U N I T E D S T A T E S
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended March 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the transition
period from _____________ to _____________
Commission File Number 1-6887
PACIFIC CENTURY FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 99-0148992
------------------------ ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
130 Merchant Street, Honolulu, Hawaii 96813
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(888) 643-3888
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value; outstanding at April 28, 2000 -
79,388,238 shares
<PAGE>
PACIFIC CENTURY FINANCIAL CORPORATION and subsidiaries
March 31, 2000
PART I. - Financial Information
Item 1. Financial Statements
<PAGE>
<TABLE>
Consolidated Statements of Condition (Unaudited) Pacific Century Financial Corporation and subsidiaries
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
March 31 December 31 March 31
(in thousands of dollars) 2000 1999 1999
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Interest-Bearing Deposits $225,314 $278,473 $494,202
Investment Securities - Held to Maturity
(Market Value of $721,620, $787,720 and $902,830, respectively) 732,344 796,322 894,502
Investment Securities - Available for Sale 2,537,617 2,542,232 2,733,466
Securities Purchased Under Agreements to Resell 902 -- 4,083
Funds Sold 42,208 52,740 111,894
Loans 9,779,633 9,717,556 9,637,661
Unearned Income (237,764) (242,503) (220,206)
Reserve for Loan Losses (195,409) (194,205) (209,329)
- --------------------------------------------------------------------------------------------------------------------------------
Net Loans 9,346,460 9,280,848 9,208,126
- --------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets 12,884,845 12,950,615 13,446,273
Cash and Non-Interest Bearing Deposits 491,218 639,895 617,362
Premises and Equipment 267,497 271,728 292,583
Customers' Acceptance Liability 8,262 7,236 13,965
Accrued Interest Receivable 74,597 78,974 88,887
Other Real Estate 4,633 4,576 6,225
Intangibles, including Goodwill 202,832 205,904 217,470
Other Assets 316,502 281,387 245,521
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $14,250,386 $14,440,315 $14,928,286
================================================================================================================================
Liabilities
Domestic Deposits
Demand - Non-Interest Bearing $1,708,635 $1,676,425 $1,676,816
- Interest Bearing 2,110,998 2,076,358 2,156,649
Savings 693,077 700,720 735,442
Time 2,759,319 2,761,650 2,539,649
Foreign Deposits
Demand - Non-Interest Bearing 380,179 401,613 409,994
Time Due to Banks 398,176 597,675 776,257
Other Savings and Time 1,092,679 1,179,777 1,139,620
- --------------------------------------------------------------------------------------------------------------------------------
Total Deposits 9,143,063 9,394,218 9,434,427
Securities Sold Under Agreements to Repurchase 1,806,197 1,490,655 2,090,663
Funds Purchased 511,440 839,962 775,577
Short-Term Borrowings 424,720 458,962 377,387
Bank's Acceptances Outstanding 8,262 7,236 13,965
Accrued Retirement Expense 40,851 40,360 40,519
Accrued Interest Payable 66,456 64,588 76,287
Accrued Taxes Payable 103,826 85,022 126,243
Minority Interest 4,269 4,435 4,849
Other Liabilities 109,669 114,890 105,176
Long-Term Debt 805,726 727,657 675,634
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 13,024,479 13,227,985 13,720,727
Shareholders' Equity
Common Stock ($.01 par value), authorized 500,000,000 shares;
issued / outstanding; March 2000 - 80,551,253 / 79,661,479;
December 1999 - 80,550,728 / 80,036,417; March 1999 - 80,537,756 / 80,398,067 806 806 805
Capital Surplus 345,863 345,851 344,955
Accumulated Other Comprehensive Income (72,307) (66,106) (23,536)
Retained Earnings 967,308 942,177 888,367
Treasury Stock, at Cost - (March 2000 - 889,774; December 1999 - 514,311
and March 1999 - 139,689 shares) (15,763) (10,398) (3,032)
- --------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,225,907 1,212,330 1,207,559
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $14,250,386 $14,440,315 $14,928,286
================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Income (Unaudited) Pacific Century Financial Corporation and subsidiaries
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
3 Months 3 Months
Ended Ended
Mar 31 Mar 31
(in thousands of dollars except per share amounts) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest Income
Interest on Loans $180,402 $176,000
Loan Fees 8,246 9,581
Income on Lease Financing 11,109 8,268
Interest and Dividends on Investment Securities
Taxable 14,236 13,679
Non-taxable 279 276
Income on Investment Securities Available for Sale 41,033 41,782
Interest on Deposits 3,764 8,226
Interest on Security Resale Agreements 10 101
Interest on Funds Sold 473 2,553
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest Income 259,552 260,466
Interest Expense
Interest on Deposits 68,214 66,327
Interest on Security Repurchase Agreements 22,953 24,416
Interest on Funds Purchased 8,527 12,768
Interest on Short-Term Borrowings 7,662 3,249
Interest on Long-Term Debt 12,688 9,862
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 120,044 116,622
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Income 139,508 143,844
Provision for Loan Losses 13,522 12,590
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 125,986 131,254
Non-Interest Income
Trust Income 16,887 15,575
Service Charges on Deposit Accounts 9,557 9,395
Fees, Exchange, and Other Service Charges 21,626 21,998
Other Operating Income 15,575 12,355
Investment Securities Gains 282 1,847
- ---------------------------------------------------------------------------------------------------------------------------
Total Non-Interest Income 63,927 61,170
Non-Interest Expense
Salaries 47,547 50,842
Pensions and Other Employee Benefits 14,630 15,043
Net Occupancy Expense 11,816 12,268
Net Equipment Expense 12,067 12,127
Other Operating Expense 39,953 44,353
Minority Interest 69 207
- ---------------------------------------------------------------------------------------------------------------------------
Total Non-Interest Expense 126,082 134,840
- ---------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 63,831 57,584
Provision for Income Taxes 24,066 22,167
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $39,765 $35,417
===========================================================================================================================
Basic Earnings Per Share $0.50 $0.44
Diluted Earnings Per Share $0.50 $0.44
Dividends Declared Per Share $0.17 $0.17
Basic Weighted Average Shares 79,821,365 80,421,563
Diluted Weighted Average Shares 80,017,761 81,405,868
===========================================================================================================================
</TABLE>
<TABLE>
Pacific Century Financial Corporation and subsidiaries
Consolidated Statements of Shareholders' Equity (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Accumulated
Other
Common Capital Comprehens Retained Treasury Comprehensive
(in thousands of dollars) Total Stock Surplus Income Earnings Stock Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $1,212,330 $806 $345,851 ($66,106) $942,177 ($10,398)
Comprehensive Income
Net Income 39,765 - - - 39,765 - $39,765
Other Comprehensive Income, Net of Tax
Investment Securities, Net of
Reclassification Adjustment (7,630) - - (7,630) - -
(7,630)
Foreign Currency Translation Adjustment 1,429 - - 1,429 - - 1,429
Pension Liability Adjustments - - - - - - -
-------
Total Comprehensive Income $33,564
=======
Common Stock Issued
22,377 Profit Sharing Plan 361 - - - (128) 489
33,932 Stock Option Plan 398 - 3 - (362) 757
78,723 Dividend Reinvestment Plan 1,123 - - - (603) 1,726
525 Directors' Restricted Shares and
Deferred Compensation Plan 9 - 9 - - -
Treasury Stock Purchased (8,337) - - - - (8,337)
Cash Dividends Paid (13,541) - - - (13,541) -
- ----------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 $1,225,907 $806 $345,863 ($72,307) $967,308 ($15,763)
======================================================================================================================
Balance at December 31, 1998 $1,185,594 $805 $342,932 ($22,476) $867,852 ($3,519)
Comprehensive Income
Net Income 35,417 - - - 35,417 - $35,417
Other Comprehensive Income, Net of Tax
Investment Securities, Net of
Reclassification Adjustment 1,131 - - 1,131 - - 1,131
Foreign Currency Translation Adjustment (2,191) - - (2,191) - -
(2,191)
Pension Liability Adjustments - - - - - - -
-------
Total Comprehensive Income $34,357
=======
Common Stock Issued
81 Profit Sharing Plan 2 - 2 - - -
183,628 Stock Option Plan 3,746 - 1,860 - (1,195) 3,081
65,874 Dividend Reinvestment Plan 1,447 - 137 - (16) 1,326
1,241 Directors' Restricted Shares and
Deferred Compensation Plan 24 - 24 - - -
Treasury Stock Purchased (3,920) - - - - (3,920)
Cash Dividends Paid (13,691) - - - (13,691) -
- ----------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 $1,207,559 $805 $344,955 ($23,536) $888,367 ($3,032)
======================================================================================================================
</TABLE>
<TABLE>
Pacific Century Financial Corporation and subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months ended March 31
(in thousands of dollars) 2000 1999
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net Income $39,765 $35,417
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses, depreciation, and amortization of income and expense 13,826 11,314
Deferred income taxes (13,079) 8,281
Realized and unrealized investment security gains (58) (1,952)
Other assets and liabilities, net 1,477 (5,863)
-------------------
Net cash provided by operating activities 41,931 47,197
- -------------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from redemptions of investment securities held to maturity 66,605 104,528
Purchases of investment securities held to maturity (2,627) (346,227)
Proceeds from sales of investment securities available for sale 33,854 974,607
Purchases of investment securities available for sale (41,898) (685,809)
Net decrease (increase) in interest-bearing deposits 53,159 (34,175)
Net decrease (increase) in funds sold 9,630 (70,294)
Net decrease (increase) in loans and lease financing (65,080) 230,343
Premises and equipment, net (5,385) (7,112)
Purchase of Triad Insurance Agency, Inc.
