Sharing Plan Vacation    
Name Insurance Element Element Contributions Payout Total

 
 
 
 
 
 
Dods $32,395  $6,541  $112,633     $75,900  $227,469 
McGrath    $6,678  $65,343  $5,250     $77,271 
Tsui    $8,033  $171,923        $179,956 
Karr    $3,331  $59,583     $13,026  $75,940 
Horner    $1,726  $73,064        $74,790 

The Corporation has split-dollar insurance agreements with the named executive officers, as well as certain other senior officers. Under each agreement, the Corporation pays all premiums for a policy on the life of the executive. The executive is entitled to a portion of the death benefit equal to three times salary, and the Corporation is entitled to the remainder. If the executive remains employed by the Corporation, the policy splits (typically at age 65) and the executive retains a policy with a death benefit equal to three times final salary, and a portion of the accumulated cash values. The policies are designed so that the Corporation will recover all premiums previously paid plus an interest factor from its share of death benefits or cash values. The amounts under “Split-Dollar Insurance — Term Element” represent the portion of split dollar insurance premiums paid in 2001 corresponding to the insurer’s lowest term insurance rate for the relevant death benefit, plus related gross-ups for income taxes. The amounts under “Split- Dollar Insurance — Interest Element” represent the present values of hypothetical interest-free loans of the non-term elements of 2001 split-dollar insurance premiums. This methodology has also been used in calculating the split-dollar elements of 1999 and 2001 amounts shown under “All Other Compensation.” The Corporation also has a $1,000,000 whole life insurance policy on the life of Mr. Dods. The premium and related gross-up for income taxes on this policy are included under “Life Insurance.” The death benefit under this policy is deducted from the death benefit under Mr. Dods’ split-dollar policy.

Option Grants in Last Fiscal Year

     The following table sets forth 2001 option grants to each of the named executive officers under the Corporation’s 1998 Stock Incentive Plan and the potential realizable values of such options calculated as of the time of the grants. However, as described in the note to the table in the next section, all outstanding options were cashed out in connection with the BNP Paribas Merger.

                             
                      Potential Realizable Value at
                      Assumed Annual Rates of
                      Stock Price Appreciation
  Individual Grants(1) for Option Term(2)
  
 
  Number of Percent of                    
  Securities Total Options Exercise                
  Underlying Granted to or                
  Options Employees in Base Price Expiration Dollar Value of        
Name Granted Fiscal Year Per Share Date Options Granted 5% 10%

 
 
 
 
 
 
 
Dods  158,600   17.2% $24.75   4/19/11  $3,925,350  $2,468,632  $6,255,997 
McGrath  98,488   10.7% $24.75   4/19/11  $2,437,578  $1,532,980  $3,884,872 
Tsui  65,016   7.1% $24.75   4/19/11  $1,609,146  $1,011,983  $2,564,564 
Karr  31,723   3.4% $24.75   4/19/11  $785,144  $493,773  $1,251,318 
Horner  28,950   3.1% $24.75   4/19/11  $716,513  $450,611  $1,141,936 

Notes to Option Grants in Last Fiscal Year:

   
Note (1)(6) Options were granted at 100%The 2004 total for Mr. Dods consists of the market value$19,165 in premiums paid on a $1 million whole life policy, and an $11,152 gross-up payment for related income taxes. The 2004 totals for Messrs. McGrath, Denot and Grigsby include $6,150 each in 401(k) matching contributions. Mr. McGrath’s 2004 total also includes $13,378 of the stockincome imputed to him for tax purposes (calculated on the datebasis of life insurance premium factors published by the grant. Options wereInternal Revenue Service) and a $6,426 gross-up payment for related income taxes. Mr. Grigsby’s 2004 total includes $3,306 of such imputed income, and a related $1,587 gross-up payment. The imputed income and gross-up payments to vest 25% onMr. McGrath and Mr. Grigsby arise from life insurance coverage equal to three times salary provided under the day following the first anniversary of the grant and 25% per year thereafter. The exercise price was payable in cash and/or previously acquired shares, and tax withholding could be accomplished (with Executive Compensation Committee approval) by share withholding or surrender.
Note (2)These amounts represent assumed annual compounded rates of appreciation of the underlying stock of 5% and 10% from the date of grant to the expiration date of the option.Corporation’s split dollar life

7599


BancWest Corporation and Subsidiaries
PART III

insurance program. The Corporation did not make any premium payments for their coverage in 2004 because premiums were funded by policy cash values. The split dollar program has been terminated. Remaining participants, including Mr. McGrath and Mr. Grigsby, transferred their split dollar policies (including their interests in cash values) to the Corporation, and became participants in the Executive Life Insurance Plan described below.
Note (7)Mr. Dods served as Chairman and Chief Executive Officer through December 31, 2004. On January 1, 2005, Mr. McGrath became President and Chief Executive Officer, and Mr. Dods became non-executive Chairman of the Board.

Part III(continued)

Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values

                 
          Number of Securities Value of In-the-Money
  Shares Acquired     Underlying Options Money Options at
  on Exercise Value Realized at December 31, 2001 December 31, 2001
Name (#) ($) (#)(1) ($)(1)

 
 
 
 
Dods  0   $0   953,914  $16,182,439 
McGrath  0   $0   371,957  $5,734,275 
Tsui  0   $0   480,587  $8,193,654 
Karr  0   $0   246,222  $4,246,366 
Horner  0   $0   198,428  $3,303,597 
Note (1)At the effective time of the BNP Paribas Merger each vested and unvested option outstanding under BancWest’s option plans was cancelled, and in settlement thereof BancWest became obligated to pay its holder $35 per share less the applicable option exercise price. Those payments were made in January 2002. The last two columns of this table show the number and value of options for which named executive officers were entitled to receive as of December 31, 2001.
                 
              Value of 
          Number of Securities  In-the-Money 
          Underlying Options  Options at 
          at December 31, 2004  December 31, 2004 
  Shares Acquired      (#)  ($) 
  on Exercise  Value Realized  Exercisable/  Exercisable/ 
Name (#)  ($)  Nonexercisable  Nonexercisable 
Dods        0/30,000   0/$658,724 
McGrath  25  $472   41,975/30,000  $655,091/$658,724 
Denot  500  $20,435   9,000/10,000  $207,905/$187,316 
Horner        0/8,000   0/$175,660 
Grigsby        0/8,000   0/$175,660 

     All securities underlying the options are shares of BNP Paribas. Dollar values were calculated using a December 31, 2004 market price of 53.30 euro per share and an exchange rate of $1.3554 per euro. Outstanding options include 11,000 BNP Paribas options awarded to Mr. Denot prior to commencing service with the Corporation, and 41,975 BNP Paribas options awarded to Mr. McGrath for services prior to the November 1998 merger of “old” BancWest Corporation into the Corporation. No options were granted in 2004.

