U N I T E D S T A T E S
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly
period ended June 30, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the transition
period from _____________ to _____________
Commission File Number 1-6887
B A N C O R P H A W A I I, I N C.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Hawaii 99-0148992
------------------------ ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
130 Merchant Street, Honolulu, Hawaii 96813
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(808) 537-8111
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(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.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $2 Par Value; outstanding at June 30, 1994 -
42,396,059 shares
BANCORP HAWAII, INC. and subsidiaries
June 30, 1994
PART I. - Financial Information
Item 1. Financial Statements
The consolidated statements of condition as of June 30, 1994
and 1993, and December 31, 1993 and related statements of income,
shareholders' equity, and cash flows are included herein.
The unaudited financial statements listed above have been
prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary
for a fair presentation of financial position, results of
operations, and changes in financial position in conformity with
generally accepted accounting principles.
The financial statements reflect all adjustments of a normal
and recurring nature which are, in the opinion of management,
necessary to a fair statement of the results for the interim
periods.
Consolidated Statements of Condition (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
- - ------------------------------------------------------------------------------------------------------------------
June 30 December 31 June 30
(in thousands of dollars) 1994 1993 1993
- - ------------------------------------------------------------------------------------------------------------------
Assets
Interest-Bearing Deposits $842,255 $837,704 $1,204,563
Investment Securities
Held to Maturity (Market Value of $2,512,745, $2,791,328,
$3,762,933, respectively) 2,553,682 2,753,590 3,689,667
Available for Sale 979,234 893,453 19,725
Funds Sold 80,470 57,699 75,572
Loans 7,523,003 7,258,368 7,151,381
Unearned Income (146,163) (149,949) (141,574)
Reserve for Possible Loan Losses (141,210) (125,284) (131,249)
Net Loans 7,235,630 6,983,135 6,878,558
- - ------------------------------------------------------------------------------------------------------------------
Total Earning Assets 11,691,271 11,525,581 11,868,085
Cash and Non-Interest Bearing Deposits 460,935 395,315 398,203
Premises and Equipment 187,710 167,260 159,309
Customers' Acceptance Liability 16,526 8,475 18,490
Accrued Interest Receivable 82,259 82,023 87,799
Other Real Estate 3,427 4,123 3,141
Intangibles, including Goodwill 97,425 102,929 96,403
Trading Securities 13,971 74,351 12,979
Other Assets 93,776 102,070 101,843
- - ------------------------------------------------------------------------------------------------------------------
Total Assets $12,647,300 $12,462,127 $12,746,252
==================================================================================================================
Liabilities
Domestic Deposits
Demand - Non-Interest Bearing $1,348,564 $1,405,540 $1,277,894
- Interest-Bearing 1,771,895 1,931,807 1,935,785
Savings 1,241,329 1,251,876 1,243,934
Time 1,524,014 1,581,534 1,669,536
Foreign Deposits 1,196,976 834,218 1,075,278
- - ------------------------------------------------------------------------------------------------------------------
Total Deposits 7,082,778 7,004,975 7,202,427
Securities Sold Under Agreements to Repurchase 2,316,161 2,509,550 2,804,563
Funds Purchased 575,220 743,915 842,100
Short-Term Borrowings 718,228 600,266 426,168
Bank's Acceptances Outstanding 16,526 8,475 18,490
Accrued Pension Costs 24,266 24,367 23,614
Accrued Interest Payable 47,430 34,347 40,880
Accrued Taxes Payable 140,069 154,291 121,910
Other Liabilities 171,326 85,967 132,081
Long-Term Debt 595,931 357,870 248,500
- - ------------------------------------------------------------------------------------------------------------------
Total Liabilities 11,687,935 11,524,023 11,860,733
Shareholders' Equity
Common Stock ($2 par value), authorized 100,000,000 shares;
issued/outstanding, June 1994 - 42,396,059;
December 1993 - 28,425,038; June 1993 - 28,288,988; 84,792 56,850 56,578
Surplus 276,379 284,886 280,698
Unrealized Valuation Adjustments (15,758) 537 (1,353)
Retained Earnings 613,952 595,831 549,596
- - ------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 959,365 938,104 885,519
- - ------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $12,647,300 $12,462,127 $12,746,252
==================================================================================================================
Consolidated Statements of Income (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
- - ------------------------------------------------------------------------------------------------------------------
3 Months 3 Months 6 Months 6 Months
Ended Ended Ended Ended
June 30 June 30 June 30 June 30
(in thousands of dollars except per share amounts) 1994 1993 1994 1993
- - ------------------------------------------------------------------------------------------------------------------
Interest Income
Interest on Loans $133,432 $123,465 $259,970 $244,946
Loan Fees 8,095 8,676 17,036 17,951
Income on Lease Financing 3,544 4,025 7,282 8,196
Interest and Dividends on Investment Securities
Taxable 35,574 52,126 73,810 101,974
Non-taxable 405 621 845 1,306
Income on Investment Securities Available for Sale 12,263 1,461 21,710 5,158