net of cash and non-interest bearing deposits acquired -- (2,183)
Purchase of additional interest in Bank of Hawaii Nouvelle Caledonie,
net of cash and non-interest bearing deposits acquired -- (642)
Purchase of additional interest in Banque de Tahiti,
net of cash and non-interest bearing deposits acquired -- (633)
-------------------
Net cash provided by investing activities 48,258 162,403
- -------------------------------------------------------------------------------------------------------------
Financing Activities
Net decrease in demand, savings, and time deposits (251,155) (167,695)
Proceeds from lines of credit and long-term debt 100,024 276,766
Principal payments on lines of credit and long-term debt (21,955) (186,878)
Net decrease in short-term borrowings (47,222) (64,091)
Net Common Stock issued (repurchased) (6,446) 1,299
Cash dividends (13,541) (13,691)
-------------------
Net cash used by financing activities (240,295) (154,290)
- -------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 1,429 (2,191)
-------------------
Increase (Decrease) in cash and non-interest bearing deposits (148,677) 53,119
Cash and non-interest bearing deposits at beginning of year 639,895 564,243
-------------------
Cash and non-interest bearing deposits at end of period $491,218 $617,362
=============================================================================================================
</TABLE>
<PAGE>
Pacific Century Financial Corporation
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements
of Pacific Century Financial Corporation (Pacific Century) have
been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles
generally accepted in the United States for complete financial
statements. In the opinion of management, the consolidated
financial statements reflect all adjustments of a normal and
recurring nature, including adjustments related to completed
acquisitions, which are necessary for a fair presentation of the
results for the interim periods, and should be read in
conjunction with the audited consolidated financial statements
and related notes included in Pacific Century's 1999 Annual
Report on Form 10-K. Operating results for the three months
ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31,
2000.
International operations include certain activities located
domestically in Hawaii, as well as branches and subsidiaries
domiciled outside the United States. The operations of Bank of
Hawaii and First Savings and Loan Association of America located
in the West and South Pacific that are denominated in U.S.
dollars are classified as domestic. Pacific Century's
international operations are primarily concentrated in Hong Kong,
Japan, Singapore, South Korea, Taiwan, French Polynesia, Fiji,
New Caledonia, Papua New Guinea and Vanuatu.
Certain amounts in prior period financial statements have
been reclassified to conform to the 2000 presentation.
Note 2. Recent Accounting Pronouncements
In July 1999, the Financial Accounting Standards Board
issued SFAS No. 137 "Deferral of the Effective Date of SFAS No.
133," that delays the effective date of SFAS No. 133 until fiscal
years beginning after June 15, 2000. SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities" standardizes
the accounting for derivative instruments by requiring the
recognition of those instruments as assets or liabilities
measured at fair value in the statement of financial condition.
Gains or losses resulting from changes in the fair values of
derivatives would be accounted for depending on the use of the
derivatives and whether they qualify for hedge accounting. In
order to qualify for hedge accounting, the hedging relationship
must be highly effective in achieving offsetting changes in fair
value or cash flows. SFAS No. 133 requires matching the timing
of gain or loss recognition on derivative instruments with the
recognition of the changes in the fair value of the hedged asset
or liability that is attributed to the hedged risk or the effect
on earnings of the hedged forecasted transaction. The adoption
of SFAS No. 133 is not expected to have a material impact on
Pacific Century's financial position or results of operations.
Note 3. Earnings Per Share
For the three months ended March 31, 2000 and 1999, there
were no adjustments to net income (the numerator) for purposes of
computing basic and diluted earnings per share (EPS). The
weighted average shares (the denominator) for computing basic and
diluted EPS for the three months ended March 31, 2000 and 1999
are presented in the Consolidated Statements of Income. Included
in the weighted average shares for computing EPS is the dilutive
effect of stock options of 196,396 and 984,305 shares for the
three months ended March 31, 2000 and 1999, respectively.
Note 4. Income Taxes
The provision for income taxes is computed by applying
statutory federal and state income tax rates to income before
income taxes as reported in the Consolidated Statements of Income
after adjusting for non-taxable items, principally from certain
state tax adjustments, tax exempt interest income, bank owned
life insurance income and tax credits for low income housing,
foreign taxes and investment tax credits.
Note 5. Business Segments
Pacific Century is a financial services organization that
maintains a broad presence throughout the Pacific region.
Pacific Century assesses the financial performance of its
operating components in accordance with geographic and functional
areas of operations. Geographically, Pacific Century has aligned
its operations into four principal segments: Hawaii, the Pacific,
Asia, and the U.S. Mainland. In addition, the Treasury and Other
Corporate segment includes corporate asset and liability
management activities and the unallocated portion of various
administrative and support units. Descriptions of these business
segments are included in Pacific Century's 1999 Annual Report on
Form 10-K.
Business segment results are determined based on Pacific
Century's internal financial management reporting process and
organization structure. The financial management reporting
process uses various techniques to assign and transfer balance
sheet and income statement amounts between business segments
including allocations for overhead, economic provision and
capital. In its business segment financial reporting process,
Pacific Century utilizes certain accounting practices that could
differ from accounting principles generally accepted in the
United States. Accordingly, certain balances reflected in the
business segment report may not agree with corresponding amounts
in the Consolidated Financial Statements. Accounting practices
and other key elements of Pacific Century's business segment
financial management reporting is discussed in Pacific Century's
1999 Annual Report on Form 10-K.
From time to time, Pacific Century's business segment
management reporting process may change based on refinements in
segment reporting policies or changes in accounting systems,
information systems, organizational structure, or product lines.
These changes could result in a realignment of business segments
or modifications to allocation and transfer methodologies.
Should material changes be made to the financial management
reporting process, prior period reports would be restated.
Presented below are the financial results for each of
Pacific Century's principal market segments for the three months
ended March 31, 2000 and 1999.
<TABLE>
Line of Business Selected Financial Information
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Treasury
U. S. and Other Consolidated
(in thousands of dollars) Hawaii Pacific Asia Mainland Corporate Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended March 31, 2000
Net Interest Income $68,769 $29,909 $5,710 $28,145 $6,975 $139,508
Economic Provision (1) (6,806) (3,499) (4,861) (2,780) 4,424 (13,522)
---------------------------------------------------------------------
Risk-Adjusted Net Interest Income 61,963 26,410 849 25,365 11,399 125,986
Non-Interest Income 36,566 8,735 5,197 3,360 10,069 63,927
---------------------------------------------------------------------
Total Risk-Adjusted Revenue 98,529 35,145 6,046 28,725 21,468 189,913
Non-Interest Expense 67,819 26,368 6,860 17,712 7,323 126,082
---------------------------------------------------------------------
Net Income (Loss) Before Income Taxe 30,710 8,777 (814) 11,013 14,145 63,831
Income Taxes (2) (12,931) (3,718) 324 (2,124) (5,617) (24,066)
---------------------------------------------------------------------
Net Income (Loss) $ 17,779 $ 5,059 $ (490)$ 8,889 $ 8,528 $ 39,765
=====================================================================
Total Assets $5,013,427 $2,328,622 $1,399,860 $2,895,581 $2,612,896 $14,250,386
=====================================================================
Three Months Ended March 31, 1999
Net Interest Income $72,818 $30,900 $8,751 $26,185 $5,190 $143,844
Economic Provision (1) (3) (8,915) (3,383) (4,875) (2,951) 7,534 (12,590)
---------------------------------------------------------------------
Risk-Adjusted Net Interest Income 63,903 27,517 3,876 23,234 12,724 131,254
Non-Interest Income 30,821 11,338 4,221 2,829 11,961 61,170
---------------------------------------------------------------------
Total Risk-Adjusted Revenue 94,724 38,855 8,097 26,063 24,685 192,424
Non-Interest Expense 72,519 27,902 6,760 17,472 10,187 134,840
---------------------------------------------------------------------
Net Income Before Income Taxes 22,205 10,953 1,337 8,591 14,498 57,584
Income Taxes (2) (9,605) (4,541) (584) (1,720) (5,717) (22,167)
---------------------------------------------------------------------
Net Income $ 12,600 $ 6,412 $ 753 $ 6,871 $ 8,781 $ 35,417
=====================================================================
Total Assets $5,209,603 $2,420,963 $1,458,843 $2,819,027 $3,019,850 $14,928,286
=====================================================================
(1) The economic provision for loan losses reflects the expected normalized loss factor determined by a
statistically applied approach that considers risk factors, including historical loss experience, within a
given portfolio. The economic provision differs from the provision determined under generally accepted
accounting principles. The difference between the sum of the economic provision for business segments and
the provision in the consolidated financial statements is included in Treasury and Other Corporate.
(2) Tax benefits are allocated to the business segment to which they relate. In the quarters ended March
31, 2000 and 1999, income taxes for the U. S. Mainland segment included $3.3 million and $2.8 million,
respectively, in tax benefits from low income housing tax credits and investment tax credits.
(3) For the first quarter of 1999, the economic provision for Asia was adjusted upwards from the amount
reported previously to reflect the normalized loss factors resulting from the company's assessment of reform
measures initiated to deal with the financial turmoil in the region. Previously, economic provisions for
uncertainty in the region were reflected in the provision for Treasury.
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PERFORMANCE HIGHLIGHTS
Pacific Century Financial Corporation (Pacific Century)
reported earnings for the three months ended March 31, 2000 of
$39.8 million, up 12.3% from $35.4 million in the same year ago
period. Both basic and diluted earnings per share in the first
quarter of 2000 were $0.50, compared to $0.44 in the same 1999
quarter, reflecting an increase of 13.6%.