Long-Term Incentive Plans— Plans–Awards in Last Fiscal Year

     In March 2001, theThe Executive Compensation Committee established target awards for the 2001-20032004-2006 LTIP performance cycle that ranged from 10% to 50% of participants’ average annual base salaries, and adopted an award matrix based on two measures of corporate performance — relative average total stockholder return versus the Standard & Poor’s Midcap Regional Bank Index– Return on Average Notional Equity (“TSR”RONE”), and annual compounded growth rate in diluted earnings per sharean Efficiency Ratio (“ACGR”ER”). Target awards were towill be multiplied by a corporate performance factor of 0% to 200% established after the performance period wasis complete by applying the Corporation’s TSRRONE and ACGRER to an array of percentages shown on thean award matrix. One axis of that matrix setsets forth TSRRONE values ranging from the 40th percentile42.1% to the 80th percentile,50.1%, and the other axis setsets forth ACGR valuesER percentages of 8%55.5% to 12%45.5%. The matrix providedprovides a corporate performance factor of 0% if TSR wasRONE is less than 42.1% or the 40th percentile or ACGR was lessER is greater than 8%55.5%; a 100% corporate performance factor if (among other combinations) RONE is 46.1% and the TSR was at the 60th percentile and ACGR was 10%ER is 50.5%; and the maximum corporate performance factor of 200% if the TSR reachedRONE reaches at least 50.1% and the 80th percentile and ACGR was at least 12%.ER is 45.5% or better.

     In accordance with Securities and Exchange Commission (“SEC”)SEC rules, the following table shows threshold, target and maximum awards levellevels of the named executive officers for the 2001-20032004-2006 LTIP performance cycle. However, due to change-in-control provisions of the LTIP, all LTIP participants employed by the

                     
          Estimated Future Payouts 
  Number of  Performance or  under Non-Stock 
  Shares,  Other Period until  Price-Based Plans (2) 
  Units or  Maturation          
Name Other Rights  or Payout (1)  Threshold  Target  Maximum 
Dods (3) None  12/31/2006  None $180,320  $360,641 
McGrath None  12/31/2006  None $501,907  $1,003,814 
Denot None  12/31/2006  None $116,062  $232,125 
Horner None  12/31/2006  None $198,100  $396,200 
Grigsby None  12/31/2006  None $124,824  $249,649 

100


BancWest Corporation at the time of the BNP Paribas Merger became entitled to receive their maximum LTIP awards for 2001-2003 and all other open performance cycles. Those awards were paid in January 2002.

                     
  Number of Performance or Estimated Future Payouts
  Shares, Other Period until under Non-Stock Price-Based Plans(2)
  Units or Maturation 
Name Other Rights or Payout(1) Threshold Target Maximum

 
 
 
 
 
Dods None  12/31/2003  None $515,201  $1,030,403 
McGrath None  12/31/2003  None $340,010  $680,021 
Tsui None  12/31/2003  None $238,043  $473,086 
Karr None  12/31/2003  None $103,051  $206,103 
Horner None  12/31/2003  None $94,042  $188,084 
Subsidiaries
PART III
   
Note (1) Performance period began on January 1, 2001.2004.
Note (2)
 Target and Maximum payouts correspond to corporate performance factors of 100% and 200%, and are calculated using estimated average salaries for 2004-2006.
Note (3)Mr. Dods will participate in 2004-2006 awards on a prorated basis because he retired after completing one-third of the LTIP cycle.

Executive Life Insurance Plan

     The Corporation provides pre-and post-retirement life insurance benefits for approximately 26 executives under the Executive Life Insurance Plan (the “ELIP”), which is an exhibit incorporated herein by reference. The named executive officers who currently participate in the ELIP, which replaced the Corporation’s prior split dollar life insurance program, are Mr. McGrath and Mr. Grigsby. Death benefits under the ELIP are equal to three times current salary while actively employed. Following a “qualified termination,” the Corporation will continue to provide death benefits to ELIP participants equal to three times final salary until their “policy distribution date.” On the policy distribution date, the Corporation will transfer to the participant ownership of a company-owed life insurance policy with sufficient cash value, based on reasonable actuarial assumptions, to provide a death benefit equal to three times final salary until the policy maturity date. At the date the policy is transferred to the participant, the Corporation will also pay a cash bonus sufficient to cover the executive’s estimated income taxes due as a result of transfer of the policy.

     A qualified termination includes termination of employment after attaining age 65, termination of employment after attaining age 55 with at least ten years of credited service, termination of those executives entitled to the enhanced SERP benefit described in the following section, or a discretionary determination by the Executive Compensation Committee to treat a termination that does not otherwise qualify as a qualified termination. Mr. McGrath (age 56) and Mr. Grigsby (age 52) have each satisfied the requirements for a “qualified termination.” The policy distribution date is the latest to occur of termination of the participant’s employment, attaining age 65, and completion of seven annual premium payments. However, the Executive Compensation Committee has discretion to authorize distribution of a policy to a participant following termination of service and completion of seven premium payments, but prior to attaining age 65.

Defined Benefit Pension and Supplemental Executive Retirement Plans

     The Corporation hassponsors an Employees’ Retirement Plan (the “ERP”) for employees of the Corporation and participating subsidiaries.subsidiaries, which resulted from the merger of two separate plans. The ERP includes a cash balance plan for eligible Bank of the West employees, under which benefits continue to accrue, and a “frozen” defined benefit plan for certain employees of First Hawaiian, Inc. (“FHI”).

     Bank of the West’s cash balance plan (previously part of the BNP U.S. Retirement Plan) was merged into the ERP effective January 1, 1999. It provides a benefit at retirement equal to the value of the participant’s cash balance account. The cash balance account consists of: accrued benefits transferred as of January 1, 1999; 5% of base earnings (up to an inflation-adjusted earnings limit established by Internal Revenue Service rules) while a participant for each year following 1998; and interest on the foregoing amounts credited quarterly at an annual rate calculated by reference to 5-year Treasuries. Benefits vest after five years of service, but may not be paid out before age 55. The named executive officers who currently participate in the cash balance plan are Mr. McGrath and Mr. Grigsby. Based on 2% inflation, a 3.25% interest-crediting rate and 5.75% conversion factors, the Corporation currently estimates that the annual benefit payable from this plan to Mr. McGrath and Mr. Grigsby at normal retirement age will be $54,500 and $63,000, respectively.

     The FHI defined benefit plan was “frozen” as of December 31, 1995 and none of the named executive officers accrued such benefits under that plan for service after December 31, 1995. Under the ERP,frozen FHI plan, covered compensation includes salary, including overtime, but excludes bonuses. Pension compensation is also limited to the maximum allowable under the Internal Revenue Code. Retirement benefits become payable effective upon an employee’s retirement at the normal retirement age of 65 years. Normal retirement benefits payable under the ERP are based on average compensation and years of credited service.service as of December 31, 1995. Mr. Dods and Mr. Horner have frozen accrued benefits payable at normal retirement of $94,791 and $42,713, respectively. Under specified circumstances, an employee who has attained a certain age and length of service may retire early with reduced

76


Part III(continued)

benefits. The ERP was “frozen” as of December 31, 1995 and none of the executive officers named in the Summary Compensation Table accrued such benefits under the ERP for service after December 31, 1995.

