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BEFORE THE FEDERAL RESERVE BANK OF
SAN FRANCISCO

INITIAL COMMENTS
ON THE APPLICATION OF FIRST HAWAIIAN BANK TO ACQUIRE PACIFIC ONE BANK AND IDAHO FIRST BANK

January 17, 1996

Filed on Behalf of

THE NATION OF HAWAII
(pursuant to the Hawai`i Constitution, 16 January 1995,
Article XVII, Transitional Provisions)




RE: Application to Acquire Pacific One Bank and Idaho First Bank by First Hawaiian, Inc., Honolulu, Hawaii.

Pursuant to applicable regulations of the Federal Reserve Board ("FRB"), this letter is our initial action in formally protesting the application submitted to the FRB by First Hawaiian, Inc., Honolulu, Hawaii ("First Hawaiian"), which is seeking prior regulatory approval to acquire Pacific One Bank, Portland, Oregon, and Idaho First Bank, Boise, Idaho. Therefore, we request an immediate postponement of application approval and petition for both private and public meetings to be held in Hawaii on this matter.


Summary of the Reasons for this Protest

FRB regulations and the Bank Holding Company Act (12 USC 1842) set forth criteria which the FRB shall consider when acting on an application for merger. The reasons for this protest are directly applicable to these considerations and are as follows:

Legal Considerations
Compliance with laws and regulations is a precondition to approval.
A) We have reason to believe that First Hawaiian is in noncompliance with the Community Reinvestment Act of 1977, the Equal Credit Opportunity Act, the Fair Housing Act and federal antitrust laws (Clayton & Sherman Acts).

Convenience and Needs
The FRB shall take into account the extent to which the merger will affect the convenience and needs of the communities to be served.
B) If approved as currently proposed, First Hawaiian's application would adversely affect the convenience and needs of certain communities served, including the following communities within the Honolulu MSA: Aliamanu, Haleiwa, Kalihi, Kapalama, Kaukonahua, Maili, Mililani, Mokauea, Nanakuli, Niulii, Puuloa, Waiakamilo, Waianae, Waimanalo and Waipahu. Additionally, the convenience and needs of Native Hawaiian leaseholders on Hawaiian Homelands would also be adversely affected.


Specific Objectionable Matters
As an applicant for acquisition approval to the FRB, First Hawaiian has not adequately addressed the following matters:

A) The poor performance of the applicant in serving the convenience and needs of low and moderate income or minority persons. (CRA assessment factors 5, 6, 8, 9, 10 & 11)

B) How the proposed interstate expansion will improve the applicant's service to communities which are currently underserved. (CRA assessment factors 5, 6, 8, 9, 10 & 11)

C) Any plans the applicant might have to remedy discriminatory practices. (CRA assessment factors 5, 6 & 10)

D) The fact that First Hawaiian is in noncompliance with a consent decree reached with the U.S. Department of Justice in 1991 regarding federal antitrust laws. (CRA assessment factors 4 & 7)

E) Adverse effects that the proposed merger would have on the current account holders and borrowers of First Hawaiian, West One, Pacific One, Idaho First and U.S. Bank. (CRA assessment factors 5, 6, 8, 9, 10 & 11)

F) The current practice by First Hawaiian of employing a disproportionately low number of decision makers from particular minority groups.
(CRA assessment factors 1, 2 & 4)

G) The current practice by First Hawaiian of conducting outreach/marketing which fails to target particular minority groups.
(CRA assessment factors 1, 2 & 4)


Facts Supporting the Protest

On December 4, 1995, First Hawaiian, Inc. (Nasdaq: FHWN), based in Honolulu, HI, and U.S. Bancorp (Nasdaq: USBC) announced the signing of a definitive agreement for First Hawaiian, Inc. to purchase 30 branches that U.S. Bancorp and West One Bancorp (Nasdaq: WEST) are divesting in connection with their proposed merger.

First Hawaiian Inc. will pay a deposit premium of 5.25% on the approximately $720 million in total deposits. First Hawaiian will also acquire approximately $457 million in loans, plus certain other assets, at book value. Based on current deposits, the deposit premium will be approximately $38 million. The cash transaction will be accounted for as a purchase.

