Annual Report (Form 10-K), fiscal year 1993

ITEM 1. BUSINESS
FIRST HAWAIIAN, INC. -
First Hawaiian, Inc. (the "Corporation"), a Delaware corporation, is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, and a registered savings and loan holding company under section 10 of the Homeowner's Loan Act, as amended. The Corporation, through its subsidiaries, operates a general commercial banking business and other businesses related to banking. Its principal assets are its investments in First Hawaiian Bank (the "Bank"), a State of Hawaii chartered bank; First Hawaiian Creditcorp, Inc. ("Creditcorp") and First Hawaiian Leasing, Inc. ("FHL"), each a financial services loan company; and Pioneer Federal Savings Bank ("Pioneer"), a federally chartered savings bank. The Bank, Creditcorp, FHL and Pioneer are wholly-owned subsidiaries of the Corporation. At December 31, 1993, the Corporation had consolidated total assets of $7.3 billion, total deposits of $5.2 billion and total stockholders' equity of $608.4 million.
Based on assets as of June 30, 1993, the Corporation was the 76th largest bank holding company in the United States as reported in the American Banker.
FIRST HAWAIIAN BANK -
The Bank, the oldest financial institution in Hawaii, was established as Bishop & Co. in 1858 in Honolulu. After several corporate mergers and other changes, the Bank is now a state-chartered bank. The Bank is not a member of the Federal Reserve System. The deposits of the Bank are insured by the Federal Deposit Insurance Corporation (the "FDIC") to the extent and subject to the limitations set forth in the Federal Deposit Insurance Act, as amended.
The Bank is a full-service bank conducting a general commercial and consumer banking business and offering trust services. Its banking activities include receiving transaction, savings and time deposits for personal and commercial accounts; making commercial, agricultural, real estate and consumer loans; acting as a United States tax depository facility; providing money transfer and cash management services; selling traveler's checks, bank money orders, mutual funds and annuities; issuing letters of credit; handling domestic and foreign collections; providing safe deposit and night depository facilities; lease financing; and investing in U.S. Treasury securities and securities of other U.S. government agencies and corporations and state and municipal securities.
As of December 31, 1993, the Bank had total deposits of $4.5 billion and total assets of $6.1 billion, making it the second largest bank in Hawaii.
Domestic Services - The domestic operations of the Bank are carried out through its main banking office located in Honolulu, Hawaii and 58 other banking offices located throughout the State of Hawaii. Fifty-one of the offices are equipped with automatic teller machines which provide 24-hour service to customers wishing to make withdrawals from and deposits to their personal checking accounts, to transfer funds between checking and savings accounts, to make balance inquiries, to obtain interim bank statements, and to make utility and loan payments. Ten nonbranch locations provide balance inquiry and withdrawal transaction services only. The Bank is a member of the CIRRUS(R)/MasterCard(R) and Plus(R)/VISA(R) automatic teller machine networks, providing its customers with access to their funds nationwide and in selected foreign countries.
Lending Activities - The Bank engages in a broad range of lending activities, including making real estate, commercial and consumer loans and leases. At December 31, 1993, the Bank's loans totalled $4.0 billion, representing 66.2% of total assets. At that date, 53.0% of the loans were residential and commercial real estate loans, 31.1% were commercial loans, 12.2% were consumer loans and 3.7% were leases.
Real Estate Lending--Residential. The Bank makes residential real estate loans, including home equity loans, to enable borrowers to purchase, refinance or improve residential real property. The loans are secured by mortgage liens on the related property substantially all of which is located in Hawaii. At December 31, 1993, approximately 56% of the Bank's total real estate loans were collateralized by single-family and multi-family residences.
Real Estate Lending--Commercial. In the commercial real estate area, the Bank provides construction and permanent financing for a variety of commercial developments, such as hotels, warehouses and small retail centers. In order to diversify its portfolio, the Bank also selectively participates as a lender in developments on the mainland United States, primarily on the west coast. At December 31, 1993, approximately 44% of the Bank's total real estate loans were collateralized by construction and commercial properties.
Commercial Lending. The Bank is a major lender to primarily small- and medium-sized businesses (including local subsidiaries and operations of foreign companies) in Hawaii and Hawaii companies doing business overseas with particular emphasis on those companies in the Asia-Pacific region.
