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UNITED STATES
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, 2000
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 0-7949
BANCWEST CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 99-0156159
(State of incorporation) (I.R.S. Employer
Identification No.)
999 BISHOP STREET, HONOLULU, HAWAII 96813
(Address of principal executive offices) (Zip Code)
(808) 525-7000
(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 l5(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common stock
as of April 28, 2000 was:
Class Outstanding
------------------------------------- -----------------
Common Stock, $1.00 Par Value 70,103,431 Shares
Class A Common Stock, $1.00 Par Value 54,539,936 Shares
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
---------
Consolidated Balance Sheets at March 31, 2000, December 31,
1999 and March 31, 1999 2 - 3
Consolidated Statements of Income for the three months ended
March 31, 2000 and 1999 4
Consolidated Statements of Changes in Stockholders' Equity for
the three months ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
EXHIBIT INDEX
1
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BancWest Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS (Unaudited)
MARCH 31, December 31, March 31,
2000 1999 1999
------------ ------------ ------------
(in thousands)
ASSETS
Cash and due from banks $ 750,349 $ 809,961 $ 651,201
Interest-bearing deposits in other banks 245,510 9,135 520,686
Federal funds sold and securities purchased
under agreements to resell 217,359 71,100 66,400
Investment securities:
Held-to-maturity 125,890 142,868 283,660
Available-for-sale 2,086,309 1,868,003 1,364,132
Loans and leases:
Loans and leases 12,856,475 12,524,039 12,190,948
Less allowance for credit losses 162,666 161,418 159,488
------------ ------------ ------------
Net loans and leases 12,693,809 12,362,621 12,031,460
------------ ------------ ------------
Premises and equipment 279,757 281,665 280,545
Customers' acceptance liability 1,133 1,039 1,819
Core deposit intangible 62,878 65,092 71,732
Goodwill 619,281 613,620 629,960
Other real estate owned and repossessed
personal property 26,505 28,429 33,970
Other assets 419,507 427,489 335,971
------------ ------------ ------------
TOTAL ASSETS $ 17,528,287 $ 16,681,022 $ 16,271,536
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Domestic:
Noninterest-bearing demand $ 1,709,303 $ 1,577,042 $ 1,557,741
Interest-bearing demand 292,980 315,786 291,562
Savings 5,263,710 4,921,146 4,977,728
Time 5,822,645 5,825,330 5,292,010
Foreign 237,780 238,648 242,219
------------ ------------ ------------
Total deposits 13,326,418 12,877,952 12,361,260
------------ ------------ ------------
Federal funds purchased and securities sold
under agreements to repurchase 603,965 485,088 870,856
Other short-term borrowings 5,336 18,889 7,278
Acceptances outstanding 1,133 1,039 1,819
Other liabilities 659,275 653,532 513,129
Long-term debt 962,041 701,792 646,977
Guaranteed preferred beneficial interests
in Company's junior subordinated debentures 100,000 100,000 100,000
------------ ------------ ------------
TOTAL LIABILITIES $ 15,658,168 $ 14,838,292 $ 14,501,319
------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial
statements.
2
4
BancWest Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS, CONTINUED (Unaudited)
MARCH 31, December 31, March 31,
2000 1999 1999
------------ ------------ ------------
(in thousands)
Stockholders' equity:
Preferred stock - par value $1 per share,
Authorized and unissued - 50,000,000 shares at March 31, 2000,
December 31, 1999 and March 31, 1999 $ -- $ -- $ --
Class A common stock - par value $1 per share,
Authorized - 75,000,000 shares at March 31, 2000, December 31, 1999 and
March 31, 1999
Issued - 54,539,936, 51,629,536 and 25,814,768 shares at March 31, 2000,
December 31, 1999 and March 31, 1999, respectively 54,540 51,630 25,815
Common stock - par value $1 per share,
Authorized - 200,000,000 shares at March 31, 2000, December 31, 1999 and
March 31, 1999
Issued - 72,530,010, 75,418,850 and 37,562,614 shares at March 31, 2000,
December 31, 1999 and March 31, 1999, respectively 72,530 75,419 37,563
Surplus 1,124,682 1,124,512 1,183,769
Retained earnings 666,931 638,687 567,082
Accumulated other comprehensive income (10,977) (9,873) 5,693
Treasury stock, at cost - 2,433,765, 2,437,556 and 1,610,773 shares
of common stock at March 31, 2000, December 31, 1999 and
March 31, 1999, respectively (37,587) (37,645) (49,705)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,870,119 1,842,730 1,770,217
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,528,287 $ 16,681,022 $ 16,271,536
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
5
BancWest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED MARCH 31,
---------------------------------
2000 1999
------------ -------------
(in thousands, except number of
shares and per share data)
INTEREST INCOME
Interest and fees on loans $ 234,145 $ 220,273
Lease financing income 30,654 27,026
Interest on investment securities:
Taxable interest income 33,262 24,628
Exempt from Federal income taxes 275 275
Other interest income 3,051 4,463
------------ -------------
Total interest income 301,387 276,665
------------ -------------
INTEREST EXPENSE
Deposits 99,498 87,873
Short-term borrowings 8,964 9,111
Long-term debt 13,653 11,309
------------ -------------
Total interest expense 122,115 108,293
------------ -------------
Net interest income 179,272 168,372
Provision for credit losses 12,930 10,225
------------ -------------
Net interest income after provision for
credit losses 166,342 158,147
------------ -------------
NONINTEREST INCOME
Trust and investment services income 9,060 8,544
Service charges on deposit accounts 16,992 16,228
Other service charges and fees 17,988 15,805
Securities losses, net -- (12)
Other 5,997 6,253
------------ -------------
Total noninterest income 50,037 46,818
------------ -------------
NONINTEREST EXPENSE
Salaries and wages 45,338 45,425
Employee benefits 13,847 12,780
Occupancy expense 15,357 15,080
Equipment expense 7,186 7,845
Outside services 12,039 11,370
Intangible amortization 9,140 8,930
Merger-related charges -- 786
Other 28,670 28,152
------------ -------------
Total noninterest expense 131,577 130,368
------------ -------------
Income before income taxes 84,802 74,597
Provision for income taxes 35,371 32,091
------------ -------------
NET INCOME $ 49,431 $ 42,506
============ =============
PER SHARE DATA(1) :
BASIC EARNINGS $ .40 $ .34
============ =============
DILUTED EARNINGS $ .40 $ .34
============ =============
CASH DIVIDENDS $ .17 $ .15
============ =============
AVERAGE SHARES OUTSTANDING(1) 124,629,350 123,491,580
============ =============
(1) Per share data and average shares outstanding were computed on a combined
basis using average Class A common stock and common stock.
The accompanying notes are an integral part of these consolidated financial
statements.
