SEC Filing | Bank of Hawaii Corporation

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 September 30, 1999 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) (808) 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 October 29, 1999 - 80,243,020 shares

PACIFIC CENTURY FINANCIAL CORPORATION and subsidiaries September 30, 1999 PART I. - Financial Information Item 1. Financial Statements Consolidated Statements of Condition (Unaudited) Pacific Century Financial Corporation and subsidiaries - ------------------------------------------------------------------------------------------------------------------------------ September 30 December 31 September 30 (in thousands of dollars) 1999 1998 1998 - ------------------------------------------------------------------------------------------------------------------------------ Assets Interest-Bearing Deposits $410,497 $453,527 $407,265 Investment Securities - Held to Maturity (Market Value of $815,416, $668,068 and $792,205, respectively) 816,728 652,802 773,659 Investment Securities - Available for Sale 2,625,545 3,018,403 2,753,981 Securities Purchased Under Agreements to Resell 4,103 -- 40,000 Funds Sold 40,726 45,683 114,940 Loans 9,746,581 9,854,000 9,549,741 Unearned Income (213,798) (225,915) (207,346) Reserve for Loan Losses (211,306) (211,276) (209,731) - ------------------------------------------------------------------------------------------------------------------------------ Net Loans 9,321,477 9,416,809 9,132,664 - ------------------------------------------------------------------------------------------------------------------------------ Total Earning Assets 13,219,076 13,587,224 13,222,509 Cash and Non-Interest Bearing Deposits 417,142 564,243 541,217 Premises and Equipment 281,512 293,591 301,124 Customers' Acceptance Liability 10,797 8,227 6,244 Accrued Interest Receivable 77,915 85,485 88,581 Other Real Estate 5,874 5,648 10,853 Intangibles, including Goodwill 211,609 216,106 219,442 - ------------------------------------------------------------------------------------------------------------------------------ Other Assets 281,436 256,039 248,536 - ------------------------------------------------------------------------------------------------------------------------------ Total Assets $14,505,361 $15,016,563 $14,638,506 ============================================================================================================================== Liabilities Domestic Deposits Demand - Non-Interest Bearing $1,683,210 $1,745,747 $1,656,713 - Interest Bearing 2,059,662 2,385,285 2,292,272 Savings 712,968 740,378 740,679 Time 2,570,112 2,637,746 2,759,057 Foreign Deposits Demand - Non-Interest Bearing 437,110 489,672 415,846 Time Due to Banks 679,344 685,137 718,210 Other Savings and Time 1,147,983 892,377 840,100 - ------------------------------------------------------------------------------------------------------------------------------ Total Deposits 9,290,389 9,576,342 9,422,877 Securities Sold Under Agreements to Repurchase 1,916,747 2,008,399 2,380,071 Funds Purchased 628,212 942,062 288,727 Short-Term Borrowings 335,416 356,822 363,461 Bank's Acceptances Outstanding 10,797 8,227 6,244 Accrued Retirement Expense 41,494 39,811 38,555 Accrued Interest Payable 60,138 55,694 70,311 Accrued Taxes Payable 90,380 114,443 137,209 Minority Interest 4,587 7,394 7,690 Other Liabilities 123,888 136,159 131,735 Long-Term Debt 794,814 585,616 624,619 - ------------------------------------------------------------------------------------------------------------------------------ Total Liabilities 13,296,862 13,830,969 13,471,499 Shareholders' Equity Common Stock ($.01 par value), authorized 500,000,000 shares; issued / outstanding; September 1999 - 80,550,124 / 80,308,130; December 1998 - 80,512,372 / 80,325,998; September 1998 - 80,462,983 / 80,462,983 806 805 804 Capital Surplus 345,477 342,932 341,534 Accumulated Other Comprehensive Income (52,525) (22,476) (21,839) Retained Earnings 919,664 867,852 846,508 Treasury Stock, at Cost - (September 1999 - 241,994 and December 1998 - 186,374 Shares) (4,923) (3,519) -- - ------------------------------------------------------------------------------------------------------------------------------ Total Shareholders' Equity 1,208,499 1,185,594 1,167,007 - ------------------------------------------------------------------------------------------------------------------------------ Total Liabilities and Shareholders' Equity $14,505,361 $15,016,563 $14,638,506 ============================================================================================================================== Consolidated