     Effective as of January 1, 1999, assets attributable to certain Bank of the West employees in the BNP U.S.The Corporation’s Supplemental Executive Retirement Plan (the “BNP Plan”) were merged into the ERP and the ERP was amended to provide eligible Bank of the West employees with accrual of benefits comparable to those provided under the BNP Plan. Benefits accrue based upon an employee’s years of service and compensation over his/her years of employment. Mr. McGrath is the only executive officer named in the Summary Compensation Table eligible to accrue such benefits.

     The Corporation also maintains a“SERP,” discussed below) includes grandfathered pension portion of the SERPprovisions under which eligible executive officers (including Mr. Dods Mr. Tsui, Mr. Karr and Mr. Horner) continue to earnwill receive benefits based on the ERP formula.formula used in the frozen FHI defined benefit plan. In determining grandfathered pension benefits under the SERP, the participant’s covered compensation includes base pay, commissions, overtime, short-term incentive pay, and the annual cash bonus earned under IPKE; athe IPKE. A participant’s covered compensation does not include any LTIP bonus. The grandfathered pension benefit payable under the SERP is reduced by the participant’s “frozen” accrued benefit under the ERP.old FHI plan.

     In connection with the November 1998 merger of 101


BancWest Corporation and First Hawaiian, Inc., the SERP was amended to provide that certain Bank of the West employees, including Mr. McGrath, would be entitled to a minimum benefit equal to the minimum benefit under the terminated Bank of the West Excess Benefit Plan. To be eligible for such minimum benefit, Mr. McGrath must have completed at least 20 years of service and attained at least age 55 at retirement. The minimum benefit will be 50% of his base salary at the annual rate in effect on the date he retires from service (“final pay”) if he is at least age 60 at retirement and 30% of his final pay if he is at least age 55 but less than 60 at retirement. Mr. McGrath is currently age 53 with 26 years of service and at December 31, 2001 his base salary was $800,024.Subsidiaries
PART III

     The following table illustrates the estimated annual pension benefits payable under the grandfathered pension portion of the SERP to eligible executive officers at age 65.65 (including the value of the frozen FHI benefit). Whether these amounts become payable depends on the contingencies and conditions set forth in the ERP and the SERP.

                           
Final Average                        
Compensation(1) Years of Service(2)

 
    15 20 25 30 35 40
    
 
 
 
 
 
 $200,000  50,082   66,777   83,471   100,165   116,859   133,553 
   300,000  76,332   101,777   127,221   152,665   178,109   203,553 
   400,000  102,582   136,777   170,971   205,165   239,359   273,553 
   500,000  128,832   171,777   214,721   257,665   300,609   343,553 
   600,000   155,082   206,777   258,471   310,165   361,859   413,553 
   700,000   181,332   241,777   302,221   362,665   423,109   483,553 
   800,000   207,582   276,777   345,971   415,165   484,359   553,553 
   900,000   233,832   311,777   389,721   467,665   545,609   623,553 
   1,000,000  260,082   346,777   433,471   520,165   606,859   693,553 
   1,100,000  286,332   381,777   477,221   572,665   668,109   763,553 
   1,200,000  312,582   416,777   520,971   625,165   729,359   833,553 
   1,300,000  338,832   451,777   564,721   677,665   790,609   903,553 
   1,400,000  365,082   486,777   608,471   730,165   851,859   973,553 
   1,500,000  391,332   521,777   652,221   782,665   913,109   1,043,553 
   1,600,000  417,582   556,777   695,971   835,165   974,359   1,113,553 
   1,700,000  443,832   591,777   739,721   887,665   1,035,609   1,183,553 
                         
Final Average     Years of Service (2) 
Compensation (1)15  20  25  30  35  40 
   
200,000  48,483   64,643   80,804   96,965   113,126   125,126 
300,000  74,733   99,643   124,554   149,465   174,376   192,376 
400,000  100,983   134,643   168,304   201,965   235,626   259,626 
500,000  127,233   169,643   212,054   254,465   296,876   326,876 
600,000  153,483   204,643   255,804   306,965   358,126   394,126 
700,000  179,733   239,643   299,554   359,465   419,376   461,376 
800,000  205,983   274,643   343,304   411,965   480,626   528,626 
900,000  232,233   309,643   387,054   464,465   541,876   595,876 
1,000,000  258,483   344,643   430,804   516,965   603,126   663,126 
1,100,000  284,733   379,643   474,554   569,465   664,376   730,376 
1,200,000  310,983   414,643   518,304   621,965   725,626   797,626 
1,300,000  337,233   449,643   562,054   674,465   786,876   864,876 
1,400,000  363,483   484,643   605,804   726,965   848,126   932,126 
1,500,000  389,733   519,643   649,554   779,465   909,376   999,376 
1,600,000  415,983   554,643   693,304   831,965   970,626   1,066,626 
1,700,000  442,233   589,643   737,054   884,465   1,031,876   1,133,876 
1,800,000  468,483   624,643   780,804   936,965   1,093,126   1,201,126 
1,900,000  494,733   659,643   824,554   989,465   1,154,376   1,268,376 
2,000,000  520,983   694,643   868,304   1,041,965   1,215,626   1,335,626 

Notes to Defined Benefit Pension Plans Table:

   
Note (1) Final average compensation represents the average annual compensation during the highest 60 consecutive calendar months in the last 120 calendar months of creditable service. Compensation for the purpose of this table includes base salary plus the value of awards under the IPKE as shown on the Summary Compensation Table (but not bonuses under the LTIP). The amount of the IPKE bonus included in compensation for any year for purposes of the SERP is the amount earned for the performance year, though not paid until the following year. The estimated annual benefits are computed on the basis of a straight-life annuity form of payment with no social security offset.

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Note (2) As of December 31, 2001,2004, the number of years of creditablecredited service for the named executive officers who participate in the grandfathered pension portion of the SERP were: Mr. Dods, 33 years; Mr. Tsui, 18 years (eight years actual service plus ten years added by the Executive Compensation Committee when Mr. Tsui was hired); Mr. Karr, 2936 years; and Mr. Horner, 2326 years.

     Approximately 90 actively employed senior executives participate in the SERP. SERP participants receive the greater of (i) in the case of grandfathered participants, benefits calculated under the grandfathered SERP provisions, if applicable, and (ii) benefits derived from a target percentage of their qualifying compensation, lessbut only to the extent the target benefit exceeds offsets for grandfathered SERP benefits, and for benefits under the ERP and various other programs.

employer provided benefits (including contributions to defined contribution plans and 50% of the age 65 Social Security benefit). The named executive officers’ maximum target percentage is 60% of qualifying compensation. Ordinarily,Subject to the 2002 amendment discussed below, qualifying compensation for this purpose is the average annual rate of compensation (salary plus annual bonuses under the Incentive Plan for Key Executives) for the 60 consecutive calendar months out of the last 120 calendar months of employment that resultsresult in the highest such average. To qualify for a 60% target, the named executive officers who participate in the SERP must retire on or after their 62nd62nd birthdays with 20 years of credited service. TheirIf they retire before age 62 with the consent of the Executive Compensation Committee, their target percentagesretirement amounts (as defined by the SERP) are reduced by 3% for each year by which benefit commencement precedes the participant’s 62nd62nd birthday. Messrs. Dods, McGrath, Horner and Grigsby participate in the SERP, and each of them has at least 20 years of credited service for SERP purposes.

