A new century dawns
for leaner, meaner bank

Michael O'Neill is moving on after
reshaping one of the state's big banks

Bank of Hawaii Corp. was in major need of an overhaul when Michael O'Neill rolled up his sleeves less than four years ago.

The bank, then known as Pacific Century Financial Corp., had stretched itself too thin with overseas and mainland expansion, and earnings were being eroded by an underperforming loan portfolio.

Enter O'Neill, a turnaround specialist who pumped new life into Bank of America and Continental Illinois Bank. In a performance story that analyst Jim Bradshaw said comes along once every five to 10 years in the banking industry, O'Neill transformed the bank into a more efficient operation, elevated earnings to record highs and increased shareholder value nearly fourfold.

Now, with O'Neill's announcement yesterday that his work at the bank is done, the 57-year-old chairman and chief executive is bidding aloha at the end of August to spend more time with his two sons on the East Coast and to look after his mainland real estate investments.

Former Chief Financial Officer Allan Landon, 56, who moved up the corporate ladder to president in December and chief operating officer in April, will take over O'Neill's two positions while retaining the president title.

Analysts, who were somewhat surprised by the sudden move, praised the bank's transformation under O'Neill's leadership.



Key dates in the reign of Michael O'Neill as Bank of Hawaii's chief executive officer, who stepped down yesterday as CEO. Click image for larger version

Bradshaw, who covers the company for Great Falls, Mont.-based D.A. Davidson & Co., said O'Neill executed almost flawlessly over the four years.

"It was famine to feast," Bradshaw said. "It was a bank that had sort of hit the wall and was facing some growth and credit quality issues when Mike took over. And the fundamental performance difference between then and now is stunning."

During O'Neill's tenure:

>> The stock price has nearly quadrupled, closing yesterday at $44 after rising from a nine-year low of $11.25 a week before O'Neill took over from Larry Johnson on Dec. 3, 2000.

>> Net earnings rose to $135.2 million in 2003 from $113.7 million in 2000 and are projected by the bank to be $163 million to $167 million this year.

>> Delinquent loans were sliced to $21 million at the end of the second quarter from $220 million as of Sept. 30, 2000 -- the last full quarter before O'Neill took over.

>> The bank's information technology systems were outsourced in a $35 million project that is expected to save $17 million a year, but cost about 100 people their jobs.

O'Neill, who will keep a home in Hawaii, said there are three things he's most proud of when he looks back at his tenure at the bank.

"The financial turnaround is obviously the most visible," he said. "Two, the building up of a strong team and developing a very solid management succession plan; and three, improving the image of Bank of Hawaii with our customers, employees and the public at large."

O'Neill, who gave up his salary and bonus since 2002, said he will continue to remain a Bank of Hawaii stockholder.

Earlier this year, he sold nearly 800,000 shares of stock, including 70,000 shares that he donated to a charitable fund, for about $30 million. That reduced his stake in the company to 2.7 million shares, or about 5 percent, from more than 6 percent. He will get no severance package for stepping down.

O'Neill's departure adds to what will be a changed Hawaii banking landscape in 2004. Walter Dods, the longtime CEO of rival First Hawaiian Bank and parent BancWest Corp., is retiring at the end of this year but remaining as chairman of both entities. Ronald Migita, president and CEO of City Bank parent CB Bancshares Inc., will lose his position when the bank's merger with Central Pacific Financial Corp. is likely approved in September. Migita will become the chairman.

"It's a generation changing," Dods said. "(O'Neill leaving) is a big loss for the community. Mike has done an excellent job in improving Bank of Hawaii and I have great respect for him as a competitor."

Landon said laughingly that he's not sure if he'll use the "Tell Al" approach to emulate O'Neill's "Tell Mike" e-mail and letter campaign that was used to invite customer feedback. But Landon did say that "corresponding with our customers and giving them an easy way to communicate is pretty important."

He also said that the bank will continue to grow its business by concentrating on its existing customers and attracting new customers.

"Al has a very good understanding of the needs of business, he cares deeply for our community and he has a great sense of humor," said Robert Hiam, president and CEO of the Hawaii Medical Service Association, where Landon serves as the vice chairman of the board of directors. "It's hard to beat that combination."

Bradshaw said O'Neill has paved the way for Landon with the work that has been done over the last four years.

"It's different now," Bradshaw said. "What Al is planning to do isn't sort of a major repair. It's just running the bank slightly better each year than it already is. I think they need to concentrate on growing the revenues base. The bank's cost structure seems to be very solid and their capital has been deployed well. Now they need slight improvements rather than major improvements."

Rodney Shinkawa, executive vice president of the Hawaii Bankers Association, said he's known Landon for four years and is confident he won't miss a beat.

"I think he would be an excellent replacement for Mike," Shinkawa said. "He probably was involved with many of the transactions that occurred under Mike in winding down some of the operations of the bank in order to increase its shareholders' value."

Bank of Hawaii

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