##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549 
 FORM 10-Q x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
EXCHANGE ACT OF 1934For
the quarterly period ended September 30, 2004ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
EXCHANGE ACT OF 1934
 Commission file number 0-7949 
 BANCWEST CORPORATION    Delaware
    
    99-0156159(State of incorporation)
    
    (I.R.S. Employer Identification No.)999 Bishop Street, Honolulu, Hawaii
    
    96813(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (808) 525-7000 
 Securities registered pursuant to Section 12(b) of the Act:
 None 
 Securities registered pursuant to Section 12(g) of the Act: None   (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or l5(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes     No Indicate by check mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act). Yes  o  No  x As of November 1, 2004, the number of outstanding shares of each of the issuers classes of
common stock (all of which were beneficially owned by BNP Paribas) was: Class
    
    OutstandingClass A Common Stock, $0.01 Par Value
    
    85,759,123 Shares




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BANCWEST CORPORATION AND SUBSIDIARIES FORM 10-Q
September 30, 2004 INDEX PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements(Unaudited)
    
    
    2Consolidated Statements of Income
    
    
    2Consolidated Balance Sheets
    
    
    3Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Forward-Looking Statements
    
    
    19Overview
    
    
    20Critical Accounting Estimates
    
    
    21Financial Overview
    
    
    22Consolidated Financial Highlights
    
    
    23Results of Operations
    
    
    24Net Interest Income
    
    
    24Noninterest Income
    
    
    28Noninterest Expense
    
    
    29Operating Segments
    
    
    31Securities Available For Sale
    
    
    34Loans and Leases
    
    
    36Nonperforming Assets and Restructured Loans
    
    
    37Provision and Allowance for Loan and Lease Losses
    
    
    39Deposits
    
    
    40Capital
    
    
    41Income Taxes
    
    
    41Liquidity Management
    
    
    42Recent Accounting Standards
    
    
    43Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    45Item 4. Controls and Procedures
    
    
    47PART II. OTHER INFORMATIONItem 6. Exhibits and Reports on Form 8-K
    
    
    48SIGNATURE
    
    
    49Exhibit 12 Statement Regarding Computation of RatiosExhibit 31 Section 302 CertificationsExhibit 32 Section 1350 CertificationsEXHIBIT 12EXHIBIT 31EXHIBIT 32
  The information furnished in these interim statements reflects all
adjustments that are, in the opinion of management, necessary for a fair
statement of the results for such periods. Such adjustments are of a normal
recurring nature, unless otherwise disclosed in this Form 10-Q. The results
of operations in the interim statements are not necessarily indicative of the
results that may be expected for the full year. The interim financial
information should be read in conjunction with the Companys 2003 Annual
Report on Form 10-K. 1




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##### Table of Contents



PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements BancWest Corporation and Subsidiaries 
 CONSOLIDATED STATEMENTS OF INCOME
 Three Months Ended September 30,
    
    Nine Months Ended September 30,2004
    
    2003
    
    2004
    
    2003(in thousands)Interest incomeLoans
    
    $
    356,804
    
    
    $
    342,433
    
    
    $
    1,026,419
    
    
    $
    1,017,976Lease financing
    
    
    27,344
    
    
    
    32,809
    
    
    
    87,465
    
    
    
    102,151Securities available for sale
    
    
    52,850
    
    
    
    44,809
    
    
    
    154,346
    
    
    
    128,273Other
    
    
    4,771
    
    
    
    3,042
    
    
    
    10,558
    
    
    
    8,953Total interest income
    
    
    441,769
    
    
    
    423,093
    
    
    
    1,278,788
    
    
    
    1,257,353Interest expenseDeposits
    
    
    51,189
    
    
    
    39,835
    
    
    
    138,214
    
    
    
    140,706Short-term borrowings
    
    
    6,331
    
    
    
    5,725
    
    
    
    17,310
    
    
    
    16,464Long-term debt
    
    
    53,607
    
    
    
    47,348
    
    
    
    149,336
    
    
    
    136,014Total interest expense
    
    
    111,127
    
    
    
    92,908
    
    
    
    304,860
    
    
    
    293,184Net interest income
    
    
    330,642
    
    
    
    330,185
    
    
    
    973,928
    
    
    
    964,169Provision for loan and lease losses
    
    
    10,600
    
    
    
    24,145
    
    
    
    41,365
    
    
    
    65,695Net interest income after provision for
loan and lease losses
    
    
    320,042
    
    
    
    306,040
    
    
    
    932,563
    
    
    
    898,474Noninterest incomeService charges on deposit accounts
    
    
    38,948
    
    
    
    39,512
    
    
    
    120,302
    
    
    
    115,102Trust and investment services income
    
    
    9,654
    
    
    
    9,461
    
    
    
    30,010
    
    
    
    28,826Other service charges and fees
    
    
    37,757
    
    
    
    37,180
    
    
    
    111,802
    
    
    
    107,547Net gains on securities available for sale
    
    
    
    
    
    
    555
    
    
    
    1,058
    
    
    
    3,913Vehicle and equipment operating lease income
    
    
    6,112
    
    
    
    
    
    
    
    11,181
    
    
    
    Other
    
    
    12,350
    
    
    
    14,095
    
    
    
    41,015
    
    
    
    43,403Total noninterest income
    
    
    104,821
    
    
    
    100,803
    
    
    
    315,368
    
    
    
    298,791Noninterest expenseSalaries and wages
    
    
    87,575
    
    
    
    87,364
    
    
    
    254,462
    
    
    
    256,265Employee benefits
    
    
    33,614
    
    
    
    32,996
    
    
    
    104,460
    
    
    
    107,770Occupancy
    
    
    22,602
    
    
    
    22,239
    
    
    
    66,007
    
    
    
    67,153Outside services
    
    
    20,868
    
    
    
    20,718
    
    
    
    62,487
    
    
    
    62,858Intangible amortization
    
    
    5,763
    
    
    
    5,763
    
    
    
    17,290
    
    
    
    17,290Equipment
    
    
    11,911
    
    
    
    11,563
    
    
    
    35,366
    
    
    
    35,156Depreciation-vehicle and equipment operating
leases
    
    
    5,260
    
    
    
    
    
    
    
    10,164
    
    
    
    Restructuring and integration costs
    
    
    5,761
    
    
    
    
    
    
    
    8,515
    
    
    
    Other
    
    
    41,142
    
    
    
    42,320
    
    
    
    125,938
    
    
    
    126,920Total noninterest expense
    
    
    234,496
    
    
    
    222,963
    
    
    
    684,689
    
    
    
    673,412Income before income taxes and cumulative effect
of accounting change
    
    
    190,367
    
    
    
    183,880
    
    
    
    563,242
    
    
    
    523,853Provision for income taxes
    
    
    73,141
    
    
    
    69,268
    
    
    
    218,207
    
    
    
    199,498Income before cumulative effect of accounting
change
    
    
    117,226
    
    
    
    114,612
    
    
    
    345,035
    
    
    
    324,355Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    2,370
    
    
    
    
    
    
    
    2,370Net income
    
    $
    117,226
    
    
    $
    112,242
    
    
    $
    345,035
    
    
    $
    321,985
 The accompanying notes are an integral part of these consolidated financial
statements. 2




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##### Table of Contents



BancWest Corporation and Subsidiaries 
 CONSOLIDATED BALANCE SHEETS
 September 30, 2004
    
    December 31, 2003
    
    September 30, 2003(Dollars in thousands, except share data)AssetsCash and due from banks
    
    $
    1,432,288
    
    
    $
    1,538,004
    
    
    $
    1,377,766Interest-bearing deposits in other banks
    
    
    398,887
    
    
    
    189,687
    
    
    
    376,786Federal funds sold and securities purchased under
agreements to resell
    
    
    399,000
    
    
    
    444,100
    
    
    
    340,920Trading assets
    
    
    3,535
    
    
    
    19,109
    
    
    
    58,612Securities available for sale
    
    
    6,167,823
    
    
    
    5,772,679
    
    
    
    5,276,884Loans held for sale
    
    
    54,717
    
    
    
    51,007
    
    
    
    79,300Loans and leases:Loans and leases
    
    
    27,832,082
    
    
    
    25,722,079
    
    
    
    25,264,537Less allowance for loan and lease losses
    
    
    386,091
    
    
    
    391,699
    
    
    
    390,194Net loans and leases
    
    
    27,445,991
    
    
    
    25,330,380
    
    
    
    24,874,343Vehicle and equipment operating leases, net
    
    
    140,672
    
    
    
    
    
    
    
    Premises and equipment, net
    
    
    531,565
    
    
    
    530,153
    
    
    
    537,171Customers acceptance liability
    
    
    12,458
    
    
    
    30,078
    
    
    
    38,790Core deposit intangible, net
    
    
    170,067
    
    
    
    187,357
    
    
    
    193,120Goodwill
    
    
    3,229,771
    
    
    
    3,226,871
    
    
    
    3,226,851Other real estate owned and repossessed personal property
    
    
    17,235
    
    
    
    17,387
    
    
    
    19,237Other assets
    
    
    1,401,401
    
    
    
    1,015,403
    
    
    
    1,025,722Total assets
    
    $
    41,405,410
    
    
    $
    38,352,215
    
    
    $
    37,425,502Liabilities and Stockholders EquityDeposits:Interest-bearing
    
    $
    20,205,130
    
    
    $
    18,347,730
    
    
    $
    18,079,307Noninterest-bearing
    
    
    8,194,910
    
    
    
    8,055,387
    
    
    
    7,841,295Total deposits
    
    
    28,400,040
    
    
    
    26,403,117
    
    
    
    25,920,602Federal funds purchased and securities sold under
agreements to repurchase
    
    
    1,132,532
    
    
    
    1,174,877
    
    
    
    1,072,759Short-term borrowings
    
    
    713,090
    
    
    
    1,197,809
    
    
    
    930,000Acceptances outstanding
    
    
    12,458
    
    
    
    30,078
    
    
    
    38,790Long-term debt
    
    
    5,512,198
    
    
    
    4,221,025
    
    
    
    3,962,279Guaranteed preferred beneficial interests in Companys
junior subordinated debentures
    
    
    
    
    
    
    
    
    
    
    257,479Other liabilities
    
    
    1,052,057
    
    
    
    1,062,437
    
    
    
    1,086,071Total liabilities
    
    $
    36,822,375
    
    
    $
    34,089,343
    
    
    $
    33,267,980Stockholders equity:Class A common stock, par value $0.01 per share
Authorized  150,000,000 shares
Issued  85,759,123 shares
    
    $
    858
    
    
    $
    858
    
    
    $
    858Additional paid-in capital
    
    
    3,420,176
    
    
    
    3,419,927
    
    
    
    3,419,927Retained earnings
    
    
    1,151,233
    
    
    
    806,198
    
    
    
    691,619Accumulated other comprehensive income, net
    
    
    10,768
    
    
    
    35,889
    
    
    
    45,118Total stockholders equity
    
    
    4,583,035
    
    
    
    4,262,872
    
    
    
    4,157,522Total liabilities and stockholders equity
    
    $
    41,405,410
    
    
    $
    38,352,215
    
    
    $
    37,425,502
 The accompanying notes are an integral part of these consolidated financial
statements. 3




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##### Table of Contents



BancWest Corporation and Subsidiaries 
 CONSOLIDATED STATEMENTS OF CHANGES IN
 STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
 Class A
    
    
    
    
    
    
    
    AccumulatedCommon Stock
    
    AdditionalPaid-in
    
    Retained
    
    OtherComprehensiveShares
    
    Amount
    
    Capital
    
    Earnings
    
    Income, net
    
    Total(in thousands, except share data)Balance, December 31, 2003
    
    
    85,759,123
    
    
    $
    858
    
    
    $
    3,419,927
    
    
    $
    806,198
    
    
    $
    35,889
    
    
    $
    4,262,872Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    345,035
    
    
    
    
    
    
    
    345,035Unrealized net loss on securities
available for sale arising during the
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,300
    )
    
    
    (12,300
    )Reclassification of net realized gains on
securities available for sale included in
net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (624
    )
    
    
    (624
    )Unrealized net loss on cash flow derivative
hedges arising during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,101
    )
    
    
    (3,101
    )Reclassification of net realized gains on
cash flow derivative hedges included in net
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,096
    )
    
    
    (9,096
    )Other
    
    
    
    
    
    
    
    
    
    
    249
    
    
    
    
    
    
    
    
    
    
    
    249Comprehensive income
    
    
    
    
    
    
    
    
    
    
    249
    
    
    
    345,035
    
    
    
    (25,121
    )
    
    
    320,163Balance, September 30, 2004
    
    
    85,759,123
    
    
    $
    858
    
    
    $
    3,420,176
    
    
    $
    1,151,233
    
    
    $
    10,768
    
    
    $
    4,583,035Balance, December 31, 2002
    
    
    85,759,123
    
    
    $
    858
    
    
    $
    3,419,927
    
    
    $
    369,634
    
    
    $
    77,063
    
    
    $
    3,867,482Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    321,985
    
    
    
    
    
    
    
    321,985Unrealized net loss on securities
available for sale arising during the
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,668
    )
    
    
    (30,668
    )Reclassification of net realized gains on
securities available for sale included in
net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,329
    )
    
    
    (2,329
    )Unrealized net gain on cash flow derivative
hedges arising during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,452
    
    
    
    11,452Reclassification of net realized gains on
cash flow derivative hedges included in net
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,400
    )
    
    
    (10,400
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    321,985
    
    
    
    (31,945
    )
    
    
    290,040Balance, September 30, 2003
    
    
    85,759,123
    
    
    $
    858
    
    
    $
    3,419,927
    
    
    $
    691,619
    
    
    $
    45,118
    
    
    $
    4,157,522
 The accompanying notes are an integral part of these consolidated financial
statements. 4




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##### Table of Contents



BancWest Corporation and Subsidiaries 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months Ended September 30,2004
    
    2003(in thousands)Cash flows from operating activities:Net income
    
    $
    345,035
    
    
    $
    321,985Adjustments to reconcile net income to net cash provided by operating activities:Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    2,370Depreciation and amortization
    
    
    54,653
    
    
    
    47,797Provision for loan and lease losses
    
    
    41,365
    
    
    
    65,695Net decrease in deferred income taxes
    
    
    (35,679
    )
    
    
    (35,475
    )Net decrease (increase) in trading assets
    
    
    15,574
    
    
    
    (15,182
    )Net decrease (increase) in loans held for sale
    
    
    (3,710
    )
    
    
    5,974Net gains on sale of securities available for sale
    
    
    (1,058
    )
    
    
    (3,913
    )Net gains on sale of loans
    
    
    (2,061
    )
    
    
    (8,156
    )Net decrease in interest receivable
    
    
    7,391
    
    
    
    23,896Net increase in interest payable
    
    
    49,442
    
    
    
    35,804Net increase in prepaid expense
    
    
    (10,607
    )
    
    
    (4,979
    )Other
    
    
    (179,391
    )
    
    
    (47,822
    )Net cash provided by operating activities
    
    
    280,954
    
    
    
    387,994Cash flows from investing activities:Proceeds from maturity of securities available for sale
    
    
    1,443,337
    
    
    
    1,656,995Proceeds from the sale of securities available for sale
    
    
    282,394
    
    
    
    416,667Purchase of securities available for sale
    
    
    (2,147,072
    )
    
    
    (3,596,807
    )Proceeds from sales of loans
    
    
    247,450
    
    
    
    681,877Purchases of loans
    
    
    (1,101,665
    )
    
    
    (1,086,957
    )Net increase in loans and leases resulting from originations and collections
    
    
    (1,307,348
    )
    
    
    (773,059
    )Net increase in origination of vehicle and equipment operating leases
    
    
    (140,672
    )
    
    
    Purchase of premises and equipment
    
    
    (40,939
    )
    
    
    (25,895
    )Other
    
    
    (219,917
    )
    
    
    10,190Net cash used in investing activities
    
    
    (2,984,432
    )
    
    
    (2,716,989
    )Cash flows from financing activities:Net increase in deposits
    
    
    1,996,923
    
    
    
    1,363,123Net increase (decrease) in Federal funds purchased and securities sold
under agreements to repurchase
    
    
    (42,345
    )
    
    
    281,283Net increase (decrease) in short-term borrowings
    
    
    (484,719
    )
    
    
    196,726Proceeds from issuance of long-term debt
    
    
    2,229,391
    
    
    
    565,000Repayments of long-term debt
    
    
    (937,388
    )
    
    
    (175,080
    )Net cash provided by financing activities
    
    
    2,761,862
    
    
    
    2,231,052Net increase (decrease) in cash and cash equivalents
    
    
    58,384
    
    
    
    (97,943
    )Cash and cash equivalents at beginning of period
    
    
    2,171,791
    
    
    
    2,193,415Cash and cash equivalents at end of period
    
    $
    2,230,175
    
    
    $
    2,095,472Supplemental disclosures:Interest paid
    
    $
    255,418
    
    
    $
    257,380Income taxes paid
    
    $
    340,735
    
    
    $
    156,928Supplemental schedule of noncash investing and financing activities:Loans transferred to other real estate owned and repossessed personal property
    
    $
    6,648
    
    
    $
    8,263Loans made to facilitate the sale of other real estate owned
    
    $
    620
    
    
    $
    1,795
 The accompanying notes are an integral part of these consolidated financial
statements. 5




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##### Table of Contents



BancWest Corporation and Subsidiaries 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Summary of Significant Accounting Policies Descriptions of Operations BancWest Corporation is a financial holding company headquartered in
Honolulu, Hawaii and incorporated under the laws of the State of Delaware.
Through our principal subsidiaries, Bank of the West (BOW) and First Hawaiian
Bank (FHB), we provide commercial and consumer banking services, engage in
commercial, equipment and vehicle leasing and offer trust, investment and
insurance products. As of September 30, 2004, BancWest Corporations
subsidiaries operated 357 branches in the states of California, Hawaii, Oregon,
Washington, Idaho, New Mexico and Nevada and in Guam and Saipan. In this report
BancWest Corporation and Subsidiaries is referred to as the Company, we or
our. BancWest Corporation alone is referred to as the Parent. BancWest
Corporation is a wholly-owned subsidiary of Paris-based BNP Paribas (BNPP). Basis of Presentation We have prepared the accompanying financial data for the three and nine
months ended September 30, 2004 and 2003 in accordance with accounting
principles generally accepted in the United States. The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in our consolidated
financial statements and accompanying notes. Management bases its estimates on
historical experience and various other assumptions believed to be reasonable.
Although these estimates are based on managements best knowledge of current
events and actions that may impact the Company in the future, actual results
may be different from the estimates. Our critical accounting policies are those
that affect our financial statements materially and involve difficult,
subjective or complex judgments by management. In the opinion of management, the accompanying consolidated financial
statements contain all normal and recurring adjustments necessary to present
fairly our consolidated financial position as of September 30, 2004, December
31, 2003 and September 30, 2003, consolidated results of operations for the
three and nine months ended September 30, 2004 and 2003, and cash flows for the
nine months ended September 30, 2004 and 2003. Descriptions of the significant accounting policies of the Company are
included in Note 1 (Summary of Significant Accounting Policies) to the audited
consolidated financial statements included in the Companys 2003 Annual Report
on Form 10-K. There have been no significant changes to these policies. Reclassifications Certain amounts in the financial statements for prior periods have been
reclassified to conform with the current financial statement presentation.
Such reclassifications did not have a material effect on the Consolidated
Financial Statements. Stock-Based Compensation In December 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards, (FAS) No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure, an amendment of FASB
Statement No. 123.This Statement provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. It also amends the disclosure requirements
to require prominent disclosure in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The disclosure requirements
under this Statement were effective for financial statements issued after
December 15, 2002. As allowed under the provisions of FAS No. 123, Accounting for Stock-Based
Compensation, as amended, the Company has chosen to recognize compensation
expense using the intrinsic value-based method of valuing stock options
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employeesand related Interpretations. Under the intrinsic
value-based method, compensation cost is measured as the amount by which the
quoted market price at the date of grant exceeds the stock option exercise
price. 6




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##### Table of Contents



BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) Certain members of BancWests senior management team received stock option
awards from BNPP on March 24, 2004 and March 21, 2003. The options do not vest
until after the fourth year, at which time they are exercisable from the fourth
anniversary through the tenth anniversary date. Stock option awards of the
2003 plan have been reflected in compensation expense. No compensation expense
was recognized for the 2004 plan, as the grant price was greater than the
market price. The following table is a summary of our stock option activity. WeightedWeighted
    
    averageaverage
    
    remainingexercise
    
    contractual lifeNumber(1)
    
    price
    
    (in years)Options outstanding as of December 31, 2002
    
    
    
    
    
    $
    2003:Granted
    
    
    275,000
    
    
    
    39.07Options outstanding as of September 30, 2003
    
    
    275,000
    
    
    $
    39.07
    
    
    
    9.47Options outstanding as of December 31, 2003
    
    
    275,000
    
    
    $
    39.07
    
    
    
    9.222004:Granted
    
    
    80,000
    
    
    
    60.45Options outstanding as of September 30, 2004
    
    
    355,000
    
    
    $
    43.89
    
    
    
    8.69
   (1)
    
    There were no canceled or forfeited options for the 2003 or 2004
grants. The following table illustrates the effect on net income if the Company
had applied the fair value recognition provisions of
FAS No. 123 to stock-based employee compensation. Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net Income (as reported)
    
    $
    117,226
    
    
    $
    112,242
    
    
    $
    345,035
    
    
    $
    321,985Add: Stock-based
compensation expense
recognized during
period, net of tax
effects
    
    
    24
    
    
    
    24
    
    
    
    72
    
    
    
