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, 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 October 31, 1996 -
40,563,426 shares
BANCORP HAWAII, INC. and subsidiaries
September 30, 1996
PART I. - Financial Information
Item 1. Financial Statements
The consolidated statements of condition as of September 30,
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.
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 1996 presentation.
Consolidated Statements of Condition (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
- ------------------------------------------------------------------------------------------------------------------
September 30 December 31 September 30
(in thousands of dollars) 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------
Assets
Interest-Bearing Deposits $623,592 $789,050 $612,864
Investment Securities - Held to Maturity
(Market Value of $1,266,815, $1,135,364 and $1,540,450 respectively) 1,272,910 1,129,251 1,544,403
Investment Securities - Available for Sale 2,340,746 2,230,902 1,683,968
Funds Sold 88,224 116,173 56,660
Loans 8,683,244 8,152,406 7,893,978
Unearned Income (181,719) (147,404) (142,515)
Reserve for Possible Loan Losses (167,770) (151,979) (150,931)
- ------------------------------------------------------------------------------------------------------------------
Net Loans 8,333,755 7,853,023 7,600,532
- ------------------------------------------------------------------------------------------------------------------
Total Earning Assets 12,659,227 12,118,399 11,498,427
Cash and Non-Interest Bearing Deposits 457,116 469,031 433,665
Premises and Equipment 273,075 246,515 237,962
Customers' Acceptance Liability 27,323 16,825 13,382
Accrued Interest Receivable 85,095 84,669 79,657
Other Real Estate 8,901 9,306 3,823
Intangibles, including Goodwill 96,427 87,673 89,434
Trading Securities 1,449 29 113
Other Assets 171,860 174,337 140,155
- ------------------------------------------------------------------------------------------------------------------
Total Assets $13,780,473 $13,206,784 $12,496,618
==================================================================================================================
Liabilities
Domestic Deposits
Demand - Non-Interest Bearing $1,319,369 $1,549,302 $1,379,789
- Interest-Bearing 1,648,312 1,592,533 1,555,068
Savings 889,874 1,004,550 1,025,868
Time 2,586,714 2,204,242 1,908,192
Foreign Deposits 1,974,221 1,226,143 1,077,974
- ------------------------------------------------------------------------------------------------------------------
Total Deposits 8,418,490 7,576,770 6,946,891
Securities Sold Under Agreements to Repurchase 1,996,536 1,926,540 2,262,197
Funds Purchased 479,538 787,437 537,268
Short-Term Borrowings 489,061 476,867 480,857
Bank's Acceptances Outstanding 27,323 16,825 13,382
Accrued Pension Costs 20,341 21,145 26,527
Accrued Interest Payable 75,294 49,473 55,120
Accrued Taxes Payable 151,530 160,306 160,606
Minority Interest 9,352 2,961 2,470
Other Liabilities 90,828 70,588 72,604
Long-Term Debt 957,431 1,063,436 897,837
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities 12,715,724 12,152,348 11,455,759
Shareholders' Equity
Common Stock ($2 par value), authorized 100,000,000 shares;
outstanding, September 1996 - 40,661,103;
December 1995 - 41,340,817; September 1995 - 41,579,607; 81,322 82,682 83,159
Surplus 215,014 240,080 248,818
Unrealized Valuation Adjustments (12,759) 13,902 11,581
Retained Earnings 781,172 717,772 697,301
- ------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,064,749 1,054,436 1,040,859
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $13,780,473 $13,206,784 $12,496,618
==================================================================================================================
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) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
Interest Income
Interest on Loans $168,290 $153,465 $493,549 $451,770
Loan Fees 6,381 7,809 22,958 20,918
Income on Lease Financing 8,793 3,372 18,467 9,464
Interest and Dividends on Investment Securities
Taxable 20,542 23,347 49,703 70,111
Non-taxable 292 329 901 1,048
Income on Investment Securities Available for Sale 35,910 26,936 108,769 78,140
Interest on Deposits 9,219 10,379 28,127 28,753
Interest on Security Resale Agreements -- 72 -- 205
Interest on Funds Sold 828 628 2,906 2,343
- ------------------------------------------------------------------------------------------------------------------
Total Interest Income 250,255 226,337 725,380 662,752
Interest Expense
Interest on Deposits 76,389 59,939 209,751 173,908
Interest on Security Repurchase Agreements 23,780 32,137 73,705 92,403
Interest on Funds Purchased 7,323 7,496 22,041 22,645
Interest on Short-Term Borrowings 5,254 4,276 16,726 14,480
Interest on Long-Term Debt 15,191 14,017 47,173 41,376
- ------------------------------------------------------------------------------------------------------------------
Total Interest Expense 127,937 117,865 369,396 344,812
- ------------------------------------------------------------------------------------------------------------------
Net Interest Income 122,318 108,472 355,984 317,940
Provision for Possible Loan Losses 3,733 4,377 12,320 12,950
- ------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Possible Loan Losses 118,585 104,095 343,664 304,990
Non-Interest Income
Trust Income 12,349 11,879 37,067 37,405
Service Charges on Deposit Accounts 7,417 6,491 21,368 19,331
Fees, Exchange, and Other Service Charges 15,280 12,072 40,665 36,857
Other Operating Income 8,199 5,288 24,499 15,822
Investment Securities Gains (Losses) 291 176 229 2,280
- ------------------------------------------------------------------------------------------------------------------
