Back to GetFilings.com
1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to _______________.
Commission file number 0-7949
---------------------
BANCWEST CORPORATION
(Exact name of registrant as specified in its charter)
---------------------
DELAWARE 99-0156159
(State of incorporation) (I.R.S. Employer
Identification No.)
999 BISHOP STREET, HONOLULU, HAWAII 96813
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (808) 525-7000
---------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock, $1.00 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
---------------------
(Title of class)
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 (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[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in
definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ ]
The aggregate market value of the common stock held
by nonaffiliates of the registrant as of January
31, 2001 was $1,280,717,000.
The number of shares outstanding of each of the
registrant's classes of common stock as of
January 31, 2001 was:
Title of Class Number of Shares Outstanding
-------------- ----------------------------
Common Stock, $1.00 Par Value 68,560,949 Shares
Class A Common Stock, $1.00 Par Value 56,074,874 Shares
---------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference
in this Form 10-K:
DOCUMENTS FORM 10-K REFERENCE
BancWest Corporation Proxy Statement
for the 2001 Annual Meeting of Stockholders Part III
================================================================================
2
INDEX
- -------------------------------------------------------------------------------
PART I Page
Item 1. Business......................................................................... 3
Item 2. Properties ...................................................................... 13
Item 3. Legal Proceedings................................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.............................. 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........... 13
Item 6. Selected Financial Data......................................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................................... 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk...................... 35
Item 8. Financial Statements and Supplementary Data..................................... 40
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ........................................................... 71
PART III
Item 10. Directors and Executive Officers of the Registrant.............................. 71
Item 11. Executive Compensation.......................................................... 71
Item 12. Security Ownership of Certain Beneficial Owners and Management.................. 71
Item 13. Certain Relationships and Related Transactions.................................. 71
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................. 71
Exhibits........................................................................ 72
Signatures...................................................................... 73
2 BancWest Corporation and Subsidiaries
3
PART I
- -------------------------------------------------------------------------------
PART I
ITEM 1. BUSINESS
BANCWEST CORPORATION
BancWest Corporation, a Delaware corporation (the "Corporation," the
"Company" or "we/our"), is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended (the "BHCA"). As a bank holding company,
the Corporation is allowed to acquire or invest in the securities of companies
that are engaged in banking or in activities closely related to banking as
authorized by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). The Corporation, through its subsidiaries, operates a general
commercial banking business and other businesses related to banking. Its
principal assets are its investments in Bank of the West, a State of
California-chartered bank with authority to operate interstate branches in
Oregon, Washington, Nevada, New Mexico and Idaho; First Hawaiian Bank ("First
Hawaiian"), a State of Hawaii-chartered bank; FHL Lease Holding Company, Inc.
("FHL"), a financial services loan company; BancWest Capital I ("BWE Trust") and
First Hawaiian Capital I ("FH Trust"), both Delaware business trusts. Bank of
the West, First Hawaiian, FHL, BWE Trust and FH Trust are wholly-owned
subsidiaries of the Corporation. At December 31, 2000, the Corporation had
consolidated total assets of $18.5 billion, total loans and leases of $14
billion, total deposits of $14.1 billion and total stockholders' equity of $2
billion. Based on assets as of December 31, 2000, BancWest Corporation was the
36th largest bank holding company in the United States.
On November 1, 1998, the former BancWest Corporation ("Old BancWest"),
parent company of Bank of the West, merged (the "BancWest Merger") with and into
First Hawaiian, Inc. ("FHI"). Upon consummation of the BancWest Merger, FHI, the
surviving corporation, changed its name to "BancWest Corporation." Prior to the
consummation of the BancWest Merger, Old BancWest was wholly-owned by Banque
Nationale de Paris, now BNP Paribas. BNP Paribas received approximately 25.8
million shares (equivalent to 51.6 million shares after adjusting for the
two-for-one stock split in December 1999) of the Corporation's newly authorized
Class A Common Stock representing approximately 45% of the then outstanding
total voting stock of the Corporation in the BancWest Merger (a purchase price
of approximately $905.7 million). As a result of the BancWest Merger, Bank of
the West became a wholly-owned subsidiary of the Corporation. Additional
information regarding the BancWest Merger is included in Note 2 Mergers and
Acquisitions (pages 50 and 51), Note 3 Restructuring, Merger-Related and Other
Nonrecurring Costs (pages 51 and 52) and Note 12 Common Stock and Earnings Per
Share (pages 57 and 58).
On July 1, 1999, the Corporation acquired SierraWest Bancorp
("SierraWest"). SierraWest and its subsidiary, SierraWest Bank, were merged with
and into Bank of the West (the "SierraWest Merger") resulting in the issuance of
approximately 4.4 million shares (equivalent to 8.8 million shares after
adjusting for the two-for-one stock split in December 1999) of the Corporation's
common stock to the shareholders of SierraWest. The acquisition was accounted
for using the pooling-of-interests method of accounting. Additional information
regarding the SierraWest Merger is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations (pages 17 through 39),
Note 2 Mergers and Acquisitions (pages 50 and 51), Note 3 Restructuring,
Merger-Related and Other Nonrecurring Costs (pages 51 and 52) and Note 12 Common
Stock and Earnings Per Share (pages 57 and 58).
In the third quarter of 2000, the Corporation entered into an agreement to
acquire 23 branches in New Mexico and seven branches in Nevada. The branches
will add approximately $1.2 billion of deposits and $300 million of loans. The
branches are being divested as part of the merger between First Security
Corporation and Wells Fargo & Company. The acquisition of the Nevada branches
was completed in January 2001, while the acquisition of the New Mexico branches
is expected to be completed by mid-February 2001.
BANK OF THE WEST
Bank of the West is a State of California-chartered bank that is not a
member of the Federal Reserve System. The deposits of Bank of the West are
insured by the Bank Insurance Fund ("BIF") and the Savings Association Insurance
Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC") to the
extent and subject to the limitations set forth in the Federal Deposit Insurance
Act ("FDIA"). The predecessor of Bank of the West, "The Farmers National Gold
Bank," was chartered as a national banking association in 1874 in San Jose,
California.
On July 1, 1999, SierraWest Bancorp and SierraWest Bank were merged with
and into Bank of the West. As a result of the SierraWest Merger, 20 SierraWest
branches in California and Nevada became branches of Bank of the West.
Bank of the West is the fourth largest bank in California, with total
assets of approximately $11.2 billion, total loans and leases of $8.5 billion,
and total deposits of approximately $8.2 billion at December 31, 2000. Bank of
the West conducts a general commercial banking business, providing retail and
corporate banking
BancWest Corporation and Subsidiaries 3
4
PART I (continued)
- -------------------------------------------------------------------------------
and trust services to individuals, institutions, businesses and governments
through 170 branches (including seven Nevada branches acquired in January 2001)
and other commercial banking offices located primarily in the San Francisco Bay
area and elsewhere in the Northern and Central Valley regions of California and
in Oregon, Washington, Idaho and Nevada. The expected completion of the
acquisition of 30 branches in the first quarter of 2001 will bring the total
number of Bank of the West branches to 193 and will add approximately $1.2
billion in deposits and $300 million in loans. Bank of the West also originates
indirect automobile loans and leases, recreational vehicle loans, recreational
marine vessel loans, equipment leases and deeds of trust on single-family
residences through a network of manufacturers, dealers, representatives and
brokers in all 50 states. Bank of the West's principal subsidiary is Essex
Credit Corporation ("Essex"), a Connecticut corporation. Essex is engaged
primarily in the business of originating and selling consumer loans on a
nationwide basis, such loans being made for the purpose of acquiring or
refinancing pleasure boats or recreational vehicles. Essex generally sells the
loans that it makes to various banks and other financial institutions, on a
servicing released basis. Essex has a network of 11 regional direct lending
offices located in the following states: California, Connecticut, Florida,
Maryland, Massachusetts, New Jersey, New York, Texas and Washington.
COMMUNITY BANKING
The focus of Bank of the West's community banking strategy is primarily in
Northern California, Nevada, the Pacific Northwest region and soon New Mexico.
The Northern California market region is comprised of the San Francisco Bay area
and the Central Valley area of California. The San Francisco Bay area is one of
California's wealthiest regions, and the Central Valley of California is an area
which has been experiencing rapid transition from a largely agricultural base to
a mix of agricultural and commercial enterprises. The Pacific Northwest region
includes Oregon, Washington and Idaho. The SierraWest Merger branch acquisition
expanded the region Bank of the West services into Nevada. The First Security
Corporation branch acquisition expands our presence to Las Vegas, Nevada and
will also encompass New Mexico.
Bank of the West utilizes its branch network as its principal funding
source. A key element of Bank of the West's community banking strategy is to
seek to distinguish itself as the provider of the "best value" in community
banking services. To this end, Bank of the West seeks to position itself within
its markets as an alternative to both the higher-priced, smaller "boutique"
commercial banks and the larger money center commercial banks, which may be
perceived as offering lower service and lower prices on a "mass market" basis.
In pursuing the Northern California, Pacific Northwest and Nevada community
banking markets, Bank of the West seeks to serve a broad customer base by
furnishing a wide range of retail and commercial banking products. Through its
branch network, Bank of the West originates a variety of consumer loans,
including direct vehicle loans, lines of credit and second mortgages. In
addition, Bank of the West originates and holds a small portfolio of first
mortgage loans on one- to four-family residences. Through its commercial banking
operations conducted from its branch network, Bank of the West offers a wide
range of basic commercial banking products intended to serve the needs of
smaller community-based businesses. These loan products include in-branch
originations of standardized products for businesses with relatively simple
banking and financing needs. More complex and customized commercial banking
services are offered through Bank of the West's regional banking centers, which
serve clusters of branches and provide lending, deposit and cash management
services to companies operating in the relevant market areas. Bank of the West
also provides a number of fee-based products and services such as annuities,
insurance and securities brokerage.
PROFESSIONAL BANKING, TRUST SERVICES
The Professional Banking and Trust & Investment Services areas within the
Community Banking Division provide a wide range of products to targeted markets.
The Professional Banking Group, headquartered in San Francisco, serves the
banking needs of attorneys, doctors and other working professionals. The Trust &
Investment Services Group, headquartered in San Jose, and with offices in San
Francisco, provides a full range of individual and corporate trust services.
COMMERCIAL BANKING
Bank of the West's Business Banking Division supports commercial lending
activities for middle market business customers through ten regional lending
centers located in Northern California, Central California, Oregon, Nevada,
Idaho and Washington. Each regional office provides a wide range of loan and
deposit services to medium-sized companies with borrowing needs of $500,000 to
$25 million. Lending services include receivable and inventory financing,
equipment term loans, letters of credit, agricultural loans and trade finance.
Other banking services include cash management, insurance products, trust,
investment, foreign exchange and various
4 BancWest Corporation and Subsidiaries
5
PART I (continued)
- --------------------------------------------------------------------------------
international banking services.
The Specialty Lending Division seeks to provide focused banking services
and products to specifically targeted markets where Bank of the West's
resources, experience and technical expertise give it a competitive advantage.
Through operations conducted in this division, Bank of the West has established
itself as the national leader among those commercial banks which are lenders to
religious organizations. In addition, leasing operations within Specialty
Lending have made Bank of the West a significant provider of equipment lease
financing, including both standard and tax-oriented products, to a wide array of
clients. To support the cash management needs of both Bank of the West's
corporate banking customers and large private and public deposit relationships
maintained with Bank of the West, the Specialty Lending Division operates a Cash
Management Group which provides a full range of innovative and
relationship-focused cash management services.
The Real Estate Industries Division, whose primary markets are Northern and
Central California, Nevada and Oregon, originates and services construction,
short-term and permanent loans to residential developers, commercial builders
and investors. The division is particularly active in financing the construction
of detached residential subdivisions. Other construction lending activities
include low-income housing, industrial development, apartment, retail and office
projects. The division also originates single-family home loans sourced through
Bank of the West's Community Bank branch network.
CONSUMER FINANCE
The Consumer Finance Division targets the production of auto loans and
leases in the Western United States, and recreational vehicle and marine loans
nationwide, with emphasis on originating credits at the high end of the
credit spectrum. The Consumer Finance Division originates recreational vehicle
and marine credits on a nationwide basis through sales representatives located
throughout the country servicing a network of over 1,900 recreational vehicle
and marine dealers and brokers. Essex primarily focuses on the origination and
sale of loans in the broker marine market and also originates and sells loans to
finance the acquisition of recreational vehicles.
The division's auto lending activity is primarily focused in the Western
United States. Bank of the West originates loans and leases to finance the
purchase of new and used autos, light trucks and vans through a network of more
than 2,000 dealers and brokers in California, Nevada, Oregon, Arizona,
Washington, Utah and Colorado.
SMALL BUSINESS ADMINISTRATION LENDING
Bank of the West operates in California, Nevada, Oregon, Arizona, Florida,
Georgia, Illinois and Tennessee under the Preferred Lender Program of the Small
Business Administration ("SBA"), which is headquartered in Washington, D.C. This
designation is the highest lender status granted by the SBA. Bank of the West
has over 18 years of experience and expertise in the generation and sale of SBA
guaranteed loans.
COMMUNITY REINVESTMENT
Bank of the West provided direct capital investments that totaled more than
$24 million to organizations that provide benefits to low- and moderate-income
areas and people in the form of affordable housing and small business
opportunity. It also made grants and/or contributions of $550,000 to a variety
of qualifying community development organizations, which provide a wide array of
benefits and services for low- and moderate-income areas and people within Bank
of the West's assessment areas.
In addition, Bank of the West has funded, both on its own and through lender
consortia, numerous construction, short-term and permanent loans for affordable
housing, economic development and community facilities. Bank of the West is also
an active participant in the Federal Home Loan Bank of San Francisco's
Affordable Housing Program. As previously stated, Bank of the West is the
nation's largest bank lender to religious organizations. Most, if not all of
these loans are community development loans as they finance facilities for
various community services.
FIRST HAWAIIAN BANK
First Hawaiian Bank is a State of Hawaii-chartered bank that is not a member
of the Federal Reserve System. The deposits of First Hawaiian are insured by the
BIF and the SAIF of the FDIC to the extent and subject to the limitations set
forth in the FDIA. First Hawaiian, the oldest financial institution in Hawaii,
was established as Bishop & Co. in 1858 in Honolulu.
At December 31, 2000, First Hawaiian had total assets of $7.5 billion,
total loans and leases of $5.5 billion and total deposits of $5.9 billion,
making it the largest bank in Hawaii, based on domestic deposits from
individuals, corporations and partnerships.
First Hawaiian is a full-service bank conducting a general commercial and
consumer banking business and offering trust and insurance services to
individuals, institutions, businesses and governments. First Hawaiian's banking
activities include: (1) receiving demand, savings and time deposits for personal
and commercial accounts; (2) making commercial, agricultural, real estate and
consumer loans; (3) acting as an United States tax depository
BancWest Corporation and Subsidiaries 5
6
PART I (continued)
- --------------------------------------------------------------------------------
facility; (4) providing money transfer and cash management services; (5) selling
insurance products, mutual funds and annuities, traveler's checks and personal
money orders; (6) issuing letters of credit; (7) handling domestic and foreign
collections; (8) providing safe deposit and night depository facilities; (9)
offering lease financing; and (10) investing in U.S. Treasury securities and
securities of other U.S. government agencies and corporations and state and
municipal securities.
RETAIL COMMUNITY BANKING
First Hawaiian's Retail Banking Group operates its main banking office in
Honolulu, Hawaii, and 55 other banking offices located throughout Hawaii. First
Hawaiian also operates two branches in Guam and one branch in Saipan.
The focus of First Hawaiian's retail/community banking strategy is
primarily in Hawaii, where it has a significant market share -- 41% of the
domestic bank deposits by individuals, corporations and partnerships in the
state. The predominant economic force in Hawaii is tourism, although there have
been significant recent efforts to diversify the economy into high-tech and
other industries.
In pursuing the community banking markets in Hawaii, Guam and Saipan, First
Hawaiian seeks to serve a broad customer base by furnishing a range of retail
and commercial banking products. Through its branch network, First Hawaiian
generates first mortgage loans on residences and a variety of consumer loans,
consumer lines of credit and second mortgages. Through commercial banking
operations conducted from its branch network, First Hawaiian offers a wide range
of banking products intended to serve the needs of smaller community-based
businesses. First Hawaiian also provides a number of fee-based products and
services such as annuities and mutual funds, insurance sales and securities
brokerage.
First Hawaiian's principal funding source is its 59-branch network. Thanks
to its significant market share in Hawaii, First Hawaiian already has product or
service relationships with a majority of the households in the state. Therefore,
a key goal of its retail community banking strategy is to build those
relationships by cross-selling additional products and services to existing
individual and business customers.
First Hawaiian's goal is to become each customer's primary bank, using core
products such as demand deposit (checking) accounts as entry points to generate
cross-sales and develop a multi-product relationship with individuals and
business customers. Toward this goal, employees in First Hawaiian's branch
network focus on selling bank, trust, investment and insurance products to meet
customers' needs and build on those existing relationships.
To complement its branch network and serve these customers, First Hawaiian
operates a system of automated teller machines, a 24-hour Phone Center in
Honolulu and a full-service Internet banking system.
PRIVATE BANKING SERVICES
The Private Banking Department within First Hawaiian's Retail Banking Group
provides a wide range of products to high-net-worth individuals.
LENDING ACTIVITIES
First Hawaiian engages in a broad range of lending activities, including
making real estate, commercial and consumer loans. The majority of First
Hawaiian's loans are for construction, commercial, and residential real estate.
Commercial loans also comprise a major portion of the loan portfolio, with
consumer and foreign loans and leases accounting for the balance of the
portfolio.
REAL ESTATE LENDING--CONSTRUCTION. First Hawaiian provides construction
financing for a variety of commercial and residential single-family subdivision
and multi-family developments.
REAL ESTATE LENDING--COMMERCIAL. First Hawaiian provides permanent
financing for a variety of commercial developments, such as various retail
facilities, warehouses and office buildings.
REAL ESTATE LENDING--RESIDENTIAL. First Hawaiian makes residential real
estate loans, including home equity loans, to enable borrowers to purchase,
refinance or improve residential real property. The loans are collateralized by
mortgage liens on the related property, substantially all located in Hawaii.
COMMERCIAL LENDING. First Hawaiian is a major lender to primarily small-
and medium-sized businesses in Hawaii and Guam. Lending services include
receivable and inventory financing, equipment term loans, letters of credit,
dealer vehicle flooring financing and trade financing. Other banking services
include insurance products, trust, investment, foreign exchange and various
international banking services. To support the cash management needs of both
commercial banking customers and large private and public deposit relationships
maintained with the bank, First Hawaiian operates a Cash Management Department
which provides a full range of innovative and relationship-focused cash
management services.
SYNDICATED AND MEDIA LENDING. First Hawaiian, through its Wholesale Loan
Group, participates in syndication lending to primarily highly-rated large
corporate entities on the Mainland United States. The Wholesale Loan Group also
participates in syndication lending to the media and telecommunications industry
located on
6 BancWest Corporation and Subsidiaries
7
PART I (continued)
- --------------------------------------------------------------------------------
the Mainland United States, a targeted specialty market where First Hawaiian's
resources, experience and technical expertise give it a competitive advantage.
CONSUMER LENDING. First Hawaiian offers many types of loans and credits to
consumers including lines of credit (uncollateralized or collateralized) and
various types of personal and automobile loans. First Hawaiian also provides
indirect consumer automobile financing on new and used autos by purchasing
finance contracts from dealers. First Hawaiian's Dealer Center is the largest
commercial bank automobile lender in the state of Hawaii. First Hawaiian is the
largest issuer of MasterCard(R) credit cards and the second largest issuer of
VISA(R) credit cards in Hawaii.
INTERNATIONAL BANKING SERVICES
First Hawaiian maintains an International Banking Division which provides
international banking products and services through First Hawaiian's branch
system, its international banking headquarters in Honolulu, a Grand Cayman
branch, two Guam branches, a branch in Saipan and a representative office in
Tokyo, Japan. First Hawaiian maintains a network of correspondent banking
relationships throughout the world.
First Hawaiian's international banking activities are primarily
trade-related and are concentrated in the Asia-Pacific area.
TRUST AND INVESTMENT SERVICES
First Hawaiian's Financial Management Group offers a full range of trust
and investment management services, also seeking to reinforce customer
relationships developed by or in conjunction with the Retail Banking Group. The
Financial Management Group provides asset management, advisory and
administrative services for estates, trusts and individuals. It also acts as
trustee and custodian of retirement and other employee benefit plans. At
December 31, 2000, the Trust and Investments Division had 5,523 accounts with a
market value of $10.3 billion. Of this total, $7.2 billion represented assets in
nonmanaged accounts and $3.1 billion were managed assets.
The Trust and Investments Division maintains custodial accounts pursuant to
which it acts as agent for customers in rendering a variety of services,
including dividend and interest collection, collection under installment
obligations and rent collection.
SECURITIES AND INSURANCE SERVICES
First Hawaiian, through a wholly-owned subsidiary, First Hawaiian
Insurance, Inc., provides personal, business and estate insurance to its
customers. First Hawaiian Insurance offers insurance needs analysis for
individuals, families and businesses, as well as life, disability and long-term
care insurance products. In association with an independent registered
broker-dealer, First Hawaiian offers mutual funds, annuities and other
securities in its branches.
OTHER SUBSIDIARIES
First Hawaiian also conducts business through the following wholly-owned
subsidiaries:
- BISHOP STREET CAPITAL MANAGEMENT CORPORATION, a registered
investment advisor, which services the institutional investment
markets in Hawaii and the Western United States.
- FH CENTER, INC., which owns certain real property in connection
with First Hawaiian Center, the Company's headquarters.
- FHB PROPERTIES, INC., which holds title to certain property and
premises used by First Hawaiian.
- FIRST HAWAIIAN LEASING, INC., which engages in commercial
equipment and vehicle leasing.
- REAL ESTATE DELIVERY, INC., which holds title to certain real
property acquired by First Hawaiian in business activities.
FHL LEASE HOLDING COMPANY, INC.
FHL, a financial services loan company, primarily finances and leases
personal property including equipment and vehicles, and acts as an agent, broker
or advisor in the leasing or financing of such property for affiliates as well
as third parties. On January 1, 1997, FHL sold certain leases to First Hawaiian
Leasing, Inc., a subsidiary of First Hawaiian. FHL is in a run-off mode and all
new leveraged and direct financing leases are recorded by First Hawaiian
Leasing, Inc.
At December 31, 2000, FHL's net investment in leases amounted to $58.4
million and total assets were $76.1 million.
BANCWEST CAPITAL I
BWE Trust is a Delaware business trust which was formed in November 2000.
BWE Trust exchanged $150 million of its BancWest Capital I Quarterly Income
Preferred Securities (the "BWE Capital Securities"), as well as all outstanding
common securities of BWE Trust, for 9.5% junior subordinated deferrable interest
debentures of the Corporation. The Corporation sold to the public $150 million
of BWE Capital Securities. The BWE Capital Securities qualify as Tier 1 capital
of the Corporation and are solely, fully and unconditionally guaranteed by the
Corporation. All of the common securities of the BWE Trust are owned by the
Corporation.
At December 31, 2000, the BWE Trust's total assets were $155.6 million,
comprised primarily of the Corporation's junior subordinated debentures.
BancWest Corporation and Subsidiaries 7
8
PART I (continued)
- --------------------------------------------------------------------------------
FIRST HAWAIIAN CAPITAL I
FH Trust is a Delaware business trust which was formed in 1997. FH Trust
issued $100 million of its Capital Securities (the "FH Capital Securities") and
used the proceeds therefrom to purchase junior subordinated deferrable interest
debentures of the Corporation. The FH Capital Securities qualify as Tier 1
capital of the Corporation and are solely, fully and unconditionally guaranteed
by the Corporation. All of the common securities of the FH Trust are owned by
the Corporation.
At December 31, 2000, the FH Trust's total assets were $107.4 million,
comprised primarily of the Corporation's junior subordinated debentures.
HAWAII COMMUNITY REINVESTMENT CORPORATION
In an effort to support affordable housing and as part of First Hawaiian's
community reinvestment program, First Hawaiian is a member of the Hawaii
Community Reinvestment Corporation (the "HCRC"). The HCRC is a consortium of
local financial institutions that provides $50 million in permanent long-term
financing for affordable housing rental projects throughout Hawaii for low- and
moderate-income residents.
The $50 million loan pool is funded by the member financial institutions
which participate pro rata (based on deposit size) in each HCRC loan. First
Hawaiian's participation in these HCRC loans are included in its loan portfolio.
The member financial institutions have recently approved an increase in the loan
pool to $65 million to meet projected demand for affordable permanent loans.
HAWAII INVESTORS FOR AFFORDABLE HOUSING, INC.
To further enhance First Hawaiian's community reinvestment program and
provide support for the development of additional affordable housing rental
units in Hawaii, First Hawaiian and other HCRC member institutions, have
subscribed to a $19.7 million tax credit equity fund ("Hawaii Affordable Housing
Fund I") and a $20.0 million tax credit equity fund ("Hawaii Affordable Housing
Fund II"). Efforts are now underway to create a third tax credit equity fund to
continue the support of additional affordable housing projects.
Hawaii Affordable Housing Fund I and Hawaii Affordable Housing Fund II (the
"Funds") have been established to invest in qualified low-income housing tax
credit rental projects and to ensure that these projects are maintained as
low-income housing throughout the required compliance period. First Hawaiian's
investments in these Funds are included in other assets.
EMPLOYEES
At December 31, 2000, the Corporation had 5,009 full-time equivalent
employees. Bank of the West and First Hawaiian employed 2,821 and 2,188 persons,
respectively. None of our employees are represented by any collective bargaining
agreements and our relations with employees are considered excellent.
MONETARY POLICY AND ECONOMIC CONDITIONS
The earnings and businesses of the Corporation are affected not only by
general economic conditions (both domestic and international), but also by the
monetary policies of various governmental regulatory authorities of (i) the
United States and foreign governments and (ii) international agencies. In
particular, the Corporation's earnings and growth may be affected by actions of
the Federal Reserve Board in connection with its implementation of national
monetary policy through its open market operations in United States Government
securities, control of the discount rate and establishment of reserve
requirements against both member and non-member financial institutions'
deposits. These actions have a significant effect on the overall growth and
distribution of loans and leases, investments and deposits, as well as on the
rates earned on loans and leases or paid on deposits. It is difficult to predict
future changes in monetary policies.
COMPETITION
Competition in the financial services industry is intense. The Corporation
competes with a large number of commercial banks (including domestic, foreign
and foreign-affiliated banks), savings institutions, finance companies, leasing
companies, credit unions and other entities that provide financial services such
as mutual funds, insurance companies and brokerage firms. Many of these
competitors are significantly larger and have greater financial resources than
the Corporation. In addition, the increasing use of the Internet and other
electronic distribution channels has resulted in increased competition with
respect to many of the products and services that we offer. As a result, we
compete with financial service providers located not only in our home markets
but also those elsewhere in the United States that are able to offer their
products and services through electronic and other non-conventional distribution
channels.
Changes in federal law over the past several years have also made it easier
for out-of-state banks to enter and compete in the states in which our bank
subsidiaries operate. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act"), among other things, eliminated
substantially all state law barriers to the acquisition of banks by out-of-state
bank holding companies, effective September 29, 1995. A bank holding company may
now acquire banks in states other than its home state, without regard to the
permissi-
8 BancWest Corporation and Subsidiaries
9
PART I (continued)
- --------------------------------------------------------------------------------
bility of such acquisitions under state law, but subject to any state
requirement that the acquired bank has been organized and operating for a
minimum period of time (not to exceed five years), and the requirement that the
acquiring bank holding company, prior to or following the proposed acquisition,
controls no more than 10 percent of the total amount of deposits of insured
depository institutions in the United States and no more than 30 percent of such
deposits in that state (or such lesser or greater amount as may be established
by state law).
The Riegle-Neal Act also permits interstate branching by banks in all
states other than those which have "opted out." Effective June 1, 1997, the
Riegle-Neal Act permits banks to acquire branches located in another state by
purchasing or merging with a bank chartered in that state or a national banking
association having its headquarters located in that state. However, banks are
not permitted to establish de novo branches or purchase individual branches
located in other states unless expressly permitted by the laws of those other
states. None of the states in which our banking subsidiaries operate have
elected to "opt out" of the provisions of the Riegle-Neal Act permitting
interstate branching through acquisition or mergers, although most do not permit
de novo branching.
On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLBA") was signed
into law. The GLBA permits a financial holding company to engage in a wide
variety of financial activities, including insurance underwriting and sales,
investment banking, commercial banking, merchant banking and real estate
investment. Each activity is to be conducted in a separate subsidiary that is
regulated by a functional regulator: a state insurance regulator in the case of
an insurance subsidiary, the Securities and Exchange Commission in the case of a
broker-dealer or investment advisory subsidiary, or the appropriate federal
banking regulator in the case of a bank or thrift institution. The Federal
Reserve Board is the "umbrella" supervisor of financial holding companies.
Section 23A of the Federal Reserve Act, which severely restricts lending by an
insured bank subsidiary to nonbank affiliates, remains in place. We cannot
predict at this time the potential effect that the GLBA will have on our
business and operations, although we expect that a likely effect of the GLBA
will be to increase competition in the financial services industry generally and
lead to the formation of large financial services groups with significant market
share and power.
SUPERVISION AND REGULATION
As a registered bank holding company, the Corporation is subject to
regulation and supervision by the Federal Reserve Board under the BHCA. Our
subsidiaries are subject to regulation and supervision by the banking
authorities of California, Hawaii, Nevada, Washington, Oregon, Idaho, Guam and
the Commonwealth of the Northern Mariana Islands, as well as by the FDIC (which
is the primary federal regulator of our two bank subsidiaries) and various other
regulatory agencies.
The consumer lending and finance activities of the Corporation's
subsidiaries are also subject to extensive regulation under various Federal laws
including the Truth-in-Lending, Equal Credit Opportunity, Fair Credit Reporting,
Fair Debt Collection Practice and Electronic Funds Transfer Acts, as well as
various state laws. These statutes impose requirements on the making,
enforcement and collection of consumer loans and on the types of disclosures
that need to be made in connection with such loans.
HOLDING COMPANY STRUCTURE. The BHCA currently limits the business of the
Corporation to owning or controlling banks and engaging in such other activities
as the Federal Reserve Board may determine to be so closely related to banking
as to be a proper incident thereto. However, GLBA permits bank holding companies
that qualify for, and elect to be regulated as, financial holding companies, to
engage in a wide range of financial activities, including certain activities,
such as insurance, merchant banking and real estate investment, that are not
permissible for other bank holding companies. Financial holding companies are
permitted to acquire nonbank companies without the prior approval of the Federal
Reserve Board, but approval of the Federal Reserve Board continues to be
required before acquiring more than 5% of the voting shares of another bank or
bank holding company, before merging or consolidating with another bank holding
company and before acquiring substantially all the assets of any additional
bank. In addition, all acquisitions are reviewed by the Department of Justice
for antitrust considerations. We have not elected financial holding company
status.
DIVIDEND RESTRICTIONS. As a holding company, the principal source of our
cash revenue has been dividends and interest received from the Corporation's
bank subsidiaries. Each of the bank subsidiaries is subject to various federal
regulatory restrictions relating to the payment of dividends. For example, if,
in the opinion of the FDIC, a bank under its jurisdiction is engaged in or is
about to engage in an unsafe or unsound practice (which, depending on the
financial condition of the bank, could include the payment of dividends), the
FDIC may require, after notice and hearing, that such bank cease and desist from
such practice. In addition, the Federal Reserve Board has issued a policy
statement which pro-
BancWest Corporation and Subsidiaries 9
10
PART I (continued)
- --------------------------------------------------------------------------------
vides that, as a general matter, insured banks and bank holding companies should
only pay dividends out of current operating earnings. The regulatory capital
requirements of the Federal Reserve Board and the FDIC also may limit the
ability of the Corporation and its insured depository subsidiaries to pay
dividends. See "Prompt Corrective Action" and "Capital Requirements" below.
State regulations also place restrictions on the ability of our bank
subsidiaries to pay dividends. Under Hawaii law, First Hawaiian is prohibited
from declaring or paying any dividends in excess of its retained earnings.
California law generally prohibits Bank of the West from paying cash dividends
to the extent such payments exceed the lesser of retained earnings and net
income for the three most recent fiscal years (less any distributions to
stockholders during such three-year period). At December 31, 2000, the aggregate
amount of dividends that such subsidiaries could pay to the Corporation under
the foregoing limitations without prior regulatory approval was $366.7 million.
There are also statutory limits on the transfer of funds to the Corporation
and its nonbanking subsidiaries by its banking subsidiaries, whether in the form
of loans or other extensions of credit, investments or asset purchases. Such
transfers by a bank subsidiary to any single affiliate are limited in amount to
10% of the bank's capital and surplus, or 20% in the aggregate to all
affiliates. Furthermore, such loans and extensions of credit are required to be
collateralized in specified amounts.
Under Federal Reserve Board policy, a bank holding company is expected to
act as a source of financial strength to each subsidiary bank and to make
capital infusions into a troubled subsidiary bank. The Federal Reserve Board may
charge a bank holding company with engaging in unsafe and unsound practices for
failure to commit resources to a subsidiary bank. This capital infusion may be
required at times when a bank holding company may not have the resources to
provide it. Any capital loans by us to one of our subsidiary banks would be
subordinate in right of payment to deposits and to certain other indebtedness of
such subsidiary bank.
In addition, depository institutions insured by the FDIC can be held liable
for any losses incurred, or reasonably expected to be incurred, by the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC-insured depository institution in danger of default. "Default" is defined
generally as the appointment of a conservator or receiver and "in danger of
default" is defined generally as the existence of certain conditions indicating
that a "default" is likely to occur in the absence of regulatory assistance.
Accordingly, in the event that any insured subsidiary of the Corporation causes
a loss to the FDIC, other insured subsidiaries of the Corporation could be
required to compensate the FDIC by reimbursing it for the amount of such loss.
Any such obligation by our insured subsidiaries to reimburse the FDIC would rank
senior to their obligations, if any, to the Corporation.
PROMPT CORRECTIVE ACTION. Pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), the federal banking agencies are
required to take "prompt corrective action" with respect to insured depository
institutions that do not meet minimum capital requirements. FDICIA established a
five-tier framework for measuring the capital adequacy of insured depository
institutions (including Bank of the West and First Hawaiian), with each
depository institution being classified into one of the following categories:
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized."
Under the regulations adopted by the federal banking agencies to implement
these provisions of FDICIA (commonly referred to as the "prompt corrective
action" rules), a depository institution is "well capitalized" if it has (i) a
total risk-based capital ratio of 10% or greater, (ii) a Tier 1 risk-based
capital ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv)
is not subject to any written agreement, order or directive to meet and maintain
a specific capital level for any capital measure. An "adequately capitalized"
depository institution is defined as one that has (i) a total risk-based capital
ratio of 8% or greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater
and (iii) a leverage ratio of 4% or greater (or 3% or greater in the case of a
bank rated a composite 1 under the Uniform Financial Institution Rating System,
"CAMELS rating," established by the Federal Financial Institution Examinations
Council). A depository institution is considered (i) "undercapitalized" if it
has (A) a total risk-based capital ratio of less than 8%, (B) a Tier 1
risk-based capital ratio of less than 4% or (C) a leverage ratio of less than 4%
(or 3% in the case of an institution with a CAMELS rating of 1), (ii)
"significantly undercapitalized" if it has (A) a total risk-based capital ratio
of less than 6%, (B) a Tier 1 risk-based capital ratio of less than 3% or (C) a
leverage ratio of less than 3% and (iii) "critically undercapitalized" if it has
a ratio of tangible equity to total assets equal to or less than 2%. An
institution may be deemed by the regulators to be in a capitalization category
that is lower than is indicated by
10 BancWest Corporation and Subsidiaries
11
PART I (continued)
- --------------------------------------------------------------------------------
its actual capital position if, among other things, it receives an
unsatisfactory examination rating. At December 31, 2000, all of the
Corporation's subsidiary depository institutions were "well capitalized."
