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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to _______________.
Commission file number 0-7949
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BANCWEST CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 99-0156159
(State of incorporation) (I.R.S. Employer
Identification No.)
999 BISHOP STREET, HONOLULU, HAWAII 96813
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (808) 525-7000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered
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Common Stock, $1.00 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in
definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ ]
The aggregate market value of the common stock held
by nonaffiliates of the registrant as of January
31, 2001 was $1,280,717,000.
The number of shares outstanding of each of the
registrant's classes of common stock as of
January 31, 2001 was:
Title of Class Number of Shares Outstanding
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Common Stock, $1.00 Par Value 68,560,949 Shares
Class A Common Stock, $1.00 Par Value 56,074,874 Shares
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference
in this Form 10-K:
DOCUMENTS FORM 10-K REFERENCE
BancWest Corporation Proxy Statement
for the 2001 Annual Meeting of Stockholders Part III
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2
INDEX
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PART I Page
Item 1. Business......................................................................... 3
Item 2. Properties ...................................................................... 13
Item 3. Legal Proceedings................................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.............................. 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........... 13
Item 6. Selected Financial Data......................................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................................... 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk...................... 35
Item 8. Financial Statements and Supplementary Data..................................... 40
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ........................................................... 71
PART III
Item 10. Directors and Executive Officers of the Registrant.............................. 71
Item 11. Executive Compensation.......................................................... 71
Item 12. Security Ownership of Certain Beneficial Owners and Management.................. 71
Item 13. Certain Relationships and Related Transactions.................................. 71
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................. 71
Exhibits........................................................................ 72
Signatures...................................................................... 73
2 BancWest Corporation and Subsidiaries
3
PART I
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PART I
ITEM 1. BUSINESS
BANCWEST CORPORATION
BancWest Corporation, a Delaware corporation (the "Corporation," the
"Company" or "we/our"), is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended (the "BHCA"). As a bank holding company,
the Corporation is allowed to acquire or invest in the securities of companies
that are engaged in banking or in activities closely related to banking as
authorized by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). The Corporation, through its subsidiaries, operates a general
commercial banking business and other businesses related to banking. Its
principal assets are its investments in Bank of the West, a State of
California-chartered bank with authority to operate interstate branches in
Oregon, Washington, Nevada, New Mexico and Idaho; First Hawaiian Bank ("First
Hawaiian"), a State of Hawaii-chartered bank; FHL Lease Holding Company, Inc.
("FHL"), a financial services loan company; BancWest Capital I ("BWE Trust") and
First Hawaiian Capital I ("FH Trust"), both Delaware business trusts. Bank of
the West, First Hawaiian, FHL, BWE Trust and FH Trust are wholly-owned
subsidiaries of the Corporation. At December 31, 2000, the Corporation had
consolidated total assets of $18.5 billion, total loans and leases of $14
billion, total deposits of $14.1 billion and total stockholders' equity of $2
billion. Based on assets as of December 31, 2000, BancWest Corporation was the
36th largest bank holding company in the United States.
On November 1, 1998, the former BancWest Corporation ("Old BancWest"),
parent company of Bank of the West, merged (the "BancWest Merger") with and into
First Hawaiian, Inc. ("FHI"). Upon consummation of the BancWest Merger, FHI, the
surviving corporation, changed its name to "BancWest Corporation." Prior to the
consummation of the BancWest Merger, Old BancWest was wholly-owned by Banque
Nationale de Paris, now BNP Paribas. BNP Paribas received approximately 25.8
million shares (equivalent to 51.6 million shares after adjusting for the
two-for-one stock split in December 1999) of the Corporation's newly authorized
Class A Common Stock representing approximately 45% of the then outstanding
total voting stock of the Corporation in the BancWest Merger (a purchase price
of approximately $905.7 million). As a result of the BancWest Merger, Bank of
the West became a wholly-owned subsidiary of the Corporation. Additional
information regarding the BancWest Merger is included in Note 2 Mergers and
Acquisitions (pages 50 and 51), Note 3 Restructuring, Merger-Related and Other
Nonrecurring Costs (pages 51 and 52) and Note 12 Common Stock and Earnings Per
Share (pages 57 and 58).
On July 1, 1999, the Corporation acquired SierraWest Bancorp
("SierraWest"). SierraWest and its subsidiary, SierraWest Bank, were merged with
and into Bank of the West (the "SierraWest Merger") resulting in the issuance of
approximately 4.4 million shares (equivalent to 8.8 million shares after
adjusting for the two-for-one stock split in December 1999) of the Corporation's
common stock to the shareholders of SierraWest. The acquisition was accounted
for using the pooling-of-interests method of accounting. Additional information
regarding the SierraWest Merger is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations (pages 17 through 39),
Note 2 Mergers and Acquisitions (pages 50 and 51), Note 3 Restructuring,
Merger-Related and Other Nonrecurring Costs (pages 51 and 52) and Note 12 Common
Stock and Earnings Per Share (pages 57 and 58).
In the third quarter of 2000, the Corporation entered into an agreement to
acquire 23 branches in New Mexico and seven branches in Nevada. The branches
will add approximately $1.2 billion of deposits and $300 million of loans. The
branches are being divested as part of the merger between First Security
Corporation and Wells Fargo & Company. The acquisition of the Nevada branches
was completed in January 2001, while the acquisition of the New Mexico branches
is expected to be completed by mid-February 2001.
BANK OF THE WEST
Bank of the West is a State of California-chartered bank that is not a
member of the Federal Reserve System. The deposits of Bank of the West are
insured by the Bank Insurance Fund ("BIF") and the Savings Association Insurance
Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC") to the
extent and subject to the limitations set forth in the Federal Deposit Insurance
Act ("FDIA"). The predecessor of Bank of the West, "The Farmers National Gold
Bank," was chartered as a national banking association in 1874 in San Jose,
California.
On July 1, 1999, SierraWest Bancorp and SierraWest Bank were merged with
and into Bank of the West. As a result of the SierraWest Merger, 20 SierraWest
branches in California and Nevada became branches of Bank of the West.
Bank of the West is the fourth largest bank in California, with total
assets of approximately $11.2 billion, total loans and leases of $8.5 billion,
and total deposits of approximately $8.2 billion at December 31, 2000. Bank of
the West conducts a general commercial banking business, providing retail and
corporate banking
BancWest Corporation and Subsidiaries 3
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PART I (continued)
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and trust services to individuals, institutions, businesses and governments
through 170 branches (including seven Nevada branches acquired in January 2001)
and other commercial banking offices located primarily in the San Francisco Bay
area and elsewhere in the Northern and Central Valley regions of California and
in Oregon, Washington, Idaho and Nevada. The expected completion of the
acquisition of 30 branches in the first quarter of 2001 will bring the total
number of Bank of the West branches to 193 and will add approximately $1.2
billion in deposits and $300 million in loans. Bank of the West also originates
indirect automobile loans and leases, recreational vehicle loans, recreational
marine vessel loans, equipment leases and deeds of trust on single-family
residences through a network of manufacturers, dealers, representatives and
brokers in all 50 states. Bank of the West's principal subsidiary is Essex
Credit Corporation ("Essex"), a Connecticut corporation. Essex is engaged
primarily in the business of originating and selling consumer loans on a
nationwide basis, such loans being made for the purpose of acquiring or
refinancing pleasure boats or recreational vehicles. Essex generally sells the
loans that it makes to various banks and other financial institutions, on a
servicing released basis. Essex has a network of 11 regional direct lending
offices located in the following states: California, Connecticut, Florida,
Maryland, Massachusetts, New Jersey, New York, Texas and Washington.
COMMUNITY BANKING
The focus of Bank of the West's community banking strategy is primarily in
Northern California, Nevada, the Pacific Northwest region and soon New Mexico.
The Northern California market region is comprised of the San Francisco Bay area
and the Central Valley area of California. The San Francisco Bay area is one of
California's wealthiest regions, and the Central Valley of California is an area
which has been experiencing rapid transition from a largely agricultural base to
a mix of agricultural and commercial enterprises. The Pacific Northwest region
includes Oregon, Washington and Idaho. The SierraWest Merger branch acquisition
expanded the region Bank of the West services into Nevada. The First Security
Corporation branch acquisition expands our presence to Las Vegas, Nevada and
will also encompass New Mexico.
Bank of the West utilizes its branch network as its principal funding
source. A key element of Bank of the West's community banking strategy is to
seek to distinguish itself as the provider of the "best value" in community
banking services. To this end, Bank of the West seeks to position itself within
its markets as an alternative to both the higher-priced, smaller "boutique"
commercial banks and the larger money center commercial banks, which may be
perceived as offering lower service and lower prices on a "mass market" basis.
In pursuing the Northern California, Pacific Northwest and Nevada community
banking markets, Bank of the West seeks to serve a broad customer base by
furnishing a wide range of retail and commercial banking products. Through its
branch network, Bank of the West originates a variety of consumer loans,
including direct vehicle loans, lines of credit and second mortgages. In
addition, Bank of the West originates and holds a small portfolio of first
mortgage loans on one- to four-family residences. Through its commercial banking
operations conducted from its branch network, Bank of the West offers a wide
range of basic commercial banking products intended to serve the needs of
smaller community-based businesses. These loan products include in-branch
originations of standardized products for businesses with relatively simple
banking and financing needs. More complex and customized commercial banking
services are offered through Bank of the West's regional banking centers, which
serve clusters of branches and provide lending, deposit and cash management
services to companies operating in the relevant market areas. Bank of the West
also provides a number of fee-based products and services such as annuities,
insurance and securities brokerage.
PROFESSIONAL BANKING, TRUST SERVICES
The Professional Banking and Trust & Investment Services areas within the
Community Banking Division provide a wide range of products to targeted markets.
The Professional Banking Group, headquartered in San Francisco, serves the
banking needs of attorneys, doctors and other working professionals. The Trust &
Investment Services Group, headquartered in San Jose, and with offices in San
Francisco, provides a full range of individual and corporate trust services.
COMMERCIAL BANKING
Bank of the West's Business Banking Division supports commercial lending
activities for middle market business customers through ten regional lending
centers located in Northern California, Central California, Oregon, Nevada,
Idaho and Washington. Each regional office provides a wide range of loan and
deposit services to medium-sized companies with borrowing needs of $500,000 to
$25 million. Lending services include receivable and inventory financing,
equipment term loans, letters of credit, agricultural loans and trade finance.