4
6
BancWest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Class A
Common Common Retained
Stock Stock Surplus Earnings
------- -------- ----------- ---------
(in thousands, except per share data)
Balance, December 31, 1999 $51,630 $ 75,419 $ 1,124,512 $ 638,687
Comprehensive income:
Net income -- -- -- 49,431
Unrealized valuation adjustment,
net of tax and reclassification
adjustment -- -- -- --
------- -------- ----------- ---------
Comprehensive income -- -- -- 49,431
------- -------- ----------- ---------
Conversion of common stock to
Class A common stock 2,910 (2,910) -- --
Issuance of common stock -- 21 172 --
Incentive Plan for Key Executives -- -- (2) --
Cash dividends ($.17 per share) -- -- -- (21,187)
------- -------- ----------- ---------
Balance, March 31, 2000 $54,540 $ 72,530 $ 1,124,682 $ 666,931
======= ======== =========== =========
Balance, December 31, 1998 $25,815 $ 37,538 $ 1,183,274 $ 543,755
Comprehensive income:
Net income -- -- -- 42,506
Unrealized valuation adjustment,
net of tax and reclassification
adjustment -- -- -- --
------- -------- ----------- ---------
Comprehensive income -- -- -- 42,506
------- -------- ----------- ---------
Issuance of common stock -- 25 552 --
Incentive Plan for Key Executives -- -- (57) --
Issuance of treasury stock under
Stock Incentive Plan -- -- -- --
Cash dividends ($.15 per share) -- -- -- (19,179)
------- -------- ----------- ---------
Balance, March 31, 1999 $25,815 $ 37,563 $ 1,183,769 $ 567,082
======= ======== =========== =========
Accumulated
Other
Comprehensive Treasury
Income Stock Total
------------- --------- -----------
(in thousands, except per share data)
Balance, December 31, 1999 $ (9,873) $(37,645) $ 1,842,730
Comprehensive income:
Net income -- -- 49,431
Unrealized valuation adjustment,
net of tax and reclassification
adjustment (1,104) -- (1,104)
-------- -------- -----------
Comprehensive income (1,104) -- 48,327
-------- -------- -----------
Conversion of common stock to
Class A common stock -- -- --
Issuance of common stock -- -- 193
Incentive Plan for Key Executives -- 58 56
Cash dividends ($.17 per share) -- -- (21,187)
-------- -------- -----------
Balance, March 31, 2000 $(10,977) $(37,587) $ 1,870,119
======== ======== ===========
Balance, December 31, 1998 $ 6,228 $(50,454) $ 1,746,156
Comprehensive income:
Net income -- -- 42,506
Unrealized valuation adjustment,
net of tax and reclassification
adjustment (535) -- (535)
-------- -------- -----------
Comprehensive income (535) -- 41,971
-------- -------- -----------
Issuance of common stock -- -- 577
Incentive Plan for Key Executives -- 55 (2)
Issuance of treasury stock under
Stock Incentive Plan -- 694 694
Cash dividends ($.15 per share) -- -- (19,179)
-------- -------- -----------
Balance, March 31, 1999 $ 5,693 $(49,705) $ 1,770,217
======== ======== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
7
BancWest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
---------- ----------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 49,431 $ 42,506
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 12,930 10,225
Depreciation and amortization 17,767 16,519
Income taxes 35,122 29,138
Increase in interest receivable (7,653) (2,035)
Increase (decrease) in interest payable (12,630) 1,710
Increase in prepaid expenses (4,384) (5,399)
Merger-related charges -- 786
Other (5,476) (24,369)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 85,107 69,081
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in interest-bearing deposits
in other banks (236,375) (246,045)
Net decrease (increase) in Federal funds sold and
securities purchased under agreements to resell (146,259) 100
Proceeds from maturity of held-to-maturity
investment securities 16,978 23,169
Purchase of held-to-maturity investment securities -- (15,907)
Proceeds from maturity of available-for-sale
investment securities 226,515 196,276
Purchase of available-for-sale investment securities (446,654) (102,104)
Proceeds from sale of available-for-sale
investment securities -- 21,828
Net increase in loans and leases to customers (347,553) (219,433)
Purchase of premises and equipment (4,305) (1,013)
Other (167) (6,518)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (937,820) (349,647)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 448,466 317,210
Net increase (decrease) in Federal funds purchased and securities
sold under agreements to repurchase 118,877 (19,039)
Net decrease in other short-term borrowings (13,553) (25,694)
Proceeds from long-term debt, net 260,249 12,609
Cash dividends paid (21,187) (19,179)
Proceeds from issuance of common stock 193 396
Proceeds from issuance of treasury stock 56 692
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 793,101 266,995
---------- ----------
NET DECREASE IN CASH AND DUE FROM BANKS (59,612) (13,571)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 809,961 664,772
---------- ----------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 750,349 $ 651,201
========== ==========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 134,745 $ 106,437
========== ==========
Income taxes paid $ 249 $ 2,953
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Loans converted into other real estate owned and
repossessed personal property $ 5,383 $ 3,786
========== ==========
Loans made to facilitate the sale of other real estate owned $ 1,948 $ 1,563
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
6
8
BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of BancWest Corporation and
Subsidiaries (the "Company" or "we/our") conform with generally accepted
accounting principles and practices within the banking industry. The following
is a summary of significant accounting policies:
CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
BancWest Corporation ("BWE") and its wholly-owned subsidiaries: First Hawaiian
Bank and its wholly-owned subsidiaries ("First Hawaiian"); Bank of the West and
its wholly-owned subsidiaries ("Bank of the West"); FHL Lease Holding Company,
Inc. and its wholly-owned subsidiary; First Hawaiian Capital I (of which BWE
owns all the common securities); and FHI International, Inc. All significant
intercompany balances and transactions have been eliminated in consolidation. In
the opinion of management, all adjustments (which included only normal recurring
adjustments) necessary for a fair presentation are reflected in the consolidated
financial statements.
RECLASSIFICATIONS AND RESTATEMENTS
Certain amounts in the consolidated financial statements for 1999 have been
reclassified to conform with the 2000 presentation. In addition, the
consolidated financial statements for all periods presented have been restated
to include the results of operations, financial position, and changes in cash
flows for the acquisition of SierraWest Bancorp, which was accounted for as a
pooling of interests. See Note 6. Such reclassifications and restatements had no
material effect on the consolidated net income as previously reported.
2. NEW PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires the recognition of all derivative instruments in the
statement of financial position as either assets or liabilities and the
measurement of derivative instruments at fair value. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." The
original effective date for SFAS No. 133 was for all fiscal years beginning
after June 15, 1999. As a result of SFAS No. 137, the effective date for SFAS
No. 133 is for all fiscal quarters of all fiscal years beginning after June 15,
2000. The adoption of SFAS No. 133, as amended by SFAS No. 137, is not expected
to have a material effect on the Company's consolidated financial statements.