Total Non-Interest Income 43,536 35,906 123,828 111,695
Non-Interest Expense
Salaries 40,727 35,038 118,246 106,043
Pensions and Other Employee Benefits 12,020 10,653 37,500 32,806
Net Occupancy Expense of Premises 10,510 10,150 29,954 30,402
Net Equipment Expense 8,789 7,012 25,343 23,786
Other Operating Expense 40,041 24,734 101,752 78,813
Minority Interest 524 288 1,181 769
- ------------------------------------------------------------------------------------------------------------------
Total Non-Interest Expense 112,611 87,875 313,976 272,619
- ------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 49,510 52,126 153,516 144,066
Provision for Income Taxes 18,182 19,206 54,865 54,350
- ------------------------------------------------------------------------------------------------------------------
Net Income $31,328 $32,920 $98,651 $89,716
==================================================================================================================
Earnings Per Common Share and Common Share Equivalents $0.76 $0.78 $2.39 $2.13
- ------------------------------------------------------------------------------------------------------------------
Average Common Shares and Common Share Equivalents Outstanding 41,182,809 41,955,136 41,334,572 42,070,392
- ------------------------------------------------------------------------------------------------------------------
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 98,651 - - - 98,651
Sale of Common Stock
35,803 Profit Sharing Plan 1,231 72 1,159 - -
201,176 Stock Option Plan 4,629 402 4,227 - -
133,207 Dividend Reinvestment Plan 5,200 265 4,935 - -
1,800 Restricted Share Plan 64 4 60 - -
Stock Repurchased (37,550) (2,103) (35,447) - -
Unrealized Valuation Adjustments
Investment Securities (19,116) - - (19,116) -
Foreign Exchange Translation Adjustment (7,545) - - (7,545) -
Cash Dividends Paid of $.86 Per Share (35,251) - - - (35,251)
- ----------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $1,064,749 $81,322 $215,014 ($12,759) $781,172
================================================================================================================
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 - -
84,332 Stock Option Plan 8,315 782 7,533 - -
132,374 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
================================================================================================================
/TABLE
Consolidated Statements of Cash Flows (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
- --------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30
(in thousands of dollars) 1996 1995
- --------------------------------------------------------------------------------------------------------------
Operating Activities
Net Income $98,651 $89,716
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses, depreciation, and amortization of income and expense 10,796 8,430
Deferred income taxes 5,638 916
Realized and unrealized investment security gains (8,294) (1,373)
Net increase in trading securities 1,420 13,583
Other assets and liabilities, net 4,931 (12,221)
------------ ------------
Net cash provided by operating activities 113,142 99,051
- --------------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from redemptions of investment securities held to maturity 459,823 634,489
Purchases of investment securities held to maturity (581,374) (392,932)
Proceeds from sales of investment securities available for sale 734,695 346,666
Purchases of investment securities available for sale (868,188) (620,756)
Net decrease in interest-bearing deposits placed in other banks 421,546 114,152
Net decrease (increase) in funds sold 27,949 (2,493)
Net decrease in loans and lease financing 113,310 17,622
Premises and equipment, net (29,062) (32,980)
Purchase of additional interest:
Banque D'Hawaii (Vanuatu), Ltd. -- 6,808
Credipac Polynesie and Credipac Nouvelle Caledonie (4,114) --
Purchase of majority interest of Banque de Tahiti & New Caledonie
net of cash and non-interest bearing deposits acquired 18,090 --
------------ ------------
Net cash provided by investing activities 292,675 70,576
- --------------------------------------------------------------------------------------------------------------
Financing Activities
Net increase in demand, savings, and time deposits (16,796) (179,392)
Proceeds from lines of credit and long-term debt 1,059,468 226,204
Principal payments on lines of credit and long-term debt (1,165,473) (189,939)
Net decrease in short-term borrowings (225,709) (59,931)
Proceeds from sale (repurchase) of stock (26,426) (11,766)
Cash dividends (35,251) (33,582)
------------ ------------
Net cash used by financing activities (410,187) (248,406)
Effect of exchange rate changes on cash (7,545) 3,682
------------ ------------
Decrease in cash and non-interest bearing deposits (11,915) (75,097)
Cash and non-interest bearing deposits at beginning of year 469,031 508,762
------------ ------------
Cash and non-interest bearing deposits at end of period $457,116 $433,665
- --------------------------------------------------------------------------------------------------------------
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
nine months ending September 30, 1996 of $98.7 million, an
increase of 10.0% from the same period in 1995. On a per share
basis, earnings were $2.39 and $2.13 for the year-to-date in 1996
and 1995, respectively.
Bancorp's earnings for the third quarter of 1996 were $31.3
million, down 4.8% from the same period last year. Earnings per
share for the third quarter of 1996 were $0.76 compared with
$0.78 for the same quarter last year. Comparatively, for the
first and second quarters of 1996, earnings per share were $0.79
and $0.84, respectively.
