U N I T E D S T A T E S
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly
period ended March 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the transition
period from _____________ to _____________
Commission File Number 1-6887
B A N C O R P H A W A I I, I N C.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Hawaii 99-0148992
------------------------ ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
130 Merchant Street, Honolulu, Hawaii 96813
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(808) 537-8111
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $2 Par Value; outstanding at April 30, 1995 -
41,926,747 shares
BANCORP HAWAII, INC. and subsidiaries
March 31, 1995
PART I. - Financial Information
Item 1. Financial Statements
The consolidated statements of condition as of March 31,
1995 and 1994, and December 31, 1994 and related statements of
income, shareholders' equity, and cash flows are included herein.
The unaudited financial statements listed above have been
prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary
for a fair presentation of financial position, results of
operations, and changes in financial position in conformity with
generally accepted accounting principles.
The financial statements reflect all adjustments of a normal
and recurring nature which are, in the opinion of management,
necessary to a fair statement of the results for the interim
periods. Certain accounts have been reclassified to conform with
the 1995 presentation.
Consolidated Statements of Condition (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
- ----------------------------------------------------------------------------------------------------------------------
March 31 December 31 March 31
(in thousands of dollars) 1995 1994 1994
- ----------------------------------------------------------------------------------------------------------------------
Assets
Interest-Bearing Deposits $532,726 $727,016 $999,991
Investment Securities - Held to Maturity
(Market Value of $1,445,735, $1,736,659 and $2,663,837, respectively) 1,475,666 1,785,960 2,652,355
Investment Securities - Available for Sale 1,676,852 1,364,925 929,722
Funds Sold 79,755 54,167 115,747
Loans 7,756,208 7,891,993 7,366,639
Unearned Income (141,860) (144,034) (146,610)
Reserve for Possible Loan Losses (150,377) (148,508) (130,064)
Net Loans 7,463,971 7,599,451 7,089,965
- ----------------------------------------------------------------------------------------------------------------------
Total Earning Assets 11,228,970 11,531,519 11,787,780
Cash and Non-Interest Bearing Deposits 387,505 508,762 596,504
Premises and Equipment 227,700 221,806 176,765
Customers' Acceptance Liability 21,037 17,776 14,437
Accrued Interest Receivable 72,470 77,340 78,588
Other Real Estate 638 594 4,026
Intangibles, including Goodwill 93,512 94,515 103,903
Trading Securities 14,115 13,696 14,067
Other Assets 151,902 120,342 101,813
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $12,197,849 $12,586,350 $12,877,883
======================================================================================================================
Liabilities
Domestic Deposits
Demand - Non-Interest Bearing $1,357,837 $1,436,794 $1,326,211
- Interest-Bearing 1,628,719 1,747,514 1,864,532
Savings 1,085,263 1,140,402 1,284,824
Time 1,765,615 1,639,497 1,526,535
Foreign Deposits 938,699 1,150,847 1,337,831
- ----------------------------------------------------------------------------------------------------------------------
Total Deposits 6,776,133 7,115,054 7,339,933
Securities Sold Under Agreements to Repurchase 2,139,973 2,136,204 2,500,148
Funds Purchased 489,549 609,574 610,471
Short-Term Borrowings 574,148 594,475 766,177
Bank's Acceptances Outstanding 21,037 17,776 14,437
Accrued Pension Costs 23,576 23,510 24,492
Accrued Interest Payable 64,335 49,253 46,680
Accrued Taxes Payable 158,483 133,720 155,095
Other Liabilities 85,788 78,424 77,306
Long-Term Debt 862,445 861,572 389,882
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities 11,195,467 11,619,562 11,924,621
Shareholders' Equity
Common Stock ($2 par value), authorized 100,000,000 shares;
outstanding, March 1995 - 41,908,241;
December 1994 - 41,851,466; March 1994 - 42,564,920; 83,816 83,703 85,130
Surplus 261,003 260,040 282,280
Unrealized Valuation Adjustments (977) (18,122) (4,995)
Retained Earnings 658,540 641,167 590,847
- ----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,002,382 966,788 953,262
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $12,197,849 $12,586,350 $12,877,883
======================================================================================================================
Consolidated Statements of Income (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
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Three Months Ended Marsh 31
(in thousands of dollars except per share amounts) 1995 1994
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Interest Income
Interest on Loans $147,144 $124,810
Loan Fees 7,022 8,941
Income on Lease Financing 2,992 3,738
Interest and Dividends on Investment Securities
Taxable 23,030 38,236
Non-taxable 368 440
Income on Investment Securities Available for Sale 24,867 9,447
Interest on Deposits 8,205 7,669
Interest on Funds Sold 957 415
- ----------------------------------------------------------------------------------------------------------------------
Total Interest Income 214,585 193,696
Interest Expense
Interest on Deposits 54,992 42,193
Interest on Security Repurchase Agreements 29,933 21,630
Interest on Funds Purchased 8,134 4,699
Interest on Short-Term Borrowings 5,678 3,968
Interest on Long-Term Debt 13,527 5,299
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Total Interest Expense 112,264 77,789
Net Interest Income 102,321 115,907
Provision for Possible Loan Losses 4,453 8,258
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Net Interest Income After Provision for Possible Loan Losses 97,868 107,649
Non-Interest Income
Trust Income 13,391 12,109
Service Charges on Deposit Accounts 6,660 6,981
Fees, Exchange, and Other Service Charges 12,357 10,198
Other Operating Income 5,572 7,629