Other banking services include cash management, insurance products, trust,
investment, foreign exchange and various
4 BancWest Corporation and Subsidiaries
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PART I (continued)
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international banking services.
The Specialty Lending Division seeks to provide focused banking services
and products to specifically targeted markets where Bank of the West's
resources, experience and technical expertise give it a competitive advantage.
Through operations conducted in this division, Bank of the West has established
itself as the national leader among those commercial banks which are lenders to
religious organizations. In addition, leasing operations within Specialty
Lending have made Bank of the West a significant provider of equipment lease
financing, including both standard and tax-oriented products, to a wide array of
clients. To support the cash management needs of both Bank of the West's
corporate banking customers and large private and public deposit relationships
maintained with Bank of the West, the Specialty Lending Division operates a Cash
Management Group which provides a full range of innovative and
relationship-focused cash management services.
The Real Estate Industries Division, whose primary markets are Northern and
Central California, Nevada and Oregon, originates and services construction,
short-term and permanent loans to residential developers, commercial builders
and investors. The division is particularly active in financing the construction
of detached residential subdivisions. Other construction lending activities
include low-income housing, industrial development, apartment, retail and office
projects. The division also originates single-family home loans sourced through
Bank of the West's Community Bank branch network.
CONSUMER FINANCE
The Consumer Finance Division targets the production of auto loans and
leases in the Western United States, and recreational vehicle and marine loans
nationwide, with emphasis on originating credits at the high end of the
credit spectrum. The Consumer Finance Division originates recreational vehicle
and marine credits on a nationwide basis through sales representatives located
throughout the country servicing a network of over 1,900 recreational vehicle
and marine dealers and brokers. Essex primarily focuses on the origination and
sale of loans in the broker marine market and also originates and sells loans to
finance the acquisition of recreational vehicles.
The division's auto lending activity is primarily focused in the Western
United States. Bank of the West originates loans and leases to finance the
purchase of new and used autos, light trucks and vans through a network of more
than 2,000 dealers and brokers in California, Nevada, Oregon, Arizona,
Washington, Utah and Colorado.
SMALL BUSINESS ADMINISTRATION LENDING
Bank of the West operates in California, Nevada, Oregon, Arizona, Florida,
Georgia, Illinois and Tennessee under the Preferred Lender Program of the Small
Business Administration ("SBA"), which is headquartered in Washington, D.C. This
designation is the highest lender status granted by the SBA. Bank of the West
has over 18 years of experience and expertise in the generation and sale of SBA
guaranteed loans.
COMMUNITY REINVESTMENT
Bank of the West provided direct capital investments that totaled more than
$24 million to organizations that provide benefits to low- and moderate-income
areas and people in the form of affordable housing and small business
opportunity. It also made grants and/or contributions of $550,000 to a variety
of qualifying community development organizations, which provide a wide array of
benefits and services for low- and moderate-income areas and people within Bank
of the West's assessment areas.
In addition, Bank of the West has funded, both on its own and through lender
consortia, numerous construction, short-term and permanent loans for affordable
housing, economic development and community facilities. Bank of the West is also
an active participant in the Federal Home Loan Bank of San Francisco's
Affordable Housing Program. As previously stated, Bank of the West is the
nation's largest bank lender to religious organizations. Most, if not all of
these loans are community development loans as they finance facilities for
various community services.
FIRST HAWAIIAN BANK
First Hawaiian Bank is a State of Hawaii-chartered bank that is not a member
of the Federal Reserve System. The deposits of First Hawaiian are insured by the
BIF and the SAIF of the FDIC to the extent and subject to the limitations set
forth in the FDIA. First Hawaiian, the oldest financial institution in Hawaii,
was established as Bishop & Co. in 1858 in Honolulu.
At December 31, 2000, First Hawaiian had total assets of $7.5 billion,
total loans and leases of $5.5 billion and total deposits of $5.9 billion,
making it the largest bank in Hawaii, based on domestic deposits from
individuals, corporations and partnerships.
First Hawaiian is a full-service bank conducting a general commercial and
consumer banking business and offering trust and insurance services to
individuals, institutions, businesses and governments. First Hawaiian's banking
activities include: (1) receiving demand, savings and time deposits for personal
and commercial accounts; (2) making commercial, agricultural, real estate and
consumer loans; (3) acting as an United States tax depository
BancWest Corporation and Subsidiaries 5
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PART I (continued)
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facility; (4) providing money transfer and cash management services; (5) selling
insurance products, mutual funds and annuities, traveler's checks and personal
money orders; (6) issuing letters of credit; (7) handling domestic and foreign
collections; (8) providing safe deposit and night depository facilities; (9)
offering lease financing; and (10) investing in U.S. Treasury securities and
securities of other U.S. government agencies and corporations and state and
municipal securities.
RETAIL COMMUNITY BANKING
First Hawaiian's Retail Banking Group operates its main banking office in
Honolulu, Hawaii, and 55 other banking offices located throughout Hawaii. First
Hawaiian also operates two branches in Guam and one branch in Saipan.
The focus of First Hawaiian's retail/community banking strategy is
primarily in Hawaii, where it has a significant market share -- 41% of the
domestic bank deposits by individuals, corporations and partnerships in the
state. The predominant economic force in Hawaii is tourism, although there have
been significant recent efforts to diversify the economy into high-tech and
other industries.
In pursuing the community banking markets in Hawaii, Guam and Saipan, First
Hawaiian seeks to serve a broad customer base by furnishing a range of retail
and commercial banking products. Through its branch network, First Hawaiian
generates first mortgage loans on residences and a variety of consumer loans,
consumer lines of credit and second mortgages. Through commercial banking
operations conducted from its branch network, First Hawaiian offers a wide range
of banking products intended to serve the needs of smaller community-based
businesses. First Hawaiian also provides a number of fee-based products and
services such as annuities and mutual funds, insurance sales and securities
brokerage.
First Hawaiian's principal funding source is its 59-branch network. Thanks
to its significant market share in Hawaii, First Hawaiian already has product or
service relationships with a majority of the households in the state. Therefore,
a key goal of its retail community banking strategy is to build those
relationships by cross-selling additional products and services to existing
individual and business customers.
First Hawaiian's goal is to become each customer's primary bank, using core
products such as demand deposit (checking) accounts as entry points to generate
cross-sales and develop a multi-product relationship with individuals and
business customers. Toward this goal, employees in First Hawaiian's branch
network focus on selling bank, trust, investment and insurance products to meet
customers' needs and build on those existing relationships.
To complement its branch network and serve these customers, First Hawaiian
operates a system of automated teller machines, a 24-hour Phone Center in
Honolulu and a full-service Internet banking system.
PRIVATE BANKING SERVICES
The Private Banking Department within First Hawaiian's Retail Banking Group
provides a wide range of products to high-net-worth individuals.
LENDING ACTIVITIES
First Hawaiian engages in a broad range of lending activities, including
making real estate, commercial and consumer loans. The majority of First
Hawaiian's loans are for construction, commercial, and residential real estate.
Commercial loans also comprise a major portion of the loan portfolio, with
consumer and foreign loans and leases accounting for the balance of the
portfolio.
REAL ESTATE LENDING--CONSTRUCTION. First Hawaiian provides construction
financing for a variety of commercial and residential single-family subdivision
and multi-family developments.
REAL ESTATE LENDING--COMMERCIAL. First Hawaiian provides permanent
financing for a variety of commercial developments, such as various retail
facilities, warehouses and office buildings.
REAL ESTATE LENDING--RESIDENTIAL. First Hawaiian makes residential real
estate loans, including home equity loans, to enable borrowers to purchase,
refinance or improve residential real property. The loans are collateralized by
mortgage liens on the related property, substantially all located in Hawaii.
COMMERCIAL LENDING. First Hawaiian is a major lender to primarily small-
and medium-sized businesses in Hawaii and Guam. Lending services include
receivable and inventory financing, equipment term loans, letters of credit,
dealer vehicle flooring financing and trade financing. Other banking services
include insurance products, trust, investment, foreign exchange and various
international banking services. To support the cash management needs of both
commercial banking customers and large private and public deposit relationships
maintained with the bank, First Hawaiian operates a Cash Management Department
which provides a full range of innovative and relationship-focused cash
management services.
SYNDICATED AND MEDIA LENDING. First Hawaiian, through its Wholesale Loan
Group, participates in syndication lending to primarily highly-rated large
corporate entities on the Mainland United States. The Wholesale Loan Group also
participates in syndication lending to the media and telecommunications industry
located on
6 BancWest Corporation and Subsidiaries
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PART I (continued)
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the Mainland United States, a targeted specialty market where First Hawaiian's
resources, experience and technical expertise give it a competitive advantage.
CONSUMER LENDING. First Hawaiian offers many types of loans and credits to
consumers including lines of credit (uncollateralized or collateralized) and
various types of personal and automobile loans. First Hawaiian also provides
indirect consumer automobile financing on new and used autos by purchasing
finance contracts from dealers. First Hawaiian's Dealer Center is the largest
commercial bank automobile lender in the state of Hawaii. First Hawaiian is the
largest issuer of MasterCard(R) credit cards and the second largest issuer of
VISA(R) credit cards in Hawaii.
INTERNATIONAL BANKING SERVICES
First Hawaiian maintains an International Banking Division which provides
international banking products and services through First Hawaiian's branch
system, its international banking headquarters in Honolulu, a Grand Cayman
branch, two Guam branches, a branch in Saipan and a representative office in
Tokyo, Japan. First Hawaiian maintains a network of correspondent banking
relationships throughout the world.
First Hawaiian's international banking activities are primarily
trade-related and are concentrated in the Asia-Pacific area.
TRUST AND INVESTMENT SERVICES
First Hawaiian's Financial Management Group offers a full range of trust
and investment management services, also seeking to reinforce customer
relationships developed by or in conjunction with the Retail Banking Group. The
Financial Management Group provides asset management, advisory and
administrative services for estates, trusts and individuals. It also acts as
trustee and custodian of retirement and other employee benefit plans. At
December 31, 2000, the Trust and Investments Division had 5,523 accounts with a
market value of $10.3 billion. Of this total, $7.2 billion represented assets in
nonmanaged accounts and $3.1 billion were managed assets.