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a cash dividend) or paying any management
fees to its holding company if the depository institution is, or would
thereafter be, undercapitalized. Undercapitalized depository institutions are
subject to growth limitations and are required to submit a capital restoration
plan. The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the parent
holding company under such guarantee is limited to the lesser of (i) an amount
equal to 5% of the depository institution's total assets at the time it became
undercapitalized, or (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable to such institution as of the time it fails to comply with the plan.
If a depository institution fails to submit an acceptable plan, it is treated as
if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of other requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions may not make any payments of interest
or principal on their subordinated debt and are subject to the appointment of a
conservator or receiver, generally within 90 days of the date such institution
becomes critically undercapitalized. In addition, the FDIC has adopted
regulations under FDICIA prohibiting an insured depository institution from
accepting brokered deposits (as defined by the regulations) unless the
institution is "well capitalized" or is "adequately capitalized" and receives a
waiver from the FDIC.
FDIC INSURANCE ASSESSMENTS. The FDIC has implemented a risk-based deposit
insurance assessment system under which the assessment rate for an insured
institution may vary according to the regulatory capital levels of the
institution and other factors (including supervisory evaluations). Depository
institutions insured by the BIF which are ranked in the least risky category
currently have no annual assessment for deposit insurance while all other banks
are required to pay premiums ranging from .03% to .27% of domestic deposits. As
a result of the enactment on September 30, 1996 of the Economic Growth and
Regulatory Paperwork Reduction Act of 1996 (the "Deposit Funds Act"), the
deposit insurance premium assessment rates for depository institutions insured
by the SAIF were reduced, effective January 1, 1997, to the same rates that were
applied to depository institutions insured by the BIF. The Deposit Funds Act
also provided for a one-time assessment of 65.7 basis points on all SAIF-insured
deposits in order to fully recapitalize the SAIF (which assessment was paid by
the Corporation in 1996), and imposes annual assessments on all depository
institutions to pay interest on bonds issued by the Financing Corporation (the
"FICO") in connection with the resolution of savings association insolvencies
occurring prior to 1991. The FICO assessment rate for the first quarter of 2001
was 2.0 basis points. These rate schedules are adjusted quarterly by the FDIC.
In addition, the FDIC has authority to impose special assessments from time to
time, subject to certain limitations specified in the Deposit Funds Act.
CAPITAL REQUIREMENTS. We and certain of our subsidiaries are subject to
regulatory capital guidelines issued by the federal banking agencies.
Information with respect to the applicable capital requirements is included in
Note 14 Regulatory Capital Requirements, on pages 58 and 59.
FDICIA required each federal banking agency to revise its risk-based
capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk and the risk of nontraditional
activities, as well as reflect the actual performance and expected risk of loss
on multi-family mortgages. The federal banking agencies have adopted amendments
to their respective risk-based capital requirements that explicitly identify
concentrations of credit risk and certain risks arising from nontraditional
activities, and the management of such risks, as important factors to consider
in assessing an institution's overall capital adequacy. The amendments do not,
however, mandate any specific adjustments to the risk-based capital calculations
as a result of such factors.
In August 1996, the federal banking regulators adopted amendments to their
risk-based capital rules to incorporate a measure for market risk in foreign
exchange and commodity activities and in the trading of debt and equity
instruments. Under these amendments, which became effective in 1997, banking
institutions with relatively large trading activities are required to calculate
their capital charges for market risk using their
BancWest Corporation and Subsidiaries 11
12
PART I (continued)
- --------------------------------------------------------------------------------
own internal value-at-risk models (subject to parameters set by the regulators)
or, alternatively, risk management techniques developed by the regulators. As a
result, these institutions are required to hold capital based on the measure of
their market risk exposure in addition to existing capital requirements for
credit risk. These institutions are able to satisfy this additional requirement,
in part, by issuing short-term subordinated debt that qualifies as Tier 3
capital. The adoption of these amendments did not have a material effect on the
Corporation's business or operations.
On March 8, 2000, the federal banking regulators proposed for comment
regulations establishing new risk-based capital requirements for recourse
arrangements and direct credit substitutes. "Recourse" for this purpose means
any retained risk of loss associated with any transferred asset that exceeds a
pro rata share of the bank's or bank holding company's remaining claim on the
asset, if any. Under existing regulations, banks and bank holding companies have
to maintain capital against the full amount of any assets for which risk of loss
is retained, unless the resulting capital amount would exceed the maximum
contractual liability or exposure retained, in which case the capital required
would equal, dollar-for-dollar, such maximum contractual liability or exposure.
The proposal would extend this treatment to direct credit substitutes. "Direct
credit substitute" means any assumed risk of loss associated with any asset or
other claim that exceeds the bank's or bank holding company's pro rata share of
the asset or claim, if any. The proposal also included a multi-level approach to
assessing capital charges based upon the relative credit risk of the bank's or
bank holding company's position in a securitization (i.e., recourse
arrangements, direct credit substitute or asset-backed security) and the rating
assigned to such position by a nationally recognized statistical rating agency
(or, in certain circumstances, by the bank's internal risk rating system). The
regulators also proposed an additional measure to address the risk associated
with early amortization features in certain asset securitizations. The
Corporation does not believe the adoption of this proposal will have a material
adverse effect on its operations or financial position.
On September 27, 2000, the federal banking regulators proposed amendments
to their capital guidelines relating to "residual interests," which the proposal
defines as on-balance-sheet assets that represent interests retained by a seller
after a securitization or other transfer of financial assets, which interests
are structured to absorb more than a pro-rata share of credit loss related to
the transferred assets. "Residual interests" do not include interests purchased
from a third party. The proposed rule would require that risk-based capital be
held in an amount equal to the amount of the residual interest even if the
capital charge exceeds the full risk-based capital charge that would have been
held against the transferred assets. The proposal would also limit such residual
interests, when aggregated with nonmortgage servicing assets and purchased
credit card relationships, to 25% of Tier 1 capital, with any excess amount to
be deducted from Tier 1 capital. The Corporation does not believe the adoption
of this proposal will have a material adverse effect on its operations or
financial position.
On January 16, 2001, the Basel Committee on Banking Supervision (the
"Committee") proposed a new capital adequacy framework to replace the framework
adopted in 1988. Under the new framework, risk weights for certain types of
claims, including corporate credits, would be based on ratings assigned by
rating agencies. Certain low quality exposures would be assigned a risk weight
greater than 100%. Short-term commitments to lend, which currently do not
require capital, would be subject to a 20% conversion factor. In addition to
this "standardized" approach, banks with more advanced risk management
capabilities, which can meet rigorous supervisory standards, can make use of an
internal ratings-based approach under which some of the key elements of credit
risk, such as the probability of default, will be estimated internally by a
bank. The Committee also proposes capital charges for operational risk. The
Committee indicated that it intends to finalize the proposed new capital
adequacy requirement by the end of 2001, with implementation in 2004. If adopted
by the Committee, the new accord would then be the subject of rulemaking by the
U.S. bank regulatory agencies. Because the timing and final content of the
proposal are not yet clear, the Corporation cannot predict at this time the
potential effect that the adoption of such a proposal will have on its
regulatory capital requirements and financial position.
REAL ESTATE ACTIVITIES. The FDIC adopted regulations, effective January 1,
1999, that make it significantly easier for state non-member banks to engage in
a variety of real estate investment activities. These regulations generally
allow a majority-owned corporate subsidiary of a state non-member bank to make
equity investments in real estate if the bank complies with certain investment
and transaction limits and satisfies certain capital requirements (after giving
effect to its investment in the majority-owned subsidiary). In addition, the
regulations permit a subsidiary of an insured state non-member bank to act as a
lessor under a real property lease that is the equivalent of a financing
transaction, meets certain criteria applicable to the lease and the underlying
real estate and does not represent a significant risk to the deposit insurance
funds.
12 BancWest Corporation and Subsidiaries
13
PART I (continued)
- --------------------------------------------------------------------------------
FUTURE LEGISLATION
Legislation relating to banking and other financial services has been
introduced from time to time in Congress and is likely to be introduced in the
future. If enacted, such legislation could significantly change the competitive
environment in which we and our subsidiaries operate. Management cannot predict
whether these or any other proposals will be enacted or the ultimate impact of
any such legislation on our competitive situation, financial condition or
results of operations.
FOREIGN OPERATIONS
Foreign outstandings are defined as the balances outstanding of
cross-border loans, acceptances, interest-bearing deposits with other banks,
other interest-bearing investments and any other monetary assets. At December
31, 2000, 1999 and 1998, we had no foreign outstandings to any country which
exceeded 1% of total assets. Additional information concerning foreign
operations is also included in Management's Discussion and Analysis of Financial
Condition and Results of Operations and in Note 21 International Operations, on
pages 33 and 65, respectively.
OPERATING SEGMENTS
Information regarding the Corporation's operating segments is included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and in Note 20 Operating Segments, on page 21 and 64 and 65,
respectively.
ITEM 2. PROPERTIES
Bank of the West leases a site in Walnut Creek, California, which is its
primary administrative headquarters. The administrative headquarters office is a
132,000-square-foot, three-story building. Bank of the West also leases 48,382
square feet of executive office space in downtown San Francisco in the same
building that houses its San Francisco Main Branch at 180 Montgomery Street, see
Note 22 Lease Commitments (pages 65 and 66). Approximately 30,396 square feet of
leased space at 180 Montgomery Street is subleased to BNP Paribas.
As of December 31, 2000, 54 of Bank of the West's active branches are
located on land owned by Bank of the West. The remaining 109 active branches are
located on leasehold properties. Bank of the West also has 11 surplus branch
properties, 10 of which are currently leased to others. In addition, Bank of the
West leases 23 properties that are utilized for administrative (including
warehouses), lease support, management information systems and regional
management services, see Note 22 Lease Commitments(pages 65 and 66).
First Hawaiian indirectly (through two subsidiaries) owns all of a city
block in downtown Honolulu. The administrative headquarters of the Corporation
and First Hawaiian, as well as the main branch of First Hawaiian are located in
a modern banking center on this city block. The headquarters building includes
418,000 square feet of gross office space. Information about the lease financing
of the headquarters building is included in Note 22 Lease Commitments (pages 65
and 66).
As of December 31, 2000, 19 of First Hawaiian's offices in Hawaii are
located on land owned in fee simple by First Hawaiian. The other branches of
First Hawaiian in Hawaii and one branch each in Guam and Saipan are
situated on leasehold premises or in buildings constructed on leased land, see
Note 22 Lease Commitments (pages 65 and 66). In addition, First Hawaiian owns an
operations center which is located on 125,919 square feet of land owned in fee
simple by First Hawaiian in an industrial area near downtown Honolulu. First
Hawaiian occupies most of this four-story building.
First Hawaiian owns a five-story, 75,000-square-foot office building,
including a branch, which is situated on property owned in fee simple in Maite,
Guam, where it maintains a branch.
ITEM 3. LEGAL PROCEEDINGS
The information required by this Item is set forth in Note 23 to the
Consolidated Financial Statements on pages 66 and 67 of this Form 10-K, and is
expressly incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the New York Stock Exchange under the symbol
BWE. At December 31, 2000, there were 4,679 holders of record of the common
stock. A large number of shares are also held in the names of nominees and
brokers for individuals and institutions.
All Class A common shares are owned by BNP Paribas and a BNP Paribas
subsidiary. A share of Class A common stock is generally the same as a share of
common stock in all respects, except that holders of the Class A common stock
have the right to elect a separate class of directors (the "Class A Directors"),
and to vote as a class on certain fundamental corporate actions. The number of
Class A Directors will generally be comparable to the percentage of Class A
common shares in rela-
BancWest Corporation and Subsidiaries 13
14
PART II (continued)
- --------------------------------------------------------------------------------
tion to total stock outstanding (common stock plus Class A common stock). Note
12 to the Consolidated Financial Statements on pages 57 and 58 discusses key
terms of the Class A common stock. The Class A common stock is not publicly
traded.
BNP Paribas is bound by a standstill and governance agreement. Among the
key features of this agreement are provisions that: (1) limit BNP Paribas'
ability to acquire, directly or indirectly, additional common stock that would
result in its ownership of more than 45% of the outstanding voting stock of the
Company; (2) restrict BNP Paribas' ability to transfer its shares; (3) restrict
BNP Paribas' ability to exercise control over the Company or our Board of
Directors (the "Board"), other than through its representation on the Board; and
(4) create various other restrictions. Note 12 to the Consolidated Financial
Statements on pages 57 and 58 contains additional information.
At December 31, 2000, a total of 71,041,450 shares of common stock were
issued, including 2,565,581 shares in the treasury stock account.
On November 18, 1999, our Board approved a two-for-one stock split of the
total issued shares of the Company's common stock and Class A common stock. The
additional shares issued as a result of the stock split were distributed on
December 15, 1999, to stockholders of record at the close of business on
December 1, 1999. A total of 63,522,968 shares of common stock and Class A
common stock were issued in connection with the stock split. In addition, due to
the stock split, treasury shares increased by 1,220,408 shares. As a result of
the stock split, $63.5 million was reclassified from capital surplus to common
stock and Class A common stock. The stock split did not cause any changes in the
$1 par value per share of the common stock, the $1 par value per share of the
Class A common stock or in total stockholders' equity.
Unless otherwise noted, the number of common shares and per common share
amounts include Class A common shares and have been restated to reflect the
effects of the stock split.
On November 1, 1998, in connection with the merger of the former BancWest
Corporation with and into First Hawaiian, Inc., as described in Note 2 to the
Consolidated Financial Statements on pages 50 and 51, we issued 25,814,768
shares of Class A common stock, which became 51,629,536 shares due to the
two-for-one stock split. At December 31, 2000, a total of 56,074,874 shares of
Class A common stock remained outstanding.
Here are quarterly and annual per share data, computed using the common
stock and Class A common shares and restated for the effects of a two-for-one
stock split:
- --------------------------------------------------------------------------------------
Cash Market Price
Diluted Dividends -----------------------------
Earnings Paid High Low Close
- --------------------------------------------------------------------------------------
2000
FIRST QUARTER........... $ .40 $.17 $19.75 $14.44 $19.75
SECOND QUARTER.......... .43 .17 19.38 14.44 16.45
THIRD QUARTER........... .45 .17 20.19 16.44 19.44
FOURTH QUARTER.......... .45 (1) .17 26.13 17.25 26.13
- --------------------------------------------------
ANNUAL................ $1.73 (1) $.68 26.13 14.44 26.13
==================================================
1999
First Quarter........... $ .34 $.15 $24.25 $19.44 $21.25
Second Quarter.......... .36 .15 21.22 18.50 18.56
Third Quarter........... .29 (2) .15 22.03 18.56 20.31
Fourth Quarter.......... .39 .17 22.75 19.06 19.50
- --------------------------------------------------
Annual............... $1.38 (2) $.62 24.25 18.50 19.50
==================================================
1998................... $1.05 (3) $.58 24.00 13.81 24.00
1997................... $1.29 $.58 21.94 14.31 19.88
1996................... $1.20 $.57 18.38 12.88 17.50
======================================================================================
On July 1, 1999, we acquired SierraWest Bancorp. That merger was accounted for
as a pooling of interests. Therefore, all financial information has been
restated for all periods presented.
(1) Amounts include after-tax other nonrecurring costs of $755,000 recorded
in 2000 for the acquisition of new branches in New Mexico and Nevada
expected to be completed in the first quarter of 2001. Excluding those
costs, operating diluted earnings per share were $.46 for the quarter
ended December 31, 2000 and $1.74 for the year ended December 31, 2000.
(2) Amounts include after-tax restructuring, merger-related and other
nonrecurring costs of $11.6 million in connection with the acquisition
of SierraWest Bancorp and the consolidation of data centers. Excluding
those costs, adjusted diluted earnings per share were $.39 for the
quarter ended September 30, 1999, and $1.48 for the year ended December
31, 1999.
(3) Amounts include after-tax restructuring, merger-related and other
nonrecurring costs of $21.9 million in connection with the merger of
the former BancWest Corporation with and into First Hawaiian, Inc. on
November 1, 1998. Excluding those costs, adjusted diluted earnings per
share were $1.32 for the year ended December 31, 1998.
We expect to continue our policy of paying quarterly cash dividends. The
declaration and payment of cash dividends are subject to our future earnings,
capital requirements, financial condition and certain limitations as described
in Note 15 to the Consolidated Financial Statements on page 59.
14 BancWest Corporation and Subsidiaries
15
PART II (continued)
- --------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENTS AND DIVIDENDS
Interest income ..................................... $1,309,856 $1,135,711 $749,541 $651,048 $620,511
Interest expense .................................... 562,922 446,877 315,822 281,232 270,755
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income ................................. 746,934 688,834 433,719 369,816 349,756
Provision for credit losses ......................... 60,428 55,262 30,925 20,010 25,048
Noninterest income .................................. 216,076 197,632 134,182 110,550 95,575
Noninterest expense, without restructuring,
merger-related and other nonrecurring costs ........ 532,692 517,541 366,548 322,171 296,567
Restructuring, merger-related and other
nonrecurring costs ................................. 1,269 17,534 25,527 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes .......................... 368,621 296,129 144,901 138,185 123,716
Provision for income taxes .......................... 152,227 123,751 60,617 44,976 38,533
- ------------------------------------------------------------------------------------------------------------------------------------
Net income .......................................... $ 216,394 $ 172,378 $ 84,284 $ 93,209 $ 85,183
====================================================================================================================================
Cash dividends ...................................... $ 84,731 $ 77,446 $ 40,786 $ 41,116 $ 38,946
====================================================================================================================================
Average shares outstanding (in thousands) ........... 124,634 124,048 79,516 70,939 68,738
====================================================================================================================================
OPERATING AND CASH EARNINGS
Operating earnings (1) .............................. $ 217,149 $ 184,008 $106,150 $ 93,209 $ 85,183
====================================================================================================================================
Cash earnings (2) ................................... $ 249,131 $ 204,886 $ 95,366 $ 99,832 $ 90,845
====================================================================================================================================
Operating cash earnings (1), (2) .................... $ 249,886 $ 216,516 $117,232 $ 99,832 $ 90,845
====================================================================================================================================
On July 1, 1999, we acquired SierraWest Bancorp. That merger was accounted for
as a pooling of interests. Therefore, all financial information has been
restated for all periods presented.
(1) Excluding after-tax restructuring, merger-related and other nonrecurring
costs of:
(a) $755,000 recorded in 2000 for the acquisition of new branches in
Nevada and New Mexico expected to be completed in the first
quarter of 2001,
(b) $11.6 million in connection with the acquisition of SierraWest
Bancorp and the consolidation of data centers in 1999, and
(c) $21.9 million in connection with the merger of the former
BancWest Corporation with and into First Hawaiian, Inc. on
November 1, 1998 ("BancWest Merger").
(2) Excluding amortization of goodwill and core deposit intangible.
BancWest Corporation and Subsidiaries 15
16
PART II (continued)
- --------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA, PER SHARE(1)
Basic earnings ..................................... $ 1.74 $ 1.39 $ 1.06 $ 1.31 $ 1.24
Diluted earnings ................................... 1.73 1.38 1.05 1.29 1.20
Cash dividends ..................................... .68 .62 .58 .58 .57
Book value (at December 31) ........................ 15.97 14.79 14.15 11.30 10.85
Market price (close at December 31) ................ 26.13 19.50 24.00 19.88 17.50
OPERATING AND CASH EARNINGS, PER SHARE(1)
Diluted operating earnings(2) ...................... $ 1.74 $ 1.48 $ 1.32 $ 1.29 $ 1.20
Diluted cash earnings(3) ........................... 1.99 1.64 1.19 1.38 1.28
Diluted operating cash earnings(2), (3) ............ 2.00 1.74 1.46 1.38 1.28
BALANCE SHEETS (in millions)
Average balances:
Total assets ....................................... $17,600 $16,294 $10,033 $ 8,635 $8,306
Total earning assets ............................... 15,742 14,492 9,036 7,768 7,558
Loans and leases ................................... 13,286 12,291 7,659 6,477 5,907
Deposits ........................................... 13,380 12,517 7,710 6,541 6,102
Long-term debt and capital securities .............. 964 790 354 279 265
Stockholders' equity ............................... 1,903 1,793 938 786 720
At December 31:
Total assets ....................................... $18,457 $16,681 $15,929 $8,880 $8,642
Loans and leases ................................... 13,972 12,524 11,965 6,792 6,243
Deposits ........................................... 14,128 12,878 12,043 6,790 6,507
Long-term debt and capital securities .............. 967 802 734 324 218
Stockholders' equity ............................... 1,989 1,843 1,746 801 753
- -----------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Return on average:
Total assets ....................................... 1.23% 1.06% .84% 1.08% 1.03%
Stockholders' equity ............................... 11.37 9.61 8.99 11.86 11.82
SELECTED OPERATING AND CASH RATIOS(4)
Return on average:
Tangible total assets .............................. 1.48% 1.39% 1.19% 1.17% 1.11%
Tangible stockholders' equity ...................... 20.32 19.70 16.31 15.14 14.94
OTHER SELECTED DATA
Dividend payout ratio ............................... 39.31% 44.93% 55.24% 44.96% 47.50%
Average stockholders' equity to average
total assets ....................................... 10.81 11.00 9.35 9.10 8.67
Year ended December 31:
Net interest margin ................................ 4.75 4.76 4.81 4.77 4.63
Net loans and leases charged off to average
loans and leases .................................. .37 .42 .31 .33 .42
Efficiency ratio (2), (3) .......................... 51.53 54.47 62.50 65.53 64.54
At December 31:
Risk-based capital ratios:
Tier 1 ............................................ 9.73 8.80 8.32 9.63 8.49
Total ............................................. 11.39 10.56 10.18 11.87 11.93
Tier 1 leverage ratio .............................. 9.09 8.11 9.13 9.09 7.24
Allowance for credit losses to total loans
and leases ........................................ 1.23 1.29 1.32 1.33 1.46
Nonperforming assets to total loans and leases
and other real estate owned and repossessed
personal property ................................. .86 1.01 1.11 1.42 1.68
Allowance for credit losses to nonperforming
loans and leases .................................. 1.84x 1.64x 1.61x 1.40x 1.15x
===================================================================================================================================
On July 1, 1999, we acquired SierraWest Bancorp. That merger was accounted for
as a pooling of interests. Therefore, all financial information has been
restated for all periods presented.
(1) All per share data have been calculated to include both common and Class
A common shares and have been adjusted to give retroactive effect to the
two-for-one stock split in the fourth quarter of 1999.
(2) Excluding after-tax restructuring, merger-related and other nonrecurring
costs of:
(a) $755,000 recorded in 2000 for the acquisition of new branches in
Nevada and New Mexico expected to be completed in the first
quarter of 2001,
(b) $11.6 million in connection with the acquisition of SierraWest
Bancorp and the consolidation of data centers in 1999, and
(c) $21.9 million in connection with the merger of the former
BancWest Corporation with and into First Hawaiian, Inc. on
November 1, 1998 ("BancWest Merger").
(3) Excluding amortization of goodwill and core deposit intangible.
(4) Defined as operating cash earnings as a percentage of average total
assets or average stockholders' equity minus average goodwill and core
deposit intangible.
16 BancWest Corporation and Subsidiaries
17
PART II (continued)
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Our
forward-looking statements (such as those concerning its plans, expectations,
estimates, strategies, projections and goals) involve risks and uncertainties
that could cause actual results to differ materially from those discussed in the
statements. Readers should carefully consider those risks and uncertainties in
reading this report. Factors that could cause or contribute to such differences
include, but are not limited to:
(1) global, national and local economic and market conditions, specifically
with respect to changes in the United States economy and the impact recent
increases in energy costs will have on the California economy;
(2) the level and volatility of interest rates and currency values;
(3) government fiscal and monetary policies;
(4) credit risks inherent in the lending process;
(5) loan and deposit demand in the geographic regions where we conduct
business;
(6) the impact of intense competition in the rapidly evolving banking and
financial services business;
(7) extensive federal and state regulation of our business, including the
effect of current and pending legislation and regulations;
(8) whether expected revenue enhancements and cost savings are realized within
expected time frames;
(9) whether Bank of the West completes as anticipated its expected acquisition
of New Mexico and Nevada branches and is successful in retaining and
further developing related loan, deposit, customer and employee
relationships;
(10) matters relating to the integration of our business with that of past and
future merger partners, including the impact of combining these businesses
on revenues, expenses, deposit attrition, customer retention and financial
performance;
(11) our reliance on third parties to provide certain critical services,
including data processing;
(12) the proposal or adoption of changes in accounting standards by the
Financial Accounting Standards Board ("FASB"), the Securities and Exchange
Commission ("SEC") or other standard setting bodies;
(13) technological changes;
(14) other risks and uncertainties discussed in this document or detailed from
time to time in other SEC filings that we make, including our 1999 Annual
Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2000; and
(15) management's ability to manage risks that result from these and other
factors.
Our forward-looking statements are based on management's current views
about future events. Those statements speak only as of the date on which they
are made. We do not intend to update forward-looking statements, and we disclaim
any obligation or undertaking to update or revise any such statements to reflect
any change in our expectations or any change in events, conditions,
circumstances or assumptions on which forward-looking statements are based.
See "Glossary of Financial Terms" on page 70 for definitions of certain
terms used in this annual report.
OVERVIEW
Thanks to strong performances in both West Coast and Hawaii operations, our
operating earnings during 2000 increased 18% over 1999 to a record $217.1
million. These were some of the key events affecting our financial statements:
- - In the fourth quarter of 2000, we completed our consolidation of our data
processing for all of our operations into a single facility in Honolulu.
The consolidated operations of our data center are now being managed by the
national information management service provider, ALLTEL. Through the
facilities management contract with ALLTEL, certain noninterest expenses,
such as salaries and employee benefits and equipment expense have been
reduced, contributing to the further improvement in our operating
efficiency.
- - By the end of the first quarter of 2001, our acquisition of 30 branches in
New Mexico and Nevada should be completed. The branches, being divested as
a result of the merger between First Security Corporation and Wells Fargo &
Company, have approximately $1.2 billion in deposits and $300 million in
loans. This cash transaction is being accounted under the purchase method
of accounting. Related to the branch acquisition, we recorded pre-tax,
other nonrecurring costs of $1.3 million ($755,000 after-tax) in the fourth
quarter of 2000. Furthermore, we formed BWE Trust and issued $150 million
of BWE Capital Securities in the fourth quarter of 2000 to enhance our
capital resources in anticipation of the branch acquisition. In addition,
our planned acquisition of 68 branches in Utah and Idaho was cancelled due
to the termination of the merger of Zions Bancorporation and First Security
Corporation, resulting in the receipt of $5 million in termination fees and
the payment of
BancWest Corporation and Subsidiaries 17
18
PART II (continued)
- --------------------------------------------------------------------------------
approximately $3 million in expenses related to the cancelled branch
acquisition.
- - As a result of an increase in loan and lease volume and noninterest-bearing
deposits, our net interest income has increased by over 8% in 2000 over
1999.
- - We continue to improve our credit quality. The improving economy in Hawaii
helped to decrease our consolidated nonperforming assets. The ratio of
nonperforming assets to total loans and leases and other real estate owned
and repossessed personal property ("OREO") decreased by nearly 15% to .86%
in 2000 from 1.01% in 1999.
For further information regarding the Company's mergers and acquisitions,
see Note 2 to the Consolidated Financial Statements on pages 50 and 51. For
further information regarding the Company's restructuring, merger-related, and
other nonrecurring costs, see Note 3 to the Consolidated Financial Statements on
pages 51 and 52. For additional information regarding net interest income, see
Net Interest Income and Table 1 on pages 22 and 23. For additional information
on nonperforming assets, see Nonperforming Assets and Past Due Loans and Leases
on pages 32 and 33.
2000 VS. 1999
The table below compares our 2000 financial results to 1999. The
improvement in our financial results is primarily attributed to higher net
interest income, caused mainly by increased loan and lease and deposit volume,
increased noninterest income, a result of our continuing efforts to diversify
our revenue base, and controlled noninterest expense. In addition, the $11.6
million after-tax restructuring, merger-related and other nonrecurring costs
that we incurred in 1999 for the SierraWest Merger and the consolidation of data
centers are reflected in the results for 1999. The $755,000 in after-tax other
nonrecurring costs related to the New Mexico and Nevada branch acquisition are
included in the results for 2000. We expect to incur an additional $4.3 million
(pre-tax) in nonrecurring costs in the first quarter of 2001 related to this
acquisition.
- -----------------------------------------------------------------------------------------
(dollars in thousands,
except per share data) 2000 1999 Change
- -----------------------------------------------------------------------------------------
Consolidated net income ........... $ 216,394 $ 172,378 25.5%
Diluted earnings per share ........ 1.73 1.38 25.4
Operating earnings(*) ............. 217,149 184,008 18.0
Diluted operating earnings
per share(*) ..................... 1.74 1.48 17.6
Diluted operating cash
earnings per share(*)(**) ........ 2.00 1.74 14.9
Return on average
tangible total assets(*) ......... 1.48% 1.39% 6.5
Return on average tangible
stockholders' equity(*) .......... 20.32% 19.70% 3.1
=========================================================================================
(*) Excludes after-tax restructuring, merger-related and other nonrecurring
costs of $755,000 and $11.6 million in 2000 and 1999, respectively.
(**) Operating earnings per share before amortization of goodwill and core
deposit intangible.
1999 VS. 1998
In most income and expense categories, the increases in the amounts we
reported for 1999 compared to the prior year resulted primarily from including
the results of operations of Bank of the West for a full year versus two months
in 1998. The table below compares our 1999 financial results to 1998.
- -----------------------------------------------------------------------------------------
(dollars in thousands,
except per share data) 1999 1998 Change
- -----------------------------------------------------------------------------------------
Consolidated net income ............. $ 172,378 $ 84,284 104.5%
Diluted earnings per share .......... 1.38 1.05 31.4
Operating earnings(*) ............... 184,008 106,150 73.3
Diluted operating earnings
per share(*) ....................... 1.48 1.32 12.1
Diluted operating cash
earnings per share(*)(**) .......... 1.74 1.46 19.2
Return on average
tangible total assets(*) ........... 1.39% 1.19% 16.8
Return on average tangible
stockholders' equity(*) ............ 19.70% 16.31% 20.8
=========================================================================================
(*) Excludes after-tax restructuring, merger-related and other nonrecurring
costs of $11.6 million in 1999 and $21.9 million in 1998.
(**) Operating earnings per share before amortization of goodwill and core
deposit intangible.
NET INTEREST INCOME
2000 VS. 1999
- -----------------------------------------------------------------
(in thousands) 2000 1999 Change
- -----------------------------------------------------------------
Net interest income........... $746,934 $688,834 8.4%
=================================================================
The increase in our net interest income in 2000 was principally the result
of a $1.3 billion, or 8.7%, increase in average earning assets. This increase
was partially offset by a one-basis-point (1% equals 100 basis points) reduction
in our net interest margin. The increase in our average earning assets was
primarily a result of growth in our Bank of the West operating segment. The
rebound in Hawaii has stopped the nearly decade-long economic decline, leading
to a double-digit increase in the earnings of our First Hawaiian operating
segment.
1999 VS. 1998
- -----------------------------------------------------------------
(in thousands) 1999 1998 Change
- -----------------------------------------------------------------
Net interest income.......... $688,834 $433,719 58.8%
=================================================================
The increase in our net interest income in 1999 was principally the result
of a $5.5 billion, or 60.4%, increase in average earning assets. This increase
was partially offset by a five-basis-point reduction in our net interest margin.
The increase in our average earning assets was primarily the
18 BancWest Corporation and Subsidiaries
19
PART II (continued)
- --------------------------------------------------------------------------------
result of the inclusion of Bank of the West for all of 1999 as compared to two
months in 1998. In addition to the increase caused by the BancWest Merger, the
economic expansion on the Western United States increased our loan and lease
volume. Also, Hawaii is slowly recovering from the prolonged economic downturn
that it has experienced over the last nine years, which had slowed growth in
loans and leases, deposits and net interest income.
NONINTEREST INCOME
- -------------------------------------------------------------------
(in thousands) 2000 1999 Change
- -------------------------------------------------------------------
Noninterest income.......... $216,076 $197,632 9.3%
===================================================================
The increase in noninterest income reflects the continued strengthening and
diversification of our revenue base. Key components of noninterest income that
increased in 2000 over 1999 include: (1) fees from the sales of annuities and
mutual funds, up 45.8%; (2) fees from the processing of retail merchant's debit
and credit card transactions, up 36.1%, on increased fees and volumes and more
participating merchants; (3) fees from bank cards, up 40.3%, due to higher card
use and an increase in the customer base; and (4) trust and investment
management fees, up 10.8%, due to increased use by both retail and institutional
clients.
NONINTEREST EXPENSE
- -------------------------------------------------------------------
(in thousands) 2000 1999 Change
- -------------------------------------------------------------------
Noninterest expense.......... $533,961 $535,075 (.2)%
===================================================================
The decrease in noninterest expense in 2000 was primarily due to the $17.5
million pre-tax restructuring, merger-related, and other nonrecurring costs
related to the SierraWest Merger and the consolidation of data centers in 1999.
Excluding the pre-tax restructuring, merger-related and other nonrecurring costs
of $1.3 million in 2000 and $17.5 million in 1999, noninterest expense increased
by 2.9%, due primarily to an increase in salaries and employee benefits and an
increase in occupancy expense, primarily due to continued expansion in our Bank
of the West operating segment. These increases were partially offset by a
decrease in equipment expense caused primarily by the ALLTEL facilities
management agreement.
EFFICIENCY RATIO
- --------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------
Efficiency ratio(*)........... 51.53% 54.47% 62.50%
====================================================================
(*)Calculated as noninterest expense (exclusive of nonrecurring costs) minus the
amortization of goodwill and core deposit intangible as a percentage of total
operating revenue (net interest income plus noninterest income).
Our efficiency ratio improved in 2000 over 1999 principally because of
increased revenue from higher net interest income, primarily from more earning
assets, and higher noninterest income. In addition, the containment of
noninterest expense, aided by savings from our data center consolidation,
contributed to the improvement in our efficiency ratio.
NONPERFORMING ASSETS
The provision for credit losses increased in 2000 over 1999 primarily
because of the 8.1% increase in average total loans and leases outstanding in
2000 over 1999. The improvement in the ratio of nonperforming assets to total
loans and leases, OREO and repossessed personal property in 2000 compared to
1999 was primarily due to the increase in average total loans and leases, as
well as the reduction of restructured loans and leases and OREO and repossessed
personal property, partially offset by an increase in nonaccrual loans and
leases. Net charge-offs decreased primarily due to the 22% increase in
recoveries on loans and leases previously charged off.
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Provision for credit
losses .................................................... $ 60,428 $ 55,262 $ 30,925
Net charge-offs to
average loans &
leases .................................................... .37% .42% .31%
Allowance for credit
losses (year end) ......................................... $172,443 $161,418 $158,294
Allowance for credit
losses as % of total
loans & leases
(year end) ................................................ 1.23% 1.29% 1.32%
Nonperforming assets(*)
as % of total loans &
leases, OREO &
repossessed personal
property (year end) ....................................... .86% 1.01% 1.11%
=========================================================================================================
(*)Principally loans and leases collateralized by real estate.
CAPITAL RATIOS
- -----------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------
Tier 1 capital to risk-weighted assets ................ 9.73% 8.80%
Total capital to risk-weighted assets ................. 11.39% 10.56%
Tier 1 capital to average assets ...................... 9.09% 8.11%
===================================================================================
These ratios were in excess of the minimum required for capital adequacy
purposes of 4.00%, 8.00% and 4.00%, respectively, specified by the Federal
Reserve Board.
NET INTEREST MARGIN
2000 VS. 1999
- --------------------------------------------------------------------
2000 1999 Change
- --------------------------------------------------------------------
Net interest margin........... 4.75% 4.76% -1 basis pt.
