Bank of America
to sell isle branches

American Savings gets
39 branches, deposits, loans

By Rick Daysog
Star-Bulletin

American Savings Bank F.S.B. will acquire Bank of America Hawaii in a marriage of the state's third and fourth largest financial institutions.

American Savings signed a definitive agreement to acquire all of Bank of America Hawaii's retail and commercial operations, which include 39 branches, its local deposits and loans issued in the state.

The deal, signed over the weekend, does not involve Bank of America's Honolulu Mortgage Co. unit, which it acquired earlier this year.

Bank of America also will retain its local merchant services, community development operations, small business lending activities and foreign currency services.

The price was not disclosed. But American Savings, a subsidiary of Hawaiian Electric Industries Inc., said it paid a 7 percent premium on selected deposits.

The deal, which requires regulatory approval, is expected to close in late 1997 or early 1988.

American Savings, which operates 47 branches statewide, said it will hire about three-quarters of Bank of America's 800 local employees. Some workers will remain with Bank of America.

The deal likely will boost HEI's earnings by 25 percent to 30 percent once it is completed, the company said.

"This is a unique opportunity for our bank to grow by acquisition," said Robert Clarke, HEI's chief executive officer. "Bank of America's Hawaii operations represent an extraordinary fit with American Savings' operations."

Besides expanding its branch system, the deal will expand American Savings' supermarket branches and its remote ATM network. Bank of America operates branches in Foodland grocery stores and manages 170 ATM location statewide.

Richard Dole, research director at Fry & Co., said the merger will create a strong, third competitor in Hawaii's banking industry, which is dominated by Pacific Century Financial Corp. with $14 billion in assets and First Hawaiian Inc. which lists assets of $8.1 billion.

The deal increases American Savings' assets by 50 percent to $5.4 billion from the current $3.6 billion. First Hawaiian declined comment and Pacific Century, parent of Bank of Hawaii, could not be reached for response this morning.

Dole believes American Savings may have to close or sell some unproductive branches and reduce staff to cut costs. In Kaneohe, for instance, American Savings and Bank of America operate branches several blocks from each other. One of them probably will be closed, he said.

Dole also noted that the acquisition raises the potential that HEI would spin off American Savings in a public offering. American Savings, a savings and loan, would be more competitive if it were converted into a commercial bank, Dole said. But utilities holding companies like HEI are prohibited from owning banks.

Arlene Nakamoto, American Savings' executive vice president for sales and marketing, said company executives haven't ruled out spinning off American Savings but there are no such plans at present.

She said American Savings is evaluating the Bank of America branches and hasn't made a decision on whether to close or sell some of them.

Bank of America customers should expect no changes until the deal is completed, Nakamoto said.

Bank of America's exit is part of an ongoing review of its nationwide retail banking operations. Michael O'Neill, its chief financial officer, said that after a long evaluation, they determined that investments needed to improve Hawaii operations could be put to better use in other areas of the company.

Bank of America entered Hawaii's banking market five years ago when it acquired the former Honfed Bank for about $165 million but has faced several obstacles since then.