Results for the nine months of 1996 have been affected by
two significant events. As reported in the second quarter,
Bancorp, through its lead bank subsidiary, Bank of Hawaii,
purchased a majority ownership in Banque de Tahiti (BDT) and
Banque de Nouvelle Caledonie (BNC) from Credit Lyonnais. Bank of
Hawaii further increased its ownership in these two Banks by
purchasing remaining minority interests during the third quarter.
At September 30, 1996, Bank of Hawaii's ownership in BDT and BNC
was 92.4% and 91.5%, respectively. Earnings for BDT and BNC
since May 1996 have been included in Bancorp's consolidated
financial reports. The second event was the special Savings
Association Insurance Fund (SAIF) assessment accrued by Bancorp
as of September 30, 1996. The SAIF assessment for Bancorp's
savings and loan subsidiaries was $5.0 million pre-tax and $3.0
million after tax which impacted third quarter results.
Performance ratios through September 30, 1996 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 0.99% and ROAE
was 12.35% through September 30, 1996. Although not approaching
target levels, the 1996 results are improving compared to the
1995 ROAA and ROAE ratios which were 0.98% and 11.87%,
respectively.
Total assets were $13.8 billion as of September 30, 1996, up
significantly from the $12.5 billion reported at September 30,
1995 and from $13.2 billion at December 31, 1995. Net loans
outstanding increased to $8.3 billion at September 30, 1996,
compared with $7.6 billion and $7.9 billion at September 30, 1995
and December 31, 1995, respectively. Total investment securities
stood at $3.6 billion at September 30, 1996, an increase of 11.9%
from the same date in 1995 and a 7.5% increase from December 31,
1995. The increase reflects the securitization of more than $350
million of adjustable rate mortgage loans in the second quarter
of 1996.
Total deposits increased to $8.4 billion at the end of
September 1996. Comparatively, deposits were $7.6 billion and
$6.9 billion at year-end and September 30, 1995, respectively.
Securities sold under repurchase agreements (Repos) totaled $2.0
billion at September 30, 1996, increasing 3.6% from the year-end
balance outstanding of $1.9 billion.
The year-to-year changes were affected by the BDT and BNC
acquisition. As of September 30, 1996, BDT and BNC reported
total assets of $966.2 million, net loans of $607.8 million and
other earning assets of $246.7 million. Deposits at September
30, 1996 were $866.7 million for BDT and BNC.
Risk Elements in Lending Activities
Total loans outstanding were $8.7 billion as of September
30, 1996, an increase of 6.5% over year-end 1995, and 10.0% above
loans outstanding at September 30, 1995. The growth reflects the
loan portfolios of BDT and BNC which were acquired and the
securitization of $350 million in mortgage loans both during the
second quarter of 1996. All of the BDT and BNC loans are
included in the foreign category. Excluding the impact of these
two transactions, loan growth between year-end 1995 and September
30, 1996 would have been 6.6%. The following table presents
Bancorp's total loan portfolio for the periods indicated. Growth
in the portfolio since September 1995 has been largely in the
foreign loans category reflecting the BDT and BNC acquisition.
Loan Portfolio Balances Bancorp Hawaii, Inc., and subsidiaries
- --------------------------------------------------------------------------------
September 30 December 31 September 30
(in millions of dollars) 1996 1995 1995
- --------------------------------------------------------------------------------
Domestic Loans
Commercial and Industrial $1,806.6 $1,902.2 $1,863.0
Real Estate
Construction -- Commercial 216.2 199.6 177.3
-- Residential 28.0 33.7 31.2
Mortgage -- Commercial 1,262.3 1,308.8 1,261.5
-- Residential 2,613.9 2,702.4 2,609.5
Installment 826.4 817.3 774.5
Lease Financing 424.4 392.9 384.6
- --------------------------------------------------------------------------------
Total Domestic 7,177.8 7,356.9 7,101.6
- --------------------------------------------------------------------------------
Foreign Loans 1,505.4 795.5 792.4
- --------------------------------------------------------------------------------
Total Loans $8,683.2 $8,152.4 $7,894.0
================================================================================
Commercial and Industrial Loans
Commercial and Industrial (C & I) loans ended September 30,
1996 at $1.8 billion. Decreases of 5.0% and 3.0% are reported
for C & I loans, compared with year-end 1995 and September 30,
1995, respectively. The decline was the result of large loan
payoffs and limited volume of new loan activity. Lending to the
cable television and media industry continues to play an
important role. Loans to the cable television and media
industries totaled $626.5 million, up from $588.0 million and
$615.9 million at year-end 1995 and September 30, 1995,
respectively.
Real Estate Loans
Real estate loans, as a group, remain the largest segment of
the loan portfolio. As of September 30, 1996, real estate loans
represented 47.4% 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, 1996,
residential mortgages totaled $2.6 billion, compared with $2.7
billion at December 31, 1995 and $2.6 billion at September 30,
1995. The decrease from year-end 1995 resulted from the
securitization of $350 million in residential mortgages in the
second quarter of this year.