Interest on Deposits 9,178 11,098 16,847 22,772
Interest on Security Resale Agreements -- 122 -- 2,926
Interest on Funds Sold 377 586 792 1,105
- - ------------------------------------------------------------------------------------------------------------------
Total Interest Income 202,868 202,180 398,292 406,334
Interest Expense
Interest on Deposits 44,253 51,392 86,446 106,346
Interest on Security Repurchase Agreements 23,606 22,318 45,236 45,200
Interest on Funds Purchased 6,137 5,849 10,836 11,471
Interest on Short-Term Borrowings 4,390 3,222 7,937 7,090
Interest on Long-Term Debt 6,868 2,374 12,588 3,551
- - ------------------------------------------------------------------------------------------------------------------
Total Interest Expense 85,254 85,155 163,043 173,658
Net Interest Income 117,614 117,025 235,249 232,676
Provision for Possible Loan Losses 5,964 12,204 14,222 21,216
- - ------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Possible Losses 111,650 104,821 221,027 211,460
Non-Interest Income
Trust Income 11,076 10,701 23,185 18,379
Service Charges on Deposit Accounts 7,234 6,375 14,215 12,792
Fees, Exchange, and Other Service Charges 8,314 8,060 16,784 15,569
Other Operating Income 6,994 4,257 14,623 9,164
Investment Securities Gains (Losses) (555) 1,641 (1,598) 2,969
- - ------------------------------------------------------------------------------------------------------------------
Total Non-Interest Income 33,063 31,034 67,209 58,873
Non-Interest Expense
Salaries 33,526 33,862 68,566 67,105
Pensions and Other Employee Benefits 11,701 11,142 23,717 22,062
Net Occupancy Expense of Premises 8,973 8,757 18,180 17,691
Net Equipment Expense 8,089 6,573 14,905 13,346
Other Operating Expense 27,460 22,402 52,625 45,042
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Total Non-Interest Expense 89,749 82,736 177,993 165,246
- - ------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 54,964 53,119 110,243 105,087
Provision for Income Taxes 20,802 19,361 41,689 38,354
- - ------------------------------------------------------------------------------------------------------------------
Net Income $34,162 $33,758 $68,554 $66,733
==================================================================================================================
Earnings Per Common Share and Common Share Equivalents $0.79 $0.79 $1.59 $1.56
- - ------------------------------------------------------------------------------------------------------------------
Average Common Shares and Common Share Equivalents Outstanding 43,056,348 42,958,796 43,006,653 42,913,356
- - ------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
- - ----------------------------------------------------------------------------------------------------------------
Common Unrealized Retained
(in thousands of dollars except per share amounts) Total Stock Surplus Valuation Adj. Earnings
- - ----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $938,104 $56,850 $284,886 $537 $595,831
Net Income 68,554 - - - 68,554
Sale of Common Stock
142,221 Profit Sharing Plan 4,591 284 4,307 - -
87,281 Stock Option Plan 1,256 175 1,081 - -
105,515 Dividend Reinvestment Plan 3,578 211 3,367 - -
Stock Repurchased (18,278) (1,016) (17,262) - -
Unrealized Valuation Adjustments
Investment Securities (14,900) - - (14,900) -
Foreign Exchange Translation Adjustment (1,395) - - (1,395) -
50 Percent Stock Dividend (59) 28,288 - - (28,347)
Cash Dividends Paid of $.52 Per Share (22,086) - - - (22,086)
- - ----------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 $959,365 $84,792 $276,379 ($15,758) $613,952
================================================================================================================
Balance at December 31, 1992 $828,328 $56,112 $272,810 ($2,271) $501,677
Net Income 66,733 - - - 66,733
Sale of Common Stock
59,604 Profit Sharing Plan 2,794 119 2,675 - -
95,763 Stock Option Plan 2,076 192 1,884 - -
77,431 Dividend Reinvestment Plan 3,484 155 3,329 - -
Unrealized Valuation Adjustments
Investment Securities (3) - - (3) -
Foreign Exchange Translation Adjustment 921 - - 921 -
Cash Dividends Paid of $.45 Per Share (18,814) - - - (18,814)
- - ----------------------------------------------------------------------------------------------------------------
Balance at June 30, 1993 $885,519 $56,578 $280,698 ($1,353) $549,596
================================================================================================================
Consolidated Statements of Cash Flows (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
- - ----------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1994 1993
- - ----------------------------------------------------------------------------------------------------------
Operating Activities
Net Income $68,554 $66,733
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses, depreciation, and amortization of income and expe 20,458 9,914
Deferred income taxes (4,277) 3,204
Realized and unrealized investment security gains 1,363 (3,408)
Net (increase) decrease in trading securities 288 (1,202)
Other assets and liabilities, net 98,438 62,995
------------ ------------
Net cash provided by operating activities 184,824 138,236
- - ----------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from redemptions of investment securities held to maturity 655,134 278,342
Purchases of investment securities held to maturity (470,126) (930,968)
Proceeds from sales of investment securities available for sale 252,847 677,758
Purchases of investment securities available for sale (279,991) (594,651)
Net (increase) decrease in interest-bearing deposits placed in other banks (4,551) 227,935
Net (increase) decrease in funds sold (22,771) 528,902