Statements of Income (Unaudited) Pacific Century Financial Corporation and subsidiaries 3 Months 3 Months 9 Months 9 Months Ended Ended Ended Ended - ------------------------------------------------------------------------------------------------------------------------------ Sept 30 Sept 30 Sept 30 Sept 30 (in thousands of dollars except per share amounts) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ Interest Income Interest on Loans $173,414 $185,559 $521,050 $556,921 Loan Fees 8,792 12,482 30,090 35,060 Income on Lease Financing 7,035 5,938 21,751 18,429 Interest and Dividends on Investment Securities Taxable 14,657 16,414 43,248 54,449 Non-taxable 268 221 820 823 Income on Investment Securities Available for Sale 42,808 43,068 126,508 127,106 Interest on Deposits 5,700 8,585 20,391 25,780 Interest on Security Resale Agreements 70 41 238 41 Interest on Funds Sold 223 1,001 4,374 2,963 - ------------------------------------------------------------------------------------------------------------------------------ Total Interest Income 252,967 273,309 768,470 821,572 Interest Expense Interest on Deposits 63,916 77,590 193,703 232,390 Interest on Security Repurchase Agreements 21,812 31,405 70,621 94,348 Interest on Funds Purchased 9,975 4,968 31,486 18,688 Interest on Short-Term Borrowings 2,213 4,063 8,783 10,341 Interest on Long-Term Debt 11,598 10,785 32,180 32,737 - ------------------------------------------------------------------------------------------------------------------------------ Total Interest Expense 109,514 128,811 336,773 388,504 - ------------------------------------------------------------------------------------------------------------------------------ Net Interest Income 143,453 144,498 431,697 433,068 Provision for Loan Losses 13,500 10,737 40,038 71,022 - ------------------------------------------------------------------------------------------------------------------------------ Net Interest Income After Provision for Loan Losses 129,953 133,761 391,659 362,046 Non-Interest Income Trust Income 14,670 13,730 44,653 41,561 Service Charges on Deposit Accounts 8,638 9,053 25,708 25,947 Fees, Exchange, and Other Service Charges 21,956 20,143 66,572 57,788 Other Operating Income 26,061 11,183 50,510 28,139 Investment Securities Gains 77 (493) 8,742 2,843 - ------------------------------------------------------------------------------------------------------------------------------ Total Non-Interest Income 71,402 53,616 196,185 156,278 Non-Interest Expense Salaries 50,768 50,198 152,093 145,908 Pensions and Other Employee Benefits 13,437 14,544 43,387 42,176 Net Occupancy Expense 11,560 13,087 35,638 34,994 Net Equipment Expense 12,380 12,962 36,192 35,829 Other Operating Expense 44,889 45,314 132,389 130,616 Restructuring Charge 22,478 -- 22,478 19,400 Minority Interest 81 86 384 687 - ------------------------------------------------------------------------------------------------------------------------------ Total Non-Interest Expense 155,593 136,191 422,561 409,610 - ------------------------------------------------------------------------------------------------------------------------------ Income Before Income Taxes 45,762 51,186 165,283 108,714 Provision for Income Taxes 24,283 16,351 69,925 36,763 - ------------------------------------------------------------------------------------------------------------------------------ Net Income $21,479 $34,835 $95,358 $71,951 ============================================================================================================================== Basic Earnings Per Share $0.27 $0.43 $1.19 $0.90 Diluted Earnings Per Share $0.27 $0.43 $1.18 $0.89 Dividends Declared Per Share $0.17 $0.1625 $0.51 $0.4875 Basic Weighted Average Shares 80,274,350 80,459,112 80,332,150 80,201,636 Diluted Weighted Average Shares 80,860,870 81,033,346 81,116,106 81,128,698 ============================================================================================================================== Pacific Century Financial Corporation and subsidiaries Consolidated Statements of Shareholders' Equity (Unaudited) - ----------------------------------------------------------------------------------------------------------------------------------- Accumulated Other Common Capital Comprehensive Retained Treasury Comprehensive (in thousands of dollars) Total Stock Surplus Income Earnings Stock Income - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 $1,185,594 $805 $342,932 ($22,476) $867,852 ($3,519) Comprehensive Income Net Income 95,358 - - - 95,358 - $95,358 Other Comprehensive Income, Net of Tax Investment