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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
June 30, 1994
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
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FIRST HAWAIIAN, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 99-0156159
(State of incorporation) (I.R.S. Employer
Identification No.)
1132 BISHOP STREET, HONOLULU, HAWAII 96813
(Address of principal executive offices) (Zip Code)
(808) 525-7000
(Registrant's telephone number, including area code)
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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 July 20, 1994:
Class Outstanding
--------------------------------- ------------------
Common Stock, $5 Par Value 32,225,549 Shares
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
----
Consolidated Balance Sheets - June 30, 1994, December 31, 1993
and June 30, 1993 2
Consolidated Statements of Income - Quarter and Six Months Ended
June 30, 1994 and 1993 3
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1994 and 1993 4
Consolidated Statements of Changes in Stockholders' Equity -
Quarter and Six Months Ended June 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBIT INDEX 20
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
First Hawaiian, Inc. and Subsidiaries (Unaudited)
JUNE 30, December 31, June 30,
1994 1993 1993
------------ ----------- -----------
(in thousands)
ASSETS
Cash and due from banks $ 175,626 $ 436,129 $ 230,684
Interest-bearing deposits in other banks 50,695 116,736 101,295
Federal funds sold and securities purchased
under agreements to resell 80,000 35,000 239,877
Investment securities (note 2):
Held-to-maturity (market value of $1,096,079,
$1,144,327 and $1,040,010, respectively) 1,103,895 1,132,025 1,024,244
Available-for-sale 129,517 98,453 96,719
---------- ---------- ----------
Total investment securities 1,233,412 1,230,478 1,120,963
---------- ---------- ----------
Loans and leases:
Loans and leases 5,132,096 5,066,809 4,369,959
Less allowance for loan and lease losses 61,873 62,253 56,828
---------- ---------- ----------
Net loans and leases 5,070,223 5,004,556 4,313,131
---------- ---------- ----------
Premises and equipment (note 3) 253,289 249,479 230,203
Customers' acceptance liability 1,432 854 1,266
Core deposit premium 14,545 15,380 11,662
Goodwill 79,549 81,231 60,006
Other assets 88,958 99,288 84,973
---------- ---------- ----------
TOTAL ASSETS $7,047,729 $7,269,131 $6,394,060
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 849,610 $ 974,478 $ 937,360
Interest-bearing demand 1,113,356 1,143,037 1,087,895
Savings 1,359,738 1,507,200 1,326,435
Time 1,385,308 1,343,841 1,182,692
Foreign 263,088 251,572 185,227
---------- ---------- ----------
Total deposits 4,971,100 5,220,128 4,719,609
Short-term borrowings 1,078,655 1,069,682 870,199
Acceptances outstanding 1,432 854 1,266
Other liabilities 165,317 148,331 149,357
Long-term debt 210,894 221,767 65,853
---------- ---------- ----------
Total liabilities 6,427,398 6,660,762 5,806,284
---------- ---------- ----------
Stockholders' equity:
Common stock 162,713 162,713 162,507
Surplus 133,821 133,820 132,889
Retained earnings 330,504 311,836 292,380
Unrealized valuation adjustment (note 2) (202) -- --
Treasury stock (6,505) -- --
---------- ---------- ----------
Total stockholders' equity 620,331 608,369 587,776
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,047,729 $7,269,131 $6,394,060
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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4
CONSOLIDATED STATEMENTS OF INCOME
First Hawaiian, Inc. and Subsidiaries (Unaudited)
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- ------------------------------
1994 1993 1994 1993
------------ ----------- ------------ -------------
(in thousands, except shares and per share data)
INTEREST INCOME
Interest and fees on loans $ 96,874 $ 86,622 $ 191,296 $ 172,435
Lease financing income 2,702 3,289 5,620 6,613
Interest on investment securities:
Taxable interest income 11,231 11,567 21,943 23,439
Exempt from Federal income taxes 3,420 3,773 6,702 7,382
Other interest income 2,171 2,590 4,305 6,829
----------- ----------- ----------- -----------
Total interest income 116,398 107,841 229,866 216,698
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 29,899 31,034 60,035 66,056
Short-term borrowings 10,482 6,464 19,814 12,100
Long-term debt 3,017 1,012 5,934 2,012
----------- ----------- ----------- -----------
Total interest expense 43,398 38,510 85,783 80,168
----------- ----------- ----------- -----------
Net interest income 73,000 69,331 144,083 136,530
Provision for loan and lease losses 3,288 2,903 7,131 6,806
----------- ----------- ----------- -----------
Net interest income after provision for
loan and lease losses 69,712 66,428 136,952 129,724
----------- ----------- ----------- -----------
OTHER OPERATING INCOME
Trust income 6,001 5,285 12,463 10,786
Service charges on deposit accounts 5,930 5,054 11,814 9,779
Other service charges and fees 7,467 6,241 15,620 13,453
Securities gains, net 1 1,873 142 1,899