Performance ratios for the three months ended March 31, 2000
improved over 1999. In the first quarter of 2000, return on
average assets (ROAA) and return on average equity (ROAE) were
1.13% and 13.19%, respectively, compared to 0.96% and 12.00% in
the same 1999 quarter. For the full year of 1999, ROAA was 0.91%
and ROAE was 10.99%.
Financial results under a tangible performance basis
excludes from reported earnings the after tax impact of
amortization of all intangibles, including goodwill. On a
tangible basis, Pacific Century's earnings in the first quarter
of 2000 were $43.9 million, reflecting an 11.8% increase from
$39.3 million in the same year ago quarter. On a per share
basis, tangible diluted earnings per share were $0.55 in the
first quarter of 2000, up from $0.48 per share in 1999's first
quarter. Tangible ROA and ROE for the quarter were 1.26% and
17.54%, respectively, compared to 1.08% and 16.21% in the same
quarter last year.
On a taxable equivalent basis, net interest income for the
three months ended March 31, 2000 was $139.8 million, down from
the $144.0 million in the same year ago period. This decline
primarily resulted from lower average earning assets in the
current quarter, which was partially offset by a rise in net
interest margin.
Total assets at March 31, 2000 stood at $14.3 billion
relative to $14.4 billion at December 31, 1999 and $14.9 billion
at March 31, 1999. Year-over-year, $142.0 million in loan growth
was more than offset by a $699.8 million decline in investment
securities and other short-term interest earning assets. The
reduction in securities and short-term earning assets primarily
is a result of managing down less productive assets.
Non-performing assets (NPAs), exclusive of accruing loans
past due 90 days or more, ended 2000's first quarter at $136.4
million, or 1.39% of total loans. Comparatively, NPAs were
$149.9 million, or 1.54% of total loans at year-end 1999 and
$163.3 million, or 1.69% of total loans at March 31, 1999.
The reserve for loan losses totaled $195.4 million at the
end of March 2000, representing 2.05% of loans outstanding,
compared to $209.3 million and 2.22%, respectively, on the same
date in 1999. Net charge-offs for the first quarter of 2000 were
$11.3 million, or 0.48% of average loans, compared to $10.8
million and 0.46% in the first quarter of 1999 and $36.8 million
and 1.55% in 1999's final quarter.
In September 1999, Pacific Century announced its redesign
program to improve the delivery of financial services in Hawaii
and the West Pacific, generate revenue growth from new and
existing sources, and reduce expenses by simplifying and
streamlining processes. The implementation phase of the redesign
began in fourth quarter of 1999 and is expected to be
substantially completed in twelve months. When fully implemented
at the beginning of the fourth quarter of 2000, the redesign is
expected to contribute an annualized pretax increase in revenue
of $21 million and annualized reduction in operating expenses of
$43 million. To date, results associated with implementing
redesign initiatives have been in line with expectations.
Forward-Looking Statements
This report contains forward-looking statements regarding
Pacific Century's beliefs, estimates, projections and
assumptions, which are provided to assist in the understanding of
certain aspects of Pacific Century's anticipated future financial
performance. Pacific Century cautions readers not to place undue
reliance on any forward-looking statement. Forward-looking
statements are subject to significant risks and uncertainties,
many of which are beyond Pacific Century's control. Although
Pacific Century believes that the assumptions underlying its
forward-looking statements are reasonable, any assumption could
prove to be inaccurate and actual results may differ from those
contained in or implied by such forward-looking statements for a
variety of reasons. Factors that might cause differences to
occur include, but are not limited to, economic conditions in the
markets Pacific Century serves including those in Hawaii, the
U.S. Mainland, Asia and the South Pacific; shifts in interest
rates; fluctuations in currencies of Asian Rim and South Pacific
countries relative to the U.S. dollar; changes in credit quality;
changes in applicable federal, state, and foreign income tax laws
and regulatory and monetary policies; and increases in
competitive pressures in the banking and financial services
industry, particularly in connection with product delivery and
pricing. In addition, factors that could significantly differ
from estimates relative to Pacific Century's redesign program
include the following: expected cost savings from the redesign
program cannot be fully realized or realized within the expected
timeframe; income or revenues from the redesign are lower or
operating or implementation costs are higher than expected;
business disruption related to implementation of the redesign
programs or methodologies; inability to achieve expected customer
acceptance of revised pricing structures and strategies; and
other unanticipated occurrences which could delay or adversely
impact the implementation of all or part of the redesign.
Pacific Century does not undertake and specifically disclaims any
obligation to update any forward-looking statements to reflect
events or circumstances after the date of such statements.
<TABLE>
Highlights Pacific Century Financial Corporation and subsidiaries
Table 1
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(in thousands of dollars except per share amounts)
Percentage
Earnings Highlights and Performance Ratios 2000 1999 Change
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Three Months Ended March 31
Net Income $39,765 $35,417 12.3%
Basic Earnings Per Share 0.50 0.44 13.6%
Diluted Earnings Per Share 0.50 0.44 13.6%
Cash Dividends 13,541 13,691
Return on Average Assets 1.13% 0.96%
Return on Average Equity 13.19% 12.00%
Average Spread on Earning Assets 4.31% 4.24%
Efficiency Ratio 62.06% 66.37%
Summary of Results Excluding the Effect of Intangibles (a)
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31
Net Income $43,889 $39,252 11.8%
Basic Earnings per Share $0.55 $0.49 12.2%
Diluted Earnings per Share $0.55 $0.48 14.6%
Return on Average Assets 1.26% 1.08%
Return on Average Equity 17.54% 16.21%
Efficiency Ratio 59.73% 64.25%
(a) Intangibles include goodwill, core deposit and trust intangibles, and other intangibles.
March 31 March 31 Percentage
Statement of Condition Highlights and Performance Ratios 2000 1999 Change
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets $14,250,386 $14,928,286 -4.5%
Net Loans 9,346,460 9,208,126 1.5%
Total Deposits 9,143,063 9,434,427 -3.1%
Total Shareholders' Equity 1,225,907 1,207,559 1.5%
Book Value Per Common Share $15.39 $15.01
Loss Reserve / Loans Outstanding 2.05% 2.22%
Average Equity / Average Assets 8.54% 7.98%
Common Stock Price Range High Low
1999 .............................. $24.94 $17.38
2000 First Quarter................. $20.38 $14.35
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LINE OF BUSINESS FINANCIAL REVIEW
Pacific Century is a financial services organization that
maintains a broad presence throughout the Pacific region and
operates through a unique trans-Pacific network of locations.
Its activities are conducted primarily through more than 180
branches and representative and extension offices (including
branches of affiliate banks). Pacific Century provides diverse
financial products and services to individuals, businesses,
governmental agencies and financial institutions.
Pacific Century assesses the financial performance of its
operating components primarily in accordance with geographic and
functional areas of operations. Geographically, Pacific Century
has aligned its operations into four principal geographic
segments: Hawaii, the Pacific, Asia, and the U.S. Mainland. In
addition, there is also a segment for Treasury and Other
Corporate. A further discussion of these segments and the
reporting process is included in the 1999 Annual Report on Form
10-K.
Note 5 to the Consolidated Financial Statements presents
Pacific Century's business segment financial reports for the
three months ended March 31, 2000 and 1999. Because business
segment financial reports are prepared in accordance with
accounting practices that could differ from accounting principles
generally accepted in the United States, the amounts reflected
therein may not agree with the corresponding amounts reported in
the Consolidated Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations.
In addition to the performance measurements in the business
segment financial report, Pacific Century also utilizes risk-
adjusted return on capital (RAROC) to assess segment performance.
RAROC is the ratio of risk-adjusted net income to equity. Equity
is allocated to business units based on various risk factors
inherent in the operations of each unit. A second performance
measurement is net income after capital charge (NIACC). NIACC is
net income available to common shareholders less a charge for
allocated capital. The cost of capital is based on the estimated
minimum rate of return expected by the financial markets. The
minimum rate of return consists of the following components: the
long-term government bond rate plus an additional level of return
for the average risk premium of an equity investment adjusted for
Pacific Century's market risk.
Hawaii Market
Pacific Century's oldest and largest market is Hawaii, where
operations are conducted primarily through its principal
subsidiary, Bank of Hawaii. Bank of Hawaii was established in
1897, and is the largest bank headquartered in the State of
Hawaii offering a wide array of financial products and services.
Bank of Hawaii operates through 74 branches in Hawaii, including
both traditional full-service branches and in-store locations.
The Hawaii segment includes retail and commercial operating
units. Retail operating units service and sell a broad line of
consumer financial products. These units include consumer
deposits, consumer lending, residential real estate lending, auto
financing, credit cards, and private and institutional services
(trust, mutual funds, and stock brokerage).
In the business banking area, Bank of Hawaii is a major
commercial lender and maintains a significant presence throughout
the State. Commercial operating units in the Hawaii market
include small business, Hawaii commercial banking, commercial
products and commercial real estate.
For the quarter ended March 31, 2000, the Hawaii segment
contributed $17.8 million in net income an increase of 41.1% from
the $12.6 million reported for the first quarter of 1999. The
higher 2000 earnings were primarily driven by a $5.7 million
increase in non-interest income and a $4.7 million reduction in
non-interest expense. The increase in non-interest income for
March 2000 included approximately $2.0 million in non-recurring
other operating income. The positive effects from the
implementation of redesign initiatives and the Year 2000
remediations costs expended last year primarily explains the
decline in non-interest expense. RAROC for this segment rose to
21% for the first quarter of 2000 from 13% in the same quarter of
1999. Total assets in the Hawaii segment declined to $5.0 billion
at March 31, 2000 from $5.3 billion at year-end 1999 and $5.2
billion at March 31, 1999.
