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, 1995
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
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(Address of principal executive offices) (Zip Code)
(808) 847-8888
----------------------------------------------------
(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 July 31, 1995 -
41,520,923 shares
BANCORP HAWAII, INC. and subsidiaries
June 30, 1995
PART I. - Financial Information
Item 1. Financial Statements
The consolidated statements of condition as of June 30, 1995
and 1994, and December 31, 1994 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. Certain accounts have been reclassified to conform with
the 1995 presentation.
Consolidated Statements of Condition (Unaudited)
------------------------------------------------------------------------------------------------------------------
June 30 December 31 June 30
1995 1994 1994
------------------------------------------------------------------------------------------------------------------
Assets
Interest-Bearing Deposits $752,923 $727,016 $842,255
Investment Securities
(Market Value of $3,108,419, $3,101,584 and $3,491,979, respectively) 3,117,484 3,150,885 3,532,916
Securities Purchased Under Agreements to Resell 90,000 -- --
Funds Sold 144,900 54,167 80,470
Loans 7,704,174 7,891,993 7,523,003
Unearned Income (142,084) (144,034) (146,163)
Reserve for Possible Loan Losses (150,302) (148,508) (141,210)
Net Loans 7,411,788 7,599,451 7,235,630
------------------------------------------------------------------------------------------------------------------
Total Earning Assets 11,517,095 11,531,519 11,691,271
Cash and Non-Interest Bearing Deposits 474,554 508,762 460,935
Premises and Equipment 231,978 221,806 187,710
Other Assets 350,024 324,263 307,384
------------------------------------------------------------------------------------------------------------------
Total Assets $12,573,651 $12,586,350 $12,647,300
==================================================================================================================
Liabilities
Deposits $7,003,918 $7,115,054 $7,082,778
Securities Sold Under Agreements to Repurchase 2,250,738 2,136,204 2,316,161
Funds Purchased 379,473 609,574 575,220
Short-Term Borrowings 655,652 594,475 818,168
Other Liabilities 385,362 302,683 399,617
Long-Term Debt 877,640 861,572 495,991
------------------------------------------------------------------------------------------------------------------
Total Liabilities 11,552,783 11,619,562 11,687,935
Shareholders' Equity
Common Stock ($2 par value), authorized 100,000,000 shares;
outstanding, June 1995 - 41,520,923;
December 1994 - 41,851,466; June 1994 - 42,396,059; 83,042 83,703 84,792
Surplus 249,718 260,040 276,379
Unrealized Valuation Adjustments 12,410 (18,122) (15,758)
Retained Earnings 675,698 641,167 613,952
------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,020,868 966,788 959,365
------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $12,573,651 $12,586,350 $12,647,300
==================================================================================================================
Consolidated Statements of Income (Unaudited)
------------------------------------------------------------------------------------------------------------------
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) 1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------
Total Interest Income $221,830 $201,461 $436,415 $395,157
Total Interest Expense 114,683 85,254 226,947 163,043
------------------------------------------------------------------------------------------------------------------
Net Interest Income 107,147 116,207 209,468 232,114
Provision for Possible Loan Losses 4,120 5,964 8,573 14,222
------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Possible Loan Losses 103,027 110,243 200,895 217,892
Total Non-Interest Income 35,978 34,470 75,789 70,344
Total Non-Interest Expense 93,689 89,749 184,744 177,993
------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 45,316 54,964 91,940 110,243
Provision for Income Taxes 16,768 20,802 35,144 41,689
------------------------------------------------------------------------------------------------------------------
Net Income $28,548 $34,162 $56,796 $68,554
==================================================================================================================
Earnings Per Common Share and Common Share Equivalents $0.68 $0.79 $1.35 $1.59
------------------------------------------------------------------------------------------------------------------
Average Common Shares and Common Share Equivalents Outstanding 42,121,368 43,056,348 42,129,385 43,006,653
------------------------------------------------------------------------------------------------------------------
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, 1994 $966,788 $83,703 $260,040 ($18,122) $641,167
Net Income 56,796 - - - 56,796
Sale of Common Stock
96,251 Profit Sharing Plan 2,637 192 2,445 - -
84,332 Stock Option Plan 1,495 169 1,326 - -
132,374 Dividend Reinvestment Plan 3,735 265 3,470 - -
Stock Repurchased (18,850) (1,287) (17,563) - -
Unrealized Valuation Adjustments
Investment Securities 24,826 - - 24,826 -
Foreign Exchange Translation Adjustment 5,706 - - 5,706 -
Cash Dividends Paid of $.53 Per Share (22,265) - - - (22,265)
----------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 $1,020,868 $83,042 $249,718 $12,410 $675,698
================================================================================================================