Net increase in loans and lease financing (258,701) (185,353)
Premises and equipment, net (30,394) (10,739)
Purchase of American Financial Services of Hawaii, Inc., net of cash acquired -- (48,990)
------------ ------------
Net cash used by investing activities (158,553) (57,764)
- - ----------------------------------------------------------------------------------------------------------
Financing Activities
Net increase (decrease) in demand, savings, and time deposits 77,803 (688,064)
Proceeds from lines of credit and long-term debt 238,061 185,000
Principal payments on lines of credit and long-term debt -- (20,600)
Net increase (decrease) in short-term borrowings (244,122) 457,379
Proceeds from sale of stock (8,853) 8,354
Cash dividends (22,145) (18,814)
------------ ------------
Net cash provided (used) by financing activities 40,744 (76,745)
Effect of exchange rate changes on cash (1,395) 921
------------ ------------
Increase in cash and non-interest bearing deposits 65,620 4,648
------------ ------------
Cash and non-interest bearing deposits at beginning of year 395,315 393,555
------------ ------------
Cash and non-interest bearing deposits at end of period $460,935 $398,203
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Review
Performance Highlights
Bancorp Hawaii, Inc. (Bancorp) reported earnings for the
second quarter of 1994 of $34.2 million, 1.2% above earnings over
the second quarter of 1993. On a per share basis, earnings were
$0.79 for the second quarter of 1994 the same as the $0.79
reported for the second quarter of 1993. These per share figures
have been adjusted for the 50% stock dividend declared in the
first quarter of 1994. Earnings growth has been limited both by
relatively lackluster loan demand in Hawaii, Bancorp's main
market, and by the significant increase in interest rates since
year-end 1993.
Total assets decreased 0.8% to $12.6 billion as of June 30,
1994 from $12.7 billion reported for June 30, 1993. However,
asset balances have increased slightly compared to balances of
$12.5 billion reported at year-end 1993. Net loans outstanding
increased over the end of the first quarter, 1994 by 2.1%, and
increased 5.2% over June 30, 1993. Total investment securities
stood at $3.5 billion at June 30, 1994 representing a 4.8%
decline from the same time a year ago. The decrease reflects
changes in the level of government deposits that will be
discussed later in this report.
Total deposits increased to $7.1 billion, compared to $7.0
billion reported at year-end 1993 and decreased from the $7.2
billion reported a year ago on June 30. Securities sold under
agreements to repurchase (repos) as of June 30, 1994 totaled $2.3
billion, a decline of 7.7% from year-end 1993 and a 17.4% decline
from June 30, 1993. The changes in repo balances, which are
mainly comprised of government funds are explained later in this
report.
Non-performing assets (NPAs) have decreased to $53.3 million
at June 30, 1994. This was the fourth consecutive quarterly
decrease in non-performing assets for Bancorp since reporting a
high a year ago on June 30, 1993 of $106.6 million. A further
discussion on NPAs and Reserve for Loan Losses follows later in
this report.
Trust income for the second quarter of 1994 which includes
both American Financial Services (AFS) and Hawaiian Trust Company
totaled $11.1 million, a 3.5% increase over the same quarter in
1993. The consolidation of AFS staff and operations has
progressed well. Synergies gained from the consolidation are
expected to continue for the rest of the year.
The average net interest margin or spread on earning assets
for the second quarter of 1994 was 4.01%, which compares
favorably with 3.96% reported for the second quarter of 1993, but
was below the 4.05% spread for the first quarter of 1994. The
decline from the first quarter of 1994 reflects the impact of
rising interest rates.
Risk Elements in Lending Activities
At June 30, 1994, total loans were $7.5 billion, a 3.6%
increase over year-end 1993 and 5.2% above total loans on June
30, 1993. The weak loan demand reflects Hawaii's sluggish
economy. In spite of slower loan growth, Bancorp's lending
policies remain unchanged and conservative. The following table
presents Bancorp's total loan portfolio balances for the periods
indicated.
Loan Portfolio Balances Bancorp Hawaii, Inc., and subsidiaries
- - ---------------------------------------------------------------------------------
June 30 December 31 June 30
(in millions of dollars) 1994 1993 1993
- - ---------------------------------------------------------------------------------
Domestic Loans
Commercial and Industrial $1,751.2 $1,709.2 $1,768.7
Real Estate
Construction -- Commercial 120.1 136.2 168.5
-- Residential 26.0 35.1 30.4
Mortgage -- Commercial 1,248.5 1,230.6 1,122.0
-- Residential 2,638.9 2,476.0 2,295.5
Installment 696.8 676.2 644.6
Lease Financing 384.4 401.6 390.5
- - ---------------------------------------------------------------------------------
Total Domestic 6,865.9 6,664.9 6,420.2
- - ---------------------------------------------------------------------------------
Foreign Loans 657.1 593.5 731.2
- - ---------------------------------------------------------------------------------
Total Loans $7,523.0 $7,258.4 $7,151.4
=================================================================================
Commercial and Industrial Loans
Commercial and Industrial loans outstanding were $1.8
billion as of June 30, 1994, reflecting a slight increase over
year-end 1993. There was a slight decline in loan balances as
compared to the same time last year. The stable loan balances in
this category are indicative of the slow business climate in
Hawaii.