Consumer Lending. The Bank offers many types of loans and credits to consumers. The Bank provides lines of credit, uncollateralized or collateralized, and provides various types of personal and automobile loans. The Bank also provides indirect consumer automobile financing on new and used autos by purchasing finance contracts from dealers. The Bank's Dealer Center is the largest commercial bank automobile lender in the State of Hawaii. The Bank is the largest issuer of MasterCard(R) credit cards and the second largest issuer of VISA(R) credit cards in Hawaii.
International Banking Services - The Bank maintains an International Banking Division which provides international banking products and services through the Bank's branch system, international banking headquarters in Honolulu, a Grand Cayman branch, two Guam branches and a representative office in Tokyo, Japan. The Bank maintains a network of correspondent banking relationships throughout the world.
The Bank's international banking activities are primarily trade-related and are concentrated in the Asia-Pacific area. The Bank has no loans to lesser developed countries.
Trust Services - The Bank's Asset Management Division offers a full range of trust and investment management services. The Division provides asset management, advisory and administrative services for estates, trusts and individuals. It also acts as trustee and custodian of pension and profit sharing plans. As of December 31, 1993, the Asset Management Division had 5,913 accounts with a market value of $7.1 billion. Of this total, $4.8 billion represented assets in non-managed accounts and $2.3 billion were managed trust assets.
The Asset Management Division maintains custodial accounts under which it acts as agent for customers in rendering a variety of services, including dividend and interest collection, collection under installment obligations, rent collection and property management.
The Asset Management Division also acts as corporate trustee or co-trustee for bond issues totaling $2.2 billion in principal amount.
FIRST HAWAIIAN CREDITCORP, INC. -
Creditcorp is a financial services loan company with 11 branch offices located throughout the four major islands of the State (Oahu, Hawaii, Maui and Kauai) and a branch office in Guam. Creditcorp also has a commercial loan production office in Honolulu.
The lending activities of Creditcorp are concentrated in consumer and commercial financing which are primarily collateralized by real estate.
Creditcorp's primary source of funds is time and savings deposits which are insured by the FDIC to the extent and subject to the limitations set forth in the Federal Deposit Insurance Act, as amended.
Creditcorp also utilizes borrowings as an additional source of funding for its loan portfolio. In that regard, Creditcorp is a member of the Federal Home Loan Bank of Seattle (the "FHLB of Seattle") which provides a central credit facility for member institutions. As of December 31, 1993, Creditcorp was required, in accordance with the rules and regulations of the FHLB of Seattle, to maintain a minimum level of capital stock ownership of $3.5 million in this regional facility. As of December 31, 1993, Creditcorp's investment in the capital stock of FHLB of Seattle totalled $6.4 million and advances from the FHLB of Seattle aggregated $35.7 million.
At December 31, 1993, Creditcorp had total deposits of $350.0 million, total loans and leases of $415.0 million and total assets of $433.0 million.
FIRST HAWAIIAN LEASING, INC. -
FHL, a financial services loan company, finances and leases personal property and equipment and acts as an agent, broker or advisor in the leasing or financing of such property for affiliates as well as third parties.
As of December 31, 1993, FHL's net investment in leases amounted to $49.3 million and total assets were $51.5 million. FHL's primary source of funds is borrowings from the Corporation and the Bank.
PIONEER FEDERAL SAVINGS BANK -
On August 6, 1993, the Corporation acquired for cash all of the outstanding stock of Pioneer Fed BanCorp, Inc. ("Pioneer Holdings") at a purchase price of $87 million through the merger of Pioneer Holdings with and into the Corporation ("Merger"). As a result of the Merger, Pioneer became a wholly-owned subsidiary of the Corporation (see "Note 1. Business Combinations" (page 41) in the Financial Review section of the Corporation's Annual Report 1993, which is incorporated herein by reference thereto).
Pioneer is a federally chartered savings bank operating in the state of Hawaii. Pioneer, the oldest savings bank in Hawaii, was chartered in 1890 by King David Kalakaua. Presently, Pioneer maintains 19 branch offices located on the four major islands of Hawaii. At December 31, 1993, Pioneer had total assets of $650.3 million. Based on total assets at December 31, 1993, Pioneer was the fourth largest of six Savings Association Insurance Fund (the "SAIF") - insured institutions operating in Hawaii.