Other 1,700 1,550 4,129 2,078
----------- ----------- ----------- -----------
Total other operating income 21,099 20,003 44,168 37,995
----------- ----------- ----------- -----------
OTHER OPERATING EXPENSES
Salaries and wages 23,057 20,879 46,284 41,507
Employee benefits 6,623 6,166 14,005 11,815
Occupancy expense 5,812 4,463 11,534 8,960
Equipment expense 6,191 4,921 12,064 9,535
Other (note 3) 19,895 17,285 39,095 37,483
----------- ----------- ----------- -----------
Total other operating expenses 61,578 53,714 122,982 109,300
----------- ----------- ----------- -----------
Income before income taxes and cumulative effect
of a change in accounting principle 29,233 32,717 58,138 58,419
Income taxes 10,233 10,614 20,401 18,320
----------- ----------- ----------- -----------
Income before cumulative effect of a
change in accounting principle 19,000 22,103 37,737 40,099
Cumulative effect of a change in accounting
principle (note 2) -- -- -- 3,650
----------- ----------- ----------- -----------
NET INCOME $ 19,000 $ 22,103 $ 37,737 $ 43,749
=========== =========== =========== ===========
PER SHARE DATA
Income before cumulative effect of a change
in accounting principle $ .59 $ .68 $ 1.17 $ 1.24
Cumulative effect of a change in
accounting principle -- -- -- .11
----------- ----------- ----------- -----------
NET INCOME $ .59 $ .68 $ 1.17 $ 1.35
=========== =========== =========== ===========
CASH DIVIDENDS $ .295 $ .28 $ .59 $ .56
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING 32,322,730 32,501,611 32,361,130 32,501,611
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
First Hawaiian, Inc. and Subsidiaries (Unaudited)
SIX MONTHS ENDED JUNE 30,
----------------------------
1994 1993
----------- --------
(in thousands)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD $ 436,129 $ 325,659
--------- ---------
Cash flows from operating activities:
Net income 37,737 43,749
Provision for loan and lease losses 7,131 6,806
Depreciation and amortization 11,931 9,478
Income taxes 1,832 (4,412)
Cumulative effect of a change in
accounting principle -- (3,650)
Decrease (increase) in interest receivable 1,338 (713)
Increase (decrease) in interest payable (1,471) 927
Decrease (increase) in prepaid expenses (273) 863
Write-off of building costs -- 5,444
--------- ---------
Net cash provided by operating activities 58,225 58,492
--------- ---------
Cash flows from investing activities:
Net decrease in interest-bearing deposits
in other banks 66,041 55,021
Net decrease (increase) in Federal funds sold and
securities purchased under agreements to resell (45,000) 165,123
Purchase of held-to-maturity investment securities (220,415) (665,211)
Proceeds from maturity of held-to-maturity investment securities 248,545 495,437
Purchase of available-for-sale investment securities (61,530) --
Proceeds from maturity of available-for-sale investment securities 30,466 --
Net decrease (increase) in loans and leases made to customers (72,798) 19,697
Capital expenditures (12,547) (35,227)
Other 25,011 47,333
--------- ---------
Net cash provided by (used in) investing activities (42,227) 82,173
--------- ---------
Cash flows from financing activities:
Net decrease in deposits (249,028) (368,550)
Net increase in short-term borrowings 8,973 156,285
Payments on long-term debt (10,873) (5,206)
Cash dividends paid (19,068) (18,169)
Purchases of treasury stock (6,505) --
--------- ---------
Net cash used in financing activities (276,501) (235,640)
--------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 175,626 $ 230,684
========= =========
Supplemental disclosures:
Interest paid $ 84,312 $ 79,343
========= =========
Net income taxes paid $ 18,569 $ 22,732
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
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CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
First Hawaiian, Inc. and Subsidiaries (Unaudited)
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------- -------------------------
1994 1993 1994 1993
-------- -------- -------- ---------
(in thousands)
BALANCE, BEGINNING OF PERIOD $613,032 $574,757 $608,369 $562,196
Net income 19,000 22,103 37,737 43,749
Purchases of treasury stock (2,016) -- (6,505) --
Unrealized valuation adjustment (note 2) (161) -- (202) --
Cash dividends (9,524) (9,084) (19,068) (18,169)
-------- -------- -------- --------
BALANCE, END OF PERIOD $620,331 $587,776 $620,331 $587,776
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Hawaiian, Inc. and Subsidiaries (Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements of the Company include the
accounts of First Hawaiian, Inc. and its wholly-owned subsidiaries - First
Hawaiian Bank and its wholly-owned subsidiaries; Pioneer Federal Savings Bank
and its wholly-owned subsidiary; First Hawaiian Creditcorp, Inc.; First
Hawaiian Leasing, Inc.; and FHI International, Inc. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts in the consolidated financial statements for 1993 have
been reclassified to conform with the 1994 presentation. Such
reclassifications had no effect on the consolidated net income as previously
reported.
