<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

(Mark One)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13D OR 15(d) OF THE SECURITIES 
         EXCHANGE ACT OF 1934
         [FEE REQUIRED]
                   For the fiscal year ended December 31, 1995
                                       OR
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
         EXCHANGE ACT OF 1934
         [NO FEE REQUIRED]
              For the transition period from__________to___________

                         Commission File Number 0-15508

                        HAWAII NATIONAL BANCSHARES, INC.
             (Exact name of registrant as specified in its charter)

                 HAWAII                                99-0250218
        (State of incorporation)            (IRS Employer Identification No.)
 45 NORTH KING STREET, HONOLULU, HAWAII                   96817
(Address of principal executive offices)                (Zip Code)

                                 (808) 528-7711
               Registrant's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                                 Name of Each Exchange on
Title of Each Class                                 on Which Registered
       None                                           Not Applicable

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                          Common Stock, $1.00 Par Value
                                (Title of Class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                                                      Yes  X    No
                                                          ---      ---

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]

         The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of February 29, 1996 was $3,172,356.

         The number of shares outstanding of each of the registrant's classes of
common stock as of February 29, 1996 was:

       Title of Class                               Number of Shares Outstanding
 Common Stock, $1 Par Value                                711,000 shares

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Proxy Statement relating to the Annual Meeting of
Shareholders to be held on April 16, 1996, are incorporated by reference under
Part III of this Report.
<PAGE>   2
                              CROSS REFERENCE SHEET

                     LOCATION IN DEFINITIVE PROXY STATEMENT
                         OF ITEMS REQUIRED BY FORM 10-K

<TABLE>
<CAPTION>
                           FORM 10-K                 DEFINITIVE PROXY STATEMENT

Part and                                                                                                   Page
Item No.                    Caption                              Caption                                  Numbers
--------                    -------                              -------                                  -------
<S>             <C>                                      <C>                                              <C>
PART III                                                 Definitive Proxy Statement

Item 10         Directors and Executive
                Officers of the Registrant               Election of Directors                              2-4

Item 11         Executive Compensation                   Executive Compensation                             5-9

Item 12         Security Ownership of                    Principal Shareholders and
                Certain Beneficial                       Ownership of Stock by Officers
                Owners and Management                    and Directors of Bancshares                      11-15

Item 13         Certain Relationships
                and Related Transactions                 Related Transactions                             10-11
</TABLE>
<PAGE>   3
                                     PART I

ITEM 1.  BUSINESS

DESCRIPTION OF BUSINESS

         Hawaii National Bancshares, Inc. ("Bancshares"), whose principal office
is maintained at 45 North King Street, Honolulu, Hawaii, is a Hawaii
corporation. Bancshares is a bank holding company whose wholly-owned subsidiary
is Hawaii National Bank ("HNB" or the "Bank"), a national banking association.

         The main office of the Bank is also located at 45 North King Street,
Honolulu, Hawaii. While the Bank's customer base covers the entire State of
Hawaii, the principal market areas are the county of Honolulu on the island of
Oahu, which currently is served by nine of the Bank's branches; the county of
Hawaii, which is served by a branch in Hilo; and the county of Maui, which is
served by branches in Kahului and Kihei. The area of the county of Hawaii served
by the Bank's Hilo branch includes the area from the ocean to Haihai to Komohana
and Waianuenue The area of the county of Maui served by the Bank's Kahului and
Kihei branches is located in the Wailuku, Kahului and Kihei corridor. (See ITEM
2. Properties).

         The principal components of Hawaii's economy are the tourism industry,
government expenditures, agriculture, construction, manufacturing, retailing,
wholesaling, and service businesses.

         HNB offers a full range of banking services to businesses as well as
individuals. These include personal and business checking accounts; savings
accounts; time deposits; automated teller equipment; commercial loans -
collateralized and uncollateralized; consumer loans for such things as
automobiles, household appliances, home improvements, and college aid; real
estate collateralized loans; bank credit cards; direct lease financing; foreign
exchange; commercial letters of credit; collections and discounts; safe deposit
boxes; travelers checks; money orders; cashier's checks; sale of United States
Savings Bonds; and night depository. The Bank does not have a trust department
and, therefore, does not perform any trust functions.

         HNB's ability to extend its existing branch banking system is subject
to approval by the Office of Comptroller of the Currency ("OCC") in compliance
with applicable Hawaii law. Currently, Hawaii law generally permits a bank to
branch anywhere in the State. In addition, Hawaii has no law permitting
interstate acquisitions, except in certain limited circumstances involving
troubled financial institutions. Recent federal legislation designed to expand
interstate branching and relax federal restrictions on interstate banking will
continue to be phased in over the next two years and may expand opportunities
for bank holding companies. Hawaii is currently considering legislation which
might limit interstate branching opportunities available under this federal
legislation. For a more detailed discussion of this federal legislation and
Hawaii's possible response, see the discussion following under the heading
"Supervision and Regulation - Bank - Recent Federal Banking Legislation -
Interstate Banking and Branching."
<PAGE>   4
COMPETITION

         The banking business in Hawaii is highly competitive. There are five
other commercial banks doing general banking business and six savings and loan
associations doing business in Hawaii. The Bank actively competes for business
with other banks, savings and loan associations, credit unions, and individual
loan companies within its market areas. In varying degrees, the Bank also faces
competition from other types of financially oriented institutions which are
either lenders of money or credit, or accept savings or other deposits.
Insurance companies, investment management service firms and other business
firms, and individuals actively compete with the Bank's mortgage loan services.
In addition, foreign (non-Hawaii) banks currently conduct banking activities,
also performed by banks in Hawaii, except for retail deposit-taking.

         As of December 31, 1995, HNB, with $268,233,000 in deposits,
$213,105,000 in loans, and $297,324,000 in total assets, ranked fifth among the
six commercial banks in Hawaii.

EMPLOYEES

         On December 31, 1995, HNB had 218 full-time employees and 8 part-time
employees. HNB considers its relations with its employees to be good.

SUPERVISION AND REGULATION

BANCSHARES

General

         As a bank holding company, Bancshares is subject to the Bank Holding
Company Act of 1956 ("BHCA"), as amended, which places Bancshares under the
supervision of the Board of Governors of the Federal Reserve System ("FRB"). In
general, the BHCA limits the business of bank holding companies to owning or
controlling banks and engaging in other activities related to banking. Certain
recent legislation designed to expand interstate branching and relax federal
restrictions on interstate banking will be phased in over the next two years and
may expand opportunities for bank holding companies (for additional information
see below under the heading "Bank - Recent Federal Banking Legislation -
Interstate Banking and Branching"). However, the impact of this legislation on
Bancshares is unclear at this time.

Holding Company Structure

         FRB Regulation. Bancshares must obtain the approval of the FRB prior
to: (i) acquiring direct or indirect ownership or control of any voting shares
of any bank if, after such acquisition, it would own or control, directly or
indirectly, more than 5% of the voting shares of such bank; (ii) before merging
or consolidating with another bank holding company; and (iii) before acquiring
substantially all of the assets of any additional banks. Until September 1995,
the BHCA also prohibited the acquisition by Bancshares of any such interest in
any bank or bank holding company located in a state other than Hawaii unless the
laws of the state in which such bank was located expressly authorized such
acquisition. Now, subject to certain state laws, such
<PAGE>   5
as age and contingency laws, a bank holding company that is adequately
capitalized and adequately managed may acquire the assets of an out-of-state
bank.

         Bancshares is required by the BHCA to file annual and quarterly reports
and such other reports as may be required from time to time by the FRB. In
addition, the FRB performs periodic examinations of Bancshares and its
subsidiary.

         Holding Company Control of Nonbanks. With certain exceptions, the BHCA
prohibits bank holding companies from acquiring direct or indirect ownership or
control of voting shares in any company which is not a bank or a bank holding
company unless the FRB determines that the activities of such company are so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. In making such determinations, the FRB considers whether the
performance of such activities by a bank holding company would offer advantages
to the public that would outweigh possible adverse effects. For example, the FRB
has by regulation determined activities such as, among others, operating an
industrial loan company, industrial bank, savings association, mortgage company,
finance company, trust company, credit card company or factoring company,
performing certain data processing operations, and providing investment and
financial advice, are so closely related to banking as to be a proper incident
thereto within the meaning of the BHCA. On the other hand, activities such as,
among others, real estate brokerage and syndication, land development, property
management, underwriting of life insurance not related to credit transactions,
and with certain exceptions, securities underwriting and equity funding, are not
so closely related to banking as to be a proper incident thereto within the
meaning of the BHCA. In the future, the FRB may from time to time add to or
delete from the list of activities permissible for bank holding companies.

         Transactions With Affiliates. Bancshares and its subsidiary will be
deemed affiliates within the meaning of the Federal Reserve Act and transactions
between affiliates are subject to certain restrictions. Covered transactions
include, subject to specific exceptions, loans by bank subsidiaries to
affiliates, investments by bank subsidiaries in securities issued by an
affiliate, the taking of such securities as collateral, and the purchase of
assets by a bank subsidiary from an affiliate. Bancshares and its subsidiary are
also subject to certain restrictions with respect to engaging in the
underwriting, public sale and distribution of securities.

         Tie-In Arrangements. Bancshares and its subsidiary are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, sale or lease of property or furnishing of services. For example, with
certain exceptions, neither Bancshares nor its subsidiary may condition an
extension of credit to a customer on either (i) a requirement that the customer
obtain additional services provided by it or (ii) an agreement by the customer
to refrain from obtaining other services from a competitor.

         State Law Restrictions. As a corporation chartered under the laws of
the State of Hawaii, Bancshares may also be subject to certain limitations and
restrictions as provided under applicable Hawaii corporate law.
<PAGE>   6
         Securities Registration and Reporting. The common stock of Bancshares
is registered as a class with the Securities and Exchange Commission ("SEC")
under the Securities Exchange Act of 1934 and thus is subject to the periodic
reporting and proxy solicitation requirements and the insider-trading
restrictions of that Act. The periodic reports, proxy statements, and other
information filed by Bancshares under that Act can be inspected and copied at or
obtained from the Washington, D.C., office of the SEC. In addition, the
securities issued by Bancshares are subject to the registration requirements of
the Securities Act of 1933 and applicable state securities laws unless
exemptions are available.

Control Transactions

         The Change in Bank Control Act of 1978, as amended, prohibits a person
or group of persons from acquiring "control" of a bank holding company unless
the FRB has been given 60 days' prior written notice of the proposed
acquisition, and within that time period, the FRB has not issued a notice
disapproving the proposed acquisition or extending for up to another 30 days the
period during which such disapproval may be issued. An acquisition may be made
prior to the expiration of the disapproval period if the FRB issues written
notice of its intent not to disapprove the action. Under a rebuttable
presumption established by the FRB, the acquisition of 10% or more of a class of
voting stock of a bank holding company with a class of securities registered
under Section 12 of the Exchange Act would, under the circumstances set forth in
the presumption, constitute the acquisition of control.

         In addition, any "company" would be required to obtain the approval of
the FRB under the BHCA before acquiring 25% (5% if the company is a bank holding
company) or more of the outstanding shares of Bancshares, or otherwise obtain
control over Bancshares.

BANK

General

         Despite some recent legislative initiatives to reduce regulatory
burdens, banking remains a highly regulated industry. Legislation enacted from
time to time may increase the cost of doing business, limit or expand
permissible activities, or affect the competitive balance between banks and
other financial and nonfinancial institutions. Proposals to change the laws and
regulations governing the operations and taxation of banks and other financial
institutions are frequently made in Congress, in state legislatures, and before
various bank regulatory agencies. In addition, there continues to be proposals
in Congress to restructure the banking system.

         Some of the significant areas of bank regulation are generally
discussed below.

Regulation of National Banks

         HNB, as a national banking association, is subject to primary
regulation and examination by the OCC. It is also subject to regulation by the
FRB and, to a more limited extent, by the Federal Deposit Insurance Corporation
("FDIC"). Federal statutes and regulations which govern HNB's operations relate
to required reserves against deposits, investments, loans, mergers and
consolidations, borrowings, issuance of securities, payment of dividends,
establishment of
<PAGE>   7
branches, and other aspects of its operations. The National Bank Act restricts
HNB to performing commercial banking business and engaging in activities deemed
to be incidental to the business of banking and provides that HNB may not invest
in equity securities, except in its fiduciary capacity. The OCC also has
authority to prohibit a national bank from engaging in what is considered to be
an unsafe and unsound business practice.

Regulation of Management

         Federal law: (i) sets forth circumstances under which officers or
directors of a bank may be removed by the institution's federal supervisory
agency; (ii) places restraints on lending by a bank to its executive officers,
directors, principal shareholders, and their related interests; and (iii)
prohibits management personnel of a bank from serving as a director or in other
management positions of another financial institution whose assets exceed a
specified amount or which has an office within a specified geographic area.

Control of Financial Institutions

         No person may acquire "control" of a bank unless the appropriate
federal agency has been given 60 days prior written notice and within that time
the agency has not disapproved the acquisition. Substantial monetary penalties
may be imposed for violation of the change in control or other provisions of
banking laws.

Recent Federal Banking Legislation

         Interstate Banking and Branching. The Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (the "Interstate Act") generally will, over
the next two years, permit nationwide interstate banking and branching. This
legislation generally authorizes interstate branching and relaxes federal law
restrictions on interstate banking. Subject to certain state laws, such as age
and contingency laws, the Interstate Act allows adequately capitalized and
adequately managed bank holding companies to purchase the assets of out-of-state
banks (effective as of September 29, 1995). Additionally, beginning June 1,
1997, the Interstate Act permits interstate bank mergers, subject to certain
state laws, such as age and contingency laws, unless the home state of either
merging bank has "opted-out" of these provisions by enacting "opt-out"
legislation. States may also "opt-in" to these bank merger provisions early by
enacting nondiscriminatory "opting-in" legislation permitting interstate mergers
within their own borders before June 1, 1997. The Interstate Act does allow
states to impose certain conditions on interstate bank mergers within their
borders; for example, states may impose age requirements of up to five years
before the interstate merger for the in-state merging bank. Under the Interstate
Act, states may also "opt-in" to de novo branching, allowing out-of-state banks
to establish de novo branches within the state.

         Legislation is currently pending in Hawaii which, if adopted as
proposed, would limit or impose certain restrictions on interstate mergers.
However, the extent and effect of this legislation cannot be predicted with
certainty at this time.
<PAGE>   8
         Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"). FDICIA was enacted into law in late 1991. As required by FDICIA,
numerous regulations have been adopted by federal bank regulatory agencies,
including the following: (i) federal bank regulatory authorities have
established five different capital levels for banks and, as a general matter,
enable banks with higher capital levels to engage in a broader range of
activities; (ii) the FRB has issued regulations requiring standardized
disclosures with respect to interest paid on deposits; (iii) the FDIC has
imposed restrictions on the acceptance of brokered deposits by weaker banks;
(iv) the FDIC has implemented risk-based deposit insurance premiums; and (v) the
FDIC has issued regulations requiring state chartered banks to comply with
certain restrictions with respect to equity investments and activities in which
the banks act as a principal.

         FDICIA recapitalized the Bank Insurance Fund ("BIF") and required the
FDIC to maintain the BIF and Savings Association Insurance Fund ("SAIF") at
1.25% of insured deposits by increasing deposit insurance premiums as necessary
to maintain such ratio. FDICIA also required federal bank regulatory authorities
to prescribe, by December 1, 1993, (i) non-capital standards of safety and
soundness; (ii) operational and managerial standards for banks; (iii) asset and
earnings standards for banks and bank holding companies addressing such areas as
classified assets, capital, and stock price; and (iv) standards for compensation
of executive officers and directors of banks. However, this provision was
modified by recent legislation to allow federal regulatory agencies to implement
these standards through either guidelines or regulations.

         The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"). FIRREA became effective on August 9, 1989. Among other things, this
far-reaching legislation: (i) phased in significant increases in the FDIC
insurance premiums paid by commercial banks; (ii) created two deposit insurance
pools within the FDIC, one to insure commercial bank and savings bank deposits
and the other to insure savings association deposits; (iii) for the first time,
permitted bank holding companies to acquire healthy savings associations; (iv)
permitted commercial banks that meet certain housing-related asset requirements
to secure advances and other federal services from their local Federal Home Loan
Banks; and (v) greatly enhanced the regulators' enforcement powers by removing
procedural barriers and sharply increasing the civil and criminal penalties for
violating statutes and regulations.

         Capital Adequacy Requirements. The FRB, the FDIC, and the OCC
(collectively, the "Federal Banking Agencies") have established uniform capital
requirements for all commercial banks. Certain bank holding companies, including
Bancshares, are also subject to similar capital requirements. Failure to achieve
and maintain adequate capital levels may give rise to supervisory action through
the issuance of a capital directive to ensure the maintenance of required
capital levels. In addition, banks are required to meet certain guidelines
concerning the maintenance of an adequate allowance for loan and lease losses.

         The Federal Banking Agencies' "risk-based" capital guidelines establish
a systematic, analytical framework that makes regulatory capital requirements
more sensitive to differences in risk profiles among banking organizations,
takes off-balance sheet exposures into explicit account in assessing capital
adequacy, and minimizes disincentives to holding liquid, low-risk assets. The
risk-based ratio is determined by allocating assets and specified off-balance
sheet commitments into several categories, with high levels of capital being
required for the categories
<PAGE>   9
perceived as representing greater risk. The risk weights assigned to assets and
credit equivalent amounts of off-balance sheet items are based primarily on
credit risk. Other types of exposure, such as interest rate, liquidity and
funding risks, as well as asset quality problems, are not factored into the
risk-based ratio. Such risks, however, will be taken into account in determining
a final assessment of an organization's capital adequacy. Under these
regulations, banks were required to achieve a minimum total risk-based capital
ratio of 8.0% and a minimum Tier 1 risk-based capital ratio of 4.0%.

         The Federal Banking Agencies also have adopted leverage ratio standards
that require commercial banks to maintain a minimum ratio of core capital to
total assets (the "Leverage Ratio") of 3.0%. Any institution operating at or
near this level is expected to have well- diversified risk, including no undue
interest rate risk exposure, excellent asset quality, high liquidity and good
earnings, and in general, to be a strong banking organization without any
supervisory, financial or operational weaknesses or deficiencies. Any
institutions experiencing or anticipating significant growth would be expected
to maintain capital ratios, including tangible capital positions, well above the
minimum levels (e.g., an additional cushion of at least 100 to 200 basis points,
depending upon the particular circumstances and risk profile).

         Regulations adopted by the Federal Banking Agencies as required by
FDICIA impose even more stringent capital requirements. The regulators require
the OCC and other Federal Banking Agencies to take certain "prompt corrective
action" when a bank fails to meet certain capital requirements. The regulations
establish and define five capital levels at which an institution is deemed to be
"well-capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." In order to be "well-
capitalized," an institution must maintain at least 10.0% total risk-based
capital, 6.0% Tier 1 risk-based capital and a 5.0% Leverage Ratio. Increasingly
severe restrictions are imposed on the payment of dividends and mortgage fees,
asset growth and other aspects of the operations of institutions that fall below
the category of being "adequately capitalized" (which requires at least 8.0%
total risk-based capital, 4.0% Tier 1 risk-based capital and a 4.0% Leverage
Ratio). Undercapitalized institutions are required to develop and implement
capital plans acceptable to the appropriate federal regulatory agency. Such
plans must require that any company that controls the undercapitalized
institution must provide certain guarantees that the institution will comply
with the plan until it is adequately capitalized. As of December 31, 1995,
neither Bancshares nor HNB were subject to any regulatory order, agreement, or
directive to meet and maintain a specific capital level for any capital measure.

