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 September 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
- ---------------------------------------- ----------
(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 October 31, 1995 -
41,521,755 shares
BANCORP HAWAII, INC. and subsidiaries
September 30, 1995
PART I. - Financial Information
Item 1. Financial Statements
The consolidated statements of condition as of September 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) Bancorp Hawaii, Inc. and subsidiaries
- ------------------------------------------------------------------------------------------------------------------
September 30 December 31 September 30
(in thousands of dollars) 1995 1994 1994
- ------------------------------------------------------------------------------------------------------------------
Assets
Interest-Bearing Deposits $612,864 $727,016 $792,196
Investment Securities - Held to Maturity
(Market Value of $1,540,450, $1,736,659 and $2,221,072, respectively) 1,544,403 1,785,960 2,253,645
Investment Securities - Available for Sale 1,683,968 1,364,925 1,159,218
Securities Purchased Under Agreements to Resell -- -- --
Funds Sold 56,660 54,167 61,250
Loans 7,893,978 7,891,993 7,639,021
Unearned Income (142,515) (144,034) (145,015)
Reserve for Possible Loan Losses (150,931) (148,508) (143,061)
- ------------------------------------------------------------------------------------------------------------------
Net Loans 7,600,532 7,599,451 7,350,945
- ------------------------------------------------------------------------------------------------------------------
Total Earning Assets 11,498,427 11,531,519 11,617,254
Cash and Non-Interest Bearing Deposits 433,665 508,762 442,695
Premises and Equipment 237,962 221,806 197,342
Customers' Acceptance Liability 13,382 17,776 13,553
Accrued Interest Receivable 79,657 77,340 80,543
Other Real Estate 3,823 594 1,878
Intangibles, including Goodwill 89,434 94,515 94,643
Trading Securities 113 13,696 13,805
Other Assets 140,155 120,342 100,285
- ------------------------------------------------------------------------------------------------------------------
Total Assets $12,496,618 $12,586,350 $12,561,998
==================================================================================================================
Liabilities
Domestic Deposits
Demand - Non-Interest Bearing $1,379,789 $1,436,794 $1,322,843
- Interest-Bearing 1,555,068 1,747,514 1,734,449
Savings 1,025,868 1,140,402 1,196,409
Time 1,908,192 1,639,497 1,562,432
Foreign Deposits 1,077,974 1,150,847 1,144,642
- ------------------------------------------------------------------------------------------------------------------
Total Deposits 6,946,891 7,115,054 6,960,775
Securities Sold Under Agreements to Repurchase 2,262,197 2,136,204 2,362,487
Funds Purchased 537,268 609,574 557,550
Short-Term Borrowings 480,857 594,475 725,368
Bank's Acceptances Outstanding 13,382 17,776 13,553
Accrued Pension Costs 26,527 23,510 23,763
Accrued Interest Payable 55,120 49,253 56,797
Accrued Taxes Payable 160,606 133,720 141,384
Other Liabilities 75,074 78,424 96,960
Long-Term Debt 897,837 861,572 645,712
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities 11,455,759 11,619,562 11,584,349
Shareholders' Equity
Common Stock ($2 par value), authorized 100,000,000 shares;
outstanding, September 1995 - 41,579,607;
December 1994 - 41,851,466; September 1994 - 42,190,534; 83,159 83,703 84,381
Surplus 248,818 260,040 269,447
Unrealized Valuation Adjustments 11,581 (18,122) (11,097)
Retained Earnings 697,301 641,167 634,918
- ------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,040,859 966,788 977,649
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $12,496,618 $12,586,350 $12,561,998
==================================================================================================================
Consolidated Statements of Income (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
- ------------------------------------------------------------------------------------------------------------------
3 Months 3 Months 9 Months 9 Months
Ended Ended Ended Ended
September 30 September 30 September 30 September 30
(in thousands of dollars except per share amounts) 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------
Interest Income
Interest on Loans $153,465 $136,031 $451,770 $392,866
Loan Fees 7,809 7,462 20,918 24,498
Income on Lease Financing 3,372 3,276 9,464 10,558
Interest and Dividends on Investment Securities
Taxable 23,347 33,111 70,111 106,921
Non-taxable 329 427 1,048 1,272
Income on Investment Securities Available for Sale 26,936 14,685 78,140 36,395
Interest on Deposits 10,379 8,921 28,753 25,768
Interest on Security Resale Agreements 72 -- 205 --
Interest on Funds Sold 628 438 2,343 1,230
- ------------------------------------------------------------------------------------------------------------------
Total Interest Income 226,337 204,351 662,752 599,508
Interest Expense
Interest on Deposits 59,939 48,492 173,908 134,938
Interest on Security Repurchase Agreements 32,137 25,101 92,403 70,337
Interest on Funds Purchased 7,496 7,685 22,645 18,521
Interest on Short-Term Borrowings 4,276 5,125 14,480 14,314
Interest on Long-Term Debt 14,017 8,136 41,376 19,472
- ------------------------------------------------------------------------------------------------------------------
Total Interest Expense 117,865 94,539 344,812 257,582
- ------------------------------------------------------------------------------------------------------------------
Net Interest Income 108,472 109,812 317,940 341,926
Provision for Possible Loan Losses 4,377 3,031 12,950 17,253
- ------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Possible Loan Losses 104,095 106,781 304,990 324,673
Non-Interest Income
Trust Income 11,879 13,170 37,405 36,355
Service Charges on Deposit Accounts 6,491 6,922 19,331 21,137
Fees, Exchange, and Other Service Charges 12,072 10,888 36,857 30,807
Other Operating Income 5,288 5,463 15,822 20,086
