Pacific Century Financial Corporation Third Quarter 2001 Financials
HONOLULU--(BUSINESS WIRE)--Oct. 22, 2001--Pacific Century Financial Corp. (NYSE:BOH - news)
- Net Income $31.1 Million or $0.37 Per Share
- Core Net Income $31.4 Million or $0.38 Per Share
- Year-to-Date Net Income Up 13% From Prior Year
- $200 Million Share Repurchase Program Initiated
- Board of Directors Declares Dividend of $0.18 Per Share
Pacific Century Financial Corporation (NYSE:BOH - news) today reported third quarter 2001 diluted earnings per share of $0.37, compared to $0.32 for the second quarter of 2001 and $0.44 for the third quarter of 2000. Net income for the quarter was $31.1 million, up $4.4 million from the $26.7 million reported in the second quarter of 2001 and down $3.5 million from the $34.6 million reported in the third quarter of 2000. Pacific Century Financial Corporation also announced its authorization to repurchase an additional $200 million of its common stock.
``The third quarter's results demonstrate our ongoing commitment to position the company for improved financial performance,'' said Michael E. O'Neill, Chairman and Chief Executive Officer. ``We're pleased with our progress in the execution of our strategic plan. Using capital from the sale of assets, we are extending our recently completed $70 million share repurchase program. Pacific Century Financial Corporation continues to be a solid company with a strong capital base and exceptional liquidity.
``Prior to the tragic events of September 11, 2001 our asset quality was continuing to improve. Our strong allowance and financial position will be sources of strength for the company in the period ahead.''
For the nine months ended September 30, 2001, net income was $91.5 million or $1.11 per diluted share, up 13 percent from net income of $81.1 million, or $1.02 per diluted share for the same period last year. Year-to-date return on average assets was 0.94 percent compared to 0.77 percent for the first nine months of 2000. Year-to-date return on average equity was 8.96 percent versus 8.85 percent for the nine months ended September 30, 2000.
Included in the earnings for third quarter of 2001 were several significant items relating to implementation of the company's previously announced strategic plan which had a net effect of reducing net income by $0.4 million, or less than $0.01 per share. These items included a gain of $49.4 million from the sale of the Pacific Century branch franchise in California, which was largely offset by the related sales costs and tax obligations. Also included were non-recurring adjustments and restructuring costs which netted to a cost of $0.4 million after tax. Adjusted for these items and their related tax impact, core earnings per share for the quarter were $0.38 and core net income was $31.4 million, up slightly from the previous quarter.
Financial Highlights
Pacific Century Financial Corporation's net interest income for the quarter on a fully taxable equivalent basis was $112.0 million, down $4.9 million from the previous quarter primarily due to the sale of the Pacific Century Bank branches and the continued managed reduction of loans to improve the company's credit profile. Net interest income was down $20.9 million from the same quarter last year primarily due to the first quarter 2001 sale of the company's credit card portfolio and the previously mentioned loan reductions.
The company's net interest margin for the third quarter of 2001 of 3.90 percent was essentially unchanged from the second quarter of 2001 but was down from 4.10 percent in the third quarter last year. The decline from the prior year quarter was primarily due to loan reductions, including the sale of its credit card portfolio, and lower returns earned on the increased liquidity of the company.
The provision for loan and lease losses was $0.9 million for the third quarter 2001, reflecting earlier improvements in the company's asset quality and its strong allowance for loan and lease losses. This compares to a provision for loan and lease losses in the prior quarter of $6.4 million and $20.1 million in the third quarter last year. Contributing to the lower provision were continued high levels of recoveries, which totaled $15.0 million for the quarter, including a $6.5 million recovery in the Asia business.
Non-interest income was $113.9 million for the third quarter, including $51.6 million in non-recurring items. Adjusted for these items, non-interest income was essentially unchanged from the previous quarter core non-interest income but was down $4.7 million from the prior year quarter. Decreases in non-interest income were largely due to the company's intentional downsizing of certain businesses. The most significant impact was in fees, exchange and other service charges due to reduced foreign exchange, trading and letter of credit fees resulting from the wind down in Asia as well as reduced interchange resulting from the sale of the company's credit card portfolio. Trust and asset management income was down from the prior period largely due to a decrease in fees from asset management and tax services. These declines were partially offset by an increase in mortgage banking income.
Non-interest expense for the quarter was $123.3 million compared to $124.2 million for the same quarter last year. Excluding the $2.9 million of restructuring and related costs, core non-interest expense decreased $3.8 million from the prior year quarter and $2.4 million from core non-interest expense of $122.8 million in the second quarter 2001.
The quarter's core efficiency ratio of 67.2%, excluding intangible amortization, was negatively impacted by the divesting businesses, where revenue declined more quickly than the related expenses. The company anticipates that the efficiency ratio will return to a more normal level during 2002.
The effective tax rate of 69 percent for the third quarter of 2001 results from the effect of non-tax-deductible goodwill and other costs associated with the divestitures. Excluding the effects of the divesting businesses, the effective tax rate was approximately 38.5%.
Net income from continuing businesses was $29 million, or $0.35 per share, down $1 million from the previous quarter. Improvements in revenue and expenses of the continuing businesses were more than offset by a $4 million increase in the provision for loan and lease losses. Excluding effects of restructuring, net income for the divested businesses was $2 million, or $0.03 per share. The increase in net income from the divesting businesses compared with the previous quarter was due to a net recovery of $5 million in loans previously charged off.
Asset Quality
The largest part of the company's continuing business is based in Hawaii where tourism is a significant influence on the economy. Immediately after the tragic events of September 11, tourism was adversely affected. Recently, major sectors of the tourism industry have seen indications of improvement as visitor arrivals, particularly from the United States, have strengthened. The extent of the economic impact on Hawaii's tourism business will depend on future events. However, management's progress in improving asset quality over the past year, combined with a strong allowance has limited the initial impact on earnings.