First Hawaiian is purchasing all but one branch included in the original U.S. Bancorp/West One Bancorp divestiture package including 25 in Oregon, 4 in Washington and 1 in Idaho.

U.S. Bancorp announced an agreement, on Oct. 6, 1995, to divest the branches in order to satisfy anti-trust concerns and as a condition of regulatory approval of their pending merger with West One Bancorp. Twenty-nine of the branches are presently owned by West One Bancorp. Two branches, in Washington, are owned by U.S. Bancorp.

The announced acquisitions in the Pacific Northwest were the second Mainland expansion for First Hawaiian last year. In April, First Hawaiian Bank opened a auto dealer finance operation in southern California.

Because the lending practices of First Hawaiian have been inadequate in the communities it presently serves, the proposed interstate expansion in question has caused significant concern, particularly in the Native Hawaiian and Filipino community. The services provided by First Hawaiian to persons of Hawaiian and Filipino ethnicity have historically been very minimal compared to services provided to those of Japanese and Caucasian ethnicity.

Hawaii's unique ethnic makeup, in particular, requires an underwriting policy that is sensitive to the local culture. As Native Hawaiians and Filipinos are included in the HMDA report under "Asian/Pacific Islander," banks in Hawaii are able to maintain seemingly good "minority" lending records while systematically discriminating against specific ethnic groups. This practice is carried out despite the fact that in many cases these groups are an equal or better credit risk. In 1994, the Office of Thrift Supervision recognized this problem and ordered Bank of America Hawaii to break down the Asian/Pacific Islander category and collect data on Japanese, Chinese, Filipinos, Hawaiians and other Asian/Pacific Islanders individually.

A study of First Hawaiian's lending practices for 1988, 1989, 1990, 1991, 1992, 1993 & 1994 was undertaken to determine whether the mortgage lending activity of First Hawaiian during 1988, 1989, 1990, 1991, 1992, 1993 & 1994 differed in any significant way between census tracts which are predominantly Native Hawaiian and/or Filipino, and census tracts which are predominantly Japanese and/or Caucasian.

The loan data from First Hawaiian that were analyzed are theoretically available to the public under the provisions of the federal Home Mortgage Disclosure Act ("HMDA"). Demographic data were obtained from the 1990 U.S. Census. The initial findings of this study are now available and its results have substantiated our initial concerns:

During 1988, 1989, 1990, 1991, 1992, 1993 & 1994, the geographic pattern of Conventional Mortgage & Mortgage Refinancing lending activity of First Hawaiian within Metropolitan Statistical Area ("MSA"): 3320 - Honolulu, Hawaii exhibited significant differences between the three census tracts which are most predominantly Native Hawaiian and/or Filipino, and the three census tracts which are most predominantly Japanese and/or Caucasian.

Native Hawaiian and/or Filipino Census Tracts

Kalihi Kai          77.8% v 14%    Tract 60Ulana Street        74%   v 19.3%  Tract 64.01Nanakuli-Lualualei  73.8% v 14%    Tract 96.01

Japanese and/or Caucasian Census Tracts
Waikiki Beach       89.1% v 2.9%   Tract 19.01Lanikai             86.5% v 7.9%   Tract 112.02Kapiolani Park      84.3% v 5%     Tract 17

The Number of Conventional Mortgage Loans Originated in Japanese and/or Caucasian Census Tracts was 23 times the number originated in Native Hawaiian and/or Filipino Census Tracts. This difference is highly significant.

The Number of Mortgage Refinancing Loans Originated in Japanese and/or Caucasian Census Tracts was 5.125 times the number originated in Native Hawaiian/Filipino Census Tracts. This difference is highly significant.

For all loan categories analyzed (Conventional Mortgage & Mortgage Refinancing), the Japanese and/or Caucasian Census Tracts received 23.86 total "loans originated" per 1,000 households while the Native Hawaiian and/or Filipino Census Tracts received 2.69 total "loans originated" per 1,000 households. This difference is highly significant.

For all loan categories analyzed (Conventional Mortgage & Mortgage Refinancing), the Japanese and/or Caucasian Census Tracts received $7,521 in "loans originated" per household while the Native Hawaiian and/or Filipino Census Tracts received $247 in "loans originated" per household. This difference is highly significant.