Investment Securities Gains (Losses) 176 (671) 2,280 (2,269)
- ------------------------------------------------------------------------------------------------------------------
Total Non-Interest Income 35,906 35,772 111,695 106,116
Non-Interest Expense
Salaries 35,038 34,492 106,043 103,058
Pensions and Other Employee Benefits 10,653 10,344 32,806 34,061
Net Occupancy Expense of Premises 10,150 9,325 30,402 27,505
Net Equipment Expense 7,012 7,598 23,786 22,503
Other Operating Expense 25,022 27,085 79,582 79,710
- ------------------------------------------------------------------------------------------------------------------
Total Non-Interest Expense 87,875 88,844 272,619 266,837
- ------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 52,126 53,709 144,066 163,952
Provision for Income Taxes 19,206 21,749 54,350 63,438
- ------------------------------------------------------------------------------------------------------------------
Net Income $32,920 $31,960 $89,716 $100,514
==================================================================================================================
Earnings Per Common Share and Common Share Equivalents $0.78 $0.75 $2.13 $2.34
- ------------------------------------------------------------------------------------------------------------------
Average Common Shares and Common Share Equivalents Outstanding 41,955,136 42,845,626 42,070,392 42,943,828
- ------------------------------------------------------------------------------------------------------------------
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 89,716 - - - 89,716
Sale of Common Stock
96,251 Profit Sharing Plan 2,638 193 2,445 - -
390,865 Stock Option Plan 8,315 782 7,533 - -
180,825 Dividend Reinvestment Plan 5,391 361 5,030 - -
Stock Repurchased (28,110) (1,880) (26,230) - -
Unrealized Valuation Adjustments
Investment Securities 26,021 - - 26,021 -
Foreign Exchange Translation Adjustment 3,682 - - 3,682 -
Cash Dividends Paid of $.81 Per Share (33,582) - - - (33,582)
- ----------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 $1,040,859 $83,159 $248,818 $11,581 $697,301
================================================================================================================
Balance at December 31, 1993 $938,104 $56,850 $284,886 $537 $595,831
Net Income 100,514 - - - 100,514
Sale of Common Stock
182,640 Profit Sharing Plan 5,909 365 5,544 - -
126,813 Stock Option Plan 2,018 254 1,764 - -
163,421 Dividend Reinvestment Plan 5,420 327 5,093 - -
Stock Repurchased (29,543) (1,703) (27,840) - -
Unrealized Valuation Adjustments
Investment Securities (14,699) - - (14,699) -
Foreign Exchange Translation Adjustment 3,065 - - 3,065 -
50 Percent Stock Dividend (59) 28,288 - - (28,347)
Cash Dividends Paid of $.78 Per Share (33,080) - - - (33,080)
- ----------------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 $977,649 $84,381 $269,447 ($11,097) $634,918
================================================================================================================
Consolidated Statements of Cash Flows (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
- --------------------------------------------------------------------------------------------------------
Nine Months Ended September 30
(in thousands of dollars) 1995 1994
- --------------------------------------------------------------------------------------------------------
Operating Activities
Net Income $89,716 $100,514
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses, depreciation, and amortization of income and expense 8,430 7,659
Deferred income taxes 916 10,739
Realized and unrealized investment security gains (1,373) (1,720)
Net decrease in trading securities 13,583 454
Other assets and liabilities, net (12,221) 26,649
--------- ---------
Net cash provided by operating activities 99,051 144,295
- --------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from redemptions of investment securities held to maturity 634,489 977,956
Purchases of investment securities held to maturity (392,932) (478,011)
Proceeds from sales of investment securities available for sale 346,666 269,605
Purchases of investment securities available for sale (620,756) (498,148)
Net decrease in interest-bearing deposits placed in other banks 114,152 45,508
Net increase in funds sold (2,493) (3,551)
Net decrease (increase) in loans and lease financing 17,622 (354,083)
Premises and equipment, net (32,980) (45,237)
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 70,576 (85,961)
- --------------------------------------------------------------------------------------------------------
Financing Activities
Net decrease in demand, savings, and time deposits (179,392) (44,200)
Proceeds from lines of credit and long-term debt 226,204 387,810
Principal payments on lines of credit and long-term debt (189,939) --
Net decrease in short-term borrowings (59,931) (308,294)
Proceeds from sale of stock (11,766) (16,196)
Cash dividends (33,582) (33,139)
--------- ---------
Net cash used by financing activities (248,406) (14,019)
Effect of exchange rate changes on cash 3,682 3,065
--------- ---------
Increase (decrease) in cash and non-interest bearing deposits (75,097) 47,380
--------- ---------
Cash and non-interest bearing deposits at beginning of year 508,762 395,315
--------- ---------
Cash and non-interest bearing deposits at end of period $433,665 $442,695
- --------------------------------------------------------------------------------------------------------
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
third quarter of 1995 of $32.9 million, 3.0% above earnings for
the third quarter of 1994. On a per share basis, earnings were
$0.78 for the third quarter of 1995, 4.0% above the earnings
reported for the third quarter of 1994. Year-to-date net income
totaled $89.7 million through September 30, 1995, lagging 10.7%
behind the same period in 1994. Earnings per share were $2.13
and $2.34 for the nine months ended September 30, 1995 and 1994,
respectively.