Securities, Net of Reclassification Adjustment (28,231) - - (28,231) - - (28,231) Foreign Currency Translation Adjustment (1,818) - - (1,818) - - (1,818) -------------- Total Comprehensive Income $65,309 ============== Common Stock Issued 37,419 Profit Sharing Plan 736 - 3 - (70) 803 318,672 Stock Option Plan 5,843 - 2,265 - (2,288) 5,866 154,515 Dividend Reinvestment Plan 3,204 1 137 - (197) 3,263 6,595 Directors' Restricted Shares and Deferred Compensation Plan 140 - 140 - - - Treasury Stock Purchased (11,336) - - - - (11,336) Cash Dividends Paid (40,991) - - - (40,991) - - --------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1999 $1,208,499 $806 $345,477 ($52,525) $919,664 ($4,923) ===================================================================================================================== Balance at December 31, 1997 $1,117,207 $159,369 $168,920 ($24,766) $813,684 $- Comprehensive Income Net Income 71,951 - - - 71,951 - $71,951 Other Comprehensive Income, Net of Tax Investment Securities, Net of Reclassification Adjustment 4,479 - - 4,479 - - 4,479 Foreign Currency Translation Adjustment (1,552) - - (1,552) - - (1,552) -------------- Total Comprehensive Income $74,878 ============== Common Stock Issued 148,307 Profit Sharing Plan 3,225 225 3,000 - - - 543,608 Stock Option Plan 8,943 530 8,413 - - - 207,415 Dividend Reinvestment Plan 4,431 199 4,232 - - - 5,100 Directors' Restricted Shares and Deferred Compensation Plan (416) 1 (417) - - - Stock Repurchased (2,134) (1) (2,133) Change in par value of common stock from $2.00 per share to $.01 per share - (159,519) 159,519 - - - Cash Dividends Paid (39,127) - - - (39,127) - - --------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1998 $1,167,007 $804 $341,534 ($21,839) $846,508 $- ===================================================================================================================== Pacific Century Financial Corporation and subisidaries Consolidated Statements of Cash Flows (Unaudited) - ----------------------------------------------------------------------------------------------------------------- Nine Months ended September 30 (in thousands of dollars) 1999 1998 - ----------------------------------------------------------------------------------------------------------------- Operating Activities Net Income $95,358 $71,951 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses, depreciation, and amortization of income and expense 46,428 71,649 Deferred income taxes (34,140) (16,479) Realized and unrealized investment security gains (8,779) (3,562) Other assets and liabilities, net (4,657) (10,078) ------------ ------------ Net cash provided by operating activities 94,210 113,481 - ----------------------------------------------------------------------------------------------------------------- Investing Activities Proceeds from redemptions of investment securities held to maturity 191,667 545,530 Purchases of investment securities held to maturity (355,592) (98,974) Proceeds from sales of investment securities available for sale 1,184,289 1,822,875 Purchases of investment securities available for sale (829,680) (1,914,473) Net decrease (increase) in interest-bearing deposits 49,530 (44,366) Net decrease (increase) in funds sold 854 (74,483) Net decrease in loans and lease financing 110,783 170,635 Premises and equipment, net (15,474) (29,167) Purchase of Paribas Bank, net of cash and non-interest bearning deposits acquired -- 6,327 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 332,919 383,904 - ----------------------------------------------------------------------------------------------------------------- Financing Activities Net decrease in demand, savings, and time deposits (311,733) (455,761) Proceeds from lines of credit and long-term debt 434,126 52,034 Principal payments on lines of credit and long-term debt (225,058) (134,247) Net decrease in short-term borrowings (427,343) (186,896) Net proceeds (payments) from sale (repurchase) of stock (1,413) 14,049 Cash dividends (40,991) (39,127) ------------ ------------ Net cash used by financing activities (572,412) (749,948) Effect of exchange rate changes on cash (1,818) (1,552) ------------ ------------ Decrease in cash and non-interest bearing deposits (147,101) (254,115) Cash and non-interest bearing deposits at beginning of year 564,243 795,332 ------------ ------------ Cash and non-interest bearing deposits at end of period $417,142 $541,217 =================================================================================================================

Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements of Pacific Century Financial Corporation (Pacific Century) have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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 1998 Annual Report to Shareholders. Operating results for the nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. 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 located 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 1999 presentation. Note 2. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities." This statement standardizes the accounting for derivative instruments by requiring the recognition of those instruments as assets or liabilities in the statement of financial condition, measured at fair value. 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. In June 1999, the FASB issued SFAS No. 137 "Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 defers the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. 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. Acquisitions In January 1999, Pacific Century acquired Triad Insurance Agency, Inc. (Triad), a Hawaii-based property/casualty insurance agency. In Hawaii, Triad represents a number of large U.S. property/casualty insurance companies for whom it acts as a servicing agent. The merger, accounted for as a purchase, will expand Pacific Century's range of financial services, which it can offer to customers. Goodwill resulting from the acquisition of approximately $4 million is being amortized over 15 years on a straight-line basis. In August 1999, Pacific Century concluded the transaction to increase its ownership by acquiring 5.8 million shares, or approximately 10%, of the outstanding shares of the Bank of Queensland in Australia. This transaction is in addition to a 1998 purchase of 5.4 million convertible notes of the Bank of Queensland. Note 4. Earnings Per Share For the three and nine months ended September 30, 1999 and 1998, 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 and nine months ended September 30, 1999 and 1998 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 586,520 and 574,234 shares for the three months ended September 30, 1999 and 1998, respectively, and 783,956 and 927,062 for the first nine months ended September 30, 1999 and 1998, respectively. Note 5. 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 6. Restructuring Charge Pacific Century recorded a restructuring charge of $22.5 million in the third quarter of 1999 in connection with a redesign program to increase revenues and improve efficiencies. The restructuring charge included direct and incremental costs associated with this program and consisted of the recognition of accruals of $6.1 million for staff reduction and $0.7 million for occupancy and equipment. In addition, the restructuring charge included period costs of $15.7 million that were directly related to completing the project. Staffing costs consist of projected employee severance payments. The occupancy and equipment portion consists of estimated lease termination costs and losses on the disposal of fixed assets. Project costs include costs relative to the assessment phase of the redesign project of which $14.7 million was paid in September 1999. In the second quarter of 1998, Pacific Century recognized a $19.4 million restructuring charge in connection with its strategic actions to improve efficiencies through consolidating subsidiaries, closing branches, and outsourcing activities. The restructuring charge included expected direct and incremental costs associated with these actions and consisted of $9.1 million for lease termination costs, $5.4 million for disposal of fixed assets, $1.6 million for staff reduction, and $3.3 million for data processing and other costs. As of December 31, 1998, the balance in the restructuring accrual was $9.6 million, of which $7.8 million related to termination of lease obligations. In the third quarter of 1999 restructuring liabilities of $2.1 million were transferred to the fixed assets category from the lease obligations ($1.8 million) and other ($0.3 million) categories. During the first nine months of 1999, amounts charged against the restructuring accrual (including amounts set aside to settle long-term lease obligations) totaled $9.5 million. An adjustment of $134,000, netted against non-interest expense was made in 1999's third quarter to eliminate the restructuring accrual. Note 7. Business Segments Pacific Century is a financial services organization that maintains a broad presence throughout the Pacific region. Pacific Century has aligned its operations into the following four major geographic business 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 