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
================================================================================================================
Consolidated Statements of Cash Flows(Unaudited) Bancorp Hawaii, Inc. and subsidiaries
--------------------------------------------------------------------------------------------------------------
Six Months Ended June 30
(in thousands of dollars) 1995 1994
--------------------------------------------------------------------------------------------------------------
Operating Activities
Net Income $56,796 $68,554
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses, depreciation, and amortization of income and expense 5,497 20,458
Deferred income taxes (2,459) (4,277)
Realized and unrealized investment security gains 1,387 1,363
Net (increase) decrease in trading securities 13,130 288
Other assets and liabilities, net 25,879 98,438
------------ ------------
Net cash provided by operating activities 100,230 184,824
--------------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from redemptions of investment securities held to maturity 519,393 655,134
Purchases of investment securities held to maturity (307,593) (470,126)
Proceeds from sales of investment securities available for sale 283,159 252,847
Purchases of investment securities available for sale (421,356) (279,991)
Net increase in interest-bearing deposits placed in other banks (25,907) (4,551)
Net decrease in funds sold (180,733) (22,771)
Net decrease in loans and lease financing 201,405 (258,701)
Premises and equipment, net (21,385) (30,394)
Purchase of minority interest of Banque D'Hawaii (Vanuatu), Ltd.,
net of cash and non-interest bearing deposits acquired 6,808 --
------------ ------------
Net cash provided (used) by investing activities 53,791 (158,553)
--------------------------------------------------------------------------------------------------------------
Financing Activities
Net decrease in demand, savings, and time deposits (122,365) 77,803
Proceeds from lines of credit and long-term debt 16,068 238,061
Principal payments on lines of credit and long-term debt -- --
Net decrease in short-term borrowings (54,390) (244,122)
Proceeds from sale of stock (10,983) (8,853)
Cash dividends (22,265) (22,145)
------------ ------------
Net cash provided (used) by financing activities (193,935) 40,744
Effect of exchange rate changes on cash 5,706 (1,395)
------------ ------------
Increase (decrease) in cash and non-interest bearing deposits (34,208) 65,620
------------ ------------
Cash and non-interest bearing deposits at beginning of year 508,762 395,315
------------ ------------
Cash and non-interest bearing deposits at end of period $474,554 $460,935
--------------------------------------------------------------------------------------------------------------
/TABLE
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 1995 of $28.5 million, 16.4% below earnings for
the second quarter of 1994. On a per share basis, earnings were
$0.68 for the second quarter of 1995, an increase from the $0.67
reported for the first quarter of 1995, but a decrease from the
$0.79 reported for the second quarter of 1994.
For the six months ended June 30, 1995, Bancorp reported net
income of $56.8 million, 17.2% below that for the same period in
1994. Earnings per share were $1.35 for the first half of 1995,
compared with $1.59 for the same period in 1994. Earnings
reflect the slower economy in Hawaii, Bancorp's main market, and
the relatively flat interest rate yield curve over the one to
five year time horizon.
Performance ratios for the year-to-date period were short of
Bancorp's objectives of 1% and 16%, for return on average assets
and return on average equity, respectively. Return on average
assets and return on average equity were 0.93% and 11.42%,
respectively, for the first half of 1995. These ratios were
1.10% and 14.40%, respectively, for the like period in 1994.
Total assets ended June 30, 1995 at $12.6 billion, the same
at both June 30, 1994 and year-end 1994. Net loans outstanding
decreased from both March 31, 1995 and year-end 1994 by 0.7% and
2.5%, respectively. Total investment securities also declined to
$3.1 billion at June 30, 1995 representing a 1.1% decrease from
year-end 1994 and 11.8% from the same date a year ago.
Total deposits decreased to $7.0 billion, compared to $7.1
billion reported at year-end 1994 and decreased from the $7.1
billion reported a year ago on June 30. Securities sold under
agreements to repurchase (repos) as of June 30, 1995 totaled $2.3
billion, an increase of 5.4% from year-end 1994 and a 2.8%
decline from June 30, 1994. The changes in repo balances, which
are mainly comprised of government funds are also explained later
in this report.
Non-performing assets (NPAs) have decreased to $51.0 million
at June 30, 1995. This was the lowest level of non-performing
assets for Bancorp since NPAs peaked on June 30, 1993 at $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 1995 totaled $12.1
million, a 8.6% increase over the same quarter in 1994. Trust
income has continued to grow as new opportunities such as the
introduction of Pacific Capital family of funds gains more
recognition.
The average net interest margin or spread on earning assets
for the second quarter of 1995 was 3.80%, which compared with
3.96% reported for the second quarter of 1994, and the 3.62%
spread for the first quarter of 1995. A further discussion of
spread follows in this report.