====================================================================
The net interest margin decreased by one basis point in 2000 from 1999 due
primarily to the effects of the
BancWest Corporation and Subsidiaries 19
20
PART II (continued)
- --------------------------------------------------------------------------------
increasing interest rate environment that was experienced
for most of 2000. Although the increasing rate environment raised our yield on
earning assets by 48 basis points to 8.32% in 2000 over 7.84% in 1999, it also
raised our rate paid on sources of funds by 49 basis points to 3.57% in 2000
over 3.08% in 1999. Therefore, our net interest margin decreased by one basis
point in 2000. Partially offsetting the increase on the rate paid on sources of
funds, average noninterest-bearing deposits increased in 2000 by $262.5 million,
or 10.7%, compared to 1999.
1999 VS. 1998
- --------------------------------------------------------------------
1999 1998 Change
- --------------------------------------------------------------------
Net interest margin........... 4.76% 4.81% -5 basis pts.
====================================================================
The net interest margin decreased by five basis points in 1999 from 1998
primarily due to the continuing effects of the lower interest rate environment
that began in the second half of 1998. Although we paid 41 basis points less for
sources of funds used for average earning assets, the yield on our average
earning assets fell by 46 basis points. Partially offsetting the decline on the
yield of average earning assets, average noninterest-bearing deposits increased
in 1999 by $1.1 billion, or 80%, compared to 1998, primarily as a result of the
BancWest Merger.
AVERAGE EARNING ASSETS
2000 VS. 1999
- ---------------------------------------------------------------------------------------
(in thousands) 2000 1999 Change
- ---------------------------------------------------------------------------------------
Average earning assets.......... $15,752,238 $14,491,126 8.7%
=======================================================================================
The continuing growth of our Bank of the West operating segment is primarily
responsible for the increase in average earning assets. In particular, the
$994.5 million, or 8.1%, increase in average total loans and leases was
primarily due to growth in the Western United States. Average total investment
securities also increased by $370.4 million, or 21.5%, to $2.1 billion in 2000
over 1999.
1999 vs. 1998
- -----------------------------------------------------------------------------------
(in thousands) 1999 1998 Change
- -----------------------------------------------------------------------------------
Average earning assets.......... $14,491,126 $9,032,164 60.4%
===================================================================================
The BancWest Merger significantly increased our average earning assets due
to the inclusion of Bank of the West average balances for all of 1999. The
increase in average earning assets was primarily due to increases in average
total loans and leases of $4.6 billion, or 60.5%, and average total investment
securities of $744 million, or 76.3%.
In addition, the mix of earning assets continues to change, with average
investment securities representing 11.9% of average earning assets for 1999 as
compared to 10.8% for 1998.
AVERAGE LOANS AND LEASES
2000 VS. 1999
- -------------------------------------------------------------------------
(in thousands) 2000 1999 Change
- -------------------------------------------------------------------------
Average loans and leases.... $13,285,586 $12,291,095 8.1%
=========================================================================
The increase in average loans and leases was primarily due to growth from
our Bank of the West operating segment's consumer loan and lease financing
portfolios. In addition, the rebounding economy in Hawaii led to a modest
increase in average loans and leases in our First Hawaiian operating segment.
1999 vs. 1998
- ----------------------------------------------------------------------------
(in thousands) 1999 1998 Change
- ----------------------------------------------------------------------------
Average loans and leases.... $12,291,095 $7,658,998 60.5%
============================================================================
The inclusion of Bank of the West balances for an entire year was the
primary reason for the increase in average loans and leases. The growth in loan
and lease volumes outside of Hawaii was also a factor in the increase in average
loans and leases.
AVERAGE INTEREST-BEARING DEPOSITS AND LIABILITIES
2000 VS. 1999
- ---------------------------------------------------------------------------------
(in thousands) 2000 1999 Change
- ---------------------------------------------------------------------------------
Average interest-bearing deposits
and liabilities..................... $12,289,972 $11,494,121 6.9%
=================================================================================
The increase in average interest-bearing deposits and liabilities in 2000
over 1999 was principally caused by growth in our customer deposit base,
primarily in our Bank of the West operating segment. In addition, we grew
deposits by initiating various deposit product programs. Also, we increased our
utilization of negotiable and brokered time certificates of deposits.
1999 VS. 1998
- --------------------------------------------------------------------------------------
(in thousands) 1999 1998 Change
- --------------------------------------------------------------------------------------
Average interest-bearing
deposits and liabilities.......... $11,494,121 $7,424,256 54.8%
======================================================================================
The increase in average interest-bearing deposits and liabilities in 1999
over 1998 was principally caused by the effects of having Bank of the West
balances included for an entire year, as well as growth in our customer deposit
base.
20 BancWest Corporation and Subsidiaries
21
PART II (continued)
- --------------------------------------------------------------------------------
OPERATING SEGMENTS RESULTS
As detailed in Note 20 to the Consolidated Financial Statements on pages 64
and 65, our operations are managed principally through our two major bank
subsidiaries, Bank of the West and First Hawaiian. Bank of the West operates
primarily in California, Oregon, Washington, Idaho and Nevada. It also conducts
business nationally through its Consumer Finance Division and its Essex Credit
Corporation subsidiary. First Hawaiian's primary base of operations is in
Hawaii. It also has significant operations extending nationally, and to a lesser
degree internationally, through its media finance, national corporate lending
and leveraged leasing operations. The "other" category in the table below
consists principally of BancWest Corporation (Parent Company), FHL Lease Holding
Company, Inc., BancWest Capital I and First Hawaiian Capital I. The reconciling
items are principally consolidating entries to eliminate intercompany balances
and transactions. The following table summarizes significant financial
information, as of or for years ended December 31, of our reportable segments:
- ---------------------------------------------------------------------------------------
(in millions) 2000 1999 1998
- ---------------------------------------------------------------------------------------
NET INTEREST INCOME
Bank of the West ........................... $ 423 $ 384 $ 126
First Hawaiian ............................. 329 312 322
Other ...................................... (5) (7) (14)
- --------------------------------------------------------------------------------------
CONSOLIDATED TOTAL ........................ $ 747 $ 689 $ 434
======================================================================================
NET INCOME
Bank of the West ........................... $ 110 $ 84 $ 18
First Hawaiian ............................. 112 94 75
Other ...................................... (6) (6) (9)
- --------------------------------------------------------------------------------------
CONSOLIDATED TOTAL ........................ $ 216 $ 172 $ 84
======================================================================================
YEAR END SEGMENT ASSETS
Bank of the West ........................... $11,159 $ 9,571 $ 8,603
First Hawaiian ............................. 7,452 7,081 7,248
Other ...................................... 3,215 2,747 2,458
Reconciling items .......................... (3,369) (2,718) (2,380)
- --------------------------------------------------------------------------------------
CONSOLIDATED TOTAL ........................ $18,457 $16,681 $15,929
======================================================================================
2000 VS. 1999
- - Our net interest income for 2000 increased over 1999, principally due to
the growth in loan and lease volume in the Western United States and
increase in noninterest-bearing deposits. Bank of the West's annual
average loan volume increased in 2000 by 14.4% over 1999. First
Hawaiian's 5.4% increase in net interest income between 2000 and 1999
was primarily due to higher net interest margins.
- - Our net income for 2000 increased over 1999, primarily due to: (1)
higher net interest income from both Bank of the West and First
Hawaiian; (2) lower restructuring, merger-related and other nonrecurring
costs in 2000 compared to 1999; (3) higher noninterest income in 2000
over 1999 for both Bank of the West and First Hawaiian, such as income
from service charges on deposit accounts, trust and investment services,
annuity and mutual fund sales and other service charges and fees; and
(4) controlled noninterest expense growth.
- - Our total assets at December 31, 2000, grew by 10.6% over December 31,
1999, predominantly due to the 16.6% growth in Bank of the West's
assets. An increase in earning assets, mainly consumer loans and lease
financing, contributed to Bank of the West's growth. The 5.2% increase
in First Hawaiian's assets in 2000 from 1999 was principally due to an
increase in commercial, financial and agricultural loans, reflecting a
rebounding Hawaiian economy.
1999 VS. 1998
- - Our net interest income for 1999 increased over 1998, principally due to
the inclusion of an entire year of Bank of the West operations in 1999
as opposed to two months for the year ended December 31, 1998. First
Hawaiian's 3.1% decrease in net interest income in 1999 from 1998
reflects the effects of the slow recovery from the prolonged economic
downturn in Hawaii, which decreased loan and lease volume.
- - Our net income for 1999 increased over 1998, primarily due to the
inclusion of Bank of the West's results for an entire year. The 25.3%
increase in First Hawaiian's net income was primarily due to: (1) lower
restructuring, merger-related and other nonrecurring costs in 1999
compared to 1998; (2) higher noninterest income in 1999 over 1998, such
as income from trust and investment products and services; and (3) a
reduction in noninterest expense, achieved through efficiencies gained
from the BancWest Merger and cost containment initiatives.
- - Our total assets at December 31, 1999, grew by 4.7% over December 31,
1998, predominantly due to the 11.3% growth in Bank of the West's
assets. An increase in earning assets, mainly consumer loans and lease
financing, contributed to Bank of the West's growth. The 2.3% decrease
in First Hawaiian's assets in 1999 from 1998 was principally due to a
decline in loans, reflecting the challenging economy in Hawaii.
BancWest Corporation and Subsidiaries 21
22
PART II (continued)
- --------------------------------------------------------------------------------
TABLE 1: AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AND YIELDS AND RATES
(TAXABLE-EQUIVALENT BASIS)
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 years indicated on a taxable-equivalent basis. The taxable-equivalent
adjustment is made for items exempt from Federal income taxes (assuming a 35%
tax rate for 2000, 1999 and 1998) to make them comparable with taxable items
before any income taxes are applied.
2000 1999
----------------------------------------------------------------------
INTEREST Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
(dollars in thousands) BALANCE EXPENSE RATE Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------
ASSETS
Earning assets:
Interest-bearing deposits
in other banks:
Domestic ...................... $ 5,405 $ 233 4.30% $ 3,712 $ 156 4.22%
Foreign ....................... 172,265 11,228 6.52 291,097 15,096 5.19
- --------------------------------- ------------------------- -------------------------
Total interest-bearing deposits
in other banks ............... 177,670 11,461 6.45 294,809 15,252 5.17
- --------------------------------- ------------------------- -------------------------
Federal funds sold
and securities
purchased under
agreements to resell .......... 199,970 13,016 6.51 186,569 9,537 5.11
- --------------------------------- ------------------------- -------------------------
Investment securities (1):
Taxable ....................... 2,074,238 136,295 6.57 1,695,460 101,706 6.00
Exempt from Federal
income taxes ................. 14,774 1,168 7.91 23,193 1,699 7.33
- --------------------------------- ------------------------- -------------------------
Total investment
securities ................... 2,089,012 137,463 6.58 1,718,653 103,405 6.02
- --------------------------------- ------------------------- -------------------------
Loans and leases (2), (3):
Domestic ...................... 12,941,488 1,117,404 8.63 11,933,259 977,575 8.19
Foreign ....................... 344,098 30,934 8.99 357,836 30,553 8.54
- --------------------------------- ------------------------- -------------------------
Total loans and
leases ....................... 13,285,586 1,148,338 8.64 12,291,095 1,008,128 8.20
- --------------------------------- ------------------------- -------------------------
TOTAL EARNING ASSETS .......... 15,752,238 1,310,278 8.32 14,491,126 1,136,322 7.84
- --------------------------------- ------------------------- -------------------------
Cash and due from
banks ......................... 632,780 621,964
Premises and
equipment ..................... 277,831 280,587
Core deposit
intangible .................... 60,887 69,050
Goodwill ....................... 612,284 624,886
Other assets ................... 263,959 205,902
- -------------------------------- ----------- -----------
TOTAL ASSETS ................. $17,599,979 $16,293,515
- -------------------------------- ----------- -----------
1998
------------------------------------
Interest
Average Income/ Yield/
(dollars in thousands) Balance Expense Rate
- ------------------------------------------------------------------------
ASSETS
Earning assets:
Interest-bearing deposits
in other banks:
Domestic ...................... $ 60,824 $ 3,641 5.99%
Foreign ....................... 115,576 6,448 5.58
- --------------------------------- ----------- -----------
Total interest-bearing deposits
in other banks ............... 176,400 10,089 5.72
- --------------------------------- ----------- -----------
Federal funds sold
and securities
purchased under
agreements to resell .......... 222,069 11,932 5.37
- --------------------------------- ----------- -----------
Investment securities (1):
Taxable ....................... 955,448 60,938 6.38
Exempt from Federal
income taxes ................. 19,249 1,426 7.41
- --------------------------------- ----------- -----------
Total investment
securities ................... 974,697 62,364 6.40
- --------------------------------- ----------- -----------
Loans and leases (2), (3):
Domestic ...................... 7,281,289 632,245 8.68
Foreign ....................... 377,709 33,453 8.86
- --------------------------------- ----------- -----------
Total loans and
leases ....................... 7,658,998 665,698 8.69
- --------------------------------- ----------- -----------
TOTAL EARNING ASSETS .......... 9,032,164 750,083 8.30
- --------------------------------- -----------
Cash and due from
banks........................... 343,029
Premises and
equipment....................... 259,130
Core deposit
intangible...................... 21,868
Goodwill......................... 197,178
Other assets..................... 179,189
-----------
TOTAL ASSETS................... $10,032,558
- --------------------------------- -----------
Notes:
(1) For the years ended December 31, 2000, 1999, and 1998, average debt
investment securities were computed based on historical amortized cost,
excluding the effects of SFAS No. 115 adjustments.
(2) Nonaccruing loans and leases are included in the average loan and lease
balances.
(3) Interest income for loans and leases include loan fees of $32,811,
$32,803 and $32,133 for 2000, 1999 and 1998, respectively.
22 BancWest Corporation and Subsidiaries
23
PART II (continued)
- --------------------------------------------------------------------------------
2000 1999 1998
------------------------------- ------------------------------- ---------------------------
INTEREST Interest Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) BALANCE EXPENSE RATE Balance Expense Rate Balance Expense Rate
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits
and liabilities:
Deposits:
Domestic:
Interest-bearing
demand ................... $ 289,317 $ 3,546 1.23% $ 289,142 $ 3,609 1.25% $ 534,967 $ 11,743 2.20%
Savings ................... 4,062,828 98,876 2.43 4,067,056 93,100 2.29 2,378,057 65,665 2.76
Time ...................... 6,083,739 345,939 5.69 5,497,583 264,336 4.81 3,202,516 166,860 5.21
Foreign .................... 222,351 9,843 4.43 203,846 7,576 3.72 228,333 9,592 4.20
- ------------------------------ ------------ --------- ------------------------ -----------------------
Total interest-bearing
deposits ................. 10,658,235 458,204 4.30 10,057,627 368,621 3.67 6,343,873 253,860 4.00
Short-term borrowings ....... 667,809 40,174 6.02 646,576 30,326 4.69 726,119 36,727 5.06
Long-term debt and
capital securities ......... 963,928 64,544 6.70 789,918 47,930 6.07 354,264 25,235 7.12
- ------------------------------ ------------ --------- ------------------------ -----------------------
TOTAL INTEREST-BEARING
DEPOSITS AND
LIABILITIES .............. 12,289,972 562,922 4.58 11,494,121 446,877 3.89 7,424,256 315,822 4.25
- ------------------------------ ------------ --------- ------------------------ -----------------------
Interest rate spread ...... 3.74% 3.95% 4.05%
==== ==== ====
Noninterest-bearing
deposits .................... 2,721,818 2,459,305 1,366,226
Other liabilities ............ 685,563 547,128 304,018
- ------------------------------ ------------ ------------ -------------
Total liabilities ......... 15,697,353 14,500,554 9,094,500
Stockholders' equity ......... 1,902,626 1,792,961 938,058
- ------------------------------ ------------ ------------ -------------
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY ................... $ 17,599,979 $ 16,293,515 $ 10,032,558
============================== ============ ============ =============
NET INTEREST INCOME
AND MARGIN ON TOTAL
EARNING ASSETS ........... 747,356 4.75% 689,445 4.76% 434,261 4.81%
===== ===== =====
Tax-equivalent
adjustment ............... 422 611 542
- ------------------------------ --------- --------- ---------
NET INTEREST INCOME ....... $ 746,934 $ 688,834 $ 433,719
===================================================================================================================================
[PERFORMANCE GRAPHS]
TOTAL REVENUE-
NET INTEREST INCOME AND
NONINTEREST INCOME
TOTAL ASSETS LOANS & LEASES ($ in millions)
($ in billions) ($ in billions) -------------------------------------------- NET INTEREST MARGIN
DECEMBER 31 DECEMBER 31 Net Interest Income Noninterest Income (%)
--------------- --------------- ------------------- ------------------ -------------------
'96 ....... 8.6 6.2 349.8 95.6 4.63
'97 ....... 8.9 6.8 369.8 110.6 4.77
'98 ....... 15.9 12.0 433.7 134.2 4.81
'99 ....... 16.7 12.5 688.8 197.6 4.76
'00 ....... 18.5 14.0 746.9 216.1 4.75
BancWest Corporation and Subsidiaries 23
24
PART II (continued)
- --------------------------------------------------------------------------------
TABLE 2: ANALYSIS OF CHANGES IN NET INTEREST INCOME (TAXABLE-EQUIVALENT BASIS)
The following table analyzes the dollar amount of change (on a
taxable-equivalent basis) in interest income and expense and the changes in
dollar amounts attributable to:
(a) changes in volume (changes in volume times the prior year's rate),
(b) changes in rates (changes in rates times the prior year's volume),
and
(c) changes in rate/volume (change in rate times change in volume).
In this table, the dollar change in rate/volume is prorated to volume and
rate proportionately.
The taxable-equivalent adjustment is made for items exempt from Federal
income taxes (assuming a 35% tax rate for 2000, 1999 and 1998) to make them
comparable with taxable items before any income taxes are applied.
2000 COMPARED TO 1999-- 1999 Compared to 1998--
INCREASE (DECREASE) DUE TO: Increase (Decrease) Due to:
------------------------------------- ---------------------------------------
NET INCREASE Net Increase
(in thousands) VOLUME RATE (DECREASE) Volume Rate (Decrease)
- ------------------------------------------------------------------------------------------------------------------------------
Interest earned on:
Interest-bearing deposits in other banks:
Domestic ................................ $ 73 $ 4 $ 77 $ (2,646) $ (839) $ (3,485)
Foreign ................................. (7,134) 3,266 (3,868) 9,133 (485) 8,648
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits
in other banks ........................ (7,061) 3,270 (3,791) 6,487 (1,324) 5,163
- ------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and securities
purchased under agreements to resell ..... 724 2,755 3,479 (1,836) (559) (2,395)
- ------------------------------------------------------------------------------------------------------------------------------
Investment securities:
Taxable .................................. 24,241 10,348 34,589 44,591 (3,823) 40,768
Exempt from Federal income taxes ......... (657) 126 (531) 289 (16) 273
- ------------------------------------------------------------------------------------------------------------------------------
Total investment securities ............ 23,584 10,474 34,058 44,880 (3,839) 41,041
- ------------------------------------------------------------------------------------------------------------------------------
Loans and leases(1):
Domestic ................................. 85,314 54,515 139,829 382,948 (37,618) 345,330
Foreign .................................. (1,199) 1,580 381 (1,723) (1,177) (2,900)
- ------------------------------------------------------------------------------------------------------------------------------
Total loans and leases ................. 84,115 56,095 140,210 381,225 (38,795) 342,430
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets ................... 101,362 72,594 173,956 430,756 (44,517) 386,239
- ------------------------------------------------------------------------------------------------------------------------------
Interest paid on:
Deposits:
Domestic:
Interest-bearing demand ................. 2 (65) (63) (4,195) (3,939) (8,134)
Savings ................................. (97) 5,873 5,776 40,211 (12,776) 27,435
Time .................................... 30,081 51,522 81,603 111,249 (13,773) 97,476
Foreign .................................. 730 1,537 2,267 (972) (1,044) (2,016)
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits ........ 30,716 58,867 89,583 146,293 (31,532) 114,761
Short-term borrowings ..................... 1,025 8,823 9,848 (3,847) (2,554) (6,401)
Long-term debt and capital securities ..... 11,302 5,312 16,614 26,929 (4,234) 22,695
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits
and liabilities ....................... 43,043 73,002 116,045 169,375 (38,320) 131,055
- ------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET INTEREST
INCOME ................................ $ 58,319 $ (408) $ 57,911 $ 261,381 $ (6,197) $ 255,184
==============================================================================================================================
Note:
(1) Interest income for loans and leases include loan fees of $32,811,
$32,803 and $32,133 for 2000, 1999 and 1998, respectively.
24 BancWest Corporation and Subsidiaries
25
PART II (continued)
- --------------------------------------------------------------------------------
NONINTEREST INCOME
Components of and changes in noninterest income are reflected below for
the years indicated:
- ---------------------------------------------------------------------------------------------------------------------------
2000/99 CHANGE 1999/98 Change
--------------------- --------------------
(dollars in thousands) 2000 1999 1998 AMOUNT % Amount %
- ---------------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts ...... $ 74,718 $ 67,674 $ 39,545 $ 7,044 10.4% $ 28,129 71.1%
Trust and investment services income ..... 36,161 32,644 26,971 3,517 10.8 5,673 21.0
Other service charges and fees ........... 73,277 65,484 39,770 7,793 11.9 25,714 64.7
Securities gains, net .................... 211 16 441 195 1,218.8 (425) (96.4)
Other .................................... 31,709 31,814 27,455 (105) (.3) 4,359 15.9
- ------------------------------------------------------------------------------------- -------- -----
TOTAL NONINTEREST INCOME ................. $216,076 $197,632 $134,182 $ 18,444 9.3% $ 63,450 47.3%
===========================================================================================================================
2000 VS. 1999
As the table above shows in more detail, noninterest income increased
$18.4 million or 9.3%, from $197.6 million in 1999 to $216.1 million in 2000.
Factors causing the increase included:
- - Service charges on deposit accounts increased primarily due to higher
levels of deposits caused by the expansion of our customer deposit base
in our Bank of the West operating segment.
- - Trust and investment services income increased primarily due to
increased money management services to both retail and institutional
clients, reflecting our continuing efforts to strengthen and diversify
our revenue base.
- - Other service charges and fees increased primarily due to higher merchant
services fees, higher bank card fees, higher ATM convenience fee income,
higher annuity and mutual fund sales and higher miscellaneous service
fees.
- - Other noninterest income decreased by .3% compared to 1999. Significant
items in 2000 included $5 million in termination fees from the cancelled
First Security Corporation and Zions Bancorp merger and a gain on the
sale of the former SierraWest Bank headquarters of $1.2 million in 2000.
It should be noted that 1999's other noninterest income total included a
gain on the transfer of rights associated with the termination of a
leveraged lease of approximately $5 million.
1999 VS. 1998
The 47.3% increase in total noninterest income from 1998 to 1999, as
shown in more detail in the table above, was primarily due to the inclusion of
the results of operations for an entire year of Bank of the West versus two
months in 1998, as well as the following factors:
- - Trust and investment services income increased, primarily due to higher
investment and trust management fees earned.
- - Service charges on deposit accounts increased, primarily due to higher
service charges and an increase in volume.
- - Other service charges and fees increased, primarily due to higher
mortgage servicing fees for mortgage loans that were originated and sold
with servicing retained, higher ATM convenience fee income and higher
merchant-discount fees.
- - Other noninterest income increased, primarily due to increases in
foreclosed property income and miscellaneous service charges and fees.
In addition, we recognized a gain on the transfer of rights associated
with the termination of a leveraged lease of approximately $5 million in
1999. It should be noted that 1998's other noninterest income total
included a $3.9 million gain on the sale of a corporate aircraft and a
$2.1 million gain on the sale of a regional manager's residence.
[PERFORMANCE GRAPHS]
NONPERFORMING ASSETS TO TOTAL
LOANS AND LEASES & OTHER REAL
ALLOWANCE FOR CREDIT LOSSES NET LOANS AND LEASES ESTATE OWNED AND REPOSSESSED
TO TOTAL LOANS AND LEASES CHARGED OFF TO AVERAGE PERSONAL PROPERTY
DECEMBER 31 LOANS AND LEASES DECEMBER 31
(%) (%) (%)
--------------------------- --------------------- ----------------------------
'96 ......... 1.46 .42 1.68
'97 ......... 1.33 .33 1.42
'98 ......... 1.32 .31 1.11
'99 ......... 1.29 .42 1.01
'00 ......... 1.23 .37 .86
BancWest Corporation and Subsidiaries 25
26
PART II (continued)
- --------------------------------------------------------------------------------
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The following sets forth the activity in the allowance for credit losses
for the years indicated:
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
LOANS AND LEASES OUTSTANDING (END OF YEAR) ..... $ 13,971,831 $ 12,524,039 $ 11,964,563 $ 6,792,394 $ 6,243,124
===================================================================================================================================
AVERAGE LOANS AND LEASES OUTSTANDING ........... $ 13,285,586 $ 12,291,095 $ 7,658,998 $ 6,476,822 $ 5,906,929
===================================================================================================================================
Allowance for credit losses:
Balance at beginning of year .................. $ 161,418 $ 158,294 $ 90,487 $ 90,895 $ 83,736
- -----------------------------------------------------------------------------------------------------------------------------------
Provision for credit losses ................... 60,428 55,262 30,925 20,010 25,048
Loans and leases charged off:
Commercial, financial and agricultural ....... 8,693 7,715 6,440 7,487 10,671
Real estate:
Commercial .................................. 2,715 6,385 740 1,150 1,883
Construction ................................ 3,480 3,646 -- 180 1,450
Residential ................................. 6,589 5,539 4,217 3,731 2,937
Consumer ..................................... 28,331 27,927 17,911 13,994 10,957
Lease financing .............................. 10,202 9,111 1,385 105 117
Foreign ...................................... 2,121 1,222 458 197 415
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans and leases charged off .......... 62,131 61,545 31,151 26,844 28,430
- -----------------------------------------------------------------------------------------------------------------------------------
Recoveries on loans and leases previously
charged off:
Commercial, financial and agricultural ...... 1,954 1,761 1,314 1,830 1,199
Real estate:
Commercial ................................. 178 311 821 310 112
Construction ............................... 751 18 1,244 -- 117
Residential ................................ 1,143 1,101 250 985 234
Consumer .................................... 6,261 5,681 3,040 2,347 1,706
Lease financing ............................. 2,018 1,397 253 26 3
Foreign ..................................... 423 163 124 64 64
- -----------------------------------------------------------------------------------------------------------------------------------
Total recoveries on loans and leases
previously charged off ..................... 12,728 10,432 7,046 5,562 3,435
- -----------------------------------------------------------------------------------------------------------------------------------
Net charge-offs ............................. (49,403) (51,113) (24,105) (21,282) (24,995)
Transfer of allowance allocated to
securitized loans ............................ -- (1,025) -- -- --
Allowances of subsidiaries purchased (1) ...... -- -- 60,987 864 7,106
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR ........................ $ 172,443 $ 161,418 $ 158,294 $ 90,487 $ 90,895
===================================================================================================================================
Net loans and leases charged off to
average loans and leases ...................... .37% .42% .31% .33% .42%
Net loans and leases charged off to
allowance for credit losses ................... 28.65% 31.66% 15.23% 23.52% 27.50%
Allowance for credit losses to total
loans and leases (end of year) ................ 1.23% 1.29% 1.32% 1.33% 1.46%
Allowance for credit losses to
nonperforming loans and leases (end of year):
Excluding 90 days or more past due
accruing loans and leases .................... 1.84x 1.64x 1.61x 1.40x 1.15x
Including 90 days or more past due
accruing loans and leases .................... 1.56x 1.39x 1.16x .91x .81x
===================================================================================================================================
Note:
(1) Allowance for credit losses of $60,987 in 1998, $864 in 1997 and $7,106
in 1996 were related to the BancWest Merger, a SierraWest Bancorp merger
and the 1996 acquisition of divested branches in the Pacific Northwest,
respectively.
26 BancWest Corporation and Subsidiaries
27
PART II (continued)
- --------------------------------------------------------------------------------
We have allocated a portion of the allowance for credit losses according
to the amount deemed to be reasonably necessary to provide for the possibility
of losses being incurred within the various loan and lease categories as of
December 31 for the years indicated:
- ---------------------------------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------
PERCENT OF Percent of Percent of
LOANS/LEASES Loans/Leases Loans/Leases
IN EACH in Each in Each
CATEGORY Category Category
ALLOWANCE TO TOTAL Allowance to Total Allowance to Total
(dollars in thousands) AMOUNT LOANS/LEASES Amount Loans/Leases Amount Loans/Leases
- ---------------------------------------------------------------------------------------------------------------------
Domestic:
Commercial,
financial and
agricultural ...... $ 22,185 19% $ 19,175 18% $ 28,988 19%
Real estate:
Commercial ........ 11,030 19 10,275 19 13,245 19
Construction ...... 3,780 3 4,755 3 4,899 4
Residential ....... 7,055 17 12,305 19 12,009 22
Consumer ........... 39,025 26 34,200 24 32,251 22
Lease financing .... 16,295 14 12,855 14 9,992 11
Foreign ............. 1,400 2 850 3 1,435 3
Unallocated ......... 71,673 N/A 67,003 N/A 55,475 N/A
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ............. $ 172,443 100% $ 161,418 100% $ 158,294 100%
=====================================================================================================================
- ----------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------
Percent of Percent of
Loans/Leases Loans/Leases
in Each in Each
Category Category
Allowance to Total Allowance to Total
(dollars in thousands) Amount Loans/Leases Amount Loans/Leases
- ----------------------------------------------------------------------------------
Domestic:
Commercial,
financial and
agricultural ...... $ 17,113 25% $ 17,091 24%
Real estate:
Commercial ........ 5,829 22 8,111 23
Construction ...... 570 3 414 4
Residential ....... 8,779 30 6,407 32
Consumer ........... 15,464 10 11,130 9
Lease financing .... 546 5 894 4
Foreign ............. 1,405 5 1,540 4
Unallocated ......... 40,781 N/A 45,308 N/A
- ----------------------------------------------------------------------------------
TOTAL $ 90,487 100% $ 90,895 100%
==================================================================================
The provision for credit losses is based on management's judgment as to
the adequacy of the allowance for credit losses (the "Allowance"). Management
uses a systematic methodology to determine the related provision for credit
losses to be reported for financial statement purposes. The determination of the
adequacy of the Allowance is ultimately one of management judgment, which
includes consideration of many factors such as: (1) the amount of problem and
potential problem loans and leases; (2) net charge-off experience; (3) changes
in the composition of the loan and lease portfolio by type and location of loans
and leases; (4) changes in overall loan and lease risk profile and quality; (5)
general economic factors; (6) specific regional economic factors; and (7) the
fair value of collateral.
Using this methodology, we allocate the Allowance to individual loans and
leases and to categories of loans and leases, representing probable losses based
on available information. At least quarterly, we conduct internal credit
analyses to determine which loans and leases are impaired. As a result, we
allocate specific amounts of the Allowance to individual loan and lease
relationships. Note 1 to the Consolidated Financial Statements on pages 45
through 50 describes how we evaluate loans for impairment. Note 7 to the
Consolidated Financial Statements on page 55 details additional information
regarding the Allowance and impaired loans.
Some categories of loans and leases are not subjected to a loan-by-loan
credit analysis. Management makes an allocation to these categories based on our
statistical analysis of historic trends of impairment and charge-offs of such
loans and leases. Additionally, we allocate a portion of the Allowance based on
risk classifications of certain loan types. Some of the Allowance is not
allocated to specific impaired loans because of the subjective nature of the
process of estimating an adequate allowance for credit losses, economic
uncertainties and other factors.
As the table on page 26 illustrates, the provision for credit losses for
2000 was $60.4 million, an increase of $5.2 million, or 9.3%, over 1999.
The most notable factor causing the increase in the provision for credit
losses was the increase in our loan and lease volume.
NET CHARGE-OFFS
2000 VS. 1999
- ---------------------------------------------------------------------------------
(in thousands) 2000 1999 Change
- ---------------------------------------------------------------------------------
Net charge-offs ...................... $49,403 $51,113 (3.3)%
=================================================================================
In 2000, net charge-offs decreased by $1.7 million compared to 1999 due
to the following factors:
- - Real estate - commercial net charge-offs decreased by $3.5 million,
primarily due to fewer charge-offs of nonperforming loans in Hawaii. The
decrease in nonperforming loans reflected the rebound in Hawaii's
commercial property values.
- - Real estate - residential net charge-offs increased by $1 million,
primarily due to increased charge-offs of nonperforming residential loans
in our First Hawaiian operating segment.
- - Lease financing net charge-offs increased in 2000 over 1999 by 6.1% or
$470,000, primarily in the Bank of the West operating segment. The
charge-offs were
BancWest Corporation and Subsidiaries 27
28
PART II (continued)
- --------------------------------------------------------------------------------
primarily in the consumer and equipment areas.
- - Foreign net charge-offs increased in 2000 over 1999 by $639,000 or 60.3%,
primarily due to increased charge-offs in Guam and Saipan.
1999 VS. 1998
- ---------------------------------------------------------------------
(in thousands) 1999 1998 Change
- ---------------------------------------------------------------------
Net charge-offs ................ $51,113 $24,105 112.0%
=====================================================================
In 1999, net charge-offs increased by $27 million over 1998 due to the
following factors:
- - Real estate - commercial net charge-offs increased by $6.2 million,
primarily due to the write-down of values of certain nonperforming loans
in Hawaii. The charge-offs reflected the lingering effect that the
prolonged economic downturn in Hawaii has had on real estate property
values.
- - Real estate - construction net charge-offs increased in 1999 over 1998 by
$4.9 million, primarily due to a partial write-down of a restructured
loan in Hawaii.
- - Consumer net charge-offs increased in 1999 over 1998 by $7.4 million, or
49.6%, primarily due to the BancWest Merger. The addition of Bank of the
West for an entire year, versus two months in 1998, was the main factor
in the increase in net charge-offs in this category.
- - Lease financing net charge-offs increased in 1999 over 1998 by $6.6
million, or 581.4%, primarily due to the BancWest Merger. The addition of
Bank of the West's lease financing portfolio for an entire year increased
the amount of charge-offs. The charge-offs were primarily in the
consumer and equipment areas.
ALLOWANCE FOR CREDIT LOSSES
2000 VS. 1999
- -----------------------------------------------------------------------------
(dollars in thousands) 2000 1999 Change
- -----------------------------------------------------------------------------
Allowance for credit losses
(year end) ......................... $172,443 $161,418 6.8%
Allowance for credit losses
as a % of total loans
and leases (year end) .............. 1.23% 1.29% (4.7)%
Allowance for credit losses
to nonperforming loans and
leases, excluding 90 days
or more past due accruing
loans and leases (year end) ........ 1.84x 1.64x 12.2%
=============================================================================
The percentage of the Allowance compared to total loans and leases
decreased in 2000 from 1999, primarily due to the growth in loan and lease
volume in 2000. The ratio of the Allowance to nonperforming loans and leases
increased to 1.84x in 2000 compared to 1.64x in 1999. The increase is primarily
attributable to the decrease in nonperforming loans and leases and an increase
in the allowance for credit losses in 2000.
In management's judgment, the Allowance is adequate to absorb losses
inherent in the loan and lease portfolio at December 31, 2000. However, if
economic conditions in our markets change, the Allowance,nonperforming assets
and charge-offs could change as a result. While we have seen no impact to date
from higher energy prices on the California economy, we are monitoring this
factor closely.