Pacific Market
Pacific Century's Intra-Pacific region spans island nations
across the West and South Pacific. Pacific Century is the only
United States financial institution to have such a broad presence
in this region.
Pacific Century serves the West Pacific through branches of
both Bank of Hawaii and First Savings and Loan Association of
America (First Savings).
Pacific Century's presence in the South Pacific includes
various subsidiary and affiliate banks and branches of Bank of
Hawaii. Subsidiaries in the South Pacific are located in French
Polynesia, New Caledonia, Papua New Guinea and Vanuatu, and
affiliates are located in Samoa, Solomon Islands, and Tonga.
Bank of Hawaii locations in this region consist of three branches
in Fiji and two branches in American Samoa.
Net income in the Pacific segment was $5.1 million for the
quarter ended March 31, 2000, down from $6.4 million in the first
quarter of 1999. The lower 2000 results is partially due to
unfavorable fluctuations in currency exchange rates in the South
Pacific. RAROC, including the amortization of intangibles for
this segment, declined to 9% in the first quarter of 2000 from
12% for the same quarter in 1999. Total assets in the Pacific
segment were $2.3 billion at the end of March 2000, down from
$2.5 billion and $2.4 billion from year-end 1999 and the same
year ago date, respectively.
Asia Market
Pacific Century operates in Asia through Bank of Hawaii
branches in Hong Kong, Japan, Singapore, South Korea and Taiwan
and a representative office with extensions in the Philippines.
Pacific Century's business focus in Asia is correspondent
banking and trade financing. The lending emphasis is on credits
relating to and resulting from trade activities, trade finance
and working capital loans for companies that have business
interests in the Asia-Pacific markets. Pacific Century's network
of locations in the Pacific and its presence on the U.S. Mainland
help customers facilitate the flow of business and investment
transactions across Asia-Pacific.
For the quarter ended March 31, 2000, the Asia segment
reflected a net loss of $0.5 million, compared to net income of
$0.8 million for the same quarter in 1999. The lower 2000
results is primarily due to a decline in net interest income,
which was driven by a reduction in the net interest margin rate.
Partially offsetting this decline, was a rise in non-interest
income. RAROC for this segment was (2)% in the first quarter of
2000, compared to 3% for the same quarter in 1999. As of March
31, 2000, December 31, 1999 and March 31, 1999, total assets in
the Asia segment were $1.4 billion, $1.4 billion and $1.5
billion, respectively.
For additional information on Asia, see the "Foreign
Operations" section in this report.
U.S. Mainland Market
Pacific Century's U.S. Mainland segment includes Pacific
Century Bank, N.A. and Bank of Hawaii operating units for large
corporate lending and leasing.
In the first quarter of 2000, the U.S. Mainland segment
contributed net income of $8.9 million, up from $6.9 million in
the same year ago quarter. Net income for the three months ended
March 31, 2000 and 1999, included tax benefits of $3.3 million
and $2.8 million, respectively, from low income housing tax
credits and investment tax credits. RAROC, including the
amortization of intangibles for this segment was 13% in the first
quarter of 2000, improving from 10% for the same quarter in 1999.
As of March 31, 2000, December 31, 1999 and March 31, 1999, total
assets in the U.S. Mainland segment were $2.9 billion, $2.7
billion and $2.8 billion, respectively.
Treasury and Other Corporate
The primary operations in this segment is Treasury, which
consists of corporate asset and liability management activities
including investment securities, federal funds purchased and
sold, government deposits, short and long-term borrowings, and
derivative activities for managing interest rate and foreign
currency risks. Additionally, the net residual effect of
transfer pricing assets and liabilities is included in Treasury,
as is any corporate-wide interest rate risk.
The Treasury and Other Corporate segment reflected a first
quarter 2000 net income of $8.5 million, compared to $8.8 million
in the same quarter in 1999. At March 31, 2000, year-end 1999
and March 31, 1999 this segment held assets of $2.6 billion, $2.6
billion, and $3.0 billion, respectively. The year-over-year
reduction in assets is primarily due to a decline in investment
securities and other short-term interest earning assets.
STATEMENT OF INCOME ANALYSIS
Net Interest Income
In the first quarter of 2000, net interest income on a
taxable equivalent basis was $139.8 million, down 2.9% from the
$144.0 million reported in the same year-earlier quarter. The
change between periods reflected a drop in average earning assets
that was partially offset by a rise in the net interest margin.
In the first quarter of 2000, the average net interest
margin on earning assets rose to 4.31% from 4.24% for the same
quarter in 1999. The average yield on earning assets increased
from 7.67% in 1999's first quarter to 8.01% in the current
quarter and reflects the general rise in market interest rates.
In addition, declines in the average balance of lower yielding
foreign loans, interest-bearing deposits and investment
securities contributed to the higher overall yield in the first
quarter of 2000. The average rate on interest-bearing
liabilities increased to 4.56% in the current quarter from 4.17%
in the same quarter last year. Presented in Table 2 are average
balances, yields, and rates paid for the three months ended March
31, 2000, March 31, 1999 and December 31, 1999. Additionally,
the results for the full year 1999 are also presented.
<TABLE>
Pacific Century Financial Corporation and subsidiaries
Consolidated Average Balances and Interest Rates Taxable Equivalent (Unaudited)
Table 2
- ------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
Average Income/ Yield/ Average Income/ Yield/
(in millions of dollars) Balance Expense Rate Balance Expense Rate
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets
Interest Bearing Deposits $206.5 $3.8 7.33% $466.6 $8.2 7.15%
Investment Securities Held to Maturity
-Taxable 775.5 14.2 7.38 790.0 13.7 7.02
-Tax-Exempt 10.0 0.4 17.32 11.7 0.4 14.73
Investment Securities Available for Sale 2,527.0 41.0 6.53 2,815.3 41.8 6.02
Funds Sold 35.0 0.5 5.56 208.2 2.7 5.17
Net Loans
-Domestic 7,897.9 166.7 8.49 7,778.2 158.3 8.25
-Foreign 1,586.1 24.9 6.30 1,713.7 25.9 6.15
Loan Fees 8.3 9.6
------------------------------------------------
Total Earning Assets 13,038.0 259.8 8.01 13,783.7 260.6 7.67
Cash and Due From Banks 506.5 517.6
Other Assets 657.0 694.3
--------- ---------
Total Assets $14,201.5 $14,995.6
========= =========
Interest Bearing Liabilities
Domestic Dep- Demand $2,115.6 12.3 2.33 $2,163.9 12.0 2.25
- Savings 700.1 3.5 2.03 735.0 3.7 2.02
- Time 2,764.9 35.1 5.10 2,610.9 30.7 4.77
------------------------------------------------
Total Domestic 5,580.6 50.9 3.67 5,509.8 46.4 3.41
Foreign Deposits
- Time Due to Banks 487.8 7.0 5.79 652.9 8.6 5.36
- Other Time and Savings 1,121.6 10.3 3.70 1,160.1 11.3 3.95
------------------------------------------------
Total Foreign 1,609.4 17.3 4.33 1,813.0 19.9 4.46
------------------------------------------------
Total Interest Bearing Deposits 7,190.0 68.2 3.82 7,322.8 66.3 3.67
Short-Term Borrowings 2,626.6 39.1 5.99 3,372.5 40.4 4.86
Long-Term Debt 773.0 12.7 6.60 651.8 9.9 6.14
------------------------------------------------
Total Interest Bearing Liabilities 10,589.6 120.0 4.56 11,347.1 116.6 4.17
------------------------------------------------
Net Interest Income 139.8 144.0
Interest Rate Spread 3.45% 3.50%
Net Interest Margin 4.31% 4.24%
Demand Deposit- Domestic 1,663.6 1,644.4
- Foreign 419.5 448.2
--------- ---------
Total Demand Deposits 2,083.1 2,092.6
Other Liabilities 316.7 359.1
Shareholders' Equity 1,212.1 1,196.8
--------- ---------
Total Liabilities and Shareholders' Equity $14,201.5 $14,995.6
========= =========
Provision for Loan Losses 13.5 12.6
Net Overhead 62.2 73.7
----- -----
Income Before Income Taxes 64.1 57.7
Provision for Income Taxes 24.1 22.2
Tax-Equivalent Adjustment 0.2 0.1
----- -----
Net Income $39.8 $35.4
===== =====
</TABLE>
<TABLE>
Pacific Century Financial Corporation and subsidiaries
Consolidated Average Balances and Interest Rates Taxable Equivalent (Unaudited)
Table 2
- ------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, 1999 December 31, 1999
Average Income/ Yield/ Average Income/ Yield/
(in millions of dollars) Balance Expense Rate Balance Expense Rate
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets
Interest Bearing Deposits $268.4 $4.6 6.75% $385.0 $24.9 6.48%
Investment Securities Held to Maturity
-Taxable 794.4 14.6 7.27 805.2 57.8 7.18
-Tax-Exempt 11.6 0.4 14.34 11.7 1.7 14.41
Investment Securities Available for Sale 2,590.0 41.8 6.40 2,698.8 168.0 6.23
Funds Sold 33.2 0.5 6.53 102.0 5.4 5.31
Net Loans
-Domestic 7,803.0 161.4 8.20 7,742.3 623.0 8.05
-Foreign 1,688.6 25.1 5.91 1,702.2 106.4 6.25
Loan Fees 9.8 39.9
------------------------------------------------
Total Earning Assets 13,189.2 258.2 7.77 13,447.2 1,027.1 7.64
Cash and Due From Banks 519.3 486.6
Other Assets 650.8 649.1
--------- ---------
Total Assets $14,359.3 $14,582.9
========= =========
Interest Bearing Liabilities
Domestic Dep- Demand $2,110.5 12.1 2.28 $2,137.1 48.5 2.27
- Savings 711.9 3.7 2.03 723.9 14.7 2.03
- Time 2,634.8 32.4 4.88 2,559.4 123.3 4.82
------------------------------------------------
Total Domestic 5,457.2 48.2 3.50 5,420.4 186.5 3.44
Foreign Deposits
- Time Due to Banks 625.6 8.7 5.50 641.4 33.7 5.25
- Other Time and Savings 1,171.7 10.6 3.60 1,165.7 41.0 3.52
------------------------------------------------
Total Foreign 1,797.3 19.3 4.26 1,807.1 74.7 4.13
------------------------------------------------
Total Interest Bearing Deposits 7,254.5 67.5 3.69 7,227.5 261.2 3.61
Short-Term Borrowings 2,707.6 35.4 5.18 3,014.8 146.2 4.85
Long-Term Debt 747.4 12.1 6.45 685.9 44.3 6.46
------------------------------------------------
Total Interest Bearing Liabilities 10,709.5 115.0 4.26 10,928.2 451.7 4.13
------------------------------------------------
Net Interest Income 143.2 575.4
Interest Rate Spread 3.51% 3.51%
Net Interest Margin 4.31% 4.28%
Demand Deposit- Domestic 1,662.8 1,652.6
- Foreign 457.5 435.2
---------
Total Demand Deposits 2,120.3 2,087.8
Other Liabilities 315.3 356.9
Shareholders' Equity 1,214.2 1,210.0
--------- ---------
Total Liabilities and Shareholders' Equity $14,359.3 $14,582.9
========= =========
Provision for Loan Losses 20.9 60.9
Net Overhead 61.7 288.2
----- ------
Income Before Income Taxes 60.6 226.3
Provision for Income Taxes 22.8 92.7
Tax-Equivalent Adjustment 0.2 0.6
----- ------
Net Income $37.6 $133.0
===== ======
</TABLE>
Provision for Loan Losses
The provision for loan losses was $13.5 million in 2000's
first quarter, up from $12.6 million for the same quarter last
year. For the full year 1999, the provision for loan losses was
$60.9 million. For further information on credit quality, refer
to the section on "Corporate Risk Profile - Credit Risk - Reserve
for Loan Losses."