1998 Annual Report to Shareholders on pages 93-95. There have been no significant changes to Pacific Century's business segments since year-end 1998. Line of business 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 units. In measuring line of business financial performance, Pacific Century utilizes certain accounting practices that differ from generally accepted accounting principles. Accordingly, certain balances reflected in the line of business report differ from the corresponding amounts in the Consolidated Financial Statements. Accounting practices and other key elements of Pacific Century's line of business financial management reporting is discussed in Pacific Century's 1998 Annual Report to Shareholders. From time to time, Pacific Century's line of business 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 lines 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 major market segments for the three and nine months ended September 30, 1999 and 1998. Line of Business Selected Financial Information - ----------------------------------------------------------------------------------------------------- Treasury U. S. and Other Consolidated (in thousands of dollars) Hawaii Pacific Asia Mainland Corporate Total - ----------------------------------------------------------------------------------------------------- Three Months Ended September 30, 1999 Net Interest Income $72,396 $31,123 $10,127 $25,530 $4,277 $143,453 Economic Provision (1) (8,174) (3,579) (1,203) (2,639) 2,095 (13,500) - ----------------------------------------------------------------------------------------------------- Risk-Adjusted Net Interest Income 64,222 27,544 8,924 22,891 6,372 129,953 Non-Interest Income 29,365 8,870 4,995 17,450 10,722 71,402 - ----------------------------------------------------------------------------------------------------- Total Risk-Adjusted Revenue 93,587 36,414 13,919 40,341 17,094 201,355 Non-Interest Expense (2) 71,378 26,570 6,693 17,314 33,638 155,593 - ----------------------------------------------------------------------------------------------------- Net Income (Loss) Before Income Taxes 22,209 9,844 7,226 23,027 (16,544) 45,762 Income Taxes (3) (10,256) (4,420) (3,031) (13,676) 7,100 (24,283) - ----------------------------------------------------------------------------------------------------- Net Income (Loss) 11,953 5,424 4,195 9,351 (9,444) 21,479 Capital Charge (13,589) (7,774) (3,058) (10,294) (10,464) (45,179) - ----------------------------------------------------------------------------------------------------- Net Income (Loss) After Capital Charge($1,636) ($2,350) $1,137 ($943) ($19,908) ($23,700) ===================================================================================================== Total Assets $5,051,881 $2,498,351 $1,337,413 $2,632,591 $2,985,125 $14,505,361 Three Months Ended September 30, 1998 Net Interest Income $73,435 $30,428 $9,335 $24,893 $6,407 $144,498 Economic Provision (1) (9,203) (2,123) (1,270) (2,834) 4,693 (10,737) - ----------------------------------------------------------------------------------------------------- Risk-Adjusted Net Interest Income 64,232 28,305 8,065 22,059 11,100 133,761 Non-Interest Income 30,217 10,993 4,038 2,602 5,766 53,616 - ----------------------------------------------------------------------------------------------------- Total Risk-Adjusted Revenue 94,449 39,298 12,103 24,661 16,866 187,377 Non-Interest Expense 73,592 29,602 6,842 20,935 5,220 136,191 - ----------------------------------------------------------------------------------------------------- Net Income Before Income Taxes 20,857 9,696 5,261 3,726 11,646 51,186 Income Taxes (3) (9,126) (3,949) (2,061) 2,338 (3,553) (16,351) - ----------------------------------------------------------------------------------------------------- Net Income 11,731 5,747 3,200 6,064 8,093 34,835 Capital Charge (14,346) (8,476) (3,950) (10,419) (6,581) (43,772) - ----------------------------------------------------------------------------------------------------- Net Income (Loss) After Capital Charge (2,615) (2,729) (750) (4,355) 1,512 (8,937) ===================================================================================================== Total Assets $5,204,899 $2,519,051 $1,001,921 $2,408,904 $3,503,732 $14,638,507 ===================================================================================================== (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 allocated to business segments and the provision in the consolidated financial statements is included in Treasury and Other Corporate. (2) Non-interest expense for