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 March 31, 1996
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 April 30, 1996 -
40,866,346 shares
BANCORP HAWAII, INC. and subsidiaries
March 31, 1996
PART I. - Financial Information
Item 1. Financial Statements
The consolidated statements of condition as of March 31,
1996 and 1995, and December 31, 1995 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. Certain accounts have
been reclassified to conform with the 1996 presentation.
The financial statements reflect all adjustments of a normal
and recurring nature which are, in the opinion of management,
necessary to a fair statement of the results for the interim
periods.
Consolidated Statements of Condition (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
- ------------------------------------------------------------------------------------------------------------------
March 31 December 31 March 31
(in thousands of dollars) 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------
Assets
Interest-Bearing Deposits $656,292 $789,050 $532,726
Investment Securities - Held to Maturity
(Market Value of $815,718, $1,135,364 and $1,445,735 respectively 817,733 1,129,251 1,475,666
Investment Securities - Available for Sale 2,365,855 2,230,902 1,676,852
-- -- --
Funds Sold 64,922 116,173 79,755
Loans 8,247,669 8,152,406 7,756,208
Unearned Income (145,924) (147,404) (141,860)
Reserve for Possible Loan Losses (152,053) (151,979) (150,377)
- ------------------------------------------------------------------------------------------------------------------
Net Loans 7,949,692 7,853,023 7,463,971
- ------------------------------------------------------------------------------------------------------------------
Total Earning Assets 11,854,494 12,118,399 11,228,970
Cash and Non-Interest Bearing Deposits 430,859 469,031 387,505
Premises and Equipment 252,600 246,515 227,700
Customers' Acceptance Liability 18,719 16,825 21,037
Accrued Interest Receivable 76,471 84,669 72,470
Other Real Estate 9,171 9,306 638
Intangibles, including Goodwill 86,180 87,673 93,512
Trading Securities 33 29 14,115
Other Assets 176,606 174,337 151,902
- ------------------------------------------------------------------------------------------------------------------
Total Assets $12,905,133 $13,206,784 $12,197,849
==================================================================================================================
Liabilities
Domestic Deposits
Demand - Non-Interest Bearing $1,341,678 $1,549,302 $1,357,837
- Interest-Bearing 1,655,638 1,592,533 1,628,719
Savings 984,709 1,004,550 1,085,263
Time 2,265,413 2,204,242 1,765,615
Foreign Deposits 1,070,759 1,226,143 938,699
- ------------------------------------------------------------------------------------------------------------------
Total Deposits 7,318,197 7,576,770 6,776,133
Securities Sold Under Agreements to Repurchase 1,988,960 1,926,540 2,139,973
Funds Purchased 605,980 787,437 489,549
Short-Term Borrowings 462,895 476,867 574,148
Bank's Acceptances Outstanding 18,719 16,825 21,037
Accrued Pension Costs 24,052 21,145 23,576
Accrued Interest Payable 60,093 49,473 64,335
Accrued Taxes Payable 165,055 160,306 158,483
Other Liabilities 72,407 73,549 85,788
Long-Term Debt 1,142,111 1,063,436 862,445
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities 11,858,469 12,152,348 11,195,467
Shareholders' Equity
Common Stock ($2 par value), authorized 100,000,000 shares;
outstanding, March 1996 - 40,805,147;
December 1995 - 41,340,817; March 1995 - 41,908,241; 81,610 82,682 83,816
Surplus 222,573 240,080 261,003
Unrealized Valuation Adjustments 3,541 13,902 (977)
Retained Earnings 738,940 717,772 658,540
- ------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,046,664 1,054,436 1,002,382
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $12,905,133 $13,206,784 $12,197,849
==================================================================================================================
Consolidated Statements of Income (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
- ------------------------------------------------------------------------------------------------------------------
(in thousands of dollars except per share amounts) 1996 1995
- ------------------------------------------------------------------------------------------------------------------
Interest Income
Interest on Loans $157,799 $147,144
Loan Fees 8,294 7,022
Income on Lease Financing 3,034 2,992
Interest and Dividends on Investment Securities
Taxable 14,616 23,030
Non-taxable 311 368
Income on Investment Securities Available for Sale 36,864 24,867
Interest on Deposits 9,007 8,205
Interest on Security Resale Agreements -- --
Interest on Funds Sold 1,162 957
- ------------------------------------------------------------------------------------------------------------------
Total Interest Income 231,087 214,585
Interest Expense
Interest on Deposits 63,002 54,992
Interest on Security Repurchase Agreements 25,343 29,933
Interest on Funds Purchased 7,366 8,134
Interest on Short-Term Borrowings 6,144 5,678
Interest on Long-Term Debt 16,395 13,527
- ------------------------------------------------------------------------------------------------------------------
Total Interest Expense 118,250 112,264
- ------------------------------------------------------------------------------------------------------------------
Net Interest Income 112,837 102,321
Provision for Possible Loan Losses 4,424 4,453
- ------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Possible Loan Losses 108,413 97,868
Non-Interest Income
Trust Income 12,904 13,391
Service Charges on Deposit Accounts 6,561 6,660
Fees, Exchange, and Other Service Charges 11,959 12,357
Other Operating Income 6,331 5,572
Investment Securities Gains (Losses) (129) 1,831