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.
2. ACCOUNTING CHANGES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," the
cumulative effect of which was the recognition of an income tax benefit of
$3,650,000 in the first quarter of 1993. Under SFAS No. 109, deferred tax
assets and liabilities are measured using enacted tax rates scheduled to be in
effect at the time the related temporary differences between financial
reporting and tax reporting of income and expenses are expected to reverse.
The effect of changes in tax rates is recognized in income in the period that
includes the enactment date.
As of December 31, 1993, the Company adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Under SFAS No. 115,
investment securities are to be classified in three categories and accounted
for as follows: (1) held-to-maturity securities are debt securities which the
Company has the positive intent and ability to hold to maturity, and are
reported at amortized cost; (2) trading securities are debt securities that are
bought and held principally for the purpose of selling them in the near term
and are reported at fair value, with unrealized gains and losses included in
the current earnings; and (3) available-for-sale securities are debt securities
not classified as either held-to-maturity securities or trading securities and
are reported at fair value, with unrealized gains and losses excluded from
current earnings and reported in a separate component of stockholders' equity.
There were no trading securities as of June 30, 1994, December 31, 1993 and
June 30, 1993.
3. OTHER OPERATING EXPENSES
In connection with the Company's redevelopment of its former downtown
headquarters block, the undepreciated cost of certain structures was written
off in the first quarter of 1993. The write-off amounted to $5,444,000, and is
included in "Other Operating Expenses" for that period.
4. BUSINESS COMBINATION
On August 6, 1993, the Company acquired all of the outstanding stock
of Pioneer Fed BanCorp, Inc. ("Pioneer Holdings") for a cash purchase price of
$87 million. As a result of the merger of Pioneer Holdings with and into the
Company, Pioneer Federal Savings Bank ("Pioneer") became a wholly-owned
subsidiary of the Company. The results of operations of Pioneer Federal
Savings Bank are included in the Company's Consolidated Statements of Income
from the date of acquisition.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NET INCOME
Consolidated net income for the first six months of 1994 was $37,737,000
compared to $43,749,000 for the first six months of 1993, a decrease of 13.7%.
Consolidated income from operations for the first six months of 1994 was
$40,099,000, or a decrease of 5.9%, as compared to the same period in 1993,
excluding the cumulative effect of the change in accounting principle of
$3,650,000 in the first quarter of 1993. For the second quarter of 1994, the
consolidated net income of $19,000,000 represented a decrease of 14.0% from the
same quarter in 1993. The variance to last year's results was primarily
attributable to: (1) a pre-tax gain of $1,873,000 from the sale of certain
trading securities recognized in the second quarter of 1993; and (2) a pre-tax
loss of $1,409,000 realized in the current quarter from the disposition of
certain mainland real estate acquired in a foreclosure action in an earlier
quarter.
On a per share basis, consolidated net income for the six months and quarter
ended June 30, 1994 were $1.17 and $.59, respectively, a decrease of 13.3% and
13.2%, respectively, as compared to the same periods in 1993. Excluding the
effect of the change in accounting principle, income from operations per share
was $1.17 for the first six months of 1994, a decrease of 5.6% as compared to
the same period in 1993.
On an annualized basis, the Company's return on average total assets for the
first six months of 1994 was 1.06% compared to 1.35% for the same period in
1993 and return on average stockholders' equity was 12.39% compared to 15.42%
for the same period in 1993. The decreases in return on average total assets
and return on average stockholders' equity in 1994 as compared to 1993 were
primarily attributable to the decrease in earnings previously mentioned.
NET INTEREST INCOME
On a fully taxable equivalent basis, net interest income increased $7,749,000,
or 5.5%, to $147,771,000 for the six months ended June 30, 1994 from
$140,022,000 for the same period in 1993. The increase was due to the 10.6%
increase in average earning assets (principally as a result of the acquisition
of Pioneer) offset by a 21 basis point (1% equals 100 basis points) decrease in
the net interest margin. For the second quarter of 1994, the yield on earning
assets decreased 17 basis points while there was no change in the rate paid for
interest-bearing deposits and liabilities compared to the same period in 1993,
resulting in a decrease in the interest rate spread from 4.28% to 4.11%.
Utilizing average earning assets as the base, the net interest margin on
earning assets for the second quarter of 1994 was 4.61% compared to 4.83% for
the same period in 1993. The decline in yields on loans and investment
securities was primarily due to maturities and refinancing of higher yielding
loans and investment securities.
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8
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 to make them comparable with taxable
items before any income taxes are applied.