Investment Securities Gains (Losses) 1,831 (1,043)
- ----------------------------------------------------------------------------------------------------------------------
Total Non-Interest Income 39,811 35,874
Non-Interest Expense
Salaries 35,597 35,040
Pensions and Other Employee Benefits 11,257 12,016
Net Occupancy Expense of Premises 10,212 9,207
Net Equipment Expense 7,741 6,816
Other Operating Expense 26,248 25,165
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Total Non-Interest Expense 91,055 88,244
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Income Before Income Taxes 46,624 55,279
Provision for Income Taxes 18,376 20,887
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Net Income $28,248 $34,392
======================================================================================================================
Earnings Per Common Share and Common Share Equivalents $0.67 $0.80
- ----------------------------------------------------------------------------------------------------------------------
Average Common Shares and Common Share Equivalents Outstanding 42,137,738 42,943,711
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Consolidated Statements of Shareholders' Equity (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
- ----------------------------------------------------------------------------------------------------------------
Common Unrealized Retained
(in thousands of dollars except per share amounts) Total Stock Surplus Valuation Adj. Earnings
- ----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $966,788 $83,703 $260,040 ($18,122) $641,167
Net Income 28,248 - - - 28,248
Sale of Common Stock
89,527 Profit Sharing Plan 2,444 179 2,265 - -
47,039 Stock Option Plan 827 94 733 - -
73,509 Dividend Reinvestment Plan 1,994 147 1,847 - -
Stock Repurchased (4,189) (307) (3,882) - -
Unrealized Valuation Adjustments
Investment Securities 13,688 - - 13,688 -
Foreign Exchange Translation Adjustment 3,457 - - 3,457 -
Cash Dividends Paid of $.26 Per Share (10,875) - - - (10,875)
- ----------------------------------------------------------------------------------------------------------------
Balance at March 31, 1995 $1,002,382 $83,816 $261,003 ($977) $658,540
================================================================================================================
Balance at December 31, 1993 $938,104 $56,850 $284,886 $537 $595,831
Net Income 34,392 - - - 34,392
Sale of Common Stock
96,443 Profit Sharing Plan 3,090 193 2,897 - -
47,981 Stock Option Plan 811 96 715 - -
51,336 Dividend Reinvestment Plan 1,767 103 1,664 - -
Stock Repurchased (8,282) (400) (7,882) - -
Unrealized Valuation Adjustments
Investment Securities (6,190) - - (6,190) -
Foreign Exchange Translation Adjustment 658 - - 658 -
50 Percent Stock Dividend (59) 28,288 - - (28,347)
Cash Dividends Paid of $.26 Per Share (11,029) - - - (11,029)
- ----------------------------------------------------------------------------------------------------------------
Balance at March 31, 1994 $953,262 $85,130 $282,280 ($4,995) $590,847
================================================================================================================
Consolidated Statements of Cash Flows (Unaudited) Bancorp Hawaii, Inc. and subsidiaries
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(in thousands of dollars) 1995 1994
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Operating Activities
Net Income $28,248 $34,392
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses, depreciation, and amortization of income and expense 2,482 8,467
Deferred income taxes 703 1,001
Realized and unrealized investment security gains 1,412 (565)
Net (increase) decrease in trading securities (419) 284
Other assets and liabilities, net 10,412 4,333
------------ ------------
Net cash provided by operating activities 42,838 47,912
- -------------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from redemptions of investment securities held to maturity 458,030 474,680
Purchases of investment securities held to maturity (147,736) (379,635)
Proceeds from sales of investment securities available for sale 31,594 134,156
Purchases of investment securities available for sale (321,908) (109,860)
Net (increase) decrease in interest-bearing deposits placed in other banks 194,290 (162,287)
Net decrease in funds sold (25,588) (58,048)
Net (increase) decrease in loans and lease financing 144,098 (111,133)
Premises and equipment, net (11,481) (11,587)
Purchase of minority interest of Banque D'Hawaii (Vanuatu), Ltd.,
net of cash and non-interest bearing deposits acquired 6,808 --
------------ ------------
Net cash provided (used) by investing activities 328,107 (223,714)
- -------------------------------------------------------------------------------------------------------------
Financing Activities
Net decrease in demand, savings, and time deposits (350,150) 334,958
Proceeds from lines of credit and long-term debt 873 111,625
Principal payments on lines of credit and long-term debt -- --
Net decrease in short-term borrowings (136,583) (56,548)
Proceeds from sale of stock 1,076 (2,614)
Cash dividends (10,875) (11,088)
------------ ------------
Net cash provided (used) by financing activities (495,659) 376,333
Effect of exchange rate changes on cash 3,457 658
------------ ------------
Increase (decrease) in cash and non-interest bearing deposits (121,257) 201,189
------------ ------------
Cash and non-interest bearing deposits at beginning of year 508,762 395,315
------------ ------------
Cash and non-interest bearing deposits at end of period $387,505 $596,504
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/TABLE
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Review
Performance Highlights
Bancorp Hawaii, Inc. (Bancorp) reported earnings for the
first quarter of 1995 of $28.2 million, 17.9% below earnings for
the first quarter last year. On a per share basis, earnings were
$0.67 for the first quarter of 1995, compared with $0.80 for the
same quarter a year ago. The decline in net income reflects the
impact of the continuing increase in interest rates and the
slowdown in the Hawaii economy, which is Bancorp's main market.