    51Less: Stock-based
employee compensation
expense determined
under fair value-based
method, net of taxes
    
    
    (249
    )
    
    
    (217
    )
    
    
    (716
    )
    
    
    (462
    )Pro Forma Net Income
    
    $
    117,001
    
    
    $
    112,049
    
    
    $
    344,391
    
    
    $
    321,574
 The fair value of each stock option was estimated on the date of grant
using a trinomial tree pricing model. The fair value of the 2004 and
2003 grants was $10.57 and $21.26, respectively. The following table presents the weighted-average assumptions used. Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Dividend Yield
    
    
    3.02
    %
    
    
    3.18
    %
    
    
    3.02
    %
    
    
    3.18
    %Expected Volatility
    
    
    17.18
    
    
    
    48.16
    
    
    
    17.18
    
    
    
    48.16Risk free interest rate
    
    
    3.80
    
    
    
    4.30
    
    
    
    3.80
    
    
    
    4.30Expected Life (in years)
    
    
    10
    
    
    
    10
    
    
    
    10
    
    
    
    10
 7




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##### Table of Contents



BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) 2. Derivative Financial Instruments Any portion of the changes in the fair value of a derivative designated as
a hedge that is deemed ineffective is recorded in current period earnings; this
amount was not material in the three and nine months ended September 30, 2004
and 2003. Fair Value Hedges The Company has various derivative instruments that hedge the fair values
of recognized assets or liabilities or of unrecognized firm commitments. At
September 30, 2004, the Company carried an interest rate swap of $2.7 million
with a fair market value loss of $0.6 million that was a hedge for a commercial
loan. The Company receives 1-month LIBOR and pays a fixed rate of 8.32%. At
September 30, 2003, the Company carried $2.7 million of such swaps with a fair
market value loss of $0.7 million. In addition, at September 30, 2004, the
Company carried interest rate swaps totaling $77.7 million with market value
losses of $5.2 million, that were categorized as fair value hedges for
commercial and commercial real estate loans. The Company receives 6-month LIBOR
and pays fixed rates from 3.56% to 7.99%. At September 30, 2003, the Company
carried $107.3 million of such swaps with market value losses of $8.2 million. On November 20, 2002, the Parent executed a $150 million interest rate
swap agreement with BNP Paribas to hedge the fair value of the 9.5% BancWest
Capital I Quarterly Income Preferred Securities (the BWE Capital Securities)
issued by BancWest Capital I. Following the adoption of FIN 46, BancWest
Capital I was deconsolidated, resulting in recognition of $150 million of
subordinated debt instead of the BWE Capital Securities. The terms of the
subordinated debt mirror those of the BWE Capital Securities. Concurrent with
the deconsolidation of BancWest Capital I, the Bank redesignated the interest
rate swap to hedge the subordinated debt. The derivative instrument is highly
effective and all changes in the fair value of the hedge were recorded in
current-period earnings together with the offsetting change in fair value of
the hedged item attributable to the risk being hedged. We pay 3-month LIBOR
plus 3.69% and receive fixed payments at 9.5%. The fair market value loss of
the swap was $0.5 million at September 30, 2004 while the fair market value
gain was $0.5 million at September 30, 2003. At September 30, 2004, the Company carried interest rate swaps and
swaptions totaling $8.6 million with a market value gain of $0.5 million that
were categorized as hedges for repurchase agreements. The Company pays 3-month
LIBOR and receives fixed rates ranging from 8.29% to 8.37%. At September 30,
2003, the Company carried $8.6 million of such swaps and swaptions with a
market value gain of $0.8 million. Cash Flow Hedges At September 30, 2004, the Company carried interest rate swaps of $600
million with a fair market value gain of $29.9 million which hedge LIBOR-based
commercial loans. The hedges had a fair market value gain of $55.3 million at
September 30, 2003. The interest rate swaps were entered into during 2001 and
mature in 2006. We pay 3-month LIBOR and receive fixed rates ranging from 5.64%
to 5.87%. The net settlement on the $600 million swaps has increased commercial
loan interest income by $17.5 million for the nine months ended September 30,
2004 and by $17.8 million for the nine months ended September 30, 2003. The
Company estimates net settlement gains, recorded as commercial loan interest
income, of $16.7 million over the next twelve months resulting from these
hedges. At September 30, 2004, the Company carried interest rate swaps totaling
$100 million with fair market value losses of $0.7 million and market value
gains of $2.5 million, in order to reduce exposure to interest rate increases
associated with short-term fixed rate liabilities. The swaps mature as
follows: $70 million in 2013, $20 million in 2018 and $10 million in 2023. We
pay fixed rates ranging from 3.65% to 4.58% and receive 3-month LIBOR. The
effect on pretax income from these swaps for the nine months ended September
30, 2004 was a loss of $2.2 million compared with a $0.4 million loss at
September 30, 2003. At September 30, 2003, the Company carried $75 million of
such swaps with market value losses of $0.5 million and market value gains of
$2.7 million. The Company estimates a net increase to interest expense of $2.5
million over the next twelve months resulting from these hedges. 8




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##### Table of Contents



BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) Free-standing Derivative Instruments Free-standing derivative instruments include derivative transactions
entered into for risk management purposes that do not otherwise qualify for
hedge accounting. Interest rate lock commitments issued on residential mortgage
loans intended to be held for resale are considered free-standing derivative
instruments. Such commitments are stratified by rates and terms and are valued
based on market quotes for similar loans. Adjustments, including discounting
the historical fallout rate, are then applied to estimate fair market value.
Trading activities primarily involve providing various free-standing interest
rate and foreign exchange derivative products to customers. Interest-rate
derivative instruments utilized by the Company in its trading operations
include interest-rate swaps, caps, floors and collars. The following table summarizes derivatives held by the Company as of
September 30, 2004, December 31, 2003 and September 30, 2003: September 30, 2004
    
    December 31, 2003Contractual Amounts Which
    
    
    
    
    
    Credit
    
    
    
    
    
    
    
    
    
    CreditRepresent
    
    Notional
    
    Risk
    
    Net Fair
    
    Notional
    
    Risk
    
    Net FairCredit Risk:
    
    Amount
    
    Amount
    
    Value
    
    Amount
    
    Amount
    
    Value(in thousands)Held for hedge purposes:Interest rate swaps
    
    $
    934,819
    
    
    $
    32,739
    
    
    $
    25,737
    
    
    $
    944,110
    
    
    $
    54,821
    
    
    $
    44,885Swaptions
    
    
    4,168
    
    
    
    174
    
    
    
    174
    
    
    
    4,329
    
    
    
    178
    
    
    
    178Held for trading or free-standing:Interest rate swaps
    
    
    1,394,266
    
    
    
    25,178
    
    
    
    7,401
    
    
    
    1,375,018
    
    
    
    22,113
    
    
    
    5,224Purchased interest rate options
    
    
    141,734
    
    
    
    89
    
    
    
    89
    
    
    
    22,318
    
    
    
    187
    
    
    
    187Written interest rate options
    
    
    147,837
    
    
    
    
    
    
    
    (89
    )
    
    
    62,946
    
    
    
    
    
    
    
    (187
    )Forward interest rate options
    
    
    19,500
    
    
    
    
    
    
    
    (17
    )
    
    
    217,930
    
    
    
    782
    
    
    
    732Commitments to purchase and sell foreign currencies
    
    
    435,276
    
    
    
    6,199
    
    
    
    1,404
    
    
    
    421,130
    
    
    
    8,592
    
    
    
    (48
    )Purchased foreign exchange options
    
    
    18,986
    
    
    
    237
    
    
    
    237
    
    
    
    55,791
    
    
    
    597
    
    
    
    597Written foreign exchange options
    
    
    18,986
    
    
    
    
    
    
    
    (237
    )
    
    
    55,791
    
    
    
    
    
    
    
    (597
    )
   [Continued from above table, first column(s) repeated] September 30, 2003Contractual Amounts Which
    
    
    
    
    
    CreditRepresent
    
    Notional
    
    Risk
    
    Net FairCredit Risk:
    
    Amount
    
    Amount
    
    Value(in thousands)Held for hedge purposes:Interest rate swaps
    
    $
    939,268
    
    
    $
    59,080
    
    
    $
    49,721Swaptions
    
    
    4,329
    
    
    
    183
    
    
    
    183Held for trading or free-standing:Interest rate swaps
    
    
    1,416,444
    
    
    
    27,314
    
    
    
    4,709Purchased interest rate options
    
    
    29,884
    
    
    
    285
    
    
    
    285Written interest rate options
    
    
    117,317
    
    
    
    1,111
    
    
    
    826Forward interest rate options
    
    
    43,000
    
    
    
    11
    
    
    
    11Commitments to purchase and sell foreign currencies
    
    
    458,570
    
    
    
    9,400
    
    
    
    222Purchased foreign exchange options
    
    
    43,187
    
    
    
    533
    
    
    
    533Written foreign exchange options
    
    
    43,187
    
    
    
    
    
    
    
    (533
    )
 9




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##### Table of Contents



BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) 3. Operating Segments Our reportable segments are the operating segments that we use in our
internal reporting at BOW and FHB. BOWs segments operate primarily in
California, Oregon, Washington, Idaho, New Mexico and Nevada. As discussed
below, certain BOW segments conduct business nationwide. Although FHBs
segments operate primarily in Hawaii, it also has operations outside the state,
such as leveraged leases, international banking and branches in Guam and
Saipan. The results of each segment are determined by our management accounting
process, which assigns balance sheet and income statement items to each
reporting segment. The net interest income of each segment includes the results
of the respective banks transfer pricing process, which assesses an internal
funds charge on all segment assets and a funds credit on all segment
liabilities. The internal charges and credits assigned to each asset and
liability are intended to match the maturity, repayment and interest rate
characteristics of that asset or liability. With the exception of goodwill,
assets are allocated to each business segment on the basis of assumed benefit
to their business operations. Goodwill is assigned on the basis of projected
future earnings of the segments. The process of management accounting is
dynamic and subjective. There is no comprehensive or authoritative guidance
which can be followed. Changes in management structure and/or the allocation
process may result in changes in allocations and transfers. In that case,
results for prior periods would be (and have been) reclassified for
comparability. Results for 2003 have been reclassified to reflect changes in
the transfer pricing methodology and noninterest income and expense allocation
methodology applied in 2004. Bank of the West BOW manages its operations through three operating segments: Regional
Banking, Commercial Banking and Consumer Finance. Regional Banking Regional Banking seeks to serve a broad customer base by offering a wide
range of retail and commercial banking products. Deposit products offered by
this segment include checking accounts, savings deposits, market rate accounts,
individual retirement accounts and time deposits. Regional Banking utilizes
these deposits as its principal funding source. BOWs telephone banking
service, a network of automated teller machines and the online eTimeBanker
service provide retail customers with other means of accessing and managing
their accounts. Through its branch network, this business segment originates a variety of
consumer loans, including direct vehicle loans, lines of credit and second
mortgages. In addition, Regional Banking originates and holds a portfolio of
first mortgage loans on 1-4 family residences. Through its commercial banking
operations conducted from its branch network, Regional Banking offers a wide
range of commercial banking products intended to serve the needs of smaller
community-based businesses. These include originations of standardized loan
and deposit products for businesses with relatively simple banking and
financing needs. Regional Banking also provides a number of fee-based products
and private banking services including trust, insurance and investment
services. More complex and customized commercial banking services are offered
through the segments Business Banking Centers which serve clusters of branches
and provide lending, deposit and cash management services to companies
operating in the relevant market areas. Business Banking Centers support
commercial lending activities for middle market business customers in locations
throughout California, as well as Portland, Oregon, Reno and Las Vegas, Nevada
and Albuquerque, New Mexico. The Regional Banking Segment also includes a Pacific Rim Division which
offers multilingual services through a branch network in predominately Asian
American communities in California, with specialized domestic and international
products and services for both individuals and companies. Commercial Banking The Commercial Banking Segment is comprised of several divisions:
Commercial Banking Division, Agribusiness Banking Division, Real Estate
Industries Division and Specialty areas. The Commercial Banking Division
supports business clients with revenues between $25 million and $500 million.
The Commercial Banking Division focuses on relationship banking including
deposit generation as well as lending activities. The Agribusiness Banking
Division serves all agribusiness and rural commercial clients. The Real Estate
Industries Division provides construction financing to large regional and
national real estate developers for residential and commercial projects.
Interim and permanent financing is available on these commercial real estate
projects. 10




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##### Table of Contents



BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) The Commercial Banking Segment also includes specialty areas: Church
Lending, Small Business Administration (SBA), Health Care, Leasing, Credit
Union, Government, Correspondent Banking, Cash Management Services and Capital
Markets. Equipment leasing is available through the Companys commercial
offices, branches, brokers across the nation and its subsidiary, Trinity
Capital. Trinity specializes in nationwide vendor leasing and servicing
programs for manufacturers in specific markets. The Commercial Banking Segment also provides trade finance and functions
as an agent in commercial, agribusiness and real estate syndication
transactions. Consumer Finance The Consumer Finance Segment targets the origination of auto loans and
leases in the western United States, and recreational vehicle and marine loans
nationwide. These loans and leases are originated through a network of auto
dealers and recreational vehicle and marine dealers serviced by sales
representatives located throughout the country. This segment also includes
BOWs wholly-owned subsidiary, Essex Credit Corporation, which focuses on the
origination of marine and recreational vehicle loans directly with customers
through office locations throughout the United States. In February 2004, Essex
began retaining certain types of loans in its own portfolio. In previous
years, Essex sold substantially all of its loans to investors on a servicing
released basis. First Hawaiian Bank FHB manages its operations through the following operating segments:
Retail Banking, Consumer Finance, Commercial Banking and Financial Management. Retail Banking FHBs Retail Banking Segment operates through 56 banking offices located
throughout Hawaii. FHB also operates three branches in Guam and two branches in
Saipan. The focus of FHBs retail/community banking strategy is primarily in
Hawaii, where it had a 40% market share of the domestic bank deposits of
individuals, corporations and partnerships in the state as of June 30, 2004.
Thanks to its significant market share in Hawaii, FHB 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. In pursuing the community banking markets in Hawaii, Guam and Saipan, FHB
seeks to serve a broad customer base by furnishing a range of retail and
commercial banking products. Through its branch network, FHB generates
first-mortgage loans on residences and a variety of consumer loans, consumer
lines of credit and second mortgages. To complement its branch network and
serve these customers, FHB operates a system of automated teller machines, a
24-hour phone center in Honolulu and a full-service internet banking system.
Through commercial banking operations conducted from its branch network, FHB
offers a wide range of banking products intended to serve the needs of smaller,
community-based businesses. FHB also provides a number of fee-based products
and services such as annuities and mutual funds, insurance and securities
brokerage. The First Investment Center department of FHB makes available
annuities, mutual funds and other securities through BancWest Investment
Services, Inc., a registered broker-dealer, member NASD/SIPC, that is a
subsidiary of BancWest Corporation. The private banking department within FHBs Retail Banking Segment
provides a wide range of private banking services and products to
high-net-worth individuals. Consumer Finance Consumer Lending offers many types of loans to consumers, including lines
of credit (uncollateralized or collateralized) and various types of personal
and automobile loans. FHB also provides indirect consumer automobile financing
on new and used autos by purchasing finance contracts from dealers. FHBs
Dealer Center is the largest commercial bank automobile lender in the State of
Hawaii. FHB is the largest issuer of MasterCard® and VISA® credit cards in
Hawaii. Consumer Finance also makes residential real estate loans, including
home-equity loans, to enable borrowers to purchase, refinance, improve or
construct residential real property. The loans are collateralized by mortgage
liens on the related property, substantially all located in Hawaii. FHB also
originates residential real estate loans for sale on the secondary market. 11




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##### Table of Contents



BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) Commercial Banking Commercial Lending is a major lender to small and medium-sized businesses
in Hawaii and Guam. Lending services include receivable and inventory
financing, term loans for equipment acquisition and facilities expansion and
trade financing letters of credit. To support the cash management needs of both
commercial banking customers and large private and public deposit relationships
maintained with the Company, FHB operates a Cash Management Department which
provides a full range of innovative and relationship-focused cash management
services. Real Estate Lending-Commercial provides interim construction, residential
development and permanent financing for commercial real estate projects,
including retail facilities, warehouses and office buildings. FHB also does
lease-to-fee conversion financing for condominium associations and
cooperatives. International Banking Services provides international banking products and
services through FHBs branch system, its Japan Business Development Department
in Honolulu, a Grand Cayman branch, three Guam branches, two branches in Saipan
and a representative office in Tokyo, Japan. FHB maintains a network of
correspondent banking relationships throughout the world. FHBs trade-related
international banking activities are concentrated in the Asia-Pacific area. Leasing provides leasing services for businesses from heavy equipment to
office computer and communication systems. Financial Management The Financial Management Segment offers a full range of trust and
investment management services, and also seeks to reinforce customer
relationships developed by or in conjunction with the Retail Banking Segment.
The Financial Management Segment 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
September 30, 2004, the Trust and Investments Division had approximately 3,961
accounts with a market value of $8.6 billion. Of this total, $6.0 billion
represented assets in non-managed accounts and $2.6 billion were managed
assets. Insurance services are provided through First Hawaiian Insurance, Inc., a
wholly-owned subsidiary of FHB. First Hawaiian Insurance provides insurance
brokerage services for personal, business and estate insurance needs. It
offers insurance needs analysis for individuals, families and businesses, as
well as life, disability and long-term care insurance products. 12




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##### Table of Contents



BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) shares Acquisition The tables below present information about the Companys operating segments as
of or for the periods indicated: Bank of the West
    
    First Hawaiian BankRegional
    
    Commercial
    
    Consumer
    
    
    
    
    
    Retail
    
    Consumer
    
    Commercial
    
    Financial(in millions)
    
    Banking
    
    Banking
    
    Finance
    
    Other(1)
    
    Banking
    
    Finance
    
    Banking
    
    Management
    
    Other(2)Three Months Ended September 30,
2004:Net interest income
    
    $
    124.3
    
    
    $
    81.7
    
    
    $
    52.5
    
    
    $
    22.2
    
    
    $
    63.6
    
    
    $
    22.0
    
    
    $
    6.2
    
    
    $
    (0.1
    )
    
    $
    (6.1
    )Noninterest income
    
    
    42.6
    
    
    
    13.2
    
    
    
    7.5
    
    
    
    5.3
    
    
    
    14.6
    
    
    
    7.7
    
    
    
    1.5
    
    
    
    7.9
    
    
    
    3.5Noninterest expense
    
    
    111.1
    
    
    
    29.4
    
    
    
    21.6
    
    
    
    11.5
    
    
    
    43.6
    
    
    
    11.8
    
    
    
    2.2
    
    
    
    6.2
    
    
    
    (5.8
    )Provision for loan and lease losses
    
    
    0.8
    
    
    
    3.0
    
    
    
    2.7
    
    
    
    
    
    
    
    1.2
    
    
    
    2.7
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Tax provision (benefit)
    
    
    21.4
    
    
    
    24.2
    
    
    
    11.7
    
    
    
    8.6
    
    
    
    13.1
    
    
    
    5.9
    
    
    
    1.8
    
    
    
    0.6
    
    
    
    1.3Net income (loss)
    
    $
    33.6
    
    
    $
    38.3
    
    
    $
    24.0
    
    
    $
    7.4
    
    
    $
    20.3
    
    
    $
    9.3
    
    
    $
    3.6
    
    
    $
    1.0
    
    
    $
    1.8Assets at September 30
    
    $
    8,301
    
    
    $
    9,442
    
    
    $
    8,737
    
    
    $
    5,266
    
    
    $
    3,893
    
    
    $
    1,508
    
    
    $
    1,136
    
    
    $
    20
    
    
    $
    3,592Goodwill at September 30
    
    
    1,214
    
    
    
    708
    
    
    
    308
    
    
    
    
    
    
    
    650
    
    
    
    216
    
    
    
    118
    
    
    
    11
    
    
    
    Average assets
    
    
    8,117
    
    
    
    9,187
    
    
    
    8,683
    
    
    
    5,106
    
    
    
    3,847
    
    
    
    1,534
    
    
    
    1,138
    
    
    
    25
    
    
    
    3,477Average loans and leases
    
    
    6,099
    
    
    
    7,867
    
    
    
    8,215
    
    
    
    
    
    
    
    2,847
    
    
    
    1,347
    
    
    
    939
    
    
    
    8
    
    
    
    111Average deposits
    
    
    14,886
    
    
    
    3,709
    
    
    
    10
    
    
    
    2,253
    
    
    
    7,206
    
    
    
    9
    
    
    
    34
    
    
    
    24
    
    
    
    215Three Months Ended September 30,
2003:Net interest income
    
    $
    127.7
    
    
    $
    78.9
    
    
    $
    53.0
    
    
    $
    19.7
    
    
    $
    58.4
    
    
    $
    21.3
    
    
    $
    8.7
    
    
    $
    (0.1
    )
    
    $
    (2.3
    )Noninterest income
    
    
    42.7
    
    
    
    12.3
    
    
    
    2.9
    
    
    
    5.8
    
    
    
    14.9
    
    
    
    6.6
    
    
    
    3.9
    
    
    
    8.0
    
    
    
    3.7Noninterest expense
    
    
    106.3
    
    
    
    28.3
    
    
    
    14.8
    
    
    
    7.7
    
    
    
    43.0
    
    
    
    11.7
    
    
    
    4.7
    
    
    
    6.0
    
    
    
    (2.2
    )Provision for loan and lease losses
    
    
    4.3
    
    
    
    2.1
    
    
    
    13.7
    
    
    
    
    
    
    
    1.3
    
    
    
    2.4
    
    
    
    4.3
    
    
    
    
    