NONINTEREST EXPENSE
The table below shows the categories of noninterest expense and how they
have changed between 2000 and 1999, and between 1999 and 1998:
- --------------------------------------------------------------------------------------------------------------------------
2000/99 CHANGE 1999/98 Change
------------------- ---------------------
(in thousands) 2000 1999 1998 AMOUNT % Amount %
- --------------------------------------------------------------------------------------------------------------------------
Personnel:
Salaries and wages ............... $ 184,901 $ 181,914 $ 130,986 $ 2,987 1.6% $ 50,928 38.9%
Employee benefits ................ 55,362 52,103 38,670 3,259 6.3 13,433 34.7
- ----------------------------------------------------------------------- --------- ---------
Total personnel expense ............ 240,263 234,017 169,656 6,246 2.7 64,361 37.9
Occupancy expense .................. 62,715 60,056 47,107 2,659 4.4 12,949 27.5
Outside services ................... 45,924 44,697 21,858 1,227 2.7 22,839 104.5
Intangible amortization ............ 36,597 35,760 13,789 837 2.3 21,971 159.3
Equipment expense .................. 29,241 30,422 29,125 (1,181) (3.9) 1,297 4.5
Stationery and supplies ............ 20,286 21,275 12,958 (989) (4.6) 8,317 64.2
Advertising and promotion .......... 16,950 15,788 11,909 1,162 7.4 3,879 32.6
Restructuring, merger-related
and other nonrecurring costs...... 1,269 17,534 25,527 (16,265) (92.8) (7,993) (31.3)
Other .............................. 80,716 75,526 60,146 5,190 6.9 15,380 25.6
- ----------------------------------------------------------------------- --------- ---------
TOTAL NONINTEREST EXPENSE .......... $ 533,961 $ 535,075 $ 392,075 $ (1,114) (.2)% $ 143,000 36.5%
==========================================================================================================================
28 BancWest Corporation and Subsidiaries
29
PART II (continued)
- --------------------------------------------------------------------------------
2000 VS. 1999
Total noninterest expense for 2000 was $534 million, a decrease of $1.1
million, or .2%, from 1999. The main factor causing the decrease was pre-tax
restructuring, merger-related and other nonrecurring costs of $1.3 million in
2000 compared to $17.5 million in 1999. Excluding pre-tax restructuring,
merger-related and other nonrecurring costs, noninterest expense was $532.7
million in 2000, an increase of $15.2 million, or 2.9%, over $517.5 million in
1999. Significant factors for the difference included:
- - Total personnel expense increased by $6.2 million, or 2.7%, due to the
larger number of employees, primarily in our Bank of the West operating
segment due to need for increased staffing as a result of our continuing
expansion. The increase was partially offset by higher net periodic
pension benefit credits and a decrease in personnel expense for First
Hawaiian employees affected by the ALLTEL facilities management
agreement.
- - Occupancy expense increased by $2.7 million, or 4.4%, due to higher
building maintenance and rent expense for certain facilities.
- - Equipment expense decreased by $1.2 million, or 3.9%, due to the transfer
of certain assets to the outside service provider under the ALLTEL
facilities management agreement for the consolidation and operation of a
single data center.
- - Outside services increased by $1.2 million, or 2.7%, primarily due to the
fees paid for the ALLTEL facilities management agreement.
- - Other noninterest expense increased by $5.2 million, or 6.9%, primarily
due to $3 million in expenses related to the terminated branch purchase
agreement resulting from the cancellation of the merger between Zions
Bancorporation and First Security Corporation.
1999 VS. 1998
Total noninterest expense for 1999 was $535.1 million, an increase of
$143 million, or 36.5%, over 1998. The main reason was the inclusion of an
entire year of operations of Bank of the West in 1999 as opposed to only two
months in 1998. Major areas of difference between 1999 and 1998 were:
- - Total personnel expense increased $64.4 million, or 37.9%, due to the
larger number of employees. This increase was partially offset by: (1)
lower salaries and wages expense as a result of our reengineering and
consolidation efforts; and (2) higher net periodic pension benefit
credits.
- - Occupancy expense increased by $12.9 million, or 27.5%, because we had
more facilities after the BancWest Merger.
- - Intangible amortization expense increased by $22 million, or 159.3%,
primarily due to an entire year of amortization of intangible assets
associated with the BancWest Merger.
- - Outside services increased by $22.8 million, or 104.5%, due in part to
our outsourcing of the data processing operations to ALLTEL in the third
quarter of 1999.
The following factors also contributed to the increase:
- - We recorded pre-tax restructuring, merger-related and other nonrecurring
costs totaling $17.5 million in 1999, primarily due to the merger with
SierraWest Bancorp and the consolidation of our three data centers into
a single facility in Honolulu.
- - Other noninterest expense increased by $15.4 million, or 25.6%, due to
write-downs and losses on the sale of certain OREO, higher foreclosed
property expenses and the charitable donation of an employee recre-
ational center to a community group in Hawaii, resulting in a pre-tax
loss on donation of $1.3 million, but a tax benefit of $2.4 million.
INCOME TAXES
The provision for income taxes as shown in the Consolidated Statements of
Income on page 42 represents 41.3% for 2000 and 41.8% of pre-tax income for 1999
and 1998, respectively.
On a taxable-equivalent basis, the effective tax rate was 41.4% for 2000,
41.9% for 1999 and 42.1% for 1998. Additional information on our consolidated
income taxes is provided in Note 19 to the Consolidated Financial Statements on
pages 63 and 64.
BancWest Corporation and Subsidiaries 29
30
PART II (continued)
- --------------------------------------------------------------------------------
LOANS AND LEASES
The following table shows the major categories in the loan and lease
portfolio as of December 31 for the years indicated:
- -----------------------------------------------------------------------------------------------------------
(in millions) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
Domestic:
Commercial, financial and agricultural ..... $ 2,605 $ 2,213 $ 2,233 $ 1,710 $ 1,482
Real estate:
Commercial ................................ 2,618 2,467 2,284 1,509 1,421
Construction .............................. 406 408 430 228 262
Residential ............................... 2,360 2,363 2,692 1,980 1,963
Consumer ................................... 3,600 2,987 2,583 689 590
Lease financing ............................ 2,038 1,738 1,361 338 245
Foreign:
Commercial and industrial .................. 66 65 81 68 55
Other ...................................... 279 283 301 270 225
- -----------------------------------------------------------------------------------------------------------
TOTAL LOANS AND LEASES ................... $13,972 $12,524 $11,965 $ 6,792 $ 6,243
===========================================================================================================
The BancWest Merger illustrates our continuing efforts to diversify our
loan and lease portfolio, both geographically and by industry. Our overall
growth in loan and lease volume was primarily in our Mainland United States
operations. However, loan and lease volumes in Hawaii are also rebounding.
The loan and lease portfolio is the largest component of total earning
assets and accounts for the greatest portion of total interest income. As the
table above shows, total loans and leases increased by 11.6% at December 31,
2000 over December 31, 1999. The increase was primarily due to increases in the
volume of commercial, financial and agricultural loans, consumer loans and
leases, mainly due to the increased lending in the Western United States. The
increase was partially offset by a decrease in the amount of residential real
estate loans, mainly in Hawaii, resulting from the prolonged economic downturn
experienced for most of the 1990's, from which Hawaii is rebounding.
COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS
As of December 31, 2000, commercial, financial and agricultural loans
totaled 18.6% of total loans and leases. Loan volume in this category was higher
between 2000 and 1999.
We seek to maintain reasonable levels of risk in commercial and financial
lending by following prudent underwriting guidelines primarily based on cash
flow. Most commercial and financial loans are collateralized and/or supported by
guarantors judged to have adequate net worth. We make unsecured loans to
customers based on character, net worth, liquidity and repayment ability.
REAL ESTATE LOANS
Real estate loans represented 38.5% and 41.8% of total loans and leases
at December 31, 2000 and 1999, respectively. The relative decrease was primarily
due to lower production resulting from the higher interest rate environment.
We seek to maintain reasonable levels of risk in real estate lending by
financing projects selectively, by adhering to prudent underwriting guidelines
and by closely monitoring general economic conditions affecting local real
estate markets.
MULTIFAMILY AND COMMERCIAL REAL ESTATE LOANS. We analyze each application
to assess the project's economic viability, the loan-to-value ratio of the real
estate securing the financing and the underlying financial strength of the
borrower. In this type of lending, we will generally: (1) lend no more than 75%
of the appraised value of the underlying project or property; and (2) require a
minimum debt service ratio of 1.20.
SINGLE-FAMILY RESIDENTIAL LOANS. We will generally lend no more than 80%
of the appraised value of the underlying property. Although the majority of our
loans adhere to that limit, loans made in excess of that limit are generally
covered by third-party mortgage insurance that reduces our equivalent risk to an
80% loan-to-appraised-value ratio.
HOME EQUITY LOANS. We generally lend up to 75% of appraised value or tax
assessed value for fee simple properties. This includes any senior mortgages.
Debt-to-income ratio should not exceed 45% and good credit is required.
30 BancWest Corporation and Subsidiaries
31
PART II (continued)
- --------------------------------------------------------------------------------
CONSUMER LOANS
Consumer loans, including credit cards, totaled 25.8% of total loans and
leases at December 31, 2000. Balances in this category increased 20.5% from a
year earlier, primarily due to the growth in the Bank of the West operating
segment. The strong economy in Bank of the West's area of operation has fueled
the demand for consumer credit.
Consumer loans consist primarily of open- and closed-end direct and
indirect credit facilities for personal, automobile and household purchases. We
seek to maintain reasonable levels of risk in consumer lending by following
prudent underwriting guidelines which include an evaluation of: (1) personal
credit history; (2) personal cash flow; and (3) collateral values based on
existing market conditions.
LEASE FINANCING
Lease financing as of December 31, 2000, increased 17.3% from 1999. The
increase is primarily due to an increased volume of consumer leases on the
Mainland United States.
LOAN AND LEASE CONCENTRATIONS
Loan and lease concentrations exist when there are loans to multiple
borrowers who are engaged in similar activities and thus would be impacted by
the same economic or other conditions. At December 31, 2000, we did not have a
concentration of loans and leases greater than 10% of total loans and leases
which were not otherwise disclosed as a category in the table on page 30.
The loan and lease portfolio is principally located in California and
Hawaii and, to a lesser extent, Oregon, Washington, Idaho and Nevada. The risk
inherent in the portfolio is dependent upon both the economic stability of those
states and the financial well-being and credit-worthiness of the borrowers.
LOAN AND LEASE MATURITIES
The contractual maturities of loans and leases (shown in the table below)
do not necessarily reflect the actual term of our loan and lease portfolio. In
our experience, the average life of residential real estate and consumer loans
is substantially less than their contractual terms because borrowers prepay
loans.
In general, the average life of real estate loans tends to increase when
current interest rates exceed rates on existing loans. In contrast, borrowers
are more likely to prepay loans when current interest rates are below the rates
on existing loans. The volume of such prepayments depends upon changes in both
the absolute level of interest rates, the relationship between fixed and
adjustable-rate loans and the relative values of the underlying collateral. As a
result, the average life of our fixed-rate real estate loans has varied widely.
We generally sell our fixed-rate residential loans on the secondary
market, but retain variable-rate residential loans in our portfolio.
At December 31, 2000, loans and leases with maturities over one year were
comprised of fixed-rate loans totaling $6.6 billion and floating or
adjustable-rate loans totaling $3.6 billion.
The following table sets forth the contractual maturities of our loan and
lease portfolio by category at December 31, 2000. Demand loans are included as
due within one year.
- ------------------------------------------------------------------------------------------------------------------------
Within After One But After
(in millions) One Year Within Five Years Five Years Total
- ------------------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural ........... $ 1,251 $ 992 $ 362 $ 2,605
Real estate:
Commercial ...................................... 946 1,144 528 2,618
Construction .................................... 394 9 3 406
Residential ..................................... 357 458 1,545 2,360
Consumer ......................................... 497 1,531 1,572 3,600
Lease financing .................................. 293 1,292 453 2,038
Foreign .......................................... 62 187 96 345
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ........................................ $ 3,800 $ 5,613 $ 4,559 $ 13,972
========================================================================================================================
BancWest Corporation and Subsidiaries 31
32
PART II (continued)
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS AND PAST DUE LOANS AND LEASES
Nonperforming assets and past due loans and leases as of December 31 are
reflected below for the years indicated:
- ----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Nonperforming assets:
Nonaccrual:
Commercial, financial and agricultural .......................... $ 42,089 $ 22,222 $ 21,951 $ 10,372 $ 21,648
Real estate:
Commercial ..................................................... 15,331 25,790 23,128 9,941 10,736
Construction ................................................... 403 2,990 485 -- 2,173
Residential:
Insured, guaranteed, or conventional .......................... 11,521 18,174 10,137 6,478 13,815
Home equity credit lines ...................................... -- 940 527 50 489
- ----------------------------------------------------------------------------------------------------------------------------------
Total real estate loans ...................................... 27,255 47,894 34,277 16,469 27,213
- ----------------------------------------------------------------------------------------------------------------------------------
Consumer ........................................................ 3,257 1,625 2,416 139 92
Lease financing ................................................. 6,532 3,391 1,816 10 27
Foreign ......................................................... 5,496 2,162 1,174 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans and leases ............................ 84,629 77,294 61,634 26,990 48,980
- ----------------------------------------------------------------------------------------------------------------------------------
Restructured:
Commercial, financial and agricultural .......................... 927 1,004 3,894 1,532 3,429
Real estate:
Commercial ..................................................... 7,055 7,905 17,161 18,241 25,853
Construction ................................................... -- 11,024 14,524 14,524 --
Residential:
Insured, guaranteed, or conventional .......................... 937 1,100 1,100 2,626 267
Home equity credit lines ...................................... -- -- -- 559 561
- ----------------------------------------------------------------------------------------------------------------------------------
Total real estate loans ...................................... 7,992 20,029 32,785 35,950 26,681
- ----------------------------------------------------------------------------------------------------------------------------------
Total restructured loans and leases .......................... 8,919 21,033 36,679 37,482 30,110
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans and leases ......................... 93,548 98,327 98,313 64,472 79,090
Other real estate owned and repossessed personal property ........ 27,479 28,429 34,440 32,294 26,170
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL NONPERFORMING ASSETS ................................... $121,027 $126,756 $132,753 $ 96,766 $105,260
==================================================================================================================================
Past due loans and leases(1):
Commercial, financial and agricultural ........................... $ 6,183 $ 1,280 $ 1,578 $ 3,158 $ 8,818
Real estate:
Commercial ...................................................... 1,987 1,436 5,212 866 8,527
Construction .................................................... -- -- 440 447 --
Residential:
Insured, guaranteed, or conventional ........................... 3,387 7,751 23,413 25,002 9,812
Home equity credit lines ....................................... 499 575 1,710 2,077 2,220
- ----------------------------------------------------------------------------------------------------------------------------------
Total real estate loans ...................................... 5,873 9,762 30,775 28,392 20,559
- ----------------------------------------------------------------------------------------------------------------------------------
Consumer ......................................................... 3,719 2,043 3,552 3,769 3,164
Lease financing .................................................. 113 113 74 24 40
Foreign .......................................................... 1,321 4,824 1,816 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL PAST DUE LOANS AND LEASES .............................. $ 17,209 $ 18,022 $ 37,795 $ 35,343 $ 32,581
==================================================================================================================================
Nonperforming assets to total loans and leases and other real
estate owned and repossessed personal property (end of year):
Excluding past due loans and leases ............................. .86% 1.01% 1.11% 1.42% 1.68%
Including past due loans and leases ............................. .99% 1.15% 1.42% 1.94% 2.20%
Nonperforming assets to total assets (end of year):
Excluding past due loans and leases ............................. .66% .76% .83% 1.09% 1.22%
Including past due loans and leases ............................. .75% .87% 1.07% 1.49% 1.60%
==================================================================================================================================
Note:
(1) Represents loans and leases which are past due 90 days or more as to
principal and/or interest, are still accruing interest, are adequately
collateralized and are in the process of collection.
32 BancWest Corporation and Subsidiaries
33
PART II (continued)
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS
As shown in the table on page 32, nonperforming assets decreased by 4.5%,
or $5.7 million, between December 31, 1999 and December 31, 2000. The decrease
was principally due to the following:
- - A decrease in real estate-commercial nonaccrual loans, due to the payoff
of three loans, two loans transferred to OREO and one loan returned to
accrual status.
- - A decrease in real estate-residential nonaccrual loans, the result of
charge-offs and transfers of loans to OREO, reflecting the lingering
effects of the prolonged economic downturn, from which Hawaii is slowly
emerging.
- - A decrease in restructured real estate-construction loans due to
write-downs and a payoff of an $11 million restructured loan.
These decreases were partially offset by:
- - An increase in commercial, financial and agricultural nonaccrual loans, a
result of three commercial loans placed on nonaccrual status in the
fourth quarter of 2000.
- - An increase in foreign nonaccrual loans, primarily due to a real
estate-construction loan originated in Guam being placed on nonaccrual
status in 2000.
- - Increases in nonaccrual consumer loan and lease financing are the result
of the increases in average consumer loan and lease financing balances.
IMPACT OF HAWAII ECONOMY
A nine-year economic downturn in Hawaii increased the level of our
nonaccrual loans and leases and charge-offs during the 1990s. Hawaii's overall
economic growth and the level of growth in tourism reflected an increase during
2000. Some improvement was seen in 2000 and 1999 in certain sectors of the
Hawaii real estate market. There was a continued increase in residential real
estate properties transferred to OREO in 2000 because of overall weakness in the
market, including declining leasehold real estate values. However, sales of
OREO began to increase in the second half of 2000.
IMPACT OF WESTERN REGION ECONOMY
The economy in California and the Pacific Northwest continues to expand.
As a result, there has been an overall decline in the ratio of nonperforming
assets to total loans and leases and OREO. Given the concern over the energy
industry in California, we are closely monitoring developments and their
potential impact to us. However, other than our utility bills, we have no direct
exposure to any of the California utilities. We will further expand our presence
in the Western United States with the acquisition of 30 branches in Nevada and
New Mexico in the first quarter of 2001. See further discussion in Note 2 to the
Consolidated Financial Statements on pages 50 and 51.
ASIA-PACIFIC LOAN EXPOSURE
A number of countries in the Asia-Pacific region, including Japan,
experienced significant weaknesses in their economies beginning in 1998. Our
aggregate outstanding loans and leases to these countries totaled $46.5 million,
or .25% of our total assets, at December 31, 2000. The economic downturn in Asia
has reduced the number of Asian visitors, especially from Japan, to Hawaii. This
in turn has hindered the recovery of Hawaii's economy. In 2000, signs of the
slow recovery of Asian economies became evident.
The following table presents the direct claims on or claims guaranteed by
borrowers in the Asian countries indicated below at December 31, 2000:
- ---------------------------------------------------------------------------------------
Outstanding Outstanding
(in thousands) Commitment Balance
- ---------------------------------------------------------------------------------------
China .......................................... $ 160 $ 160
Hong Kong ...................................... 18,520 18,520
Indonesia ...................................... 262 262
South Korea .................................... 268 268
Philippines .................................... 1,531 1,531
Singapore ...................................... 1,785 1,155
Taiwan ......................................... 40 40
- ---------------------------------------------------------------------------------------
Total non-Japan .............................. 22,566 21,936
Japan .......................................... 33,117 24,517
- ---------------------------------------------------------------------------------------
TOTAL ........................................ $ 55,683 $ 46,453
=======================================================================================
Outstanding commitments of Asian countries other than Japan represented
.12% of total assets and 1.13% of total stockholders' equity. Including Japan,
exposures to Asian countries represented .30% of total assets and 2.80% of total
stockholders' equity. Loans to Asian countries are primarily collateralized by
certificates of deposit, Hawaii real estate, standby letters of credit issued by
Asian banks or guarantees by creditworthy Asian individuals and corporations.
LOANS AND LEASES PAST DUE, STILL ACCRUING
Loans and leases past due 90 days or more and still accruing interest
decreased 4.5% between December 31, 2000 and December 31, 1999. All 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.
POTENTIAL PROBLEM LOANS
Other than the loans listed in the table on page 32, at December 31,
2000, we were not aware of any significant potential problem loans where
possible credit problems of the borrower caused us to seriously question the
BancWest Corporation and Subsidiaries 33
34
PART II (continued)
- --------------------------------------------------------------------------------
borrower's ability to repay the loan on existing terms.
The following table presents information related to nonaccrual and
nonaccrual restructured loans and leases as of December 31, 2000:
- ------------------------------------------------------------------
(in thousands) Domestic Foreign TOTAL
- ------------------------------------------------------------------
Interest income which
would have been recorded
if loans had been current .... $7,296 $-- $7,296
==================================================================
Interest income recorded
during the year .............. $4,552 $-- $4,552
==================================================================
DEPOSITS
Deposits are the largest component of our total liabilities and account
for the greatest portion of total interest expense. At December 31, 2000, total
deposits were $14.1 billion, an increase of 9.7% over December 31, 1999. The
increase was primarily due to the growth in our customer deposit base, primarily
in the Bank of the West operating segment, and various deposit product programs
that we initiated. The increase in nearly all of the rates paid on deposits
reflect the higher interest rate environment, caused primarily by rate increases
by the Federal Reserve's Open Market Committee. Additional information on our
average deposit balances and rates paid is provided in Table 1: Average
Balances, Interest Income and Expense, and Yields and Rates on pages 22 and 23.
INVESTMENT SECURITIES BY MATURITIES AND WEIGHTED AVERAGE YIELDS
The following tables present the maturities of held-to-maturity and
available-for-sale investment securities and the weighted average yields (for
obligations exempt from Federal income taxes on a taxable-equivalent basis
assuming a 35% tax rate) of such securities at December 31, 2000. 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.
HELD-TO-MATURITY
Maturity
---------------------------------------------------------------------
After One But After Five But After
Within Five Years Within Ten Years Ten Years TOTAL
-------------------- ------------------- ------------------- ---------------
(dollars in millions) Amount Yield Amount Yield Amount Yield AMOUNT YIELD
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury and other U.S. Government
agencies and corporations .............. $ 16 5.53% $ -- --% $ -- --% $ 16 5.53%
Other asset-backed securities ........... -- -- 3 6.69 35 6.10 38 6.14
Collateralized mortgage obligations ..... -- -- 6 5.76 33 6.20 39 6.14
- ----------------------------------------- ----- ---- ---- ----
TOTAL $ 16 5.53% $ 9 6.08% $ 68 6.15% $ 93 6.03%
===================================================================================================================================
Note: The weighted average yields were calculated on the basis of the cost and
effective yields weighted for the scheduled maturity of each security.
AVAILABLE-FOR-SALE
Maturity
----------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years TOTAL
-------------- ---------------- ----------------- --------------- -----------------
(dollars in millions) Amount Yield Amount Yield Amount Yield Amount Yield AMOUNT YIELD
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury and other U.S.
Government agencies
and corporations ....................... $ 437 6.02% $ 325 6.22% $ -- --% $ 5 7.09% $ 767 6.11%
Mortgage and asset-backed securities:
Government ............................. -- -- -- -- 47 6.33 573 7.06 620 7.00
Other .................................. 13 6.68 105 6.59 31 6.68 196 6.88 345 6.76
Collateralized mortgage obligations ..... -- -- -- -- 10 5.48 68 6.99 78 6.82
States and political subdivisions ....... -- -- -- -- -- -- 9 4.91 9 4.91
- ----------------------------------------- ----- ----- ---- ----- -------
SUBTOTAL .............................. $ 450 6.04% $ 430 6.31% $ 88 6.35% $ 851 6.99% 1,819 6.56%
Securities with no stated maturity ...... 129
-------
TOTAL ................................. $ 1,948
===================================================================================================================================
Note: The weighted average yields were calculated on the basis of the cost and
effective yields weighted for the scheduled maturity of each security.
34 BancWest Corporation and Subsidiaries
35
PART II (continued)
- --------------------------------------------------------------------------------
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
INTEREST RATE RISK MEASUREMENT AND MANAGEMENT
The net interest income of the Corporation is subject to interest rate
risk to the extent the Corporation's interest-bearing liabilities (primarily
deposits and borrowings) mature or reprice on a different basis than its
interest-earning assets (primarily loans and leases and investment securities).
When interest-bearing liabilities mature or reprice more quickly than
interest-earning assets during a given period, an increase in interest rates
could reduce net interest income. Similarly, when interest-earning assets mature
or reprice more quickly than interest-bearing liabilities, a decrease in
interest rates could have a negative impact on net interest income. In addition,
the impact of interest rate swings may be exacerbated by factors such as our
customers' propensity to manage their demand deposit balances more or less
aggressively or to refinance mortgage and other consumer loans depending on the
interest rate environment.
The Asset/Liability Committees of the Corporation and its major
subsidiary companies are responsible for managing interest rate risk. The
frequency of meetings of the Asset/Liability Committees generally range from
monthly to quarterly. Recommendations for changes to a particular subsidiary's
interest rate profile, should they be deemed necessary and exceed established
policies, are made to their respective Board of Directors. Other than loans and
leases that are originated and held for sale and commitments to purchase and
sell foreign currencies and mortgage-backed securities, the Corporation's
interest rate derivatives and other financial instruments are not entered into
for trading purposes.
The Corporation's exposure to interest rate risk is managed primarily by
taking actions that impact certain balance sheet accounts (e.g., lengthening or
shortening maturities in the investment portfolio, changing asset and/or
liability mix -- including increasing or decreasing the amount of fixed and/or
variable instruments held by the Corporation -- to adjust sensitivity to
interest rate changes) and/or utilizing off-balance-sheet instruments such as
interest rate swaps, caps, floors, options, or forwards.
The Corporation models its net interest income in order to quantify its
exposure to changes in interest rates. Generally, the size of the balance sheet
is held relatively constant and then subjected to interest rate shocks up and
down of 100 and 200 basis points each. Each account-level item is repriced
according to its respective contractual characteristics, including any imbedded
options which might exist (e.g., periodic interest rate caps or floors or loans
and leases which permit the borrower to prepay the principal balance of the loan
or lease prior to maturity without penalty). Off-balance-sheet instruments such
as interest rate swaps, swaptions, caps or floors are included as part of the
modeling process. For each interest rate shock scenario, net interest income
over a 12-month horizon is compared against the results of a scenario in which
no interest rate change occurs (a "flat rate scenario") to determine the level
of interest rate risk at that time.
The projected impact of 100 and 200 basis-point increases and decreases
in interest rates on the Corporation's consolidated net interest income over the
next 12 months beginning January 1, 2001 and 2000 is shown below.
- -------------------------------------------------------------------------------------------
(dollars in millions) +2% +1% Flat -1% -2%
- -------------------------------------------------------------------------------------------
2001
NET INTEREST
INCOME ............... $816.9 $829.2 $825.2 $811.0 $793.6
DIFFERENCE
FROM FLAT ............ $ (8.3) $ 4.0 $ -- $(14.2) $(31.6)
% VARIANCE ............ (1.0)% 0.5% --% (1.7)% (3.8)%
===========================================================================================
2000
Net interest
income ............... $690.0 $710.3 $720.4 $718.4 $709.8
Difference
from flat ............ $(30.4) $(10.1) $ -- $(2.0) $(10.6)
% variance ............ (4.2)% (1.4)% --% (.3)% (1.5)%
===========================================================================================
The changes in the models are due to differences in interest rate
environments which include the absolute level of interest rates, the shape of
the yield curve, and spreads between various benchmark rates.
SIGNIFICANT ASSUMPTIONS UTILIZED AND INHERENT LIMITATIONS
The significant net interest income changes for each interest rate
scenario presented above include assumptions based on accelerating or
decelerating mortgage prepayments in declining or rising scenarios,
respectively, and adjusting deposit levels and mix in the different interest
rate scenarios. The magnitude of changes to both areas in turn are based upon
analyses of customers' behavior in differing rate environments. However, these
analyses may differ from actual future customer behavior. For example, actual
prepayments may differ from current assumptions as prepayments are affected by
many variables which cannot be predicted with certainty (e.g., prepayments of
mortgages may differ on fixed and adjustable loans depending upon current
interest rates, expectations of future interest rates, availability of
refinancing, economic benefit to borrower, financial viability of borrower,
etc.).
BancWest Corporation and Subsidiaries 35
36
PART II (continued)
- --------------------------------------------------------------------------------
As with any model for analyzing interest rate risk, certain limitations
are inherent in the method of analysis presented above. For example, the actual
impact on net interest income due to certain interest rate shocks may differ
from those projections presented should market conditions vary from assumptions
used in the analysis. Furthermore, the analysis does not consider the effects of
a changed level of overall economic activity that could exist in certain
interest rate environments. Moreover, the method of analysis used does not take
into account the actions that management might take to respond to changes in
interest rates because of inherent difficulties in determining the likelihood or
impact of any such response.
CREDIT RISK MANAGEMENT
Our approach to managing exposure to credit risk involves an integrated
program of setting appropriate standards for credit underwriting and
diversification, monitoring trends that may affect the risk profile of the
credit portfolio and making appropriate adjustments to reflect changes in
economic and financial conditions that could affect the quality of the portfolio
and loss probability. The components of this integrated program include:
- - Setting Underwriting and Grading Standards. In 1996, we refined our loan
grading system to ten different principal risk categories where "1" is
"no risk" and "10" is "loss" and began an effort to decrease our exposure
to customers in the weaker credit categories. We also established risk
parameters so that the cost of credit risk is an integral part of the
pricing and evaluation of credit decisions and the setting of portfolio
targets.
- - Diversification. We actively manage our credit portfolio to avoid
excessive concentration by obligor, risk grade, industry, product and
geographic location. As part of this process, we also monitor changes in
risk correlation among concentration categories. In addition, we seek to
reduce our exposure to concentrations by actively participating portions
of our commercial and commercial real estate loans to other banks.
- - Risk Mitigation. Over the past few years, we have reduced our exposure to
higher-risk areas such as real estate construction (which accounted for
only 2.9% of total loans and leases at December 31, 2000), Hawaii
commercial real estate, health care, hotel and agricultural loans. We
have also reduced our exposure in the Asia-Pacific region from $101.0
million at December 31, 1997 to $46.5 million at December 31, 2000. These
outstanding loans are collateralized by Hawaii real estate and letters of
credit.
- - Participation in Syndicated National Credits. In addition to the back-up
commercial paper facilities to primarily investment-grade companies, we
participate in media finance credits in the national market, one of our
traditional niches where we have developed a special expertise over a
long period of time and with experienced personnel. At December 31, 2000,
the ratio of nonperforming shared national credits and media finance
loans to total shared national credits and media finance loans
outstanding was 3.15%.
- - Emphasis on Consumer Lending. Consumer loans represent our single
largest category of loans and leases. We focus our consumer lending
activities on loan grades with predictable loss rates. As a result, we
are able to use formula-based approaches to calculate appropriate reserve
levels that reflect historical loss experience. We generally do not
participate in subprime lending activities. We also seek to reduce our
credit exposures where feasible by obtaining third-party insurance or
similar protections. For example, in our vehicle lease portfolio (which
represents approximately 64.5% of our lease financing portfolio and 23.3%
of our combined lease financing and consumer loans at December 31, 2000),
we obtain third-party insurance for the estimated residual value of the
leased vehicle. To the extent that these policies include deductible
values we set aside reserves to fully cover the uninsured portion.
LIQUIDITY MANAGEMENT
Liquidity refers to our ability to provide sufficient cash flows to fund
operations and to meet obligations and commitments on a timely basis at
reasonable costs. We achieve our liquidity objectives with both assets and
liabilities.
We obtain asset-based liquidity through our investment securities
portfolio and short-term investments which can be readily converted to cash.
These liquid assets consist of cash and due from banks, interest-bearing
deposits in other banks, Federal funds sold, securities purchased under
agreements to resell and investment securities. Such assets represented 17.6% of
total assets at the end of 2000 compared to 17.4% at the end of 1999. Additional
information related to our off-balance-sheet instruments at December 31, 2000
and 1999 is included in Note 23 to the Consolidated Financial Statements on
pages 66 and 67.
We obtain liability-based liquidity primarily from deposits. Average
total deposits for 2000 increased 6.9% to $13.4 billion, primarily due to
continued expansion of our customer base in the Western United States and a
rebound in the economy of Hawaii. Average total deposits funded 76% of average
total assets for 2000 and 76.8% in 1999.
We also obtain liquidity from short-term borrowings, including issuing
our own commercial paper, purchasing Federal funds, selling securities under
agreements to
36 BancWest Corporation and Subsidiaries
37
PART II (continued)
- --------------------------------------------------------------------------------
repurchase, lines of credit from other banks and credit facilities from the
Federal Home Loan Banks. Additional information on short-term borrowings is
provided in Note 10 to the Consolidated Financial Statements on pages 55 and 56.
Also, offshore deposits in the international market provide another available
source of funds.
Our commercial paper is assigned a rating of P1 by Moody's Investor
Services ("Moody's") and A2 by Standard & Poor's ("S&P"). Our subordinated debt
is assigned a rating of A3 by Moody's and BBB by S&P.
CASH FLOWS
The following is a summary of our cash flows for 2000, 1999 and 1998.
(There is more detail in the Consolidated Statements of Cash Flows on page 44.)
- --------------------------------------------------------------------------
(in thousands) 2000 1999 1998
- --------------------------------------------------------------------------
Net cash provided by
operating and
financing activities ........ $1,839,752 $847,981 $546,610
Net cash used in
investing activities ........ $1,776,114 $702,792 $223,088
==========================================================================
For the year ended December 31, 2000, due primarily to increased deposit
volume and the issuance of $150 million of capital securities by BWE Trust, net
cash increased by $63.6 million over the year ended 1999. The net cash provided
by operating and financing activities in 2000 was used principally to fund
earning assets. In 1999, the inclusion of the operations of Bank of the West for
the entire year was the primary reason for net cash to increase by $145.2
million. In 1998, the BancWest Merger significantly changed our cash flows,
providing $207.5 million out of the total increase of $323.5 million in net
cash.
DIVIDENDS
Our ability to pay dividends depends primarily upon dividends and other
payments from our subsidiaries, which are subject to certain limitations as
described in Note 15 to the Consolidated Financial Statements on page 59.
CONCORD-STAR MERGER
BancWest holds about 5% of the shares of Star Systems, Inc., the nation's
largest PIN-secured payments network. A merger agreement with Concord EFS, Inc.
(NASDAQ: CEFT) was completed on February 1, 2001. In connection with the closing
of the transaction, Concord EFS, Inc. issued 24.75 million shares of
unregistered common stock for all of the outstanding shares of Star Systems,
Inc.'s common stock. At February 6, 2001, Concord EFS, Inc.'s shares closed at
$43.75 per share.
ACCOUNTING DEVELOPMENTS
We have a substantial amount of intangible assets, mainly goodwill and
core deposit intangibles, that stem primarily from the BancWest Merger. The
amortization of these intangible assets have a significant effect on our net
income and earnings per share, among other items, as measured under current
generally accepted accounting principles. The FASB's Business Combination
Project has recently announced a preliminary proposal that may have a material
effect on our financial information.
In December 2000, the FASB decided that purchased goodwill should not be
amortized; rather, it should be reviewed for impairment. An acquired intangible
asset (other than goodwill, for example, core deposit intangibles) should be
amortized over its useful economic life and reviewed for impairment in
accordance with FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The FASB's
decisions related to the accounting for purchased goodwill and other intangible
assets would apply not only to goodwill and intangible assets arising from
acquisitions completed after the issuance date of the final statement but also
to goodwill and intangible assets arising from acquisitions completed before
that date. Therefore, if the proposed statement is finalized with no significant
changes, our amortization of goodwill, amounting to $27.3 million (after-tax)
for the year ended December 31, 2000, may cease in future periods. The final
statement is expected to be issued in June of 2001.
We continue to closely monitor developments related to this issue. The
final outcome of the FASB's deliberations are not ascertainable at this time and
the final statement may be significantly different from the developments
described above.
INTEREST RATE SENSITIVITY
The following table presents our interest rate sensitivity position at
December 31, 2000. The interest rate sensitivity gap, shown at the bottom of the
table, refers to the difference between assets and liabilities subject to
repricing, maturity, runoff and/or volatility during a specified period. The gap
is adjusted for interest rate swaps, which are hedging certain assets or
liabilities on the balance sheet. (For ease of analysis, all of these swap
adjustments are consolidated into the "off-balance-sheet adjustment" line on the
gap table.)
Since all interest rates and yields do not adjust at the same velocity or
magnitude, and since volatility is subject to change, the gap is only a general
indicator of interest rate sensitivity. At December 31, 2000, we had a
cumulative one-year gap that was a negative $465.2 million, representing 2.52%
of total assets.
