1
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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, 1997
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
_________
FIRST HAWAIIAN, INC.
(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, 1997 was:
Class Outstanding
-------------------------- -----------------
Common Stock, $5 Par Value 31,777,039 Shares
- -------------------------------------------------------------------------------
===============================================================================
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
----
Consolidated Balance Sheets at March 31, 1997, December 31, 1996
and March 31, 1996 2
Consolidated Statements of Income for the three months ended
March 31, 1997 and 1996 3
Consolidated Statements of Cash Flows for the three months ended
March 31, 1997 and 1996 4
Consolidated Statements of Changes in Stockholders' Equity for the
three months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
EXHIBIT INDEX
1
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (Unaudited)
First Hawaiian, Inc. and Subsidiaries
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
----------- ----------- -----------
(in thousands)
ASSETS
Interest-bearing deposits in other banks $ 76,529 $ 70,130 $ 206,670
Federal funds sold and securities purchased
under agreements to resell 167,800 148,370 162,000
Available-for-sale investment securities 1,061,976 1,140,719 1,098,091
Loans:
Loans 5,947,296 5,806,732 5,206,288
Less allowance for loan losses 85,136 85,248 79,585
----------- ----------- -----------
Net loans 5,862,160 5,721,484 5,126,703
----------- ----------- -----------
Total earning assets 7,168,465 7,080,703 6,593,464
Cash and due from banks 341,295 333,511 329,951
Premises and equipment 250,001 261,201 241,800
Customers' acceptance liability 745 824 695
Core deposit premium 28,282 28,877 16,092
Goodwill 99,868 101,218 74,410
Other assets 206,791 195,840 170,317
----------- ----------- -----------
TOTAL ASSETS $ 8,095,447 $ 8,002,174 $ 7,426,729
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 878,289 $ 969,620 $ 817,220
Interest-bearing demand 1,530,795 1,328,354 1,130,067
Savings 894,192 1,070,338 1,106,610
Time 2,381,044 2,330,704 1,990,851
Foreign 265,712 237,692 242,392
----------- ----------- -----------
Total deposits 5,950,032 5,936,708 5,287,140
Short-term borrowings 960,583 929,560 1,013,178
Acceptances outstanding 745 824 695
Other liabilities 221,992 223,455 226,736
Long-term debt 246,443 205,743 241,751
----------- ----------- -----------
TOTAL LIABILITIES 7,379,795 7,296,290 6,769,500
----------- ----------- -----------
Stockholders' equity:
Preferred stock -- -- --
Common stock 165,952 165,952 162,713
Surplus 148,208 148,196 133,933
Retained earnings 439,359 428,693 396,999
Unrealized valuation adjustment 869 1,850 2,371
Treasury stock (38,736) (38,807) (38,787)
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 715,652 705,884 657,229
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,095,447 $ 8,002,174 $ 7,426,729
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
2
4
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
First Hawaiian, Inc. and Subsidiaries
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
1997 1996
------------ -----------
(in thousands, except shares and per share data)
INTEREST INCOME
Interest and fees on loans $ 121,552 $ 110,252
Lease financing income 3,231 2,837
Interest on investment securities:
Taxable interest income 17,525 16,798
Exempt from Federal income taxes 232 860
Other interest income 2,855 5,032
------------ -----------
Total interest income 145,395 135,779
------------ -----------
INTEREST EXPENSE
Deposits 47,207 42,049
Short-term borrowings 12,004 13,834
Long-term debt 3,670 3,876
------------ -----------
Total interest expense 62,881 59,759
------------ -----------
Net interest income 82,514 76,020
Provision for loan losses 3,752 3,322
------------ -----------
Net interest income after provision for
loan losses 78,762 72,698
------------ -----------
NONINTEREST INCOME
Trust and investment services income 6,755 6,497
Service charges on deposit accounts 6,797 5,986
Other service charges and fees 11,728 9,817
Securities gains (losses), net (2) 20
Other 2,741 1,648
------------ -----------
Total noninterest income 28,019 23,968
------------ -----------
NONINTEREST EXPENSES
Salaries and wages 28,702 24,194
Employee benefits 8,708 9,178
Occupancy expense 10,625 6,445
Equipment expense 6,086 5,481
Other 23,054 22,108
------------ -----------
Total noninterest expenses 77,175 67,406
------------ -----------
Income before income taxes 29,606 29,260
Income taxes 9,090 9,057
------------ -----------
NET INCOME $ 20,516 $ 20,203
============ ===========
PER SHARE DATA
NET INCOME $ .65 $ .65
============ ===========
CASH DIVIDENDS $ .31 $ .295
============ ===========
AVERAGE SHARES OUTSTANDING 31,775,597 31,119,485
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
5
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
First Hawaiian, Inc. and Subsidiaries
THREE MONTHS ENDED MARCH 31,
--------------------------------
1997 1996
--------- --------
(in thousands)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD $ 333,511 $304,051
--------- --------
Cash flows from operating activities:
Net income 20,516 20,203
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 3,752 3,322