The improvement in Bancorp's earnings for the third quarter
of 1995 resulted from several factors:
o The indications of improvement in the Hawaii economy
reflected in the increased number of tourist arrivals
from Asia and the increased hotel occupancy rates
reported by the hotels in Hawaii.
o FDIC insurance premiums were reduced from $0.23 to $0.04
per $100 of deposits for Bancorp's bank subsidiaries -
Bank of Hawaii and First National Bank of Arizona. As a
result, the FDIC refunded Bancorp more than $3 million of
previously paid premiums during the quarter. FDIC
insurance premiums through September 30, 1995 were $6.7
million compared with $10.2 million for the comparable
period in 1994.
o Non-interest expense for the quarter was $87.9 million,
compared with $93.7 million for the second quarter of
1995 and $88.8 million for the third quarter of 1994.
The improvement in expenses reflects the reduction in
FDIC insurance premiums previously mentioned and lower
salary expense resulting from the early retirement option
offered to more than 400 employees earlier this year.
Performance ratios through September 30, 1995 remained short
of Bancorp's long term objective of 1.2% and 17.5% for return on
average assets (ROAA) and return on average equity (ROAE),
respectively. On an annualized basis, ROAA was 0.97% and ROAE
was 11.82% through September 30, 1995. The ROAA and ROAE ratios
were 0.93% and 12.13%, respectively for all of 1994.
Total assets were $12.5 billion as of September 30, 1995,
not significantly changed from the $12.6 billion reported at both
September 30, 1994 and December 31, 1994. Net loans outstanding
increased to $7.6 billion at September 30, 1995, compared with
$7.4 billion and $7.6 billion at September 30, 1994 and December
31, 1994, respectively. Total investment securities stood at
$3.2 billion at September 30, 1995, a decrease of 5.4% from the
same date in 1994 and a 2.5% increase from December 31, 1994.
Part of the increase since year-end reflects the securitization
of more than $400 million of adjustable rate mortgage loans in
the first quarter of 1995.
Total deposits hovered near the $7 billion level ending
September 30, 1995 at $6.9 billion. Comparatively, deposits were
$7.1 billion and $7.0 billion at year-end and September 30, 1994,
respectively. Securities sold under repurchase agreements
(Repos) totaled $2.3 billion at September 30, 1995, increasing
5.9% from the year-end balance outstanding of $2.1 billion.
Risk Elements in Lending Activities
Total loans outstanding were $7.9 billion as of September
30, 1995, a modest increase over year-end 1994, and 3.3% above
loans outstanding at September 30, 1994. The growth has been
focused in commercial construction, commercial, installment and
international loan categories. The following table presents
Bancorp's total loan portfolio for the periods indicated.
Loan Portfolio Balances Bancorp Hawaii, Inc., and subsidiaries
- ----------------------------------------------------------------------------------
September 30 December 31 September 30
(in millions of dollars) 1995 1994 1994
- ----------------------------------------------------------------------------------
Domestic Loans
Commercial and Industrial $1,863.0 $1,830.8 $1,653.1
Real Estate
Construction -- Commercial 176.2 113.1 125.4
-- Residential 10.1 17.9 18.1
Mortgage -- Commercial 1,261.5 1,241.0 1,269.8
-- Residential 2,631.7 2,872.8 2,771.4
Installment 774.5 741.6 713.3
Lease Financing 384.6 378.1 380.0
- ----------------------------------------------------------------------------------
Total Domestic 7,101.6 7,195.3 6,931.1
- ----------------------------------------------------------------------------------
Foreign Loans 792.4 696.7 707.9
- ----------------------------------------------------------------------------------
Total Loans $7,894.0 $7,892.0 $7,639.0
==================================================================================
Commercial and Industrial Loans
Commercial and Industrial (C & I) loans ended September 30,
1995 at $1.86 billion. Increases of 1.2% and 12.7% are reported
for C&I loans, compared with year-end 1994 and September 30,
1994, respectively. Within the C & I category, loans to the
cable television and media industries totaled $615.9 million, up
from $526.4 million and $408.4 million at year-end 1994 and
September 30, 1994, respectively.