Following September 11, a forward looking review was completed of individual borrowers in identified high and medium impact industries where greater than 20 percent of their revenues are tied to tourism. In response, allocated reserves were increased for those portfolio segments. Improvement in asset quality and loan reductions prior to the event allowed for a reallocation without incremental provisioning.
Non-performing assets, exclusive of loans past due 90+ days, decreased for the fourth consecutive quarter to $106.4 million. Compared to the previous quarter, non-performing assets declined $12.5 million in the third quarter and were down $113.2 million or 51.5 percent from the same period last year.
At September 30, 2001, the ratio of non-performing assets to total loans plus foreclosed real estate was 1.56 percent compared to 1.55 percent at June 30, 2001 and 2.35 percent at September 30, 2000. The slightly higher ratio in the third quarter of 2001 compared to the previous quarter is due to a decrease of over $900 million in loans, including $544 million resulting from the sale of Pacific Century Bank loans. Other reductions during the quarter included $166 million in commercial loans sold prior to September 11 in order to reduce credit risk. Additionally, the company collected $203 million of Asia loans pursuant to the implementation of its strategic plan.
Non-accrual loans of $61.8 million at the end of the third quarter declined $5.5 million or 8.2 percent from the previous quarter and $152.7 million or 71.2 percent from the same period last year. Non-accrual loans as a percentage of total loans were 0.91 percent, a slight increase from 0.88 percent in the previous quarter due to lower loan levels and down significantly from 2.30 percent in the same period last year.
Net charge-offs for the third quarter of 2001 were $2.4 million or 0.13 percent of total average loans (annualized) compared to 0.34 percent in the prior quarter and 0.82 percent in the prior year. Charge-offs of $17.4 million were largely offset by recoveries of $15.0 million. The allowance for loan and lease losses at September 30, 2001 was $182.5 million, down $17.3 million from the prior quarter and down significantly from $245.0 million at September 30, 2000. The decrease from the prior quarter is due to the release of reserves resulting from the sale of Pacific Century Bank loans.
The ratio of the allowance for loan and lease losses to non-accrual loans was 295 percent, down slightly from the previous quarter and up from 114 percent last year. The ratio of the allowance for loan and lease losses to total loans was 2.70 percent at the end of the third quarter 2001, up from 2.62 percent at the end of the second quarter 2001 and 2.62 percent at the end of the same quarter last year.
The company's total exposure to the air transportation industry at September 30, 2001 was $188 million, consisting of $141 million in secured equity interests in leveraged aircraft leases and $47 million in lending exposure, of which $38 million was undrawn, including $24 million to an air cargo carrier. The leases comprise $95 million on 14 aircraft leased to United States and international passenger carriers, $31 million on 16 aircraft leased to regional passenger carriers and $15 million on one aircraft leased to an air cargo carrier.
At September 30, 2001 outstanding loans to national hotel and management companies totaled $72 million with undrawn commitments of $44 million. In October, the company sold $10 million of this exposure. Subsequent to this sale, approximately 60 percent of the company's exposure to national hotel and management companies are investment grade. Exposure to hotel companies in Hawaii at September 30, 2001 included loans outstanding of $126 million and undrawn commitments of $12 million. In the West and South Pacific, loans outstanding to hotel owners totaled $54 million and $18 million, respectively. Approximately 80 percent of the Hawaii and Pacific hotel loans are collateralized by hotel properties or guaranteed by either financial institutions or entities with limited exposure to tourism.
All of the company's air transportation and hotel loans and leases are performing.
Loans outstanding in Asia decreased $203 million or 59 percent to $142 million at the end of the quarter. Total Asia exposure, including loans, placements and off balance sheet items, decreased $94 million to $345 million.
Syndicated loans outstanding decreased $97 million to $585 million during the third quarter. Syndicated exposure consisting of loans and undrawn commitments declined $526 million to $1.7 billion at September 30, 2001.
Strategic Plan Update
During the third quarter 2001, Pacific Century Financial Corporation made significant progress in the implementation of its strategic plan to refocus the company on its core markets. On August 31, 2001, the company closed its Bank of Hawaii Hong Kong branch and its representative office and two extension offices in the Philippines. The remaining Asia branches and subsidiaries have stopped accepting business and will be closed by the end of the year.
On September 7, 2001, the company completed the sale of all 20 branches of Pacific Century Bank in Southern California to U.S. Bancorp. On October 3, 2001, Pacific Century Financial Corporation reached a definitive agreement to sell its operations in Papua New Guinea, Vanuatu and Fiji to Australia-based ANZ. The sale, which is subject to regulatory approvals, is expected to be completed before the end of the year. The company is currently in discussions with interested potential purchasers of its banks in French Polynesia and New Caledonia.
As part of the company's overall strategic plan, Bank of Hawaii, on October 1, 2001, launched its new retail banking plan aimed at doubling the Retail Banking Group's Net Income After Capital Charge (NIACC) within three years. The plan focuses on building a strong sales and service culture which will increase the cross-sell ratios to new and existing consumer and small business customers. Key initiatives will improve the capabilities of the sales staff, enhance processes in the branch and call center channels and broaden expertise in product management areas.
Other Financial Highlights
Total assets were $11.9 billion at the end of September 30, 2001. The most significant reductions were in commercial loans, including foreign loans and commercial real estate loans. Asset reductions remain on schedule although mortgage loan sales have slowed due to the significant origination volumes.
Deposits at the end of the third quarter were $7.4 billion. Compared with second quarter 2001, deposits declined primarily due to the September sale of the Pacific Century Bank branches, which reduced total deposits $0.7 million, and the managed decline in foreign deposits resulting from the company's decision to exit certain foreign locations. During the third quarter domestic deposits have shown positive trends as both consumer and business demand and savings balances increased.
As part of its efforts to effectively manage capital, the company announced a program during the third quarter of 2001 to repurchase $70 million of common shares. At September 30, 2001 the company had repurchased 2.7 million shares at an average price of $23.37. The remainder of this initial repurchase program was completed in October 2001. Pacific Century is currently initiating an additional $200 million repurchase program. Capital has remained essentially unchanged. At September 30, 2001 Tier 1 leverage was 11.37% compared to 10.47% at June 30, 2001 and 8.80% at September 30, 2000. The company's liquidity is exceptionally strong.