Bancorp's annualized Return on Average Assets and Return on
Average Equity were 0.93% and 11.61%, respectively for the first
quarter of 1995. These ratios compare with 0.93% and 12.13%,
respectively for the twelve months ended December 31, 1994. The
ratio of average equity to average assets has improved to 7.99%
for the first quarter of 1995, compared with 7.71% for all of
1994.
Total assets declined 3.1% from year-end 1994 to $12.2
billion as of March 31, 1995. Compared to the asset balances at
March 31, 1994, assets have decreased 5.3%. Net loans
outstanding decreased from year-end 1994 by 1.8%, but increased
by 5.3% from March 31, 1994. Deposits and securities sold under
agreements to repurchase (Repos) declined from year-end 1994 and
March 31, 1994 by 3.6% and 9.4%, respectively to $8.9 billion at
March 31, 1995.
Non-performing assets (NPA) decreased to $52.3 million at
March 31, 1995. Comparison with year-end 1994 NPA balances
reflect a modest decline from $53.2 million, but 21.7% below the
$66.8 reported at this time last year. A further discussion on
NPAs and the Reserve for Loan Loss follows later in this report.
As Bancorp anticipated the decline in net interest margins,
its focus on fee income generation and cost control became much
more significant. So far in 1995, progress has been made in both
efforts. Non-interest income compared with the same quarter last
year is up 10.9% to $39.8 million for the first quarter of 1995.
Non-interest expense for the first quarter of 1995 was $91.0
million, an increase of only 3.2% over the same period of 1994.
This growth in non-interest expense has not yet been affected by
the early retirement option offered to certain staff members
during the first quarter. A further discussion on net overhead
follows later in this report.
Risk Elements in Lending Activities
At March 31, 1995, total loans were $7.8 billion, a 1.7%
decrease from year-end 1994 and 5.3% above total loan balances on
March 31, 1994. The decrease in balances since year-end 1994
reflects Bank of Hawaii's securitization of $412.2 million in
floating rate residential mortgage loans during the first quarter
of 1995. When considering this in determining the change in loan
outstandings, Bancorp would have reported an increase in loans
of 3.5% from year-end 1994. The changes in other components of
the portfolio are discussed in the following section. The
following table presents Bancorp's total loan portfolio balances
for the periods indicated.
Loan Portfolio Balance Bancorp Hawaii, Inc., and subsidiaries
- ------------------------------------------------------------------------------
March 31 December 31 March 31
(in millions of dollars) 1995 1994 1994
- ------------------------------------------------------------------------------
Domestic Loans
Commercial and Industrial $1,980.3 $1,830.8 $1,685.3
Real Estate
Construction -- Commercial 118.1 113.1 140.8
-- Residential 18.5 17.9 36.2
Mortgage -- Commercial 1,235.3 1,241.0 1,241.8
-- Residential 2,501.3 2,872.8 2,523.4
Installment 747.7 741.6 675.0
Lease Financing 377.1 378.1 392.3
- ------------------------------------------------------------------------------
Total Domestic 6,978.3 7,195.3 6,694.8
- ------------------------------------------------------------------------------
Foreign Loans 777.9 696.7 671.8
- ------------------------------------------------------------------------------
Total Loans $7,756.2 $7,892.0 $7,366.6
==============================================================================
Commercial and Industrial Loans
Commercial and Industrial loans outstanding were $2.0
billion as of March 31, 1995, an increase from both year-end
1994 and March 31, 1994 of 8.2% and 17.5%, respectively. The
growth in loans since year-end was largely reflected in the
communications and media portfolio. The communications and media
portfolio has increased from $526.4 million at year-end 1994 to
$615.2 million at March 31, 1995. Communications and media
lending continues to be a niche market for Bancorp in its lending
activities.
Real Estate Loans
As a result of the securitization mentioned earlier, total
real estate loans at March 31, 1995 declined to $3.9 billion,
down 8.7% from year-end 1994. Total real estate loans were $3.9
billion as of March 31, 1994. A detailed distribution of the
real estate loan portfolio is presented in the Loan Portfolio
Balance Table. The growth in commercial and residential mortgage
balances have also slowed, affected by the state of the Hawaii
economy. Commercial real estate balances (excluding
construction) on March 31, 1995 totaled $1.2 billion, level with
balances on March 31, 1994 and year-end 1994. Reflecting the
securitization, residential mortgage balances on March 31, 1995
totaled $2.5 billion, a decrease from year-end 1994 and March 31,
1994 of 12.9% and 0.9%, respectively. Residential loan volume
has slowed as a result of increased interest rates. Construction
loan balances have increased to $136.6 million on March 31, 1995
from $131.0 million at year-end 1994, but a decline from $177.0
reported at March 31, 1994.