Real Estate Loans
Real estate loans as a remains the largest segment of the
loan portfolio. As of September 30, 1995, real estate loans
represented 51.7% of total loans. The table above reports the
details of the loans in the real estate group. As the table
reflects, residential mortgage loans continue to represent the
majority of the real estate loans. As of September 30, 1995,
residential mortgages totaled $2.63 billion, compared with $2.87
billion at December 31, 1994 and $2.77 billion at September 30,
1994. The decrease from year-end 1994 resultng from the
securitization of $412 million in residential mortgages in the
first quarter of this year.
Commercial mortgage loans totaled $1.26 billion at September
30, 1995, similar to the $1.24 billion at year-end 1994 and $1.27
billion at September 30, 1994. Commercial mortgage loans are
generally secured by real estate located in Hawaii. As reported
in Bancorp's 1994 Annual Report to shareholders, the properties
securing these loans remains diversified. Properties include
shopping centers, commercial/industrial/warehouse facilities, and
office buildings. These loans secured by the commercial/
industrial/warehouse and office buildings are generally partially
occupied by the owners.
Construction loans represent 4.6% of the real estate
portfolio. As of September 30, 1995, total construction loans
(both residential and commercial) were $186.3 million, an
increase of 42.2% and 29.8% over year-end 1994 and September 30,
1994, respectively.
Other Lending
Other lending includes consumer installment loans, leasing
activities and foreign loans. Consumer installment loans
increased ending the third quarter of 1995 at $774.5 million,
compared with $741.6 million at year-end 1994 and $713.3 million
at September 30, 1994. Lease activity remains modest. At
September 30, 1995, total leases outstanding was $384.6 million
compared with $378.1 million at year-end 1994 and $380.0 million
September 30, 1994. Foreign loans totaled $792.4 million at
September 30, 1995, 13.7% over the outstanding balance at year-
end 1994 and 11.9% above the September 30, 1994 balance. The
increase reflects the acquisition of the majority interest in the
National Bank of Solomon Islands in the fourth quarter of 1994
and the changes in currency exchange rates.
Non-Performing Assets and Past Due Loans
Total non-performing assets (NPA) which include non-accrual
loans and foreclosed real estate totaled $55.4 million at
September 30, 1995. This represents 0.70% of total loans
outstanding as of September 30, 1995. Over the last year, this
ratio has been at similar levels; 0.67% at year-end 1994, and
0.73% at September 30, 1994.
Non accrual loans increased during the quarter ending
September 30, 1995 at $51.6 million. Comparatively, non-accrual
loans totaled $54.2 million at September 30, 1994, $52.6 million
at year-end 1994, and $49.4 million at June 30, 1995.
Foreclosed real estate has increased to $3.8 million
reflecting the addition of one large property ($1.6 million)
during the third quarter of 1995. Foreclosed real estate remains
at low levels representing 0.03% of total assets as of
September 30, 1995.
Accruing loans past due 90 days or more increased from $11.6
million at year-end 1994 to $16.0 million at September 30, 1995.
Accruing loans past due 90 days were $17.7 million and $16.0
million at the ends of the first and second quarters of 1995,
respectively. Total NPAs and loans 90 days past due totaled
$71.4 million at September 30, 1995, compared with $64.8
million and $65.3 million at year-end 1994 and September 30,
1994, respectively. Total NPAs and loans 90 days past due
represented 0.90% of total loans outstanding at September 30,
1995, compared with 0.82% at year-end 1994 and 0.85% at September
30, 1994.
The following table presents NPAs and loans past due 90 days
for the periods indicated.
Bancorp Hawaii, Inc.
Consolidated Non-Performing Assets and Accruing Loans Past Due 90 Days or More
- -------------------------------------------------------------------------------
September 30 December 31 September 30
(in millions of dollars) 1995 1994 1994
- -------------------------------------------------------------------------------
Non-Accrual Loans
Commercial $15.4 $20.3 $20.8
Real Estate
Construction 0.5 1.5 1.8
Commercial 15.8 14.1 15.5
Residential 19.0 15.1 15.0
Installment 0.9 0.5 0.3
Leases -- 0.8 0.8
Foreign -- 0.3 --
- -------------------------------------------------------------------------------
Subtotal 51.6 52.6 54.2
Foreclosed Real Estate
Domestic 3.8 0.6 1.9
Foreign -- -- --
- -------------------------------------------------------------------------------
Subtotal 3.8 0.6 1.9
- -------------------------------------------------------------------------------
Total Non-Performing Assets 55.4 53.2 56.1
- -------------------------------------------------------------------------------
Accruing Loans Past Due 90 Days or More
Commercial 1.2 1.1 0.9
Real Estate
Construction -- -- --
Commercial 0.1 0.7 1.4
Residential 7.5 3.9 2.4
Installment 7.1 5.9 4.5
Leases 0.1 -- --
Foreign -- -- --
- -------------------------------------------------------------------------------
Subtotal 16.0 11.6 9.2
- -------------------------------------------------------------------------------
Total $71.4 $64.8 $65.3
===============================================================================
- -------------------------------------------------------------------------------
Ratio of Non-Performing Assets
to Total Loans 0.70% 0.67% 0.73%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Ratio of Non-Performing Assets
and Accruing Loans Past Due
90 Days or More to Total Loans 0.90% 0.82% 0.85%
- -------------------------------------------------------------------------------
Summary of Loan Loss Experience
The reserve for loan losses totaled $150.9 million, 1.95% of
loans outstanding as of September 30, 1995. Comparatively, this
ratio was 1.91% at September 30, 1994 and 1.92% at year-end 1994.