QUARTER ENDED JUNE 30,
----------------------------------------------------------------
1994 1993
------------------------------ --------------------------------
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 $ 95,028 $ 884 3.73% $ 180,085 $ 1,380 3.07%
Federal funds sold and
securities purchased
under agreements to
resell 122,559 1,198 3.92 160,337 1,210 3.03
Investment securities 1,090,724 14,894 5.48 1,147,388 17,004 5.94
Available-for-sale
securities 129,880 1,494 4.61 1,063 -- --
Loans and leases (2),(3) 5,081,773 99,814 7.88 4,417,081 90,069 8.18
---------- -------- ---------- --------
Total earning assets 6,519,964 118,284 7.28 5,905,954 109,663 7.45
-------- --------
Nonearning assets 616,933 612,128
---------- ----------
Total assets $7,136,897 $6,518,082
========== ==========
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------
1994 1993
------------------------------ -------------------------------
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 $ 111,856 $ 1,897 3.42% $ 217,546 $ 3,515 3.26%
Federal funds sold and
securities purchased
under agreements to
resell 133,091 2,319 3.51 209,861 3,314 3.18
Investment securities 1,083,488 29,493 5.49 1,069,134 34,074 6.43
Available-for-sale
securities 119,717 2,544 4.28 534 -- --
Loans and leases (2),(3) 5,063,744 197,301 7.86 4,393,293 179,389 8.23
---------- -------- ---------- --------
Total earning assets 6,511,896 233,554 7.23 5,890,368 220,292 7.54
Nonearning assets -------- --------
651,438 637,447
Total assets ---------- ----------
$7,163,334 $6,527,815
========== ==========
(1) Annualized.
(2) Nonaccruing loans and leases have been included in the computations of
average loan and lease balances.
(3) Interest income for loans and leases included loan fees of $5,890 and
$13,895 for the quarter and six months ended June 30, 1994, respectively,
and $6,400 and $12,523 for the quarter and six months ended June 30, 1993,
respectively.
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QUARTER ENDED JUNE 30,
----------------------------------------------------------------
1994 1993
------------------------------ --------------------------------
INTEREST INTEREST
LIABILITIES AND AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
SHAREHOLDERS' EQUITY BALANCE EXPENSE RATE (1) BALANCE EXPENSE RATE (1)
--------- --------- -------- ---------- --------- --------
(dollars in thousands)
Interest-bearing deposits
and liabilities:
Deposits $4,202,087 $29,899 2.85% $3,987,901 $31,083 3.13%
Short-term borrowings 1,078,076 10,482 3.90 823,733 6,464 3.15
Long-term debt 210,232 3,017 5.75 66,678 1,012 6.08
---------- ------- ---------- -------
Total interest-bearing
deposits and
liabilities 5,490,395 43,398 3.17 4,878,312 38,559 3.17
------- ---- -------
Interest rate spread 4.11% 4.28%
==== ====
Noninterest-bearing demand
deposits 885,748 920,765
Other liabilities 141,447 140,753
---------- ----------
Total liabilities 6,517,590 5,939,830
Stockholders' equity 619,307 578,252
---------- ----------
Total liabilities and
stockholders' equity $7,136,897 $6,518,082
========== ==========
Net interest income
and margin on
earning assets 74,886 4.61% 71,104 4.83%
==== ====
Tax equivalent adjustment 1,886 1,822
------- -------
Net interest income $73,000 $69,282
======= =======
SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------
1994 1993
------------------------------ --------------------------------
INTEREST INTEREST
LIABILITIES AND AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
SHAREHOLDERS' EQUITY BALANCE EXPENSE RATE (1) BALANCE EXPENSE RATE (1)
--------- --------- -------- ---------- --------- --------
(dollars in thousands)
Interest-bearing deposits
and liabilities:
Deposits $4,184,553 $60,035 2.89% $4,042,202 $66,158 3.30%
Short-term borrowings 1,098,751 19,814 3.64 773,395 12,100 3.16
Long-term debt 211,571 5,934 5.66 67,073 2,012 6.05
---------- ------- ---------- -------
Total interest-bearing
deposits and
liabilities 5,494,875 85,783 3.15 4,882,670 80,270 3.32
------- ---- ------- ----
Interest rate spread 4.08% 4.22%
==== ====
Noninterest-bearing demand
deposits 903,029 917,314
Other liabilities 151,063 155,646
---------- ----------
Total liabilities 6,548,967 5,955,630
Stockholders' equity 614,367 572,185
---------- ----------
Total liabilities and
stockholders' equity $7,163,334 $6,527,815
========== ==========
Net interest income
and margin on
earning assets 147,771 4.58% 140,022 4.79%
==== ====
Tax equivalent adjustment 3,688 3,594
-------- --------
Net interest income $144,083 $136,428
======== ========
(1) Annualized.
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INVESTMENT SECURITIES
Comparative book and market values of held-to-maturity securities at June 30,
1994, December 31, 1993, and June 30, 1993 were as follows:
June 30, December 31, June 30,
1994 1993 1993
---------- ------------ ----------
(in thousands)
Book value $1,103,895 $1,132,025 $1,024,244
Unrealized gains 6,827 14,036 16,600
Unrealized losses (14,643) (1,734) (834)
---------- ---------- ----------
Market value $1,096,079 $1,144,327 $1,040,010
========== ========== ==========
The decrease in unrealized gains and increase in unrealized losses from
December 31, 1993 are attributable to the rise in the overall level of interest
rates resulting from monetary actions of the Federal Reserve Board during the
first six months of 1994.