3. COMMON STOCK INFORMATION
In the fourth quarter of 1999, our Board of Directors approved a two-for-one
stock split of the total issued shares of our common stock and Class A common
stock. In addition, the stock split increased the number of treasury shares. The
stock split did not cause any changes in the $1 par value per share of the
common stock, the $1 par value per share of Class A common stock or in total
stockholders' equity. All per share information has been restated to reflect the
stock split and has been computed to include both common and Class A common
shares.
The following is a reconciliation of the numerators and denominators used to
calculate the Company's basic and diluted earnings per share for the periods
indicated:
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- -------------------------------------------
INCOME AVERAGE SHARES PER SHARE Income Average Shares Per Share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) Amount
----------- -------------- --------- ----------- -------------- ---------
(in thousands, except number of shares and per share data)
Basic:
Net income $49,431 124,629,350 $.40 $42,506 123,491,580 $.34
Effect of dilutive securities -
Stock Incentive
Plan options -- 48,144 -- -- 936,262 --
------- ----------- ---- ------- ----------- ----
Diluted:
Net income and
assumed conversions $49,431 124,677,494 $.40 $42,506 124,427,842 $.34
------- ----------- ---- ------- ----------- ----
7
9
BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
4. IMPAIRED LOANS
The following table summarizes impaired loan information as of and for the
three months ended March 31, 2000 and 1999 and as of and for the year ended
December 31, 1999:
March 31, 2000 December 31, 1999 March 31, 1999
-------------- ----------------- --------------
(in thousands)
Impaired loans $90,590 $ 95,421 $113,826
Impaired loans with related allowance for credit
losses calculated under SFAS No. 114 $76,150 $ 72,258 $ 81,556
Total allowance for credit losses on impaired loans $15,319 $ 15,833 $ 19,545
Average impaired loans $93,005 $107,948 $110,489
Interest income recognized on impaired loans $ 562 $ 4,349 $ 78
Under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan,"
loans are considered impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the loan
agreement, including scheduled interest payments. For a loan that has been
restructured, the contractual terms of the loan agreement refer to the terms of
the original loan agreement. Not all impaired loans are necessarily placed on
nonaccrual status; for example, restructured loans performing under restructured
terms beyond a specific period may be classified as accruing, but may still be
deemed impaired. Impaired loans without a related allowance for credit losses
are generally collateralized by assets with fair values in excess of the
recorded investment in the loans. Interest payments on impaired loans are
generally applied to reduce the outstanding principal amounts of such loans.
5. MERGER WITH BANCWEST CORPORATION AND RELATED MATTERS
On November 1, 1998, we consummated the merger (the "BancWest Merger") of
the former BancWest Corporation, parent company of Bank of the West, with and
into First Hawaiian, Inc. ("FHI"). FHI, the surviving corporation of the
BancWest Merger, changed its name to BancWest Corporation on November 1, 1998.
We recorded pre-tax restructuring, BancWest Merger-related and other
nonrecurring costs totaling $25.527 million in 1998. In connection with
recording these costs, a liability of $11.302 million was recorded in 1998, of
which $4.698 million remained accrued as of December 31, 1999. In the first
quarter of 2000, this liability was reduced by $495,000 related to excess leased
commercial properties. As of March 31, 2000, $3.941 million related to excess
leased commercial properties and $262,000 in other restructuring, merger-related
and other nonrecurring costs remained accrued.
On July 19, 1999, we announced plans to consolidate our three existing data
centers into a single data center in Honolulu. The consolidation is being
accomplished through a facilities management contract with a service provider
assuming management of First Hawaiian's existing information technology center.
As a result of this consolidation effort, we recorded pre-tax restructuring and
other nonrecurring costs of $6.854 million in the third quarter of 1999. Those
costs are comprised of $3.777 million for the write-off of capitalized
information technology costs, $1.454 million for employee severance costs and
$1.623 million in other nonrecurring costs. At December 31, 1999, the amount of
the outstanding liability relating to these costs was $2.618 million. During the
first quarter of 2000, $358,000 in other nonrecurring costs were paid, further
reducing this liability. At March 31, 2000, the remaining amounts accrued for
restructuring and other nonrecurring costs related to the consolidation of data
centers were $1.454 million for employee severance cost and $806,000 for other
nonrecurring costs.
6. MERGER WITH SIERRAWEST BANCORP
On July 1, 1999, we completed our acquisition of SierraWest Bancorp
("SierraWest"). SierraWest and its subsidiary, SierraWest Bank, were merged into
Bank of the West, resulting in the issuance of approximately 4.40 million shares
(pre-split basis) of our common stock to the shareholders of SierraWest. The
acquisition was accounted for using the pooling-of-interests method of
accounting. In this report, we have restated all historical financial
information presented to include SierraWest. No material adjustments were
required to be recorded to conform SierraWest's accounting policies with ours.
In connection with the SierraWest merger, we recorded pre-tax restructuring,
merger-related and other nonrecurring costs of $10.680 million in 1999. These
costs were comprised of $3.358 million in severance and other employee benefits,
$1.648 million in equipment and occupancy expense, $4.219 million in expenses
for legal and other professional services and $1.455 million in other
nonrecurring costs. As of December 31, 1999, $949,000 of these costs remained
accrued. During the first quarter of 2000, we paid $345,000 in accrued severance
and other employee benefits, further reducing this liability. At March 31, 2000,
approximately $337,000 of severance and other employee benefits and
approximately $267,000 in other restructuring, merger-related and other
nonrecurring costs remained accrued.
7. UTAH AND IDAHO BRANCH ACQUISITION
In January 2000, we agreed to acquire 68 branches in Utah and Idaho that
were being divested as part of a planned merger between Zions Bancorporation and
First Security Corporation. The acquisition was contingent upon the completion
of the merger between Zions and First Security, which did not gain approval by
the shareholders of Zions Bancorporation and was therefore not consummated. In
the second quarter of 2000, BancWest received $5.0 million in termination fees
called for in the agreements with Zions and First Security, which is expected to
exceed the costs incurred by BancWest in the cancelled acquisition.
8
10
BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
8. OPERATING SEGMENTS
As of March 31, 2000, we had two reportable operating segments: Bank of the
West and First Hawaiian. The Bank of the West segment operates primarily on the
Mainland United States. The First Hawaiian segment operates primarily in the
State of Hawaii.
The financial results of our operating segments are presented on an accrual
basis. There are no significant differences between the accounting policies of
the segments as compared to the Company's consolidated financial statements. We
evaluate the performance of these segments and allocate resources to them based
on net interest income and net income. There are no material intersegment
revenues.
The tables below present information about the Company's operating segments
as of and for the three months ended March 31, 2000 and 1999, respectively.