The provision for losses for the third quarter of 1995 was
$4.4 million, bringing the year-to-date loss provision to $13.0
million. Comparatively, the year-to-date provision for losses
was $17.3 million at this date in 1994. Net charge-offs were
$3.8 million for the third quarter of 1995 and $10.6 million for
the year-to-date.
Gross charge-offs for the third quarter were $5.7 million,
resulting in year-to-date charge-offs of $21.6 million. Gross
charge-offs were $19.9 million for the first nine months of 1994.
Bancorp's efforts to collect on loans previously charged-off is
reflected in recoveries which were $11 million for the first nine
months of 1995.
The year-to-date annualized ratio of net charge-offs to
average loans outstanding at September 30, 1995 was 0.19%,
compared with zero at year-end 1994 and -0.01% at September 30,
1994.
A detailed breakdown of the loan loss reserve including
charge-offs and recoveries by category is presented in the
following table.
Summary of Loss Experience Bancorp Hawaii, Inc., and subsidiaries
- -------------------------------------------------------------------------------------------------
Third Third First Nine First Nine
Quarter Quarter Months Months
(in millions of dollars) 1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------
Average Loans Outstanding $7,611.8 $7,468.3 $7,603.4 $7,310.9
Balance of Reserve for Possible Loan Losses
at Beginning of Period $150.3 $141.2 $148.5 $125.3
Loans Charged Off
Commercial and Industrial 0.8 4.1 7.4 9.8
Real Estate - Construction -- 0.1 2.1 0.1
Real Estate - Mortgage
Commercial 1.0 0.8 1.5 1.8
Residential 0.5 0.5 0.7 0.6
Installment 3.2 2.5 9.6 6.8
Foreign -- -- -- 0.7
Leases 0.2 -- 0.3 0.1
- -------------------------------------------------------------------------------------------------
Total Charged Off 5.7 8.0 21.6 19.9
Recoveries on Loans Previously Charged Off
Commercial and Industrial 0.4 5.2 5.9 16.3
Real Estate - Construction -- -- -- --
Real Estate - Mortgage
Commercial 0.1 0.2 0.1 0.9
Residential 0.1 -- 0.1 0.2
Installment 0.7 0.8 2.4 2.4
Foreign 0.3 -- 1.6 --
Leases 0.3 0.6 0.9 0.6
- -------------------------------------------------------------------------------------------------
Total Recoveries 1.9 6.8 11.0 20.4
- -------------------------------------------------------------------------------------------------
Net Charge Offs (Recoveries) 3.8 1.2 10.6 (0.5)
Provision Charged to Operating Expenses 4.4 3.1 13.0 17.3
- -------------------------------------------------------------------------------------------------
Balance at End of Period $150.9 $143.1 $150.9 $143.1
=================================================================================================
Ratio of Net Charge Offs (Recoveries) to
Average Loans Outstanding (annualized) 0.20% 0.06% 0.19% -0.01%
- -------------------------------------------------------------------------------------------------
Ratio of Reserve to Loans Outstanding 1.95% 1.91% 1.95% 1.91%
- -------------------------------------------------------------------------------------------------
Capital
Bancorp's total capital at September 30, 1995 totaled $1.0
billion. New shares issued for the profit sharing, stock option
and dividend reinvestment plans increased capital by $8.5 million
during the quarter. Under Bancorp's continuing stock repurchase
programs, $9.3 million of shares were repurchased during the
third quarter of 1995. Dividends for the quarter increased to
$11.3 million, compared with $11.0 million for the third quarter
of 1994. The dividends were paid at $0.2725 per share for the
third quarter of 1995.
Regulatory risk-based capital remained well above minimum
guidelines. At September 30, 1995, Bancorp's Total Capital and
Tier 1 Capital ratios were 13.22% and 10.66%, 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 7.87% at September
30, 1995, compared to 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 third quarter of 1995 was 3.74%, an increase from the
3.72% reported for the same quarter in 1994 and a decrease from
the 3.80% reported for the second quarter of 1995. Year-to-date
spread for 1995 was 3.72% compared with 3.89% for the same period
in 1994. Although spread has decreased between the second and
third quarters of 1995, with the increase in average earning
assets reported during the quarter, net interest income increased
$1.3 million on a taxable equivalent basis.