Non-Interest Income
Total non-interest income in the first quarter of 2000, was
$63.9 million, compared to $61.2 million in the same quarter in
1999. Exclusive of investment securities gains, non-interest
income rose $4.3 million or 7.3% in the March 2000 quarter over
the same year ago period.
<TABLE>
Non-Interest Income
Table 3
<CAPTION>
3 Months Ended 3 Months Ended
(in millions) Mar. 31, 2000 Mar. 31, 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Trust Income $16.9 $15.6
Service Charges on Deposit Accounts 9.5 9.4
Fees, Exchange and Other Service
Charges 21.6 22.0
Other Operating Income 15.6 12.4
Investment Securities Gains 0.3 1.8
- ---------------------------------------------------------------------------------------
Total Non-Interest Income $63.9 $61.2
=======================================================================================
</TABLE>
Trust income for the first quarter of 2000 increased to
$16.9 million, up 8.4% from the same quarter last year. The
year-over-year rise in trust income is primarily attributed to
increases in mutual fund management fees and annuity fees. The
Pacific Capital family of mutual funds and Hawaiian Tax Free
Trust, which are managed by Pacific Century Trust, have continued
to experience growth. At March 31, 2000, the aggregate balance
of these funds stood at $4.1 billion, up from $3.2 billion at the
same date last year.
Service charges on deposit accounts for the March 2000
quarter totaled $9.5 million, reflecting an increase of 1.7% over
the same quarter last year. The implementation of redesign
initiatives modestly contributed to the increase in deposit fees
since these initiatives were implemented in March.
Fees, exchange and other service charges were $21.6 million
in the first quarter of 2000, compared to $22.0 million in the
same 1999 quarter. During the current quarter, fees generated
from mortgage servicing and Pacific Century's ATM network
reflected an increase over the same period last year, which was
more than offset by reductions in fees related to South Pacific
subsidiaries.
Other operating income in 2000's first quarter was $15.6
million, reflecting an increase of $3.2 million over the same
quarter of 1999. Current quarter results included approximately
$2.0 million in non-recurring income relative to securities
received in the demutulization of a large insurance company.
Additionally, the increase in other operating income reflected
positive contributions from implementing redesign initiatives.
Sales of investment securities during the three months ended
March 31, 2000 resulted in net investment security gains of $0.3
million, compared to $1.8 million in the comparable year earlier
period.
Non-Interest Expense
Total non-interest expense for the March 2000 quarter was
$126.1 million, down 6.5% from $134.8 million in the like quarter
of 1999. This improvement is largely driven by reduced Year 2000
remediation costs and reduced compensation and other operating
expenses related to New Era implementation.
<TABLE>
Non-Interest Expense
Table 4
<CAPTION>
3 Months Ended 3 Months Ended
(in millions) Mar. 31, 2000 Mar. 31, 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Salaries and Pension and Other Employee Benefits $62.1 $65.8
Net Occupancy and Net Equipment Expense 23.9 24.4
Other Operating Expense 40.0 44.4
Minority Interest 0.1 0.2
- ---------------------------------------------------------------------------------------
Total Non-Interest Expense $126.1 $134.8
=======================================================================================
</TABLE>
Salaries and pension and other employee benefits expense
totaled $62.1 million in the first quarter of 2000, down 5.6%
from $65.8 million in the same quarter last year. This reduction
largely resulted from staff reductions relative to the redesign.
Net occupancy and equipment expense in the March 2000
quarter was $23.9 million, a decrease of 2.1% from $24.4 million
for the same period in 1999.
Other operating expense decreased to $40.0 million in the
first quarter of 2000, down 9.9% from $44.4 million for the same
quarter in 1999. This reduction is largely related to cost
savings achieved from implementing redesign initiatives and Year
2000 readiness costs that were incurred in 1999's first quarter.
Pacific Century utilizes the efficiency ratio as a tool to
manage non-interest income and expense. The efficiency ratio is
derived by dividing non-interest expense by net operating revenue
(net interest income plus non-interest income before securities
transactions). For the first quarter of 1999, the efficiency
ratio was 62.1%. Comparatively, this ratio was 66.4% in the same
quarter last year and 63.3% in the final quarter of 1999. On a
tangible basis, the efficiency ratio was 59.7% for the March 2000
quarter, improving from 64.3% in the same year ago period.
BALANCE SHEET ANALYSIS
Loans
Loans comprise the largest category of earning assets for
Pacific Century and produce the highest level of earnings. At
March 31, 2000, loans outstanding were $9.8 billion, up from $9.7
billion at year-end 1999 and $9.6 billion at March 31, 1999.
While the overall loan portfolio reflected a year-over-year
increase of 1.5%, foreign loans declined by 9.5%, which reflected
currency translation adjustments and an intended scaling back of
loans in the Asia market.
Pacific Century's objective is to maintain a diverse loan
portfolio in order to spread credit risk and reduce exposure to
economic downturns that may impact different markets and
industries. The composition of the loan portfolio is regularly
monitored to ensure diversity as to loan type, geographic
distribution, and industry and borrower concentration.
Table 5 presents the composition of the loan portfolio by
major loan categories as of March 31, 2000, December 31, 1999 and
March 31, 1999.
<TABLE>
Loan Portfolio Balances
Table 5
- ----------------------------------------------------------------------------------
<CAPTION>
March 31 December 31 March 31
(in millions of dollars) 2000 1999 1999
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic Loans
Commercial and Industrial $2,558.6 $2,493.0 $2,468.4
Real Estate
Constructio-- Commercial 317.5 315.1 312.3
-- Residential 16.8 13.8 21.0
Mortgage --Commercial 1,256.6 1,244.8 1,231.5
-- Residential 2,677.7 2,645.4 2,568.0
Installment 745.0 756.1 733.5
Lease Financing 626.3 627.6 556.0
- ----------------------------------------------------------------------------------
Total Domestic 8,198.5 8,095.8 7,890.7
- ----------------------------------------------------------------------------------
Foreign Loans 1,581.1 1,621.8 1,747.0
- ----------------------------------------------------------------------------------
Total Loans $9,779.6 $9,717.6 $9,637.7
==================================================================================
</TABLE>
<PAGE>
Investment Securities
Pacific Century's investment portfolio is managed to provide
collateral for cash management needs, to meet strategic
asset/liability positioning, and to provide both interest income
and balance sheet liquidity. At $2.5 billion, available-for-sale
securities at March 31, 2000 were almost level with year-end
1999, but were down from $2.7 billion at the same date last year.
Securities held to maturity were $732 million at March 31, 2000,
declining from $796 million at year-end 1999 and $895 million a
year ago. Other short-term interest earning assets totaled $268
million at the end of the first quarter, down from $331 million
and $610 million at December 31, 1999 and March 31, 1999,
respectively. The decline in investment securities and other
short-term interest earning assets relative to year-end 1999 and
March 31, 1999, is primarily the result of managed reductions of
lower yielding assets to improve balance sheet efficiency.
Deposits
As of March 31, 2000, deposits totaled $9.1 billion, down
from $9.4 billion at both year-end 1999 and March 31, 1999.
Year-over-year, domestic deposits reflected an increase of $163
million, while foreign deposits declined by $455 million. Most
of the drop in foreign deposits is accounted for in the time due
to bank category, which experienced a $378 million year-over-year
decrease. The decline in foreign deposits is also partially
attributed to foreign currency exchange rate fluctuations in the
South Pacific.