Pioneer is primarily engaged in attracting deposits from the general public through a variety of deposit products. Together with borrowings, principally from the FHLB of Seattle, and funds from ongoing operations, these resources are invested in the origination of conventional adjustable and fixed rate, one-to-four family residential mortgages. Pioneer is also engaged in other types of mortgage lending, including home equity loans, loans on smaller multi-family projects and, to a lesser extent, in other consumer lending activities. Mortgage lending activity, both origination and purchases, has been limited to loans secured by property in the State of Hawaii. As
of December 31, 1993, Pioneer was required, in accordance with the rules and regulations of the FHLB of Seattle, to maintain a minimum level of capital stock ownership of $7.2 million in this regional facility. As of December 31, 1993, Pioneer's investment in the capital stock of the FHLB of Seattle totalled $25.2 million and advances from the FHLB of Seattle aggregated $143.0 million.
At December 31, 1993, Pioneer had total deposits of $399.4 million, total loans of $544.0 million and total assets of $650.3 million.
HAWAII COMMUNITY REINVESTMENT CORPORATION -
In an effort to support affordable housing and as part of the Bank's, Creditcorp's and Pioneer's community reinvestment program, the Bank, Creditcorp and Pioneer are members of the Hawaii Community Reinvestment Corporation (the "HCRC"). The HCRC is a consortium of local financial institutions and provides $50 million in permanent long-term financing for affordable housing projects throughout Hawaii for low and moderate income residents.
The $50 million loan pool is funded by the member financial institutions who also participate pro rata in each HCRC loan. The Bank's, Creditcorp's and Pioneer's participations in these HCRC loans are included in each of these companies' loan portfolio.
HURRICANE INIKI -
On September 11, 1992, Hurricane Iniki struck the Island of Kauai and, to a lesser extent, the west side of the Island of Oahu, causing extensive property damage. At December 31, 1993, the Bank, Creditcorp and Pioneer held mortgages collateralizing loans of $92.2 million, $11.8 million and $37.9 million, respectively, on commercial and residential properties on Kauai that were damaged by the hurricane. All of the properties were covered by casualty insurance policies which covered not only the owner of the property, but also the lender. The Corporation does not anticipate material losses resulting from damage caused by Hurricane Iniki.
As a result of Hurricane Iniki, several casualty insurers failed or refused to renew and write new homeowners' casualty insurance in Hawaii. The Bank, Creditcorp and Pioneer all require and rely upon the existence of adequate homeowners' casualty insurance on all residential properties which serve as primary collateral for loans. If homeowners' casualty insurance became generally unavailable in Hawaii, the subsidiaries of the Corporation would either be required to discontinue residential real property lending or be exposed to risk of loss if uninsured collateral were destroyed in the event of fire or other casualties. In addition, such loans would not be salable in the secondary market.
However, at this time alternate homeowners' casualty insurance is available to homeowners in Hawaii, but at greater costs than before the hurricane. The Legislature of the State of Hawaii has created the Hawaii Hurricane Relief Fund to offer homeowners' insurance coverage in order to stabilize the casualty insurance market in Hawaii and to increase the availability of reasonably priced homeowners' casualty insurance.
As an alternative to customer-provided insurance, the Bank, Creditcorp and Pioneer have been able to obtain "forced place" homeowners' casualty coverage through insurance policies obtained by the Bank, Creditcorp or Pioneer at the borrower's expense to cover the uninsured mortgage loan.
EMPLOYEES -
As of December 31, 1993, the Corporation had 3,116 full-time equivalent employees. The Bank employed 2,766 persons and nonbank subsidiaries employed 350 persons. None are represented by any collective bargaining agents
and relations with employees are considered excellent.
MONETARY POLICY AND ECONOMIC CONDITIONS -
The earnings and growth of the Corporation are affected not only by general economic conditions, but also by the monetary policies of various governmental regulatory authorities, particularly the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Federal Reserve Board implements national monetary policy by its open market operations in United States Government securities, control of the discount rate, and establishment of reserve requirements against both member and nonmember financial institutions' deposits. These actions have a significant effect on the overall growth and distribution of loans, investments and deposits as well as the rates earned on loans, or paid on deposits.
It is not possible to predict the effect of future changes in monetary policies upon the operating results of the Corporation.
COMPETITION -
Although the laws of Hawaii generally prohibit interstate banking, competition in the financial services industry is intense. Hawaii-based commercial banks, savings institutions, financial services loan companies and credit unions compete against one another. Based upon the latest available figures, total deposits of all financial institutions in Hawaii as of June 30, 1993 amounted to approximately $21 billion. The two largest bank holding companies, Bancorp Hawaii, Inc. and the Corporation accounted for 26% and 23% of total deposits, respectively. The Corporation's share of deposits includes Pioneer which was acquired on August 6, 1993. The next largest competitors were Bank of America, F.S.B. and American Savings Bank, F.S.B., with 10% and 7%, respectively, of total deposits. In addition, out-of-state mutual funds, insurance companies, brokerage firms and other financial services providers also compete for consumer and commercial business in Hawaii.