         In August of 1995, the Federal Banking Agencies adopted a final rule
implementing the portion of Section 305 of FDICIA that requires the banking
agencies to revise their risk-based capital standards to ensure that those
standards take adequate account of interest rate risk. Effective September 1,
1995, when evaluating the capital adequacy of a bank, the Federal Banking
Agencies' examiners will consider exposure to declines in the economic value of
the bank's capital due to changes in interest rates. A bank may be required to
hold additional capital for interest rate risk if it has a significant exposure
or a weak interest rate risk management process. Concurrent with the publication
of this rule, the Federal Banking Agencies proposed for comment a joint policy
statement describing the process the Federal Banking Agencies will use to
measure and assess a bank's interest rate risk. As indicated by both the final
rule and the joint policy statement, the Federal Banking Agencies intend,
through a future proposed rule, to
<PAGE>   10
incorporate explicit minimum requirements for interest rate risk into their
risk-based capital standards. Although the Federal Banking Agencies have
indicated that they anticipate any proposed capital requirement would be based
on the measurement framework described in the joint policy statement, neither
the likelihood that the Federal Banking Agencies will in fact propose such a
rule nor the actual requirements or standards established by any such rule can
be predicted at this time. Furthermore, any impact the Federal Banking Agency
activities discussed above may have on Bancshares or HNB cannot be predicted at
this time.

FDIC Insurance

         Generally, customer deposit accounts in banks are insured by the FDIC
for up to a maximum amount of $100,000. The FDIC has adopted a risk-based
insurance assessment system. The risk classification is based on an assignment
of the institution by the FDIC to one of three capital groups and to one of
three supervisory subgroups. The capital groups are "well- capitalized,"
"adequately capitalized," and "undercapitalized." The three supervisory
subgroups are Group "A" (for financially sound institutions with only a few
minor weaknesses), Group "B" (for those institutions with weaknesses which, if
uncorrected, could cause substantial deterioration of the institution and
increase risk to the deposit insurance fund), and Group "C" (for those
institutions with a substantial probability of loss to the fund absent effective
corrective action).

         In August 1995, the FDIC published a rule that revised the current
range to a new assessment range of $0.04 to $0.31, thereby reducing premiums
that some banks would pay for deposit insurance. The actual rate paid by each
bank continued to depend on how much risk that bank posed to the BIF. The new
rates did not apply to savings associations whose deposits are insured by the
SAIF. Although this rule was effective September 15, 1995, the new rates took
effect retroactive to June 1, 1995, the first day of the month following the
month in which BIF's mandated reserve ratio of 1.25% was reached. The rule
included a mechanism for refunding to banks any excess premiums that were paid
after May 31, 1995.

         On November 14, 1995, the FDIC voted to reduce the assessment range
even further to $0.00 to $0.27 for the semiannual assessment period that began
January 1, 1996. The reduction represents a downward adjustment of $0.04 from
the BIF assessment rate promulgated in August of 1995.

EFFECTS OF GOVERNMENT MONETARY POLICY

         Bancshares and HNB are affected not only by general economic
conditions, but also by the monetary and fiscal policies of the United States
government and its various agencies, particularly the Federal Reserve Board. In
its role of implementing the national monetary policy, the Federal Reserve Board
has the power to regulate the national supply of bank credit through such
methods as open market operations in the United States government securities
market, control of the discount rate on bank borrowings, and establishment of
reserve requirements against bank deposits. These means are used in varying
combinations and have an influence over the growth of bank loans, investments,
and deposits. They may also affect interest rates charged on loans or paid on
deposits. The nature and timing of future changes in monetary policies and their
impact on HNB are not predictable. As a consequence of the
<PAGE>   11
extensive regulation of commercial banking activities in the United States,
HNB's business is particularly susceptible to being affected by Federal
legislation and regulations which may have the effect of increasing the cost of
doing business or limiting permissible activities.

STATISTICAL DISCLOSURES

         Guide 3 of the "Guides for the Preparation and Filing of Reports and
Registration Statements" under the Securities Exchange Act of 1934 sets forth
certain statistical disclosures in the "Description of Business" section of bank
holding company filings. The statistical information requested is presented in
the following tables. The tables and information contained therein have been
prepared by Hawaii National Bancshares, Inc. and have not been audited or
reported upon by Bancshares' independent certified public accountants.
<PAGE>   12
I.  DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES
    AND INTEREST DIFFERENTIAL

The following table shows the condensed consolidated average balance sheets, an
analysis of interest income/expense and the average yield/rate for each major
category of interest-bearing assets and interest-bearing liabilities at December
31 for the year indicated.

                  Hawaii National Bancshares, Inc. & Subsidiary
                                Table I-A and I-B
 Condensed Consolidated Average Balance Sheets, Interest Income and Expense, and
                                Yields and Rates
                                 (in thousands)

<TABLE>
<CAPTION>
                                                         1995                         1994                       1993
                                               -------------------------  ---------------------------  ---------------------------
                                                         INTEREST                    INTEREST                     INTEREST
                                               AVERAGE   INCOME/   YIELD/   AVERAGE  INCOME/   YIELD/   AVERAGE   INCOME/   YIELD/
                                               BALANCE   EXPENSE    RATE    BALANCE  EXPENSE   RATE     BALANCE   EXPENSE    RATE
                                               --------  --------  -----   --------  --------  -----   ---------  --------  -----
<S>                                            <C>       <C>       <C>     <C>       <C>       <C>     <C>        <C>       <C>
Earning assets:
   Interest-bearing deposits in other banks-
     Domestic                                  $    103  $     7   6.80%   $     79       $3   3.80%      $    -   $     -     -
     Foreign                                          -        -      -           -        -      -            -         -     -
   Federal funds sold and securities
     purchased under agreement to resell          9,482      555   5.85%     12,504      492   3.93%      23,912       721  3.02%
   Investment securities-
     Held-to-maturity                            43,772    2,301   5.26%     44,082    2,130   4.83%      43,350     2,503  5.77%
     Available-for-sale                           1,526       93   6.09%      1,155       24   2.08%           -         -     -
                                               --------  -------   ----    --------   ------   ----     --------   -------  ----
       Total investment securities               45,298    2,394   5.29%     45,237    2,154   4.76%      43,350     2,503  5.77%

   Assets held in trading account                     -        -      -           -        -      -            -         -     -
   Loans and leases-
     Domestic                                   215,492   19,684   9.13%    213,729   17,530   8.20%     217,025    17,709  8.16%
     Foreign                                          -        -      -           -        -      -            -         -     -
                                               --------  -------   -----   --------   ------   ----     --------   -------  ----
       Total loans & leases                     215,492   19,684   9.13%    213,729   17,530   8.20%     217,025    17,709  8.16%
                                               --------  -------   -----   --------  -------   ----     --------   -------  ----
         Total earning assets                   270,375  $22,640   8.37%    271,549  $20,179   7.43%     284,287   $20,933  7.36%
                                                         =======   =====             =======   ====                =======  ====
   Cash and due from banks                       15,844                      16,640                       17,677
   Premises and equipment                         4,271                       4,074                        4,363
   Other assets                                     813                         494                        3,429
                                               --------                    --------                     --------

         Total Assets                          $291,303                    $292,757                     $309,756
                                               ========                    ========                     ========
</TABLE>
<PAGE>   13
LIABILITIES AND
SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                          1995                         1994                       1993
                                               ----------------------------  -------------------------  --------------------------
                                                         INTEREST                     INTEREST                   INTEREST
                                               AVERAGE    INCOME/   YIELD/   AVERAGE   INCOME/  YIELD/  AVERAGE   INCOME/   YIELD/
                                               BALANCE    EXPENSE    RATE    BALANCE   EXPENSE   RATE   BALANCE   EXPENSE    RATE
                                               --------  ---------  ------  --------  --------  -----  --------  --------   ------
<S>                                            <C>       <C>        <C>     <C>       <C>       <C>    <C>       <C>        <C>  
Interest-bearing deposits and liabilities:
   Deposits -
     Interest-bearing demand                   $ 28,728   $   579    2.02%   $30,656      $583  1.90%  $ 32,490     $733    2.26%
     Savings                                    117,275     3,447    2.94%   123,257     2,915  2.36%   135,448    3,624    2.68%
     Time                                        57,615     2,923    5.07%    50,532     1,744  3.45%    53,553    1,661    3.10%
     Foreign                                          -         -       -          -         -     -          -        -        -
                                               --------   -------    ----   --------  --------  ----   --------  -------    ----
       Total interest-bearing deposits          203,618     6,949    3.41%   204,445     5,242  2.56%   221,491    6,018    2.72%
                                               --------   -------    ----   --------  --------  ----   --------  -------    ----

   Short-term borrowings-
     Domestic                                     2,506       156    6.23%     1,469        58  3.95%     1,577       45    2.85%
   Long-term debt-
     Domestic                                         -         -       -          -         -     -          -        -       -
                                               --------   -------    ----   --------  --------  ----   --------  -------    ----
       Total interest-bearing deposits
         and liabilities                        206,124     7,105    3.45%   205,914     5,300  2.57%   223,068    6,063    2.72%
                                                          -------    ----             --------  ----             -------    ----
   Noninterest-bearing demand deposits           56,066                       59,154                     56,670
   Other liabilities                              2,770                        1,899                      5,029
                                               --------                     --------                   --------
       Total Liabilities                        264,960                      266,967                    284,767
   Shareholders' Equity                          26,343                       25,790                     24,989
                                               --------                     --------                   --------

         Total Liabilities and
          Shareholders' Equity                 $291,303                     $292,757                   $309,756
                                               ========                     ========                   ========

         Net interest income and
          margin on earnings assets                       $15,535    5.75%             $14,879  5.48%            $14,870    5.23%
                                                          =======    ====             ========  ====             =======    ====
</TABLE>


<PAGE>   14
The following table sets forth the dollar amount of changes in interest income
and expense and the changes in dollar amounts attributable to (a) changes in
volume (change in volume times old rates), (b) changes in rate (change in rate
times new volume), and (c) changes in rate/volume (change in rate times change
in volume). In this table, the dollar change in rate/volume is prorated to
volume and rate proportionally. Nonaccruing loans have been included in
computation of average loans and leases.

                  Hawaii National Bancshares, Inc. & Subsidiary
                                    Table I-C
                 Analysis of Change in Interest Earned and Paid
                       Due to Changes in Volume and Rates
                             1995-1994 and 1994-1993
                                 (in thousands)

<TABLE>
<CAPTION>
                                                   1995 Compared to 1994            1994 Compared to 1993
                                                Increase (Decrease) Due to:       Increase (Decrease) Due to:
                                                -----------------------------     -----------------------------
                                                                       Net                               Net
                                                                     Increase                         Increase
                                                 Volume    Rate     (Decrease)    Volume    Rate     (Decrease)
                                                -------   -------   ---------     ------   -------   ----------
<S>                                             <C>       <C>       <C>           <C>      <C>       <C>  
Interest Earned on:
Interest-bearing deposits in other banks-
    Domestic                                     $   1     $    3      $    4     $   3    $     -     $   3
Federal funds sold and securities
    purchased under agreement to resell           (119)       182          63      (344)       115      (229)
Investment securities-
    Held-to-maturity                               (15)       186         171        42       (415)     (373)
    Available-for-sale                               8         61          69        24          -        24
                                                 -----     ------      ------     -----      -----     -----
           Total investment securities              (7)       247         240        66       (415)     (349)
                                                 -----     ------      ------     -----      -----     -----

Interest from trading account                        -          -           -         -          -         -
Loans and leases-
    Domestic                                       145      2,009       2,154      (269)        90      (179)
    Foreign                                          -          -           -         -          -         -
                                                 -----     ------      ------     -----      -----     -----

           Total loans and leases                  145      2,009       2,154      (269)        90      (179)
                                                 -----     ------      ------     -----      -----     -----

              Total interest income              $  20     $2,441      $2,461     $(544)     $(210)    $(754)
                                                 =====     ======      ======     =====      =====     =====
</TABLE>
<PAGE>   15
<TABLE>
<CAPTION>
                                                     1995 Compared to 1994                   1994 Compared to 1993
                                                   Increase (Decrease) Due to:             Increase (Decrease) Due to:
                                                 --------------------------------      ------------------------------------
                                                                          Net                                        Net
                                                                        Increase                                  Increase
                                                  Volume       Rate    (Decrease)       Volume        Rate       (Decrease)
                                                 ---------   -------   ----------      --------      ------       --------
<S>                                              <C>         <C>       <C>             <C>           <C>         <C>   
Interest Paid on:
     Deposits-
         Interest-bearing demand                   $ (37)     $   33    $    (4)        $ (41)        $(109)        $(150)
         Savings                                    (141)        673        532          (326)         (383)         (709)
         Time                                        244         935      1,179           (94)          177            83
         Foreign                                       -           -          -             -             -             -
                                                   -----      ------    -------         -----         -----         -----

            Total interest-bearing deposits           66       1,641      1,707          (461)         (315)         (776)
                                                              ------    -------         -----         -----         -----

     Short-term borrowings-
         Domestic                                     41          57         98            (3)           16            13
     Long-term debt-
         Domestic                                      -           -          -             -             -             -
                                                   -----      ------    -------         -----         -----         -----

            Total interest expense                   107       1,698      1,805          (464)         (299)         (763)
                                                   -----      ------    -------         -----         -----         -----

            Increase (decrease)
             in net interest income                $ (87)     $  743    $   656         $ (80)        $  89         $   9
                                                   =====      ======    =======         =====         =====         =====
</TABLE>
<PAGE>   16
II.  INVESTMENT SECURITIES PORTFOLIO

The following table presents the carrying value of the portfolio of investment
securities at December 31 of each of the past three years.

                  Hawaii National Bancshares, Inc. & Subsidiary

                                   Table II-A

                                 (in thousands)

<TABLE>
<CAPTION>
                                                         1995      1994      1993
                                                        -------   -------   -------
<S>                                                     <C>       <C>       <C>    
U.S. Treasury and Other U.S. Government Agencies        $44,993   $43,930   $43,017
States and Political Subdivisions                         1,000     1,000     1,000
Other                                                     1,497     1,489       420
                                                        -------   -------   -------

        Total                                           $47,490   $46,419   $44,437
                                                        =======   =======   =======
</TABLE>

The following table presents the maturities of investment securities excluding
securities which have no stated maturity at December 31, 1995, and the weighted
average yields. For obligations of states and political subdivisions whose
earnings are exempt from Federal income taxes, yields have been computed on a
taxable equivalent basis assuming a 34% tax rate. This tax equivalent adjustment
is made for items exempt from Federal income taxes to make them comparable with
taxable securities before any income taxes are applied.


                  Hawaii National Bancshares, Inc. & Subsidiary
                                   Table II-B
                                 (in thousands)

<TABLE>
<CAPTION>
                                                         After One       After Five
                                    Within              But Within       But Within             After
                                   One Year             Five Years        Ten Years           Ten Years          Total
                               Amount      Yield      Amount  Yield   Amount      Yield     Amount   Yield   Amount   Yield
                               -------    -------    -------  -----   -------    ------    -------  -------  ------   ------
<S>                            <C>        <C>        <C>      <C>     <C>        <C>       <C>      <C>      <C>      <C>
U.S. Treasury and Other U.S.                                                                                        
    Government Agencies        $25,999      5.22%   $18,994   6.02%        -          -         -        -  $44,993   5.56%
States and Political                                                                                                
    Subdivisions                 1,000     11.44%         -      -         -          -         -        -    1,000  11.44%
                               -------     -----    -------  -----   -------    -------   -------  -------  -------  -----
         Total                 $26,999      5.45%   $18,994   6.02%        -          -         -        -  $45,993   5.69%
                               =======     =====    =======  =====   =======    =======   =======  =======  =======  =====
</TABLE>
<PAGE>   17
At December 31, 1995, the Company had no investment securities with aggregate
carrying values exceeding 10% of shareholders' equity.



                 Hawaii National Bancshares, Inc. & Subsidiary
                                   Table II-C
                                 (in thousands)


<TABLE>
<CAPTION>
                                      Security     Carrying    Market
               Issuer                  Rating        Value      Value
               ------                 --------     --------   ---------
               <S>                    <C>          <C>        <C>
               --                        --           --         --
</TABLE>                                                    
<PAGE>   18
III.  LOAN AND LEASE PORTFOLIO

The following table presents the outstanding domestic loans and leases at
December 31 of each of the five years indicated.

                  Hawaii National Bancshares, Inc. & Subsidiary
                                   Table III-A
                                 (in thousands)

<TABLE>
<CAPTION>
                                         1995            1994            1993            1992            1991
                                       --------        --------        --------        --------        --------
<S>                                    <C>             <C>             <C>             <C>             <C>     
Real Estate
     Residential and commercial        $133,847        $138,264        $132,505        $130,982        $127,820
     Construction                         4,558           3,108           5,243           7,043           4,906

Loans to U.S. banks                           -               -               -               -               -
Commercial and industrial                66,021          67,484          66,188          66,373          68,041
Consumer*                                 7,255           7,076           7,923           9,239          10,653
All other loans                             248             241             266             302              72
Lease financing                           1,165           1,241           1,546           1,990           2,328
                                       --------        --------        --------        --------        --------

     Total Loans and Leases            $213,094        $217,414        $213,671        $215,929        $213,820
                                       ========        ========        ========        ========        ========
</TABLE>


Note: *Loans to individuals for household, family and other personal
expenditures.
<PAGE>   19
The following table presents maturity and interest rate sensitivity data for all
loans and leases except real estate - residential and commercial, consumer loans
and lease financing, at December 31, 1995.


                  Hawaii National Bancshares, Inc. & Subsidiary
                                   Table III-B
                           Loan and Lease Maturity and
                         Interest Rate Sensitivity Data
                                December 31, 1995
                                 (in thousands)

<TABLE>
<CAPTION>
                                                              After One         After
                                                One Year     Year through       Five
                                                 or Less      Five Years        Years         Total
                                                --------        -------        -------       --------
<S>                                             <C>             <C>            <C>           <C>     
Commercial and industrial                       $ 48,262        $17,131        $   628       $ 66,021

Real estate - construction                         4,558              -              -          4,558

Foreign                                                -              -              -              -
                                                --------        -------        -------       --------

                                                $ 52,820        $17,131        $   628         70,579

Real estate - residential and commercial                                                      133,847
Consumer                                                                                        7,255
All other loans                                                                                   248
Lease financing                                                                                 1,165
                                                                                             --------

      Total loans and leases                                                                 $213,094
                                                                                             ========


Loans with fixed or predetermined
  interest rates                                $ 10,192        $ 3,228        $   489       $ 13,909
                                                                                               
Loan with floating or adjustable                                                               
  interest rates                                  42,628         13,903            139         56,670
                                                --------        -------        -------       --------
                                                                                               
                                                $ 52,820        $17,131        $   628       $ 70,579
</TABLE>


<PAGE>   20
Risk Elements (See Management's Discussion and Analysis)

The following table presents information related to loans and leases accounted
for on a nonaccrual basis, accruing loans and leases which are contractually
past due ninety days or more as to principal and/or interest payments ("loans
past due 90 days or more") , and restructured loans and leases at December 31
for the years indicated.