Other Lending
Installment loans and leases have increased modestly from
year-end 1994. At March 31, 1995, total installment loans were
$747.7 million, up 0.8% from $741.6 million reported at year-end
1994. Compared with the same date in 1994 when installment loan
balances were $675.0 million, installment loan balances are up
10.8%. Total leases declined to $377.1 million from $378.1
million at year-end 1994 and $392.3 million at March 31, 1994.
Foreign loan balances grew to $777.9 million, reflecting an
increase of 11.7% from year-end 1994, and 15.8% above March 31,
1994 balances. The rise in the foreign loan total since year-end
largely reflects the movement of exchange rates against the U.S.
dollar. The foreign loan total includes outstanding credits to
Less Developed Countries (LDC). LDC exposure remains very
limited at $1.0 million in outstanding credits and $100.0 million
in confirmed letters of credit and banker's acceptances at March
31, 1995. All LDC exposure is in the Philippines.
Non-Performing Assets and Past Due Loans
Bancorp's NPA include non-accrual loans and foreclosed real
estate. NPA totaled $52.3 million, representing 0.67% of total
loans outstanding at March 31, 1995. This ratio compares with
0.91% at the end of the first quarter 1994 and 0.67% at year-end
1994.
During the quarter, Bancorp implemented the provisions of
FAS 114, Accounting by Creditors for Impairment of a Loan. The
implementation did not have a material impact on the provision
for loan loss or the allocation of the reserve for loan losses.
Non-accrual loans decreased during the quarter to $51.7
million from $52.6 million at year-end 1994 and decreased 10.3%
from $57.6 million on March 31, 1994. The distribution of the
non-accrual loans by category is disclosed in the table
following.
Since year-end, past due loans have increased particularly
in the residential and commercial real estate loan category.
Residential mortgage loans past due 90 days increased to $6.6
million, 0.3% of total residential mortgage loans, while past due
commercial mortgage loans increased to $1.9 million, 0.2% of
total commercial real estate loans. Both these ratios remain
very modest. Accruing 90 day past due loans have increased from
$11.6 million at year-end 1994 to $17.7 million at March 31,
1995. Comparatively, $10.0 million in accruing 90 day past due
loans were reported at March 31, 1994. The foreclosed real
estate category remained level with year-end 1994, totaling $0.6
million at March 31, 1995. There were only six properties in
Other Real Estate at the quarter-end. Total non-performing
assets and loans 90 days past due increased to 0.90% of loans
outstanding from 0.82% at year-end 1994, but improving from the
1.04% at March 31, 1994.
The following table presents NPA and past due loans for the
periods indicated.
Bancorp Hawaii, Inc.
Consolidated Non-Performing Assets and Accruing Loans Past Due 90 Days or More
- -------------------------------------------------------------------------------
March 31 December 31 March 31
(in millions of dollars) 1995 1994 1994
- -------------------------------------------------------------------------------
Non-Accrual Loans
Commercial $19.3 $20.3 $12.9
Real Estate
Construction 1.0 1.5 20.2
Commercial 15.3 14.1 8.1
Residential 15.4 15.1 15.5
Installment 0.6 0.5 0.7
Leases 0.1 0.8 0.2
Other -- -- --
Foreign 0.0 0.3 --
- -------------------------------------------------------------------------------
Subtotal 51.7 52.6 57.6
Restructured Loans
Commercial -- -- --
Real Estate
Construction -- -- --
Commercial -- -- 5.2
Residential -- -- --
Installment -- -- --
Leases -- -- --
Other -- -- --
Foreign -- -- --
- -------------------------------------------------------------------------------
Subtotal -- -- 5.2
Foreclosed Real Estate
Domestic 0.6 0.6 4.0
Foreign -- -- --
- -------------------------------------------------------------------------------
Subtotal 0.6 0.6 4.0
- -------------------------------------------------------------------------------
Total Non-Performing Assets 52.3 53.2 66.8
- -------------------------------------------------------------------------------
Accruing Loans Past Due 90 Days or More
Commercial 1.5 1.0 1.3
Real Estate
Construction 0.8 -- 0.2
Commercial 1.9 0.7 1.6
Residential 6.6 3.9 2.6
Installment 6.8 5.9 4.2
Leases -- -- 0.1
Other 0.1 0.1 --
Foreign -- -- --
- -------------------------------------------------------------------------------
Subtotal 17.7 11.6 10.0
- -------------------------------------------------------------------------------
Total $70.0 $64.8 $76.8
===============================================================================
- -------------------------------------------------------------------------------
Ratio of Non-Performing Assets
to Total Loans 0.67% 0.67% 0.91%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Ratio of Non-Performing Assets
and Accruing Loans Past Due
90 Days or More to Total Loans 0.90% 0.82% 1.04%
- -------------------------------------------------------------------------------
Summary of Loan Loss Experience
The reserve for loan losses stood at $150.4 million at March
31, 1995, representing 1.97% of loans outstanding.
