U N I T E D S T A T E SUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x |
For the quarterly period ended |
or
¨ |
For the transition period from |
Commission File Number 1-6887
BANK OF HAWAII CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 99-0148992 | |
(State of incorporation) | (IRS Employer Identification No.) |
130 Merchant Street, Honolulu, Hawaii | 96813 | |
(Address of principal executive offices) | (Zip Code) |
(808) 538-47271-(888)-643-3888
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value; outstanding at October 22, 2002April 25, 2003 – 64,825,19460,361,874 shares
Index
Form 10-Q
| ||||
Part I. – Financial Information | ||||
Item 1. | Financial Statements (Unaudited) | |||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
7 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 | ||
Item 3. | 32 | |||
Item 4. | 32 | |||
Part II. | ||||
Item | 33 | |||
Item 6. | 33 | |||
34 | ||||
35 |
Bank of Hawaii Corporation and subsidiariesSubsidiaries
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||
(dollars in thousands except per share amounts) | 2002 | 2001 | 2002 | 2001 | ||||||||
Interest Income | ||||||||||||
Interest and Fees on Loan and Leases | $ | 89,335 | $ | 143,205 | $ | 280,421 | $ | 495,732 | ||||
Income on Investment Securities—Held to Maturity | 4,847 | 8,007 | 14,939 | 27,120 | ||||||||
Income on Investment Securities—Available for Sale | 25,291 | 31,390 | 78,886 | 107,982 | ||||||||
Deposits | 5,384 | 9,413 | 16,442 | 19,738 | ||||||||
Funds Sold and Security Resale Agreements | 914 | 1,781 | 2,669 | 4,231 | ||||||||
Other | 1,575 | 1,384 | 4,302 | 3,948 | ||||||||
Total Interest Income | 127,346 | 195,180 | 397,659 | 658,751 | ||||||||
Interest Expense | ||||||||||||
Deposits | 20,547 | 50,145 | 66,691 | 182,147 | ||||||||
Security Repurchase Agreements | 7,039 | 17,576 | 25,588 | 63,049 | ||||||||
Funds Purchased | 299 | 1,279 | 775 | 9,735 | ||||||||
Short-Term Borrowings | 334 | 2,019 | 1,272 | 8,013 | ||||||||
Long-Term Debt | 6,946 | 12,459 | 23,320 | 42,232 | ||||||||
Total Interest Expense | 35,165 | 83,478 | 117,646 | 305,176 | ||||||||
Net Interest Income | 92,181 | 111,702 | 280,013 | 353,575 | ||||||||
Provision for Loan and Lease Losses | — | 919 | 11,616 | 59,798 | ||||||||
Net Interest Income After Provision for Loan and Lease Losses | 92,181 | 110,783 | 268,397 | 293,777 | ||||||||
Non-Interest Income | ||||||||||||
Trust and Asset Management | 13,655 | 13,999 | 42,648 | 45,041 | ||||||||
Mortgage Banking | 4,037 | 10,411 | 15,300 | 20,192 | ||||||||
Service Charges on Deposit Accounts | 7,925 | 9,592 | 24,291 | 29,409 | ||||||||
Fees, Exchange, and Other Service Charges | 13,114 | 17,587 | 38,631 | 60,837 | ||||||||
Gain on Sales of Banking Operations, Net of Venture Investment Losses | — | 47,771 | — | 144,680 | ||||||||
Investment Securities Gains | — | 935 | 3 | 32,914 | ||||||||
Other | 9,517 | 13,060 | 30,311 | 38,720 | ||||||||
Total Non-Interest Income | 48,248 | 113,355 | 151,184 | 371,793 | ||||||||
Non-Interest Expense | ||||||||||||
Salaries | 38,837 | 50,341 | 117,437 | 149,791 | ||||||||
Pensions and Other Employee Benefits | 7,377 | 9,646 | 26,764 | 34,070 | ||||||||
Net Occupancy Expense | 9,597 | 11,422 | 28,511 | 35,447 | ||||||||
Net Equipment Expense | 10,058 | 12,443 | 30,176 | 38,929 | ||||||||
Goodwill Amortization | — | 3,333 | — | 10,916 | ||||||||
Restructuring and Other Related Costs | — | 2,986 | 1,979 | 86,329 | ||||||||
Information Technology Systems Replacement Project | 6,576 | — | 6,576 | — | ||||||||
Other | 20,509 | 32,397 | 64,297 | 100,727 | ||||||||
Total Non-Interest Expense | 92,954 | 122,568 | 275,740 | 456,209 | ||||||||
Income Before Income Taxes | 47,475 | 101,570 | 143,841 | 209,361 | ||||||||
Provision for Income Taxes | 17,275 | 70,511 | 51,569 | 117,886 | ||||||||
Net Income | $ | 30,200 | $ | 31,059 | $ | 92,272 | $ | 91,475 | ||||
Basic Earnings Per Share | $ | 0.44 | $ | 0.39 | $ | 1.30 | $ | 1.14 | ||||
Diluted Earnings Per Share | $ | 0.43 | $ | 0.37 | $ | 1.26 | $ | 1.11 | ||||
Dividends Declared Per Share | $ | 0.19 | $ | 0.18 | $ | 0.55 | $ | 0.54 | ||||
Basic Weighted Average Shares | 67,893,086 | 80,539,330 | 71,148,663 | 80,261,610 | ||||||||
Diluted Weighted Average Shares | 69,910,264 | 83,418,955 | 73,158,354 | 82,497,107 | ||||||||
Three Months Ended | ||||||
(dollars in thousands except per share amounts) | March 31, 2003 | March 31, 2002 | ||||
Interest Income | ||||||
Interest and Fees on Loans and Leases | $ | 85,773 | $ | 98,645 | ||
Income on Investment Securities – Held to Maturity |
| 2,283 |
| 5,145 | ||
Income on Investment Securities – Available for Sale |
| 22,463 |
| 27,193 | ||
Deposits |
| 1,307 |
| 5,047 | ||
Funds Sold and Security Resale Agreements |
| 764 |
| 1,003 | ||
Other |
| 1,189 |
| 1,332 | ||
Total Interest Income |
| 113,779 |
| 138,365 | ||
Interest Expense | ||||||
Deposits |
| 14,447 |
| 23,978 | ||
Security Repurchase Agreements |
| 2,242 |
| 10,293 | ||
Funds Purchased |
| 205 |
| 231 | ||
Short-Term Borrowings |
| 24 |
| 649 | ||
Long-Term Debt |
| 5,861 |
| 8,319 | ||
Total Interest Expense |
| 22,779 |
| 43,470 | ||
Net Interest Income |
| 91,000 |
| 94,895 | ||
Provision for Loan and Lease Losses |
| — |
| 8,292 | ||
Net Interest Income After Provision for Loan and Lease Losses |
| 91,000 |
| 86,603 | ||
Non-Interest Income | ||||||
Trust and Asset Management |
| 13,190 |
| 14,818 | ||
Mortgage Banking |
| 283 |
| 7,957 | ||
Service Charges on Deposit Accounts |
| 8,950 |
| 8,410 | ||
Fees, Exchange, and Other Service Charges |
| 12,980 |
| 12,452 | ||
Investment Securities Gains |
| 583 |
| — | ||
Insurance |
| 2,982 |
| 2,599 | ||
Other |
| 5,785 |
| 6,789 | ||
Total Non-Interest Income |
| 44,753 |
| 53,025 | ||
Non-Interest Expense | ||||||
Salaries |
| 36,459 |
| 39,187 | ||
Pensions and Other Employee Benefits |
| 9,970 |
| 9,996 | ||
Net Occupancy Expense |
| 9,613 |
| 9,593 | ||
Net Equipment Expense |
| 9,748 |
| 10,121 | ||
Restructuring and Other Related Costs |
| — |
| 1,979 | ||
Information Technology Systems Replacement Project |
| 7,417 |
| — | ||
Other |
| 16,993 |
| 20,547 | ||
Total Non-Interest Expense |
| 90,200 |
| 91,423 | ||
Income Before Income Taxes |
| 45,553 |
| 48,205 | ||
Provision for Income Taxes |
| 15,752 |
| 17,149 | ||
Net Income | $ | 29,801 | $ | 31,056 | ||
Basic Earnings Per Share | $ | 0.49 | $ | 0.42 | ||
Diluted Earnings Per Share | $ | 0.47 | $ | 0.41 | ||
Dividends Per Share | $ | 0.19 | $ | 0.18 | ||
Basic Weighted Average Shares |
| 61,294,460 |
| 73,312,573 | ||
Diluted Weighted Average Shares |
| 63,535,609 |
| 75,199,181 | ||
See accompanying notes to the consolidated financial statements.
Bank of Hawaii Corporation and subsidiariesSubsidiaries
September 30 | December 31 | September 30 | ||||||||||
(dollars in thousands) | 2002 | 2001 | 2001 | |||||||||
Assets | ||||||||||||
Interest-Bearing Deposits | $ | 1,019,823 | $ | 1,101,974 | $ | 1,227,095 | ||||||
Investment Securities—Held to Maturity (Market Value of $286,526, $407,838, and $471,579, respectively) | 277,856 | 396,216 | 460,461 | |||||||||
Investment Securities—Available for Sale | 2,241,106 | 2,001,420 | 2,064,141 | |||||||||
Securities Purchased Under Agreements to Resell | — | — | 7,639 | |||||||||
Funds Sold | 95,000 | 115,000 | 162,830 | |||||||||
Loans Held for Sale | 30,863 | 456,709 | 228,056 | |||||||||
Loans | 5,258,675 | 5,652,518 | 6,766,063 | |||||||||
Allowance for Loan and Lease Losses | (154,475 | ) | (158,979 | ) | (182,541 | ) | ||||||
Net Loans | 5,104,200 | 5,493,539 | 6,583,522 | |||||||||
Total Earning Assets | 8,768,848 | 9,564,858 | 10,733,744 | |||||||||
Cash and Non-Interest Bearing Deposits | 328,135 | 405,981 | 426,884 | |||||||||
Premises and Equipment | 182,230 | 196,171 | 223,528 | |||||||||
Customers’ Acceptance Liability | 1,106 | 593 | 1,310 | |||||||||
Accrued Interest Receivable | 38,839 | 42,687 | 55,968 | |||||||||
Foreclosed Real Estate | 17,568 | 17,174 | 37,240 | |||||||||
Mortgage Servicing Rights | 29,911 | 27,291 | 23,899 | |||||||||
Goodwill | 36,216 | 36,216 | 67,617 | |||||||||
Other Assets | 299,190 | 336,826 | 373,949 | |||||||||
Total Assets | $ | 9,702,043 | $ | 10,627,797 | $ | 11,944,139 | ||||||
Liabilities | ||||||||||||
Domestic Deposits | ||||||||||||
Demand—Non-Interest Bearing | $ | 1,593,137 | $ | 1,548,322 | $ | 1,428,454 | ||||||
—Interest Bearing | 2,063,426 | 1,926,018 | 1,792,155 | |||||||||
Savings | 1,382,719 | 967,825 | 813,427 | |||||||||
Time | 1,549,693 | 1,927,778 | 2,186,849 | |||||||||
Foreign Deposits | ||||||||||||
Demand—Non-Interest Bearing | — | 2 | 321,706 | |||||||||
Time Due to Banks | 4,387 | 230,247 | 30,357 | |||||||||
Other Savings and Time | 33,681 | 73,404 | 826,789 | |||||||||
Total Deposits | 6,627,043 | 6,673,596 | 7,399,737 | |||||||||
Securities Sold Under Agreements to Repurchase | 1,089,287 | 1,643,444 | 1,833,091 | |||||||||
Funds Purchased | 116,775 | 55,800 | 129,715 | |||||||||
Current Maturities of Long-Term Debt | 15,975 | 100,670 | 216,670 | |||||||||
Short-Term Borrowings | 17,941 | 134,222 | 138,910 | |||||||||
Banker’s Acceptances Outstanding | 1,106 | 593 | 1,310 | |||||||||
Retirement Expense Payable | 38,317 | 36,175 | 36,775 | |||||||||
Accrued Interest Payable | 21,870 | 29,762 | 49,057 | |||||||||
Taxes Payable | 191,519 | 138,366 | 224,915 | |||||||||
Other Liabilities | 87,709 | 98,422 | 65,166 | |||||||||
Long-Term Debt | 393,795 | 469,735 | 477,738 | |||||||||
Total Liabilities | 8,601,337 | 9,380,785 | 10,573,084 | |||||||||
Shareholders’ Equity | ||||||||||||
Common Stock ($.01 par value), authorized 500,000,000 shares; issued / outstanding: September 2002—81,310,042 / 66,048,072; December 2001—81,377,241 / 73,218,326; September 2001—81,365,600 / 79,195,668 | 806 | 806 | 806 | |||||||||
Capital Surplus | 371,098 | 367,672 | 367,394 | |||||||||
Accumulated Other Comprehensive Income | 26,038 | 22,761 | 24,579 | |||||||||
Retained Earnings | 1,100,016 | 1,055,424 | 1,044,039 | |||||||||
Deferred Stock Grants | (2,886 | ) | (7,637 | ) | (14,679 | ) | ||||||
Treasury Stock, at Cost (Shares: September 2002—15,261,970; December 2001—8,158,915; September 2001—2,169,932) | (394,366 | ) | (192,014 | ) | (51,084 | ) | ||||||
Total Shareholders’ Equity | 1,100,706 | 1,247,012 | 1,371,055 | |||||||||
Total Liabilities and Shareholders’ Equity | $ | 9,702,043 | $ | 10,627,797 | $ | 11,944,139 | ||||||
(dollars in thousands) | March 31, 2003 | December 31, 2002 | March 31, 2002 | |||||||||
Assets | ||||||||||||
Interest-Bearing Deposits | $ | 157,067 |
| $ | 549,978 |
| $ | 1,347,611 |
| |||
Investment Securities – Held to Maturity (Market Value of $180,043, $236,016 and $354,187, respectively) |
| 175,600 |
|
| 229,720 |
|
| 344,723 |
| |||
Investment Securities – Available for Sale |
| 2,497,508 |
|
| 2,287,201 |
|
| 1,980,378 |
| |||
Funds Sold |
| 175,000 |
|
| 195,000 |
|
| 135,000 |
| |||
Loans Held for Sale |
| 47,269 |
|
| 40,118 |
|
| 99,773 |
| |||
Loans |
| 5,565,371 |
|
| 5,359,004 |
|
| 5,601,580 |
| |||
Allowance for Loan and Lease Losses |
| (140,028 | ) |
| (142,853 | ) |
| (158,979 | ) | |||
Net Loans |
| 5,425,343 |
|
| 5,216,151 |
|
| 5,442,601 |
| |||
Total Earning Assets |
| 8,477,787 |
|
| 8,518,168 |
|
| 9,350,086 |
| |||
Cash and Non-Interest Bearing Deposits |
| 331,994 |
|
| 374,352 |
|
| 248,307 |
| |||
Premises and Equipment |
| 170,696 |
|
| 176,969 |
|
| 192,291 |
| |||
Customers’ Acceptance Liability |
| 1,372 |
|
| 2,680 |
|
| 1,007 |
| |||
Accrued Interest Receivable |
| 36,845 |
|
| 36,722 |
|
| 40,940 |
| |||
Foreclosed Real Estate |
| 9,097 |
|
| 9,434 |
|
| 19,181 |
| |||
Mortgage Servicing Rights |
| 25,801 |
|
| 28,820 |
|
| 30,501 |
| |||
Goodwill |
| 36,216 |
|
| 36,216 |
|
| 36,216 |
| |||
Other Assets |
| 320,402 |
|
| 333,057 |
|
| 326,492 |
| |||
Total Assets | $ | 9,410,210 |
| $ | 9,516,418 |
| $ | 10,245,021 |
| |||
Liabilities | ||||||||||||
Domestic Deposits | ||||||||||||
Non-Interest Bearing Demand | $ | 1,714,601 |
| $ | 1,719,633 |
| $ | 1,592,955 |
| |||
Interest Bearing Demand |
| 1,162,202 |
|
| 1,169,128 |
|
| 933,801 |
| |||
Savings |
| 2,669,409 |
|
| 2,535,219 |
|
| 2,089,257 |
| |||
Time |
| 1,416,860 |
|
| 1,461,780 |
|
| 1,807,015 |
| |||
Foreign Deposits | ||||||||||||
Time Due to Banks |
| 276 |
|
| 1,130 |
|
| 42,261 |
| |||
Other Savings and Time |
| 23,983 |
|
| 33,271 |
|
| 78,492 |
| |||
Total Deposits |
| 6,987,331 |
|
| 6,920,161 |
|
| 6,543,781 |
| |||
Securities Sold Under Agreements to Repurchase |
| 646,317 |
|
| 735,621 |
|
| 1,544,718 |
| |||
Funds Purchased |
| 69,890 |
|
| 64,467 |
|
| 43,485 |
| |||
Current Maturities of Long-Term Debt |
| 118,792 |
|
| 114,781 |
|
| 64,975 |
| |||
Short-Term Borrowings |
| 12,096 |
|
| 33,420 |
|
| 20,644 |
| |||
Banker’s Acceptances Outstanding |
| 1,372 |
|
| 2,680 |
|
| 1,007 |
| |||
Retirement Benefits Payable |
| 62,091 |
|
| 61,385 |
|
| 37,055 |
| |||
Accrued Interest Payable |
| 12,761 |
|
| 13,731 |
|
| 27,983 |
| |||
Taxes Payable |
| 206,139 |
|
| 196,813 |
|
| 146,360 |
| |||
Other Liabilities |
| 70,644 |
|
| 82,596 |
|
| 84,874 |
| |||
Long-Term Debt |
| 270,770 |
|
| 275,004 |
|
| 464,232 |
| |||
Total Liabilities |
| 8,458,203 |
|
| 8,500,659 |
|
| 8,979,114 |
| |||
Shareholders’ Equity | ||||||||||||
Common Stock ($.01 par value); authorized 500,000,000 shares; issued / outstanding: March 2003 – 81,276,420 / 60,418,539; December 2002 – 81,294,730 / 63,015,442; March 2002 – 81,346,027 / 73,409,966 |
| 807 |
|
| 806 |
|
| 806 |
| |||
Capital Surplus |
| 372,887 |
|
| 372,192 |
|
| 369,541 |
| |||
Accumulated Other Comprehensive Income |
| 8,273 |
|
| 11,659 |
|
| 20,389 |
| |||
Retained Earnings |
| 1,133,642 |
|
| 1,115,910 |
|
| 1,065,706 |
| |||
Deferred Stock Grants |
| 74 |
|
| (1,424 | ) |
| (4,933 | ) | |||
Treasury Stock, at Cost (Shares: March 2003 – 20,857,881; December 2002 – 18,279,288; March 2002 – 7,936,061) |
| (563,676 | ) |
| (483,384 | ) |
| (185,602 | ) | |||
Total Shareholders’ Equity |
| 952,007 |
|
| 1,015,759 |
|
| 1,265,907 |
| |||
Total Liabilities and Shareholders’ Equity | $ | 9,410,210 |
| $ | 9,516,418 |
| $ | 10,245,021 |
| |||
See accompanying notes to the consolidated financial statements.