                  Hawaii National Bancshares, Inc. & Subsidiary
                                 Table III-C(1)
             Nonaccrual, Past Due, and Restructured Loans and Leases
                                 (in thousands)

<TABLE>
<CAPTION>
                                                  1995         1994         1993          1992         1991
                                                 ------        ------        ----        ------        ----
<S>                                              <C>           <C>           <C>         <C>           <C> 
Nonaccrual loans and leases
      Domestic
         Real estate                             $5,142        $  771        $924        $    -        $513
         Commercial & industrial                  1,064           555           -             2           -
         Consumer                                     -             -           -             -           -
         All other loans                              -             -           -             -           -
         Lease financing                              -             -           -             -           -
      Foreign                                         -             -           -             -           -
                                                 ------        ------        ----        ------        ----
             Total                               $6,206        $1,326        $924        $    2        $513
                                                 ======        ======        ====        ======        ====

Loans and leases past due 90 days or more
      Domestic
         Real estate                             $  393        $  841        $439        $  836        $105
         Commercial & industrial                      -         1,365         169           238           5
         Consumer                                    21            35          26            20          13
         All other loans                              -             -           -             -           -
         Lease financing                              -             -           -             -           -
      Foreign                                         -             -           -             -           -
                                                 ------        ------        ----        ------        ----
             Total                               $  414        $2,241        $634        $1,094        $123
                                                 ======        ======        ====        ======        ====

Restructured loans and leases
      Domestic
         Real estate                             $    -        $    -        $  -        $    -        $  -
         Commercial & industrial                      -             -          52            61
         Consumer                                     -             -           -             -           -
         All other loans                              -             -           -             -           -
         Lease financing                              -             -           -             -           -
      Foreign                                         -             -           -             -           -
                                                 ------        ------        ----        ------        ----
             Total                               $    -        $    -        $ 52        $   61        $  -
                                                 ======        ======        ====        ======        ====
</TABLE>
<PAGE>   21
The following table presents information related to loans and leases on a
nonaccrual basis for the year ended December 31, 1995.

                Hawaii National Bancshares, Inc. and Subsidiary
                                 Table III-C(2)
                     Nonaccrual Loan and Lease Information
                          Year Ended December 31, 1995
                                 (in thousands)


<TABLE>
<CAPTION>
                                               Domestic     Foreign        Total
                                              ----------    -------        -----
<S>                                           <C>           <C>            <C>
Interest income which would have
       been recorded if loans and

       leases had been current                   $318          $ -         $318
                                                 ====          ===         ====
                                                          
Interest income recorded during                           
                                                          
       this period                               $  -          $ -         $  -
                                                 ====          ===         ====
</TABLE>                                                 


      Note: See Notes 1 and 5 to the consolidated financial statements and
                                Table III-C(1).

                Hawaii National Bancshares, Inc. and Subsidiary
                                 Impaired Loans
                               December 31, 1995
                                 (in thousands)

<TABLE>
<CAPTION>
                                      Present value of  
                                      expected future      Fair value of
                                         cash flows       loan's collateral       Total
                                      ----------------    -----------------       -----
<S>                                   <C>                 <C>                     <C>   
Real estate                                 $188               $4,369             $4,557
                                                                                
Commercial and industrial                    545                  982              1,527
                                            ----               ------             ------
                                                                                
       Total Impaired Loans                 $733               $5,351             $6,084
                                            ====               ======             ======
</TABLE>
                                                                           
<PAGE>   22
IV.     SUMMARY OF LOAN AND LEASE LOSS EXPERIENCE

The following table presents the Company's loan and lease loss experience at
December 31 for the years indicated.

                  Hawaii National Bancshares, Inc. & Subsidiary
                                   Table IV-A
                                   Year Ended
                                 (in thousands)

<TABLE>
<CAPTION>
                                                     1995         1994         1993         1992         1991
                                                   --------     --------     --------     --------     ---------
<S>                                                <C>          <C>          <C>          <C>          <C>      
Average loans and leases outstanding               $215,492     $213,729     $217,025     $217,072     $ 202,777
                                                   ========     ========     ========     ========     =========

Loan and lease loss reserve summary-
   Balance at beginning of year                    $  3,422     $  3,129     $  2,783     $  2,475     $   2,137
                                                   --------     --------     --------     --------     ---------
   Loans and leases charged off:
          Real estate                                     -           16           34            1             -
          Commercial and industrial                     837          350           86            7             2
          Consumer                                      267          134           34           61            24
          All other loans                                 -            -            -            -             -
          Lease financing                                 -            -            -            4             -
                                                                --------     --------     --------     ---------

             Total loans and leases charged off       1,104          500          154           73            26
                                                   --------     --------     --------     --------     ---------
   Recoveries on loans and leases charged off:

          Real estate                                     -            -            2            -             -
          Commercial and industrial                      62           10            9            6             7
          Consumer                                       16           18            8           12            26
          All other loans                                 -            -            -            -             -
          Lease financing                                 -            -            1            3             1
                                                   --------     --------     --------     --------     ---------

                 Total recoveries on loans

                     and leases charged off              78           28           20           21            34
                                                   --------     --------     --------     --------     ---------

                 Net charge-offs (recoveries)         1,026          472          134           52            (8)

   Provision charged to expense                         700          765          480          360           330
                                                   --------     --------     --------     --------     ---------
   Balance at end of year                          $  3,096     $  3,422     $  3,129     $  2,783     $   2,475
                                                   ========     ========     ========     ========     =========

Ratio of net charge-offs (recoveries)

    to average loans and leases outstanding            0.48%        0.22%        0.06%        0.02%         0.00%
                                                   ========     ========     ========     ========     =========
</TABLE>
<PAGE>   23
The Company has allocated a portion of the allowance for loan and lease losses
according to the amount deemed to be reasonably necessary to provide for the
possibility of losses being incurred within the various loan and lease
categories. The following table presents the allocation of the reserve amounts
to the related outstanding loan and lease balances at December 31 for the years
indicated. In 1994, the Company adopted a new allocation method which took into
account differences in risk classifications. In 1995, the reserve methodology
was refined further to analyze each credit for loss potential which was over
$50,000 and had been placed on nonaccrual.

                  Hawaii National Bancshares, Inc. & Subsidiary
                                   Table IV-B
  Allocation of the Reserve for Loan and Lease Losses to Outstanding Loans and
                                     Leases
                                 (in thousands)

<TABLE>
<CAPTION>
                             1995                   1994                   1993
                     ----------------------  ---------------------  ---------------------
                                 Percent                 Percent               Percent
                               Loans/Leases           Loans/Leases           Loans/Leases
                                 in Each                 in Each               in Each
                                 Category               Category               Category
                     Reserve     to Total    Reserve    to Total    Reserve    to Total
                      Amount   Loans/Leases  Amount   Loans/Leases  Amount   Loans/Leases
                     --------  ------------  -------  ------------  -------  ------------
<S>                  <C>       <C>           <C>      <C>           <C>      <C>
Commercial and
   industrial         $1,365            31%  $1,713            31%  $  892            31%
Real estate
   -construction         245             2%     276             1%       7             2%
Real estate
   -residential
     and commercial      560            63%     579            64%     294            62%
Consumer                 347             3%     346             3%     375             4%
All other loans            -             -        -             -        -             -
Lease financing           14             1%      13             1%      15             1%
Foreign                    -             -        -             -        -             -
Loans to U.S. Banks
   under repurchase
   agreement               -             -        -             -        -             -
General reserve          565           N/A      495           N/A    1,546           N/A
                      ------           ---   ------           ---   ------           ---

Consolidated          $3,096           100%  $3,422           100%  $3,129           100%
                      ======           ===   ======           ===   ======           ===
</TABLE>




<TABLE>
<CAPTION>
                               1992                   1991
                       ---------------------  ---------------------
                                   Percent                Percent
                                Loans/Leases           Loans/Leases
                                   in Each                in Each
                                  Category               Category
                       Reserve    to Total    Reserve    to Total
                        Amount  Loans/Leases  Amount   Loans/Leases
                       -------  ------------  -------  ------------
<S>                    <C>      <C>           <C>      <C>
Commercial and
   industrial           $  736           31%  $  751            32%
Real estate
   -construction             4            3%       2             2%
Real estate
   -residential
     and commercial        202           61%     195            60%
Consumer                   166            4%     189             5%
All other loans              -            -        -             -
Lease financing             20            1%      23             1%
Foreign                      -            -        -             -
Loans to U.S. Banks
   under repurchase
   agreement                 -            -        -             -
General reserve          1,655          N/A    1,315           N/A
                        ------          ---   ------           ---

Consolidated            $2,783          100%  $2,475           100%
                        ======          ===   ======           ===
</TABLE>


<PAGE>   24
The following table sets forth by major category the ratio of net loans charged
off (recoveries)


                  Hawaii National Bancshares, Inc. & Subsidiary
                                   Table IV-C


<TABLE>
<CAPTION>
                                1995     1994     1993     1992     1991
                                ----     ----     ----     ----     ----
<S>                             <C>      <C>      <C>      <C>      <C>  
Real estate                     0.00%    0.01%    0.01%    0.00%    0.00%
Commercial and industrial       0.36%    0.16%    0.04%    0.00%    0.00%
Consumer                        0.12%    0.05%    0.01%    0.02%    0.00%
All other loans                 0.00%    0.00%    0.00%    0.00%    0.00%
Leasing                         0.00%    0.00%    0.00%    0.00%    0.00%
                                ----     ----     ----     ----     ---- 

Total                           0.48%    0.22%    0.06%    0.02%    0.00%
                                ====     ====     ====     ====     ==== 
</TABLE>
<PAGE>   25
V.  DEPOSITS

The following table presents the average amount and average rate paid on
deposits for the years indicated.

                  Hawaii National Bancshares, Inc. & Subsidiary
                                    Table V-A
                            Average Deposits by Type
                                 (in thousands)

<TABLE>
<CAPTION>
                                               1995              1994               1993
                                         ----------------  -----------------  ---------------
                                          Amount    Rate    Amount    Rate     Amount    Rate
                                         --------  ------  --------  -------  --------  -----
<S>                                      <C>       <C>     <C>       <C>      <C>       <C>
          Noninterest-bearing demand     $ 56,066     -    $ 59,154      -    $ 56,670     -
          Interest-bearing demand          28,728  2.02%     30,656   1.90%     32,490  2.26%
          Savings                         117,275  2.94%    123,257   2.36%    135,448  2.68%
          Time                             57,615  5.07%     50,532   3.45%     53,553  3.10%
          Foreign                               -     -           -      -           -     -
                                         --------          --------             ------

                 Total                   $259,684          $263,599           $278,161
                                         ========          ========           ========
</TABLE>

The following table presents the maturity distribution of domestic time
certificates of deposit issued in amounts of $100,000 or more at December 31 for
the years indicated.

                  Hawaii National Bancshares, Inc. & Subsidiary
                                    Table V-B
               Maturity Distribution of Domestic Time Certificates
                         of Deposit of $100,000 or More
                                 (in thousands)

<TABLE>
<CAPTION>
                                              1995           1994          1993
                                             -------       -------       -------
<C>                                          <C>           <C>           <C>    
3 months or less                             $25,213       $21,495       $22,417
Over 3 months through 6 months                11,492        11,543        11,314
Over 6 months through 12 months                4,842         4,040         1,794
Over 12 months                                     -         1,319           342
                                             -------       -------       -------
                                             $41,547       $38,397       $35,867
                                             =======       =======       =======
</TABLE>

Note: At December 31, 1995, 1994, and 1993, public time deposits totaled
$30,197,000; $29,547,000; and $28,854,000, respectively.






<PAGE>   26
VI.     RETURN ON EQUITY AND ASSETS

The following table presents for the years indicated:

1.       Return on average assets (net income divided by average total assets);

2.       Return on average equity (net income divided by average shareholders'
         equity);

3.       Dividend payout ratio (dividends per share divided by net income per
         share);

4.       Average equity to average assets ratio (average shareholders' equity
         divided by average total assets).




                 Hawaii National Bancshares, Inc. & Subsidiary
                                    Table VI
                    Operating, Dividend, and Capital Ratios


<TABLE>
<CAPTION>
                                                                1995       1994        1993
                                                                ----       ----        ----

         <S>                                                   <C>        <C>          <C>  
         1.  Return on average assets                           0.36%      0.30%       0.41%
                                                           
         2.  Return on average equity                           3.96%      3.38%       5.11%
                                                           
         3.  Dividend payout ratio                             10.20%     12.20%       8.38%
                                                           
         4.  Average equity to average assets ratio             9.04%      8.81%       8.07%
</TABLE>



<PAGE>   27

ITEM 2.  PROPERTIES

         Bancshares maintains its office at the same location in Honolulu as the
Bank's main office.

         The Bank's premises are leased for varying periods up to 2024. Rent
expense was $2,294,000 in 1995; $2,125,000 in 1994 and $2,113,000 in 1993, net
of sublease income of $178,000 in 1995; $93,000 in 1994 and $44,000 in 1993.
Premise leases extend for varying periods up to 30 years and provide for
periodic renegotiation of rents based upon a percentage of the appraised value
of the leased property. At December 31, 1995, the aggregate minimum rental
commitments under all non-cancelable leases were as follows: 1996 - $2,232,000;
1997 - $1,972,000; 1998 - $1,652,000; 1999 - $1,612,000; 2000 - $1,619,000; and
thereafter to 2024 - $27,098,000 (aggregate $36,185,000). Additional information
is provided in Note 9 of the Notes to the Consolidated Financial Statements.

ITEM 3.  LEGAL PROCEEDINGS

         The Bank is party to legal actions from time to time as part of its
normal course of business. Management, after consulting with counsel on these
matters, believes the outcome of these cases will not have a materially adverse
effect upon Bancshares' or the Bank's financial position or the results of
operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted for a vote of security holders in the fourth
quarter of 1995.

INFORMATION ON EXECUTIVE OFFICERS

         Information regarding each executive officer of Bancshares or HNB who
is not also a director of Bancshares is as follows:

<TABLE>
<CAPTION>
Name, Age, and
Principal Occupation                      Year First
During Past Five                            Became                  Year Term            Shares of Bancshares
Years and Family                            Officer                 of Office            Common Stock as of
Relationships                           of Bancshares                Expires             January 31, 1996*
--------------------                    -------------                -------             -----------------
                                 
<S>                                         <C>                      <C>                        <C>
Ernest T. Murata, 62,                       1986                     1996                       400
Vice President, Treasurer,
Assistant Secretary and
Chief Financial Officer
("CFO") of Bancshares; Executive
Vice President, Cashier, Secretary
and CFO of HNB.
</TABLE>


*Does not include the percentage of shares beneficially owned if less than 1.0%
of the total outstanding shares of Bancshares.



<PAGE>   28
                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
         SHAREHOLDERS MATTERS.

MARKET INFORMATION

         Bancshares' common stock is not actively traded and is not listed on
any exchange. Management is not aware of any broker/dealer who formally makes a
market in its common stock. However, based upon bid quotations published in the
Pacific Business News, the price range of Bancshares' common stock in Hawaii
during 1995 has ranged between $27.75 to $33.00 and during 1994 from $22.63 to
$27.75. These prices may not reflect prices of actual transactions. Management
is not aware of the price range of Bancshares' common stock in the continental
U.S. Bancshares' book value per share at December 31, 1995 and 1994 was $38.25
and $36.91, respectively. Neither the book value nor its trading price may be
indicative of the value of Bancshares' common stock.

NUMBER OF EQUITY HOLDERS

         As of February 29, 1996, there were 1,322 common shareholders of
record. Bancshares' transfer agent is HNB.

DIVIDENDS

         Bancshares paid cash dividends on its common stock in the amount of
$0.15 per share on February 14, 1996, February 14, 1995, and February 14, 1994.
Bancshares' dividend policy is to retain the majority of its earnings to finance
future growth and build a strong capital base. Cash dividends are subject, among
other things, to certain limitations under applicable national banking laws as
described in Note 10 of the Notes to the Consolidated Financial Statements.

ITEM 6.  SELECTED FINANCIAL DATA

         A summary of operations and selected financial data for the five years
ended December 31 is presented as follows:


<PAGE>   29
ITEM 6.  SELECTED FINANCIAL DATA

                        HAWAII NATIONAL BANCSHARES, INC.
                                  & SUBSIDIARY
            SUMMARY OF OPERATIONS AND OTHER SELECTED FINANCIAL DATA
                      for the five years ended December 31
                    (in thousands except for per share data)

<TABLE>
<CAPTION>
                                                                              1995        1994        1993        1992         1991
                                                                            --------    --------    --------    --------    --------
SUMMARY OF OPERATIONS
<S>                                                                         <C>         <C>         <C>         <C>         <C>
            Interest income                                                 $ 22,640    $ 20,179    $ 20,933    $ 23,358    $ 25,102
            Interest expense                                                   7,105       5,300       6,063       8,664      11,680
                                                                            --------    --------    --------    --------    --------
                    Net interest income                                       15,535      14,879      14,870      14,694      13,422
            Provision for loan and lease losses                                  700         765         480         360         330
                                                                            --------    --------    --------    --------    --------
                    Net interest income after provision
                        for loan and lease losses                             14,835      14,114      14,390      14,334      13,092
            Other income                                                       2,336       2,348       2,478       2,482       2,277
            Other expenses                                                    15,507      15,085      15,272      14,357      13,100
                                                                            --------    --------    --------    --------    --------
            Income before income taxes and cumulative
                    effect of change in accounting principle                   1,664       1,377       1,596       2,459       2,269
            Income tax provision                                                 620         505         670         869         847
                                                                            --------    --------    --------    --------    --------
            Income before cumulative effect of change
                    in accounting principle                                    1,044         872         926       1,590       1,422
            Cumulative effect of change in method
                    of accounting for income taxes                              --          --           350        --          --
                                                                            --------    --------    --------    --------    --------
                        Net income                                          $  1,044    $    872    $  1,276    $  1,590    $  1,422
                                                                            ========    ========    ========    ========    ========
            Earnings Per Common Share:
                    Earnings before cumulative effect of
                        accounting change                                   $   1.47    $   1.23    $   1.30    $   2.24    $   2.39
                    Cumulative effect of change in
                        accounting principle                                    --          --          0.49        --          --
                                                                            --------    --------    --------    --------    --------
            Earnings per common share                                       $   1.47    $   1.23    $   1.79    $   2.24    $   2.39
                                                                            ========    ========    ========    ========    ========
            Cash dividends per share                                        $   0.15    $   0.15    $   0.15    $   0.15    $   0.15
                                                                            ========    ========    ========    ========    ========

OTHER SELECTED FINANCIAL DATA:

            Total assets                                                    $299,590    $290,256    $306,407    $316,622    $308,682

            Investment securities                                           $ 47,490    $ 46,419    $ 44,437    $ 42,216    $ 40,124

            Loans and leases, less allowance for
                    possible losses                                         $209,998    $213,993    $210,542    $213,146    $211,344

            Deposits                                                        $268,906    $260,973    $278,168    $288,816    $282,348

            Shareholders' equity                                            $ 27,193    $ 26,243    $ 25,478    $ 24,308    $ 22,825

            Book value per share                                            $  38.25    $  36.91    $  35.83    $  34.19    $  32.10
</TABLE>



<PAGE>   30
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

         In reviewing this discussion, reference should be made to the
accompanying table of analysis of operations, the financial statements, and
selected financial data presented elsewhere in this report.