Comparatively, the ratio of reserves to loans outstanding on
March 31, 1994 was 1.80% and 1.92% at year-end 1994. The
improvement in this ratio reflects the securitization of the
$412.2 million in mortgage loans during the quarter.
Loan loss provisions were $4.5 million for the first quarter
of 1995, compared with $8.3 million reported for the first
quarter of 1994. Charge-offs totaled $6.9 million for the first
quarter of 1995, compared to the $7.1 million reported for the
first quarter of 1994 and the $5.5 million reported during the
fourth quarter of 1994. Recoveries totaled $4.3 million for the
first quarter of 1995, compared to $3.6 million and $4.9 million
for the first and fourth quarters of 1994, respectively. Net
charge-offs for the first quarter of 1995 declined to $2.6
million compared to $3.5 million during the same period in 1994.
The annualized ratio of net charge-offs to average loans
outstanding for the first quarter of 1995 improved to 0.14%
compared to the ratio of 0.19% for the same period in 1994.
The detailed breakdown of the charge-off and recoveries by
loan category is presented in the table following.
Summary of Loss Experience Bancorp Hawaii, Inc., and subsidiaries
- --------------------------------------------------------------------------------------
First Year First
Quarter Ended Quarter
(in millions of dollars) 1995 12/31/94 1994
- --------------------------------------------------------------------------------------
Average Loans Outstanding $7,610.5 $7,393.7 $7,182.7
Balance of Reserve for Possible Loan Losses
at Beginning of Period $148.5 $125.3 $125.3
Loans Charged Off
Commercial and Industrial 2.0 11.3 5.2
Real Estate - Construction 2.1 0.1 --
Real Estate - Mortgage
Commercial 0.1 3.5 --
Residential -- 0.7 --
Installment 2.7 8.7 1.9
Foreign -- 0.7 --
Leases -- 0.4 --
- --------------------------------------------------------------------------------------
Total Charged Off 6.9 25.4 7.1
Recoveries on Loans Previously Charged Off
Commercial and Industrial 3.2 20.0 2.7
Real Estate - Construction -- 0.2 --
Real Estate - Mortgage
Commercial -- 0.9 --
Residential -- 0.2 0.1
Installment 0.8 3.2 0.8
Foreign -- -- --
Leases 0.3 0.8 --
- --------------------------------------------------------------------------------------
Total Recoveries 4.3 25.3 3.6
- --------------------------------------------------------------------------------------
Net Charge Offs (2.6) (0.1) (3.5)
Provision Charged to Operating Expenses 4.5 21.9 8.3
Reserves Acquired (Sold) -- 1.4 --
- --------------------------------------------------------------------------------------
Balance at End of Period $150.4 $148.5 $130.1
======================================================================================
Ratio of Net Charge Offs to
Average Loans Outstanding (annualized) 0.14% -- 0.19%
- --------------------------------------------------------------------------------------
Ratio of Reserve to Loans Outstanding 1.97% 1.92% 1.80%
- --------------------------------------------------------------------------------------
Capital
Bancorp continues to manage its capital levels through the
target ratios outlined in Bancorp's 1994 Annual Report. The
target of a minimum 6% ratio of average equity to average assets
keeps both objectives of a return on assets of 1% and a return on
equity of 16% in reasonable balance. Bancorp's average equity to
average assets ratio for the first quarter of 1995 was 7.99%, an
increase from the 7.71% reported for 1994 and 7.57% for the first
quarter of 1994.
Bancorp's total capital at March 31, 1995 totaled $1.0
billion, the highest level in its history. New shares issued for
the profit sharing, stock option and dividend reinvestment plans
increased capital by $5.3 million during the quarter. Under
Bancorp's stock repurchase programs, $4.2 million in shares were
repurchased during the first quarter of 1995. Dividends for the
quarter were $10.9 million, compared with $11.0 million for the
first quarter of 1994, both dividends paid at $.26 per share.
Regulatory risk-based capital remain well above minimum
guidelines. Bancorp's Total Capital and Tier 1 Capital ratios
were 13.19% and 10.60%, respectively. This compares with year-
end 1994, when the Total Capital Ratio was 12.99% and the Tier 1
Capital Ratio was 10.39%. Regulatory guidelines prescribe a
minimum Total Capital Ratio of 10.00% and a Tier 1 Capital Ratio
of 6.00% for an institution to qualify as well capitalized.
Bancorp's strategy is to maintain its capital ratios at levels to
meet this qualification to benefit from the financial and
regulatory incentives provided to well capitalized companies.
In addition, the leverage ratio, which represents the ratio
of Tier 1 Capital to Total Average Assets, was 7.55% at March 31,
1995, compared to 7.06% at March 31, 1994 and 7.28% at year-end
1994. The required minimum ratio is 5.00%, to qualify an
institution as well capitalized.
Spread Management
The average net interest margin or spread on earning assets
for the first quarter of 1995 was 3.62%, a decrease from the
3.99% reported for the same period in 1994, and almost level with
the 3.61% reported for the fourth quarter of 1994. Net interest
margin for all of 1994 was 3.82%. The continuing increase in
interest rates has compressed Bancorp's net interest margin. The
cost of funds rate for the first quarter of 1995 was 4.67%, an
increase from both the 3.13% reported for the same quarter a year
ago and 4.19% reported for the fourth quarter of 1994. These
increases reflect the movement in interest rates stimulated by
the Federal Reserve over the last twelve months.