BancWest Corporation and Subsidiaries 37
38
PART II (continued)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Within After Three After One
Three But Within But Within After
(dollars in thousands) Months 12 Months Five Years Five Years Total
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Interest-bearing deposits in other banks .... $ 5,872 $ 100 $ -- $ -- $ 5,972
Federal funds sold and securities
purchased under agreements to resell ....... 307,100 -- -- -- 307,100
Investment securities:
Held-to-maturity ........................... 6,101 9,971 53,992 22,876 92,940
Available-for-sale ......................... 612,843 499,629 669,921 178,387 1,960,780
Net loans and leases:
Commercial, financial and agricultural ..... 2,691,228 568,289 917,045 206,493 4,383,055
Real estate--construction .................. 399,852 4,088 3,124 236 407,300
Foreign .................................... 84,648 115,540 139,614 4,948 344,750
Other ...................................... 1,460,505 1,975,917 4,289,824 938,037 8,664,283
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets ...................... 5,568,149 3,173,534 6,073,520 1,350,977 16,166,180
Nonearning assets ........................... 318,939 420,927 848,118 702,902 2,290,886
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS .............................. $ 5,887,088 $ 3,594,461 $ 6,921,638 $ 2,053,879 $18,457,066
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing deposits ................... $ 4,292,029 $ 3,581,923 $ 2,423,506 $ 805,821 $11,103,279
Noninterest-bearing deposits ................ 616,326 282,935 1,508,985 616,614 3,024,860
Short-term borrowings ....................... 487,366 92,455 4,247 -- 584,068
Long-term debt and capital securities ....... 125,985 111,014 252,608 477,816 967,423
Stockholders' equity ........................ 6,966 -- -- 1,982,527 1,989,493
Off-balance-sheet adjustment ................ (42,743) (62,601) 68,571 36,773 --
Noncosting liabilities ...................... 148,938 306,173 127 332,705 787,943
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY ................................... $ 5,634,867 $ 4,311,899 $ 4,258,044 $ 4,252,256 $18,457,066
====================================================================================================================================
Interest rate sensitivity gap ................ $ 252,221 $ (717,438) $ 2,663,594 $(2,198,377)
Cumulative gap ............................... $ 252,221 $ (465,217) $ 2,198,377 $ --
Cumulative gap as a percent of
total assets ................................ 1.37% (2.52)% 11.91% --%
====================================================================================================================================
38 BancWest Corporation and Subsidiaries
39
PART II (continued)
- --------------------------------------------------------------------------------
FOURTH QUARTER RESULTS
- -------------------------------------------------------------------------------
(dollars in thousands,
except per share data) 2000 1999 Change
- -------------------------------------------------------------------------------
Consolidated net income ................. $56,169 $48,498 15.8%
Diluted earnings per share .............. .45 .39 15.4
Operating earnings ...................... 56,924(*) 48,498 17.4
Diluted operating
earnings per share ..................... .46(*) .39 17.9
Diluted operating cash
earnings per share(**) ................. .52(*) .46 13.0
Return on average tangible
total assets (annualized) .............. 1.48%(*) 1.41% 5.0
Return on average tangible
stockholders' equity (annualized) ...... 19.89%(*) 19.58% 1.6
===============================================================================
(*) Excludes after-tax other nonrecurring costs of $755,000 in December 2000.
(**) Operating earnings per share before amortization of goodwill and core
deposit intangible.
Our consolidated net income in the fourth quarter of 2000 increased over
the fourth quarter of 1999. Revenue growth was the major factor in the increase
of operating earnings for the period. Net interest income was up over the same
period last year primarily due to an increase in average loans and leases.
Noninterest income in the fourth quarter of 2000 was up over the fourth quarter
of 1999, excluding the $5 million gain on the termination of a leveraged lease
in the fourth quarter of 1999, due to increases in commissions from annuity and
mutual fund sales, merchant services fees, bank card fees, trust and investment
services fees and bank-owned life insurance income.
SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of unaudited quarterly financial data for 2000 and 1999 is
presented below:
Quarter
---------------------------------------------------------- Annual
(in thousands, except per share data) First Second Third Fourth Total
- -----------------------------------------------------------------------------------------------------------------------------
2000
INTEREST INCOME ............................ $ 301,387 $ 324,259 $ 338,066 $ 346,144 $1,309,856
INTEREST EXPENSE ........................... 122,115 137,530 148,226 155,051 562,922
- -----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME ........................ 179,272 186,729 189,840 191,093 746,934
PROVISION FOR CREDIT LOSSES ................ 12,930 16,250 14,800 16,448 60,428
NONINTEREST INCOME ......................... 50,037 58,208 53,567 54,264 216,076
NONINTEREST EXPENSE, WITHOUT RESTRUCTURING,
MERGER-RELATED AND OTHER NONRECURRING
COSTS...................................... 131,577 135,443 131,479 134,193 532,692
RESTRUCTURING, MERGER-RELATED AND
OTHER NONRECURRING COSTS .................. -- -- -- 1,269 1,269
- -----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES ................. 84,802 93,244 97,128 93,447 368,621
PROVISION FOR INCOME TAXES ................. 35,371 39,262 40,316 37,278 152,227
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME ................................. $ 49,431 $ 53,982 $ 56,812 $ 56,169 $ 216,394
=============================================================================================================================
BASIC EARNINGS PER SHARE ................... $ .40 $ .43 $ .46 $ .45 $ 1.74
DILUTED EARNINGS PER SHARE ................. .40 .43 .45 .45 1.73
=============================================================================================================================
1999
Interest income ............................ $ 276,665 $ 278,038 $ 288,299 $ 292,709 $1,135,711
Interest expense ........................... 108,293 109,295 112,794 116,495 446,877
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income ........................ 168,372 168,743 175,505 176,214 688,834
Provision for credit losses ................ 10,225 13,345 11,835 19,857 55,262
Noninterest income ......................... 46,818 49,621 46,483 54,710 197,632
Noninterest expense, without restructuring,
merger-related and other nonrecurring
costs...................................... 129,582 130,079 128,961 128,919 517,541
Restructuring, merger-related and
other nonrecurring costs .................. 786 632 16,116 -- 17,534
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes ................. 74,597 74,308 65,076 82,148 296,129
Provision for income taxes ................. 32,091 29,789 28,221 33,650 123,751
- -----------------------------------------------------------------------------------------------------------------------------
Net income ................................. $ 42,506 $ 44,519 $ 36,855 $ 48,498 $ 172,378
=============================================================================================================================
Basic earnings per share ................... $ .34 $ .36 $ .30 $ .39 $ 1.39
Diluted earnings per share ................. .34 .36 .29 .39 1.38
=============================================================================================================================
BancWest Corporation and Subsidiaries 39
40
PART II (continued)
- --------------------------------------------------------------------------------
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TO THE STOCKHOLDERS
BANCWEST CORPORATION
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in stockholders' equity and cash
flows present fairly, in all material respects, the consolidated financial
position of BancWest Corporation and its subsidiaries at December 31, 2000 and
1999, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Honolulu, Hawaii
January 16, 2001
40 BancWest Corporation and Subsidiaries
41
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31,
----------------------------
(in thousands, except number of shares and per share data) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks ......................................................... $ 873,599 $ 809,961
Interest-bearing deposits in other banks ........................................ 5,972 9,135
Federal funds sold and securities purchased under agreements to resell .......... 307,100 71,100
Investment securities (note 5):
Held-to-maturity (fair value of $91,625 in 2000 and $139,102 in 1999) .......... 92,940 142,868
Available-for-sale ............................................................. 1,960,780 1,868,003
Loans and leases:
Loans and leases (note 6) ...................................................... 13,971,831 12,524,039
Less allowance for credit losses (note 7) ...................................... 172,443 161,418
- -----------------------------------------------------------------------------------------------------------------------
Net loans and leases ............................................................ 13,799,388 12,362,621
- -----------------------------------------------------------------------------------------------------------------------
Premises and equipment, net (note 8) ............................................ 276,012 281,665
Customers' acceptance liability ................................................. 1,080 1,039
Core deposit intangible (net of accumulated amortization of
$33,882 in 2000 and $24,995 in 1999) ........................................... 56,640 65,092
Goodwill (net of accumulated amortization of $88,766 in 2000 and
$61,056 in 1999) ............................................................... 599,139 613,620
Other real estate owned and repossessed personal property ....................... 27,479 28,429
Other assets .................................................................... 456,937 427,489
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS .................................................................... $ 18,457,066 $ 16,681,022
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Domestic:
Interest-bearing .............................................................. $ 10,899,009 $ 10,085,395
Noninterest-bearing ........................................................... 2,955,880 2,553,909
Foreign ........................................................................ 273,250 238,648
- -----------------------------------------------------------------------------------------------------------------------
Total deposits .................................................................. 14,128,139 12,877,952
- -----------------------------------------------------------------------------------------------------------------------
Short-term borrowings (note 10) ................................................. 584,068 503,977
Acceptances outstanding ......................................................... 1,080 1,039
Long-term debt (note 11) ........................................................ 717,423 701,792
Guaranteed preferred beneficial interests in Company's junior subordinated
debentures (note 11) ........................................................... 250,000 100,000
Other liabilities ............................................................... 786,863 653,532
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities ............................................................... 16,467,573 14,838,292
- -----------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (notes 16, 22 and 23)
Stockholders' equity:
Preferred stock, par value $1 per share
Authorized and unissued--50,000,000 shares in 2000 and 1999 ................... -- --
Class A common stock, par value $1 per share (notes 2 and 12)
Authorized--75,000,000 shares in 2000 and 1999
Issued--56,074,874 shares in 2000 and 51,629,536 shares in 1999 ............... 56,075 51,630
Common stock, par value $1 per share (notes 2, 12 and 17)
Authorized--200,000,000 shares in 2000 and 1999
Issued--71,041,450 shares in 2000 and 75,418,850 shares in 1999 ............... 71,041 75,419
Surplus ........................................................................ 1,125,652 1,124,512
Retained earnings (note 15) .................................................... 770,350 638,687
Accumulated other comprehensive income, net (note 13) .......................... 7,601 (9,873)
Treasury stock, at cost--2,565,581 shares in 2000 and 2,437,556 shares
in 1999 ....................................................................... (41,226) (37,645)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity ...................................................... 1,989,493 1,842,730
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................................... $ 18,457,066 $ 16,681,022
=======================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
BancWest Corporation and Subsidiaries 41
42
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------
(in thousands, except number of shares and per share data) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans ........................................ $ 1,019,301 $ 895,079 $ 632,634
Lease financing income ............................................ 129,032 113,035 32,983
Interest on investment securities:
Taxable interest income .......................................... 136,295 101,706 60,938
Exempt from Federal income taxes ................................. 751 1,102 965
Other interest income ............................................. 24,477 24,789 22,021
- -------------------------------------------------------------------------------------------------------------------------
Total interest income ............................................. 1,309,856 1,135,711 749,541
- -------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits (note 9) ................................................. 458,204 368,621 253,860
Short-term borrowings ............................................. 40,174 30,326 36,727
Long-term debt .................................................... 64,544 47,930 25,235
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense ............................................ 562,922 446,877 315,822
- -------------------------------------------------------------------------------------------------------------------------
Net interest income ............................................... 746,934 688,834 433,719
Provision for credit losses (note 7) .............................. 60,428 55,262 30,925
- -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses ............. 686,506 633,572 402,794
- -------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts ............................... 74,718 67,674 39,545
Trust and investment services income .............................. 36,161 32,644 26,971
Other service charges and fees .................................... 73,277 65,484 39,770
Securities gains, net (note 5) .................................... 211 16 441
Other ............................................................. 31,709 31,814 27,455
- -------------------------------------------------------------------------------------------------------------------------
Total noninterest income .......................................... 216,076 197,632 134,182
- -------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and wages ................................................ 184,901 181,914 130,986
Employee benefits (note 16) ....................................... 55,362 52,103 38,670
Occupancy expense (notes 8 and 22) ................................ 62,715 60,056 47,107
Outside services .................................................. 45,924 44,697 21,858
Intangible amortization ........................................... 36,597 35,760 13,789
Equipment expense (notes 8 and 22) ................................ 29,241 30,422 29,125
Restructuring, merger-related and other nonrecurring costs
(note 3)......................................................... 1,269 17,534 25,527
Other (note 18) ................................................... 117,952 112,589 85,013
- -------------------------------------------------------------------------------------------------------------------------
Total noninterest expense ......................................... 533,961 535,075 392,075
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes ........................................ 368,621 296,129 144,901
Provision for income taxes (note 19) .............................. 152,227 123,751 60,617
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME ........................................................ $ 216,394 $ 172,378 $ 84,284
=========================================================================================================================
PER SHARE DATA:
Basic earnings (note 12) ......................................... $ 1.74 $ 1.39 $ 1.06
Diluted earnings (note 12) ....................................... $ 1.73 $ 1.38 $ 1.05
=========================================================================================================================
CASH DIVIDENDS .................................................... $ .68 $ .62 $ .58
=========================================================================================================================
AVERAGE SHARES OUTSTANDING ........................................ 124,633,956 124,047,664 79,515,996
=========================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
42 BancWest Corporation and Subsidiaries
43
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
(note 13)
Class A Accumulated
(in thousands, except Common Stock Common Stock Other Com-
number of shares and ------------------- -------------------- Retained prehensive Treasury
per share data) Shares Amount Shares Amount Surplus Earnings Income, net Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997.... -- $ -- 37,306,162 $ 186,531 $ 169,734 $ 500,257 $ 396 $(55,834) $ 801,084
Comprehensive income:
Net income................... -- -- -- -- -- 84,284 -- -- 84,284
Unrealized valuation
adjustment, net of tax
and reclassification
adjustment.................. -- -- -- -- -- -- 5,832 -- 5,832
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income ......... -- -- -- -- -- 84,284 5,832 -- 90,116
- -----------------------------------------------------------------------------------------------------------------------------------
Reduction in par value of
common stock (note 12)....... -- -- -- (149,225) 149,225 -- -- -- --
Issuance of Class A common
stock (notes 2 and 12).......25,814,768 25,815 -- -- 858,115 -- -- -- 883,930
Issuance of common
stock(1).................... -- -- 102,912 103 1,451 -- -- -- 1,554
Issuance of common stock on
conversion of debenture(1)... -- -- 128,740 129 2,152 -- -- -- 2,281
Purchase of treasury stock,
net......................... -- -- -- -- (25) -- -- (7,297) (7,322)
Issuance of treasury stock.... -- -- -- -- 2,622 -- -- 12,677 15,299
Cash dividends
($.58 per share)(note 15).... -- -- -- -- -- (40,786) -- -- (40,786)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998....25,814,768 25,815 37,537,814 37,538 1,183,274 543,755 6,228 (50,454) 1,746,156
Comprehensive income:
Net income................... -- -- -- -- -- 172,378 -- -- 172,378
Unrealized valuation
adjustment, net of tax
and reclassification
adjustment ................. -- -- -- -- -- -- (16,101) -- (16,101)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income ......... -- -- -- -- -- 172,378 (16,101) -- 156,277
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock
for two-for-one stock
split (note 12) .............25,814,768 25,815 37,708,200 37,708 (63,523) -- -- -- --
Issuance of common stock...... -- -- 172,836 173 4,887 -- -- 10,808 15,868
Issuance of treasury stock.... -- -- -- -- (126) -- -- 2,001 1,875
Cash dividends
($.62 per share)(note 15).... -- -- -- -- -- (77,446) -- -- (77,446)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999....51,629,536 51,630 75,418,850 75,419 1,124,512 638,687 (9,873) (37,645) 1,842,730
COMPREHENSIVE INCOME:
NET INCOME................... -- -- -- -- -- 216,394 -- -- 216,394
UNREALIZED VALUATION
ADJUSTMENT, NET OF TAX
AND RECLASSIFICATION
ADJUSTMENT.................. -- -- -- -- -- -- 17,474 -- 17,474
- -----------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME ......... -- -- -- -- -- 216,394 17,474 -- 233,868
- -----------------------------------------------------------------------------------------------------------------------------------
CONVERSION OF COMMON
STOCK TO CLASS A COMMON
STOCK ....................... 4,445,338 4,445 (4,445,338) (4,445) -- -- -- -- --
ISSUANCE OF COMMON STOCK...... -- -- 67,938 67 518 -- -- -- 585
ISSUANCE OF TREASURY STOCK.... -- -- -- -- (475) -- -- 3,901 3,426
PURCHASE OF TREASURY
STOCK, NET .................. -- -- -- -- -- -- -- (7,482) (7,482)
INCOME TAX BENEFIT FROM
STOCK-BASED COMPENSATION..... -- -- -- -- 1,097 -- -- -- 1,097
CASH DIVIDENDS
($.68 PER SHARE)(NOTE 15).... -- -- -- -- -- (84,731) -- -- (84,731)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000....56,074,874 $56,075 71,041,450 $ 71,041 $1,125,652 $770,350 $ 7,601 $(41,226) $1,989,493
===================================================================================================================================
(1) Transaction is a SierraWest Bancorp restatement item reported under the
pooling-of-interests method of accounting.
The accompanying notes are an integral part of these consolidated financial
statements.
BancWest Corporation and Subsidiaries and BancWest Corporation
(Parent Company) 43
44
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
(in thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 216,394 $ 172,378 $ 84,284
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses .................................................... 60,428 55,262 30,925
Net gain on sale of assets ..................................................... (1,218) (3,675) (6,022)
Depreciation and amortization .................................................. 70,142 67,484 35,437
Deferred income taxes .......................................................... 112,848 95,231 47,076
Increase in accrued income taxes ............................................... 3,295 16,054 6,295
Increase in interest receivable ................................................ (16,868) (6,848) (1,328)
Increase (decrease) in interest payable ........................................ 14,497 28,145 (2,408)
Decrease (increase) in prepaid expense ......................................... (16,208) (15,264) 608
Restructuring, merger-related and other nonrecurring costs ..................... 1,269 17,534 25,527
Other .......................................................................... (12,534) (2,231) 4,937
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................................ 432,045 424,070 225,331
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in interest-bearing deposits in other banks ............. 3,163 269,320 (136,711)
Net decrease (increase) in Federal funds sold and securities
purchased under agreements to resell ........................................... (236,000) (4,600) 90,049
Proceeds from maturity of held-to-maturity investment securities ................ 49,928 163,906 14,172
Purchase of held-to-maturity investment securities .............................. -- (15,852) --
Proceeds from maturity of available-for-sale investment securities .............. 809,692 526,621 421,571
Proceeds from sale of available-for-sale investment securities .................. 136,345 27,828 41,428
Purchase of available-for-sale investment securities ............................ (1,009,802) (968,209) (446,432)
Purchase of bank-owned life insurance ........................................... -- (50,000) --
Net increase in loans to customers .............................................. (1,509,172) (627,239) (372,387)
Net cash provided by acquisitions ............................................... -- -- 207,454
Proceeds from sale of premises and equipment .................................... -- -- 11,402
Purchase of premises and equipment .............................................. (10,120) (38,823) (18,599)
Other ........................................................................... (10,148) 14,256 (35,035)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ............................................ (1,776,114) (702,792) (223,088)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits ........................................................ 1,250,187 835,080 402,118
Net increase (decrease) in short-term borrowings ................................ 80,091 (418,890) (5,989)
Proceeds from long-term debt and capital securities ............................. 265,949 94,483 --
Payments on long-term debt ...................................................... (100,318) (27,059) (27,836)
Cash dividends paid ............................................................. (84,731) (77,446) (40,786)
Proceeds from issuance of common stock .......................................... 585 4,934 1,094
Issuance (purchase) of treasury stock, net ...................................... (4,056) 12,809 (7,322)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........................................ 1,407,707 423,911 321,279
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND DUE FROM BANKS .......................................... 63,638 145,189 323,522
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR ..................................... 809,961 664,772 341,250
- -------------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF YEAR ........................................... $ 873,599 $ 809,961 $ 664,772
=========================================================================================================================
SUPPLEMENTAL DISCLOSURES:
Interest paid ................................................................... $ 548,425 $ 418,732 $ 307,139
Income taxes paid ............................................................... $ 36,084 $ 12,466 $ 13,289
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Loans converted into other real estate owned and repossessed
personal property .............................................................. $ 5,800 $ 10,931 $ 18,020
Issuance of common stock in connection with convertible debentures .............. $ -- $ -- $ 2,281
=========================================================================================================================
IN CONNECTION WITH MERGERS, THE FOLLOWING LIABILITIES WERE ASSUMED:
Fair value of assets acquired ................................................... $ -- $ -- $6,425,007
Cash received ................................................................... -- -- 207,454
Issuance of Class A common stock ................................................ -- -- (883,930)
Issuance of treasury stock ...................................................... -- -- (15,299)
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES ASSUMED .............................................................. $ -- $ -- $5,733,232
=========================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
44 BancWest Corporation and Subsidiaries
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF OPERATIONS
BancWest Corporation is a bank holding company headquartered in Honolulu,
Hawaii and incorporated under the laws of the State of Delaware. Through our
principal subsidiaries, Bank of the West and First Hawaiian Bank, we provide
commercial and consumer banking services, engage in commercial and equipment and
vehicle leasing and offer trust and insurance products. BancWest Corporation's
subsidiaries operate 222 offices in the states of California, Hawaii, Oregon,
Washington, Idaho and Nevada and in Guam and Saipan.
The accounting and reporting policies of BancWest Corporation and
Subsidiaries (the "Company" or "we/our") conform with generally accepted
accounting principles and practices within the banking industry. The following
is a summary of the significant accounting policies:
CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of BancWest Corporation (the "Parent") and its wholly-owned subsidiary
companies:
- - Bank of the West and its wholly-owned subsidiaries ("Bank of the West");
- - First Hawaiian Bank and its wholly-owned subsidiaries ("First Hawaiian");
- - FHL Lease Holding Company, Inc. and its wholly-owned subsidiary ("Leasing");
- - BancWest Capital I ("BWE Trust");
- - First Hawaiian Capital I ("FH Trust"); and
- - FHI International, Inc.
All significant intercompany balances and transactions have been eliminated
in consolidation.
RECLASSIFICATIONS
The 1999 and 1998 Consolidated Financial Statements were reclassified in
certain respects to conform to the 2000 presentation. Such reclassifications did
not have a material effect on the Consolidated Financial Statements.
BUSINESS COMBINATIONS
In business combinations accounted for as a pooling of interests, the
financial position and results of operations and cash flows of the respective
companies are restated as though the companies were combined for all historical
periods.
In business combinations accounted for using the purchase method of
accounting, the net assets of the companies acquired are recorded at their fair
values at the date of acquisition. The results of operations of the acquired
companies are included from the date of acquisition.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. These estimates and assumptions also affect the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CASH AND DUE FROM BANKS
Cash and due from banks include amounts from other financial institutions
as well as in-transit clearings. Under the terms of the Depository Institutions
Deregulation and Monetary Control Act, the Company is required to place reserves
with the Federal Reserve Bank based on the amount of deposits held. The average
amount of these reserve balances were $205.3 million for 2000, $192 million for
1999 and $113.5 million for 1998.
INVESTMENT SECURITIES
Investment securities consist principally of debt and asset-backed
securities issued by the U.S. Treasury and other U.S. Government agencies and
corporations and state and local government units. These securities have been
adjusted for amortization of premiums or accretion of discounts using the
interest method.
Investment securities are classified into 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. These securities are
reported at amortized cost.
(2) Trading securities are debt and equity securities which are bought and held
principally for the purpose of selling them in the near term. These
securities are reported at fair value, with unrealized gains and losses
included in current earnings.
(3) Available-for-sale securities are debt and equity securities not classified
as either held-to-maturity or trading securities. Available-for-sale
securities are reported at fair value, with unrealized gains and losses
excluded from current earnings. The unrealized gains and losses are
reported as a separate component of stockholders' equity.
Gains and losses realized on the sales of investment securities are
determined using the specific identification method.
BancWest Corporation and Subsidiaries 45
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
LOANS AND LEASES
Loans and leases are stated at the principal amounts outstanding, net of
any unearned income or discounts. Interest income is accrued and recognized on
the principal amount outstanding unless the loan is determined to be impaired
and placed on nonaccrual status. (See Impaired and Nonaccrual Loans and Leases
below.) Loans identified as held-for-sale are carried at the lower of cost or
market value and are included in other assets on the Consolidated Balance
Sheets.
We provide lease financing under a variety of arrangements, primarily
consumer automobile leases, commercial equipment leases and leveraged leases.
- - Leases for consumer automobiles and commercial equipment are classified as
direct financing leases. Unearned income on direct financing leases is
accreted over the lives of the leases to provide a constant periodic rate of
return on the net investment in the lease.
- - Leveraged lease transactions are subject to outside financing through one or
more participants, without recourse to the Company. These transactions are
accounted for by recording as the net investment in each lease the aggregate
of rentals receivable (net of principal and interest on the related
nonrecourse debt) and the estimated residual value of the equipment less the
unearned income. Income from these lease transactions is recognized during the
periods in which the net investment is positive.
IMPAIRED AND NONACCRUAL LOANS AND LEASES
We evaluate certain loans and leases for impairment on a case-by-case
basis. We consider a loan or lease to be impaired when it is probable that we
will be unable to collect all amounts due according to the contractual terms of
the loan or lease. We measure impairment based on the present value of the
expected future cash flows discounted at the loan or lease's effective interest
rate, except for collateral-dependent loans and leases. For collateral-dependent
loans and leases, we measure impairment based on the fair value of the
collateral. On a case-by-case basis, we may measure impairment based upon a loan
or lease's observable market price.
Based primarily on historical loss experience for each portfolio, we
collectively evaluate for impairment large groups of homogeneous loans and
leases with smaller balances that are not evaluated on a case-by-case basis.
Examples of such small balance portfolios are credit cards and consumer loans
and leases, including 1-4 family mortgage loans with balances less than
$250,000.
We generally place a loan or lease on nonaccrual status:
- - When management believes that collection of principal or income has become
doubtful; or
- - When loans or leases are 90 days past due as to principal or income, unless
they are well secured and in the process of collection. We may make an
exception to the general 90-day-past-due rule when the fair value of the
collateral exceeds our recorded investment in the loan or lease or when other
factors indicate that the borrower will shortly bring the loan or lease
current.
While the majority of consumer loans and leases are subject to our general
policies regarding nonaccrual loans and leases, certain past due consumer loans
and leases are not placed on nonaccrual status because they are charged off upon
reaching a predetermined delinquency status varying from 120 to 180 days,
depending on product type.
When we place a loan or lease on nonaccrual status, previously accrued and
uncollected interest is reversed against interest income of the current period.
When we receive a cash interest payment on a nonaccrual loan or lease, we apply
it as a reduction of the principal balance when we have doubts about the
ultimate collection of the principal. Otherwise, we record such payments as
income.
Nonaccrual loans and leases are generally returned to accrual status when
they: (1) become current as to principal and interest; or (2) become both well
secured and in the process of collection.
LOAN AND LEASE FEES
We generally charge fees for originating loans and leases and for
commitments to extend credits. Origination fees (net of direct costs of
underwriting, closing costs and premiums) are deferred and amortized to interest
income, using methods which approximate a level yield, adjusted for actual
prepayment experience. We recognize unamortized fees and premiums on loans and
leases paid in full as a component of interest income.
We also charge other loan and lease fees consisting of delinquent payment
charges and other common loan and lease servicing fees, including fees for
servicing loans sold to third parties. We recognize these fees as income when
earned.
ALLOWANCE FOR CREDIT LOSSES
We maintain the allowance for credit losses (the "Allowance") at a level
which, in management's judgment, is adequate to absorb losses in the Company's
loan and lease portfolio. While the Company has a formalized methodology for
determining an adequate and appropriate level of the Allowance, estimates of
inherent credit losses involve judgment and assumptions as to various factors
which deserve current recognition in the Allowance. Principal factors considered
by management
46 BancWest Corporation and Subsidiaries
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
in determining the Allowance include historical loss experience, the value and
adequacy of collateral, the level of nonperforming loans and leases, the growth
and composition of the portfolio, periodic review of loan and lease
delinquencies, results of examinations of individual loans and leases and/or
evaluation of the overall portfolio by senior credit personnel, internal
auditors and regulators, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay and general economic
conditions.
The Allowance is increased by provisions for credit losses and reduced by
charge-offs, net of recoveries. Charge-offs for loans and leases that are
evaluated for impairment are made based on impairment evaluations as described
above. Consumer loans and leases are generally charged off upon reaching a
predetermined delinquency status that ranges from 120 to 180 days and varies by
product type. Other loans and leases are charged off to the extent they are
classified as loss, either internally or by the Company's regulators. Recoveries
of amounts that have previously been charged off are credited to the Allowance
and are generally recorded only to the extent that cash is received.
The provision for credit losses reflects management's judgment of the
current period cost of credit risk inherent in the Company's loan and lease
portfolio. Specifically, the provision for credit losses represents the amount
charged against current period earnings to achieve an allowance for credit
losses that in management's judgment is adequate to absorb losses inherent in
the Company's loan and lease portfolio. Accordingly, the provision for credit
losses will vary from period to period based on management's on-going assessment
of the adequacy of the Allowance.
OTHER REAL ESTATE OWNED AND REPOSSESSED PERSONAL PROPERTY
Other real estate owned and repossessed personal property ("OREO") is
primarily comprised of properties that we acquired through foreclosure
proceedings. We value these properties at the lower of cost or fair value at the
time we acquire them, which establishes their new cost basis. We charge against
the Allowance any losses arising at the time of acquisition of such properties.
After we acquire them, we carry such properties at the lower of cost or fair
value less estimated selling costs. If we record any write-downs or losses from
the disposition of such properties after acquiring them, we include this amount
in other noninterest expense.
PREMISES AND EQUIPMENT
Premises and equipment, including leasehold improvements, are stated at
cost less accumulated depreciation and amortization. Depreciation and
amortization are computed on a straight-line basis over the estimated useful
lives of 10-40 years for premises, 3-25 years for equipment and the lease term
for leasehold improvements.
CORE DEPOSIT AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
Core deposit and other identifiable intangible assets are amortized on the
straight-line method over the period of benefit, generally 10 years. We review
core deposit and other identifiable intangible assets for impairment whenever
events or changes in circumstances indicate that we may not recover our
investment in the underlying assets or liabilities which gave rise to such core
deposit and other identifiable intangible assets.
GOODWILL
Goodwill represents the cost of acquired companies in excess of the fair
value of net assets acquired. This excess is being amortized on the
straight-line method over 25 years. It is our policy to review goodwill for
impairment whenever events or changes in circumstances indicate that we may not
recover our investment in the underlying assets/businesses which gave rise to
such goodwill. Should such an evaluation of impairment become necessary, we will
evaluate the performance of such acquired business on an undiscounted basis.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
We apply a control-oriented, financial-components approach to
financial-asset-transfer transactions by: (1) recognizing the financial and
servicing assets we control and the liabilities we have incurred; (2)
derecognizing financial assets only when control has been surrendered; and (3)
derecognizing liabilities once they are extinguished.
Control is considered to have been surrendered only if: (i) the transferred
assets have been isolated from the transferor and its creditors, even in
bankruptcy or other receivership; (ii) the transferee has the unconditional
right to pledge or exchange the transferred assets, or is a qualifying
special-purpose entity and the holders of beneficial interests in that entity
have the unconditional right to pledge or exchange those interests; and (iii)
the transferor does not maintain effective control over the transferred assets
through: (a) an agreement that both entitles and obligates it to repurchase or
redeem those assets prior to maturity; or (b) an agreement which both entitles
and obligates it to repurchase or redeem those assets if they were not readily
obtainable elsewhere. If none of these conditions are met, we account for the
transfer as a secured borrowing.
BancWest Corporation and Subsidiaries 47
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Securities purchased under agreements to resell and securities sold under
agreements to repurchase generally qualify as financing transactions under
generally accepted accounting principles. We carry such securities at the
amounts at which they subsequently will be resold or reacquired as specified in
the respective agreements, including accrued interest.
Repurchase and reverse-repurchase agreements are presented in the
accompanying Consolidated Balance Sheets where net presentation is consistent
with generally accepted accounting principles. It is our policy to take
possession of securities purchased under agreements to resell. We monitor the
fair value of the underlying securities as compared to the related receivable,
including accrued interest and as necessary we request additional collateral.
Where deemed appropriate, our agreements with third parties specify our rights
to request additional collateral. All collateral is held by the Company or a
custodian.
SERVICING ASSETS
Servicing assets primarily consist of originated mortgage servicing rights
which are capitalized and included in other assets in the accompanying
Consolidated Balance Sheets. These rights are recorded based on the relative
fair values of the servicing rights and the underlying loan. They are amortized
over the period of the related loan-servicing income stream. We reflect
amortization of these rights in our Consolidated Statements of Income under the
caption "other service charges and fees." We evaluate servicing assets for
impairment in accordance with generally accepted accounting principles. For the
years presented, servicing assets and the related amortization were not
material.
TRUST PROPERTY
We do not include in our Consolidated Balance Sheets trust property, other
than cash deposits which we hold as fiduciaries or agents for our customers,
because such items are not assets of the Company.
INCOME TAXES
We recognize deferred income tax liabilities and assets for the expected
future tax consequences of events that we include in our financial statements or
tax returns. Under this method, we determine deferred income tax liabilities and
assets based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
We account for excise tax credits relating to premises and equipment under
the flow-through method, recognizing the benefit in the year the asset is placed
in service. The excise tax credits related to lease equipment, except for excise
tax credits that are passed on to lessees, are recognized during the periods in
which the net investment is positive.
We file a consolidated Federal income tax return. Amounts equal to income
tax benefits of those subsidiaries having taxable losses or credits are
reimbursed by other subsidiaries which would have incurred current income tax
liabilities.
DERIVATIVE AND OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
In the normal course of business, we are a party to various financial
instruments entered into to meet the financing needs of our customers and to
reduce our own exposure to fluctuations in interest rates and foreign exchange
rates. These financial instruments include commitments to extend credit; standby
and commercial letters of credit; interest rate swaps, caps and floors; options
on mortgage-backed securities; and commitments to purchase or sell foreign
currencies. These instruments involve, to varying degrees, elements of credit,
interest rate and foreign exchange rate risk in excess of the amounts recognized
in the Consolidated and Parent Company Balance Sheets (see Note 25 on page 68).
The contract or notional amounts of those instruments reflect the extent of
involvement that we have in particular classes of financial instruments.
If a counterparty to a commitment to extend credit or to a standby or
commercial letter of credit fails to perform, our exposure to credit losses
would be the contractual notional amount. Since these commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash flows. For interest rate swap transactions, the notional
amounts do not represent exposure to credit losses.
Options on mortgage-backed securities allow us to decide to make or take
delivery of certain mortgage-backed securities. The notional amount of
securities covered by the amount of the contracts does not represent exposure to
credit losses.
Commitments to purchase or sell foreign currencies obligate us to take or
make delivery of a foreign currency. Risks in such instruments arise from
fluctuations in foreign exchange rates and the ability of counterparties to
fulfill the terms of the contracts.
Derivative financial instruments must meet the same criteria of acceptable
risk established for our lending and other financing activities. We manage the
credit risk of counterparty defaults in these transactions by:
- - Limiting the total amount of outstanding arrangements, both by the individual
counterparty and in the aggregate;
48 BancWest Corporation and Subsidiaries
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- - Monitoring the size and maturity structure of the derivative financial
instruments portfolio; and
- - Applying the uniform credit standards maintained for all of our credit
activities, including, in some cases, taking collateral to secure the
counterparty obligations.
We enter into interest rate swap agreements as an end-user only. These
instruments are used as hedges against various balance sheet accounts. The net
interest payable or receivable is accrued and recognized as an adjustment to the
interest expense or interest income of the hedged item.
We enter into commitments to purchase or sell foreign currencies for our
own account and on behalf of our customers. These commitments are generally
matched through offsetting positions. Foreign exchange positions are valued
monthly with the resulting gain or loss recognized as incurred.