Risk Elements in Lending Activities
At June 30, 1995, total loans were $7.7 billion, a 2.4%
decrease from year-end 1994 and 2.4% above total loans on June
30, 1994. As reported in the first quarter, Bancorp securitized
$412 million in mortgage loans explaining some of the decrease.
Hawaii's sluggish economy also continues to hamper loan growth.
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.
Commercial and Industrial Loans
Commercial and Industrial loans outstanding were $1.9
billion as of June 30, 1995, an increase from both year-end 1994
and June 30, 1994.
Real Estate Loans
Real estate loans totaled $3.9 billion at June 30, 1995, a
6.7% decrease from year-end 1994 and a 1.7% decrease from the
same date a year ago. The decrease since year-end 1994 was
attributed to the securitization of $412 million in residential
mortgage loans in the first quarter of 1995. Considering this
securitization, a comparison with year-end 1994 reflects an
increase of 3.4% in total real estate loans. Residential
mortgage loans at June 30, 1995 were $2.6 billion, compared with
$2.9 billion at year-end 1994.
Construction loans at June 30, 1995 totaled $143.8 million,
compared with $131.0 million at year-end 1994 and $146.1 million
at June 30, 1994. Commercial mortgage loans have remained
relatively consistent.
Other Lending
Installment loans and leases have continued to increase
albeit modestly from year-end 1994. At June 30, 1995, total
installment loans were $762.5 million, up from $747.7 million
reported at March 31, 1995 and $741.6 million at year-end 1994.
Compared with the same date in 1994 when installment loan
balances were $696.8 million, installment loan balances are up
9.4%. The increase from year-end reflected evenly between
Bancorp's VISA charge cards and consumer installment loans.
Total leases at June 30, 1995 increased to $384.2 million from
$378.1 million at year-end 1994.
Foreign loan balances were $732.1 million as of June 30,
1995, an increase of 5.1% from year-end 1994, and 11.4% above
June 30, 1994 balances. The rise in the foreign loan total since
year-end largely reflects the movement of exchange rates against
the U.S. dollar. 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 $130.4
million in confirmed letters of credit and banker's acceptances
at June 30, 1995. All LDC exposure is in the Philippines.
Loan Portfolio Balances Bancorp Hawaii, Inc., and subsidiaries
----------------------------------------------------------------------------
June 30 December 31 June 30
(in millions of dollars) 1995 1994 1994
----------------------------------------------------------------------------
Domestic Loans
Commercial and Industrial $1,863.0 $1,830.8 $1,751.2
Real Estate
Construction -- Commercial 128.7 113.1 120.1
-- Residential 15.1 17.9 26.0
Mortgage -- Commercial 1,259.4 1,241.0 1,248.5
-- Residential 2,559.2 2,872.8 2,638.9
Installment 762.5 741.6 696.8
Lease Financing 384.2 378.1 384.4
----------------------------------------------------------------------------
Total Domestic 6,972.1 7,195.3 6,865.9
----------------------------------------------------------------------------
Foreign Loans 732.1 696.7 657.1
----------------------------------------------------------------------------
Total Loans $7,704.2 $7,892.0 $7,523.0
============================================================================
Non-Performing Assets and Past Due Loans
Bancorp's non-performing assets include non-accrual loans,
restructured loans and foreclosed real estate. NPAs totaled
$51.0 million, representing 0.66% of total loans outstanding at
June 30, 1995. This ratio compares with 0.67% at the end of both
the first quarter 1995 and year-end 1994. This ratio was 0.71%
at the end of the second quarter 1994. Bancorp continues its
effort to monitor and manage NPAs aggressively.
Non-accrual loans decreased during the quarter to $49.4
million from $51.7 million at the March 1995 quarter-end and
$52.6 million at year-end 1994. The decrease from the first
quarter of 1995 in the commercial loan category was largely due
to charge-offs.
Since year-end, past due loans have increased particularly
in the residential real estate loan and commercial loan
categories. Residential mortgage loans past due 90 days
increased to $7.3 million, 0.29% of total residential mortgage
loans, while past due commercial mortgage loans increased to $2.1
million, 0.17% of total commercial real estate loans. Both these
ratios remain at modest levels. For residential mortgage loans,
the underlying collateral which represented, at initial closing,
loan to value ratios of 80-90%, significantly reduces loss
exposure.
Accruing 90 day past due loans have increased from $11.6
million at year-end 1994 to $16.0 million at June 30, 1995.
Comparatively, $10.0 million in accruing 90 day past due loans
were reported at June 30, 1994 and $17.7 million at March 31,
1995.
The foreclosed real estate category remained at low levels,
totaling $1.6 million at June 30, 1995, compared with $0.6
million at March 31, 1995 and $0.6 million at year-end 1994.