Bank of Hawaii Corporation and subsidiariesSubsidiaries
(dollars in thousands) | Total | Common Stock | Capital Surplus | Accum Other Comprehensive Income | Retained Earnings | Deferred Stock Grants | Treasury Stock | Compre- hensive Income | |||||||||||||||||||||||
Nine Months Ended September 30, 2002 | |||||||||||||||||||||||||||||||
Balance at December 31, 2001 | $ | 1,247,012 | $ | 806 | $ | 367,672 | $ | 22,761 | $ | 1,055,424 | $ | (7,637 | ) | $ | (192,014 | ) | |||||||||||||||
Comprehensive Income | |||||||||||||||||||||||||||||||
Net Income | 92,272 | — | — | — | 92,272 | — | — | $ | 92,272 | ||||||||||||||||||||||
Other Comprehensive Income, Net of Tax | |||||||||||||||||||||||||||||||
Unrealized Gain on Investment Securities | 3,859 | — | — | 3,859 | — | — | — | 3,859 | |||||||||||||||||||||||
Foreign Currency Translation Adjustment | (582 | ) | — | — | (582 | ) | — | — | — | (582 | ) | ||||||||||||||||||||
Total Comprehensive Income | $ | 95,549 | |||||||||||||||||||||||||||||
Common Stock Issued | |||||||||||||||||||||||||||||||
33,402 Profit Sharing Plan | 933 | — | 196 | — | — | — | 737 | ||||||||||||||||||||||||
1,369,679 Stock Option Plan | 27,895 | — | 4,022 | — | (9,236 | ) | (233 | ) | 33,342 | ||||||||||||||||||||||
77,270 Dividend Reinvestment Plan | 2,152 | — | 439 | — | (2 | ) | — | 1,715 | |||||||||||||||||||||||
4,101 Directors’ Restricted Shares and Deferred Compensation Plan | 44 | — | 117 | — | — | — | (73 | ) | |||||||||||||||||||||||
(71,300) Employees’ Restricted Shares | 3,636 | — | (1,348 | ) | — | — | 4,984 | ||||||||||||||||||||||||
Treasury Stock Purchased (8,581,000 shares) | (238,073 | ) | — | — | — | — | — | (238,073 | ) | ||||||||||||||||||||||
Cash Dividends Paid | (38,442 | ) | — | — | — | (38,442 | ) | — | — | ||||||||||||||||||||||
Balance at September 30, 2002 | $ | 1,100,706 | $ | 806 | $ | 371,098 | $ | 26,038 | $ | 1,100,016 | $ | (2,886 | ) | $ | (394,366 | ) | |||||||||||||||
Nine Months Ended September 30, 2001 | |||||||||||||||||||||||||||||||
Balance at December 31, 2000 | $ | 1,301,356 | $ | 806 | $ | 346,045 | $ | (25,079 | ) | $ | 996,791 | $ | — | $ | (17,207 | ) | |||||||||||||||
Comprehensive Income | |||||||||||||||||||||||||||||||
Net Income | 91,475 | — | — | — | 91,475 | — | — | $ | 91,475 | ||||||||||||||||||||||
Other Comprehensive Income, Net of Tax | |||||||||||||||||||||||||||||||
Unrealized Gain on Investment Securities | 23,906 | — | — | 23,906 | — | — | — | 23,906 | |||||||||||||||||||||||
Foreign Currency Translation Adjustment | 25,911 | — | — | 25,911 | — | — | — | 25,911 | |||||||||||||||||||||||
Pension Liability Adjustments | (159 | ) | — | — | (159 | ) | — | — | — | (159 | ) | ||||||||||||||||||||
Total Comprehensive Income | $ | 141,133 | |||||||||||||||||||||||||||||
Common Stock Issued | |||||||||||||||||||||||||||||||
46,408 Profit Sharing Plan | 1,065 | — | 257 | — | — | — | 808 | ||||||||||||||||||||||||
604,264 Stock Option Plan | 11,160 | — | 892 | — | (812 | ) | 847 | 10,233 | |||||||||||||||||||||||
91,764 Dividend Reinvestment Plan | 2,103 | — | 483 | — | — | — | 1,620 | ||||||||||||||||||||||||
4,248 Directors’ Restricted Shares and Deferred Compensation Plan | 341 | — | 95 | — | — | — | 246 | ||||||||||||||||||||||||
724,600 Employees’ Restricted Shares | 2,797 | — | 18,323 | — | — | (15,526 | ) | — | |||||||||||||||||||||||
65,146 Hawaii Insurance Network | 1,299 | — | 1,299 | — | — | — | — | ||||||||||||||||||||||||
Treasury Stock Purchased (1,965,000 shares) | (46,784 | ) | — | — | — | — | — | (46,784 | ) | ||||||||||||||||||||||
Cash Dividends Paid | (43,415 | ) | — | — | — | (43,415 | ) | — | — | ||||||||||||||||||||||
Balance at September 30, 2001 | $ | 1,371,055 | $ | 806 | $ | 367,394 | $ | 24,579 | $ | 1,044,039 | $ | (14,679 | ) | $ | (51,084 | ) | |||||||||||||||
(dollars in thousands) | Total | Common Stock | Capital Surplus | Accum. Other Comprehensive Income | Retained Earnings | Deferred Stock Grants | Treasury Stock | Comprehensive Income | |||||||||||||||||||||||||
Balance at December 31, 2002 | $ | 1,015,759 |
| $ | 806 | $ | 372,192 |
| $ | 11,659 |
| $ | 1,115,910 |
| $ | (1,424 | ) | $ | (483,384 | ) | |||||||||||||
Comprehensive Income | |||||||||||||||||||||||||||||||||
Net Income |
| 29,801 |
|
| — |
| — |
|
| — |
|
| 29,801 |
|
| — |
|
| — |
| $ | 29,801 |
| ||||||||||
Other Comprehensive Income, Net of Tax: | |||||||||||||||||||||||||||||||||
Unrealized Gain on Investment Securities |
| (3,386 | ) |
| — |
| — |
|
| (3,386 | ) |
| — |
|
| — |
|
| — |
|
| (3,386 | ) | ||||||||||
Total Comprehensive Income | $ | 26,415 |
| ||||||||||||||||||||||||||||||
Common Stock Issued | |||||||||||||||||||||||||||||||||
9,930 | Profit Sharing Plan |
| 216 |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 216 |
| ||||||||||||
245,213 | Stock Option Plan |
| 5,834 |
|
| — |
| 1,083 |
|
| — |
|
| (507 | ) |
| (44 | ) |
| 5,302 |
| ||||||||||||
24,969 | Dividend Reinvestment Plan |
| 543 |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 543 |
| ||||||||||||
690 | Directors’ Restricted Shares and Deferred Compensation Plan |
| (6 | ) |
| 1 |
| 20 |
|
| — |
|
| — |
|
| — |
|
| (27 | ) | ||||||||||||
(19,000) | Employees’ Restricted Shares |
| 1,134 |
|
| — |
| (408 | ) |
| — |
|
| — |
|
| 1,542 |
|
| — |
| ||||||||||||
Treasury Stock Purchased (2,856,600 shares) |
| (86,326 | ) |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (86,326 | ) | |||||||||||||
Cash Dividends Paid |
| (11,562 | ) |
| — |
| — |
|
| — |
|
| (11,562 | ) |
| — |
|
| — |
| |||||||||||||
Balance at March 31, 2003 | $ | 952,007 |
| $ | 807 | $ | 372,887 |
| $ | 8,273 |
| $ | 1,133,642 |
| $ | 74 |
| $ | (563,676 | ) | |||||||||||||
Balance at December 31, 2001 | $ | 1,247,012 |
| $ | 806 | $ | 367,672 |
| $ | 22,761 |
| $ | 1,055,424 |
| $ | (7,637 | ) | $ | (192,014 | ) | |||||||||||||
Comprehensive Income | |||||||||||||||||||||||||||||||||
Net Income |
| 31,056 |
|
| — |
| — |
|
| — |
|
| 31,056 |
|
| — |
|
| — |
| $ | 31,056 |
| ||||||||||
Other Comprehensive Income, Net of Tax: | |||||||||||||||||||||||||||||||||
Unrealized Gain on Investment Securities |
| (1,913 | ) |
| — |
| — |
|
| (1,913 | ) |
| — |
|
| — |
|
| — |
|
| (1,913 | ) | ||||||||||
Foreign Currency Translation Adjustment |
| (459 | ) |
| — |
| — |
|
| (459 | ) |
| — |
|
| — |
|
| — |
|
| (459 | ) | ||||||||||
Total Comprehensive Income | $ | 28,684 |
| ||||||||||||||||||||||||||||||
Common Stock Issued | |||||||||||||||||||||||||||||||||
12,113 | Profit Sharing Plan |
| 325 |
|
| — |
| 37 |
|
| — |
|
| — |
|
| — |
|
| 288 |
| ||||||||||||
884,893 | Stock Option Plan |
| 18,237 |
|
| — |
| 2,455 |
|
| — |
|
| (7,595 | ) |
| 746 |
|
| 22,631 |
| ||||||||||||
27,454 | Dividend Reinvestment Plan |
| 731 |
|
| — |
| 77 |
|
| — |
|
| (2 | ) |
| — |
|
| 656 |
| ||||||||||||
(114) | Directors’ Restricted Shares and Deferred Compensation Plan |
| (16 | ) |
| — |
| (1 | ) |
| — |
|
| — |
|
| — |
|
| (15 | ) | ||||||||||||
(31,100) | Employees’ Restricted Shares |
| 1,259 |
|
| — |
| (699 | ) |
| — |
|
| — |
|
| 1,958 |
|
| — |
| ||||||||||||
Treasury Stock Purchased (701,000 shares) |
| (17,148 | ) |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (17,148 | ) | |||||||||||||
Cash Dividends Paid |
| (13,177 | ) |
| — |
| — |
|
| — |
|
| (13,177 | ) |
| — |
|
| — |
| |||||||||||||
Balance at March 31, 2002 | $ | 1,265,907 |
| $ | 806 | $ | 369,541 |
| $ | 20,389 |
| $ | 1,065,706 |
| $ | (4,933 | ) | $ | (185,602 | ) | |||||||||||||
See accompanying notes to the consolidated financial statements.
Bank of Hawaii Corporation and subsidiariesSubsidiaries
Nine Months ended September 30 (dollars in thousands) | 2002 | 2001 | ||||||
Operating Activities | ||||||||
Net Income | $ | 92,272 | $ | 91,475 | ||||
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | ||||||||
Provision for Loan and Lease Losses | 11,616 | 59,798 | ||||||
Depreciation and Amortization | 22,106 | 43,289 | ||||||
Amortization of Deferred Loan Fees and Leasing Income | (25,316 | ) | (33,041 | ) | ||||
Amortization and Accretion of Investment Securities | 14,248 | 12,526 | ||||||
Deferred Stock Grants | 3,636 | 2,797 | ||||||
Deferred Income Taxes | 23,236 | (1,543 | ) | |||||
Investment Security Gains | (3 | ) | (32,914 | ) | ||||
Proceeds From Sales of Loans Held for Sale | 993,316 | 798,922 | ||||||
Originations of Loans Held for Sale | (567,470 | ) | (847,749 | ) | ||||
Gain on Sale of Banking Operations, Net of Venture Investment Losses | — | (144,680 | ) | |||||
Net Change in Other Assets and Liabilities | 54,815 | (44,113 | ) | |||||
Net Cash Provided (Used) by Operating Activities | 622,456 | (95,233 | ) | |||||
Investing Activities | ||||||||
Proceeds from Redemptions of Investment Securities Held to Maturity | 132,092 | 295,828 | ||||||
Purchases of Investment Securities Held to Maturity | (20,513 | ) | (170,340 | ) | ||||
Proceeds from Sales and Redemptions of Investment Securities Available for Sale | 772,864 | 1,106,773 | ||||||
Purchases of Investment Securities Available for Sale | (1,019,046 | ) | (602,171 | ) | ||||
Net Decrease in Loans and Lease Financing | 403,039 | 1,292,394 | ||||||
Proceeds from Sale of Banking Operations | — | 657,476 | ||||||
Premises and Equipment, Net | (8,165 | ) | (13,222 | ) | ||||
Net Cash Provided by Investing Activities | 260,271 | 2,566,738 | ||||||
Financing Activities | ||||||||
Net Increase (Decrease) in Demand Deposits | 182,223 | (194,797 | ) | |||||
Net Increase in Savings Deposits | 414,894 | 304,124 | ||||||
Net Decrease in Time Deposits | (378,085 | ) | (393,766 | ) | ||||
Net Decrease in Foreign Deposits | (265,585 | ) | (683,953 | ) | ||||
Proceeds from Lines of Credit and Long-Term Debt | — | 4,572 | ||||||
Repayments and Repurchases of Long-Term Debt | (160,635 | ) | (307,321 | ) | ||||
Net Decrease in Short-Term Borrowings | (609,463 | ) | (178,179 | ) | ||||
Proceeds from Issuance of Common Stock | 31,024 | 14,669 | ||||||
Repurchase of Common Stock | (238,073 | ) | (46,784 | ) | ||||
Cash Dividends | (38,442 | ) | (43,415 | ) | ||||
Net Cash Used by Financing Activities | (1,062,142 | ) | (1,524,850 | ) | ||||
Effect of Exchange Rate Changes on Cash | (582 | ) | 25,911 | |||||
Increase (Decrease) in Cash and Cash Equivalents | (179,997 | ) | 972,566 | |||||
Cash and Cash Equivalents at Beginning of Year | 1,622,955 | 851,882 | ||||||
Cash and Cash Equivalents at End of Period | $ | 1,442,958 | $ | 1,824,448 | ||||
Three Months ended March 31, | ||||||||
(dollars in thousands) | 2003 | 2002 | ||||||
Operating Activities | ||||||||
Net Income | $ | 29,801 |
| $ | 31,056 |
| ||
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | ||||||||
Provision for Loan and Lease Losses |
| — |
|
| 8,292 |
| ||
Depreciation and Amortization |
| 8,908 |
|
| 7,669 |
| ||
Amortization of Deferred Loan and Lease Fees |
| (8,433 | ) |
| (8,702 | ) | ||
Amortization and Accretion of Investment Securities |
| 9,185 |
|
| 4,756 |
| ||
Deferred Stock Grants |
| 1,134 |
|
| 1,259 |
| ||
Deferred Income Taxes |
| 2,664 |
|
| 9,581 |
| ||
Investment Security Gains |
| (583 | ) |
| — |
| ||
Proceeds From Sales of Loans Held for Sale |
| 43,021 |
|
| 663,514 |
| ||
Originations of Loans Held for Sale |
| (50,172 | ) |
| (306,578 | ) | ||
Net Change in Other Assets and Liabilities |
| 12,252 |
|
| (5,256 | ) | ||
Net Cash Provided by Operating Activities |
| 47,777 |
|
| 405,591 |
| ||
Investing Activities | ||||||||
Proceeds from Redemptions of Investment Securities Held to Maturity |
| 65,912 |
|
| 56,201 |
| ||
Purchases of Investment Securities Held to Maturity |
| (11,772 | ) |
| (10,710 | ) | ||
Proceeds from Sales and Redemptions of Investment Securities Available for Sale |
| 528,496 |
|
| 245,744 |
| ||
Purchases of Investment Securities Available for Sale |
| (752,729 | ) |
| (232,089 | ) | ||
Net Decrease (Increase) in Loans and Lease Financing |
| (200,759 | ) |
| 55,952 |
| ||
Premises and Equipment, Net |
| (2,635 | ) |
| (3,789 | ) | ||
Net Cash Provided (Used) by Investing Activities |
| (373,487 | ) |
| 111,309 |
| ||
Financing Activities | ||||||||
Net Increase (Decrease) in Demand Deposits |
| (11,958 | ) |
| 17,630 |
| ||
Net Increase in Savings Deposits |
| 134,190 |
|
| 151,594 |
| ||
Net Decrease in Time Deposits |
| (44,920 | ) |
| (120,763 | ) | ||
Net Decrease in Foreign Deposits |
| (10,142 | ) |
| (182,900 | ) | ||
Repayments of Long-Term Debt |
| (223 | ) |
| (61,173 | ) | ||
Net Decrease in Short-Term Borrowings |
| (105,205 | ) |
| (204,644 | ) | ||
Proceeds from Issuance of Common Stock |
| 6,587 |
|
| 19,277 |
| ||
Repurchase of Common Stock |
| (86,326 | ) |
| (17,148 | ) | ||
Cash Dividends |
| (11,562 | ) |
| (13,177 | ) | ||
Net Cash Used by Financing Activities |
| (129,559 | ) |
| (411,304 | ) | ||
Effect of Exchange Rate Changes on Cash |
| — |
|
| (459 | ) | ||
Increase (Decrease) in Cash and Cash Equivalents |
| (455,269 | ) |
| 105,137 |
| ||
Cash and Cash Equivalents at Beginning of Year |
| 1,119,330 |
|
| 1,625,781 |
| ||
Cash and Cash Equivalents at End of Period | $ | 664,061 |
| $ | 1,730,918 |
| ||
See accompanying notes to the consolidated financial statements.
Bank of Hawaii Corporation
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Bank of Hawaii Corporation (the Company)“Company”) is a bank holding company providing a broad range of financial products and services to customers in Hawaii and the Pacific Islands (Guam, nearby islands and American Samoa).
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the consolidated financial statements reflect all normal recurring adjustments necessary for a fair presentation of the results for the interim periods.
Certain prior period amounts have been reclassified to conform to current period classifications.
These statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s 20012002 Annual Report on Form 10-K. Operating results for the three and nine months ended September 30, 2002March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.
Note 2. Recent Accounting PronouncementsStock-Based Compensation
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142,Goodwill and Other Intangible Assets (SFAS 142). SFAS 142 eliminates amortization of goodwill associated with business combinations completed after June 30, 2001. During a transition period from July 1, 2001 through December 31, 2001, goodwill associated with business combinations completed prior to July 1, 2001 continued to be amortized through the income statement. Effective January 1, 2002, periodic goodwill amortization and expense recognition was discontinued and goodwill is assessed at least annually for impairment at the reporting unit level by applying a fair-value based test. SFAS 142 also provides additional guidance on acquired intangibles that should be separately recognized and amortized. Under SFAS 142, intangibles with indefinite lives will no longer be amortized through the income statement. The Company adopted SFAS 142 on January 1, 2002. An initial impairment assessment was completed and it was determined that a transition impairment charge was not required. Under SFAS 142 the elimination of goodwill amortization is expected to increase net income by approximately $7.6 millionaccounts for its stock-based compensation plans in 2002.
The following table illustrates the effect on net income and is generally to beearnings per share if the Company had previously completed the transition and had fully applied prospectively. The Company adopted SFAS 144 on January 1, 2002, no transition adjustment was necessary.these new accounting standards:
Three Months Ended March 31, | ||||||||
(dollars in thousands except per share and per option data) | 2003 | 2002 | ||||||
Net Income, as reported | $ | 29,801 |
| $ | 31,056 |
| ||
Add: Stock-Based Employee Compensation Expense included in reported Net Income, Net of Related Tax Effects |
| 163 |
|
| 161 |
| ||
Deduct: Total Stock-Based Employee Compensation Expense Determined Under Fair Value Method For All Awards, Net of Related Tax Effects1 |
| (3,103 | ) |
| (1,259 | ) | ||
Pro Forma Net Income | $ | 26,861 |
| $ | 29,958 |
| ||
Earnings Per Share: | ||||||||
Basic-as reported | $ | 0.49 |
| $ | 0.42 |
| ||
Basic-pro forma1 | $ | 0.44 |
| $ | 0.41 |
| ||
Diluted-as reported | $ | 0.47 |
| $ | 0.41 |
| ||
Diluted-pro forma1 | $ | 0.42 |
| $ | 0.40 |
| ||
Weighted Average Fair Value Per Option Granted During the Period1 | $ | 8.26 |
| $ | 7.97 |
| ||
Assumptions: | ||||||||
Average Risk Free Interest Rate |
| 3.81 | % |
| 5.11 | % | ||
Average Expected Volatility |
| 31.84 | % |
| 31.34 | % | ||
Expected Dividend Yield |
| 3.08 | % |
| 3.16 | % | ||
Expected Life |
| 6.7 years |
|
| 6.5 years |
|
1 | A Black-Scholes option pricing model was used to develop the fair values of the options granted. |
Note 2. Information Technology Systems Replacement Project
In JuneJuly 2002, the FASB issued SFAS 146,AccountingCompany entered into contracts with Metavante Corporation to provide for Costs Associated with Exit or Disposal Activities(SFAS 146). The provisions of SFAS 146 will become effective for disposal activities initiated after December 31, 2002, with early adoption encouraged. This statement appliestechnology services, including professional services to costs associated with an exit activity that does not involve an entity newly acquired in a business combination or with a disposal activity covered by SFAS 144. Those costs include, but are not limitedconvert existing systems to termination benefits, costs to terminate contracts, costs to consolidate facilities and costs to relocate employees. The Statement requires that a liability be recognized and measured initially at its fair value in the period in which the liability is incurred, except for termination benefits that are recognized over time. Termination benefits for employees not required to render service until they are terminated or not required to render service beyond the minimum retention period should be recognized at fair value at the communication date. Termination benefits for employees that are required to render service until they are terminated in order to receive the termination benefit or who are required to render service beyond the minimum retention period should be recognized ratably over the service period. Costs to terminate a contract before the end of its term shall be recognized and measured at fair value when the contract terminates. The Company adopted SFAS 146Metavante systems in the third quarter of 2002.