The company's Board of Directors declared a quarterly cash dividend of $0.18 per share on the company's outstanding shares. The dividend will be payable on December 14, 2001 to shareholders of record at the close of business on November 23, 2001.
Financial and Economic Outlook
The Hawaii economy continues to show improvement from the initial decline in tourism following the September 11 attacks. Through the fourth quarter of 2001 we expect visitor arrivals to be well short of prior year levels. While a long-term return to normalcy is anticipated, it is too soon to tell when that will occur.
The company updated its earnings guidance for the full year 2001 to $106 million for its continuing businesses. The aggregate cost of restructuring cannot be further refined until the sales price of its banks in the French Territories is determined. Earnings per share projections are dependent upon the terms and timing of share repurchases.
The company will review third quarter 2001 earnings today at 2:00 p.m. ET. The presentation will be accessible via teleconference and the investor relations link of Pacific Century Financial Corporation's web site, www.boh.com. The conference call number is 800/450-0788 in the U.S. or 612/332-0636 for international callers. A replay will be available for one week beginning at 6:00 p.m. ET on Monday, October 22, 2001 by calling 800/475-6701 (U.S.) or 320/365-3844 (International) and entering the number 605662 when prompted. A replay of the presentation will be available on the company's web site.
This news release contains forward-looking statements. All statements in this news release that address events or developments that we anticipate may occur in the future are forward-looking statements. We believe the assumptions underlying our forward-looking statements are reasonable. However, any of the assumptions could prove to be inaccurate and actual results may differ materially from those projected for a variety of reasons including, but not limited to: we may not complete implementation of the strategic plan within expected financial and time estimates; our credit markets may deteriorate; our credit quality initiatives may fall short of our goals; we may not achieve the expense reductions we expect; we may not be able to maintain our net interest margin; we may not be able to implement our proposed equity repurchases in the amount or at the times planned; implementing the strategic plan may cause unanticipated organizational disruptions; customer acceptance of our business as restructured may be less than expected; there may be economic or political volatility in the markets we serve; and there may be changes in business and economic conditions, competition, fiscal and monetary policies or legislation. Except where specified, we do not undertake any obligation to update any forward-looking statements to reflect later events or circumstances.
Pacific Century Financial Corporation is a regional financial services company serving businesses, consumers and governments in Hawaii, American Samoa and the West Pacific. The company is in the process of divesting or winding down its non-core holdings in the South Pacific and Asia, exclusive of Japan. Pacific Century's principal subsidiary, Bank of Hawaii, was founded in 1897 and is the dominant commercial bank in the state of Hawaii.
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Pacific Century Financial Corporation and subsidiaries Highlights (Unaudited) Table 1 ---------------------------------------------------------------------- (dollars in thousands except per share amounts) Earnings Highlights and Performance Ratios 2001 2000 ---------------------------------------------------------------------- Three Months Ended September 30 Net Income $ 31,059 $ 34,603 Basic Earnings Per Share 0.39 0.44 Diluted Earnings Per Share 0.37 0.44 Cash Dividends 14,625 14,302 Return on Average Assets 1.00% 0.98% Return on Average Equity 8.88% 11.20% Net Interest Margin 3.90% 4.10% Core Efficiency Ratio(a) 69.12% 62.15% Nine Months Ended September 30 Net Income $ 91,475 $ 81,075 Basic Earnings Per Share 1.14 1.02 Diluted Earnings Per Share 1.11 1.02 Cash Dividends 43,415 42,147 Return on Average Assets 0.94% 0.77% Return on Average Equity 8.96% 8.85% Net Interest Margin 3.92% 4.11% Core Efficiency Ratio(a) 67.68% 61.58% Cash Basis Financial Data ---------------------------------------------------------------------- Three Months Ended September 30 Net Income $ 34,392 $ 38,743 Basic Earnings per Share $ 0.43 $ 0.49 Diluted Earnings per Share $ 0.41 $ 0.49 Return on Average Assets 1.12% 1.12% Return on Average Equity 11.17% 14.88% Core Efficiency Ratio(a)(b) 67.21% 60.08% Nine Months Ended September 30 Net Income $ 102,391 $ 93,554 Basic Earnings per Share $ 1.28 $ 1.18 Diluted Earnings per Share $ 1.24 $ 1.17 Return on Average Assets 1.06% 0.90% Return on Average Equity 11.52% 12.22% Core Efficiency Ratio(a)(b) 65.70% 59.50% (a) Excludes the effect of restructuring activities and non-recurring transactions. (b) Excludes the effect of intangibles which include goodwill, core deposit and trust intangibles. September 30 September 30 Statement of Condition Highlights 2001 2000 ---------------------------------------------------------------------- Total Assets $11,944,173 $13,939,861 Net Loans 6,584,122 9,094,337 Total Deposits 7,399,737 8,820,668 Total