BancWest
raises provisions
for bad loans

Mainland factors weigh in as
earnings rise a record 22 percent

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By Rick Daysog
rdaysog@starbulletin.com

California's energy crisis and the slowdown in the nation's economy has prompted the isles' largest financial institution to take precautionary steps, even as the company is reporting record earnings for the second quarter.

Yesterday, BancWest Corp., the parent of First Hawaiian Bank and California-based Bank of the West, announced that it increased its provisions for credit losses by $6.9 million to $23.3 million during second quarter 2001 as a result of the mainland's economic woes.

The second quarter provisions are in addition to $35.2 million in credit-loss provisions that the bank took during the first quarter this year.

The move represents one of the few negative developments in an otherwise stellar second quarter for BancWest, in which earnings soared 22.2 percent to a record $65.9 million.

The increased loss provisions aren't expect to have a major impact on the company's future earnings and they represent a small fraction of the bank's overall $14.5 billion loan portfolio. But it underscores a mood of caution by bank managers, who have enjoyed tremendous growth from the mainland economy during recent years.

"We believe an increased loan loss provision is necessary and prudent given the concern about the economic slowdown nationally and the continuing problems with energy in California," said Walter Dods, First Hawaiian's chairman and chief executive officer.

BancWest said the additional loss provisions are not tied to any particular loan. Rather, they reflect the inherent risk tied to the bank's loan portfolio in an overall weakening mainland economy, the company said.

As a result of the increased provisions, the allowance for credit losses represented about 1.32 percent of total bank loans and leases as of June 30, 2001. That compares to 1.23 percent in the year-earlier period.

Joe Morford, banking analyst with Dain Rauscher Wessels in San Francisco, said many of the bigger mainland banks have increased their provisions for loan losses to reflect the weak U.S. economy. On average, big banks like Wells Fargo & Co. and Bank of America have increased their provisions for losses by about 10 percent recently, he said. By contrast, BancWest's numbers are up about 2 percent, Morford said.

"They have a disciplined credit culture," he said. "They've held up pretty well."

Overall, the bank posted strong numbers during the second quarter as earnings rose to a record $65.9 million, or 52 cents a share, from $53.9 million, or 43 cents a share, in 2000.

The results beat out Wall Street's expectations for the quarter.

Analysts that follow BancWest's stock were predicting earnings of 47 cents a share for the recently completed period.

BancWest rose fell 3 cents today to $34.68 on the New York Stock Exchange.

Overall, BancWest said its assets, loans and deposits all increased during the second quarter.

Assets increased 8.3 percent to $19.3 billion while total loans jumped 8.5 percent to $14.5 billion. Deposits were up 8.2 percent to $14.6 billion.

The results comes as BNP Paribas in May announced that it was purchasing the remaining shares of BancWest stock, in a deal valued at $2.45 billion. BNP, which already owns about 45 percent of the company, said it expected the deal to close during the third quarter this year.

BNP's offer of $35 a share represented a 40 percent premium over BancWest's stock price prior to the announcement in May.