    
    
    (4.0
    )Tax provision (benefit)
    
    
    23.3
    
    
    
    23.0
    
    
    
    10.7
    
    
    
    7.2
    
    
    
    11.6
    
    
    
    5.0
    
    
    
    0.7
    
    
    
    0.8
    
    
    
    2.4Income before cumulative effect of
accounting change
    
    
    36.5
    
    
    
    37.8
    
    
    
    16.7
    
    
    
    10.6
    
    
    
    17.4
    
    
    
    8.8
    
    
    
    2.9
    
    
    
    1.1
    
    
    
    5.2Cumulative effect of accounting
change, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.4
    )Net income (loss)
    
    $
    36.5
    
    
    $
    37.8
    
    
    $
    16.7
    
    
    $
    10.6
    
    
    $
    17.4
    
    
    $
    8.8
    
    
    $
    2.9
    
    
    $
    1.1
    
    
    $
    2.8Assets at September 30
    
    $
    7,687
    
    
    $
    8,604
    
    
    $
    7,904
    
    
    $
    4,197
    
    
    $
    3,365
    
    
    $
    1,355
    
    
    $
    1,116
    
    
    $
    19
    
    
    $
    3,839Goodwill at September 30
    
    
    1,214
    
    
    
    707
    
    
    
    307
    
    
    
    
    
    
    
    650
    
    
    
    216
    
    
    
    118
    
    
    
    10
    
    
    
    Average assets
    
    
    7,720
    
    
    
    8,414
    
    
    
    7,777
    
    
    
    4,012
    
    
    
    3,472
    
    
    
    1,380
    
    
    
    1,163
    
    
    
    18
    
    
    
    3,523Average loans and leases
    
    
    5,692
    
    
    
    7,084
    
    
    
    7,452
    
    
    
    
    
    
    
    2,472
    
    
    
    1,186
    
    
    
    1,024
    
    
    
    3
    
    
    
    275Average deposits
    
    
    13,834
    
    
    
    3,336
    
    
    
    12
    
    
    
    1,409
    
    
    
    6,621
    
    
    
    11
    
    
    
    27
    
    
    
    56
    
    
    
    173
   [Continued from above table, first column(s) repeated] Other
    
    Reconciling
    
    Consolidated(in millions)
    
    BancWest(3)
    
    Items(4)
    
    TotalsThree Months Ended September 30,
2004:Net interest income
    
    $
    (35.7
    )
    
    $
    
    
    
    $
    330.6Noninterest income
    
    
    1.0
    
    
    
    
    
    
    
    104.8Noninterest expense
    
    
    2.9
    
    
    
    
    
    
    
    234.5Provision for loan and lease losses
    
    
    
    
    
    
    
    
    
    
    10.6Tax provision (benefit)
    
    
    (15.5
    )
    
    
    
    
    
    
    73.1Net income (loss)
    
    $
    (22.1
    )
    
    $
    
    
    
    $
    117.2Assets at September 30
    
    $
    7,329
    
    
    $
    (7,819
    )
    
    $
    41,405Goodwill at September 30
    
    
    5
    
    
    
    
    
    
    
    3,230Average assets
    
    
    7,238
    
    
    
    (7,771
    )
    
    
    40,581Average loans and leases
    
    
    35
    
    
    
    (35
    )
    
    
    27,433Average deposits
    
    
    
    
    
    
    (75
    )
    
    
    28,271Three Months Ended September 30,
2003:Net interest income
    
    $
    (35.1
    )
    
    $
    
    
    
    $
    330.2Noninterest income
    
    
    
    
    
    
    
    
    
    
    100.8Noninterest expense
    
    
    2.7

    
    
    
    
    
    
    
    223.0Provision for loan and lease losses
    
    
    
    
    
    
    
    
    
    
    24.1Tax provision (benefit)
    
    
    (15.4
    )
    
    
    
    
    
    
    69.3Income before cumulative effect of
accounting change
    
    
    (22.4
    )
    
    
    
    
    
    
    114.6Cumulative effect of accounting
change, net of tax
    
    
    
    
    
    
    
    
    
    
    (2.4
    )Net income (loss)
    
    $
    (22.4
    )
    
    $
    
    
    
    $
    112.2Assets at September 30
    
    $
    6,871
    
    
    $
    (7,531
    )
    
    $
    37,426Goodwill at September 30
    
    
    5
    
    
    
    
    
    
    
    3,227Average assets
    
    
    6,799
    
    
    
    (7,480
    )
    
    
    36,798Average loans and leases
    
    
    55
    
    
    
    (44
    )
    
    
    25,199Average deposits
    
    
    
    
    
    
    (57
    )
    
    
    25,422
 13




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##### Table of Contents



BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) Bank of the West
    
    First Hawaiian BankRegional
    
    Commercial
    
    Consumer
    
    
    
    
    
    Retail
    
    Consumer
    
    Commercial
    
    Financial(in millions)
    
    Banking
    
    Banking
    
    Finance
    
    Other(1)
    
    Banking
    
    Finance
    
    Banking
    
    Management
    
    Other(2)Nine months ended September 30,
2004:Net interest income
    
    $
    369.5
    
    
    $
    238.6
    
    
    $
    156.7
    
    
    $
    65.0
    
    
    $
    178.8
    
    
    $
    65.2
    
    
    $
    22.5
    
    
    $
    (0.3
    )
    
    $
    (16.2
    )Noninterest income
    
    
    130.3
    
    
    
    39.8
    
    
    
    16.7
    
    
    
    16.7
    
    
    
    43.8
    
    
    
    22.1
    
    
    
    11.8
    
    
    
    22.9
    
    
    
    11.0Noninterest expense
    
    
    326.6
    
    
    
    88.3
    
    
    
    59.1
    
    
    
    28.4
    
    
    
    130.2
    
    
    
    34.9
    
    
    
    9.6
    
    
    
    19.0
    
    
    
    (16.9
    )Provision for loan and lease losses
    
    
    3.0
    
    
    
    3.4
    
    
    
    24.5
    
    
    
    
    
    
    
    3.6
    
    
    
    6.9
    
    
    
    0.3
    
    
    
    
    
    
    
    (0.4
    )Tax provision (benefit)
    
    
    66.8
    
    
    
    73.1
    
    
    
    33.0
    
    
    
    23.3
    
    
    
    35.2
    
    
    
    18.0
    
    
    
    8.1
    
    
    
    1.4
    
    
    
    4.9Net income (loss)
    
    $
    103.4
    
    
    $
    113.6
    
    
    $
    56.8
    
    
    $
    30.0
    
    
    $
    53.6
    
    
    $
    27.5
    
    
    $
    16.3
    
    
    $
    2.2
    
    
    $
    7.2Average assets
    
    $
    7,968
    
    
    $
    8,926
    
    
    $
    8,409
    
    
    $
    4,842
    
    
    $
    3,707
    
    
    $
    1,520
    
    
    $
    1,128
    
    
    $
    25
    
    
    $
    3,426Average loans and leases
    
    
    5,947
    
    
    
    7,601
    
    
    
    8,000
    
    
    
    
    
    
    
    2,708
    
    
    
    1,333
    
    
    
    957
    
    
    
    9
    
    
    
    150Average deposits
    
    
    14,642
    
    
    
    3,520
    
    
    
    9
    
    
    
    1,902
    
    
    
    7,019
    
    
    
    8
    
    
    
    25
    
    
    
    27
    
    
    
    201Nine months ended September 30,
2003:Net interest income
    
    $
    370.4
    
    
    $
    235.4
    
    
    $
    153.4
    
    
    $
    54.4
    
    
    $
    172.5
    
    
    $
    60.0
    
    
    $
    25.5
    
    
    $
    (0.1
    )
    
    $
    (3.6
    )Noninterest income
    
    
    123.0
    
    
    
    36.8
    
    
    
    9.1
    
    
    
    17.3
    
    
    
    43.0
    
    
    
    26.6
    
    
    
    10.5
    
    
    
    22.8
    
    
    
    9.9Noninterest expense
    
    
    319.6
    
    
    
    88.6
    
    
    
    45.3
    
    
    
    23.2
    
    
    
    126.2
    
    
    
    34.5
    
    
    
    9.3
    
    
    
    19.2
    
    
    
    (2.4
    )Provision for loan and lease losses
    
    
    12.2
    
    
    
    (1.7
    )
    
    
    43.3
    
    
    
    
    
    
    
    4.8
    
    
    
    7.0
    
    
    
    4.3
    
    
    
    
    
    
    
    (4.2
    )Tax provision (benefit)
    
    
    63.1
    
    
    
    71.7
    
    
    
    28.9
    
    
    
    19.2
    
    
    
    32.6
    
    
    
    16.8
    
    
    
    6.6
    
    
    
    1.4
    
    
    
    5.5Income before cumulative effect of
accounting change
    
    
    98.5
    
    
    
    113.6
    
    
    
    45.0
    
    
    
    29.3
    
    
    
    51.9
    
    
    
    28.3
    
    
    
    15.8
    
    
    
    2.1
    
    
    
    7.4Cumulative effect of accounting
change, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.4
    )Net income (loss)
    
    $
    98.5
    
    
    $
    113.6
    
    
    $
    45.0
    
    
    $
    29.3
    
    
    $
    51.9
    
    
    $
    28.3
    
    
    $
    15.8
    
    
    $
    2.1
    
    
    $
    5.0Average assets
    
    $
    7,461
    
    
    $
    8,313
    
    
    $
    7,432
    
    
    $
    3,568
    
    
    $
    3,343
    
    
    $
    1,416
    
    
    $
    1,167
    
    
    $
    15
    
    
    $
    3,364Average loans and leases
    
    
    5,443
    
    
    
    6,984
    
    
    
    7,101
    
    
    
    
    
    
    
    2,448
    
    
    
    1,220
    
    
    
    1,026
    
    
    
    2
    
    
    
    309Average deposits
    
    
    13,719
    
    
    
    3,111
    
    
    
    13
    
    
    
    1,114
    
    
    
    6,493
    
    
    
    10
    
    
    
    22
    
    
    
    52
    
    
    
    159
   [Continued from above table, first column(s) repeated] Other
    
    Reconciling
    
    Consolidated(in millions)
    
    BancWest(3)
    
    Items(4)
    
    TotalsNine months ended September 30,
2004:Net interest income
    
    $
    (105.9
    )
    
    $
    
    
    
    $
    973.9Noninterest income
    
    
    0.3
    
    
    
    
    
    
    
    315.4Noninterest expense
    
    
    5.5
    
    
    
    
    
    
    
    684.7Provision for loan and lease losses
    
    
    0.1
    
    
    
    
    
    
    
    41.4Tax provision (benefit)
    
    
    (45.6
    )
    
    
    
    
    
    
    218.2Net income (loss)
    
    $
    (65.6
    )
    
    $
    
    
    
    $
    345.0Average assets
    
    $
    7,142
    
    
    $
    (7,668
    )
    
    $
    39,425Average loans and leases
    
    
    41
    
    
    
    (36
    )
    
    
    26,710Average deposits
    
    
    
    
    
    
    (76
    )
    
    
    27,277Nine months ended September 30,
2003:Net interest income
    
    $
    (103.7
    )
    
    $
    
    
    
    $
    964.2Noninterest income
    
    
    (0.2
    )
    
    
    
    
    
    
    298.8Noninterest expense
    
    
    9.9
    
    
    
    
    
    
    
    673.4Provision for loan and lease losses
    
    
    
    
    
    
    
    
    
    
    65.7Tax provision (benefit)
    
    
    (46.3
    )
    
    
    
    
    
    
    199.5Income before cumulative effect of
accounting change
    
    
    (67.5
    )
    
    
    
    
    
    
    324.4Cumulative effect of accounting
change, net of tax
    
    
    
    
    
    
    
    
    
    
    (2.4
    )Net income (loss)
    
    $
    (67.5
    )
    
    $
    
    
    
    $
    322.0Average assets
    
    $
    6,683
    
    
    $
    (7,321
    )
    
    $
    35,441Average loans and leases
    
    
    58
    
    
    
    (43
    )
    
    
    24,548Average deposits
    
    
    
    
    
    
    (61
    )
    
    
    24,632
   (1)
    
    The net interest income and noninterest income items in the Other column
are related to Treasury activities and unallocated other income for all
periods presented.The noninterest expense items in the Other column are derived from Treasury
activities of $4.7 million and $13.2 million and unallocated administrative
items of $6.8 million and $15.2 million for the three and nine months ended
September 30, 2004, respectively. The noninterest expense items in the Other
column resulted from Treasury activities of $3.7 million and $11.6 million and
unallocated administrative items of $4.0 million and $11.6 million for the
three and nine months ended September 30, 2003, respectively.The material average asset items in the Other column are related to unallocated
Treasury securities for the periods presented.The material average deposit items in the Other column are related to
unallocated Treasury balances for the periods presented.(2)
    
    The net interest income and noninterest income items in the Other column
are related to Treasury activities of $7.8 million and $24.2 million and unallocated other income and unallocated transfer pricing
charges of $(10.4) million and $(29.4) million for the three and nine
months ended September 30, 2004, respectively. The net interest income
and noninterest income items in the Other column are related to Treasury
activities of $6.6 million and $20.4 million and unallocated other income
and unallocated transfer pricing charges of $(5.2) million and $(14.1)
million for the three and nine months ended September 30, 2003,
respectively.The noninterest expense items in the Other column are from Treasury activities
of $0.8 million and $1.8 million and unallocated administrative items of $(6.6)
million and $(18.7) million for the three and nine months ended September 30,
2004, respectively. The noninterest expense items in the Other column are from
Treasury activities of $0.3 million and $2.7 million and unallocated
administrative items of $(2.5) million and $(5.1) million for the three and
nine months ended September 30, 2003, respectively.The items in the Other column related to average assets are unallocated
Treasury securities for the periods presented. The items in the Other column
related to average deposits are unallocated balances for the periods presented.(3)
    
    The Other BancWest category consists primarily of BancWest Corporation
(Parent Company), FHL Lease Holding Company, Inc. and BancWest Investment
Services (BWIS).(4)
    
    The reconciling items in the above table are principally intercompany
eliminations. 14




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##### Table of Contents



BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) 4. Operating Lease Assets Prior to February 2004 and subsequent to August 2004, leases of vehicles
to customers were treated as finance leases, as they qualified for such
treatment under Statement of Financial Accounting Standards (SFAS) No. 13,
Accounting for Leases. Between February and August 2004, our automobile leases
were treated as operating leases, as we did not obtain residual insurance on an
individual lease basis. Operating lease rental income for leased assets, primarily vehicles, is
recognized on a straight-line basis. Related depreciation expense is recorded
on a straight-line basis over the life of the lease taking into account the
estimated residual value of the leased asset. On a periodic basis, leased
assets are reviewed for impairment. Impairment loss is recognized if the
carrying amount of leased assets exceeds fair value and is not recoverable.
The carrying amount of leased assets is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the lease payments and
the estimated residual value upon the eventual disposition of the equipment.
Vehicle lease receivables are written off when 120 days past due. The following table shows future minimum lease receivables under leases
with terms in excess of one year as of September 30, 2004: Rental Income(in thousands)2004
    
    $
    7,2682005
    
    
    29,7592006
    
    
    29,7692007
    
    
    25,7012008
    
    
    27,1992009 and thereafter
    
    
    54,098Total minimum payments
    
    $
    173,794
 5. Goodwill and Intangible Assets We perform the impairment testing of goodwill required under SFAS No. 142
annually in the fourth quarter. The impairment analysis is performed using a
discounted cash flows model. The table below provides the breakdown of
goodwill by reportable segment and the change during the year. Bank of the WestRegional
    
    Commercial
    
    Consumer(in millions)
    
    Banking
    
    Banking
    
    FinanceBalance as of January 1, 2004:
    
    $
    1,214
    
    
    $
    706
    
    
    $
    308Purchase accounting adjustment:Trinity Capital
    
    
    
    
    
    
    2
    
    
    
    CIC/HCM Asset Management, Inc.
    
    
    
    
    
    
    
    
    
    
    Balance as of September 30, 2004:
    
    $
    1,214
    
    
    $
    708
    
    
    $
    308
   [Continued from above table, first column(s) repeated] First Hawaiian BankRetail
    
    Consumer
    
    Commercial
    
    Financial
    
    
    
    
    
    Consolidated(in millions)
    
    Banking
    
    Finance
    
    Banking
    
    Management
    
    BancWest
    
    TotalsBalance as of January 1, 2004:
    
    $
    650
    
    
    $
    216
    
    
    $
    118
    
    
    $
    10
    
    
    $
    5
    
    
    $
    3,227Purchase accounting adjustment:Trinity Capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2CIC/HCM Asset Management, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Balance as of September 30, 2004:
    
    $
    650
    
    
    $
    216
    
    
    $
    118
    
    
    $
    11
    
    
    $
    5
    
    
    $
    3.230
 Amortization of finite-lived intangible assets was $5.8 million for each
of the three-month periods ended September 30, 2004 and 2003 and $17.3 million
for each of the nine-month periods ending September 30, 2004 and 2003. The
estimated annual amortization expense for finite-lived intangible assets,
primarily core deposit intangibles arising from previous mergers, is
approximately $23 million (pretax) for each of the years from 2004 to 2008. Our finite-lived intangible assets substantially consist of core deposit
intangible assets. The gross carrying amount, accumulated amortization and net
book value of these intangible assets are detailed below. September 30, 2004
    
    December 31, 2003
    
    September 30, 2003(in thousands)Gross carrying amount
    
    $
    230,538
    
    
    $
    230,538
    
    
    $
    230,538Accumulated amortization
    
    
    60,471
    
    
    
    43,181
    
    
    
    37,418Net book value
    
    $
    170,067
    
    
    $
    187,357
    
    
    $
    193,120
 15




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##### Table of Contents



BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) 6. Financial Interpretation No. 46 (FIN46): Consolidation of Variable Interest
Entities (VIE) On June 23, 1997 and October 20, 2000, the Company formed two trusts,
First Hawaiian Capital I (FH Trust) and BancWest Capital I (BWE Trust) (the
Trusts), respectively. The Trusts issued preferred and common capital
securities. The purpose of these entities is to allow for the issuance of
preferred capital securities that qualify for inclusion in Tier 1 regulatory
capital. Historically, these trusts have been consolidated and the related
trust preferred securities have been treated as Tier 1 capital under Federal
Reserve rules and regulations. The Company deconsolidated the Trusts as a
result of the adoption of FIN 46 in the preparation of its financial statements
in October 2003. This deconsolidation had no material impact on the total
assets or liabilities of the Corporation. The Federal Reserve Board issued
temporary guidance which indicated that the preferred capital securities can
still be included as part of Tier 1 Capital. The Federal Reserve Board is
reviewing the regulatory implications of any accounting treatment changes and
will provide further guidance if necessary or warranted. BWE Trust is a Delaware business trust, which was formed in 2000 and
exchanged $150 million of its 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 the $150 million
of BWE Capital Securities to the public. At September 30, 2004, BWE Trusts
total assets were $155.9 million, comprised predominately of the Corporations
junior subordinated debentures. The BWE Capital Securities and the debentures
will mature on December 1, 2030, but on or after December 1, 2005 are subject
to redemption in whole or in part at par plus accrued interest. They are
solely, fully and unconditionally guaranteed by the Parent, representing the
Companys maximum liability for the securities. All of the common securities
of BWE Trust are owned by the Parent. FH Trust is a Delaware business trust which was formed in 1997, issued
$100 million of its Capital Securities (the FH Capital Securities) and used
the proceeds to purchase junior subordinated deferrable interest debentures of
the Corporation. The FH Capital Securities accrue and pay interest semiannually
at an annual interest rate of 8.343%. The FH Capital Securities are mandatorily
redeemable upon maturity date of July 1, 2027. However, they are subject to
redemption on or after July 1, 2007, in whole or in part (subject to a
prepayment penalty) as provided for in the governing indenture. At September
30, 2004, FH Trusts total assets were $105.2 million, comprised predominately
of the Corporations junior subordinated debentures. The debentures and the
associated interest expense make up the Companys maximum exposure to losses
for this trust. They are solely, fully and unconditionally guaranteed by the
Parent, representing the Companys maximum liability for the securities. All
of the common securities of FH Trust are owned by the Parent. The Company has identified investments that meet the definition of a VIE
under FIN 46 but do not meet the requirements for consolidation. The Company
owns several limited partnership interests in low-income housing developments
in conjunction with the Community Reinvestment Act. Limited partners do not
participate in the control of the partnerships businesses. The general
partner exercises the day-to-day control and management of the projects. The
general partners have exclusive control over the partnerships businesses and
have all of the rights, powers, and authority generally conferred by law or
necessary, advisable or consistent with accomplishing the partnerships
businesses. FIN 46 indicates that if an entity (e.g., limited partner) cannot
sell, transfer, or encumber its interests in the VIE without the prior approval
of an enterprise (e.g., general partner), the limited partner is deemed to be a
de facto agent for the general partner. The Company is considered to be a de
facto agent for the general partner where the Company has a limited partnership
interest over 50%. The Company is not the primary beneficiary for these
partnerships or for those where its interest is less than 50%. The business
purpose of these entities is to provide affordable housing within the Companys
service area in return for tax credits and tax loss deductions. Our
subscription amount for these investments as of September 30, 2004 is
approximately $105.2 million with approximately $33.1 million as the residual
contribution outstanding. We are not obligated to fund deficiencies of the
limited partnerships and our maximum exposure to losses is limited to our
subscription amount. Bargain purchase options are available for the general
partners to purchase the Companys portion of interests in the limited
partnerships. These commitments were entered into from 1991 through 2004. 7. Pension and Other Postretirement Benefit Plans The Company sponsors two noncontributory defined benefit pension plans, a
cash balance plan and an unfunded excess benefit pension plan. Prior to June 30, 2004, the Company sponsored three postretirement benefit
plans. Subsequently, two of the plans were amended for eligible employees who
retire after such date. The amendment places a cap on the funding plans and
combined the two plans into one single plan. The amendment does not change the
benefit options available to the retirees. 16