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------
BANK
OF THE FIRST RECONCILING CONSOLIDATED
WEST HAWAIIAN OTHER ITEMS TOTALS
------- -------- ------- ----------- ------------
(in millions)
2000
NET INTEREST INCOME $ 102 $ 79 $ (2) $ -- $ 179
NET INCOME 25 26 (2) -- 49
SEGMENT ASSETS 10,171 7,334 2,806 (2,783) 17,528
1999
Net interest income $ 92 $ 78 $ (2) $ -- $ 168
Net income 20 24 (1) -- 43
Segment assets 8,856 7,342 2,525 (2,451) 16,272
The reconciling items in the tables above are primarily intercompany
eliminations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain matters contained in this filing are forward-looking statements
involving risks and uncertainties that could cause our actual results to differ
materially from those discussed in the statements. Readers should carefully
consider these risks and uncertainties in reading this report. Factors that
could cause or contribute to such differences include, but are not limited to:
(1) global, national and local economic and market conditions; (2) the level and
volatility of interest rates and currency values; (3) government fiscal and
monetary policies; (4) credit risks inherent in the lending process; (5) loan
and deposit demand in the geographic regions where we conduct business; (6) the
impact of intense competition in the rapidly evolving banking and financial
services business; (7) the extensive federal and state regulation of our
business, including the effect of current and pending legislation and
regulations; (8) whether expected revenue enhancements and cost savings are
realized within expected time frames; (9) matters relating to the integration of
the business of the Company, the former BancWest Corporation, and SierraWest
Bancorp, including the impact of combining these businesses on revenues,
expenses, deposit attrition, customer retention and financial performance; (10)
other items discussed below; and (11) management's ability to manage these
risks. We expressly disclaim any obligation or undertaking to update or revise
any forward-looking statement contained herein to reflect any change in our
expectations or any change in events, conditions or circumstances on which any
statement is based.
9
11
CONSOLIDATED FINANCIAL HIGHLIGHTS
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------- -------
(dollars in thousands,
except per share data)
EARNINGS AND DIVIDENDS:
Net income $49,431 $42,506
Operating earnings(1) 49,431 43,262
Cash earnings(2) 57,612 50,582
Operating cash earnings(1),(2) 57,612 51,338
Cash dividends 21,187 19,179
PER SHARE DATA(3):
Diluted:
Earnings $ .40 $ .34
Operating earnings(1) .40 .35
Cash earnings(2) .46 .41
Operating cash earnings(1),(2) .46 .41
Cash dividends .17 .15
Book value (at March 31) 15.00 14.33
Market price (NYSE close at March 31) 19.75 21.25
SELECTED FINANCIAL RATIOS:
Return on average total assets (ROA) 1.18% 1.09%
Return on average total assets (ROA)(1) 1.18 1.10
Return on average tangible assets(1),(4) 1.44 1.37
Return on average stockholders' equity (ROE) 10.74 9.81
Return on average stockholders' equity (ROE)(1) 10.74 9.98
Return on average tangible stockholders' equity(1),(4) 19.92 19.81
Net interest margin (taxable-equivalent basis) 4.82 4.84
Allowance for credit losses to total loans and leases (at March 31) 1.27 1.31
Nonperforming assets to total assets (at March 31) .70 .80
Allowance for credit losses to nonperforming loans and leases (at March 31) 168.4 166.2
(1) Excluding after-tax SierraWest merger-related costs of $756,000 in the first
quarter of 1999.
(2) Excluding amortization of goodwill and core deposit intangible.
(3) All per share data have been calculated to include both common and Class A
common shares and have been adjusted to give retroactive effect to the
two-for-one stock split in the fourth quarter of 1999.
(4) Defined as operating cash earnings as a percentage of average total assets
or average stockholders' equity minus average goodwill and core deposit
intangible.
10
12
NET INCOME
The following table compares net income, operating earnings, cash earnings and
operating cash earnings for the first three months of 2000 to the same period in
1999:
2000 1999 % Change
------- ------- --------
(in thousands)
Net income $49,431 $42,506 16.3%
Operating earnings(1) 49,431 43,262 14.3
Cash earnings(2) 57,612 50,582 13.9
Operating cash earnings(1),(2) 57,612 51,338 12.2
- ----------
(1) Excluding after-tax SierraWest merger-related costs.
(2) Excluding amortization of goodwill and core deposit intangibles.
The increases in net income, operating earnings, cash earnings and operating
cash earnings were primarily due to higher revenues, with net interest income
increasing by 6.5%, or $10.900 million, and noninterest income increasing by
6.9%, or $3.219 million. Revenues increased mainly because of the growth in loan
volumes in the Mainland United States. We also increased net income and
operating earnings by containing noninterest expense to an increase of 1.5%, or
$1.995 million, excluding merger-related charges. Including merger-related
charges, noninterest expense increased by .9%, or $1.209 million.
The following table compares diluted earnings, operating earnings, cash earnings
and operating cash earnings per share for the first three months of 2000
compared to the same period in 1999. All per share data have been calculated to
include both common and Class A common shares and have been adjusted to give
retroactive effect to the two-for-one stock split in the fourth quarter of 1999:
2000 1999 % Change
---- ---- --------
Diluted earnings $.40 $.34 17.6%
Diluted operating earnings(1) .40 .35 14.3
Diluted cash earnings(2) .46 .41 12.2
Diluted operating cash earnings(1),(2) .46 .41 12.2
- ----------
(1) Excluding after-tax SierraWest merger-related costs.
(2) Excluding amortization of goodwill and core deposit intangibles.
All per share earnings for the first three months of 2000 increased over the
same period in 1999 due to higher net income and operating earnings in 2000.
The table below compares the return on average total assets, the return on
average tangible assets, the return on average stockholders' equity and the
return on average tangible stockholders' equity for the first three months of
2000 to the same period in 1999. All ratios are computed excluding after-tax
SierraWest merger-related and other nonrecurring costs. The return on average
tangible assets and the return on average tangible stockholders' equity are
defined as cash earnings as a percentage of average total assets and average
stockholders' equity minus average goodwill and core deposit intangibles,
respectively.
2000 1999 % Change
------ ------ --------
Return on average total assets 1.18% 1.10% 7.3%
Return on average tangible assets 1.44 1.37 5.1
Return on average stockholders' equity 10.74 9.98 7.6
Return on average tangible stockholders' equity 19.92 19.81 .6
The increases in the return on average total assets, average tangible assets,
average stockholders' equity and average tangible stockholders' equity were a
result of the higher profitability of our assets and stockholders' equity, with
revenues increasing at a higher pace than expenses for the first three months of
2000 compared to the same period in 1999.
11
13
NET INTEREST INCOME
The following table compares net interest income on a taxable-equivalent basis
for the first three months of 2000, to the same period in 1999:
2000 1999 % Change
-------- -------- --------
(in thousands)
Net interest income $179,437 $168,521 6.5%
The increase in net interest income in the first three months of 2000 over the
same period in 1999 was primarily due to a 14-basis-point rise (1% equals 100
basis points) in the yield on average earning assets and an increase in average
earning assets of 6.1%, or $859.386 million, in the first three months of 2000,
partially offset by a 16-basis-point increase in the rate paid on funding
sources.
