-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J2dtYbdmGhjj0z1mQDmZ4NJKEvfNA6MRUWz9Ve367/bcYN1npuCGQOezO+faBIZe DDsG7eKQpxwLd///24rfnw== 0000950150-98-000633.txt : 19980424 0000950150-98-000633.hdr.sgml : 19980424 ACCESSION NUMBER: 0000950150-98-000633 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980423 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST HAWAIIAN INC CENTRAL INDEX KEY: 0000036377 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 990156159 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-07949 FILM NUMBER: 98599148 BUSINESS ADDRESS: STREET 1: 999 BISHOP ST CITY: HONOLULU STATE: HI ZIP: 96813 BUSINESS PHONE: 8088443703 10-K405/A 1 AMENDMENT TO FORM 10-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K/A (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, 1997 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 ---------------- FIRST HAWAIIAN, INC. (Exact name of registrant as specified in its charter) ---------------- DELAWARE 99-0156159 (State of Incorporation) (I.R.S. Employer Identification No.) 999 BISHOP STREET, HONOLULU, HAWAII 96813 (Address of principal executive offices) (Zip Code) 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 ------------------- ------------------------ None Not Applicable SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $5.00 Par Value (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. [X] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 27, 1998 was $735,704,000. The number of shares outstanding of each of the registrant's classes of common stock as of February 27, 1998 was: Title of Class Number of Shares Outstanding - ----------------------------- ---------------------------- Common Stock, $5.00 Par Value 31,140,577 Shares ---------------- DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference in this Form 10-K: DOCUMENTS FORM 10-K REFERENCE First Hawaiian, Inc. Annual Report 1997 Parts I and II First Hawaiian, Inc. Proxy Statement dated March 4, 1998 for the Annual Meeting of Stockholders Part III ================================================================================ 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. FIRST HAWAIIAN, INC. (Registrant) By /s/ HOWARD H. KARR -------------------------------------- HOWARD H. KARR EXECUTIVE VICE PRESIDENT AND TREASURER Date: March 19, 1998 21 3 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, March 19, 1998 - ---------------------------------- Chief Executive Officer ------------------- Walter A. Dods, Jr. & Director Date /s/ JOHN W. A. BUYERS Director March 19, 1998 - ---------------------------------- ------------------- John W. A. Buyers Date /s/ JOHN C. COUCH Director March 19, 1998 - ---------------------------------- ------------------- John C. Couch Date /s/ JULIA ANN FROHLICH Director March 19, 1998 - ---------------------------------- ------------------- Julia Ann Frohlich Date /s/ PAUL MULLIN GANLEY Director March 19, 1998 - ---------------------------------- ------------------- Paul Mullin Ganley Date /s/ DAVID M. HAIG Director March 19, 1998 - ---------------------------------- ------------------- David M. Haig Date /s/ JOHN A. HOAG Director March 19, 1998 - ---------------------------------- ------------------- John A. Hoag Date /s/ BERT T. KOBAYASHI, JR. Director March 19, 1998 - ---------------------------------- ------------------- Bert T. Kobayashi, Jr. Date /s/ RICHARD T. MAMIYA Director March 19, 1998 - ---------------------------------- ------------------- Richard T. Mamiya Date /s/ FUJIO MATSUDA Director March 19, 1998 - ---------------------------------- ------------------- Fujio Matsuda Date /s/ RODERICK F. McPHEE Director March 19, 1998 - ---------------------------------- ------------------- Roderick F. McPhee Date /s/ GEORGE P. SHEA, JR. Director March 19, 1998 - ---------------------------------- ------------------- George P. Shea, Jr. Date /s/ JOHN K. TSUI President March 19, 1998 - ---------------------------------- & Director ------------------- John K. Tsui Date /s/ FRED C. WEYAND Director March 19, 1998 - ---------------------------------- ------------------- Fred C. Weyand Date /s/ ROBERT C. WO Director March 19, 1998 - ---------------------------------- ------------------- Robert C. Wo Date /s/ HOWARD H. KARR Executive Vice President March 19, 1998 - ---------------------------------- & Treasurer ------------------- Howard H. Karr (Principal financial and accounting officer) Date
22 EX-13 2 ANNUAL REPORT TO SECURITY HOLDERS 1 EXHIBIT 13 INVESTMENT SECURITIES BY MATURITIES AND WEIGHTED AVERAGE YIELDS The following table presents the maturities of available-for-sale investment securities, excluding securities which have no stated maturity at December 31, 1997, 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. 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.
Maturity ----------------------------------------------------------------------------------- After One After Five Within but Within but Within After One Year Five Years 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 .... $271 5.89% $114 6.02% $ -- --% $305 7.92% $690 6.81% COLLATERALIZED MORTGAGE OBLIGATIONS ......... -- -- -- -- -- -- 1 5.83 1 5.83 STATES AND POLITICAL SUBDIVISIONS ........ 1 7.54 1 9.65 -- -- 1 8.82 3 8.78 OTHER ................. 15 7.41 -- -- -- -- -- -- 15 7.41 - ----------------------- ---- ---- ---- ---- ---- TOTAL ............. $287 5.98% $115 6.05% $ -- --% $307 7.92% $709 6.83% ================================================================================================================================
Note: The weighted average yields were calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security. 35 2 SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED) A summary of unaudited quarterly financial data for 1997 and 1996 is presented below:
- -------------------------------------------------------------------------------------------------- Quarter ------------------------------------------- Annual (in thousands, except per share data) First Second Third Fourth Total - -------------------------------------------------------------------------------------------------- 1997 INTEREST INCOME ................ $145,395 $149,453 $149,432 $148,203 $592,483 INTEREST EXPENSE ............... 62,881 63,796 64,850 66,484 258,011 - -------------------------------------------------------------------------------------------------- NET INTEREST INCOME ............ 82,514 85,657 84,582 81,719 334,472 PROVISION FOR LOAN LOSSES ...... 3,752 4,261 3,817 5,381 17,211 TOTAL NONINTEREST INCOME ....... 23,854 26,361 23,913 24,385 98,513 TOTAL NONINTEREST EXPENSE ...... 73,010 74,865 72,126 72,209 292,210 - -------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES ..... 29,606 32,892 32,552 28,514 123,564 INCOME TAXES ................... 9,090 10,627 11,201 8,385 39,303 - -------------------------------------------------------------------------------------------------- NET INCOME ..................... $ 20,516 $ 22,265 $ 21,351 $ 20,129 $ 84,261 ================================================================================================== BASIC EARNINGS PER SHARE ....... $ .65 $ .70 $ .67 $ .64 $ 2.66 ================================================================================================== DILUTED EARNINGS PER SHARE $ .64 $ .70 $ .67 $ .63 $ 2.64 ================================================================================================== 1996 Interest income ................ $135,779 $138,606 $150,013 $149,742 $574,140 Interest expense ............... 59,759 60,548 66,379 66,109 252,795 - -------------------------------------------------------------------------------------------------- Net interest income ............ 76,020 78,058 83,634 83,633 321,345 Provision for loan losses ...... 3,322 5,191 4,649 10,465 23,627 Total noninterest income ....... 20,295 23,732 21,910 21,518 87,455 Total noninterest expense ...... 63,733 64,268 71,508 69,830 269,339 - -------------------------------------------------------------------------------------------------- Income before income taxes ..... 29,260 32,331 29,387 24,856 115,834 Income taxes ................... 9,057 11,587 10,386 4,508 35,538 - -------------------------------------------------------------------------------------------------- Net income ..................... $ 20,203 $ 20,744 $ 19,001 $ 20,348 $ 80,296 ================================================================================================== Basic earnings per share ....... $ .65 $ .67 $ .60 $ .64 $ 2.56 ================================================================================================== Diluted earnings per share...... $ .65 $ .67 $ .60 $ .63 $ 2.55 ==================================================================================================
38 3 REPORT OF INDEPENDENT ACCOUNTANTS First Hawaiian, Inc. and Subsidiaries To the Stockholders First Hawaiian, Inc. We have audited the accompanying consolidated balance sheets of First Hawaiian, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Hawaiian, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Honolulu, Hawaii January 15, 1998 39 4 CONSOLIDATED BALANCE SHEETS First Hawaiian, Inc. and Subsidiaries - --------------------------------------------------------------------------------
December 31, --------------------------- (in thousands, except number of shares and per share data) 1997 1996 - ----------------------------------------------------------------------------------------------------------------- ASSETS Interest-bearing deposits in other banks ......................................... $ 137,930 $ 70,130 Federal funds sold and securities purchased under agreements to resell ........... 134,274 148,370 Available-for-sale investment securities (note 3) ................................ 778,124 1,140,719 Loans: Loans (note 4) ................................................................. 6,238,681 5,806,732 Less allowance for loan losses (note 5) ........................................ 82,596 85,248 - ----------------------------------------------------------------------------------------------------------------- Net loans ........................................................................ 6,156,085 5,721,484 - ----------------------------------------------------------------------------------------------------------------- Total earning assets ............................................................. 7,206,413 7,080,703 Cash and due from banks .......................................................... 282,905 333,511 Premises and equipment (note 6) .................................................. 245,999 249,573 Customers' acceptance liability .................................................. 867 824 Core deposit premium (net of accumulated amortization of $13,605 in 1997 and $10,163 in 1996) (note 1) .................................. 25,347 28,877 Goodwill (net of accumulated amortization of $22,815 in 1997 and $17,838 in 1996) (note 1) .................................. 96,030 101,218 Other assets ..................................................................... 235,531 207,468 - ----------------------------------------------------------------------------------------------------------------- TOTAL ASSETS ..................................................................... $ 8,093,092 $ 8,002,174 ================================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing demand ..................................................... $ 903,195 $ 969,620 Interest-bearing demand ........................................................ 1,387,629 1,328,354 Savings ........................................................................ 1,013,752 1,070,338 Time (fair value of $2,499,390 in 1997 and $2,331,890 in 1996) (note 7) ........ 2,490,915 2,330,704 Foreign (fair value of $293,769 in 1997 and $237,744 in 1996) (note 7) ........ 293,709 237,692 - ----------------------------------------------------------------------------------------------------------------- Total deposits ................................................................... 6,089,200 5,936,708 - ----------------------------------------------------------------------------------------------------------------- Short-term borrowings (note 8) ................................................... 721,865 929,560 Acceptances outstanding .......................................................... 867 824 Other liabilities ................................................................ 230,723 223,455 Long-term debt (note 9) .......................................................... 218,736 205,743 Guaranteed preferred beneficial interests in Company's junior subordinated debentures (note 9) ............................................... 100,000 -- - ----------------------------------------------------------------------------------------------------------------- Total liabilities ................................................................ 7,361,391 7,296,290 - ----------------------------------------------------------------------------------------------------------------- Commitments and contingent liabilities (notes 13, 17 and 18) Stockholders' equity (note 11): Preferred stock $5 par value Authorized and unissued -- 50,000,000 shares in 1997 and 1996 ........................................................... -- -- Common stock $5 par value (notes 10 and 13) Authorized -- 100,000,000 shares Issued -- 33,190,374 shares in 1997 and 1996 ................................. 165,952 165,952 Surplus ........................................................................ 148,165 148,196 Retained earnings (note 12) .................................................... 473,659 428,693 Unrealized valuation adjustment ................................................ (241) 1,850 Treasury stock, at cost -- 1,845,217 shares in 1997 and 1,415,954 shares in 1996 .................................................................... (55,834) (38,807) - ----------------------------------------------------------------------------------------------------------------- Total stockholders' equity ....................................................... 731,701 705,884 - ----------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................................... $ 8,093,092 $ 8,002,174 =================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 40 5 CONSOLIDATED STATEMENTS OF INCOME First Hawaiian, Inc. and Subsidiaries - --------------------------------------------------------------------------------