The Trust and Investments Division maintains custodial accounts pursuant to
which it acts as agent for customers in rendering a variety of services,
including dividend and interest collection, collection under installment
obligations and rent collection.
SECURITIES AND INSURANCE SERVICES
First Hawaiian, through a wholly-owned subsidiary, First Hawaiian
Insurance, Inc., provides personal, business and estate insurance to its
customers. First Hawaiian Insurance offers insurance needs analysis for
individuals, families and businesses, as well as life, disability and long-term
care insurance products. In association with an independent registered
broker-dealer, First Hawaiian offers mutual funds, annuities and other
securities in its branches.
OTHER SUBSIDIARIES
First Hawaiian also conducts business through the following wholly-owned
subsidiaries:
- BISHOP STREET CAPITAL MANAGEMENT CORPORATION, a registered
investment advisor, which services the institutional investment
markets in Hawaii and the Western United States.
- FH CENTER, INC., which owns certain real property in connection
with First Hawaiian Center, the Company's headquarters.
- FHB PROPERTIES, INC., which holds title to certain property and
premises used by First Hawaiian.
- FIRST HAWAIIAN LEASING, INC., which engages in commercial
equipment and vehicle leasing.
- REAL ESTATE DELIVERY, INC., which holds title to certain real
property acquired by First Hawaiian in business activities.
FHL LEASE HOLDING COMPANY, INC.
FHL, a financial services loan company, primarily finances and leases
personal property including equipment and vehicles, and acts as an agent, broker
or advisor in the leasing or financing of such property for affiliates as well
as third parties. On January 1, 1997, FHL sold certain leases to First Hawaiian
Leasing, Inc., a subsidiary of First Hawaiian. FHL is in a run-off mode and all
new leveraged and direct financing leases are recorded by First Hawaiian
Leasing, Inc.
At December 31, 2000, FHL's net investment in leases amounted to $58.4
million and total assets were $76.1 million.
BANCWEST CAPITAL I
BWE Trust is a Delaware business trust which was formed in November 2000.
BWE Trust exchanged $150 million of its BancWest Capital I Quarterly Income
Preferred Securities (the "BWE Capital Securities"), as well as all outstanding
common securities of BWE Trust, for 9.5% junior subordinated deferrable interest
debentures of the Corporation. The Corporation sold to the public $150 million
of BWE Capital Securities. The BWE Capital Securities qualify as Tier 1 capital
of the Corporation and are solely, fully and unconditionally guaranteed by the
Corporation. All of the common securities of the BWE Trust are owned by the
Corporation.
At December 31, 2000, the BWE Trust's total assets were $155.6 million,
comprised primarily of the Corporation's junior subordinated debentures.
BancWest Corporation and Subsidiaries 7
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PART I (continued)
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FIRST HAWAIIAN CAPITAL I
FH Trust is a Delaware business trust which was formed in 1997. FH Trust
issued $100 million of its Capital Securities (the "FH Capital Securities") and
used the proceeds therefrom to purchase junior subordinated deferrable interest
debentures of the Corporation. The FH Capital Securities qualify as Tier 1
capital of the Corporation and are solely, fully and unconditionally guaranteed
by the Corporation. All of the common securities of the FH Trust are owned by
the Corporation.
At December 31, 2000, the FH Trust's total assets were $107.4 million,
comprised primarily of the Corporation's junior subordinated debentures.
HAWAII COMMUNITY REINVESTMENT CORPORATION
In an effort to support affordable housing and as part of First Hawaiian's
community reinvestment program, First Hawaiian is a member of the Hawaii
Community Reinvestment Corporation (the "HCRC"). The HCRC is a consortium of
local financial institutions that provides $50 million in permanent long-term
financing for affordable housing rental projects throughout Hawaii for low- and
moderate-income residents.
The $50 million loan pool is funded by the member financial institutions
which participate pro rata (based on deposit size) in each HCRC loan. First
Hawaiian's participation in these HCRC loans are included in its loan portfolio.
The member financial institutions have recently approved an increase in the loan
pool to $65 million to meet projected demand for affordable permanent loans.
HAWAII INVESTORS FOR AFFORDABLE HOUSING, INC.
To further enhance First Hawaiian's community reinvestment program and
provide support for the development of additional affordable housing rental
units in Hawaii, First Hawaiian and other HCRC member institutions, have
subscribed to a $19.7 million tax credit equity fund ("Hawaii Affordable Housing
Fund I") and a $20.0 million tax credit equity fund ("Hawaii Affordable Housing
Fund II"). Efforts are now underway to create a third tax credit equity fund to
continue the support of additional affordable housing projects.
Hawaii Affordable Housing Fund I and Hawaii Affordable Housing Fund II (the
"Funds") have been established to invest in qualified low-income housing tax
credit rental projects and to ensure that these projects are maintained as
low-income housing throughout the required compliance period. First Hawaiian's
investments in these Funds are included in other assets.
EMPLOYEES
At December 31, 2000, the Corporation had 5,009 full-time equivalent
employees. Bank of the West and First Hawaiian employed 2,821 and 2,188 persons,
respectively. None of our employees are represented by any collective bargaining
agreements and our relations with employees are considered excellent.
MONETARY POLICY AND ECONOMIC CONDITIONS
The earnings and businesses of the Corporation are affected not only by
general economic conditions (both domestic and international), but also by the
monetary policies of various governmental regulatory authorities of (i) the
United States and foreign governments and (ii) international agencies. In
particular, the Corporation's earnings and growth may be affected by actions of
the Federal Reserve Board in connection with its implementation of national
monetary policy through its open market operations in United States Government
securities, control of the discount rate and establishment of reserve
requirements against both member and non-member financial institutions'
deposits. These actions have a significant effect on the overall growth and
distribution of loans and leases, investments and deposits, as well as on the
rates earned on loans and leases or paid on deposits. It is difficult to predict
future changes in monetary policies.
COMPETITION
Competition in the financial services industry is intense. The Corporation
competes with a large number of commercial banks (including domestic, foreign
and foreign-affiliated banks), savings institutions, finance companies, leasing
companies, credit unions and other entities that provide financial services such
as mutual funds, insurance companies and brokerage firms. Many of these
competitors are significantly larger and have greater financial resources than
the Corporation. In addition, the increasing use of the Internet and other
electronic distribution channels has resulted in increased competition with
respect to many of the products and services that we offer. As a result, we
compete with financial service providers located not only in our home markets
but also those elsewhere in the United States that are able to offer their
products and services through electronic and other non-conventional distribution
channels.
Changes in federal law over the past several years have also made it easier
for out-of-state banks to enter and compete in the states in which our bank
subsidiaries operate. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act"), among other things, eliminated
substantially all state law barriers to the acquisition of banks by out-of-state
bank holding companies, effective September 29, 1995. A bank holding company may
now acquire banks in states other than its home state, without regard to the
permissi-
8 BancWest Corporation and Subsidiaries
9
PART I (continued)
- --------------------------------------------------------------------------------
bility of such acquisitions under state law, but subject to any state
requirement that the acquired bank has been organized and operating for a
minimum period of time (not to exceed five years), and the requirement that the
acquiring bank holding company, prior to or following the proposed acquisition,
controls no more than 10 percent of the total amount of deposits of insured
depository institutions in the United States and no more than 30 percent of such
deposits in that state (or such lesser or greater amount as may be established
by state law).
The Riegle-Neal Act also permits interstate branching by banks in all
states other than those which have "opted out." Effective June 1, 1997, the
Riegle-Neal Act permits banks to acquire branches located in another state by
purchasing or merging with a bank chartered in that state or a national banking
association having its headquarters located in that state. However, banks are
not permitted to establish de novo branches or purchase individual branches
located in other states unless expressly permitted by the laws of those other
states. None of the states in which our banking subsidiaries operate have
elected to "opt out" of the provisions of the Riegle-Neal Act permitting
interstate branching through acquisition or mergers, although most do not permit
de novo branching.
On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLBA") was signed
into law. The GLBA permits a financial holding company to engage in a wide
variety of financial activities, including insurance underwriting and sales,
investment banking, commercial banking, merchant banking and real estate
investment. Each activity is to be conducted in a separate subsidiary that is
regulated by a functional regulator: a state insurance regulator in the case of
an insurance subsidiary, the Securities and Exchange Commission in the case of a
broker-dealer or investment advisory subsidiary, or the appropriate federal
banking regulator in the case of a bank or thrift institution. The Federal
Reserve Board is the "umbrella" supervisor of financial holding companies.
Section 23A of the Federal Reserve Act, which severely restricts lending by an
insured bank subsidiary to nonbank affiliates, remains in place. We cannot
predict at this time the potential effect that the GLBA will have on our
business and operations, although we expect that a likely effect of the GLBA
will be to increase competition in the financial services industry generally and
lead to the formation of large financial services groups with significant market
share and power.
SUPERVISION AND REGULATION
As a registered bank holding company, the Corporation is subject to
regulation and supervision by the Federal Reserve Board under the BHCA. Our
subsidiaries are subject to regulation and supervision by the banking
authorities of California, Hawaii, Nevada, Washington, Oregon, Idaho, Guam and
the Commonwealth of the Northern Mariana Islands, as well as by the FDIC (which
is the primary federal regulator of our two bank subsidiaries) and various other
regulatory agencies.
The consumer lending and finance activities of the Corporation's
subsidiaries are also subject to extensive regulation under various Federal laws
including the Truth-in-Lending, Equal Credit Opportunity, Fair Credit Reporting,
Fair Debt Collection Practice and Electronic Funds Transfer Acts, as well as
various state laws. These statutes impose requirements on the making,
enforcement and collection of consumer loans and on the types of disclosures
that need to be made in connection with such loans.
HOLDING COMPANY STRUCTURE. The BHCA currently limits the business of the
Corporation to owning or controlling banks and engaging in such other activities
as the Federal Reserve Board may determine to be so closely related to banking
as to be a proper incident thereto. However, GLBA permits bank holding companies
that qualify for, and elect to be regulated as, financial holding companies, to
engage in a wide range of financial activities, including certain activities,
such as insurance, merchant banking and real estate investment, that are not
permissible for other bank holding companies. Financial holding companies are
permitted to acquire nonbank companies without the prior approval of the Federal
Reserve Board, but approval of the Federal Reserve Board continues to be
required before acquiring more than 5% of the voting shares of another bank or
bank holding company, before merging or consolidating with another bank holding
company and before acquiring substantially all the assets of any additional
bank. In addition, all acquisitions are reviewed by the Department of Justice
for antitrust considerations. We have not elected financial holding company
status.