Table 6 presents average deposits by type for the first
quarters of 2000 and 1999 and the full year 1999.
<TABLE>
Average Deposits
Table 6
- --------------------------------------------------------------------------------------------------
<CAPTION>
Quarter Ended Year Ended Quarter Ended
March 31, 2000 December 31, 1999 March 31, 1999
---------------- -------------- --------------
(in millions of dollars) Amount Mix Amount Mix Amount Mix
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic
Non-Interest Bearing Demand $1,663.6 17.9% $1,652.6 17.7% $1,644.4 17.4%
Interest-Bearing Demand 2,115.6 22.8 2,137.1 22.9 2,163.9 23.0
Regular Savings 700.1 7.6 723.9 7.8 735.0 7.8
Time Certificates
of Deposit
($100,000 or More) 1,177.3 12.7 1,043.2 11.2 1,032.4 11.0
All Other Time and
Savings Certificates 1,587.6 17.1 1,516.2 16.3 1,578.5 16.8
- --------------------------------------------------------------------------------------------------
Total Domestic 7,244.2 78.1 7,073.0 75.9 7,154.2 76.0
- --------------------------------------------------------------------------------------------------
Foreign
Non-Interest Bearing Demand 419.5 4.5 435.2 4.7 448.2 4.8
Time Due to Banks 487.8 5.3 641.4 6.9 652.9 6.9
Other Time and Savings 1,121.6 12.1 1,165.7 12.5 1,160.1 12.3
- --------------------------------------------------------------------------------------------------
Total Foreign 2,028.9 21.9 2,242.3 24.1 2,261.2 24.0
Total $9,273.1 100.0% $9,315.3 100.0% $9,415.4 100.0%
==================================================================================================
</TABLE>
<PAGE>
Borrowings
Short-term borrowings, including funds purchased and
securities sold under agreements to repurchase, totaled $2.7
billion at March 31, 2000, $2.8 billion at year-end 1999 and $3.2
billion at March 31, 1999.
Long-term debt on March 31, 2000 increased to $806 million
from $728 million at year-end 1999 and $676 million at March 31,
1999. This increase is primarily attributed to new Federal Home
Loan Bank advances in the first quarter, net of maturities.
FOREIGN OPERATIONS
Pacific Century maintains an extensive international
presence in the Asia-Pacific region that provides opportunities
to take part in lending, correspondent banking and deposit-taking
activities in these markets. Pacific Century divides its
international business into two areas: the Asia Market and the
Pacific Market, which is comprised of economies located in the
South and West Pacific.
Through its Asia Market, Pacific Century offers banking
services to its corporate and financial institution customers in
most of the major Asian financial centers with support from its
New York and Honolulu operations. The International Banking Group
of Bank of Hawaii continues to focus on correspondent banking and
trade-related financing activities and lending to customers with
which it has a direct relationship.
The South Pacific Division consists of investments in
subsidiary banks in French Polynesia, New Caledonia, Papua New
Guinea, Vanuatu, and Bank of Hawaii branch operations in Fiji and
American Samoa. Since American Samoa is U.S. dollar based, its
operation is included as domestic. Additionally, Bank of Hawaii
has interests in affiliate banks located in Samoa, Solomon
Islands and Tonga.
The West Pacific Division includes Bank of Hawaii branches
in Guam and in other locations in the region. Since the U.S.
dollar is used in these locations, Pacific Century's operations
in the West Pacific are not considered foreign for financial
reporting purposes.
A detailed description of controls over risk exposure in
international lending is provided in Pacific Century's 1999
Annual Report on Form 10-K. There has been no significant change
to that process during 2000. Pacific Century continues to
monitor its exposure in international lending with particular
attention provided to Asia and the South Pacific.
The countries in Asia to which Pacific Century maintains its
largest credit exposure on a cross border basis include Japan,
South Korea and France. Table 7 presents as of March 31, 2000,
December 31, 1999, and March 31, 1999 a geographic distribution
of Pacific Century's cross-border assets for each country in
which such assets exceeded 0.75% of total assets.
<TABLE>
Geographic Distribution of Cross-Border International Assets (1)
Table 7
<CAPTION>
(in millions)
Country March 31, 2000 December 31, 1999 March 31, 1999
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Japan $316.2 $320.4 $346.8
South Korea 305.6 294.3 275.7
France 147.8 195.1 135.0
Taiwan 98.2 78.7 134.2
All Others (2) 451.2 484.7 591.0
-------- -------- --------
$1,319.0 $1,373.2 $1,482.7
======== ======== ========
(1) This table details by country cross-border outstandings that individually amounted to 0.75% or more of
consolidated total assets as of March 31, 2000, December 31, 1999 and March 31, 1999. Cross-border
outstandings are defined as foreign monetary assets that are payable to Pacific Century in U.S. dollars or
other non-local currencies, plus amounts payable in local currency but funded with U.S. dollars or other
non-local currencies. Cross-border outstandings include loans, acceptances, and interest-bearing deposits
with other banks.
(2) At March 31, 2000, the all others category included cross-border outstandings of $61.3 million in French
Polynesia and $46.1 million in New Caledonia. The currency of both of these countries is the Pacific franc.
</TABLE>
In the fourth quarter of 1999, $10.7 million in credits to a
South Korean conglomerate were placed on non-performing status in
conjunction with a partial charge-off. Negotiation with the
conglomerate and its creditors are still in process. Pacific
Century believes that it has adequately provided for the
exposures relative to these credits.
CORPORATE RISK PROFILE
Credit Risk
Non-Performing Assets and Past Due Loans
Non-performing assets (NPAs) consist of non-accrual loans,
restructured loans and foreclosed real estate. These assets
decreased to $136.4 million at March 31, 2000 from $149.9 million
at year-end 1999 and $163.3 million at March 31, 1999.
At March 31, 2000, the ratio of NPAs to outstanding loans
was 1.39%. Comparatively this ratio was 1.54% at year-end 1999
and 1.69% at March 31, 1999. Table 8 presents Pacific Century's
NPAs and ratio of NPAs to total loans.
In order to minimize credit losses, Pacific Century strives
to maintain high underwriting standards, identify potential
problem loans and work with borrowers to cure delinquencies.
Moreover, charge-offs, if required, are taken promptly and
reserve levels are maintained at adequate levels. Pacific
Century's policy is to place loans on non-accrual status when a
loan is over 90 days delinquent, unless collection is likely
based on specific factors such as the type of borrowing agreement
and/or collateral. At the time a loan is placed on non-accrual,
all accrued but unpaid interest is reversed against current
earnings.
Total non-accrual loans declined to $131.8 million at March
31, 2000, down from $145.3 million and $157.1 million at year-end
1999 and March 31, 1999, respectively. Reductions in non-accrual
balances in the residential real estate and commercial and
industrial loan portfolios primarily accounted for the decrease
relative to year-end 1999 and March 31, 1999.
Non-performing residential mortgages (excluding construction
loans) totaled $23.2 million at March 31, 2000, compared to $29.7
million at year-end 1999. Contributing to this reduction was the
sale of approximately $5.0 million in non-performing residential
real estate loans during the March 2000 quarter. Because
residential mortgages are secured by real estate, the credit risk
on these loans is lower than for unsecured lending. Most of
Pacific Century's residential loans are owner-occupied first
mortgages and were generally underwritten to provide a loan-to-
value ratio of no more than 80% at origination.
Foreign loans on non-accrual at the end of the current
quarter totaled $65.2 million, down from $67.4 million at year-
end 1999 and up from $53.6 million at March 31, 1999. The year-
over-year rise is attributed to an increase in non-performing
Asian loans.
There were no restructured loans as of March 31, 2000,
December 31, 1999 and March 31, 1999.
Foreclosed real estate totaled $4.6 million at March 31,
2000, unchanged from year-end 1999 and down from $6.2 million a
year ago. At end of the current quarter, the foreclosed real
estate portfolio consisted of properties located mostly in
Hawaii.
Accruing loans past due 90 days or more were $23.1 million
at March 31, 2000, up from $18.5 million at year-end 1999 and
$21.7 million at the same date last year. The ratio of NPAs and
accruing loans past due 90 days or more to total loans was 1.63%
at end of the March 2000 quarter, compared to 1.73% and 1.92% at
December 31, 1999 and March 31, 1999, respectively.
<TABLE>
Non-Performing Assets and Accruing Loans Past Due 90 Days or More
Table 8
- ----------------------------------------------------------------------
<CAPTION>
March 31 December 31 March 31
(in millions of dollars) 2000 1999 1999
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Non-Accrual Loans
Commercial and Industrial $20.1 $23.7 $39.1
Real Estate
Construction 0.9 1.1 3.1
Commercial 18.2 19.0 18.7
Residential 23.2 29.7 37.6
Installment 0.5 0.5 0.5
Leases 3.7 3.9 4.5
----------------------------
Total Domestic 66.6 77.9 103.5
Foreign 65.2 67.4 53.6
----------------------------
Subtotal 131.8 145.3 157.1
Foreclosed Real Estate
Domestic 4.3 4.3 6.1
Foreign 0.3 0.3 0.1
----------------------------
Subtotal 4.6 4.6 6.2
----------------------------
Total Non-Performing Assets 136.4 149.9 163.3
----------------------------
Accruing Loans Past Due 90 Days or More
Commercial and Industrial 6.7 5.9 4.3
Real Estate
Construction 0.0 0.0 0.2
Commercial 2.1 1.9 0.4
Residential 5.0 4.0 3.5
Installment 4.7 4.5 6.9
Leases 1.4 1.2 0.1
----------------------------
Total Domestic 19.9 17.5 15.4
Foreign 3.2 1.0 6.3
----------------------------
Subtotal 23.1 18.5 21.7
----------------------------
Total $159.5 $168.4 $185.0
============================
- ----------------------------------------------------------------------
Ratio of Non-Performing Assets
to Total Loans 1.39% 1.54% 1.69%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Ratio of Non-Performing Assets
and Accruing Loans Past Due
90 Days or More to Total Loans 1.63% 1.73% 1.92%
- ----------------------------------------------------------------------
</TABLE>
Reserve for Loan Losses
Pacific Century maintains reserve for loan losses at a level
that it believes is adequate to absorb estimated inherent losses
on all loans. The reserve level is determined based on a
continuing assessment of problem credits, recent loss experience,
changes in collateral values, and current and anticipated
economic conditions. Pacific Century's credit administration
procedures emphasizes the early recognition and monitoring of
problem loans in order to control delinquencies and minimize
losses. This process and the quarterly analysis to determine the
adequacy of its reserve for loan losses is described in Pacific
Century's 1999 Annual Report on Form 10-K.