2003. The costs incurred through March 31, 2003 and total expected costs in connection with the transition to this outsourcing arrangement are summarized below:
(dollars in millions) | Professional Fees | Employee Termination Benefits | Accelerated Depreciation | Other Associated Costs1 | Total | ||||||||||
Costs Incurred: | |||||||||||||||
Three Months Ended: | |||||||||||||||
September 30, 2002 | $ | 1.9 | $ | 1.0 | $ | 3.2 | $ | 0.5 | $ | 6.6 | |||||
December 31, 2002 |
| 3.2 |
| 0.2 |
| 2.2 |
| 1.4 |
| 7.0 | |||||
Year Ended December 31, 2002 |
| 5.1 |
| 1.2 |
| 5.4 |
| 1.9 |
| 13.6 | |||||
Three Months Ended March 31, 2003 |
| 3.5 |
| 0.4 |
| 2.0 |
| 1.5 |
| 7.4 | |||||
Total Costs Incurred | $ | 8.6 | $ | 1.6 | $ | 7.4 | $ | 3.4 | $ | 21.0 | |||||
Total Expected Project Costs | $ | 13.1 | $ | 5.9 | $ | 9.2 | $ | 7.3 | $ | 35.5 | |||||
1 | Includes contract termination, equipment, excise tax and other costs. |
Changes in related liability balances during the three months ended March 31, 2003 were as follows:
(dollars in millions) | Professional Fees | Employee Termination Benefits | Other Associated Costs1 | Total | ||||||||
Liability Balance at December 31, 2002 | $ | 0.1 | $ | 0.3 | $ | — | $ | 0.4 | ||||
Accruals |
| 3.5 |
| 0.4 |
| 1.5 |
| 5.4 | ||||
Payments |
| 1.3 |
| — |
| 1.3 |
| 2.6 | ||||
Liability Balance at March 31, 2003 | $ | 2.3 | $ | 0.7 | $ | 0.2 | $ | 3.2 | ||||
Note 3. Business Segments
The Companyinformation under the caption “Business Segments” in Management’s Discussion and Analysis is a financial services organization that is aligned intoincorporated herein by reference.
Note 4. Stock Compensation
The following revises the following segments: Retail Banking, Commercial Banking, Investment Services Group, and Treasury and Other Corporate. Divestiture Businesses reflecteddisclosure in the results2002 Annual Report on Form 10-K of operationsthe amount of businesses whichoptions available for future grants under the Company exited in 2001. Corporate Restructuring Related Activities includes gains, losses and expenses arising out of the divestiture and credit quality enhancement processes.
Business Segments Selected Financial Information (Unaudited) | |||||||||||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||||||
RETAIL | COMMERCIAL | INVESTMENT SERVICES GROUP | TREASURY AND OTHER CORPORATE | DIVESTITURE BUSINESSES | CORPORATE RESTRUCTURING RELATED ACTIVITIES | CONSOLIDATED TOTAL | |||||||||||||||||||||||
Three Months Ended September 30, 2002 | |||||||||||||||||||||||||||||
Net Interest Income | $ | 49,293 | $ | 35,700 | $ | 3,250 | $ | 3,938 | $ | — | $ | — | $ | 92,181 | |||||||||||||||
Provision for Loan and Lease Losses | (722 | ) | (4,456 | ) | (76 | ) | 5,254 | — | — | — | |||||||||||||||||||
Net Interest Income after Provision for Loan and Lease Losses | 48,571 | 31,244 | 3,174 | 9,192 | — | — | 92,181 | ||||||||||||||||||||||
Non-Interest Income | 20,118 | 9,112 | 16,667 | 2,351 | — | — | 48,248 | ||||||||||||||||||||||
Non-Interest Expense | (43,625 | ) | (25,280 | ) | (15,780 | ) | (1,693 | ) | — | — | (86,378 | ) | |||||||||||||||||
Information Technology Systems Replacement Project | — | — | — | (6,576 | ) | — | — | (6,576 | ) | ||||||||||||||||||||
Income Before Income Taxes | 25,064 | 15,076 | 4,061 | 3,274 | — | — | 47,475 | ||||||||||||||||||||||
Provision for Income Taxes | (9,524 | ) | (5,635 | ) | (1,543 | ) | (573 | ) | — | — | (17,275 | ) | |||||||||||||||||
Net Income | $ | 15,540 | $ | 9,441 | $ | 2,518 | $ | 2,701 | $ | — | $ | — | $ | 30,200 | |||||||||||||||
Total Assets (End of Period) | $ | 3,135,092 | $ | 2,324,205 | $ | 118,625 | $ | 4,124,121 | $ | — | $ | — | $ | 9,702,043 | |||||||||||||||
Total Assets (Average) | $ | 3,159,190 | $ | 2,358,495 | $ | 121,254 | $ | 4,164,957 | $ | — | $ | — | $ | 9,803,896 | |||||||||||||||
RETAIL | COMMERCIAL | INVESTMENT SERVICES GROUP | TREASURY AND OTHER CORPORATE | DIVESTITURE BUSINESSES | CORPORATE RESTRUCTURING RELATED ACTIVITIES | CONSOLIDATED TOTAL | |||||||||||||||||||||||
Three Months Ended September 30, 2001 | |||||||||||||||||||||||||||||
Net Interest Income | $ | 45,009 | $ | 36,995 | $ | 2,337 | $ | 6,667 | $ | 20,694 | $ | — | $ | 111,702 | |||||||||||||||
Provision for Loan and Lease Losses | (2,131 | ) | (5,089 | ) | — | 799 | 5,502 | — | (919 | ) | |||||||||||||||||||
Net Interest Income after Provision for Loan and Lease Losses | 42,878 | 31,906 | 2,337 | 7,466 | 26,196 | — | 110,783 | ||||||||||||||||||||||
Gain on Sale of Banking Operations, Net of Venture Investment Losses | — | — | — | — | — | 47,771 | 47,771 | ||||||||||||||||||||||
Non-Interest Income | 26,822 | 7,765 | 17,735 | 1,409 | 8,034 | 3,819 | 65,584 | ||||||||||||||||||||||
Non-Interest Expense | (48,191 | ) | (24,769 | ) | (17,372 | ) | (591 | ) | (28,659 | ) | — | (119,582 | ) | ||||||||||||||||
Restructuring & Other Related Costs | — | — | — | — | — | (2,986 | ) | (2,986 | ) | ||||||||||||||||||||
Income Before Income Taxes | 21,509 | 14,902 | 2,700 | 8,284 | 5,571 | 48,604 | 101,570 | ||||||||||||||||||||||
Provision for Income Taxes | (9,476 | ) | (5.626 | ) | (748 | ) | (2,790 | ) | (2,806 | ) | (49,065 | ) | (70,511 | ) | |||||||||||||||
Net Income | $ | 12,033 | $ | 9,276 | $ | 1,952 | $ | 5,494 | $ | 2,765 | $ | (461 | ) | $ | 31,059 | ||||||||||||||
Total Assets (End of Period) | $ | 3,389,485 | $ | 3,320,492 | $ | 191,900 | $ | 2,351,940 | $ | 2,690,322 | $ | — | $ | 11,944,139 | |||||||||||||||
Total Assets (Average) | $ | 3,435,534 | $ | 3,071,464 | $ | 139,730 | $ | 2,673,427 | $ | 2,978,528 | $ | — | $ | 12,298,683 |
As Reported | Revised | |||
Options Available for Future Grants | ||||
Year Ended 2002 | 3,102,471 | 2,466,271 | ||
Year Ended 2001 | 5,170,277 | 4,442,077 |
RETAIL | COMMERCIAL | INVESTMENT SERVICES GROUP | TREASURY AND OTHER CORPORATE | DIVESTITURE BUSINESSES | CORPORATE RESTRUCTURING RELATED ACTIVITIES | CONSOLIDATED TOTAL | ||||||||||||||||||||||
Nine Months Ended September 30, 2002 | ||||||||||||||||||||||||||||
Net Interest Income | $ | 147,784 | $ | 106,009 | $ | 9,371 | $ | 16,849 | $ | — | $ | — | $ | 280,013 | ||||||||||||||
Provision for Loan and Lease Losses | (3,213 | ) | (14,062 | ) | (76 | ) | 5,735 | — | — | (11,616 | ) | |||||||||||||||||
Net Interest Income after Provision for Loan and Lease Losses | 144,571 | 91,947 | 9,295 | 22,584 | — | — | 268,397 | |||||||||||||||||||||
Non-Interest Income | 62,771 | 27,955 | 51,926 | 8,532 | — | — | 151,184 | |||||||||||||||||||||
Non-Interest Expense | (134,428 | ) | (76,133 | ) | (49,903 | ) | (6,721 | ) | — | — | (267,185 | ) | ||||||||||||||||
Restructuring & Other Related Costs | — | — | — | — | — | (1,979 | ) | (1,979 | ) | |||||||||||||||||||
Information Technology Systems Replacement Project | — | — | — | (6,576 | ) | — | — | (6,576 | ) | |||||||||||||||||||
Income Before Income Taxes | 72,914 | 43,769 | 11,318 | 17,819 | — | (1,979 | ) | 143,841 | ||||||||||||||||||||
Provision for Income Taxes | (27,707 | ) | (16,346 | ) | (4,301 | ) | (3,919 | ) | — | 704 | (51,569 | ) | ||||||||||||||||
Net Income | $ | 45,207 | $ | 27,423 | $ | 7,017 | $ | 13,900 | $ | — | $ | (1,275 | ) | $ | 92,272 | |||||||||||||
Total Assets (End of Period) | $ | 3,135,092 | $ | 2,324,205 | $ | 118,625 | $ | 4,124,121 | $ | — | $ | — | $ | 9,702,043 | ||||||||||||||
Total Assets (Average) | $ | 3,258,970 | $ | 2,503,595 | $ | 120,686 | $ | 4,213,707 | $ | — | $ | — | $ | 10,096,958 | ||||||||||||||
RETAIL | COMMERCIAL | INVESTMENT SERVICES GROUP | TREASURY AND OTHER CORPORATE | DIVESTITURE BUSINESSES | CORPORATE RESTRUCTURING RELATED ACTIVITIES | CONSOLIDATED TOTAL | ||||||||||||||||||||||
Nine Months Ended September 30, 2001 | ||||||||||||||||||||||||||||
Net Interest Income | $ | 137,838 | $ | 118,060 | $ | 7,422 | $ | 7,665 | $ | 85,034 | $ | (2,444 | ) | $ | 353,575 | |||||||||||||
Provision for Loan and Lease Losses | (6,665 | ) | (15,178 | ) | — | 800 | (2,039 | ) | (36,716 | ) | (59,798 | ) | ||||||||||||||||
Net Interest Income after Provision for Loan and Lease Losses | 131,173 | 102,882 | 7,422 | 8,465 | 82,995 | (39,160 | ) | 293,777 | ||||||||||||||||||||
Gain on Sale of Banking Operations, Net of Venture Investment Losses | — | — | — | — | — | 144,680 | 144,680 | |||||||||||||||||||||
Non-Interest Income | 69,629 | 26,735 | 53,273 | 13,642 | 27,940 | 35,894 | 227,113 | |||||||||||||||||||||
Non-Interest Expense | (143,683 | ) | (76,205 | ) | (50,721 | ) | (2,392 | ) | (96,879 | ) | — | (369,880 | ) | |||||||||||||||
Restructuring & Other Related Costs | — | — | — | — | — | (86,329 | ) | (86,329 | ) | |||||||||||||||||||
Income Before Income Taxes | 57,119 | 53,412 | 9,974 | 19,715 | 14,056 | 55,085 | 209,361 | |||||||||||||||||||||
Provision for Income Taxes | (24,011 | ) | (20,240 | ) | (3,760 | ) | (8,868 | ) | (4,229 | ) | (56,778 | ) | (117,886 | ) | ||||||||||||||
Net Income | $ | 33,108 | $ | 33,172 | $ | 6,214 | $ | 10,847 | $ | 9,827 | $ | (1,693 | ) | $ | 91,475 | |||||||||||||
Total Assets (End of Period) | $ | 3,389,485 | $ | 3,320,492 | $ | 191,900 | $ | 2,351,940 | $ | 2,690,322 | $ | — | $ | 11,944,139 | ||||||||||||||
Total Assets (Average) | $ | 3,500,491 | $ | 3,354,314 | $ | 143,419 | $ | 2,585,894 | $ | 3,457,165 | $ | — | $ | 13,041,283 |
(dollars in thousands) | Professional Fees | Employee Termination Benefits | Accelerated Depreciation | Other Associated Costs2 | Total | ||||||||||||||
Costs Incurred1 | $ | 1,875 | $ | 1,042 | $ | 3,197 | $ | 462 | $ | 6,576 | |||||||||
Total Expected Costs | $ | 12,481 | $ | 6,371 | $ | 9,371 | $ | 7,236 | $ | 35,459 | |||||||||
Beginning Liability Balance at July 1, 2002 | $ | — | $ | — | N/A | $ | — | $ | — | ||||||||||
Costs Incurred | 1,875 | 1,042 | N/A | 462 | 3,379 | ||||||||||||||
Payments | (1,875 | ) | (374 | ) | N/A | (146 | ) | (2,395 | ) | ||||||||||
Ending Liability Balance at September 30, 2002 | $ | — | $ | 668 | N/A | $ | 316 | $ | 984 | ||||||||||
Forward Looking Statements
This report contains forward-looking statements concerning a number of matters, including the expected level of loan loss provisioning, the projected efficiency ratio, the timing and number of share repurchases, anticipated costs and annual savings of our technology systems replacement project, value of stock option awards, normalization of deferred loan payments in Guam and Micronesia, the impact of interest rate changes on net interest income, and anticipated revenues and expenses in 20022003 and beyond. We believe the assumptions underlying our forward-looking statements are reasonable. However, any of the assumptions could prove to be inaccurate and actual results may differ materially from those projected for a variety of reasons, including, but not limited to: 1) unanticipated changes in business and economic conditions, the competitive environment, fiscal and monetary policies, or legislation in Hawaii economy may not continue atand the paceother markets we anticipate; our refocused emphasis on our Hawaii market may not achieve the customer and revenue gains we anticipate; our credit markets may deteriorate and our credit quality may fall short of our goals; we may not achieve the expense reductions we expect; we may not be able to maintain our net interest margin; we may not be able to implement our proposed equity repurchases in the amount or at the times planned; the economics or timing, or both, of our information technology systems replacement project may not result in the expected benefits; unanticipated difficulties or delays in the conversion of our data processing to outsourcing may result in the reduction or delay of anticipated cost savings or increased cost of conversion; the information technology systems replacement project may not be able to achieve the projected reductions in staffing; we may encounter unanticipated difficulties or costs in exiting existing data processing agreements with third parties; the required level of the allowances for loan and lease losses may increase or decrease due toserve; 2) changes in our credit quality or risk profile; thereprofile which may be economic volatility inincrease or decrease the markets we serve;required level of allowance for loan and there may belease losses; 3) changes in market interest rates may deteriorate our credit markets and ability to maintain our net interest margin; 4) changes to the amount and timing of our proposed equity repurchases; 5) inability to achieve expected benefits of our technology systems replacement project and other business process changes due to adverse changes in implementation processes or costs, operational savings, or timing; 6) actions by the United States military and economicreal or threatened terrorist activity affecting business conditions; and 7) adverse weather and other natural conditions competition, fiscalimpacting our and monetary policies or legislation.customers’ operations. We do not undertake any obligation to update any forward-looking statements to reflect later events or circumstances.
Highlights (Unaudited) | Table 1 | |||||||
(dollars in thousands except per share amounts) | ||||||||
Three Months Ended | ||||||||
Earnings Highlights and Performance Ratios | March 31, 2003 | March 31, 20021 | ||||||
Net Income | $ | 29,801 |
| $ | 31,056 |
| ||
Basic Earnings Per Share |
| 0.49 |
|
| 0.42 |
| ||
Diluted Earnings Per Share |
| 0.47 |
|
| 0.41 |
| ||
Cash Dividends |
| 11,562 |
|
| 13,177 |
| ||
Return on Average Assets |
| 1.31 | % |
| 1.21 | % | ||
Return on Average Equity |
| 12.42 | % |
| 9.97 | % | ||
Net Interest Margin |
| 4.29 | % |
| 3.92 | % | ||
Efficiency Ratio |
| 66.44 | % |
| 61.81 | % | ||
Efficiency Ratio excluding ITSRP and Restructuring Costs |
| 60.98 | % |
| 60.47 | % | ||
Statement of Condition Highlights and Performance Ratios | March 31, 2003 | March 31, 20021 | ||||||
Total Assets | $ | 9,410,210 |
| $ | 10,245,021 |
| ||
Net Loans |
| 5,425,343 |
|
| 5,442,601 |
| ||
Total Deposits |
| 6,987,331 |
|
| 6,543,781 |
| ||
Total Shareholders’ Equity |
| 952,007 |
|
| 1,265,907 |
| ||
Book Value Per Common Share | $ | 15.76 |
| $ | 17.24 |
| ||
Allowance / Loans Outstanding |
| 2.52 | % |
| 2.84 | % | ||
Average Equity / Average Assets |
| 10.53 | % |
| 12.13 | % | ||
Employees (FTE) |
| 2,891 |
|
| 3,082 |
| ||
Branches and offices |
| 91 |
|
| 104 |
| ||
Market Price Per Share of Common Stock for the Quarter Ended: | ||||||||
Closing | $ | 30.80 |
| $ | 26.06 |
| ||
High | $ | 31.50 |
| $ | 27.79 |
| ||
Low | $ | 29.25 |
| $ | 23.79 |
|
(dollars in thousands except per share amounts) | Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30 | September 30 | |||||||||||||||||
Earnings Highlights and Performance Ratios | 2002 2001 | 2002 2001 | ||||||||||||||||
Net Income | $ | 30,200 | $ | 31,059 | $ | 92,272 | $ | 91,475 | ||||||||||
Basic Earnings Per Share | 0.44 | 0.39 | 1.30 | 1.14 | ||||||||||||||
Diluted Earnings Per Share | 0.43 | 0.37 | 1.26 | 1.11 | ||||||||||||||
Cash Dividends | 12,197 | 14,625 | 38,442 | 43,415 | ||||||||||||||
Return on Average Assets | 1.22% | 1.00% | 1.22% | 0.94% | ||||||||||||||
Return on Average Equity | 10.40% | 8.88% | 10.10% | 8.96% | ||||||||||||||
Net Interest Margin | 4.03% | 3.89% | 3.97% | 3.91% | ||||||||||||||
Efficiency Ratio | 66.19% | 54.46% | 63.95% | 62.89% | ||||||||||||||
Continuing Business Efficiency Ratio ¹ | 61.51% | 61.03% | 61.96% | 60.81% | ||||||||||||||
September 30 | ||||||||||||||||||
Statement of Condition Highlights and Performance Ratios | 2002 2001 | |||||||||||||||||
Total Assets | $ | 9,702,043 | $ | 11,944,139 | ||||||||||||||
Net Loans | 5,104,200 | 6,583,522 | ||||||||||||||||
Total Deposits | 6,627,043 | 7,399,737 | ||||||||||||||||
Total Shareholders’ Equity | 1,100,706 | 1,371,055 | ||||||||||||||||
Book Value Per Common Share | $ | 16.67 | $ | 17.31 | ||||||||||||||
Allowance / Loans Outstanding | 2.94% | 2.70% | ||||||||||||||||
Average Equity / Average Assets | 12.10% | 10.47% | ||||||||||||||||
Employees (FTE) | 2,934 | 3,881 | ||||||||||||||||
Branches and offices | 97 | 140 | ||||||||||||||||
Market Price Per Share of Common Stock for the Quarter Ended: | ||||||||||||||||||
Closing | $ | 27.90 | $ | 23.37 | ||||||||||||||
High | $ | 30.00 | $ | 28.30 | ||||||||||||||
Low | $ | 22.79 | $ | 20.20 |
1 |
ANALYSIS OF STATEMENT OF INCOME ANALYSIS
Net Interest Income
Taxable-equivalent net interest income was $92.2$91.0 million for the thirdfirst quarter of 2002,2003, a decline of $19.6$3.9 million, or 17.5%4.1% from the comparable period in 2001.2002. The decline in net interest income was primarily duemainly attributable to the divestitures and the managed reduction of loans in an effort to improve the Company’s credit profile. Also contributing to the decline was the general declininga lower interest rate environment.environment and lower loan volume during 2003. The average prime rate for the quarter ended September 30, 2002March 31, 2003 was 4.75%4.25% compared to 6.58%4.75% for the comparable quarter in the prior year. The Company was asset sensitiveAverage interest earning/yielding assets and liabilities declined 12.3% and 14.6%, respectively, in the thirdfirst quarter of 20022003 from the same quarter last year. The decrease in average balances was primarily due to utilization of excess liquidity for stock repurchases and expects to benefit when short term interest rates begin to increase.debt repayments. The Company’s net interest margin is expected towas 4.29% for the quarter ended March 31, 2003, a 37 basis point increase slightly infrom the fourth quarter.comparable period a year ago. Presented in Table 2 are average balances, yields earned, and rates paid for the three and nine months ended September 30,March 31, 2003, December 31, 2002 and September 30, 2001.