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##### Table of Contents



BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) The following table sets forth the components of the net periodic benefit
cost (credit) for the three months ending September 30, 2004 and 2003: Pension Benefits
    
    Other Benefits2004
    
    2003
    
    2004
    
    2003(in thousands)Service cost
    
    $
    2,260
    
    
    $
    1,500
    
    
    $
    381
    
    
    $
    596Interest cost
    
    
    6,569
    
    
    
    3,923
    
    
    
    655
    
    
    
    722Expected return on plan assets
    
    
    (8,159
    )
    
    
    (4,603
    )
    
    
    
    
    
    
    Amortization of transition (asset)/obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (218
    )
    
    
    Recognized net actuarial (gain) loss
    
    
    1,515
    
    
    
    1,698
    
    
    
    124
    
    
    
    (3
    )Curtailment loss (gain) recognized
    
    
    
    
    
    
    (150
    )
    
    
    
    
    
    
    Total benefit cost (credit)
    
    $
    2,185
    
    
    $
    2,368
    
    
    $
    942
    
    
    $
    1,315
 The following table sets forth the components of the net periodic benefit
cost (credit) for the nine months ending September 30, 2004 and 2003: Pension Benefits
    
    Other Benefits2004
    
    2003
    
    2004
    
    2003(in thousands)Service cost
    
    $
    6,780
    
    
    $
    8,482
    
    
    $
    1,314
    
    
    $
    1,787Interest cost
    
    
    19,706
    
    
    
    22,230
    
    
    
    1,964
    
    
    
    2,164Expected return on plan assets
    
    
    (24,477
    )
    
    
    (26,498
    )
    
    
    
    
    
    
    Amortization of transition (asset)/obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (436
    )
    
    
    Recognized net actuarial (gain) loss
    
    
    4,545
    
    
    
    9,721
    
    
    
    365
    
    
    
    (9
    )Curtailment loss (gain) recognized
    
    
    
    
    
    
    (150
    )
    
    
    
    
    
    
    Total benefit cost (credit)
    
    $
    6,554
    
    
    $
    13,785
    
    
    $
    3,207
    
    
    $
    3,942
 The following table sets forth the components of the net periodic benefit
cost (credit) for our funded plans: Funded Pension BenefitsThree Months Ended September 30,
    
    Nine Months Ended September 30,2004
    
    2003
    
    2004
    
    2003(in thousands)Service cost
    
    $
    1,761
    
    
    $
    1,300
    
    
    $
    5,282
    
    
    $
    7,483Interest cost
    
    
    5,530
    
    
    
    3,465
    
    
    
    16,591
    
    
    
    19,946Expected return on plan assets
    
    
    (8,159
    )
    
    
    (4,603
    )
    
    
    (24,477
    )
    
    
    (26,498
    )Amortization of transition (asset)/obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recognized net actuarial (gain) loss
    
    
    1,274
    
    
    
    1,630
    
    
    
    3,823
    
    
    
    9,385Net periodic benefit cost (credit)
    
    $
    406
    
    
    $
    1,792
    
    
    $
    1,219
    
    
    $
    10,316
 Contributions The
Company expects to contribute $44.0 million to its defined benefit
pension plans and $3.0 million to its other postretirement benefit plans in
2004. Of these amounts, the Company has contributed to its defined
benefit pension and other postretirement benefit plans
$1.3 million and $2.3 million, respectively, as of
September 30, 2004. 17




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##### Table of Contents



BancWest Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 8. Subsequent Event On November 1, 2004, the Company acquired 100 percent of the outstanding
stock of Community First Bankshares, Inc. (Community First), a holding company
that operates Community First National Bank (CFB). The purchase price of
approximately $1.2 billion was paid in cash. On the same day, we also acquired
USDB Bancorp (USDB), a holding company headquartered in Stockton, California,
that operates Union Safe Deposit Bank. The purchase price of approximately
$245 million was paid in cash. Both acquisitions were accounted for as
purchases in accordance with Statement of Financial Accounting Standard No. 141
Business Combinations. Accordingly, the purchase price for each acquisition
was preliminarily allocated to the assets acquired and the liabilities assumed
based on their estimated fair values. These acquisitions add 19 branches in the California Central Valley and
156 branches in the states of Arizona, California, Colorado, Iowa, Minnesota,
Nebraska, New Mexico, North Dakota, South Dakota, Utah, Wisconsin and
Wyoming. On October 29, 2004, in connection with the acquisitions of Community
First and USDB, the Company obtained from BNPP short-term debt financing of
$590 million with an interest rate of 1.96% and a maturity date of November 29,
2004. In addition, BNPP and one of its subsidiaries contributed capital of
$855 million to the Company. 18




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 
 Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations 
 FORWARD-LOOKING STATEMENTS Certain matters contained in this report are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Our
forward-looking statements (such as those concerning our plans, expectations,
estimates, strategies, projections and goals) involve risks and uncertainties
that could cause actual results to differ materially from those discussed in
this report. 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 geopolitical
uncertainty;(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
effects of current and pending legislation and regulations;(8)
    
    whether expected revenue enhancements and cost savings are realized
within expected time frames;(9)
    
    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;(10)
    
    our reliance on third parties to provide certain critical services,
including data processing;(11)
    
    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;(12)
    
    technological changes;(13)
    
    other risks and uncertainties discussed in this document or detailed from
time to time in other SEC filings that we make; and(14)
    
    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, except as
required by law, 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. The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Form 10-Q. 19




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 
 OVERVIEW BancWest Corporation (www.bancwestcorp.com) is a financial holding company
with assets of $41.4 billion. It is a wholly-owned subsidiary of Paris-based
BNP Paribas. The Company is headquartered in Honolulu, Hawaii, with an
administrative headquarters in San Francisco, California. As of September 30,
2004, its principal subsidiaries were Bank of the West (BOW) (296 branches in
California, Oregon, New Mexico, Nevada, Washington and Idaho) and First
Hawaiian Bank (FHB) (61 branches in Hawaii, Guam and Saipan). In this report,
BancWest Corporation and Subsidiaries is referred to as the Company, we or
our. BancWest Corporation alone is referred to as the Parent. Acquisitions Community First Bankshares Acquisition On November 1, 2004, the Company acquired 100 percent of the outstanding
stock of Community First Bankshares, Inc., (Community First) a holding company
that operates Community First National Bank (CFB). The purchase price of
approximately $1.2 billion was paid in cash and was accounted for as a purchase
in accordance with Statement of Financial Accounting Standard No. 141 Business
Combinations (FAS 141). Accordingly, the purchase price was preliminarily
allocated to the assets acquired and the liabilities assumed based on their
estimated fair values. We expect to record between $900 million and $950 million
of goodwill related to the Community First acquisition. The final allocation of the purchase price will be established after
completing the analysis to determine the fair values of Community Firsts
tangible assets and liabilities and identifiable intangible assets, as well as
final decisions regarding integration activities. The acquisition of Community
First added 10 states to the Companys footprint, and added to our market share
in California and New Mexico. CFB operated 156 branches in Arizona,
California, Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota,
South Dakota, Utah, Wisconsin and Wyoming. Community Firsts retail operations
in growing states complement BOWs existing network in California, Nevada, New
Mexico and the Pacific Northwest. At September 30, 2004, Community First had
total assets of $5.5 billion, total deposits of $4.4 billion and loans of $3.5
billion. Beginning November 1, 2004, the results of operations of Community
First will be included in our Consolidated Financial Statements. Branches of
CFB are expected to be fully integrated into BOWs branch network in the fourth
quarter of 2004, at which time CFB will be merged with and into BOW. Management is currently in the process of assessing and formulating
restructuring plans and expects to adopt formal restructuring plans in the
fourth quarter of 2004. These restructuring plans will target areas where there
is a significant amount of overlap between the two companies. This includes
consolidating administrative and support services including data processing and
marketing and to focus the Companys resources on activities that will promote
growth in the business in the near future. We will be consolidating excess
facilities and evaluating areas where we will be able to take advantage of
existing facilities. The Company has estimated net cost savings of
approximately $50 million per year beginning in 2006 from
restructuring efforts. In 2005, the Company expects to realize net
cost savings of more than
$35 million. Exit costs related to
Community First activities and approximately 240 employees are expected to be approximately $25 million
and accrued as a liability in conjunction with recording the initial purchase
of Community First. The Company is also expecting to incur conversion and
restructuring expenses totaling approximately $12 million. For the nine
months ended September 30, 2004, the Company incurred $7.8 million of
restructuring expenses related to the Community First acquisition. We
anticipate that cash outlays for exit and restructuring costs should be
substantially completed by the end of 2006. USDB Bancorp Acquisition On November 1, 2004, the Company also acquired USDB Bancorp (USDB), parent
company of Union Safe Deposit Bank. USDB is a holding company headquartered in
Stockton, California, and operates 19 Union Safe Deposit Bank branches in San
Joaquin and Stanislaus Counties in the Central Valley of California. The
purchase price of approximately $245 million was paid in cash and was accounted
for as a purchase in accordance with FAS 141. Accordingly, the purchase price
was preliminarily allocated to the assets acquired and the liabilities assumed
based on their estimated fair values. We expect to record between $165
million and $180 million of goodwill, and approximately $15 million of identifiable intangibles related to the
USDB acquisition. As
of September 30, 2004, USDB had total assets of $1.2 billion, total
deposits of $888 million and total loans of $685 million. Exit costs related
to USDB activities and approximately 175 employees are expected to be approximately $7 million and
accrued as a liability in conjunction with recording the initial purchase of
USDB. The Company is also expecting to incur conversion and restructuring
expenses totaling approximately $2 million. For the nine months ended September 30, 2004,
the Company incurred $0.7 million in restructuring expenses. In
addition, the Company expects to accrue approximately
$25 million related to change of control payments. We anticipate
that cash outlays for exit and restructuring costs should be
substantially completed by
first quarter of 2007. The conversion and merger of Union Safe Deposit Bank into Bank of the West
is projected for the first quarter of 2005. Expanding Bank of the Wests presence
in California has been one of the Companys strategic goals. The acquisition
will give us the opportunity to service a broader region of the Central Valley.
The Compant has estimated net cost savings of approximately $20 million per year
beginning in 2006 from restructuring efforts. In 2005, the Company expects to realize net cost savings
of more than $15 million. 20




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##### Table of Contents



Strategic Initiatives The Company has continued to implement a series of initiatives that are
designed to improve customer service and expand our physical footprint through
branch expansion and mergers and acquisitions. The focus of the Company is to
promote long-lasting customer service relationships through upgrading
technology and implementing new training vehicles. The Company strives for a
high touch personalized marketing position, promoting brand recognition
through logos and community outreach. The Company is expanding its line of
financial services to its customers through internal initiatives as well as
mergers and acquisitions. This includes insurance services that it attained
through its acquisition of Community First. The Bank of the Wests Commercial Banking Group is planning to expand
geographically and also increase its product offering for the Commercial
Banking Division, Agribusiness Banking Division and the Real Estate Industries
Division. The Commercial Banking Group has created two new departments,
National Middle Market Leasing and the Commercial Finance Department. The
Government Banking Department is in the process of expanding to include a
Public Finance program. The geographic expansion plans will include locations
in Colorado as a first step, and one or two other states to be determined.
Denver will be the initial location for the first office to take advantage of
the new footprint as a result of the merger with Community First. The National
Middle Market Leasing will originate lease transactions nationwide, targeting
middle market companies with sales of $25 million - $500 million. The focus
will be on leases of $250 thousand - $10 million. First Hawaiian Banks Retail Banking Group expanded its line of
relationship-building banking packages, launching a new seniors program for
Guam and Saipan called the Primera Program. Primera, targeted at customers on
those islands aged 50 or better, is patterned after the PrimeTime program for
Hawaii seniors that offers discounts and premium rates on deposits, loans and
other banking and investment products. First Hawaiian Banks Financial Management Group began offering IMA Plus,
a new asset allocation program featuring combinations of mutual funds,
including both the Companys Bishop Street Funds family and outside funds. Key among the elements of the Companys profitability has been the
interest rate environment, from both a deposit and loan pricing standpoint. As
an industry, banks and other financial intermediaries have seen net interest
margins decline over the past year principally as a result of the absolute
level and shape of the yield curve. We manage the interest rate and market
risks inherent in our asset and liability balances, while ensuring ample
liquidity and diverse funding. 
 CRITICAL ACCOUNTING ESTIMATES Our significant accounting policies are fundamental to understanding our
financial position and results of operations and are discussed in detail in
Note 1 (Summary of Significant Accounting Policies) to the Consolidated
Financial Statements in our 2003 Annual Report on Form 10-K. Various elements
of our accounting policies, by their nature, are inherently subject to
estimation techniques, valuation assumptions and other subjective assessments.
We have identified three accounting estimates that we believe are critical due
to the levels of subjectivity and judgment necessary and because it is likely
that materially different results would be reported if different judgments,
assumptions and estimates were used. These estimates relate to the allowance
for loan and lease losses, goodwill and lease financing. These estimates are
described in more detail in our 2003 Annual Report on Form 10-K in the
Critical Accounting Estimates section of Managements Discussion and
Analysis. 21




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BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 
 FINANCIAL OVERVIEW Income Statement Analysis Third quarter 2004 compared with third quarter 2003 The Company reported net income of $117.2 million, compared with $112.2
million, an increase of 4.4%. Net interest income was $330.6 million, compared
with $330.2 million. A significant portion of the increase was due to growth
in average earning assets, offset by a lower net interest margin for the
quarter. Average loans and leases increased by $2.2 billion; average
investment securities increased by $1.0 billion. The Company increased its
consumer lending and continued to purchase residential mortgage loans and
securities. Commercial lending also increased from the prior year. The net
interest margin decreased 41 basis points (1% equals 100 basis points) from
4.24% last year to 3.83% in the current period as a result of the low interest
rate environment. Yields on loans have remained below the prior year, however,
rates paid on funding sources are higher than that of the prior year.
Noninterest income was $104.8 million, an increase of 4.0%, compared with
$100.8 million in the third quarter of 2003. The increase was predominately
due to the requirement of accounting for certain automobile leases as operating
leases rather than direct finance leases between February and August 2004.
Noninterest expense was $234.5 million compared with $223.0 million, an
increase of 5.2%. The increase was primarily due to restructuring expenses
related to the acquisition of Community First and USDB and vehicle depreciation
incurred from the change in accounting for auto leases. Nine-month period 2004 compared with nine-month period 2003 The Company reported net income of $345.0 million, compared with $322.0
million, an increase of 7.2%. Net interest income was $973.9 million, up 1.0%,
compared with $964.2 million. This increase was significantly due to growth in
average earning assets, offset by a lower net interest margin for the period.
Average loans and leases increased by $2.2 billion; average investment
securities increased by $1.5 billion. The Company increased its consumer
lending and continued to purchase residential mortgage loans and securities.
Commercial lending has also increased from the prior year. The net interest
margin decreased 47 basis points from 4.36% last year to 3.89% in the current
period as a result of the low interest rate environment. Noninterest income
was $315.4 million, an increase of 5.5% compared with $298.8 million. The
increase was primarily due to the requirement of accounting for certain
automobile leases as operating leases rather than direct finance leases and
increased service charges on deposits and other service charges and fees. The
Companys strategy to increase noninterest income included growth in average
deposit balances, repricing efforts in account analysis as well as growth in
investment product sales and merchant services. The Company also focused on
niche markets where the Company would have a competitive advantage in growing
its vehicle and equipment leasing, SBA, church and healthcare lending
portfolios. Noninterest expense was $684.7 million compared with $673.4
million. The increase was primarily due to restructuring expenses related to
the acquisition of Community First and USDB and vehicle depreciation incurred
from the change in accounting for auto leases, partially offset by lower
pension and postretirement benefit expenses. Balance Sheet Analysis The Company had total assets of $41.4 billion at September 30, 2004, an
increase of 8.0% from December 31, 2003 and 10.6% from September 30, 2003.
Investment securities totaled $6.2 billion, an increase of 6.8% from December
31, 2003 and 16.9% from September 30, 2003. Loans and leases totaled $27.8
billion, up 8.2% from December 31, 2003 and 10.2% from a year ago. Deposits
were $28.4 billion, up 7.6% from December 31, 2003 and 9.6% from a year ago. The Companys nonperforming assets were 0.44% of loans, leases and
foreclosed properties at September 30, 2004, an improvement from 0.59% at
December 31, 2003 and 0.71% at September 30, 2003. The allowance for loan and
leases losses totaled $386.1 million, a decrease of 1.4% from December 31, 2003
and 1.1% from September 30, 2003. The allowance for loan and lease losses was
1.39% of total loans and leases at September 30, 2004, compared with 1.52% of
total loans and leases at December 31, 2003 and 1.54% at September 30, 2003. 22




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##### Table of Contents

\

BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 
 CONSOLIDATED FINANCIAL HIGHLIGHTS(Unaudited) Three Months Ended September 30,
    
    Nine Months Ended September 30,2004
    
    2003
    
    2004
    
    2003Earnings:(Dollars in thousands)Interest income
    
    $
    441,769
    
    
    $
    423,093
    
    
    $
    1,278,788
    
    
    $
    1,257,353Interest expense
    
    
    111,127
    
    
    
    92,908
    
    
    
    304,860
    
    
    
    293,184Net interest income
    
    
    330,642
    
    
    
    330,185
    
    
    
    973,928
    
    
    
    964,169Provision for loan and lease losses
    
    
    10,600
    
    
    
    24,145
    
    
    
    41,365
    
    
    
    65,695Noninterest income
    
    
    104,821
    
    
    
    100,803
    
    
    
    315,368
    
    
    
    298,791Noninterest expense
    
    
    234,496
    
    
    
    222,963
    
    
    
    684,689
    
    
    
    673,412Income before income taxes and cumulative effect of
accounting change
    
    
    190,367
    
    
    
    183,880
    
    
    
    563,242
    
    
    
    523,853Provision for income taxes
    
    
    73,141
    
    
    
    69,268
    
    
    
    218,207
    
    
    
    199,498Income before cumulative effect of accounting change
    
    
    117,226
    
    
    
    114,612
    
    
    
    345,035
    
    
    
    324,355Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    2,370
    
    
    
    
    
    
    
    2,370Net income
    
    $
    117,226
    
    
    $
    112,242
    
    
    $
    345,035
    
    
    $
    321,985Balance Sheet Data Averages:(Dollars in millions)Average assets
    
    $
    40,581
    
    
    $
    36,798
    
    
    $
    39,425
    
    
    $
    35,441Average securities available for sale at cost
    
    
    6,110
    
    
    
    5,103
    
    
    
    5,984
    
    
    
    4,514Average
loans and leases (1)
    
    
    27,433
    
    
    
    25,199
    
    
    
    26,710
    
    
    
    24,548Average deposits
    
    
    28,271
    
    
    
    25,422
    
    
    
    27,277
    
    
    
    24,632Average long-term debt and capital securities
    
    
    5,069
    
    
    
    4,139
    
    
    
    4,660
    
    
    
    3,778Average stockholders equity
    
    
    4,512
    
    
    
    4,111
    
    
    
    4,419
    
    
    
    4,024Balance Sheet Data At Period End:(Dollars in millions)Assets
    
    
    41,405
    
    
    
    37,426
    
    
    
    41,405
    
    
    
    37,426Securities available for sale
    
    
    6,168
    
    
    
    5,277
    
    
    
    6,168
    
    
    
    5,277Loans and
leases (1)
    
    
    27,887
    
    
    
    25,344
    
    
    
    27,887
    
    
    
    25,344Deposits
    
    
    28,400
    
    
    
    25,921
    
    
    
    28,400
    
    
    
    25,921Long-term debt and capital securities
    
    
    5,512
    
    
    
    4,220
    
    
    
    5,512
    
    
    
    4,220Stockholders equity
    
    
    4,583
    
    
    
    4,158
    
    
    
    4,583
    
    
    
    4,158Selected Financial Ratios For the Period Ended:Return on
average total assets (ROA) (2)
    
    
    1.15
    %
    
    
    1.21
    %
    
    
    1.17
    %
    
    
    1.21
    %Return on
average stockholders equity (ROE) (2)
    
    
    10.34
    
    
    
    10.83
    
    
    
    10.43
    
    
    
    10.70Net interest
margin (taxable-equivalent basis) (2)
    
    
    3.83
    
    
    
    4.24
    
    
    
    3.89
    
    
    
    4.36Net loans
and leases charged off to average loans and leases (2)
    
    
    0.30
    
    
    
    0.40
    
    
    
    0.24
    
    
    
    0.33Efficiency
ratio (3)
    
    
    53.85
    
    
    
    51.73
    
    
    
    53.11
    
    
    
    53.32Average equity to average total assets
    
    
    11.12
    
    
    
    11.17
    
    
    
    11.21
    
    
    
    11.35At Period End:Allowance for loan and lease losses to total loans and leases
    
    
    1.39
    
    
    
    1.54
    
    
    
    1.39
    
    
    
    1.54Nonperforming assets to total loans and leases and other
real estate owned and repossessed personal property
    
    
    0.44
    
    
    
    0.71
    
    
    
    0.44
    
    
    