The yield on earning assets for the third quarter of 1995
was 7.80%, decreasing from the 7.84% reported for the second
quarter of 1995, but improving from the 6.92% for the third
quarter of 1994. The cost of funds rate was 4.82% for the
quarter ended September 30, 1995, compared with the 4.80%
reported for second quarter of 1995. Comparatively, the cost of
funds rate was 3.77% for the third quarter of 1994.
Average earning assets for the third quarter of 1995 was
$11.53 billion, compared with $11.37 billion for the second
quarter and $11.47 billion for the year-to-date.
Consolidated Average Balances and Interest Rates Taxable Equivalent Bancorp Hawaii, Inc. and subsidiaries
- ----------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
September 30, 1995 September 30, 1994
Average Income/Yield/ Average Income/Yield/
(in millions of dollars) Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------
Earning Assets
Interest Bearing Deposits $695.9 $10.4 5.92% $747.0 $8.9 4.74%
Investment Securities
-Taxable 1,550.0 23.4 5.98 2,445.2 33.1 5.37
-Tax-Exempt 15.3 0.5 13.16 18.3 0.7 14.22
1,587.8 26.9 6.73 1,039.6 14.7 5.60
Funds Sold 72.6 0.7 3.83 31.6 0.4 5.50
Net Loans
-Domestic 6,843.0 143.5 8.32 6,820.2 132.7 7.72
-Foreign 768.8 13.5 6.97 648.1 6.8 4.18
Loan Fees 7.8 7.5
------------------------ ------------------------
Total Earning Assets 11,533.4 226.7 7.80 11,750.0 204.8 6.91
Cash and Due From Banks 457.9 373.2
Other Assets 405.3 329.3
---------- ----------
Total Assets $12,396.6 $12,452.5
========== ==========
Interest Bearing Liabilities
Domestic Deposits - Demand $1,717.6 12.9 2.98 $1,864.4 11.1 2.36
- Savings 1,036.4 7.7 2.95 1,219.6 6.4 2.10
- Time 1,829.8 23.7 5.14 1,516.8 16.1 4.20
------------------------ ------------------------
Total Domestic 4,583.8 44.3 3.84 4,600.8 33.6 2.90
Total Foreign 913.2 15.6 6.78 1,240.4 14.9 4.75
------------------------ ------------------------
Total Deposits 5,497.0 59.9 4.33 5,841.2 48.5 3.29
Short-Term Borrowings 3,199.2 43.9 5.45 3,577.4 37.9 4.20
Long-Term Debt 1,003.7 14.0 5.54 534.2 8.1 6.04
------------------------ ------------------------
Total Interest Bearing Liabilities 9,699.9 117.8 4.82 9,952.8 94.5 3.77
------------------------ ------------------------
Net Interest Income 108.9 2.98 110.3 3.14
Average Spread on Earning Assets 3.74% 3.72%
Demand Deposits 1,406.8 1,329.2
Other Liabilities 252.1 193.1
Shareholders' Equity 1,037.8 977.4
---------- ----------
Total Liabilities and Shareholders' Equity $12,396.6 $12,452.5
========== ==========
Provision for Possible Losses 4.4 3.0
Net Overhead 52.0 53.1
------- -------
Income Before Income Taxes 52.5 54.2
Provision for Income Taxes 19.2 21.7
Tax-Equivalent Adjustment 0.4 0.5
------- -------
Net Income $32.9 $32.0
======= =======
Consolidated Average Balances and Interest Rates Taxable Equivalent Bancorp Hawaii, Inc. and subsidiaries
- ----------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 1995 September 30, 1994
Average Income/Yield/ Average Income/Yield/
(in millions of dollars) Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------
Earning Assets
Interest Bearing Deposits $648.1 $28.8 5.93% $839.5 $25.8 4.10%
Investment Securities
-Taxable 1,545.3 70.1 6.07 2,618.3 106.9 5.46
-Tax-Exempt 16.5 1.6 13.06 19.0 2.0 13.78
1,590.1 78.2 6.57 969.8 36.4 5.02
Funds Sold 65.9 2.5 5.17 36.7 1.2 4.48
Net Loans
-Domestic 6,868.5 424.7 8.27 6,665.8 380.3 7.63
-Foreign 734.8 37.3 6.79 645.1 23.7 4.90
Loan Fees 20.9 24.5
------------------------ ------------------------
Total Earning Assets 11,469.2 664.1 7.74 11,794.2 600.8 6.81
Cash and Due From Banks 471.1 429.3
Other Assets 388.7 338.6
---------- ----------
Total Assets $12,329.0 $12,562.1
========== ==========
Interest Bearing Liabilities
Domestic Deposits - Demand $1,759.1 38.7 2.95 $1,903.4 29.0 2.04
- Savings 1,072.8 23.1 2.88 1,249.4 21.5 2.31
- Time 1,774.9 65.6 4.94 1,529.3 47.7 4.17
------------------------ ------------------------
Total Domestic 4,606.8 127.4 3.70 4,682.1 98.2 2.81
Total Foreign 915.1 46.5 6.80 1,213.8 36.7 4.04
------------------------ ------------------------
Total Deposits 5,521.9 173.9 4.21 5,895.9 134.9 3.06
Short-Term Borrowings 3,169.7 129.5 5.46 3,676.8 103.2 3.75
Long-Term Debt 988.6 41.4 5.60 460.3 19.5 5.66
------------------------ ------------------------
Total Interest Bearing Liabilities 9,680.2 344.8 4.76 10,033.0 257.6 3.43
------------------------ ------------------------
Net Interest Income 319.3 2.98 343.2 3.38
Average Spread on Earning Assets 3.72% 3.89%
Demand Deposits 1,404.7 1,371.3
Other Liabilities 229.2 192.0
Shareholders' Equity 1,014.9 965.8
---------- ----------
Total Liabilities and Shareholders' Equity $12,329.0 $12,562.1
========== ==========
Provision for Possible Losses 13.0 17.3
Net Overhead 160.9 160.7
------- -------
Income Before Income Taxes 145.4 165.2
Provision for Income Taxes 54.4 63.4
Tax-Equivalent Adjustment 1.3 1.3
------- -------
Net Income $89.7 $100.5
======= =======
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 as of September 30, 1995. As the table indicates,
Bancorp's one year cumulative liability sensitive gap totaled
$65.6 million, representing 0.53% of total assets.