March 31, 2002. An analysis of changes in interest income is presented in Table 3 for the three months ended March 31, 2003 compared to the same quarter last year.
Consolidated Average Balances and Interest Rates Taxable Equivalent (Unaudited) | Table 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2002 | Three Months Ended1 September 30, 2001 | Nine Months Ended September 30, 2002 | Nine Months Ended1 September 30, 2001 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | Average Balance | Income/ Expense | Yield/ Rate | Average Balance | Income/ Expense | Yield/ Rate | Average Balance | Income/ Expense | Yield/ Rate | Average Balance | Income/ Expense | Yield/ Rate | ||||||||||||||||||||||||||||||||||||||||||||||||
Earning Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest Bearing Deposits | $ | 1,142.3 | $ | 5.4 | 1.87 | % | $ | 938.7 | $ | 9.4 | 3.98 | % | $ | 1,202.3 | $ | 16.4 | 1.83 | % | $ | 564.0 | $ | 19.7 | 4.68 | % | ||||||||||||||||||||||||||||||||||||
Funds Sold | 210.2 | 0.9 | 1.74 | 194.3 | 1.8 | 3.59 | 206.9 | 2.7 | 1.72 | 132.1 | 4.2 | 4.22 | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment Securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— Held-To-Maturity | 296.9 | 5.0 | 6.63 | 526.9 | 8.1 | 6.12 | 331.1 | 15.2 | 6.11 | 557.3 | 27.4 | 6.55 | ||||||||||||||||||||||||||||||||||||||||||||||||
— Available for Sale | 2,009.5 | 25.3 | 5.03 | 2,139.7 | 31.4 | 5.86 | 1,946.5 | 78.9 | 5.40 | 2,311.4 | 108.0 | 6.23 | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans Held For Sale | 40.0 | 0.6 | 6.24 | 310.6 | 5.3 | 6.83 | 147.6 | 7.4 | 6.70 | 314.8 | 16.3 | 6.94 | ||||||||||||||||||||||||||||||||||||||||||||||||
Net Loans and Lease Financing | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— Commercial and Industrial | 963.9 | 12.9 | 5.31 | 1,583.9 | 27.8 | 6.96 | 1,057.9 | 41.0 | 5.18 | 1,923.3 | 110.8 | 7.70 | ||||||||||||||||||||||||||||||||||||||||||||||||
— Construction | 147.7 | 2.1 | 5.57 | 223.0 | 4.2 | 7.41 | 158.3 | 6.5 | 5.49 | 262.4 | 16.1 | 8.19 | ||||||||||||||||||||||||||||||||||||||||||||||||
— Mortgage | 2,904.9 | 50.4 | 6.93 | 3,261.2 | 62.3 | 7.58 | 2,969.0 | 155.9 | 7.01 | 3,448.2 | 200.7 | 7.78 | ||||||||||||||||||||||||||||||||||||||||||||||||
— Installment | 818.1 | 17.0 | 8.25 | 751.6 | 19.4 | 10.22 | 780.2 | 50.0 | 8.56 | 837.5 | 72.0 | 11.49 | ||||||||||||||||||||||||||||||||||||||||||||||||
— Lease Financing | 500.8 | 6.3 | 4.98 | 533.4 | 7.4 | 5.53 | 498.3 | 19.4 | 5.22 | 539.3 | 22.0 | 5.45 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total Domestic Loans | 5,335.4 | 88.7 | 6.62 | 6,353.1 | 121.1 | 7.59 | 5,463.7 | 272.8 | 6.67 | 7,010.7 | 421.6 | 8.03 | ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 14.1 | — | — | 920.4 | 16.8 | 7.23 | 14.2 | 0.2 | 1.61 | 1,110.4 | 57.9 | 6.97 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total Loans | 5,349.5 | 88.7 | 6.60 | 7,273.5 | 137.9 | 7.54 | 5,477.9 | 273.0 | 6.65 | 8,121.1 | 479.5 | 7.89 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other | 99.6 | 1.5 | 6.28 | 78.8 | 1.4 | 6.96 | 95.8 | 4.3 | 6.01 | 77.3 | 3.9 | 6.83 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total Earning Assets | 9,148.0 | 127.4 | 5.55 | 11,462.5 | 195.3 | 6.78 | 9,408.1 | 397.9 | 5.65 | 12,078.0 | 659.0 | 7.29 | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and Non-Interest Bearing Assets | 297.6 | 347.3 | 313.7 | 384.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Assets | 358.3 | 488.9 | 375.1 | 579.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Assets | $ | 9,803.9 | $ | 12,298.7 | $ | 10,096.9 | $ | 13,041.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest Bearing Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic Deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— Demand | 2,036.0 | 4.0 | 0.78 | 1,892.6 | 8.3 | 1.74 | 1,982.2 | 12.8 | 0.86 | 1,934.9 | 29.3 | 2.02 | ||||||||||||||||||||||||||||||||||||||||||||||||
— Savings | 1,346.2 | 5.0 | 1.46 | 794.9 | 4.6 | 2.29 | 1,183.6 | 13.4 | 1.51 | 720.3 | 11.7 | 2.16 | ||||||||||||||||||||||||||||||||||||||||||||||||
— Time | 1,600.0 | 11.4 | 2.82 | 2,432.0 | 29.5 | 4.81 | 1,739.8 | 39.0 | 3.00 | 2,661.2 | 109.9 | 5.52 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total Domestic Deposits | 4,982.2 | 20.4 | 1.62 | 5,119.5 | 42.4 | 3.29 | 4,905.6 | 65.2 | 1.78 | 5,316.4 | 150.9 | 3.79 | ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign Deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— Time Due to Banks | 9.6 | — | — | 235.3 | 2.2 | 3.78 | 54.8 | 0.8 | 1.90 | 346.4 | 12.4 | 4.79 | ||||||||||||||||||||||||||||||||||||||||||||||||
— Other Time and Savings | 38.3 | 0.2 | 1.68 | 640.7 | 5.5 | 3.41 | 60.2 | 0.7 | 1.69 | 716.4 | 19.0 | 3.54 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total Foreign Deposits | 47.9 | 0.2 | 1.59 | 876.0 | 7.7 | 3.51 | 115.0 | 1.5 | 1.79 | 1,062.8 | 31.4 | 3.95 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total Interest Bearing Deposits | 5,030.1 | 20.6 | 1.62 | 5,995.5 | 50.1 | 3.32 | 5,020.6 | 66.7 | 1.78 | 6,379.2 | 182.3 | 3.82 | ||||||||||||||||||||||||||||||||||||||||||||||||
Short-Term Borrowings | 1,301.3 | 7.7 | 2.34 | 2,012.6 | 20.9 | 4.11 | 1,503.7 | 27.6 | 2.46 | 2,160.5 | 80.8 | 5.00 | ||||||||||||||||||||||||||||||||||||||||||||||||
Long-Term Debt | 451.6 | 6.9 | 6.10 | 746.0 | 12.5 | 6.63 | 498.7 | 23.3 | 6.25 | 841.6 | 42.2 | 6.71 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total Interest Bearing Liabilities | 6,783.0 | 35.2 | 2.06 | 8,754.1 | 83.5 | 3.78 | 7,023.0 | 117.6 | 2.24 | 9,381.3 | 305.3 | 4.35 | ||||||||||||||||||||||||||||||||||||||||||||||||
Net Interest Income | 92.2 | 111.8 | 280.3 | 353.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest Rate Spread | 3.49 | % | 3.00 | % | 3.41 | % | 2.94 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Interest Margin | 4.03 | % | 3.89 | % | 3.97 | % | 3.91 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-Interest Bearing Demand Deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— Demand | 1,547.0 | 1,509.0 | 1,540.0 | 1,570.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— Foreign | — | 330.7 | — | 352.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Demand Deposits | 1,547.0 | 1,839.7 | 1,540.0 | 1,922.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Liabilities | 312.6 | 316.6 | 312.0 | 372.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders’ Equity | 1,152.3 | 1,388.3 | 1,221.9 | 1,364.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 9,803.9 | $ | 12,298.7 | $ | 10,096.9 | $ | 13,041.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for Loan and Lease Losses | — | 0.9 | 11.6 | 59.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Overhead | 44.6 | 9.2 | 124.6 | 84.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Before Income Taxes | 47.6 | 101.7 | 144.1 | 209.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for Income Taxes | 17.3 | 70.5 | 51.6 | 117.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax-Equivalent Adjustment | 0.1 | 0.1 | 0.2 | 0.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income | $ | 30.2 | $ | 31.1 | $ | 92.3 | $ | 91.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
1 Adjusted to reflect the reclassification of certain average balances and other interest income. |
Consolidated Average Balances and Interest Rates – Taxable Equivalent Basis (Unaudited) | Table 2 |
| |||||||||||||||||||||||||
Three Months Ended March 31, 2003 | Three Months Ended1 December 31, 2002 | Three Months Ended1 March 31, 2002 | |||||||||||||||||||||||||
(dollars in millions) | Average Balance | Income/ Expense | Yield/ Rate | Average Balance | Income/ Expense | Yield/ Rate | Average Balance | Income/ Expense | Yield/ Rate | ||||||||||||||||||
Earning Assets | |||||||||||||||||||||||||||
Interest Bearing Deposits | $ | 253.8 | $ | 1.3 | 2.09 | % | $ | 796.6 | $ | 3.6 | 1.78 | % | $ | 1,154.7 | $ | 5.0 | 1.77 | % | |||||||||
Funds Sold |
| 250.5 |
| 0.8 | 1.22 |
|
| 234.5 |
| 0.8 | 1.42 |
|
| 237.3 |
| 1.0 | 1.69 |
| |||||||||
Investment Securities | |||||||||||||||||||||||||||
– Held-to-Maturity |
| 202.0 |
| 2.3 | 4.61 |
|
| 253.8 |
| 3.2 | 4.98 |
|
| 368.7 |
| 5.2 | 5.66 |
| |||||||||
– Available for Sale |
| 2,268.1 |
| 22.5 | 3.96 |
|
| 2,273.3 |
| 24.1 | 4.24 |
|
| 1,939.1 |
| 27.2 | 5.61 |
| |||||||||
Loans Held for Sale |
| 10.1 |
| 0.1 | 5.16 |
|
| 38.9 |
| 0.6 | 5.88 |
|
| 340.9 |
| 5.7 | 6.66 |
| |||||||||
Net Loans and Lease Financing | |||||||||||||||||||||||||||
Domestic | |||||||||||||||||||||||||||
– Commercial and Industrial |
| 871.7 |
| 10.7 | 4.96 |
|
| 867.7 |
| 11.4 | 5.20 |
|
| 1,150.9 |
| 14.5 | 5.11 |
| |||||||||
– Construction |
| 115.4 |
| 1.4 | 5.08 |
|
| 131.5 |
| 1.8 | 5.30 |
|
| 169.8 |
| 2.2 | 5.20 |
| |||||||||
– Commercial Mortgage |
| 597.8 |
| 9.0 | 6.14 |
|
| 610.5 |
| 9.9 | 6.40 |
|
| 625.9 |
| 10.5 | 6.77 |
| |||||||||
– Residential Mortgage |
| 2,249.0 |
| 37.7 | 6.70 |
|
| 2,212.6 |
| 38.5 | 6.97 |
|
| 2,394.0 |
| 42.8 | 7.15 |
| |||||||||
– Installment |
| 501.9 |
| 12.6 | 10.21 |
|
| 443.3 |
| 11.5 | 10.38 |
|
| 390.6 |
| 11.0 | 11.46 |
| |||||||||
– Home Equity |
| 434.5 |
| 5.7 | 5.28 |
|
| 422.2 |
| 5.9 | 5.50 |
|
| 347.9 |
| 5.3 | 6.22 |
| |||||||||
– Purchased Home Equity |
| 180.2 |
| 2.6 | 5.78 |
|
| 10.1 |
| — | — |
|
| — |
| — | — |
| |||||||||
– Lease Financing |
| 495.6 |
| 5.9 | 4.81 |
|
| 498.5 |
| 6.3 | 5.03 |
|
| 492.0 |
| 6.6 | 5.46 |
| |||||||||
Total Domestic Loans |
| 5,446.1 |
| 85.6 | 6.33 |
|
| 5,196.4 |
| 85.3 | 6.54 |
|
| 5,571.1 |
| 92.9 | 6.72 |
| |||||||||
Foreign |
| 14.7 |
| — | — |
|
| 14.0 |
| — | — |
|
| 14.3 |
| 0.1 | 1.71 |
| |||||||||
Total Loans |
| 5,460.8 |
| 85.6 | 6.32 |
|
| 5,210.4 |
| 85.3 | 6.52 |
|
| 5,585.4 |
| 93.0 | 6.71 |
| |||||||||
Other |
| 74.6 |
| 1.2 | 6.47 |
|
| 78.7 |
| 1.3 | 6.62 |
|
| 88.4 |
| 1.3 | 6.12 |
| |||||||||
Total Earning Assets |
| 8,519.9 |
| 113.8 | 5.38 |
|
| 8,886.2 |
| 118.9 | 5.33 |
|
| 9,714.5 |
| 138.4 | 5.73 |
| |||||||||
Cash and Non-interest Bearing Deposits |
| 331.6 |
| 305.2 |
| 304.0 | |||||||||||||||||||||
Other Assets |
| 391.5 |
| 363.4 |
| 398.3 | |||||||||||||||||||||
Total Assets | $ | 9,243.0 | $ | 9,554.8 | $ | 10,416.8 | |||||||||||||||||||||
Interest Bearing Liabilities | |||||||||||||||||||||||||||
Interest Bearing Deposits | |||||||||||||||||||||||||||
Domestic Deposits | |||||||||||||||||||||||||||
– Demand | $ | 1,149.2 |
| 0.7 | 0.26 |
| $ | 1,099.9 |
| 1.1 | 0.38 |
| $ | 926.4 |
| 1.0 | 0.45 |
| |||||||||
– Savings |
| 2,608.2 |
| 4.6 | 0.71 |
|
| 2,468.2 |
| 6.4 | 1.03 |
|
| 2,045.5 |
| 7.2 | 1.43 |
| |||||||||
– Time |
| 1,443.3 |
| 9.1 | 2.55 |
|
| 1,501.1 |
| 10.1 | 2.66 |
|
| 1,891.0 |
| 14.8 | 3.17 |
| |||||||||
Total Domestic Deposits |
| 5,200.7 |
| 14.4 | 1.12 |
|
| 5,069.2 |
| 17.6 | 1.37 |
|
| 4,862.9 |
| 23.0 | 1.92 |
| |||||||||
Foreign Deposits | |||||||||||||||||||||||||||
– Time Due to Banks |
| 1.0 |
| — | — |
|
| 2.9 |
| — | — |
|
| 118.7 |
| 0.6 | 2.09 |
| |||||||||
– Other Time and Savings |
| 30.5 |
| 0.1 | 1.23 |
|
| 39.4 |
| 0.1 | 1.38 |
|
| 83.9 |
| 0.4 | 1.70 |
| |||||||||
Total Foreign Deposits |
| 31.5 |
| 0.1 | 1.11 |
|
| 42.3 |
| 0.1 | 1.29 |
|
| 202.6 |
| 1.0 | 1.93 |
| |||||||||
Total Interest Bearing Deposits |
| 5,232.2 |
| 14.5 | 1.12 |
|
| 5,111.5 |
| 17.7 | 1.37 |
|
| 5,065.5 |
| 24.0 | 1.92 |
| |||||||||
Short-Term Borrowings |
| 649.8 |
| 2.5 | 1.54 |
|
| 1,053.5 |
| 5.1 | 1.90 |
|
| 1,738.8 |
| 11.2 | 2.61 |
| |||||||||
Long-Term Debt |
| 390.4 |
| 5.8 | 6.09 |
|
| 389.9 |
| 5.9 | 6.05 |
|
| 538.2 |
| 8.3 | 6.27 |
| |||||||||
Total Interest Bearing Liabilities |
| 6,272.4 |
| 22.8 | 1.47 |
|
| 6,554.9 |
| 28.7 | 1.73 |
|
| 7,342.5 |
| 43.5 | 2.40 |
| |||||||||
Net Interest Income | $ | 91.0 | $ | 90.2 | $ | 94.9 | |||||||||||||||||||||
Interest Rate Spread | 3.91 | % | 3.60 | % | 3.33 | % | |||||||||||||||||||||
Net Interest Margin | 4.29 | % | 4.05 | % | 3.92 | % | |||||||||||||||||||||
Non-Interest Bearing Demand Deposits (Domestic) |
| 1,636.8 |
| 1,601.0 |
| 1,508.9 | |||||||||||||||||||||
Other Liabilities |
| 360.7 |
| 329.3 |
| 301.9 | |||||||||||||||||||||
Shareholders’ Equity |
| 973.1 |
| 1,069.6 |
| 1,263.5 | |||||||||||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 9,243.0 | $ | 9,554.8 | $ | 10,416.8 | |||||||||||||||||||||
1 | Certain 2002 information has been reclassified to conform to 2003 presentation. |
Analysis of Change in Net Interest Income – Tax Equivalent Basis (Unaudited) | Table 3 |
Three Months Ended March 31, 2003 Compared to March 31, 20022 | ||||||||||||
(dollars in millions) | Volume1 | Rate1 | Total | |||||||||
Change in Interest Income: | ||||||||||||
Interest Bearing Deposits | $ | (4.5 | ) | $ | 0.8 |
| $ | (3.7 | ) | |||
Funds Sold |
| 0.1 |
|
| (0.3 | ) |
| (0.2 | ) | |||
Investment Securities: | ||||||||||||
Held-to-Maturity |
| (2.1 | ) |
| (0.8 | ) |
| (2.9 | ) | |||
Available for Sale |
| 4.1 |
|
| (8.8 | ) |
| (4.7 | ) | |||
Loans Held for Sale |
| (4.5 | ) |
| (1.1 | ) |
| (5.6 | ) | |||
Net Loans and Lease Financing | ||||||||||||
Domestic | ||||||||||||
Commercial and Industrial |
| (3.4 | ) |
| (0.4 | ) |
| (3.8 | ) | |||
Construction |
| (0.7 | ) |
| (0.1 | ) |
| (0.8 | ) | |||
Commercial Mortgage |
| (0.5 | ) |
| (1.0 | ) |
| (1.5 | ) | |||
Residential Mortgage |
| (2.5 | ) |
| (2.6 | ) |
| (5.1 | ) | |||
Installment |
| 2.9 |
|
| (1.3 | ) |
| 1.6 |
| |||
Home Equity |
| 1.3 |
|
| (0.9 | ) |
| 0.4 |
| |||
Purchased Home Equity |
| 2.6 |
|
| — |
|
| 2.6 |
| |||
Lease Financing |
| 0.1 |
|
| (0.8 | ) |
| (0.7 | ) | |||
Total Domestic |
| (0.2 | ) |
| (7.1 | ) |
| (7.3 | ) | |||
Foreign |
| (0.1 | ) |
| 0.0 |
|
| (0.1 | ) | |||
Total Loans |
| (0.3 | ) |
| (7.1 | ) |
| (7.4 | ) | |||
Other |
| (0.2 | ) |
| 0.1 |
|
| (0.1 | ) | |||
Total Change in Interest Income |
| (7.4 | ) |
| (17.2 | ) |
| (24.6 | ) | |||
Change in Interest Expense: | ||||||||||||
Interest Bearing Deposits | ||||||||||||
Domestic | ||||||||||||
Demand Deposits |
| 0.2 |
|
| (0.5 | ) |
| (0.3 | ) | |||
Savings Deposits |
| 1.6 |
|
| (4.2 | ) |
| (2.6 | ) | |||
Time Deposits |
| (3.1 | ) |
| (2.6 | ) |
| (5.7 | ) | |||
Total Domestic |
| (1.3 | ) |
| (7.3 | ) |
| (8.6 | ) | |||
Foreign Deposits |
| (0.6 | ) |
| (0.3 | ) |
| (0.9 | ) | |||
Total Interest Bearing Deposits |
| (1.9 | ) |
| (7.6 | ) |
| (9.5 | ) | |||
Short-Term Borrowings |
| (5.3 | ) |
| (3.4 | ) |
| (8.7 | ) | |||
Long-Term Debt |
| (2.3 | ) |
| (0.2 | ) |
| (2.5 | ) | |||
Total Change in Interest Expense |
| (9.5 | ) |
| (11.2 | ) |
| (20.7 | ) | |||
Change in Net Interest Income | $ | 2.1 |
| $ | (6.0 | ) | $ | (3.9 | ) | |||
1 | The changes for each category of interest income and expense are divided between the portion of changes attributable to the variance in volume or rate for that category. |
2 | Certain 2002 information has been reclassified to conform to 2003 presentation. |
Provision for Loan and Lease Losses
Consistent with the previous two quarters, no Provision for loanLoan and lease lossesLease Losses (the “Provision”) was recorded for the three months ended September 30, 2002, due to further stabilization and improvementsMarch 31, 2003. This resulted in a reduction in the Company’s asset quality.Allowance for Loan and Lease Losses (the “Allowance”) equal to the amount of net charge-offs of $2.8 million. The provisionProvision in the thirdfirst quarter 20012002 was equal to net charge-offs of $0.9$8.3 million. Net loan charge-offs in the third quarter 2001 benefited from significant foreign loan recoveries. Net loan charge-offs for the quarter ended September 30, 2002 were $4.5 million. Based on current conditions, the Company does not expect to record a provision for loan and lease losses in the fourth quarter 2002. However, the actual amount of the provision for loan and lease losses will depend on determinations of credit risk in the portfolio and the economic environment that will be made near the end of the quarter. For further information on credit quality,Credit Quality, refer to the section on “Corporate Risk Profile”.