<PAGE>   31
                 Hawaii National Bancshares, Inc. & Subsidiary
                       Analysis of Results of Operations
                                 (in thousands)

<TABLE>
<CAPTION>
                                                          Year Ended December 31        1995 vs 1994               1994 vs 1993
                                                         ------------------------  ----------------------  -----------------------
                                                                                    Increase   Percent of   Increase    Percent of
                                                         1995     1994     1993     (Decrease)    Change    (Decrease)     Change
                                                         ----     ----     ----    ----------  ----------  -----------------------

<S>                                                     <C>      <C>      <C>        <C>          <C>        <C>          <C>
Interest Income:                                        
     Interest and fees on loans
              and leases                                $19,684  $17,530  $17,709    $2,154       $12.3%     $(179)        -1.0%
     Interest on Federal funds sold                         555      492      721        63        12.8%      (229)       -31.8%
     Interest on investment securities                    2,301    2,130    2,478       171         8.0%      (348)       -14.0%
     Other                                                  100       27       25        73       270.4%         2          8.0%
                                                        -------  -------  -------    ------       -----      -----        ----- 
                   Total interest income                 22,640   20,179   20,933     2,461        12.2%      (754)        -3.6%
                                                        -------  -------  -------    ------       -----      -----        ----- 
Interest Expense:
     Deposits                                             6,949    5,242    6,018     1,707        32.6%      (776)       -12.9%
     Interest on borrowed funds                             156       58       45        98       169.0%        13         28.9%
                                                        -------  -------  -------    ------       -----      -----        ----- 
                   Total interest expense                 7,105    5,300    6,063     1,805        34.1%      (763)       -12.6%
                   Net interest income                   15,535   14,879   14,870       656         4.4%         9          0.1%
Provision for loan and lease losses                         700      765      480       (65)       -8.5%       285         59.4%
                                                        -------  -------  -------    ------       -----      -----        ----- 
                   Net interest income after provision  
                        for loan and lease losses        14,835   14,114   14,390       721         5.1%      (276)        -1.9%
                                                        -------  -------  -------    ------       -----      -----        ----- 
Other Income:
     Service charges on deposit accounts                    306      261      233        45        17.2%        28         12.0%
     Other service charges, collection and exchange
              charges, commissions and fees               2,011    2,087    2,235       (76)       -3.6%      (148)        -6.6%
     Gain on available-for-sale securities                   19        -        -        19           -          -          -
     Gain on trading securities                               -        -       10         -           -        (10)      -100.0%
                                                        -------  -------  -------    ------       -----      -----        ----- 
                                                          2,336    2,348    2,478       (12)       -0.5%      (130)        -5.2%
                                                        -------  -------  -------    ------       -----      -----        ----- 
</TABLE>




<PAGE>   32




<TABLE>
<CAPTION>
                                                          Year Ended December 31       1995 vs 1994           1994 vs 1993
                                                          ----------------------  ----------------------  -----------------------
                                                                                   Increase   Percent of   Increase    Percent of
                                                          1995    1994      1993  (Decrease)   Change     (Decrease)     Change
                                                          ----    ----      ----  ----------  ----------  ----------   ----------

<S>                                                     <C>      <C>      <C>        <C>       <C>           <C>        <C>
Other Expenses:   
     Salaries and employee benefits                      7,722    7,295    7,130      427        5.9%         165          2.3%
     Occupancy expense of bank premises                  3,381    3,178    3,139      203        6.4%          39          1.2%
     Equipment expense                                     777      708      711       69        9.7%          (3)        -0.4%
     Computer services                                     690      846      934     (156)     -18.4%         (88)        -9.4%
     Other operating expenses                            2,937    3,058    3,358     (121)      -4.0%        (300)        -8.9%
                                                        ------   ------   ------     ----      -----         ----       ------
                                                        15,507   15,085   15,272      422        2.8%        (187)        -1.2%
                                                        ------   ------   ------     ----      -----         ----       ------
         Income before income taxes and cumulative                                                                      
              effect of change in accounting principle   1,664    1,377    1,596      287       20.8%        (219)       -13.7%
Income Tax Provision                                       620      505      670      115       22.8%        (165)       -24.6%
                                                        ------   ------   ------     ----      -----         ----       ------
         Income before cumulative effect of                                                                             
              change in accounting principle             1,044      872      926      172       19.7%         (54)        -5.8%
Cumulative Effect of Change in Method                                                                                   
     of Accounting for Income Taxes                          -        -      350        -          -         (350)     -100.0%
                                                        ------   ------   ------     ----      -----         ----       ------
         Net income                                      1,044      872    1,276      172       19.7%        (404)       -31.7%
                                                        ======   ======   ======     ====      =====         ====       ====== 
</TABLE>




<PAGE>   33

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

         Hawaii National Bancshares, Inc. ("Bancshares") through its wholly
owned subsidiary, Hawaii National Bank ("HNB" or the "Bank"), maintains a
diverse portfolio of assets ranging from the core business of loans and leases
to investment securities issued by federal, state, and municipal authorities.
The interest-earning assets of the Bank are financed through a combination of
interest-bearing and interest-free sources. In keeping with management's goals
of managing risk and improving long-term profitability to shareholders, the Bank
continues to emphasize conservative credit underwriting, diversification of
revenue sources, and controlled growth. Preserving credit quality, maintaining a
liquid and interest rate sensitive balance sheet and building a strong capital
position continue to have high priorities.

ECONOMIC OUTLOOK

         While the nation's economy appears to have achieved a "soft landing,"
the recovery in Hawaii, which is now into its third year, continues to lag
behind the rest of the mainland. According to preliminary estimates by local
economists, the gross state product grew at a nominal inflation-adjusted 0.8% in
1995, following a stagnant 1994 in which the economy experienced no growth. For
1995, the preliminary State unemployment rate was 5.4%, an improvement from 6.1%
in 1994, and slightly below the national rate of 5.6%. Single family and
condominium resales on Oahu for 1995 declined 21.4% and 31.0%, respectively,
over the prior year while the median single family resale price and the median
condominium resale price were down 3.1% and 4.2%, respectively. As Hawaii's weak
economy continued to take its toll, the number of bankruptcy filings soared to
2,018 in 1995, a 27.2% increase over last year's record 1,587 filings. As of
December 15, 1995, the number of foreclosures filed in the State this year
amounted to 1,894, a 20.0% increase over last year's record 1,578 filings. While
government officials are hopeful that Hawaii's economy has bottomed out, little
progress is expected in 1996. The State is currently facing a $200,000,000
budget shortfall in the supplemental budget for the fiscal biennium that ends
June 30, 1997 which may result in additional layoffs and cutbacks in State
programs. In 1996, local economists are projecting the economy to grow between
1.0% to 2.0%.

OVERVIEW

         The consolidated net income of Hawaii National Bancshares, Inc. and
Hawaii National Bank (collectively, the "Company") was $1,043,935 for the year
ended December 31, 1995, an increase of $171,595 or 19.7% from $872,340 in 1994.
The improvement in profitability was attributable to an increase in net interest
income and a rebate in Federal Deposit Insurance Corporation ("FDIC") insurance
premiums, partly offset by higher staffing and occupancy costs related to the
opening of two new branches on Maui. (see discussion below). During the year,
the Company received a refund in FDIC premiums plus interest of $159,000 after
the Bank Insurance Fund exceeded its mandated reserve ratio. Earnings per share
were $1.47 in 1995 and $1.23 in 1994.


<PAGE>   34
         Net income for 1993 was $1,276,092 or $1.79 per share. Effective
January 1, 1993, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes" on a prospective basis. The
cumulative effect of this accounting change resulted in the one-time recognition
of an income tax benefit of $350,000 which was equivalent to $0.49 per share.
Had the Company not benefited from SFAS 109, 1993 net income would have been
$926,092 or $1.30 per share. The results for that year also included an
adjustment to the Bank's investment in Computer Systems International, Ltd.
("CSI") of $280,559 which is discussed in "Other Income and Other Expenses."
Excluding the effects of both SFAS 109 and the adjustment in CSI, earnings for
1993 would have been $1,206,651 or $1.70 per share.

         On May 19, 1995, the Bank entered into a purchase and assumption
agreement with the FDIC who was named Receiver for the former Bank USA, N.A.,
Maui ("Bank USA"), after it was closed by the Office of the Comptroller of the
Currency. Under the terms of the agreement, HNB acquired certain assets of
approximately $4,000,000 and assumed insured deposits of approximately
$8,000,000. The transaction was effective on May 22, 1995, when the two branches
of the former Bank USA in Wailuku and Kihei opened as branches of HNB. During
the third quarter, the Wailuku branch was relocated to Kahului, a rapidly
growing and more densely populated community.

         Noncurrent loans and leases increased to $6,620,000 at December 31,
1995, representing 3.1% of total loans and leases, compared to $3,567,000, or
1.6%, at December 31, 1994. In 1995, the Bank's performance was skewed by four
loan relationships aggregating $4,358,500 which were placed on nonaccrual
status. Three of these credits are presently in foreclosure and the fourth is a
work-out. Prior to year-end, one of the relationships was written down by
$643,000 to the appraised value of the underlying collateral. As a result, net
charge offs increased from $472,834 in 1994 to $1,025,203 in 1995.

         At December 31, 1995, total assets stood at $299,590,457, an increase
of 3.2% from $290,256,292 at December 31, 1994. Shareholders equity grew to
$27,192,715 at year-end 1995, representing an increase of 3.6% over the previous
year-end balance. Book value per share rose from $36.91 at December 31, 1994 to
$38.25 at December 31, 1995. Leverage and risk-based capital requirements
exceeded regulatory capital requirements by a substantial margin at December 31,
1995 and 1994.

         The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act") generally will, over the next two years, permit
nationwide interstate banking and branching. This legislation generally
authorizes interstate branching and relaxes federal law restrictions on
interstate banking. Subject to certain state laws, such as age and contingency
laws, the Interstate Act allows adequately capitalized and adequately managed
bank holding companies to purchase the assets of out-of-state banks (effective
as of September 29, 1995). Additionally, beginning June 1, 1997, the Interstate
Act permits interstate bank mergers, subject to certain state laws, such as age
and contingency laws, unless the home state of either merging bank has
"opted-out" of these provisions by enacting "opt-out" legislation. States may
also "opt- in" to these bank merger provisions early by enacting
nondiscriminatory "opting-in" legislation permitting interstate mergers within
their own borders before June 1, 1997. The Interstate Act does allow states to
impose certain conditions on interstate bank mergers within their borders; for
example, states may impose age requirements of up to five years before the
interstate merger


<PAGE>   35
for the in-state merging bank. Under the Interstate Act, states may also
"opt-in" to de novo branching, allowing out-of-state banks to establish de novo
branches within the state.

         Legislation is currently pending in Hawaii which, if adopted as
proposed, would limit or impose certain restrictions on interstate mergers.
However, the extent and effect of this legislation cannot be predicted with
certainty at this time.

RESULTS OF OPERATIONS

Net Interest Income

         HNB derives the majority of its earnings from net interest income,
which is the difference between interest income earned on interest-earning
assets and interest expense incurred on interest-bearing liabilities. The
principal components of interest-earning assets are loans and leases, federal
funds sold and investment securities. Interest-bearing liabilities consist of
interest-bearing deposits and short-term borrowings.

         Net interest income grew to $15,534,686 in 1995, compared to
$14,879,671 in 1994 and $14,870,407 in 1993. The improvement of 4.4% in 1995 was
attributable to an increase in average yields, partly offset by an increase in
average deposit rates. In 1994, a lower average yield on investment securities
and a lower average balance of interest-earning assets served to constrain the
growth in net interest income. Net interest margin was 5.75%, 5.48% and 5.23%
for 1995, 1994 and 1993, respectively.

        Total interest income amounted to $22,640,331 in 1995 versus
$20,179,900 in 1994 and $20,932,699 in 1993. The increase of 12.2% in 1995 was
primarily due to an increase in average yields. The average yield on
interest-earning assets rose from 7.43% in 1994 to 8.37% in 1995. The increase
was attributable to the   Federal Reserve Board's tight monetary policy which
kept interest rates high during the early part of the year. The lower revenue
reported in 1994 was attributable to a lower average investment yield and a
lower average balance of  loans and leases and federal funds sold.

         Total interest expense was $7,105,645 in 1995, compared to $5,300,229
and $6,062,292 in 1994 and 1993, respectively. The increase of 34.1% in 1995 was
primarily due to a higher average cost of deposits which, in turn, was affected
by higher market interest rates and a shift from savings into time deposits. The
average rate paid on deposits increased from 2.56% in 1994 to 3.41% in 1995.
During 1995, the average rates paid on savings and time deposits were 2.94% and
5.07%, respectively. The decline in interest expense in 1994 was due to a lower
average cost of deposits and a lower average deposit balance.

Other Income and Other Expenses

         In addition to interest income, the Bank has various sources of other
income which includes service charges on deposit accounts; other service
charges, collection and foreign exchange charges, commissions and fees; and
gains on the sale of securities. Other income totaled $2,336,523 in 1995,
$2,348,058 in 1994 and $2,478,373 in 1993.


<PAGE>   36
         Other expenses consist of salaries and employee benefits, occupancy
expense of bank premises, equipment expense, computer services and other
operating expenses. In 1995, other expenses amounted to $15,507,274, compared to
$15,085,389 in 1994 and $15,272,688 in 1993. The increase of $421,885, or 2.8%,
in 1995 was primarily due to the opening of two new branches on Maui, partly
offset by a rebate in FDIC premiums. The decline of $187,299, or 1.2%, in 1994
was primarily due to a reduction in the Bank's investment in CSI which is
discussed later in this section.

         Salaries and employee benefits increased $426,673, or 5.8%, in 1995,
compared to an increase of $165,628, or 2.3%, a year earlier. The growth in this
category reflects an increase in staff and normal merit and inflationary
adjustments which were adopted to keep the Bank's salary and benefit packages
competitive. In 1995, the Bank retained the employees from the former Bank USA
to operate the Maui branches. The number of full-time equivalent employees
totaled 218 at December 31, 1995, compared to 213 and 210 at December 31, 1994
and 1993, respectively. Consistent with management's goals of controlling growth
and improving long-term profitability to shareholders, increases in staff
continue to be closely monitored.

         Occupancy expense of bank premises rose $203,287, or 6.4%, in 1995
versus an increase of $38,848, or 1.2%, in the previous year. The increase in
1995 was attributable to the addition of two new branches on Maui.

         Equipment expense increased $68,750, or 9.7%, in 1995 and decreased
$3,269, or 0.5%, in 1994. The increase in 1995 resulted primarily from higher
depreciation charges.

         Computer services are obtained from CSI, a company formed to provide
data processing services to financial institutions, including the Bank. At
December 31, 1995, the Bank and an affiliate of a director each owned a 50%
interest in this bank-service corporation. Charges for data processing service
were $690,000 in 1995, a decline from $846,000 in 1994 and $935,000 in 1993.

         Other operating expenses decreased $121,380, or 4.0%, in 1995 and
$299,683, or 8.9%, in 1994. The improvement in 1995 was primarily due to a
reduction in FDIC insurance premiums. On August 8, 1995, the FDIC approved a
rule which reduced premiums that banks pay for deposit insurance from the
current range of $0.23 to $0.31 per $100 of deposits to a wider range of $0.04
to $0.31. The actual rate assessed each bank continued to be contingent upon its
capital adequacy and risk classification. The new rates retroactively took
effect on June 1, 1995 and banks that overpaid were given a one-time refund plus
interest. In September 1995, the Bank received a reimbursement of $159,000 from
the FDIC which reduced other expenses. On November 14, 1995, the FDIC voted to
reduce the assessment range by another $0.04 to $0.00 to $0.27 for the
semiannual assessment period that began January 1, 1996. Well- capitalized and
well-managed bank's that qualify for the zero premium rate will still be
required to pay the legal minimum of $2,000 per year. Assuming HNB remains in
the same risk category, the annual pre-tax savings to the Bank would be
approximately $106,000 based upon a deposit base of $269,000,000.


<PAGE>   37
         Also included in other operating expenses are adjustments to the Bank's
investment in CSI which is accounted for under the equity method. The Bank's
equity in losses of CSI was $200,000 in 1995, $60,000 in 1994 and $280,559 in
1993. Included in the loss for 1993 was a reduction in the Bank's investment in
CSI of $215,000. In prior years, CSI had invested in the development of a
banking software in expectation of generating future revenues from its primary
customers. Late in 1993 communications between CSI and one of their customers
raised substantial doubt as to whether that customer would continue to utilize
CSI as its service provider. In addition, CSI had been unsuccessful in
persuading any of its other customers to convert to the new software. Because
prospects for recovery of the deferred development costs had dimmed
considerably, CSI concluded that a writeoff of those deferred costs was
appropriate at that time. Accordingly, the Company included its proportionate
share of the resulting loss in its 1993 results based on the timing of the
aforementioned communications and the absence of any mitigating information.
Subsequently, the customer did in fact terminate its arrangement with CSI and
never provided any revenues to them in connection with the new banking software.

Income Tax Expense

         The Company's federal and state income tax provision increased to
$620,000 in 1995, compared to $505,000 in 1994 and $670,000 in 1993. The
effective tax rates for those years were 37.3%, 36.7%, and 42.0%, respectively.
Effective January 1, 1993, the Company adopted SFAS 109, "Accounting for Income
Taxes," the cumulative effect of which was the recognition of an income tax
benefit of $350,000 in the first quarter of 1993. Under SFAS 109, deferred tax
assets and liabilities are measured using enacted tax rates scheduled to be in
effect at the time the related temporary differences between financial reporting
and tax reporting of income and expense are expected to reverse.

FINANCIAL CONDITION

Deposits

         Deposits traditionally have been the principal source of HNB's funds
for use in lending, meeting liquidity requirements and making investments. The
maintenance of a stable and low cost deposit base is, therefore, an important
factor in the Bank's asset and liability management plan and essential to the
achievement of its profit goals. The Bank's strategy for attracting new deposits
and retaining its current base focuses on achieving customer satisfaction and
building long-term relationships. The Bank offers a variety of deposit products
which are marketed to residents of Hawaii. No deposits are placed by or through
a broker. In 1995, the Bank assumed $8,061,823 in deposits from the former Bank
USA, consisting of $1,423,507 in noninterest- bearing demand deposits,
$1,507,291 in interest-bearing demand deposits, $740,076 in savings deposits,
and $4,390,949 in time deposits. At December 31, 1995, total deposits amounted
to $268,905,785, representing an increase of $7,932,667, or 3.0%, over total
deposits of $260,973,118 at December 31, 1994.


<PAGE>   38
         The following table presents the distribution of the Bank's deposit
accounts at December 31 for the years indicated.

<TABLE>
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                       1995                           1994                          1993
                              ----------------------        ----------------------        ----------------------
                                 Amount         %              Amount         %              Amount          %
-------------------------------------------------------------------------------------------------------------------


<S>                           <C>              <C>          <C>              <C>          <C>               <C>  
Noninterest-bearing demand    $  66,331,301     24.7%       $  59,714,902     22.9%       $  63,764,593      22.9%
Interest-bearing demand          29,316,390     10.9           31,615,598     12.1           33,391,045      12.0
Savings                         113,736,751     42.3          117,447,338     45.0          131,034,155      47.1
Time                             59,521,343     22.1           52,195,280     20.0           49,977,932      18.0
                              -------------    -----        -------------    -----        -------------     ----- 
    Total deposits            $ 268,905,785    100.0%       $ 260,973,118    100.0%       $ 278,167,725     100.0%
                              =============    ======       =============    ======       =============     ======

-------------------------------------------------------------------------------------------------------------------
</TABLE>


         Noninterest-bearing demand deposits ended 1995 $6,616,399 above the
balance reported at year-end 1994. The growth in these deposits are important to
the Bank because they represent an interest-free source of funds which enhances
net interest margin. Interest-bearing demand deposits at year-end 1995 were
$2,299,208 lower, compared to the same date in 1994. In recent years, as
customers have grown more knowledgeable about financial matters, they have
tended to use these accounts primarily for current transaction purposes.
Generally, excess funds not needed in the immediate future are transferred to
higher yielding deposit accounts or invested in other financial instruments.
Time deposits increased by $7,326,063 over year-end 1994 levels, offsetting a
decline in savings deposits of $3,710,587. During the year, customers continued
to shift their funds from savings to time deposits to take advantage of higher
rates. The average rate paid on savings and time deposits in 1995 was 2.94% and
5.07%, respectively. Since December 31, 1993, time deposits, as a percentage of
total deposits, have grown from 18.0% to 22.1% at December 31, 1995. Meanwhile,
over the same period, savings deposits have declined from 47.1% to 42.3%. This
change in the deposit mix contributed to the increase in total interest expense
in 1995. Included in time deposits are certificates of deposits ("CD") purchased
by the State of Hawaii, its counties and other government agencies.
Historically, these CDs have been a stable source of funds for the Bank and are
considered to be core deposits. At December 31, 1995, 1994 and 1993, public time
deposits totaled $30,197,000, $29,547,000, and $28,854,000, respectively,
representing 11.2%, 11.3%, and 10.4% of the Bank's total deposits.