Comparatively, the one year cumulative gap was $230.9 million at
year-end 1994, or 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 and third quarters of 1995 was limited
to maturities of existing swap agreements. At September 30,
1995, the notional amount of swaps totaled $1.1 billion compared
with $1.6 billion at year-end 1994. Net expense on interest rate
swap agreements totaled $2.4 million for the third quarter of
1995 and $9.3 million through September 30, 1995. Comparatively,
net revenue of $7.7 million was recognized for all of 1994.
Interest Rate Sensitivity Table Bancorp Hawaii, Inc. and subsidiaries
- -----------------------------------------------------------------------------------------------
SEPTEMBER 30, 1995 OVER NON-INTEREST
(in millions of dollars) 0 - 90 DAYS 91-365 DAYS 1 - 5 YEARS 5 YEARS BEARING
- -----------------------------------------------------------------------------------------------
ASSETS (1)
INVESTMENT SECURITIES $1,302.0 $792.5 $998.5 $135.4 -
SHORT TERM INVESTMENTS 51.7 5.0 - - -
INTERNATIONAL ASSETS 933.3 303.2 19.3 - -
DOMESTIC LOANS (2) 3,325.2 1,596.5 1,558.6 554.6 -
TRADING SECURITIES 0.1 - - - -
OTHER ASSETS 274.5 2.6 119.7 36.9 487.1
- -----------------------------------------------------------------------------------------------
TOTAL ASSETS $5,886.8 $2,699.8 $2,696.1 $726.9 $487.1
===============================================================================================
LIABILITIES AND CAPITAL (1)
NON-INT BEARING DEMAND (3) $248.4 $248.4 $883.1 - -
INT BEARING DEMAND (3) 327.3 327.3 900.5 - -
SAVINGS (3) 225.7 225.7 574.5 - -
TIME DEPOSITS 526.1 773.6 532.5 76.0 -
FOREIGN DEPOSITS 970.5 65.0 42.3 0.2 -
S/T BORROWINGS 2,548.0 674.7 57.6 - -
LONG-TERM DEBT 582.0 3.2 193.4 119.3 -
OTHER LIABILITIES - - - - 330.7
CAPITAL - - - - 1,040.9
- -----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND CAPITAL $5,427.9 $2,317.7 $3,183.9 $195.5 $1,371.6
===============================================================================================
INTEREST RATE SWAPS ($952.8) $46.2 $906.6 - -
- -----------------------------------------------------------------------------------------------
INTEREST SENSITIVITY GAP ($493.9) $428.2 $418.7 $531.4 ($884.5)
- -----------------------------------------------------------------------------------------------
CUMULATIVE GAP ($493.9) ($65.6) $353.1 $884.5 -
PERCENTAGE OF TOTAL ASSETS (3.95)% (0.53)% 2.83% 7.08% -
===============================================================================================
<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's 1994 Annual Report and
remains in place.
At September 30, 1995, deposits were $6.9 billion, compared
to $7.0 billion and $7.1 billion reported at June 30, 1995 and
year-end 1994, respectively. The competition for deposits not
only by banks and saving 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 September 30, 1995,
compared to $2.3 billion and $2.1 billion at June 30, 1995, and
year-end 1994, respectively.
Short term borrowing, including Fed Funds, increased from
the previous quarter ending September 30, 1995 at $1.0 billion.
Comparatively, short term borrowings were $1.2 billion at year-
end 1994. Long term debt increased to $0.90 billion at September
30, 1995, compared with $0.86 billion at year-end 1994 and $0.65
billion at September 30, 1994. Bancorp Hawaii reissued a total
of $35 million of privately placed debt during the third quarter
at fixed rates to mature in three years. During the quarter no
debt was issued under Bank of Hawaii's $1 billion "revolving"
Bank Note program. At September 30, 1995, Bank Notes issued by
Bank of Hawaii totaled $550 million, compared to $549 million
outstanding at year-end 1994.