Foreign (non-Hawaii) banks and other financial institutions are able to make loans in Hawaii through Edge Act facilities, finance and mortgage company subsidiaries and by loan participations with local banks. United States domestic banks and other financial institutions may make loans directly in Hawaii by qualifying as "foreign lenders" in Hawaii. Foreign banks currently conduct various banking activities in Hawaii, except for retail deposit-taking. Banks and bank holding companies organized under the laws of Pacific Ocean jurisdictions with United States dollar-based economies may acquire Hawaii banks or establish branches in Hawaii, although none has done so to date. Banks and similar financial institutions of countries other than the United States may and do have representative offices or agencies in Hawaii. Under the rules of the Office of Thrift Supervision ("OTS"), federally-chartered savings associations may open branches in, or merge with another savings association located in, any state (including Hawaii), subject to certain conditions.
Hawaii has no law permitting interstate bank acquisitions or branching in Hawaii by foreign (non-Hawaii) banks. The Hawaii Legislature has previously considered and rejected broad interstate banking legislation. However, legislation has been enacted which permits the acquisition of failing state-chartered financial institutions by out-of-state financial institutions in certain limited circumstances. A bill is presently under consideration in the 1994 Hawaii State Legislature which would allow out-of-state bank holding companies to acquire Hawaii banks. Further, both the United States Senate and House of Representatives are considering proposed legislation which, if enacted, could permit non-Hawaii bank holding companies to acquire Hawaii banks or bank holding companies and, if Hawaii law permitted, to operate branches of a non-Hawaii bank in Hawaii. Whether any of the proposed state or federal legislation will be enacted, the form which such legislation may take, and its effect on the Corporation cannot be predicted at this time.
SUPERVISION AND REGULATION -
As a bank holding company, the Corporation is subject to the Bank Holding Company Act of 1956 and is subject to supervision by the Federal Reserve Board. In general, the Bank Holding Company Act of 1956 limits the business of bank holding companies to owning or controlling banks and engaging in such other activities as the Federal Reserve Board may determine to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Corporation is also regulated and supervised by the OTS as a savings and loan holding company by virtue of its ownership of Pioneer. The various subsidiaries of the Corporation are subject to regulation and supervision by the state banking authorities of Hawaii, the Federal Reserve Board, the FDIC, the OTS and various other regulatory agencies.
Holding Company Structure. The Corporation must obtain the prior approval of the Federal Reserve Board before 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; before merging or consolidating with another bank holding company; and before acquiring substantially all of the assets of any additional bank. The Bank Holding Company Act of 1956 also prohibits the acquisition by the Corporation 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 is located expressly authorize such acquisition. With certain exceptions, the Bank Holding Company Act of 1956 prohibits bank holding companies from acquiring direct or indirect ownership or control of more than 5% of any class of voting shares in any company which is not a bank or a bank holding company, unless the Federal Reserve Board 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 Federal Reserve Board considers, among other things, whether the performance of such activities by a bank holding company would offer benefits to the public that outweigh possible adverse effects. In addition, all acquisitions are reviewed by the Department of Justice for antitrust considerations.
The Corporation is required by the Bank Holding Company Act of 1956 to file annual reports and such other reports as may be required from time to time with the Federal Reserve Board. In addition, the Federal Reserve Board performs periodic examinations of the Corporation and certain of its subsidiaries.
The principal source of the Corporation's cash revenue has been dividends and interest received from the Bank and other subsidiaries of the Corporation. The Bank, Pioneer and Creditcorp are subject to regulatory limitations on the amount of dividends they may declare or pay. In addition, the payment of dividends by the Corporation is limited to an amount not greater than 50% of its consolidated net income as stipulated in the debt covenants of a certain line of credit. There are also statutory limits on the transfer of funds to the Corporation and certain of its nonbanking subsidiaries by the Bank, whether in the form of loans or other extensions of credit, investments or asset purchases. Such transfers by the Bank to the Corporation or any such nonbanking subsidiary are limited in amount to 10% of the Bank's capital and surplus, or 20% in the aggregate. Furthermore, such loans and extensions of credit are required to be collateralized in specified amounts.
If, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the bank, could include the payment of dividends), such authority may require, after notice and hearing, that such bank cease and desist from such practice. The Federal Reserve Board and the FDIC have issued policy statements which provide that, as a general matter, insured banks and bank holding companies may only pay dividends out of current operating earnings. Under Hawaii law, the Bank is prohibited from declaring or paying any dividends in excess of its retained earnings.
Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength
to each subsidiary bank and to make capital injections into a troubled subsidiary bank, and the Federal Reserve Board may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank. This capital injection may be required at times when the Corporation may not have the resources to provide it. Any capital loans by the Corporation to its subsidiary bank would be subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In connection with its application to the Federal Reserve Board for authority to acquire Pioneer, the Corporation committed that Pioneer will meet all present and future minimum capital ratios adopted for savings associations by OTS or the FDIC. In the event of the bankruptcy of the Corporation, this commitment would be assumed by the bankruptcy trustee and be entitled to a priority of payment.
In addition, depository institutions insured by the FDIC can be held liable for any losses incurred by, or reasonably expected to be incurred by, the FDIC after August 9, 1989 in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a "default" is likely to occur in the absence of regulatory assistance. Accordingly, in the event that any insured subsidiary of the Corporation causes a loss to the FDIC, other insured subsidiaries of the Corporation could be required to compensate the FDIC by reimbursing it for the amount of such loss. Any such obligation by the Corporation's insured subsidiaries to reimburse the FDIC would stand senior to their obligations, if any, to the Corporation.
Federal Deposit Insurance Corporation Improvement Act of 1991. In December, 1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), which substantially revises the bank regulatory and funding provisions of the Federal Deposit Insurance Act and makes revisions to several other federal banking statutes. FDICIA provides for, among other things, (i) a recapitalization of the Bank Insurance Fund by increasing the FDIC's borrowing authority; (ii) annual on-site examinations of federally-insured depository institutions by banking regulators; (iii) publicly available annual financial condition and management reports for financial institutions, including audits by independent accountants; (iv) the establishment of uniform accounting standards by federal banking agencies; (v) the establishment of "prompt corrective action" standards for depository institutions based on five levels of capitalization, with more scrutiny and restrictions placed on institutions with lower levels of capital; (vi) additional grounds for the appointment of a conservator or receiver for a failed or failing depository institution; (vii) a requirement that the FDIC use the least-cost method of resolving cases of troubled institutions in order to keep the costs to insurance funds at a minimum; (viii) more comprehensive regulation and examination of foreign banks; (ix) consumer protection provisions including a Truth-in-Savings Act; (x) a requirement that the FDIC establish a risk-based deposit insurance assessment system to be in effect no later than January 1, 1994; (xi) restrictions or prohibitions on accepting brokered deposits except for institutions which significantly exceed minimum capital requirements; (xii) general restrictions on the activities as principal and equity investments of state-chartered banks to those permissible for national banks unless approved by the FDIC; and (xiii) certain limits on deposit insurance coverage.
A central feature of FDICIA is the requirement that the federal banking agencies take "prompt corrective action" with respect to insured depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital levels applicable to such institutions (including the Bank): "well capitalized,' "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." Under the regulations adopted by the federal banking agencies to implement these provisions of FDICIA, a depository institution is "well capitalized" if it has (i) a total risk-based capital ratio of 10% or greater, (ii) a Tier 1 risk-based capital ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv) is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure. An "adequately capitalized" institution is defined as one that has (i) a total risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater and (iii) a leverage ratio of 4% or greater (or 3% or greater in the case of a bank with a composite CAMEL rating
of 1). A depository institution is considered (i) "undercapitalized" if it has (A) a total risk-based capital ratio of less than 8%, (B) a Tier 1 risk-based capital ratio of less than 4% or (C) a leverage ratio of less than 4% (or 3% in the case of an institution with a CAMEL rating of 1), (ii) "significantly undercapitalized" if it has (A) a total risk-based capital ratio of less than 6%, (B) a Tier 1 risk-based capital ratio of less than 3% or (C) a leverage ratio of less than 3% and (iii) "critically undercapitalized" if it has a ratio of tangible equity to total assets equal to or less than 2%. An institution may be deemed by the regulators to be in a capitalization category that is lower than is indicated by its actual capital position if, among other things, it receives an unsatisfactory examination rating.
FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a cash dividend) or paying any management fees to its holding company if the depository institution is, or would thereafter be, undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company under such guarantee is limited to the lesser of (i) an amount equal to 5% of the depository institution's total assets at the time it became undercapitalized, or (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a number of other requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator, generally within 90 days of the date such institution becomes critically undercapitalized.
FDICIA also provides for increased funding of the FDIC insurance funds. In addition, the FDIC has implemented a risk-based deposit insurance assessment system under which the assessment rate for an insured institution may vary according to the regulatory capital levels of the institution and other factors (including supervisory evaluations). There is an eight basis point spread between the highest and lowest assessment rates, so that banks classified as strongest by the FDIC are subject to a rate of .23%, and banks classified as weakest by the FDIC are subject to a rate of .31%.
FDICIA also requires the federal banking agencies to prescribe standards for depository institutions and their holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, executive compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares and such other standards as the agencies deem appropriate. In November, 1993 the federal banking agencies published proposed regulations to implement these provisions of FDICIA. The proposed rules set forth general standards to be observed but for the most part do not mandate specific operating standards to be followed. At this time the Corporation believes that such rules, if adopted in their proposed form, will not have a material effect on the Corporation's operations or financial results.
Capital Requirements. The Corporation and certain of its subsidiaries are subject to regulatory capital guidelines issued by the federal banking agencies. Information with respect to the applicable capital requirements is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" (Page 32) in the Financial Review section of the Corporation's Annual Report 1993, and is incorporated herein by reference thereto.
FDICIA requires each federal banking agency to revise its risk-based capital standards to ensure that those standards take adequate account of interest rate risk, concentration of credit risk and the risk of nontraditional activities, as well as reflect the actual performance and expected risk of loss on multi-family mortgages. In September, 1993 the federal banking agencies issued notices of proposed rulemaking soliciting comment on proposed revisions to the risk-based capital rules to take account of interest rate risk. The notice proposes alternative approaches for determining the additional amount of capital, if any, that may be required to compensate for interest rate risk. The first approach would reduce an institution's risk-based capital ratios by an amount based on its measured exposure to interest rate risk in excess of a specified threshold. The second approach would assess the need for additional capital on a case-by-case basis, considering both the level of measured exposure and qualitative risk factors. The Corporation cannot assess at this point the impact that such proposals would have on its capital ratios.
In February, 1994 the federal banking agencies issued proposed rules to revise the risk-based capital standards to take account of concentration of credit risk and the risks of nontraditional activities. The proposed rules specify that concentrations of credit risk will be considered as important factors in assessing an institution's overall capital adequacy, but did not provide for any specific adjustments to the risk-based capital standards for such risks or for the risks of nontraditional activities.
STATISTICAL DISCLOSURES -
Guide 3 of the "Guides for the Preparation and Filing of Reports and Registration Statements" under the Securities Act of 1933 sets forth certain statistical disclosures in the "Description of Business" section of bank holding company filings with the Securities and Exchange Commission. The statistical information requested is presented in the following tables and also in the tables shown below in the Corporation's Annual Report 1993, which tables are incorporated herein by reference thereto. The tables and information contained therein have been prepared by the Corporation and have not been audited or reported upon by the Corporation's independent accountants.
Information in response to the following sections of Guide 3 is included in the Financial Review section of the Corporation's Annual Report 1993, and is incorporated herein by reference thereto:
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential
Table I-C presents the percentages of total assets and total liabilities attributable to foreign operations. For this purpose, assets attributable to foreign operations are defined as assets in foreign offices and loans and leases to and investments in customers domiciled outside the United States. Deposits received and other liabilities are classified on the basis of domicile of the creditor.
FIRST HAWAIIAN, INC. AND SUBSIDIARIES TABLE I-C PERCENTAGE OF TOTAL ASSETS AND TOTAL LIABILITIES ATTRIBUTABLE TO FOREIGN OPERATIONS
II. INVESTMENT SECURITIES PORTFOLIO
Table II-A presents the book value of investment securities by the following major categories at year-end for the years indicated.
FIRST HAWAIIAN, INC. AND SUBSIDIARIES TABLE II-A SCHEDULE OF INVESTMENT SECURITIES BY BOOK VALUE
Table II-B presents the maturities of investment securities, excluding securities which have no stated maturity at December 31, 1993, and the weighted average yields (for obligations exempt from Federal income taxes on a taxable equivalent basis assuming a 35% tax rate) of such securities. The tax equivalent adjustment is made for items exempt from Federal income taxes to make them comparable with taxable items before any income taxes are applied.