Real Estate Loans
Total real estate loans at June 30, 1994 were $4.0 billion,
up 4.0% over year-end 1993. The real estate sector continues to
show growth reflecting a tight housing market. Both commercial
and residential real estate balances showed growth. Commercial
real estate balances (excluding construction) of $1.2 billion on
June 30, 1994 rose 1.5% from year-end 1993 and 11.3% from a year
ago June 30. Residential mortgage loans (excluding construction
loans) totaled $2.6 billion as of June 30, 1994, up 6.6% from
year-end 1993 and up 15.0% from the same time last year.
Construction loan balances have declined to $146.1 million at
June 30, 1994. These balances compare with $171.3 million at
year-end 1993 and $198.9 million on June 30, 1993. Although
there is an overall slowdown in the construction sector in
Hawaii, the residential housing market continues to show good
growth.
Other Lending
Installment loans as of June 30, 1994 increased by 3.0% to
$696.8 million from the $676.2 million reported on December 31,
1993 and were 8.1% above the $644.6 million on June 30, 1993.
The increase reflects Bancorp's efforts to increase its
installment loan base. Lease financing of $384.4 million on June
30, 1994 decreased 4.3% from $401.6 million reported at year-end
1993 and 1.6% from $390.5 million reported at June 30, 1993. The
leasing market in Hawaii has been slow reflecting the weak
economy.
Foreign loan balances have decreased 10.1% to $657.1 million
as of June 30, 1994 from a year ago June 30. However, foreign
loan balances increased 10.7% over year-end 1993. The rise in
foreign loans over year-end 1993 reflect the increased valuation
of Japanese loans due to the yen-U.S. dollar relationship and the
strong growth being experienced in other Asian Rim countries. The
foreign loan total includes outstanding credits to Less Developed
Countries (LDC). LDC exposure remains very limited at $1.0
million in outstanding credits and $84.9 million in confirmed
letters of credit and banker's acceptances at June 30, 1994. All
LDC exposure is in the Philippines.
Non-Performing Assets and Past Due Loans
Bancorp's non-performing assets include non-accrual loans,
restructured loans and foreclosed real estate. NPAs totaled
$53.3 million, representing 0.71% of total loans outstanding at
June 30, 1994. This ratio compares with 0.91% at the end of the
first quarter 1994, 0.95% at year-end 1993 and 1.49% at the end
of the second quarter 1993. This was the fourth consecutive
quarter that NPAs have declined since June 30, 1993 when NPAs
peaked at $106.6 million.
Non-accrual loans decreased during the quarter to $42.6
million from $57.6 million at the previous quarter-end (first
quarter 1994) and decreased substantially from $97.2 million at
June 30, 1993. The decrease from the first quarter of 1994 was
mainly due to the sale of a commercial property that had been
placed on non-accrual during the second quarter of 1993. Non-
accrual loans at the end of the second quarter of 1994 also
compared favorably to year-end 1993 amount of $58.4 million.
Restructured loans notched up to $7.3 million from $5.2
million reported at March 31, 1994 and $6.3 million at year-end
1993. The increase reflects the addition of a renegotiated
commercial loan. Total foreclosed real estate declined to $3.4
million compared to the $4.0 million reported at March 31, 1994
and $3.1 million reported at June 30, 1993. Accruing loans past
due 90 days or more dipped slightly to $9.9 million from the
$10.0 million reported at March 31, 1994 and down from the $11.5
million reported at June 30, 1993. Total NPAs and loans 90 days
past due totaled $63.2 million a 17.7% decline from the $76.8
million reported at March 31, 1994 and a 46.5% drop from the
$118.1 million reported at June 30, 1993. Total NPAs and loans
90 days past due declined to 0.84% of total loans outstanding
from 1.04% at March 31, 1994 and 1.65% at June 30, 1993.
The following table presents NPAs and past due loans for the
periods indicated.
Bancorp Hawaii, Inc.