Depreciation and amortization 8,030 8,094
Income taxes 7,667 8,314
Decrease in interest receivable 2,039 4,036
Increase (decrease) in interest payable 193 (6,427)
Decrease in prepaid expenses 3,072 114
Other (12,933) (27,428)
--------- --------
Net cash provided by operating activities 32,336 10,228
--------- --------
Cash flows from investing activities:
Net decrease (increase) in interest-bearing deposits
in other banks (6,399) 37,900
Net decrease (increase) in Federal funds sold and securities
purchased under agreements to resell (19,430) 7,803
Purchase of available-for-sale investment securities (37,676) (168,232)
Proceeds from sale of available-for-sale
investment securities 20,020 -
Proceeds from maturity of available-for-sale
investment securities 94,769 240,257
Net decrease (increase) in loans to customers (147,684) 50,059
Capital expenditures (3,861) (3,247)
Other 428 (1,300)
--------- --------
Net cash provided by (used in) investing activities (99,833) 163,240
--------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 13,324 (71,173)
Net increase (decrease) in short-term borrowings 31,023 (70,001)
Proceeds from long-term debt 40,700 3,000
Payments on long-term debt -- (1)
Cash dividends paid (9,850) (9,180)
Issuance (repurchase) of common stock 84 (213)
--------- --------
Net cash provided by (used in) financing activities 75,281 (147,568)
--------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 341,295 $329,951
========= ========
Supplemental disclosures:
Interest paid $ 62,570 $ 66,186
========= ========
Income taxes paid $ 1,422 $ 743
========= ========
Supplemental schedule of noncash investing
and financing activities:
Loans converted into other real estate owned $ 2,487 $ 3,478
========= ========
Loans made to facilitate the sale of other real estate owned $ 150 $ 50
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
6
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
First Hawaiian, Inc. and Subsidiaries
THREE MONTHS ENDED MARCH 31,
-------------------------
1997 1996
--------- ---------
(in thousands)
BALANCE, BEGINNING OF PERIOD $ 705,884 $ 649,537
Net income 20,516 20,203
Issuance (purchase) of treasury stock, net 11 (221)
Cash dividends (9,850) (9,180)
Unrealized valuation adjustment (982) (3,118)
Incentive plan for key executives 73 8
--------- ---------
BALANCE, END OF PERIOD $ 715,652 $ 657,229
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
First Hawaiian, Inc. and Subsidiaries
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;
First Hawaiian Creditcorp, Inc.; Pacific One Bank; ANB Financial Corporation
and its wholly-owned subsidiary; FHL Lease Holding Company, Inc.; and FHI
International, Inc. All significant intercompany balances and transactions
have been eliminated in consolidation.
Certain amounts in the consolidated financial statements for 1996 have
been reclassified to conform with the 1997 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
As of January 1, 1997, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities" which were
not deferred by SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." These provisions specify the
recognition and measurement of servicing assets and liabilities as well as
financial assets subject to prepayment and did not have a significant impact to
the Company's financial statements as of March 31, 1997. SFAS No. 127 defers
the effective date of certain provisions of SFAS No. 125 until January 1, 1998.
Management has not yet determined the effect of the adoption of SFAS No. 127 to
the Company's consolidated financial statements.
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share" (EPS) which improves the EPS information provided in
financial statements by simplifying the existing computational guidelines and
revising the disclosure requirements. This statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods and earlier application is not permitted. The impact
of this statement on the Company's current disclosures is not expected to be
significant.
Effective January 1, 1996, the Company adopted SFAS No. 122, "Accounting
for Mortgage Servicing Rights." SFAS No. 122 amends SFAS No. 65, "Accounting
for Certain Mortgage Banking Activities," to require that mortgage banking
enterprises recognize as separate assets rights to service mortgage loans for
others. SFAS No. 122 also requires that mortgage banking enterprises assess
capitalized mortgage servicing rights based on the fair value of those rights on
a disaggregated basis. The adoption of this standard did not have a material
effect on the consolidated financial statements of the Company.
3. IMPAIRED LOANS
The following table summarizes impaired loan information as of and for
the three months ended March 31, 1997:
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
(in thousands)
Impaired loans $107,744 $128,446 $78,334
Impaired loans with related allowance for loan losses
calculated under SFAS No. 114 $ 49,931 $ 35,517 $48,975
Total allowance on impaired loans $ 12,720 $ 9,690 $15,905
Average impaired loans $104,895 $ 87,289 $88,125
Interest income recorded during the period $ 199 $ 980 $ 214
Impaired loans without a related allowance for loan losses are
generally collateralized by assets with fair values in excess of the recorded
investment in the loans. Interest payments on impaired loans are applied to
principal.