Commercial mortgage loans totaled $1.5 billion at September
30, 1996, similar to the $1.5 billion at year-end 1995 and $1.4
billion at September 30, 1995. Commercial mortgage loans are
generally secured by real estate located in Hawaii, although
commercial mortgage loans totaling approximately $48.4 million
are outstanding in Arizona, largely at First National Bank of
Arizona (FNBA) and approximately $182.1 million are outstanding
in Guam at Bank of Hawaii and First Savings and Loan Association
of America. As reported in Bancorp's 1995 Annual Report to
shareholders, the properties securing these loans remain
diversified. Properties include shopping centers,
commercial/industrial/warehouse facilities, and office buildings.
These loans secured by commercial/industrial/warehouse and office
buildings are generally partially occupied by the owners.
Construction loans represent 5.9% of the real estate
portfolio. As of September 30, 1996, total construction loans
(both residential and commercial) totaled $244.2 million, an
increase of 4.7% and 17.1% over year-end 1995 and September 30,
1995, respectively. These loans tend to be short-term in nature
with permanent take out financing commitments in place before the
construction begins.
Other Lending
Other lending includes installment loans, leasing activities
and foreign loans. Installment loans increased ending the third
quarter of 1996 at $826.4 million, compared with $817.3 million
at year-end 1995 and $774.5 million at September 30, 1995.
Credit cards (included in the installment totals) have grown to
$268.0 million as of September 30, 1996, up 2.4% from year-end
1995 and 12.7% from the same date a year ago. This growth
results from the expansion of credit card activity in the Bank of
Hawaii with its Contiki Card, co-branded Continental Airlines
Card in Micronesia and the MasterCard programs all introduced in
1995. Also included in installment loans are consumer
installment loans which totaled $483.9 million at September 30,
1996, compared with $457.8 million at December 31, 1995 and
$437.4 million on September 30, 1995. These consumer installment
loans consist mainly of auto loans (direct and indirect),
unsecured creditlines, and guaranteed student loans.
Leasing activity has increased 8% since year-end 1995. At
September 30, 1996, total leases outstanding were $424.4 million
compared with $392.9 million at year-end 1995 and $384.6 million
September 30, 1995.
Foreign loans totaled $1.5 billion at September 30, 1996,
almost double the outstanding balances at year-end 1995 and
September 30, 1995. The increase reflects the acquisition of the
loan portfolios of BDT and BNC in the second quarter of 1996.
BDT and BNC reported total loans of $617.6 million at September
30, 1996, more than half of which was in the C & I category.
Non-Performing Assets and Past Due Loans
Total non-performing assets (NPA) which include non-accrual
loans and foreclosed real estate totaled $98.6 million or 1.14%
of total loans outstanding as of September 30, 1996. This ratio
has grown from 0.70% at both year-end 1995 and September 30,
1995. Total non-performing assets have increased with the
acquisition of BDT and BNC who reported $21.5 million in NPA as
of September 30, 1996.
Non-accrual loans increased during the quarter ending
September 30, 1996 to $89.7 million. Comparatively, non-accrual
loans totaled $51.6 million at September 30, 1995, $47.6 million
at year-end 1995, and $74.4 million at June 30, 1996. The large
increase reflected the non-accrual loans from BDT and BNC and
larger loans (two in the commercial category and two in the
commercial real estate category) aggregating $9.0 million placed
on non-accrual during the third quarter of 1996. Non-accrual
residential real estate loans have increased to $23.9 million at
September 30, 1996 from $14.7 million at year-end 1995 and $19.0
million a year ago.
Foreclosed real estate has decreased slightly from year-end
to $8.9 million. There were less than 20 properties in the
foreclosed real estate category as of September 30, 1996.
Foreclosed real estate remains at low levels representing 0.06%
of total assets as of September 30, 1996.
Accruing loans past due 90 days or more increased from $20.7
million at year-end 1995 to $35.4 million at September 30, 1996.
Accruing loans past due 90 days were $21.3 million and $35.0
million at the ends of the first and second quarters of 1996,
respectively. As the table below shows, much of the increase has
been in the foreign category reflecting the acquisition of the
banks in the South Pacific. There is also, however, an increase
in the level of installment loan delinquencies which has followed
a trend experienced by other banks on the U. S. mainland.
Total NPAs and loans 90 days past due totaled $134.0 million
at September 30, 1996, compared with $77.6 million and $71.4
million at year-end 1995 and September 30, 1995, respectively.
Total NPAs and loans 90 days past due represented 1.54% of total
loans outstanding at September 30, 1996, compared with 0.95% at
year-end 1995 and 0.90% at September 30, 1995.