The following table compares the net interest margin for the first three months
of 2000, to the same period in 1999:
Change
2000 1999 (basis points)
---- ---- --------------
Yield on average earning assets 8.10% 7.96% 14
Rate paid on funding sources 3.28 3.12 16
Net interest margin 4.82 4.84 (2)
The decrease in the net interest margin was primarily due to a 16-basis-point
increase in the rate paid on funding sources, partially offset by a
14-basis-point increase in the yield on average earning assets. The slight drop
in the net interest margin in the first three months of 2000 from the same
period in 1999 can be primarily attributed to the increasing interest rate
environment, spurred by the five interest rate hikes by the Federal Reserve
Bank. Due to the composition of our balance sheet, the rise in interest rates
has caused certain interest rate sensitive liabilities to reprice faster than
certain interest rate sensitive assets. Therefore, the rise in our rate paid on
funding sources has slightly outpaced the increase in our yield on average
earning assets. In addition, lower yielding investment securities and other
earning assets, besides loans, comprised a greater portion of average earning
assets at March 31, 2000 than they did at March 31, 1999.
2000 1999 % Change
----------- ----------- --------
(in thousands)
Average earning assets $14,971,015 $14,111,629 6.1%
Average loans and leases 12,655,332 12,071,948 4.8
Average interest-bearing
deposits and liabilities 12,760,089 11,901,872 7.2
The increase in average earning assets was primarily due to increases in average
loans and leases and investment securities.
The increase in average loans was primarily due to the growth of our Bank of the
West operating segment loan and lease portfolio. Significant increases in
consumer loan and lease financing volumes reflect the continued economic
strength of the Northern California and Pacific Northwest regions.
The increase in average interest-bearing deposits and liabilities was primarily
due to an increase in interest-bearing deposits. Expansion of our customer
deposit base and more time deposits primarily from our Bank of the West
operating segment contributed to the increase.
12
14
The following table sets forth consolidated average balance sheets, an analysis
of interest income/expense and average yield/rate for each major category of
interest-earning assets and interest-bearing liabilities for the periods
indicated on a taxable-equivalent basis. The tax equivalent adjustment is made
for items exempt from Federal income taxes (assuming a 35% tax rate for 2000 and
1999) to make them comparable with taxable items before any income taxes are
applied.
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------
2000 1999
-------------------------------- ---------------------------------
INTEREST Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
ASSETS BALANCE EXPENSE RATE(1) Balance Expense Rate(1)
------------ -------- ------- ----------- -------- -------
(dollars in thousands)
Earning assets:
Interest-bearing deposits
in other banks $ 121,108 $ 1,634 5.43% $ 231,102 $ 2,939 5.16%
Federal funds sold and
securities purchased
under agreements to
resell 97,694 1,417 5.83 129,677 1,524 4.77
Investment securities 2,096,881 33,701 6.46 1,678,902 25,044 6.05
Loans and leases(2),(3) 12,655,332 264,800 8.42 12,071,948 247,307 8.31
------------ -------- ----------- --------
Total earning assets 14,971,015 301,552 8.10 14,111,629 276,814 7.96
-------- --------
Nonearning assets 1,849,425 1,771,290
------------ -----------
Total assets $ 16,820,440 $15,882,919
============ ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits
and liabilities:
Deposits $ 11,240,776 $ 99,498 3.56% $10,353,172 $ 87,873 3.44%
Short-term borrowings 648,935 8,964 5.56 801,293 9,111 4.61
Long-term debt and
capital securities 870,378 13,653 6.31 747,407 11,309 6.14
------------ -------- ----------- --------
Total interest-bearing
deposits and
liabilities 12,760,089 122,115 3.85 11,901,872 108,293 3.69
-------- ---- -------- ----
Interest rate spread 4.25% 4.27%
==== ====
Noninterest-bearing demand
deposits 1,573,349 1,726,583
Other liabilities 636,630 497,137
------------ -----------
Total liabilities 14,970,068 14,125,592
Stockholders' equity 1,850,372 1,757,327
------------ -----------
Total liabilities and
stockholders' equity $ 16,820,440 $15,882,919
============ ===========
Net interest income
and margin on
earning assets 179,437 4.82% 168,521 4.84%
==== ====
Tax equivalent adjustment 165 149
-------- --------
Net interest income $179,272 $168,372
======== ========
- ----------
(1) Annualized.
(2) Nonaccruing loans and leases have been included in computations of average
loan balances.
(3) Interest income for loans included loan fees of $7,357 and $8,713 for 2000
and 1999, respectively.
13
15
INVESTMENT SECURITIES
HELD-TO-MATURITY
The following table presents the amortized cost, unrealized gains and losses,
and fair values of held-to-maturity investment securities as of the dates
indicated:
MARCH 31, December 31, March 31,
2000 1999 1999
--------- ----------- ---------
(in thousands)
Amortized cost $ 125,890 $ 142,868 $ 283,660
Unrealized gains -- 2 589
Unrealized losses (4,357) (3,768) (764)
--------- --------- ---------
Fair value $ 121,533 $ 139,102 $ 283,485
========= ========= =========
Held-to-maturity investment securities decreased by $16.978 million, or 11.9%,
compared to December 31, 1999 and by $157.770 million, or 55.6%, compared to
March 31, 1999, principally due to maturities of the investment securities.