Consolidated Non-Performing Assets and Accruing Loans Past Due 90 Days or More
- - -------------------------------------------------------------------------------
June 30 December 31 June 30
(in millions of dollars) 1994 1993 1993
- - -------------------------------------------------------------------------------
Non-Accrual Loans
Commercial $20.2 $15.7 $53.7
Real Estate
Construction 2.1 17.7 18.2
Commercial 5.7 7.8 5.8
Residential 14.3 16.4 18.7
Installment 0.3 0.5 0.8
Leases -- 0.3 --
Other -- -- --
Foreign -- -- --
----------------------------------------
Subtotal 42.6 58.4 97.2
Restructured Loans
Commercial 2.1 1.0 1.0
Real Estate
Construction -- -- --
Commercial 5.2 5.3 5.3
Residential -- -- --
Installment -- -- --
Leases -- -- --
Other -- -- --
Foreign -- -- --
----------------------------------------
Subtotal 7.3 6.3 6.3
Foreclosed Real Estate
Domestic 3.4 4.1 3.1
Foreign -- -- --
----------------------------------------
Subtotal 3.4 4.1 3.1
----------------------------------------
Total Non-Performing Assets 53.3 68.8 106.6
----------------------------------------
Accruing Loans Past Due 90 Days or More
Commercial 0.8 0.3 0.9
Real Estate
Construction -- -- 1.8
Commercial 0.3 1.9 1.7
Residential 5.0 4.1 2.5
Installment 3.7 3.5 4.5
Leases 0.1 0.1 0.1
Other -- 0.1 --
Foreign -- -- --
----------------------------------------
Subtotal 9.9 10.0 11.5
----------------------------------------
Total $63.2 $78.8 $118.1
========================================
- - -------------------------------------------------------------------------------
Ratio of Non-Performing Assets
to Total Loans 0.71% 0.95% 1.49%
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
Ratio of Non-Performing Assets
and Accruing Loans Past Due
90 Days or More to Total Loans 0.84% 1.09% 1.65%
- - -------------------------------------------------------------------------------
Summary of Loan Loss Experience
The reserve for loan losses stood at $141.2 million at June
30, 1994, representing 1.91% of loans outstanding. This compares
with 1.80% as of March 31, 1994, 1.76% at year-end 1993 and 1.87%
on June 30, 1993.
Loan loss provisions were $6.0 million for the second
quarter of 1994, 27.7% below the $8.3 million reported for the
first quarter of 1994. Charge-offs totaled $4.8 million for the
second quarter of 1994 compared to $7.1 million for the first
quarter of 1994 and $18.1 million during the second quarter of
1993. More than offsetting these charge-offs were $10.0 million
in recoveries during the second quarter of 1994. Recoveries
reported for the first quarter of 1994 were $3.6 million and $2.5
million in the second quarter of 1993. Some of the second
quarter 1994 recoveries came from a commercial leasehold property
that was partially charged-off in the fourth quarter of 1992 and
the third quarter of 1993.
Net recoveries for the second quarter of 1994 were $5.2
million, comparing favorably with the net charge-off figure of
$3.5 million reported for the first quarter of 1994 and $15.6
million during the second quarter of 1993. The annualized ratio
of net recoveries to average loans outstanding for the second
quarter 1994 of 0.29%, compares favorably with the ratio of net
charge-offs to average loans of (0.19)% for the first quarter of
1994 and well below the (0.89)% reported for the second quarter
of 1993.
A detailed breakdown of charge-offs and recoveries by loan
category is presented in the following table.
Summary of Loss Experience Bancorp Hawaii, Inc., and subsidiaries
- - --------------------------------------------------------------------------------------------------------
Second Second First Six First Six
Quarter Quarter Months Months
(in millions of dollars) 1994 1993 1994 1993
- - --------------------------------------------------------------------------------------------------------
Average Loans Outstanding $7,278.5 $6,986.3 $7,230.9 $6,920.8
Balance of Reserve for Possible Loan Losses
at Beginning of Period $130.1 $134.6 $125.3 $128.6
Loans Charged Off
Commercial and Industrial 0.5 10.9 5.7 11.0
Real Estate - Construction -- 0.2 -- 0.2
Real Estate - Mortgage
Commercial 1.0 -- 1.0 2.6
Residential 0.1 -- 0.1 --
Installment 2.4 2.1 4.3 3.9
Foreign 0.7 4.9 0.7 4.9
Leases 0.1 -- 0.1 --
- - --------------------------------------------------------------------------------------------------------
Total Charged Off 4.8 18.1 11.9 22.6
Recoveries on Loans Previously Charged Off
Commercial and Industrial 8.4 1.6 11.1 2.2
Real Estate - Construction -- -- -- --
Real Estate - Mortgage
Commercial 0.7 -- 0.7 --
Residential 0.1 0.1 0.2 0.1
Installment 0.8 0.7 1.6 1.6
Foreign -- -- -- --
Leases -- 0.1 -- 0.1
- - --------------------------------------------------------------------------------------------------------
Total Recoveries 10.0 2.5 13.6 4.0
- - --------------------------------------------------------------------------------------------------------
Net (Charge Offs) Recoveries 5.2 (15.6) 1.7 (18.6)
Provision Charged to Operating Expenses 5.9 12.2 14.2 21.2
- - --------------------------------------------------------------------------------------------------------
Balance at End of Period $141.2 $131.2 $141.2 $131.2
========================================================================================================
Ratio of Net (Charge Offs) Recoveries to
Average Loans Outstanding (annualized) 0.29% (0.89)% 0.05% (0.54)%
- - --------------------------------------------------------------------------------------------------------
Ratio of Reserve to Loans Outstanding 1.91% 1.87% 1.91% 1.87%
- - --------------------------------------------------------------------------------------------------------
Capital
The level of Bancorp's capital is managed through the target
ratios outlined in Bancorp's 1993 Annual Report. Bancorp's 6%
minimum target of average equity to average assets keeps both
objectives of a return on assets of 1% and return on equity of
16% in reasonable balance. The average equity to average assets
ratio for the second quarter of 1994 was 7.61%, an increase over
the 7.57% reported at first quarter 1994 and an increase from the
6.83% reported at June 30, 1993.