Non-Interest Income
Non-interest income was $48.2$44.8 million for the three months ended September 30, 2002,March 31, 2003, compared to $113.4$53.0 million for the comparable period in 2001. 2002.
The prior year included a gain on the sale of Pacific Century Bank N.A.’s California branches of $49.4 million, $1.9 million gain on sale of a leverage lease, partially offset by a $3.5 million write-down taken on an equity investment. After excluding 2001 non-recurring gains and divested businesses, non-interest income from continuing businesses was $53.7 milliondecline in the third quarter of 2001 and $163.3 million for the nine months ended September 30, 2001.
Mortgage banking income was $4.0 million indecreased by 96.4% from the thirdfirst quarter of 2002, a decrease of 61.2% from $10.4 million in the third quarter of 2001.2002. The significant decrease was mainly due to adjustmentsa reduction in the prior year to recognize unearned income on mortgages sold in previous periods and the third quarter 2001 reversal of the mortgage loan portfolio valuation reserve.
Service charges on deposit accounts increased by 6.4% in the first quarter expense of $2.0 million included $3.1 million of employee severance costs, $0.2 million of other costs, offset by adjustments of $1.3 million in previous estimates of foreign currency translation losses.
Balance at December 31, 2001 | $ | 11.8 | ||
Restructuring Charges | 3.3 | |||
Adjustments | (1.3 | ) | ||
Payments | (10.6 | ) | ||
Balance at March 31, 2002 | 3.2 | |||
Payments | (3.2 | ) | ||
Balance at June 30, 2002 | $ | 0.0 | ||
Insurance income increased 14.7% from the same quarter in 2001,of 2002 primarily due to increased liquidityan increase in contingent commission income.
Other operating income for the first quarter of 2003 declined 14.8% from the first quarter of 2002 primarily due to decreased annuity income, lease income and reductionsretail brokerage commissions.
Non-Interest Expense
Non-interest expense for the first quarter of 2003 was $90.2 million including $7.4 million in long-term debt. The decreasesystems replacement costs. Non-interest expense for the first quarter of 2002 included net restructuring costs of $2.0 million. Excluding these items, non-interest expense was $82.8 million in the provision for loan and lease losses from the prior year is due to improved asset quality. Non-interest income decreased $5.5 million compared to the samefirst quarter in 2001 primarily from reductions in mortgage banking income and foreign exchange income. Non-interest expense decreased $2.0 million mainly due to decreases in compensation expense and relocation costs. Net income was $34.4 million, an increase of $3.02003, a decrease of $6.7 million from the same quarter last year. Refer to Note 2 to the Consolidated Financial Statements for additional information on the systems replacement project.
Salaries and employee benefits expense decreased 7.0% in 2001. Year to date net income increased by $5.5 millionthe first quarter of 2003 compared to the nine months ended September 30, 2001.
Continuing Business (Unaudited) | Table 3 | |||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
(dollars in thousands) | 2002 | 2001 | 2002 | 2001 | ||||||||||||
Net Interest Income | $ | 92,181 | $ | 91,008 | $ | 280,013 | $ | 270,985 | ||||||||
Provision for Loan and Lease Losses | — | (6,421 | ) | (11,616 | ) | (21,043 | ) | |||||||||
Net Interest Income After Provision for Loan and Lease Losses | 92,181 | 84,587 | 268,397 | 249,942 | ||||||||||||
Non-Interest Income | 48,248 | 53,731 | 151,184 | 163,279 | ||||||||||||
Non-Interest Expense1 | (86,378 | ) | (88,328 | ) | (267,185 | ) | (264,087 | ) | ||||||||
Income Before Income Taxes | 54,051 | 49,990 | 152,396 | 149,134 | ||||||||||||
Provision for Income Taxes | (19,668 | ) | (18,640 | ) | (54,666 | ) | (56,879 | ) | ||||||||
Net Income1 | $ | 34,383 | $ | 31,350 | $ | 97,730 | $ | 92,255 | ||||||||
Total Assets (End of Period) | $ | 9,702,043 | $ | 9,253,817 | $ | 9,702,043 | $ | 9,261,817 | ||||||||
Total Assets (Average) | 9,803,896 | 9,320,155 | 10,096,958 | 9,584,119 | ||||||||||||
Diluted Earnings Per Share1 | $ | 0.49 | $ | 0.38 | $ | 1.34 | $ | 1.12 | ||||||||
Return on Average Equity1 | 11.84 | % | 8.96 | % | 10.69 | % | 9.04 | % | ||||||||
Efficiency Ratio1 | 61.51 | % | 61.03 | % | 61.96 | % | 60.81 | % |
Other operating expense decreased in the first quarter of 2003 from the same quarter in 2002 primarily due to a decline in other professional services and legal fees.
BALANCE SHEET ANALYSIS
Short-Term Interest Earning Assets
Short-term interest-earning assets, including interest-bearing deposits, securities purchased under agreements to resell and funds sold, totaled $1.1 billion$332.1 million at September 30, 2002,March 31, 2003, compared to $1.2 billion$745.0 million and $1.4$1.5 billion at December 31, 20012002 and September 30, 2001,March 31, 2002, respectively. The decrease from the same period in the prior year wasdecreases were mainly due to the redeployment of funds to purchase available for sale securities and to repurchase of the Company’s stock.
Investments
The Company’s investment portfolio is managed in an effort to meet strategic asset/liability objectives, to provide both interest income and balance sheet liquidity and to collateralize customer deposits. Available-for-sale securities at September 30, 2002March 31, 2003 were $2.2$2.5 billion, compared to $2.0$2.3 billion at December 31, 2001,2002, and $2.1$2.0 billion at September 30, 2001.March 31, 2002. The 9.2% increase from year-end 2002 is attributable to the investment of excess liquidity. Securities held to maturity were $277.9$175.6 million at September 30, 2002,March 31, 2003, declining from $396.2$229.7 million at December 31, 20012002 and $460.5$344.7 million at September 30, 2001. These decreases wereMarch 31, 2002. The decrease in held to maturity securities was largely due to maturities. During the third quarter the Company extended the maturity on approximately $800 million of liquid assets. These assets were a consequence of the 2001 divestitures and had initially been invested in overnight funds in anticipation of an increase in short-term interest rates, which did not occur. At September 30, 2002March 31, 2003 and December 31, 20012002 investment securities with a book value of $1.8$1.1 billion and $2.1 billion, respectively, were pledged as collateral for repurchase agreements.
Loans Held for Sale
Loans held for sale, primarily residential mortgage loans, totaled $30.9$47.3 million at September 30, 2002,March 31, 2003, compared to $456.7$40.1 million at December 31, 2001,2002, an increase of $7.2 million, and $99.8 million at March 31, 2002, a decrease of $425.8 million, and compared to $228.1 million at September 30, 2001, a decrease of $197.2$52.5 million. During the third quarter the percentage of loans originated and designated held for sale increased from second quarter 2002. However, the loan held for sale balance declined due to improved delivery to the secondary market of mortgage loans for sale.
Loans
As of September 30, 2002,March 31, 2003, loans outstanding, excluding loans held for sale, declinedincreased to $5.3$5.6 billion from $5.7$5.4 billion at year-end 20012002 and $6.8 billion at September 30, 2001.remained flat from March 31, 2002. The decreaseincrease from September 30, 2001December 31, 2002 was primarily dueattributable to the divested businessesincreases in residential and strategic risk reductions incommercial mortgages. Compared to March 31, 2002, the portfolio.
Table 4 presents the composition of the loan portfolio by major loan categories and Table 5 presents the composition of consumer loans by geographic area.
Loan Portfolio Balances (Unaudited) | Table 4 |
(dollars in millions) | September 30 2002 | June 30 2002 | December 31 2001 | September 30 2001 | ||||||||
Domestic Loans | ||||||||||||
Commercial | ||||||||||||
Commercial and Industrial1 | $ | 869.4 | $ | 999.6 | $ | 1,175.5 | $ | 1,413.6 | ||||
Mortgage – Commercial1 | 616.5 | 562.5 | 640.7 | 667.9 | ||||||||
Construction | 146.3 | 148.6 | 169.6 | 175.7 | ||||||||
Lease Financing | 451.8 | 450.8 | 441.8 | 466.8 | ||||||||
Total Commercial | 2,084.0 | 2,161.5 | 2,427.6 | 2,724.0 | ||||||||
Consumer | ||||||||||||
Mortgage – Residential | 2,259.2 | 2,360.5 | 2,419.4 | 2,440.4 | ||||||||
Home Equity | 419.2 | 404.2 | 329.9 | 306.3 | ||||||||
Other Consumer | 421.6 | 403.2 | 399.8 | 428.4 | ||||||||
Lease Financing | 36.5 | 37.3 | 38.9 | 41.2 | ||||||||
Total Consumer | 3,136.5 | 3,205.2 | 3,188.0 | 3,216.3 | ||||||||
Total Domestic | 5,220.5 | 5,366.7 | 5,615.6 | 5,940.3 | ||||||||
Foreign Loans | 38.2 | 41.8 | 36.9 | 825.8 | ||||||||
Total Loans | $ | 5,258.7 | $ | 5,408.5 | $ | 5,652.5 | $ | 6,766.1 | ||||
(dollars in millions)
| March 31, 2003 | December 31, 2002 | March 31, 20021 | ||||||
Domestic Loans | |||||||||
Commercial | |||||||||
Commercial and Industrial | $ | 824.9 | $ | 875.0 | $ | 1,114.9 | |||
Commercial Mortgage |
| 691.7 |
| 591.1 |
| 617.6 | |||
Construction |
| 86.7 |
| 127.5 |
| 161.4 | |||
Lease Financing |
| 430.4 |
| 427.3 |
| 436.1 | |||
Total Commercial |
| 2,033.7 |
| 2,020.9 |
| 2,330.0 | |||
Consumer | |||||||||
Residential Mortgage |
| 2,305.3 |
| 2,131.4 |
| 2,409.4 | |||
Home Equity |
| 439.1 |
| 428.2 |
| 369.8 | |||
Purchased Home Equity |
| 170.9 |
| 185.8 |
| — | |||
Other Consumer |
| 518.5 |
| 493.3 |
| 389.5 | |||
Lease Financing |
| 33.8 |
| 34.5 |
| 37.9 | |||
Total Consumer |
| 3,467.6 |
| 3,273.2 |
| 3,206.6 | |||
Total Domestic |
| 5,501.3 |
| 5,294.1 |
| 5,536.6 | |||
Foreign |
| 64.1 |
| 64.9 |
| 65.0 | |||
Total Loans | $ | 5,565.4 | $ | 5,359.0 | $ | 5,601.6 | |||
1 Certain 2002 information has been reclassified to conform to 2003 presentation.
Consumer Loans by Geographic Area | Table 5 |
(dollars in millions) | September 30 2002 | June 30 2002 | December 31 2001 | September 30 2001 | ||||||||
Hawaii | ||||||||||||
Residential Mortgage | $ | 2,190.0 | $ | 2,293.1 | $ | 2,345.4 | $ | 2,347.0 | ||||
Home Equity | 410.0 | 395.1 | 320.5 | 296.4 | ||||||||
Other Consumer | 345.5 | 317.5 | 292.6 | 319.1 | ||||||||
West Pacific | ||||||||||||
Residential Mortgage | 69.0 | 67.1 | 73.7 | 92.9 | ||||||||
Home Equity | 9.2 | 9.1 | 9.4 | 9.9 | ||||||||
Other Cosumer | 81.2 | 89.9 | 109.9 | 113.2 | ||||||||
American Samoa | ||||||||||||
Residential Mortgage | 0.2 | 0.3 | 0.3 | 0.5 | ||||||||
Other Consumer | 31.4 | 33.1 | 36.2 | 37.3 | ||||||||
Total Consumer Loans | $ | 3,136.5 | $ | 3,205.2 | $ | 3,188.0 | $ | 3,216.3 | ||||
(dollars in millions)
| March 31, 2003 | December 31, 2002 | March 31, 20021 | ||||||
Hawaii | |||||||||
Residential Mortgage | $ | 2,100.0 | $ | 1,921.4 | $ | 2,200.3 | |||
Home Equity |
| 429.7 |
| 419.2 |
| 360.6 | |||
Other Consumer |
| 442.3 |
| 448.2 |
| 298.6 | |||
Guam | |||||||||
Residential Mortgage |
| 200.5 |
| 202.9 |
| 205.1 | |||
Home Equity |
| 9.4 |
| 9.0 |
| 9.2 | |||
Other Consumer |
| 44.1 |
| 42.8 |
| 54.1 | |||
U.S. Mainland | |||||||||
Purchased Home Equity |
| 170.9 |
| 185.8 |
| — | |||
Other Pacific Islands | |||||||||
Residential Mortgage |
| 4.8 |
| 7.1 |
| 4.0 | |||
Other Consumer |
| 65.9 |
| 36.8 |
| 74.7 | |||
Total | $ | 3,467.6 | $ | 3,273.2 | $ | 3,206.6 | |||
1 | Certain 2002 information has been reclassified to conform to 2003 presentation. |
Mortgage Servicing Rights
As of March 31, 2003, the Company’s portfolio of residential loans serviced for third parties totaled $3.5 billion, a $0.4 billion and $0.5 billion decrease from December 31, 2002 and March 31, 2002, respectively. The Company’scarrying value of mortgage loan servicing portfolio was $3.7 billionrights amounted to $25.8 million at September 30, 2002.March 31, 2003, a $3.0 million and $4.7 million decrease from December 31, 2002 and March 31, 2002, respectively. The Company did not incur an impairment charge related to mortgage servicing rights in the third quarter. These rights had a carrying valuefirst quarter of $30.0 million at September 30, 2002.2003. The prepayment speed of Hawaii mortgages has been and remainscontinues to be less than national speeds.
Deposits
As of September 30, 2002,March 31, 2003, deposits totaled $6.6$7.0 billion, downa $0.1 billion increase from $6.7 billion at December 31, 20012002 and down $0.8 billion from $7.4 billion at September 30, 2001. Compared to September 30, 2001, domestic deposits increaseda $0.4 billion while foreign deposits declined by $1.1 billion due to the divested foreign operations.increase from March 31, 2002. During the thirdfirst quarter of 2002,2003, the Company experiencedcontinued to experience growth in demand and savings deposits while continuing to manage down its higher cost time deposits.
Three Months Ended September 30, 2002 | Three Months Ended December 31, 2001 | Three Months Ended September 30, 2001 | ||||||||||||||||
(dollars in millions) | Amount | Mix | Amount | Mix | Amount | Mix | ||||||||||||
Domestic | ||||||||||||||||||
Non-Interest Bearing Demand | $1,547.0 | 23.5% | $1,397.8 | 19.1% | $1,509.0 | 19.3% | ||||||||||||
Interest-Bearing Demand | 2,036.0 | 31.0% | 1,774.7 | 24.2% | 1,892.6 | 24.2% | ||||||||||||
Regular Savings | 1,346.2 | 20.5% | 958.3 | 13.1% | 794.9 | 10.1% | ||||||||||||
Time Certificates of Deposit ($100,000 or More) | 780.0 | 11.8% | 990.8 | 13.5% | 1,202.7 | 15.3% | ||||||||||||
Other Time and Savings Certificates | 820.0 | 12.5% | 1,057.4 | 14.5% | 1,229.3 | 15.7% | ||||||||||||
Total Domestic | 6,529.2 | 99.3% | 6,179.0 | 84.4% | 6,628.5 | 84.6% | ||||||||||||
Foreign | ||||||||||||||||||
Non-Interest Bearing Demand | — | 0.0% | 328.0 | 4.5% | 330.7 | 4.2% | ||||||||||||
Time Due to Banks | 9.6 | 0.1% | 365.5 | 5.0% | 235.3 | 3.0% | ||||||||||||
Other Time and Savings | 38.3 | 0.6% | 445.9 | 6.1% | 640.7 | 8.2% | ||||||||||||
Total Foreign | 47.9 | 0.7% | 1,139.4 | 15.6% | 1,206.7 | 15.4% | ||||||||||||
Total | $6,577.1 | 100.0% | $7,318.4 | 100.0% | $7,835.2 | 100.0% | ||||||||||||
Borrowings
Short-term borrowings, including funds purchased, and securities sold under agreements to repurchase commercial paper, and other short-term borrowings, totaled $1.2$0.7 billion at September 30, 2002, $1.8March 31, 2003, $0.8 billion at December 31, 20012002 and $2.1$1.6 billion at September 30, 2001.March 31, 2002. The decline in short-term borrowings reflected the lower funding needs of the Company. Long-term debt at September 30, 2002 decreased to $409.8 millionMarch 31, 2003 declined from $570.4 million at December 31, 20012002 and $694.4 million at September 30, 2001. Long-term debt declinedMarch 31, 2002 due to repayments and repurchases.
Shareholders’ Equity
The Company’s capital position remains strong. TotalThe 6.3% net reduction in capital decreased to $1,100.7 million at September 30, 2002, from $1,247.0 million at December 31, 2001 and from $1,371.1 million at September 30, 2001. The reduction in capital2002 is attributable to the Company’s common stock repurchase programs.programs offset by earnings for the first quarter of 2003. A further discussion of the Company’s capital is included in the Corporate Risk Profile section of this report.
LINE OF BUSINESS FINANCIAL REVIEWSEGMENTS
The Company’s business segments are defined as Retail Banking, Commercial Banking, Investment Services Group, and Treasury and Other Corporate. Business Segmentsegment results are determined based on the Company’s internal financial management reporting process and organizational structure. This process uses various techniques to assign balance sheet and income statement amounts to business segments, including allocations of overhead, the Provision and capital. This process is dynamic and requires certain allocations based on judgment and subjective factors. Unlike financial accounting, there is no comprehensive, authoritative guidance for management accounting that is equivalent to accounting principles generally accepted in the United States. The management accounting process measures the performance of the operating segments based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution.
The business segments are primarily managed with a focus on performance measures, including risk adjusted return on capital (“RAROC”) and net income after capital charge (“NIACC”). RAROC is the ratio of net income to risk-adjusted equity. Equity is allocated to each business segment based on an assessment of its inherent risk. NIACC is net income available to common shareholders less a charge for allocated capital. The cost of capital is determined by multiplying management’s estimate of the shareholder’s minimum required rate of return on capital invested (11% for 2003 and 12% for 2002) by the segment’s allocated equity. The Company assumes a cost of capital that is equal to the long-term government bond rate plus an additional level of return for the average risk premium of an equity investment adjusted for the Company’s market risk. The net interest income of the business segments reflects the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics and reflects the allocation of net interest income related to the Company’s overall asset and liability management activities on a proportionate basis. The basis for the allocation of net interest income is a function of management decisions and assumptions which are subject to change based on changes in current interest rate and market conditions. The Provision charged to the Treasury and Other Corporate segment represents changes in the level of the Allowance. The Provision recorded in the Retail Banking, Commercial Banking, and Investment Services Group segments represents actual net charge-offs of these segments.