the Treasury and Other Corporate segment included a restructuring charge of $22.5 million. (3) Tax benefits are allocated to the business segment to which they relate. In the quarters ended September 30, 1999 and 1998, income taxes for the U. S. Mainland segment included $4.0 million and $5.0 million, respectively, in tax benefits from low income housing tax credits and investment tax credits. Line of Business Selected Financial Information - ----------------------------------------------------------------------------------------------------- Treasury U. S. and Other Consolidated (in thousands of dollars) Hawaii Pacific Asia Mainland Corporate Total - ----------------------------------------------------------------------------------------------------- Nine Months Ended September 30, 1999 Net Interest Income $217,941 $90,916 $28,552 $77,495 $16,793 $431,697 Economic Provision (1) (25,038) (10,368) (3,599) (8,252) 7,219 (40,038) - ----------------------------------------------------------------------------------------------------- Risk-Adjusted Net Interest Income 192,903 80,548 24,953 69,243 24,012 391,659 Non-Interest Income 91,408 30,078 13,635 27,289 33,775 196,185 - ----------------------------------------------------------------------------------------------------- Total Risk-Adjusted Revenue 284,311 110,626 38,588 96,532 57,787 587,844 Non-Interest Expense (2) 215,280 80,933 19,852 52,042 54,454 422,561 - ----------------------------------------------------------------------------------------------------- Net Income Before Income Taxes 69,031 29,693 18,736 44,490 3,333 165,283 Income Taxes (3) (30,708) (12,856) (7,676) (16,043) (2,642) (69,925) - ----------------------------------------------------------------------------------------------------- Net Income 38,323 16,837 11,060 28,447 691 95,358 Capital Charge (41,169) (23,329) (9,433) (31,316) (30,446) (135,693) - ----------------------------------------------------------------------------------------------------- Net Income (Loss) After Capital Charge($2,846) ($6,492) $1,627 ($2,869) ($29,755) ($40,335) ===================================================================================================== Total Assets $5,051,881 $2,498,351 $1,337,413 $2,632,591 $2,985,125 $14,505,361 ===================================================================================================== Nine Months Ended September 30, 1998 Net Interest Income $217,792 $88,536 $27,806 $75,267 $23,667 $433,068 Economic Provision (1) (27,477) (8,320) (3,801) (8,320) (23,104) (71,022) - ----------------------------------------------------------------------------------------------------- Risk-Adjusted Net Interest Income 190,315 80,216 24,005 66,947 563 362,046 Non-Interest Income 87,943 31,747 11,921 8,269 16,398 156,278 - ----------------------------------------------------------------------------------------------------- Total Risk-Adjusted Revenue 278,258 111,963 35,926 75,216 16,961 518,324 Non-Interest Expense (2) 214,696 82,867 19,060 56,412 36,575 409,610 - ----------------------------------------------------------------------------------------------------- Net Income (Loss) Before Income Taxes 63,562 29,096 16,866 18,804 (19,614) 108,714 Income Taxes (3) (27,037) (11,658) (6,546) 1,350 7,128 (36,763) - ----------------------------------------------------------------------------------------------------- Net Income (Loss) 36,525 17,438 10,320 20,154 (12,486) 71,951 Capital Charge (42,247) (21,900) (10,860) (31,005) (23,706) (129,718) - ----------------------------------------------------------------------------------------------------- Net Income (Loss) After Capital Charge (5,722) (4,462) (540) (10,851) (36,192) (57,767) ===================================================================================================== Total Assets $5,204,899 $2,519,051 $1,001,921 $2,408,904 $3,503,731 $14,638,506 ===================================================================================================== (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 allocated to business segments and the provision in the consolidated financial statements is included in Treasury and Other Corporate. (2) Non-interest expense for the Treasury and Other Corporate segment included a restructuring charge of $22.5 million in 1999 and $19.4 million in 1998. (3) Tax benefits are allocated to the business segment to which they relate. For the nine months ended September 30, 1999 and 1998, income taxes for the U. S. Mainland segment included $10.3 million and $10.5 million, respectively, in tax benefits from low income housing tax credits and investment tax credits.