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) 1996 1995 1995
- -------------------------------------------------------------------------------
Non-Accrual Loans
Commercial $23.3 $16.9 $15.4
Real Estate
Construction 0.3 0.3 0.5
Commercial 18.0 14.9 15.8
Residential 23.9 14.7 19.0
Installment 2.2 0.8 0.9
Leases -- -- --
Foreign 21.4 -- --
- -------------------------------------------------------------------------------
Subtotal 89.1 47.6 51.6
Foreclosed Real Estate
Domestic 8.9 9.3 3.8
Foreign -- -- --
- -------------------------------------------------------------------------------
Subtotal 8.9 9.3 3.8
- -------------------------------------------------------------------------------
Total Non-Performing Assets 98.0 56.9 55.4
- -------------------------------------------------------------------------------
Accruing Loans Past Due 90 Days or More
Commercial 11.6 1.8 1.2
Real Estate
Construction 0.3 -- --
Commercial 5.3 2.4 0.1
Residential 7.7 5.8 7.5
Installment 9.7 10.5 7.1
Leases 0.3 0.2 0.1
Foreign -- -- --
- -------------------------------------------------------------------------------
Subtotal 34.9 20.7 16.0
- -------------------------------------------------------------------------------
Total $132.9 $77.6 $71.4
===============================================================================
Ratio of Non-Performing Assets
to Total Loans 1.13% 0.70% 0.70%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Ratio of Non-Performing Assets
and Accruing Loans Past Due
90 Days or More to Total Loans 1.53% 0.95% 0.90%
- -------------------------------------------------------------------------------
Summary of Loan Loss Experience
The reserve for loan losses totaled $167.8 million, 1.97% of
loans outstanding as of September 30, 1996. Comparatively, this
ratio was 1.95% at September 30, 1995 and 1.90% at year-end 1995.
The provision for losses for the third quarter of 1996 was
$3.7 million, bringing the year-to-date loss provision to $12.3
million. Comparatively, the year-to-date provision for losses
was $13.0 million as of this date in 1995. Net recoveries of
$0.8 million was recognized for the third quarter which brings
year-to-date net charge-offs to $3.4 million through September
30, 1996.
Gross charge-offs for the third quarter were $9.1 million,
resulting in year-to-date charge-offs of $30.0 million. Gross
charge-offs were $21.6 million for the first nine months of 1995.
Recoveries have been strong during the year, partly due to the
recovery of $7.0 million on loans secured by commercial leasehold
property charged-off in 1992 and 1993. For the year-to-date,
$26.6 million has been recorded as recoveries.
The year-to-date annualized ratio of net charge-offs to
average loans outstanding at September 30, 1996 was -0.04%,
compared with 0.18% at year-end 1995 and 0.19% at September 30,
1995.
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.
- ---------------------------------------------------------------------------------------------------
Third Third First Nine First Nine
Quarter Quarter Months Months
(in millions of dollars) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------
Average Loans Outstanding $8,467.4 $7,611.8 $8,317.5 $7,603.4
Balance of Reserve for Possible Loan Losses
at Beginning of Period $163.3 $150.3 $152.0 $148.5
Loans Charged Off
Commercial and Industrial 2.1 0.8 6.0 7.4
Real Estate - Construction -- -- -- 2.1
Real Estate - Mortgage
Commercial 1.5 1.0 2.8 1.5
Residential 0.1 0.5 1.0 0.7
Installment 5.3 3.2 19.9 9.6
Foreign -- -- -- --
Leases 0.1 0.2 0.3 0.3
- ---------------------------------------------------------------------------------------------------
Total Charged Off 9.1 5.7 30.0 21.6
Recoveries on Loans Previously Charged Off
Commercial and Industrial 8.1 0.4 21.3 5.9
Real Estate - Construction -- -- 0.7 --
Real Estate - Mortgage
Commercial -- 0.1 0.1 0.1
Residential 0.2 0.1 0.4 0.1
Installment 1.4 0.7 3.5 2.4
Foreign 0.1 0.3 0.1 1.6
Leases 0.1 0.3 0.5 0.9
- ---------------------------------------------------------------------------------------------------
Total Recoveries 9.9 1.9 26.6 11.0
- ---------------------------------------------------------------------------------------------------
Net Charge Offs (Recoveries) (0.8) 3.8 3.4 10.6
Provision Charged to Operating Expenses 3.7 4.4 12.3 13.0
Reserves Acquired (Sold) -- -- 6.9 --
- ---------------------------------------------------------------------------------------------------
Balance at End of Period $167.8 $150.9 $167.8 $150.9
===================================================================================================
Ratio of Net Charge Offs (Recoveries) to
Average Loans Outstanding (annualized) -0.04% 0.20% 0.05% 0.19%
- ---------------------------------------------------------------------------------------------------
Ratio of Reserve to Loans Outstanding 1.97% 1.95% 1.97% 1.95%
- ---------------------------------------------------------------------------------------------------
Capital
Bancorp's total capital at September 30, 1996 totaled $1.1
billion. New shares issued for the profit-sharing, stock option
and dividend reinvestment plans increased capital by $2.6 million
during the quarter, $11.1 million from these sources for the
year-to-date. Under Bancorp's continuing stock repurchase
programs, $9.9 million of shares were repurchased during the
third quarter of 1996. Dividends for the quarter increased to
$12.3 million, compared with $11.3 million for the third quarter
of 1995. The dividends were paid at $0.30 per share for the
third quarter of 1996.