         The Bank's ability to attract and retain deposits (primarily savings
and time deposits) has been, and will continue to be, significantly affected by
market conditions. When direct investment vehicles, such as stocks and mutual
funds, offer a higher return, the possibility of disintermediation (i.e., the
flow of funds away from financial institutions into the capital market) exists.
This was the case in 1994 and 1993 when a deposit outflow of $17,194,607 and
$10,648,190, respectively, was recorded. The Bank's experience in those years
was consistent with an industry trend.


<PAGE>   39
Investment Security Portfolio

         Investment securities consist principally of short and intermediate
term debt instruments issued by the U.S. Treasury, other U.S. government
agencies, and State and local government units. The Bank is also a stockholder
in the Federal Reserve Bank and the Federal Home Loan Bank of Seattle ("FHLB").
The Bank has no derivative securities, such as structured notes, collateralized
mortgage obligations, or stripped mortgage-backed securities.

         The Bank had no trading securities at December 31, 1995 and 1994. The
book and fair values of investment securities held-to-maturity at December 31,
1995 were $45,993,061 and $46,165,000, respectively, compared to $44,930,312 and
$43,892,000 at December 31, 1994. There were no sales of investment securities
from the held-to-maturity portfolio in 1995 or 1994. In May 1995, the Bank
acquired $2,103,358 in U.S. agency securities from the former Bank USA which
were classified as available-for-sale. These securities were subsequently sold
during the third quarter generating proceeds of $2,122,073. The gross realized
gain was $18,715 based on the specific identification method. At December 31,
1995, the book and fair value of investment securities available-for-sale was
$1,497,003, compared to $1,489,303 at December 31, 1994. During 1995 and 1994,
there were no transfers between the held-to-maturity, available-for-sale and
trading categories.

Loan and Lease Portfolio

         At December 31, 1995, total loans and leases stood at $213,094,028,
representing a decrease of $4,320,162, or 2.0%, over the level reported at
December 31, 1994. The decline was primarily due to: 1) the sale of a $4,427,468
commercial mortgage loan package to an investor; 2) payoffs on two large
commercial loans totaling $3,102,000; and 3) gross charge offs amounting to
$1,103,875.

         Real estate loans declined to $138,404,538 at year-end 1995, $2,967,676
lower than the level at year-end 1994. Commercial and industrial loans ended the
year at $66,020,649, a decrease of $1,463,529 from December 31, 1994. Consumer
loans rose to $7,255,125 at year-end 1995, an increase from the $7,075,801
reported for the same date last year. At December 31, 1995, direct financing
leases and other loans totaled $1,165,370 and $248,346, respectively, compared
to $1,241,148 and $240,849 at December 31, 1994.

         In mid 1995, the Federal Reserve Board began lowering short-term
interest rates in an effort to keep the nation's economic recovery alive. While
these rate reductions may spur loan growth in other parts of the country,
businesses and consumers in Hawaii are likely to remain cautious about assuming
additional debt until confidence levels in the local economy improve.

Loan Concentrations

         The Bank has no significant concentrations of credit risk with any
individual party; however, the Bank's lending is concentrated on the island of
Oahu. The Bank has no foreign loans in its portfolio.


<PAGE>   40
         At December 31, 1995, loans collateralized by real estate totaled
$138,404,538, accounting for 64.9% of the loan and lease portfolio. Of this
amount, $106,200,103, or 76.7%, was collateralized by one-to-four family
residential mortgages in Hawaii. Although the residential real estate market
improved as the year progressed, single family and condominium resales on Oahu
declined 21.4% and 31.0%, respectively, in 1995, compared to the prior year. The
slowdown in sales activity, coupled with an increase in the supply of new homes,
contributed to an erosion in prices in 1995. For the year, the median single
family resale price and the median condominium resale price were down 3.1% and
4.2%, respectively.

Loan Impairment

         On January 1, 1995, the Bank adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan," and Statement No. 118, "Accounting by
Creditors for Impairment of a Loan Income Recognition and Disclosures," which
amends Statement No. 114 to allow a creditor to use existing methods for
recognizing interest income on impaired loans. Under the new standards, a loan
is considered impaired, based on current information and events, if it is
probable that the Bank will be unable to collect the scheduled payments of
principal or interest due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based on the present
value of expected future cash flows discounted at the loan's effective rate or
the fair value of collateral if the loan is collateral dependent. Excluded from
the scope of Statement No. 114 are: 1) commitments to lend; 2) large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment; 3) loans measured at fair value or lower of cost or market value; 4)
leases; and 5) debt securities. Loans collectively evaluated for impairment by
the Bank include smaller balance commercial loans, real estate loans and
consumer loans which are not included in total impaired loans. The Bank
considers a loan to have a "small balance" when the outstanding principal
balance is $50,000 or less.

        Generally, at the time a loan is placed on nonaccrual, it is considered
impaired. It is the Bank's policy to place a loan on nonaccrual when: 1) it is
maintained on a cash basis because of deterioration in the financial condition
of the borrower; 2) payment in full of principal and interest is not expected;
or 3) principal and interest has been in default for a period of 90 days or
more unless the asset is both well collateralized and in the process of
collection. In evaluating loans for impairment or placement on nonaccrual, the
Bank applies its normal loan review procedures. Among other things, this
analysis includes reviewing: 1) the loan's payment history as compared to the
contractual terms of the note or credit agreement; 2) the financial condition
of the borrower, including an assessment of the prospects for repayment of the
loan; 3) a reevaluation or reappraisal of the underlying collateral; 4) the
loan's current risk rating; and 5) the credit file and loan documents. Loans
with an insignificant delay or shortfall in the amount of payments are not
considered impaired. Examples of insignificant delays or shortfalls may
include, depending on the specific facts and circumstances, those that are
associated with a temporary stoppage in operations due to equipment failure or
a natural disaster, or due to tight cash flows during the off-peak season of a
business. Recurring shortfalls or delays in payments and/or extended
delinquency periods may provide evidence that a delay or shortfall is
significant. In these circumstances, the loan is reviewed for impairment.


<PAGE>   41
         Interest income on impaired loans is recognized in accordance with the
Bank's nonaccrual loan policy. Subsequent payments received are generally
applied to reduce the principal balance. There was no interest income recognized
on impaired loans in 1995. For more information on the accounting policies for
this area, refer to the Consolidated Notes to the Financial Statements - Income
Recognition On Impaired and Nonaccrual Loans.

         Charge-offs of impaired loans are processed when collection becomes
doubtful and the underlying collateral, if any, is considered inadequate to
liquidate the outstanding debt. Additional information about the Bank's
charge-off policies is provided in the Notes to the Consolidated Financial
Statements - Allowance for Possible Loan and Lease Losses.

         At December 31, 1995, the recorded investment in impaired loans
amounted to approximately $6,084,000, of which $4,633,000 related to loans for
which there was no valuation allowance determined in accordance with Statement
No. 114 and $1,451,000 related to loans with a corresponding valuation allowance
determined under Statement No. 114 of $292,000. For the year ended December 31,
1995, the average recorded investment in impaired loans was approximately
$2,717,000. There was no interest recognized on these impaired loans in 1995.

Risk Elements and Other Real Estate Owned

        Noncurrent loans and leases consist of loans and leases that are past
due for 90 days or more and still accruing interest and loans and leases that
have ceased to accrue interest ("nonaccrual loans and leases"). At December 31,
1995, noncurrent loans and leases totaled $6,620,000, representing 3.1% of
loans and leases outstanding, compared to $3,567,000, or 1.6%, at December 31,
1994. Most of the credits in this category are collateralized by real estate.
There were no restructured loans or leases as of December 31, 1995 or 1994.

        Nonaccrual loans and leases increased from $1,326,000 at December 31,
1994 to $6,206,000 at December 31, 1995. The increase was primarily
attributable to four loan relationships which aggregated $4,358,500 and
accounted for 70.2% of nonaccrual loans and leases. Three of these credits are
presently in foreclosure and the fourth is a work-out. In all, 82.9% of the
loans and leases on nonaccrual are collateralized by real estate. Interest
income foregone on nonaccrual loans and leases amounted to $318,000 in 1995 and
$54,000 in 1994.

        Loans and leases past due for 90 days or more decreased from $2,241,000
at December 31, 1994 to $414,000 at December 31, 1995. The improvement in this
category was primarily attributable to: 1) $1,485,000 in loans which were
brought current, of which $1,341,000 relates to one borrower; and 2) $293,000
in loans which were transferred to the nonaccrual category. Of the loans and
leases in the 90 day and over category, 94.9% are collateralized by real
estate.

         Other real estate owned ("OREO"), which is included in other assets,
increased from $938,000, or 0.32% of total assets, at December 31, 1994 to
$1,162,000, or 0.39% of total assets, at December 31, 1995. The OREO portfolio
consisted of a commercial property, a single-family residence and a residential
condominium at the end of 1995. The commercial


<PAGE>   42
property generates a positive cash flow. The single-family residence was sold
for $150,000 under an agreement of sale which matures in June 1996. The
condominium is currently listed for sale. At December 31, 1995 and 1994, the
market values of the properties in OREO, less estimated selling costs, exceeded
their respective carrying values. There was no activity in the reserve in any of
those years.

         The following table presents information on restructured and noncurrent
loans and leases for the years indicated:

<TABLE>
<CAPTION>
                                   1995         1994         1993         1992        1991
--------------------------------------------------------------------------------------------

<S>                             <C>          <C>          <C>          <C>          <C>     
Noncurrent loans and leases
  Past due 90 days or more      $  414,000   $2,241,000   $  634,000   $1,094,000   $123,000
  Nonaccrual                     6,206,000    1,326,000      924,000        2,000    513,000
                                ----------   ----------   ----------   ----------   --------
    Total                       $6,620,000   $3,567,000   $1,558,000   $1,096,000   $636,000
                                ==========   ==========   ==========   ==========   ========

Restructured loans and leases   $     --     $     --     $   52,000   $   61,000   $   --
                                ==========   ==========   ==========   ==========   ========

OREO                            $1,162,000   $  938,000   $  150,000   $  150,000      $----
                                ==========   ==========   ==========   ==========   ========

Note:  Impaired loans are included in nonaccrual loans and leases.

--------------------------------------------------------------------------------------------
</TABLE>



Potential Problem Loans

         The Bank has an internal grading and review system for the purpose of
identifying risk and controlling potential problem credits. Loans and leases are
risk graded on an ongoing basis by the responsible lending officer. This grade
is subsequently confirmed by an independent Loan Review Department, which
publishes a monthly report listing the credits graded, their potential
weaknesses and the reasons for the assigned grades. These reports are reviewed
by management and a committee of the Board of Directors and a response to any
comments by the Loan Reviewer is required from the lending officer.

Provision and Allowance for Loan and Lease Losses

         The provision for loan and lease losses is based upon management's
evaluation as to the adequacy of the allowance for loan and leases losses
("allowance" or "reserve") to absorb potential losses in the portfolio. The
adequacy of the allowance is reviewed at least quarterly by management and
approved by the Board of Directors and more frequent analyses may be performed
if warranted. In appraising the adequacy of the allowance, management considers
historical loss experience, the value and adequacy of collateral, levels of and
trends in nonperforming loans and leases, loan concentrations, the growth and
composition of the portfolio, the review of monthly delinquency reports, the
results of examinations of individual loans and leases and/or evaluation of the
overall portfolio by senior credit personnel, internal auditors, and regulatory
agencies, trend of interest rates and general economic conditions. Furthermore,
as part of the review process, each credit, which is over $50,000 and has been
placed on nonaccrual, is individually assessed for loss potential. When a loan
reaches this stage, it is also the Bank's practice to obtain a current
evaluation or appraisal of the collateral.


<PAGE>   43
         During 1995, the Bank provided $700,000 for possible loan and lease
losses, compared to $765,000 and $480,000 in 1994 and 1993, respectively. Net
charge offs increased from $133,629 in 1993, to $472,834 in 1994, and to
$1,025,203 in 1995. The ratio of net charge offs to average loans for those
years were 0.06%, 0.22%, and 0.48% respectively. The increase in 1994 was the
result of a weak State economy which, after three years, is still in the early
stages of recovery. The higher loss experienced in 1995 was primarily
attributable to one credit which was written down by $643,000 to the appraised
value of the underlying collateral.

        At December 31, 1995, the allowance for loan and lease losses stood at
$3,096,433, representing 1.5% of total loans and leases outstanding, compared
to $3,421,636, or 1.6%, at year-end 1994. While the reserve as a percentage of
noncurrent loans and leases declined from .96 times at December 31, 1994 to .47
times at December 31, 1995, it remained at a sufficient level to absorb
potential losses. As was noted earlier, the majority of the loans and leases in
the noncurrent category are collateralized by real estate.

Liquidity Management

         The objective of liquidity management is to provide sufficient cash
flows to accommodate fluctuations in deposit levels, fund operations, provide
for customers' credit needs, and meet obligations and commitments on a timely
basis. The Bank relies on both assets and liabilities to satisfy its liquidity
requirements.

         The principal sources of asset-based liquidity for the Bank are cash
and cash equivalents. At December 31, 1995, these resources totaled $32,658,709,
or 10.9% of total assets, compared to $20,610,271, or 7.1%, at December 31,
1994. The improvement was attributable to an increase in federal funds sold
which rose from $1,000,000 at December 31, 1994 to $13,750,000 at December 31,
1995. During the years ended December 31, 1995, 1994 and 1993, the Bank was a
net seller of federal funds.

         On the liability side of the balance sheet, liquidity is provided
primarily by increases in deposits and, to a lesser extent, borrowings. The Bank
places a high priority on attracting and retaining a stable base of core
deposits and, thus, does not actively solicit large time certificates of
deposits or deposits from outside of the Bank's market area. Furthermore, no
deposits are sold or placed through brokers. The State of Hawaii, City and
County of Honolulu, and other public agencies are important providers of funds.
At December 31, 1995, 1994, and 1993, public time deposits represented 11.2%,
11.3% and 10.4%, respectively, of the total deposit base. Additional liquidity
is available to the Bank through federal funds lines at other banks and the
discounting facilities at the Federal Reserve Bank. In 1994, the Bank
established a line of credit with the FHLB equal to 10.0% of total assets,
including a cash management agreement line of 5.0%. There were no borrowings
outstanding from the FHLB at December 31, 1995 and 1994.

         Operating activities provided net cash of $3,060,597 in 1995,
$2,140,463 in 1994, and $2,054,354 in 1993. Net cash provided by investing
activities was $1,739,085 in 1995, due largely to the sale of a $4,427,468
commercial mortgage loan package to an investor. The proceeds from the sale were
used to payoff an advance from the FHLB. Loan originations and purchases of
investment securities accounted for a significant portion of the net cash used
in


<PAGE>   44
investing activities of $6,845,523 and $1,147,003 in 1994 and 1993,
respectively. The capital expenditures in 1995 and 1994 were related to the
purchase of new equipment and related software for the Bank's teller terminals
and proof department. In 1995, the Bank acquired a property at a foreclosure
auction for $225,000. Financing activities provided net cash of $7,248,756 in
1995 and used net cash of $17,261,257 in 1994 and $10,629,840 in 1993. In 1995,
the Bank obtained a $4,000,000 advance from the FHLB for 120 days which was
repaid at maturity. In 1994 and 1993, the Bank experienced an attrition in
deposits of $17,194,607 and $10,648,190, respectively, which was related to the
interest rate differential between interest-bearing deposits and capital market
investments. (For a discussion of how market interest rates may affect deposit
outflows, refer to the preceding section entitled, "Deposits.")

Interest Rate Sensitivity Management

         The objective of interest rate sensitivity management is to ensure the
safety and soundness of the institution by reducing the vulnerability of
earnings to interest rate fluctuations. In order to achieve this objective, the
Bank has an Asset/Liability Committee, whose responsibility is to measure and
monitor the institution's interest rate risk exposure and to develop and
implement an appropriate interest rate risk strategy.

         In order to mitigate exposure to rising interest rates, emphasis has
been placed on increasing the interest rate sensitivity of assets. The current
strategy is to originate adjustable-rate mortgages to portfolio and to sell
fixed-rate production in the secondary market primarily to government sponsored
instrumentalities like the Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association. In addition, the Bank underwrites the
majority of its commercial loans on a floating-rate basis. No derivative
financial instruments, such as futures, options or interest rate swaps are used
for hedging, yield enhancement or speculative purposes.

         In recent months, the Federal Reserve Board has reduced short-term
interest rates three times in an effort to stimulate the nation's economy. As
illustrated below, the Bank is asset- sensitive on a cumulative basis, which
implies that more interest-earning assets could reprice than interest-bearing
liabilities. Generally, a decline in interest rates will adversely affect net
interest income, as yields on interest-earning assets decrease at a faster rate
than costs of interest-bearing liabilities. Conversely, in a rising interest
rate environment, net interest income will generally benefit, as yields increase
at a faster rate than interest costs. As a conservative assumption, a 15.0%
annual run-off rate for interest-bearing demand and savings deposits was used in
the following schedule.


<PAGE>   45
                            INTEREST RATE SENSITIVITY
                             AS OF DECEMBER 31, 1995
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                      Days
-----------------------------------------------------------------------------------------------------
                                                                       365        Non-Int.
                                     0-90      91-180     181-365    and Over     Bearing     Total
-----------------------------------------------------------------------------------------------------


ASSETS
------

<S>                                <C>        <C>        <C>        <C>          <C>         <C>     
Investment Securities              $  5,000   $  9,000   $ 10,000   $  23,490    $   --      $ 47,490
Short-Term Investments               13,750       --         --          --          --        13,750
Loans and Leases                    148,719     29,337     31,194       3,844        --       213,094
Other Assets                           --         --         --          --        25,256      25,256
-----------------------------------------------------------------------------------------------------
Total Assets                       $167,469   $ 38,337   $ 41,194   $  27,334    $ 25,256    $299,590
-----------------------------------------------------------------------------------------------------

LIABILITIES AND CAPITAL
-----------------------

Demand Deposits                    $   --     $   --     $   --     $    --      $ 66,331    $ 66,331
Interest-Bearing Demand Deposits      1,466      1,466      1,466      24,918        --        29,316
Savings Deposits                      5,687      5,687      5,687      96,676        --       113,737
Time Deposits                        36,288     15,657      7,168         408        --        59,521
Short-Term Borrowings                   903       --         --          --          --           903
Other Liabilities                      --         --         --          --         2,589       2,589
Capital                                --         --         --          --        27,193      27,193
-----------------------------------------------------------------------------------------------------
Total Liabilities
  and Capital                      $ 44,344   $ 22,810   $ 14,321   $ 122,002    $ 96,113    $299,590
-----------------------------------------------------------------------------------------------------
Interest Sensitivity
  Gap                              $123,125   $ 15,527   $ 26,873   $ (94,668)   $(70,857)   $   --
-----------------------------------------------------------------------------------------------------
Cumulative Gap                     $123,125   $138,652   $165,525   $  70,857    $   --      $   --
-----------------------------------------------------------------------------------------------------
</TABLE>

Shareholders' Equity and Capital Resources

         Management believes that a strong capital position serves three basic
purposes: 1) it inspires public confidence; 2) provides a safety cushion against
unforeseen operating losses; and 3) establishes a solid foundation for future
growth.

