Bankoh parent’s
earnings off 19.3%
amid downsizing

Pacific Century expands buyback
program and says regulators have
ended scrutiny of company

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By Russ Lynch
rlynch@starbulletin.com

Pacific Century Financial Corp. today reported a year-over-year drop of 19.3 percent in fourth-quarter earnings but said the company has gone through so many changes that the 2000 and 2001 quarters are not really comparable. Most of the changes involved intentional downsizing of businesses and selling others to concentrate on core activities closer to its Honolulu home.

The full-year profit for the company, the parent of Bank of Hawaii, was up 3.6 percent.

Many other numbers were down, however, for what the financial community has viewed as good reasons.

The company has shed bad loans, sold banks outside Hawaii and trimmed other assets in line with Chairman Michael O'Neill's strategy to concentrate on the company's core businesses in Hawaii, the West Pacific and American Samoa.

Two new announcements accompanied today's lengthy financial report:

>> Banking regulators have lifted the closer-than-normal scrutiny imposed more than a year ago. The company has met all their requirements and a "memorandum of understanding" issued by the regulators in the third quarter of 2000 has been withdrawn. O'Neill called that step "gratifying and significant."

>> Pacific Century's board has authorized it to buy an additional $300 million of the company's common stock.

The company also said it is still comfortable with the earnings guidance it issued earlier, predicting net profits from its ongoing businesses of $120 million this year and $130 million next year.

Pacific Century's shares rose 49 cents to $26.13 today on the New York Stock Exchange.

The net profit for the latest quarter was $26.3 million, or 34 cents a share, down from $32.6 million, or 41 cents a share in the 2000 quarter.

One key figure in bank operations, net interest income, was down 19.6 percent to $106.2 million in the latest quarter, compared to $132.1 million in the year-earlier period. Again, the decrease was due to businesses the company no longer has. Also contributing were the wind-down of the company's activities in Asia "and the ongoing managed reduction of loans to improve the company's credit profile," Pacific Century said.

For the full year 2001, Pacific Century had a profit of $117.8 million, up from a year-earlier $113.7 million and equal to $1.46 a share, up from $1.42 a share in 2000.

The company said its return on average assets was 0.93 percent in 2001, up 14.8 percent from 0.81 percent in 2000.

Due to the cutbacks, total year-end assets were down 24.3 percent at $10.6 billion compared to $14 billion at the end of 2000. "The most significant reduction was in commercial loans, including foreign loans and commercial real estate loans resulting from divestitures," the company said.

But asset quality improved and the company was able to reduce its allowance for loan and leases losses to $159 million at the end of 2001, a drop of 35.4 percent from $246 million at the end of 2000.

In the past quarter, Pacific Century completed the sales of its Papua New Guinea, Fiji and Vanuatu branch franchises to and Australian bank and the sale of its French Polynesia and New Caledonia assets to a French bank. Earlier changes included the sale of banks on the mainland.

"I am pleased that we were able to successfully complete the sale of our non-strategic assets," said O'Neill, a former key executive of Bank of America who came on as chairman and chief executive in early November 2000.

"The divestiture and risk-reduction program was the cornerstone of our strategic-plan initiatives for the past year," he said. O'Neill said the company continues to be optimistic in its outlook for Hawaii.