Year Ended December 31, -------------------------------------------- (in thousands, except number of shares and per share data) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans ........................ $ 504,347 $ 468,517 $ 470,110 Lease financing income ............................ 14,437 10,494 11,334 Interest on investment securities: Taxable interest income ......................... 59,188 72,813 57,890 Exempt from Federal income taxes ................ 647 2,692 4,893 Other interest income ............................. 13,864 19,624 15,730 - --------------------------------------------------------------------------------------------------------- Total interest income ............................. 592,483 574,140 559,957 - --------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Deposits (note 7) ................................. 197,619 182,402 176,048 Short-term borrowings ............................. 41,527 53,977 74,370 Long-term debt .................................... 18,865 16,416 14,879 - --------------------------------------------------------------------------------------------------------- Total interest expense ............................ 258,011 252,795 265,297 - --------------------------------------------------------------------------------------------------------- Net interest income ............................... 334,472 321,345 294,660 Provision for loan losses (note 5) ................ 17,211 23,627 38,107 - --------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 317,261 297,718 256,553 - --------------------------------------------------------------------------------------------------------- NONINTEREST INCOME Trust and investment services income .............. 25,115 23,857 23,034 Service charges on deposit accounts ............... 28,776 26,284 24,150 Other service charges and fees .................... 31,509 24,976 22,779 Securities gains, net (note 3) .................... 270 118 144 Other ............................................. 12,843 12,220 11,999 - --------------------------------------------------------------------------------------------------------- Total noninterest income .......................... 98,513 87,455 82,106 - --------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE Salaries and wages ................................ 113,179 104,572 94,119 Employee benefits (note 13) ....................... 34,251 34,144 7,209 Occupancy expense (notes 6 and 17) ................ 38,715 27,045 25,706 Equipment expense (notes 6 and 17) ................ 25,146 22,680 23,907 Other (note 14) ................................... 80,919 80,898 65,580 - --------------------------------------------------------------------------------------------------------- Total noninterest expense ......................... 292,210 269,339 216,521 - --------------------------------------------------------------------------------------------------------- Income before income taxes ........................ 123,564 115,834 122,138 Income taxes (note 15) ............................ 39,303 35,538 45,133 - --------------------------------------------------------------------------------------------------------- NET INCOME ........................................ $ 84,261 $ 80,296 $ 77,005 ========================================================================================================= PER SHARE DATA BASIC EARNINGS .................................... $ 2.66 $ 2.56 $ 2.43 DILUTED EARNINGS .................................. $ 2.64 $ 2.55 $ 2.43 ========================================================================================================= CASH DIVIDENDS .................................... $ 1.24 $ 1.195 $ 1.18 ========================================================================================================= AVERAGE SHARES OUTSTANDING ........................ 31,725,534 31,398,978 31,734,669 =========================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 41 6 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY First Hawaiian, Inc. and Subsidiaries and First Hawaiian, Inc. (Parent Company) - --------------------------------------------------------------------------------
Common Stock Unrealized (in thousands, except number of ------------------------ Retained Valuation Treasury shares and per share data) Shares Amount Surplus Earnings Adjustment Stock Total - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 ...... 32,542,797 $ 162,713 $ 133,820 $ 346,339 $ (1,033) $ (13,895) $ 627,944 Net income -- 1995 .............. -- -- -- 77,005 -- -- 77,005 Purchase of treasury stock ...... -- -- -- -- -- (24,671) (24,671) Cash dividends ($1.18 per share) (note 12) ..................... -- -- -- (37,368) -- -- (37,368) Unrealized valuation adjustment (note 3) ...................... -- -- -- -- 6,522 -- 6,522 Incentive Plan for Key Executives (note 13) ..................... -- -- 105 -- -- -- 105 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 ...... 32,542,797 162,713 133,925 385,976 5,489 (38,566) 649,537 Net income -- 1996 .............. -- -- -- 80,296 -- -- 80,296 Issuance of common stock (note 10) ..................... 647,577 3,239 14,286 -- -- -- 17,525 Cash dividends ($1.195 per share) (note 12) ..................... -- -- -- (37,579) -- -- (37,579) Unrealized valuation adjustment (note 3) ...................... -- -- -- -- (3,639) -- (3,639) Incentive Plan for Key Executives (note 13) ..................... -- -- (15) -- -- (241) (256) - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 ...... 33,190,374 165,952 148,196 428,693 1,850 (38,807) 705,884 Net income -- 1997 .............. -- -- -- 84,261 -- -- 84,261 Purchase of treasury stock ...... -- -- -- -- -- (18,953) (18,953) Cash dividends ($1.24 per share) (note 12) ..................... -- -- -- (39,295) -- -- (39,295) Unrealized valuation adjustment (note 3) ...................... -- -- -- -- (2,091) -- (2,091) Incentive Plan for Key Executives (note 13) ..................... -- -- (31) -- -- 1,926 1,895 - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 ...... 33,190,374 $ 165,952 $ 148,165 $ 473,659 $ (241) $ (55,834) $ 731,701 ==================================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 42 7 CONSOLIDATED STATEMENTS OF CASH FLOWS First Hawaiian, Inc. and Subsidiaries - --------------------------------------------------------------------------------
Year Ended December 31, ------------------------------------------- (in thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- CASH AND DUE FROM BANKS AT BEGINNING OF YEAR ....................... $ 333,511 $ 304,051 $ 262,894 Cash flows from operating activities: Net income ....................................................... 84,261 80,296 77,005 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses .................................... 17,211 23,627 38,107 Depreciation and amortization ................................ 31,568 31,252 27,798 Gain on curtailment of noncontributory pension plan .......... -- -- (20,766) Income taxes ................................................. 20,071 20,580 20,953 Decrease (increase) in interest receivable ................... 4,096 (2,571) (5,154) Increase (decrease) in interest payable ...................... 10,010 (5,840) 7,655 Decrease (increase) in prepaid expense ....................... 1,663 (8,222) (48) Other ........................................................ 11,356 (21,054) (5,431) - ------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities .......................... 180,236 118,068 140,119 - ------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Net decrease (increase) in interest-bearing deposits in other banks ................................................. (67,800) 174,440 (232,900) Net decrease in Federal funds sold and securities purchased under agreements to resell ........................... 14,096 32,133 10,197 Purchase of held-to-maturity investment securities ............... -- -- (247,559) Proceeds from maturity of held-to-maturity investment securities . -- -- 690,357 Purchase of available-for-sale investment securities ............. (367,595) (567,143) (29,921) Proceeds from sale of available-for-sale investment securities ... 387,986 81,159 15,000 Proceeds from maturity of available-for-sale investment securities 338,732 521,787 17,020 Net increase in loans to customers ............................... (482,097) (137,281) (220,553) Net cash provided by Pacific Northwest Acquisitions .............. -- 218,966 -- Purchase of bank owned life insurance on certain officers ........ (30,000) -- -- Capital expenditures ............................................. (18,792) (20,634) (13,072) Other ............................................................ (6,809) 7,210 (4,376) - ------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities ................ (232,279) 310,637 (15,807) - ------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase (decrease) in deposits .............................. 152,492 (174,782) 206,100 Net decrease in short-term borrowings ............................ (227,695) (236,619) (246,637) Proceeds from long-term debt ..................................... 192,700 53,000 19,447 Payments on long-term debt ....................................... (59,707) (3,009) (26) Cash dividends paid .............................................. (39,295) (37,579) (37,368) Repurchased common stock ......................................... (17,058) (256) (24,671) - ------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities ................ 1,437 (399,245) (83,155) - ------------------------------------------------------------------------------------------------------------------- CASH AND DUE FROM BANKS AT END OF YEAR ............................. $ 282,905 $ 333,511 $ 304,051 =================================================================================================================== Supplemental disclosures: Interest paid .................................................... $ 248,001 $ 258,635 $ 256,906 Income taxes paid ................................................ $ 19,232 $ 20,580 $ 24,181 Supplemental schedule of noncash investing and financing activities: Loans converted into other real estate owned ..................... $ 23,753 $ 26,764 $ 10,279 Loans exchanged for mortgage-backed securities ................... $ -- $ -- $ 461,449 Transfer of securities from held-to-maturity to available-for-sale, at estimated fair value .................... $ -- $ -- $ 1,023,144 =================================================================================================================== In connection with the Pacific Northwest Acquisitions, the following liabilities were assumed: Fair value of assets acquired ...................................... $ -- $ 552,582 $ -- Cash received ...................................................... -- 218,966 -- Issuance of common stock ........................................... -- (17,525) -- - ------------------------------------------------------------------------------------------------------------------- LIABILITIES ASSUMED ................................................ $ -- $ 754,023 $ -- ===================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 43 8 NOTES TO FINANCIAL STATEMENTS First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of First Hawaiian, Inc. and Subsidiaries (the "Company") 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 First Hawaiian, Inc. (the "Parent") and its wholly-owned subsidiary companies -- First Hawaiian Bank and its wholly-owned subsidiaries (the "Bank"); Pacific One Bank ("Pacific One"); First Hawaiian Creditcorp, Inc. and its wholly-owned subsidiary ("Creditcorp"); FHL Lease Holding Company, Inc. and its wholly-owned subsidiary ("Leasing"); First Hawaiian Capital I; and FHI International, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. RECLASSIFICATIONS Certain reclassifications were made to the 1996 and 1995 Financial Statements to conform to the 1997 presentation. Such reclassifications did not have a material effect on the Financial Statements. 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 and 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. For 1997, 1996 and 1995, the average amount of these reserve balances was $91,918,000, $127,399,000 and $123,648,000, respectively. INVESTMENT SECURITIES Investment securities consist principally of debt instruments issued by the U.S. Treasury and other U.S. Government agencies and corporations, state and local government units and asset-backed securities. These securities have been adjusted for amortization of premiums or accretion of discounts using the interest method. Investments in and obligations to individual counterparties are presented as net amounts in the consolidated financial statements of the Company only if the conditions specified in Financial Accounting Standards Board ("FASB") Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts," are met. No such netting occurred as of December 31, 1997 and 1996. 