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     The SERP’s change-in-control provisions applySERP was amended in 2002 to participants who are “involuntarily terminated” within 36 months of a change in control, such as the BNP Paribas Merger. (The SERP defineseliminate “involuntary termination” provisions and to include a discharge or resignation in responseprovide certain enhanced SERP benefits to a (1) change in day-to-day duties; (2) reduction in compensation or benefits; (3) downward change of title; or (4) relocation requested by the employer.) Affectedall persons who were SERP participants would beat the time Bancwest was acquired by BNP Paribas. The affected SERP participants (including Messrs. Dods, McGrath, Horner and Grigsby) were granted three extra years of credited service infor purposes of computing their target benefits.benefits under the SERP. Their target benefit computations wouldwill also be based on the greater of covered compensation over the 12 months before termination, or the final average compensation otherwise provided in the SERP. In addition, their SERP benefits wouldwill begin at the later of the date of termination or age 55 though the(though an affected participant couldmay elect to delay receipt of change-in-controlSERP early retirement benefits to a date not beyond age 65.65), and early retirement benefits will be calculated using provisions that apply to retirement with consent of the Executive Compensation Committee.

     Mr. Denot participates in a 401(k) plan of the Corporation but not in any of its other pension plans or the SERP. He participates in pension plans of BNP Paribas.

Change-in-Control Arrangements

     If there is a change in control of the Corporation, benefits will be accelerated or paid under various compensation plans. Allall LTIP awards that have been outstanding six or more months will automatically be deemed fully earned at the maximum target value; SERP participants will be entitled to additional benefits if “involuntarily terminated” within 36 months following the change in control (as described in the preceding paragraph);value and participants in the Deferred Compensation PlanDCP will be entitled to an immediate lump sum distribution of certain amounts unless (as occurred in thewhen BancWest was acquired by BNP Paribas Merger)Paribas) that plan is assumed by the surviving entity. In addition, the Corporation maintains a rabbi trust with a third-party trustee for the SERP and the Deferred Compensation PlanDCP and if an actual or potential change in control occurs, the Corporation is required to contribute sufficient funds to the trust to fund all benefits payable to participants. The BNP Paribas Merger was a change in control for purposes of the LTIP, the SERP, and the rabbi trust agreement, as well as the 1991 and 1998 option plans. (Those option plans have been terminated.)

Employment Agreements

     Mr. Dods has entered into an employment agreement with the Corporation, which became effective at the time of the BNP Paribas Merger and has a term of three years, unless earlier terminated. Under the terms of that agreement, Mr. Dods is entitled to:

a base salary of $1,030,403, which may be increased annually at the Corporation’s discretion after review by the Board of Directors,
an annual target bonus of up to 100% of base salary payable if performance targets are met, but guaranteed to be at least 65% of base salary,
participate in, and receive stock and other equity or equity-based awards under, the stock option programs and stock purchase programs of BNP Paribas at levels and on terms consistent with those provided to similarly situated executives of BNP Paribas and/or its subsidiaries, and
other perquisites, including specified transportation benefits.

     Mr. Dods has the opportunity to earn awards under a new long-term incentive plan that are no less favorable than those available prior to the BNP Paribas Merger, with a guaranteed target award of at least 50% of base salary and a maximum award opportunity of 200% of the target award.

     Mr. Dods is entitled to receive a lump sum cash severance payment in the following circumstances:

BancWest terminates Mr. Dods’ employment other than for cause (as defined in the employment agreement), or due to death or disability,

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Mr. Dods quits for good reason (as defined in the employment agreement), or
Mr. Dods terminates his employment with or without good reason at any time during the thirteenth month following a change in control of BNP Paribas or BancWest. (The BNP Paribas Merger is not a change in control for this purpose.)

The severance payment would be equal to the sum of:

(1)three times the sum of:

his then current base salary,
his average annual bonus based on the preceding three fiscal years, and
a long-term incentive plan amount equal to his average award from the three preceding fiscal years, but not less than his award paid for the award cycle that ended in 2000; and

(2)a pro rata portion for the year of termination of the annual target bonus and the target awards in respect of all outstanding performance periods under the long-term incentive plan.

     Mr. Dods would also be entitled by his employment agreement to three additional years of age and service credit under our pension plans. Mr. Dods is also entitled to be grossed up, on an after-tax basis, for any excise taxes imposed under the Internal Revenue Code on any “excess parachute payment” that he receives in connection with benefits and payments provided to him in connection with any change in control, as defined in the Internal Revenue Code, of BancWest.

     Mr. McGrath has had an employment agreement with the Corporation since 1998. His agreement, which was last amended in January 2005, has a perpetual term and entitles Mr. McGrath to at least his current base salary, which may be increased annually at BancWest’s discretion after review by the Board of Directors, but may not be decreased.

     Mr. McGrath is entitled to receive a lump sum cash severance payment in the following circumstances, whether they occur following a change in control or otherwise:

  BancWest terminates Mr. McGrath’s employment other than for cause (as defined in the employment agreement) or due to disability, or
 
  Mr. McGrath quits for good reason (as defined in the employment agreement).

This severance payment would be equal to three times the sum of:

(1)(1)  his then current base salary, and
 
(2)(2)  his average annual bonus, if any, based on the preceding three fiscal years.

     Mr. McGrath is also entitled to be grossed up, on an after-tax basis, for any excise taxes imposed under the Internal Revenue Code on any “excess parachute payment” that he receives in connection with benefits and payments provided to him in connection with any change in control, as defined in the Internal Revenue Code, of BancWest.

Termination Protection Agreements

     Mr. Tsui, Mr. Karr and Mr. Horner have entered into termination protection agreements with the Corporation. Each agreement became effective at the time of the BNP Paribas Merger and has a term of three years. In no event, however, will it terminate within two years after any change in control of BNP Paribas or BancWest. Under the terms of each agreement, BancWest will provide the executive officer with the severance benefits discussed below if any of the following events occurs:

BancWest terminates the executive officer’s employment without cause (as defined in the agreements),
the executive officer quits for good reason (as defined in the agreements), or
the executive officer terminates his employment with or without good reason at any time during the thirteenth month following a change in control of BNP Paribas or BancWest. (The BNP Paribas Merger is not a change in control for this purpose.)

The executive’s severance benefits would be a lump sum cash payment equal to:

(1)two times the sum of:

his then current base salary,
his average annual bonus based on the preceding three fiscal years, and
his long-term incentive plan award amount equal to his average award from the three preceding fiscal years but not less than his award paid for the award cycle that ended in 2000; and

(2)a pro rata portion for the year of termination of the executive’s annual target bonus and his target awards in respect of all outstanding performance periods under the long-term incentive plan.