Regulatory risk-based capital remained well above minimum
guidelines. Bancorp's Total Capital and Tier 1 Capital ratios
were 13.59% and 10.84%, respectively, compared to 13.51% and
10.74%, respectively, at March 31, 1994. Regulatory guidelines
prescribe a minimum Total Capital ratio of 10.00% and a Tier 1
Capital ratio of 6.00% for an institution to qualify as well
capitalized. Bancorp's strategy is to maintain its capital
ratios at levels to meet this qualification to benefit from the
financial and regulatory incentives provided to well capitalized
companies.
In addition, the leverage ratio, which is Tier 1 Capital to
Total Average Assets, was 7.21% at June 30, 1994, compared to
7.06% at March 31, 1994 and 6.51% at June 30, 1993. The
required minimum ratio is 5.00% to qualify an institution as well
capitalized.
Spread Management
The average net interest margin or spread on earning assets
for the second quarter of 1994 was 4.01%, a decrease from the
4.05% reported in the first quarter of 1994, but an increase over
the 3.96% reported for the same period in 1993. 1994 year-to-
date spread was 4.03% compared to 3.96% for the same period in
1993. Although the spread has improved compared to the same
period last year, the rise in interest rates in 1994 has placed
additional pressure on the ability to maintain current spread
levels. The impact is seen by the four basis points decline in
spread in comparing second quarter 1994 with first quarter 1994.
The cost of funds rate for the second quarter of 1994 was
3.40%, which was above the 3.32% reported for the second quarter
of 1993. The rise in the cost of funds reflects the impact of
higher interest rates as compared to last year.
The earning asset yield was 6.90% for the second quarter
of 1994, an increase over the second quarter 1993 yield of 6.83%,
and an increase over the 6.72% yield reported in the first quarter
of 1994.
Consolidated Average Balances and Interest Rates Taxable Equivalent Bancorp Hawaii, Inc. and subsidiaries
- - ----------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
June 30, 1994 June 30, 1993
Average Income/Yield/ Average Income/Yield/
(in millions of dollars) Balance Expense Rate Balance Expense Rate
- - ----------------------------------------------------------------------------------------------------------
Earning Assets
Interest Bearing Deposits $903.7 $9.2 4.07% $1,179.0 $11.1 3.78%
Investment Securities
-Taxable 2,637.3 35.6 5.41 3,572.6 52.1 5.85
-Tax-Exempt 18.6 0.6 13.46 31.6 0.9 11.92
946.1 12.2 5.20 53.8 1.5 10.89
Funds Sold 36.6 0.4 4.14 77.2 0.7 3.68
Net Loans
-Domestic 6,640.6 130.3 7.87 6,284.9 120.2 7.67
-Foreign 637.9 6.9 4.34 701.4 7.6 4.33
Loan Fees 8.1 8.7
------------------------ ------------------------
Total Earning Assets 11,820.8 203.3 6.90 11,900.5 202.8 6.83
Cash and Due From Banks 470.4 473.6
Other Assets 345.6 303.4
---------- ----------
Total Assets $12,636.8 $12,677.5
========== ==========
Interest Bearing Liabilities
Domestic Deposits - Demand $1,882.4 9.3 1.98 $2,055.5 12.3 2.40
- Savings 1,267.1 7.2 2.27 1,238.0 8.6 2.78
- Time 1,521.7 15.6 4.12 1,710.3 19.7 4.62
------------------------ ------------------------
Total Domestic 4,671.2 32.1 2.75 5,003.8 40.6 3.25
Total Foreign 1,215.3 12.2 4.03 1,237.2 10.8 3.50
------------------------ ------------------------
Total Deposits 5,886.5 44.3 3.02 6,241.0 51.4 3.30
Short-Term Borrowings 3,628.4 34.1 3.77 3,895.0 31.4 3.23
Long-Term Debt 556.3 6.9 4.95 165.9 2.4 5.74
------------------------ ------------------------
Total Interest Bearing Liabilities 10,071.2 85.3 3.40 10,301.9 85.2 3.32
------------------------ ------------------------
Net Interest Income 118.0 3.50 117.6 3.51
Average Spread on Earning Assets 4.01% 3.96%
Demand Deposits 1,389.0 1,282.1
Other Liabilities 209.9 213.3
Shareholders' Equity 966.7 880.2
---------- ----------
Total Liabilities and Shareholders' Equity $12,636.8 $12,677.5
========== ==========
Provision for Possible Losses 5.9 12.2
Net Overhead 56.7 51.7
------- -------
Income Before Income Taxes 55.4 53.7
Provision for Income Taxes 20.8 19.3
Tax-Equivalent Adjustment 0.4 0.6
------- -------
Net Income $34.2 $33.8
======= =======
Consolidated Average Balances and Interest Rates Taxable Equivalent Bancorp Hawaii, Inc. and subsidiaries
- - ----------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 1994 June 30, 1993
Average Income/Yield/ Average Income/Yield/
(in millions of dollars) Balance Expense Rate Balance Expense Rate
- - ----------------------------------------------------------------------------------------------------------