DIVIDEND RESTRICTIONS. As a holding company, the principal source of our
cash revenue has been dividends and interest received from the Corporation's
bank subsidiaries. Each of the bank subsidiaries is subject to various federal
regulatory restrictions relating to the payment of dividends. For example, if,
in the opinion of the FDIC, a bank under its jurisdiction is engaged in or is
about to engage in an unsafe or unsound practice (which, depending on the
financial condition of the bank, could include the payment of dividends), the
FDIC may require, after notice and hearing, that such bank cease and desist from
such practice. In addition, the Federal Reserve Board has issued a policy
statement which pro-
BancWest Corporation and Subsidiaries 9
10
PART I (continued)
- --------------------------------------------------------------------------------
vides that, as a general matter, insured banks and bank holding companies should
only pay dividends out of current operating earnings. The regulatory capital
requirements of the Federal Reserve Board and the FDIC also may limit the
ability of the Corporation and its insured depository subsidiaries to pay
dividends. See "Prompt Corrective Action" and "Capital Requirements" below.
State regulations also place restrictions on the ability of our bank
subsidiaries to pay dividends. Under Hawaii law, First Hawaiian is prohibited
from declaring or paying any dividends in excess of its retained earnings.
California law generally prohibits Bank of the West from paying cash dividends
to the extent such payments exceed the lesser of retained earnings and net
income for the three most recent fiscal years (less any distributions to
stockholders during such three-year period). At December 31, 2000, the aggregate
amount of dividends that such subsidiaries could pay to the Corporation under
the foregoing limitations without prior regulatory approval was $366.7 million.
There are also statutory limits on the transfer of funds to the Corporation
and its nonbanking subsidiaries by its banking subsidiaries, whether in the form
of loans or other extensions of credit, investments or asset purchases. Such
transfers by a bank subsidiary to any single affiliate are limited in amount to
10% of the bank's capital and surplus, or 20% in the aggregate to all
affiliates. Furthermore, such loans and extensions of credit are required to be
collateralized in specified amounts.
Under Federal Reserve Board policy, a bank holding company is expected to
act as a source of financial strength to each subsidiary bank and to make
capital infusions into a troubled subsidiary bank. The Federal Reserve Board may
charge a bank holding company with engaging in unsafe and unsound practices for
failure to commit resources to a subsidiary bank. This capital infusion may be
required at times when a bank holding company may not have the resources to
provide it. Any capital loans by us to one of our subsidiary banks would be
subordinate in right of payment to deposits and to certain other indebtedness of
such subsidiary bank.
In addition, depository institutions insured by the FDIC can be held liable
for any losses incurred, or reasonably expected to be incurred, by the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC-insured depository institution in danger of default. "Default" is defined
generally as the appointment of a conservator or receiver and "in danger of
default" is defined generally as the existence of certain conditions indicating
that a "default" is likely to occur in the absence of regulatory assistance.
Accordingly, in the event that any insured subsidiary of the Corporation causes
a loss to the FDIC, other insured subsidiaries of the Corporation could be
required to compensate the FDIC by reimbursing it for the amount of such loss.
Any such obligation by our insured subsidiaries to reimburse the FDIC would rank
senior to their obligations, if any, to the Corporation.
PROMPT CORRECTIVE ACTION. Pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), the federal banking agencies are
required to take "prompt corrective action" with respect to insured depository
institutions that do not meet minimum capital requirements. FDICIA established a
five-tier framework for measuring the capital adequacy of insured depository
institutions (including Bank of the West and First Hawaiian), with each
depository institution being classified into one of the following categories:
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized."
Under the regulations adopted by the federal banking agencies to implement
these provisions of FDICIA (commonly referred to as the "prompt corrective
action" rules), a depository institution is "well capitalized" if it has (i) a
total risk-based capital ratio of 10% or greater, (ii) a Tier 1 risk-based
capital ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv)
is not subject to any written agreement, order or directive to meet and maintain
a specific capital level for any capital measure. An "adequately capitalized"
depository institution is defined as one that has (i) a total risk-based capital
ratio of 8% or greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater
and (iii) a leverage ratio of 4% or greater (or 3% or greater in the case of a
bank rated a composite 1 under the Uniform Financial Institution Rating System,
"CAMELS rating," established by the Federal Financial Institution Examinations
Council). A depository institution is considered (i) "undercapitalized" if it
has (A) a total risk-based capital ratio of less than 8%, (B) a Tier 1
risk-based capital ratio of less than 4% or (C) a leverage ratio of less than 4%
(or 3% in the case of an institution with a CAMELS rating of 1), (ii)
"significantly undercapitalized" if it has (A) a total risk-based capital ratio
of less than 6%, (B) a Tier 1 risk-based capital ratio of less than 3% or (C) a
leverage ratio of less than 3% and (iii) "critically undercapitalized" if it has
a ratio of tangible equity to total assets equal to or less than 2%. An
institution may be deemed by the regulators to be in a capitalization category
that is lower than is indicated by
10 BancWest Corporation and Subsidiaries
11
PART I (continued)
- --------------------------------------------------------------------------------
its actual capital position if, among other things, it receives an
unsatisfactory examination rating. At December 31, 2000, all of the
Corporation's subsidiary depository institutions were "well capitalized."
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a cash dividend) or paying any management
fees to its holding company if the depository institution is, or would
thereafter be, undercapitalized. Undercapitalized depository institutions are
subject to growth limitations and are required to submit a capital restoration
plan. The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the parent
holding company under such guarantee is limited to the lesser of (i) an amount
equal to 5% of the depository institution's total assets at the time it became
undercapitalized, or (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable to such institution as of the time it fails to comply with the plan.
If a depository institution fails to submit an acceptable plan, it is treated as
if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of other requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions may not make any payments of interest
or principal on their subordinated debt and are subject to the appointment of a
conservator or receiver, generally within 90 days of the date such institution
becomes critically undercapitalized. In addition, the FDIC has adopted
regulations under FDICIA prohibiting an insured depository institution from
accepting brokered deposits (as defined by the regulations) unless the
institution is "well capitalized" or is "adequately capitalized" and receives a
waiver from the FDIC.
FDIC INSURANCE ASSESSMENTS. The FDIC has implemented a risk-based deposit
insurance assessment system under which the assessment rate for an insured
institution may vary according to the regulatory capital levels of the
institution and other factors (including supervisory evaluations). Depository
institutions insured by the BIF which are ranked in the least risky category
currently have no annual assessment for deposit insurance while all other banks
are required to pay premiums ranging from .03% to .27% of domestic deposits. As
a result of the enactment on September 30, 1996 of the Economic Growth and
Regulatory Paperwork Reduction Act of 1996 (the "Deposit Funds Act"), the
deposit insurance premium assessment rates for depository institutions insured
by the SAIF were reduced, effective January 1, 1997, to the same rates that were
applied to depository institutions insured by the BIF. The Deposit Funds Act
also provided for a one-time assessment of 65.7 basis points on all SAIF-insured
deposits in order to fully recapitalize the SAIF (which assessment was paid by
the Corporation in 1996), and imposes annual assessments on all depository
institutions to pay interest on bonds issued by the Financing Corporation (the
"FICO") in connection with the resolution of savings association insolvencies
occurring prior to 1991. The FICO assessment rate for the first quarter of 2001
was 2.0 basis points. These rate schedules are adjusted quarterly by the FDIC.
In addition, the FDIC has authority to impose special assessments from time to
time, subject to certain limitations specified in the Deposit Funds Act.
CAPITAL REQUIREMENTS. We and certain of our subsidiaries are subject to
regulatory capital guidelines issued by the federal banking agencies.
Information with respect to the applicable capital requirements is included in
Note 14 Regulatory Capital Requirements, on pages 58 and 59.
FDICIA required each federal banking agency to revise its risk-based
capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk and the risk of nontraditional
activities, as well as reflect the actual performance and expected risk of loss
on multi-family mortgages. The federal banking agencies have adopted amendments
to their respective risk-based capital requirements that explicitly identify
concentrations of credit risk and certain risks arising from nontraditional
activities, and the management of such risks, as important factors to consider
in assessing an institution's overall capital adequacy. The amendments do not,
however, mandate any specific adjustments to the risk-based capital calculations
as a result of such factors.
In August 1996, the federal banking regulators adopted amendments to their
risk-based capital rules to incorporate a measure for market risk in foreign
exchange and commodity activities and in the trading of debt and equity
instruments. Under these amendments, which became effective in 1997, banking
institutions with relatively large trading activities are required to calculate
their capital charges for market risk using their
BancWest Corporation and Subsidiaries 11
12
PART I (continued)
- --------------------------------------------------------------------------------
own internal value-at-risk models (subject to parameters set by the regulators)
or, alternatively, risk management techniques developed by the regulators. As a
result, these institutions are required to hold capital based on the measure of
their market risk exposure in addition to existing capital requirements for
credit risk. These institutions are able to satisfy this additional requirement,
in part, by issuing short-term subordinated debt that qualifies as Tier 3
capital. The adoption of these amendments did not have a material effect on the
Corporation's business or operations.
On March 8, 2000, the federal banking regulators proposed for comment
regulations establishing new risk-based capital requirements for recourse
arrangements and direct credit substitutes. "Recourse" for this purpose means
any retained risk of loss associated with any transferred asset that exceeds a
pro rata share of the bank's or bank holding company's remaining claim on the
asset, if any. Under existing regulations, banks and bank holding companies have
to maintain capital against the full amount of any assets for which risk of loss
is retained, unless the resulting capital amount would exceed the maximum
contractual liability or exposure retained, in which case the capital required
would equal, dollar-for-dollar, such maximum contractual liability or exposure.
The proposal would extend this treatment to direct credit substitutes. "Direct
credit substitute" means any assumed risk of loss associated with any asset or
other claim that exceeds the bank's or bank holding company's pro rata share of
the asset or claim, if any. The proposal also included a multi-level approach to
assessing capital charges based upon the relative credit risk of the bank's or
bank holding company's position in a securitization (i.e., recourse
arrangements, direct credit substitute or asset-backed security) and the rating
assigned to such position by a nationally recognized statistical rating agency
(or, in certain circumstances, by the bank's internal risk rating system). The
regulators also proposed an additional measure to address the risk associated
with early amortization features in certain asset securitizations. The
Corporation does not believe the adoption of this proposal will have a material
adverse effect on its operations or financial position.