- ------------------------------------------------------------------------------------------------------------------
Total Non-Interest Income 37,626 39,811
Non-Interest Expense
Salaries 36,620 35,597
Pensions and Other Employee Benefits 13,409 11,257
Net Occupancy Expense of Premises 10,782 10,212
Net Equipment Expense 7,757 7,741
Other Operating Expense 29,010 26,248
- ------------------------------------------------------------------------------------------------------------------
Total Non-Interest Expense 97,578 91,055
- ------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 48,461 46,624
Provision for Income Taxes 15,751 18,376
- ------------------------------------------------------------------------------------------------------------------
Net Income $32,710 $28,248
==================================================================================================================
Earnings Per Common Share and Common Share Equivalents $0.79 $0.67
- ------------------------------------------------------------------------------------------------------------------
Average Common Shares and Common Share Equivalents Outstanding 41,546,033 42,137,738
- ------------------------------------------------------------------------------------------------------------------
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, 1995 $1,054,436 $82,682 $240,080 $13,902 $717,772
Net Income 32,710 - - - 32,710
Sale of Common Stock
30,986 Profit Sharing Plan 1,056 62 994 - -
24,851 Stock Option Plan 538 50 488 - -
50,393 Dividend Reinvestment Plan 2,116 100 2,016 - -
Stock Repurchased (22,289) (1,284) (21,005) - -
Unrealized Valuation Adjustments
Investment Securities (8,363) - - (8,363) -
Foreign Exchange Translation Adjustment (1,998) - - (1,998) -
Cash Dividends Paid of $.28 Per Share (11,542) - - - (11,542)
- ----------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 $1,046,664 $81,610 $222,573 $3,541 $738,940
================================================================================================================
Balance at December 31, 1994 $966,788 $83,703 $260,040 ($18,122) $641,167
Net Income 28,248 - - - 28,248
Sale of Common Stock
89,527 Profit Sharing Plan 2,444 179 2,265 - -
47,039 Stock Option Plan 827 94 733 - -
73,509 Dividend Reinvestment Plan 1,994 147 1,847 - -
Stock Repurchased (4,189) (307) (3,882) - -
Unrealized Valuation Adjustments
Investment Securities 13,688 - - 13,688 -
Foreign Exchange Translation Adjustment 3,457 - - 3,457 -
Cash Dividends Paid of $.26 Per Share (10,875) - - - (10,875)
- ----------------------------------------------------------------------------------------------------------------
Balance at March 31, 1995 $1,002,382 $83,816 $261,003 ($977) $658,540
================================================================================================================
Consolidated Statements of Cash Flows (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
- ---------------------------------------------------------------------------------------------------------
Three Months Ended March 31
(in thousands of dollars) 1996 1995
- ---------------------------------------------------------------------------------------------------------
Operating Activities
Net Income $32,710 $28,248
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses, depreciation, and amortization of income and expense 3,970 2,482
Deferred income taxes (4,711) 703
Realized and unrealized investment security gains 139,338 1,412
Net decrease in trading securities (4) (419)
Other assets and liabilities, net 32,600 10,412
---------- ----------
Net cash provided by operating activities 203,903 42,838
- ---------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from redemptions of investment securities held to maturity 360,056 458,030
Purchases of investment securities held to maturity (48,538) (147,736)
Proceeds from sales of investment securities available for sale 345,457 31,594
Purchases of investment securities available for sale (633,686) (321,908)
Net decrease in interest-bearing deposits placed in other banks 132,758 194,290
Net decrease (increase) in funds sold 51,251 (25,588)
Net increase in loans and lease financing (91,906) 144,098
Premises and equipment, net (12,441) (11,481)
Purchase of minority interest of Banque D'Hawaii (Vanuatu), Ltd.,
net of cash and non-interest bearing deposits acquired -- 6,808
---------- ----------
Net cash provided by investing activities 102,951 328,107
- ---------------------------------------------------------------------------------------------------------
Financing Activities
Net increase in demand, savings, and time deposits (258,573) (350,150)
Proceeds from lines of credit and long-term debt 286,634 873
Principal payments on lines of credit and long-term debt (207,959) --
Net decrease in short-term borrowings (133,009) (136,583)
Proceeds from sale (repurchase) of stock (18,579) 1,076
Cash dividends (11,542) (10,875)
---------- ----------
Net cash used by financing activities (343,028) (495,659)
Effect of exchange rate changes on cash (1,998) 3,457
---------- ----------
Decrease in cash and non-interest bearing deposits (38,172) (121,257)
Cash and non-interest bearing deposits at beginning of year 469,031 508,762
---------- ----------
Cash and non-interest bearing deposits at end of period $430,859 $387,505
- ---------------------------------------------------------------------------------------------------------
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 first
quarter of 1996 of $32.7 million, an increase of 15.8% over the
earnings reported for the first quarter of 1995. On a per share
basis, earnings were $0.79 for the first quarter of 1996, compared
with $0.67 for the same quarter a year ago. The improvement in net
income reflects a stronger net interest margin and higher level of
earning assets comparing the first quarters of 1995 and 1996.