Earning Assets
Interest Bearing Deposits $886.4 $16.9 3.83% $1,206.4 $22.8 3.81%
Investment Securities
-Taxable 2,706.4 73.8 5.50 3,406.4 102.0 6.04
-Tax-Exempt 19.3 1.3 13.58 33.4 2.0 11.95
934.4 21.7 4.69 95.0 5.2 10.95
Funds Sold 39.3 0.8 4.07 246.0 4.0 3.30
Net Loans
-Domestic 6,587.4 254.0 7.78 6,254.0 238.7 7.70
-Foreign 643.5 13.6 4.27 666.8 14.9 4.51
Loan Fees 17.0 17.9
------------------------ ------------------------
Total Earning Assets 11,816.7 399.1 6.81 11,908.0 407.5 6.90
Cash and Due From Banks 457.7 463.1
Other Assets 343.4 291.0
---------- ----------
Total Assets $12,617.8 $12,662.1
========== ==========
Interest Bearing Liabilities
Domestic Deposits - Demand $1,923.3 18.7 1.96 $2,060.9 24.8 2.42
- Savings 1,264.6 14.2 2.27 1,220.8 17.4 2.88
- Time 1,535.6 31.7 4.16 1,810.0 41.9 4.67
------------------------ ------------------------
Total Domestic 4,723.5 64.6 2.76 5,091.7 84.1 3.33
Total Foreign 1,200.2 21.8 3.67 1,215.4 22.2 3.69
------------------------ ------------------------
Total Deposits 5,923.7 86.4 2.94 6,307.1 106.3 3.40
Short-Term Borrowings 3,651.8 64.0 3.53 3,854.9 63.8 3.34
Long-Term Debt 498.3 12.6 5.09 126.9 3.5 5.64
------------------------ ------------------------
Total Interest Bearing Liabilities 10,073.8 163.0 3.26 10,288.9 173.6 3.40
------------------------ ------------------------
Net Interest Income 236.1 3.55 233.9 3.50
Average Spread on Earning Assets 4.03% 3.96%
Demand Deposits 1,392.7 1,285.9
Other Liabilities 191.3 222.2
Shareholders' Equity 960.0 865.1
---------- ----------
Total Liabilities and Shareholders' Equity $12,617.8 $12,662.1
========== ==========
Provision for Possible Losses 14.2 21.2
Net Overhead 110.8 106.4
------- -------
Income Before Income Taxes 111.1 106.3
Provision for Income Taxes 41.7 38.4
Tax-Equivalent Adjustment 0.8 1.2
------- -------
Net Income $68.6 $66.7
======= =======
Liquidity
Bancorp's liquidity or the ability to meet day-to-day
financial needs of its customers is important. The strategy to
meet these liquidity needs was outlined in the 1993 Annual Report
and currently remains in place.
At June 30, 1994, deposits were $7.1 billion, compared to
$7.0 billion and $7.2 billion reported at year-end 1993 and June
30, 1993, respectively. The level of deposits reflect increased
competition for deposits, not only by banks and savings and loan
companies, but also by securities brokerage firms. These deposit
totals do not include repos, which are offered to governmental
entities as an alternative to deposits. Repos offered to state
and municipal governments require the same level of
collateralization as government deposits, but provide a
marginally higher rate of interest, as these funds are not FDIC
insured. Repos totaled $2.3 billion as of June 30, 1994,
compared to $2.5 billion at year-end 1993 and $2.8 billion as of
June 30, 1993. Year-to-date average repo balances in 1994 were
5% lower than the 1993 full-year average; a reflection of the
slow Hawaii economy's impact on governmental cash flows.
During the quarter, Bank of Hawaii issued $100 million in
bank notes. The notes were issued under an established bank note
facility allowing the issuance of up to $750 million in notes.
The notes bear floating and fixed interest rates and mature in 1
to 2 years. As of June 30, 1994, $300 million have been issued
under this facility. As a result, long term debt increased to
$595.9 million at June 30, 1994.
Net Overhead
The net overhead ratio is a tool used to manage Bancorp's
net overhead. As stated in Bancorp's 1993 Annual Report, the net
overhead ratio is defined as the ratio of non-interest expense to
non-interest income. Bancorp's long term goal is to have a ratio
of 2 to 1, where fee income offsets at least half of the cost of
operations. The ratio for the second quarter of 1994 was 2.71,
compared to the 2.58 reported for the first quarter of 1994 and
remained close to the 2.67 reported last year for the same
period. The net overhead ratio for full year 1993 was 2.60.
Another productivity measure used at Bancorp is the amount
of net income generated per full-time equivalent staff (FTE).
The objective is to improve net income with existing or lesser
staff levels. Year-to-date 1994 net income per FTE was just over
$15,900 or $31,800 on an annualized basis, compared to an
annualized $30,500 reported for the same period in 1993. 1994's
annualized figure compares favorably with the $31,000 and $31,100
reported for the full years of 1993 and 1992, respectively.