     Under these circumstances, these officers would also be entitled by their termination protection agreements to two years of additional age and service credit under our pension plans (in addition to three years of credited service under the SERP that would affect only Mr. Tsui’s SERP benefits).

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     Each of Messrs. Tsui, Karr and Horner is also entitled to be grossed up, on an after-tax basis, for any excise taxes imposed under the Internal Revenue Code on any “excess parachute payment” that such executive receives in connection with benefits and payments provided to him in connection with any change in control, as defined in the Internal Revenue Code, of BancWest.

Item 12. Security Ownership Ofof Certain Beneficial Owners Andand Management

     All of registrant’s voting securities of BancWest Corporation are beneficially owned by BNP Paribas, whose address is 16, boulevard des Italiens, 75009 Paris, France. BancWest Corporation has no compensation plans providing for issuance of its equity securities.

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Item 13. Certain Relationships and Related Transactions; Compensation Committee Interlocks and Insider ParticipationTransactions

     In the ordinary course of business, the Corporation’s bank subsidiaries have made loans to the Corporation’s directors and executive officers, to members of their families, and to entities related to such persons. Those loans were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than normal risks of collectibility or present other unfavorable features.

     The following table provides information on loans from     Messrs. Haig, Ganley and Dods are directors of the Corporation to its directors and executive officers that had balances exceeding $60,000 at any time during 2001. Each such loan is secured by a real property mortgage. During 2001, the members of the Executive Compensation Committee included Fujio Matsuda (Chairman), Dr. Julia Ann Frohlich, Robert A. Fuhrman, David M. Haig (a trusteetrustees of the Estate of S.M. Damon) and Pierre Mariani (an executive of BNP Paribas)Damon (“Damon Estate”).

             
      Aggregate Indebtedness    
  Largest Aggregate Outstanding Interest
Name and Title Indebtedness in 2001 December 31, 2001 Rate

 
 
 
Howard H. Karr(1)
 $187,192  $184,391   8.125%-7.25%(2)
Executive Vice President            
and Chief Financial Officer            
Bert T. Kobayashi, Jr. $421,905  $0   8.00%-8.625%(2)
Director $250,874   $0   5.00%
Fujio Matsuda $170,951  $165,911   5.00%
Director $52,774  $51,657   8.75%-7.25%(2)
  $49,968   $0   8.75%
John K. Tsui $423,276   $0   8.25%
Vice Chairman, Chief Credit Officer            
and Director            
Note (1)Cosigner of mortgage loan to an adult son.
Note (2)Rate adjusted annually to equal one-year U.S. Treasury index plus 2.5%

     First Hawaiian Bank Damon Estate leases a parcel of land on whichto First Hawaiian Bank used for a branch of the bank is located, from the Estate of S.M. Damon pursuant to abranch. The lease commencingcommenced July 1, 1967. This lease1967, and has a 50-year term. Rent is for a term of 50 years, and requires the payment of a fixed annual rent of $156,800 annually from July 1, 1997 to June 30, 2002 and $179,200 annuallyper year from July 1, 2002 to June 30, 2007. Rents are toRent will be fixed for the next ten-year period by agreement or, failing agreement, by appraisal. Messrs. Haig, Weyand, Ganley and Dods are directors of the Corporation and trustees of the Estate. Management of the Corporation believes that this transaction is as favorable to the Corporation and First Hawaiian Bank as that which would have been obtainable in transactions with persons or companies not affiliated with the Corporation or First Hawaiian Bank.

     First Hawaiian Bank leases office space to Damon Estate in First Hawaiian Bank’s headquarters building. In 2004, Damon Estate leased 6,074 square feet and paid rent of office space to$171,287, plus operating expenses. Effective January 1, 2005, the Estatelease includes 6,980 square feet, at an annual rent of S.M. Damon in the downtown Honolulu headquarters building of the bank. The Estate pays rent for the space at the same rate as would be paid by unrelated parties for the same space. The rent is a minimum of $3.12 per square foot per month ($227,410 per annum),$205,036, plus common area maintenance expenses, until December 7, 2002. Rents thereafter are to be fixed by agreement or, failing agreement, by appraisal.operating expenses. The lease will expireexpires in December 2007.

     Bank of the West leases approximately 48,382 square feet of office space in San Francisco, California under a commercial office lease (the “Master Lease”) commencing November 1, 1993 and expiring October 31, 2003. Bank of the West has subleased approximately 22,485 square feet of this space2007, subject to BNP Paribas, or approximately 46.5% of the leased premises (the “Subtenant’s Percentage Share”). The sublease term is the same as the Master Lease, and

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BNP Paribas pays pro-rata rent and certain expenses directly to the landlord under the Master Lease. BNP Paribas’ share of rent and expenses is based primarily on the Subtenant’s Percentage Share. The subleased premises were leased “as is,” and BNP Paribas must look solely to the landlord under the Master Lease for all services and benefits provided by the Master Lease landlord applicable to the subleased space. Bank of the West indemnifies BNP Paribas against losses incurred by BNP Paribas as a result of any breach by Bank of the West of its obligations as tenant under the Master Lease, except those assumed by BNP Paribas.

     In connection with the BNP Paribas Merger, the Corporation became the borrower under a $1,550,000,000, 6.54% term loan from a BNP Paribas subsidiary due December 31, 2010. At December 31, 2001, the outstanding principal balance of that loan was $1,550,000,000. See note 11 to the audited financial statements on page 58.two five-year extension options.

     Bank of the West and First Hawaiian Bank participate in various financial transactions with BNP Paribas and its affiliates. These transactions are subject to review by the Federal Deposit Insurance Corporation (the “FDIC”) and other regulatory authorities and are required to be on terms at least as favorable to each bank as those prevailing at the time for similar non-affiliate transactions. For information concerning financial transactions involving BNP Paribas and the Corporation or its banking subsidiaries, see Notes 3, 4, 13 and 14 to the Consolidated Financial Statements.

     During 1999, Bank of the West issued to BNP Paribas a $50,000,000,$50 million 7.35% Subordinated Capital Note due June 24, 2009. The maximum principal amount of that note outstanding in 2001,2004, and the outstanding principal balance at December 31, 2001,2004, was $50,000,000.$50 million.

     Bank of the West holds deposits and purchases federal funds from BNP Paribas. The deposits generally are for terms up to six months. Federal funds purchases are generally for one to four days. The maximum daily amount owed by Bank of the West to BNP Paribas in 20012004 in connection with such deposits and federal funds purchases was $542$600 million, and the balance outstanding on December 31, 20012004 was $263$20.4 million.

     In connection with its acquisition by BNP Paribas, BancWest became the borrower under a $1.55 billion 6.54% term loan from a BNP Paribas subsidiary due December 31, 2010. At December 31, 2004, the outstanding principal balance of that loan was $1.55 billion.