Although earnings have improved, Bancorp continues to be affected by
the Hawaii economy, which is Bancorp's main market.
Bancorp's annualized Return on Average Assets and Return on
Average Equity were 1.03% and 12.32%, respectively for the first
quarter of 1996. These ratios compare with 0.98% and 11.87%,
respectively for the twelve months ended December 31, 1995. The ratio
of average equity to average assets has increased to 8.33% for the
first quarter of 1996, compared with 8.27% for all of 1995.
Total assets decreased 2.3% from year-end 1995 to $12.9 billion
as of March 31, 1996. Compared to the asset balances at March 31,
1995, assets have increased 5.8%. Net loans outstanding increased
modestly from year-end 1995 to $7.9 billion and reported a 6.5%
increase from March 31, 1995. The increase from March 31, 1995
reflects the change due to the securitization of $412 million in
mortgage loans during that quarter. Deposits and securities sold
under agreements to repurchase (Repos) decreased from year-end 1995 by
2.1%, but increased by 4.4% from March 31, 1995 to end March 31, 1996
at $9.3 billion.
Non-performing assets (NPA) increased to $62.9 million at March
31, 1996. Comparing year-end 1995 and March 31, 1995, NPA balances
reflect an increase from $56.9 million and $52.3 million,
respectively. A further discussion on NPAs and the Reserve for Loan
Loss follows later in this report.
Total non-interest expense was $97.6 million for the first
quarter of 1996 compared with $91.0 million for the same quarter in
1995. A significant part of the increase in non-interest expense was
due to the early termination of a leveraged lease resulting in a one
time loss of $2.8 million for the quarter. Tax benefits associated
with the lease transaction neutralized the impact on net income. The
growth in total non-interest expense remained at levels in line with
Bancorp's expectations. A further discussion on non-interest expense
follows.
Non-interest income, compared with the same quarter last year,
was down 5.5% to $37.6 million for the first quarter of 1996. This
decline is primarily due to the $1.8 million securities gain
recognized in the first quarter of 1995. Excluding securities
transactions, non-interest income for the first quarter of 1996 would
have been only 0.6% lower than non-interest income for the same
quarter in 1995. Efforts in the non-interest income categories
continue to be important to Bancorp. However, improvements are being
hampered by the competitive marketplace and the Hawaiian economy. A
further discussion follows later in this report.
On May 2, 1996, Bancorp increased its shareholding in Banque de
Tahiti from 38% to 86% and its shareholding in Banque de Nouvelle
Caledonie from 21% to 75%. The shares were acquired from Credit
Lyonnais who will retain 3% ownership of each company. All regulatory
approvals have been received. The assets of Banque de Tahiti and
Banque de Nouvelle Caledonie will be included in the consolidated
results of Bancorp in its June 30, 1996 reports. Banque de Tahiti and
Banque de Nouvelle Caledonie have assets in U.S. dollars equivalent of
approximately $800 million and $230 million, respectively.
Risk Elements in Lending Activities
At March 31, 1996, total loans were $8.2 billion, a 1.2% increase
from year-end 1995 and 6.3% above total loan balances on March 31,
1995. The changes in other components of the portfolio are discussed
in the following section. The following table presents Bancorp's
total loan portfolio balances for the periods indicated.