On September 27, 2000, the federal banking regulators proposed amendments
to their capital guidelines relating to "residual interests," which the proposal
defines as on-balance-sheet assets that represent interests retained by a seller
after a securitization or other transfer of financial assets, which interests
are structured to absorb more than a pro-rata share of credit loss related to
the transferred assets. "Residual interests" do not include interests purchased
from a third party. The proposed rule would require that risk-based capital be
held in an amount equal to the amount of the residual interest even if the
capital charge exceeds the full risk-based capital charge that would have been
held against the transferred assets. The proposal would also limit such residual
interests, when aggregated with nonmortgage servicing assets and purchased
credit card relationships, to 25% of Tier 1 capital, with any excess amount to
be deducted from Tier 1 capital. The Corporation does not believe the adoption
of this proposal will have a material adverse effect on its operations or
financial position.
On January 16, 2001, the Basel Committee on Banking Supervision (the
"Committee") proposed a new capital adequacy framework to replace the framework
adopted in 1988. Under the new framework, risk weights for certain types of
claims, including corporate credits, would be based on ratings assigned by
rating agencies. Certain low quality exposures would be assigned a risk weight
greater than 100%. Short-term commitments to lend, which currently do not
require capital, would be subject to a 20% conversion factor. In addition to
this "standardized" approach, banks with more advanced risk management
capabilities, which can meet rigorous supervisory standards, can make use of an
internal ratings-based approach under which some of the key elements of credit
risk, such as the probability of default, will be estimated internally by a
bank. The Committee also proposes capital charges for operational risk. The
Committee indicated that it intends to finalize the proposed new capital
adequacy requirement by the end of 2001, with implementation in 2004. If adopted
by the Committee, the new accord would then be the subject of rulemaking by the
U.S. bank regulatory agencies. Because the timing and final content of the
proposal are not yet clear, the Corporation cannot predict at this time the
potential effect that the adoption of such a proposal will have on its
regulatory capital requirements and financial position.
REAL ESTATE ACTIVITIES. The FDIC adopted regulations, effective January 1,
1999, that make it significantly easier for state non-member banks to engage in
a variety of real estate investment activities. These regulations generally
allow a majority-owned corporate subsidiary of a state non-member bank to make
equity investments in real estate if the bank complies with certain investment
and transaction limits and satisfies certain capital requirements (after giving
effect to its investment in the majority-owned subsidiary). In addition, the
regulations permit a subsidiary of an insured state non-member bank to act as a
lessor under a real property lease that is the equivalent of a financing
transaction, meets certain criteria applicable to the lease and the underlying
real estate and does not represent a significant risk to the deposit insurance
funds.
12 BancWest Corporation and Subsidiaries
13
PART I (continued)
- --------------------------------------------------------------------------------
FUTURE LEGISLATION
Legislation relating to banking and other financial services has been
introduced from time to time in Congress and is likely to be introduced in the
future. If enacted, such legislation could significantly change the competitive
environment in which we and our subsidiaries operate. Management cannot predict
whether these or any other proposals will be enacted or the ultimate impact of
any such legislation on our competitive situation, financial condition or
results of operations.
FOREIGN OPERATIONS
Foreign outstandings are defined as the balances outstanding of
cross-border loans, acceptances, interest-bearing deposits with other banks,
other interest-bearing investments and any other monetary assets. At December
31, 2000, 1999 and 1998, we had no foreign outstandings to any country which
exceeded 1% of total assets. Additional information concerning foreign
operations is also included in Management's Discussion and Analysis of Financial
Condition and Results of Operations and in Note 21 International Operations, on
pages 33 and 65, respectively.
OPERATING SEGMENTS
Information regarding the Corporation's operating segments is included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and in Note 20 Operating Segments, on page 21 and 64 and 65,
respectively.
ITEM 2. PROPERTIES
Bank of the West leases a site in Walnut Creek, California, which is its
primary administrative headquarters. The administrative headquarters office is a
132,000-square-foot, three-story building. Bank of the West also leases 48,382
square feet of executive office space in downtown San Francisco in the same
building that houses its San Francisco Main Branch at 180 Montgomery Street, see
Note 22 Lease Commitments (pages 65 and 66). Approximately 30,396 square feet of
leased space at 180 Montgomery Street is subleased to BNP Paribas.
As of December 31, 2000, 54 of Bank of the West's active branches are
located on land owned by Bank of the West. The remaining 109 active branches are
located on leasehold properties. Bank of the West also has 11 surplus branch
properties, 10 of which are currently leased to others. In addition, Bank of the
West leases 23 properties that are utilized for administrative (including
warehouses), lease support, management information systems and regional
management services, see Note 22 Lease Commitments(pages 65 and 66).
First Hawaiian indirectly (through two subsidiaries) owns all of a city
block in downtown Honolulu. The administrative headquarters of the Corporation
and First Hawaiian, as well as the main branch of First Hawaiian are located in
a modern banking center on this city block. The headquarters building includes
418,000 square feet of gross office space. Information about the lease financing
of the headquarters building is included in Note 22 Lease Commitments (pages 65
and 66).
As of December 31, 2000, 19 of First Hawaiian's offices in Hawaii are
located on land owned in fee simple by First Hawaiian. The other branches of
First Hawaiian in Hawaii and one branch each in Guam and Saipan are
situated on leasehold premises or in buildings constructed on leased land, see
Note 22 Lease Commitments (pages 65 and 66). In addition, First Hawaiian owns an
operations center which is located on 125,919 square feet of land owned in fee
simple by First Hawaiian in an industrial area near downtown Honolulu. First
Hawaiian occupies most of this four-story building.
First Hawaiian owns a five-story, 75,000-square-foot office building,
including a branch, which is situated on property owned in fee simple in Maite,
Guam, where it maintains a branch.
ITEM 3. LEGAL PROCEEDINGS
The information required by this Item is set forth in Note 23 to the
Consolidated Financial Statements on pages 66 and 67 of this Form 10-K, and is
expressly incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the New York Stock Exchange under the symbol
BWE. At December 31, 2000, there were 4,679 holders of record of the common
stock. A large number of shares are also held in the names of nominees and
brokers for individuals and institutions.
All Class A common shares are owned by BNP Paribas and a BNP Paribas
subsidiary. A share of Class A common stock is generally the same as a share of
common stock in all respects, except that holders of the Class A common stock
have the right to elect a separate class of directors (the "Class A Directors"),
and to vote as a class on certain fundamental corporate actions. The number of
Class A Directors will generally be comparable to the percentage of Class A
common shares in rela-
BancWest Corporation and Subsidiaries 13
14
PART II (continued)
- --------------------------------------------------------------------------------
tion to total stock outstanding (common stock plus Class A common stock). Note
12 to the Consolidated Financial Statements on pages 57 and 58 discusses key
terms of the Class A common stock. The Class A common stock is not publicly
traded.
BNP Paribas is bound by a standstill and governance agreement. Among the
key features of this agreement are provisions that: (1) limit BNP Paribas'
ability to acquire, directly or indirectly, additional common stock that would
result in its ownership of more than 45% of the outstanding voting stock of the
Company; (2) restrict BNP Paribas' ability to transfer its shares; (3) restrict
BNP Paribas' ability to exercise control over the Company or our Board of
Directors (the "Board"), other than through its representation on the Board; and
(4) create various other restrictions. Note 12 to the Consolidated Financial
Statements on pages 57 and 58 contains additional information.
At December 31, 2000, a total of 71,041,450 shares of common stock were
issued, including 2,565,581 shares in the treasury stock account.
On November 18, 1999, our Board approved a two-for-one stock split of the
total issued shares of the Company's common stock and Class A common stock. The
additional shares issued as a result of the stock split were distributed on
December 15, 1999, to stockholders of record at the close of business on
December 1, 1999. A total of 63,522,968 shares of common stock and Class A
common stock were issued in connection with the stock split. In addition, due to
the stock split, treasury shares increased by 1,220,408 shares. As a result of
the stock split, $63.5 million was reclassified from capital surplus to common
stock and Class A common stock. The stock split did not cause any changes in the
$1 par value per share of the common stock, the $1 par value per share of the
Class A common stock or in total stockholders' equity.
Unless otherwise noted, the number of common shares and per common share
amounts include Class A common shares and have been restated to reflect the
effects of the stock split.
On November 1, 1998, in connection with the merger of the former BancWest
Corporation with and into First Hawaiian, Inc., as described in Note 2 to the
Consolidated Financial Statements on pages 50 and 51, we issued 25,814,768
shares of Class A common stock, which became 51,629,536 shares due to the
two-for-one stock split. At December 31, 2000, a total of 56,074,874 shares of
Class A common stock remained outstanding.
Here are quarterly and annual per share data, computed using the common
stock and Class A common shares and restated for the effects of a two-for-one
stock split:
- --------------------------------------------------------------------------------------
Cash Market Price
Diluted Dividends -----------------------------
Earnings Paid High Low Close
- --------------------------------------------------------------------------------------
2000
FIRST QUARTER........... $ .40 $.17 $19.75 $14.44 $19.75
SECOND QUARTER.......... .43 .17 19.38 14.44 16.45
THIRD QUARTER........... .45 .17 20.19 16.44 19.44
FOURTH QUARTER.......... .45 (1) .17 26.13 17.25 26.13
- --------------------------------------------------
ANNUAL................ $1.73 (1) $.68 26.13 14.44 26.13
==================================================
1999
First Quarter........... $ .34 $.15 $24.25 $19.44 $21.25
Second Quarter.......... .36 .15 21.22 18.50 18.56
Third Quarter........... .29 (2) .15 22.03 18.56 20.31
Fourth Quarter.......... .39 .17 22.75 19.06 19.50
- --------------------------------------------------
Annual............... $1.38 (2) $.62 24.25 18.50 19.50
==================================================
1998................... $1.05 (3) $.58 24.00 13.81 24.00
1997................... $1.29 $.58 21.94 14.31 19.88
1996................... $1.20 $.57 18.38 12.88 17.50
======================================================================================
On July 1, 1999, we acquired SierraWest Bancorp. That merger was accounted for
as a pooling of interests. Therefore, all financial information has been
restated for all periods presented.