The financial results for the three months ended March 31, 2003 and 2002 are discussed below and are presented in Note 3Table 6. Segment information for 2002 has been reclassified to conform to the financial statements. The following is a discussion of segment performance.
Retail Banking
The Company’s retail banking franchise and market share are key strengths of the Company. Retail Banking segment offers financial products and services to consumers and small businesses. Loan and lease products include residential mortgage loans, home equity lines of credit, automobile loans and leases, and installment loans. Deposit products include checking, savings and time deposit accounts. The Retail Banking segment also provides checkingmerchant services to its small business customers. Products and savings productsservices from the Retail Banking segment are delivered to customers through 74 Hawaii branch locations and the largest network of bank ATM’s in the State of Hawaii, e-bankoh (on-line banking service) and 24-hour telephone banking service.
Allocated net income for the consumerRetail Banking segment increased by $3.0 million, or 18.6%, for the first quarter of 2003 compared to the first quarter of 2002. The Retail Banking segment’s NIACC increased by $2.1 million to $12.3 million for the first quarter of 2003. RAROC increased from 32% for the first quarter of 2002 to 36% for the first quarter of 2003. The improvement in these financial measures was primarily due to an increase in net interest income and small business segments; merchant services; installment, home equitydecreases in non-interest expense and mortgage lending products; as well as other products and services.the Provision, partially offset by lower non-interest income. The increase in Retail Banking’s net-interestnet interest income for the three and nine months ended September 30, 2002 was a result of increased deposit incomeprimarily due to the lower average costinterest rate environment in the first quarter of consumer2003 as compared to the first quarter of 2002, which resulted in a reduction of interest expense on deposit accounts. Also contributing to the increase in net interest income was the interest income earned on the home equity portfolio that was purchased in December 2002. Non-interest expense decreased by $5.5 million, or 11.8%, for the first quarter of 2003 compared to the first quarter of 2002, primarily due to reductions in technology spending, incentive compensation and lower marketing costs. The reduction in the Provision for the first quarter of 2003 as compared to the first quarter of 2002 reflects enhanced credit management and collections in the consumer portfolio. The decrease in non-interest income for the threeRetail Banking segment was primarily due to lower mortgage banking income, as a result of lower gains on sale and nine months ended September 30, 2002reduced net servicing income.
Commercial Banking
The Commercial Banking segment offers products including corporate banking and commercial real estate loans, lease financing, auto dealer financing, deposit and cash management products, and property and casualty insurance products. Lending, deposit and cash management services are offered to middle-market and large companies in Hawaii. Commercial real estate mortgages are focused on customers that include investors, developers and builders primarily domiciled in Hawaii. Lease financing targets commercial leasing transactions ranging between $5 million and $15 million. The Commercial Banking unit also serves customers through its 15 branches in the Pacific Islands and a representative office in Tokyo.
The Commercial Banking segment’s allocated net income increased by $4.6 million or 56.8% in the first quarter of 2003 compared to the same periodsfirst quarter of 2002. NIACC increased by $4.1 million and RAROC increased from 15% in 2001 wasthe first quarter 2002 to 24% in the first quarter of 2003. The improvement in these financial measures is a result of decreased mortgage banking revenuean increase in net interest income along with decreases in the Provision and non-interest expense. The increase in net-interest income was driven by lower feeinterest expense on deposits, partially offset by the decline in total loan and lease income due to lower volume. The decline in the Provision is a result of improved credit quality of the loan portfolios from consumer deposits.first quarter 2002 to first quarter of 2003. Total non-interest expense declined by $2.4 million, or 9.7%, in the first quarter of 2003 as compared to the first quarter of 2002. The decrease in non-interest expense for the three and nine months ended September 30, 2002 compared to the same periods in 2001 was due to lower incentive compensation resulting from decreased mortgage origination volume.
Investment Services Group
The Investment Services Group offersincludes private banking, trust services, asset management, investments such as mutual fundsinstitutional investment advice, and stocks, financial planning, annuities, and life insurance. The primary markets served through this segment are affluent individuals, corporations and foundations with trust and investment management needs.retail brokerage. A significant portion of thethis segment’s income is derived from fees, which are generally based on the market values of assets under management. Income fromThe private banking and personal trust group assists individuals and families in building and preserving their wealth by providing investment, credit, and trust expertise to high-net-worth individuals. The asset management services declinedgroup manages portfolios and creates investment products. Institutional sales and service offers investment advice to corporations, government entities, and foundations. Also included in the group is Bankoh Investment Services, Inc. a full service brokerage offering equities, mutual funds, and annuities.
Allocated net income for the Investment Services Group decreased by $0.8 million or 26.5% in first nine monthsquarter of 2003 compared to first quarter of 2002. The Investment Services Group’s NIACC decreased by $0.8 million to $0.6 million in first quarter of 2003 and RAROC decreased from 22% in the first quarter of 2002 compared to 16% in the prior yearfirst quarter of 2003. The decline in these financial measures was primarily due to declinesa decrease in values of assets under management. However, this wasnon-interest income, partially offset by an increase in net interest income. Net interest income resultingincreased $1.0 million, due to lower interest expense on deposits. Non-interest income declined $2.1 million from first quarter of 2002 to first quarter of 2003. This reduction was primarily due to the decrease in trust and asset management fee income as a higher levelresult of private banking deposits.
Treasury and Other Corporate
The primary income earning component of this segment is Treasury, which consists of corporate asset and liability management activities including interest rate risk management.management and foreign exchange business. This segment’s assets and liabilities (and related net interest income) consist of interest bearing deposits, investment securities, federal funds purchasedsold and sold,purchased, government deposits, and short and long-term borrowings. The remaining activityprimary source of foreign exchange income relates to customer driven currency requests from the divested businesses, including loan loss recoveries, is included in this segment.merchants and island visitors. The net residual effect of transfer pricing of assets and liabilities is included in Treasury, along with eliminations of intercompany transactionsinter-company transactions.
This segment also includes divisions that provide a wide-range of support (Technology and Operations, Human Resources, Finance and Legal, and Risk Management) to the other minor unallocated amounts.income earning segments. Expenses incurred by these support units are charged to the business segments through an internal cost allocation process. This segment also includes the expenses related directly to the systems replacement project. Direct systems replacement project expenses are not allocated to the Retail, Commercial and Investment Services Group segments.
Allocated net income for Treasury and Other Corporate decreased by $8.1 million in the first quarter of 2003 as compared to the first quarter of 2002. NIACC decreased $3.3 million to $(19.6) million from the first quarter of 2002 to the first quarter of 2003. The decrease in these measures was due to the decrease in net interest income for the three months ended September 30, 2002 compared to the same period in 2001 reflects the impact of the lower interest rate environment Non-interest expense increased over the previous year due to severance expenses and professional fees.
as a result of the continuing share repurchase activity.
|
(dollars in thousands) | RETAIL | COMMERCIAL | INVESTMENT SERVICES GROUP | DIVESTITURE BUSINESSES | TREASURY AND OTHER CORPORATE 1 | RESTRUCTURING AND OTHER RELATED ACTIVITIES | ||||||||||||||||||
Three Months Ended September 30, 2002 | ||||||||||||||||||||||||
NIACC (Economic) | $ | 8,230 | $ | 2,846 | $ | 871 | $ | — | $ | (20,398 | ) | $ | — | |||||||||||
RAROC (Economic) | 29 | % | 17 | % | 18 | % | — | 2 | % | N/A | ||||||||||||||
Three Months Ended September 30, 2001 | ||||||||||||||||||||||||
NIACC (Economic) | $ | 6,573 | $ | 1,547 | $ | 243 | $ | (12,583 | ) | $ | (10,743 | ) | $ | (380 | ) | |||||||||
RAROC (Economic) | 26 | % | 14 | % | 14 | % | (4 | )% | 18 | % | N/A | |||||||||||||
Nine Months Ended September 30, 2002 | ||||||||||||||||||||||||
NIACC (Economic) | $ | 24,296 | $ | 6,182 | $ | 1,803 | $ | — | $ | (54,032 | ) | $ | (1,275 | ) | ||||||||||
RAROC (Economic) | 29 | % | 16 | % | 16 | % | — | 24 | % | N/A | ||||||||||||||
Nine Months Ended September 30, 2001 | ||||||||||||||||||||||||
NIACC (Economic) | $ | 14,987 | $ | 5,178 | $ | 1,922 | $ | (33,071 | ) | $ | (24,931 | ) | $ | 20,699 | ||||||||||
RAROC (Economic) | 22 | % | 14 | % | 17 | % | 0 | % | 13 | % | N/A | |||||||||||||
Table 6 |
(dollars in thousands)
| Retail Banking | Commercial Banking | Investment Services Group | Treasury and Other Corporate | Consolidated Total | |||||||||||||||
Three Months Ended March 31, 2003 | ||||||||||||||||||||
Net Interest Income | $ | 54,988 |
| $ | 36,383 |
| $ | 3,970 |
| $ | (4,341 | ) | $ | 91,000 |
| |||||
Provision for Loan and Lease Losses |
| (848 | ) |
| (2,151 | ) |
| — |
|
| 2,999 |
|
| — |
| |||||
Net Interest Income After Provision for Loan and Lease Losses |
| 54,140 |
|
| 34,232 |
|
| 3,970 |
|
| (1,342 | ) |
| 91,000 |
| |||||
Non-Interest Income |
| 17,364 |
|
| 8,415 |
|
| 15,680 |
|
| 3,294 |
|
| 44,753 |
| |||||
| 71,504 |
|
| 42,647 |
|
| 19,650 |
|
| 1,952 |
|
| 135,753 |
| ||||||
Information Technology Systems Replacement Project |
| (583 | ) |
| (23 | ) |
| (244 | ) |
| (6,567 | ) |
| (7,417 | ) | |||||
Non-Interest Expense |
| (40,846 | ) |
| (22,541 | ) |
| (15,904 | ) |
| (3,492 | ) |
| (82,783 | ) | |||||
Income Before Income Taxes |
| 30,075 |
|
| 20,083 |
|
| 3,502 |
|
| (8,107 | ) |
| 45,553 |
| |||||
Provision for Income Taxes |
| (11,128 | ) |
| (7,334 | ) |
| (1,296 | ) |
| 4,006 |
|
| (15,752 | ) | |||||
Allocated Net Income (Loss) |
| 18,947 |
|
| 12,749 |
|
| 2,206 |
|
| (4,101 | ) |
| 29,801 |
| |||||
Allowance Funding Value |
| (152 | ) |
| (1,141 | ) |
| (10 | ) |
| 1,303 |
|
| — |
| |||||
GAAP Provision |
| 848 |
|
| 2,151 |
|
| — |
|
| (2,999 | ) |
| — |
| |||||
Economic Provision |
| (2,708 | ) |
| (3,058 | ) |
| (132 | ) |
| (6 | ) |
| (5,904 | ) | |||||
Tax Effect of Adjustments |
| 744 |
|
| 758 |
|
| 53 |
|
| 629 |
|
| 2,184 |
| |||||
Capital Charge |
| (5,403 | ) |
| (5,367 | ) |
| (1,517 | ) |
| (14,464 | ) |
| (26,751 | ) | |||||
Net Income (Loss) After Capital Charge (NIACC) | $ | 12,276 |
| $ | 6,092 |
| $ | 600 |
| $ | (19,638 | ) | $ | (670 | ) | |||||
RAROC (ROE for the Company) |
| 36 | % |
| 24 | % |
| 16 | % |
| (4 | )% |
| 12 | % | |||||
Total Assets at March 31, 2003 | $ | 3,471,677 |
| $ | 2,242,681 |
| $ | 145,925 |
| $ | 3,549,927 |
| �� | $ | 9,410,210 |
| ||||
Three Months Ended March 31, 2002 | ||||||||||||||||||||
Net Interest Income | $ | 49,556 |
| $ | 35,630 |
| $ | 3,001 |
| $ | 6,708 |
| $ | 94,895 |
| |||||
Provision for Loan and Lease Losses |
| (1,942 | ) |
| (6,510 | ) |
| — |
|
| 160 |
|
| (8,292 | ) | |||||
Net Interest Income After Provision for Loan and Lease Losses |
| 47,614 |
|
| 29,120 |
|
| 3,001 |
|
| 6,868 |
|
| 86,603 |
| |||||
Non-Interest Income |
| 24,052 |
|
| 8,621 |
|
| 17,824 |
|
| 2,528 |
|
| 53,025 |
| |||||
| 71,666 |
|
| 37,741 |
|
| 20,825 |
|
| 9,396 |
|
| 139,628 |
| ||||||
Restructuring and Other Related Costs |
| — |
|
| — |
|
| — |
|
| (1,979 | ) |
| (1,979 | ) | |||||
Non-Interest Expense |
| (46,314 | ) |
| (24,955 | ) |
| (16,061 | ) |
| (2,114 | ) |
| (89,444 | ) | |||||
Income Before Income Taxes |
| 25,352 |
|
| 12,786 |
|
| 4,764 |
|
| 5,303 |
|
| 48,205 |
| |||||
Provision for Income Taxes |
| (9,380 | ) |
| (4,655 | ) |
| (1,763 | ) |
| (1,351 | ) |
| (17,149 | ) | |||||
Allocated Net Income |
| 15,972 |
|
| 8,131 |
|
| 3,001 |
|
| 3,952 |
|
| 31,056 |
| |||||
Allowance Funding Value |
| (267 | ) |
| (1,551 | ) |
| (7 | ) |
| 1,825 |
|
| — |
| |||||
GAAP Provision |
| 1,942 |
|
| 6,510 |
|
| — |
|
| (160 | ) |
| 8,292 |
| |||||
Economic Provision |
| (2,504 | ) |
| (4,239 | ) |
| (127 | ) |
| (1 | ) |
| (6,871 | ) | |||||
Tax Effect of Adjustments |
| 307 |
|
| (266 | ) |
| 50 |
|
| (617 | ) |
| (526 | ) | |||||
Capital Charge |
| (5,323 | ) |
| (6,559 | ) |
| (1,501 | ) |
| (21,366 | ) |
| (34,749 | ) | |||||
Net Income (Loss) After Capital Charge (NIACC) | $ | 10,127 |
| $ | 2,026 |
| $ | 1,416 |
| $ | (16,367 | ) | $ | (2,798 | ) | |||||
RAROC (ROE for the Company) |
| 32 | % |
| 15 | % |
| 22 | % |
| 24 | % |
| 10 | % | |||||
Total Assets at March 31, 2002 | $ | 3,243,345 |
| $ | 2,598,482 |
| $ | 113,914 |
| $ | 4,289,280 |
| $ | 10,245,021 |
| |||||
FOREIGN OPERATIONS
The countries in which the Company maintains its largest exposure on a cross-border basis include the United Kingdom, Canada, Singapore, theJapan, Netherlands, and Australia. Table 87 presents as of September 30, 2002,March 31, 2003, December 31, 2001,2002, and September 30, 2001,March 31, 2002, a geographic distribution of the Company’s cross-border assets for each country in which such assets exceeded 0.75% of total assets. The primary component of cross-border assets as of September 30, 2002 was interest bearing deposits of $1,017.8 million.
Geographic Distribution of Cross-Border International Assets (Unaudited)1 | Table |
(dollars in millions) | |||||||||
Country | September 30, 2002 | December 31, 2001 | September 30, 2001 | ||||||
Australia | $ | 101.8 | $ | 116.0 | $ | 91.2 | |||
Canada | 120.0 | 119.9 | 104.2 | ||||||
France | 73.5 | — | 103.3 | ||||||
Germany | 76.2 | 188.2 | 96.8 | ||||||
Italy | — | — | 95.6 | ||||||
Japan | — | 81.9 | 120.3 | ||||||
Netherlands | 107.8 | 192.9 | 183.1 | ||||||
Singapore | 139.2 | 140.6 | 145.7 | ||||||
United Kingdom | 309.7 | 257.9 | 295.0 | ||||||
All Others | 211.8 | 281.9 | 399.7 | ||||||
$ | 1,140.0 | $ | 1,379.3 | $ | 1,634.9 | ||||
In this table, cross-border outstandings are defined as foreign monetary assets that are payable to the Company in U.S. dollars or other non-local currencies, plus amounts payable in local currency but funded with U.S. dollars or other non-local currencies. Cross-border outstandings include loans, acceptances, interest-bearing deposits with other banks, other interest-bearing investments, and other monetary assets. |
(dollars in millions) | |||||||||
Country | March 31, 2003 | December 31, 20022 | March 31, 20022 | ||||||
Australia | $ | 36.8 | $ | 63.2 | $ | 177.4 | |||
Canada |
| 33.0 |
| 31.9 |
| 215.6 | |||
France |
| 8.3 |
| 34.2 |
| 78.7 | |||
Germany |
| 26.0 |
| 100.6 |
| 46.4 | |||
Japan |
| 53.5 |
| 56.4 |
| 63.2 | |||
Netherlands |
| 38.1 |
| 98.0 |
| 197.0 | |||
Singapore |
| — |
| 100.1 |
| 83.9 | |||
Switzerland |
| 0.3 |
| 0.2 |
| 99.3 | |||
United Kingdom |
| 60.8 |
| 170.5 |
| 326.3 | |||
All Others |
| 28.1 |
| 17.8 |
| 208.3 | |||
$ | 284.9 | $ | 672.9 | $ | 1,496.1 | ||||
1 | Cross-border outstandings are defined as foreign monetary assets that are payable to the Company in U.S. dollars or other non-local currencies, plus amounts payable in local currency but funded with U.S. dollars or other non-local currencies. Cross-border outstandings include loans, acceptances, interest-bearing deposits with other banks, other interest-bearing investments and other monetary assets. |
2 | Certain 2002 information has been reclassified to conform to 2003 presentation. |
Because the U.S. dollar is used in the Pacific (consisting of GuamIsland division locations (Guam and American Samoa, which are U.S. territories, and other nearby islands) includes Bank of Hawaii and First Savings branches. Since the U.S. dollar is used in, these locations, operations in the West Pacific are not considered foreign for financial reporting purposes.
CORPORATE RISK PROFILE
Credit Risk
Credit Risk is defined as the risk that borrowers or counterparties will not be able to repay their obligations to the Company. Credit exposures reflect legally binding commitments for loans, leases, banker’s acceptances, financial and standby letters of credit, and overnight overdrafts.
The Company’s asset quality continued to benefit from the resiliency in the Hawaii economy and a continued yet challenged national recovery,improve as evidenced by lower levels of internally criticized loans and non-performing assets, and a positive trend in the declinelevel of net charge-offs. The Company’s lower risk position relative to a year ago in year-to-datethe corporate portfolio reflects the execution of portfolio strategy to shift to lower risk industries as well as reduce large borrower concentrations, syndicated national credits, and exposure to the telecommunications industry. Management continues to monitor the portfolio in an effort to identify and disengage from any deteriorating credits as early as possible. In the Hawaii commercial portfolio, overall risk has been generally stable primarily due to the resiliency of the Hawaii economy. In the retail portfolios, enhanced credit management and collections have also produced lower net charge-offs and further improvement in internalcharge-off rates.
Although the Company’s credit risk ratings.
Risk in the airline industry continues to remain high as the industry struggles with elevated cost structures, rising fuel costs, reduced travel, an uncertain geopolitical environment, and the possible need for U.S. government financial assistance. The risk of Credit Risk
In the Guam portfolio, which is materially dependent on tourism and military spending, economic stress continues which has been further complicated by both geopolitical uncertainties and a recent super typhoon. Already low Japan tourism has been further reduced.
The Guam hotel portfolio had $42.8 million in exposure at March 31, 2003, of which $31.2 million or 73% of that exposure was guaranteed by financial institutions or entities with limited exposure to tourism.
The largest syndicated loan outstanding is $27.3 million to a prominent Hawaii based hotel operator while the second largest is $26.8 million to a Hawaii shopping center operator. The 10 largest syndicated loans outstanding total $178 million centered in real estate, hospitality, and gaming. As of March 31, 2003, only one unfunded syndicated commitment, which had $6.1 million in exposure (less than 1% of total syndicated commitments), was internally classified.
Concentration of credit risk to certain industries and the amount of syndicated loan exposure are summarized in Table 9.