5
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
First Hawaiian, Inc. and Subsidiaries
4. BUSINESS COMBINATIONS
On May 31, 1996, for a purchase price of $36 million, the Company
acquired 31 branches in the States of Oregon, Washington and Idaho which were
being divested by U.S. Bancorp and West One Bancorp as a result of their
merger. This transaction included the purchase of loans of $400 million and
the assumption of deposits of $687 million. The acquisition was accounted for
using the purchase method of accounting and the results of operations were
included in the Consolidated Statements of Income from the date of acquisition.
Of the 31 branches acquired by the Company, the 26 Oregon and Idaho branches
are being operated as Pacific One Bank, a wholly-owned subsidiary of the
Company. The five branches acquired in the State of Washington were originally
operated as branches of Pioneer Federal Savings Bank ("Pioneer"), a
wholly-owned subsidiary of the Company (see current operations described below)
under the name "Pacific One Bank, FSB."
On July 31, 1996, for a purchase price of $18 million, the Company
acquired ANB Financial Corporation ("ANB"), a bank holding company, and its
wholly-owned subsidiary, American National Bank, which had total loans of $51
million and total deposits of $67 million at the date of acquisition. American
National Bank had a total of four branches located in the State of Washington.
The acquisition was accounted for using the purchase method of accounting and
the results of operations of ANB were included in the Consolidated Statements
of Income from the date of acquisition. On November 8, 1996, American National
Bank changed its name to Pacific One Bank, N. A. and acquired the five branches
in the State of Washington from Pioneer. Pacific One Bank, N.A. presently
operates eight of the nine branches acquired in the State of Washington; the
remaining branch was closed.
Hereafter, the above acquisitions will be collectively referred to as
the "Pacific Northwest Acquisitions."
6
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NET INCOME
The Company recorded consolidated net income for the first quarter of 1997 of
$20,516,000, an increase of $313,000, or 1.5%, over the first quarter of 1996.
On a per share basis, consolidated net income for the first quarter of 1997
remained constant at $.65. The modest increase in consolidated net income
reflects the slow pace of economic recovery in Hawaii and related weakness in
the local real estate market.
On an annualized basis, the Company's return on average total assets for the
first three months of 1997 was 1.04%, a decrease of 6.3% compared to the same
period in 1996, and return on average stockholders' equity was 11.72%, a
decrease of 5.8% compared to the same period in 1996. The decreases in return
on average total assets and return on average stockholders' equity were
primarily due to increases in average total assets and average stockholders'
equity of 8.8% and 8.6%, respectively, over the same period in 1996. The
increase in average total assets and average stockholders' equity was primarily
attributable to the Pacific Northwest Acquisitions in mid-1996 and the issuance
of stock related thereto.
NET INTEREST INCOME
Net interest income, on a fully taxable equivalent basis, increased $6,139,000,
or 8.0%, to $82,745,000 for the first three months of 1997 from $76,606,000 for
the same period in 1996. The increase in net interest income was primarily due
to a 10 basis point (1% equals 100 basis points) increase in the net interest
margin. In addition, average earning assets for the first three months of 1997
increased $446,933,000, or 6.6%, over the same period in 1996. The increase
was primarily attributable to the Pacific Northwest Acquisitions.
The net interest margin was 4.68% for the first three months of 1997, an
increase of 2.2% over the same period in 1996. The increase was due to an 8
basis point increase in the yield on earning assets and a 2 basis point decrease
in the rate paid for sources of funds. The decrease in the rate paid for
sources of funds reflected, among other things, increases in average interest
and noninterest-bearing demand deposits of $443,375,000, or 22.7%, partially
offset by an increase of $371,648,000, or 17.7%, in average time certificates of
deposits. These increases were primarily attributable to the Pacific Northwest
Acquisitions.
Average earning assets increased by $446,933,000, or 6.6%, for the first three
months of 1997 over the same period in 1996. The increase in average earning
assets for the first three months of 1997 over the first three months of 1996
was due to the Pacific Northwest Acquisitions which increased average earning
assets by $696,268,000. Excluding the Pacific Northwest Acquisitions, average
earning assets for the first three months of 1997 decreased $249,335,000, or
3.7%, compared to the same period in 1996. This decrease was primarily due to
reduced levels of state and local government funds requiring collateralization,
a result of the continuing effect of the securitization of $461,449,000 of
adjustable rate mortgage loans with the Federal National Mortgage Association
("FNMA") in 1995. The securities backed by these loans are held by the Company
and were reclassified to the investment securities portfolio. Excluding the
aforementioned Pacific Northwest Acquisitions, the investment securities
portfolio decreased $187,739,000, or 16.6%, for the first three months of 1997
compared to the same period in 1996. The investment securities portfolio was
allowed to run-off as securities matured since the securitized loans provided
the necessary collateral for public deposits and reverse repurchase agreements.