(1) Amounts include after-tax other nonrecurring costs of $755,000 recorded
in 2000 for the acquisition of new branches in New Mexico and Nevada
expected to be completed in the first quarter of 2001. Excluding those
costs, operating diluted earnings per share were $.46 for the quarter
ended December 31, 2000 and $1.74 for the year ended December 31, 2000.
(2) Amounts include after-tax restructuring, merger-related and other
nonrecurring costs of $11.6 million in connection with the acquisition
of SierraWest Bancorp and the consolidation of data centers. Excluding
those costs, adjusted diluted earnings per share were $.39 for the
quarter ended September 30, 1999, and $1.48 for the year ended December
31, 1999.
(3) Amounts include after-tax restructuring, merger-related and other
nonrecurring costs of $21.9 million in connection with the merger of
the former BancWest Corporation with and into First Hawaiian, Inc. on
November 1, 1998. Excluding those costs, adjusted diluted earnings per
share were $1.32 for the year ended December 31, 1998.
We expect to continue our policy of paying quarterly cash dividends. The
declaration and payment of cash dividends are subject to our future earnings,
capital requirements, financial condition and certain limitations as described
in Note 15 to the Consolidated Financial Statements on page 59.
14 BancWest Corporation and Subsidiaries
15
PART II (continued)
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ITEM 6. SELECTED FINANCIAL DATA
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(dollars in thousands) 2000 1999 1998 1997 1996
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INCOME STATEMENTS AND DIVIDENDS
Interest income ..................................... $1,309,856 $1,135,711 $749,541 $651,048 $620,511
Interest expense .................................... 562,922 446,877 315,822 281,232 270,755
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Net interest income ................................. 746,934 688,834 433,719 369,816 349,756
Provision for credit losses ......................... 60,428 55,262 30,925 20,010 25,048
Noninterest income .................................. 216,076 197,632 134,182 110,550 95,575
Noninterest expense, without restructuring,
merger-related and other nonrecurring costs ........ 532,692 517,541 366,548 322,171 296,567
Restructuring, merger-related and other
nonrecurring costs ................................. 1,269 17,534 25,527 -- --
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Income before income taxes .......................... 368,621 296,129 144,901 138,185 123,716
Provision for income taxes .......................... 152,227 123,751 60,617 44,976 38,533
- ------------------------------------------------------------------------------------------------------------------------------------
Net income .......................................... $ 216,394 $ 172,378 $ 84,284 $ 93,209 $ 85,183
====================================================================================================================================
Cash dividends ...................................... $ 84,731 $ 77,446 $ 40,786 $ 41,116 $ 38,946
====================================================================================================================================
Average shares outstanding (in thousands) ........... 124,634 124,048 79,516 70,939 68,738
====================================================================================================================================
OPERATING AND CASH EARNINGS
Operating earnings (1) .............................. $ 217,149 $ 184,008 $106,150 $ 93,209 $ 85,183
====================================================================================================================================
Cash earnings (2) ................................... $ 249,131 $ 204,886 $ 95,366 $ 99,832 $ 90,845
====================================================================================================================================
Operating cash earnings (1), (2) .................... $ 249,886 $ 216,516 $117,232 $ 99,832 $ 90,845
====================================================================================================================================
On July 1, 1999, we acquired SierraWest Bancorp. That merger was accounted for
as a pooling of interests. Therefore, all financial information has been
restated for all periods presented.
(1) Excluding after-tax restructuring, merger-related and other nonrecurring
costs of:
(a) $755,000 recorded in 2000 for the acquisition of new branches in
Nevada and New Mexico expected to be completed in the first
quarter of 2001,
(b) $11.6 million in connection with the acquisition of SierraWest
Bancorp and the consolidation of data centers in 1999, and
(c) $21.9 million in connection with the merger of the former
BancWest Corporation with and into First Hawaiian, Inc. on
November 1, 1998 ("BancWest Merger").
(2) Excluding amortization of goodwill and core deposit intangible.
BancWest Corporation and Subsidiaries 15
16
PART II (continued)
- --------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA, PER SHARE(1)
Basic earnings ..................................... $ 1.74 $ 1.39 $ 1.06 $ 1.31 $ 1.24
Diluted earnings ................................... 1.73 1.38 1.05 1.29 1.20
Cash dividends ..................................... .68 .62 .58 .58 .57
Book value (at December 31) ........................ 15.97 14.79 14.15 11.30 10.85
Market price (close at December 31) ................ 26.13 19.50 24.00 19.88 17.50
OPERATING AND CASH EARNINGS, PER SHARE(1)
Diluted operating earnings(2) ...................... $ 1.74 $ 1.48 $ 1.32 $ 1.29 $ 1.20
Diluted cash earnings(3) ........................... 1.99 1.64 1.19 1.38 1.28
Diluted operating cash earnings(2), (3) ............ 2.00 1.74 1.46 1.38 1.28
BALANCE SHEETS (in millions)
Average balances:
Total assets ....................................... $17,600 $16,294 $10,033 $ 8,635 $8,306
Total earning assets ............................... 15,742 14,492 9,036 7,768 7,558
Loans and leases ................................... 13,286 12,291 7,659 6,477 5,907
Deposits ........................................... 13,380 12,517 7,710 6,541 6,102
Long-term debt and capital securities .............. 964 790 354 279 265
Stockholders' equity ............................... 1,903 1,793 938 786 720
At December 31:
Total assets ....................................... $18,457 $16,681 $15,929 $8,880 $8,642
Loans and leases ................................... 13,972 12,524 11,965 6,792 6,243
Deposits ........................................... 14,128 12,878 12,043 6,790 6,507
Long-term debt and capital securities .............. 967 802 734 324 218
Stockholders' equity ............................... 1,989 1,843 1,746 801 753
- -----------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Return on average:
Total assets ....................................... 1.23% 1.06% .84% 1.08% 1.03%
Stockholders' equity ............................... 11.37 9.61 8.99 11.86 11.82
SELECTED OPERATING AND CASH RATIOS(4)
Return on average:
Tangible total assets .............................. 1.48% 1.39% 1.19% 1.17% 1.11%
Tangible stockholders' equity ...................... 20.32 19.70 16.31 15.14 14.94
OTHER SELECTED DATA
Dividend payout ratio ............................... 39.31% 44.93% 55.24% 44.96% 47.50%
Average stockholders' equity to average
total assets ....................................... 10.81 11.00 9.35 9.10 8.67
Year ended December 31:
Net interest margin ................................ 4.75 4.76 4.81 4.77 4.63
Net loans and leases charged off to average
loans and leases .................................. .37 .42 .31 .33 .42
Efficiency ratio (2), (3) .......................... 51.53 54.47 62.50 65.53 64.54
At December 31:
Risk-based capital ratios:
Tier 1 ............................................ 9.73 8.80 8.32 9.63 8.49
Total ............................................. 11.39 10.56 10.18 11.87 11.93
Tier 1 leverage ratio .............................. 9.09 8.11 9.13 9.09 7.24
Allowance for credit losses to total loans
and leases ........................................ 1.23 1.29 1.32 1.33 1.46
Nonperforming assets to total loans and leases
and other real estate owned and repossessed
personal property ................................. .86 1.01 1.11 1.42 1.68
Allowance for credit losses to nonperforming
loans and leases .................................. 1.84x 1.64x 1.61x 1.40x 1.15x
===================================================================================================================================
On July 1, 1999, we acquired SierraWest Bancorp. That merger was accounted for
as a pooling of interests. Therefore, all financial information has been
restated for all periods presented.
(1) All per share data have been calculated to include both common and Class
A common shares and have been adjusted to give retroactive effect to the
two-for-one stock split in the fourth quarter of 1999.
(2) Excluding after-tax restructuring, merger-related and other nonrecurring
costs of:
(a) $755,000 recorded in 2000 for the acquisition of new branches in
Nevada and New Mexico expected to be completed in the first
quarter of 2001,
(b) $11.6 million in connection with the acquisition of SierraWest
Bancorp and the consolidation of data centers in 1999, and
(c) $21.9 million in connection with the merger of the former
BancWest Corporation with and into First Hawaiian, Inc. on
November 1, 1998 ("BancWest Merger").
(3) Excluding amortization of goodwill and core deposit intangible.
(4) Defined as operating cash earnings as a percentage of average total
assets or average stockholders' equity minus average goodwill and core
deposit intangible.
16 BancWest Corporation and Subsidiaries
17
PART II (continued)
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Our
forward-looking statements (such as those concerning its plans, expectations,
estimates, strategies, projections and goals) involve risks and uncertainties
that could cause actual results to differ materially from those discussed in the
statements. Readers should carefully consider those risks and uncertainties in
reading this report. Factors that could cause or contribute to such differences
include, but are not limited to:
(1) global, national and local economic and market conditions, specifically
with respect to changes in the United States economy and the impact recent
increases in energy costs will have on the California economy;
(2) the level and volatility of interest rates and currency values;
(3) government fiscal and monetary policies;
(4) credit risks inherent in the lending process;
(5) loan and deposit demand in the geographic regions where we conduct
business;
(6) the impact of intense competition in the rapidly evolving banking and
financial services business;
(7) extensive federal and state regulation of our business, including the
effect of current and pending legislation and regulations;
(8) whether expected revenue enhancements and cost savings are realized within
expected time frames;
(9) whether Bank of the West completes as anticipated its expected acquisition
of New Mexico and Nevada branches and is successful in retaining and
further developing related loan, deposit, customer and employee
relationships;
(10) matters relating to the integration of our business with that of past and
future merger partners, including the impact of combining these businesses
on revenues, expenses, deposit attrition, customer retention and financial
performance;
(11) our reliance on third parties to provide certain critical services,
including data processing;
(12) the proposal or adoption of changes in accounting standards by the
Financial Accounting Standards Board ("FASB"), the Securities and Exchange
Commission ("SEC") or other standard setting bodies;
(13) technological changes;
(14) other risks and uncertainties discussed in this document or detailed from
time to time in other SEC filings that we make, including our 1999 Annual
Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2000; and
(15) management's ability to manage risks that result from these and other
factors.
Our forward-looking statements are based on management's current views
about future events. Those statements speak only as of the date on which they
are made. We do not intend to update forward-looking statements, and we disclaim
any obligation or undertaking to update or revise any such statements to reflect
any change in our expectations or any change in events, conditions,
circumstances or assumptions on which forward-looking statements are based.