We use short-term (60 days or less) forward sales of mortgage-backed
securities to hedge the market risk associated with timing differences between
the commitment of the interest rate, documentation and subsequent sale of
residential real estate loans. We value these option contracts monthly and
recognize the gain or loss in noninterest income, if the options are exercised.
We monitor and manage interest rate and market risk in conjunction with our
overall interest rate risk position. Off-balance-sheet agreements are not
entered into if they would increase our interest rate risk above approved
guidelines. Our testing to measure and monitor this risk, using net interest
income simulations and market value of equity analysis, is usually conducted
quarterly.
Effective January 1, 2001, our policies were changed to incorporate the
provisions of Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended. See
"New Pronouncements" on page 50.
ADVERTISING AND PROMOTIONS
Expenditures for advertising and promotions are expensed as incurred. Such
expenses are included under the caption "other noninterest expense" in the
accompanying Consolidated Statements of Income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires that we disclose estimated fair values for certain financial
instruments. Financial instruments include such items as loans, deposits,
securities, interest rate and foreign exchange contracts, swaps and other
instruments as defined by the standard.
Disclosure of fair values is not required for certain items such as lease
financing, investments accounted for under the equity method of accounting,
obligations for pension and other postretirement benefits, premises and
equipment, OREO, prepaid expenses, core deposit intangibles and other customer
relationships, other intangible assets and income tax assets and liabilities.
Accordingly, the aggregate fair value amounts presented do not purport to
represent, and should not be considered representative of, the underlying
"market" or franchise value of the Company.
Because the standard permits many alternative calculation techniques and
because numerous assumptions have been used to estimate our fair values,
reasonable comparisons of our fair value information with that of other
financial institutions cannot necessarily be made.
We use the following methods and assumptions to estimate the fair value of
our financial instruments:
CASH AND DUE FROM BANKS: The carrying amounts reported in the Consolidated
Balance Sheets of cash and short-term instruments approximate fair values.
INVESTMENT SECURITIES: Fair values of investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
LOANS: Fair values are estimated for portfolios of performing loans with
similar characteristics. For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on carrying
values. We use discounted cash flow analyses, which utilize interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality, to estimate the fair values of: (1) fixed-rate commercial and
industrial loans; (2) financial institution loans; (3) agricultural loans; (4)
certain mortgage loans (e.g., 1-4 family residential, commercial real estate and
rental property); (5) credit card loans; and (6) other consumer loans. For
certain loans, we may estimate fair value based upon a loan's observable market
price. The carrying amount of accrued interest approximates its fair value.
DEPOSITS: The fair value of deposits with no maturity date (e.g., interest
and noninterest-bearing checking, passbook savings, and certain types of money
market accounts) are, according to generally accepted accounting principles,
equal to the amount payable on demand at the reporting date (i.e., their
carrying amounts). Fair values of fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
SHORT-TERM BORROWINGS: The carrying amounts of overnight Federal funds
purchased, borrowings under
BancWest Corporation and Subsidiaries 49
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
repurchase agreements and other short-term borrowings approximate their fair
values.
LONG-TERM DEBT AND CAPITAL SECURITIES: The fair values of our long-term
debt (other than deposits) and capital securities are estimated using quoted
market prices or discounted cash flow analyses based on our current incremental
borrowing rates for similar types of borrowing arrangements.
OFF-BALANCE-SHEET COMMITMENTS AND CONTINGENT LIABILITIES: Fair values
are based upon: (1) quoted market prices of comparable instruments (options on
mortgage-backed securities and commitments to buy or sell foreign currencies);
(2) fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the counterparties' credit standing
(letters of credit and commitments to extend credit); or (3) pricing models
based upon quoted markets, current levels of interest rates and specific cash
flow schedules (interest rate swaps).
NEW PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (a replacement of SFAS No. 125). This
statement revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures,
but it carries over most of SFAS No. 125's provisions without reconsideration.
This statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. This statement is
effective for the recognition and reclassification of collateral and for
disclosure relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. The adoption of the recognition,
reclassification and disclosure provisions of SFAS No. 140 did not have a
material effect on the Company's Consolidated Financial Statements. The adoption
of the transfers and servicing of financial assets and extinguishment of
liabilities provisions of SFAS No. 140 is not expected to have a material effect
on the Company's Consolidated Financial Statements.
In January 1999, we adopted SFAS No. 134, "Accounting of Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise, an amendment to SFAS No. 65." SFAS No. 134
requires mortgage banking enterprises to classify loans held-for-sale that they
have securitized, based on their intent to sell or hold these investments. The
adoption of SFAS No. 134 did not have a material effect on the Company's
Consolidated Financial Statements.
In January 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities--An Amendment of
FASB Statement No. 133." SFAS No. 133, as amended by SFAS Nos. 137 and 138,
requires the recognition of all derivative instruments in the statement of
financial position as either assets or liabilities and the measurement of
derivative instruments at fair value. The accounting for gains or losses
resulting from changes in the value of those derivatives depends on the intended
use of the derivative and whether it qualifies for hedge accounting. The
transition adjustments resulting from the adoption of SFAS No. 133, as amended
by SFAS Nos. 137 and 138, were recorded in consolidated net income or
accumulated other comprehensive income on January 1, 2001, as a cumulative
effect of a change in accounting principle. As of the date of transition, the
adoption of SFAS No. 133, as amended by SFAS Nos. 137 and 138, did not have a
material effect on the Company's Consolidated Financial Statements.
2. MERGERS AND ACQUISITIONS
NEW MEXICO AND NEVADA BRANCH ACQUISITIONS
In the third quarter of 2000, we entered into an agreement to acquire 30
branches in New Mexico and Nevada being divested by First Security Corporation
in connection with its merger with Wells Fargo & Company. These branches have
approximately $1.2 billion in deposits and approximately $300 million in loans.
The acquisition of the Nevada branches was completed in January 2001 and the
acquisition of the New Mexico branches is expected to be completed by
mid-February 2001. The cash transaction is being accounted for under the
purchase method of accounting. We have incurred pre-tax other nonrecurring costs
of $1.3 million in 2000, as described in Note 3 on pages 51 and 52.
SIERRAWEST BANCORP
On July 1, 1999, the Company completed its acquisition of SierraWest
Bancorp ("SierraWest"). SierraWest was merged with and into the Company and its
subsidiary, SierraWest Bank, was merged with and into Bank of the West (the
"SierraWest Merger") resulting in the issuance of approximately 4.4 million
shares (8.8 million shares, after adjustment for the two-for-one stock split in
December 1999) of our common stock to the shareholders of SierraWest. The
acquisition was accounted for using the
50 BancWest Corporation and Subsidiaries
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
pooling-of-interests method of accounting. No material adjustments were required
to conform SierraWest's accounting policies with those of the Company.
In connection with the SierraWest Merger, the Company recorded pre-tax
restructuring, merger-related and other nonrecurring costs totaling $10.7
million in 1999, as described in Note 3.
The following table sets forth the results of operations of SierraWest
and the Company for the six months ended June 30, 1999. These six-month results
are included in the consolidated results of operations for the year ended
December 31, 1999, presented in the accompanying Consolidated Statements of
Income.
SIX MONTHS ENDED JUNE 30, 1999
- ------------------------------------------------------------------
(in thousands) SierraWest Company Combined
- ------------------------------------------------------------------
Net interest income .... $ 21,703 $315,412 $337,115
Net income ............. $ 4,765 $ 82,260 $ 87,025
==================================================================
The following table reconciles the net interest income and net income
previously reported by the Company with the combined amounts presented in the
accompanying Consolidated Statements of Income for the year ended December 31,
1998.
YEAR ENDED DECEMBER 31, 1998
- ------------------------------------------------------------------
(in thousands) SierraWest Company Combined
- ------------------------------------------------------------------
Net interest income .... $ 39,482 $394,237 $433,719
Net income ............. $ 7,678 $ 76,606 $ 84,284
==================================================================
BANCWEST CORPORATION
On November 1, 1998, for a purchase price of $905.7 million, BancWest
Corporation ("Old BancWest"), parent company of Bank of the West, was merged
with and into First Hawaiian, Inc. ("FHI") (the "BancWest Merger"). At that
date, Bank of the West, headquartered in San Francisco, was California's
fifth-largest bank with approximately $6.1 billion in assets and 103 branches in
21 counties in Northern and Central California.
Prior to the BancWest Merger, Old BancWest was wholly-owned by Banque
Nationale de Paris, now BNP Paribas, one of the largest commercial banks in
France and among the largest in Europe. In the BancWest Merger, BNP Paribas
received approximately 25.815 million shares (51.630 million shares after
adjustment for the two-for-one stock split in December 1999) of the Company's
newly authorized Class A common stock (representing approximately 45% of the
outstanding voting stock). The transaction was accounted for using the purchase
method of accounting. The excess of cost over fair value of net assets acquired
amounted to approximately $599.0 million. FHI, the surviving corporation of the
BancWest Merger, changed its name to "BancWest Corporation" on November 1, 1998.
The Company recorded pre-tax restructuring, merger-related and other
nonrecurring costs totaling $25.5 million in 1998, as described in Note 3.
3. RESTRUCTURING, MERGER-RELATED AND OTHER NONRECURRING COSTS
NEW MEXICO AND NEVADA BRANCH ACQUISITIONS
In connection with the acquisition of 30 branches in New Mexico and
Nevada, the Company recorded pre-tax other nonrecurring costs of $1.3 million in
the fourth quarter of 2000. The costs were primarily composed of fees for
outside service providers for preparations for the acquisition of the New Mexico
and Nevada branches in 2001.
SIERRAWEST BANCORP MERGER
In connection with the SierraWest Merger, the Company recorded pre-tax
restructuring, merger-related and other nonrecurring costs of $10.7 million in
1999. These costs were comprised of: (1) $3.4 million in severance and other
employee benefits; (2) $1.6 million in equipment and occupancy expense; (3) $4.2
million in expenses for legal and other professional services; and (4) $1.5
million in other nonrecurring costs. During 1999, we wrote off $1.6 million of
capitalized equipment and occupancy expense, paid $2.7 million in accrued
severance and other employee benefits and paid $5.4 million in legal and other
professional services and other nonrecurring costs. At December 31, 1999,
$682,000 of severance and other employee benefits and $267,000 in other
nonrecurring costs remained accrued. During 2000, we paid $479,000 in severance
and other employee benefits and paid $267,000 in other nonrecurring costs. As of
December 31, 2000, accrued expenses related to the SierraWest Merger had been
substantially paid.
BANCWEST MERGER AND RELATED MATTERS
The Company recorded pre-tax restructuring, BancWest Merger-related and
other nonrecurring costs totaling $25.5 million in 1998. Restructuring and
BancWest Merger-related costs of $20 million included: (1) severance and
termination payments to employees of $2.2 million; (2) data processing contract
termination penalties of $2.1 million; (3) write-off of capitalized software
costs of $2.8 million; (4) write-downs or losses associated with excess leased
commercial properties of $8.2 million; (5) write-off of signage, forms, prepaid
expenses and other miscellaneous assets totaling $3.8 million; and (6) other
integration costs of $987,000. Other nonrecurring costs included impairment
charges of $5.5 million related to intangible assets associated with earlier
acquisitions.
BancWest Corporation and Subsidiaries 51
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
As a result of these costs of $25.5 million, a liability of $11.3
million was recorded in 1998. During 1999, this liability was reduced by a total
of $6.6 million, as a result of: (1) $2 million for the payment of data
processing contract termination penalties; (2) $2 million for severance
payments; (3) $2 million related to excess leased commercial properties; and (4)
$600,000 for payments on other nonrecurring costs. The remaining amount accrued
was $4.7 million at December 31, 1999. During 2000, this liability was reduced
by a total of $2.2 million, as a result of: (1) $58,000 for the reversal of
accrued data processing contract termination penalties; (2) $175,000 for
reversal of accrued severance payments; (3) $1.9 million related to excess
leased commercial properties; and (4) $30,000 for reversal of other accrued
costs. The remaining amount accrued at December 31, 2000 is $2.5 million,
primarily related to excess leased commercial properties. The majority of the
amount related to excess leased commercial property will be fully amortized in
December 2002.
On July 19, 1999, the Company announced plans to consolidate its three
existing data centers into a single data center in Honolulu. The consolidation
was accomplished through a facilities management contract with a service
provider which has assumed management of First Hawaiian's existing data center.
As a result of this consolidation effort, the Company recorded pre-tax
restructuring and other nonrecurring costs of $6.9 million in the third quarter
of 1999. Those costs were comprised of: (1) $3.8 million for the write-off of
capitalized information technology costs; (2) $1.5 million for employee
severance costs; and (3) $1.6 million in other nonrecurring costs. During 1999,
we wrote off $3.8 million in capitalized information technology costs and paid
$459,000 in other nonrecurring costs. At December 31, 1999, the remaining amount
accrued for these costs was $2.6 million. During 2000, we paid $970,000 in
employee severance costs and $1 million in other nonrecurring costs. In
addition, we reversed $465,000 in accrued employee severance costs and $135,000
in other nonrecurring costs. As of December 31, 2000 the amounts accrued related
to the data center consolidation had been substantially paid. See Note 23 to the
Consolidated Financial Statements on pages 66 and 67 for additional information.
4. TRANSACTIONS WITH AFFILIATES
Bank of the West participates in various transactions with BNP Paribas
and its affiliates. These transactions are subject to review by the Federal
Deposit Insurance Corporation (the "FDIC") and other regulatory authorities. The
transactions are required to be on terms at least as favorable to Bank of the
West as those prevailing at the time for similar non-affiliate transactions.
These transactions have included the sales and purchases of assets, foreign
exchange activities, financial guarantees, international services, interest rate
swaps and intercompany deposits and borrowings. Amounts due to and from
affiliates and off-balance-sheet transactions at December 31, 2000 and 1999 were
as follows:
- -----------------------------------------------------------
(in thousands) 2000 1999
- -----------------------------------------------------------
Cash and due from banks ........... $ 1,278 $ 3,520
Noninterest-bearing demand
deposits ......................... 3,529 4,618
Short-term borrowings ............. 50,000 --
Time certificates of deposit ...... 467,000 305,000
Other liabilities ................. 121 161
Subordinated capital notes
included in long-term debt ....... 51,595 51,783
Off-balance-sheet transactions:
Standby letters of credit ........ 7,473 7,626
Guarantees received .............. 15,987 24,168
Commitments to purchase
foreign currencies .............. 20,144 5,464
Commitments to sell foreign
currencies ...................... 2,680 901
===========================================================
The subordinated capital notes were sold directly to BNP Paribas. They
are subordinated to the claims of depositors and creditors and qualify for
inclusion as a component of risk-based capital under current FDIC guidelines for
assessing capital adequacy.
5. INVESTMENT SECURITIES
HELD-TO-MATURITY
Amortized cost and fair value of held-to-maturity investment securities
at December 31, 2000, 1999 and 1998 were as follows:
- ----------------------------------------------------------------------
2000
----------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
(in thousands) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------
U.S. TREASURY
AND OTHER U.S. .....
GOVERNMENT
AGENCIES AND
CORPORATIONS ....... $15,990 $-- $ 99 $15,891
OTHER ASSET-BACKED
SECURITIES ......... 38,233 11 524 37,720
COLLATERALIZED
MORTGAGE
OBLIGATIONS ........ 38,717 4 707 38,014
- ----------------------------------------------------------------------
TOTAL HELD-TO
MATURITY
INVESTMENT
SECURITIES ......... $92,940 $ 15 $ 1,330 $91,625
======================================================================
52 BancWest Corporation and Subsidiaries
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------------------
- ---------------------------------------------------------------------------
1999
------------------------------------------------------
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------
U.S. Treasury
and other U.S.
Government
agencies and
corporations ... $ 15,985 $-- $ 543 $ 15,442
Other asset-backed
securities ..... 72,388 -- 1,557 70,831
Collateralized
mortgage
obligations .... 54,495 2 1,668 52,829
- ---------------------------------------------------------------------------
Total held-to-
maturity
investment
securities ..... $142,868 $ 2 $3,768 $139,102
===========================================================================
- -------------------------------------------------------------------------
1998
---------------------------------------------------
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
U.S. Treasury
and other U.S.
Government
agencies and
corporations ........ $ 80,174 $ 456 $ -- $ 80,630
Other asset-backed
securities .......... 111,130 387 141 111,376
Collateralized
mortgage
obligations ......... 99,618 231 441 99,408
- ---------------------------------------------------------------------------
Total held-to-
maturity
investment
securities .......... $290,922 $1,074 $582 $291,414
=========================================================================
The amortized cost and fair value of held-to-maturity investment
securities at December 31, 2000, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations.
- -------------------------------------------------------------
Amortized Fair
(in thousands) Cost Value
- -------------------------------------------------------------
Due after one but within five years ... $15,990 $15,891
Due after five but within ten years ... 8,540 8,523
Due after ten years ................... 68,410 67,211
- ---------------------------------------------------------------------------
TOTAL HELD-TO-MATURITY
INVESTMENT SECURITIES ................ $92,940 $91,625
=============================================================
AVAILABLE-FOR-SALE
Amortized cost and fair value of available-for-sale investment
securities at December 31, 2000, 1999 and 1998 were as follows:
- --------------------------------------------------------------------------
2000
-------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
(in thousands) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------
U.S. TREASURY
AND OTHER U.S.
GOVERNMENT
AGENCIES AND
CORPORATIONS ..... $ 766,905 $ 3,868 $ 641 $ 770,132
MORTGAGE AND
ASSET-BACKED
SECURITIES:
GOVERNMENT ....... 619,791 8,550 1,539 626,802
OTHER ............ 345,229 3,251 676 347,804
COLLATERALIZED
MORTGAGE
OBLIGATIONS ...... 77,529 243 144 77,628
STATES AND POLITICAL
SUBDIVISIONS ..... 9,871 22 183 9,710
OTHER .............. 128,704 -- -- 128,704
- --------------------------------------------------------------------------
TOTAL AVAILABLE-FOR-
SALE INVESTMENT
SECURITIES ...... $1,948,029 $15,934 $3,183 $1,960,780
==========================================================================
- ------------------------------------------------------------------------------------
1999
-----------------------------------------------------------
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------
U.S. Treasury
and other U.S.
Government
agencies and
corporations .......... $ 775,778 $ 38 $ 7,672 $ 768,144
Mortgage and
asset-backed
securities:
Government ............ 556,735 5,043 6,746 555,032
Other ................. 384,378 118 4,244 380,252
Collateralized
mortgage
obligations ........... 16,374 6 334 16,046
States and political
subdivisions .......... 22,104 205 670 21,639
Other ................... 126,896 3 9 126,890
- ------------------------------------------------------------------------------------
Total available-for-
sale investment
securities ............ $1,882,265 $5,413 $19,675 $1,868,003
====================================================================================
- ------------------------------------------------------------------------------------
1998
-----------------------------------------------------------
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------
U.S. Treasury
and other U.S.
Government
agencies and
corporations .......... $ 529,164 $ 2,187 $ 436 $ 530,915
Mortgage and
asset-backed
securities:
Government ............ 547,025 7,084 1,226 552,883
Other ................. 247,483 2,091 362 249,212
Collateralized
mortgage
obligations ........... 685 -- -- 685
States and political
subdivisions .......... 37,370 1,222 42 38,550
Other ................... 108,729 2 -- 108,731
- ------------------------------------------------------------------------------------
Total available-for-
sale investment
securities ............ $1,470,456 $12,586 $2,066 $1,480,976
====================================================================================
BancWest Corporation and Subsidiaries 53
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
The amortized cost and fair value of available-for-sale investment
securities at December 31, 2000, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations.
- -------------------------------------------------------------------
Amortized Fair
(in thousands) Cost Value
- -------------------------------------------------------------------
Due within one year .................. $ 449,635 $ 449,813
Due after one but within five years... 430,502 434,115
Due after five but within ten years... 87,623 87,512
Due after ten years .................. 851,565 860,636
- -------------------------------------------------------------------
Subtotal ............................. 1,819,325 1,832,076
Securities with no stated maturity.... 128,704 128,704
- -------------------------------------------------------------------
TOTAL AVAILABLE-FOR-SALE
INVESTMENT SECURITIES ............... $1,948,029 $1,960,780
===================================================================
The Company held no trading securities at December 31, 2000, 1999 and
1998.
Investment securities with an aggregate carrying value of $1.7 billion
at December 31, 2000, were pledged to secure public deposits, repurchase
agreements and Federal Home Loan Bank advances.
We held no investment securities of any single issuer (other than the
U.S. Government and its agencies) which were in excess of 10% of consolidated
stockholders' equity at December 31, 2000.
Gross gains of $865,000, $38,000 and $462,000 and gross losses of
$654,000, $22,000 and $21,000 were realized on sales of investment securities
during 2000, 1999 and 1998, respectively.
6. LOANS AND LEASES
At December 31, 2000 and 1999, loans and leases were comprised of the
following:
- -----------------------------------------------------------
(in thousands) 2000 1999
- -----------------------------------------------------------
Commercial, financial and
agricultural ........... $ 2,604,590 $ 2,212,757
Real estate:
Commercial ............. 2,618,312 2,466,822
Construction ........... 405,542 408,078
Residential ............ 2,360,167 2,362,789
Consumer ................ 3,599,954 2,987,347
Lease financing ......... 2,038,516 1,738,048
Foreign ................. 344,750 348,198
- -----------------------------------------------------------
TOTAL LOANS AND LEASES... $13,971,831 $12,524,039
===========================================================
The loan and lease portfolio is principally located in California and
Hawaii and, to a lesser extent, Oregon, Washington, Nevada and Idaho. The risk
inherent in the portfolio depends upon both the economic stability of those
states, which affects property values, and the financial well being and
creditworthiness of the borrowers.
At December 31, 2000 and 1999, loans and leases of $93.5 million and
$98.3 million, respectively, were on nonaccrual status or restructured.
Our leasing activities consist primarily of: (1) leasing automobiles and
commercial equipment; and (2) leveraged leases. Lessees are responsible for all
maintenance, taxes and insurance on the leased property. The leases are reported
net of unearned income of $452.2 million at December 31, 2000, and $391 million
at December 31, 1999. At December 31, 2000, minimum lease receivables for the
five succeeding years were as follows:
- - 2001 -- $450.9 million
- - 2002 -- $446.9 million
- - 2003 -- $411.4 million
- - 2004 -- $362.3 million
- - 2005 -- $249.1 million
In the normal course of business, the Company makes loans to executive
officers and directors of the Company and to entities and individuals affiliated
with those executive officers and directors. Those loans were made on terms no
less favorable to the Company than those prevailing at the time for comparable
transactions with other persons or, in the case of certain residential real
estate loans, on terms that were widely available to employees of the Company
who were not directors or executive officers. Changes in the loans to such
executive officers, directors and affiliates during 2000 and 1999 were as
follows:
- --------------------------------------------------------
(in thousands) 2000 1999
- --------------------------------------------------------
Balance at beginning of year .. $267,245 $238,290
New loans made ............... 34,763 60,317
Less repayments .............. 38,173 31,362
- --------------------------------------------------------
BALANCE AT END OF YEAR ........ $263,835 $267,245
========================================================
At December 31, 2000, loans to such parties by the Parent were $4
million; at December 31, 1999, $4.5 million. Interest income related to these
loans was $290,000 in 2000, $323,000 in 1999, and $576,000 in 1998.
Real estate loans totaling $1.5 billion were pledged to collateralize
the Company's borrowing capacity at the Federal Home Loan Bank at December 31,
2000.
54 BancWest Corporation and Subsidiaries
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
7. PROVISION AND ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses were as follows for the years
indicated:
- ------------------------------------------------------------------------------
(in thousands) 2000 1999 1998
- ------------------------------------------------------------------------------
Balance at beginning of year ... $161,418 $158,294 $ 90,487
Provision for credit losses ... 60,428 55,262 30,925
Net charge-offs:
Loans and leases
charged off ................. (62,131) (61,545) (31,151)
Recoveries on loans
and leases previously
charged off ................. 12,728 10,432 7,046
- ------------------------------------------------------------------------------
Net charge-offs ............ (49,403) (51,113) (24,105)
- ------------------------------------------------------------------------------
Transfer of allowance allo-
cated to securitized loans ... -- (1,025) --
Allowance of subsidiaries
purchased .................... -- -- 60,987
- ------------------------------------------------------------------------------
BALANCE AT END OF YEAR ......... $172,443 $161,418 $158,294
==============================================================================
The following table presents information related to impaired loans as of
and for the years ended December 31, 2000, 1999 and 1998:
- --------------------------------------------------------------------
(in thousands) 2000 1999 1998
- --------------------------------------------------------------------
Impaired loans with
related allowance .......... $ 77,518 $ 72,258 $ 76,513
Impaired loans with no
related allowance .......... 35,358 23,163 32,855
- --------------------------------------------------------------------
Total impaired loans ........ $112,876 $ 95,421 $109,368
====================================================================
Total allowance for credit
losses on impaired loans ... $ 14,702 $ 15,833 $ 19,710
Average impaired loans ...... 93,572 107,948 88,736
Interest income
recognized on
impaired loans ............. 5,099 4,349 3,295
====================================================================
Impaired loans without a related allowance for credit losses are
generally collateralized by assets with fair values in excess of the recorded
investment in the loans. Interest payments on impaired loans are generally
applied to reduce the outstanding principal amounts of such loans.
8. PREMISES AND EQUIPMENT
At December 31, 2000 and 1999, premises and equipment were comprised of
the following:
- ----------------------------------------------------------
(in thousands) 2000 1999
- ----------------------------------------------------------
Premises ...................... $278,979 $282,066
Equipment ..................... 194,404 176,437
- ----------------------------------------------------------
Total premises and equipment .. 473,383 458,503
Less accumulated depreciation
and amortization ............ 197,371 176,838
- ----------------------------------------------------------
NET BOOK VALUE ................ $276,012 $281,665
=========================================================
Occupancy and equipment expenses include depreciation and amortization
expenses of $25.5 million for 2000, $24.3 million for 1999 and $22.6 million for
1998.
9. DEPOSITS
Interest expense related to deposits for the years indicated was as
follows:
- ------------------------------------------------------------------
(in thousands) 2000 1999 1998
- ------------------------------------------------------------------
Domestic:
Interest-bearing demand . $ 3,546 $ 3,609 $ 11,743
Savings ................. 98,876 93,100 65,665
Time--under $100 ........ 150,797 136,797 94,037
Time--$100 and over ..... 195,142 127,539 72,823
Foreign .................. 9,843 7,576 9,592
- ------------------------------------------------------------------
TOTAL INTEREST EXPENSE
ON DEPOSITS ............ $458,204 $368,621 $253,860
==================================================================
The following table presents the maturity distribution of domestic time
certificates of deposits of $100,000 or more at December 31 for the years
indicated:
- --------------------------------------------------------
(in millions) 2000 1999
- --------------------------------------------------------
3 months or less ................. $2,029 $1,980
Over 3 months through 6 months ... 917 738
Over 6 months through 12 months .. 435 371
Over 1 year through 2 years ...... 179 110
Over 2 years through 3 years ..... 23 24
Over 3 years through 4 years ..... 6 5
Over 4 years through 5 years ..... 4 3
Over 5 years ..................... 1 1
- -------------------------------------------------------
TOTAL ........................ $3,594 $3,232
=======================================================
Time certificates of deposits in denominations of $100,000 or more at
December 31, 2000 and 1999 were as follows:
- -------------------------------------------------
(in thousands) 2000 1999
- -------------------------------------------------
Domestic ........ $3,593,563 $3,231,994
Foreign ......... 87,990 76,259
- -------------------------------------------------
10. SHORT-TERM BORROWINGS
At December 31 for the years indicated, short-term borrowings were
comprised of the following:
- ------------------------------------------------------------------------
(in thousands) 2000 1999 1998
- ------------------------------------------------------------------------
BancWest Corporation (Parent):
Commercial paper ............ $ 5,477 $ 2,600 $ 13,903
Bank of the West:
Securities sold under
agreements to
repurchase ................. 215,767 142,842 68,696
Federal funds purchased ..... 115,000 2,095 209,070
Advances from Federal
Home Loan Bank of
San Francisco .............. -- -- 1,000
Other short-term
borrowings ................. 306 16,274 4,069
First Hawaiian:
Securities sold under
agreements to
repurchase ................. 241,929 301,571 447,667
Federal funds purchased ..... 5,589 38,595 164,462
Advances from Federal
Home Loan Bank of
Seattle .................... -- -- 14,000
- ------------------------------------------------------------------------
TOTAL SHORT-TERM
BORROWINGS .................. $584,068 $503,977 $922,867
========================================================================
BancWest Corporation and Subsidiaries 55
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Weighted average interest rates and weighted average and maximum
balances for these short-term borrowings were as follows for the years
indicated:
- --------------------------------------------------------------------------
(dollars in thousands) 2000 1999 1998
- --------------------------------------------------------------------------
Commercial paper:
Weighted average interest
rate at December 31 ....... 6.0% 6.1% 4.9%
Highest month-end balance .. $ 8,424 $ 9,400 $ 13,903
Weighted average daily
outstanding balance ....... $ 5,541 $ 4,962 $ 4,265
Weighted average daily
interest rate paid ........ 6.0% 4.9% 5.0%
Securities sold under
agreements to repurchase:
Weighted average interest
rate at December 31 ....... 6.1% 5.1% 4.5%
Highest month-end balance .. $503,936 $564,207 $552,921
Weighted average daily
outstanding balance ....... $439,886 $499,728 $505,529
Weighted average daily
interest rate paid ........ 5.8% 4.6% 5.1%
Federal funds purchased:
Weighted average interest
rate at December 31 ....... 6.4% 4.7% 4.6%
Highest month-end balance .. $370,889 $392,325 $373,532
Weighted average daily
outstanding balance ....... $217,447 $138,101 $ 85,405
Weighted average daily
interest rate paid ........ 6.3% 4.9% 5.2%
Advances from Federal Home
Loan Banks of Seattle and
San Francisco:
Weighted average interest
rate at December 31 ....... --% --% 5.4%
Highest month-end balance .. $ -- $ 1,000 $441,089
Weighted average daily
outstanding balance ....... $ -- $ 414 $130,804
Weighted average daily
interest rate paid ........ --% 6.3% 4.8%
Other short-term borrowings:
Weighted average interest
rate at December 31 ....... 6.5% 5.5% 4.1%
Highest month-end balance .. $ 22,071 $ 25,085 $ 4,069
Weighted average daily
outstanding balance ....... $ 4,935 $ 2,959 $ 116
Weighted average daily
interest rate paid ........ 8.2% 5.6% 4.7%
===========================================================================
We treat securities sold under agreements to repurchase as financings.
We reflect the obligations to repurchase the identical securities sold as
liabilities, with the dollar amount of securities underlying the agreements
remaining in the asset accounts. At December 31, 2000, the weighted average
maturity of these agreements was 49 days and primarily represented investments
by public (governmental) entities. Maturities of these agreements were as
follows:
- -----------------------------------
(in thousands)
- -----------------------------------
Overnight ............ $214,257
Less than 30 days .... 86,706
30 through 90 days ... 59,365
Over 90 days ......... 97,368
- -----------------------------------
TOTAL ................ $457,696
===================================
The Parent had $40 million in unused lines of credit with BNP Paribas to
support its commercial paper borrowings as of December 31, 2000.
11. LONG-TERM DEBT AND CAPITAL SECURITIES
At December 31 for the years indicated, long-term debt and capital
securities were comprised of the following:
- ----------------------------------------------------------
(dollars in thousands) 2000 1999
- ----------------------------------------------------------
BancWest Corporation (Parent):
7.375% subordinated notes
due 2006 ................... $ 50,000 $ 50,000
7.00% note due 2004 ......... 50,000 50,000
6.25% subordinated notes
due 2000 ................... -- 100,000
Bank of the West:
6.33%-8.80% notes due
through 2014 ............... 616,340 496,578
Capital leases due
through 2012 ............... 613 738
First Hawaiian:
Capital leases due
through 2022 ............... 470 476
5.70%-5.84% notes due 2000 .. -- 4,000
- ----------------------------------------------------------
Total long-term debt ......... 717,423 701,792
Capital Securities ........... 250,000 100,000
- ----------------------------------------------------------
TOTAL LONG-TERM DEBT AND
CAPITAL SECURITIES .......... $967,423 $801,792
==========================================================
BANCWEST CORPORATION (PARENT)
The 7.375% subordinated notes due in 2006 are unsecured obligations with
interest payable semiannually.
The 7.00% note due in 2004 is unsecured and accrues interest at London
Interbank Offered Rates ("LIBOR") plus 0.25% per annum (7.00% per annum at
December 31, 2000). Interest is paid on a quarterly basis.
BANK OF THE WEST
The 6.33%-8.80% notes due through 2014 primarily represent advances from
the Federal Home Loan Bank of San Francisco and $51.6 million in subordinated
capital notes sold to BNP Paribas. Interest on the Federal Home Loan Bank of San
Francisco advances are payable monthly. Interest on the subordinated capital
notes sold to BNP Paribas is payable semiannually.
BANCWEST CAPITAL I
In November 2000, the Company sold to the public $150 million in
aggregate liquidation amount of BancWest Capital I Quarterly Income Preferred
Securities (the "BWE Capital Securities") issued by the BWE Trust, a Delaware
business trust. The Company received the BWE Capital Securities (as well as all
outstanding common securities of BancWest Capital I) in exchange for the
Company's
56 BancWest Corporation and Subsidiaries
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
9.50% junior subordinated deferrable interest debentures, which are the sole
assets of the BWE Trust. Holders of BWE Capital Securities are entitled to
cumulative cash dividends at an annual rate of 9.50%, subject to possible
deferral. The BWE Capital Securities and the debentures will mature on December
1, 2030, but on or after December 1, 2005 are subject to redemption in whole or
in part at par plus accrued interest. The BWE Capital Securities qualify as Tier
1 capital of the Company, which has solely, fully and unconditionally guaranteed
payment of all amounts due on the BWE Capital Securities to the extent the BWE
Trust has funds available for payment of such distributions.
FIRST HAWAIIAN CAPITAL I
In 1997, FH Trust, a Delaware business trust, issued capital securities
(the "FH Capital Securities") with an aggregate liquidation amount of $100
million. The proceeds were used to purchase junior subordinated deferrable
interest debentures of the Company. These debentures are the sole assets of the
FH Trust. The FH Capital Securities qualify as Tier 1 capital of the Company and
are solely, fully and unconditionally guaranteed by the Company. The Company
owns all the common securities issued by the FH Trust.
The FH Capital Securities accrue and pay interest semi-annually at an
annual interest rate of 8.343%. The FH Capital Securities are mandatorily
redeemable upon maturity date of July 1, 2027, or upon earlier redemption in
whole or in part (subject to a prepayment penalty) as provided for in the
governing indenture.
Under the terms of both the BWE Capital Securities and the FH Capital
Securities, the interest on the junior subordinated debentures is deferrable. If
we defer interest payments on the capital securities, BWE Trust and FH Trust
will also defer distributions on the capital securities. During any period in
which we defer interest payments on the junior subordinated debentures, we will
not and our subsidiaries will not do any of the following, with certain limited
exceptions:
o pay a dividend or make any other payment or distribution on our capital
stock;
o redeem, purchase or make a liquidation payment on any of our capital stock;
o make an interest, principal or premium payment on, or repay, repurchase or
redeem, any of our debt securities that rank equally with or junior to the
junior subordinated debentures; or
o make any guarantee payment regarding any guarantee by us of debt securities
of any of our subsidiaries, if the guarantee ranks equal with or junior to
the junior subordinated debentures.