There were only nine properties in Other Real Estate at June 30,
1995. Total non-performing assets and loans 90 days past due
represented 0.87% of loans outstanding compared with 0.82% at
year-end 1994 and 1.04% at June 30, 1994.
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) 1995 1994 1994
-------------------------------------------------------------------------------
Non-Accrual Loans
Commercial $15.3 $20.3 $20.2
Real Estate
Construction 0.8 1.5 2.1
Commercial 16.5 14.1 5.7
Residential 15.5 15.1 14.3
Installment 1.2 0.5 0.3
Leases 0.1 0.8 --
Other -- -- --
Foreign -- 0.3 --
-------------------------------------------------------------------------------
Subtotal 49.4 52.6 42.6
Restructured Loans
Commercial -- -- 2.1
Real Estate
Construction -- -- --
Commercial -- -- 5.2
Residential -- -- --
Installment -- -- --
Leases -- -- --
Other -- -- --
Foreign -- -- --
-------------------------------------------------------------------------------
Subtotal -- -- 7.3
Foreclosed Real Estate
Domestic 1.6 0.6 3.4
Foreign -- -- --
-------------------------------------------------------------------------------
Subtotal 1.6 0.6 3.4
-------------------------------------------------------------------------------
Total Non-Performing Assets 51.0 53.2 53.3
-------------------------------------------------------------------------------
Accruing Loans Past Due 90 Days or More
Commercial 2.1 1.0 0.8
Real Estate
Construction -- -- --
Commercial 0.1 0.7 0.3
Residential 7.3 3.9 5.0
Installment 6.5 5.9 3.7
Leases -- -- 0.1
Other -- 0.1 --
Foreign -- -- --
-------------------------------------------------------------------------------
Subtotal 16.0 11.6 9.9
-------------------------------------------------------------------------------
Total $67.0 $64.8 $63.2
===============================================================================
-------------------------------------------------------------------------------
Ratio of Non-Performing Assets
to Total Loans 0.66% 0.67% 0.71%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Ratio of Non-Performing Assets
and Accruing Loans Past Due
90 Days or More to Total Loans 0.87% 0.82% 0.84%
-------------------------------------------------------------------------------
/TABLE
Summary of Loan Loss Experience
The reserve for loan losses stood at $150.3 million at
June 30, 1995, representing 1.99% of loans outstanding.
This compares with 1.97% as of March 31, 1995, 1.92% at
year-end 1994 and 1.91% on June 30, 1994.
Loan loss provisions were $4.1 million for the second
quarter of 1995, compared with the $4.5 million reported for
the first quarter of 1995. Net charge-offs were $4.2
million for the quarter ended June 30, 1995, bringing year-
to-date charge-offs to $6.8 million.
Gross charge-offs totaled $9.0 million for the second
quarter of 1995, compared to $6.9 million for the first
quarter of 1995. Year-to-date, gross charge-offs totaled
$15.9 million, compared with $11.9 million for the same
period in 1994. Recoveries reported for the quarter ended
June 30, 1995 were $4.8 million, bringing year-to-date
recoveries to $9.1 million.
The annualized ratio of net charge-offs to average
loans outstanding for the second quarter 1995 of 0.22%,
compares nearly with the ratio of net charge-offs to average
loans of 0.14% for the first quarter of 1995 and zero
reported for the full year of 1994.
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) 1995 1994 1995 1994
-------------------------------------------------------------------------------------------------
Average Loans Outstanding $7,587.8 $7,278.5 $7,599.1 $7,230.9
Balance of Reserve for Possible Loan Losses
at Beginning of Period $150.4 $130.1 $148.5 $125.3
Loans Charged Off
Commercial and Industrial 4.9 0.5 6.9 5.7
Real Estate - Construction -- -- 2.1 --
Real Estate - Mortgage
Commercial 0.4 1.0 0.5 1.0
Residential 0.2 0.1 0.2 0.1
Installment 3.4 2.4 6.1 4.3
Foreign -- 0.7 -- 0.7
Leases 0.1 0.1 0.1 0.1
-------------------------------------------------------------------------------------------------
Total Charged Off 9.0 4.8 15.9 11.9
Recoveries on Loans Previously Charged Off
Commercial and Industrial 2.3 8.4 5.5 11.1
Real Estate - Construction -- -- -- --
Real Estate - Mortgage
Commercial -- 0.7 -- 0.7
Residential -- 0.1 -- 0.2
Installment 0.9 0.8 1.7 1.6
Foreign 1.3 -- 1.3 --
Leases 0.3 -- 0.6 --
-------------------------------------------------------------------------------------------------
Total Recoveries 4.8 10.0 9.1 13.6
-------------------------------------------------------------------------------------------------
Net Charge Offs (4.2) 5.2 (6.8) 1.7
Provision Charged to Operating Expenses 4.1 5.9 8.6 14.2
-------------------------------------------------------------------------------------------------
Balance at End of Period $150.3 $141.2 $150.3 $141.2
=================================================================================================
Ratio of Net Charge Offs to
Average Loans Outstanding (annualized) -0.22% 0.29% -0.18% 0.05%
-------------------------------------------------------------------------------------------------
Ratio of Reserve to Loans Outstanding 1.99% 1.91% 1.99% 1.91%
-------------------------------------------------------------------------------------------------
Capital
Bancorp continues to manage its capital levels through
the target ratios outlined in Bancorp's 1994 Annual Report.