The earning asset yield was 7.58% for the first quarter of
1995, an increase over both the fourth quarter 1994 yield of
7.17% and the first quarter of 1994 of 6.66%.
Consolidated Average Balances and Interest Rates Taxable Equivalent Bancorp Hawaii, Inc. and subsidiaries
- ----------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 1995 March 31, 1994
Average Income/Yield/ Average Income/Yield/
(in millions of dollars) Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------
Earning Assets
Interest Bearing Deposits $620.5 $8.2 5.36% $869.0 $7.7 3.58%
Investment Securities
-Taxable 1,604.6 23.0 5.82 2,776.2 38.2 5.59
-Tax-Exempt 17.6 0.6 13.06 20.1 0.7 13.68
1,583.6 24.9 6.37 922.5 9.4 4.15
Funds Sold 67.4 1.0 5.76 42.0 0.4 4.01
Net Loans
-Domestic 6,911.5 137.9 8.09 6,533.6 122.0 7.57
-Foreign 699.0 12.5 7.25 649.2 6.7 4.20
Loan Fees 7.0 9.0
------------------------ ------------------------
Total Earning Assets 11,504.2 215.1 7.58 11,812.6 194.1 6.66
Cash and Due From Banks 481.3 444.8
Other Assets 372.4 341.2
---------- ----------
Total Assets $12,357.9 $12,598.6
========== ==========
Interest Bearing Liabilities
Domestic Deposits - Demand $1,813.7 13.0 2.90 $1,964.6 9.5 1.95
- Savings 1,113.0 7.5 2.74 1,261.9 7.1 2.27
- Time 1,688.2 19.2 4.60 1,549.8 16.0 4.20
------------------------ ------------------------
Total Domestic 4,614.9 39.7 3.49 4,776.3 32.6 2.76
Total Foreign 927.3 15.3 6.71 1,185.1 9.6 3.30
------------------------ ------------------------
Total Deposits 5,542.2 55.0 4.02 5,961.4 42.2 2.87
Short-Term Borrowings 3,233.6 43.8 5.49 3,732.7 30.3 3.29
Long-Term Debt 978.1 13.5 5.61 382.2 5.3 5.62
------------------------ ------------------------
Total Interest Bearing Liabilities 9,753.9 112.3 4.67 10,076.3 77.8 3.13
------------------------ ------------------------
Net Interest Income 102.8 2.91 116.3 3.53
Average Spread on Earning Assets 3.62% 3.99%
Demand Deposits 1,414.0 1,396.4
Other Liabilities 203.2 172.7
Shareholders' Equity 986.8 953.2
---------- ----------
Total Liabilities and Shareholders' Equity $12,357.9 $12,598.6
========== ==========
Provision for Possible Losses 4.5 8.3
Net Overhead 51.2 52.3
------- -------
Income Before Income Taxes 47.1 55.7
Provision for Income Taxes 18.4 20.9
Tax-Equivalent Adjustment 0.5 0.4
------- -------
Net Income $28.2 $34.4
======= =======
Consolidated Average Balances and Interest Rates Taxable Equivalent Bancorp Hawaii, Inc. and subsidiaries
- ----------------------------------------------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31, 1994 December 31, 1994
Average Income/Yield/ Average Income/Yield/
(in millions of dollars) Balance Expense Rate Balance Expense Rate
- -----------------------------------------------------------------------------------------------------------
Earning Assets
Interest Bearing Deposits $732.7 $10.6 5.76% $812.6 $36.4 4.48%
Investment Securities
-Taxable 2,003.3 28.1 5.57 2,463.3 135.0 5.48
-Tax-Exempt 18.1 0.7 14.80 18.7 2.6 14.03
1,343.1 17.6 5.19 1,064.0 54.0 5.07
Funds Sold 99.3 1.0 4.15 52.5 2.3 4.33
Net Loans
-Domestic 6,904.3 137.3 7.89 6,725.9 517.6 7.70
-Foreign 735.3 11.5 6.21 667.8 35.2 5.27
Loan Fees 7.2 31.7
------------------------ ------------------------
Total Earning Assets 11,836.1 214.0 7.17 11,804.8 814.8 6.90
Cash and Due From Banks 508.3 449.1
Other Assets 354.7 342.7
---------- ----------
Total Assets $12,699.1 $12,596.6
========== ==========
Interest Bearing Liabilities
Domestic Deposits - Demand $1,871.5 12.1 2.58 $1,895.4 41.1 2.17
- Savings 1,181.5 7.6 2.54 1,232.3 29.1 2.36
- Time 1,591.1 18.2 4.54 1,544.8 65.9 4.27
------------------------ ------------------------
Total Domestic 4,644.1 37.9 3.24 4,672.5 136.1 2.91
Total Foreign 1,304.5 16.7 5.07 1,236.7 53.4 4.32
------------------------ ------------------------
Total Deposits 5,948.6 54.6 3.64 5,909.2 189.5 3.21
Short-Term Borrowings 3,374.5 40.7 4.79 3,600.6 143.9 4.00
Long-Term Debt 724.2 10.9 5.95 526.8 30.3 5.76
------------------------ ------------------------
Total Interest Bearing Liabilities 10,047.3 106.2 4.19 10,036.6 363.7 3.62
------------------------ ------------------------
Net Interest Income 107.8 2.98 451.1 3.28
Average Spread on Earning Assets 3.61% 3.82%