    0.71Allowance for loan and lease losses to nonaccruing loans
and leases
    
    
    3.69
    x
    
    
    2.44
    x
    
    
    3.69
    x
    
    
    2.44
    xRegulatory Capital Ratios:Leverage
Ratio (4):Bank of the West
    
    
    9.55
    %
    
    
    9.36
    %
    
    
    9.55
    %
    
    
    9.36
    %First Hawaiian Bank
    
    
    10.36
    
    
    
    9.68
    
    
    
    10.36
    
    
    
    9.68Tier 1 capital (risk-based):Bank of the West
    
    
    10.88
    
    
    
    10.56
    
    
    
    10.88
    
    
    
    10.56First Hawaiian Bank
    
    
    13.75
    
    
    
    12.51
    
    
    
    13.75
    
    
    
    12.51Total capital (risk-based):Bank of the West
    
    
    12.91
    
    
    
    12.81
    
    
    
    12.91
    
    
    
    12.81First Hawaiian Bank
    
    
    16.04
    
    
    
    14.88
    
    
    
    16.04
    
    
    
    14.88
   (1) Includes loans held for sale.(2) Annualized.(3) The efficiency ratio is noninterest expense as a percentage of net
interest income plus noninterest income.(4) The capital leverage ratios are based on quarterly averages. 23




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 
 RESULTS OF OPERATIONS 
 Net Interest Income Third quarter 2004 compared with third quarter 2003 Net interest income increased to $330.6 million as compared with $330.2
million. The increase in net interest income was principally the result of a $3.5
billion, or 11.3%, increase in average earning assets. The increase in our
average earning assets was primarily the result of growth in loans (from
originations and purchases) and investment securities. The effect of the
increase from average earning assets was offset by a 41 basis point reduction
in our net interest margin. The effect of low interest rates has continued to
hold down the yield on earning assets while the rates paid on sources of funds
has started to increase. Nine-month period 2004 compared with nine-month period 2003 Net interest income increased 1.0% to $973.9 million as compared with
$964.2 million. The increase in net interest income was principally the result of a $3.8
billion, or 12.8%, increase in average earning assets. The increase in our
average earning assets was primarily the result of growth in loans (from
originations and purchases) and investment securities within BOW and FHB. The
effect of the increase from average earning assets was largely offset by a 47
basis point reduction in our net interest margin. The effect of low interest
rates has reduced the yield on earning assets as well as rates paid on sources
of funds. Net Interest Margin Third quarter 2004 compared with third quarter 2003 The net interest margin decreased by 41 basis points due primarily to the
effects of the low interest rate environment. While the low interest rate
environment reduced our yield on earning assets (down by 32 basis points to
5.11% from 5.43%) our rates paid on sources of funds increased by 9 basis
points to 1.28% from 1.19%. The decrease in the yield on average earning
assets was partially offset by an increase of $0.9 billion, or 11.9%, in
average noninterest-bearing deposits maintained by retail and commercial
customers. Nine-month period 2004 compared with nine-month period 2003 The net interest margin decreased by 47 basis points due primarily to the
effects of the low interest rate environment. While the low interest rate
environment reduced our yield on earning assets by 57 basis points to 5.11%
from 5.68%, it also decreased our rate paid on sources of funds by 10 basis
points to 1.22% from 1.32%. Also offsetting the decrease in the yield on
average earning assets, average noninterest-bearing deposits maintained by
retail and commercial customers increased by $0.9 billion, or 13.2%. Average Earning Assets Third quarter 2004 compared with third quarter 2003 Growth in BOWs loan and lease portfolio and higher levels of investment
securities in both banks are primarily responsible for the increase in average
earning assets. The $2.2 billion, or 8.9%, increase in average total loans and
leases was largely due to increases in consumer lending and residential
mortgages. Consumer loans continue to grow due to the strength in the consumer
market and the low interest rates on consumer loans. As growth in commercial
lending was relatively low during the past year, funds were used to purchase
residential mortgages as well as investment securities. Consequently, average
total investment securities were $6.1 billion, up $1.0 billion, or 19.7%. 24




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Nine-month period 2004 compared with nine-month period 2003 Growth in BOWs loan and lease portfolio and higher levels of investment
securities in both banks are primarily responsible for the increase in average
earning assets. The $2.2 billion, or 8.8%, increase in average total loans and
leases was primarily due to increases in consumer lending and residential
mortgages. Consumer loans continue to grow due to strength in the consumer
market and the low interest rates on consumer loans. As growth in commercial
lending was relatively low during the past year, funds were used to purchase
residential mortgages as well as investment securities. Consequently, average
total investment securities were $6.0 billion, up $1.5 billion, or 32.6%. Average Loans and Leases Third quarter 2004 compared with third quarter 2003 The increase in average loans and leases was primarily due to growth in
BOW. Average consumer loans within BOW increased approximately $0.7 billion,
or 10.6%, primarily due to growth in financing for autos, recreational vehicles
and pleasure boats, while loan purchases increased the average residential
mortgage portfolio. BOWs average residential real estate loans increased by
$0.8 billion. The modest increase in commercial, financial and agricultural
loans in both banks also contributed to the increase. Nine-month period 2004 compared with nine-month period 2003 The increase in average loans and leases was primarily due to growth in
BOW. Average consumer loans within BOW increased approximately $1.2 billion,
or 20.6%, primarily due to growth in consumer loans, while real estate loan
purchases increased the average residential mortgage portfolio. BOWs average
residential real estate loans increased by $0.5 billion. The modest increase
in commercial, financial and agricultural loans in both banks also contributed
to the increase. Average Interest-Bearing Deposits and Liabilities Third quarter 2004 compared with third quarter 2003 The $2.7 billion, or 11.1%, increase in average interest-bearing deposits
and liabilities was primarily due to growth in our customer deposit base and an
increase in average long-term debt. Average deposits increased due to growth
in the regular and money market savings, foreign and time deposits, demand
deposit and interest-bearing checking portfolios. Long-term borrowings from
the Federal Home Loan Bank increased average long-term debt. Nine-month period 2004 compared with nine-month period 2003 The $2.8 billion, or 12.1%, increase in average interest-bearing
deposits and liabilities was primarily due to growth in our customer deposit
base and an increase in average long-term debt and average short-term
borrowings. Average deposits increased due to growth in the regular and money
market savings, foreign and time deposit, demand deposit and interest-bearing
checking portfolios. Short-and long-term borrowings from the Federal Home Loan
Bank also increased average short-term borrowings and average long-term debt. 25




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Table 1: Average Balances, Interest Income and Expense, and Yields and
Rates (Taxable-Equivalent Basis) The following table presents consolidated average balances, an analysis of
interest income/expense and yield/rate for each major category of earning
assets and interest-bearing deposits and liabilities for the years indicated on
a taxable-equivalent basis. The taxable-equivalent adjustment is made for items
exempt from Federal income taxes (assuming a 35% tax rate for September 30,
2004 and 2003) to make them comparable with taxable items before any income
taxes are applied. Three Months Ended September 30,2004
    
    2003Interest
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    Income/
    
    Yield/
    
    Average
    
    Income/
    
    Yield/Balance
    
    Expense
    
    Rate (1)
    
    Balance
    
    Expense
    
    Rate (1)(Dollars in thousands)ASSETSEarning assets:Interest-bearing deposits in other banks:Domestic
    
    $
    5,309
    
    
    $
    10
    
    
    
    0.75
    %
    
    $
    6,400
    
    
    $
    13
    
    
    
    0.81
    %Foreign
    
    
    292,917
    
    
    
    1,104
    
    
    
    1.50
    
    
    
    269,455
    
    
    
    735
    
    
    
    1.08Total interest-bearing deposits in other banks
    
    
    298,226
    
    
    
    1,114
    
    
    
    1.49
    
    
    
    275,855
    
    
    
    748
    
    
    
    1.08Federal funds sold and securities purchased under
agreements to resell
    
    
    397,466
    
    
    
    1,535
    
    
    
    1.54
    
    
    
    153,472
    
    
    
    406
    
    
    
    1.05Trading assets
    
    
    3,757
    
    
    
    62
    
    
    
    6.57
    
    
    
    59,350
    
    
    
    426
    
    
    
    2.85Securities available for sale(2):Taxable
    
    
    6,102,353
    
    
    
    52,755
    
    
    
    3.44
    
    
    
    5,087,848
    
    
    
    44,656
    
    
    
    3.48Exempt from Federal income taxes
    
    
    7,492
    
    
    
    134
    
    
    
    7.12
    
    
    
    15,425
    
    
    
    240
    
    
    
    6.17Total securities available for sale
    
    
    6,109,845
    
    
    
    52,889
    
    
    
    3.44
    
    
    
    5,103,273
    
    
    
    44,896
    
    
    
    3.49Loans and leases (3)(4):Domestic
    
    
    27,062,012
    
    
    
    378,046
    
    
    
    5.56
    
    
    
    24,844,952
    
    
    
    369,385
    
    
    
    5.90Foreign
    
    
    370,713
    
    
    
    6,198
    
    
    
    6.65
    
    
    
    354,263
    
    
    
    6,134
    
    
    
    6.87Total loans and leases
    
    
    27,432,725
    
    
    
    384,244
    
    
    
    5.57
    
    
    
    25,199,215
    
    
    
    375,519
    
    
    
    5.91Other interest earning assets
    
    
    170,493
    
    
    
    2,142
    
    
    
    5.00
    
    
    
    132,389
    
    
    
    1,462
    
    
    
    4.38Total earning assets
    
    
    34,412,512
    
    
    
    441,986
    
    
    
    5.11
    
    
    
    30,923,554
    
    
    
    423,457
    
    
    
    5.43Noninterest-bearing assets:Cash and due from banks
    
    
    1,408,039
    
    
    
    
    
    
    
    
    
    
    
    1,374,265Premises and equipment
    
    
    524,795
    
    
    
    
    
    
    
    
    
    
    
    542,177Core deposit intangible
    
    
    172,842
    
    
    
    
    
    
    
    
    
    
    
    195,877Goodwill
    
    
    3,229,771
    
    
    
    
    
    
    
    
    
    
    
    3,226,851Other assets
    
    
    833,275
    
    
    
    
    
    
    
    
    
    
    
    535,161Total noninterest-bearing assets
    
    
    6,168,722
    
    
    
    
    
    
    
    
    
    
    
    5,874,331Total assets
    
    $
    40,581,234
    
    
    
    
    
    
    
    
    
    
    $
    36,797,885LIABILITIES AND STOCKHOLDERS EQUITYInterest-bearing deposits and liabilities:Deposits:Domestic:Interest-bearing demand
    
    $
    313,754
    
    
    $
    62
    
    
    
    0.08
    %
    
    $
    271,111
    
    
    $
    44
    
    
    
    0.06
    %Savings
    
    
    11,236,547
    
    
    
    16,560
    
    
    
    0.59
    
    
    
    10,399,436
    
    
    
    13,637
    
    
    
    0.52Time
    
    
    7,283,932
    
    
    
    30,755
    
    
    
    1.68
    
    
    
    6,838,840
    
    
    
    24,868
    
    
    
    1.44Foreign
    
    
    1,270,598
    
    
    
    3,812
    
    
    
    1.19
    
    
    
    615,304
    
    
    
    1,286
    
    
    
    0.83Total interest-bearing deposits
    
    
    20,104,831
    
    
    
    51,189
    
    
    
    1.01
    
    
    
    18,124,691
    
    
    
    39,835
    
    
    
    0.87Short-term borrowings
    
    
    1,824,580
    
    
    
    6,331
    
    
    
    1.38
    
    
    
    2,041,899
    
    
    
    5,725
    
    
    
    1.11Long-term debt and capital securities
    
    
    5,069,266
    
    
    
    53,607
    
    
    
    4.21
    
    
    
    4,139,256
    
    
    
    47,348
    
    
    
    4.54Total interest-bearing deposits and liabilities
    
    
    26,998,677
    
    
    
    111,127
    
    
    
    1.64
    
    
    
    24,305,846
    
    
    
    92,908
    
    
    
    1.51Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.47
    %
    
    
    
    
    
    
    
    
    
    
    3.92
    %Noninterest-bearing deposits
    
    
    8,166,003
    
    
    
    
    
    
    
    
    
    
    
    7,297,470Other liabilities
    
    
    904,437
    
    
    
    
    
    
    
    
    
    
    
    1,083,641Total liabilities
    
    
    36,069,117
    
    
    
    
    
    
    
    
    
    
    
    32,686,957Stockholders equity
    
    
    4,512,117
    
    
    
    
    
    
    
    
    
    
    
    4,110,928Total liabilities and stockholders equity
    
    $
    40,581,234
    
    
    
    
    
    
    
    
    
    
    $
    36,797,885Impact of noninterest-bearing sources
    
    
    
    
    
    
    
    
    
    
    0.36
    %
    
    
    
    
    
    
    
    
    
    
    0.32
    %Net interest income and margin on total earning assets
    
    
    
    
    
    
    330,859
    
    
    
    3.83
    %
    
    
    
    
    
    
    330,549
    
    
    
    4.24
    %Tax equivalent adjustment
    
    
    
    
    
    
    217
    
    
    
    
    
    
    
    
    
    
    
    364Net interest income
    
    
    
    
    
    $
    330,642
    
    
    
    
    
    
    
    
    
    
    $
    330,185
   (1)
    
    Annualized.(2)
    
    Average debt securities available for sale were computed based on
amortized costs, excluding the effects of SFAS No. 115
adjustments.(3)
    
    Nonaccruing loans and leases, and loans held for sale have been included
in the computations of average loan and lease balances.(3)
    
    Interest income for loans and leases included loan fees of $11.1 million
and $17.5 million for the three months ended September 30, 2004 and 2003,
respectively. 26




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Nine Months Ended September 30,2004
    
    2003Interest
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    Income/
    
    Yield/
    
    Average
    
    Income/
    
    Yield/Balance
    
    Expense
    
    Rate (1)
    
    Balance
    
    Expense
    
    Rate (1)(Dollars in thousands)ASSETSEarning assets:Interest-bearing deposits in other banks:Domestic
    
    $
    6,156
    
    
    $
    33
    
    
    
    0.72
    %
    
    $
    5,802
    
    
    $
    36
    
    
    
    0.83
    %Foreign
    
    
    274,851
    
    
    
    2,567
    
    
    
    1.25
    
    
    
    173,609
    
    
    
    1,596
    
    
    
    1.23Total interest-bearing deposits in other banks
    
    
    281,007
    
    
    
    2,600
    
    
    
    1.24
    
    
    
    179,411
    
    
    
    1,632
    
    
    
    1.22Federal funds sold and securities purchased under
agreements to resell
    
    
    284,970
    
    
    
    2,714
    
    
    
    1.27
    
    
    
    212,842
    
    
    
    1,947
    
    
    
    1.22Trading assets
    
    
    8,816
    
    
    
    48
    
    
    
    0.73
    
    
    
    55,877
    
    
    
    1,171
    
    
    
    2.80Securities available for sale (2)Taxable
    
    
    5,976,179
    
    
    
    154,063
    
    
    
    3.44
    
    
    
    4,498,771
    
    
    
    127,783
    
    
    
    3.80Exempt from Federal income taxes
    
    
    7,473
    
    
    
    403
    
    
    
    7.20
    
    
    
    15,169
    
    
    
    753
    
    
    
    6.64Total securities available for sale
    
    
    5,983,652
    
    
    
    154,466
    
    
    
    3.45
    
    
    
    4,513,940
    
    
    
    128,536
    
    
    
    3.81Loans and leases (3)(4):Domestic
    
    
    26,352,117
    
    
    
    1,096,603
    
    
    
    5.56
    
    
    
    24,187,740
    
    
    
    1,102,095
    
    
    
    6.09Foreign
    
    
    357,646
    
    
    
    17,774
    
    
    
    6.64
    
    
    
    360,456
    
    
    
    18,857
    
    
    
    6.99Total loans and leases
    
    
    26,709,763
    
    
    
    1,114,377
    
    
    
    5.57
    
    
    
    24,548,196
    
    
    
    1,120,952
    
    
    
    6.11Other interest-earning assets
    
    
    161,660
    
    
    
    5,278
    
    
    
    4.36
    
    
    
    118,919
    
    
    
    4,203
    
    
    
    4.73Total earning assets
    
    
    33,429,868
    
    
    
    1,279,483
    
    
    
    5.11
    
    
    
    29,629,185
    
    
    
    1,258,441
    
    
    
    5.68Noninterest-bearing assets:Cash and due from banks
    
    
    1,408,098
    
    
    
    
    
    
    
    
    
    
    
    1,380,336Premises and equipment
    
    
    526,790
    
    
    
    
    
    
    
    
    
    
    
    437,771Core deposit intangible
    
    
    178,565
    
    
    
    
    
    
    
    
    
    
    
    201,581Goodwill
    
    
    3,228,986
    
    
    
    
    
    
    
    
    
    
    
    3,227,132Other assets
    
    
    652,329
    
    
    
    
    
    
    
    
    
    
    
    565,399Total noninterest-bearing assets
    
    
    5,994,768
    
    
    
    
    
    
    
    
    
    
    
    5,812,219Total assets
    
    $
    39,424,636
    
    
    
    
    
    
    
    
    
    
    $
    35,441,404LIABILITIES AND STOCKHOLDERS EQUITYInterest-bearing deposits and liabilities:Deposits:Domestic:Interest-bearing demand
    
    $
    310,187
    
    
    $
    200
    
    
    
    0.09
    %
    
    $
    274,221
    
    
    $
    271
    
    
    
    0.13
    %Savings
    
    
    11,031,784
    
    
    
    48,025
    
    
    
    0.58
    
    
    
    10,047,001
    
    
    
    49,613
    
    
    
    0.66Time
    
    
    6,907,810
    
    
    
    81,378
    
    
    
    1.57
    
    
    
    6,737,313
    
    
    
    86,625
    
    
    
    1.72Foreign
    
    
    1,127,979
    
    
    
    8,611
    
    
    
    1.02
    
    
    
    594,578
    
    
    
    4,197
    
    
    
    0.94Total interest-bearing deposits
    
    
    19,377,760
    
    
    
    138,214
    
    
    
    0.95
    
    
    
    17,653,113
    
    
    
    140,706
    
    
    
    1.07Short-term borrowings
    
    
    2,046,629
    
    
    
    17,310
    
    
    
    1.13
    
    
    
    1,841,025
    
    
    
    16,464
    
    
    
    1.20Long-term debt and capital securities
    
    
    4,659,747
    
    
    
    149,336
    
    
    
    4.28
    
    
    
    3,777,603
    
    
    
    136,014
    
    
    
    4.81Total interest-bearing deposits and liabilities
    
    
    26,084,136
    
    
    
    304,860
    
    
    
    1.56
    
    
    
    23,271,741
    
    
    
    293,184
    
    
    
    1.68Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.55
    %
    
    
    
    
    
    
    
    
    
    
    4.00
    %Noninterest-bearing deposits
    
    
    7,899,274
    
    
    
    
    
    
    
    
    
    
    
    6,978,473Other liabilities
    
    
    1,022,688
    
    
    
    
    
    
    
    
    
    
    
    1,167,547Total liabilities
    
    
    35,006,098
    
    
    
    
    
    
    
    
    
    
    
    31,417,761Stockholders equity
    
    
    4,418,538
    
    
    
    
    
    
    
    
    
    
    
    4,023,643Total liabilities and stockholders equity
    
    $
    39,424,636
    
    
    
    
    
    
    
    
    
    
    $
    35,441,404Impact of noninterest-bearing sources
    
    
    
    
    
    
    
    
    
    
    0.34
    %
    
    
    
    
    
    
    
    
    
    
    0.36
    %Net interest income and margin on total earning assets
    
    
    
    
    
    
    974,623
    
    
    
    3.89
    %
    
    
    
    
    
    
    965,257
    
    
    
    4.36
    %Tax equivalent adjustment
    
    
    
    
    
    
    695
    
    
    
    
    
    
    
    
    
    
    
    1,088Net interest income
    
    
    
    
    
    $
    973,928
    
    
    
    
    
    
    
    
    
    
    $
    964,169
   (1)
    
    Annualized.(2)
    
    Average debt securities available for sale were computed based on
amortized costs, excluding the effects of SFAS No. 115 adjustments.(3)
    
    Nonaccruing loans and leases, and loans held for sale have been included
in the computations of average loan and lease balances.(4)
    
    Interest income for loans and leases included loan fees of $32.6 million
and $46.8 million for the nine months ended September 30, 2004 and 2003,
respectively. 27




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 
 Noninterest Income The following tables reflect the key components of noninterest income for
the three and nine months ended September 30, 2004, as compared with the same
period in 2003: Three Months Ended September 30,
    
    Change2004
    
    2003
    
    $
    
    %(Dollars in thousands)Service charges on deposit accounts
    
    $
    38,948
    
    
    $
    39,512
    
    
    $
    (564
    )
    
    
    (1.4
    )%Trust and investment services income
    
    
    9,654
    
    
    
    9,461
    
    
    
    193
    
    
    
    2.0Other service charges and fees
    
    
    37,757
    
    
    
    37,180
    
    
    
    577
    
    
    
    1.6Net gains on securities available for sale
    
    
    
    
    
    
    555
    
    
    
    (555
    )
    
    
    (100.0
    )Vehicle and equipment operating lease income
    
    
    6,112
    
    
    
    
    
    
    
    6,112
    
    
    
    Other
    
    
    12,350
    
    
    
    14,095
    
    
    
    (1,745
    )
    
    
    (12.4
    )Total noninterest income
    
    $
    104,821
    
    
    $
    100,803
    
    
    $
    4,018
    
    
    
    4.0
    %
 Nine Months Ended September 30,
    
    Change2004
    
    2003
    
    $
    
    %(Dollars in thousands)Service charges on deposit accounts
    
    $
    120,302
    
    
    $
    115,102
    
    
    $
    5,200
    
    
    