See "Glossary of Financial Terms" on page 70 for definitions of certain
terms used in this annual report.
OVERVIEW
Thanks to strong performances in both West Coast and Hawaii operations, our
operating earnings during 2000 increased 18% over 1999 to a record $217.1
million. These were some of the key events affecting our financial statements:
- - In the fourth quarter of 2000, we completed our consolidation of our data
processing for all of our operations into a single facility in Honolulu.
The consolidated operations of our data center are now being managed by the
national information management service provider, ALLTEL. Through the
facilities management contract with ALLTEL, certain noninterest expenses,
such as salaries and employee benefits and equipment expense have been
reduced, contributing to the further improvement in our operating
efficiency.
- - By the end of the first quarter of 2001, our acquisition of 30 branches in
New Mexico and Nevada should be completed. The branches, being divested as
a result of the merger between First Security Corporation and Wells Fargo &
Company, have approximately $1.2 billion in deposits and $300 million in
loans. This cash transaction is being accounted under the purchase method
of accounting. Related to the branch acquisition, we recorded pre-tax,
other nonrecurring costs of $1.3 million ($755,000 after-tax) in the fourth
quarter of 2000. Furthermore, we formed BWE Trust and issued $150 million
of BWE Capital Securities in the fourth quarter of 2000 to enhance our
capital resources in anticipation of the branch acquisition. In addition,
our planned acquisition of 68 branches in Utah and Idaho was cancelled due
to the termination of the merger of Zions Bancorporation and First Security
Corporation, resulting in the receipt of $5 million in termination fees and
the payment of
BancWest Corporation and Subsidiaries 17
18
PART II (continued)
- --------------------------------------------------------------------------------
approximately $3 million in expenses related to the cancelled branch
acquisition.
- - As a result of an increase in loan and lease volume and noninterest-bearing
deposits, our net interest income has increased by over 8% in 2000 over
1999.
- - We continue to improve our credit quality. The improving economy in Hawaii
helped to decrease our consolidated nonperforming assets. The ratio of
nonperforming assets to total loans and leases and other real estate owned
and repossessed personal property ("OREO") decreased by nearly 15% to .86%
in 2000 from 1.01% in 1999.
For further information regarding the Company's mergers and acquisitions,
see Note 2 to the Consolidated Financial Statements on pages 50 and 51. For
further information regarding the Company's restructuring, merger-related, and
other nonrecurring costs, see Note 3 to the Consolidated Financial Statements on
pages 51 and 52. For additional information regarding net interest income, see
Net Interest Income and Table 1 on pages 22 and 23. For additional information
on nonperforming assets, see Nonperforming Assets and Past Due Loans and Leases
on pages 32 and 33.
2000 VS. 1999
The table below compares our 2000 financial results to 1999. The
improvement in our financial results is primarily attributed to higher net
interest income, caused mainly by increased loan and lease and deposit volume,
increased noninterest income, a result of our continuing efforts to diversify
our revenue base, and controlled noninterest expense. In addition, the $11.6
million after-tax restructuring, merger-related and other nonrecurring costs
that we incurred in 1999 for the SierraWest Merger and the consolidation of data
centers are reflected in the results for 1999. The $755,000 in after-tax other
nonrecurring costs related to the New Mexico and Nevada branch acquisition are
included in the results for 2000. We expect to incur an additional $4.3 million
(pre-tax) in nonrecurring costs in the first quarter of 2001 related to this
acquisition.
- -----------------------------------------------------------------------------------------
(dollars in thousands,
except per share data) 2000 1999 Change
- -----------------------------------------------------------------------------------------
Consolidated net income ........... $ 216,394 $ 172,378 25.5%
Diluted earnings per share ........ 1.73 1.38 25.4
Operating earnings(*) ............. 217,149 184,008 18.0
Diluted operating earnings
per share(*) ..................... 1.74 1.48 17.6
Diluted operating cash
earnings per share(*)(**) ........ 2.00 1.74 14.9
Return on average
tangible total assets(*) ......... 1.48% 1.39% 6.5
Return on average tangible
stockholders' equity(*) .......... 20.32% 19.70% 3.1
=========================================================================================
(*) Excludes after-tax restructuring, merger-related and other nonrecurring
costs of $755,000 and $11.6 million in 2000 and 1999, respectively.
(**) Operating earnings per share before amortization of goodwill and core
deposit intangible.
1999 VS. 1998
In most income and expense categories, the increases in the amounts we
reported for 1999 compared to the prior year resulted primarily from including
the results of operations of Bank of the West for a full year versus two months
in 1998. The table below compares our 1999 financial results to 1998.
- -----------------------------------------------------------------------------------------
(dollars in thousands,
except per share data) 1999 1998 Change
- -----------------------------------------------------------------------------------------
Consolidated net income ............. $ 172,378 $ 84,284 104.5%
Diluted earnings per share .......... 1.38 1.05 31.4
Operating earnings(*) ............... 184,008 106,150 73.3
Diluted operating earnings
per share(*) ....................... 1.48 1.32 12.1
Diluted operating cash
earnings per share(*)(**) .......... 1.74 1.46 19.2
Return on average
tangible total assets(*) ........... 1.39% 1.19% 16.8
Return on average tangible
stockholders' equity(*) ............ 19.70% 16.31% 20.8
=========================================================================================
(*) Excludes after-tax restructuring, merger-related and other nonrecurring
costs of $11.6 million in 1999 and $21.9 million in 1998.
(**) Operating earnings per share before amortization of goodwill and core
deposit intangible.
NET INTEREST INCOME
2000 VS. 1999
- -----------------------------------------------------------------
(in thousands) 2000 1999 Change
- -----------------------------------------------------------------
Net interest income........... $746,934 $688,834 8.4%
=================================================================
The increase in our net interest income in 2000 was principally the result
of a $1.3 billion, or 8.7%, increase in average earning assets. This increase
was partially offset by a one-basis-point (1% equals 100 basis points) reduction
in our net interest margin. The increase in our average earning assets was
primarily a result of growth in our Bank of the West operating segment. The
rebound in Hawaii has stopped the nearly decade-long economic decline, leading
to a double-digit increase in the earnings of our First Hawaiian operating
segment.
1999 VS. 1998
- -----------------------------------------------------------------
(in thousands) 1999 1998 Change
- -----------------------------------------------------------------
Net interest income.......... $688,834 $433,719 58.8%
=================================================================
The increase in our net interest income in 1999 was principally the result
of a $5.5 billion, or 60.4%, increase in average earning assets. This increase
was partially offset by a five-basis-point reduction in our net interest margin.
The increase in our average earning assets was primarily the
18 BancWest Corporation and Subsidiaries
19
PART II (continued)
- --------------------------------------------------------------------------------
result of the inclusion of Bank of the West for all of 1999 as compared to two
months in 1998. In addition to the increase caused by the BancWest Merger, the
economic expansion on the Western United States increased our loan and lease
volume. Also, Hawaii is slowly recovering from the prolonged economic downturn
that it has experienced over the last nine years, which had slowed growth in
loans and leases, deposits and net interest income.
NONINTEREST INCOME
- -------------------------------------------------------------------
(in thousands) 2000 1999 Change
- -------------------------------------------------------------------
Noninterest income.......... $216,076 $197,632 9.3%
===================================================================
The increase in noninterest income reflects the continued strengthening and
diversification of our revenue base. Key components of noninterest income that
increased in 2000 over 1999 include: (1) fees from the sales of annuities and
mutual funds, up 45.8%; (2) fees from the processing of retail merchant's debit
and credit card transactions, up 36.1%, on increased fees and volumes and more
participating merchants; (3) fees from bank cards, up 40.3%, due to higher card
use and an increase in the customer base; and (4) trust and investment
management fees, up 10.8%, due to increased use by both retail and institutional
clients.
NONINTEREST EXPENSE
- -------------------------------------------------------------------
(in thousands) 2000 1999 Change
- -------------------------------------------------------------------
Noninterest expense.......... $533,961 $535,075 (.2)%
===================================================================
The decrease in noninterest expense in 2000 was primarily due to the $17.5
million pre-tax restructuring, merger-related, and other nonrecurring costs
related to the SierraWest Merger and the consolidation of data centers in 1999.
Excluding the pre-tax restructuring, merger-related and other nonrecurring costs
of $1.3 million in 2000 and $17.5 million in 1999, noninterest expense increased
by 2.9%, due primarily to an increase in salaries and employee benefits and an
increase in occupancy expense, primarily due to continued expansion in our Bank
of the West operating segment. These increases were partially offset by a
decrease in equipment expense caused primarily by the ALLTEL facilities
management agreement.
EFFICIENCY RATIO
- --------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------
Efficiency ratio(*)........... 51.53% 54.47% 62.50%
====================================================================
(*)Calculated as noninterest expense (exclusive of nonrecurring costs) minus the
amortization of goodwill and core deposit intangible as a percentage of total
operating revenue (net interest income plus noninterest income).
Our efficiency ratio improved in 2000 over 1999 principally because of
increased revenue from higher net interest income, primarily from more earning
assets, and higher noninterest income. In addition, the containment of
noninterest expense, aided by savings from our data center consolidation,
contributed to the improvement in our efficiency ratio.
NONPERFORMING ASSETS
The provision for credit losses increased in 2000 over 1999 primarily
because of the 8.1% increase in average total loans and leases outstanding in
2000 over 1999. The improvement in the ratio of nonperforming assets to total
loans and leases, OREO and repossessed personal property in 2000 compared to
1999 was primarily due to the increase in average total loans and leases, as
well as the reduction of restructured loans and leases and OREO and repossessed
personal property, partially offset by an increase in nonaccrual loans and
leases. Net charge-offs decreased primarily due to the 22% increase in
recoveries on loans and leases previously charged off.
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Provision for credit
losses .................................................... $ 60,428 $ 55,262 $ 30,925
Net charge-offs to
average loans &
leases .................................................... .37% .42% .31%
Allowance for credit
losses (year end) ......................................... $172,443 $161,418 $158,294
Allowance for credit
losses as % of total
loans & leases
(year end) ................................................ 1.23% 1.29% 1.32%
Nonperforming assets(*)
as % of total loans &
leases, OREO &
repossessed personal
property (year end) ....................................... .86% 1.01% 1.11%
=========================================================================================================
(*)Principally loans and leases collateralized by real estate.