In addition, the increase in the overall yield of the investment securities
portfolio for the first three months of 1997 over the same period in 1996 was
attributable to the upward repricing of the securitized loans and the purchase
of higher yielding securities in the first quarter of 1997.
Average loans increased by $626,977,000, or 12.0%, for the first three months of
1997 over the same period in 1996, primarily due to the Pacific Northwest
Acquisitions. Excluding the effect of the Pacific Northwest Acquisitions,
average loans for the first three months of 1997 increased 1.7% over the same
period in 1996. Also, the mix of loans continues to change as the Company
diversifies its loan portfolio, both geographically and by industry. These
efforts have included the Pacific Northwest Acquisitions and credit extensions
to companies in the media and telecommunications industry located on the
mainland United States.
7
9
Average interest-bearing deposits and liabilities increased by $473,335,000, or
8.3%, for the first three months of 1997 over the same period in 1996,
primarily due to the Pacific Northwest Acquisitions (including the issuance of
$50 million of long-term subordinated debt during the second quarter of 1996 to
fund the Pacific Northwest Acquisitions). Excluding the impact of the Pacific
Northwest Acquisitions, average interest-bearing deposits and liabilities
decreased $286,153,000, or 5.0%, in the first quarter of 1997 compared to the
first quarter of 1996. The decrease reflected the repayment of short-term
borrowings from proceeds received from the run-off of the investment securities
portfolio. As a result of depositors seeking higher yields, the mix of average
interest-bearing deposits and liabilities changed with higher-yielding average
time deposits representing 40.2% of average interest-bearing deposits and
liabilities for the first three months of 1997, as compared to 37.0% for the
same period in 1996.
8
10
The following table sets forth the condensed consolidated average balance
sheets, an analysis of interest income/expense and average yield/rate for each
major category of earning assets and interest-bearing deposits and 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 1997 and 1996) to make them comparable with taxable items before
any income taxes are applied.
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------
1997 1996
------------------------------ ------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE(1) BALANCE EXPENSE RATE(1)
--------- --------- ---- --------- --------- ----
(dollars in thousands)
ASSETS
Earning assets:
Interest-bearing deposits
in other banks $ 55,574 $ 763 5.57% $ 207,550 $ 2,898 5.62%
Federal funds sold and
securities purchased
under agreements to resell 157,781 2,092 5.38 155,403 2,134 5.52
Investment securities(2) 1,103,661 17,873 6.57 1,134,107 18,103 6.42
Loans(3),(4) 5,859,658 124,898 8.64 5,232,681 113,230 8.70
------------ ---------- ------------ ---------
Total earning assets 7,176,674 145,626 8.23 6,729,741 136,365 8.15
---------- ---------
Nonearning assets 815,877 618,078
------------ ------------
Total assets $ 7,992,551 $ 7,347,819
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits
and liabilities:
Deposits $ 4,990,742 $ 47,207 3.84% $ 4,392,395 $ 42,048 3.85%
Short-term borrowings 945,137 12,004 5.15 1,045,268 13,834 5.32
Long-term debt 221,936 3,670 6.71 246,817 3,877 6.32
------------ ---------- ------------ ---------
Total interest-bearing
deposits and liabilities 6,157,815 62,881 4.14 5,684,480 59,759 4.23
---------- ---- --------- ----
Interest rate spread 4.09% 3.92%
==== ====
Noninterest-bearing demand
deposits 878,348 830,951
Other liabilities 246,559 179,069
------------ ------------
Total liabilities 7,282,722 6,694,500
Stockholders' equity 709,829 653,319
------------ ------------
Total liabilities and
stockholders' equity $ 7,992,551 $ 7,347,819
============ ============
Net interest income and
margin on earning assets 82,745 4.68% 76,606 4.58%
==== ====
Tax equivalent adjustment 231 586
---------- ---------
Net interest income $ 82,514 $ 76,020
========== =========
(1) Annualized.
(2) Average balances exclude the effects of the fair value adjustments.
(3) Nonaccruing loans have been included in computations of average loan
balances.
(4) Interest income for loans included loan fees of $5,582 and $5,618 for 1997
and 1996, respectively.
9
11
INVESTMENT SECURITIES
The following table presents the amortized cost and fair values of
available-for-sale investment securities as of the dates indicated:
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
----------- ----------- -----------
(in thousands)
Amortized cost $ 1,060,525 $ 1,137,640 $ 1,094,152
Unrealized gains 3,481 4,984 5,311
Unrealized losses (2,030) (1,905) (1,372)
----------- ----------- -----------
Fair value $ 1,061,976 $ 1,140,719 $ 1,098,091
=========== =========== ===========
Gross realized gains and losses for the three months ended March 31, 1997 and
1996 were as follows:
1997 1996
-------- --------
(in thousands)
Realized gains $ -- $ 29
Realized losses (2) (9)
-------- --------
Securities gains (losses), net $(2) $ 20
======== ========
Gains and losses realized on the sales of investment securities are determined
using the specific identification method.