Gross realized gains and losses for the six months ended June 30, 1994 and 1993
were as follows:
1994 1993
---- -----
(in thousands)
Realized gains $143 $1,962
Realized losses 1 63
---- ------
Securities gains, net $142 $1,899
==== ======
Gains and losses realized on the sales of investment securities are determined
using the specific identification method.
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11
LOANS
The following table sets forth the loan portfolio by major categories and loan
mix at June 30, 1994, December 31, 1993 and June 30, 1993:
JUNE 30, 1994 December 31, 1993 June 30, 1993
---------------------- -------------------- ------------------
AMOUNT % Amount % Amount %
----------- ------- ----------- ----- ---------- ----
(dollars in thousands)
Commercial, financial and
agricultural $1,216,608 23.7% $1,208,912 23.8% $1,114,749 25.5%
Real estate:
Commercial 941,716 18.3 882,628 17.4 755,654 17.3
Construction 270,420 5.3 317,036 6.2 383,682 8.8
Residential:
Insured, guaranteed or
conventional 1,488,430 29.0 1,427,299 28.2 901,572 20.6
Home equity credit
lines 356,015 6.9 358,662 7.1 361,875 8.3
--------- ----- ---------- ----- --------- -----
Total real estate loans 3,056,581 59.5 2,985,625 58.9 2,402,783 55.0
--------- ----- ---------- ----- --------- -----
Consumer 449,721 8.8 459,910 9.1 450,919 10.3
Lease financing 193,837 3.8 201,449 4.0 192,720 4.4
Foreign 215,349 4.2 210,913 4.2 208,788 4.8
--------- ----- ---------- ----- --------- -----
Total loans and leases 5,132,096 100.0% 5,066,809 100.0% 4,369,959 100.0%
===== ===== =====
Less allowance for loan and
lease losses 61,873 62,253 56,828
--------- ---------- ----------
Total net loans and
leases $5,070,223 $5,004,556 $4,313,131
========== ========== ==========
The loan and lease portfolio is the largest component of earning assets and
accounts for the greatest portion of total interest income. At June 30, 1994,
total loans and leases were $5,132,096,000, an increase of 1.3% from December
31, 1993.
Total loans and leases at June 30, 1994, represented 72.8% of total assets,
79.0% of total earning assets and 103.2% of total deposits compared to 69.7% of
total assets, 78.6% of total earning assets and 97.1% of total deposits at
December 31, 1993. Governmental and certain other time deposits were shifted
into security repurchase agreements at June 30, 1994, December 31, 1993 and
June 30, 1993 to reduce the Company's deposit insurance premiums. If these
repurchase agreements were included in the deposit base, total loans and leases
as a percentage of total deposits would represent 88.4%, 83.8% and 79.0%,
respectively, at such dates.
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 June 30, 1994,
commercial real estate loans totalled $941,716,000, or 18.3%, of total loans
and leases. The Company has selectively participated as a lender on commercial
properties on the mainland United States, principally on the west coast. Such
loans totalled $60.9 million at June 30, 1994, a decrease of 9.9% from December
31, 1993. At June 30, 1994, the largest concentration of commercial real
estate loans to a single borrower was $40.3 million.
Commercial loans outstanding remained virtually unchanged since year-end,
reflecting the continuing weakness in the Hawaii economy and corresponding lack
of growth in appropriate lending opportunities. Construction and land
development loans decreased 14.7% from December 31, 1993 to June 30, 1994 due
to repayments and loans transferred to commercial real estate because of
project completion and receipt of permanent financing.