CAPITAL RATIOS
- -----------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------
Tier 1 capital to risk-weighted assets ................ 9.73% 8.80%
Total capital to risk-weighted assets ................. 11.39% 10.56%
Tier 1 capital to average assets ...................... 9.09% 8.11%
===================================================================================
These ratios were in excess of the minimum required for capital adequacy
purposes of 4.00%, 8.00% and 4.00%, respectively, specified by the Federal
Reserve Board.
NET INTEREST MARGIN
2000 VS. 1999
- --------------------------------------------------------------------
2000 1999 Change
- --------------------------------------------------------------------
Net interest margin........... 4.75% 4.76% -1 basis pt.
====================================================================
The net interest margin decreased by one basis point in 2000 from 1999 due
primarily to the effects of the
BancWest Corporation and Subsidiaries 19
20
PART II (continued)
- --------------------------------------------------------------------------------
increasing interest rate environment that was experienced
for most of 2000. Although the increasing rate environment raised our yield on
earning assets by 48 basis points to 8.32% in 2000 over 7.84% in 1999, it also
raised our rate paid on sources of funds by 49 basis points to 3.57% in 2000
over 3.08% in 1999. Therefore, our net interest margin decreased by one basis
point in 2000. Partially offsetting the increase on the rate paid on sources of
funds, average noninterest-bearing deposits increased in 2000 by $262.5 million,
or 10.7%, compared to 1999.
1999 VS. 1998
- --------------------------------------------------------------------
1999 1998 Change
- --------------------------------------------------------------------
Net interest margin........... 4.76% 4.81% -5 basis pts.
====================================================================
The net interest margin decreased by five basis points in 1999 from 1998
primarily due to the continuing effects of the lower interest rate environment
that began in the second half of 1998. Although we paid 41 basis points less for
sources of funds used for average earning assets, the yield on our average
earning assets fell by 46 basis points. Partially offsetting the decline on the
yield of average earning assets, average noninterest-bearing deposits increased
in 1999 by $1.1 billion, or 80%, compared to 1998, primarily as a result of the
BancWest Merger.
AVERAGE EARNING ASSETS
2000 VS. 1999
- ---------------------------------------------------------------------------------------
(in thousands) 2000 1999 Change
- ---------------------------------------------------------------------------------------
Average earning assets.......... $15,752,238 $14,491,126 8.7%
=======================================================================================
The continuing growth of our Bank of the West operating segment is primarily
responsible for the increase in average earning assets. In particular, the
$994.5 million, or 8.1%, increase in average total loans and leases was
primarily due to growth in the Western United States. Average total investment
securities also increased by $370.4 million, or 21.5%, to $2.1 billion in 2000
over 1999.
1999 vs. 1998
- -----------------------------------------------------------------------------------
(in thousands) 1999 1998 Change
- -----------------------------------------------------------------------------------
Average earning assets.......... $14,491,126 $9,032,164 60.4%
===================================================================================
The BancWest Merger significantly increased our average earning assets due
to the inclusion of Bank of the West average balances for all of 1999. The
increase in average earning assets was primarily due to increases in average
total loans and leases of $4.6 billion, or 60.5%, and average total investment
securities of $744 million, or 76.3%.
In addition, the mix of earning assets continues to change, with average
investment securities representing 11.9% of average earning assets for 1999 as
compared to 10.8% for 1998.
AVERAGE LOANS AND LEASES
2000 VS. 1999
- -------------------------------------------------------------------------
(in thousands) 2000 1999 Change
- -------------------------------------------------------------------------
Average loans and leases.... $13,285,586 $12,291,095 8.1%
=========================================================================
The increase in average loans and leases was primarily due to growth from
our Bank of the West operating segment's consumer loan and lease financing
portfolios. In addition, the rebounding economy in Hawaii led to a modest
increase in average loans and leases in our First Hawaiian operating segment.
1999 vs. 1998
- ----------------------------------------------------------------------------
(in thousands) 1999 1998 Change
- ----------------------------------------------------------------------------
Average loans and leases.... $12,291,095 $7,658,998 60.5%
============================================================================
The inclusion of Bank of the West balances for an entire year was the
primary reason for the increase in average loans and leases. The growth in loan
and lease volumes outside of Hawaii was also a factor in the increase in average
loans and leases.
AVERAGE INTEREST-BEARING DEPOSITS AND LIABILITIES
2000 VS. 1999
- ---------------------------------------------------------------------------------
(in thousands) 2000 1999 Change
- ---------------------------------------------------------------------------------
Average interest-bearing deposits
and liabilities..................... $12,289,972 $11,494,121 6.9%
=================================================================================
The increase in average interest-bearing deposits and liabilities in 2000
over 1999 was principally caused by growth in our customer deposit base,
primarily in our Bank of the West operating segment. In addition, we grew
deposits by initiating various deposit product programs. Also, we increased our
utilization of negotiable and brokered time certificates of deposits.
1999 VS. 1998
- --------------------------------------------------------------------------------------
(in thousands) 1999 1998 Change
- --------------------------------------------------------------------------------------
Average interest-bearing
deposits and liabilities.......... $11,494,121 $7,424,256 54.8%
======================================================================================
The increase in average interest-bearing deposits and liabilities in 1999
over 1998 was principally caused by the effects of having Bank of the West
balances included for an entire year, as well as growth in our customer deposit
base.
20 BancWest Corporation and Subsidiaries
21
PART II (continued)
- --------------------------------------------------------------------------------
OPERATING SEGMENTS RESULTS
As detailed in Note 20 to the Consolidated Financial Statements on pages 64
and 65, our operations are managed principally through our two major bank
subsidiaries, Bank of the West and First Hawaiian. Bank of the West operates
primarily in California, Oregon, Washington, Idaho and Nevada. It also conducts
business nationally through its Consumer Finance Division and its Essex Credit
Corporation subsidiary. First Hawaiian's primary base of operations is in
Hawaii. It also has significant operations extending nationally, and to a lesser
degree internationally, through its media finance, national corporate lending
and leveraged leasing operations. The "other" category in the table below
consists principally of BancWest Corporation (Parent Company), FHL Lease Holding
Company, Inc., BancWest Capital I and First Hawaiian Capital I. The reconciling
items are principally consolidating entries to eliminate intercompany balances
and transactions. The following table summarizes significant financial
information, as of or for years ended December 31, of our reportable segments:
- ---------------------------------------------------------------------------------------
(in millions) 2000 1999 1998
- ---------------------------------------------------------------------------------------
NET INTEREST INCOME
Bank of the West ........................... $ 423 $ 384 $ 126
First Hawaiian ............................. 329 312 322
Other ...................................... (5) (7) (14)
- --------------------------------------------------------------------------------------
CONSOLIDATED TOTAL ........................ $ 747 $ 689 $ 434
======================================================================================
NET INCOME
Bank of the West ........................... $ 110 $ 84 $ 18
First Hawaiian ............................. 112 94 75
Other ...................................... (6) (6) (9)
- --------------------------------------------------------------------------------------
CONSOLIDATED TOTAL ........................ $ 216 $ 172 $ 84
======================================================================================
YEAR END SEGMENT ASSETS
Bank of the West ........................... $11,159 $ 9,571 $ 8,603
First Hawaiian ............................. 7,452 7,081 7,248
Other ...................................... 3,215 2,747 2,458
Reconciling items .......................... (3,369) (2,718) (2,380)
- --------------------------------------------------------------------------------------
CONSOLIDATED TOTAL ........................ $18,457 $16,681 $15,929
======================================================================================
2000 VS. 1999
- - Our net interest income for 2000 increased over 1999, principally due to
the growth in loan and lease volume in the Western United States and
increase in noninterest-bearing deposits. Bank of the West's annual
average loan volume increased in 2000 by 14.4% over 1999. First
Hawaiian's 5.4% increase in net interest income between 2000 and 1999
was primarily due to higher net interest margins.
- - Our net income for 2000 increased over 1999, primarily due to: (1)
higher net interest income from both Bank of the West and First
Hawaiian; (2) lower restructuring, merger-related and other nonrecurring
costs in 2000 compared to 1999; (3) higher noninterest income in 2000
over 1999 for both Bank of the West and First Hawaiian, such as income
from service charges on deposit accounts, trust and investment services,
annuity and mutual fund sales and other service charges and fees; and
(4) controlled noninterest expense growth.
- - Our total assets at December 31, 2000, grew by 10.6% over December 31,
1999, predominantly due to the 16.6% growth in Bank of the West's
assets. An increase in earning assets, mainly consumer loans and lease
financing, contributed to Bank of the West's growth. The 5.2% increase
in First Hawaiian's assets in 2000 from 1999 was principally due to an
increase in commercial, financial and agricultural loans, reflecting a
rebounding Hawaiian economy.
1999 VS. 1998
- - Our net interest income for 1999 increased over 1998, principally due to
the inclusion of an entire year of Bank of the West operations in 1999
as opposed to two months for the year ended December 31, 1998. First
Hawaiian's 3.1% decrease in net interest income in 1999 from 1998
reflects the effects of the slow recovery from the prolonged economic
downturn in Hawaii, which decreased loan and lease volume.
- - Our net income for 1999 increased over 1998, primarily due to the
inclusion of Bank of the West's results for an entire year. The 25.3%
increase in First Hawaiian's net income was primarily due to: (1) lower
restructuring, merger-related and other nonrecurring costs in 1999
compared to 1998; (2) higher noninterest income in 1999 over 1998, such
as income from trust and investment products and services; and (3) a
reduction in noninterest expense, achieved through efficiencies gained
from the BancWest Merger and cost containment initiatives.
- - Our total assets at December 31, 1999, grew by 4.7% over December 31,
1998, predominantly due to the 11.3% growth in Bank of the West's
assets. An increase in earning assets, mainly consumer loans and lease
financing, contributed to Bank of the West's growth. The 2.3% decrease
in First Hawaiian's assets in 1999 from 1998 was principally due to a
decline in loans, reflecting the challenging economy in Hawaii.
BancWest Corporation and Subsidiaries 21
22
PART II (continued)
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TABLE 1: AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AND YIELDS AND RATES
(TAXABLE-EQUIVALENT BASIS)
The following table sets forth th