As of December 31, 2000, the principal payments due on long-term debt
and capital securities were as follows:
- --------------------------------------------------------------------------------------------
BancWest Bank First
(in Corporation of the First BancWest Hawaiian
thousands) (Parent) West Hawaiian Capital I Capital I Total
- --------------------------------------------------------------------------------------------
2001 $ -- $187,273 $ 12 $ -- $ -- $187,285
2002 -- 308,978 13 -- -- 308,991
2003 -- 67,282 15 -- -- 67,297
2004 50,000 1,617 16 -- -- 51,633
2005 -- 208 18 -- -- 226
2006 and
thereafter 50,000 51,595 396 150,000 100,000 351,991
- --------------------------------------------------------------------------------------------
TOTAL $100,000 $616,953 $ 470 $150,000 $100,000 $967,423
============================================================================================
12. COMMON STOCK AND EARNINGS PER SHARE
There have been three significant stock-related issues since November
1998:
(1) In December 1999, the Company declared a two-for-one stock split which
doubled the amount of common and Class A common shares issued and outstanding.
Per share information, such as earnings per share, dividends per share and book
value per share, was restated for all periods presented in this report.
(2) On July 1, 1999, the Company completed its acquisition of SierraWest. The
acquisition was accounted for using the pooling-of-interests method of
accounting. SierraWest was merged with and into the Company, resulting in the
issuance of approximately 4.4 million shares (8.8 million shares after
adjustment for the two-for-one stock split in December 1999) of the Company's
common stock to shareholders of SierraWest.
(3) On November 1, 1998, in connection with the BancWest Merger, the Company
issued approximately 25.815 million shares (51.630 million shares after
adjustment for the two-for-one stock split in December 1999) of newly authorized
Class A common stock to BNP Paribas and 411,049 shares of treasury stock to
satisfy stock appreciation rights of certain Bank of the West employees. The
411,049 shares were issued as dividend-paying restricted stock. On November 1,
2000, the restrictions on the 822,098 shares (adjusted for the two-for-one stock
split in December 1999) expired.
A share of Class A common stock is generally the same as a share of
common stock in all respects, except that holders of the Class A common stock
have the right to elect a separate class of directors (the "Class A Directors"),
and the Class A common stock is entitled to vote as a class on certain
fundamental corporate actions unless such actions have been approved by
two-thirds of the entire board of directors. The number of Class A Directors
will generally be comparable to the percentage of Class A common stock shares in
relation to total common stock outstanding (common stock plus Class A common
stock).
As of December 31, 2000, the holders of Class A common stock were
entitled to elect nine of the Company's 20 directors.
Shares of Class A common stock automatically convert
BancWest Corporation and Subsidiaries 57
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
to common stock under certain circumstances, principally if they are transferred
by BNP Paribas to a third party.
Additionally, BNP Paribas is bound by a standstill and governance
agreement that governs most aspects of the relationship between BNP Paribas and
the Company. The standstill and governance agreement extends for a four-year
period from the time of the BancWest Merger, with certain provisions continuing
beyond that initial period. Among the key features of this agreement are
provisions that:
- - Limit BNP Paribas' ability to acquire, directly or indirectly, additional
common stock that would result in its ownership of more than 45% of the
outstanding voting stock of the Company;
- - Restrict BNP Paribas' ability to transfer its shares;
- - Restrict BNP Paribas' ability to exercise control over the Company or the
Board (other than through its representation on the Board); and
- - Create various other restrictions.
Additionally, concurrent with the BancWest Merger, the Company increased
the number of authorized shares of common stock from 100 million to 200 million,
while reducing the common stock's par value from $5.00 per share to $1.00 per
share.
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share (includes both common and Class A
common shares):
- ---------------------------------------------------------------------
2000
(in thousands, except -----------------------------------------
number of shares INCOME SHARES PER SHARE
and per share data) (NUMERATOR) (DENOMINATOR) AMOUNT
- ---------------------------------------------------------------------
BASIC NET INCOME ......... $ 216,394 124,633,956 $1.74
EFFECT OF DILUTIVE
SECURITIES--
STOCK INCENTIVE
PLAN OPTIONS ........... -- 415,750 --
- ---------------------------------------------------------------------
DILUTED NET INCOME ....... $ 216,394 125,049,706 $1.73
=====================================================================
- -------------------------------------------------------------------------
1999
(in thousands, except -------------------------------------------
number of shares Income Shares Per Share
and per share data) (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------
Basic net income ......... $ 172,378 124,047,664 $1.39
Effect of dilutive
securities--
Stock incentive
plan options ........... -- 651,729 --
- -------------------------------------------------------------------------
Diluted net income ....... $ 172,378 124,699,393 $1.38
=========================================================================
- ------------------------------------------------------------------------
1998
(in thousands, except ---------------------------------------
number of shares Income Shares Per Share
and per share data) (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------
Basic net income .......... $ 84,284 79,515,996 $1.06
Effect of dilutive securities--
Stock incentive plan
options ..................... -- 853,890 --
- ------------------------------------------------------------------------
Diluted net income ........... $ 84,284 80,369,886 $1.05
========================================================================
13. ACCUMULATED OTHER COMPREHENSIVE INCOME, NET
Comprehensive income is defined as the change in equity from all
transactions other than those with stockholders, and it includes net income and
other comprehensive income. The Company's only significant item of other
comprehensive income is net unrealized gains or losses on certain debt and
equity securities and the related reclassification adjustments. Reclassification
adjustments include the gains or losses realized in the current period on
certain assets that were included in accumulated other comprehensive income at
the beginning of the period. Accumulated other comprehensive income, net, for
each of the three years in the period ended December 31, 2000, is presented
below.
- ----------------------------------------------------------------------------------
Income
Tax
Pre-tax (Expense) After-tax
(in thousands) Amount Benefit Amount
- ----------------------------------------------------------------------------------
Accumulated other comprehensive
income, net, December 31, 1997 ........ $ 678 $ (282) $ 396
Unrealized net holding gain arising
in 1998 ................................ 9,401 (3,824) 5,577
Reclassification adjustment for gains
and losses realized in net income ...... 441 (186) 255
- ----------------------------------------------------------------------------------
Accumulated other comprehensive
income, net, December 31, 1998 ......... 10,520 (4,292) 6,228
Unrealized net holding loss arising
in 1999 ................................ (27,119) 11,009 (16,110)
Reclassification adjustment for gains
and losses realized in net income ...... 16 (7) 9
- ----------------------------------------------------------------------------------
Accumulated other comprehensive
income, net, December 31, 1999 ......... (16,583) 6,710 (9,873)
UNREALIZED NET HOLDING GAIN ARISING
IN 2000 ................................ 29,123 (11,773) 17,350
RECLASSIFICATION ADJUSTMENT FOR GAINS
AND LOSSES REALIZED IN NET INCOME ...... 211 (87) 124
- ----------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE
INCOME, NET, DECEMBER 31, 2000 ........ $ 12,751 $ (5,150) $ 7,601
==================================================================================
14. REGULATORY CAPITAL REQUIREMENTS
The Company is subject to various regulatory capital requirements
administered by the Federal banking agencies. If we fail to meet minimum capital
requirements, these agencies can initiate certain discretionary (and, in the
case of the Company's depository institution subsidiaries, mandatory) actions.
Such regulatory actions could have a material effect on the Company's financial
statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and its depository institution
subsidiaries must each meet specific capital guidelines that involve
quantitative measures of their assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. These capital amounts
and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
58 BancWest Corporation and Subsidiaries
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Quantitative measures established by regulation to ensure capital
adequacy require the Company and its depository institution subsidiaries to
maintain minimum amounts and ratios of Tier 1 and Total capital to risk-weighted
assets, and of Tier 1 capital to average assets. The table below sets forth
those ratios at December 31, 2000 and 1999.
- -----------------------------------------------------------------------------------------------------------
TO BE WELL-
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
(dollars in -------------------------------------------------------------------------------
thousands) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- -----------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2000:
TIER 1 CAPITAL TO
RISK-WEIGHTED
ASSETS:
BANCWEST
CORPORATION ........... $1,597,992 9.73% $ 656,617 4.00%
BANK OF THE
WEST .................. 820,691 8.78 373,878 4.00 $ 560,818 6.00%
FIRST HAWAIIAN ......... 648,751 9.19 282,500 4.00 423,750 6.00
TOTAL CAPITAL TO
RISK-WEIGHTED
ASSETS:
BANCWEST
CORPORATION ........... $1,870,435 11.39% $1,313,234 8.00%
BANK OF THE
WEST .................. 1,095,240 11.72 747,757 8.00 $ 934,696 10.00%
FIRST HAWAIIAN ......... 795,657 11.27 564,999 8.00 706,249 10.00
TIER 1 CAPITAL TO
AVERAGE ASSETS:
BANCWEST
CORPORATION ........... $1,597,992 9.09% $ 703,305 4.00%(1)
BANK OF THE
WEST .................. 820,691 7.95 413,174 4.00 (1) $ 516,468 5.00%
FIRST HAWAIIAN ......... 648,751 8.99 288,756 4.00 (1) 360,945 5.00
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
To Be Well-
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
(dollars in -------------------------------------------------------------------------------
thousands) Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------
As of December 31, 1999:
Tier 1 Capital to
Risk-Weighted
Assets:
BancWest
Corporation ........... $1,297,796 8.80% $ 590,165 4.00%
Bank of the
West .................. 572,775 7.35 311,531 4.00 $ 467,296 6.00%
First Hawaiian ......... 691,297 9.98 277,056 4.00 415,583 6.00
Total Capital to
Risk-Weighted
Assets:
BancWest
Corporation ........... $1,558,494 10.56% $1,180,329 8.00%
Bank of the
West .................. 834,791 10.72 623,061 8.00 $ 778,827 10.00%
First Hawaiian ......... 838,985 12.11 554,111 8.00 692,639 10.00
Tier 1 Capital to
Average Assets:
BancWest
Corporation ........... $1,297,796 8.11% $ 640,281 4.00%(1)
Bank of the
West .................. 572,775 6.39 358,269 4.00 (1) $ 447,836 5.00%
First Hawaiian ......... 691,297 9.92 278,725 4.00 (1) 348,407 5.00
- -----------------------------------------------------------------------------------------------------------
(1) The leverage ratio consists of a ratio of Tier 1 capital to average assets.
The minimum leverage ratio guideline is three percent for banking
organizations that do not anticipate or are not experiencing significant
growth, and that have well-diversified risk, excellent asset quality, high
liquidity, good earnings, a strong banking organization, and rated a
composite 1 under the Uniform Financial Institution Rating System
established by the Federal Financial Institution Examination Council.
Pursuant to applicable law and regulations, each of the depository
institution subsidiaries have been notified by the Federal Deposit Insurance
Corporation ("FDIC") that each of them is deemed to be well-capitalized. To be
well-capitalized, a bank must have a total risk-based capital ratio of 10.00% or
greater, a Tier 1 risk-based capital ratio of 6.00% or greater, a leverage ratio
of 5.00% or greater and not be subject to any agreement, order or directive to
meet a specific capital level for any capital measure. Management believes that
no conditions or events have occurred since the respective notifications to
change the capital category of either of its depository institution
subsidiaries.
15. LIMITATIONS ON PAYMENT OF DIVIDENDS
The primary source of funds that we use to pay dividends to stockholders
are dividends the Parent receives from its subsidiaries. Regulations limit the
amount of dividends Bank of the West and First Hawaiian may declare or pay. At
December 31, 2000, the aggregate amount available for payment of dividends by
such subsidiaries without prior regulatory approval was $366.7 million.
16. BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company sponsors a noncontributory defined benefit pension plan,
which is a merger of two separate plans. The first plan, for First Hawaiian
employees, was frozen at December 31, 1995. As a result of that freeze, there
are no further benefit accruals for First Hawaiian employees in the merged plan.
The second plan, for Bank of the West employees, was a cash balance pension
plan. The merged plan continues to provide cash balance benefit accruals for
eligible Bank of the West employees.
The Company also sponsors an unfunded excess benefit pension plan
covering employees whose pay or benefits exceed certain regulatory limits,
unfunded postretirement medical and life insurance plans, and, for certain key
executives, an unfunded supplemental executive retirement plan.
In addition, the Company also has a non-qualified pension plan (the
"Director's Retirement Plan") that provides for eligible directors to qualify
for retirement
BancWest Corporation and Subsidiaries 59
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
benefits based on their service as a director. The Director's Retirement Plan's
benefit obligations have been reflected in the following table.
The following tables summarize changes to the benefit obligation and
fair value of plan assets for the years indicated:
- --------------------------------------------------------------------------------------
Pension Benefits Other Benefits
------------------------- --------------------------
(in thousands) 2000 1999 2000 1999
- --------------------------------------------------------------------------------------
Benefit obligation at
beginning of year ....... $ 142,101 $ 148,206 $ 16,651 $ 16,174
Service cost ............. 3,594 3,295 888 945
Interest cost ............ 10,268 9,909 1,174 1,000
Amendments ............... 8,619 -- (42) 517
Actuarial (gain) loss .... 5,467 (6,990) 729 (1,353)
Benefit payments ......... (10,493) (12,319) (986) (632)
- --------------------------------------------------------------------------------------
BENEFIT OBLIGATION
AT END OF YEAR .......... $ 159,556 $ 142,101 $ 18,414 $ 16,651
======================================================================================
- ---------------------------------------------------------------------------------------
Pension Benefits Other Benefits
------------------------- -------------------------
(in thousands) 2000 1999 2000 1999
- ---------------------------------------------------------------------------------------
Fair value of plan
assets at
beginning of year ......... $ 196,481 $ 183,955 $ -- $ --
Actual return on
plan assets ............... (11,035) 23,334 -- --
Employer
contributions ............. 1,017 1,511 986 632
Benefit payments ........... (10,493) (12,319) (986) (632)
- ---------------------------------------------------------------------------------------
FAIR VALUE OF PLAN
ASSETS AT END
OF YEAR ................... $ 175,970 $ 196,481 $ -- $ --
========================================================================================
The following table summarizes the funded status of the plans and
amounts recognized/unrecognized in the Consolidated Balance Sheets:
- -----------------------------------------------------------------------------------
Pension Benefits Other Benefits
----------------------- ------------------------
(in thousands) 2000 1999 2000 1999
- -----------------------------------------------------------------------------------
Funded status ............. $ 16,414 $ 54,380 $(18,414) $(16,651)
Unrecognized net
(gain) loss .............. 1,008 (38,546) 1,627 1,057
Unrecognized prior
service cost ............. 14,117 6,772 454 517
Unrecognized
transition (asset)
obligation ............... (1,200) (2,400) 3 33
- -----------------------------------------------------------------------------------
PREPAID (ACCRUED)
BENEFIT COST ............. $ 30,339 $ 20,206 $(16,330) $(15,044)
===================================================================================
Pension plan assets at December 31 include the following shares of
common stock of the Company:
- ---------------------------------------------------------------------
(dollars in thousands) Shares Fair value
- ---------------------------------------------------------------------
2000................................... 1,175,712 $ 30,715
1999................................... 1,175,712 $ 22,926
=====================================================================
Key provisions for the merged pension plan as of December 31, 2000 and
1999 are as follows:
- ------------------------------------------------------------------------
(in thousands) 2000 1999
- ------------------------------------------------------------------------
Projected benefit obligation ............... $125,608 $113,670
Accumulated benefit obligation ............. 124,745 112,765
Fair value of plan assets for the
retirement plan with plan assets
in excess of accumulated
benefit obligations ....................... 175,970 196,481
Prepaid benefit cost for the
overfunded plan ........................... 57,601 43,760
========================================================================
Except for the merged pension plan, the remaining plans had an accrued
benefit liability.
The weighted average discount rate was 7% as of December 31, 2000 and
1999, respectively. In determining the 2000 net periodic benefit cost, the
expected return on plan assets was 9.5% for the funded defined benefit pension
plan; the rate of increase in future compensation used in determining the
projected benefit obligation averaged 4.7% for the unfunded supplemental
executive retirement plan and 4% for the defined benefit pension plan.
For measurement purposes for First Hawaiian employees, a 7% annual rate
of increase in the per capita cost of covered health care benefits was assumed
for 2000. The rate was assumed to decrease gradually to 4% after 6 years and
remain level at 4% thereafter. These assumptions are not applicable for First
Hawaiian retirees over age 65 because benefits are capped at $50 per month. For
Bank of the West employees, the annual rate of increase in the per capita cost
of covered health care benefits was 5% for 2000 and 4.25% thereafter, except on
certain employees employed in the Pacific Northwest, the rate was 6.5% for 2000
decreasing gradually to 4% over 5 years and remaining at 4% thereafter.
The following table sets forth the components of the net periodic
benefit cost (credit) for 2000, 1999 and 1998:
- ----------------------------------------------------------------------------------------------------------
Pension Benefits Other Benefits
-------------------------------------- ------------------------------------
(in thousands) 2000 1999 1998 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Service cost ........... $ 3,594 $ 3,295 $ 1,483 $ 888 $ 945 $ 369
Interest cost .......... 10,268 9,909 7,345 1,174 1,000 623
Expected
return on
plan assets ........... (18,333) (15,773) (11,004) -- -- --
Amortization
of transition
(asset)
obligation ............ (1,200) (1,200) (1,200) -- 3 143
Amortization
of prior
service cost .......... 1,278 851 886 51 -- 26
Recognized
net actuarial
(gain) loss ........... (4,723) (3,934) (2,450) 159 129 --
Curtailment
loss .................. N/A N/A N/A N/A 139 N/A
- ----------------------------------------------------------------------------------------------------------
NET PERIODIC
BENEFIT COST
(CREDIT) ............. $ (9,116) $ (6,852) $ (4,940) $ 2,272 $ 2,216 $ 1,161
==========================================================================================================
60 BancWest Corporation and Subsidiaries
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Assumed health care cost trend rates have an impact on the amounts
reported for the health care plans. A one-percentage-point change in the assumed
health care cost trend rates would have the following pre-tax effect:
- ------------------------------------------------------------
One-Percentage- One-Percentage-
(in thousands) Point Increase Point Decrease
- ------------------------------------------------------------
Effect on 2000 total of
service and interest
cost components ........... $ 61 $ (51)
Effect on postretirement
benefit obligation at
December 31, 2000 ........ 508 (450)
============================================================
MONEY PURCHASE AND 401(k) MATCH PLANS
The Company contributes to a defined contribution money purchase plan.
The Company also matches employees' contributions (up to 3% of pay) to a 401(k)
component of the defined contribution plan. The plans cover substantially all
employees who satisfy applicable age and length-of-service requirements, except
for a select group of key executives who are eligible for the Company's unfunded
supplemental executive retirement plan.
For 2000, 1999 and 1998, the money purchase plan contribution was $4.5
million, $5 million and $5.2 million, respectively. The matching employer
contributions to the 401(k) plan were $3.9 million, $2 million and $2 million,
respectively. Matching employer contributions for 2000 reflect the addition of
the Bank of the West Savings Plan participants to the Company's defined
contribution plan.
Effective July 1, 1999, the Bank of the West Savings Plan was merged
into the Company's defined contribution plan. Effective June 30, 1999,
SierraWest amended the SierraWest Bancorp KSOP Plan (the "KSOP") to cease all
contributions. Effective July 1, 1999, all eligible employees who participated
in the KSOP became eligible to participate in the Company's defined contribution
plan.
Effective January 1, 2000, the KSOP was divided into two separate plans:
(1) the SierraWest Bancorp Employee Stock Ownership Plan (the "ESOP"); and (2)
the SierraWest Bancorp Savings Plan (the "SierraWest Savings Plan") (together,
the "Plans"). On August 15, 2000, the Plans were separately submitted to the
Internal Revenue Service (the "IRS") for determination letters that they remain
qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended.
As soon as administratively practicable following the favorable determination
letters from the IRS, the ESOP will be terminated as of an appropriate date and
its assets will be distributed to participants, and the SierraWest Savings Plan
will be merged into the Company's defined contribution plan.
PROFIT-SHARING AND CASH-BONUS PLANS
Previously, the profit-sharing and cash-bonus plans covered
substantially all employees who satisfied age and length-of-service
requirements. Annual contributions to the plans were based upon a formula and
were limited to the total amount deductible under the applicable provisions of
the Internal Revenue Code. The profit-sharing and cash-bonus formula provided
that:
- - 50% of the Company's contribution be paid directly to eligible members as a
year-end cash-bonus, and
- - The other 50%, less forfeitures, be paid into the profit-sharing trust fund.
The profit-sharing contribution and cash-bonus (reflected in salaries
and wages) totaled $4.3 million for 1998. Contributions to the profit-sharing
and cash-bonus plans have been terminated for periods commencing after December
31, 1998.
INCENTIVE PLAN FOR KEY EXECUTIVES
The Company has an Incentive Plan for Key Executives (the "IPKE"), under
which awards of cash or our common stock, or both, are made to key executives.
The IPKE limits the aggregate and individual value of the awards that could be
issued in any one fiscal year. Shares of common stock awarded under the IPKE are
held in escrow. Key executives concerned may not, under any circumstances,
voluntarily dispose of or transfer such shares prior to the earliest of:
- - Attaining 60 years of age,
- - Completion of 20 full years of employment with the Company, or
- - Retirement, death or termination of employment prior to retirement with the
approval of the Company.
Additionally, any key executive who has met the minimum restrictions of
20 years of employment or 60 years of age may not voluntarily dispose of
subsequent shares awarded for a five-year period.
LONG-TERM INCENTIVE PLAN
We have a Long-Term Incentive Plan (the "LTIP") designed to reward
selected key executives for their performance and the Company's performance
measured over multi-year performance cycles. Due to the timing of the BancWest
Merger, the cycle that ended December 31, 2000 ran for two years (1999-2000).
Concurrently, the second and third cycles for three years (1999-2001 and
2000-2002) are running.
Even though the Company was the surviving corporation, the BancWest
Merger constituted a "Change in Control" as defined by the LTIP. As of the
effective date of an LTIP Change in Control, the LTIP provides that participants
will be deemed to have fully earned the
BancWest Corporation and Subsidiaries 61
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
maximum target value attainable for the entire performance period, regardless of
whether the Company met the target levels.
Based on actual performance to November 1, 1998, it did not appear that
any payments would be made for either of the three-year performance periods that
began in 1996 and 1997. If the LTIP Change in Control provisions had been
implemented, on the other hand, participants would have received maximum
payments under the LTIP for the three-year periods that began on January 1,
1996, 1997 and 1998.
We also recognized that, because of the BancWest Merger, the LTIP's
performance goals would no longer be appropriate. As a result, we amended the
LTIP to:
(1) specify that the BancWest Merger would not be considered an LTIP Change in
Control for purposes of the LTIP; and (2) pay the maximum target value
attainable for one year of the three-year performance period that began on
January 1, 1998. A payment of $1 million, equal to one-third of the maximum
target value attainable for the 1998-2000 performance cycle, was made to
participants in the LTIP in January 1999. The payments were based upon 1998
compensation levels.
The initial two-year performance cycle (1999-2000) ended on December 31,
2000. The threshold earnings per share level for the Company and specified
levels relative to peer banks were achieved during this cycle. Awards will be
paid for this cycle in early 2001 when the Executive Compensation Committee of
the Board of Directors can approve awards. As of December 31, 2000 the Company
has accrued $4.4 million for potential LTIP payouts.
17. STOCK-BASED COMPENSATION
The Company has two Stock Incentive Plans, one effective in 1991 (the
"1991 SIP") and one effective in 1998 (the "1998 SIP" and, together with the
1991 SIP, the "SIP"). The SIP authorizes the grant of up to 6,000,000 shares of
common stock to selected key employees. The SIP aims to enhance the value of the
Company by providing additional incentives for outstanding performance to
selected key employees, linking their interests with those of our stockholders.
The SIP is administered by the Executive Compensation Committee of the Board.
The Company began administering the Sierra Tahoe Bancorp 1996 Stock
Option Plan, the Sierra Tahoe Bancorp 1998 Stock Option Plan, the California
Community BancShares Corporation 1993 Stock Option Plan and the Continental
Pacific Bank 1990 Amended Stock Option Plan (the "SierraWest Option Plans") as a
result of the SierraWest Merger. There will be no future options granted under
the SierraWest Option Plan.
The SIP provides for grants of restricted stock, incentive stock options
and non-qualified stock options. Options are granted at exercise prices that are
not less than the fair market value of the common stock on the date of grant.
The exercise price for stock options may be paid in whole or in part in cash, by
delivery or withholding of shares (if allowed by the option agreement) or by
various other methods. Options generally vest at a rate of 25% per year after
the date of grant and must generally be exercised within ten years from the date
of grant. Because options become immediately vested and exercisable if there is
a change in control of the Company, the BancWest Merger in November 1998
resulted in vesting of substantially all then outstanding options.
In connection with the two-for-one stock split in December 1999, the
number of shares of the Company's common stock available for grants under the
SIP was doubled. Outstanding options under the SIP and SierraWest Option Plans
were adjusted by doubling the aggregate number of shares issuable under each
outstanding option and by halving their per share exercise price.
The following table summarizes activity under the SIP and SierraWest
Option Plans for 2000, 1999 and 1998:
- --------------------------------------------------------------------------------
Options Outstanding
------------------------
Weighted
Average
Exercise
Shares Price
- --------------------------------------------------------------------------------
Balance at December 31, 1997 .................... 1,209,881 $12.08
Granted ......................................... 420,362 19.30
Exercised ....................................... (118,753) 5.65
Forfeited ....................................... (16,305) 10.58
- -----------------------------------------------------------------
Balance at December 31, 1998 .................... 1,495,185 14.61
Granted ......................................... 2,183,567 20.08
Exercised ....................................... (234,661) 10.00
Forfeited ....................................... (8,981) 19.71
- -----------------------------------------------------------------
Balance at December 31, 1999 .................... 3,435,110 18.31
GRANTED ......................................... 1,330,761 15.13
EXERCISED ....................................... (297,678) 14.67
FORFEITED ....................................... (43,953) 20.52
- -----------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 .................... 4,424,240 $16.66
================================================================================
At December 31, 2000, 335,634 stock options were available for future
grants under the SIP.
62 BancWest Corporation and Subsidiaries
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
The following table summarizes SIP and SierraWest Option Plans options
outstanding and exercisable as of December 31, 2000:
- ---------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
--------------------------------------- ----------------------
Weighted
Number Weighted Average Number Weighted
Range of of Average Remaining of Average
Exercise Shares Exercise Contractual Shares Exercise
Prices Outstanding Price Life (Years) Outstanding Price
- ---------------------------------------------------------------------------------------------
Less than $12.50 ........ 117,284 $ 6.95 5.00 117,284 $ 6.95
$12.50-$15.00 ........... 2,072,316 14.60 3.53 747,086 13.67
$15.50-$17.50 ........... 563,976 16.62 6.50 563,976 16.62
$18.00-$20.00 ........... 1,670,664 19.89 7.50 981,210 19.87
- ---------------------------------------- ---------
BALANCE AT
DECEMBER 31, 2000 ...... 4,424,240 $ 16.66 5.45 2,409,556 $ 16.56
=============================================================================================
In accounting for our option plans, the Company applies Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. There has been no compensation cost
charged against income for the option plans, as options are granted at exercise
prices that are not less than the fair market value of the common stock on the
date of grant. Had compensation cost for the option plans been determined in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and basic earnings per share would have been reduced to the
pro forma amounts indicated below:
- ----------------------------------------------------------------------------------
(in thousands,
except per share data) 2000 1999 1998
- ----------------------------------------------------------------------------------
Net income:
As reported .................. $ 216,394 $ 172,378 $ 84,284
Pro forma .................... 214,978 171,543 81,544
Basic earnings per share:
As reported .................. $ 1.74 $ 1.39 $ 1.06
Pro forma .................... 1.73 1.38 1.03
==================================================================================
Under SFAS No. 123, the fair value of each grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for the grants:
- -------------------------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------
Expected
dividend
yield ................. 3.27% 3.32% 3.20%
Expected
common
stock volatility ...... 24.76% 22.58% 19.84%
Risk-free
interest rate ......... 6.66% 5.47% 5.35%
Expected life
of the options ........ 6 years 6 years 6 years
===================================================================
The weighted average grant date fair value of options granted was $3.98
in 2000, $4.45 in 1999 and $4.01 in 1998.
18. OTHER NONINTEREST EXPENSE
For the years indicated, other noninterest expense included the
following:
- --------------------------------------------------------------------------------
(in thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
Stationery and supplies ............. $ 20,286 $ 21,275 $ 12,958
Advertising and promotion ........... 16,950 15,788 11,909
Other ............................... 80,716 75,526 60,146
- --------------------------------------------------------------------------------
TOTAL OTHER NONINTEREST
EXPENSE ............................ $117,952 $112,589 $ 85,013
================================================================================
19. INCOME TAXES
For the years indicated, the provision for income taxes was comprised of
the following:
- ---------------------------------------------------------------------------
(in thousands) 2000 1999 1998
- ---------------------------------------------------------------------------
Current:
Federal ........................ $ 30,164 $ 22,075 $ 9,030
States and other ............... 9,215 6,445 4,511
- ---------------------------------------------------------------------------
Total current ................. 39,379 28,520 13,541
- ---------------------------------------------------------------------------
Deferred:
Federal ........................ 89,451 76,184 33,491
States and other ............... 23,397 19,047 13,585
- ---------------------------------------------------------------------------
Total deferred ................ 112,848 95,231 47,076
- ---------------------------------------------------------------------------
TOTAL PROVISION FOR
INCOME TAXES ................... $152,227 $123,751 $ 60,617
===========================================================================
At December 31, 2000, the Company had no federal or state tax credit
carryforwards.
The components of the Company's net deferred income tax liabilities at
December 31, 2000 and 1999 were as follows:
- -------------------------------------------------------------------------------
(in thousands) 2000 1999
- -------------------------------------------------------------------------------
ASSETS
Allowance for credit losses and
nonperforming assets ........................... $ 76,183 $ 71,894
Deferred compensation expenses .................. 4,325 10,835
State income and franchise taxes ................ 2,749 841
Other ........................................... -- 19,361
- -------------------------------------------------------------------------------
Total deferred income tax assets ............... 83,257 102,931
- -------------------------------------------------------------------------------
LIABILITIES
Leases .......................................... 561,009 453,092
Intangible assets ............................... 11,893 13,212
Investment securities ........................... 26,966 12,493
Depreciation expense ............................ 15,761 11,626
Other ........................................... 13,977 --
- -------------------------------------------------------------------------------
Total deferred income tax liabilities .......... 629,606 490,423
- -------------------------------------------------------------------------------
NET DEFERRED INCOME TAX LIABILITIES .............. $546,349 $387,492
===============================================================================
Net deferred income tax liabilities are included in other liabilities in
the Consolidated Balance Sheets.
The following analysis reconciles the Federal statu-
BancWest Corporation and Subsidiaries 63
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
tory income tax rate to the effective income tax rate for the years indicated:
- -------------------------------------------------------------------------------
2000
---------------------
(dollars in thousands) Amount %
- -------------------------------------------------------------------------------
FEDERAL STATUTORY INCOME TAX RATE .................. $ 129,017 35.0%
FOREIGN, STATE AND LOCAL TAXES, NET
OF FEDERAL INCOME TAX BENEFIT ..................... 22,113 6.0
GOODWILL AMORTIZATION .............................. 10,784 2.9
TAX CREDITS ........................................ (7,467) (2.0)
OTHER .............................................. (2,220) (.6)
- -------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATE .......................... $ 152,227 41.3%
===============================================================================
- ----------------------------------------------------------------------------------
1999
-----------------------
(dollars in thousands) Amount %
- ----------------------------------------------------------------------------------
Federal statutory income tax rate ................... $ 103,644 35.0%
Foreign, state and local taxes, net
of Federal income tax benefit ...................... 17,678 6.0
Goodwill amortization ............................... 10,469 3.5
Tax credits ......................................... (6,214) (2.1)
Other ............................................... (1,826) (.6)
- ----------------------------------------------------------------------------------
Effective income tax rate ........................... $ 123,751 41.8%
==================================================================================
- -------------------------------------------------------------------------------
1998
--------------------
(dollars in thousands) Amount %
- -------------------------------------------------------------------------------
Federal statutory income tax rate ................... $ 50,716 35.0%
Foreign, state and local taxes, net
of Federal income tax benefit ...................... 7,211 5.0
Goodwill amortization ............................... 2,741 1.9
Tax credits ......................................... (3,023) (2.1)
Other ............................................... 2,972 2.0
- -------------------------------------------------------------------------------
Effective income tax rate ........................... $ 60,617 41.8%
===============================================================================
20. OPERATING SEGMENTS
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 superseded SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management" approach. Using the management
approach, we report the same operating segments that management uses to make
decisions and assess the Company's performance. SFAS No. 131 also requires
disclosures about products and services, geographic areas and major customers.
The adoption of SFAS No. 131 did not affect consolidated results of operations
or consolidated financial position as previously reported.
The Company has determined that our reportable segments are the ones we
use in our internal reporting: Bank of the West and First Hawaiian. The Bank of
the West segment operates primarily in California, Oregon, Washington, Idaho and
Nevada.
Although the First Hawaiian segment operates primarily in Hawaii, it
also has significant operations outside the state, such as media finance,
leveraged leases and international banking.
The financial results of these operating segments are presented on an
accrual basis. There are no significant differences among the accounting
policies of the segments as compared to the Consolidated Financial Statements.
The Company evaluates the performance of its segments and allocates resources to
them based on net interest income and net income. There are no material
intersegment revenues.
The tables below present information about the Company's operating
segments as of or for the years ended December 31:
- -------------------------------------------------------------------------------------------------------------------
Bank of the First Reconciling Consolidated
(in millions) West Hawaiian Other Items Totals
- -------------------------------------------------------------------------------------------------------------------
2000:
NET INTEREST INCOME .................... $ 423 $ 329 $ (5) $ -- $ 747
PROVISION FOR CREDIT
LOSSES ................................ 38 22 -- -- 60
DEPRECIATION AND
AMORTIZATION .......................... 43 27 -- -- 70
RESTRUCTURING, MERGER-RELATED AND OTHER
NONRECURRING COSTS .................... 1 -- -- -- 1
PROVISION FOR
INCOME TAXES .......................... 85 71 (4) -- 152
NET INCOME ............................. 110 112 (6) -- 216
SEGMENT ASSETS
(YEAR END)............................. 11,159 7,452 3,215 (3,369) 18,457
CAPITAL EXPENDITURES ................... 24 7 -- -- 31
- -------------------------------------------------------------------------------------------------------------------
1999:
Net interest income .................... $ 384 $ 312 $ (7) $ -- $ 689
Provision for credit
losses ................................ 28 27 -- -- 55
Depreciation and
amortization .......................... 41 26 -- -- 67
Restructuring, merger-related and other
nonrecurring costs .................... 11 7 -- -- 18
Provision for
income taxes .......................... 72 56 (4) -- 124
Net income ............................. 84 94 (6) -- 172
Segment assets
(year end) ............................ 9,571 7,081 2,747 (2,718) 16,681
Capital expenditures ................... 18 21 -- -- 39
===================================================================================================================
1998:
Net interest income .................... $ 126 $ 322 $ (14) $ -- $ 434
Provision for credit
losses ................................ 8 23 -- -- 31
Depreciation and
amortization .......................... 12 23 -- -- 35
Restructuring, merger-related and other
nonrecurring costs .................... 10 16 -- -- 26
Provision for
income taxes .......................... 15 53 (7) -- 61
Net income ............................. 18 75 (9) -- 84
Segment assets
(year end) ............................ 8,603 7,248 2,458 (2,380) 15,929
Capital expenditures ................... 8 11 -- -- 19
===================================================================================================================
The "other" category in the table above consists primarily of the
Parent, Leasing, BWE Trust and FH Trust.
The Company also identifies business units based on
64 BancWest Corporation and Subsidiaries
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
the products or services offered and the channels through which the products or
services are delivered. In addition to the operating segment information, the
table below presents selected Company-wide information regarding business units
for the respective years ended December 31:
- ----------------------------------------------------------------------
Reconciling Consolidated
(in millions) Wholesale Retail Other Items Totals
- ----------------------------------------------------------------------
Interest income:
2000 ........... $397 $750 $188 $(25) $1,310
1999 ........... 352 657 149 (22) 1,136
1998 ........... 227 465 70 (12) 750
======================================================================
Wholesale banking primarily provides commercial, financial, and
agricultural, small business and commercial and construction real estate loans.