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 September 30, 1999 of $21.5 million, which reflects a pretax restructuring charge of $22.5 million relative to a redesign program to enhance revenues and improve efficiencies. When fully implemented in the fourth quarter of 2000, the redesign is estimated to produce annualized cost savings of $43 million and revenue enhancements of $21 million (Refer to "Forward-Looking Statements"). Comparatively, earnings in the third quarter of 1998 were $34.8 million. Both basic and diluted earnings per share in the third quarter of 1999 were $0.27, compared to $0.43 in the same 1998 quarter. Earnings in the first nine months of 1999 totaled $95.4 million, a 32.5% increase from $72.0 million in the same year earlier period. Basic earnings per share were $1.19 in the first nine months of 1999, up from $0.90 in the comparable 1998 period. Diluted earnings per share were $1.18 for the nine months ended September 30, 1999, compared to $0.89 in the like year ago period. Year-over-year comparability in earnings is impacted by the previously mentioned restructuring charge in 1999 and by special charges in the second quarter of 1998, that included a pretax restructuring charge of $19.4 million and a significant increase in the provision for loan losses. In the third quarter of 1999, return on average assets (ROAA) and return on average equity (ROAE) were 0.59% and 7.01%, respectively compared to 0.95% and 11.87% in the same 1998 quarter. Performance ratios for the nine months ended September 30, 1999 improved over 1998. ROAA and ROAE were 0.87% and 10.55% in the first nine months of 1999, compared to 0.65% and 8.35%, respectively, in the same year ago period. For the full year of 1998, ROAA was 0.72% and ROAE was 9.21%. Pacific Century has accounted for all of its business acquisitions under the purchase method, which has resulted in the recognition of goodwill and other intangible assets. These intangible assets are amortized over various periods as a non- cash charge to operating income. Operating results under a tangible performance basis excludes from reported earnings the after tax impact of amortization of all intangibles, including goodwill. On a tangible performance basis, Pacific Century's earnings in the third quarter of 1999 were $25.9 million, down from $39.0 million for the same quarter in 1998. Tangible earnings for the nine months ended September 30, 1999 and 1998 were $107.4 million and $82.9 million, respectively. On a per share basis, tangible diluted earnings per share were $0.32 and $0.48 in the third quarter of 1999 and 1998, respectively, and were $1.32 and $1.02 in the first nine months of 1999 and 1998, respectively. Third quarter tangible ROAA for Pacific Century was 0.73% in 1999 and 1.07% in the same 1998 quarter. Tangible ROAE was 10.25% and 14.78% for the similar quarters of 1999 and 1998, respectively. In the first nine months of 1999 tangible ROAA and ROAE were 0.99% and 14.45%, respectively, compared to 0.76% and 11.78%, respectively, in the same year ago period. On a taxable equivalent basis, net interest income for the three and nine months ended September 30, 1999 were $143.8 million and $432.4 million, compared to $144.6 million and $433.5 million in the same year ago periods. The lower 1999 net interest income is attributed to a decrease in average earning assets that was partially offset by a rise in net interest margin between periods. Total assets at September 30, 1999 stood at $14.5 billion relative to $14.6 billion at September 30, 1998 and $15.0 billion at December 31, 1998. The decline in total assets is the result of managed reductions in less productive assets such as cash and non-interest bearing deposits and short-term investments. Average assets in the third quarter and first nine months of 1999 were down 0.9% and 1.3%, respectively, from the same year-earlier periods. Non-performing assets (NPAs), exclusive of accruing loans past due 90 days or more, ended 1999's third quarter at $154.8 million, or 1.59% of total loans. Comparatively, NPAs were $151.5 million, or 1.59% of total loans at September 30, 1998 and $137.5 million, or 1.40% of total loans at year-end 1998. The reserve for loan losses totaled $211.3 million at the end