AVAILABLE-FOR-SALE
The following table presents the amortized cost, unrealized gains and losses,
and fair values of available-for-sale investment securities as of the dates
indicated:
MARCH 31, December 31, March 31,
2000 1999 1999
----------- ----------- -----------
(in thousands)
Amortized cost $ 2,102,916 $ 1,882,265 $ 1,353,559
Unrealized gains 8,968 5,413 12,656
Unrealized losses (25,575) (19,675) (2,083)
----------- ----------- -----------
Fair value $ 2,086,309 $ 1,868,003 $ 1,364,132
=========== =========== ===========
Gross realized gains and losses on available-for-sale investment securities for
the three months ended March 31, 2000 and 1999 were as follows:
2000 1999
---- ----
(in thousands)
Realized gains $ -- $ 1
Realized losses -- (13)
---- ----
Securities gains (losses), net $ -- $(12)
==== ====
14
16
LOANS AND LEASES
The following table sets forth the loan and lease portfolio by major categories
and loan and lease mix at March 31, 2000, December 31, 1999 and March 31, 1999:
MARCH 31, 2000 December 31, 1999 March 31, 1999
-------------------- -------------------- --------------------
AMOUNT % Amount % Amount %
----------- ------ ----------- ------ ----------- ------
(dollars in thousands)
Commercial, financial and agricultural $ 2,386,466 18.6% $ 2,212,757 17.7% $ 2,250,655 18.5%
Real estate:
Commercial 2,459,271 19.1 2,466,822 19.7 2,382,486 19.5
Construction 402,837 3.1 408,078 3.3 442,578 3.6
Residential:
Insured, guaranteed or
conventional 1,900,634 14.8 1,915,516 15.3 2,065,671 17.0
Home equity credit lines 442,883 3.4 447,273 3.5 464,547 3.8
----------- ------ ----------- ------ ----------- -----
Total real estate loans 5,205,625 40.4 5,237,689 41.8 5,355,282 43.9
----------- ------ ----------- ------ ----------- -----
Consumer 3,093,137 24.1 2,987,347 23.8 2,733,660 22.4
Lease financing 1,825,224 14.2 1,738,048 13.9 1,483,556 12.2
Foreign 346,023 2.7 348,198 2.8 367,795 3.0
----------- ------ ----------- ------ ----------- -----
Total loans and leases 12,856,475 100.0% 12,524,039 100.0% 12,190,948 100.0%
====== ====== =====
Less allowance for credit losses 162,666 161,418 159,488
----------- ----------- -----------
Total net loans and leases $12,693,809 $12,362,621 $12,031,460
=========== =========== ===========
Total loans and leases to:
Total assets 73.3% 75.1% 74.9%
Total earning assets 83.7% 86.6% 85.5%
Total deposits 96.5% 97.3% 98.6%
The loan and lease portfolio is the largest component of total earning assets
and accounts for the greatest portion of total interest income. At March 31,
2000, total loans and leases were $12.856 billion, representing increases of
2.7% and 5.5% over December 31, 1999 and March 31, 1999, respectively. The
increase from March 31, 2000 as compared to March 31, 1999, was primarily due to
increases in consumer loans and lease financing, primarily in our Bank of the
West operating segment. The increase was partially offset by decreases in real
estate - residential loans and certain consumer loans in our First Hawaiian
operating segment.
Commercial, financial and agricultural loans as of March 31, 2000 increased
$173.709 million, or 7.9%, over December 31, 1999, and increased $135.811
million, or 6.0%, over March 31, 1999. Although the Company continues its
efforts to diversify its loan and lease portfolio, both geographically and by
industry, during the three months ended March 31, 2000, overall loan volume in
the First Hawaiian operating segment continued to decline, although the Hawaii
economy is slowly rebounding. The credit extensions on the Mainland United
States account for the majority of the increase in loan and lease balances and
the geographic and industry diversification.
Insured, guaranteed or conventional residential real estate loans decreased
$14.882 million, or .8%, from December 31, 1999, and decreased $165.037 million,
or 8.0%, from March 31, 1999. The rising interest rate environment, which has
resulted in a decrease in the production of new loans and payoffs/paydowns are
the primary reasons for the decrease from March 31, 1999 and December 31, 1999.
15
17
LOANS AND LEASES, CONTINUED
Consumer loans as of March 31, 2000 increased $105.790 million, or 3.5%, over
December 31, 1999, and $359.477 million, or 13.2%, over March 31, 1999. Consumer
loans consist primarily of direct and indirect automobile, credit card and
unsecured financing. The increase in consumer loans at March 31, 2000 as
compared to December 31, 1999 and March 31, 1999 was primarily a result of
growth in our Bank of the West operating segment on the Mainland United States.
Lease financing as of March 31, 2000 increased $87.176 million, or 5.0%, over
December 31, 1999, and $341.668 million, or 23.0%, over March 31, 1999. The
increase in lease financing from March 31, 1999 was primarily due to an increase
in the automobile lease portfolio in our Bank of the West operating segment. The
increase in lease financing at March 31, 2000 as compared to December 31, 1999,
was primarily due to increases on the Mainland United States and additional
leveraged leases.
The Company's foreign loans are principally in Guam and Saipan. Foreign loans as
of March 31, 2000 decreased $2.175 million, or .6%, compared to December 31,
1999, with approximately 99% domiciled in Guam and Saipan.
Loan concentrations are considered to exist when there are amounts loaned to
multiple borrowers engaged in similar activities which would cause them to be
similarly impacted by economic or other conditions. At March 31, 2000, we did
not have a concentration of loans greater than 10% of total loans which is not
otherwise disclosed as a category of loans as shown in the above table.
DEPOSITS
The following table sets forth the average balances and the average rates paid
on deposits for the periods indicated:
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
2000 1999
------------------- --------------------
AVERAGE AVERAGE Average Average
BALANCE RATE(1) Balance Rate(1)
---------- ------- ----------- -------
(dollars in thousands)
Interest-bearing demand $ 315,217 1.60% $ 316,721 1.21%
Savings 5,074,011 1.82 4,698,383 2.01
Time 5,851,548 5.18 5,338,068 4.84
----------- ------------
Total interest-bearing deposits 11,240,776 3.56 10,353,172 3.44
Noninterest-bearing demand 1,573,349 -- 1,726,583 --
----------- ------------
Total deposits $12,814,125 3.12% $ 12,079,755 2.95%
=========== ============
(1) Annualized.
Average interest-bearing deposits for the first three months of 2000 increased
$887.604 million, or 8.6%, over the same period in 1999. The increase was due
primarily to the growth in our customer deposit base, primarily in the Bank of
the West operating segment and various deposit product programs initiated by the
Company. In addition, time deposits increased due to our funding asset growth by
utilizing negotiable and brokered time certificates. The increase in nearly all
of the rates paid on deposits reflect the higher interest rate environment,
caused primarily by rate hikes by the Federal Reserve Bank.
Average noninterest-bearing demand products decreased $153.234 million, or 8.9%,
from March 31, 1999. The decrease was primarily due to the reclassification of
certain portions of noninterest-bearing demand deposit accounts to the savings
deposit category for reserve requirement purposes.