    4.5
    %Trust and investment services income
    
    
    30,010
    
    
    
    28,826
    
    
    
    1,184
    
    
    
    4.1Other service charges and fees
    
    
    111,802
    
    
    
    107,547
    
    
    
    4,255
    
    
    
    4.0Net gains on securities available for sale
    
    
    1,058
    
    
    
    3,913
    
    
    
    (2,855
    )
    
    
    (73.0
    )Vehicle and equipment operating lease income
    
    
    11,181
    
    
    
    
    
    
    
    11,181
    
    
    
    Other
    
    
    41,015
    
    
    
    43,403
    
    
    
    (2,388
    )
    
    
    (5.5
    )Total noninterest income
    
    $
    315,368
    
    
    $
    298,791
    
    
    $
    16,577
    
    
    
    5.5
    %
 Third quarter 2004 compared with third quarter 2003 The decrease in service charges on deposit accounts was primarily
attributed to lower servicing fee income as a result of repricing efforts in
account analysis, predominately offset by an increase in average deposit
balances of approximately 11.2% and higher fee income from overdraft and
nonsufficient fund transactions. The increase in vehicle and equipment operating lease income was due to
accounting for auto leases originated between February and August 2004 as
operating leases rather than direct finance leases. See Note 4 to the
Consolidated Financial Statements for additional information. The decrease in other noninterest income was primarily attributed to lower
income from the sale of loans in the Essex subsidiary as Essex continued to
retain loans in its portfolio rather than selling them, lower gains on the sale
of low-income housing investments, losses on the disposal of certain fixed
assets and reduced gains on the sale of residential loans. The decreases were
significantly offset by higher gains on the sale of other real estate
owned,
higher income from insurance investment products and the reclassification of
amortization related to low-income housing investments. 28




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Nine-month period 2004 compared with nine-month period 2003 The increase in service charges on deposit accounts was largely attributed
to an increase in average deposit balances of approximately 10.7% and higher
fee income from overdraft and nonsufficient fund transactions. The increase in other service charges and fees was predominately due to
higher credit card fees resulting from an increase in retail sales volume. Net gains on securities available for sale totaled $1.1 million, compared
with net gains of $3.9 million. The higher gains in 2003 were due to portfolio
restructuring activities. The increase in vehicle and equipment operating lease income was due to
accounting for auto leases originated between February and August 2004 as
operating leases rather than direct finance leases. The decrease in other noninterest income was significantly attributed to
reduced gains on the sale of residential loans, losses on the disposal of
certain fixed assets, and lower income from the sale of loans in the Essex
subsidiary as Essex continued to retain loans in its portfolio rather than
selling them, predominately offset by higher gains on the sale of a leveraged
lease. 
 Noninterest Expense The following tables reflect the key components of the changes in
noninterest expense for the three and nine months ended September 30, 2004 as
compared with the same period in 2003: Three Months Ended September 30,
    
    Change2004
    
    2003
    
    $
    
    %(Dollars in thousands)Personnel:Salaries and wages
    
    $
    87,575
    
    
    $
    87,364
    
    
    $
    211
    
    
    
    0.2
    %Employee benefits
    
    
    33,614
    
    
    
    32,996
    
    
    
    618
    
    
    
    1.9Total personnel expense
    
    
    121,189
    
    
    
    120,360
    
    
    
    829
    
    
    
    0.7Occupancy
    
    
    22,602
    
    
    
    22,239
    
    
    
    363
    
    
    
    1.6Outside services
    
    
    20,868
    
    
    
    20,718
    
    
    
    150
    
    
    
    0.7Intangible amortization
    
    
    5,763
    
    
    
    5,763
    
    
    
    
    
    
    
    Equipment
    
    
    11,911
    
    
    
    11,563
    
    
    
    348
    
    
    
    3.0Depreciation  vehicle and equipment operating leases
    
    
    5,260
    
    
    
    
    
    
    
    5,260
    
    
    
    Stationery and supplies
    
    
    6,032
    
    
    
    5,962
    
    
    
    70
    
    
    
    1.2Advertising and promotion
    
    
    6,535
    
    
    
    5,399
    
    
    
    1,136
    
    
    
    21.0Restructuring and integration costs
    
    
    5,761
    
    
    
    
    
    
    
    5,761
    
    
    
    Other
    
    
    28,575
    
    
    
    30,959
    
    
    
    (2,384
    )
    
    
    (7.7
    )Total noninterest expense
    
    $
    234,496
    
    
    $
    222,963
    
    
    $
    11,533
    
    
    
    5.2
    %
 29




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Nine Months Ended September 30,
    
    Change2004
    
    2003
    
    $
    
    %(Dollars in thousands)Personnel:Salaries and wages
    
    $
    254,462
    
    
    $
    256,265
    
    
    $
    (1,803
    )
    
    
    (0.7
    )%Employee benefits
    
    
    104,460
    
    
    
    107,770
    
    
    
    (3,310
    )
    
    
    (3.1
    )Total personnel expense
    
    
    358,922
    
    
    
    364,035
    
    
    
    (5,113
    )
    
    
    (1.4
    )Occupancy
    
    
    66,007
    
    
    
    67,153
    
    
    
    (1,146
    )
    
    
    (1.7
    )Outside services
    
    
    62,487
    
    
    
    62,858
    
    
    
    (371
    )
    
    
    (0.6
    )Intangible amortization
    
    
    17,290
    
    
    
    17,290
    
    
    
    
    
    
    
    Equipment
    
    
    35,366
    
    
    
    35,156
    
    
    
    210
    
    
    
    (0.6
    )Depreciation  vehicle and equipment operating leases
    
    
    10,164
    
    
    
    
    
    
    
    10,164
    
    
    
    Stationery and supplies
    
    
    18,351
    
    
    
    19,396
    
    
    
    (1,045
    )
    
    
    (5.4
    )Advertising and promotion
    
    
    19,314
    
    
    
    18,355
    
    
    
    959
    
    
    
    5.2Restructuring and integration costs
    
    
    8,515
    
    
    
    
    
    
    
    8,515
    
    
    
    Other
    
    
    88,273
    
    
    
    89,169
    
    
    
    (896
    )
    
    
    (1.0
    )Total noninterest expense
    
    $
    684,689
    
    
    $
    673,412
    
    
    $
    11,277
    
    
    
    1.7
    %
 Third quarter 2004 compared with third quarter 2003 The increase in employee benefits expense was primarily attributed to the
increases in accruals for the deferred compensation plan, healthcare and
workers compensation. The increase in depreciation on vehicle and equipment operating leases was
the result of vehicle depreciation costs incurred from the change in accounting
for auto leases originated between February and August 2004 as operating leases
rather than direct finance leases. See Note 4 to the Consolidated Financial
Statements for additional information. The increase in advertising and promotion expenses was primarily the
result of higher advertising expenses in 2004 related to certificate of deposit
campaigns and campaigns to promote brand recognition. The $5.8 million in restructuring and integration costs were related to
the acquisitions of Community First and USDB. The decrease in other noninterest expense was primarily the result of an
adjustment in the residual value of aircraft leveraged leases in 2003,
partially offset by higher fees due to increased transaction volume related to
airline branded credit cards. Nine-month period 2004 compared with nine-month period 2003 The decrease in employee benefits expense was primarily due to lower
pension and postretirement plan expense as a result of reduced costs from
consolidating benefit plans and lower recognized actuarial losses. The
decrease was partially offset by increases in healthcare, workers compensation
and accruals for the deferred compensation plan. The increase in depreciation in vehicle and equipment operating lease
expense was the result of vehicle depreciation costs incurred from the change
in accounting for auto leases originated between February and August 2004. The
$8.5 million in restructuring and integration costs were related to the
acquisitions of Community First and USDB. 30




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 
 OPERATING SEGMENTS Our operations are managed principally through our two major bank
subsidiaries, Bank of the West and First Hawaiian Bank. Bank of the West
operates primarily in California, Oregon, Washington, Idaho, New Mexico and
Nevada. It also conducts business nationally through its Consumer Finance
Segment as well as its Essex Credit Corporation and Trinity Capital
subsidiaries. First Hawaiian Banks primary base of operations is in Hawaii,
Guam and Saipan. It also has significant operations extending to California
through its automobile dealer flooring and financing activities. Bank of the West Regional Banking Third quarter 2004 compared with third quarter 2003 The Regional Banking Segments net income decreased $2.9 million, from
$36.5 million to $33.6 million. Net interest income decreased $3.4 million, or
2.7%. The decrease in net interest income was driven by lower transfer pricing
margins, offset by an increase in average loans. Noninterest income remained
flat with a decrease of 0.2%. Noninterest expense increased $4.8 million, or
4.5%. A major portion of the increase was due to increases in employee
healthcare benefits and debit card processing fees. The provision for loan and
lease losses decreased $3.5 million, or 81.4% due to the improved credit
quality of the loan and lease portfolio. The growth in average deposits of
7.6% was driven by core deposits. Nine-month period 2004 compared with nine-month period 2003 The Regional Banking Segments net income increased $4.9 million, from
$98.5 million to $103.4 million. Net interest income decreased $0.9 million,
or 0.2%. This decrease was driven by interest rate compression in the transfer
pricing for deposits and lower loan margins, despite increases in average loans
and deposits. Noninterest income increased $7.3 million, or 5.9%. The
increase was due to increases in investment sales fees and overdraft fees.
Noninterest expense increased $7.0 million, or 2.2%. The increase was
primarily due to increases in employee healthcare benefits and an increase in
occupancy related to two de novo branches. The provision for loan and lease
losses decreased $9.2 million, or 75.4% due to the improvement in the credit
quality of the loan and lease portfolio. The growth in average deposits of 6.7%
was driven by core deposits. Commercial Banking Third quarter 2004 compared with third quarter 2003 The Commercial Banking Segments net income increased $0.5 million, or
1.3% from $37.8 million to $38.3 million. Net interest income increased $2.8
million, or 3.5% from $78.9 million to $81.7 million. Noninterest income
increased $0.9 million, or 7.3%. The increase is due to higher non-yield
related loan fees, which were offset by decreases in SBA servicing income.
Noninterest expense increased $1.1 million, or 3.9%. The increase was due to
higher employee healthcare benefits, contracted services and allocated support
charges. The provision for loan and lease losses increased $0.9 million. Average loan and lease balances increased by 11.1% to $7.9 billion, due to
an increase in SBA loans and equipment leases. Average deposit balances
increased by 11.2% to $3.7 billion, due to an increase in core deposits. Nine-month period 2004 compared with nine-month period 2003 The Commercial Banking Segments net income remained flat at $113.6
million. Net interest income increased $3.2 million, or 1.4%. Noninterest
income increased $3.0 million, or 8.2%. The increase was due to favorable
variances in gains on sale of other real estate owned and prepayment penalty
charges. Noninterest expense decreased $0.3 million. The decrease was due to
higher deferred origination costs, offset by increases in employee healthcare
benefits. The provision for loan and lease losses increased by $5.1 million
from $(1.7) million, due to a large recovery in 2003. Average loan and lease balances increased by 8.8% to $7.6 billion, due to
an increase in SBA loans and equipment leases. Average deposit balances
increased by 13.1% to $3.5 billion, due to an increase in core deposits. 31




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Consumer Finance Third quarter 2004 compared with third quarter 2003 The Consumer Finance Segments net income was $24.0 million compared with
$16.7 million. Net interest income was $52.5 million, compared with $53.0
million, a decrease of 0.9 %. Noninterest income increased to $7.5 million,
compared with $2.9 million. Noninterest expense increased from $14.8 million
to $21.6 million. The Consumer Finance Segment remains very competitively priced in the
indirect lending market. Net interest income remained relatively flat.
Noninterest income was favorably impacted as a result of recording payments on
certain auto leases as rental income between February and August 2004. The
provision for loan and lease losses decreased due to improved credit quality in
the consumer loan and lease portfolio. These favorable variances were
partially offset by lower gains on sales of loans as a result of Essex
retaining certain of the loans it originates. Noninterest expense increased by
45.9% to $21.6 million, primarily due to an increase in employee salaries and
healthcare benefits and an increase in depreciation expense as a result of the
accounting for vehicle leases as operating leases. Average assets were $8.7 billion compared with $7.8 billion, an increase
of 11.6%. This increase is partially due to increased indirect loan
production. Nine-month period 2004 compared with nine-month period 2003 The Consumer Finance Segments net income was $56.8 million, compared with
$45.0 million. Net interest income was $156.7 million, compared with $153.4
million, an increase of 2.2%. Noninterest income increased $7.6 million, or
83.5%. The increase in noninterest income was substantially due to the change
in accounting for vehicle operating leases. The increase is offset by lower
gains on sales of loans through our Essex subsidiary. Noninterest expense
increased from $45.3 million to $59.1 million. A significant portion of the
increase in noninterest expense was due to employee salaries and healthcare
benefits and depreciation expense as a result of the accounting for certain
vehicle leases as operating leases. Average assets were $8.4 billion compared with $7.4 billion, an increase
of 13.1%. This increase is partially due to increased indirect loan
production. The provision for credit losses decreased $18.8 million due to an
improvement in credit quality. First Hawaiian Bank Retail Banking Third quarter 2004 compared with third quarter 2003 The Retail Banking Segments net income increased to $20.3 million, up
$2.9 million, or 16.7%. Net interest income increased $5.2 million, or 8.9%,
partially due to higher balances in earning assets. Noninterest income
decreased $0.3 million, or 2.0%. Noninterest expense increased $0.6 million, or
1.4%. The provision for loan and lease losses decreased $0.1 million, or 7.7%.
The decrease in the provision for loan and lease losses was a result of
improved credit quality which has led to a decrease in nonperforming assets and
lower net charge offs. Average assets increased 10.8% to $3.8 billion, primarily due to increases
in loans of $375 million. Average deposits increased 8.8% to $7.2 billion,
primarily due to an increase in core deposits. Nine-month period 2004 compared with nine-month period 2003 The Retail Banking Segments net income increased to $53.6 million, up
$1.7 million, or 3.3%. Net interest income increased $6.3 million, or 3.7%.
Net interest income increased partially due to higher balances in earning
assets. Noninterest income increased $0.8 million, or 1.9%. Noninterest
expense increased $4.0 million, or 3.2%. Noninterest expense increased due to
higher allocated expenses, partially offset by a decrease in occupancy expense
corresponding to the purchase of the First Hawaiian Center in December 2003.
The provision for loan and lease losses decreased $1.2 million, or 25.0%. The
decrease in the provision for loan and lease losses was a result of improved
credit quality which has led to a decrease in nonperforming assets and lower
net charge offs. 32




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Average assets increased 10.9% to $3.7 billion, partly due to increases in
loans. Average assets also increased due to the purchase of the First Hawaiian
Center in December 2003. Average deposits increased 8.1% to $7.0 billion,
partly due to an increase in core deposits. Consumer Finance Third quarter 2004 compared with third quarter 2003 Consumer Finances net income increased to $9.3 million, up $0.5 million,
or 5.7%. Net interest income was $22.0 million compared with $21.3 million, an
increase of 3.3%. Noninterest income increased $1.1 million, or 16.7%. The
increase was caused by larger gains on the sale of mortgages in the
third quarter
of 2004. Noninterest expense increased by $0.1 million or 0.9%. The provision
for loan and lease losses increased $0.3 million, or 12.5%. Average assets increased 11.2% to $1.5 billion, partly due to increases in
consumer and dealer flooring loans. Nine-month period 2004 compared with nine-month period 2003 Consumer Finances net income decreased to $27.5 million, down $0.8
million, or 2.8%. Net interest income was $65.2 million compared with $60.0
million, an increase of 8.7%. This was the result of increased interest income
on higher loan balances. Noninterest income decreased $4.5 million, or 16.9%.
The decrease was caused by lower gains on the sale of mortgages in 2004, due to
higher sales occurring in the first half of 2003. Noninterest expense
increased $0.4 million, or 1.2%, primarily due to an increase in branded
partner fees in 2004. The provision for loan and lease losses decreased $0.1
million, or 1.4%. The decrease reflects lower net charge-offs and improved
credit quality. Average assets increased 7.3% to $1.5 billion, partly due to increases in
consumer and dealer flooring loans. Commercial Banking Third quarter 2004 compared with third quarter 2003 Commercial Bankings net income increased to $3.6 million, up $0.7
million, or 24.1%. Net interest income decreased $2.5 million, or 28.7%. A
significant portion of the decrease was due to lower earning assets.
Noninterest income decreased $2.4 million, or 61.5%, primarily due to gains on
sales of low-income housing investments and equipment in July 2003 and a $0.7
million net gain on sale of the net investment in a lease in September 2003.
Noninterest expense decreased $2.5 million, or 53.2%, primarily due to a
reduction in net investment of a certain leveraged lease in September 2003.
The provision for loan and lease losses decreased $4.2 million, or 97.7%,
primarily due to the allocated charge-off of a commercial loan in September
2003. Average assets decreased 2.1% to $1.1 billion. Nine-month period 2004 compared with nine-month period 2003 Commercial Bankings net income increased to $16.3 million, up $0.5
million, or 3.2%. Net interest income decreased $3.0 million, or 11.8%,
partially due to lower earning assets. Noninterest income increased $1.3
million, or 12.4%, partly due to a $6.9 million fee on the sale of a
lease in the second quarter 2004, partially offset by a $4.1 million net gain
on sale of the net investment in a lease and a gain on sale of low-income
housing investments in 2003. Noninterest expense increased $0.3 million, or
3.2%. The provision for loan and lease losses decreased $4.0 million, or
93.0%, predominately due to the charge-off of a commercial loan in September
2003. Average assets decreased 3.3% to $1.1 billion. 33




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Financial Management Third quarter 2004 compared with third quarter 2003 The Financial Management Segments net income of $1.0 million decreased
$0.1 million from 2003. Noninterest expense increased by $0.2 million, or
3.3%. Nine-month period 2004 compared with nine-month period 2003 The Financial Management Segments net income of $2.2 million increased
$0.1 million from 2003. Noninterest income increased by $0.1 million.
Noninterest expense decreased by $0.2 million. 
 SECURITIES AVAILABLE FOR SALE The Company focuses on the following four objectives for its
available-for-sale portfolio:  
    
    Support its need for liquidity to fund loans or to meet
unexpected deposit runoff. Liquidity can be met by having investments
with relatively short maturities and/or a high degree of
marketability.
    
    Act as a vehicle to make meaningful shifts in the Companys overall interest rate risk profile.
    
    Provide collateral to secure the Companys public funds-taking activities.
    