Demand Deposits 1,429.6 1,386.0
Other Liabilities 236.3 203.1
Shareholders' Equity 985.9 970.9
---------- ----------
Total Liabilities and Shareholders' Equity $12,699.1 $12,596.6
========== ==========
Provision for Possible Losses 4.6 21.9
Net Overhead 71.3 232.0
------- -------
Income Before Income Taxes 31.9 197.2
Provision for Income Taxes 14.2 77.7
Tax-Equivalent Adjustment 0.5 1.8
------- -------
Net Income $17.2 $117.7
======= =======
/TABLE
Interest Rate Risk and Derivatives
As discussed in Bancorp's 1994 Annual Report, Bancorp
utilizes interest rate sensitivity analysis and computer
simulation techniques to measure the exposure of its earnings to
interest rate movements. The objective of the process is to
position its balance sheet to optimize earnings without unduly
increasing risk. The Interest Rate Sensitivity Table presents
the possible exposure to interest rate movements for various time
frames at March 31, 1995. As the table indicates, Bancorp's one
year cumulative liability sensitivity gap totaled $0.05 billion,
representing 0.39% of total assets. Comparatively, the one year
cumulative gap was $0.2 billion at year-end 1994, 1.8% of total
assets. This reflects a move closer to neutrality at the one
year time frame.
Bancorp uses swaps as a cost effective risk management tool
for dealing with interest rate risk. Swap activity during the
first quarter of 1995 was limited to maturities of existing swap
agreements. At March 31, 1995, the notional amount of swaps
totaled $1.4 billion, compared with $1.6 billion at year-end
1994. Net expense on interest rate swap agreements totaled $4.1
million for the first quarter of 1995. Comparatively, net
revenue of $7.7 million was recognized for all of 1994.
Interest Rate Sensitivity Table Bancorp Hawaii, Inc. and subsidiaries
- ----------------------------------------------------------------------------------------------
NON-
MARCH 31, 1995 OVER INTEREST
(in millions of dollars) 0-90 DAYS 91-365 DAYS 1-5 YEARS 5 YEARS BEARING
- ----------------------------------------------------------------------------------------------
ASSETS (1)
INVESTMENT SECURITIES $1,473.1 $935.3 $607.5 $136.6 -
SHORT TERM INVESTMENTS 79.8 - - - -
INTERNATIONAL ASSETS 910.6 289.1 65.2 - -
DOMESTIC LOANS (2) 2,826.3 2,001.3 1,487.9 494.7 -
TRADING SECURITIES - - 0.4 13.7 -
OTHER ASSETS - - - - $876.3
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS $5,289.8 $3,225.7 $2,161.1 $644.9 $876.3
==============================================================================================
LIABILITIES AND CAPITAL (1)
NON-INT BEARING DEMAND (3) $244.4 $244.4 $869.0 - -
INT-BEARING DEMAND (3) 343.2 343.2 942.3 - -
SAVINGS (3) 238.8 238.8 607.7 - -
TIME DEPOSITS 491.3 663.3 543.3 $67.7 -
FOREIGN DEPOSITS 858.6 469.5 83.4 - -
S/T BORROWINGS 2,268.1 611.3 - - -
LONG-TERM DEBT 512.5 34.2 18.0 118.6 -
OTHER LIABILITIES - - 102.7 - $281.2
CAPITAL - - - - 1,002.4
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND CAPITAL $4,956.9 $2,604.6 $3,166.4 $186.4 $1,283.6
==============================================================================================
INTEREST RATE SWAPS ($973.0) $66.3 $906.7 - -
- ----------------------------------------------------------------------------------------------
INTEREST SENSITIVITY GAP ($640.0) $687.4 ($98.6) $458.6 ($407.3)
- ----------------------------------------------------------------------------------------------
CUMULATIVE GAP ($640.0) $47.4 ($51.3) $407.3 -
PERCENTAGE OF TOTAL ASSETS (5.25)% 0.39% (.42)% 3.34% -
==============================================================================================
Assumptions used:
(1) Based on repricing date.
(2) Includes the effect of estimated amortization.
(3) Historical analysis shows that these deposit categories, while technically subject to
immediate withdrawal, actually display sensitivity characteristics that generally
fall within one and five years. The allocation presented is based on that historic
analysis.
Liquidity
The ability to meet day-to-day financial needs of Bancorp's
customer base is essential. Much of the strategy of meeting
liquidity needs was described in Bancorp Hawaii's 1994 Annual
Report and remains in place.