10
12
LOANS
The following table sets forth the loan portfolio by major categories and loan
mix at March 31, 1997, December 31, 1996 and March 31, 1996:
MARCH 31, 1997 DECEMBER 31, 1996 MARCH 31, 1996
------------------- ------------------ ------------------
AMOUNT % AMOUNT % AMOUNT %
---------- ---- ---------- ---- --------- -----
(dollars in thousands)
Commercial, financial and agricultural $1,516,534 25.5% $1,381,824 23.8% $1,303,453 25.0%
Real estate:
Commercial 1,222,848 20.6 1,172,124 20.2 1,065,006 20.5
Construction 200,121 3.4 213,195 3.7 204,052 3.9
Residential:
Insured, guaranteed or
conventional 1,450,464 24.3 1,473,803 25.4 1,298,390 24.9
Home equity credit lines 457,889 7.7 462,117 8.0 420,711 8.1
---------- ---- ---------- ---- --------- -----
Total real estate loans 3,331,322 56.0 3,321,239 57.3 2,988,159 57.4
---------- ---- ---------- ---- --------- -----
Consumer 569,466 9.6 583,060 10.0 477,082 9.2
Lease financing 240,732 4.0 240,898 4.1 224,259 4.3
Foreign 289,242 4.9 279,711 4.8 213,335 4.1
---------- ---- ---------- ---- --------- -----
Total loans 5,947,296 100.0% 5,806,732 100.0% 5,206,288 100.0%
===== ===== ======
Less allowance for loan losses 85,136 85,248 79,585
---------- ---------- ----------
Total net loans $5,862,160 $5,721,484 $5,126,703
========== ========== ==========
The loan portfolio is the largest component of earning assets and accounts for
the greatest portion of total interest income. At March 31, 1997, total loans
were $5,947,296,000, representing increases of 2.4% and 14.2% from December 31,
1996 and March 31, 1996, respectively. The increase from March 31, 1996 was
primarily due to the Pacific Northwest Acquisitions. Excluding the Pacific
Northwest Acquisitions, total loans increased $181,450,000, or 3.5%, from March
31, 1996.
Total loans at March 31, 1997, represented 73.5% of total assets, 83.0% of
total earning assets and 100.0% of total deposits, compared to 72.6% of total
assets, 82.0% of total earning assets and 97.8% of total deposits at December
31, 1996 and 70.1% of total assets, 79.0% of total earning assets and 98.5% of
total deposits at March 31, 1996.
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, 1997, the
Company did not have a concentration of loans greater than 10% of total loans
which was not otherwise disclosed as a category of loans as shown in the above
table.
11
13
NONPERFORMING ASSETS
A summary of nonperforming assets at March 31, 1997, December 31, 1996 and
March 31, 1996 follows:
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
-------- ------- -------
(dollars in thousands)
Nonperforming loans:
Nonaccrual:
Commercial, financial and agricultural $ 19,775 $21,398 $16,800
Real estate:
Commercial 4,208 6,156 37,166
Construction 1,908 1,700 7,544
Residential:
Insured, guaranteed, or conventional 12,188 13,815 12,073
Home equity credit lines 751 451 694
-------- ------- -------
Total real estate loans 19,055 22,122 57,477
-------- ------- -------
Lease financing 22 27 8
-------- ------- -------
Total nonaccrual loans 38,852 43,547 74,285
-------- ------- -------
Restructured:
Commercial, financial and agricultural 3,428 3,429 628
Real estate:
Commercial 41,310 24,604 2,500
Residential:
Insured, guaranteed, or conventional 1,384 267 --
Home equity credit lines 559 561 --
-------- ------- -------
Total restructured loans 46,681 28,861 3,128
-------- ------- -------
Total nonperforming loans 85,533 72,408 77,413
Other real estate owned 23,707 25,574 12,947
-------- ------- -------
Total nonperforming assets $109,240 $97,982 $90,360
======== ======= =======
Past due loans:
Commercial, financial and agricultural $ 5,278 $ 7,765 $ 9,737
Real estate:
Commercial 9,418 7,676 1,443
Residential:
Insured, guaranteed, or conventional 10,086 9,812 6,204
Home equity credit lines 2,822 2,220 1,755
-------- ------- -------
Total real estate loans 22,326 19,708 9,402
-------- ------- -------
Consumer 3,034 2,869 3,133
Lease financing 60 40 88
-------- ------- -------
Total past due loans(1) $ 30,698 $30,382 $22,360
======== ======= =======
Nonperforming assets to total loans
and other real estate owned (end of period):
Excluding 90 days past due accruing loans 1.83% 1.68% 1.73%
Including 90 days past due accruing loans 2.34% 2.20% 2.16%
Nonperforming assets to total assets
(end of period):
Excluding 90 days past due accruing loans 1.35% 1.22% 1.22%
Including 90 days past due accruing loans 1.73% 1.60% 1.52%
- ---------------
(1) Represents loans which are past due 90 days or more as to principal and
interest and still accruing interest.