16
18
NONPERFORMING ASSETS
Nonperforming assets at March 31, 2000, December 31, 1999 and March 31, 1999 are
as follows:
MARCH 31, December 31, March 31,
2000 1999 1999
--------- ------------ ---------
(dollars in thousands)
Nonperforming Assets:
Nonaccrual:
Commercial, financial and agricultural $ 15,852 $ 22,222 $ 18,372
Real estate:
Commercial 29,217 25,790 25,394
Construction 2,151 2,990 1,004
Residential:
Insured, guaranteed or conventional 17,789 18,174 11,395
Home equity credit lines 728 940 633
-------- -------- --------
Total real estate loans 49,885 47,894 38,426
-------- -------- --------
Consumer 1,634 1,625 2,490
Lease financing 5,210 3,391 2,355
Foreign 4,879 2,162 1,161
-------- -------- --------
Total nonaccrual loans and leases 77,460 77,294 62,804
-------- -------- --------
Restructured:
Commercial, financial and agricultural 6,586 1,004 2,674
Real estate:
Commercial 1,534 7,905 29,406
Construction 9,899 11,024 --
Residential:
Insured, guaranteed or conventional 1,114 1,100 1,101
Home equity credit lines -- -- --
-------- -------- --------
Total real estate loans 12,547 20,029 30,507
-------- -------- --------
Total restructured loans and leases 19,133 21,033 33,181
-------- -------- --------
Total nonperforming loans and leases 96,593 98,327 95,985
Other real estate owned and repossessed personal property 26,505 28,429 33,970
-------- -------- --------
Total nonperforming assets $123,098 $126,756 $129,955
======== ======== ========
Past due loans and leases(1):
Commercial, financial and agricultural $ 2,906 $ 1,280 $ 2,236
Real estate:
Commercial 4,181 1,436 8,900
Construction -- -- 408
Residential:
Insured, guaranteed or conventional 6,576 7,751 21,472
Home equity credit lines 606 575 1,561
-------- -------- --------
Total real estate loans 11,363 9,762 32,341
-------- -------- --------
Consumer 2,433 2,043 4,137
Lease financing 116 113 190
Foreign 1,392 4,824 2,586
-------- -------- --------
Total past due loans and leases $ 18,210 $ 18,022 $ 41,490
======== ======== ========
Nonperforming assets to total loans and leases and other real
estate owned and repossessed personal property (end of period):
Excluding past due loans and leases .96% 1.01% 1.06%
Including past due loans and leases 1.10% 1.15% 1.40%
Nonperforming assets to total assets (end of period):
Excluding past due loans and leases .70% .76% .80%
Including past due loans and leases .81% .87% 1.05%
(1) Represents loans and leases which are past due 90 days as to principal
and/or interest, are still accruing interest and are adequately
collateralized and in the process of collection.
17
19
NONPERFORMING ASSETS, CONTINUED
Nonperforming assets at March 31, 2000 were $123.098 million, or .96% of total
loans and leases and other real estate owned and repossessed personal property
("OREO"), and .70% of total assets, as compared to 1.06% and .80%, respectively,
at March 31, 1999.
Nonperforming assets at March 31, 2000 decreased by $6.857 million, or 5.3%,
from March 31, 1999. The decrease was primarily attributable to decreases in
restructured loans and leases and other real estate owned and repossessed
personal property. The decrease in restructured loans and leases was primarily
due to the transfer of a restructured real estate - commercial loan to OREO and
the partial charge-off of a real estate - construction loan. The reduction in
OREO was the result of increased sales of these properties, primarily in Hawaii,
due to the strengthening economy. These decreases were partially offset by an
increase in the real estate - commercial and real estate - residential
components of nonaccrual loans and leases.
We generally place a loan or lease on nonaccrual status: (1) when management
believes that collection of principal or income has become doubtful, (2) when a
loan is first classified as impaired, or (3) when loans and leases are 90 days
past due as to principal or income, unless they are well secured and in the
process of collection. We may make an exception to the general 90-day-past-due
rule when the fair value of the collateral exceeds our recorded investment in
the loan or when other factors indicate that the borrower will shortly bring the
loan current. The majority of consumer loans and leases are subject to our
general policies regarding nonaccrual loans. However, instead of placing certain
past-due consumer loans and leases on nonaccrual status, we charge them off when
they reach a predetermined delinquency status varying from 120 to 180 days,
depending on product type (or earlier if we determine that the loan is
uncollectible). When we place a loan or lease on nonaccrual status, previously
accrued and uncollected interest is reversed against interest income of the
current period. When we receive a cash interest payment on a nonaccrual loan, we
apply it as a reduction of the principal balance when we have doubts about the
ultimate collection of the principal. Otherwise, we record such payments as
income.
Nonaccrual loans and leases are generally returned to accrual status when they
become: (1) current as to principal and interest, or (2) both well secured and
in the process of collection.
Other than the loans listed in the table on page 15, at March 31, 2000, we were
not aware of any significant potential problem loans where possible credit
problems of the borrower causes us to seriously question the borrower's ability
to repay the loan under existing terms.
Loans past due 90 days or more and still accruing totaled $18.210 million at
March 31, 2000, a decrease of $23.280 million, or 56.1%, from March 31, 1999.
All of the loans that are past due 90 days or more and still accruing interest
are, in management's judgment, adequately collateralized and in the process of
collection.
Hawaii has finally begun to show signs of recovery from the economic stagnation
that plagued it through much of the 1990's. This improvement in Hawaii's
economic condition is one of the factors that led to the decrease in
nonperforming assets in the First Hawaiian operating segment. Also, the
economies in California and the Pacific Northwest, the Bank of the West
operating segment's primary areas of operation, continue to expand. These
economic trends have helped to bring about the decline in nonperforming assets
since March 31, 1999.
18
20
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The following table sets forth the activity in the allowance for credit losses
for the periods indicated:
THREE MONTHS ENDED MARCH 31,
-------------------------------------
2000 1999
------------ ------------
(dollars in thousands)
Loans and leases outstanding (end of period) $ 12,856,475 $ 12,190,948
============ ============
Average loans and leases outstanding $ 12,655,332 $ 12,071,948
============ ============
Allowance for credit losses summary:
Balance at beginning of period $ 161,418 $ 158,294
------------ ------------
Loans and leases charged off:
Commercial, financial and agricultural 1,983 1,875
Real estate:
Commercial 291 84
Construction 1,185 21
Residential 1,671 904
Consumer 6,806 6,853
Lease financing 2,209 1,457
Foreign 312 88
------------ ------------
Total loans and leases charged off 14,457 11,282
------------ ------------
Recoveries on loans and leases previously charged off:
Commercial, financial and agricultural 109 95
Real estate:
Commercial 17 80
Construction 8 18
Residential 309 374
Consumer 1,616 1,319
Lease financing 594 360
Foreign 122 5
------------ ------------
Total recoveries on loans and leases
previously charged off 2,775 2,251
------------ ------------
Net charge-offs (11,682) (9,031)
------------ ------------
Provision for credit losses 12,930 10,225
------------ ------------
Balance at end of period $ 162,666 $ 159,488
============ ============
Net loans and leases charged off to average loans
and leases .37%(1) .30%(1)
Net loans and leases charged off to allowance for
credit losses 28.88%(1) 22.96%(1)
Allowance for credit losses to total
loans and leases (end of period) 1.27% 1.31%
Allowance for credit losses to nonperforming
loans and leases (end of period):
Excluding 90 days past due
accruing loans and leases 1.68X 1.66x
Including 90 days past due
accruing loans and leases 1.42X 1.16x
- ----------
(1) Annualized.
19
21
PROVISION AND ALLOWANCE FOR CREDIT LOSSES, CONTINUED
The provision for credit losses for the first three months of 2000 was $12.930
million, an increase of $2.705 million, or 26.5%, over the same period in 1999.
The increase in the provision for credit losses for the first three months of
2000 over the same period in 1999 primarily reflects the larger loan portfolio
resulting from our continued loan volume growth.