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, and are reported at amortized cost; (2) trading securities are debt securities which are bought and held principally for the purpose of selling them in the near term and are reported at fair value, with unrealized gains and losses included in current earnings; and (3) available-for-sale securities are debt securities which are not classified as either held-to-maturity securities or trading securities and are reported at fair value, with unrealized gains and losses excluded from current earnings and reported in a separate component of stockholders' equity. Gains and losses realized on the sales of investment securities are determined using the specific identification method. LOANS Loans are stated at their principal outstanding amounts, net of any unearned discounts. Interest income on loans is accrued and recognized on the principal amount outstanding. Loan origination fees and substantially all loan commitment fees are generally deferred and accounted for as an adjustment of the yield. Lease financing transactions consist of two types: (1) Equipment without outside financing is accounted for using the direct financing method with income recognized over the life of the lease based upon a constant periodic rate of return on the net investment in the lease. (2) 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 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. Loans are placed on nonaccrual status when serious doubt exists as to the collectibility of the principal and/or interest. When loans are placed on nonaccrual status, any accrued and unpaid interest is reversed against interest income of the current period. Interest payments received on nonaccrual loans are applied as a 44 9 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- reduction of the principal when concern exists as to the ultimate collection of the principal; otherwise, such payments are recorded as income. Loans are removed from nonaccrual status when they become current as to both principal and interest and when concern no longer exists as to the collectibility of principal and interest. On January 1, 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing Rights," which amends SFAS No. 65, "Accounting for Certain Mortgage Banking Activities." This statement requires that a mortgage banking enterprise recognize as separate assets the rights to service mortgage loans for others, however those rights are acquired. The adoption of this standard did not have a material effect on the consolidated financial statements of the Company. ALLOWANCE FOR LOAN LOSSES Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures." SFAS No. 114 requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price, or at the fair value of the collateral if the loan is collateral dependent. The adoption of SFAS No. 114 did not change management's existing methodology for measuring impairment primarily because the majority of impaired loan valuations continue to be based on the fair value of the collateral. The provision for loan losses charged to expense is based upon, among other things, the Company's historical loss experience and estimates of future loan losses inherent in the current loan portfolio, including the evaluation of impaired loans in accordance with SFAS No. 114. A loan is considered to be impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan. Impairment is primarily measured based on the fair value of the collateral. Impairment losses are included in the provision for loan losses. SFAS No. 114 does not apply to large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment, except for those loans restructured under a troubled debt structuring. Smaller balance homogeneous loans include credit card and consumer loans, which are charged off at a predetermined delinquency status. Management periodically analyzes each commercial, financial and agricultural and real estate loan past due 90 days or more and still accruing interest on a loan-by-loan basis. If management expects that the borrower will shortly bring the loan current and/or that the fair value of the collateral exceeds the recorded investment in the loan, the loan is not placed on nonaccrual status. Consumer and credit card loans are not placed on nonaccrual status because they are charged off when they reach a predetermined delinquency status. The allowance for loan losses (the "Allowance") is maintained at a level which, in management's judgment, is adequate to absorb future loan losses. Estimates of future loan losses involve judgment and assumptions as to various factors which deserve current recognition in estimating such losses and in determining the adequacy of the Allowance. Principal factors considered by management include the historical loss experience, the value and adequacy of collateral, the level of nonperforming (nonaccrual and restructured) loans, loan concentrations, the growth and composition of the portfolio, the review of monthly delinquency reports, the results of examinations of individual loans and/or evaluation of the overall portfolio by senior credit personnel, internal auditors, and Federal and State regulatory agencies, 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 reduced by loans charged off when collectibility becomes doubtful and the underlying collateral, if any, is considered inadequate to liquidate the outstanding debt. Recoveries on loans previously charged off are added to the Allowance. OTHER REAL ESTATE OWNED Other real estate owned, included in other assets, is comprised of properties acquired primarily through foreclosure proceedings. When acquired, these properties are valued at fair value, which establishes the new cost basis of other real estate owned. Losses arising at the time of acquisition of such properties are charged against the Allowance. Subsequent to acquisition, such properties are carried at the lower of cost or fair value less estimated selling costs. Write-downs or losses from the disposition of such properties subsequent to the date of acquisition are included 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, 3-13 years for equipment and the lease term for leasehold improvements. CORE DEPOSIT PREMIUM AND GOODWILL The core deposit premium is being amortized on the straight-line method over various lives ranging from 9 to 20 years. The excess of the purchase price over the fair value of the net assets acquired is accounted for as 45 10 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- goodwill and is being amortized on the straight-line method over 25 years. Goodwill represents the cost of acquired companies in excess of the fair value of net assets acquired. In compliance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which the Company adopted on January 1, 1996, it is the Company's policy to review goodwill for impairment whenever events or changes in circumstances indicate that its investment in the underlying assets/businesses which gave rise to such goodwill may not be recoverable. Should such an evaluation of impairment become necessary, the Company will evaluate the performance of such acquired business on an undiscounted basis. The Company does not believe that there is any current impairment of goodwill. REPURCHASE AND REVERSE REPURCHASE AGREEMENTS The Company adopted SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," as amended by SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125 -- An Amendment of FASB Statement No. 125," on January 1, 1997. SFAS No. 125 applies a control-oriented, financial components approach to financial-asset-transfer transactions whereby the Company: (1) recognizes the financial and servicing assets it controls and the liabilities it has incurred; (2) derecognizes financial assets only when control has been surrendered; and (3) derecognizes liabilities once they are extinguished. Under SFAS No. 125, 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 any of these conditions are not met, the Company accounts for the transfer as a secured borrowing. Securities purchased under agreements to resell and securities sold under agreements to repurchase generally qualify as financing transactions under SFAS No. 125, and are carried at the amounts at which the securities subsequently will be resold or reacquired as specified in the respective agreements; such amounts include accrued interest. Reverse-repurchase and repurchase agreements are presented in the accompanying Consolidated Balance Sheets where net presentation is consistent with FASB Interpretation No. 41, "Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements." It is the Company's policy to take possession of securities purchased under agreements to resell. The Company monitors the fair value of the underlying securities as compared with the related receivable, including accrued interest, and, as necessary, requests additional collateral. Where deemed appropriate, the Company's agreements with third parties specify its rights to request additional collateral. All collateral is held by the Company or a custodian. In those reverse repurchase and securities-borrowed transactions where the securities received qualify for collateral recognition under SFAS No. 125, the securities are recorded at fair value, and a corresponding liability which reflects the obligation to return such securities is also recorded. As of December 31, 1997, there were no such transactions. SERVICING ASSETS In accordance with SFAS No. 125, the Company records a separate asset or liability representing the right or obligation, respectively, to service loans (or other financial assets that are being serviced) for others. A servicing asset is determined by allocating the loans' previous carrying amount between the servicing asset and the loans that were sold, based on their relative fair values at the date of sale. The fair value of the servicing assets is calculated based on an analysis of discounted cash flows that incorporates estimates of: (1) market servicing costs; (2) projected ancillary servicing revenue; (3) projected prepayment rates that are based on changes in interest rates; and (4) market profit margins. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing income. Impairment of servicing assets is evaluated through an assessment of the fair value of those assets via a discounted cash-flows method in which the assets are disaggregated into various strata based on predominant risk characteristics. The net carrying value of each stratum is compared to its discounted estimated future net cash flows to determine whether adjustments should be made to carrying values or amortization schedules. Impairment of a servicing asset is recognized either through: (1) a valuation allowance and a charge to current-period earnings if it is considered to be temporary; or (2) a direct write-down of the asset and a charge to current-period earnings if it is considered other than temporary. The predominant risk characteristics of the underlying loans that are used to stratify servicing assets for measurement purposes include: (1) loan origination date; (2) loan interest rate; 46 11 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- (3) loan type and size; (4) loan maturity date; and (5) geographic location. The estimated rate of prepayment of loans serviced is the most significant factor involved in the measurement process. Management's future prepayment rate estimates are based on the Company's historical rate of loan repayment, industry trends and other considerations. Actual prepayment rates may differ from those projected by management due to changes in a variety of economic factors, including prevailing interest rates and the availability of alternative financing sources to borrowers. If actual prepayments of the loans being serviced were to occur more quickly than projected, the carrying value of servicing assets might have to be written down through a charge to earnings in the current period. If actual prepayments of the loans being serviced were to occur more slowly than projected, the carrying value of the servicing assets could increase, and servicing income would exceed previously projected amounts. Accordingly, the servicing assets actually realized could differ from the amounts initially recorded. Changes in the balance of servicing assets for the years ended December 31, 1997 and 1996 were as follows:
- ---------------------------------------------------- (in thousands) 1997 1996 - ---------------------------------------------------- Balance at beginning of the year $ 962 $ -- Servicing asset additions ...... 1,029 1,162 Less amortization .............. 310 200 - ---------------------------------------------------- BALANCE AT END OF THE YEAR ..... $1,681 $ 962 ====================================================