It also is comprised of equipment lease financing. Retail banking is primarily
composed of consumer and residential real estate loans, credit card services and
automobile leases. The "other" category is composed primarily of interest income
from investments.
The reconciling items in the above tables are principally intercompany
eliminations.
21. INTERNATIONAL OPERATIONS
The Company's international operations are principally in Guam, Saipan and
Grand Cayman, British West Indies. These operations involve foreign banking and
international financing activities, including short-term investments, loans and
leases, acceptances, letters of credit financing and international funds
transfers.
We identify international activities on the basis of the domicile of the
customer.
The table below presents information about the Company's foreign, domestic
and consolidated operations as of or for the years ended December 31:
- ---------------------------------------------------------------
(in thousands) Foreign Domestic Consolidated
- ---------------------------------------------------------------
2000:
TOTAL REVENUE ..... $ 47,747 $ 1,478,185 $ 1,525,932
INCOME BEFORE
INCOME TAXES ..... 6,674 361,947 368,621
NET INCOME ........ 4,271 212,123 216,394
TOTAL ASSETS ...... 389,589 18,067,477 18,457,066
===============================================================
1999:
Total revenue ..... $ 50,730 $ 1,282,613 $ 1,333,343
Income before
income taxes ..... 6,270 289,859 296,129
Net income ........ 4,013 168,365 172,378
Total assets ...... 404,666 16,276,356 16,681,022
===============================================================
1998:
Total revenue ..... $ 45,197 $ 838,526 $ 883,723
Income before
income taxes ..... 4,274 140,627 144,901
Net income ........ 2,735 81,549 84,284
Total assets ...... 695,698 15,233,366 15,929,064
===============================================================
Our current procedure is to price intercompany transfers of funds at
prevailing market rates. In general, we have allocated all direct expenses and a
proportionate share of general and administrative expenses to the income derived
from loans and leases and transactions by the Company's international
operations.
The following table presents the percentages of assets and liabilities
attributable to foreign operations. For this purpose, assets attributable to
foreign operations are defined as: (1) assets in foreign offices; and (2) loans
and leases to and investments in customers domiciled outside the United States.
Deposits received and other liabilities are classified on the basis of domicile
of the depositor/creditor.
- ---------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------
Average foreign assets to
average total assets ............... 2.93% 3.98% 4.92%
Average foreign liabilities to
average total liabilities .......... 1.79 1.75 3.12
===============================================================
22. LEASE COMMITMENTS
At December 31, 2000, we had the following future minimum lease payments
(by year and in the aggregate) under noncancelable operating leases having
initial or remaining terms in excess of one year:
- ---------------------------------------------------------------
Less Net
Operating Sublease Operating
(in thousands) Leases Income Leases
- ---------------------------------------------------------------
2001 ......................... $ 45,224 $ 10,299 $ 34,925
2002 ......................... 40,247 9,215 31,032
2003 ......................... 35,831 7,507 28,324
2004 ......................... 17,991 6,827 11,164
2005 ......................... 14,413 6,318 8,095
2006 and thereafter .......... 63,326 6,677 56,649
-------- -------- --------
Total ........................ $217,032 $ 46,843 $170,189
======== ======== ========
These leases of premises and equipment extend for varying periods up to 41
years. Some of them may be renewed for periods ranging from one to 41 years.
Under the premises' leases, we are also required to pay real property taxes,
insurance and maintenance.
In most cases, leases for premises provide for periodic renegotiation of
rents based upon a percentage of the appraised value of the leased property. The
renegotiated annual rent is usually not less than the annual amount paid in the
previous period. Where future commitments are subject to appraisals, the minimum
annual rental commitments are based on the latest annual rents.
Rental expense for the years indicated was:
2000: $45.9 million
1999: $45.1 million
1998: $37.2 million
BancWest Corporation and Subsidiaries 65
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
In December 1993, the Company entered into a noncancelable agreement to
lease its administrative headquarters building on land owned in fee simple by
the Company. (Construction of the building was completed in September 1996.)
Also in December 1993, the Company entered into a ground lease of the land to
the lessor of the building.
Rent obligation for the building commenced on December 1, 1996 and will
expire on December 1, 2003 (the "Primary Term"). We are obligated to pay all
taxes, insurance, maintenance and other operating costs associated with the
building during the Primary Term. As of December 31, 2000, the Company has
executed certain noncancelable subleases with third parties. These amounts are
included in sublease income in the above table.
At the end of the Primary Term, the Company may decide whether to: (1)
extend the lease term at rents based on the lessor's cost of funds at the time
of renewal; (2) purchase the building for an amount approximately equal to that
expended by the lessor to construct the building; or (3) arrange for the sale of
the building to a third party on behalf of the lessor. If we choose option (3),
we must pay to the lessor any shortfall between the sales proceeds and a
specified residual value, such payment not to exceed $162 million. This lease is
accounted for as an operating lease.
23. COMMITMENTS AND CONTINGENT LIABILITIES
Off-balance-sheet commitments and contingent liabilities were as follows at
December 31 for the years indicated:
- ------------------------------------------------------
2000 1999
NOTIONAL/ Notional/
CONTRACT Contract
(in thousands) AMOUNT Amount
- ------------------------------------------------------
Contractual Amounts Which
Represent Credit Risk:
Commitments to extend
credit ................. $5,573,817 $5,552,476
Standby letters of credit 305,970 247,620
Commercial letters of
credit ................. 10,543 7,150
Contractual Amounts Where
Credit Risk is Less Than
Contractual Amount:
Commitments to purchase
foreign currencies ..... 23,842 8,870
Commitments to sell
foreign currencies ..... 25,285 11,458
Interest rate swaps ..... 123,564 131,471
Swaptions ............... 8,576 --
Forward contracts ....... 5,000 10,000
Put options ............. 5,000 2,000
Call options ............ 2,676 --
Guarantees received ..... 17,172 31,003
======================================================
ROLLFORWARD SCHEDULE
The following is a summary of derivative financial instruments for 2000 and
1999:
- ---------------------------------------------------------------------------------------------------
Receive Pay Variable/ Forward Forward Put/
Fixed Fixed Variable Starting Swap- Con- Call
(in millions) Swaps Swaps Swaps Swaps tions tracts Options Total
- ---------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 20 $111 $ 10 $ 4 $-- $ 33 $ 6 $184
Additions ................ -- 11 -- -- -- 130 29 170
Maturities/
amortization ............ 20 4 -- -- -- 153 33 210
Terminations ............. -- 1 -- -- -- -- -- 1
- ---------------------------------------------------------------------------------------------------
Balance, December 31, 1999 -- 117 10 4 -- 10 2 143
ADDITIONS ................ -- 3 -- 3 9 64 24 103
MATURITIES/
AMORTIZATION ............ -- 3 -- 3 -- 69 18 93
TERMINATIONS ............. -- 8 -- -- -- -- -- 8
- ---------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 $-- $109 $ 10 $ 4 $ 9 $ 5 $ 8 $145
===================================================================================================
HEDGING SUMMARY
The following is additional hedging information related to the Company's
interest rate swaps as of December 31, 2000:
- ----------------------------------------------------------------------------------------
Notional Pay Receive Asset Net Original Remaining
(dollars in millions) Amount Rate Rate Yield Yield Maturity Maturity
- ----------------------------------------------------------------------------------------
Asset hedges:
Fixed rate loans .... $109 6.37% 6.71% 8.07% 8.41% 10.1 yrs. 5.2 yrs.
========================================================================================
The following summarizes the impact of the Company's interest rate swap and
floor activities on its weighted average borrowing rate and on net interest
expense for the years indicated:
- -------------------------------------------------------------
(dollars in thousands) 2000 1999 1998
- -------------------------------------------------------------
AVERAGE BORROWING RATE:
WITHOUT INTEREST RATE
SWAPS AND FLOORS ................ 4.58% 3.89% 4.25%
WITH INTEREST RATE SWAPS
AND FLOORS ....................... 4.58 3.89 4.25
- -------------------------------------------------------------
INTEREST RATE SWAP AND
FLOOR EXPENSE, NET ................ $285 $1,128 $1,256
=============================================================
66 BancWest Corporation and Subsidiaries
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
FACILITIES MANAGEMENT AGREEMENT
In August 1999, the Company signed a six-year facilities management
agreement in connection with the consolidation of the three data centers. At
December 31, 2000, the Company had the following future minimum payments under
this noncancelable agreement:
- --------------------------------------------------------------------------------
(in thousands) Minimum Payments
- --------------------------------------------------------------------------------
2001................................................................. $16,934
2002................................................................. 16,934
2003................................................................. 16,934
2004................................................................. 16,934
2005................................................................. 11,289
- --------------------------------------------------------------------------------
TOTAL................................................................ $79,025
================================================================================
Expenses under this facilities management agreement for the year ended
December 31, 2000 were approximately $18.2 million.
LITIGATION
Various legal proceedings are pending against the Company. Our ultimate
liability, if any, cannot be determined at this time. Based upon consultation
with counsel, management does not expect that the aggregate liability, if any,
resulting from these proceedings would have a material effect on the Company's
consolidated financial position, results of operations or liquidity.
24. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents a summary of the book and fair value of the
Company's financial instruments, excluding leases, at December 31 for the years
indicated:
- ------------------------------------------------------------
2000
-----------------------
(in thousands) Book Value Fair Value
- ------------------------------------------------------------
FINANCIAL ASSETS:
CASH AND DUE FROM BANKS ......... $ 873,599 $ 873,599
INTEREST-BEARING DEPOSITS IN
OTHER BANKS .................... 5,972 6,329
FEDERAL FUNDS SOLD AND
SECURITIES PURCHASED UNDER
AGREEMENTS TO RESELL ........... 307,100 307,100
INVESTMENT SECURITIES (NOTE 5):
HELD-TO-MATURITY ............... 92,940 91,625
AVAILABLE-FOR-SALE ............. 1,960,780 1,960,780
LOANS ........................... 11,920,001 11,904,583
CUSTOMERS' ACCEPTANCE LIABILITY.. 1,080 1,080
- ------------------------------------------------------------
FINANCIAL LIABILITIES:
DEPOSITS ........................ $14,128,139 $14,149,011
SHORT-TERM BORROWINGS ........... 584,068 584,068
ACCEPTANCES OUTSTANDING ......... 1,080 1,080
LONG-TERM DEBT .................. 717,423 731,864
GUARANTEED PREFERRED BENEFICIAL
INTERESTS IN JUNIOR SUBORDINATED
DEBENTURES ..................... 250,000 251,650
============================================================
- ------------------------------------------------------------
1999
-----------------------
(in thousands) Book Value Fair Value
- ------------------------------------------------------------
Financial Assets:
Cash and due from banks ......... $ 809,961 $ 809,961
Interest-bearing deposits in
other banks .................... 9,135 6,979
Federal funds sold and
securities purchased under
agreements to resell ........... 71,100 71,100
Investment securities (note 5):
Held-to-maturity ............... 142,868 139,102
Available-for-sale ............. 1,868,003 1,868,003
Loans ........................... 10,782,210 10,741,599
Customers' acceptance liability . 1,039 1,039
- ------------------------------------------------------------
Financial Liabilities:
Deposits ........................ $12,877,952 $12,866,814
Short-term borrowings ........... 503,977 503,977
Acceptances outstanding ......... 1,039 1,039
Long-term debt .................. 701,792 697,000
Guaranteed preferred beneficial
interests in junior subordinated
debentures ..................... 100,000 95,782
============================================================
The following table presents a summary of the fair value of the Company's
off-balance-sheet financial instruments, excluding leases, (Note 23) at December
31, 2000 and 1999:
- ----------------------------------------------------------------------
(in thousands) 2000 1999
- ----------------------------------------------------------------------
Commitments to extend credit ...................... $26,565 $26,850
Standby letters of credit ......................... 2,988 2,433
Commercial letters of credit ...................... 105 71
Commitments to purchase foreign
currencies ....................................... 978 (90)
Commitments to sell foreign currencies ............ (936) 333
Interest rate swaps ............................... (1,211) 3,841
Swaptions ......................................... 291 --
Forward contracts ................................. (59) 141
Put options ....................................... 17 13
Call options ...................................... 39 --
======================================================================
BancWest Corporation and Subsidiaries 67
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
25. BANCWEST CORPORATION (PARENT COMPANY ONLY)
FINANCIAL STATEMENTS
In the financial statements presented below, the investment in subsidiaries
is accounted for under the equity method.
BALANCE SHEETS
- -------------------------------------------------------------------------
DECEMBER 31,
(in thousands, except number of ----------------------------
shares and per share data) 2000 1999
- -------------------------------------------------------------------------
ASSETS:
Cash on deposit with First Hawaiian ..... $ 246 $ 207
Loans, net of allowance for credit
losses of $120 in 2000 and 1999 ........ 3,875 4,338
Available-for-sale investment
securities.............................. 300 300
Securities purchased from
First Hawaiian ......................... 15,665 16,354
Investment in subsidiaries:
Bank of the West ....................... 1,384,600 1,151,059
First Hawaiian ......................... 729,548 761,688
Other subsidiaries ..................... 19,636 15,565
Due from:
Bank of the West ....................... 307,783 248,853
First Hawaiian ......................... 351,654 236,094
Other subsidiaries ..................... 54,569 97,191
Other assets ............................ 7,744 1,618
- -------------------------------------------------------------------------
TOTAL ASSETS ............................. $2,875,620 $2,533,267
=========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term borrowings (note 10) ......... $ 5,477 $ 2,600
Current and deferred income taxes ....... 515,271 375,384
Due to subsidiaries ..................... 257,732 103,093
Other liabilities ....................... 7,647 9,460
Long-term debt (note 11) ................ 100,000 200,000
- -------------------------------------------------------------------------
Total liabilities ...................... 886,127 690,537
- -------------------------------------------------------------------------
Commitments and contingent liabilities
(notes 16, 22 and 23)
Stockholders' equity:
Preferred stock, par value $1 per share
Authorized and unissued--
50,000,000 shares in
2000 and 1999 ......................... -- --
Class A common stock, par value $1
per share (notes 2 and 12)
Authorized--75,000,000 shares in
2000 and 1999
Issued--56,074,874 shares in 2000 and
51,629,536 shares in 1999 ............. 56,075 51,630
Common stock, par value $1 per share
(notes 2, 12 and 17)
Authorized--200,000,000 shares in
2000 and 1999
Issued--71,041,450 shares in 2000
and 75,418,850 shares in 1999 ......... 71,041 75,419
Surplus ................................. 1,125,652 1,124,512
Retained earnings (note 15) ............. 770,350 638,687
Accumulated other comprehensive
income, net (note 13) .................. 7,601 (9,873)
Treasury stock, at cost--2,565,581 shares
in 2000 and 2,437,556 shares in 1999 ... (41,226) (37,645)
- -------------------------------------------------------------------------
Total stockholders' equity ............. 1,989,493 1,842,730
- -------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................. $2,875,620 $2,533,267
=========================================================================
STATEMENTS OF INCOME
- -----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------
(in thousands) 2000 1999 1998
- -----------------------------------------------------------------------------------------
INCOME:
Dividends from:
Bank of the West ................................... $ 41,140 $ 31,366 $ 2,151
First Hawaiian ..................................... 147,384 54,267 143,176
Other subsidiaries ................................. 1,558 1,558 1,558
Interest and fees from:
Bank of the West ................................... 8,087 7,182 907
First Hawaiian ..................................... 6,066 5,543 1,946
Other subsidiaries ................................. 37 435 633
Other interest and
dividends .......................................... 527 354 3,830
- -----------------------------------------------------------------------------------------
Total income ....................................... 204,799 100,705 154,201
- -----------------------------------------------------------------------------------------
EXPENSE:
Interest expense:
Short-term borrowings .............................. 360 254 290
Long-term debt ..................................... 20,749 21,434 21,785
Professional services ............................... 147 491 745
Other ............................................... 5,120 2,580 1,053
- -----------------------------------------------------------------------------------------
Total expense ...................................... 26,376 24,759 23,873
- -----------------------------------------------------------------------------------------
Income before income
tax benefit and equity in
undistributed income
of subsidiaries ..................................... 178,423 75,946 130,328
Income tax benefit ................................... 4,487 4,282 6,332
- -----------------------------------------------------------------------------------------
Income before equity in
undistributed income
of subsidiaries ..................................... 182,910 80,228 136,660
Equity in undistributed income (loss) of subsidiaries:
Bank of the West ................................... 68,959 52,537 15,967
First Hawaiian ..................................... (35,035) 40,108 (67,846)
Other subsidiaries ................................. (440) (495) (497)
- -----------------------------------------------------------------------------------------
NET INCOME ........................................... $216,394 $172,378 $ 84,284
=========================================================================================
68 BancWest Corporation and Subsidiaries
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------
(in thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................ $216,394 $172,378 $ 84,284
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Deficiency (excess) of
equity in earnings
of subsidiaries over
dividends received ..................... (33,484) (92,150) 52,407
Other ................................... (5,795) 3,071 (4,897)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ...................... 177,115 83,299 131,794
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in:
Interest-bearing deposits
in other banks ......................... -- 5,000 65,000
Securities sold under
agreements to
repurchase ............................. 689 6,526 980
Loans repaid by directors
and executive officers .................. 463 1,318 4,035
Repayments from
(advances to) subsidiaries .............. 6,000 (25,000) (167,000)
Investment in Bank of
the West ................................ (150,000) -- --
Cash acquired in acquisition ............. -- -- 57
Investment in
BancWest Capital I ...................... (4,639) -- --
- --------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES ..................... (147,487) (12,156) (96,928)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in
short-term borrowings ................... 2,877 (11,303) 12,103
Proceeds from long-term debt and junior
subordinated debentures ................. 154,639 -- --
Payment on long-term debt ................ (100,000) -- --
Cash dividends paid ...................... (84,731) (77,446) (40,786)
Proceeds from issuance
of common stock ......................... 585 4,934 1,094
Issuance (purchase) of
treasury stock, net ..................... (4,056) 12,809 (7,322)
Income tax benefit from
stock-based compensation ................ 1,097 -- --
- --------------------------------------------------------------------------------
NET CASH USED IN
FINANCING ACTIVITIES ..................... (29,589) (71,006) (34,911)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN CASH .................................. 39 137 (45)
CASH AT BEGINNING OF YEAR ................. 207 70 115
- --------------------------------------------------------------------------------
CASH AT END OF YEAR ....................... $ 246 $ 207 $ 70
================================================================================
SUPPLEMENTAL DISCLOSURES:
Interest paid ............................ $ 34,914 $ 21,422 $ 21,981
Income taxes refunded .................... $ 5,186 $ 6,535 $ 2,018
- --------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock
in connection with
convertible debentures ................. $ -- $ -- $ 2,281
================================================================================
BancWest Corporation and Subsidiaries 69
70
GLOSSARY OF FINANCIAL TERMS
- --------------------------------------------------------------------------------
BALANCE SHEET: A statement of financial position reflecting our assets,
liabilities and stockholders' equity at a particular point in time in accordance
with generally accepted accounting principles.
BASIS-POINT: A measure of the yield on a bond, note or other indebtedness
equal to 1/100th of a percentage point. For example, a yield of 5% is 500 basis
points.
CASH EARNINGS: Earnings before amortization of goodwill and core deposit
intangible.
COLLATERAL: An asset or property pledged to secure the payment of a debt or
performance of an obligation.
DEPRECIATION: A charge against our earnings that writes off the cost of a
capital asset over its estimated useful life.
DERIVATIVES: Financial instruments where the performance is derived from
the performance of another financial instrument or an interest rate, currency or
other index. Derivative instruments are used for asset and liability management
and to mitigate risks associated with other instruments that are reflected on
the balance sheet.
DIVIDEND: Usually a cash distribution to our stockholders of a portion of
our earnings.
EARNINGS PER SHARE: Basic earnings per share--earnings for the period
divided by the weighted-average number of shares of common stock outstanding for
the period. Diluted earnings per share--earnings for the period divided by the
weighted-average number of shares of common stock outstanding for the period,
including the treatment of all dilutive securities, such as options, warrants
and convertible debt.
EFFICIENCY RATIO: Noninterest expense (exclusive of nonrecurring costs)
minus the amortization of goodwill and core deposit intangible as a percentage
of total operating revenue (net interest income plus noninterest income).
HEDGE: A strategy used to avoid, reduce or transfer risk.
INCOME STATEMENT: A financial statement that reflects our performance by
measuring our revenues and expenses for the period.
INTEREST RATE RISK: The risk to earnings or capital arising from the
movement of interest rates.
INTEREST RATE SWAP: A contract used for the purpose of interest rate risk
management in which two parties agree to exchange interest payments of a
different character over a specified period based on an underlying notional
amount of principal. The term "notional principal" is the amount on which the
interest payments are calculated, as the swap contracts generally involve no
exchange of the principal.
LEVERAGE RATIO: Tier 1 Capital divided by the sum of average total assets
minus average allowance for credit losses and certain intangible assets.
LIQUIDITY: The ability of an entity to provide sufficient cash to fund its
operations and to pay its debts on a timely basis at a reasonable cost.
NET INTEREST INCOME: Interest income plus loan fees minus interest expense.
NET INTEREST MARGIN: Net interest income divided by average earning assets
(e.g., loans and leases and investment securities).
NONACCRUAL LOANS AND LEASES: Loans and leases on which interest is not
being accrued for income statement purposes. Payments received on nonaccrual
loans and leases are applied against the principal balance.
NONINTEREST EXPENSE: Expenses for such items as salaries, benefits,
building occupancy and supplies, as opposed to interest expense paid for
deposits and other interest-bearing liabilities.
NONINTEREST INCOME: Income received from such sources as fees, charges and
commissions, as opposed to interest income received from loans and leases, and
investment securities.
NONPERFORMING ASSETS: Nonaccrual loans and leases plus restructured loans
and leases plus OREO (other real estate owned) and repossessed personal
property.
OPERATING EARNINGS: Earnings before restructuring, merger-related and other
nonrecurring costs.
OPERATING CASH EARNINGS: Earnings before restructuring, merger-related and
other nonrecurring costs and amortization of goodwill and core deposit
intangible.
OREO: Other real estate owned. Primarily includes foreclosed assets and
assets taken in lieu of foreclosure.
REPURCHASE AGREEMENTS, ALSO CALLED "REPOs": Agreement between a seller and
a buyer in which the seller agrees to repurchase the securities at an
agreed-upon price at a stated time. A repo is similar to a secured borrowing and
lending of funds equal to the sales price of the related collateral.
RETURN ON AVERAGE TOTAL ASSETS (ROA): Measures the productivity of assets.
Calculated by dividing net income by average total assets.
RETURN ON AVERAGE TANGIBLE TOTAL ASSETS: Calculated by dividing cash
earnings by average total assets minus average goodwill and core deposit
intangible.
RETURN ON AVERAGE STOCKHOLDERS' EQUITY (ROE): Measures the rate of return
on the stockholders' investment in the Company. Calculated by dividing net
income by average total stockholders' equity.
RETURN ON AVERAGE TANGIBLE STOCKHOLDERS' EQUITY: Calculated by dividing
cash earnings by average stockholders' equity minus average goodwill and core
deposit intangible.
RISK-BASED CAPITAL RATIOS: Equity measurements used by regulatory agencies
to assess capital adequacy. These ratios are: Tier 1 Capital divided by
risk-weighted assets; and Total Capital divided by risk-weighted assets.
STATEMENT OF CASH FLOWS: A financial statement that reflects cash flows
from operating, investing and financing activities, providing a comprehensive
view of changes in our cash and cash equivalents for the period.
STOCK OPTION: Form of employee incentive and compensation in which the
employee of the Company is given the right to purchase our shares at a
determinable price within a specified period of years.
TIER 1 CAPITAL: Common stockholders' equity plus perpetual preferred stock
and certain minority equity interests in subsidiaries, minus goodwill and
certain qualifying intangible assets.
TOTAL CAPITAL: Tier 1 Capital plus the allowance for credit losses (not to
exceed 1.25% of risk-weighted assets) plus qualifying subordinated debt, trust
preferred stock, convertible debt securities and certain hybrid investments.
70 BancWest Corporation and Subsidiaries
71
PART II (continued)
- --------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Required information relating to directors is included in "Election of
Directors" "Executive Officers" and "Change-in-Control and Employment
Arrangements" of the Corporation's Proxy Statement and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Required information is included in "Executive Compensation" of the
Corporation's Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Required information is included in "Security Ownership of Directors, Named
Executive Officers and Others" of the Corporation's Proxy Statement and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Required information is included in "Certain Transactions" of the
Corporation's Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
The following financial statements are included in Part II of the 10-K.
PAGE NUMBER
-----------
(a) 1. FINANCIAL STATEMENTS
Report of Independent Accountants 40
BancWest Corporation and Subsidiaries:
Consolidated Balance Sheets at
December 31, 2000 and 1999 41
Consolidated Statements of Income
for the years ended December
31, 2000, 1999 and 1998 42
Consolidated Statements of Changes
in Stockholders' Equity for the years
ended December 31, 2000, 1999
and 1998 43
Consolidated Statements of Cash
Flows for the years ended
December 31, 2000, 1999 and 1998 44
BancWest Corporation (Parent Company):
Balance Sheets at December 31,
2000 and 1999 68
Statements of Income for the years
ended December 31, 2000, 1999
and 1998 68
Statements of Changes in Stockholders'
Equity for the years ended December
31, 2000, 1999 and 1998 43
Statements of Cash Flows for the
years ended December 31, 2000,
1999 and 1998 69
Notes to Consolidated Financial
Statements 45-69
Summary of Quarterly Financial
Data (Unaudited) 39
2. Financial Statement Schedules
Schedules to the consolidated
financial statements required by this
Item 14(a)2 are not required under the
related instructions, or the information
is included in the consolidated financial
statements, or are inapplicable, and
therefore have been omitted.
BancWest Corporation and Subsidiaries 71
72
PART IV (continued)
- --------------------------------------------------------------------------------
3. EXHIBITS
3.1 Certificate of Incorporation of BancWest Corporation is incorporated by
reference to Exhibit 3.1 of the Corporation's Current Report on Form 8-K
filed with the SEC on November 5, 1998.
3.2 Amended and Restated Bylaws of BancWest Corporation are incorporated by
reference to Exhibit 3.2 of the Corporation's Current Report on Form 8-K
filed with the SEC on November 5, 1998.
4.1 Instruments with respect to long-term debt not filed herewith will be
furnished to the Commission upon its request.
4.2 Indenture, dated as of August 9, 1993, between First Hawaiian, Inc. and
The First National Bank of Chicago, Trustee, is incorporated by reference
to Exhibit 4.2 to the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
4.3 Indenture, dated as of June 30, 1997, between First Hawaiian, Inc. and The
First National Bank of Chicago, Trustee, is incorporated by reference to
the Corporation's Registration Statement on Form S-4 filed with the SEC on
October 17, 1997.
4.4 Standstill and Governance Agreement between First Hawaiian, Inc. and
Banque Nationale de Paris, dated as of November 1, 1998, is incorporated
by reference to Exhibit 4.1 to the Corporation's Current Report on Form
8-K filed with the SEC on November 5, 1998.
4.5 Registration Rights Agreements between First Hawaiian, Inc. and Banque
Nationale de Paris, dated as of November 1, 1998, is incorporated by
reference to the Corporation's Current Report on Form 8-K filed with the
SEC on November 5, 1998.
10.1 Lease Agreement, dated as of December 1, 1993, between REFIRST, Inc. and
First Hawaiian Bank is incorporated by reference to Exhibit 10.3 to the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
10.2 Ground Lease, dated as of December 1, 1993, among First Hawaiian Center
Limited Partnership, FH Center, Inc. and REFIRST, Inc. is incorporated by
reference to Exhibit 10.5 to the Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
10.3 Stock Incentive Plan of First Hawaiian, Inc., dated as of November 22,
1991, and Amendments No. 1, 2 and 3, are incorporated by reference to
Exhibit 10 to the Corporation's Form 10-Q for the quarterly period ended
June 30, 1998.*
10.4 Long-Term Incentive Plan of First Hawaiian, Inc., effective as of January
1, 1992, and Amendments No. 1 and 2, are incorporated by reference to
Exhibit 10 to the Corporation's Form 10-Q for the quarterly period ended
June 30, 1998.*
10.5 Amendment No. 3 to the BancWest Corporation Long-Term Incentive Plan,
approved March 16, 2000, is incorporated by reference to Exhibit 10 to the
Corporation's Report on Form 10-Q for the quarterly period ended March 31,
2000.*
10.6 First Hawaiian, Inc. Supplemental Executive Retirement Plan, as amended
and restated as of January 1, 1998, is incorporated by reference to
Exhibit 10 to the Corporation's Form 10-Q for the quarterly period ended
June 30, 1998.*
10.7 Amendment No. 1 to First Hawaiian, Inc. Supplemental Executive Retirement
Plan, effective November 1, 1998, is incorporated by reference to Exhibit
10(x) to the Corporation's Form 10-K for the fiscal year ended December
31, 1998.*
10.8 First Hawaiian, Inc. Deferred Compensation Plan, as amended and restated
as of January 1, 1998, and Amendment No. 1, are incorporated by reference
to Exhibit 10 to the Corporation's Form 10-Q for the quarterly period
ended June 30, 1998.*
10.9 First Hawaiian, Inc. Incentive Plan for Key Executives, and amendments
effective January 1, 1998, are incorporated by reference to Exhibit 10 to
the Corporation's Form 10-Q for the quarterly period ended June 30,
1998.*
10.10 Amendment to First Hawaiian, Inc. Incentive Plan for Key Executives
adopted October 15, 1998 is incorporated by reference to Exhibit 10.9 to
the Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.*
10.11 IPKE Award Policy for Certain Executives adopted February 28, 2000 is
incorporated by reference to Exhibit 10.10 to the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.*
72 BancWest Corporation and Subsidiaries
73
PART IV (continued)
- --------------------------------------------------------------------------------
10.12 Directors' Retirement Plan, effective as of January 1, 1992, and
Amendments No. 1 and 2, are incorporated by reference to Exhibit 10 to the
Corporation's Form 10-Q for the quarterly period ended June 30, 1998.*
10.13 First Hawaiian, Inc. 1998 Stock Incentive Plan, effective as of January
1, 1998, is incorporated by reference to Exhibit 10 to the Corporation's
Form 10-Q for the quarterly period ended June 30, 1998.*
10.14 Sierra Tahoe Bancorp amended 1988 Stock Option Plan is incorporated by
reference to Exhibit A of SierraWest Bancorp Proxy Statement for its
August 16, 1995 annual meeting of shareholders (File No. 001-11611).*
10.15 SierraWest Bancorp 1996 Stock Option Plan, as amended is incorporated by
reference to Exhibit 99.1 of Registration Statement on Form S-8
(Registration No. 333-13031) filed by SierraWest Bancorp on September 30,
1996.*
10.16 Continental Pacific Bank 1990 Amended Stock Option Plan is incorporated by
reference to Exhibit 4.1 of Registration Statement on Form S-8
(Registration No. 333-51733) filed by SierraWest Bancorp on May 4,
1998.*
10.17 California Community Bancshares Corporation 1993 Amended and Restated
Stock Option Plan is incorporated by reference to Exhibit 4.2 of
Registration Statement on Form S-8 (Registration No. 333-51733) filed by
SierraWest Bancorp on May 4, 1998.*
10.18 Employment Agreement between Don J. McGrath and the Corporation, effective
November 1, 1998, is incorporated by reference to Exhibit 10.17 to the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.*
10.19 BancWest Corporation Umbrella Trust(TM) Trust Agreement by and between
BancWest Corporation and Wachovia Bank, N.A., for BancWest Corporation
Supplemental Executive Retirement Plan and BancWest Corporation Deferred
Compensation Plan, executed November 23, 1999, is incorporated by
reference to Exhibit 10.18 to the Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999.*
10.20 BancWest Corporation Split-Dollar Plan For Executives, effective January
1, 1999, is incorporated by reference to Exhibit 10.19 to the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.*
10.21 Sublease made as of November 1, 1993, between Bank of the West and Banque
Nationale de Paris, is incorporated by reference to Exhibit 10.19 to the
Corporation's Form 10-K for the fiscal year ended December 31, 1998.
12. Statement re: computation of ratios, filed herewith.
21. Subsidiaries of the registrant, filed herewith.
23. Consent of independent accountants, filed herewith.
- ------------------
* Management contract or compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K
On December 6, 2000, the Corporation filed a Current Report on Form 8-K to
report under Item 5 that it had entered into an Underwriting Agreement
pertaining to the sale of $150 million in aggregate liquidation amount of 9.50%
Quarterly Income Preferred Securities issued by BancWest Capital I and
registered pursuant to a Registration Statement on Form S-3 (No. 333-48552).
(c) THE EXHIBITS LISTED IN ITEM 14(a)3 ARE INCORPORATED BY
REFERENCE OR ATTACHED HERETO.
(d) RESPONSE TO THIS ITEM IS THE SAME AS THE RESPONSE TO
ITEM 14(a)2.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BANCWEST CORPORATION
(Registrant)
By /s/ HOWARD H. KARR
-------------------------------
Howard H. Karr
Executive Vice President
and Chief Financial Officer
Date: February 15, 2001
BancWest Corporation and Subsidiaries 73
74
PART IV (continued)
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
/s/ WALTER A. DODS, JR. Chairman, February 15, 2001
-------------------------------- Chief Executive Officer -----------------
Walter A. Dods, Jr. & Director Date
/s/ JACQUES ARDANT Director February 15, 2001
-------------------------------- -----------------
Jacques Ardant Date
/s/ JOHN W. A. BUYERS Director February 15, 2001
-------------------------------- -----------------
John W. A. Buyers Date
/s/ JULIA ANN FROHLICH Director February 15, 2001
-------------------------------- -----------------
Julia Ann Frohlich Date
/s/ ROBERT A. FUHRMAN Director February 15, 2001
-------------------------------- -----------------
Robert A. Fuhrman Date
/s/ PAUL MULLIN GANLEY Director February 15, 2001
-------------------------------- -----------------
Paul Mullin Ganley Date
/s/ DAVID M. HAIG Director February 15, 2001
-------------------------------- -----------------
David M. Haig Date
/s/ JOHN A. HOAG Director February 15, 2001
-------------------------------- -----------------
John A. Hoag Date
/s/ BERT T. KOBAYASHI, JR. Director February 15, 2001
-------------------------------- -----------------
Bert T. Kobayashi, Jr. Date
/s/ MICHEL LARROUILH Director February 15, 2001
-------------------------------- -----------------
Michel Larrouilh Date
/s/ PIERRE MARIANI Director February 15, 2001
-------------------------------- -----------------
Pierre Mariani Date
/s/ YVES MARTRENCHAR Director February 15, 2001
-------------------------------- -----------------
Yves Martrenchar Date
/s/ FUJIO MATSUDA Director February 15, 2001
-------------------------------- -----------------
Fujio Matsuda Date
/s/ DON J. McGRATH President, February 15, 2001
-------------------------------- Chief Operating Officer -----------------
Don J. McGrath & Director Date
74 BancWest Corporation and Subsidiaries
75
PART IV (continued)
- --------------------------------------------------------------------------------
/s/ RODNEY R. PECK Director February 15, 2001
-------------------------------- -----------------
Rodney R. Peck Date
/s/ JOEL SIBRAC Vice Chairman February 15, 2001
-------------------------------- & Director -----------------
Joel Sibrac Date
/s/ JOHN K. TSUI Vice Chairman, February 15, 2001
-------------------------------- Chief Credit Officer -----------------
John K. Tsui & Director Date
/s/ JACQUES HENRI WAHL Director February 15, 2001
-------------------------------- -----------------
Jacques Henri Wahl Date
/s/ FRED C. WEYAND Director February 15, 2001
-------------------------------- -----------------
Fred C. Weyand Date
/s/ ROBERT C. WO Director February 15, 2001
-------------------------------- -----------------
Robert C. Wo Date
/s/ HOWARD H. KARR Executive Vice President February 15, 2001
-------------------------------- & Chief Financial Officer -----------------
Howard H. Karr (Principal financial and accounting Date
officer)
BancWest Corporation and Subsidiaries 75