At March 31, 1995, deposits were $6.8 billion, compared to
$7.1 billion and $7.3 billion reported at year-end 1994 and March
31, 1994, respectively. The competition for deposits, not only
by banks and savings and loan companies, but also by securities
brokerage firms continues to impact the level of deposits. Repos
which are offered to government depositors as an alternative to
deposits were $2.1 billion at March 31, 1995, compared to $2.5
billion on March 31, 1994, and $2.1 billion at year-end 1994.
Short term borrowings, including Fed Funds, decreased to
$1.1 billion at March 31, 1995, compared with $1.2 billion at
year-end 1994 and $1.4 billion at March 31, 1994. Long term debt
remained level at $0.9 billion at both March 31, 1995 and year-
end 1994.
Net Overhead
Bancorp manages net overhead by focusing on its net overhead
ratio. The net overhead ratio at Bancorp is defined as the ratio
of non-interest expense to non-interest income. Bancorp's long
term goal is to have a ratio of 2 to 1, where fee income offsets
at least half of the cost of operations. The ratio for the first
quarter of 1995 was 2.29, compared to 2.46 for the first quarter
of 1994 and 2.81 for all of 1994.
Additionally, Bancorp's management places an emphasis on the
amount of net income generated per full-time equivalent staff
(FTE) with the objective of improving net income with existing or
lesser staff levels. For the first quarter of 1995, net income
per FTE (excluding securities gains (losses)), was $6,040, or
$24,500 on an annualized basis. This compares to $29,700 and
$29,500 reported for the full years of 1994 and 1993,
respectively.
Non-interest income for the first quarter was $39.8 million,
a 10.9% increase over the same quarter in 1994. Trust income was
$13.4 million, up 10.6% from the same period last year. The
increase includes the additional income from fees earned on the
proprietary Pacific Capital Management family of mutual funds
introduced in 1994. Service charges on deposit accounts for the
first quarter of 1995 was $6.7 million, compared to $7.0 million
for the like period last year. Fees, exchange and other service
charges for the first quarter of 1995 increased to $12.4 million
compared to $10.2 million for the same period in 1994. Other
operating income totaled $5.6 million for the first quarter of
1995, compared with $7.6 million for the same quarter last year.
For the first quarter of 1995, Bancorp reported a securities
gain of $1.8 million, compared to a loss of $1.0 million for the
same period in 1994. These gains and losses remained at modest
levels.
Bancorp continues to emphasize the importance of control
over non-interest expenses as a key factor in its effort to
remain competitive among its peers. The continuing compression
of net interest margins further stresses the importance of
success in controlling expenses. Non-interest expense in the
first quarter was $91.0 million, an increase of 3.2% over the
same period in 1994.
Salary and benefit expenses totaled $46.9 million for the
first quarter of 1994, level with the $47.0 million for the first
quarter of 1994. During the quarter, Bancorp announced a
restructuring of its retirement plans, including an early
retirement option for certain qualifying staff and a curtailment
of its defined benefit plan. The first group of staff members
electing the option will be retiring during the second quarter.
The final group will be retiring in the third quarter. Pursuant
to accounting rules, since a loss on this curtailment is not
expected, the final financial impact will be determined later
this year.
Premises and equipment expenses totaled $17.9 million for
the first quarter of 1995, an increase from the $16.0 million for
the same period of 1994. Bancorp continues to invest in
technology as more efficient operations with existing staff
counts become increasingly important. Other operating expenses
for the first quarter increased 4.3% over last year during the
same period.
PART II. - Other Information
Items 1 to 5 omitted pursuant to instructions.
Item 6 - Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
Exhibit #11 - Statement regarding computation of per
share earnings.
Exhibit #27 - Financial Data Schedule.
(b) No Form 8-K was filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Date May 12, 1995 BANCORP HAWAII, INC.
RICHARD J. DAHL
(Signature)
Richard J. Dahl
President
DAVID A. HOULE
(Signature)
David A. Houle
Senior Vice President and
Chief Financial Officer
Bancorp Hawaii, Inc.
Exhibit 11 - Statement Regarding Computation of Per Share Earnings
Three Months Ended March 31
Fully
Primary Diluted
----------- -----------
1995
- ----
Net Income $28,248,000 $28,248,000
=========== ===========
Daily Average Shares Outstanding 41,844,805 41,844,805
Shares Assumed Issued for Stock Options 292,933 342,317
----------- -----------
42,137,738 42,187,122
=========== ===========
Earnings Per Common Share and
Common Share Equivalents $0.67 $0.67
=========== ===========
1994
- ----
Net Income $34,392,000 $34,392,000
=========== ===========
Daily Average Shares Outstanding 42,467,686 42,467,686
Shares Assumed Issued for Stock Options 476,025 490,705
----------- -----------
42,943,711 42,958,391
=========== ===========
Earnings Per Common Share amd Common
Share Equivalents $0.80 $0.80
=========== ===========
9
1000
3-MOS
DEC-31-1994
MAR-31-1995
387505
532726
79755
14115
1676852
1475666
1445735
7756208
150377
12197849
6776133
3203670
332182
862445
83816
0
0
918566
12197849
157158
48265
9162
214585
54992
112264
102321
4453
1831
91055
46624
46624
0
0
28248
0.67
0.67
3.62
51681
17685
0
0
148508
6874
4161
150377
0
0
0