     In 2002, the Corporation sold BNP Paribas 485,413 shares of the outstanding common stock of Bank of the West for $800 million. The Corporation used the proceeds of both transactions to repay funds borrowed from BNP Paribas to finance acquisitions. As discussed in Note 4 to the Consolidated Financial Statements, the Corporation and BNP Paribas are parties to a Stockholders’ Agreement that includes put and call options on the Bank of the West stock owned by BNP Paribas.

     In October 2004, in connection with the acquisitions of Community First Bankshares, Inc. and USDB Bancorp, BancWest obtained $590 million of short-term debt financing from BNP Paribas.

     As discussed in Note 4 and 14 to the Consolidated Financial Statements, the Corporation has entered into $400 million of structured repurchase agreements with BNP Paribas.

     As discussed in Notes 3 and 4 to the Consolidated Financial Statements, the Corporation has entered into a $150 million interest rate swap with BNP Paribas to hedge obligations under the junior subordinated debentures issued in connection with the 9.5% BancWest Capital I Quarterly Income Preferred Securities. The swap is accounted for as a fair value hedge. We pay 3-month LIBOR plus 369 basis points and receive fixed payments at 9.5%. The fair value loss of the swap at December 31, 2004 was $2.7 million.

     Mr. Kobayashi is a director of the Corporation and First Hawaiian Bank, and his law corporation is a partner in the law firm of Kobayashi, Sugita & Goda. In 2001,2004, the Corporation and its subsidiaries paid legal fees to Kobayashi, Sugita & Goda in the amount of $1,591,230.totaling $676,675. Of this amount, $420,189 is$443,042 was reimbursable by bank customers. Kobayashi, Sugita & Goda leases from First Hawaiian Bank 26,788 square feet of office space in theFirst Hawaiian Bank’s headquarters building. Rent paid in 20012004 was $1,030,944$1,030,985, plus operating expenses and will increase periodically through the lease’s final year, 2006.expenses. The lease term ends in December 2006, subject to two five-year extension options.

     Mr. Peck is a director of the Corporation and Bank of the West and a Senior Partner of Pillsbury Winthrop LLP, which provides legal services to the Corporation and its subsidiaries.

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III

Item 14. Principal Accountant Fees and Services

Audit Fees and Non-Audit Fees

     The following table presents fees for professional audit services rendered by our principal accountants, PricewaterhouseCoopers LLP for the audit of BancWest’s annual financial statements for the years ended December 31, 2004 and December 31, 2003, and fees billed for other services rendered by PricewaterhouseCoopers during those periods. Certain amounts from 2003 have been reclassified to conform to the 2004 presentation.

         
(dollars in thousands) 2004  2003 
Audit fees $1,669  $1,106 
Audit-related fees (1)  188   280 
Tax fees (2)  165   895 
All other fees (3)  135   195 
       
Total $2,157  $2,476 
       


(1)Audit related fees consist of assurance and related services that are reasonable related to the performance of the audit of BancWest’s financial statements. This category includes fees related to the performance of audit and attest services not required by statute or regulations.
(2)Tax fees consist of the aggregate fees billed for professional services rendered by PricewaterhouseCoopers for tax compliance and return assistance (IRS, state and local), tax advice and tax planning.
(3)In 2004, all other fees consisted of $120 thousand for the outsourcing of a like-kind exchange system used in auto leasing and $15 thousand for accounting research and audit software. In 2003, all other fees were for the like-kind exchange system.

Audit Committee Policy for Pre-Approval of Independent Auditor Services

     The BancWest Corporation Audit Committee is responsible for the appointment, compensation, retention and oversight of the Corporation’s independent auditor. Beginning in 2003, the audit committee has required that fees for audit and nonaudit services provided to the Corporation by its independent auditor be preapproved by the committee. It has delegated to its chairman authority, between meetings of the committee, to preapprove expenditures that are within the categories of SEC-permitted services, provided the amounts so approved between any two meetings of the committee do not exceed $100,000 per item, or $250,000 in the aggregate, and provided all such approvals are presented to the committee at its next meeting. Since adoption of the committee’s preapproval requirements, the committee has not utilized provisions of applicable SEC rules that permit waiver of preapproval requirements for certain nonaudit services.

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Item 15. Exhibits and Financial Statement Schedules and Reports on Form 8-K

     The following financial statements are included in Part II of the 10-K.

(a) 1. Financial Statements

     
  Page Page Number
  Number
Report of Independent Registered Public Accounting Firm  41 
(a)1.Financial StatementsBancWest Corporation and Subsidiaries:    
Reports of Independent Accountants40
BancWest Corporation and Subsidiaries: Consolidated Balance Sheets at December 31, 2001 and 200041
Consolidated Statements of Income for the periods from January 1 to December 19, 2001 and from December 20 to December 31, 2001 and the years ended December 31, 2000 and 1999  42 
Consolidated Statements of Changes in Stockholder’s Equity for the periods from January 1 to December 19, 2001 and from December 20 to December 31, 2001 and the years ended December 31, 2000 and 1999Balance Sheets  43 
Consolidated Statements of Cash Flows for the periods from January 1 to December 19, 2001 and from December 20 to December 31, 2001 and the years ended December 31, 2001 and 2000Changes in Stockholder’s Equity  44 
Consolidated Statements of Cash Flows45
BancWest Corporation (Parent Company):    
Statements of Income  BancWest Corporation (Parent Company): 89
Balance Sheets at December 31, 2000 and 1999  6890 
Statements of Cash Flows  Statements of Income for the periods from January 1 to December 19, 2001 and from December 20 to December 31, 2001 and the years ended December 31, 2000 and 19996891 
Statements of Changes in Stockholder’s Equity for the periods from January 1 to December 19, 2001 and from December 20 to December 31, 2001 and the years ended December 31, 2000 and 199943
Statements of Cash Flows for the periods from January 1 to December 19, 2001 and from December 20 to December 31, 2001 and the years ended December 31, 2000 and 199969
Notes to Consolidated Financial Statements  45-6946–91 
Summary of Quarterly Financial Data (Unaudited)  3992 

2. Financial Statement Schedules

     Schedules to the Consolidated Financial Statements required by this Item 14(a)2 are not required under the related instructions, or the information is included in the consolidated financial statements, or are inapplicable, and therefore have been omitted.

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3. Exhibits

     The registrant’s SEC file number for reports filed before October 30, 1998 was 000-7949, and for reports filed after that date is 001-14585.

2.Financial Statement Schedules    
 Schedules to the consolidated financial statements required by this Item 14(a)2 are not required under the related instructions, or the information is included in the consolidated financial statements, or are inapplicable, and therefore have been omitted.