Loan Portfolio Balances Bancorp Hawaii, Inc., and subsidiaries
- ----------------------------------------------------------------------------------
March 31 December 31 March 31
(in millions of dollars) 1996 1995 1995
- ----------------------------------------------------------------------------------
Domestic Loans
Commercial and Industrial $1,857.8 $1,902.2 $1,980.3
Real Estate
Construction -- Commercial 207.0 198.5 118.1
-- Residential 8.4 9.8 18.5
Mortgage -- Commercial 1,308.2 1,308.8 1,235.3
-- Residential 2,800.9 2,727.4 2,501.3
Installment 816.7 817.3 747.7
Lease Financing 388.8 392.9 377.1
- ----------------------------------------------------------------------------------
Total Domestic 7,387.8 7,356.9 6,978.3
- ----------------------------------------------------------------------------------
Foreign Loans 859.9 795.5 777.9
- ----------------------------------------------------------------------------------
Total Loans $8,247.7 $8,152.4 $7,756.2
==================================================================================
Commercial and Industrial Loans
Commercial and Industrial loans outstanding were $1.9 billion as
of March 31, 1996 compared with $1.9 billion at year-end 1995 and $2.0
billion at March 31, 1995. The mix of lending in this category
remains much as reported at year-end 1995.
Real Estate Loans
Total real estate loans at March 31, 1996 totaled $4.3 billion,
up from year-end 1995. Total real estate loans were $3.9 billion as
of March 31, 1995 and $4.2 billion at year-end 1995. A detailed
distribution of the real estate loan portfolio is presented in the
Loan Portfolio Balance Table. The growth in commercial and
residential mortgage balances has slowed. Commercial real estate
balances (excluding construction) on March 31, 1996 totaled $1.3
billion, increasing from $1.2 billion on March 31, 1995 and level with
$1.3 billion at year-end 1995. Residential mortgage balances on
March 31, 1995 totaled $2.5 billion, and increased to $2.8 billion at
March 31, 1996. Construction loan balances have increased to $215.4
million on March 31, 1996 from $208.3 million at year-end 1995, and
$136.6 million reported at March 31, 1995.
Other Lending
Installment loans and leases have remained close to year-end 1995
balances. At March 31, 1996, total installment loans were $816.7
million, compared with $817.3 million reported at year-end 1995.
Compared with the same date in 1995 when installment loan balances
were $747.7 million, installment loan balances are up 9.2%. Total
leases declined to $388.8 million from $392.9 million at year-end
1995, but increased from $377.1 million at March 31, 1995.
Foreign loan balances grew to $859.9 million, reflecting an
increase of 8.1% from year-end 1995, and 10.5% above March 31, 1995
balances. The rise in the foreign loan total since year-end reflects
increased trade financing activity in the Asian branches. The foreign
loan total includes $1.0 million in outstanding credits and $199.3
million in confirmed letters of credit and banker's acceptances to
Less Developed Countries (LDC) at March 31, 1996. All LDC exposure is
in the Philippines.
Non-Performing Assets and Past Due Loans
Bancorp's non-performing assets (NPA) include non-accrual loans
and foreclosed real estate. NPA totaled $62.9 million, representing
0.76% of total loans outstanding at March 31, 1996. This ratio
compares with 0.67% at the end of the first quarter 1995 and 0.70% at
year-end 1995.
Non-accrual loans increased during the quarter to $53.7 million
from $47.6 million at year-end 1995 and from $51.7 million on March
31, 1995. The distribution of the non-accrual loans by category is
disclosed in the table following.
Since year-end, past due loans have increased particularly in the
installment and residential real estate loan categories. Installment
loans past due 90 days increased to $11.5 million, 1.4% of total
installment loans at March 31, 1996. Residential mortgage loans past
due 90 days increased to $6.1 million, 0.2% of total residential
mortgage loans. Accruing 90 day past due loans in total have
increased from $20.7 million at year-end 1995 to $21.3 million at
March 31, 1996. Comparatively, $17.7 million in accruing 90 day past
due loans were reported at March 31, 1995. The foreclosed real
estate category remained level with year-end 1995, totaling $9.2
million at March 31, 1996. There were only 20 properties in Other
Real Estate at the quarter-end, the largest single property valued at
$6.6 million. Total non-performing assets, including loans 90 days
past due, increased to 1.02% of loans outstanding from 0.95% at year-
end 1995 and 0.90% at March 31, 1995.
The following table presents NPA and past due loans for the
periods indicated.