The valuation allowance on originated servicing assets at December 31, 1997 and 1996 was not material. Additionally, there were no unrecognized servicing assets or assets for which it was not practicable to estimate fair value. There were no mortgage servicing liabilities at December 31, 1997 and 1996. INCOME TAXES The Company has adopted SFAS No. 109, "Accounting for Income Taxes," which requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income tax liabilities and assets are determined 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. Excise tax credits relating to premises and equipment are accounted for under the flow-through method which recognizes 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. A consolidated Federal income tax return is filed for the Company. 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. DERIVATIVES The Company enters into interest rate swap and floor contracts in managing its interest rate risk. The criteria that must be satisfied for accrual accounting treatment are as follows: (1) the transaction to be hedged exposes the Company to interest rate risk; (2) the hedge acts to reduce the interest rate risk by moving closer to being insensitive to interest rate changes; and (3) the derivative is designed and effective as a hedge of the transaction. The following additional criteria apply to hedges of anticipated transactions: (1) the significant characteristics and expected terms of the anticipated transaction must be identified; and (2) it must be probable that the anticipated transaction will occur. Derivative products that do not satisfy the hedging criteria described above would be carried at market value. Any changes in market value would be recognized in noninterest income. As of December 31, 1997, all derivative product instruments met the criteria for accrual accounting treatment. Premiums for purchased floors are amortized over the life of the contracts. Since the contracts represent an exchange of interest payments and the underlying principal balances are not affected, there is no material effect on the total assets or liabilities of the Company. The related income or expense from these contracts is included as part of the interest income or expense for the corresponding asset or liability being hedged. Changes in fair value are not reflected in the financial statements. Gains or losses resulting from early termination of derivatives and the designated hedged items are recorded to income or expense at the date of termination. Gains or losses on termination of anticipatory hedges are amortized over the life of the designated hedged items. PER SHARE DATA In 1997, the Company adopted SFAS No. 128, "Earnings per Share," which specifies the computation, presentation and disclosure requirements for earnings per share. Prior period earnings per share data has been expanded to comply with the provisions of SFAS No. 128. 47 12 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share:
- ------------------------------------------------------------------------------------ 1997 --------------------------------------------- (in thousands, except number of shares and Income Shares Per Share per share data) (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------------ BASIC: NET INCOME .................. $ 84,261 31,725,534 $ 2.66 EFFECT OF DILUTIVE SECURITIES -- STOCK INCENTIVE PLAN OPTIONS .............. -- 149,770 -- - ------------------------------------------------------------------------------------ DILUTED: NET INCOME AND ASSUMED CONVERSIONS ............... $ 84,261 31,875,304 $ 2.64 ====================================================================================
- ------------------------------------------------------------------------------------ 1996 --------------------------------------------- (in thousands, except number of shares and Income Shares Per Share per share data) (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------------ Basic: Net income .................. $ 80,296 31,398,978 $ 2.56 Effect of dilutive securities -- Stock incentive plan options .............. -- 43,950 -- - ------------------------------------------------------------------------------------ Diluted: Net income and assumed conversions ............... $ 80,296 31,442,928 $ 2.55 ====================================================================================
- ------------------------------------------------------------------------------------ 1995 --------------------------------------------- (in thousands, except number of shares and Income Shares Per Share per share data) (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------------ Basic: Net income .................. $ 77,005 31,734,669 $ 2.43 Effect of dilutive securities -- Stock incentive plan options .............. -- 3,554 -- - ------------------------------------------------------------------------------------ Diluted: Net income and assumed conversions ............... $ 77,005 31,738,223 $ 2.43 ====================================================================================
FAIR VALUES OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures About Fair Values of Financial Instruments," requires the Company to disclose estimated fair values for its financial instruments. The following methods and assumptions were used by the Company in estimating the fair value of its 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 (including mortgage-backed 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: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values of commercial and industrial loans, financial institution loans, agricultural loans, certain mortgage loans (e.g., 1-4 family residential, commercial real estate and rental property), credit card loans, and other consumer loans are estimated using discounted cash flow analyses, which utilize interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest approximates its fair value. Off-balance sheet commitments and contingent liabilities: Fair values of off-balance sheet commitments and contingent liabilities are based upon: (1) quoted market prices of comparable instruments (interest rate floors); (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 brokers' quoted markets, current levels of interest rates and specific cash flow schedules (interest rate swaps). Deposits: The fair values of deposits with no maturity date (e.g., interest and noninterest checking, passbook savings, and certain types of money market accounts) are, by definition, 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 repurchase agreements, and other short-term borrowings approximate their fair values. Long-term debt and capital securities: The fair values of the Company's long-term debt (other than deposits) and capital securities are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. NEW PRONOUNCEMENTS In 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 states that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 131 requires disclosures regarding segments of an 48 13 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- enterprise and related information that reflects the different types of business activities in which the enterprise engages and the different economic environments in which it operates. The adoption of these standards is not expected to have a material effect on the Company's consolidated financial statements. 2. PACIFIC NORTHWEST ACQUISITIONS On May 31, 1996, for a purchase price of $36 million, the Company acquired 31 branches in Oregon, Washington and Idaho, which were being divested by U.S. Bancorp and West One Bancorp as a result of their merger. This transaction included the purchase of loans of $400 million and the assumption of deposits of $687 million. The acquisition was accounted for using the purchase method of accounting and the results of operations were included in the Consolidated Statements of Income from the date of acquisition. Of the 31 branches acquired by the Company, the 27 Oregon and Idaho branches are being operated as Pacific One Bank, a wholly-owned subsidiary of the Company. The four branches acquired in Washington state were originally operated as Pacific One Bank, FSB as branches of Pioneer Federal Savings Bank ("Pioneer"), a wholly-owned subsidiary of the Company that was merged into the Bank in 1997 (see current operations described below). On July 31, 1996, for a purchase price of $18 million, the Company acquired ANB Financial Corporation, a bank holding company, and its subsidiary, American National Bank ("ANB"), which had total loans of $51 million and deposits of $67 million at the date of acquisition. American National Bank had a total of four branches in Washington state. The acquisition was accounted for using the purchase method of accounting and the results of operations of ANB were included in the Consolidated Statements of Income from the date of acquisition. On November 8, 1996, American National Bank acquired the four branches in Washington state from Pioneer and changed its name to Pacific One Bank, National Association ("Pacific One, N.A."). On December 31, 1997, Pacific One, N.A. was merged into Pacific One Bank. Currently, Pacific One operates 28 branches in Oregon, eight branches in Washington and two branches in Idaho. 3. AVAILABLE-FOR-SALE INVESTMENT SECURITIES Amortized cost and fair values of available-for-sale investment securities at December 31, 1997, 1996 and 1995 were as follows:
- -------------------------------------------------------------------------------- 1997 ------------------------------------------------ Amortized Unrealized Unrealized Fair (in thousands) Cost Gains Losses Value - -------------------------------------------------------------------------------- U.S. TREASURY AND OTHER U.S. GOVERNMENT AGENCIES AND CORPORATIONS ............. $689,221 $ 989 $ 1,197 $689,013 COLLATERALIZED MORTGAGE OBLIGATIONS .............. 1,399 -- 2 1,397 STATES AND POLITICAL SUBDIVISIONS ............. 2,955 31 196 2,790 OTHER ...................... 84,953 1 30 84,924 - -------------------------------------------------------------------------------- TOTAL AVAILABLE-FOR- SALE INVESTMENT SECURITIES ............... $778,528 $ 1,021 $ 1,425 $778,124 ================================================================================
- ---------------------------------------------------------------------------------- 1996 -------------------------------------------------- Amortized Unrealized Unrealized Fair (in thousands) Cost Gains Losses Value - ---------------------------------------------------------------------------------- U.S. Treasury and other U.S. Government agencies and corporations ............. $1,025,699 $ 4,626 $ 1,666 $1,028,659 Collateralized mortgage obligations .............. 14,531 41 14 14,558 States and political subdivisions ............. 30,124 317 221 30,220 Other ...................... 67,286 -- 4 67,282 - ---------------------------------------------------------------------------------- Total available-for- sale investment securities ............... $1,137,640 $ 4,984 $ 1,905 $1,140,719 ==================================================================================
- ---------------------------------------------------------------------------------- 1995 -------------------------------------------------- Amortized Unrealized Unrealized Fair (in thousands) Cost Gains Losses Value - ---------------------------------------------------------------------------------- U.S. Treasury and other U.S. Government agencies and corporations ............. $ 895,327 $ 8,790 $ 187 $ 903,930 Collateralized mortgage obligations .............. 97,360 1 386 96,975 States and political subdivisions ............. 54,176 1,129 224 55,081 Other ...................... 119,315 -- 8 119,307 - ---------------------------------------------------------------------------------- Total available-for- sale investment securities ............... $1,166,178 $ 9,920 $ 805 $1,175,293 ==================================================================================
49 14 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- The amortized cost and fair values of available-for-sale investment securities at December 31, 1997, by contractual maturity, excluding securities which have no stated maturity, were as follows:
- -------------------------------------------------------------------------------- Amortized Fair (in thousands) Cost Value - -------------------------------------------------------------------------------- DUE WITHIN ONE YEAR ............................ $286,265 $286,163 DUE AFTER ONE BUT WITHIN FIVE YEARS ............ 115,132 115,408 DUE AFTER FIVE BUT WITHIN TEN YEARS ............ 243 245 DUE AFTER TEN YEARS ............................ 307,208 306,632 - -------------------------------------------------------------------------------- TOTAL AVAILABLE-FOR-SALE INVESTMENT SECURITIES ........................ $708,848 $708,448 ================================================================================
The Company held no trading or held-to-maturity securities at December 31, 1997, 1996 and 1995. Investment securities with an aggregate book value of $644,397,000 at December 31, 1997 were pledged to secure public deposits and repurchase agreements as required by law. The Company did not hold investment securities of any single issuer (other than the U.S. Government and its agencies) which were in excess of 10% of stockholders' equity at December 31, 1997. Gross gains of $1,088,000, $131,000 and $224,000 and gross losses of $818,000, $13,000 and $80,000 were realized on sales of investment securities during 1997, 1996 and 1995, respectively. At December 31, 1997, collateralized mortgage obligations were comprised of floating rate bonds with an estimated average life of 2.3 years. 4. LOANS At December 31, 1997 and 1996, loans were comprised of the following:
- -------------------------------------------------------------------------------- 1997 1996 ------------------------ ------------------------ (in thousands) Book Value Fair Value Book Value Fair Value - -------------------------------------------------------------------------------- Commercial, financial and agricultural ......... $1,582,698 $1,599,112 $1,381,824 $1,390,768 Real estate: Commercial ........... 1,193,538 1,258,439 1,172,124 1,173,697 Construction ......... 166,482 168,154 213,195 207,921 Residential .......... 1,944,611 1,871,172 1,935,920 1,923,668 Consumer ............... 678,984 680,046 583,060 577,241 Lease financing ........ 333,270 330,318 240,898 236,586 Foreign ................ 339,098 340,898 279,711 284,048 - -------------------------------------------------------------------------------- TOTAL LOANS ............ $6,238,681 $6,248,139 $5,806,732 $5,793,929 ================================================================================
At December 31, 1997 and 1996, loans aggregating $55,601,000 and $72,408,000, respectively, were on a nonaccrual basis or restructured. In the normal course of business, the Company makes loans to its executive officers and directors and to companies and individuals affiliated with executive officers and directors of the Company. Changes in the loans to such parties were as follows:
- -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Balance at beginning of year ............. $ 260,888 $ 257,404 New loans made ......................... 51,490 28,909 Repayments ............................. (65,409) (25,425) - -------------------------------------------------------------------------------- BALANCE AT END OF YEAR ................... $ 246,969 $ 260,888 ================================================================================
At December 31, 1997 and 1996, loans to such parties by the Parent were $9,811,000 and $11,731,000, respectively, and the income related to these loans was $782,000, $1,045,000 and $1,143,000 for 1997, 1996 and 1995, respectively. Real estate loans totalling $1,243,274,000 were pledged to collateralize Federal Home Loan Bank of Seattle advances at December 31, 1997. 5. ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses were as follows for the years indicated:
- -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Balance at beginning of year ......... $ 85,248 $ 78,733 $ 61,250 Provision charged to expense ....... 17,211 23,627 38,107 Net charge-offs: Loans charged off ................ (25,130) (27,341) (22,845) Recoveries on loans charged off .................... 5,267 3,123 2,221 - -------------------------------------------------------------------------------- Net charge-offs .............. (19,863) (24,218) (20,624) - -------------------------------------------------------------------------------- Allowance of subsidiaries purchased ........................ -- 7,106 -- - -------------------------------------------------------------------------------- BALANCE AT END OF YEAR ............... $ 82,596 $ 85,248 $ 78,733 ================================================================================
The following table presents information related to impaired loans as of and for the years ended December 31, 1997, 1996 and 1995:
- -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Impaired loans ....................... $ 74,751 $128,446 $ 97,915 Impaired loans with related allowance for loan losses calculated under SFAS No. 114 ............................ 38,278 41,778 65,430 Total allowance on impaired loans .............................. 9,257 9,690 15,380 Average impaired loans ............... 90,901 87,289 82,304 Interest income recorded during the year ........................... 835 980 3,454 ================================================================================
Impaired loans without a related allowance for loan losses are generally collateralized by assets with fair values in excess of the recorded investment in the loans. Interest payments on impaired loans are generally applied to reduce the outstanding principal amounts of such loans. 50 15 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- 6. PREMISES AND EQUIPMENT At December 31, 1997 and 1996, premises and equipment were comprised of the following:
- -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Premises ................................... $244,221 $240,910 Equipment .................................. 154,497 145,527 - -------------------------------------------------------------------------------- 398,718 386,437 Less accumulated depreciation and amortization ......................... 152,719 136,864 - -------------------------------------------------------------------------------- NET BOOK VALUE ............................. $245,999 $249,573 ================================================================================
Occupancy and equipment expense include depreciation and amortization expense of $18,057,000, $17,541,000 and $17,649,000 for 1997, 1996 and 1995, respectively. 7. DEPOSITS Interest expense related to deposits for the years indicated was as follows:
- -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Interest-bearing demand ........... $ 41,885 $ 36,104 $ 30,034 Savings ........................... 19,457 20,679 34,272 Time -- Under $100 ................ 76,444 67,714 52,260 Time -- $100 and over ............. 50,484 48,993 40,682 Foreign ........................... 9,349 8,912 18,800 - -------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE ON DEPOSITS ..................... $197,619 $182,402 $176,048 ================================================================================
Time deposits in denominations of $100,000 or more at December 31, 1997 and 1996 were as follows:
- -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Domestic ......................... $1,052,491 $906,220 Foreign .......................... $ 87,402 $ 73,563 ================================================================================
8. SHORT-TERM BORROWINGS At December 31, 1997, 1996 and 1995, short-term borrowings were comprised of the following:
- -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- First Hawaiian Bank: Federal funds purchased ......... $ 87,475 $ 49,980 $ 19,586 Securities sold under agreements to repurchase ...... 495,054 685,064 838,026 Advances from Federal Home Loan Bank of Seattle ....................... 81,000 97,237 184,290 First Hawaiian, Inc. (Parent): Commercial paper ................ 1,800 4,409 13,777 Notes payable ................... -- 50,000 -- Other subsidiaries: Advances from Federal Home Loan Bank of Seattle ....................... 18,000 16,500 27,500 Securities sold under agreements to repurchase ...... 38,536 26,370 -- - -------------------------------------------------------------------------------- TOTAL SHORT-TERM BORROWINGS ....... $721,865 $929,560 $1,083,179 ================================================================================
Average rates and average and maximum balances for these short-term borrowings were as follows for the years indicated:
- -------------------------------------------------------------------------------- (dollars in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Federal funds purchased: Average interest rate at December 31 .................. 5.7% 5.8% 5.9% Highest month-end balance ...... $116,450 $123,608 $270,927 Average daily outstanding balance ...................... $ 76,164 $ 49,210 $161,602 Average daily interest rate paid .................... 6.2% 5.6% 6.3% Securities sold under agreements to repurchase: Average interest rate at December 31 .................. 5.3% 5.0% 5.4% Highest month-end balance ...... $715,554 $818,527 $909,867 Average daily outstanding balance ...................... $593,061 $785,144 $823,506 Average daily interest rate paid .................... 5.0% 5.2% 5.6% Commercial paper: Average interest rate at December 31 .................. 5.2% 5.1% 5.3% Highest month-end balance ...... $ 6,226 $ 13,509 $ 49,102 Average daily outstanding balance ...................... $ 5,017 $ 9,854 $ 26,875 Average daily interest rate paid .................... 5.3% 5.2% 6.2% Notes payable: Average interest rate at December 31 .................. --% 5.8% --% Highest month-end balance ...... $ 50,000 $ 50,000 $ -- Average daily outstanding balance ...................... $ 31,742 $ 12,568 $ -- Average daily interest rate paid .................... 6.0% 5.9% --% Advances from Federal Home Loan Bank of Seattle: Average interest rate at December 31 .................. 5.7% 5.7% 5.9% Highest month-end balance ...... $100,500 $212,016 $322,661 Average daily outstanding balance ...................... $ 87,658 $155,182 $259,998 Average daily interest rate paid .................... 5.5% 5.7% 6.8% ============================================================================
51 16 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Securities sold under agreements to repurchase were treated as financings and the obligations to repurchase the identical securities sold were reflected as liabilities with the dollar amount of securities underlying the agreements remaining in the asset accounts. At December 31, 1997, the weighted average maturity of these agreements was 74 days and primarily represents investments by public (governmental) entities. A schedule of maturities of these agreements was as follows:
- ------------------------------------------------------------------- (in thousands) - ------------------------------------------------------------------- OVERNIGHT .............................................. $ 34,161 LESS THAN 30 DAYS ...................................... 229,777 30 TO 90 DAYS .......................................... 120,254 OVER 90 DAYS ........................................... 149,398 - ------------------------------------------------------------------- TOTAL .................................................. $533,590 ===================================================================
The Parent had $50,000,000 in unused lines of credit with unaffiliated banks to support its commercial paper borrowings as of December 31, 1997. 9. LONG-TERM DEBT AND CAPITAL SECURITIES At December 31, 1997 and 1996, long-term debt was comprised of the following:
- ----------------------------------------------------------------------- 1997 1996 ------------------ --------------------- BOOK FAIR Book Fair (dollars in thousands) VALUE VALUE Value Value - ----------------------------------------------------------------------- First Hawaiian, Inc. (Parent): 6.188% note due 2004 ................ $ 50,000 $ 50,018 $ -- $ -- 6.25% subordinated notes due 2000..... 100,000 100,090 100,000 98,610 7.375% subordinated notes due 2006 .... 50,000 52,575 50,000 50,575 Other subsidiaries -- 5.50%-6.08% notes due through 2000 .. 18,736 18,801 55,743 55,989 - ----------------------------------------------------------------------- TOTAL LONG-TERM DEBT ................ $218,736 $221,484 $205,743 $205,174 =======================================================================
FIRST HAWAIIAN, INC. (PARENT) The 6.188% note due in 2004 is unsecured and accrues interest at London Interbank Offered Rates ("LIBOR") plus 0.25% per annum (6.188% per annum at December 31, 1997). Interest is paid on a quarterly basis. The 6.25% subordinated notes due in 2000 and the 7.375% subordinated notes due in 2006 are unsecured obligations with interest payable semiannually. OTHER SUBSIDIARIES The 5.50%-6.08% notes due through 2000 represent advances from the Federal Home Loan Bank of Seattle to the Company's other subsidiaries (Bank and Creditcorp) with interest payable monthly. FIRST HAWAIIAN CAPITAL I In 1997, First Hawaiian Capital I, a Delaware business trust (the "Trust"), issued Capital Securities (the "Capital Securities") with an aggregate liquidation amount of $100,000,000, and used the proceeds therefrom to purchase junior subordinated deferrable interest debentures (the "Debentures") of the Company. Such debentures are the sole assets of the Trust. The Capital Securities qualify as Tier 1 Capital of the Company and are fully and unconditionally guaranteed by the Company. The Company owns all the common securities issued by the Trust. The Capital Securities accrue and pay interest semi-annually at an annual interest rate of 8.343%. The Capital Securities are mandatorily redeemable upon maturity of the Debentures on July 1, 2027, or upon earlier redemption in whole or in part (subject to a prepayment penalty) as provided for in the governing indenture. As of December 31, 1997, the principal payments due on long-term debt and capital securities were as follows:
- ------------------------------------------------------------------------ FIRST FIRST HAWAIIAN, INC. HAWAIIAN OTHER (in thousands) (PARENT) CAPITAL I SUBSIDIARIES TOTAL - ------------------------------------------------------------------------ 1999 $ -- $ -- $14,018 $ 14,018 2000 100,000 -- 4,020 104,020 2001 -- -- 22 22 2002 -- -- 24 24 2003 AND THEREAFTER 100,000 100,000 652 200,652 - ------------------------------------------------------------------------ TOTAL $200,000 $100,000 $18,736 $318,736 ========================================================================
10. COMMON STOCK On July 31, 1996, the Company acquired ANB Financial Corporation, a bank holding company, and its subsidiary, American National Bank, for $17,525,000 in the form of an exchange of shares of ANB Financial Corporation's common stock for 647,577 newly-issued shares of the Company's common stock. 11. REGULATORY CAPITAL REQUIREMENTS The Company is subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain discretionary (and, in the case of the Company's depository institution subsidiaries, mandatory) actions by regulators that, if undertaken, 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. 52 17 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below, at December 31, 1997 and 1996) of Tier 1 and Total capital to risk-weighted assets, and of Tier 1 capital to average assets.