The target of a minimum 6% ratio of average equity to
average assets keeps both objectives of a return on assets
of 1% and a return on equity of 16% in reasonable balance.
Bancorp's average equity to average assets ratio for the
second quarter of 1995 was 8.16%, an increase from the 7.71%
reported for 1994 and 7.99% for the first quarter of 1995.
Bancorp's total capital at June 30, 1995 totaled $1.0
billion. New shares issued for the profit sharing, stock
option and dividend reinvestment plans increased capital by
$2.6 million during the quarter. Under Bancorp's continuing
stock repurchase programs, $14.7 million of shares were
repurchased during the second quarter of 1995. Dividends
for the quarter increased to $11.4 million, compared with
$10.9 million for the first quarter of 1995. The dividends
were paid at $0.2725 and $0.26 per share for the second and
first quarters of 1995, respectively.
Regulatory risk-based capital remain well above minimum
guidelines. At June 30, 1995, Bancorp's Total Capital and
Tier 1 Capital ratios were 13.11% and 10.54%, respectively.
This compares with year-end 1994, when the Total Capital
Ratio was 12.99% and the Tier 1 Capital Ratio was 10.39%.
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 represents the
ratio of Tier 1 Capital to Total Average Assets, was 7.81%
at June 30, 1995, compared to 7.21% at June 30, 1994 and
7.28% at year-end 1994. 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 1995 improved to 3.80% from
3.62% reported in the first quarter of 1995. Prior year
comparisons reflect the impact of the increasing interest
rates in 1994. Although the spread has improved compared to
the first quarter of 1995, the rise in interest rates in
1994 is reflected in the comparison between the year-to-date
spread for 1995 and 1994. Year-to-date spread through June
1995 was 3.71% compared to 3.98% for the same period in
1994.
The cost of funds rate for the second quarter of 1995
was 4.80%, which was well above the 3.40% reported for the
second quarter of 1994. The rise in the cost of funds
reflects the impact of higher interest rates last year. The
earning asset yield was 7.84% for the second quarter of
1995, an increase over the second quarter 1994 yield of
6.85%, and an increase over the 7.58% yield reported in the
first quarter of 1995.
Consolidated Average Balances and Interest Rates Taxable Equivalent Bancorp Hawaii, Inc. and subsidiaries
----------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
June 30, 1995 June 30, 1994
Average Income/Yield/ Average Income/Yield/
(in millions of dollars) Balance Expense Rate Balance Expense Rate
----------------------------------------------------------------------------------------------------------
Earning Assets
Interest Bearing Deposits $626.9 $10.2 6.51% $903.7 $9.2 4.07%
Investment Securities
-Taxable 1,481.8 23.7 6.42 2,637.3 35.6 5.41
-Tax-Exempt 16.7 0.5 12.97 18.6 0.6 13.46
1,598.8 26.3 6.61 946.1 12.2 5.20
Funds Sold 57.7 0.9 6.20 36.6 0.4 4.14
Net Loans
-Domestic 6,851.9 143.3 8.39 6,640.6 128.9 7.78
-Foreign 735.9 11.3 6.17 637.9 6.9 4.34
Loan Fees 6.1 8.1
------------------------ ------------------------
Total Earning Assets 11,369.7 222.3 7.84 11,820.8 201.9 6.85
Cash and Due From Banks 474.3 470.4
Other Assets 388.1 345.6
---------- ----------
Total Assets $12,232.1 $12,636.8
========== ==========
Interest Bearing Liabilities
Domestic Deposits - Demand $1,747.0 12.9 2.96 $1,882.4 9.3 1.98
- Savings 1,069.9 7.8 2.94 1,267.1 7.2 2.27
- Time 1,805.3 22.7 5.04 1,521.7 15.6 4.12
------------------------ ------------------------
Total Domestic 4,622.2 43.4 3.77 4,671.2 32.1 2.75
Total Foreign 904.8 15.6 6.90 1,215.3 12.2 4.03
------------------------ ------------------------
Total Deposits 5,527.0 59.0 4.28 5,886.5 44.3 3.02