Shareholders' Equity 1,371,055 1,250,069 Book Value Per Common Share $ 17.31 $ 15.72 Allowance / Loans Outstanding 2.70% 2.58% Average Equity / Average Assets 10.47% 8.65% Employees (FTE) 3,881 4,182 Branches 140 171 Market Price Per Share of Common Stock Quarter Ended Closing $ 23.37 $ 17.13 High $ 28.30 $ 17.50 Low $ 20.20 $ 13.13 Corporate Offices: Inquiries: Financial Plaza of the Pacific Allan R. Landon 130 Merchant Street Vice Chairman and Honolulu, Hawaii 96813 Chief Financial Officer 808/538-4727 Pacific Century Financial Corporation and subsidiaries Consolidated Statements of Income (Unaudited) Table 2 ---------------------------------------------------------------------- (dollars in thousands except per share amounts) Three Months Ended Nine Months Ended Sept 30 Sept 30 Sept 30 Sept 30 2001 2000 2001 2000 ---------------------------------------------------------------------- Interest Income Interest on Loans $ 143,407 $ 203,858 $ 496,381 $ 593,240 Interest and Dividends on Investment Securities 10,002 13,184 32,824 41,263 Income on Investment Securities Available for Sale 30,779 41,772 106,226 123,966 Deposits 9,410 3,319 19,527 10,917 Funds Sold and Security Resale Agreements 1,781 632 4,231 1,606 ---------------------------------------------------------------------- Total Interest Income 195,379 262,765 659,189 770,992 Interest Expense Deposits 50,167 73,162 182,247 212,440 Security Repurchase Agreements 17,576 26,941 63,049 75,915 Funds Purchased 1,279 8,960 9,735 25,321 Short-Term Borrowings 2,019 4,739 8,013 15,785 Long-Term Debt 12,459 16,164 42,232 42,171 ---------------------------------------------------------------------- Total Interest Expense 83,500 129,966 305,276 371,632 ---------------------------------------------------------------------- Net Interest Income 111,879 132,799 353,913 399,360 Provision for Loan Losses 919 20,145 59,798 117,074 ---------------------------------------------------------------------- Net Interest Income After Provision for Loan Losses 110,960 112,654 294,115 282,286 Non-Interest Income Trust and Asset Management 13,999 15,874 45,041 49,078 Mortgage Banking 10,307 3,086 19,990 7,964 Service Charges on Deposit Accounts 9,594 10,074 29,412 29,811 Fees, Exchange, and Other Service Charges 17,912 25,398 61,505 74,883 Gain on Sale of Banking Operations 49,422 -- 149,630 -- Gain on Settlement of Pension Obligation -- -- -- 11,900 Investment Securities Gains (Losses) 935 (82) 32,819 (315) Other Operating Income 11,780 12,676 34,663 41,348 ---------------------------------------------------------------------- Total Non-Interest Income 113,949 67,026 373,060 214,669 Non-Interest Expense Salaries 47,069 45,220 142,674 137,227 Pensions and Other Employee Benefits 12,180 12,303 39,076 37,721 Net Occupancy Expense 12,090 12,577 36,702 36,873 Net Equipment Expense 13,042 13,365 40,150 37,498 Goodwill Amortization 3,333 4,139 10,916 12,479 Restructuring and Other Related Costs 823 -- 83,012 -- Minority Interest 76 110 239 286 Other Operating Expense 34,726 36,476 105,045 108,685 ---------------------------------------------------------------------- Total Non-Interest Expense 123,339 124,190 457,814 370,769 ---------------------------------------------------------------------- Income Before Income Taxes 101,570 55,490 209,361 126,186 Provision for Income Taxes 70,511 20,887 117,886 45,111 ---------------------------------------------------------------------- Net Income $ 31,059 $ 34,603 $ 91,475 $ 81,075 ====================================================================== Basic Earnings Per Share $ 0.39 $ 0.44 $ 1.14 $ 1.02 Diluted Earnings Per Share $ 0.37 $ 0.44 $ 1.11 $ 1.02 Dividends Declared Per Share $ 0.18 $ 0.18 $ 0.54 $ 0.53 Basic Weighted Average Shares 80,539,330 79,455,040 80,261,610 79,566,807 Diluted Weighted Average Shares 83,418,955 79,525,474 82,497,107 79,791,250 ====================================================================== Pacific Century Financial Corporation and subsidiaries Consolidated Statements of Condition (Unaudited) Table 3 ---------------------------------------------------------------------- (dollars in thousands) Sept 30 Dec 31 Sept 30 2001 2000 2000 Assets Interest-Bearing Deposits $ 1,227,817 $ 188,649 $ 185,312 Investment Securities - Held to Maturity (Market Value of $558,561, $676,621 and $714,920, respectively) 547,443 670,038 716,392 Investment Securities - Available for Sale 2,065,894 2,507,076 2,484,482 Securities Purchased Under Agreements to Resell 7,639 3,969 5,560 Funds Sold 162,830 134,644 28,323 Loans Held for Sale 228,056 179,229 139,139 Loans 6,766,663 9,235,158 9,339,303 Allowance for Loan Losses (182,541) (246,247) (244,966) ---------------------------------------------------------------------- Net Loans 6,584,122 8,988,911 9,094,337 ---------------------------------------------------------------------- Total Earning Assets 10,823,801 12,672,516 12,653,545 Cash and Non-Interest Bearing Deposits 426,162 523,969 438,312 Premises and Equipment 223,304 254,621 251,240 Customers' Acceptance Liability 1,310 14,690 10,956 Accrued Interest Receivable 56,003 68,585 86,109 Other Real Estate 37,462 4,526 5,128 Intangibles, including Goodwill 91,517 192,264 194,418 Other Assets 284,614 282,645 300,153 ---------------------------------------------------------------------- Total Assets $ 11,944,173 $ 14,013,816 $ 13,939,861 ====================================================================== Liabilities Domestic Deposits Demand - Non-Interest Bearing $ 1,428,454 $ 1,707,724 $ 1,626,426 - Interest Bearing 1,792,155 2,008,730 2,039,325 Savings 813,427 665,239 671,437 Time 2,186,849 2,836,083 2,801,947 Foreign Deposits Demand - Non-Interest Bearing 321,706 385,366 343,828 Time Due to Banks 269,757 535,126 571,576 Other Savings and Time 587,389 942,313 766,129 ---------------------------------------------------------------------- Total Deposits 7,399,737 9,080,581 8,820,668 Securities Sold Under Agreements to Repurchase 1,833,091 1,655,173 1,791,983 Funds Purchased 129,715 413,241 377,069 Short-Term Borrowings 154,910 211,481 365,407 Bank's Acceptances Outstanding 1,310 14,690 10,956 Accrued Retirement Expense 36,632 37,868 37,796 Accrued Interest Payable 49,092 72,460 80,792 Accrued Taxes Payable 224,915 130,766 97,597 Minority Interest 4,381 4,536 4,154 Other Liabilities 60,927 94,512 103,634 Long-Term Debt 678,408 997,152 999,736 ---------------------------------------------------------------------- Total Liabilities 10,573,118 12,712,460 12,689,792 Shareholders' Equity Common Stock ($.01 par value), authorized 500,000,000 shares; issued / outstanding: Sept 2001 - 81,365,600 / 79,195,668; December 2000 - 80,558,811 / 79,612,178; Sept 2000 - 80,556,883 / 79,503,301 806 806 806 Capital Surplus 367,394 346,045 346,016 Accumulated Other Comprehensive Income 25,426 (25,079) (56,620) Retained Earnings 1,044,039 996,791 979,007 Deferred Stock Grants (15,526) -- -- Treasury Stock, at Cost - (Shares: Sept 2001 - 2,169,932; December 2000 - 946,633; and Sept 2000 - 1,053,582) (51,084) (17,207) (19,140) ---------------------------------------------------------------------- Total Shareholders' Equity 1,371,055 1,301,356 1,250,069 ---------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 11,944,173 $ 14,013,816 $ 13,939,861 ====================================================================== Pacific Century Financial Corporation and subsidiaries Consolidated Statements of Shareholders' Equity (Unaudited) Table 4 ---------------------------------------------------------------------- (dollars in thousands) Accumulated Other Compre- Common Capital hensive Total Stock Surplus Income Balance at December 31, 2000 $ 1,301,356 $806 $346,045 $(25,079) Comprehensive Income Net Income 91,475 -- -- -- Other Comprehensive Income, Net of Tax Investment Securities 23,906 -- -- 23,906 Foreign Currency Translation Adjustment 25,911 -- -- 25,911 Pension Liability Adjustments (159) -- -- (159) Stock Compensation 847 -- -- 847 Total Comprehensive Income Common Stock Issued 46,408 Profit Sharing Plan 1,065 -- 257 -- 604,264 Stock Option Plan 10,313 -- 892 -- 91,764 Dividend Reinvestment Plan 2,103 -- 483 -- 4,248 Directors' Restricted Shares and Deferred Compensation Plan 341 -- 95 -- 724,600 Employees' Restricted Shares 2,797 -- 18,323 -- 65,146 Hawaii Insurance Network 1,299 -- 1,299 -- Treasury Stock Purchased (46,784) -- -- -- Cash Dividends Paid (43,415) -- -- -- ---------------------------------------------------------------------- Balance at September 30, 2001 $ 1,371,055 $806 $367,394 $ 25,426 ====================================================================== Balance at December 31, 1999 $ 1,212,330 $806 $345,851 $(66,106) Comprehensive Income Net Income 81,075 -- -- -- Other Comprehensive Income, Net of Tax Investment Securities 9,960 -- -- 9,960 Foreign Currency Translation Adjustment (474) -- -- (474) Total Comprehensive Income Common Stock Issued 62,102 Profit Sharing Plan 1,096 -- 18 -- 195,094 Stock Option Plan 2,610 -- -- -- 142,421 Dividend Reinvestment Plan 2,481 -- 52 -- 4,973 Directors' Restricted Shares and Deferred Compensation Plan 95 -- 95 -- Treasury Stock Purchased (16,957) -- -- -- Cash Dividends Paid (42,147) -- -- -- ---------------------------------------------------------------------- Balance at September 30, 2000 $ 1,250,069 $806 $346,016 $(56,620) ====================================================================== Pacific Century Financial Corporation and subsidiaries Consolidated Statements of Shareholders' Equity (Unaudited) Table 4 (cont.) ---------------------------------------------------------------------- (dollars in thousands) Deferred Compre- Retained Stock Treasury hensive Earnings Grants Stock Income Balance at December 31, 2000 $ 996,791 $ -- $ (17,207) Comprehensive Income Net Income 91,475 -- -- $ 91,475 Other Comprehensive Income, Net of Tax Investment Securities -- -- -- 23,906 Foreign Currency Translation Adjustment -- -- -- 25,911 Pension Liability Adjustments -- -- -- (159) Stock Compensation -- -- -- 847 -------- Total Comprehensive Income $141,980 ======== Common Stock Issued 46,408 Profit Sharing Plan -- -- 808 604,264 Stock Option Plan (812) -- 10,233 91,764 Dividend Reinvestment Plan -- -- 1,620 4,248 Directors' Restricted Shares and Deferred Compensation Plan -- -- 246 724,600 Employees' Restricted Shares -- (15,526) -- 65,146 Hawaii Insurance Network -- -- -- Treasury Stock Purchased -- -- (46,784) Cash Dividends Paid (43,415) -- -- ---------------------------------------------------------------------- Balance at September 30, 2001 $1,044,039 $ (15,526)$ (51,084) ====================================================================== Balance at December 31, 1999 $ 942,177 $ -- $ (10,398) Comprehensive