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3.Exhibits
2.1Agreement and Plan of Merger, among BancWest Corporation, BNP Paribas and Chauchat L.L.C. is incorporated by reference to Annex A to the Corporation’s Proxy Statement filed on Schedule 14A with the SEC on August 20, 2001.
3.1 Certificate of Incorporation of BancWest Corporation as in effect from December 20, 2001, filed herewith.is incorporated by reference to Exhibit 3.1 to the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
 
3.2 Amended and Restated Bylaws of BancWest Corporation as in effect from December 20, 2001, filed herewith.are incorporated by reference to Exhibit 3.2 to the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
 
4.1 Instruments with respect to long-term debt not filed herewith will be furnished to the Commission upon its request.
 
4.2 Indenture, dated as of August 9, 1993, between First Hawaiian, Inc. and The First National Bank of Chicago, Trustee, is incorporated by reference to Exhibit 4.2 to the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993.
 
4.3 Indenture, dated as of June 30, 1997, between First Hawaiian, Inc. and The First National Bank of Chicago, Trustee, is incorporated by reference to the Corporation’s Registration Statement on Form S-4 filed with the SEC on October 17, 1997.1997 (File No. 333-38215).
 
4.4 Form of Indenture relating to Junior Subordinated Debentures entered into between BancWest Corporation and Bank One Trust Company, N.A., as Indenture Trustee, is incorporated by reference to Exhibit 4(a) to the Registration Statement on Form S-3 of BancWest Corporation, BancWest Capital I and BancWest Capital II, filed October 25, 2000 (File No. 333-48552).
 
10.1 Lease Agreement, dated as of December 1, 1993, between REFIRST, Inc. and First Hawaiian Bank is incorporated by reference to Exhibit 10.3 to the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993.
 
10.2Ground Lease, dated as of December 1, 1993, among First Hawaiian Center Limited Partnership, FH Center, Inc. and REFIRST, Inc. is incorporated by reference to Exhibit 10.5 to the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993.
10.410.1 Long-Term Incentive Plan of First Hawaiian, Inc., effective as of January 1, 1992, and Amendments No. 1 and 2, are incorporated by reference to Exhibit 10 to the Corporation’s Form 10-Q for the quarterly period ended June 30, 1998.*
 
10.510.2 Amendment No. 3 to the BancWest Corporation Long-Term Incentive Plan, approved March 16, 2000, is incorporated by reference to Exhibit 10 to the Corporation’s Report on Form 10-Q for the quarterly period ended March 31, 2000.*
 
10.610.3 First Hawaiian, Inc. Supplemental Executive Retirement Plan, as amended and restated as of January 1, 1998, is incorporated by reference to Exhibit 10 to the Corporation’s Form 10-Q for the quarterly period ended June 30, 1998.*
 
10.710.4 Amendment No. 1 to First Hawaiian, Inc. Supplemental Executive Retirement Plan, effective November 1, 1998, is incorporated by reference to Exhibit 10(x) to the Corporation’s Form 10-K for the fiscal year ended December 31, 1998.*
 
10.5Amendment No. 2 to BancWest Corporation Supplemental Executive Retirement Plan, effective November 1, 2002, is incorporated by reference to Exhibit 10.8 to the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.*
10.6 First Hawaiian, Inc. Deferred Compensation Plan, as amended and restated as of January 1, 1998, and Amendment No. 1, are incorporated by reference to Exhibit 10 to the Corporation’s Form 10-Q for the quarterly period ended June 30, 1998.*
 
10.910.7Amendment No. 3 to the BancWest Corporation Deferred Compensation Plan is incorporated by reference to Exhibit 10.26 to the Corporation’s Form 10-Q for the quarterly period ended June 30, 2001.*
10.8 First Hawaiian, Inc. Incentive Plan for Key Executives, and amendments effective January 1, 1998, are incorporated by reference to Exhibit 10 to the Corporation’s Form 10-Q for the quarterly period ended June 30, 1998.*

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10.1010.9 Amendment to First Hawaiian, Inc. Incentive Plan for Key Executives adopted October 15, 1998 is incorporated by reference to Exhibit 10.9 to the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999.*
 
10.1110.10 IPKE Award PolicyResolutions of the Board of Directors adopted September 20, 2001 amending the Company’s Defined Contribution Plan, Future Plan and Incentive Plan for CertainKey Executives, adopted February 28, 2000 isand terminating its option plans, are incorporated by reference to Exhibit 10.1010.27 to the Corporation’s Annual Report on Form 10-K10-Q for the fiscal yearquarterly period ended December 31, 1999.September 30, 2001.*
 
10.1210.11 Directors’ Retirement Plan, effective as of January 1, 1992, and Amendments No. 1 and 2, are incorporated by reference to Exhibit 10 to the Corporation’s Form 10-Q for the quarterly period ended June 30, 1998.*

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Part IV(continued)

   
10.1810.12 Employment Agreement between Don J. McGrath and the Corporation, effective November 1, 1998, is incorporated by reference to Exhibit 10.17 to the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999.*
10.19BancWest Corporation Umbrella TrustTM Trust Agreement by and between BancWest Corporation and Wachovia Bank, N.A., for BancWest Corporation Supplemental Executive Retirement Plan and BancWest Corporation Deferred Compensation Plan, executed November 23, 1999, is incorporated by reference to Exhibit 10.18 to the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999.*
 
10.2010.13 BancWest Corporation Split-Dollar Plan For Executives, effective January 1, 1999,Termination of Split Dollar Agreement and Release of Interest, dated December 16, 2003, between First Hawaiian Bank and the Walter A. Dods, Jr. Irrevocable Trust, is incorporated by reference to Exhibit 10.1910.17 to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003.*
10.14Termination of Split Dollar Agreement and Release of Interest, dated December 16, 2003, between First Hawaiian Bank and Donald G. Horner, is incorporated by reference to Exhibit 10.18 to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003.*
10.15BancWest Corporation Executive Life Insurance Plan, effective April 1, 2004, is incorporated by reference to Exhibit 10.1 to the Corporation’s Report on Form 8-K dated January 20, 2005.*
10.16Employment Agreement between Don J. McGrath and the Corporation, effective November 1, 1998, is incorporated by reference to Exhibit 10.17 to the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999.*
 
10.2110.17 Sublease made as ofAddendum to Employment Agreement between Don J. McGrath and the Corporation, effective January 1, 2005, is filed herewith.*
10.18Agreement dated February 13, 2004 between BNP Paribas International Retail and Financial Services and Walter A. Dods, Jr. is filed herewith.*
10.19Stock Purchase Agreement, dated November 1, 1993,20, 2002, between BancWest Corporation and BNP Paribas S.A., concerning Bank of the West and Banque Nationale de Paris,common stock, is incorporated by reference to Exhibit 10.1910.28 to the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998.2002.
 
10.2210.20 EmploymentStockholders’ Agreement dated as of November 20, 2002 between Walter A. Dods, Jr. and BancWest Corporation executed May 7, 2001,and BNP Paribas S.A., concerning Bank of the West common stock, is incorporated by reference to Exhibit 10.2210.29 to the Corporation’s Annual Report on Form 10-Q for the Quarterly period ended March10-K dated December 31, 2001.*2002.
 