         Shareholders' equity totaled $27,192,715 at year-end 1995, an increase
of $949,306, or 3.6%, over the previous year-end balance. The growth in equity
was achieved through retention in earnings after payment of cash dividends. Book
value per share increased from $36.91 at December 31, 1994 to $38.25 at December
31, 1995.

         The Company is subject to risk-based capital guidelines which are used
by bank regulatory agencies to evaluate capital adequacy. Under this system,
assets and off-balance sheet items are assigned to one of four risk-weight
categories to calculate a risk-weighted asset base. The rules require a minimum
Tier 1 capital ratio of 4.0% of risk-weighted assets and a minimum total capital
ratio of 8.0% of risk-weighted assets. Tier 1 capital generally consists


<PAGE>   46
of common shareholders' equity less goodwill, while total capital includes in
addition to Tier 1 capital, the allowance for possible loan and lease losses,
subject to certain limitations, and subordinated debt. In addition to the
risk-based capital ratios, the banking regulators have established a minimum
leverage ratio of Tier 1 capital to average quarterly total assets of 3.0%. In
order to be considered well-capitalized by the bank regulatory agencies, an
institution must have at minimum a 5.0% leverage ratio, a Tier 1 risk-based
capital ratio of 6.0% and a total capital ratio of 10.0%. At December 31, 1995,
the Company's Tier 1 and total capital ratios were 13.10% and 14.36%,
respectively, compared to 12.39% and 13.64% at December 31, 1994. At year-end
1995 and 1994, the Company's leverage ratio was 9.21% and 9.12%, respectively.

         In evaluating the Company's capital position, management considers the
present and anticipated needs of Bancshares and HNB, current and projected
market conditions, interest rate risk exposure, bank regulatory requirements,
and other relevant factors. Management believes that capital continues to be
adequate to meet the present needs of both Bancshares and HNB. As part of its
long-term planning, management conducts periodic evaluations as to the overall
adequacy of capital, and the need and desirability of raising capital is
reviewed. The current strategy is to generate capital through retention of
earnings. Should asset growth exceed earnings retention, several alternatives
for raising capital are available. Bancshares could sell additional stock, as it
did in 1991 with a $2,950,000 private placement, or issue new debt and
downstream the proceeds as capital to the Bank. Bancshares may borrow up to 30%
of its capital without prior approval of the Federal Reserve System. Based on
year-end 1995 figures, this would amount to $8,157,815. A third alternative is
to obtain an intermediate or long-term advance under the Bank's line of credit
with the FHLB. At year-end 1995, the Bank could borrow up to $14,512,500 under
this tranche of the facility while a similar amount was available for use as a
cash management or federal funds line.

Effects of New Accounting Standards

         In May 1995, the FASB issued Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights," which amends Statement 65
"Accounting for Certain Mortgage Banking Activities" and requires that mortgage
banking enterprises recognize as separate assets rights to service mortgage
loans for others, however those servicing rights are acquired. This Statement
applies to transactions in which a mortgage banking enterprise sells or
securitizes mortgage loans with servicing rights retained and to impairment
evaluations of all amounts capitalized as mortgage servicing rights. Statement
No. 122 is to be generally applied prospectively and is effective for fiscal
years beginning after December 15, 1995. The adoption of this Statement is not
anticipated to have a material effect on the consolidated financial statements
of the Company.

         In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which establishes financial accounting and reporting
standards for stock-based employee compensation plans and applies to
transactions in which an entity issues its equity instruments to acquire goods
or services from nonemployees. SFAS No. 123 is effective for fiscal years
beginning after December 15, 1995. Since the Company does not offer these types
of stock plans to its employees and does not enter into these types of
transactions, this standard will have no effect on the consolidated financial
statements of the Company.


<PAGE>   47
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated financial statements, notes, and supplementary data
thereto called for by this item and the report of independent certified public
accountants are provided in ITEM 14(a).

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

         None.

                                    PART III

         Information regarding directors and certain executive officers of
Bancshares, executive compensation, and security ownership of certain beneficial
owners and management is provided under "Election of Directors" and "Principal
Shareholders and Ownership of the Stock by Officers and Directors of Bancshares"
in the Proxy Statement for Bancshares' 1996 Annual Meeting of Shareholders and,
except for the "Compensation Committee Report", is incorporated herein by
reference.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND
         REPORTS ON FORM 8-K

     (a) (1)      Financial Statements

                  Hawaii National Bancshares, Inc. and Subsidiary:

                  Report of Independent Certified Public Accountants

                  Consolidated Balance Sheets
                           December 31, 1995 and 1994

                  Consolidated Statements of Income
                           for the years ended December 31, 1995, 1994 and 1993

                  Consolidated Statements of Changes in Shareholders' Equity for
                           the years ended December 31, 1995, 1994 and 1993

                  Consolidated Statements of Cash Flows
                           for the years ended December 31, 1995, 1994 and 1993

                  Notes to the Consolidated Financial Statements


<PAGE>   48
         (2)      Supplementary Financial Statement Schedules

                           Schedules to the consolidated financial statements
                           required by Article 9 of Regulation S-X are not
                           required under the related instructions or are
                           inapplicable, and therefore have been omitted.

         (3)      Exhibits

                           See index to exhibits to this Form 10-K.

<PAGE>   49
                         [COOPERS & LYBRAND LETTERHEAD]


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Shareholders and
  Board of Directors
Hawaii National Bancshares, Inc.

We have audited the accompanying consolidated balance sheets of Hawaii National
Bancshares, Inc. and Subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of income and changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Hawaii National
Bancshares, Inc. and Subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.

As discussed in Notes 1 and 11 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan," effective January 1, 1995 and Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
effective January 1, 1993 which changed its method of accounting for impaired
loans and income taxes, respectively.


/s/ Coopers & Lybrand L.L.P.

Honolulu, Hawaii
January 19, 1996
<PAGE>   50
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1995 AND 1994


<TABLE>
<CAPTION>
                                                             1995                1994
<S>                                                      <C>                 <C>
ASSETS:
   Cash and due from banks                               $ 18,908,709        $ 19,610,271
   Federal funds sold                                      13,750,000           1,000,000
   Investment securities (Notes 1 and 2) -
     Held-to-maturity (fair value of $46,165,000
       in 1995 and $43,892,000 in 1994)                    45,993,061          44,930,312
     Available-for-sale                                     1,497,003           1,489,303
   Loans and leases (Note 4)                              213,094,028         217,414,190
     Less allowance for possible loan and lease
       losses (Note 5)                                      3,096,433           3,421,636
                                                         ------------        ------------
                                                          209,997,595         213,992,554
                                                         ------------        ------------
   Premises and equipment (Note 6)                          4,189,043           3,928,968
   Other assets                                             5,255,046           5,304,884
                                                         ------------        ------------

       Total assets                                      $299,590,457        $290,256,292
                                                         ------------        ------------

LIABILITIES:
   Deposits (Note 7) -
     Noninterest-bearing demand                          $ 66,331,301        $ 59,714,902
     Interest-bearing demand                               29,316,390          31,615,598
     Savings                                              113,736,751         117,447,338
     Time                                                  59,521,343          52,195,280
                                                         ------------        ------------
       Total deposits                                     268,905,785         260,973,118
   Federal funds purchased                                       --               480,000
   Short-term borrowings (Note 8)                             902,739           1,000,000
   Other liabilities                                        2,589,218           1,559,765
                                                         ------------        ------------
       Total liabilities                                  272,397,742         264,012,883
                                                         ------------        ------------
   Commitments (Notes 9 and 14)

SHAREHOLDERS' EQUITY (Note 10):
   Common stock, par value $1 per share;
     Authorized - 10,000,000 shares
     Issued and outstanding - 711,000 shares
       in 1995 and 1994                                       711,000             711,000
   Capital in excess of par value                          12,147,676          12,135,655
   Retained earnings                                       14,334,039          13,396,754
                                                         ------------        ------------
       Total shareholders' equity                          27,192,715          26,243,409
                                                         ------------        ------------

       Total liabilities and shareholders' equity        $299,590,457        $290,256,292
                                                         ============        ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>   51
                HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993



<TABLE>
<CAPTION>
                                                                 1995                1994               1993
<S>                                                           <C>                <C>                <C>
INTEREST INCOME:
   Interest and fees on loans                                 $19,561,816        $17,396,683        $17,533,764
   Interest on investment securities -
      Taxable                                                   2,225,749          2,055,527          2,376,607
      Exempt from Federal income tax                               75,500             75,500            101,599
   Interest on Federal funds sold                                 554,816            491,670            721,183
   Interest on direct financing leases                            121,878            132,925            174,958
   Other                                                          100,572             27,595             24,588
                                                              -----------        -----------        -----------
        Total interest income                                  22,640,331         20,179,900         20,932,699
                                                              -----------        -----------        -----------
INTEREST EXPENSE:
   Deposits                                                     6,949,033          5,242,260          6,017,815
   Federal funds purchased                                        109,056             26,012             19,781
   Short-term borrowings                                           47,556             31,957             24,696
                                                              -----------        -----------        -----------
        Total interest expense                                  7,105,645          5,300,229          6,062,292
                                                              -----------        -----------        -----------
        Net interest income                                    15,534,686         14,879,671         14,870,407
PROVISION FOR LOAN AND LEASE LOSSES (Note 5)                      700,000            765,000            480,000
                                                              -----------        -----------        -----------
        Net interest income after provision for
          loan and lease losses                                14,834,686         14,114,671         14,390,407
                                                              -----------        -----------        -----------
OTHER INCOME:
   Service charges on deposit accounts                            306,348            260,680            232,825
   Other service charges, collection and exchange
      charges, commissions and fees                             2,011,460          2,087,378          2,235,197
   Gain on investment securities available-for-sale                18,715               --                 --
   Gain on trading securities                                        --                 --               10,351
                                                              -----------        -----------        -----------
                                                                2,336,523          2,348,058          2,478,373
                                                              -----------        -----------        -----------
OTHER EXPENSES:
   Salaries and employee benefits                               7,722,061          7,295,388          7,129,760
   Occupancy expense of bank premises                           3,381,351          3,178,064          3,139,216
   Equipment expense                                              776,455            707,705            710,974
   Computer services (Note 3)                                     690,373            845,818            934,641
   Other operating expenses (Note 13)                           2,937,034          3,058,414          3,358,097
                                                              -----------        -----------        -----------
                                                               15,507,274         15,085,389         15,272,688
                                                              -----------        -----------        -----------
        Income before income taxes and cumulative
             effect
          of change in accounting principle                     1,663,935          1,377,340          1,596,092
INCOME TAX PROVISION (Note 11)                                    620,000            505,000            670,000
                                                              -----------        -----------        -----------
        Income before cumulative effect of change in
          accounting principle                                  1,043,935            872,340            926,092
CUMULATIVE EFFECT OF CHANGE IN METHOD OF
   ACCOUNTING FOR INCOME TAXES                                       --                 --              350,000
                                                              -----------        -----------        -----------

        Net income                                            $ 1,043,935        $   872,340        $ 1,276,092
                                                              ===========        ===========        ===========
EARNINGS PER COMMON SHARE:
   Earnings before cumulative effect of accounting            $      1.47        $      1.23        $      1.30
        change
   Cumulative effect of change in accounting principle               --                 --                  .49
                                                              -----------        -----------        -----------

EARNINGS PER COMMON SHARE                                     $      1.47        $      1.23        $      1.79
                                                              ===========        ===========        ===========
</TABLE>

    The accompanying notes are an integral part of the consolidated financial
    statements.
<PAGE>   52
                HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993



<TABLE>
<CAPTION>
                                                             CAPITAL IN
                                             COMMON           EXCESS OF         RETAINED
                                              STOCK           PAR VALUE         EARNINGS              TOTAL
<S>                                         <C>             <C>                <C>                 <C>
BALANCE, JANUARY 1, 1993                    $711,000        $12,135,655        $11,461,622         $24,308,277
Cash dividends paid ($.15 per share)            --                 --             (106,650)           (106,650)
Net income for the year                         --                 --            1,276,092           1,276,092
                                            --------        -----------        -----------         -----------
BALANCE, DECEMBER 31, 1993                   711,000         12,135,655         12,631,064          25,477,719
Cash dividends paid ($.15 per share)            --                 --             (106,650)           (106,650)
Net income for the year                         --                 --              872,340             872,340
                                            --------        -----------        -----------         -----------
BALANCE, DECEMBER 31, 1994                   711,000         12,135,655         13,396,754          26,243,409
Cash dividends paid ($.15 per share)            --                 --             (106,650)           (106,650)
Adjustment to capital in excess of
   par value                                    --               12,021               --                12,021
Net income for the year                         --                 --            1,043,935           1,043,935
                                            --------        -----------        -----------         -----------

BALANCE, DECEMBER 31, 1995                  $711,000        $12,147,676        $14,334,039         $27,192,715
                                            ========        ===========        ===========         ===========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
   statements.
<PAGE>   53
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993



<TABLE>
<CAPTION>
                                                                1994                1995                 1993
<S>                                                        <C>                  <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Interest and fees received                              $ 22,588,077         $ 20,122,519         $ 21,259,585
   Interest paid                                             (6,921,257)          (5,118,608)          (6,069,860)
   Proceeds from sale of trading securities                        --                   --              1,995,557
   Purchase of trading securities                                  --                   --             (1,985,206)
   Service charges, collection and exchange
        charges,
      commission and fees received                            2,317,808            2,359,712            2,468,022
   Cash paid to suppliers and employees                     (14,114,951)         (14,670,439)         (14,668,060)
   Income taxes paid                                           (809,080)            (552,721)            (945,684)
                                                           ------------         ------------         ------------
        Net cash provided by operating activities             3,060,597            2,140,463            2,054,354
                                                           ------------         ------------         ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from maturity of investment securities
      held-to-maturity                                       19,932,559           11,000,000           20,894,267
   Purchase of investment securities                        (20,995,308)         (11,912,813)         (23,115,648)
        held-to-maturity
   Proceeds from sale of investment securities
      available-for-sale                                      2,122,073                 --                   --
   Purchase of investment securities                         (2,111,058)          (1,069,500)                --
        available-for-sale
   Net decrease (increase) in loans and leases made
      to customers                                           (1,119,353)          (4,269,676)           2,031,085
   Proceeds from sale of loans                                4,427,468                 --                   --
   Capital expenditures                                        (447,163)            (593,534)            (156,707)
   Proceeds from sale of equipment                              154,867                 --                   --
   Advance deposit for purchase of other real estate                 --                 --               (800,000)
   Purchase of other real estate                               (225,000)                --                   --
                                                           ------------         ------------         ------------
        Net cash provided by (used in)
          investing activities                                1,739,085           (6,845,523)          (1,147,003)
                                                           ------------         ------------         ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net increase (decrease) in demand deposits and
      savings accounts                                       (3,064,270)         (19,411,955)           1,379,183
   Net increase (decrease) in time deposits                   2,935,114            2,217,348          (12,027,373)
   Proceeds from deposit acquisitions                         8,061,823                 --                   --
   Net increase (decrease) in federal funds                    (480,000)              40,000              125,000
        purchased
   Proceeds from short-term borrowings                        4,000,000                 --                   --
   Repayment of short-term borrowings                        (4,097,261)                --                   --
   Dividends paid                                              (106,650)            (106,650)            (106,650)
                                                           ------------         ------------         ------------
        Net cash provided by (used in)
          financing activities                                7,248,756          (17,261,257)         (10,629,840)
                                                           ------------         ------------         ------------

NET INCREASE (DECREASE) IN CASH AND CASH                     12,048,438          (21,966,317)          (9,722,489)
      EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR               20,610,271           42,576,588           52,299,077
                                                           ------------         ------------         ------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                   $ 32,658,709         $ 20,610,271         $ 42,576,588
                                                           ============         ============         ============
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
   statements.
<PAGE>   54
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993



<TABLE>
<CAPTION>
                                                            1994                 1995             1993
<S>                                                      <C>                 <C>                 <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
   BY OPERATING ACTIVITIES:

      Net income                                         $1,043,935         $  872,340         $1,276,092

      Adjustments to reconcile net income to net cash
        provided by operating activities:
          Depreciation on bank premises and
             equipment                                      480,109            404,107            419,706
          Provision for loan and lease losses               700,000            765,000            480,000
          Amortization of deferred loan fees               (280,960)          (352,759)          (385,354)
          Loan fees                                         267,803            406,976            477,881
          Reduction of investment in Computer
             Systems International, Ltd.                    200,000             60,000            280,559
          Gain on investment securities
             available-for-sale                             (18,715)              --                 --
          Changes in -
             Interest receivable                            (40,161)          (111,598)           234,359
             Interest payable                               184,388            181,621             (7,568)
             Taxes payable                                  (52,500)             1,719           (625,684)
             Other assets                                  (332,888)          (141,636)           131,704
             Other liabilities                              909,586             54,693           (227,341)
                                                         ----------         ----------         ----------

               Total adjustments                          2,016,662          1,268,123            778,262
                                                         ----------         ----------         ----------

NET CASH PROVIDED BY OPERATING ACTIVITIES                $3,060,597         $2,140,463         $2,054,354
                                                         ==========         ==========         ==========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
   FINANCING ACTIVITIES:
      Transfer from loans to real estate acquired
        through foreclosure                              $  168,364         $  744,602         $     --
                                                         ==========         ==========         ==========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
   statements.
<PAGE>   55
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Hawaii National Bancshares, Inc. was incorporated on September 29, 1986 under
the laws of the State of Hawaii for the purpose of becoming a bank holding
company for Hawaii National Bank. Hawaii National Bank operates twelve branches
in the State of Hawaii and offers a full range of banking services to businesses
as well as individuals. The Bank's primary source of revenue is providing loans
to customers.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.

The accounting and reporting policies of Hawaii National Bancshares, Inc. and
Subsidiary ("Company") conform with generally accepted accounting principles and
practices within the banking industry. The following is a summary of the
significant accounting and reporting policies:

CONSOLIDATION -

     The consolidated financial statements of the Company include the accounts
     of Hawaii National Bancshares, Inc. ("Parent") and its wholly-owned
     subsidiary, Hawaii National Bank ("Bank"). All significant intercompany
     balances and transactions have been eliminated in consolidation.

FAIR VALUES OF FINANCIAL INSTRUMENTS -

     FASB Statement No. 107, "Disclosures about Fair Value of Financial
     Instruments," requires disclosure of fair value information about financial
     instruments, whether or not recognized in the balance sheet, for which it
     is practicable to estimate that value. In cases where quoted market prices
     are not available, fair values are based on estimates using present value
     or other valuation techniques. Those techniques are significantly affected
     by the assumptions used, including the discount rate and estimates of
     future cash flows. In that regard, the derived fair value estimates cannot
     be substantiated by comparison to independent markets and, in many cases,
     could not be realized in immediate settlement of the instrument. Statement
     107 excludes certain financial instruments and all nonfinancial instruments
     from its disclosure requirements. Accordingly, the aggregate fair value
     amounts presented do not represent the underlying value of the Company.
<PAGE>   56
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



CASH AND CASH EQUIVALENTS -

     Cash and cash equivalents include cash on hand, amounts due from banks and
     federal funds sold. Generally, federal funds are purchased and sold for
     one-day periods.

     The carrying amounts reported in the consolidated balance sheet for cash
     and short-term instruments approximate fair values.

     Federal regulatory requirements provide for maintenance of average cash
     reserves. Such reserve requirements are computed on a bi-weekly basis and
     amounted to $300,000 at December 31, 1995.

INVESTMENT SECURITIES -

     Investment securities consist principally of debt instruments issued by the
     U.S. Treasury and other U.S. Government agencies, State and local
     government units and shares held by the Company in capital stock of the
     Federal Home Loan Bank of Seattle ("FHLB of Seattle") and the Federal
     Reserve Bank.