Income Net Income 81,075 -- -- $ 81,075 Other Comprehensive Income, Net of Tax Investment Securities -- -- -- 9,960 Foreign Currency Translation Adjustment -- -- -- (474) -------- Total Comprehensive Income $ 90,561 ======== Common Stock Issued 62,102 Profit Sharing Plan (167) -- 1,245 195,094 Stock Option Plan (1,500) -- 4,110 142,421 Dividend Reinvestment Plan (431) -- 2,860 4,973 Directors' Restricted Shares and Deferred Compensation Plan -- -- -- Treasury Stock Purchased -- -- (16,957) Cash Dividends Paid (42,147) -- -- ---------------------------------------------------------------------- Balance at September 30, 2000 $ 979,007 $ -- $ (19,140) ====================================================================== Pacific Century Financial Corporation and subsidiaries Consolidated Average Balances and Interest Rates Taxable Equivalent (Unaudited) Table 5 ---------------------------------------------------------------------- (dollars in millions) Three Months Ended Three Months Ended September 30, 2001 June 30, 2001 Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate --------------------------------------------------------------------------------- Earning Assets Interest Bearing Deposits $ 938.7 $ 9.4 3.98% $ 414.3 $ 4.9 4.75% Funds Sold 194.2 1.8 3.59 120.3 1.4 4.45 Investment Portfolio Held-To- Maturity 605.8 10.1 6.63 642.1 11.1 6.94 Available for Sale 2,139.6 30.8 5.75 2,318.3 36.2 6.24 Loans Held For Sale 312.2 5.3 6.79 430.9 7.4 6.88 Net Loans Domestic 6,351.6 121.3 7.60 6,910.9 137.1 7.95 Foreign 920.4 16.8 7.23 1,136.9 19.3 6.80 -------------------------- -------------------------- Total Loans 7,272.0 138.1 7.56 8,047.8 156.4 7.79 -------------------------- -------------------------- Total Earning Assets 11,462.5 195.5 6.79 11,973.7 217.4 7.27 Cash and Due From Banks 347.3 367.6 Other Assets 488.9 655.1 ---------- ---------- Total Assets $12,298.7 $12,996.4 ========== ========== Interest Bearing Liabilities Domestic Deposits Demand $ 1,892.6 8.3 1.74 $ 1,905.0 9.3 1.95 Savings 794.9 4.6 2.29 698.8 3.7 2.14 Time 2,432.0 29.5 4.82 2,654.1 37.3 5.64 -------------------------- -------------------------- Total Domestic Deposits 5,119.5 42.4 3.29 5,257.9 50.3 3.83 Foreign Deposits Time Due to Banks 235.3 2.2 3.78 317.4 3.5 4.45 Other Time and Savings 640.7 5.5 3.41 709.3 6.3 3.55 -------------------------- -------------------------- Total Foreign Deposits 876.0 7.7 3.51 1,026.7 9.8 3.83 -------------------------- -------------------------- Total Interest Bearing Deposits 5,995.5 50.1 3.32 6,284.6 60.1 3.83 Short-Term Borrowings 2,012.6 20.9 4.11 2,108.2 25.9 4.94 Long-Term Debt 746.0 12.5 6.63 864.5 14.5 6.71 -------------------------- -------------------------- Total Interest Bearing Liabilities 8,754.1 83.5 3.78 9,257.3 100.5 4.35 -------------------------- -------------------------- Net Interest Income 112.0 116.9 Interest Rate Spread 3.01% 2.92% Net Interest Margin 3.90% 3.91% Demand Deposits Domestic 1,509.0 1,567.8 Foreign 330.7 348.4 ---------- ---------- Total Demand Deposits 1,839.7 1,916.2 Other Liabilities 316.6 428.5 Shareholders' Equity 1,388.3 1,394.4 ---------- ---------- Total Liabilities and Shareholders' Equity $12,298.7 $12,996.4 ========== ========== Provision for Loan Losses 0.9 6.4 Net Overhead 9.4 63.5 -------- -------- Income Before Income Taxes 101.7 47.0 Provision for Income Taxes 70.5 20.2 Tax-Equivalent Adjustment 0.1 0.1 -------- -------- Net Income $ 31.1 $ 26.7 ======== ======== Pacific Century Financial Corporation and subsidiaries Consolidated Average Balances and Interest Rates Taxable Equivalent (Unaudited) Table 5 (cont.) ---------------------------------------------------------------------- (dollars in millions) Three Months Ended September 30, 2000(A) Average Income/ Yield/ Balance Expense Rate ----------------------------- Earning Assets Interest Bearing Deposits $ 197.3 $ 3.3 6.69% Funds Sold 38.8 0.6 6.48 Investment Portfolio Held-To- Maturity 720.1 13.3 7.36 Available for Sale 2,490.1 41.8 6.67 Loans Held For Sale 118.5 2.3 7.72 Net Loans Domestic 8,074.9 178.1 8.77 Foreign 1,435.2 25.2 7.00 -------------------------- Total Loans 9,510.1 203.3 8.51 -------------------------- Total Earning Assets 13,074.9 264.7 8.05 Cash and Due From Banks 418.2 Other Assets 523.6 ---------- Total Assets $14,016.7 ========== Interest Bearing Liabilities Domestic Deposits Demand $ 2,043.7 12.0 2.34 Savings 680.4 3.4 1.99 Time 2,799.4 40.3 5.73 -------------------------- Total Domestic Deposits 5,523.5 55.7 4.01 Foreign Deposits Time Due to Banks 552.6 8.5 6.12 Other Time and Savings 821.4 8.8 4.26 -------------------------- Total Foreign Deposits 1,374.0 17.3 5.01 -------------------------- Total Interest Bearing Deposits 6,897.5 73.0 4.21 Short-Term Borrowings 2,599.4 40.7 6.23 Long-Term Debt 963.4 16.2 6.69 -------------------------- Total Interest Bearing Liabilities 10,460.3 129.9 4.94 -------------------------- Net Interest Income 134.8 Interest Rate Spread 3.11% Net Interest Margin 4.10% Demand Deposits Domestic 1,619.8 Foreign 345.6 ---------- Total Demand Deposits 1,965.4 Other Liabilities 361.6 Shareholders' Equity 1,229.4 ---------- Total Liabilities and Shareholders' Equity $14,016.7 ========== Provision for Loan Losses 20.2 Net Overhead 58.9 -------- Income Before Income Taxes 55.7 Provision for Income Taxes 20.9 Tax-Equivalent Adjustment 0.2 -------- Net