The provision for credit losses is based upon management's judgment as to the
adequacy of the allowance for credit losses (the "Allowance") to absorb probable
losses inherent in the portfolio as of the balance sheet date. The Company uses
a systematic methodology to determine the adequacy of the Allowance and related
provision for credit losses to be reported for financial statement purposes. The
determination of the adequacy of the Allowance is ultimately one of management
judgment, which includes consideration of many factors, including, among other
things, the amount of problem and potential problem loans and leases, net
charge-off experience, changes in the composition of the loan and lease
portfolio by type and location of loans and leases and in overall loan and lease
risk profile and quality, general economic factors and the fair value of
collateral.
Charge-offs were $14.457 million for the first three months of 2000, an increase
of $3.175 million, or 28.1%, over the same period in 1999. The increase was
primarily due to charge-offs of one real estate - construction loan, one real
estate - commercial loan and several leases in the first three months of 2000,
totaling $2.082 million.
For the first three months of 2000, recoveries increased to $2.775 million, or
23.3% over the same period in 1999. The increase in recoveries was primarily in
consumer, leasing and foreign loan recoveries.
The Allowance increased to 1.68 times nonperforming loans and leases (excluding
90 days or more past due accruing loans and leases) at March 31, 2000 from 1.66
times at March 31, 1999. The increase in the ratio is principally due to an
increase in the Allowance as a result of the growth in our loan portfolio and a
decrease in nonperforming loans and leases.
In management's judgment, the Allowance was adequate to absorb potential losses
currently inherent in the loan and lease portfolio at March 31, 2000. However,
changes in prevailing economic conditions in the Company's markets could result
in changes in the level of nonperforming assets and charge-offs in the future
and, accordingly, changes in the Allowance.
NONINTEREST INCOME
The following table reflects the key components of the change in noninterest
income for the first three months of 2000, as compared to the same period in
1999:
2000 1999 % Change
------- ------- --------
(in thousands)
Trust and investment services income $ 9,060 $ 8,544 6.0%
Service charges on deposit accounts 16,992 16,228 4.7
Other service charges and fees 17,988 15,805 13.8
Securities losses, net - (12) N/M
Other 5,997 6,253 (4.1)
------- -------
Total noninterest income $50,037 $46,818 6.9%
======= =======
N/M - Not Meaningful.
As the table above shows in more detail, there was a 6.9% increase in
noninterest income for the first three months of 2000, compared to the same
period in 1999. Factors causing the increase were:
- - A 6.0% increase in trust and investment services income, primarily due to
higher annuity and mutual fund sales, reflecting our efforts to diversify
our sources of revenue.
- - A 4.7% increase in service charges on deposit accounts, primarily due to
higher levels of deposits caused by the expansion of our customer deposit
base in our Bank of the West operating segment.
- - A 13.8% increase in other service charges and fees, primarily due to: (1)
higher merchant services fees; (2) higher bank card fees; and (3) higher ATM
convenience fee income.
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NONINTEREST EXPENSE
The following table reflects the key components of the change in noninterest
expense for the first three months of 2000 as compared to the same period in
1999:
2000 1999 % Change
-------- -------- --------
(in thousands)
Salaries and benefits $ 59,185 $ 58,205 1.7%
Occupancy expense 15,357 15,080 1.8
Equipment expense 7,186 7,845 (8.4)
Intangible amortization 9,140 8,930 2.4
Merger-related charges - 786 N/M
Outside services 12,039 11,370 5.9
Other 28,670 28,152 1.8
-------- --------
Total noninterest expense $131,577 $130,368 .9%
======== ========
N/M - Not Meaningful.
As the table above shows in more detail, noninterest expense increased .9% for
the first three months of 2000, compared to the same period in 1999. The small
increases and decreases in almost every category of noninterest expense result
from our efforts to contain expenses. We have sought to gain efficiencies
through the consolidation of duplicative operations, the development of
effective and efficient technological solutions and the elimination of services
and related expenses not essential to our core business. The increase in outside
services reflects the costs incurred under the facilities management agreement
for the consolidation of our data centers.
INCOME TAXES
The Company's effective income tax rates (exclusive of the tax equivalent
adjustment) for the first three months of 2000 was 41.7%, as compared to 43.0%
for the same period in 1999. The decline in the effective tax rate was primarily
due to higher tax credits from tax-advantaged investments.
LIQUIDITY AND CAPITAL
Stockholders' equity was $1.870 billion at March 31, 2000, an increase of 1.5%
over $1.843 billion at December 31, 1999. Compared to March 31, 1999,
stockholders' equity at March 31, 2000 increased by $99.902 million, or 5.6%.
The increase was primarily due to net income for the respective periods.
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LIQUIDITY AND CAPITAL, CONTINUED
Quantitative measures, as established by regulation to ensure capital adequacy,
require the Company to maintain minimum amounts and ratios (set forth in the
table below, at March 31, 2000) of Tier 1 and Total Capital to risk-weighted
assets, and of Tier 1 Capital to average assets (leverage).
For Capital
Actual Adequacy Purposes
-------------------------- ---------------------------
Amount Ratio Amount Ratio
-------------- ------ ------------- ------
(in thousands) (in thousands)
Tier 1 Capital to
Risk-Weighted
Assets $1,322,200 8.63% $ 612,884 4.00%
Total Capital to
Risk-Weighted
Assets $1,584,866 10.34% $1,225,767 8.00%
Tier 1 Capital to
Average Assets $1,322,200 8.18% $ 646,462 4.00%
Pursuant to applicable law and regulations, each of our depository institution
subsidiaries have been notified by the Federal Deposit Insurance Corporation
that each of them is deemed to be well-capitalized. To be well-capitalized, a
bank must have a Tier 1 risk-based capital ratio of 6.00% or greater, a total
risk-based capital ratio of 10.00% or greater, a leverage ratio of 5.00% or
greater and not be subject to any agreement, order or directive to meet a
specific capital level for any capital measure. Management believes that no
conditions or events have occurred since the respective notifications to change
the capital category of either of its depository institution subsidiaries.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 31, 2000, there was no significant change in the Company's market risk
from the information provided with respect to "Quantitative and Qualitative
Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999. Quantitative and qualitative
disclosures regarding the Company's market risk are also included in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" (pages 39 through 41) and "Notes to Consolidated Financial
Statements" (pages 51 through 53) in the Financial Review section of the
Company's Annual Report 1999.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10 Amendment No. 3 to BancWest Corporation
Long-Term Incentive Plan approved March 16, 2000.*
Exhibit 12 Statement regarding computation of ratios.
Exhibit 27 Financial data schedule.
(b) Reports on Form 8-K None.
- ----------
* Management contract or compensatory plan or arrangement.
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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.
BANCWEST CORPORATION
(REGISTRANT)
Date May 12, 2000 By /s/ HOWARD H. KARR
------------ ------------------------------------
HOWARD H. KARR
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10 Amendment No. 3 to BancWest Corporation
Long-Term Incentive Plan approved March 16, 2000.*
12 Statement regarding computation of ratios.
27 Financial data schedule.
- ----------
* Management contract or compensatory plan or arrangement.