Bancorp Hawaii, Inc.
Consolidated Non-Performing Assets and Accruing Loans Past Due 90 Days or More
- -------------------------------------------------------------------------------
March 31 December 31 March 31
(in millions of dollars) 1996 1995 1995
- -------------------------------------------------------------------------------
Non-Accrual Loans
Commercial $16.8 $16.9 $19.3
Real Estate
Construction 0.1 0.3 1.0
Commercial 14.5 14.9 15.3
Residential 18.0 14.7 15.4
Installment 0.9 0.8 0.6
Leases 1.9 -- 0.1
Foreign 1.5 -- --
- -------------------------------------------------------------------------------
Subtotal 53.7 47.6 51.7
Restructured Loans -- -- --
Foreclosed Real Estate
Domestic 9.2 9.3 0.6
Foreign 0.0 -- --
- -------------------------------------------------------------------------------
Subtotal 9.2 9.3 0.6
- -------------------------------------------------------------------------------
Total Non-Performing Assets 62.9 56.9 52.3
- -------------------------------------------------------------------------------
Accruing Loans Past Due 90 Days or More
Commercial 1.1 1.8 1.6
Real Estate
Construction 0.0 -- 0.8
Commercial 2.5 2.4 1.9
Residential 6.1 5.8 6.6
Installment 11.5 10.5 6.8
Leases 0.1 0.2 --
Foreign 0.0 -- --
- -------------------------------------------------------------------------------
Subtotal 21.3 20.7 17.7
- -------------------------------------------------------------------------------
Total $84.2 $77.6 $70.0
===============================================================================
- -------------------------------------------------------------------------------
Ratio of Non-Performing Assets
to Total Loans 0.76% 0.70% 0.67%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Ratio of Non-Performing Assets
and Accruing Loans Past Due
90 Days or More to Total Loans 1.02% 0.95% 0.90%
- -------------------------------------------------------------------------------
/TABLE
Summary of Loan Loss Experience
The reserve for loan losses was at $152.1 million at March 31,
1996, representing 1.88% of loans outstanding. Comparatively, the
ratio of reserves to loans outstanding on March 31, 1995 was 1.97% and
1.90% at year-end 1995. The modest decrease in this ratio reflects
the growth in loans.
Loan loss provisions were $4.4 million for the first quarter of
1996, compared with $4.5 million reported for the first quarter of
1995. Charge-offs totaled $6.9 million for both the first quarters of
1995 and 1996, compared to the $6.3 million reported for the fourth
quarter of 1995. Recoveries totaled $2.6 million for the first
quarter of 1996, compared to $4.3 million and $3.4 million for the
first and fourth quarters of 1995, respectively. Net charge-offs for
the first quarter of 1996 were $4.3 million compared to $2.6 million
during the same period in 1995. The annualized ratio of net charge-
offs to average loans outstanding for the first quarter of 1996 was
0.21% compared to the ratio of 0.14% for the same period in 1995.
The detailed breakdown of the charge-off and recoveries by loan
category is presented in the table following.
Summary of Loss Experience Bancorp Hawaii, Inc., and subsidiaries
- ---------------------------------------------------------------------------------------
First Year First
Quarter Ended Quarter
(in millions of dollars) 1996 12/31/95 1995
- ---------------------------------------------------------------------------------------
Average Loans Outstanding $8,019.9 $7,654.9 $7,610.5
Balance of Reserve for Possible Loan Losses
at Beginning of Period $152.0 $148.5 $148.5
Loans Charged Off
Commercial and Industrial 1.4 7.8 2.0
Real Estate - Construction -- 2.1 2.1
Real Estate - Mortgage
Commercial 0.5 2.3 0.1
Residential 0.2 1.1 --
Installment 4.6 13.3 2.7
Foreign -- 0.9 --
Leases 0.2 0.4 --
- ---------------------------------------------------------------------------------------
Total Charged Off 6.9 27.9 6.9
Recoveries on Loans Previously Charged Off
Commercial and Industrial 0.6 6.5 3.2
Real Estate - Construction 0.7 -- --
Real Estate - Mortgage
Commercial -- 1.4 --
Residential 0.1 0.1 --
Installment 1.0 3.3 0.8
Foreign -- 2.1 --
Leases 0.2 1.0 0.3
- ---------------------------------------------------------------------------------------
Total Recoveries 2.6 14.4 4.3
- ---------------------------------------------------------------------------------------
Net Charge Offs (Recoveries) 4.3 13.5 2.6
Provision Charged to Operating Expenses 4.4 17.0 4.5
Reserves Acquired (Sold) -- --
- ---------------------------------------------------------------------------------------
Balance at End of Period $152.1 $152.0 $150.4
=======================================================================================
Ratio of Net Charge Offs (Recoveries) to
Average Loans Outstanding (annualized) 0.21% 0.18% 0.14%
- ---------------------------------------------------------------------------------------
Ratio of Reserve to Loans Outstanding 1.88% 1.90% 1.97%
- ---------------------------------------------------------------------------------------
/TABLE
Capital
Bancorp's total capital at March 31, 1996 totaled $1.0 billion.