FIRST HAWAIIAN, INC. AND SUBSIDIARIES TABLE II-B SCHEDULE OF INVESTMENT SECURITIES BY MATURITIES AND AVERAGE YIELDS DECEMBER 31, 1993
Notes: (1) The weighted average yields were calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security.
(2) Includes $98 million of securities in the following maturity categories with optional tender dates ($10 million within 1 to 5 years; $20 million within 5 to 10 years; and $68 million after 10 years).
III. Loan and Lease Portfolio
Table III-B presents maturity and interest rate sensitivity data for all loans and leases except real estate - residential, real estate - commercial, consumer, credit cards and lease financing at December 31, 1993.
FIRST HAWAIIAN, INC. AND SUBSIDIARIES TABLE III-B LOAN AND LEASE MATURITY AND INTEREST RATE SENSITIVITY DATA DECEMBER 31, 1993
Table III-C (3) presents a summary of the Corporation's foreign outstandings to each country which exceeded 1% of total assets for the years indicated. Foreign outstandings are defined as the balances outstanding of cross-border loans, acceptances, interest-bearing deposits with other banks, other interest-bearing investments and any other monetary assets. At December 31, 1993, the Corporation's total foreign outstandings amounted to $256 million.
FIRST HAWAIIAN, INC. AND SUBSIDIARIES TABLE III-C (3) FOREIGN OUTSTANDINGS TO EACH COUNTRY WHICH EXCEEDS 1% OF TOTAL ASSETS
ITEM 2.



ITEM 2. PROPERTIES
A subsidiary of the Bank is the sole general partner in a Hawaii limited partnership which owns all of a city block in downtown Honolulu containing 55,775 square feet. The Bank's interest in the limited partnership is 99.25%. The administrative headquarters of the Corporation and the main branch of the Bank were formerly located on a portion of the city block. The buildings were demolished and the Bank has begun construction of a modern banking center on this city block. The new headquarters building will include 418,000 square feet of gross office space, including the Bank's main branch and administrative headquarters of the Corporation and the Bank. The new building is anticipated to be completed in 1996. Commencing in March 1993, the Bank leased approximately 119,000 square feet in another office building for use as an interim administrative headquarters and main branch until completion of the new structure. The interim office building is approximately a block and a half from the old administrative headquarters and main branch.
Seventeen of the Bank's offices in Hawaii are located on land owned in fee simple by the Bank. The other branches of the Bank, Pioneer and Creditcorp are situated in leasehold premises or in buildings constructed by the Bank or Creditcorp on leased land (see "Note 16. Lease Commitments" (page 50) in the Financial Review section of the Corporation's Annual Report 1993, which is incorporated herein by reference thereto).
.
In early 1993, the Bank completed construction of an operations center located on 125,919 square feet of land owned in fee simple by the Bank in an industrial area near downtown Honolulu. The Bank occupies all of the four-story building which is anticipated to enable the Bank to meet its projected technological requirements into the twenty-first century.
The Bank is also constructing a new five-story, 75,000 square foot office building, including a branch, on property owned in fee simple in Maite, Guam to replace its Agana, Guam Branch. Completion of the building is anticipated for late 1994.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The legal proceeding brought by MasterCard International, Inc. in the United States District Court for the Southern District of New York against Dean Witter, Discover & Co. and others, in which the Bank and others were named as counterclaim defendants, which was described in the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, was settled and dismissed without the Corporation or the Bank making any payment or assuming any other obligation. The date of the dismissal of claims against the Bank was January 21, 1994.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1993.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Required information is included in "Common Stock Information" (Page 15) in the Financial Review section of the Corporation's Annual Report 1993, and is incorporated herein by reference thereto.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
Required information is included in "Summary of Selected Consolidated Financial Data" (Page 16) in the Financial Review section of the Corporation's Annual Report 1993, and is incorporated herein by reference thereto.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Required information is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" (Pages 17 through 32) in the Financial Review section of the Corporation's Annual Report 1993, and is incorporated herein by reference thereto.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information is included in the Financial Review section of the Corporation's Annual Report 1993, which is incorporated herein by reference thereto as follows:
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Required information relating to directors is included in "Election of Directors" and "Directors Continuing in Office and Executive Officers" (Pages 3 through 9) of the Corporation's Proxy Statement, and is incorporated herein by reference thereto.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the executive officers of the Corporation with their positions, age and business experience during the past five years:
There are no family relationships among any of the executive officers of the Corporation. There is no arrangement or understanding between any such executive officer and another person pursuant to which he was elected as an officer. The term of office of each officer is at the pleasure of the Board of Directors of the Corporation.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Required information is included in "Remuneration of Directors" and "Executive Compensation" (Pages 9 through 20) of the Corporation's Proxy Statement, and is incorporated herein by reference thereto.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Required information is included in "Outstanding Shares; Voting Rights," "Election of Directors" and "Directors Continuing in Office and Executive Officers" (Pages 2 through 8) of the Corporation's Proxy Statement, and is incorporated herein by reference thereto.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Required information is included in "Certain Transactions" (Pages 20 and 21) of the Corporation's Proxy Statement, and is incorporated herein by reference thereto.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
2. 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 the information is included in the consolidated financial statements, or are inapplicable, and therefore have been omitted.