Selected Concentrations of Credit Exposure (Unaudited) | Table |
September 30, 2002 1 | June 30, 2002 | |||||||||||||||||
(dollars in millions) | Outstandings | Unused Commitments | Total Exposure | Total Exposure | ||||||||||||||
Air Transportation | ||||||||||||||||||
Regional Passenger Carriers | $ | 49 | $ | 8 | $ | 57 | $ | 58 | ||||||||||
United States Based Passenger Carriers | 48 | — | 48 | 49 | ||||||||||||||
International Based Passenger Carriers | 32 | — | 32 | 32 | ||||||||||||||
Cargo Carriers | 15 | — | 15 | 15 | ||||||||||||||
Total Air Transportation | $ | 144 | $ | 8 | $ | 152 | $ | 154 | ||||||||||
Lodging2 | ||||||||||||||||||
National Hotel Companies | $ | 31 | $ | 74 | $ | 105 | $ | 104 | ||||||||||
Hawaii Hotels | 103 | 32 | 135 | 137 | ||||||||||||||
West Pacific Hotels | 47 | — | 47 | 43 | ||||||||||||||
Total Lodging | $ | 181 | $ | 106 | $ | 287 | $ | 284 | ||||||||||
Telecommunication Companies | $ | 6 | $ | 25 | $ | 31 | $ | 45 | ||||||||||
Syndicated Exposure3 | $ | 312 | $ | 764 | $ | 1,076 | $ | 1,096 | ||||||||||
March 31, 2003 | Dec. 31, 2002 | Mar. 31, 2002 | |||||||||||||
(dollars in millions)
| Outstanding | Unused Commitments | Total Exposure1 | Total Exposure | Total Exposure | ||||||||||
Air Transportation | |||||||||||||||
Regional Passenger Carriers | $ | 46.4 | $ | 12.3 | $ | 58.7 | $ | 57.3 | $ | 59.8 | |||||
United States Based Passenger Carriers |
| 39.7 |
| — |
| 39.7 |
| 39.6 |
| 48.7 | |||||
International Based Passenger Carriers |
| 31.9 |
| — |
| 31.9 |
| 32.1 |
| 32.4 | |||||
Cargo Carriers |
| 14.7 |
| — |
| 14.7 |
| 15.0 |
| 14.8 | |||||
Total Air Transportation | $ | 132.7 | $ | 12.3 | $ | 145.0 | $ | 144.0 | $ | 155.7 | |||||
Guam | |||||||||||||||
Hotels | $ | 42.8 | $ | — | $ | 42.8 | $ | 44.4 | $ | 42.8 | |||||
Other Commercial |
| 139.6 |
| 31.7 |
| 171.3 |
| 166.0 |
| 230.5 | |||||
Consumer |
| 254.0 |
| 9.9 |
| 263.9 |
| 257.4 |
| 283.2 | |||||
Total Guam | $ | 436.4 | $ | 41.6 | $ | 478.0 | $ | 467.8 | $ | 556.5 | |||||
Syndicated Exposure | $ | 319.4 | $ | 633.1 | $ | 952.5 | $ | 1,002.1 | $ | 1,352.2 | |||||
1 |
Non-Performing Assets
Non-performing assets (“NPAs”) were $63.3$44.2 million at the end of the thirdfirst quarter 2002,2003, a decline of 19.7%$10.2 million or 18.8% from $78.8 million at the end of the secondfourth quarter 2002. Compared to the same quarter last year, non-performing assets declined $43.1$46.5 million, or 40.5%51.3%. At September 30, 2002March 31, 2003, the ratio of non-performing assets to total loans plus foreclosed assets and non-performing loans held for sale was 1.20%0.79%, down from 1.45%1.01% at June 30,December 31, 2002 and 1.56%1.61% at September 30, 2001. The quarterly decrease inMarch 31, 2002. New non-performing assets during the quarter totaled $4.8 million. Loans that were returned to accrual and loans that were sold more than offset the amount of loan that was largelyplaced on non-accrual.
NPAs in Guam were $22.6 million at March 31, 2003, a decline of $3.3 million from the December 31, 2002 primarily due to the return to accrual status and payoff of a single borrower. As a percent of total NPAs, Guam loans by two Hawaii borrowers. There was also a lower inflow of non-performing loans. The new non-performing loans consisted of smaller exposures, the largest being a $1.8 million loanrepresented 51.1%, an increase from 47.7% in the West Pacific, where borrowers continueprior quarter. The increase was due to be affected by the recessionimprovement in the Guam economy.
Non-accrual loans were $45.7$35.1 million at September 30, 2002, a decline of $15.9March 31, 2003, down $9.9 million from the $61.6$45.0 million at June 30,December 31, 2002 and $16.1$28.6 million, or 26.1%44.9% from September 30, 2001.$63.7 million at March 31, 2002. Non-accrual loans as a percentage of total loans were 0.87%0.63% at September 30, 2002, a declineMarch 31, 2003, down from 0.84% at the end of the previous quarter and down from 1.14% inat the prior quarter and from 0.91% inend of the samecomparable quarter last year.
Foreclosed assets were $17.6$9.1 million at the end of the thirdfirst quarter of 2002, virtually unchanged2003, a decrease of $0.3 million from $9.4 million in the prior quarter and 52.7% lower thana decrease of $10.1 million from $19.2 million for the $37.2 million reported in the third quartersame period last year. The decreasedecline from the prior year was due primarily to the sale of twoa large propertiesparcel of foreclosed real estate in Hawaii.
Impaired loans at March 31, 2003 of $35.0 million increased $6.9 million from $41.9 million at December 31, 2002. These loans had a related Allowance that totaled $3.2 million at March 31, 2003, an increase of $1.1 million from the prior quarter. Compared to March 31, 2002, impaired loans decreased $50.3 million or 59.0% from $85.3 million. Prior year impaired loans had a related Allowance of $14.6 million.
Accruing loans past due 90 days or more were $1.7$4.3 million at September 30, 2002, significantly lower than the $4.9March 31, 2003, an increase of $2.5 million from $1.8 million at year-end 2001December 31, 2002 and $5.3were flat from the same period of 2002. Of the total increase, $1.3 million was from installment loans, including $0.9 million that was due to a temporary delay in payment collections, domiciled in the Micronesia branches that were closed in the fourth quarter of 2002. An additional $0.2 million reflects residential payment deferrals in Guam following the typhoon. These are expected to normalize going forward. The remainder of the increase is centered in residential real estate in Hawaii. Despite this increase in delinquencies, residential real estate net charge-off rates are at September 30, 2001.
For further information on non-performing assets refer to Table 10.
9.
Consolidated Non-Performing Assets and Accruing Loans Past Due 90 Days or More (Unaudited) | Table 10 | |||||||||||||||||||
(dollars in millions) | September 30 2002 | June 30 2002 | March 31 2002 | December 31 2001 | September 30 2001 | |||||||||||||||
Non-Accrual Loans | ||||||||||||||||||||
Commercial and Industrial | $ | 6.4 | $ | 14.4 | $ | 27.4 | $ | 18.9 | $ | 10.5 | ||||||||||
Mortgage—Commercial | 18.1 | 25.3 | 15.1 | 16.3 | 12.8 | |||||||||||||||
Construction | 0.9 | 0.7 | 1.0 | 9.3 | 0.7 | |||||||||||||||
Lease Financing | 5.7 | 6.9 | 4.4 | 0.8 | 1.0 | |||||||||||||||
Mortgage—Residential | 14.5 | 14.3 | 15.7 | 15.4 | 19.5 | |||||||||||||||
Other Consumer | 0.1 | — | 0.1 | 0.1 | 0.1 | |||||||||||||||
Foreign | — | — | — | — | 17.2 | |||||||||||||||
Total Non-Accrual Loans | 45.7 | 61.6 | 63.7 | 60.8 | 61.8 | |||||||||||||||
Non-Accrual Loans Held For Sale | — | — | 7.8 | 1.7 | 7.4 | |||||||||||||||
Foreclosed Real Estate | ||||||||||||||||||||
Domestic | 17.6 | 17.2 | 19.2 | 17.2 | 36.9 | |||||||||||||||
Foreign | — | — | — | — | 0.3 | |||||||||||||||
Total Foreclosed Real Estate | 17.6 | 17.2 | 19.2 | 17.2 | 37.2 | |||||||||||||||
Total Non-Performing Assets | $ | 63.3 | $ | 78.8 | $ | 90.7 | $ | 79.7 | $ | 106.4 | ||||||||||
Accruing Loans Past Due 90 Days or More | ||||||||||||||||||||
Commercial and Industrial | $ | — | $ | — | $ | 0.2 | $ | 0.1 | $ | 0.1 | ||||||||||
Mortgage—Commercial | — | — | 1.2 | — | — | |||||||||||||||
Lease Financing | — | 0.1 | 0.1 | 0.1 | — | |||||||||||||||
Mortgage—Residential | 1.4 | 0.9 | 2.1 | 3.8 | 3.4 | |||||||||||||||
Other Consumer | 0.3 | 0.5 | 0.7 | 0.9 | 1.0 | |||||||||||||||
Foreign | — | — | — | — | 0.8 | |||||||||||||||
Total Accruing and Past Due | $ | 1.7 | $ | 1.5 | $ | 4.3 | $ | 4.9 | $ | 5.3 | ||||||||||
Total Loans | $ | 5,258.7 | $ | 5,408.5 | $ | 5,601.3 | $ | 5,652.5 | $ | 6,766.1 | ||||||||||
Ratio of Non-Accrual Loans to Total Loans | 0.87 | % | 1.14 | % | 1.14 | % | 1.08 | % | 0.91 | % | ||||||||||
Ratio of Non-Performing Assets to Total Loans, Foreclosed Real Estate and Non-Performing Loans Held for Sale | 1.20 | % | 1.45 | % | 1.61 | % | 1.41 | % | 1.56 | % | ||||||||||
Ratio of Non-Performing Assets and Accruing Loans Past Due 90 Days or More to Total Loans | 1.24 | % | 1.48 | % | 1.70 | % | 1.50 | % | 1.65 | % | ||||||||||
Quarter to Quarter Changes in Non-Performing Assets | ||||||||||||||||||||
Balance at Beginning of Quarter | $ | 78.8 | $ | 90.7 | $ | 79.7 | $ | 106.4 | $ | 118.9 | ||||||||||
Additions | 7.0 | 20.5 | 36.4 | 43.8 | 23.2 | |||||||||||||||
Reductions | ||||||||||||||||||||
Payments and Sales of Loans | (8.5 | ) | (20.6 | ) | (12.9 | ) | (40.9 | ) | (25.8 | ) | ||||||||||
Return to Accrual | (9.1 | ) | (6.2 | ) | (6.3 | ) | (3.6 | ) | (0.9 | ) | ||||||||||
Sales of Foreclosed Assets | (1.4 | ) | (3.5 | ) | (0.9 | ) | (21.9 | ) | (2.2 | ) | ||||||||||
Charge-offs | (3.5 | ) | (2.1 | ) | (5.3 | ) | (4.1 | ) | (6.8 | ) | ||||||||||
Total Reductions | (22.5 | ) | (32.4 | ) | (25.4 | ) | (70.5 | ) | (35.7 | ) | ||||||||||
Balance at End of Quarter | $ | 63.3 | $ | 78.8 | $ | 90.7 | $ | 79.7 | $ | 106.4 | ||||||||||
Consolidated Non-Performing Assets and Accruing Loans Past Due 90 Days or More (Unaudited) | Table 9 |
(dollars in millions)
| March 31, 2003 | December 31, 2002 | September 30, 20021 | June 30, 20021 | March 31, 20021 | |||||||||||||||
Non-Performing Assets | ||||||||||||||||||||
Non-Accrual Loans | ||||||||||||||||||||
Commercial | ||||||||||||||||||||
Commercial and Industrial | $ | 2.4 |
| $ | 5.9 |
| $ | 6.4 |
| $ | 14.4 |
| $ | 27.4 |
| |||||
Commercial Mortgage |
| 17.9 |
|
| 20.3 |
|
| 18.1 |
|
| 25.3 |
|
| 15.1 |
| |||||
Construction |
| — |
|
| 0.5 |
|
| 0.9 |
|
| 0.7 |
|
| 1.0 |
| |||||
Lease Financing |
| 3.2 |
|
| 4.1 |
|
| 5.7 |
|
| 6.9 |
|
| 4.4 |
| |||||
Total Commercial |
| 23.5 |
|
| 30.8 |
|
| 31.1 |
|
| 47.3 |
|
| 47.9 |
| |||||
Consumer | ||||||||||||||||||||
Residential Mortgage |
| 11.5 |
|
| 13.9 |
|
| 14.3 |
|
| 14.2 |
|
| 15.3 |
| |||||
Home Equity |
| 0.1 |
|
| 0.3 |
|
| 0.2 |
|
| 0.1 |
|
| 0.4 |
| |||||
Other Consumer |
| — |
|
| — |
|
| 0.1 |
|
| — |
|
| 0.1 |
| |||||
Total Consumer |
| 11.6 |
|
| 14.2 |
|
| 14.6 |
|
| 14.3 |
|
| 15.8 |
| |||||
Total Non-Accrual Loans |
| 35.1 |
|
| 45.0 |
|
| 45.7 |
|
| 61.6 |
|
| 63.7 |
| |||||
Non-Accrual Loans Held for Sale |
| — |
|
| — |
|
| — |
|
| — |
|
| 7.8 |
| |||||
Foreclosed Real Estate |
| 9.1 |
|
| 9.4 |
|
| 17.6 |
|
| 17.2 |
|
| 19.2 |
| |||||
Total Non-Performing Assets | $ | 44.2 |
| $ | 54.4 |
| $ | 63.3 |
| $ | 78.8 |
| $ | 90.7 |
| |||||
Accruing Loans Past Due 90 Days or More | ||||||||||||||||||||
Commercial | ||||||||||||||||||||
Commercial and Industrial | $ | — |
| $ | 0.2 |
| $ | — |
| $ | — |
| $ | 0.2 |
| |||||
Commercial Mortgage |
| 0.4 |
|
| 0.3 |
|
| — |
|
| — |
|
| 1.2 |
| |||||
Total Commercial |
| 0.4 |
|
| 0.5 |
|
| — |
|
| — |
|
| 1.4 |
| |||||
Consumer | ||||||||||||||||||||
Residential Mortgage |
| 1.6 |
|
| 0.6 |
|
| 1.4 |
|
| 0.9 |
|
| 2.1 |
| |||||
Other Consumer |
| 2.3 |
|
| 0.7 |
|
| 0.3 |
|
| 0.5 |
|
| 0.7 |
| |||||
Lease Financing |
| — |
|
| — |
|
| — |
|
| 0.1 |
|
| 0.1 |
| |||||
Total Consumer |
| 3.9 |
|
| 1.3 |
|
| 1.7 |
|
| 1.5 |
|
| 2.9 |
| |||||
Total Accruing and Past Due | $ | 4.3 |
| $ | 1.8 |
| $ | 1.7 |
| $ | 1.5 |
| $ | 4.3 |
| |||||
Total Loans | $ | 5,565.4 |
| $ | 5,359.0 |
| $ | 5,259.3 |
| $ | 5,409.2 |
| $ | 5,601.6 |
| |||||
Ratio of Non-Accrual Loans to Total Loans |
| 0.63 | % |
| 0.84 | % |
| 0.87 | % |
| 1.14 | % |
| 1.14 | % | |||||
Ratio of Non-Performing Assets to Total Loans, Foreclosed Real Estate and Non-Performing Loans Held for Sale |
| 0.79 | % |
| 1.01 | % |
| 1.20 | % |
| 1.45 | % |
| 1.61 | % | |||||
Ratio of Non-Performing Assets and Accruing Loans Past Due 90 Days or More to Total Loans |
| 0.87 | % |
| 1.05 | % |
| 1.24 | % |
| 1.48 | % |
| 1.70 | % | |||||
Quarter to Quarter Changes in Non-Performing Assets | ||||||||||||||||||||
Balance at Beginning of Quarter | $ | 54.4 |
| $ | 63.3 |
| $ | 78.8 |
| $ | 90.7 |
| $ | 79.7 |
| |||||
Additions |
| 4.8 |
|
| 12.0 |
|
| 7.0 |
|
| 20.5 |
|
| 36.4 |
| |||||
Reductions | ||||||||||||||||||||
Payments and Sales of Loans |
| (5.6 | ) |
| (6.9 | ) |
| (8.5 | ) |
| (20.6 | ) |
| (12.9 | ) | |||||
Return to Accrual |
| (5.6 | ) |
| (1.9 | ) |
| (9.1 | ) |
| (6.2 | ) |
| (6.3 | ) | |||||
Sales of Foreclosed Assets |
| (1.1 | ) |
| (9.4 | ) |
| (1.4 | ) |
| (3.5 | ) |
| (0.9 | ) | |||||
Charge-offs |
| (2.7 | ) |
| (2.7 | ) |
| (3.5 | ) |
| (2.1 | ) |
| (5.3 | ) | |||||
Total Reductions |
| (15.0 | ) |
| (20.9 | ) |
| (22.5 | ) |
| (32.4 | ) |
| (25.4 | ) | |||||
Balance at End of Quarter | $ | 44.2 |
| $ | 54.4 |
| $ | 63.3 |
| $ | 78.8 |
| $ | 90.7 |
| |||||
1 | Certain 2002 information has been reclassified to conform to 2003 presentation. |
Allowance for Loan and Lease Losses
The Company maintains an Allowance adequate to cover management’s estimate of probable incurred credit losses in its lending portfolios based on a comprehensive quarterly analysis of historical loss experience supplemented by judgmental expectations of portfolio performance and economic conditions as of a given balance sheet date.
The Allowance for Loan and Lease Losses (Allowance) at September 30, 2002March 31, 2003 of $154.5$140.0 million decreased from $142.9 million at December 31, 2002, and $159.0 million at both June 30, 2002 and DecemberMarch 31, 2001, and $182.5 million at September 30, 2001.2002. The current quarter decline reflects the non-replenishment of net charge-offs based on the Company’s decision to decrease reserves commensurate with the stabilization and continued improvementyear-over-year decreases reflected improvements in credit quality and the estimated impact of current economic conditions. The decrease from the prior year also reflects the release of Allowance components related to the divestitures.conditions on portfolio performance. The ratio of Allowance to total loans was 2.94%2.52%, unchangeda decrease from the prior quarter, and an increase from 2.81%2.67% at December 31, 20012002 and from 2.70%2.84% for the samecomparable period last year.in 2002. A summary of the activity for the Allowance is presented in Table 11.
Net charge-offs for the thirdfirst quarter of 20022003 were $4.5$2.8 million or 0.33%0.21% of total average loans (annualized), compared to $2.4$8.3 million or 0.13%0.60% of total average loans (annualized) for the samecomparable period last year. Currentin 2002. This improvement reflects management’s execution of portfolio strategies in an effort to shift to lower risk industries, reduce large borrower concentrations and syndicated national credits, resiliency of the Hawaii economy, as well as enhanced credit management and collection process in the retail portfolios. First quarter 2003 charge-offs of $7.2$6.1 million were partially offset by recoveries of $2.7$3.3 million. Third quarter 2001 net charge-offs included a recovery of $6.5 million in the Asia business. Net charge-offs for the first nine months of 2002 of $16.1 million or 0.39% of total average loans declined significantly from $107.0 million or 1.76% of total average loans for the same period last year. The relatively high level of net charge-offs in the first nine months of last year was primarily related to exiting several higher risk credit relationships in the first quarter of 2001.