Regulatory risk-based capital remained well above minimum
guidelines. At September 30, 1996, Bancorp's Total Capital and
Tier 1 Capital ratios were 11.95% and 9.57%, 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 quarterly average assets, was 7.41% at
September 30, 1996, compared to 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 third quarter of 1996 was 3.80%, an increase from the
3.74% reported for the same quarter in 1995 and a decrease from
the 3.91% reported for the second quarter of 1996. Year-to-date
spread for 1996 was 3.83% compared with 3.72% for the same period
in 1995 and the full year. Although spread has decreased between
the second and third quarters of 1996 with the increase in
average earning assets reported during the quarter, net interest
income increased $1.6 million on a taxable equivalent basis.
The yield on earning assets for the third quarter of 1996
was 7.76%, decreasing from the 7.88% reported for the second
quarter of 1996, and the 7.80% for the third quarter of 1995.
The yield on earnings assets was 7.77% for all of 1995. The cost
of funds rate was 4.60% for the quarter ended September 30, 1996,
compared with the 4.76% reported for the second quarter of 1996.
Comparatively, the cost of funds rate was 4.82% for the third
quarter of 1995 and 4.79% for all of 1995.
Average earning assets for the third quarter of 1996 were
$12.8 billion, compared with $12.5 billion for the second quarter
and $12.4 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, 1996 September 30, 1995
Average Income/Yield/ Average Income/Yield/
(in millions of dollars) Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------
Earning Assets
Interest Bearing Deposits $786.1 $9.2 4.67% $695.9 $10.4 5.92%
Investment Securities
-Taxable 1,261.8 20.5 6.48 1,550.0 23.4 5.98
-Tax-Exempt 12.7 0.5 14.12 15.3 0.5 13.16
2,229.4 35.9 6.41 1,587.8 26.9 6.73
Funds Sold 90.7 0.8 3.63 72.6 0.7 3.83
Net Loans
-Domestic 6,990.3 142.4 8.10 6,843.0 143.5 8.32
-Foreign 1,477.1 34.8 9.37 768.8 13.5 6.97
Loan Fees 6.4 7.8
------------------------ ------------------------
Total Earning Assets 12,848.1 250.5 7.76 11,533.4 226.7 7.80
Cash and Due From Banks 463.7 457.9
Other Assets 438.2 405.3
---------- ----------
Total Assets $13,750.0 $12,396.6
========== ==========
Interest Bearing Liabilities
Domestic Deposits - Demand $1,764.1 11.7 2.65 $1,717.6 12.9 2.98
- Savings 913.4 5.8 2.51 1,036.4 7.7 2.95
- Time 2,620.1 35.5 5.40 1,829.8 23.7 5.14
------------------------ ------------------------
Total Domestic 5,297.6 53.0 3.98 4,583.8 44.3 3.84
Total Foreign 1,915.8 23.4 4.85 913.2 15.6 6.78
------------------------ ------------------------
Total Deposits 7,213.4 76.4 4.21 5,497.0 59.9 4.33
Short-Term Borrowings 2,727.4 36.3 5.30 3,199.2 43.9 5.45
Long-Term Debt 1,120.1 15.2 5.40 1,003.7 14.0 5.54
------------------------ ------------------------
Total Interest Bearing Liabilities 11,060.9 127.9 4.60 9,699.9 117.8 4.82
------------------------ ------------------------
Net Interest Income 122.6 3.16 108.9 2.98
Average Spread on Earning Assets 3.80% 3.74%
Demand Deposits 1,364.3 1,406.8
Other Liabilities 254.5 252.1
Shareholders' Equity 1,070.3 1,037.8
---------- ----------
Total Liabilities and Shareholders' Equity $13,750.0 $12,396.6
========== ==========
Provision for Possible Losses 3.7 4.4
Net Overhead 69.1 52.0
------- -------
Income Before Income Taxes 49.8 52.5
Provision for Income Taxes 18.2 19.2
Tax-Equivalent Adjustment 0.3 0.4
------- -------
Net Income $31.3 $32.9
======= =======
Consolidated Average Balances and Interest Rates Taxable Equivalent Bancorp Hawaii, Inc. and subsidiaries
- ----------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
Average Income/Yield/ Average Income/Yield/
(in millions of dollars) Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------
Earning Assets
Interest Bearing Deposits $730.8 $28.1 5.14% $648.1 $28.8 5.93%
Investment Securities
-Taxable 1,026.4 49.7 6.47 1,545.3 70.1 6.07
-Tax-Exempt 13.2 1.4 14.06 16.5 1.6 13.06
2,262.7 108.8 6.42 1,590.1 78.2 6.57
Funds Sold 87.5 2.9 4.43 65.9 2.5 5.17
Net Loans
-Domestic 7,132.3 438.3 8.21 6,868.5 424.7 8.27
-Foreign 1,185.2 74.1 8.36 734.8 37.3 6.79
Loan Fees 23.0 20.9
------------------------ ------------------------
Total Earning Assets 12,438.1 726.3 7.80 11,469.2 664.1 7.74
Cash and Due From Banks 455.5 471.1