     Investment securities are classified in one of three categories and
     accounted for as follows: 1) investment securities that the Company has the
     positive intent and ability to hold to maturity are classified as
     held-to-maturity and reported at amortized cost; 2) investment securities
     that are brought and held principally for the purpose of selling them in
     the near term are classified as trading securities and reported at fair
     value, with unrealized gains and losses included in earnings; and 3)
     investment securities not classified as either held-to-maturity securities
     or trading securities are classified as available-for-sale and reported at
     fair value, with unrealized gains and losses excluded from earnings and
     reported in a separate component of shareholders' equity. Fair values are
     based on quoted market prices or dealer quotes.

LOANS AND LEASES -

     Loans are carried at face value less undisbursed funds, unearned income and
     payments received. Loan origination fees net of direct costs of origination
     are deferred and accounted for as an adjustment of the yield. Commitment
     fees are deferred and amortized over the commitment term.

     For variable-rate loans that reprice at least quarterly and with no
     significant change in credit risk, fair values are based on carrying
     values. The fair values of other types of loans, such as fixed-rate loans
     and variable-rate loans that reprice infrequently, are estimated using
     discounted cash flow analyses, which utilize interest rates currently being
     offered for
<PAGE>   57
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


     loans with similar terms to borrowers of similar credit quality. The
     carrying amount of accrued interest approximates its fair value.

     Equipment acquired by the Company for its leasing operations is accounted
     for on the financing method with income recognized over the life of the
     lease based upon a level rate of return on the unrecovered investment.

     In May 1995, the FASB issued Statement of Financial Accounting Standards
     No. 122, "Accounting for Mortgage Servicing Rights," which amends Statement
     65 "Accounting for Certain Mortgage Banking Activities" and requires that
     mortgage banking enterprises recognize as separate assets rights to service
     mortgage loans for others, however those servicing rights are acquired.
     This Statement applies to transactions in which a mortgage banking
     enterprise sells or securitizes mortgage loans with servicing rights
     retained and to impairment evaluations of all amounts capitalized as
     mortgage servicing rights. Statement No. 122 is generally to be applied
     prospectively and is effective for fiscal years beginning after December
     15, 1995. The adoption of this Statement is not anticipated to have a
     material effect on the consolidated financial statements of the Company.

ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES -

     Effective January 1, 1995, the Company adopted FASB Statement of Financial
     Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
     Loan," and Statement No. 118, "Accounting by Creditors for Impairment of a
     Loan - Income Recognition and Disclosures," which amends Statement No. 114
     to allow a creditor to use existing methods for recognizing interest income
     on impaired loans. Under the new standards, a loan is considered impaired,
     based on current information and events, if it is probable that the Company
     will be unable to collect the scheduled payments of principal or interest
     when due according to the contractual terms of the loan agreement. The
     measurement of impaired loans is generally based on the present value of
     expected future cash flows discounted at the loan's effective interest rate
     or the fair value of the collateral if the loan is collateral-dependent.
     The adoption of Statements No. 114 and 118 did not have a material effect
     on the consolidated financial statements of the Company.

     The allowance for possible loan and lease losses ("allowance") is
     maintained at a level which, in management's judgment, is adequate to
     absorb future losses. Estimates of future loan and lease losses involve
     judgment and assumptions as to various factors which, in management's
     judgment, deserve current recognition in estimating such losses and in
     determining the adequacy of the allowance. Principal factors considered by
     management include the historical loss experience, the value and adequacy
     of collateral, the level of nonperforming loans and leases, loan
     concentrations, the growth and composition of the portfolio, the review of
     monthly delinquency reports, the results of examinations of
<PAGE>   58
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


     individual loans and leases and/or evaluation of the overall portfolio by
     senior credit personnel, internal auditors, and regulatory agencies, trend
     of interest rates and general economic conditions.

     The allowance is established through charges to earnings in the form of a
     provision for loan and lease losses. Increases and decreases in the
     allowance due to changes in the measurement of the impaired loans are
     included in the provision. Loans continue to be classified as impaired
     unless they are brought fully current and the collection of scheduled
     interest and principal is considered probable. Loans collectively evaluated
     for impairment include smaller balance commercial loans, real estate loans
     and consumer loans which are not included in the total impaired loans.

     Losses on loans and leases are charged to the allowance when collectibility
     becomes doubtful and the underlying collateral, if any, is inadequate to
     liquidate the outstanding debt. Generally, when a commercial loan is on
     nonaccrual status for more than 120 days, it is charged off unless it is
     well secured. When a real estate loan is placed on nonaccrual status, the
     underlying collateral is reevaluated or reappraised. If the loan balance
     exceeds the value of the collateral, the under-secured portion of the loan
     is charged off. Loans to individuals for household, family and other
     personal expenditures ("consumer loans") are generally charged off when
     they are delinquent for more than 90 days unless a recent record of regular
     full payments for the last two months is evident. Direct financing leases
     are charged off when they are delinquent for more than 90 days.

     Recoveries on loans and leases previously charged off are added to the
     allowance.

INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS -

     Loans and leases, including impaired loans, are generally classified as
     nonaccrual if they are past due as to maturity or payment of principal or
     interest for over 90 days, unless such loans and leases are well-secured
     and in the process of collection. If a loan or a portion of a loan is
     classified as doubtful or is partially charged off, the loan is classified
     as nonaccrual. Loans that are on a current payment status or past due less
     than 90 days may also be classified as nonaccrual if repayment in full of
     principal and/or interest is in doubt. Loans may be returned to accrual
     status when all principal and interest amounts contractually due (including
     arrearages) are reasonably assured of repayment within an acceptable period
     of time, and there is a sustained period of repayment performance by the
     borrower in accordance with the contractual terms of interest and
     principal.

     While a loan is placed on nonaccrual status, unpaid interest accrued in the
     current year is reversed against current earnings, and interest accrued in
     the prior years is charged against the allowance for possible loan and
     lease losses. Subsequent collections of interest and
<PAGE>   59
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


     principal are generally applied as a reduction to principal outstanding.
     When the future collectibility of the recorded loan balance is expected,
     interest income is recognized on a cash basis. If a nonaccrual loan had
     been partially charged off, recognition of interest on a cash basis is
     limited to that which would have been recognized on the recorded loan
     balance at the contractual interest rate. Cash interest receipts in excess
     of that amount are recorded as recoveries to the allowance until prior
     charge-offs have been fully recovered.

PREMISES AND EQUIPMENT -

     Premises and equipment are stated at cost less accumulated depreciation.
     Depreciation is computed on the straight-line method over the shorter of
     estimated economic lives or lease terms of 5-35 years for buildings and
     improvements and 3-25 years for furniture and equipment.

     Expenditures for maintenance, repairs and minor renewals are charged to
     expense; expenditures for betterments are capitalized. Property retired or
     otherwise disposed of is removed from the appropriate asset and related
     accumulated depreciation accounts. Gains and losses on sale of assets are
     reflected in current operations.

INVESTMENT IN COMPUTER SYSTEMS INTERNATIONAL, LTD. -

     The Bank's investment in Computer Systems International, Ltd. (CSI) is
     accounted for under the equity method.

OTHER REAL ESTATE OWNED -

     Assets acquired for debts previously contracted are recorded at fair market
     value less estimated disposal costs. Any excess of the carrying amount of
     the loan over the fair market value of the asset is charged against the
     allowance for possible loan losses at the time of transfer. Subsequent to
     transfer, any losses on disposition or writedowns as a result of declines
     in market value of specific properties are charged against current
     earnings. Real estate acquired through foreclosure sale, deed-in-lieu of
     foreclosure, and bank property for which banking use is no longer
     contemplated are classified as other real estate owned and is included in
     other assets. Operating income and expenses incurred on these properties
     are reflected in current earnings.

DEPOSIT LIABILITIES -

     The fair values of demand deposits (e.g., interest and noninterest
     checking, passbook savings, and certain types of money market accounts)
     are, by definition, equal to the amount payable on demand at the reporting
     date (i.e., their carrying amounts). Fair values
<PAGE>   60
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


     of fixed-rate certificates of deposit are estimated using a discounted cash
     flow calculation that applies interest rates currently being offered on
     certificates to a schedule of aggregated expected monthly maturities on
     time deposits.

SHORT-TERM BORROWINGS -

     The carrying amounts of federal funds purchased and other short-term
     borrowings approximate their fair values.

INTEREST INCOME -

     Interest is accrued daily on the principal balance of loans outstanding,
     except for loans placed on nonaccrual status.

PENSION PLAN -

     The Company's funding policy is to contribute annually an amount not less
     than the minimum required by the Employee Retirement Income Security Act of
     1974 plus additional amounts which may be approved by the Company. Funding
     requirements are actuarially determined using the entry age normal method.
     For financial reporting purposes, the Company utilizes the projected unit
     credit actuarial method.

INCOME TAXES -

     The Company adopted Statement of Financial Accounting Standards No. 109,
     "Accounting for Income Taxes," effective January 1, 1993 on a prospective
     basis. Deferred income taxes reflect the future tax consequences of
     differences between the tax bases of assets and liabilities and their
     financial reporting amounts at each year end.

OFF-BALANCE SHEET COMMITMENTS -

     The fair values of off-balance sheet commitments are estimated using the
     fees currently charged to enter into similar agreements, taking into
     account the remaining terms of the agreements and the present
     creditworthiness of the counterparties.

PER SHARE DATA -

     Per share data is based on the weighted average number of shares of common
     stock outstanding during the respective years. Weighted average shares
     outstanding was 711,000 in 1995, 1994 and 1993.
<PAGE>   61
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



RECLASSIFICATION -

     Certain balances in the 1993 and 1994 financial statements have been
     reclassified to conform with the 1995 presentation. These reclassifications
     have no effect on net income as previously reported.



2.  INVESTMENT SECURITIES

Comparative book and fair values of investment securities at December 31, 1995
and 1994 were as follows:

<TABLE>
<CAPTION>
                                        BOOK        UNREALIZED     UNREALIZED        FAIR
                                        VALUE         GAINS         LOSSES          VALUE
                                                        (IN THOUSANDS)
<S>                                    <C>            <C>           <C>            <C>
1995
Securities held-to-maturity -
   U.S. Treasury and other
     U.S. government agencies          $44,993        $  206        $    76        $45,123
   States of the U.S. and
     political subdivisions              1,000            42           --            1,042
                                       -------        ------        -------        -------

                                       $45,993        $  248        $    76        $46,165
                                       =======        ======        =======        =======
Securities available-for-sale -
   Equity securities                   $ 1,497        $ --          $  --          $ 1,497
                                       =======        ======        =======        =======

1994
Securities held-to-maturity -
   U.S. Treasury and other
     U.S. government agencies          $43,930        $   11        $ 1,102        $42,839
   States of the U.S. and
     political subdivisions              1,000            53           --            1,053
                                       -------        ------        -------        -------

                                       $44,930        $   64        $ 1,102        $43,892
                                       =======        ======        =======        =======
Securities available-for-sale -
   Equity securities                   $ 1,489        $ --          $  --          $ 1,489
                                       =======        ======        =======        =======
</TABLE>
<PAGE>   62
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



The book and fair values of investment securities at December 31, 1995, by
contractual maturity, excluding securities which have no stated maturity, were
as follows:

<TABLE>
<CAPTION>
                                                    BOOK           FAIR
                                                    VALUE          VALUE
                                                       (IN THOUSANDS)
      <S>                                          <C>            <C>
      Securities held-to-maturity -
        Due within one year                        $26,999        $27,022
        Due after one but within five years         18,994         19,143
        Due after five but within ten years           --             --
        Due after ten years                           --             --
                                                   -------        -------

                                                   $45,993        $46,165
                                                   =======        =======
</TABLE>

Investment securities with an aggregate book value of $44,020,000 and
$42,933,000 at December 31, 1995 and 1994, respectively, were pledged as
collateral for U.S. government and public funds on deposit and for other
purposes required by law.


3.  INVESTMENT IN COMPUTER SYSTEMS INTERNATIONAL, LTD.

Computer services are obtained from Computer Systems International, Ltd. (CSI),
a company formed to provide data processing services to financial institutions,
including the Bank. At December 31, 1995, the Bank and an affiliate of a
director each owned a 50% interest in this bank-service corporation. The Bank's
interest in CSI increased from a 33-1/3% interest effective January 4, 1994 when
CSI purchased into treasury stock the interest of another financial institution.
Charges for data processing services provided by CSI amounted to $690,000,
$846,000 and $935,000 in 1995, 1994 and 1993, respectively.

The Bank's equity in losses of CSI amounted to $200,000, $60,000 and $280,559 in
1995, 1994 and 1993, respectively. The loss for 1993 included a reduction in the
Bank's investment in CSI of $215,000 which represented the Bank's share of
unamortized costs related to software acquisition, development and
implementation. The Bank's investment in CSI amounted to $59,000 and $259,000
(included in other assets) at December 31, 1995 and 1994, respectively.
<PAGE>   63
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



4.  LOANS AND LEASES

Loans and leases outstanding at December 31, 1995 and 1994 are summarized as
follows:

<TABLE>
<CAPTION>
                                                 1995                                    1994
                                    BOOK VALUE          FAIR VALUE          FAIR VALUE          BOOK VALUE
<S>                                <C>                 <C>                 <C>                 <C>
Real estate -
   Family residential              $106,200,103        $110,450,784        $106,753,914        $111,358,251
   Construction                       4,557,472           4,558,305           3,108,442           3,123,223
   Commercial property               27,646,963          27,792,909          31,509,858          31,589,224
Commercial and industrial            66,020,649          65,761,616          67,484,178          67,446,174
Individuals for household,
   family and other
   personal expenditures              7,255,125           7,264,577           7,075,801           7,100,000
All other loans                         248,346             248,346             240,849             240,849
                                   ------------        ------------        ------------        ------------
                                    211,928,658         216,076,537         216,173,042         220,857,721
Direct financing leases               1,165,370           1,165,370           1,241,148           1,241,148
                                   ------------        ------------        ------------        ------------
                                    213,094,028         217,241,907         217,414,190         222,098,869
Less allowance for possible
   loan and lease losses              3,096,433                --             3,421,636                --
                                   ------------        ------------        ------------        ------------

                                   $209,997,595        $217,241,907        $213,992,554        $222,098,869
                                   ============        ============        ============        ============
</TABLE>

Loans to officers, directors and their affiliates amounted to $80,000 and 
$69,000 at December 31, 1995 and 1994, respectively.

There were no loans pledged as collateral for U.S. Government funds on deposit
at December 31, 1995 and 1994.

At December 31, 1995 and 1994, the Company serviced loans for others 
amounting to  $51,753,000 and $49,559,000, respectively.
<PAGE>   64
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



At December 31, 1995 and 1994, the Company's investment in vehicle and equipment
direct financing leases comprised the following:

<TABLE>
<CAPTION>
                                                      1995              1994
<S>                                                <C>              <C>
       Minimum lease payments receivable and
          guaranteed residual values               $1,358,737       $1,465,355
       Unearned income                               (193,367)        (224,207)
                                                   ----------       ----------
                                                   $1,165,370       $1,241,148
                                                   ==========       ==========
</TABLE>

As of December 31, 1995, the future minimum lease payments to be received from
direct financing leases are as follows for the years ending December 31:

<TABLE>
<S>                                             <C>
             1996                               $  527,000
             1997                                  403,000
             1998                                  306,000
             1999                                  115,000
             2000                                    8,000
                                                ----------
                                                $1,359,000
                                                ==========
</TABLE>


5.  ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES

An analysis of the allowance for possible loan and lease losses for the years
ended December 31, 1995, 1994 and 1993 is presented below:

<TABLE>
<CAPTION>
                                           1995           1994          1993
<S>                                    <C>             <C>           <C>
   Balance, beginning of year          $  3,421,636    $3,129,470    $2,783,099
   Provision charged to operations          700,000       765,000       480,000
   Recoveries credited to allowance          78,672        27,278        20,093
   Loans and leases charged off          (1,103,875)     (500,112)     (153,722)
                                       ------------    ----------    ----------
   Balance, end of year                $  3,096,433    $3,421,636    $3,129,470
                                       ============    ==========    ==========
</TABLE>
<PAGE>   65
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



Nonaccrual loans amounted to approximately $6,206,000 and $1,326,000 at December
31, 1995 and 1994, respectively. There was no interest income recognized on
these nonaccrual loans in 1995, 1994 and 1993. Had these loans performed in
accordance with their original terms, interest income of $318,000, $54,000 and
$74,000 would have been recorded in 1995, 1994 and 1993, respectively.

At December 31, 1995, the recorded investment in impaired loans amounted to
approximately $6,084,000, of which $4,633,000 related to loans for which there
was no valuation allowance determined in accordance with Statement No. 114 and
$1,451,000 related to loans with a corresponding valuation allowance determined
under Statement No. 114 of $292,000. For the year ended December 31, 1995, the
average recorded investment in impaired loans was approximately $2,717,000.
There was no interest recognized on these impaired loans in 1995.

During fiscal 1995, a loan was written down by $643,000 through charge-offs to
the fair value of the collateral.


6.  PREMISES AND EQUIPMENT

Premises and equipment as of December 31, 1995 and 1994 are summarized as
follows:

<TABLE>
<CAPTION>
                                                    1995           1994
<S>                                              <C>            <C>
        Buildings and improvements               $3,218,727     $3,167,720
        Furniture and equipment                   6,524,571      6,554,788
                                                 ----------     ----------
                                                  9,743,298      9,722,508
        Less accumulated depreciation             5,554,255      5,793,540
                                                 ----------     ----------
                                                 $4,189,043     $3,928,968
                                                 ==========     ==========
</TABLE>

Depreciation expense on premises and equipment amounted to $480,109, $404,107
and $419,706 in 1995, 1994 and 1993, respectively.
<PAGE>   66
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



7.  DEPOSITS

Time certificates of deposit include certificates of $100,000 or more
aggregating $41,547,000 at December 31, 1995 and $38,397,000 at December 31,
1994. Interest expense on such certificates was $2,137,000, $1,277,000 and
$1,024,000 in 1995, 1994 and 1993, respectively.

Variable rate deposits limited to three withdrawals or less per month are
classified as savings deposits. At December 31, 1995 and 1994, such deposits
aggregated $37,129,000 and $31,475,000, respectively.


8.  SHORT-TERM BORROWINGS

Short-term borrowings consist of U.S. Treasury tax and loan collections on
deposit with the Company. Such deposits bear interest (5.15% at December 31,
1995 and 5.20% at December 31, 1994) and are due on demand.

During 1994, the Bank established a line of credit with the FHLB of Seattle
equal to 10% of total assets, including a cash management agreement line of 5%.
There were no borrowings at December 31, 1995 and 1994.


9.  LEASE COMMITMENTS

The Company is obligated, under long-term leases of bank premises, for minimum
annual rentals plus property taxes, insurance and maintenance. These leases
extend over varying periods to 2024 with renewal options ranging from 3 to 20
years. Most of the leases provide for periodic renegotiation of rents based upon
a percentage of the appraised value of the leased property.
<PAGE>   67
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



At December 31, 1995, the aggregate minimum rental commitments under
noncancelable leases are as follows for the years ending December 31:

<TABLE>
<CAPTION>
                                                LEASE
                                                RENTAL
<S>                                          <C>
           1996                              $ 2,232,000
           1997                                1,972,000
           1998                                1,652,000
           1999                                1,612,000
           2000                                1,619,000
        Thereafter                            27,098,000
                                             ------------
                                             $36,185,000
                                             ===========
</TABLE>

Where future rentals are subject to renegotiation, the minimum amounts shown
above are based on the latest rents.

Rent expense was $2,294,000 in 1995, $2,125,000 in 1994 and $2,113,000 in 1993,
net of sublease income of $178,000 in 1995, $93,000 in 1994 and $44,000 in 1993.
The Company leases bank and office premises from affiliated parties under leases
expiring in 2024. Rent expense includes rent paid to affiliates on these leases
amounting to $1,263,000 in 1995, $1,207,000 in 1994 and $1,263,000 in 1993.