Reserve for loan losses ended the first quarter of 2000 at
$195.4 million, marginally above year-end 1999 and $13.9 million
below the same date last year. Net charge-offs for the first
quarter of 2000 were $11.3 million or 0.48% of average loans,
compared to $10.8 million, or 0.46% of average loans for the same
quarter last year and $36.8 million, or 1.55% for the fourth
quarter of 1999. The ratio of reserves to loans outstanding at
March 31, 2000 was 2.05%, down from 2.22% at this date last year
and unchanged from year-end 1999. A summary of the activity in
the reserve for loan losses is presented in Table 9.
At March 31, 2000, the reserve for loan losses provided
coverage of 143% of non-performing assets, compared to 130%
coverage at year-end 1999 and 128% at March 31, 1999.
Additionally, the annualized ratio of reserves to gross charge-
offs was 3.0 times for the first quarter of 2000, improving from
2.5 times for the same period last year and 1.9 times for all of
1999.
For the three months ended March 31, 2000, recoveries
totaled $4.8 million. Comparatively, recoveries were $5.8
million in the final quarter of 1999 and $10.0 million in the
first quarter of 1999, which included a $7.0 million recovery of
a U.S. mainland loan in the commercial and industrial portfolio.
<TABLE>
Pacific Century Financial Corporation and subsidiaries
Reserve for Loan Losses
Table 9
- ------------------------------------------------------------------------------
<CAPTION>
First Year First
Quarter Ended Quarter
(in millions of dollars) 2000 12/31/99 1999
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Average Amount of Loans Outstanding $9,484.1 $9,444.5 $9,491.9
- ------------------------------------------------------------------------------
Balance of Reserve for Loan Losses
at Beginning of Period $194.2 $211.3 $211.3
Loans Charged-Off
Commercial and Industrial 1.4 18.5 7.8
Real Estate
Construction -- 1.4 --
Commercial 3.9 4.5 2.0
Residential 2.4 7.8 2.0
Installment 4.7 25.1 6.0
Leases -- 0.2 --
- ------------------------------------------------------------------------------
Total Domestic 12.4 57.5 17.8
Foreign 3.7 45.8 3.0
- ------------------------------------------------------------------------------
Total Charged-Off 16.1 103.3 20.8
Recoveries on Loans Previously Charged-Off
Commercial and Industrial 1.7 14.0 8.0
Real Estate
Construction -- 0.1 --
Commercial 0.1 1.6 0.1
Residential 0.5 0.6 0.0
Installment 1.7 7.6 1.6
- ------------------------------------------------------------------------------
Total Domestic 4.0 23.9 9.7
Foreign 0.8 5.6 0.3
- ------------------------------------------------------------------------------
Total Recoveries 4.8 29.5 10.0
- ------------------------------------------------------------------------------
Net Charge-Offs (11.3) (73.8) (10.8)
Provision Charged to Operating Expenses 13.5 60.9 12.6
Other Net Additions (Reductions)* (1.0) (4.2) (3.8)
- ------------------------------------------------------------------------------
Balance at End of Period $195.4 $194.2 $209.3
==============================================================================
Ratio of Net Charge-Offs to
Average Loans Outstanding (annualized) 0.48% 0.78% 0.46%
- ------------------------------------------------------------------------------
Ratio of Reserve to Loans Outstanding 2.05% 2.05% 2.22%
- ------------------------------------------------------------------------------
* Includes balance transfers, reserves acquired, and foreign currency translation adjustments.
</TABLE>
Market Risk
At Pacific Century, assets and liabilities are managed to
maximize long term risk adjusted returns to shareholders.
Pacific Century's asset and liability management process involves
measuring, monitoring, controlling and managing financial risks
that can significantly impact Pacific Century's financial
position and operating results. Financial risks in the form of
interest rate sensitivity, foreign currency exchange
fluctuations, liquidity, and capital adequacy are balanced with
expected returns to maximize earnings performance and shareholder
value, while limiting the volatility of each. A detailed
discussion of these risks and Pacific Century's approach to
managing the risks are described in its 1999 Annual Report on
Form 10-K.
The activities associated with these financial risks are
categorized into "other than trading" or "trading."
Other Than Trading Activities
A key element in Pacific Century's ongoing process to
measure and monitor interest rate risk is the utilization of a
net interest income (NII) simulation model. This model is used
to estimate the amount that NII will change over a one-year time
horizon under various interest rate scenarios using numerous
assumptions, which management believes are reasonable. The NII
simulation model provides a sophisticated estimate rather than a
precise prediction of NII's exposure to higher or lower interest
rates.
Table 10 presents as of March 31, 2000, December 31, 1999
and March 31, 1999, the results from this model. The NII
simulation model provides an estimate of the change in NII from a
gradual 200 basis point increase or decrease in interest rates,
moving in parallel fashion over the entire yield curve, over the
next 12-month period relative to what the NII would have been if
interest rates did not change. The resulting estimate in NII
exposure is well within the approved Asset Liability Management
Committee guidelines and presents a balance sheet exposure that
is slightly liability sensitive. A liability sensitive exposure
would imply an unfavorable short-term impact on NII in periods of
rising interest rates.
<PAGE>
<TABLE>
Market Risk Exposure to Interest Rate Changes
Table 10
<CAPTION>
March 31, 2000 December 31, 1999 March 31, 1999
- ----------------------------------------------------------------------------------------------------
Interest Rate Change Interest Rate Change Interest Rate Change
(in basis points) (in basis points) (in basis points)
-200 +200 -200 +200 -200 +200
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Estimated Exposure as a
Percent of Net Interest Income 0.6% (2.2)% 1.4% (1.7)% 1.4% (0.5)%
- ----------------------------------------------------------------------------------------------------
</TABLE>
To enhance and complement the results from the NII
simulation model, Pacific Century also reviews other measures of
interest rate risk. These measures include the sensitivity of
market value of equity and the exposure to basis risk and non-
parallel yield curve shifts. There are some inherent limitations
to these measures, but used along with the NII simulation model,
Pacific Century gets a better overall insight for managing its
exposure to changes in interest rates.
In managing interest rate risks, Pacific Century uses
several approaches, both on- and off-balance sheet, to modify its
risk position. Approaches that are used to shift balance sheet
mix or alter the interest rate characteristics of assets and
liabilities include changing product pricing strategies,
modifying investment portfolio strategies, or using financial
derivatives. The use of financial derivatives has been limited
over the past several years. During this period, Pacific Century
has relied more on the use of on-balance sheet alternatives to
manage its interest rate risk position.
Pacific Century's broad area of operations throughout the
South Pacific and Asia has the potential to expose it to foreign
currency risk. In general, however, most foreign currency
denominated assets are funded by like currency liabilities, with
imbalances corrected through the use of various hedge
instruments. By policy, the net exposure in those balance sheet
activities described above is insignificant.
On the other hand, Pacific Century is exposed to foreign
currency exchange rate changes from the capital invested in its
foreign subsidiaries and branches located throughout the South
Pacific and Asian Rim. These investments are designed to
diversify Pacific Century's total balance sheet exposure. A
portion of the capital investment in French Polynesia and New
Caledonia is offset by a borrowing denominated in euro and a
foreign exchange currency hedge transaction. As of March 31,
2000, the remainder of these capital positions which aggregated
$90.4 million, was not hedged. The comparative unhedged position
at year-end 1999 was $87.6 million and $97.4 million at March 31,
1999.
Pacific Century uses a value-at-risk (VAR) calculation to
measure the potential loss from foreign currency exposure.
Pacific Century's VAR is calculated at a 95% confidence interval
and assumes a normal distribution. Pacific Century utilizes the
variance/covariance approach to estimate the probability of
future changes in foreign exchange rates. Under this approach,
equally weighted daily closing prices are used to determine the
daily volatility for the last 10, 30, 50, and 100 days. Pacific
Century uses the highest daily volatility of the four trading
periods in its VAR calculation.
Table 11 presents as of March 31, 2000, December 31, 1999
and March 31, 1999 Pacific Century's foreign currency exposure
from its net investment in subsidiaries and branch operations
that are denominated in a foreign currency as measured by the
VAR.