12
14
NONPERFORMING ASSETS, Continued
Nonperforming assets increased from $97,982,000, or 1.68% of total loans and
other real estate owned ("OREO") and 1.22% of total assets, at December 31,
1996 to $109,240,000, or 1.83% of total loans and OREO and 1.35% of total
assets, at March 31, 1997. The increase in nonperforming assets of
$11,258,000, or 11.5%, included an increase of $16,706,000 in restructured
commercial real estate loans, which was principally due to the addition of a
commercial real estate loan identified as a potential problem loan at December
31, 1996. Certain potential problem loans have been classified as nonperforming
assets by management in connection with its review of the loan portfolio.
Loans past due 90 days or more and still accruing interest totalled $30,698,000
at March 31, 1997, an increase of $316,000, or 1.0%, over December 31, 1996.
All of the loans which are past due 90 days or more and still accruing interest
are in management's judgment adequately collateralized and in the process of
collection.
In recent years, the level of the Company's nonperforming assets and
charge-offs has been affected by the impact of adverse economic conditions and
trends in Hawaii. The first and most important of these adverse economic
trends was the continuing weakness of the Hawaii economy's recovery from the
1992 recession. In contrast to the mainland economy, Hawaii's recovery from
the recession continues to be slow and protracted; Hawaii continues to show
weaknesses in its local real estate market, including declining values in the
leasehold real estate sector. The second significant adverse economic trend
was the nagging effect of Hurricane Iniki in September 1992. The island of
Kauai has never totally recovered from the damage to resort, hotel and
agricultural property and the extended insurance claim period that followed.
These trends may continue to affect the level of nonperforming assets and
related charge-offs in future periods.
13
15
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,
---------------------------------------------
1997 1996
--------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE(1) BALANCE RATE (1)
-------- ----- ---------- ------
(dollars in thousands)
Interest-bearing demand $1,521,120 2.60% $1,125,142 2.60%
Savings 994,716 2.15 1,163,995 2.13
Time 2,474,906 5.27 2,103,258 5.47
---------- ----------
Total interest-bearing deposits 4,990,742 3.84 4,392,395 3.85
Noninterest-bearing demand 878,348 -- 830,951 --
---------- ----------
Total deposits $5,869,090 3.26% $5,223,346 3.24%
========== ==========
Average interest-bearing deposits increased $598,347,000, or 13.6%, over the
first quarter of 1996. The increase in average interest-bearing deposits was
due primarily to the Pacific Northwest Acquisitions and various deposit product
programs initiated by the Company throughout 1996 and 1997. As a result of the
aforementioned acquisitions and the demands of depositors seeking higher
yields through the deposit product programs, the mix of average
interest-bearing deposits changed, with higher yielding average time
certificates of deposits representing 49.6% of average interest-bearing
deposits in the first quarter of 1997, as compared to 47.9% in the same period
in 1996.
(1) Annualized.
14
16
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The following table sets forth the activity in the allowance for loan losses
for the periods indicated:
THREE MONTHS ENDED MARCH 31,
-----------------------------
1997 1996
---------- ----------
(dollars in thousands)
Loans outstanding (end of period) $5,947,296 $5,206,288
========== ==========
Average loans outstanding $5,859,658 $5,232,681
========== ==========
Allowance for loan losses summary:
Balance at beginning of period $ 85,248 $ 78,733
---------- ----------
Loans charged off:
Commercial, financial and agricultural 14 418
Real estate:
Commercial 255 46
Construction 61 --
Residential 1,075 210
Consumer 3,075 2,462
Foreign 4 62
---------- ----------
Total loans charged off 4,484 3,198
---------- ----------
Recoveries on loans previously charged off:
Commercial, financial and agricultural 48 80
Real estate:
Commercial 12 1
Residential 15 53
Consumer 534 584
Lease financing 4 2
Foreign 7 8
---------- ----------
Total recoveries on loans previously
charged off 620 728
---------- ----------
Net charge-offs 3,864 2,470
Provision for loan losses 3,752 3,322
---------- ----------
Balance at end of period $ 85,136 $ 79,585
========== ==========
Net loans charged off to average loans .27%(1) .19%(1)
Net loans charged off to allowance for
loan losses 18.41%(1) 12.48%(1)
Allowance for loan losses to total
loans (end of period) 1.43% 1.52%
Allowance for loan losses to nonperforming
loans (end of period):
Excluding 90 days past due
accruing loans 1.00x 1.03x
Including 90 days past due
accruing loans .73X .80x
- ---------------
(1) Annualized.