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NONPERFORMING ASSETS
A summary of nonperforming assets at June 30, 1994, December 31, 1993 and June
30, 1993 follows:
JUNE 30, December 31, June 30,
1994 1993 1993
--------- ---------- ----------
(dollars in thousands)
Nonperforming loans and leases:
Nonaccrual:
Commercial, financial and agricultural $ 3,713 $ 13,823 $ 12,332
Real estate:
Commercial 22,675 12,145 3,559
Construction 11,835 28,571 41,388
Residential:
Insured, guaranteed, or conventional 8,389 5,473 4,400
Home equity credit lines 229 255 248
--------- ---------- ---------
Total real estate loans 43,128 46,444 49,595
--------- ---------- ---------
Consumer -- 45 75
--------- ---------- ---------
Total nonaccrual loans and leases 46,841 60,312 62,002
Renegotiated - commercial, financial
and agricultural 14,784 20 49
--------- ---------- ---------
Total nonperforming loans and leases 61,625 60,332 62,051
Other real estate owned 2,264 13,034 2,841
--------- ---------- ---------
Total nonperforming assets $ 63,889 $ 73,366 $ 64,892
========= ========== =========
Loans and leases past due 90 days or more
and still accruing interest $ 38,076 $ 40,285 $ 30,013
========= ========== =========
Nonperforming assets to total loans and leases
and other real estate owned (end of period):
Excluding past due loans and leases 1.24% 1.44% 1.48%
Including past due loans and leases 1.99% 2.24% 2.17%
Nonperforming assets to total assets
(end of period):
Excluding past due loans and leases .91% 1.01% 1.01%
Including past due loans and leases 1.45% 1.56% 1.48%
11
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NONPERFORMING ASSETS, CONTINUED
Nonperforming assets decreased from $73,366,000 at December 31, 1993 to
$63,889,000 at June 30, 1994. The decrease was primarily attributable to the
repayment of a $7.0 million commercial loan, the sale of a $10.0 million
property held as other real estate owned and several commercial loans totalling
$12.5 million which were returned to accrual from nonaccrual status, offset by
the addition to nonperforming loan status of two Hawaii commercial real estate
loans totalling $13.6 million.
Loans and leases past due 90 days or more and still accruing interest totalled
$38,076,000 at June 30, 1994, a decrease of 5.5% from December 31, 1993. All
of the loans which are past due 90 days or more and still accruing interest are
in management's judgement adequately collateralized and in the process of
collection.
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14
DEPOSITS
The following table sets forth the average balances and the average rates paid
on deposits for the periods indicated:
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------------- --------------------------------------------
1994 1993 1994 1993
------------------- -------------------- ------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE(1) BALANCE RATE(1) BALANCE RATE(1) BALANCE RATE(1)
---------- ------- ---------- ------- ---------- ------- ---------- -------
(dollars in thousands)
Interest-bearing demand $1,144,291 1.95% $1,210,477 2.26% $1,194,993 1.93% $1,223,319 2.30%
Savings 1,120,150 2.15 1,384,630 2.55 1,303,261 2.08 1,404,068 2.88
Time 1,937,646 3.79 1,392,794 4.46 1,686,299 4.20 1,414,815 4.59
---------- ---------- ---------- ----------
Total interest-bearing deposits 4,202,087 2.85 3,987,901 3.13 4,184,553 2.89 4,042,202 3.30
Noninterest-bearing demand 885,748 -- 920,765 -- 903,029 -- 917,314 --
---------- ---------- ---------- ----------
Total deposits $5,087,835 2.36% $4,908,666 2.54% $5,087,582 2.38% $4,959,516 2.69%
========== ========== ========== ==========
(1) Annualized.
Average deposits for the six months ended June 30, 1994 increased $128.1
million, or 2.6%, compared to the same period in 1993. For the current
quarter, average deposits increased $179.2 million, or 3.7%, as compared to the
second quarter of 1993. Exclusive of the average deposits of Pioneer for the
six months and quarter ended June 30, 1994 (which consisted primarily of time
deposits), average deposits decreased $207.0 million, or 4.2%, and $260.4
million, or 5.3%, respectively, compared to the same periods in 1993. The
investment by customers in higher-yielding alternative investments, generally
with non-financial institutions, and the shift of public deposits into security
repurchase agreements, contributed to the decrease in average deposits.
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15
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The following table sets forth the activity in the allowance for loan and lease
losses for the periods indicated:
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
(dollars in thousands)
Loans and leases outstanding $5,132,096 $4,369,959 $5,132,096 $4,369,959
========== ========== ========== ==========
Average loans and leases outstanding $5,081,773 $4,417,081 $5,063,744 $4,393,293
========== ========== ========== ==========
Allowance for loan and lease losses summary:
Balance at beginning of period $ 61,929 $ 56,389 $ 62,253 $ 56,385
---------- ---------- ---------- ----------
Loans and leases charged off:
Commercial, financial and agricultural 557 570 3,108 1,628
Real estate - mortgage 525 50 1,152 50
Real estate - construction 1,401 600 2,205 2,272
Consumer 1,516 1,797 3,004 3,364
Lease financing 1 -- 1 --
---------- ---------- ---------- ----------
Total loans and leases charged off 4,000 3,017 9,470 7,314
---------- ----------- ---------- ----------
Recoveries on loans and leases charged off:
Commercial, financial and agricultural 15 121 886 153
Real estate - mortgage 31 1 45 1
Real estate - construction 201 -- 205 --
Consumer 407 430 819 795
Lease financing 2 1 4 2
---------- ----------- ---------- -----------
Total recoveries on loans and leases
charged off 656 553 1,959 951
---------- ---------- ---------- ----------
Net charge-offs (3,344) (2,464) (7,511) (6,363)
Provision charged to expense 3,288 2,903 7,131 6,806
---------- ---------- ---------- ----------
Balance at end of period $ 61,873 $ 56,828 $ 61,873 $ 56,828
========== ========== ========== ==========
Ratio of net loans and leases charged off to
average loans and leases .26%(1) .22%(1) .29%(1) .29%(1)
Ratio of net loans and leases charged off to
allowance for loan and lease losses 21.68%(1) 17.39%(1) 29.49%(1) 22.58%(1)
Ratio of allowance for loan and lease losses to
total loans and leases (end of period) 1.21% 1.30% 1.21% 1.30%
Ratio of allowance for loan and lease losses to
nonperforming loans and leases (end of period):
Excluding past due loans and leases 100.40% 91.58% 100.40% 91.58%
Including past due loans and leases 62.06% 61.73% 62.06% 61.73%
(1) Annualized.