1997 ----------------------------------------------------------------------- MINIMUM FOR CAPITAL TO BE ACTUAL ADEQUACY PURPOSES WELL CAPITALIZED ----------------------------------------------------------------------- (dollars in thousands) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO - ------------------------------------------------------------------------------------------------- TIER 1 CAPITAL TO RISK-WEIGHTED ASSETS ........ $714,891 9.51% $300,533 4.00% $450,799 6.00% TOTAL CAPITAL TO RISK-WEIGHTED ASSETS ........ $947,487 12.61% $601,065 8.00% $751,331 10.00% TIER 1 CAPITAL TO AVERAGE ASSETS $714,891 9.14% $234,760 3.00% $ -- --% =================================================================================================
1996 ----------------------------------------------------------------------- Minimum For Capital To Be Actual Adequacy Purposes Well Capitalized ----------------------------------------------------------------------- (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------------------- Tier 1 Capital to Risk-Weighted Assets ........ $578,454 8.42% $274,736 4.00% $412,104 6.00% Total Capital to Risk-Weighted Assets ........ $813,702 11.85% $549,472 8.00% $686,840 10.00% Tier 1 Capital to Average Assets $578,454 7.32% $237,084 3.00% $ -- --% =================================================================================================
As of December 31, 1997 and 1996, the Company and its depository institution subsidiaries were categorized as well capitalized under the applicable federal regulations. To be categorized as well capitalized, the Company must maintain Tier 1 risk-based and Total risk-based capital ratios of 6% and 10%, respectively (as set forth in the table above). Management is not aware of any conditions or events subsequent to December 31, 1997, that would cause a change in the Company's category. 12. LIMITATIONS ON PAYMENT OF DIVIDENDS The primary source of funds for the dividends paid by the Company to its stockholders is dividends received from its subsidiaries. The Bank, Creditcorp and Pacific One are subject to regulatory limitations on the amount of dividends they may declare or pay. At December 31, 1997, the aggregate amount available for payment of dividends by such subsidiaries without prior regulatory approval was $261,840,000. 13. EMPLOYEE BENEFIT PLANS PENSION PLANS The Company has a noncontributory pension plan which was "frozen" as of December 31, 1995. This plan was replaced by a money purchase plan and enhancements to an existing 401(k) plan. As a result of the "freeze," there will be no future accruals and no additional participants in the noncontributory pension plan. In addition, the Company has an unfunded supplemental executive retirement plan for a "frozen" group of key executives. The net pension credit for 1997, 1996 and 1995 included the following components:
- -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Service cost - benefits earned during the period .................. $ 1,141 $ 1,236 $ 4,018 Interest cost on projected benefit obligation ................. 6,596 6,321 6,862 Actual return on plan assets ......... (21,002) (16,419) (18,476) Net amortization and deferral ........ 11,068 7,817 10,197 Curtailment gain due to pension plan freeze ................ -- -- (20,766) - -------------------------------------------------------------------------------- NET PENSION CREDIT ................... $ (2,197) $ (1,045) $(18,165) ================================================================================
No further contributions are anticipated because the pension plan is heavily overfunded and there will be no future benefit accruals. The following table sets forth the reconciliation of the funded status of the plans at December 31, 1997 and 1996:
- -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Actuarial present value of benefit obligation: Vested benefits ................................ $ 86,365 $ 83,000 Nonvested benefits ............................. 1,643 1,764 - -------------------------------------------------------------------------------- Accumulated benefit obligation ................... $ 88,008 $ 84,764 ================================================================================ Plan assets at fair value (primarily listed stocks and fixed income securities) ............ $ 125,293 $ 110,309 Projected benefit obligation ..................... 98,684 95,460 - -------------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation ............................. 26,609 14,849 Unrecognized net gain ............................ (15,182) (5,659) Unrecognized prior service cost .................. 6,321 6,972 Unrecognized net asset ........................... (4,800) (6,000) - -------------------------------------------------------------------------------- PREPAID PENSION COST ............................. $ 12,948 $ 10,162 ================================================================================
Plan assets included 587,856 shares of common stock of the Company with a fair value of $23,367,000 and $20,575,000 at December 31, 1997 and 1996, respectively. For both December 31, 1997 and 1996, the weighted average discount rate was 7.0%; the rate of increase in future compensation used in determining the projected benefit obligation was 7.0% for the unfunded supplemental executive retirement plan; and the expected long-term rate of return on plan assets was 8.5%. Due to the "freeze" of the qualified pension plan, the rate of increase in future compensation is no longer applicable for that plan. The Company has unfunded postretirement medical and life insurance plans which are available to retirees who have satisfied age and length of service requirements. 53 18 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- The following table sets forth the reconciliation of the status of these plans at December 31, 1997 and 1996:
- -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Actuarial present value of benefit obligation: Retirees ......................................... $ 3,815 $ 3,710 Other fully eligible plan participants ........... 1,478 1,387 Other active plan participants ................... 2,763 2,285 - -------------------------------------------------------------------------------- TOTAL .............................................. $ 8,056 $ 7,382 ================================================================================ Unfunded benefit obligation ........................ $ 8,056 $ 7,382 Unrecognized transition obligation ................. (2,143) (2,286) Unrecognized prior service cost .................... (379) (64) Unrecognized net loss .............................. (394) (540) - -------------------------------------------------------------------------------- ACCRUED POSTRETIREMENT BENEFIT COST ................ $ 5,140 $ 4,492 ================================================================================ Service cost ....................................... $ 305 $ 239 Interest cost ...................................... 519 475 Amortization of: Transition obligation ............................ 143 143 Unrecognized prior service cost .................. 26 6 - -------------------------------------------------------------------------------- NET PERIODIC POSTRETIREMENT BENEFIT COST ........... $ 993 $ 863 ================================================================================
The assumed health care cost trend is not applicable since the medical plan provides a flat dollar commitment. Thus, there is no effect on postretirement benefit costs due to a one-percentage-point increase in the trend rate. For both December 31, 1997 and 1996, the weighted average discount rate was 7.0% and the rate of increase in future compensation used in determining the accumulated postretirement benefit obligation was 5.0%. MONEY PURCHASE AND 401(k) MATCH PLANS Effective January 1, 1996, the Company began contributing to a defined contribution money purchase plan and matching employees' contributions (up to 3% of pay) to an existing 401(k) component of the Company's profit sharing plan. The plans replace the pension plan which was "frozen" as of December 31, 1995. The plans cover substantially all employees who satisfy the age and length of service requirements, except for key executives who are eligible for the Company's unfunded supplemental executive retirement plan. For 1997 and 1996, the money purchase contribution was $5,351,000 and $5,126,000, respectively, and the employer matching contribution to the 401(k) plan was $2,154,000 and $2,270,000, respectively. PROFIT SHARING AND CASH BONUS PLANS The profit sharing and cash bonus plans cover substantially all employees who satisfy age and length of service requirements. Annual contributions to the plans are based upon a formula and are limited to the total amount deductible under the applicable provisions of the Internal Revenue Code. The profit sharing and cash bonus formula provides 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) for 1997, 1996 and 1995 totalled $5,537,000, $6,579,000 and $5,545,000, respectively. INCENTIVE PLAN FOR KEY EXECUTIVES The Company has an Incentive Plan for Key Executives (the "IPKE"), under which awards of cash or common stock of the Company, 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 awarded under the IPKE are held in escrow and key executives concerned may not, under any circumstances, voluntarily dispose or transfer such shares prior to the earliest of attaining 60 years of age, completion of 20 full years of employment with the Company, retirement, death or termination of employment prior to retirement with the approval of the Company. Additionally, there is a five-year restriction from the date of all subsequent shares awarded to those key executives who had previously met the minimum restrictions of completion of 20 full years of employment or attaining 60 years of age. STOCK INCENTIVE PLAN The Company has a Stock Incentive Plan (the "SIP"), which authorizes the granting of up to 1,000,000 shares of common stock to key employees. The purpose of the SIP is to promote the success and enhance the value of the Company by providing additional incentives for outstanding performance to selected key employees in a way that links their interests with those of stockholders. The SIP is administered by the Executive Compensation Committee of the Board of Directors. The SIP provides for grants of restricted stock, incentive stock options, non-qualified stock options and reload 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. Options vest at a rate of 25% per year after the date of grant. Stock options have exercise periods that do not exceed ten years from the date of grant and may not be exercised for six months after the date of grant and/or vesting. Stock options can be exercised, in whole or in part, by payment of the option price in cash or, if allowed under the option agreement, shares of common stock already owned by the optionee. Upon the occurrence of a change in control of the Company, as defined in the SIP, all options granted and held at least six months become immediately vested and exercisable. 54 19 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- The following table summarizes activity under the SIP for 1997, 1996 and 1995 and the status at December 31, 1997:
- ------------------------------------------------------------------------------------- Options ---------------------------------------------------- Outstanding Exercisable ------------------------ ------------------------ Average Average Exercise Exercise Shares Price Shares Price - ------------------------------------------------------------------------------------- Balance at December 31, 1994 ...... 346,204 $ 27.49 83,300 $ 27.35 Options granted .......... 149,420 25.50 -- -- Became exercisable ....... -- -- 89,782 27.49 Exercised ................ (2,115) 26.09 (2,115) 26.09 Forfeitures .............. (12,353) 27.28 -- -- - -------------------------- ------- -------- Balance at December 31, 1995 ...... 481,156 26.88 170,967 27.44 Options granted .......... 139,660 28.26 -- -- Became exercisable ....... -- -- 127,138 26.90 Exercised ................ (2,167) 25.91 (2,167) 25.91 Forfeitures .............. (2,716) 26.33 -- -- - -------------------------- ------- -------- Balance at December 31, 1996 ...... 615,933 27.20 295,938 27.22 OPTIONS GRANTED .......... 307,310 33.25 -- -- BECAME EXERCISABLE ....... -- -- 133,630 27.45 EXERCISED ................ (71,328) 26.98 (71,328) 26.98 FORFEITURES .............. (4,564) 32.20 -- -- - -------------------------- ------- -------- BALANCE AT DECEMBER 31, 1997 ...... 847,351 $ 29.39 358,240 $ 27.35 ===================================================================================
At December 31, 1997, 76,979 stock options (net of exercised options of 75,670)were available for future grants under the SIP. At December 31, 1997, the 847,351 SIP options outstanding under the plan have exercise prices between $25.50 and $33.25 and a weighted average remaining contractual life of 7.5 years. The Company applies Accounting Principles Board ("APB") Opinion No. 25 and related interpretations in accounting for its SIP. There has been no compensation cost charged against income for the SIP, 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 Company's stock-based compensation plan been determined consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
- -------------------------------------------------------------------------------- (in thousands, except per share data) 1997 1996 1995 - -------------------------------------------------------------------------------- Net income: As reported .................. $ 84,261 $ 80,296 $ 77,005 Pro forma .................... $ 83,426 $ 79,812 $ 76,636 Basic earnings per share: As reported .................. $ 2.66 $ 2.56 $ 2.43 Pro forma .................... $ 2.63 $ 2.54 $ 2.41 ================================================================================
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 in 1997, 1996 and 1995, respectively:
- ----------------------------------------------------------------------------------- 1997 1996 1995 - ----------------------------------------------------------------------------------- Expected dividend yield ................. 3.69% 3.80% 4.60% Expected volatility ..................... 18.07% 22.69% 23.50% Risk-free interest rate ................. 6.49% 5.65% 7.20% Expected life of the options ............ 6 years 6 years 6 years ===================================================================================
The weighted-average grant-date fair value of options granted in 1997, 1996 and 1995 were $6.67, $5.93 and $5.61, respectively. Due to the inclusion of only those grants made since 1995, the effect of applying SFAS No. 123 for pro forma disclosures is not likely to be representative of the effects on reported net income in future years. Options vest over several years and additional awards generally are made each year. LONG-TERM INCENTIVE PLAN The Company has a Long-Term Incentive Plan (the "LTIP") designed to reward key executives for the Company's and individuals' performances measured over three-year performance cycles; that is, 1993-1995, 1994-1996, 1995-1997 and so on. The threshold Company performance levels specified in the LTIP were not achieved for the 1993-1995, 1994-1996 and 1995-1997 performance cycles. 14. OTHER NONINTEREST EXPENSE For the years ended December 31, 1997, 1996 and 1995, other noninterest expense included the following:
- -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Stationery and supplies .............. $12,216 $11,193 $11,443 Advertising and promotion ............ 11,174 10,991 8,532 Deposit insurance .................... 810 5,280 6,190 Other ................................ 56,719 53,434 39,415 - -------------------------------------------------------------------------------- TOTAL OTHER NONINTEREST EXPENSE ............................ $80,919 $80,898 $65,580 ================================================================================