It is quite obvious from the above results that, in 1988, 1989, 1990, 1991, 1992, 1993 & 1994, significant differences in First Hawaiian's mortgage lending patterns existed between Native Hawaiian and/or Filipino Census Tracts and Japanese and/or Caucasian Census Tracts within the Honolulu MSA. These differences cannot simply be explained by pointing to differences in income and credit qualifications. On the contrary:

The average Debt/Income Ratio Index for the Japanese and/or Caucasian Census Tracts was 226% greater than that for the Native Hawaiian and/or Filipino Census Tracts. This difference is highly significant; and,

The average monthly Household Income for the Japanese and/or Caucasian Census Tracts did not differ in a manner significant enough to justify the above gross disparity in lending from the Household Income for the Native Hawaiian and/or Filipino Census Tracts (average monthly income being $3,625 and $3,121, respectively).

In conclusion, although households within the Native Hawaiian and/or Filipino Census Tracts possessed, on average, an equivalent income and a much more acceptable debt/income ratio index than Japanese and/or Caucasian Census Tracts, they received a significantly lower proportional share of mortgage lending from First Hawaiian. Credible field observations and the analysis outlined above, demonstrate that First Hawaiian's lending policies in 1988, 1989, 1990, 1991, 1992, 1993 & 1994 were overtly discriminatory, resulting in disparate treatment owing to different and unequal assessment or treatment of equally qualified applicants, and that First Hawaiian's current mortgage lending activity produces a disproportionate adverse effect on a racial or ethnic basis on those of Hawaiian and Filipino ancestry.

In carrying out its current lending activities, First Hawaiian is failing to fulfill its obligations under the Community Reinvestment Act (12USC 2901 et seq.) to meet the credit needs of its entire community. Our studies also indicate that First Hawaiian is in substantial noncompliance with the non-discrimination provisions of the Equal Credit Opportunity Act (15 USC 1691) and the Fair Housing Act --Title VIII of the Civil Rights Act (42 USC 3605), including discrimination on a prohibited basis and/or inconsistent treatment of loan applications.

The evidence also indicates that First Hawaiian's poor mortgage lending record to Native Hawaiians on Hawaiian Homelands mirrors Blackpipe State Bank's ("Blackpipe") record with Native Americans on the Rosebud and Pine Ridge reservations. Because of concerns that several of Blackpipe's policies and practices relating to Indian loan applicants violated federal statutes prohibiting discrimination on the basis of race, color and/or national origin, the U.S. Department of Justice filed suit against Blackpipe in November of 1993 (United States of America v. Blackpipe State Bank, CIV. 93-5115 (U.S. Dist. Ct., D. S. D.)) The specific discriminatory acts and omissions cited in the United States' Amended Complaint which are applicable to First Hawaiian's practices regarding Hawaiian Homelands include the following:

A) Adopting a policy of refusing to make any loans secured by collateral located within an Indian reservation;

B) Excluding area Indian reservations from Blackpipe's targeted lending area; and,

C) Failing to participate in Farmer's Home Administration or Bureau of Indian Affairs guaranteed loan programs.

On January 21, 1994, Blackpipe entered into a Consent Decree with the United States in which it agreed to a broad range of reforms. The terms of the Consent Decree which are applicable to First Hawaiian's practices regarding Hawaiian Homelands are as follows:

A) Blackpipe is enjoined from doing any of the following because an applicant is an American Indian, resides on an Indian reservation, or provides collateral which is located on an Indian reservation:

B) Blackpipe must also revise its policies regarding secured loans to state that Blackpipe "will make secured loans without respect to whether the collateral for such loans is located on an Indian reservation."

As stated above, First Hawaiian's poor mortgage lending record to Native Hawaiians on Hawaiian Homelands mirrors Blackpipe's prior record with Native Americans before the Justice Department intervened. Although, unlike Blackpipe, First Hawaiian is not yet required to deal with a native court system, nor does it now need to face questions of sovereign immunity when lending onto Hawaiian Homelands. However, according to top officials at the Department of Hawaiian Homelands, First Hawaiian's record of lending to Native Hawaiians on Hawaiian Homelands is extremely poor -- despite the fact that First Hawaiian has $20 million on deposit from the Office of Hawaiian Affairs expressly for this purpose.