10.  SHAREHOLDERS' EQUITY

REGULATORY MATTERS -

     Banking regulations require banks to comply with risk-based capital
     guidelines. The rules require a Tier 1 capital ratio of 4.0% of
     risk-weighted assets and a total capital ratio of 8.0% of risk-weighted
     assets. Tier 1 capital generally consist of common shareholders' equity
     less goodwill, while total capital includes in addition to Tier 1 capital,
     the allowance for possible loan and lease losses, subject to certain
     limitations, and subordinated debt. In addition to the risk-based capital
     ratios, the banking regulators require a minimum "leverage ratio" of Tier 1
     capital to average quarterly total assets of 3.0%. The Company's capital
     classification is also subject to qualitative judgments by the regulators
     about components, risk weightings and other factors.
<PAGE>   68
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



     The following table presents the Company's regulatory capital position at
     December 31, 1995 and 1994 (in thousands):

<TABLE>
<CAPTION>
                                                   1995              1994
                                             AMOUNT    RATIO   AMOUNT    RATIO
<S>                                          <C>       <C>     <C>       <C>
   Risk-Based Capital Ratios -
     Tier 1 Capital                          $27,193    13.1%  $26,243    12.4%
     Tier 1 Capital minimum requirement        8,302     4.0     8,474     4.0
                                             -------   -----   -------   -----
            Excess                           $18,891     9.1%  $17,769     8.4%
                                             =======   =====   =======   =====
     Total Capital                           $29,794    14.4%  $28,901    13.6%
     Total Capital minimum requirement        16,604     8.0    16,948     8.0
                                             -------   -----   -------   -----
            Excess                           $13,190     6.4%  $11,953     5.6%
                                             =======   =====   =======   =====
   Leverage Ratio -
     Tier 1 Capital                          $27,193     9.2%  $26,243     9.1%
     Minimum leverage requirement              8,860     3.0     8,629     3.0
                                             -------   -----   -------   -----
            Excess                           $18,333     6.2%  $17,614     6.1%
                                             =======   =====   =======   =====
</TABLE>


RESTRICTIONS ON RETAINED EARNINGS -

     Dividends that may be paid on the Company's common stock, as and when
     declared by the Board of Directors, are largely dependent upon the amount
     of dividends paid to the Company by its bank subsidiary. Federal law
     currently establishes limits on the amount of dividends that may be paid in
     any one year by the bank subsidiary without the prior approval of the
     Comptroller of the Currency. Such dividends are limited to bank net
     earnings for the year in which the dividend is declared together with
     earnings of the preceding two years as defined in the Comptroller's
     regulations, less any required statutory transfers of retained earnings to
     capital in excess of par value. At December 31, 1995, retained earnings of
     the Bank available for dividends without prior approval of the Comptroller
     of the Currency amounted to $2,861,000.
<PAGE>   69
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



11.  INCOME TAXES

The provision for income taxes for 1995, 1994 and 1993 consisted of the
following:

<TABLE>
<CAPTION>
                                                1995        1994        1993  
<S>                                          <C>          <C>        <C>
   Current -
     Federal                                 $ 555,000    $312,000   $  695,000
     Hawaii                                    104,000      71,000      163,000
                                             ---------    --------   ----------
                                               659,000     383,000      858,000
                                             ---------    --------   ----------
   Deferred -
     Federal                                   (32,000)     99,000     (152,000)
     Hawaii                                     (7,000)     23,000      (36,000)
                                             ---------    --------   ----------
                                               (39,000)    122,000     (188,000)
                                             ---------    --------   ----------

                                             $ 620,000    $505,000   $  670,000
                                             =========    ========   ==========
</TABLE>

At December 31, 1995 and 1994, the components of the net deferred tax asset were
as follows:

<TABLE>
<CAPTION>
                                                               1995           1994
<S>                                                       <C>            <C>
Deferred tax asset:
   Loan and lease losses                                  $    895,000   $ 1,021,000
   Investment in Computer Systems International, Ltd.          379,000       302,000
   Interest on nonaccrual loans                                208,000        41,000
   Deferred loan fees and related origination costs            130,000       157,000
   Hawaii state franchise tax                                   44,000        52,000
   Net operating loss carryforwards                             20,000        20,000
   Other                                                        12,000        25,000
                                                          ------------   -----------
                                                             1,688,000     1,618,000
                                                          ------------   -----------
Deferred tax liabilities:
   Tax over book depreciation                                 (741,000)     (730,000)
   Direct financing leases capitalized for tax                (247,000)     (322,000)
   Excess pension contributions over expenses                 (155,000)     (137,000)
                                                          ------------   -----------
                                                            (1,143,000)   (1,189,000)
                                                          ------------   -----------
                                                               545,000       429,000
Valuation allowance                                           (399,000)     (322,000)
                                                          ------------   -----------

Net deferred tax asset                                    $    146,000   $   107,000
                                                          ============   ===========
</TABLE>
<PAGE>   70
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



The change in the total valuation allowance for the years ended December 31,
1995 and 1994 was an increase of $77,000 and $24,000, respectively. The
valuation allowance relates to the investment in Computer Systems International,
Ltd. and net operating loss carryforwards.

A reconciliation of the Company's effective tax rate with the statutory Federal
income tax rate is as follows:

<TABLE>
<CAPTION>
                                                      1995     1994       1993

<S>                                                  <C>      <C>        <C>
Statutory Federal income tax rate                    34.0 %   34.0 %     34.0 %
Tax-exempt interest income                           (1.6)    (1.9)      (2.0)
State franchise tax, net of Federal tax benefit       5.5      5.5        5.5
Change in valuation allowance                         4.6      1.6        6.8
Stock dividends                                      (1.4)    --         --
Other, net                                           (3.8)    (2.5)      (2.3)
                                                     ----     ----       ----

                                                     37.3 %   36.7 %     42.0 %
                                                     ====     ====       ====
</TABLE>


A consolidated Federal income tax return and a consolidated franchise tax return
are filed for the Company. Prior to 1993, Hawaii National Bancshares, Inc. filed
a separate State corporate income tax return from that of the Bank. Net
operating losses of the Parent since inception approximating $260,000 at
December 31, 1995 are available to offset future State taxable income of the
Parent, if any, and expire at various dates through 2007.

The adoption of Statement of Financial Accounting Standards No. 109 effective
January 1, 1993, resulted in the recognition of an income tax benefit of
$350,000 for the cumulative effect of this accounting change.


12.  PENSION PLAN

The Company has a noncontributory defined benefit pension plan covering
substantially all employees. Pension benefits are based upon specified
percentages of employee compensation accumulated during each year of service.
<PAGE>   71
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



Net pension expense for 1995, 1994 and 1993 was comprised of the following:

<TABLE>
<CAPTION>
                                                  1995         1994           1993
<S>                                           <C>           <C>           <C>
   Service cost representing benefits
     earned during the year                   $  166,611    $  195,561    $  170,315
   Interest cost on projected benefit
     obligation                                  328,762       317,978       260,330
   Loss (return) on plan assets - actual        (566,771)      120,320      (200,790)
   Net amortization and deferral                 199,273      (472,711)      (71,420)
                                              ----------    ----------    ----------
       Total net pension expense              $  127,875    $  161,148    $  158,435
                                              ==========    ==========    ==========
</TABLE>

The funded status of the plan and prepaid pension cost at December 31, 1995 and
1994 were as follows:

<TABLE>
<CAPTION>
                                                                                     1995          1994
<S>                                                                               <C>           <C>
   Actuarial present value of projected benefit obligation, based upon
      employment service to date and current salary levels -
         Vested employees                                                         $3,549,322    $3,657,081
         Nonvested employees                                                          79,738        58,222
                                                                                  ----------    ----------
   Accumulated benefit obligation                                                  3,629,060     3,715,303
   Additional amounts related to projected salary increases                          675,368       506,012
                                                                                  ----------    ----------
   Projected benefit obligation                                                    4,304,428     4,221,315
   Plan assets available for benefits consisting of U.S. government
      and agencies bonds and money market funds                                    4,029,844     4,262,676
                                                                                  ----------    ----------
   Excess (deficiency) of plan assets over projected benefit
      obligation at end of year                                                     (274,584)       41,361
   Unrecognized differences in actual plan assets and projected benefit
      obligations from that assumed                                                  833,156       494,073
   Prior service cost not yet recognized in pension cost                             319,415       343,516
   Unrecognized net assets at January 1, 1986 being amortized over 16 years         (438,528)     (511,616)
                                                                                  ----------    ----------
   Prepaid pension cost included in other assets                                  $  439,459    $  367,334
                                                                                  ==========    ==========
</TABLE>
<PAGE>   72
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



The actuarial computation of projected benefit obligations was based upon a
discount rate of 7.0% at December 31, 1995, 8.0% at December 31, 1994 and 7.0%
at December 31, 1993 and assumed salary scale increases of 5.0% in 1995, 1994
and 1993. The assumed rate of return on plan assets was 7.5% in 1995, 1994 and
1993.

The Company established a supplemental executive retirement plan (SERP)
effective January 1, 1994. The SERP is a nonqualified unfunded pension plan
covering a select group of senior executives. The SERP provides a retirement
benefit payable in the form of a life annuity to the participants which is based
on a specified percentage of the participant's final average earnings less basic
retirement and social security benefits. The Company recognized an actuarially
determined SERP pension expense of $25,500 and $24,000 in 1995 and 1994,
respectively.


13.  SUPPLEMENTARY INCOME STATEMENT INFORMATION

Other operating expenses for 1995, 1994 and 1993 included the following:

<TABLE>
<CAPTION>
                                               1995         1994          1993
<S>                                        <C>          <C>           <C>
   Stationery and office supplies          $  326,084   $  367,339    $  430,670
   Deposit insurance                          295,667      599,653       626,415
   Other insurance                            253,338      290,559       271,411
   Other                                    2,061,945    1,800,863     2,029,601
                                           ----------   ----------    ----------
   Total other operating expenses          $2,937,034   $3,058,414    $3,358,097
                                           ==========   ==========    ==========
</TABLE>


Repairs and maintenance expenditures included in occupancy expense and equipment
expense amounted to $506,272, $478,511 and $470,306 in 1995, 1994 and 1993,
respectively.
<PAGE>   73
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



14.  FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Company's financial instruments held
or issued for purposes other than trading at December 31, 1995 and 1994 were as
follows:

<TABLE>
<CAPTION>
                                                  CARRYING          FAIR
                                                   AMOUNT           VALUE
<S>                                             <C>             <C>
   1995
   Cash and due from banks                      $ 18,908,709    $ 18,908,709
   Federal funds sold                             13,750,000      13,750,000
   Investment securities:
     Held-to-maturity                             45,993,061      46,165,000
     Available-for-sale                            1,497,003       1,497,003
   Loans and leases, net                         209,997,595     217,241,907
   Deposits -
     Demand deposits and savings                 209,384,442     209,384,442
     Time                                         59,521,343      59,695,532
   Short-term borrowings                             902,739         902,739

   1994
   Cash and due from banks                        19,610,271      19,610,271
   Federal funds sold                              1,000,000       1,000,000
   Investment securities:
     Held-to-maturity                             44,930,312      43,892,000
     Available-for-sale                            1,489,303       1,489,303
   Loans and leases, net                         213,992,554     222,098,869
   Deposits -
     Demand deposits and savings                 208,777,838     208,777,838
     Time                                         52,195,280      52,200,000
   Federal funds purchased                           480,000         480,000
   Short-term borrowings                           1,000,000       1,000,000
</TABLE>
<PAGE>   74
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK -

     The Bank is a party to financial instruments with off-balance sheet risk
     entered into in the normal course of business to meet the financing needs
     of its customers. These financial instruments which are held for purposes
     other than trading include commitments to extend credit, standby and
     commercial letters of credit. Those instruments involve, to varying
     degrees, elements of credit and interest rate risk in excess of the amounts
     recognized in the consolidated balance sheets. The Bank's exposure to
     credit loss in the event of nonperformance by the other party to the
     financial instrument is represented by the contractual amount of those
     instruments. The Bank manages the credit risk of counterparty defaults in
     these transactions by limiting the total amount of outstanding
     arrangements, by monitoring the size and maturity structure of the
     off-balance sheet portfolio and by applying uniform credit standards for
     all of its credit activities. Since many of the commitments to extend
     credit may expire without being drawn upon, the total commitment amount
     does not necessarily represent future cash requirements. The Bank evaluates
     each customer's creditworthiness on a case-by-case basis. The amount of
     collateral obtained, if deemed necessary by the Bank upon extension of
     credit, is based on management's credit evaluation of the counterparty.
     Collateral held varies but may include accounts receivable, inventory,
     property, plant, equipment and income-producing commercial properties.

     Off-balance  sheet  commitments  held for  purposes  other than  trading at
     December 31, 1995 and 1994 were as follows:


<TABLE>
<CAPTION>
                                                          CONTRACT AMOUNT
                                                      1995               1994
<S>                                               <C>                <C>
Commitments to extend credit                      $63,671,000        $73,104,000
Standby letters of credit                           3,690,000          3,598,000
Commercial letters of credit                          354,000            636,000
</TABLE>


     The fair values of off-balance sheet financial instruments at December 31,
     1995 and 1994 were estimated using fees currently charged to enter into
     similar agreements, taking into account the remaining terms of the
     agreements and the present creditworthiness of the counterparties. At
     December 31, 1995 and 1994, the fair values of commitments to extend credit
     amounted to $100,000 and $111,000, respectively, and the fair values of
     letters of credit amounted to $55,000 and $54,000, respectively.
<PAGE>   75
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



CONCENTRATION OF CREDIT RISK -

     The Bank has no significant concentrations of credit risk with any
     individual party, however the Bank's lending is concentrated on the island
     of Oahu in the State of Hawaii.



15.  CONDENSED FINANCIAL INFORMATION OF HAWAII NATIONAL BANCSHARES, INC. (PARENT
      COMPANY ONLY)

Condensed financial information of Hawaii National Bancshares, Inc. (Parent
Company Only) as of December 31, 1995 and 1994 and for the years ended December
31, 1995, 1994 and 1993 consists of the following:

                            BALANCE SHEETS
                      DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
                                                                  1995           1994
<S>                                                           <C>            <C>
Assets:
   Cash on deposit with Hawaii National Bank                  $   129,415    $   125,556
   Investment in Hawaii National Bank                          27,063,300     26,129,759
   Prepaid expenses                                                --                115
                                                              -----------    -----------
       Total assets                                           $27,192,715    $26,255,430
                                                              ===========    ===========
 Liabilities:
   Accrued liabilities                                        $    --        $    12,021
                                                              -----------    -----------
       Total liabilities                                           --             12,021
                                                              -----------    -----------
Shareholders' Equity:
   Common stock                                                   711,000        711,000
   Capital in excess of par value                              12,147,676     12,135,655
   Retained earnings                                           14,334,039     13,396,754
                                                              -----------    -----------
       Total shareholders' equity                              27,192,715     26,243,409
                                                              -----------    -----------
       Total liabilities and shareholders' equity             $27,192,715    $26,255,430
                                                              ===========    ===========
</TABLE>
<PAGE>   76
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



                              STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
                                                            1995          1994           1993
<S>                                                      <C>           <C>           <C>
Dividends from Hawaii National Bank                      $  147,750    $ 147,750     $  147,750
Operating expenses                                           37,356       32,390         42,558
                                                         ----------    ---------     ----------
         Income before equity in undistributed income
            of bank subsidiary                              110,394      115,360        105,192
Equity in undistributed income of Hawaii National
   Bank (including equity in change in accounting
   for income taxes in 1993)                                933,541      756,980      1,170,900
                                                         ----------    ---------     ----------
Net income                                               $1,043,935    $ 872,340     $1,276,092
                                                         ==========    =========     ==========
</TABLE>


                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
                                                            1995           1994          1993
<S>                                                      <C>           <C>          <C>
Cash flows from operating activities:
   Dividends from Hawaii National Bank                   $  147,750    $ 147,750    $   147,750
   Cash paid to suppliers                                   (37,241)     (32,505)       (42,558)
                                                         ----------    ---------    -----------
         Net cash provided by operating activities          110,509      115,245        105,192
Cash flows from financing activities:
   Dividends paid                                          (106,650)    (106,650)      (106,650)
                                                         ----------    ---------    -----------
         Net cash used in financing activities             (106,650)    (106,650)      (106,650)
                                                         ----------    ---------    -----------
Net (decrease) increase in cash                               3,859        8,595        (1,458)
Cash at beginning of year                                   125,556      116,961        118,419
                                                         ----------    ---------    -----------
Cash at end of year                                      $  129,415    $ 125,556    $   116,961
                                                         ==========    =========    ===========
Reconciliation of net income to net cash provided
   by operating activities:
      Net income                                         $1,043,935    $ 872,340    $ 1,276,092
      Adjustments to reconcile net income to net cash
         provided by operating activities:
            Undistributed earnings of subsidiary           (933,541)    (756,980)    (1,170,900)
         (Increase) decrease in prepaid expenses                115        (115)        --
                                                         ----------    ---------    -----------
            Net cash provided by operating activities    $  110,509    $ 115,245    $   105,192
                                                         ==========    =========    ===========
</TABLE>

In the above condensed financial information the Parent's investment in Hawaii
National Bank is accounted for by the equity method.
<PAGE>   77
                 HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



16.  ACQUISITION OF MAUI BRANCHES

In May 1995, the Bank entered into a purchase and assumption agreement with the
Federal Deposit Insurance Corporation who was named receiver for the former Bank
USA, N.A., Maui, after it was closed by the Office of the Comptroller of the
Currency. Under the terms of the agreement, the Bank acquired certain assets of
approximately $4,000,000 and assumed insured deposits of approximately
$8,000,000 from the two branches.



<PAGE>   78



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 14th day of
March 1996.

                              HAWAII NATIONAL BANCSHARES, INC. (Registrant)

                              By      /s/ K.J. Luke
                                      ----------------------------
                                      K.J. Luke
                                      Chairman of the Board

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:
<TABLE>
<CAPTION>
         Signatures                                        Title                                   Date
         ----------                                        -----                                   ----

Principal Executive Officer:
<S>                                             <C>                                          <C>
       /s/ K.J. Luke                            
--------------------------------                Chairman of the Board,
K.J. Luke                                       Director and Chief
                                                Executive Officer                            March 14, 1996

Chief Financial and Accounting
Officer:

       /s/ Ernest T. Murata  
--------------------------------                Vice President, Treasurer
Ernest T. Murata                                and Assistant Secretary                      March 14, 1996


A Majority of the Board of Directors:

       /s/ Warren K.K. Luke                     Director                                     March 14, 1996
-------------------------------
Warren K.K. Luke

       /s/ Gordon J. Mau                        Director                                     March 14, 1996
-------------------------------
Gordon J. Mau
</TABLE>


<PAGE>   79


                                INDEX TO EXHIBITS

Exhibit No.                         Exhibit

     3.1            Articles of Incorporation of Bancshares*

     3.2            Amended ByLaws of Bancshares dated January 23, 1996

     3.3            Amended and Restated Bylaws of Bancshares

    10.1            Supplemental Executive Retirement Plan**

     21             Subsidiaries of Bancshares:  The only subsidiary
                       of Bancshares is Hawaii National Bank, a
                       National Banking Association.

     27             Financial Data Schedules

   *     Incorporated by reference to Exhibit 3.1 of Bancshares' Annual Report
         on Form 10-K for the fiscal year end 1991.

  **     Incorporated by reference to Exhibit 10.1 of Bancshares' Annual Report
         on Form 10-K for the fiscal year end 1994.