Short-Term Borrowings 3,076.6 41.9 5.46 3,722.1 35.0 3.77
Long-Term Debt 983.8 13.8 5.64 462.6 6.0 5.23
------------------------ ------------------------
Total Interest Bearing Liabilities 9,587.4 114.7 4.80 10,071.2 85.3 3.40
------------------------ ------------------------
Net Interest Income 107.6 3.04 116.6 3.45
Average Spread on Earning Assets 3.80% 3.96%
Demand Deposits 1,370.9 1,389.0
Other Liabilities 254.1 209.9
Shareholders' Equity 1,019.7 966.7
---------- ----------
Total Liabilities and Shareholders' Equity $12,232.1 $12,636.8
========== ==========
Provision for Possible Losses 4.1 5.9
Net Overhead 57.7 55.3
------- -------
Income Before Income Taxes 45.8 55.4
Provision for Income Taxes 16.8 20.8
Tax-Equivalent Adjustment 0.5 0.4
------- -------
Net Income $28.5 $34.2
======= =======
Consolidated Average Balances and Interest Rates Taxable Equivalent Bancorp Hawaii, Inc. and subsidiaries
----------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 1995 June 30, 1994
Average Income/Yield/ Average Income/Yield/
(in millions of dollars) Balance Expense Rate Balance Expense Rate
----------------------------------------------------------------------------------------------------------
Earning Assets
Interest Bearing Deposits $623.7 $18.4 5.94% $886.4 $16.9 3.83%
Investment Securities
-Taxable 1,542.9 46.8 6.11 2,706.4 73.8 5.50
-Tax-Exempt 17.2 1.1 13.02 19.3 1.3 13.58
1,591.2 51.2 6.49 934.4 21.7 4.69
Funds Sold 62.5 1.8 5.96 39.3 0.8 4.07
Net Loans
-Domestic 6,881.5 281.2 8.24 6,587.4 250.9 7.68
-Foreign 717.6 23.8 6.69 643.5 13.6 4.27
Loan Fees 13.1 17.0
------------------------ ------------------------
Total Earning Assets 11,436.6 437.4 7.71 11,816.7 396.0 6.76
Cash and Due From Banks 477.8 457.7
Other Assets 380.3 343.4
---------- ----------
Total Assets $12,294.7 $12,617.8
========== ==========
Interest Bearing Liabilities
Domestic Deposits - Demand $1,780.2 25.9 2.93 $1,923.3 18.7 1.96
- Savings 1,091.3 15.4 2.84 1,264.6 14.2 2.27
- Time 1,747.1 41.8 4.83 1,535.6 31.7 4.16
------------------------ ------------------------
Total Domestic 4,618.6 83.1 3.63 4,723.5 64.6 2.76
Total Foreign 916.0 30.9 6.80 1,200.2 21.8 3.67
------------------------ ------------------------
Total Deposits 5,534.6 114.0 4.15 5,923.7 86.4 2.94
Short-Term Borrowings 3,154.7 85.6 5.47 3,727.4 65.3 3.53
Long-Term Debt 980.9 27.4 5.62 422.7 11.3 5.41
------------------------ ------------------------
Total Interest Bearing Liabilities 9,670.2 227.0 4.73 10,073.8 163.0 3.26
------------------------ ------------------------
Net Interest Income 210.4 2.98 233.0 3.50
Average Spread on Earning Assets 3.71% 3.98%
Demand Deposits 1,403.6 1,392.7
Other Liabilities 217.6 191.3
Shareholders' Equity 1,003.3 960.0
---------- ----------
Total Liabilities and Shareholders' Equity $12,294.7 $12,617.8
========== ==========
Provision for Possible Losses 8.6 14.2
Net Overhead 108.9 107.7
------- -------
Income Before Income Taxes 92.9 111.1
Provision for Income Taxes 35.1 41.7
Tax-Equivalent Adjustment 1.0 0.8
------- -------
Net Income $56.8 $68.6
======= =======
Interest Rate Risk and Derivatives
As discussed in Bancorp's 1994 Annual Report, Bancorp
utilizes interest rate sensitivity analysis and computer
simulation techniques to measure the exposure of its earnings to
interest rate movements. The objective of the process is to
position its balance sheet to optimize earnings without unduly
increasing risk. The Interest Rate Sensitivity Table presents
the possible exposure to interest rate movements for various time
frames at June 30, 1995. As the table indicates, Bancorp's one
year cumulative liability sensitivity gap totaled $0.03 billion,
representing 0.23% of total assets. Comparatively, the one year
cumulative gap was $0.2 billion at year-end 1994, 1.8% of total
assets.