    Provide the maximum level of after-tax earnings consistent with
the safety factors of quality, maturity, marketability and risk
diversification. The recent increases in the investment portfolio are directly related to
strong deposit growth and slow loan growth in certain loan categories. 34




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Amortized cost and fair value of securities available for sale were as
follows: September 30, 2004
    
    December 31, 2003Amortized
    
    Unrealized
    
    Unrealized
    
    
    
    
    
    Amortized
    
    Unrealized
    
    UnrealizedCost
    
    Gains
    
    Losses
    
    Fair Value
    
    Cost
    
    Gains
    
    Losses (1)
    
    Fair Value(in thousands)U.S. Treasury and other U.S. Government
agencies and corporations
    
    $
    1,909,822
    
    
    $
    5,671
    
    
    $
    (4,908
    )
    
    $
    1,910,585
    
    
    $
    1,588,359
    
    
    $
    14,110
    
    
    $
    (2,256
    )
    
    $
    1,600,213Mortgage and asset-backed securities:Government agencies
    
    
    2,484,734
    
    
    
    18,602
    
    
    
    (22,651
    )
    
    
    2,480,685
    
    
    
    2,356,615
    
    
    
    23,397
    
    
    
    (23,879
    )
    
    
    2,356,133Other
    
    
    555,164
    
    
    
    3,884
    
    
    
    (1,607
    )
    
    
    557,441
    
    
    
    691,466
    
    
    
    7,990
    
    
    
    (1,425
    )
    
    
    698,031Collateralized mortgage obligations
    
    
    1,168,343
    
    
    
    1,875
    
    
    
    (9,075
    )
    
    
    1,161,143
    
    
    
    1,066,679
    
    
    
    2,611
    
    
    
    (8,119
    )
    
    
    1,061,171State and political subdivisions
    
    
    7,700
    
    
    
    399
    
    
    
    (57
    )
    
    
    8,042
    
    
    
    15,925
    
    
    
    355
    
    
    
    (61
    )
    
    
    16,219Other
    
    
    51,714
    
    
    
    
    
    
    
    (1,787
    )
    
    
    49,927
    
    
    
    41,367
    
    
    
    173
    
    
    
    (628
    )
    
    
    40,912Total securities available for sale
    
    $
    6,177,477
    
    
    $
    30,431
    
    
    $
    (40,085
    )
    
    $
    6,167,823
    
    
    $
    5,760,411
    
    
    $
    48,636
    
    
    $
    (36,368
    )
    
    $
    5,772,679
   [Continued from above table, first column(s) repeated] September 30, 2003Amortized
    
    Unrealized
    
    UnrealizedCost
    
    Gains
    
    Losses (1)
    
    Fair Value(in thousands)U.S. Treasury and other U.S. Government
agencies and corporations
    
    $
    1,463,688
    
    
    $
    17,331
    
    
    $
    (1,425
    )
    
    $
    1,479,594Mortgage and asset-backed securities:Government agencies
    
    
    2,175,235
    
    
    
    24,661
    
    
    
    (20,476
    )
    
    
    2,179,420Other
    
    
    675,311
    
    
    
    10,220
    
    
    
    (1,025
    )
    
    
    684,506Collateralized mortgage obligations
    
    
    880,570
    
    
    
    3,121
    
    
    
    (7,884
    )
    
    
    875,807State and political subdivisions
    
    
    15,601
    
    
    
    328
    
    
    
    (105
    )
    
    
    15,824Other
    
    
    41,737
    
    
    
    261
    
    
    
    (265
    )
    
    
    41,733Total securities available for sale
    
    $
    5,252,142
    
    
    $
    55,922
    
    
    $
    (31,180
    )
    
    $
    5,276,884
   (1)
    
    At December 31, 2003 and September 30, 2003, the Company held no
securities that had been in a continuous unrealized loss position for 12
months or more. The following table presents the unrealized gross losses and fair value of
securities in the securities available for sale portfolio at September 30,
2004, by length of time that individual securities in each category have been
in a continuous loss position. Because the declines in fair value were a
result of changes in market interest rates and the Company has both the ability
and the intent to hold the securities until maturity or the fair value at least
equals the recorded cost, no other-than-temporary impairment was recorded at
September 30, 2004. September 30, 2004Less Than 12 Months
    
    12 Months or More
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedLosses
    
    Fair Value
    
    Losses
    
    Fair Value
    
    Losses
    
    Fair Value(in thousands)U.S. Treasury and other U.S. Government
agencies and corporations
    
    $
    (4,503
    )
    
    $
    894,035
    
    
    $
    (405
    )
    
    $
    32,500
    
    
    $
    (4,908
    )
    
    $
    926,535Mortgage and asset-backed securities:Government agencies
    
    
    (20,959
    )
    
    
    1,107,025
    
    
    
    (1,692
    )
    
    
    103,361
    
    
    
    (22,651
    )
    
    
    1,210,386Other
    
    
    (1,297
    )
    
    
    332,925
    
    
    
    (310
    )
    
    
    28,555
    
    
    
    (1,607
    )
    
    
    361,480Collateralized mortgage obligations
    
    
    (8,393
    )
    
    
    829,698
    
    
    
    (682
    )
    
    
    61,428
    
    
    
    (9,075
    )
    
    
    891,126States and political subdivisions
    
    
    (46
    )
    
    
    1,007
    
    
    
    (11
    )
    
    
    397
    
    
    
    (57
    )
    
    
    1,404Other
    
    
    (1,787
    )
    
    
    38,998
    
    
    
    
    
    
    
    
    
    
    
    (1,787
    )
    
    
    38,998Total securities available for sale
    
    $
    (36,985
    )
    
    $
    3,203,688
    
    
    $
    (3,100
    )
    
    $
    226,241
    
    
    $
    (40,085
    )
    
    $
    3,429,929
 35




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Gross realized gains and losses on securities available for sale for the
periods indicated were as follows: Three Months Ended September 30,
    
    Nine Months Ended September 30,2004
    
    2003
    
    2004
    
    2003(in thousands)Realized gains
    
    $
    
    
    
    $
    555
    
    
    $
    1,059
    
    
    $
    3,913Realized losses
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    Realized net gains
    
    $
    
    
    
    $
    555
    
    
    $
    1,058
    
    
    $
    3,913
 
 LOANS AND LEASES The following table sets forth the loan and lease portfolio by major
categories at September 30, 2004, December 31, 2003 and September 30, 2003: September 30, 2004
    
    December 31, 2003
    
    September 30, 2003Amount
    
    %
    
    Amount
    
    %
    
    Amount
    
    %(Dollars in thousands)Commercial, financial and agricultural
    
    $
    4,651,392
    
    
    
    16.7
    %
    
    $
    4,492,319
    
    
    
    17.5
    %
    
    $
    4,446,197
    
    
    
    17.6
    %Real estate:Commercial
    
    
    5,342,901
    
    
    
    19.2
    
    
    
    5,146,077
    
    
    
    20.0
    
    
    
    5,023,284
    
    
    
    19.9Construction
    
    
    1,158,581
    
    
    
    4.2
    
    
    
    952,818
    
    
    
    3.7
    
    
    
    919,115
    
    
    
    3.6Residential
    
    
    5,808,934
    
    
    
    20.8
    
    
    
    5,019,625
    
    
    
    19.5
    
    
    
    5,032,068
    
    
    
    19.9Total real estate loans
    
    
    12,310,416
    
    
    
    44.2
    
    
    
    11,118,520
    
    
    
    43.2
    
    
    
    10,974,467
    
    
    
    43.4Consumer
    
    
    8,398,732
    
    
    
    30.2
    
    
    
    7,344,620
    
    
    
    28.6
    
    
    
    7,124,576
    
    
    
    28.2Lease financing
    
    
    2,094,814
    
    
    
    7.5
    
    
    
    2,417,310
    
    
    
    9.4
    
    
    
    2,365,395
    
    
    
    9.4Foreign loans
    
    
    376,728
    
    
    
    1.4
    
    
    
    349,310
    
    
    
    1.3
    
    
    
    353,902
    
    
    
    1.4Total loans and leases
    
    $
    27,832,082
    
    
    
    100
    %
    
    $
    25,722,079
    
    
    
    100
    %
    
    $
    25,264,537
    
    
    
    100
    %Less allowance for loan and lease losses
    
    
    386,091
    
    
    
    
    
    
    
    391,699
    
    
    
    
    
    
    
    390,194Net loans and leases
    
    $
    27,445,991
    
    
    
    
    
    
    $
    25,330,380
    
    
    
    
    
    
    $
    24,874,343Total loans and leases to:Total assets
    
    
    67.2
    %
    
    
    
    
    
    
    67.1
    %
    
    
    
    
    
    
    67.5
    %Total interest earning assets
    
    
    79.4
    %
    
    
    
    
    
    
    79.5
    %
    
    
    
    
    
    
    80.1
    %Total deposits
    
    
    98.0
    %
    
    
    
    
    
    
    97.4
    %
    
    
    
    
    
    
    97.5
    %
 We continue to diversify our loan and lease portfolio, both geographically
and by industry. Our overall growth in loan and lease volume came primarily
from our Mainland United States operations. The loan and lease portfolio is
the largest component of earning assets and accounts for the greatest portion
of total interest income. There was a $2.6 billion, or 10.2%, increase in total
loans and leases from September 30, 2003 and a $2.1 billion, or 8.2% increase
compared with December 31, 2003. The decrease in lease financing was due to
the change in the accounting for auto leases originated between February and
August 2004 as operating leases rather than direct finance leases. See Note 4
to the Consolidated Financial Statements for additional information. When comparing the current period with September 30, 2003, there was an
increase of $1.3 billion, or 17.9%, in consumer loans. Consumer loans consist
primarily of open- and closed-end direct and indirect loans for automobile,
recreational vehicle, marine, and household purchases. Total real estate loans
increased $1.3 billion or 12.2% from September 30, 2003 primarily from
purchases of residential loans and growth in commercial real estate lending. The increase in total loans and leases from December 31, 2003 to September
30, 2004 was mainly driven by increases in residential real estate and consumer
lending. Total real estate loans increased $1.2 billion, or 10.7%, and
consumer loans increased $1.1 billion, or 14.4%, in the period ending September
30, 2004 compared with December 31, 2003. The increase in residential loans
was a result of purchases. Our portfolio of consumer loans has increased as a
result of the Companys competitive position within this market. Loan concentrations are considered to exist when there are amounts loaned
to multiple borrowers engaged in similar activities, which would cause them to
be similarly impacted by economic or other conditions. At September 30, 2004,
we did not have a 36




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS concentration of loans greater than 10% of total loans which is not
otherwise disclosed as a category of loans as shown in the table above. Loan related off-balance-sheet commitments were as follows at September 30
for the years indicated: Notional/Contract Amount2004
    
    2003(Dollars in thousands)Contractual Amounts Which Represent Credit Risk:Commitments to extend credit
    
    $
    8,660,308
    
    
    $
    7,741,817Standby letters of credit
    
    
    693,823
    
    
    
    792,910Commercial letters of credit
    
    
    65,870
    
    
    
    69,751
 
 NONPERFORMING ASSETS AND RESTRUCTURED LOANS Nonperforming assets for the periods indicated were as follows: September 30, 2004
    
    December 31, 2003
    
    September 30, 2003(Dollars in thousands)Nonperforming Assets:Nonaccrual:Commercial, financial and agricultural
    
    $
    42,929
    
    
    $
    66,100
    
    
    $
    89,698Real estate:Commercial
    
    
    41,976
    
    
    
    41,508
    
    
    
    40,694Residential
    
    
    5,987
    
    
    
    8,176
    
    
    
    8,132Total real estate loans
    
    
    47,963
    
    
    
    49,684
    
    
    
    48,826Consumer
    
    
    2,659
    
    
    
    3,634
    
    
    
    2,083Lease financing
    
    
    6,410
    
    
    
    8,038
    
    
    
    12,047Foreign
    
    
    4,703
    
    
    
    6,341
    
    
    
    7,210Total nonaccrual loans and leases
    
    
    104,664
    
    
    
    133,797
    
    
    
    159,864Other real estate owned and repossessed personal property
    
    
    17,235
    
    
    
    17,387
    
    
    
    19,237Total nonperforming assets
    
    $
    121,899
    
    
    $
    151,184
    
    
    $
    179,101Past due
loans and leases (1):Commercial, financial and agricultural
    
    $
    18,647
    
    
    $
    17,545
    
    
    $
    15,792Real estate:Commercial
    
    
    435
    
    
    
    7,410
    
    
    
    6,226Residential
    
    
    849
    
    
    
    1,084
    
    
    
    1,833Total real estate loans
    
    
    1,284
    
    
    
    8,494
    
    
    
    8,059Consumer
    
    
    2,246
    
    
    
    2,559
    
    
    
    2,536Lease financing
    
    
    
    
    
    
    127
    
    
    
    72Foreign
    
    
    700
    
    
    
    651
    
    
    
    213Total past due loans and leases
    
    $
    22,877
    
    
    $
    29,376
    
    
    $
    26,672Accruing Restructured Loans and leases:Commercial, financial and agricultural
    
    $
    41
    
    
    $
    60
    
    
    $
    33Commercial real estate
    
    
    432
    
    
    
    1,616
    
    

    
    1,637Total accruing restructured loans and leases
    
    $
    473
    
    
    $
    1,676
    
    
    $
    1,670Nonperforming assets to total loans and leases and other real estate owned and
repossessed personal property (end of period):Excluding past due loans and leases
    
    
    0.44
    %
    
    
    0.59
    %
    
    
    0.71
    %Including past due loans and leases
    
    
    0.52
    
    
    
    0.70
    
    
    
    0.81Nonperforming assets to total assets (end of period):Excluding past due loans and leases
    
    
    0.29
    
    
    
    0.39
    
    
    
    0.48Including past due loans and leases
    
    
    0.35
    
    
    
    0.47
    
    
    
    0.55
   (1)
    
    Represents loans and leases which are past due 90 days or more as to
principal or interest, are still accruing interest, are adequately
collateralized and in the process of collection. Nonperforming assets at September 30, 2004 decreased by $57.2 million, or
31.9 %, from September 30, 2003 and decreased $29.3 million, or 19.4%, from
December 31, 2003. The decrease in nonaccrual loans from the previous year was
primarily due to resolution of problem relationships in commercial lending and
decreases in nonaccrual commercial, financial and agricultural loans and lease
financing. Foreign nonperforming assets decreased at September 30, 2004 by $2.5
million, or 34.8%, from September 30, 2003. 37




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS We generally place a loan or lease on nonaccrual status when we believe
that collection of principal or interest has become doubtful or when loans and
leases are 90 days past due as to principal or interest, unless they are well
secured and in the process of collection. We may make an exception to the
general 90-day-past-due rule when the fair value of the collateral exceeds our
recorded investment in the loan. While the majority of consumer loans and leases are subject to our general
policies regarding nonaccrual loans, certain past-due consumer loans and leases
are not placed on nonaccrual status because they are charged off upon reaching
a predetermined delinquency status varying from 120 to 180 days, depending on
product type. When we place a loan or lease on nonaccrual status, previously accrued and
uncollected interest is reversed against interest income of the current period.
When we receive a cash interest payment on a nonaccrual loan, we apply it as a
reduction of the principal balance when we have doubts about the ultimate
collection of the principal. Otherwise, we record such payments as interest
income. Nonaccrual loans and leases are generally returned to accrual status when
they: (1) become current as to principal and interest and have demonstrated a
sustained period of payment performance or (2) become both well secured and in
the process of collection. Loans past due 90 days or more and still accruing interest totaled $22.9
million at September 30, 2004, a decrease of $6.5 million or 22.1%, from
December 31, 2003, and a decrease of $3.8 million, or 14.2%, from September 30,
2003. The decrease at September 30, 2004 compared with December 31, 2003 was
primarily due to a decline in past due real estate loans partially offset by an
increase in past due commercial, financial and agricultural loans. The decrease
at September 30, 2004 compared with September 30, 2003 was primarily due to a
decline in past due real estate loans, partially offset by an increase in past
due commercial, financial and agricultural loans. All of the loans that are
past due 90 days or more and still accruing interest are, in our judgment,
adequately collateralized and in the process of collection. 38




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 
 PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES The following table sets forth the activity in the allowance for loan and
lease losses for the periods indicated: Three Months Ended September 30,
    
    Nine Months Ended September 30,2004
    
    2003
    
    2004
    
    2003(Dollars in thousands)Allowance for loan and lease losses:Balance at beginning of period
    
    $
    396,101
    
    
    $
    391,518
    
    
    $
    391,699
    
    
    $
    384,081Provision for loans and lease losses
    
    
    10,600
    
    
    
    24,145
    
    
    
    41,365
    
    
    
    65,695Loans and leases charged off:Commercial, financial and agricultural
    
    
    7,173
    
    
    
    13,344
    
    
    
    11,488
    
    
    
    33,213Real estate:Commercial
    
    
    1,242
    
    
    
    216
    
    
    
    2,331
    
    
    
    1,270Residential
    
    
    28
    
    
    
    161
    
    
    
    102
    
    
    
    757Consumer
    
    
    14,804
    
    
    
    12,658
    
    
    
    41,870
    
    
    
    41,769Lease financing
    
    
    7,797
    
    
    
    5,833
    
    
    
    17,282
    
    
    
    18,930Foreign
    
    
    186
    
    
    
    537
    
    
    
    1,357
    
    
    
    1,896Total loans and leases charged off
    
    
    31,230
    
    
    
    32,749
    
    
    
    74,430
    
    
    
    97,835Recoveries on loans and leases previously charged off:Commercial, financial and agricultural
    
    
    4,050
    
    
    
    2,156
    
    
    
    8,922
    
    
    
    23,017Real estate:Commercial
    
    
    90
    
    
    
    87
    
    
    
    270
    
    
    
    288Construction
    
    
    35
    
    
    
    34
    
    
    
    103
    
    
    
    98Residential
    
    
    284
    
    
    
    256
    
    
    
    760
    
    
    
    864Consumer
    
    
    3,671
    
    
    
    2,986
    
    
    
    10,281
    
    
    
    8,897Lease financing
    
    
    2,383
    
    
    
    1,648
    
    
    
    6,661
    
    
    
    4,642Foreign
    
    
    107
    
    
    
    113
    
    
    
    460
    
    
    
    447Total recoveries on loans and leases previously charged off
    
    
    10,620
    
    
    
    7,280
    
    
    
    27,457
    
    
    
    38,253Net charge-offs
    
    
    (20,610
    )
    
    
    (25,469
    )
    
    
    (46,973
    )
    
    
    (59,582
    )Balance at end of period
    
    $
    386,091
    
    
    $
    390,194
    
    
    $
    386,091
    
    
    $
    390,194Net loans and leases charged off to average loans and leases(1)
    
    
    0.30
    %
    
    
    0.40
    %
    
    
    0.24
    %
    
    
    0.33
    %Net loans and leases charged off to allowance for loan and
lease losses(1)
    
    
    21.24
    
    
    
    25.90
    
    
    
    16.25
    
    
    
    20.42Allowance for loan and lease losses to total loans and
leases (end of period)
    
    
    1.39
    
    
    
    1.54
    
    
    
    1.39
    
    
    
    1.54Allowance for loan and lease losses to nonaccruing loans and
leases (end of period):Excluding 90 days past due accruing loans and leases
    
    
    3.69
    x
    
    
    2.44
    x
    
    
    3.69
    x
    
    
    2.44
    xIncluding 90 days past due accruing loans and leases
    
    
    3.03
    x
    
    
    2.09
    x
    
    
    3.03
    x
    
    
    2.09
    x
   (1)
    
    Annualized. The provision for loan and lease losses is based upon our judgment as to
the adequacy of the allowance for loan and lease losses (the Allowance) to
absorb probable losses inherent in the portfolio as of the balance sheet date.
The Company uses a systematic methodology to determine the adequacy of the
Allowance and related provision for loan and lease losses to be reported for
financial statement purposes. The determination of the adequacy of the
Allowance is ultimately one of judgment, which includes consideration of many
factors, including, among other things, the amount of problem and potential
problem loans and leases, net charge-off experience, changes in the composition
of the loan and lease portfolio by type and location of loans and leases,
change in the overall loan and lease risk profile, general economic factors and
the fair value of collateral. Our approach to managing exposure to credit risk involves an integrated
program of setting appropriate standards for credit underwriting and
diversification, monitoring trends that may affect the risk profile of the
credit portfolio and making appropriate adjustments to reflect changes in
economic and financial conditions that could affect the quality of the
portfolio and loss probability. The components of this integrated program
include: 39




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##### Table of Contents



BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS  
    
    Setting Underwriting and Grading Standards.Our loan grading system uses ten different principal risk categories where 1 is
no risk and 10 is loss. We continue efforts to decrease our exposure to customers in the weaker credit categories. The
cost of credit risk is an integral part of the pricing and evaluation of credit decisions and the setting of portfolio
targets.
    
    Diversification.We actively manage our credit portfolio to avoid excessive concentration by obligor, risk grade, industry,
product and geographic location. As part of this process, we also monitor changes in risk correlation among concentration
categories. In addition, we seek to reduce our exposure to concentrations by actively participating portions of our
commercial and commercial real estate loans to other banks.
    
    Risk Mitigation.We manage our exposure to higher risk areas through application of prudent underwriting policies.
    
    Participation in Syndicated National Credits.In addition to providing back-up commercial paper facilities to primarily
investment-grade companies, we participate in media finance credits in the national market. We are in the process of
decreasing our participation in syndicated national credits as part of a planned reduction.
    