15
17
PROVISION AND ALLOWANCE FOR LOAN LOSSES, Continued
For the first three months of 1997, the provision for loan losses was
$3,752,000, an increase of $430,000, or 12.9%, over the same period in 1996.
The increase in the provision for loan losses was primarily attributable to the
Pacific Northwest Acquisitions.
Net charge-offs for the first three months of 1997 were $3,864,000, an increase
of $1,394,000, or 56.4%, over the same period in 1996. The increase in net
charge-offs was primarily due to increased charge-offs in all categories of
consumer loans, which include direct loans, indirect dealer loans and credit
cards and increased charge-offs in first mortgages and home equity lines.
Smaller balance homogeneous credit card and consumer loans are charged off at a
predetermined delinquency status or earlier if the Company determines that the
loan is uncollectable.
The allowance for loan losses decreased to 100% of nonperforming loans at March
31, 1997 (excluding 90 days past due accruing loans) from 118% at December 31,
1996, reflecting the increase in nonperforming loans in the first three months
of 1997.
In management's judgment, the allowance for loan losses is adequate to absorb
potential losses currently inherent in the portfolio at March 31, 1997.
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 for loan losses.
NONINTEREST INCOME
Excluding securities transactions, noninterest income for the first three
months of 1997 totalled $28,021,000, an increase of $4,073,000, or 17.0%, over
the same period in the prior year. Excluding the Pacific Northwest
Acquisitions and securities transactions, noninterest income for the first
three months of 1997 increased $2,191,000, or 9.1%, over the same period in
1996.
Trust and investment services income increased $258,000, or 4.0%, for the first
three months of 1997 over the same period in 1996.
Service charges on deposit accounts increased $811,000, or 13.5%, for the first
three months of 1997 over the same period in 1996. Excluding the Pacific
Northwest Acquisitions, service charges on deposit accounts remained relatively
constant for the first three months of 1997 as compared to the same period in
1996.
Other service charges and fees increased $1,911,000, or 19.5%, for the first
three months of 1997 over the same period in 1996. Excluding the Pacific
Northwest Acquisitions, other service charges and fees increased $985,000, or
10.0%, for the first three months of 1997 over the same period in 1996
primarily due to: (1) higher merchant discount fees; (2) increased income
earned from annuity and mutual fund sales; and (3) increased mortgage servicing
fees for mortgage loans that were originated and sold with servicing retained.
Other noninterest income increased $1,093,000, or 66.3%, for the first three
months of 1997 over the same period in 1996. Excluding the Pacific Northwest
Acquisitions, other noninterest income increased $927,000, or 56.3%, for the
first three months of 1997 over the same period in 1996. The increase was
primarily due to increases in foreclosed property income.
16
18
NONINTEREST EXPENSES
Noninterest expenses totalled $77,175,000 for the first three months of 1997,
which represented an increase of 14.5% over the same period a year ago.
Excluding the Pacific Northwest Acquisitions, noninterest expenses increased
$2,310,000, or 3.4%, for the first three months of 1997 over the same period in
1996.
Total personnel expenses (salaries and wages and employee benefits) increased
$4,038,000, or 12.1%, for the first three months of 1997 over the same period
in 1996. Excluding the Pacific Northwest Acquisitions, personnel expenses
decreased $413,000, or 1.2%, for the first three months of 1997 compared to the
same period in 1996.
Occupancy expense for the first three months of 1997 increased $4,180,000, or
64.9%, over the same period in 1996. The increase was primarily due to the
Pacific Northwest Acquisitions and costs associated with the relocation into
the new administrative headquarters building (including related amortization of
previously capitalized expenses during the construction period).
Equipment expense increased $605,000, or 11.0%, for the first three months of
1997 over the same period in 1996. Excluding the Pacific Northwest
Acquisitions, equipment expense increased $235,000, or 4.3%, for the first
three months of 1997 over the same period in 1996. The increase was a result
of higher service contract expenses in 1997.
Excluding a pre-tax loss of $1,945,000 (which actually resulted in an after-tax
gain of $399,000 due to a net tax benefit of $2,344,000 recognized through
reversal of the related tax liabilities) recognized on the sale of a certain
leveraged lease in the first quarter of 1996 and the Pacific Northwest
Acquisitions, other noninterest expenses for the first three months increased
$726,000, or 3.6%, over the same period in 1996. The increase was primarily due
to higher interchange settlement fees, outside services, legal fees (primarily
related to foreclosed property), a loss on the sale of a certain loan and a loss
on the sale of certain real estate. This increase was partially offset by:
(1) nonrecurring losses incurred in connection with a certain credit card fraud
in the first quarter of 1996; (2) lower foreclosed property expenses; and (3) an
increase in the cash surrender value of certain executive life insurance
policies (recorded as a credit to insurance expense) in 1997.