Bancorp uses interest rate swaps as a cost effective risk
management tool for dealing with interest rate risk. Swap
activity during the second quarter of 1995 was limited to
maturities of existing swap agreements. At June 30, 1995, the
notional amount of swaps totaled $1.3 billion, compared with $1.6
billion at year-end 1994. Net expense on interest rate swap
agreements totaled $2.8 million for the second quarter of 1995
(and totals $6.9 million for 1995 year-to-date). Comparatively,
net revenue of $7.7 million was recognized for all of 1994.
Interest Rate Sensitivity Table Bancorp Hawaii, Inc. and subsidiaries
--------------------------------------------------------------------------------------------
JUNE 30, 1995 OVER NON-INTEREST
(in millions of dollars) 0 - 90 DAYS 91-365 DAYS 1 - 5 YEARS 5 YEARS SENSITIVE
--------------------------------------------------------------------------------------------
ASSETS (1)
INVESTMENT SECURITIES $1,260.3 $928.9 $797.0 $131.4 -
SHORT TERM INVESTMENTS 229.9 5.0 - - -
INTERNATIONAL ASSETS 1,009.9 321.5 48.9 0.3 -
DOMESTIC LOANS (2) 3,249.4 1,526.9 1,565.3 519.4 -
TRADING SECURITIES - - 0.5 - -
OTHER ASSETS 224.0 2.0 98.0 30.0 $625.1
--------------------------------------------------------------------------------------------
TOTAL ASSETS $5,973.5 $2,784.3 $2,509.7 $681.1 $625.1
============================================================================================
LIABILITIES AND CAPITAL (1)
NON-INT BEARING DEMAND (3) $247.7 $247.7 $880.8 - -
INT-BEARING DEMAND (3) 346.5 346.5 952.8 - -
SAVINGS (3) 231.3 231.3 588.9 - -
TIME DEPOSITS 484.8 780.5 558.3 75.7 -
FOREIGN DEPOSITS 972.3 56.0 2.6 - -
S/T BORROWINGS 2,780.5 491.3 14.1 - -
LONG-TERM DEBT 588.8 10.0 158.8 120.0 -
OTHER LIABILITIES - - - - $385.4
CAPITAL - - - - 1,020.9
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND CAPITAL $5,651.9 $2,163.4 $3,156.3 $195.8 $1,406.2
============================================================================================
INTEREST RATE SWAPS ($1,162.5) $191.2 $971.3 - -
--------------------------------------------------------------------------------------------
INTEREST SENSITIVITY GAP ($841.0) $812.1 $324.6 $485.4 ($781.1)
--------------------------------------------------------------------------------------------
CUMULATIVE GAP ($841.0) ($28.9) $295.7 $781.1 -
PERCENTAGE OF TOTAL ASSETS (6.69)% (0.23)% 2.35% 6.21% -
============================================================================================
<FN>
Assumptions used:
(1) Based on repricing date.
(2) Includes the effect of estimated amortization.
(3) Historical analysis shows that these deposit categories, while technically
subject to immediate withdrawal, actually display sensitivity characteristics
that generally fall within one and five years. The allocation presented is
based on that historic analysis.
Liquidity
The ability to meet day-to-day financial needs of Bancorp's
customer base is essential. Much of the strategy of meeting
liquidity needs was described in Bancorp Hawaii's 1994 Annual
Report and remains in place.
At June 30, 1995, deposits were $7.0 billion, compared to
$7.1 billion and $6.8 billion reported at year-end 1994 and March
31, 1995, respectively. The competition for deposits, not only
by banks and savings and loan companies, but also by securities
brokerage firms continues to impact the level of deposits. Repos
which are offered to government depositors as an alternative to
deposits were $2.3 billion at June 30, 1995, compared to $2.1
billion at both March 31, 1995 and year-end 1994.
Short term borrowings, including Fed Funds, decreased to
$1.0 billion at June 30, 1995, compared with $1.1 billion at
March 31, 1995 and $1.2 billion at year-end 1994. Long term debt
remained level at $0.9 billion at both June 30, 1995 and year-end
1994.
Bank of Hawaii, Bancorp's largest subsidiary, finalized a
new $1 billion bank note program in the second quarter. The
program has a revolving feature and is intended to facilitate
liquidity needs and the refunding, as necessary, of the bank
notes presently outstanding.
Net Overhead
Bancorp manages net overhead by focusing on its net overhead
ratio. The net overhead ratio at Bancorp 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 year-
to-date through June 30, 1995 was 2.43, compared to 2.71 for the
same period in 1995, 2.29 for the first quarter of 1995 and 2.81
for all of 1994.