15. INCOME TAXES For the years ended December 31, 1997, 1996 and 1995, the provision for income taxes was comprised of the following:
- -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Current: Federal ............................ $ 7,894 $20,147 $15,164 States and other ................... 2,962 4,572 3,698 - -------------------------------------------------------------------------------- Total current .................... 10,856 24,719 18,862 - -------------------------------------------------------------------------------- Deferred: Federal ............................ 27,060 10,114 21,430 States and other ................... 1,387 705 4,841 - -------------------------------------------------------------------------------- Total deferred ................... 28,447 10,819 26,271 - -------------------------------------------------------------------------------- TOTAL INCOME TAX PROVISION ........... $39,303 $35,538 $45,133 ================================================================================
55 20 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- The provision for income taxes has been reduced by general business tax credits of $4,360,000, $4,188,000 and $2,140,000 in 1997, 1996 and 1995, respectively. The Company also has alternative minimum tax credit, general business tax credit and foreign tax credit carryforwards totalling $2,468,000, $1,117,000 and $428,000, respectively, at December 31, 1997, which may be used to offset future Federal income tax expense. The general business tax credits and foreign tax credit carryforwards will expire at the end of 2012 and 2001, respectively. There is no expiration date on the alternative minimum tax credit carryforwards. Management expects to generate sufficient regular tax liability and foreign source income to utilize all tax credit carryforwards. The components of net deferred income tax liabilities at December 31, 1997 and 1996 were as follows:
(in thousands) 1997 1996 --------- --------- ASSETS Federal and State income tax credit carryovers ......................... $ 4,013 $ 6,283 Employee benefit deductions ..................... 1,977 3,625 Provision for loan losses ....................... 20,649 38,467 Loan fees and other income ...................... 2,861 5,397 State franchise taxes ........................... 5,990 8,013 --------- --------- Total deferred income tax assets ................ 35,490 61,785 --------- --------- LIABILITIES Lease expenses .................................. 173,709 167,240 Depreciation expense ............................ 4,331 6,784 Intangible assets-net premiums .................. 1,433 1,715 Marketable securities-available-for-sale ........ (160) 1,229 Other ........................................... 8,448 10,353 --------- --------- Total deferred income tax liabilities ........... 187,761 187,321 --------- --------- NET DEFERRED INCOME TAX LIABILITIES ............. $ 152,271 $ 125,536 ========= =========
Net deferred income tax liabilities are included in other liabilities in the Consolidated Balance Sheets. The following analysis reconciles the Federal statutory income tax rate to the effective income tax rate for the years indicated:
1997 1996 1995 ----- ----- ----- Federal statutory income tax rate .......... 35.0% 35.0% 35.0% Municipal and other tax- exempt income ............................ (.3) (1.2) (2.7) State income and franchise taxes, net of Federal tax benefit ........ 3.1 3.0 4.5 General business tax credits ............... (3.5) (6.0) (1.8) Other ...................................... (2.5) (0.1) 2.0 ----- ----- ----- EFFECTIVE INCOME TAX RATE .................. 31.8% 30.7% 37.0% ===== ===== ====
The 1997 effective tax rate reflects the recognition of previously unrecognized tax credits of $3,585,000. The decrease in the 1996 effective tax rate as compared to 1995 was primarily due to the: (1) recognition of previously unrecognized tax credits of $2,800,000; (2) reversal of deferred tax liabilities (reflecting a change in the State tax laws) relating to the sale of a certain leveraged lease of $2,344,000; and (3) reversal of deferred tax liabilities (reflecting legislation enacted in 1996) relating to the provision for thrift bad debt deductions of $1,500,000. 16. INTERNATIONAL OPERATIONS The Company's international operations, principally in Guam and Grand Cayman, British West Indies, involve foreign banking and international financing activities, including short-term investments, loans, acceptances, letters of credit financing and international funds transfers. International activities are identified on the basis of the domicile of the Company's customer. Total revenue, income before income taxes, net income and total assets for foreign, domestic and consolidated operations at and for the years ended December 31, 1997, 1996 and 1995 were as follows:
(in thousands) Foreign Domestic Consolidated - -------------- ------- -------- ------------ 1997 TOTAL REVENUE ............ $ 38,056 $ 652,940 $ 690,996 INCOME BEFORE INCOME TAXES ........... $ 4,666 $ 118,898 $ 123,564 NET INCOME ............... $ 3,033 $ 81,228 $ 84,261 TOTAL ASSETS ............. $ 444,016 $7,649,076 $8,093,092 ========== ========== ========== 1996 Total revenue ............ $ 37,572 $ 624,023 $ 661,595 Income before income taxes ........... $ 1,863 $ 113,971 $ 115,834 Net income ............... $ 1,211 $ 79,085 $ 80,296 Total assets ............. $ 392,063 $7,610,111 $8,002,174 ========== ========== ========== 1995 Total revenue ............ $ 38,669 $ 603,394 $ 642,063 Income before income taxes ........... $ 582 $ 121,556 $ 122,138 Net income ............... $ 379 $ 76,626 $ 77,005 Total assets ............. $ 478,790 $7,085,719 $7,564,509 ========== ========== ==========
Under current intercompany pricing procedures, transfers of funds are priced at prevailing market rates. In general, the Company has allocated all direct expenses and a proportionate share of general and administrative expenses to the income derived from loans and transactions by the Company's international operations. The following presents the percentages of average total assets and total liabilities attributable to foreign operations. For this purpose, assets attributable to foreign operations are defined as assets in foreign offices and 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 creditor.
1997 1996 1995 ---- ---- ---- Average foreign assets to average total assets ........ 4.38% 5.42% 3.61% Average foreign liabilities to average total liabilities ... 3.70% 3.55% 5.04% ==== ==== ====
56 21 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- 17. LEASE COMMITMENTS Future minimum lease payments by year and in the aggregate under all noncancelable operating leases having initial or remaining terms in excess of one year consisted of the following at December 31, 1997:
Less Net Operating Sublease Operating (in thousands) Leases Income Leases - -------------- --------- -------- --------- 1998 ............. $ 29,878 $ 8,069 $ 21,809 1999 ............. 26,503 8,025 18,478 2000 ............. 25,546 8,452 17,094 2001 ............. 23,402 8,364 15,038 2002 ............. 20,792 7,634 13,158 2003 AND THEREAFTER.... 71,256 24,436 46,820 -------- -------- -------- TOTAL ............. $197,377 $ 64,980 $132,397 ======== ======== ========
These premises and equipment leases extend for varying periods up to 44 years and some of them may be renewed for periods ranging from 1 to 44 years. The premises' leases also provide for payments of real property taxes, insurance and maintenance. In most cases, leases for the premises provide for periodic renegotiation of the 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. In December 1993, the Company entered into a noncancelable agreement to lease its administrative headquarters building (construction of which was completed in September 1996) on land owned in fee simple by the Company. Concurrently, 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"). The Company is obligated to pay all taxes, insurance, maintenance and other operating costs associated with the building during the Primary Term. The Company plans to occupy approximately 40% of the building and sublease the remaining 60% to third parties. As of December 31, 1997, 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, at its option: (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 and pay to lessor any shortfall between the sales proceeds and a specified residual value, such payment not to exceed $161,990,000. This lease is accounted for as an operating lease. For 1997, 1996 and 1995, rental expense was $32,321,000, $14,796,000 and $14,525,000, respectively. 18. COMMITMENTS AND CONTINGENT LIABILITIES FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the normal course of business, the Company is a party to various financial instruments to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby and commercial letters of credit and interest rate swaps and floors. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the Consolidated and Parent Company Balance Sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company's exposure to credit losses in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual notional amount of those instruments. Since these commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flows. For interest rate swap and floor transactions, the contract or notional amounts do not represent exposure to credit losses. Off-balance sheet instruments must meet the same criteria of acceptable risk established for the Company's lending and other financing activities. The Company manages 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, by monitoring the size and maturity structure of the off-balance sheet portfolio, and by applying the uniform credit standards maintained for all of its credit activities. Off-balance sheet commitments and contingent liabilities at December 31, 1997 and 1996 were as follows:
1997 1996 ----------- ----------- Notional/ Notional/ Contract Contract (in thousands) Amount Amount - -------------- ----------- ----------- Commitments to extend credit ............... $4,408,199 $3,778,028 Standby letters of credit .................. $ 154,848 $ 144,235 Commercial letters of credit ............... $ 11,865 $ 10,478 Interest rate swaps and floors ............. $ 894,427 $1,537,996 ========== ==========
The Company enters into interest rate swap and floor agreements as an end-user only. These instruments are used as hedges against various balance sheet accounts. Credit exposure is monitored under the same credit guidelines as are followed for other extensions of credit. Interest rate and/or market risk is monitored and 57 22 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- managed in conjunction with the interest rate risk position of the Company as a whole. Off-balance sheet agreements are not entered into if they would increase the Company's interest rate risk above approved guidelines. Sensitivity testing to measure and monitor this risk is usually done quarterly using net interest income simulations and market value of equity analysis. ROLLFORWARD SCHEDULE The following is a summary of the interest rate swap and floor activity for 1997 and 1996:
Caps, Receive Pay Floors or Variable/ (in millions) Fixed Fixed Collars Variable Total - ------------- ------- ----- --------- --------- ----- Balance, December 31, 1995 ...... $260 $134 $ -- $700 $1,094 Additions ............... 300 8 500 -- 808 Maturities/ amortizations .......... 60 2 -- 300 362 Terminations ............ -- 2 -- -- 2 ---- ---- ---- ---- ------ Balance, December 31, 1996 ...... 500 138 500 400 1,538 ADDITIONS ............... -- 3 -- -- 3 MATURITIES/ AMORTIZATIONS .......... 200 47 -- 400 647 TERMINATIONS ............ -- -- -- -- -- ---- ---- ---- ---- ------ BALANCE, DECEMBER 31, 1997 ...... $300 $ 94 $500 $ -- $ 894 ==== ==== ==== ==== ======
HEDGING SUMMARY The following is additional hedging information related to the Company's interest rate swaps and floors as of December 31, 1997:
Asset Yield/ Net Remain- Notional Pay Receive Liability Yield/ Original ing (dollars in millions) Amount Rate Rate Cost Cost Maturity Maturity - --------------------- -------- ---- ------- ------------ ------ -------- -------- ASSET HEDGES: VARIABLE RATE LOANS ......... $800 5.78% 5.53% 8.59% 8.34% 2.0 yrs. .4 yrs. FIXED RATE LOANS ......... 94 6.46 5.85 8.19 7.58 8.7 5.4 ---- ---- ---- ---- ---- -------- -------- TOTAL ........... $894 5.85% 5.56% 8.55% 8.26% 2.7 yrs. .9 yrs. ==== ==== ==== ==== ==== ======= ========
The following summarizes the impact of the Company's interest rate swap and floor activities on its weighted average borrowing rate and on interest income and expense for the years ended December 31, 1997, 1996 and 1995:
(dollars in thousands) 1997 1996 1995 - ---------------------- ------ ------ ------- Average borrowing rate: Without interest rate swaps and floors ................ 4.22% 4.28% 4.49% With interest rate swaps and floors ................ 4.22 4.23 4.54 ====== ====== ======= Decrease in interest income ... $3,416 $2,402 $ 3,827 Decrease (increase) in interest expense ..................... 42 2,636 (2,926) ------ ------ ------- Interest rate swap and floor expense (income), net ....... $3,374 $ (234) $ 6,753 ====== ====== =======
LITIGATION Various legal proceedings are pending against the Company. The ultimate liability of the Company, 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. 19. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents a summary of the book and fair values of the Company's financial instruments at December 31, 1997 and 1996:
1997 ------------------------ (in thousands) Book Value Fair Value - -------------- ------------ ---------- Financial Assets: Cash and due from banks .............. $ 282,905 $ 282,905 Interest-bearing deposits in other banks .............................. 137,930 137,891 Federal funds sold and securities purchased under agreements to resell 134,274 134,274 Available-for-sale investment securities (note 3) ................ 778,124 778,124 Loans (note 4) ....................... 6,238,681 6,248,139 Customers' acceptance liability ...... 867 867 ---------- --------- Financial Liabilities: Deposits ............................. $6,089,200 $6,107,195 Short-term borrowings (note 8) ....... 721,865 721,865 Acceptances outstanding .............. 867 867 Long-term debt (note 9) .............. 218,736 221,484 Guaranteed preferred beneficial interests in junior subordinated debentures (note 9) ................ 100,000 104,370 ========== ==========
1996 ------------------------ (in thousands) Book Value Fair Value - -------------- ---------- ---------- Financial Assets: Cash and due from banks ................ $ 333,511 $ 333,511 Interest-bearing deposits in other banks 70,130 70,130 Federal funds sold and securities purchased under agreements to resell . 148,370 148,370 Available-for-sale investment securities (note 3) .................. 1,140,719 1,140,719 Loans (note 4) ......................... 5,806,732 5,793,929 Customers' acceptance liability ........ 824 824 ---------- ---------- Financial Liabilities: Deposits ............................... $5,936,708 $5,950,028 Short-term borrowings (note 8) ......... 929,560 929,560 Acceptances outstanding ................ 824 824 Long-term debt (note 9) ................ 205,743 205,174 ========== ==========
The following table presents a summary of the fair values of the Company's off-balance sheet financial instruments (note 18) at December 31, 1997 and 1996:
(in thousands) 1997 1996 - -------------- ------- ------- Commitments to extend credit ........... $21,606 $20,699 Letters of credit ...................... 1,465 1,444 Interest rate swaps and floors ......... 1,404 2,092 ======= =======
58 23 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- 20. FIRST HAWAIIAN, INC. (PARENT COMPANY ONLY) FINANCIAL STATEMENTS In the financial statements presented below, the investment in subsidiaries is accounted for under the equity method.