Other Assets 429.7 388.7
---------- ----------
Total Assets $13,323.3 $12,329.0
========== ==========
Interest Bearing Liabilities
Domestic Deposits - Demand $1,726.4 35.5 2.74 $1,759.1 38.7 2.95
- Savings 956.5 18.1 2.53 1,072.8 23.1 2.88
- Time 2,398.4 97.2 5.41 1,774.9 72.3 5.44
------------------------ ------------------------
Total Domestic 5,081.3 150.8 3.96 4,606.8 134.1 3.89
Total Foreign 1,566.3 58.9 5.03 915.1 39.8 5.82
------------------------ ------------------------
Total Deposits 6,647.6 209.7 4.21 5,521.9 173.9 4.21
Short-Term Borrowings 2,827.3 112.5 5.31 3,169.7 129.5 5.46
Long-Term Debt 1,174.0 47.2 5.37 988.6 41.4 5.60
------------------------ ------------------------
Total Interest Bearing Liabilities 10,648.9 369.4 4.63 9,680.2 344.8 4.76
------------------------ ------------------------
Net Interest Income 356.9 3.17 319.3 2.98
Average Spread on Earning Assets 3.83% 3.72%
Demand Deposits 1,380.1 1,404.7
Other Liabilities 227.0 229.2
Shareholders' Equity 1,067.3 1,014.9
---------- ----------
Total Liabilities and Shareholders' Equity $13,323.3 $12,329.0
========== ==========
Provision for Possible Losses 12.3 13.0
Net Overhead 190.1 160.9
------- -------
Income Before Income Taxes 154.5 145.4
Provision for Income Taxes 54.9 54.4
Tax-Equivalent Adjustment 0.9 1.3
------- -------
Net Income $98.7 $89.7
======= =======
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 as of September 30, 1996. The distribution of assets and
liabilities in this table is generally made using a combination
of maturities, call provisions, repricing frequency, prepayment
patterns all of which are further adjusted for historic trends
and tendencies. Bancorp analyzes historic data trends for
balance sheet items and makes adjustments for interest rate
sensitivity characteristics as necessary. For example, a portion
of Bancorp's interest bearing demand and savings balances are
relatively insensitive to changes in interest rates.
Consequently, Bancorp has allocated portions of those balances to
longer term interest rate sensitivity periods. As the table
indicates, Bancorp's one-year cumulative asset sensitive gap
totaled $267.4 million, representing 1.94% of total assets.
Comparatively, the one-year cumulative gap was $127.6 million
liability sensitive at year-end 1995, or 0.97% of total assets.
Bancorp uses interest rate swaps as a cost effective risk
management tool for dealing with interest rate risk. Swap
activity remains limited and during the first nine months of 1996
only reflected maturities of existing swap agreements. At
September 30, 1996, the notional amount of swaps totaled $0.7
billion compared with $1.1 billion at year-end 1995. Net expense
on interest rate swap agreements totaled $1.0 million for the
third quarter of 1996 and $3.2 million through September 30,
1996. Comparatively, net expense of $11.7 million was recognized
for all of 1995.
Interest Rate Sensitivity Table Bancorp Hawaii, Inc. and subsidiaries
- --------------------------------------------------------------------------------------------
SEPTEMBER 30, 1996 OVER NON-INTEREST
(in millions of dollars) 0 - 90 DAYS 91-365 DAYS 1 - 5 YEARS 5 YEARS BEARING
- --------------------------------------------------------------------------------------------
ASSETS (1)
INVESTMENT SECURITIES 1,432.5 863.6 881.6 436.0 -
SHORT TERM INVESTMENTS 78.2 10.0 - - -
INTERNATIONAL ASSETS 901.0 311.0 22.7 24.7 23.1
DOMESTIC LOANS (2) 2,884.2 2,140.9 1,952.7 812.2 66.5
TRADING SECURITIES - - 1.4 - -
OTHER ASSETS 73.1 36.6 256.0 - 572.4
TOTAL ASSETS 5,369.0 3,362.1 3,114.4 1,272.9 662.0
LIABILITIES AND CAPITAL (1)
NON-INT BEARING DEMAND (3) 250.1 165.9 639.5 263.9 -
INT BEARING DEMAND (3) 247.2 247.2 824.2 329.7 -
SAVINGS (3) 106.8 106.8 498.3 178.0 -
TIME DEPOSITS 756.7 1,166.5 622.4 41.1 -
FOREIGN DEPOSITS 1,312.6 279.0 47.2 - 335.4
S/T BORROWINGS 2,064.0 825.8 75.3 - -
LONG-TERM DEBT 212.1 286.6 339.3 119.4 -
OTHER LIABILITIES - - - - 374.7
CAPITAL - - - - 1,064.7
TOTAL LIABILITIES AND CAPIT 4,949.5 3,077.8 3,046.2 932.1 1,774.8
INTEREST RATE SWAPS -519.7 83.3 436.4 - -
INTEREST SENSITIVITY GAP -100.2 367.6 504.6 340.8 -1112.8
CUMULATIVE GAP -100.2 267.4 772.0 1112.8 -
PERCENTAGE OF TOTAL ASSETS -0.73% 1.94% 5.60% 8.08% -
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 as described in Bancorp's 1995 Annual Report
remains in place.