<PAGE>
<TABLE>
Market Risk Exposure From Changes in Foreign Exchange Rates
Table 11
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
March 31, 2000 December 31, 1999 March 31, 1999
Book Value Value-at-Risk Book Value Value-at-Risk Book Value Value-at-Risk
(in millions of dollars)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Investments in Foreign
Subsidiaries and Branches
Japanese Yen $ 9.9 $ 2.2 $ 9.4 $ 1.8 $ 9.5 $ 2.1
Korean Won 32.2 3.9 34.3 4.2 39.4 6.3
Pacific Franc (1) 25.8 5.5 25.9 4.2 26.1 4.2
Other Currencies 22.5 18.0 18.0 17.0 22.4 7.9
----- ----- ----- ----- ----- -----
Total $90.4 $29.6 $87.6 $27.2 $97.4 $20.5
===== ===== ===== ===== ===== =====
(1) Net of a $37 million, $40 million and $42 million borrowing at March 31, 2000, December 31, 1999 and March 31, 1999,
respectively, denominated in euro and foreign exchange hedge transactions of $22 million, $23 million and $25 million at
March 31, 2000, December 31, 1999 and March 31, 1999, respectively.
</TABLE>
Trading Activities
Trading activities include foreign currency and foreign
exchange contracts that expose Pacific Century to a minor degree
of foreign currency risk. Pacific Century manages its trading
account such that it does not maintain significant foreign
currency open positions. Trading activities remain immaterial as
of March 31, 2000.
Liquidity Management
Liquidity is managed to ensure that Pacific Century has
continuous access to sufficient, reasonably priced funding to
conduct its business in a normal manner. Pacific Century's
liquidity management process is described in the 1999 Annual
Report to Shareholders.
Pacific Century maintained a $25 million annually renewable
line of credit for working capital purposes. Fees are paid on
the unused balance of the line. During the first quarter of
2000, the line was not drawn upon.
Bank of Hawaii and First Savings are both members of the
Federal Home Loan Bank of Seattle. The FHLB provides these
institutions with an additional source for short and long-term
funding. Borrowings from the FHLB ended the first quarter of
2000 at $487 million, compared to $397 million at the prior
quarter-end. This increase is accounted for by net new
borrowings in the first quarter for a term of eighteen months.
Additionally, Bank of Hawaii maintains a $1 billion senior
and subordinated bank note program. Under this facility, Bank of
Hawaii may issue additional notes provided that at any time the
aggregate amount outstanding does not exceed $1 billion. At
March 31, 2000, there was $125 million issued and outstanding
under this program represented by the issuance of subordinated
notes in 1999.
Capital Management
Pacific Century manages its capital level to optimize
shareholder value, support asset growth, provide protection
against unforeseen losses and comply with regulatory
requirements. Capital levels are reviewed periodically relative
to Pacific Century's risk profile and current and projected
economic conditions. Pacific Century's objective is to hold
sufficient capital on a regulatory basis to exceed the minimum
guidelines of a well capitalized institution.
At March 31, 2000, Pacific Century's shareholders' equity
grew to $1.23 billion, an increase of 1.5% over the same date in
1999. The source of growth in shareholders' equity during the
first three months of 2000 included retention of earnings, and
issuance of common stock under various stock-based plans.
Offsetting these increases were cash dividends paid of $13.5
million, treasury stock purchases of $8.3 million and net
unrealized valuation adjustments of $6.2 million. The negative
unrealized valuation adjustment primarily is attributed to market
value adjustments for available-for-sale investment securities
that transpired from the general rise in market interest rates.
The Federal Deposit Insurance Corporation Improvements Act
of 1991 (FDICIA) requires federal banking regulators to take
"prompt corrective action" with respect to depository
institutions that do not meet minimum capital requirements. For
purposes of applying the prompt corrective action framework,
federal bank regulators group institutions into five categories
based on their capital ratios: "well capitalized," "adequately
capitalized," "under capitalized," "significantly
undercapitalized" and "critically undercapitalized."
Institutions that fail to meet the applicable capital
requirements are subject to increased regulatory monitoring and
certain other enforcement actions that could include restricting
dividend payments.
Pacific Century's regulatory capital ratios at March 31,
2000 were: Tier 1 Capital Ratio of 10.68%, Total Capital Ratio of
13.64%, and Leverage Ratio of 8.59%. Comparatively these ratios
were 9.74%, 12.87% and 7.57%, respectively, at March 31, 1999.
All three capital ratios exceeded the minimum threshold levels
that were established by federal bank regulators to qualify an
institution as well capitalized. The minimum regulatory
standards to qualify as well capitalized are as follows: Tier 1
Capital 6%; Total Capital 10%; and the Leverage Ratio 5%. These
standards are minimum regulatory guidelines and Pacific Century
manages its capital base in accordance with the attributes noted
at the beginning of this section. Table 12 presents the
activities and balances in Pacific Century's capital accounts
along with key capital ratios.
<TABLE>
Equity Capital
Table 12
- ----------------------------------------------------------------------------------
<CAPTION>
Quarter Ended Year Ended Quarter Ended
March 31 December 31 March 31
(in millions of dollars) 2000 1999 1999
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Source of Common Equity
Net Income $39.8 $133.0 $35.4
Dividends Paid (13.5) (54.6) (13.7)
Dividend Reinvestment Program 1.1 4.0 1.5
Stock Repurchases (8.3) (21.8) (3.9)
Other (1) (5.5) (33.9) 2.7
- ----------------------------------------------------------------------------------
Increase in Equity $13.6 $26.7 $22.0
==================================================================================
Common Equity $1,225.9 $1,212.3 $1,207.6
Add: 8.25% Capital Securities of
Bancorp Hawaii Capital
Trust I 100.0 100.0 100.0
Minority Interest 4.3 4.4 4.8
Less: Intangibles 173.3 175.8 186.4
Unrealized Valuation and Other
Adjustments (48.3) (37.9) 5.2
- ----------------------------------------------------------------------------------
Tier I Capital 1,205.2 1,178.8 1,120.8
Allowable Loan Loss Reserve 141.8 143.9 144.7
Subordinated Debt 195.9 195.8 218.7
Investment in Unconsolidated
Subsidiary (3.4) (3.2) (3.0)
- ----------------------------------------------------------------------------------
Total Capital $1,539.5 $1,515.3 $1,481.2
==================================================================================
Risk Weighted Assets $11,286.3 $11,461.0 $11,505.3
==================================================================================
Key Ratios
Tier I Capital Ratio 10.68% 10.28% 9.74%
Total Capital Ratio 13.64% 13.22%
Leverage Ratio 8.59% 8.31% 7.57%
==================================================================================
(1) Includes common stock issued under the profit sharing and stock option plans and
unrealized valuation adjustments for investment securities, foreign currency translation
and pension liability.
</TABLE>
<PAGE>
Part II. - Other Information
Items 1 to 5 omitted pursuant to instructions.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit Number
27 Financial Data Schedule
99 Statement of Ratios
(b) No Form 8-K was filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Date May 12, 2000 PACIFIC CENTURY FINANCIAL
CORPORATION
/s/ RICHARD J. DAHL
(Signature)
Richard J. Dahl
President and Chief
Operating Officer
/s/ DAVID A. HOULE
(Signature)
David A. Houle
Executive Vice President,
Treasurer and Chief
Financial Officer
<TABLE>
Bank of Hawaii
Exhibit 99 - Statement Regarding Computation of Ratios
Three Months Ended March 31, 2000 & 1999
<CAPTION>
(in millions of dollars) 2000 1999
<S> <C> <C>
Earnings:
1. Income Before Income Taxes $63.8 $57.6
2. Plus: Fixed Charges Including Interest on Deposits 120.4 117.8
------ ------
3. Earnings Including Fixed Charges 184.2 175.4
4. Less: Interest on Deposits 68.2 68.7
------ ------
5. Earnings Excluding Interest on Deposits $116.0 $106.7
====== ======
Fixed Charges:
6. Fixed Charges Including Interest on Deposits $120.4 $117.8
7. Less: Interest on Deposits 68.2 68.7
------ ------
8. Fixed Charges Excluding Interest on Deposits $52.2 $49.1
====== ======
Ratio of Earnings to Fixed Charges:
Including Interest on Deposits (Line 3 divided by Line 6) 1.5 x 1.5 x
Excluding Interest on Deposits (Line 5 divided by Line 8) 2.2 x 2.2 x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED STATEMENTS OF CONDITION AND CONSOLIDATED STATEMENTS
OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 491218
<INT-BEARING-DEPOSITS> 225314
<FED-FUNDS-SOLD> 42208
<TRADING-ASSETS> 6572
<INVESTMENTS-HELD-FOR-SALE> 2537617
<INVESTMENTS-CARRYING> 732344
<INVESTMENTS-MARKET> 721620
<LOANS> 9779633
<ALLOWANCE> 195409
<TOTAL-ASSETS> 14250386
<DEPOSITS> 9143063
<SHORT-TERM> 2742357
<LIABILITIES-OTHER> 333333
<LONG-TERM> 805726
0
0
<COMMON> 806
<OTHER-SE> 1225101
<TOTAL-LIABILITIES-AND-EQUITY> 14250386
<INTEREST-LOAN> 199757
<INTEREST-INVEST> 55548
<INTEREST-OTHER> 4247
<INTEREST-TOTAL> 259552
<INTEREST-DEPOSIT> 68214
<INTEREST-EXPENSE> 120044
<INTEREST-INCOME-NET> 139508
<LOAN-LOSSES> 13522
<SECURITIES-GAINS> 282
<EXPENSE-OTHER> 126082
<INCOME-PRETAX> 63831
<INCOME-PRE-EXTRAORDINARY> 63831
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39765
<EPS-BASIC> 0.50
<EPS-DILUTED> 0.50
<YIELD-ACTUAL> 4.31
<LOANS-NON> 131822
<LOANS-PAST> 23076
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 194205
<CHARGE-OFFS> 16079
<RECOVERIES> 4780
<ALLOWANCE-CLOSE> 195409
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