10.23 Termination Protection Agreement between John K. Tsui and BancWest Corporation, executed May 7, 2001, is incorporated by reference to Exhibit 10.23 to the Corporation’s Form 10-Q for the quarterly period ended March 31, 2001.*
 
10.24Termination Protection Agreement between Howard H. Karr and BancWest Corporation, executed May 7, 2001, is incorporated by reference to Exhibit 10.24 to the Corporation’s Form 10-Q for the quarterly period ended March 31, 2001.*
10.25Termination Protection Agreement between Donald G. Horner and BancWest Corporation, executed May 7, 2001, is incorporated by reference to Exhibit 10.25 to the Corporation’s Form 10-Q for the quarterly period ended March 31, 2001.*
10.26Amendment No. 3 to BancWest Corporation Deferred Compensation Plan is incorporated by reference to Exhibit 10.26 to the Corporation’s Form 10-Q for the quarterly period ended June 30, 2001.*
10.27Resolutions of the Board of Directors adopted September 20, 2001 amending the Company’s Defined Contribution Plan, Future Plan and Incentive Plan for Key Executives, and terminating its option plans, effective upon the closing of the Company’s merger with Chauchat L.L.C. is incorporated by reference to Exhibit 10.27 to the Corporation’s Form 10-Q for the quarterly period ended September 30, 2001.*

*Management contract or compensatory plan or arrangement.

12. Statement re: computation of ratios, filed herewith.
 
21. Subsidiaries of the registrant, filed herewith.
31.Section 302 Certifications.
32.Section 1350 Certifications.

* Management contract or compensatory plan or arrangement.

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PART IV

Part IV(continued)(b) The exhibits listed in Item 15(a)3 are incorporated by reference or attached hereto.

(b)Reports on Form 8-K

A Report on Form 8-K was filed December 20, 2001 to report under item 1 the Change in Control of BancWest Corporation resulting from completion of the BNP Paribas Merger.
A Report on Form 8-K was filed December 4, 2001 to disclose under item 9 certain information concerning BancWest Corporation included in a BNP Paribas International Retail Banking presentation.

(c)The exhibits listed in Item 14(a)3 are incorporated by reference or attached hereto.
(d)Response to this item is the same as the response to Item 14(a)2.
(c) Response to this item is the same as the response to Item 15(a)2.

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
   
 
BANCWEST CORPORATION
(Registrant)

 
 ByBy:  /s/ HOWARD H. KARRDOUGLAS C. GRIGSBY
 
Douglas C. Grigsby 
 Howard H. Karr
Executive Vice President,
and Chief Financial Officer
and Treasurer 

Date: March 28, 200225, 2005

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PART IV

Part IV(continued)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

/s/ FRANK BONETTO
Frank Bonetto
Executive Vice President & DirectorMarch 25, 2005
Date
/s/ FRANCOIS DAMBRINE
Francois Dambrine
DirectorMarch 25, 2005
Date
/s/ GéRARD DENOT
Gérard Denot
Vice Chairman & DirectorMarch 25, 2005
Date
/s/ W. ALLEN DOANE
W. Allen Doane
DirectorMarch 25, 2005
Date
/s/ WALTER A. DODS, JR.
Walter A. Dods, Jr.
Chairman & DirectorMarch 25, 2005
Date
/s/ JULIA ANN FROHLICH
Julia Ann Frohlich
DirectorMarch 25, 2005
Date
/s/ ROBERT A. FUHRMAN
Robert A. Fuhrman
DirectorMarch 25, 2005
Date
/s/ PAUL MULLIN GANLEY
Paul Mullin Ganley
DirectorMarch 25, 2005
Date
*
David M. Haig
DirectorMarch 25, 2005
Date
/s/ JOHN A. HOAG
John A. Hoag
DirectorMarch 25, 2005
Date
/s/ DONALD G. HORNER
Donald G. Horner
Executive Vice President & DirectorMarch 25, 2005
Date
/s/ BERT T. KOBAYASHI, JR.
Bert T. Kobayashi, Jr.
DirectorMarch 25, 2005
Date
/s/ MICHEL LARROUILH
Michel Larrouilh
DirectorMarch 25, 2005
Date
*
Pierre Mariani
DirectorMarch 25, 2005
Date
/s/ FUJIO MATSUDA
Fujio Matsuda
DirectorMarch 25, 2005
Date

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BancWest Corporation and Subsidiaries
PART IV

     
/s/ WALTER A. DODS, JR.
Walter A. Dods, Jr.
Chairman,
Chief Executive Officer
& Director
March 28, 2002
Date
/s/ JACQUES ARDANT
Jacques Ardant
DirectorMarch 28, 2002
Date
/s/ JOHN W. A. BUYERS
John W. A. Buyers
DirectorMarch 28, 2002
Date
/s/ JULIA ANN FROHLICH
Julia Ann Frohlich
DirectorMarch 28, 2002
Date
/s/ ROBERT A. FUHRMAN
Robert A. Fuhrman
DirectorMarch 28, 2002
Date
/s/ PAUL MULLIN GANLEY
Paul Mullin Ganley
DirectorMarch 28, 2002
Date
/s/ DAVID M. HAIG
David M. Haig
DirectorMarch 28, 2002
Date
/s/ JOHN A. HOAG
John A. Hoag
DirectorMarch 28, 2002
Date
/s/ BERT T. KOBAYASHI, JR.
Bert T. Kobayashi, Jr.
DirectorMarch 28, 2002
Date
/s/ MICHEL LARROUILH
Michel Larrouilh
DirectorMarch 28, 2002
Date
/s/ PIERRE MARIANI
Pierre Mariani
DirectorMarch 28, 2002
Date
/s/ FUJIO MATSUDA
Fujio Matsuda
DirectorMarch 28, 2002
Date
/s/ DON J. McGRATH
Don J. McGrath
 President,
Chief OperatingExecutive Officer
& Director
 March 28, 200225, 2005
Date
/s/ RODNEY R. PECK
Rodney R. Peck
 Director March 28, 200225, 2005
Date

86


/s/ EDOUARD A. SAUTTER*
Edouard A. Sautter
 Director March 28, 200225, 2005
Date
/s/ ERIC K. SHINSEKI
Eric K. Shinseki
 
/s/ JOEL SIBRAC
Joel Sibrac
Vice Chairman
& Director
 March 28, 200225, 2005
Date
/s/ JOHN K. TSUI
John K. Tsui
 Vice Chairman,
Chief Credit Officer
& Director
 March 28, 200225, 2005
Date
/s/ JACQUES HENRI WAHL
Jacques Henri Wahl
 Director March 28, 200225, 2005
Date
/s/ FRED C. WEYAND
Fred C. Weyand
DirectorMarch 28, 2002
Date
/s/ ROBERT C. WO
Robert C. Wo
 Director March 28, 200225, 2005
Date
/s/ HOWARD H. KARRDOUGLAS C. GRIGSBY
Howard H. KarrDouglas C. Grigsby
 Executive Vice President,
& Chief Financial Officer and
(Principal      Treasurer (Principal financial and accounting officer)
 March 28, 200225, 2005
Date

87* Signature not available

111