At September 30, 1996, deposits were $8.4 billion, compared
to $8.4 billion and $7.6 billion reported at June 30, 1996 and
year-end 1995, respectively. The growth in deposits is largely
reflected in the Foreign category which was due to the
acquisition of BDT and BNC earlier this year. The foreign
deposit category is generally made up of larger inter-bank
deposits, except in the case of the BDT and BNC deposits which
were $0.9 billion at September 30, 1996. BDT and BNC deposits
are comprised largely of retail type deposits, including demand,
savings and time deposits. 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 $2.0 billion at September 30, 1996, compared to
$1.7 billion and $1.9 billion at June 30, 1996, and year-end
1995, respectively.
Short term borrowing, including Fed Funds, decreased to $1.0
billion at the end of September 1996 from $1.1 billion at June
30, 1996 and $1.3 billion at year-end 1995. Long-term debt has
decreased from $1.1 billion at year-end 1995 to $1.0 billion at
the end of September 1996, reflecting maturities. During the
quarter no new debt was issued under Bank of Hawaii's $1 billion
"revolving" Bank Note program. At September 30, 1996, Bank Notes
issued by Bank of Hawaii totaled $600.0 million, compared to
$849.6 million outstanding at year-end 1995.
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 1995 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,
1996 was 2.53, the same ratio for all of 1995.
Bancorp's efficiency ratio was 65.5% for the first nine
months of 1996. 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
ratios for 1995 and 1994 were 63.6% and 60.5 %, respectively.
Non-interest income for the third quarter of 1996 was $43.5
million, an increase of 21.2% over the similar quarter of 1995
and up 2.0% over the second quarter of 1996. For the year-to-
date, non-interest income totaled $123.8 million, up 10.9%
compared with the same period last year. For the year-to-date,
BDT and BNC contributed $7.8 million in non-interest income
driving the increase. Trust income for the first nine months
totaled $37.1 million, down 0.9% compared with the same period a
year ago. Service charges on deposit accounts are reporting
growth of 10.5% year over year through September 30. Fees,
exchange, and other service charges through September 30, 1996
totaled $40.7 million, a 10.3% increase compared with the same
period a year ago. The increase was largely due to the BDT and
BNC fees and increases in ATM fees and mortgage servicing fees.
Other operating income for the year-to-date was $24.5 million
through September, an increase from the $15.8 million reported
for the same period in 1995. The increase was due to the fees
reported by BDT and BNC ($3.3 million for the year-to-date),
higher earnings of the remaining affiliates, interest earned on a
cash basis, and income from Bank owned life insurance policies.
Investment Securities net gains and losses for 1996 through
September were $0.2 million gain, compared with $2.3 million gain
in 1995 for the same period. The gains in the prior year were
largely due to the liquidation of securities held by Bancorp
Hawaii Small Business Investment Corporation.
Non-interest expense for the third quarter of 1996 totaled
$112.6 million, compared with $87.9 million for the same period
in 1995. Non-interest expenses for the first two quarters of
1996 were $97.6 million and $103.8 million, respectively, the
increase between the first and second quarters reflecting the
acquisition of BDT and BNC. The increase for the third quarter
resulted from a full quarter of expenses for BDT and BNC and the
SAIF expense mentioned earlier.
Salaries and benefits totaled $52.7 million for the third
quarter of 1996 compared with $45.7 million for the same quarter
a year ago. The increase is primarily due to the consolidation
of BDT and BNC into Bancorp's totals. BDT and BNC reported
salaries and benefits of $4.6 million for the quarter. For the
year-to-date, Bancorp's salary and benefits totaled $155.7
million compared with $138.8 million for the same period in 1995.
Again, the increase is partly due to the BDT and BNC salary and
benefit expenses. The remaining increase is attributed to higher
compensation expenses that are driven by the profitability of the
company; expenses such as profit-sharing and incentive
compensation are greater than in the prior year.
Net occupancy and equipment expense for the third quarter
totaled $19.3 million, compared to $17.2 million for the same
quarter in 1995, an increase of 12.4%. For the year-to-date, net
occupancy and equipment expense totaled $55.3 million, an
increase of 2.0%, compared with the same period in 1995.
Other operating expenses for the third quarter totaled $40.0
million, an increase from the $24.7 million reported for the same
quarter in 1995. For the year-to-date, other operating expense
totaled $101.8 million in 1996, compared with $78.8 million in
1995. The increase in this expense was driven by the expenses
for BDT and BNC ($10.3 million), the special SAIF assessment of
$5.0 million and the loss on the early disposition of leased
equipment recorded in the first quarter of $2.8 million.
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, 1996.
Exhibit #27 - Financial Data Schedule.
(b) There were no reports on Form 8-K filed during the
quarter ended September 30, 1996.
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 13, 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,
Treasurer and Chief Financial
Officer