Income $ 34.6 ======== (A) Adjusted to reflect the reclassification of interchange fees and mortgage banking income. Pacific Century Financial Corporation and subsidiaries Loan Portfolio Balances (Unaudited) Table 6 ---------------------------------------------------------------------- (dollars in millions) September June December September 2001 2001 2000 2000 ---------------------------------------------------------------------- Domestic Loans Commercial and Industrial $1,436.7 $1,775.0 $2,433.6 $2,544.1 Real Estate Construction Commercial 144.4 213.6 282.4 284.7 Residential 31.3 32.4 25.0 22.3 Mortgage Commercial 667.9 866.3 1,125.5 1,169.3 Residential 2,748.3 2,767.5 2,841.3 2,750.0 Installment 429.0 475.5 719.4 725.0 Lease Financing 503.0 554.5 539.8 537.3 ---------------------------------------------------------------------- Total Domestic 5,960.6 6,684.8 7,967.0 8,032.7 Foreign Loans 806.1 933.6 1,268.2 1,306.6 ---------------------------------------------------------------------- Total Loans $6,766.7 $7,618.4 $9,235.2 $9,339.3 ====================================================================== Pacific Century Financial Corporation and subsidiaries Consolidated Non-Performing Assets and Accruing Loans Past Due 90 Days or More (Unaudited) Table 7 ---------------------------------------------------------------------- (dollars in millions) Sept 30 June 30 Mar 31 Dec 31 Sept 30 2001 2001 2001 2000 2000 ---------------------------------------------------------------------- Non-Accrual Loans Commercial & Industrial $ 10.5 $ 11.8 $ 23.8 $ 55.4 $ 49.0 Real Estate Construction 0.7 5.8 6.3 6.4 8.1 Commercial 12.8 14.4 29.7 60.1 86.8 Residential 19.5 16.2 18.5 22.7 22.0 Installment 0.1 0.2 0.1 -- 0.1 Leases 1.0 0.4 0.2 0.4 0.2 --------------------------------------------------- Total Domestic 44.6 48.8 78.6 145.0 166.2 Foreign 17.2 18.5 16.9 33.5 48.3 --------------------------------------------------- Subtotal 61.8 67.3 95.5 178.5 214.5 Loans Held For Sale 7.4 11.5 12.8 -- -- Foreclosed Real Estate Domestic 36.9 39.8 10.9 4.2 4.9 Foreign 0.3 0.3 0.3 0.3 0.2 --------------------------------------------------- Subtotal 37.2 40.1 11.2 4.5 5.1 --------------------------------------------------- Total Non- Performing Assets $ 106.4 $ 118.9 $ 119.5 $ 183.0 $ 219.6 =================================================== Accruing Loans Past Due 90 Days or More Commercial & Industrial $ 0.1 $ 0.2 $ 3.9 $ 5.0 $ 2.2 Real Estate Construction & Commercial -- -- 0.9 1.3 5.0 Residential 3.4 3.7 3.3 3.3 7.2 Installment 1.0 1.8 2.7 5.6 4.6 Leases -- 0.1 0.1 0.4 0.1 --------------------------------------------------- Total Domestic 4.5 5.8 10.9 15.6 19.1 Foreign 0.8 0.4 0.2 3.2 1.5 --------------------------------------------------- Total Accruing & Past Due $ 5.3 $ 6.2 $ 11.1 $ 18.8 $ 20.6 =================================================== Total Loans $6,766.6 $7,618.4 $8,425.0 $9,235.2 $9,339.3 ---------------------------------------------------------------------- Ratio of Non-Accrual Loans to Total Loans 0.91% 0.88% 1.13% 1.93% 2.30% ---------------------------------------------------------------------- Ratio of Non- Performing Assets to Total Loans, Foreclosed Real Estate and Non- Performing Loans Held for Sale 1.56% 1.55% 1.41% 1.98% 2.35% ---------------------------------------------------------------------- Ratio of Non- Performing Assets and Accruing Loans Past Due 90 Days or More to Total Loans 1.65% 1.64% 1.55% 2.19% 2.57% ---------------------------------------------------------------------- Quarter to Quarter Changes in Non- Performing Assets Beginning Balance $ 118.9 $ 119.5 $ 183.0 $ 219.6 $ 210.6 Additions 23.2 23.8 43.1 50.7 66.9 Reductions Payments (25.8) (14.4) (63.7) (68.4) (36.4) Return to Accrual (0.9) (2.5) (3.0) (4.4) (2.9) Sales of Foreclosed Assets (2.2) (1.6) (3.0) (2.7) (3.0) Charge-offs (6.8) (5.9) (36.9) (11.8) (15.6) --------------------------------------------------- Total Reductions (35.7) (24.4) (106.6) (87.3) (57.9) Ending Balance $ 106.4 $ 118.9 $ 119.5 $ 183.0 $ 219.6 Pacific Century Financial Corporation and subsidiaries Consolidated Allowance for Loan Losses (Unaudited) Table 8 ---------------------------------------------------------------------- (dollars in millions) Third Second Third First Nine First Nine Quarter Quarter Quarter Months Months 2001 2001 2000 2001 2000 ---------------------------------------------------------------------- Balance of Allowance for Loan Losses at Beginning of Period $ 199.8 $ 199.8 $ 246.6 $ 246.2 $ 194.2 Loans Charged-Off Commercial and Industrial 3.4 8.9 8.0 87.8 17.7 Real Estate Construction -- -- -- -- 0.5 Commercial 2.6 1.6 2.8 16.1 14.3 Residential 1.3 1.7 1.5 5.5 5.2 Installment 5.4 4.2 4.6 15.0 14.5 Leases 0.6 -- 0.2 0.7 0.4 ---------------------------------------------------------------------- Total Domestic 13.3 16.4 17.1 125.1 52.6 Foreign 4.1 3.9 9.5 18.0 26.6 ---------------------------------------------------------------------- Total Charged-Off 17.4 20.3 26.6 143.1 79.2 Recoveries on Loans Previously Charged-Off Commercial and Industrial 1.1 4.3 2.2 8.1 5.1 Real Estate Construction -- -- -- -- -- Commercial 1.3 0.8 0.1 2.4 0.3 Residential 0.2 0.3 0.3 0.7 1.0 Installment 2.2 1.6 1.7 5.6 5.3 Leases -- 0.1 -- 0.2 -- ---------------------------------------------------------------------- Total Domestic 4.8 7.1 4.3 17.0 11.7 Foreign 10.2 6.3 