Additionally, Bancorp's management places an emphasis on the
amount of net income generated per full-time equivalent staff
(FTE) with the objective of improving net income with existing or
lesser staff levels. For the first half of 1995, net income per
FTE (excluding securities gains (losses)), was $26,131 on an
annualized basis, reflecting the lower reported earnings. This
compares to $29,700 and $29,500 reported for the full years of
1994 and 1993, respectively.
Non-interest income for the second quarter was $36.0
million, a 4.4% increase over the same quarter in 1994. A year-
to-date comparison reports a 7.7% increase between 1995 and 1994.
Trust income for the second quarter 1995 was $12.1 million, up
9.6% from the same period last year. Year-to-date, trust fees
are up 10.1%, compared with the same period last year. The
improvement reflects the increase in fees earned on the
proprietary Pacific Capital Management family of mutual funds
introduced in 1994. Fees earned based on market value of trust
assets have also increased in concert with the appreciation in
the stock market. Service charges on deposit accounts for the
first half of 1995 was $22.2 million, compared to $23.7 million
for the like period last year. Service charges on deposit
accounts have declined as larger business customers opt to "pay
for services" with higher balances instead of fees. Fees,
exchange and other service charges for the second quarter of 1995
remained level with the first quarter at $12.4 million. Compared
to the first half of 1994, fees, exchange and other service
charges were up 24.4%. The increase reflects an increase in
foreign exchange gains, ATM transaction fees and VISA merchant
services income. Other operating income totaled $10.5 million
for the year-to-date, compared with $14.6 million for the same
period last year. The decrease is attributable to the gains in
the sale of certain leased assets at lease maturity and the cash
basis recognition of the interest collected on previously
charged-off loans, both in 1994.
During the first quarter of 1995, Bancorp reported a
securities gain of $1.8 million, compared to a loss of $1.0
million for the same period in 1994. Activity during the second
quarter remained limited with gains and losses reported at modest
levels. Year-to-date 1995 gains totaled $2.1 million, compared
with losses of $1.6 million for the same period in 1994.
Bancorp continues to emphasize the importance of control
over non-interest expenses as a key factor in its effort to
remain competitive among its peers. Non-interest expense in the
second quarter was $93.7 million, an increase of 4.3% over the
same period in 1994. For the year-to-date, non-interest expense
was $184.7 million, an increase of 3.8% over the same period in
1994.
Salary and benefit expenses totaled $46.3 million for the
second quarter of 1995, slightly below the $46.9 million for the
first quarter of 1995 and 2.4% above the second quarter of 1994.
For the year-to-date, $93.2 million in salary and benefit has
been incurred, compared with $92.3 million for the same period in
1994, an increase of 0.95%. During the first quarter, Bancorp
announced a restructuring of its retirement plans, including an
early retirement option for certain qualifying staff and a
curtailment of its defined benefit plan. The first group of
staff members electing the option retired during the second
quarter. The final group will be retiring in the third quarter.
Pursuant to accounting rules, since a loss on this curtailment is
not expected, the final financial impact will be determined later
this year.
Premises and equipment expenses totaled $20.9 million for
the second quarter of 1995, an increase from the $17.1 million
for the same period of 1994. For the year-to-date, premises and
equipment expenses rose to $37.0 million, an increase of 11.9%
over the same period in 1994. Bancorp continues to invest in
technology as more efficient operations with existing staff
counts become increasingly important. Other operating expenses
for the first half of 1995 increased 3.7% over last year during
the same period.
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 26, 1995.
(b) Omitted per instructions.
(c) A brief description of each matter voted upon at the
Annual Shareholders' Meeting held on April 26, 1995 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 III directors for terms
expiring in 1998 and the successor to fill the
unexpired terms of one retiring Class I director,
whose term expires in 1996.
Class I director:
Richard J. Dahl -
Votes cast for: 35,010,413
Votes cast against: 0
Votes withheld: 318,626
Class III directors:
Mary G. F. Bitterman -
Votes cast for: 34,881,973
Votes cast against: 0
Votes withheld: 447,066
Herbert M. Richards, Jr. -
Votes cast for: 34,992,824
Votes cast against: 0
Votes withheld: 336,215
H. Howard Stephenson -
Votes cast for: 34,914,465
Votes cast against: 0
Votes withheld: 414,574
Charles R. Wichman -
Votes cast for: 35,006,958
Votes cast against: 0
Votes withheld: 322,081
(2) Election of Ernst & Young as Auditor.
Votes cast for: 35,050,599
Votes cast against: 190,372
Votes abstained: 88,068
(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, 1995.
Exhibit #27 - Financial Data Schedule.
(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 14, 1995 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