    Emphasis on Consumer Lending.Consumer loans represent our single largest category of loans and leases. We focus our
consumer lending activities on loan grades with what we believe are predictable loss rates. As a result, we are able to use
formula-based approaches to calculate appropriate reserve levels that reflect historical loss experience. We generally do
not participate in subprime lending activities. We also seek to reduce our credit exposures where feasible by obtaining
third-party insurance or similar protections. For example, in our vehicle finance lease portfolio (which represents
approximately 42.6% of our lease financing portfolio and 8.5% of our combined lease financing and consumer loans at
September 30, 2004), we obtain third-party insurance for the estimated residual value of the leased vehicle, and set aside
reserves to cover the uninsured portion. Compared with the same period a year ago, net charge-offs were $12.6
million lower in the nine months ended September 30, 2004. While an
improvement in credit quality resulted in lower charge-offs, primarily in the
commercial, financial and agricultural category, recoveries were higher in
2003. This was the result of a $13.6 million dispute resolution with UFJ Bank
Ltd. of Japan in conjunction with charge-offs that were disputed during the
acquisition of United California Bank in 2002. See Note 2 to the Consolidated
Financial Statements in the 2003 Form 10-K for further information. In our judgment, the Allowance was adequate to absorb losses inherent in
the loan and lease portfolio at September 30, 2004. However, changes in
prevailing economic conditions in our markets could result in changes in the
level of nonperforming assets and charge-offs in the future and, accordingly,
changes in the Allowance. We will continue to closely monitor economic
developments and make necessary adjustments to the Allowance accordingly. 
 DEPOSITS Deposits are the largest component of our total liabilities and account
for 46.1% of total interest expense during the quarter ended September 30,
2004. At September 30, 2004, total deposits were $28.4 billion, an increase of
7.6% over December 31, 2003 and an increase of 9.6% over September 30, 2003.
The increase was primarily due to growth in our customer deposit base,
primarily in Bank of the West. In recent periods, rates paid on deposits were
reflective of a lower interest rate environment. However, as evidenced in the
third quarter 2004, rates paid on deposits have increased slightly based on new
market conditions. Additional information on our average deposit balances and
rates paid is provided in Table 1: Average Balances, Interest Income and
Expense, and Yields and Rates (Taxable-Equivalent Basis). 40




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BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 
 CAPITAL Stockholders equity totaled $4.6 billion at September 30, 2004, an
increase of $320.2 million, or 7.5%, from December 31, 2003 and $425.5 million,
or 10.2%, from September 30, 2003. The increases were primarily due to net
income earned by the Company during the nine months of 2004, partially offset
by net unrealized losses on securities available-for-sale and cash flow hedges. Capital adequacy regulations require the Companys depository institution
subsidiaries to maintain minimum amounts of Tier 1 Capital and Total Capital
and minimum ratios of Tier 1 Capital and Total Capital to risk-weighted assets,
respectively, and of Tier 1 Capital to average assets (leverage). These amounts
and ratios as of September 30, 2004 are set forth below: To Be WellCapitalizedUnder PromptFor Required
    
    Corrective ActionActual
    
    Minimum Capital
    
    ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Tier 1 Capital to Risk-WeightedAssets:Bank of the West
    
    $
    2,753,593
    
    
    
    10.88
    %
    
    $
    1,012,265
    
    
    
    4.00
    %
    
    $
    1,518,397
    
    
    
    6.00
    %First Hawaiian Bank
    
    
    936,606
    
    
    
    13.75
    
    
    
    272,442
    
    
    
    4.00
    
    
    
    408,663
    
    
    
    6.00Total Capital to Risk-WeightedAssets:Bank of the West
    
    $
    3,267,943
    
    
    
    12.91
    %
    
    $
    2,024,529
    
    
    
    8.00
    %
    
    $
    2,530,662
    
    
    
    10.00
    %First Hawaiian Bank
    
    
    1,092,250
    
    
    
    16.04
    
    
    
    544,885
    
    
    
    8.00
    
    
    
    681,106
    
    
    
    10.00Tier 1 Capital to AverageAssets:Bank of the West
    
    $
    2,753,593
    
    
    
    9.55
    %
    
    $
    1,152,833
    
    
    
    4.00
    %
    
    $
    1,441,041
    
    
    
    5.00
    %First Hawaiian Bank
    
    
    936,606
    
    
    
    10.36
    
    
    
    361,757
    
    
    
    4.00
    
    
    
    452,197
    
    
    
    5.00
 We elected to become a financial holding company in 2001. Because of this
election, only our depository institution subsidiaries are subject to various
regulatory capital requirements administered by the Federal banking agencies.
If these subsidiaries fail to meet minimum capital requirements, the Federal
agencies can initiate certain mandatory actions. Such regulatory actions could
have a material effect on the Companys financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, our depository institution subsidiaries must each meet
specific capital guidelines that involve quantitative measures of their assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. These capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors. 
 INCOME TAXES Our effective income tax rates (exclusive of the tax equivalent
adjustment) for the nine months ended September 30, 2004 and 2003 were 38.7%
and 38.1%, respectively. Lease-in/lease-out (LILO) transactions have recently been subject to
review on a nationwide basis by the Internal Revenue Service (IRS) to determine
whether the tax deductions connected with such transactions are allowable for
U.S. federal income tax purposes. The Company has entered into several LILO
transactions, which have been the subject of an audit by the IRS. In April
2004, the Company received a Revenue Agents Report (RAR) which disallowed all
deductions associated with the LILO transactions. In order to avoid potential
future interest and penalties, the Company has paid, under protest, the
amounts claimed by the IRS and other tax authorities in the RAR. The Company
continues to believe that it properly reported its LILO transactions and will
contest the results of the IRSs audit. At the present time, the Company
cannot predict the outcome of this issue. 41




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BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 
 LIQUIDITY MANAGEMENT Liquidity refers to our ability to provide sufficient short- and long-term
cash flows to fund operations and to meet obligations and commitments,
including depositor withdrawals and debt service, on a timely basis at
reasonable costs. We achieve our liquidity objectives with both assets and
liabilities. Further, while liquidity positions are managed separately by the
Company and its two subsidiary banks, both short-term and long-term activities
are coordinated between the two subsidiary banks. We obtain short-term, asset-based liquidity through our investment
securities portfolio and short-term investments which can be readily converted
to cash. These liquid assets consist of cash and due from banks,
interest-bearing deposits in other banks, federal funds sold, trading assets,
securities purchased under agreements to resell, securities available for sale
and loans held for sale. Such assets represented 20.4% of total assets at
September 30, 2004, compared with 20.9% at December 31, 2003 and 20.1% at
September 30, 2003. Intermediate- and longer-term asset liquidity is primarily provided by
regularly scheduled maturities and cash flows from our loans and investment
securities. Additional liquidity is available from certain assets that can be
sold, securitized or used as collateral for borrowings from the Federal Home
Loan Bank such as consumer and mortgage loans. We obtain short-term, liability-based liquidity primarily from deposits.
Average total deposits for the nine months ended September 30, 2004 increased
by 10.7% from the same period in 2003, to $27.3 billion, primarily due to
continued expansion of our customer base in the Western United States. Average
total deposits funded 69.2%, 69.4%, and 69.5 % of average total assets for the
nine months ended September 30, 2004, year ended December 31, 2003, and nine
months ended September 30, 2003, respectively. We also obtain short-term and long-term liquidity from ready access to
regional and national wholesale funding sources, including purchasing federal
funds, selling securities under agreements to repurchase, lines of credit from
other banks and credit facilities from the Federal Home Loan Bank. The
following table reflects immediately available borrowing capacity at the
Federal Reserve Discount Window and the Federal Home Loan Bank and securities
available for selling under repurchase agreements: September 30,2004
    
    2003(in millions)Federal Reserve Discount Window
    
    $
    626
    
    
    $
    484Federal Home Loan Bank
    
    
    1,291
    
    
    
    1,922Securities Available for Repurchase Agreements
    
    
    3,225
    
    
    
    2,775Total
    
    $
    5,142
    
    
    $
    5,181
 Offshore deposits in the international market provide another available
source of funds. Funds taken in the intermediate- and longer-term markets are structured to
avoid concentration of maturities and to reduce refinancing risk. We also
attempt to diversify the types of instruments issued to avoid undue reliance on
any one market or funding source. Liquidity for the parent company is primarily provided by dividend and
interest income from its subsidiaries. Short-term cash requirements are met
through liquidation of short-term investments. Longer-term liquidity is
provided by access to the capital markets or from transactions with BNP
Paribas. Our ability to pay dividends depends primarily upon dividends and other
payments from our subsidiaries, which are subject to certain limitations as
described in Note 16 to the Audited Consolidated Financial Statements included
in the Companys 2003 Annual Report on Form 10-K. 42




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BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Our borrowing costs and ability to raise funds are a function of our
credit ratings and any change in those ratings. The following table reflects
the ratings of Bank of the West and First Hawaiian Bank as of September 30,
2004: Bank of the West/First Hawaiian BankShort-Term Deposit
    
    Long-Term DepositMoodys
    
    
    P-1
    
    
    Aa3S & P
    
    
    A-1
    
    
    
    A+Fitch, Inc.
    
    
    F1+
    
    
    AA-
 Cash Flows The following is a summary of our cash flows for the nine months ended
September 30, 2004 and 2003. (There is more detail in the Consolidated
Statements of Cash Flows.) Nine Months Ended September 30,2004
    
    2003(in thousands)Net cash used in investing activities
    
    $
    2,984,432
    
    
    $
    2,716,989Net cash provided by operating and
financing activities
    
    $
    3,042,816
    
    
    $
    2,619,046
 The increase in cash and cash equivalents for the nine months ended
September 30, 2004 was primarily due to an increase in deposits and long-term
debt. 
 RECENT ACCOUNTING STANDARDS We have adopted numerous new or modified standards, rules or regulations
promulgated by various standard setting and regulatory bodies. Chief among
these are the federal financial institutions regulators, the SEC and the FASB.
The following section highlights important developments in the area of
accounting and disclosure requirements. This discussion is not intended to be a
comprehensive listing of the impact of all standards and rules adopted. On July 16, 2004, the FASB ratified the decisions reached by the Emerging
Issues Task Force (EITF) with respect to Issue 02-14, Whether the Equity Method
of Accounting Applies When an Investor Does Not Have an Investment in Voting
Stock of an Investee but Exercises Significant Influence through Other Means.
The EITF reached a consensus that an investor should apply the equity method of
accounting when it has investments in either common stock or in-substance
common stock of a corporation, provided that the investor has the ability to
exercise significant influence over the operating and financial policies of the
investee. In-substance common stock, as defined in the consensus, is an
investment that has risk and reward characteristics, among other factors, that
are substantially the same as common stock. The equity method of accounting
must be applied for all investments in which the investor exercises significant
influence over the investee and that qualify as in-substance common stock for
reporting periods beginning after September 15, 2004. We do not anticipate the
adoption will have a material effect on our financial statements. In June 2004, the EITF 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments(EITF 03-1) was
published. EITF 03-1 clarifies the impairment methodology used to determine
when an investment is considered impaired, whether that impairment is other
than temporary, and the measurement of an impairment loss. The guidance
includes accounting considerations subsequent to the recognition of an
other-than-temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as other-than-temporary
impairments. EITF 03-1 applies to all investments accounted for in accordance
with the provisions of SFAS 115, certain debt and equity securities within the
scope of Statement 124, and equity securities that are not subject to the scope
of Statement 115 and not accounted for under the equity method of accounting. On September 30, 2004, the FASB staff published FASB Staff Position (FSP)
EITF 03-1-1. FSP EITF 03-1-1 delays the effective date for the measurement and
recognition guidance contained in Paragraphs 10-20 of EITF Issue No. 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments,while the FASB considers application guidance. We will evaluate
any new guidance on the above mentioned paragraphs upon final issuance. 43




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BancWest Corporation and Subsidiaries
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS On March 9, 2004 the SEC released Staff Accounting Bulletin No. 105,
Application of Accounting Principles to Loan Commitments (SAB 105), which
provides guidance pertaining to interest rate locks of loan commitments
accounted for as derivative instruments. It states that cash flows pertaining
to mortgage servicing should not be included in the value of the derivative.
We account for such rate locks in accordance with SAB 105. In December 2003, the Accounting Standards Executive Committee of the
AICPA issued Statement of Position No. 03-3 (SOP 03-3), Accounting for
Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3 addresses the
accounting for differences between the contractual cash flows and the cash
flows expected to be collected from purchased loans or debt securities if those
differences are attributable, in part, to credit quality. SOP 03-3 requires
purchased loans and debt securities to be recorded initially at fair value
based on the present value of the cash flows expected to be collected with no
carryover of any valuation allowance previously recognized by the seller.
Interest income should be recognized based on the effective yield from the cash
flows expected to be collected. To the extent that the purchased loans
experience subsequent deterioration in credit quality, a valuation allowance
would be established for any additional cash flows that are not expected to be
received. However, if more cash flows subsequently are expected to be received
than originally estimated, the effective yield would be adjusted on a
prospective basis. SOP 03-3 will be effective for loans and debt securities
acquired after December 31, 2004. The Company anticipates that the
implementation of SOP 03-3 will require significant operational changes to
track credit related losses on loans purchased starting in 2005. We are still
assessing the impact it will have on the Consolidated Financial Statements. In December 2003, the FASB issued FAS No. 132 (revised 2003) Employers
Disclosures about Pensions and Other Postretirement Benefits(FAS 132 (revised
2003)), an amendment of FASB Statements No. 87, Employers Accounting for
Pensions,No. 88, Employers Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits,and No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions. This
Statement retains the disclosure requirements contained in FASB Statement No.
132, Employers Disclosures about Pensions and Other Postretirement Benefits,
which it replaces. It requires additional disclosures to those in the original
FAS 132 about describing the types of plan assets, investment strategy,
measurement date(s), plan obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other defined benefit postretirement
plans. This Statement amends APB Opinion No. 28, Interim Financial Reporting,
to require interim-period disclosure of the components of net periodic benefit
cost and, if significantly different from previously disclosed amounts, the
amounts of contributions and projected contributions to fund pension plans and
other postretirement benefit plans. This Statement is effective for fiscal
years ending after December 15, 2003. The interim-period disclosures required
by this Statement are effective for interim periods beginning after December
15, 2003. Disclosure of information about foreign plans and estimated future
benefit payments required by FAS 132 (revised 2003) shall be effective for
fiscal years ending after June 15, 2004. The adoption of FAS 132 (revised
2003) required enhanced disclosure and did not impact our consolidated
financial statements. On December 8, 2003 President Bush signed the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the Act). The Act introduces a
prescription drug benefit under Medicare as well as a federal subsidy to plan
sponsors that provide a benefit that is at least equivalent to Medicare. On
May 19, 2004, the Financial Accounting Standards Board (FASB) issued staff
Position 106-2, Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003.There was no
impact on the Companys consolidated financial statements. 44




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BancWest Corporation and Subsidiaries
QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk Measurement and Management Interest rate risk, one of the leading risks in terms of potential
earnings impact, is an essential element of being a financial intermediary.
The Companys net interest income is subject to interest rate risk to the
extent our interest-bearing liabilities (primarily deposits and borrowings)
mature or reprice on a different basis than its interest-earning assets
(primarily loans, leases and investment securities). When interest-bearing
liabilities mature or reprice more quickly than interest-earning assets during
a given period, an increase in interest rates could reduce net interest income.
Similarly, when interest-earning assets mature or reprice more quickly than
interest-bearing liabilities, a decrease in interest rates could have a
negative impact on net interest income. In addition, the impact of interest
rate swings may be exacerbated by factors such as our customers propensity to
manage their demand deposit balances more or less aggressively or to refinance
mortgage and other consumer loans. Short and long-term market rates may change
independently of each other resulting in changes to the slope and absolute
level of the yield curve. The Asset/Liability Committees of the Company and our major subsidiaries
are responsible for managing interest rate risk. The Asset/Liability Committees
generally meet monthly or quarterly. The committees may recommend changes to a
particular subsidiarys interest rate profile to their respective Board of
Directors, should changes be necessary or if the subsidiarys interest rate
profile depart significantly from established policies. Our exposure to interest rate risk is managed primarily by taking actions
that impact certain balance sheet accounts (e.g., lengthening or shortening
maturities in the investment portfolio, changing asset and/or liability mix -
including increasing or decreasing the amount of fixed and/or variable
instruments held by the Corporation) and/or utilizing instruments such as
interest rate swaps, caps, floors, options or forwards. Derivatives entered into for trading purposes include commitments to
purchase and sell foreign currencies as well as certain interest rate swaps and
options. We also enter into customer accommodation interest rate swaps and
foreign exchange spot and forward contracts as well as contracts to offset
either the customers counter-position or our foreign currency denominated
deposits. These contracts basically offset each other and they do not expose
us to material losses resulting from interest rate or foreign currency
fluctuations. The Company and its subsidiaries use computer simulation models to
evaluate net interest income in order to quantify exposure to changes in
interest rates. Generally, we use a dynamic modeling method which projects
balance sheet growth which is then subjected to interest rate shocks up in
100-basis-point increments and down in 50 basis-point increments. Each
account-level item is repriced according to its respective contractual
characteristics, including any embedded options which might exist (e.g.,
periodic interest rate caps or floors or loans and leases which permit the
borrower to prepay the principal balance of the loan or lease prior to maturity
without penalty). Derivative financial instruments such as interest rate swaps,
caps or floors are included as part of the modeling process. For each interest
rate shock scenario, net interest income over a 12-month horizon is compared
against the results of a scenario in which no interest rate change occurs (flat
rate scenario) to determine the level of interest rate risk at that time. The projected impact of incremental increases and decreases in interest
rates on the projected Companys consolidated net interest income over the 12
months beginning October 1, 2004 is shown below. +3%
    
    +2%
    
    +1%
    
    Flat
    
    -0.5%
    
    -1%(Dollars in millions)Net interest income
    
    $
    1,337.9
    
    
    $
    1,358.4
    
    
    $
    1,360.3
    
    
    $
    1,350.9
    
    
    $
    1,323.3
    
    
    $
    1,311.0Difference from flat
    
    
    (13.0
    )
    
    
    7.5
    
    
    
    9.4
    
    
    
    
    
    
    
    (27.6
    )
    
    
    (39.9
    )% variance
    
    
    (1.0
    )%
    
    
    0.6
    %
    
    
    0.7
    %
    
    
    
    %
    
    
    (2.0
    )%
    
    
    (3.0
    )%
 Because of the absolute low level of interest rates in 2004, modeling a
200-basis-point decrease was deemed impractical. The changes in the models are
due to differences in interest rate environments which include the absolute
level of interest rates, the shape of the yield curve, and spreads between
various benchmark rates. 45




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BancWest Corporation and Subsidiaries
QUANTATIVE AND QUALITATIVE DISCLOSURES AMOUNT MARKET RISK Significant Assumptions Utilized and Inherent Limitations The net interest income changes for each interest rate scenario presented
above include assumptions based on accelerating or decelerating mortgage and
non-mortgage consumer loan prepayments in declining or rising scenarios,
respectively, and adjusting deposit levels and mix in the different interest
rate scenarios. The magnitude of changes to both areas in turn are based upon
analyses of customers behavior in differing rate environments. However, these
analyses may differ from actual future customer behavior. For example, actual
prepayments may differ from current assumptions as prepayments are affected by
many variables which cannot be predicted with certainty (e.g., prepayments of
mortgages may differ on fixed and adjustable loans depending upon current
interest rates, expectations of future interest rates, availability of
refinancing, economic benefit to borrower, financial viability of borrower,
etc.). As with any model for analyzing interest rate risk, certain limitations
are inherent in the method of analysis presented above. For example, the actual
impact on net interest income due to certain interest rate shocks may differ
from those projections presented should market conditions vary from assumptions
used in the analysis. Furthermore, the analysis does not consider the effects
of a changed level of overall economic activity that could exist in certain
interest rate environments. Moreover, the method of analysis used does not take
into account the actions that management might take to respond to changes in
interest rates because of inherent difficulties in determining the likelihood
or impact of any such response. The following estimated net fair value amounts of interest rate
derivatives held for trading purposes have been determined by the Company using
available market information and appropriate valuation methodologies: September 30, 2004Expected MaturityGrossNet Fair
    
    Positive
    
    Notional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AfterInterest Rate Contracts
    
    Value
    
    Value
    
    Amount
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    2008(Dollars in thousands)Pay-Fixed Swaps:Contractual Maturities
    
    $
    (15,279
    )
    
    $
    1,371
    
    
    $
    654,107
    
    
    $
    383
    
    
    $
    102,364
    
    
    $
    28,247
    
    
    $
    35,430
    
    
    $
    87,264
    
    
    $
    400,419Weighted Avg. Pay Rates
    
    
    
    
    
    
    
    
    
    
    4.32
    %
    
    
    3.42
    %
    
    
    3.66
    %
    
    
    4.54
    %
    
    
    5.50
    %
    
    
    4.08
    %
    
    
    4.72
    %Weighted Avg. Receive Rates
    
    
    
    
    
    
    
    
    
    
    1.61
    %
    
    
    1.59
    %
    
    
    1.63
    %
    
    
    1.62
    %
    
    
    1.62
    %
    
    
    1.61
    %
    
    
    1.61
    %Receive-Fixed Swaps:Contractual Maturities
    
    
    21,838
    
    
    
    22,413
    
    
    
    654,107
    
    
    
    383
    
    
    
    102,364
    
    
    
    28,247
    
    
    
    35,430
    
    
    
    87,264
    
    
    
    400,419Weighted Avg. Pay Rates
    
    
    
    
    
    
    
    
    
    
    1.60
    %
    
    
    1.60
    %
    
    
    1.57
    %
    
    
    1.59
    %
    
    
    1.60
    %
    
    
    1.61
    %
    
    
    1.16
    %Weighted Avg. Receive Rates
    
    
    
    
    
    
    
    
    
    
    4.55
    %
    
    
    3.95
    %
    
    
    3.97
    %
    
    
    4.78
    %
    
    
    5.80
    %
    
    
    4.08
    %
    
    
    4.72
    %Pay-Fixed Swaps
(Forward Value Dated):Contractual Maturities
    
    
    (543
    )
    
    
    9
    
    
    
    43,026
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,026Weighted Avg. Pay Rates
    
    
    
    
    
    
    
    
    
    
    4.04
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.04
    %Weighted Avg. Receive Rates
    
    
    
    
    
    
    
    
    
    
    1.65
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.65
    %Receive-Fixed Swaps
(Forward Value Dated):Contractual Maturities
    
    
    1,385
    
    
    
    1,385
    
    
    
    43,026
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,026Weighted Avg. Pay Rates
    
    
    
    
    
    
    
    
    
    
    1.56
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.56
    %Weighted Avg. Receive Rates
    
    
    
    
    
    
    
    
    
    
    4.33
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.33
    %Caps/Collars:Contractual Maturities
    
    
    
    
    
    
    89
    
    
    
    260,871
    
    
    
    3,862
    
    
    
    240,299
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,710Weighted Avg. Strike Rates
    
    
    
    
    
    
    
    
    
    
    4.39
    %
    
    
    5.85
    %
    
    
    4.34
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.81
    %Weighted Floor Rates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total interest rate contracts
held for trading purposes
    
    $
    7,401
    
    
    $
    25,267
    
    
    $
    1,655,137
 46




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BancWest Corporation and Subsidiaries
CONTROLS AND PROCEDURES 
 Item 4. Controls and Procedures As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Companys management, including the Companys chief executive officer and its
chief financial officer, of the effectiveness of the design and operation of
the Companys disclosure controls and procedures (as defined in Exchange Act
Rule 13a-15(e)). Based upon that evaluation, its chief executive officer and
its chief financial officer concluded that the Companys disclosure controls
and procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to
be included in the Companys periodic SEC filings. No change in the Companys internal control over financial reporting was
identified in connection with the evaluation required by Exchange Act Rule
13a-15(d) or Rule 15d-15(d) during the Companys last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting. 47




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BancWest Corporation and Subsidiaries
CONTROLS AND PROCEDURES 
 PART II. OTHER INFORMATION 
 Item 6. Exhibits and Reports on Form 8-K
 The Exhibits listed below are filed or incorporated by reference as part of
this Report. (a)
    
    Exhibits12
    
    Statement regarding computation of ratios31
    
    Section 302 Certifications32
    
    Section 1350 Certifications(b)
    
    Reports on Form 8-K
    
    On July 14, 2004, the Company filed a Report on Form 8-K that
provided information under Items 7 and 12
concerning the Companys
financial results for the quarter ended June 30, 2004.
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SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. BANCWEST CORPORATIONDate: November 12, 2004
    
    By
    
    /s/ Douglas C. GrigsbyDouglas C. GrigsbyExecutive Vice President, ChiefFinancial Officer and Treasurer(principal financial officer)
 49