17
19
INCOME TAXES
The Company's effective income tax rate (exclusive of the tax equivalent
adjustment) for the first three months of 1997 was 30.7% as compared to 31.0%
for the same period in 1996. Although the effective income tax rate remained
relatively constant, the rate for the first quarter of 1997 was positively
impacted by (i) an income tax benefit resulting from the partial recognition of
previously unrecognized tax credits and (ii) partial reversal of an overaccrual
of State of Hawaii income taxes. The effective tax rate for the first quarter
of 1996 was positively impacted by the reversal of deferred tax liabilities
(reflecting a change in Hawaii tax laws) related to the aforementioned leveraged
lease sale in 1996.
LIQUIDITY AND CAPITAL
Stockholders' equity was $715,652,000 at March 31, 1997, a 1.4% increase over
$705,884,000 at December 31, 1996. The ratio of average stockholders' equity
to average total assets remained unchanged at 8.9% for the first quarter of
1997 and 1996. There was no significant change in the Company's liquidity
position during the first quarter of 1997.
The following tables present the Company's regulatory capital position at March
31, 1997:
RISK-BASED CAPITAL RATIOS
AMOUNT RATIO
---------- --------
(dollars in thousands)
Tier 1 Capital $ 590,053 8.41%
Tier 1 Capital minimum requirement(1) 280,499 4.00
---------- --------
Excess $ 309,554 4.41%
========== ========
Total Capital $ 825,189 11.77%
Total Capital minimum requirement(1) 560,998 8.00
---------- --------
Excess $ 264,191 3.77%
========== ========
Risk-weighted assets $7,012,481
==========
LEVERAGE RATIO
AMOUNT RATIO
---------- ------
(dollars in thousands)
Tier 1 Capital to average quarterly total assets
(net of certain intangibles)
(Tier 1 Leverage Ratios) $ 590,053 7.50%
Minimum leverage requirement(2) 236,035 3.00
---------- ------
Excess $ 354,018 4.50%
========== ======
Average quarterly total assets (net of certain intangibles) $7,867,821
==========
_______________
(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 Federal Reserve Board has stated that the Leverage Ratio of 3% is
the minimum requirement for the most highly rated banking
organizations which are not experiencing or anticipating significant
growth. Other banking organizations are expected to maintain leverage
ratios of at least one to two percent higher.
18
20
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 12 Statement regarding computation of ratios.
Exhibit 27 Financial data schedule.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended March 31, 1997.
19
21
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 May 9, 1997 By /s/ HOWARD H. KARR
---------------------------- ----------------------------
HOWARD H. KARR
EXECUTIVE VICE PRESIDENT AND TREASURER
(PRINCIPAL FINANCIAL OFFICER)
20
22
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
12 Statement regarding computation of ratios.
27 Financial data schedule.
1
EXHIBIT 12. STATEMENT RE: COMPUTATION OF RATIOS
First Hawaiian, Inc. and Subsidiaries
Computation of Consolidated Ratios of Earnings to Fixed Charges
THREE MONTHS ENDED MARCH 31,
------------------------
1997 1996
------- -------
(dollars in thousands)
Income before income taxes $29,606 $29,260
------- -------
Fixed charges:(1)
Interest expense 62,881 59,759
Rental expense 2,767 1,202
------- -------
65,648 60,961
Less interest on deposits 47,207 42,049
------- -------
Net fixed charges 18,441 18,912
------- -------
Earnings, excluding
interest on deposits $48,047 $48,172
======= =======
Earnings, including
interest on deposits $95,254 $90,221
======= =======
Ratio of earnings to
fixed charges:
Excluding interest on deposits 2.61x 2.55x
Including interest on deposits 1.45x 1.48x
__________________
(1) For purposes of computing the above ratios, earnings represent income
before income taxes plus fixed charges. Fixed charges, excluding interest
on deposits, include interest (other than on deposits), whether expensed or
capitalized, and that portion of rental expense (generally one third)
deemed representative of the interest factor. Fixed charges, including
interest on deposits, include all interest, whether expensed or
capitalized, and that portion of rental expense (generally one third)
deemed representative of the interest factor.
9
3-MOS
MAR-31-1997
JAN-01-1997
MAR-31-1997
341,295
76,529
167,800
0
1,061,976
0
0
5,947,296
85,136
8,095,447
5,950,032
960,583
221,992
246,443
0
0
165,952
549,700
8,095,447
124,783
17,757
2,855
145,395
47,207
62,881
82,514
3,752
(2)
77,175
29,606
29,606
0
0
20,516
.65
.65
8.23
38,852
30,698
46,681
0
85,248
4,484
620
85,136
40,470
1,730
42,936