New shares issued for the profit sharing, stock option and dividend
reinvestment plans increased capital by $3.7 million during the
quarter. Under Bancorp's stock repurchase programs, $22.3 million in
shares were repurchased during the first quarter of 1996. Dividends
for the quarter were $11.5 million, compared with $10.9 million for
the first quarter of 1995. Dividends paid were $.28 per share for the
first quarter of 1996 and $0.26 per share for the first quarter of
1995.
Regulatory risk-based capital remains well above minimum
guidelines. Bancorp's Total Capital and Tier 1 Capital ratios were
12.58% and 10.11%, respectively. This compares with year-end 1995,
when the Total Capital Ratio was 12.74% and the Tier 1 Capital Ratio
was 10.25%. 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 7.72% at March 31, 1996,
compared to 7.55% at March 31, 1995 and 7.82% at year-end 1995. 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 first quarter of 1996 was 3.80%, an increase from the 3.62%
reported for the same period in 1995, and also an increase from the
3.72% reported for the fourth quarter of 1995. Net interest margin
for all of 1995 was 3.72%. The growth in earning assets and the
changes in interest rates have helped improve the spread.
The earning asset yield was 7.77% for the first quarter of 1996,
compared with the fourth quarter 1995 yield of 7.87% and the first
quarter of 1995 of 7.58%. The cost of funds rate for the first
quarter of 1996 was 4.67%, level with the same quarter a year ago and
4.87% reported for the fourth quarter of 1995. These changes reflect
the movement in interest rates stimulated by the Federal Reserve over
the last twelve months.
Consolidated Average Balances and Interest Rates Taxable Equivalent Bancorp Hawaii, Inc. and subsidiaries
- ----------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
Average Income/Yield/ Average Income/Yield/
(in millions of dollars) Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------
Earning Assets
Interest Bearing Deposits $631.3 $9.0 5.74% $620.5 $8.2 5.36%
Investment Securities
-Taxable 926.4 14.6 6.35 1,604.6 23.0 5.82
-Tax-Exempt 13.8 0.5 13.95 17.6 0.6 13.06
2,303.5 36.9 6.44 1,583.6 24.9 6.37
Funds Sold 84.3 1.2 5.54 67.4 1.0 5.76
Net Loans
-Domestic 7,191.5 147.1 8.23 6,911.5 137.9 8.09
-Foreign 828.4 13.9 6.77 699.0 12.5 7.25
Loan Fees 8.3 7.0
------------------------ ------------------------
Total Earning Assets 11,979.2 231.5 7.77 11,504.2 215.1 7.58
Cash and Due From Banks 427.3 481.3
Other Assets 416.1 372.4
---------- ----------
Total Assets $12,822.6 $12,357.9
========== ==========
Interest Bearing Liabilities
Domestic Deposits - Demand $1,742.7 11.8 2.73 $1,813.7 13.0 2.90
- Savings 999.9 6.4 2.59 1,113.0 7.5 2.74
- Time 2,212.2 30.1 5.47 1,688.2 20.4 4.89
------------------------ ------------------------
Total Domestic 4,954.8 48.3 3.92 4,614.9 40.9 3.59
Total Foreign 1,111.7 14.7 5.30 927.3 14.1 6.18
------------------------ ------------------------
Total Deposits 6,066.5 63.0 4.18 5,542.2 55.0 4.02
Short-Term Borrowings 2,886.4 38.9 5.41 3,233.6 43.8 5.49
Long-Term Debt 1,221.2 16.4 5.40 978.1 13.5 5.61
------------------------ ------------------------
Total Interest Bearing Liabilities 10,174.1 118.3 4.67 9,753.9 112.3 4.67
------------------------ ------------------------
Net Interest Income 113.2 3.10 102.8 2.91
Average Spread on Earning Assets 3.80% 3.62%
Demand Deposits 1,411.8 1,436.7
Other Liabilities 169.2 180.7