Non-interest income for the second quarter was $33.1
million, a 6.5% increase over the same quarter in 1993. Trust
income was $11.1 million, up 3.5% from the same period last year.
The increase reflects the addition of subsidiaries of American
Financial Services and the progress made on the consolidation of
operations into the existing trust operations. Service charges
on deposit accounts for the second quarter of 1994 were $7.2
million, compared to $6.4 million reported for the same quarter
last year. Fees, exchange and other service charges for the
second quarter were $8.3 million, an increase of 3.2% over the
same period last year. The increase was largely fueled by
increased ATM usage fees. Other operating income totaled $7.0
million for the second quarter of 1994; this compares with $4.3
million reported for the second quarter of 1993. The increase
reflects gains recognized from the sale of fixed assets and the
collection of interest on previously charged off loans; both
activities occurred during the second quarter of 1994.
Expense control continues to be a high priority at Bancorp.
Non-interest expense for the second quarter of 1994 was $89.7
million compared to $82.7 million reported for the second quarter
of 1993. Expenses related to American Financial Services were
included after the May 1993 acquisition date and partially
explain the variance from second quarter of 1994 with second
quarter of 1993.
Salary and benefit expenses increased to $45.2 million for
the second quarter of 1994, up 0.5% from $45.0 million reported
for the same period last year. The slight increase reflects
management's effort to control staff expense. Occupancy and
premises costs rose 2.5% to $9.0 million for the second quarter
1994 from $8.8 million for the second quarter 1993. Equipment
expenses increased to $8.1 million, which was 23.1% above second
quarter 1993 expenses of $6.6 million. The rise in equipment
expenses reflect increased costs to maintain computer equipment
and the continual effort to invest in technology. Other
operating expenses rose to $27.5 million for the three months
ended June 30, 1994, this compares with $22.4 million reported
for the same period in 1993. The substantial increase in this
category reflects several items that include: additional
goodwill amortization resulting from the AFS acquisition in May
of 1993; costs associated with the development and training of
the Investment and Trust Services group and the overall rise in
general operating expenses.
PART II. - Other Information
Items 1, 2, 3 and 5 omitted pursuant to instructions.
Item 4 - Submission of Matters to a Vote of Security
Holders
(a) Bancorp's Annual Shareholders' Meeting was
held on April 27, 1994.
(b) Omitted per instructions.
(c) A brief description of each matter voted upon
at the Annual Shareholders' Meeting held on
April 27, 1994 and number of votes cast for,
against or withheld, including a separate
tabulation with respect to each nominee for
office is presented below:
(1) Election of four Class II directors for
terms expiring in 1997 and the
successors to fill the unexpired terms
of two retiring Class III directors.
Class II directors:
David A. Heenan -
Votes cast for: 24,099,863
Votes withheld: 209,660
Stuart T.K. Ho -
Votes cast for: 24,128,287
Votes withheld: 181,236
Lawrence M. Johnson -
Votes cast for: 24,135,381
Votes withheld: 174,142
Fred E. Trotter -
Votes cast for: 24,132,993
Votes withheld: 176,530
Class III directors:
Mary G.F. Bitterman -
Votes cast for: 23,984,329
Votes withheld: 325,194
Herbert M. Richards, Jr. -
Votes cast for: 24,117,011
Votes withheld: 192,512
(2) An amendment to the Restated Articles of
Incorporation to increase the authorized
number of shares of common stock, $2 par
value, from 50,000,000 shares to
100,000,000 shares.
Votes cast for: 23,188,666
Votes cast against: 885,274
Votes abstained: 235,583
(3) Bancorp Hawaii, Inc. Stock Option Plan
of 1994, under which an aggregate of up
to 1,250,000 shares of common stock (to
be adjusted to 1,875,000 shares as a
result of the 50% stock dividend
declared on January 26, 1994 and payable
on March 15, 1994) may be issued
pursuant to the exercise of options to
purchase common stock that may be
granted to officers and key employees.
Votes cast for: 22,488,774
Votes cast against: 1,619,312
Votes abstained: 201,437
(4) Bancorp Hawaii, Inc. Executive Officer
One-Year Incentive Plan.
Votes cast for: 21,304,898
Votes cast against: 2,627,157
Votes abstained: 377,468
(5) Bancorp Hawaii, Inc. Sustained Profit
Growth Plan.
Votes cast for: 21,754,308
Votes cast against: 2,290,176
Votes abstained: 265,039
(6) Election of Ernst & Young as Auditor.
Votes cast for: 24,139,022
Votes cast against: 79,611
Votes abstained: 90,890
(d) None.
Item 6 - Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
Exhibit #11 - Statement regarding computation
of per share earnings.
Exhibit #20 - Report furnished to
shareholders for the quarter ended March 31,
1994.
(b) No Form 8-K was filed during the quarter.
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date August 10, 1994 BANCORP HAWAII, INC.
LAWRENCE M. JOHNSON
(Signature)
Lawrence M. Johnson
Chairman and Chief
Executive Officer
DAVID A. HOULE
(Signature)
David A. Houle
Senior Vice President
and Chief Financial
Officer