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PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES, CONTINUED
For the first six months of 1994, the provision for loan and lease losses was
$7,131,000, an increase of $325,000, or 4.8%, over the first six months of
1993. The provision for loan and lease losses was $3,288,000 for the second
quarter of 1994, an increase of $385,000, or 13.3%, over the second quarter of
1993. These increases are consistent with the increase in net-charge-offs for
the respective periods.
Net charge-offs for the first six months of 1994 were $7,511,000, an increase
of $1,148,000, or 18.0%, over the first six months of 1993. Net charge-offs
for the second quarter of 1994 were $3,344,000 compared to $2,464,000 a year
ago. Management believes that the increased levels of net charge-offs, which
reflect the continuing weakness in the Hawaii economy and local real estate
markets, may continue in future periods.
OTHER OPERATING INCOME
Exclusive of securities transactions, other operating income for the first six
months and second quarter of 1994 increased 22.0% and 16.4%, respectively, over
the same periods in 1993. The increases were primarily attributable to the
increases in trust income and service charges/fees described below, and the
acquisition of Pioneer.
Trust fees increased $1,677,000, or 15.5%, for the first six months of 1994
over the same period in 1993. Similarly, trust fees increased 13.5% for the
second quarter of 1994 over the first quarter of 1993. The increases were
primarily the result of increases in fees from pension plans and irrevocable
trusts and investment management fees which were the result of new business.
Service charges on deposit accounts increased $2,035,000, or 20.8%, and
$876,000, or 17.3%, for the first six months and second quarter of 1994,
respectively, over the same periods in 1993. These increases were primarily
attributable to increases in fees on checking accounts and service fees at
Pioneer.
Other service charges and fees increased $2,167,000, or 16.1%, and $1,226,000,
or 19.6%, for the first six months and second quarter of 1994, respectively,
over the same periods in 1993. These increases were primarily attributable to
increases in merchant discount income and commissions.
Security transactions resulted in a net pre-tax gain of $142,000 and $1,000 for
the first six months and second quarter of 1994, respectively, compared to a
net pre-tax gain of $1,899,000 and $1,873,000, respectively, for the same
periods in 1993. The Company recognized a pre-tax gain of $1,873,000 from the
sale of certain trading securities in the second quarter of 1993.
Other operating income increased $2,051,000 and $150,000 for the first six
months and second quarter of 1994, respectively, over the same periods in 1993.
The increase for the first six months of 1994 was primarily attributable to
advisory fee income and the acquisition of Pioneer.
OTHER OPERATING EXPENSES
Other operating expenses totalled $122,982,000 for the first six months of
1994, an increase of $13,682,000, or 12.5% over the first six months of 1993.
Other operating expenses totalled $61,578,000 for the second quarter of 1994,
an increase of $7,864,000, or 14.6%, over the second quarter of 1993.
Total personnel expenses (salaries and wages and employee benefits) increased
$6,967,000, or 13.1%, for the first six months of 1994 over the same period in
1993. Personnel expenses attributable to recent acquisitions account for
$3,859,000 of the increase. The balance of the increase was attributable to
normal merit increases and higher workers' compensation, health and payroll tax
expenses. Total personnel expenses increased 9.7% for the second quarter of
1994 over the same quarter in 1993.
15
17
Occupancy expense for the first six months of 1994 increased $2,574,000, or
28.7%, over the same period in 1993 with $2,437,000 attributable to the Pioneer
acquisition. Occupancy expense increased 30.2% for the second quarter of 1994
over the same quarter in 1993.
Equipment expense increased $2,529,000, or 26.5%, for the first six months of
1994 over the same period in 1993, primarily as a result of higher depreciation
and rental expense and maintenance service contracts in connection with the
migration from a Unisys to IBM information technology platform and improvements
in the delivery and processing systems. Equipment expense increased 25.8% for
the second quarter of 1994 over the same quarter in 1993.
Excluding the loss of $1,409,000 on the disposition of certain other real
estate owned in the second quarter of 1994 and the write-off of $5,444,000 for
the undepreciated cost of certain structures on the Company's redevelopment
block in the first quarter of 1993, other operating expenses increased
$5,647,000, or 17.6%, for the first six months of 1994 over the same period in
1993. The acquisition of Pioneer accounts for $3,383,000 of this increase.
The remainder of the increase was due to higher utility, professional fees and
outside services. Other operating expense increased 15.1% for the second
quarter of 1994 over the same quarter in 1993.