Consolidated Allowance for Loan and Lease Losses (Unaudited) | Table |
Three Months Ended | Nine Months Ended | |||||||||||||||||||
(dollars in millions) | September 30 2002 | June 30 2002 | September 30 2001 | September 30 2002 | September 30 2001 | |||||||||||||||
Balance of Allowance for Loan and Lease Losses at Beginning of Period | $ | 159.0 | $ | 159.0 | $ | 199.8 | $ | 159.0 | $ | 246.2 | ||||||||||
Loans Charged-Off | ||||||||||||||||||||
Commercial and Industrial | (0.7 | ) | (1.0 | ) | (3.4 | ) | (9.0 | ) | (87.8 | ) | ||||||||||
Mortgage – Commercial | (2.5 | ) | (1.8 | ) | (2.6 | ) | (4.3 | ) | (16.1 | ) | ||||||||||
Construction | — | — | — | (0.5 | ) | — | ||||||||||||||
Lease Financing | (0.4 | ) | (0.5 | ) | (0.6 | ) | (0.9 | ) | (0.7 | ) | ||||||||||
Mortgage – Residential | (0.6 | ) | (1.3 | ) | (1.3 | ) | (3.3 | ) | (5.5 | ) | ||||||||||
Other Consumer | (3.0 | ) | (2.9 | ) | (5.4 | ) | (9.8 | ) | (15.0 | ) | ||||||||||
Foreign | — | — | (4.1 | ) | — | (18.0 | ) | |||||||||||||
Total Charge-Offs | (7.2 | ) | (7.5 | ) | (17.4 | ) | (27.8 | ) | (143.1 | ) | ||||||||||
Recoveries on Loans Previously Charged-Off | ||||||||||||||||||||
Commercial and Industrial | 1.0 | 2.3 | 1.1 | �� | 4.0 | 8.1 | ||||||||||||||
Mortgage – Commercial | 0.1 | 0.1 | 1.3 | 2.0 | 2.4 | |||||||||||||||
Lease Financing | 0.1 | — | — | 0.1 | 0.2 | |||||||||||||||
Mortgage – Residential | 0.1 | 0.3 | 0.2 | 0.7 | 0.7 | |||||||||||||||
Other Consumer | 1.4 | 1.6 | 2.2 | 4.9 | 5.6 | |||||||||||||||
Foreign | — | (0.1 | ) | 10.2 | — | 19.1 | ||||||||||||||
Total Recoveries | 2.7 | 4.2 | 15.0 | 11.7 | 36.1 | |||||||||||||||
Net Loan Charge-Offs | (4.5 | ) | (3.3 | ) | (2.4 | ) | (16.1 | ) | (107.0 | ) | ||||||||||
Provision for Loan and Lease Losses | — | 3.3 | 0.9 | 11.6 | 59.8 | |||||||||||||||
Allowance Related to Disposition | — | — | (16.4 | ) | — | (16.4 | ) | |||||||||||||
Foreign Currency Translation | — | — | 0.6 | — | (0.1 | ) | ||||||||||||||
Balance at End of Period | $ | 154.5 | $ | 159.0 | $ | 182.5 | $ | 154.5 | $ | 182.5 | ||||||||||
Average Loans Outstanding | $ | 5,349.5 | $ | 5,503.4 | $ | 7,273.5 | $ | 5,477.9 | $ | 8,121.1 | ||||||||||
Ratio of Net Charge-Offs to Average Loans Outstanding (annualized) | 0.33% | 0.24% | 0.13% | 0.39% | 1.76% | |||||||||||||||
Ratio of Allowance to Loans and Leases Outstanding | 2.94% | 2.94% | 2.70% | 2.94% | 2.70% |
Three Months Ended1 | ||||||||||||
(dollars in millions) | March 31, 2003 | December 31, 2002 | March 31, 2002 | |||||||||
Balance at Beginning of Period | $ | 142.9 |
| $ | 154.5 |
| $ | 159.0 |
| |||
Loans Charged-Off | ||||||||||||
Commercial | ||||||||||||
Commercial and Industrial |
| (1.6 | ) |
| (2.0 | ) |
| (7.3 | ) | |||
Construction |
| (0.5 | ) |
| — |
|
| (0.5 | ) | |||
Lease Financing |
| — |
|
| (9.6 | ) |
| — |
| |||
Consumer | ||||||||||||
Residential Mortgage |
| (0.7 | ) |
| (0.4 | ) |
| (1.4 | ) | |||
Home Equity |
| (0.1 | ) |
| (0.1 | ) |
| (0.1 | ) | |||
Other Consumer |
| (3.1 | ) |
| (2.8 | ) |
| (3.7 | ) | |||
Lease Financing |
| (0.1 | ) |
| (0.1 | ) |
| (0.1 | ) | |||
Total Charge-Offs |
| (6.1 | ) |
| (15.0 | ) |
| (13.1 | ) | |||
Recoveries on Loans Previously Charged-Off | ||||||||||||
Commercial | ||||||||||||
Commercial and Industrial |
| 0.6 |
|
| 1.4 |
|
| 0.7 |
| |||
Commercial Mortgage |
| — |
|
| 0.1 |
|
| 1.8 |
| |||
Construction |
| 0.9 |
|
| 0.2 |
|
| — |
| |||
Consumer | ||||||||||||
Residential Mortgage |
| 0.2 |
|
| 0.3 |
|
| 0.3 |
| |||
Home Equity |
| 0.1 |
|
| — |
|
| 0.1 |
| |||
Other Consumer |
| 1.3 |
|
| 1.3 |
|
| 1.8 |
| |||
Lease Financing |
| 0.1 |
|
| 0.1 |
|
| — |
| |||
Foreign |
| 0.1 |
|
| — |
|
| 0.1 |
| |||
Total Recoveries |
| 3.3 |
|
| 3.4 |
|
| 4.8 |
| |||
Net Loan Charge-Offs |
| (2.8 | ) |
| (11.6 | ) |
| (8.3 | ) | |||
Provision for Loan and Lease Losses |
| — |
|
| — |
|
| 8.3 |
| |||
Balance at End of Period2 | $ | 140.0 |
| $ | 142.9 |
| $ | 159.0 |
| |||
Average Loans Outstanding | $ | 5,460.8 |
| $ | 5,210.4 |
| $ | 5,585.4 |
| |||
Ratio of Net Charge-Offs to Average Loans Outstanding (annualized) |
| 0.21 | % |
| 0.88 | % |
| 0.60 | % | |||
Ratio of Allowance to Loans Outstanding |
| 2.52 | % |
| 2.67 | % |
| 2.84 | % |
1 | Certain 2002 information has been reclassified to conform to 2003 presentation. |
2 | Totals may not add due to rounding. |
Market Risk
Market risk is the potential of loss arising from adverse changes in interest rates and prices. The Company manages assets and liabilities in an effortis exposed to maximize long term,market risk adjusted returns to shareholders.as a consequence of the normal course of conducting its business activities. The Company’s asset and liabilitymarket risk management process involves measuring, monitoring, controlling and managing financial risks that can significantly impact the Company’s financial position and operating results. FinancialIn this management process, market risks in the form of interest rate sensitivity, foreign currency exchange fluctuations, liquidity, and capital adequacy are balanced with expected returns with the objectivein an effort to maximizeenhance earnings performance and shareholder value, while limiting the volatility of each.
The Company’s trading activities include foreign currency and foreign exchange contracts that expose the Company to a minor degree of foreign currency risk. These transactions are executed on behalf of customers and for the Company’s own account. The remaining exposure from foreign currency trading positions during the first quarter of 2003 was immaterial.
The Company’s “other than trading” activities include normal business transactions that expose the Company’s balance sheet to interest rate risk.
Interest Rate Risk
The Company’s balance sheet is sensitive to changes in the general level of interest rates arising primarily from the Company’s ongoing processnormal business activities of making loans and taking deposits. Many other factors also affect the Company’s exposure to measurechanges in interest rates, such as general economic and monitor interest rate risk isfinancial conditions, customer preferences, and historical pricing relationships and the utilization of a net interest income (NII) simulation model. This model is used to estimate the amount that NII will change over a one-year time horizon under various interest rate scenarios using numerous assumptions, which management believes are reasonable. The NII simulation model captures the dynamic naturemonetary and fiscal policies of the balance sheetUnited States and provides a sophisticated estimate rather than a precise prediction of NII’s exposure to higher or lower interest rates.
Table 1211 presents, as of September 30, 2002,March 31, 2003, December 31, 20012002 and September 30, 2001,March 31, 2002, the estimate of the change in NIInet interest income (the “NII”) that would result from a gradual 200 basis point increase or decrease in interest rates, moving in parallel fashion over the entire yield curve, over the next 12-month period, relative to the measured base case scenario for NII. The 200 basis point increase would equate to a $7.0$4.6 million increase in net interest incomeNII per quarter. During the third quarter, the Company deployed some of its liquidity yet maintained its strong liquidity position. NIIThe Company’s balance sheet continues to be asset-sensitive. The resulting estimated NII exposure is within the guidelines approved by the Company’s Asset Liability Management Committee.
Market Risk Exposure to Interest Rate Changes (Unaudited) | Table |
September 30, 2002 | December 31, 2001 | September 30, 2001 | ||||||||||||||||
Interest Rate Change | Interest Rate Change | Interest Rate Change | ||||||||||||||||
(in basis points) | (in basis points) | (in basis points) | ||||||||||||||||
-200 | +200 | -200 | +200 | -200 | +200 | |||||||||||||
Estimated Exposure as a Percent of Net Interest Income | (4.7)% | 8.7% | (0.3)% | 3.5% | (4.3)% | 4 .8% |
March 31, 2003 | December 31, 2002 | March 31, 2002 | ||||||||||||||||
Interest Rate Change (in basis points) | Interest Rate Change (in basis points) | Interest Rate Change (in basis points) | ||||||||||||||||
-200 | +200 | -200 | +200 | -200 | +200 | |||||||||||||
Estimated Exposure as a Percent of Net Interest Income | (2.8 | )% | 5.1 | % | (3.8 | )% | 7.7 | % | (3.3 | )% | 4.8 | % |
In managing interest rate risk, the Company generally uses on-balance sheet transactions to manage its risk position. Approaches that are used to shift balance sheet mix or alter the interest rate characteristics of assets and liabilities include changing product pricing strategies and modifying investment portfolio strategies. The use of financial derivatives has been limited over the past several years.
Market Risk Exposure From Changes in Foreign Exchange Rates (Unaudited) | Table 13 | |||||||||||||||||
September 30, 2002 | December 31, 2001 | September 30, 2001 | ||||||||||||||||
(dollars in millions) | Book Value | Value-at- Risk | Book Value | Value-at- Risk | Book Value | Value-at- Risk | ||||||||||||
Net Investments in Foreign | ||||||||||||||||||
Subsidiaries & Branches | ||||||||||||||||||
Japanese Yen | $ | — | $ | — | $ | 1.1 | $ | 0.2 | $ | 3.3 | $ | 0.5 | ||||||
Korean Won | — | — | 2.1 | 0.3 | 12.9 | 1.5 | ||||||||||||
Pacific Franc 1 | — | — | — | — | 11.1 | 1.8 | ||||||||||||
Other Currencies | 0.2 | 0.02 | 0.1 | 0.1 | 6.3 | 15.3 | ||||||||||||
Total | $ | 0.2 | $ | 0.02 | $ | 3.3 | $ | 0.6 | $ | 33.6 | $ | 19.1 | ||||||
Liquidity Management
Liquidity is managed in an effort to ensure that the Company has continuous access to sufficient, reasonably priced funding to conduct its business in a normal manner.
The Company’s liquidity management processBank is described in the 2001 Annual Report to Shareholders on Form 10-K.
Additionally, Bank of Hawaii maintains a $1 billion senior and subordinated bank note program. Under this facility, Bank of Hawaii may issue additional notes provided that at any time the aggregate amount outstanding does not exceed $1 billion. Subordinated notes outstanding under this bank note program totaled $125.0 million at September 30, 2002,March 31, 2003, December 31, 20012002 and September 30, 2001.
Capital Management
The Company manages itsand the Bank are subject to regulatory capital levelrequirements administered by the federal banking agencies. The Company’s objective is to hold sufficient capital on a regulatory basis to exceed the minimum guidelines of a “well-capitalized” financial institution while over the long term in an effort to optimize shareholder value, support asset growth, reflect risks inherent in its markets, provide protection against unforeseen losses and comply with regulatory requirements. Capital levels are reviewed relative to the Company’s risk profile and current and projected economic conditions. The Company’s objective is to hold sufficient capital on a regulatory basis to exceed the minimum guidelines of a “well-capitalized” financial institution.
At September 30, 2002,March 31, 2003, the Company’s shareholders’ equity totaled $1.1 billion,$952.0 million, a 11.7%6.3% net decrease from December 31, 2001.2002. The decrease in shareholders’ equity during the ninefirst three months of 20022003 was primarily attributable to the Company’s repurchase of its common stock under the repurchase programs. The Company increasedprograms, offset by earnings for the quarterly dividend to $0.19 per share which will be paid in December 2002.
During the first quarter ended September 30, 2002, 4.0of 2003, 2.9 million shares were repurchased at an average cost of $27.55$30.22 per share, totaling $109.4$86.3 million. As of September 30, 2002,March 31, 2003, the Company had repurchased a total of 16.923.0 million shares under all share repurchase programs.programs, totaling $614.2 million. Subsequent to September 30, 2002, the CompanyMarch 31, 2003, 140.4 thousand shares where repurchased 1.3 million shares at an average cost of $27.08$31.87 per share for a total of $34.3$4.5 million through October 22, 2002,April 25, 2003, resulting in remaining buyback authority under the existing repurchase programs of $102.0$181.3 million. The Company expects to extend the repurchase program.
The Company’s regulatory capital ratios at September 30, 2002March 31, 2003 exceeded the minimum threshold levels established by federal bank regulators to qualify an institution as well-capitalized, which are as follows: Tier 1 Capital—Capital – 6%; Total Capital—Capital – 10%; and Leverage—Leverage – 5%. The Company’s regulatory capital ratios are shown on Table 14,12, along with the activities and balances in the Company’s capital accounts. During the quarter, the Company’s capital ratios and liquidity remained high.
strong.
|
Nine Months Ended | Year Ended | Nine Months Ended | ||||||||||
(dollars in millions) | September 30, 2002 | December 31, 2001 | September 30, 2001 | |||||||||
Change in Shareholders’ Equity | ||||||||||||
Net Income | $ | 92.3 | $ | 117.8 | $ | 91.5 | ||||||
Dividends Paid | (38.4 | ) | (56.6 | ) | (43.4 | ) | ||||||
Dividend Reinvestment Program | 2.2 | 2.8 | 2.1 | |||||||||
Stock Issued for Acquisition | — | 1.3 | 1.3 | |||||||||
Stock Repurchases | (238.1 | ) | (195.7 | ) | (46.8 | ) | ||||||
Other1 | 35.7 | 76.0 | 65.0 | |||||||||
Increase (Decrease) in Shareholders’ Equity | $ | (146.3 | ) | $ | (54.4 | ) | $ | 69.7 | ||||
Regulatory Capital | ||||||||||||
Shareholders’ Equity | $ | 1,100.7 | $ | 1,247.0 | $ | 1,371.1 | ||||||
Add: 8.25% Capital Securities of Bancorp Hawaii Capital Trust I | 43.2 | 100.0 | 100.0 | |||||||||
Minority Interest | — | — | 4.4 | |||||||||
Less: Goodwill | 36.2 | 26.7 | 57.4 | |||||||||
Unrealized Valuation and Other Adjustments | 26.8 | 22.9 | 26.2 | |||||||||
Tier I Capital | 1,080.9 | 1,297.4 | 1,391.9 | |||||||||
Allowable Reserve for Loan Losses | 73.8 | 83.0 | 99.2 | |||||||||
Subordinated Debt | 124.7 | 148.4 | 148.4 | |||||||||
Total Capital | $ | 1,279.4 | $ | 1,528.8 | $ | 1,639.5 | ||||||
Risk Weighted Assets | $ | 5,825.1 | $ | 6,559.6 | $ | 7,858.9 | ||||||
Key Capital Ratios | ||||||||||||
Increase (Decrease) in Common Equity | (11.73 | )% | (4.18 | )% | 5.36 | % | ||||||
Average Equity/Average Assets Ratio | 12.10 | % | 10.60 | % | 10.47 | % | ||||||
Tier I Capital Ratio | 18.55 | % | 19.76 | % | 17.71 | % | ||||||
Total Capital Ratio | 21.96 | % | 23.29 | % | 20.86 | % | ||||||
Leverage Ratio | 11.07 | % | 11.20 | % | 11.37 | % |
Table 12 |
Three Months Ended | Year Ended | Three Months Ended | ||||||||||
(dollars in millions) | March 31, 2003 | December 31, 2002 | March 31, 2002 | |||||||||
Regulatory Capital | ||||||||||||
Shareholders’ Equity | $ | 952.0 |
| $ | 1,015.8 |
| $ | 1,265.9 |
| |||
Add: 8.25% Capital Securities of Bancorp | ||||||||||||
Hawaii Capital Trust I |
| 31.4 |
|
| 31.4 |
|
| 94.6 |
| |||
Less: Goodwill |
| 36.2 |
|
| 36.2 |
|
| 26.7 |
| |||
Unrealized Valuation and Other Adjustments |
| 23.8 |
|
| 27.2 |
|
| 21.0 |
| |||
Tier I Capital |
| 923.4 |
|
| 983.8 |
|
| 1,312.8 |
| |||
Allowable Reserve for Loan Losses |
| 76.4 |
|
| 75.0 |
|
| 79.1 |
| |||
Subordinated Debt |
| 124.8 |
|
| 124.7 |
|
| 148.4 |
| |||
Total Capital | $ | 1,124.6 |
| $ | 1,183.5 |
| $ | 1,540.3 |
| |||
Risk Weighted Assets | $ | 6,048.3 |
| $ | 5,929.6 |
| $ | 6,244.2 |
| |||
Key Capital Ratios | ||||||||||||
Average Equity/Average Assets Ratio |
| 10.53 | % |
| 11.88 | % |
| 12.13 | % | |||
Tier I Capital Ratio |
| 15.27 | % |
| 16.59 | % |
| 21.18 | % | |||
Total Capital Ratio |
| 18.59 | % |
| 19.96 | % |
| 24.84 | % | |||
Leverage Ratio |
| 10.03 | % |
| 10.34 | % |
| 12.64 | % |
Economic Outlook
The Hawaii economy remained relatively strong during the September 11 attacks, Hawaii tourism has returnedfirst quarter of 2003 and is forecast to normal levels. Throughremain healthy during the endremainder of August, travel to Hawaii from the western United States was at record levels, with all-time highs for the California market and high single-digit growth from the intermountain west. East Coast travel to Hawaii was down and travel from Japan remains about 15% below pre September 11 volumes.
Earnings Outlook
The Company affirmed its expectation thatCompany’s previously published earnings guidance of $131 million in net income for the full year 2002 will equal or exceed $120 million. Earnings for the fourth quarter areof 2003 remains unchanged. The efficiency ratio is expected to approximate third quarter levels, but could decrease slightly dueimprove to higher costs for58% by the systems replacement project, branch closings in the West Pacific and seasonal increases in compensation and other expense categories.
See Management’s Discussion and Analysis of Results of Operations and Financial Condition-Market Risk.
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a – 14(c) under the Securities and Exchange Act of 1934, as amended) within 90 days prior to the filing date of this quarterly report. Based on this evaluation the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective. There were no significant changes in internal controls that could significantly affect the disclosure controls and procedures since the date of the evaluation.
Part II. – Other Information
Items 1 to 3 and Item 5 omitted pursuant to instructions.
Item 4 –Submission of Matters to a Vote of Shareholders
At the annual shareholders meeting held on April 25, 2003, the following matters were submitted to a vote of the shareholders.
a. | Election of Directors – Three directors whose terms in office were expiring were elected to the Board of Directors as follows: |
Clinton R. Churchill
Votes cast for: | 51,617,116 | |||
Votes cast against: | 0 | |||
Votes withheld: | 422,245 |
David A. Heenan
Votes cast for: | 50,982,890 | |||
Votes cast against: | 0 | |||
Votes withheld: | 1,056,471 |
Michael E. O’Neill
Votes cast for: | 51,416,774 | |||
Votes cast against: | 0 | |||
Votes withheld: | 622,587 |
b. | Election of an Independent Auditor-Ernst & Young, LLP |
Votes cast for: | 49,561,697 | |||
Votes cast against: | 2,366,854 | |||
Votes abstained: | 110,811 |
a. | Exhibit Index |
Exhibit Number
12 | |||
Statement Regarding Computation of Ratios | |||
99 | Certification |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date | April 29, 2003 |
|
/s/ MICHAEL E. O’NEILL | ||||||||
Michael E. O’Neill | ||||||||
Chairman, Chief Executive Officer and President |
/s/ ALLAN R. LANDON | ||
Allan R. Landon | ||
Vice Chairman, Treasurer and Chief Financial Officer |
/s/ RICHARD C. KEENE | ||
Richard C. Keene | ||
Executive Vice President and Controller |
I, Michael E. O’Neill, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Bank of Hawaii Corporation; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrant’s other certifying |
a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | The registrant’s other certifying |
a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. | The registrant’s other certifying |
Date: October 28, 2002
/s/ MICHAEL E. O’NEILL |
Michael E. O’Neill |
Chairman, Chief Executive Officer and President |
I, Allan R. Landon, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Bank of Hawaii Corporation; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrant’s other certifying |
a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | The registrant’s other certifying |
a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. | The registrant’s other certifying |
Date: October 28, 2002
/s/ ALLAN R. LANDON |
Allan R. Landon |
Vice Chairman, Treasurer and Chief Financial Officer |
36