Shareholders' Equity 1,067.5 986.6
---------- ----------
Total Liabilities and Shareholders' Equity $12,822.6 $12,357.9
========== ==========
Provision for Possible Losses 4.4 4.5
Net Overhead 60.0 51.2
------- -------
Income Before Income Taxes 48.8 47.1
Provision for Income Taxes 15.7 18.4
Tax-Equivalent Adjustment 0.4 0.5
------- -------
Net Income $32.7 $28.2
======= =======
Consolidated Average Balances and Interest Rates Taxable Equivalent Bancorp Hawaii, Inc. and subsidiaries
- ----------------------------------------------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31, 1995 December 31, 1995
Average Income/Yield/ Average Income/Yield/
(in millions of dollars) Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------
Earning Assets
Interest Bearing Deposits $700.9 $10.7 6.06% $661.4 $39.4 5.97%
Investment Securities
-Taxable 1,431.1 22.2 6.15 1,516.5 92.3 6.09
-Tax-Exempt 14.2 0.5 13.91 15.9 2.1 13.25
1,784.2 29.7 6.61 1,639.0 107.9 6.58
Funds Sold 76.2 1.3 6.59 68.5 3.8 5.57
Net Loans
-Domestic 7,028.7 148.1 8.36 6,908.9 572.8 8.29
-Foreign 779.0 14.1 7.21 746.0 51.5 6.90
Loan Fees 7.6 28.5
------------------------ ------------------------
Total Earning Assets 11,814.3 234.2 7.87 11,556.2 898.3 7.77
Cash and Due From Banks 429.7 460.6
Other Assets 390.1 389.1
---------- ----------
Total Assets $12,634.1 $12,405.9
========== ==========
Interest Bearing Liabilities
Domestic Deposits - Demand $1,732.4 12.1 2.78 $1,752.4 50.9 2.91
- Savings 1,016.0 7.5 2.92 1,058.5 30.6 2.89
- Time 2,032.7 28.8 5.62 1,839.9 98.5 5.36
------------------------ ------------------------
Total Domestic 4,781.1 48.4 4.02 4,650.8 180.0 3.87
Total Foreign 1,181.7 17.2 5.77 982.2 59.5 6.06
------------------------ ------------------------
Total Deposits 5,962.8 65.6 4.37 5,633.0 239.5 4.25
Short-Term Borrowings 3,111.6 44.5 5.68 3,155.1 174.0 5.52
Long-Term Debt 969.4 13.2 5.40 983.8 54.6 5.55
------------------------ ------------------------
Total Interest Bearing Liabilities 10,043.8 123.3 4.87 9,771.9 468.1 4.79
------------------------ ------------------------
Net Interest Income 110.9 3.00 430.2 2.98
Average Spread on Earning Assets 3.72% 3.72%
Demand Deposits 1,399.7 1,403.4
Other Liabilities 131.6 204.6
Shareholders' Equity 1,059.0 1,026.0
---------- ----------
Total Liabilities and Shareholders' Equity $12,634.1 $12,405.9
========== ==========
Provision for Possible Losses 4.0 17.0
Net Overhead 56.8 217.7
------- -------
Income Before Income Taxes 50.1 195.5
Provision for Income Taxes 17.7 72.0
Tax-Equivalent Adjustment 0.3 1.7
------- -------
Net Income $32.1 $121.8
======= =======
Interest Rate Risk and Derivatives
As discussed in Bancorp's 1995 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 March 31, 1996. As the table
indicates, Bancorp's one year cumulative liability sensitivity gap
totaled $0.2 billion, representing 1.26% of total assets.
Comparatively, the one year cumulative gap was $0.1 billion at year-
end 1995, 0.97% of total assets.
Bancorp uses swaps as a cost effective risk management tool for
dealing with interest rate risk. Swap activity during the first
quarter of 1996 was limited to maturities of existing swap agreements.
At March 31, 1996, the notional amount of swaps totaled $974.6
million, compared with $1.1 billion at year-end 1995. Net expense on
interest rate swap agreements totaled $1.2 million for the first
quarter of 1996. Comparatively, net expense of $11.7 million was
recognized for all of 1995.