In addition, as First Hawaiian is already a dominant presence in Hawaii's mortgage lending markets, antitrust provisions of the Sherman and Clayton Acts should also be closely scrutinized. While First Hawaiian is presently the second largest financial institution in the state, it has a dominate share of the Maui banking market. The U.S. Justice Department recognized First Hawaiian's monopoly share of certain markets in Hawaii when it objected to its 1991 acquisition of First Interstate Bank Hawaii. Although the Federal Reserve had initially approved the purchase, the Justice Department's Antitrust Division objected and blocked the merger until First Hawaiian entered into a Consent Decree and agreed to divest itself of six branches.

Although First Hawaiian announced on January 5, 1996 that it intends to close two Maui branches and another branch in Hawaii Kai on Oahu (under this plan Finance Factors Ltd. will be purchasing and assuming responsibility for many of the loans and savings deposits now at these three branches), this action does not conform to the terms of the Consent Decree.

The Department of Justice's action against First Hawaiian (United States v. First Hawaiian Inc., 1991-1 Trade Cas. (CCH) Paragraph 69,457 (D. Haw. 1991). See also Letter from James F. Rill, Assistant Attorney General, to Alan Greenspan, Federal Reserve Board Chairman (Oct. 5,1990).) set a national precedent. The Justice Department's objections to the merger centered around concerns regarding First Hawaiian's domination of certain markets in Hawaii. In the opinion of the U.S. Department of Justice, such market domination would be a violation of U.S. antitrust laws.

Federal concerns regarding First Hawaiian's market domination didn't end in 1991. In 1993, First Hawaiian applied for permission from federal regulators to acquire Pioneer Federal Savings Bank, Honolulu, Hawaii. Because First Hawaiian's market share resulting from the acquisition would exceed legal limits, the decision was moved from the regional Federal Reserve office in San Francisco to Washington. The Justice Department mandates that a bank cannot have more than a 35% market share within a given area.

Finding itself somewhat precluded from further expansion in the Hawaii market because of antitrust concerns, First Hawaiian is now seeking regulatory approval to purchase branches in the Pacific Northwest from U.S. Bancorp and West One Bancorp. U.S. Bank and West One agreed to sell the branches to avoid an antitrust challenge of their own. The two banks had announced a definitive agreement to merge last May and completed the merger on December 27, 1995.

But First Hawaiian's ongoing monopoly share of certain markets in Hawaii is continuing to have a substantially adverse effect on the competitive environment for banking services in certain regions in Hawaii.

Under the revised Department of Justice Merger Guidelines, 49 Federal Register 26,823 (1984), a market in which the post-merger Herfindahl-Hirschman Index (HHI) is above 1800 is considered highly concentrated. In such markets, the Department of Justice is likely to challenge a merger that increases the HHI by more than 50 points. It is our contention that if the HHI is properly calculated using relevant market definitions, the index resulting from an analysis of First Hawaiian's current share of certain markets and the lack of mitigating factors will necessitate further intervention by the Department of Justice. Again, it is also our belief that First Hawaiian is in noncompliance with the Antitrust Consent Decree it entered into with the U.S. Department of Justice in 1991.


Adverse Effects on Protestants Resulting from Application Approval

The Nation of Hawaii seeks to increase the supply, affordability and accessibility of financing for housing and other consumer needs for all residents of Hawaii, as well as for the Native Hawaiian and Filipino members of the Nation in particular. The Nation also recognizes the impact that inequitable lending policies and practices have upon the neighborhoods in which its citizens live and has therefore decided to undertake this action in order to pursue an end to those policies and practices. If approved as currently proposed, First Hawaiian's application to acquire Pacific One Bank, Portland, Oregon, and Idaho First Bank, Boise, Idaho would have an adverse effect on the Nation's constituency by serving to solidify, legitimize and expand the existing inequitable and even illegal policies and practices of First Hawaiian. Therefore, to reiterate, we request that the Federal Reserve immediately postpone application approval and require that both private and public meetings be held in Hawaii on this matter pursuant to 12 CFR 262.25(c&d). Numerous members of the public wish to speak on the above issues in a public forum, including Native Hawaiian elders who traditionally communicate community matters in an oral manner rather than in written form.


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