2.7 19.1 3.7 ---------------------------------------------------------------------- Total Recoveries 15.0 13.4 7.0 36.1 15.4 ---------------------------------------------------------------------- Net Charge-Offs (2.4) (6.9) (19.6) (107.0) (63.8) Provision for Loan Losses 0.9 6.4 20.2 59.8 117.1 Allowance Related to Disposition (16.4) -- -- (16.4) -- Other Net Additions (Reductions)(1) 0.6 0.5 (2.2) (0.1) (2.5) ---------------------------------------------------------------------- Balance at End of Period $ 182.5 $ 199.8 $ 245.0 $ 182.5 $ 245.0 ====================================================================== Average Loans Outstanding $ 7,271.9 $ 8,047.8 $ 9,510.1 $ 8,120.6 $ 9,463.3 ---------------------------------------------------------------------- Ratio of Net Charge-Offs to Average Loans Outstanding (annualized) 0.13% 0.34% 0.82% 1.76% 0.90% ---------------------------------------------------------------------- Ratio of Allowance to Loans Outstanding 2.70% 2.62% 2.62% 2.70% 2.62% ---------------------------------------------------------------------- (1) Includes balance transfers, reserves acquired, and foreign currency translation adjustments. Pacific Century Financial Corporation and subsidiaries Analysis of Earnings (Unaudited) Three Months Ended September 30, 2001 Table 9 ---------------------------------------------------------------------- (dollars in millions except per share amounts) Allocated ------------------------------------- Restructuring and Non- Recurring Divesting Continuing Reported Impact Businesses Businesses Amounts ---------------------------------------------------------------------- Net Revenue $ 52 $ 31 $ 143 $ 226 Non-Interest Expense 3 30 90 123 ---------------------------------------------------- 49 1 53 103 Provision for Loan Losses -- (5) 6 1 ---------------------------------------------------- Income Before Income Taxes 49 6 47 102 Provision for Income Taxes 49 4 18 71 ---------------------------------------------------- Net Income $ (0) $ 2 $ 29 $ 31 ==================================================== Earnings Per Share-Diluted $ (0.005) $ 0.026 $ 0.348 $ 0.369 ==================================================== Continuing Business Outlook Year Ending 2001 ---------------------------------------------------------------------- (dollars in millions except per share amounts) Reported Amounts Current Outlook Previous Q1 Q2 Q3 Q4 Full Year Outlook ---------------------------------------------------------------------- Net Revenue $ 144 $ 142 $ 143 $ 141 $ 570 $ 578 Non-Interest Expense 90 92 90 90 362 373 ---------------------------------------------------------- 54 50 53 51 208 205 Provision for Loan Losses 12 2 6 12 32 35 ---------------------------------------------------------- Income Before Income Taxes 42 48 47 39 176 170 Provision for Income Taxes 18 18 18 16 70 68 ---------------------------------------------------------- Allocated Net Income $ 24 $ 30 $ 29 $ 23 $ 106 $ 102 ========================================================== Allocated Earnings Per Share -Diluted $0.29 $0.36 $0.35 $0.30 $1.30 $1.29 ========================================================== This information is based on estimates of current and future performance of identified business units within a range of 2%. Readers are reminded to refer to the guidance regarding forward looking information. First quarter amounts have been reclassified. Pacific Century Financial Corporation and subsidiaries Quarterly Summary of Selected Consolidated Financial Data (Unaudited) Table 10 ---------------------------------------------------------------------- (dollars in millions except per share amounts) Sep. 30 June 30 Mar. 31 Dec. 31 Sept. 30 2001 2001 2001 2000 2000 ---------------------------------------------------------------------- Balance Sheet Totals Total Assets $11,944.2 $12,755.5 $13,710.7 $14,013.8 $13,939.9 Net Loans 6,584.1 7,418.6 8,225.2 8,988.9 9,094.3 Deposits 7,399.7 8,108.5 8,815.5 9,080.6 8,820.7 Long-Term Debt 678.4 830.9 882.7 997.2 999.7 Shareholders' Equity 1,371.1 1,395.7 1,371.9 1,301.4 1,250.1 Quarterly Operating Results Net Interest Income $ 111.9 $ 116.8 $ 125.2 $ 132.1 $ 132.8 Provision for Loan Losses 0.9 6.4 52.5 25.8 20.1 Non-Interest Income 113.9 98.4 160.7 70.6 67.0 Non-Interest Expense 123.3 161.8 172.6 123.1 124.2 Net Income 31.1 26.7 33.7 32.6 34.6 Basic Earnings Per Share $ 0.39 $ 0.33 $ 0.42 $ 0.41 $ 0.44 Diluted Earnings Per Share $ 0.37 $ 0.32 $ 0.42 $ 0.41 $ 0.44 Return on Average Assets 1.00% 0.83% 0.99% 0.94% 0.98% Return on Average Equity 8.88% 7.69% 10.42% 10.24% 11.20% Core Efficiency Ratio 69.12% 68.53% 65.62% 60.74% 62.15% Cash Basis Financial Data (1)(2) Net Income $ 34.4 $ 30.4 $ 37.6 $ 36.2 $ 38.7 Basic Earnings Per Share $ 0.43 $ 0.38 $ 0.47 $ 0.46 $ 0.49 Diluted Earnings Per Share $ 0.41 $ 0.37 $ 0.46 $ 0.45 $ 0.49 Return on Average Assets 1.12% 0.95% 1.12% 1.06% 1.12% Return on Average Equity 11.17% 9.96% 10.42% 13.41% 14.88% Core Efficiency Ratio 67.21% 66.51% 63.60% 58.78% 60.08% (1) Excludes the effect of restructuring activities and non-recurring transactions. (2) Excludes the effect of intangibles which include goodwill, core deposit and trust intangibles.
Contact:
Pacific Century Financial Corporation Stafford Kiguchi, 808/537-8580 (Media) 808/363-5383 (pager) skiguchi@boh.com Cindy Wyrick, 808/537-8430 (Investors/Analysts) cwyrick@boh.com