Interest Rate Sensitivity Table Bancorp Hawaii, Inc. and subsidiaries
- ---------------------------------------------------------------------------------------
MARCH 31, 1996 OVER NON-INTEREST
(in millions of dollars) 0 - 90 DAYS 91-365 DAYS 1 - 5 YEARS 5 YEARS BEARING
- ---------------------------------------------------------------------------------------
ASSETS (1)
INVESTMENT SECURITIES 965.0 940.8 741.7 536.1 -
SHORT TERM INVESTMENTS 53.8 11.1 - - -
INTERNATIONAL ASSETS 1,105.2 224.4 32.6 0.6 2.0
DOMESTIC LOANS (2) 2,653.6 2,236.1 1,642.8 801.1 53.5
TRADING SECURITIES - - - - -
OTHER ASSETS 77.6 77.6 275.7 - 473.8
- ---------------------------------------------------------------------------------------
TOTAL ASSETS 4,855.2 3,490.0 2,692.8 1,337.8 529.3
=======================================================================================
LIABILITIES AND CAPITAL (1)
NON-INT BEARING DEMAND (3) 241.5 241.5 858.7 - -
INT BEARING DEMAND (3) 331.1 331.1 993.4 - -
SAVINGS (3) 216.6 216.6 551.4 - -
TIME DEPOSITS 649.7 1,068.1 491.0 56.7 -
FOREIGN DEPOSITS 961.1 77.4 0.5 - 31.7
S/T BORROWINGS 2,238.6 752.3 - - -
LONG-TERM DEBT 459.9 249.5 380.3 119.4 -
OTHER LIABILITIES - - - - 340.3
CAPITAL - - - - 1,046.7
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES AND CAPITAL 5,098.5 2,936.5 3,275.3 176.1 1,418.7
=======================================================================================
INTEREST RATE SWAPS -735.7 263.0 472.7 - -
- ---------------------------------------------------------------------------------------
INTEREST SENSITIVITY GAP -979.0 816.5 -109.8 1161.7 -889.4
- ---------------------------------------------------------------------------------------
CUMULATIVE GAP -979.0 -162.5 -272.3 889.4 -
PERCENTAGE OF TOTAL ASSETS -7.59% -1.26% -2.11% 6.89% -
=======================================================================================
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.
/TABLE
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 1995 Annual Report and remains
in place.
At March 31, 1996, deposits were $7.3 billion, compared to $7.6
billion and $6.8 billion reported at year-end 1995 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 $2.0 billion
at March 31, 1996, compared to $2.1 billion on March 31, 1995, and
$1.9 billion at year-end 1995.
Short term borrowings, including Fed Funds, decreased to $1.1
billion at March 31, 1996, compared with $1.3 billion at year-end 1995
and $1.1 billion at March 31, 1995. Long term debt remained level at
$1.1 billion at both March 31, 1996 and year-end 1995.
Net Overhead
The net overhead ratio at Bancorp is defined as the ratio of non-
interest expense to non-interest income before securities
transactions. 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 first quarter of 1996 was 2.58, compared to 2.40 for the
first quarter of 1995 and 2.53 for all of 1995.
Non-interest income for the first quarter was $37.6 million, a
5.5% decrease from the same quarter in 1995. For the first quarter of
1995, Bancorp reported a securities gain of $1.8 million, compared to
a loss of $0.1 million for the same period in 1996. These gains and
losses remained at modest levels. Trust income reported $12.9 million
for the quarter, down 3.6% from the same period last year. Service
charges on deposit accounts for the first quarter of 1996 were $6.6
million, compared to $6.7 million for the like period last year.
Fees, exchange and other service charges for the first quarter of 1996
were $12.0 million compared to $12.4 million for the same period in
1995. Other operating income totaled $6.3 million for the first
quarter of 1996, compared with $5.6 million for the same quarter last
year.
Non-interest expense in the first quarter was $97.6 million, an
increase of 7.2% over the same period in 1995. In the first quarter
of 1995, Bancorp announced an early retirement option resulting from a
restructuring of its retirement programs. During much of 1995
qualifying staff members electing the retirement option left Bancorp
providing the opportunity to reduce staff counts and control salary
expenses. Reflecting this process, salary and benefit expense for the
first quarter of 1996 totaled $50.0 million compared with $46.9
million for the same quarter of 1995. The increase in expense has
been driven by greater profit sharing and incentive accruals caused by
improved reported earnings. Additionally, new products and
initiatives like Bank of Hawaii Contiki VISA card program and
outsourcing of certain back office functions have increased expenses.
Premises and equipment expenses totaled $18.5 million for the
first quarter of 1996, an increase from the $18.0 million for the same
period of 1995. Bancorp continues to invest in technology as more
efficient operations with existing staff counts become increasingly
important. Other operating expenses for the first quarter increased
10.5% over last year during the same period. The increase reflects
the leasing transaction mentioned earlier.
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 #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 May 10, 1996 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
and Chief Financial
Officer