INCOME TAXES
The Company's effective income tax rate (exclusive of the tax equivalent
adjustment) for the six months and quarter ended June 30, 1994 was 35.1% and
35.0%, respectively, as compared to 31.4% and 32.4%, respectively, for the same
periods in 1993. The increase in the Company's effective income tax rate was
primarily due to (1) the increase in the corporate tax rate as a result of the
Omnibus Budget Reconciliation Act of 1993; (2) declining income from tax-exempt
earning assets, primarily municipal securities; and, (3) amortization of
purchase accounting adjustments (goodwill and core deposit premium) which do
not have the benefit of being deductible for income tax purposes.
16
18
LIQUIDITY AND CAPITAL
Stockholders' equity was $620,331,000 at June 30, 1994, a 2.0% increase from
$608,369,000 at December 31, 1993. Average stockholders' equity represented
8.68% of average total assets for the second quarter of 1994 compared to 8.87%
in the same quarter last year. There was no significant change in the
Company's liquidity position during the second quarter of 1994.
The following tables present the Company's regulatory capital position at June
30, 1994:
RISK-BASED CAPITAL RATIOS
AMOUNT RATIO
---------- -----
(dollars in thousands)
Tier 1 Capital $ 536,924 9.91%
Tier 1 Capital minimum requirement(1) 216,639 4.00
---------- -----
Excess $ 320,285 5.91%
========== =====
Total Capital $ 698,797 12.90%
Total Capital minimum requirement(1) 433,279 8.00
---------- -----
Excess $ 265,518 4.90%
========== =====
Risk-weighted assets $5,415,984
==========
LEVERAGE RATIO
AMOUNT RATIO
---------- -----
(dollars in thousands)
Tier 1 Capital to average total assets
(Tier 1 Leverage Ratio) $ 536,924 7.61%
Minimum leverage requirement(2) 211,599 3.00
---------- -----
Excess $ 325,325 4.61%
========== =====
Average total assets, net of goodwill
and certain intangible assets $7,053,288
==========
(1) Risk-based capital guidelines as established by the Federal Reserve
Board for bank holding companies require minimum Tier 1 and Total
capital ratios of 4% and 8%, respectively.
(2) The Leverage Ratio of 3% is the minimum requirement for the most
highly rated banking organizations which are not experiencing or
anticipating significant growth. According to the Federal Reserve
Board, other banking organizations will be expected to maintain
capital at higher levels of at least an additional one to two percent.
17
19
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders held on April 21, 1994, the
stockholders voted on the following matters:
(a) Fix the total number of Directors at fifteen: for - 29,557,246
(99.4%), against - 98,821 (.3%), abstained - 86,351 (.3%) and
unvoted - 7 (-%).
(b) Election of five directors for a term of three years expiring
in 1997, or until their successors are elected and qualified:
Votes
----------------------------------------------------
Name For Withheld
---- --- --------
John W.A. Buyers 29,621,057 (99.7%) 121,368 (.4%)
John C. Couch 29,646,696 (99.7%) 95,729 (.3%)
David M. Haig 29,645,996 (99.7%) 96,429 (.3%)
Dr. Roderick F. McPhee 29,609,839 (99.6%) 132,586 (.4%)
Robert J. Pfeiffer 29,618,844 (99.6%) 123,581 (.4%)
There were no abstentions or unvoted shares.
(c) Election of Coopers & Lybrand as the Auditor of the Company to
serve for the ensuing year: for -29,532,341 (99.3%), against
- 83,734 (.3%), abstained - 126,344 (.4%) and unvoted - 6
(-%).
(d) Approve amendment to the Certificate of Incorporation to
increase the number of authorized shares of common stock, par
value $5 per share, from 66,500,000 to 100,000,000: for -
27,502,065 (92.5%), against - 2,140,364 (7.2%), abstained -
99,783 (.3%) and unvoted - 213 (-%).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3 Amended and Restated Certificate of Incorporation
Exhibit 12 Statement regarding computation of consolidated
ratios of earnings to fixed charges.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended June 30, 1994.
18
20
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.
FIRST HAWAIIAN, INC.
(REGISTRANT)
Date August 9, 1994 By /s/ HOWARD H. KARR
-------------- -------------------------------------
HOWARD H. KARR
EXECUTIVE VICE PRESIDENT AND TREASURER
(PRINCIPAL FINANCIAL OFFICER)
19
21
EXHIBIT INDEX
EXHIBIT PAGE NUMBER IN
NUMBER DESCRIPTION QUARTERLY REPORT FORM 10-Q
------ ----------- --------------------------
3 Amended and Restated Certificate of Incorporation 21
12 Statement re: computation of ratios. 24
20