3. Exhibits
Exhibit 3 (i) Certificate of Incorporation - Incorporated by reference to Exhibit 3 to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 as filed with the Securities and Exchange Commission.
(ii) Bylaws - Incorporated by reference to Exhibit 3 to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1987 as filed with the Securities and Exchange Commission.
Exhibit 4 Instruments defining rights of security holders, including indentures.
(i) Equity - Incorporated by reference to Exhibit 3(i) hereto.
(ii) Debt - Indenture, dated as of August 9, 1993 between First Hawaiian, Inc. and The First National Bank of Chicago, Trustee.
Exhibit 10 Material contracts
(i) Lease dated September 13, 1967, as amended April 21, 1987, between the Trustees under the Will and of the Estate of Samuel M. Damon, Deceased, and First National Bank of Hawaii (predecessor of the Bank) is incorporated by reference to Exhibit 10 to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1987 as filed with the Securities and Exchange Commission.
(ii) Lease dated May 20, 1982, as amended April 23, 1987, between the Trustees under the Will and of the Estate of Samuel M. Damon, Deceased, and First Hawaiian Bank is incorporated by reference to Exhibit 10 to the Corporation's Annual Report on Forms 10-K for the fiscal years ended December 31, 1987, 1985 and 1980 as filed with the Securities and Exchange Commission.
(iii) Lease Agreement dated as of December 1, 1993 between REFIRST, Inc. and First Hawaiian Bank.
(iv) Construction Management, Escrow and Development Agreement dated as of December 1, 1993 among REFIRST, Inc., First Hawaiian Bank and First Fidelity Bank, N.A., Pennsylvania.
(v) Ground Lease dated as of December 1, 1993 among First Hawaiian Center Limited Partnership, FH Center, Inc. and REFIRST, Inc.
(vi) Stock Incentive Plan of First Hawaiian, Inc. dated November 22, 1991 is incorporated by reference to Exhibit 10 to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 as filed with the Securities and Exchange Commission.
(vii) Long-Term Incentive Plan of First Hawaiian, Inc. effective January 1, 1992 is incorporated by reference to Exhibit 10 to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 as filed with the Securities and Exchange Commission.
(viii) First Hawaiian, Inc. Supplemental Executive Retirement Plan, as amended August 18, 1988 is incorporated by reference to Exhibit 10 to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 as filed with the Securities and Exchange Commission.
(ix) Amendment One to First Hawaiian, Inc. Supplemental Executive Retirement Plan, effective January 1, 1992 is incorporated by reference to Exhibit 10 to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 as filed with the Securities and Exchange Commission.
(x) First Hawaiian, Inc. Incentive Plan for Key Executives, as amended through December 13, 1989 is incorporated by reference to Exhibit 10 to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 as filed with the Securities and Exchange Commission.
(xi) Directors' Retirement Plan, effective as of January 1, 1992 is incorporated by reference to Exhibit 10 to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 as filed with the Securities and Exchange Commission.
Exhibit 12 Statement re: computation of ratios.
Exhibit 13 Annual report to security holders - Corporation's Annual Report 1993.
Exhibit 22 Subsidiaries of the registrant.
Exhibit 23 Consent of independent accountants.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the last quarter of the fiscal year ended December 31, 1993.
(c) Response to this item is the same as Item 14(a)3.
(d) Response to this item is the same as Item 14(a)2.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FIRST HAWAIIAN, INC. (Registrant)
By /s/ HOWARD H. KARR ----------------------------------- HOWARD H. KARR EXECUTIVE VICE PRESIDENT AND TREASURER
Date: March 17, 1994
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.
EXHIBIT INDEX