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Thursday, January 25, 2001

Bankoh parent’s
net declines 13%

Pacific Century Financial also
names a new CFO and says its
restructuring is starting to pay off

By Russ Lynch

Pacific Century Financial Corp., parent of Bank of Hawaii, today reported a 13.3 percent drop in fourth-quarter earnings, as the company's moves to improve its loan portfolio hurt its bottom line.

Bank of Hawaii The company had a profit of $32.6 million in the last three months of 2000, compared with $37.6 million in the 1999 period. Per-share income was down 12.8 percent to 41 cents from 47 cents in the year-earlier quarter. The mean estimate of 10 Wall Street analysts who follow the company was 44 cents a share for the quarter.

Pacific Century had to take steps to clear away some bad loans and otherwise improve the quality of its assets and those steps cost money, said Michael E. O'Neill, the former Bank of America executive who joined the company Nov. 3 as chairman and chief executive officer.

O'Neill said steps such as increasing the provision for loan losses did cut into earnings but that was a "more than sensible cost" to set the company on the road to improvement.

"The news here, in my judgment, is that we have dealt as I promised we would, in a timely and forceful way, with the asset-quality issues," O'Neill said in an interview.

Wall Street apparently agreed. Pacific Century's stock price rose $1.44 to close at $20.13 today on the New York Stock Exchange.

Pacific Century ended 2000 with lower assets, loans and deposits than a year before, but said the declines were largely due to the steps it has been taking to improve its balance sheet.

Those steps are beginning to work, the company said.

Art Some risky loans have been paid back and others have been upgraded to a less-risky status. During the quarter two real estate loans totaling $29 million were paid in full, together with interest that was owed. After the end of the quarter a $65 million loan, identified in the second quarter as a "problem," was sold at a discount to another lender, getting it off Pacific Century's books.

The improvement in Hawaii's economy looks good and construction, in particular, is expected to boom in 2001, Pacific Century said.

Some changes were already made before O'Neill arrived, but he set others in motion and hired top executives to achieve them.

Since the end of the last quarter, O'Neill hired William Nelson as vice chairman, chief risk officer and a member of the company's management committee. He also brought in Scott Miller as executive vice president and director of asset recovery.

In an executive change announced today, Allan R. Landon, who joined the company in April and was executive vice president and director of risk management, was promoted to chief financial officer. He replaces David A. Houle, who announced he would resign, effective Feb. 2. Landon was chief financial officer at the $21 billion-asset First American Corp. in Nashville, Tenn., before joining Pacific Century and also had 28 years with the accounting firm Ernst & Young, LLP.

During the fourth quarter, Pacific Century also:

Bullet Signed an agreement to sell its credit-card portfolio to an arm of American Express Co.

Bullet Agreed to sell its nine branches in Arizona to Zions Bancorporation.

Bullet Sold its interest in banks in Tonga and Samoa to Australia's Westpac Banking Corp.

Pacific Century also reduced its nonperforming assets by 16.7 percent, compared to the third quarter, a cut to $183 million from $219.6 million.

Nonperforming assets at the end of the year were still 22.1 percent higher than at the end of the previous year, $183 million compared to $149.9 million.

But O'Neill said it is important that Pacific Century's nonperforming assets are on the way down, counter to a national trend.

"I am not declaring victory by any means" and there is a lot yet to do, he told securities analysts in a conference call this morning. But he said he is very encouraged by what is happening in the company.

Total assets at the end of 2000 were $14 billion, down 3 percent from $14.4 billion at the end of 1999. Loans of $9.17 billion at year-end were down 1.2 percent from a year-earlier $9.28 billion. Deposits of $9.08 billion were down 3.3 percent from $9.39 billion.

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