Net Overhead
Bancorp manages its net overhead by focusing on the ratio of
non-interest expense to non-interest income. Bancorp's long term
goal, as stated in its 1994 Annual Report 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 September 30,
1995 was 2.44, compared with 2.81 for all of 1994.
Bancorp's efficiency ratio was 63.79% for the first nine
months of 1995. This productivity indicator expressed as a
percentage is non-interest expense divided by net operating
revenue (net interest income plus non-interest income before
securities transactions). Comparatively, the annual efficiency
ratio for 1993 and 1994 were 56.71% and 60.52 %, respectively.
Another productivity measure utilized by Bancorp places an
emphasis on the amount of net income generated per full-time
equivalent staff (FTE). This creates a focus on the objective of
improving net income with existing or lesser staff levels. For
the first nine months of 1995, the net income per FTE (excluding
security transactions) was $27,200 on an annualized basis. This
compares with $29,700 for all of 1994 and $29,500 for all of
1993.
Non-interest income for the third quarter of 1995 was $35.9
million, an increase of 0.4% over the similar quarter of 1994 and
level with the second quarter of 1995. For the year-to-date,
non-interest income totaled $111.7 million, up 5.3% compared with
the same period last year. Trust income for the first nine
months totaled $37.4 million, up 2.9% compared with the same
period a year ago. Service charges on deposit accounts are
reporting lower levels as more business customers elect to pay
for services with balances instead of paying fees. Fees,
exchange, and other service charges through September 30, 1995
totaled $36.9 million, a 19.6% increase compared with the
same period a year ago. The increase was largely due to
the increase in ATM fees and foreign exchange gains in 1995.
Other operating income for the year-to-date was $15.8 million
through September, a decrease from the $20.1 million reported for
the same period in 1994. The decrease was due to the recognition
of greater levels of gains on the sale of equipment at the end of
leases and interest collected on previously charged-off loans in
1994.
Investment Securities gains and losses for 1995 through
September was $2.3 million gain, compared with $2.3 million loss
in 1994 for the same period.
Non-interest expense for the third quarter of 1995 totaled
$87.9 million, compared with $88.8 million for the same period in
1994. Non-interest expenses for the first two quarters of 1995
were $91.1 million and $93.7 million, respectively.
Salaries and benefits totaled $45.7 million for the third
quarter of 1995 compared with $44.7 million for the same quarter
a year ago. During the third quarter, Bancorp finalized its well
received early retirement program announced during the first
quarter of 1995. The program resulted in a net reduction in
staff count of approximately 5%. The estimated annual salary and
benefits for these new retirees totals $12 - $13 million. In
addition to the elimination of positions, the settlement and
curtailment of the retirement obligations was also recognized
during the quarter. The net gain resulting from the settlement
loss and curtailment gain was less than $200,000.
Net occupancy and equipment expense for the third quarter
totaled $17.2 million, compared to $16.9 million for the same
quarter in 1994, an increase of less than 2%. For the year-to-
date, net occupancy and equipment expense totaled $54.2 million,
an increase of 8.4%, compared with the same period in 1994. The
increase in this expense group partially reflects Bancorp's
expenditures in technology.
Other operating expenses for the third quarter totaled $25.0
million, a decrease from the $27.1 million reported for the same
quarter in 1994. For the year-to-date, other operating expense
totaled $79.6 million in 1995, compared with $79.7 million in
1994. The improvement was caused by the reduction in FDIC
insurance premiums from $0.23 to $0.04 per $100 effective June 1,
1995 for both Bank of Hawaii and First National Bank of Arizona.
Since the FDIC insurance refund related to premiums paid from
June through September 1995, the premium for the third quarter
was reduced to $91,000. On a proforma basis, the FDIC premiums
for the second and third quarters of 1995 would have been $2.5
million and $0.9 million, respectively. Bancorp's savings and
loan subsidiaries First Federal Savings and Loan and First
Savings and loans continue to pay FDIC insurance premiums at
the rate of $0.23 per $100.
Part II. - Other Information
Items 1 to 5 omitted pursuant to instructions.
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 June 30, 1995.
Exhibit #27 - Financial Data Schedule.
(b) A report on Form 8-K, dated July 14, 1995, was filed.
The audited financial statements of Bank of Hawaii for the
year ended December 31, 1994 was filed using Form 8-K, in
conjunction with the issue of $1,000,000,000 of subordinated
notes by Bank of Hawaii.
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 November 9, 1995 BANCORP HAWAII, INC.
/s/ Richard J. Dahl
(Signature)
Richard J. Dahl
President and Chief Operating
Officer
/s/ David A. Houle
(Signature)
David A. Houle
Senior Vice President,
Treasurer and Chief Financial
Officer