BALANCE SHEETS (in thousands, except number of December 31, shares and per share data) 1997 1996 - -------------------------- ---- ---- ASSETS Cash on deposit with First Hawaiian Bank .................. $ 115 $ 174 Interest-bearing deposits in other banks 70,000 -- Loans, net of allowance for loan losses of $120 in 1997 and 1996 ............. 9,691 11,611 Available-for-sale investment securities 300 -- Securities purchased from First Hawaiian Bank .................. 23,860 7,075 Investment in subsidiaries: First Hawaiian Bank .................. 733,596 696,286 Other subsidiaries ................... 186,631 159,879 Due from: First Hawaiian Bank .................. 147,251 109,324 Other subsidiaries ................... 52,050 67,342 Other assets ........................... 2,532 1,254 ----------- ----------- TOTAL ASSETS ........................... $ 1,226,026 $ 1,052,945 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings .................. $ 1,800 $ 54,409 Current and deferred income taxes ...... 181,669 138,519 Due to subsidiary ...................... 103,093 -- Other liabilities ...................... 7,763 4,133 Long-term debt (note 9) ................ 200,000 150,000 ----------- ----------- Total liabilities ...................... 494,325 347,061 ----------- ----------- Commitments and contingent liabilities (notes 13, 17 and 18) Stockholders' equity (note 11): Preferred stock $5 par value Authorized and unissued -- 50,000,000 shares in 1997 and 1996 -- -- Common stock $5 par value (notes 10 and 13) Authorized -- 100,000,000 shares Issued -- 33,190,374 shares in 1997 and 1996 ....................... 165,952 165,952 Surplus .............................. 148,165 148,196 Retained earnings .................... 473,659 428,693 Unrealized valuation adjustment ...... (241) 1,850 Treasury stock, at cost -- 1,845,217 shares in 1997 and 1,415,954 shares in 1996 ..................... (55,834) (38,807) ----------- ----------- Total stockholders' equity ............. 731,701 705,884 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................. $ 1,226,026 $ 1,052,945 =========== ===========
STATEMENTS OF INCOME
Year Ended December 31, (in thousands) 1997 1996 1995 - -------------- ---- ---- ---- INCOME Dividends from: First Hawaiian Bank ........... $ 39,698 $ 52,760 $ 88,660 Other subsidiaries ............ 4,830 13,056 4,300 Interest from First Hawaiian Bank 1,030 507 520 Interest and fees from other subsidiaries .................. 1,318 2,578 3,043 Other interest and dividends .... 3,312 1,143 1,359 -------- -------- -------- Total income .................... 50,188 70,044 97,882 -------- -------- -------- EXPENSE Interest expense: Short-term borrowings ......... 266 509 1,669 Long-term debt ................ 15,585 11,915 10,299 Other ......................... 2,650 817 114 Provision for loan losses ....... -- 20 100 Professional services ........... 418 431 494 Other ........................... 310 441 339 -------- -------- -------- Total expense ................... 19,229 14,133 13,015 -------- -------- -------- Income before income tax benefit and equity in undistributed income of subsidiaries .................. 30,959 55,911 84,867 Income tax benefit .............. 5,246 3,849 3,178 -------- -------- -------- Income before equity in undistributed income of subsidiaries .................. 36,205 59,760 88,045 Equity in undistributed income of subsidiaries: First Hawaiian Bank ........... 39,135 22,359 (16,193) Other subsidiaries ............ 8,921 (1,823) 5,153 -------- -------- -------- NET INCOME ...................... $ 84,261 $ 80,296 $ 77,005 ======== ======== ========
59 24 NOTES TO FINANCIAL STATEMENTS (continued) First Hawaiian, Inc. and Subsidiaries - -------------------------------------------------------------------------------- STATEMENTS OF CASH FLOWS
Year Ended December 31, ------------------------------------- (in thousands) 1997 1996 1995 --------- --------- --------- CASH AT BEGINNING OF YEAR ........... $ 174 $ 144 $ 110 Cash flows from operating activities: Net income ........................ 84,261 80,296 77,005 Adjustments to reconcile net income to net cash provided by operating activities: Excess of equity in earnings of subsidiaries over dividends received .......... (48,056) (20,536) 11,040 Other ......................... 463 (1,100) 449 --------- --------- --------- Net cash provided by operating activities ........................ 36,668 58,660 88,494 --------- --------- --------- Cash flows from investing activities: Net change in: Interest-bearing deposits in other banks ................ (70,000) -- -- Securities sold to (purchased from) First Hawaiian Bank ........... (16,785) 2,855 (3,750) Loans repaid by directors and executive officers ........ 1,920 3,869 1,525 Repayments from subsidiaries .................. 22,400 5,750 8,750 Purchase of available-for-sale investment securities ........... (300) -- -- Investment in Pacific Northwest Acquisitions .......... (15,000) (73,901) -- Investment in First Hawaiian Capital I ........ (3,093) -- -- --------- --------- --------- Net cash provided by (used in) investing activities .............. (80,858) (61,427) 6,525 --------- --------- --------- Cash flows from financing activities: Net decrease in short-term borrowings ...................... (52,609) (9,368) (32,946) Proceeds from long-term debt and junior subordinated debentures ...................... 153,093 50,000 -- Cash dividends paid ............... (39,295) (37,579) (37,368) Repurchase of common stock ........ (17,058) (256) (24,671) --------- --------- --------- Net cash provided by (used in) financing activities .............. 44,131 2,797 (94,985) --------- --------- --------- CASH AT END OF YEAR ................. $ 115 $ 174 $ 144 ========= ========= ========= Supplemental disclosures: Interest paid ..................... $ 14,528 $ 12,272 $ 12,251 Income taxes refunded ............. $ 2,644 $ 4,408 $ 3,211 ========= ========= =========
60 EX-23 3 CONSENT OF INDEPENDENT ACCOUNTANTS 1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of First Hawaiian, Inc. and subsidiaries (hereinafter referred to as the "Company") on Forms S-8 (File Nos. 33-66400 and 333-22107) of our report dated January 15, 1998, on our audits of the consolidated financial statements of the Company as of December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and 1995, which report is incorporated by reference in the Annual Report on Form 10-K, as amended on this Form 10-K/A. /s/ Coopers & Lybrand L.L.P. Honolulu, Hawaii April 22, 1998 EX-27.1Q-1997 4 FINANCIAL DATA SCHEDULE - 3/31/97
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S QUARTERLY FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 341,295 76,529 167,800 0 1,061,976 0 0 5,947,296 85,136 8,095,447 5,950,032 960,583 221,992 246,443 0 0 165,952 549,700 8,095,447 124,783 17,757 2,855 145,395 47,207 62,881 82,514 3,752 (2) 77,175 29,606 20,516 0 0 20,516 .65 .64 8.23 38,852 30,698 46,681 0 85,248 4,484 620 85,136 40,470 1,730 42,936
EX-27.2Q-1997 5 FINANCIAL DATA SCHEDULE - 6/30/97
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S QUARTERLY FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 278,812 55,130 45,000 0 893,886 0 0 6,031,552 84,189 7,815,288 5,875,846 766,019 166,337 276,737 0 0 165,952 562,899 7,815,288 255,950 33,828 5,070 294,848 95,813 126,677 168,171 8,013 219 155,704 62,498 42,781 0 0 42,781 1.35 1.34 8.33 33,903 29,658 45,553 0 85,248 12,339 3,267 84,189 39,085 1,795 43,309
EX-27.3Q-1997 6 FINANCIAL DATA SCHEDULE - 9/30/97
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S QUARTERLY FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 329,552 183,730 156,962 0 700,464 0 0 6,022,244 83,575 7,895,048 5,957,289 644,241 222,965 328,742 0 0 165,952 575,328 7,895,048 387,954 47,329 8,997 444,280 146,105 191,527 252,753 11,830 287 231,924 95,050 64,132 0 0 64,132 2.02 2.01 8.36 28,575 28,452 44,392 0 85,248 17,635 4,132 83,575 38,905 1,915 42,755
EX-27.4Q-1996 7 FINANCIAL DATA SCHEDULE - 12/31/96
9 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 333,511 70,130 148,370 0 1,140,719 0 0 5,806,732 85,248 8,002,174 5,936,708 929,560 223,455 205,743 0 0 165,952 539,932 8,002,174 479,011 75,505 19,624 574,140 182,402 252,795 321,345 23,627 118 284,211 115,834 80,296 0 0 80,296 2.56 2.55 8.15 43,547 30,382 28,861 34,524 78,733 27,341 3,123 85,248 38,400 1,540 45,308
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