of September 1999, representing 2.22% of loans outstanding, compared to $209.7 million and 2.24%, respectively, on the same date in 1998. Net charge-offs for the third quarter of 1999 were $13.5 million, or 0.57% of average loans, compared to $12.7 million and 0.54%, respectively, in 1999's second quarter and $10.2 million, or 0.43% in the third quarter of 1998. For the first nine months of 1999 net charge-offs were $37.0 million, down from $54.1 million in the like period last year. In the current quarter, provisions for loan losses of $13.5 million were charged to income, compared to $13.9 million for the quarter ended June 30, 1999 and $10.7 million in the same quarter last year. For the nine months ended September 30, 1999, loan loss provisions were $40.0 million, down from $71.0 million in the same year ago period. The higher 1998 loan loss provision reflects a build up in reserves during the second quarter of 1998 to cover an increase in NPAs and net charge-offs. Performance Highlights Table 1 - ------------------------------------------------------------------------- (in millions of dollars except per share amounts) Percentage Earnings Highlights and Performance Ratios 1999 1998 Change - ------------------------------------------------------------------------- Three Months Ended September 30 Net Income $21.5 $34.8 -38.3% Basic Earnings Per Share 0.27 0.43 -37.2% Diluted Earnings Per Share 0.27 0.43 -37.2% Cash Dividends 13.7 13.1 Return on Average Assets 0.59% 0.95% Return on Average Equity 7.01% 11.87% Average Spread on Earning Assets 4.28% 4.24% Efficiency Ratio 72.44% 68.57% Nine Months Ended September 30 Net Income $95.4 $72.0 32.5% Basic Earnings Per Share 1.19 0.90 32.2% Diluted Earnings Per Share 1.18 0.89 32.6% Cash Dividends 41.0 39.1 Return on Average Assets 0.87% 0.65% Return on Average Equity 10.55% 8.35% Average Spread on Earning Assets 4.27% 4.25% Efficiency Ratio 68.25% 69.84% Summary of Results Excluding the Effect of Intangibles (a) - ------------------------------------------------------------------------- Three Months Ended September 30 Tangible Net Income $25.9 $39.0 -33.6% Tangible Basic Earnings per Share 0.32 0.48 -33.3% Tangible Diluted Earnings per Shar 0.32 0.48 -33.3% Tangible Return on Average Assets 0.73% 1.07% Tangible Return on Average Equity 10.25% 14.78% Tangible Efficiency Ratio 70.04% 66.18% Nine Months Ended September 30 Tangible Net Income $107.4 $82.9 29.6% Tangible Basic Earnings per Share 1.34 1.03 30.1% Tangible Diluted Earnings per Shar 1.32 1.02 29.4% Tangible Return on Average Assets 0.99% 0.76% Tangible Return on Average Equity 14.45% 11.78% Tangible Efficiency Ratio 66.03% 67.73% - ------------------------------------------------------------------------- (a) Intangibles include goodwill, core deposit and trust intangibles, and other intangibles. 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 assumptions could prove to be inaccurate and actual results may differ from those contained in or implied by such forward-looking statements. Factors that might cause differences to occur include, but are not limited to, economic conditions in the markets Pacific Century serves and those that impact Hawaii, the U.S. Mainland and Asian economies, fluctuations in interest rates, changes in currencies of Asian Rim and South Pacific countries relative to the U.S. dollar, credit quality, and changes in applicable federal, state, and foreign income tax laws and regulatory and monetary policies, and the nature and level of competition. Forward-looking statements that could significantly differ from estimates include uncertainties relating to Pacific Century's efforts to prepare its systems and technology for Year 2000 readiness, as well as uncertainties relating to the ability of third parties with whom Pacific Century has business relationships to address Year 2000 issues in a timely and adequate manner and uncertainties of fully realizing the anticipated cost savings and revenue enhancements associated with Pacific Century's recently announced redesign program within the expected timeframe. 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 approximately 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 areas of operations. For business segment reporting, Pacific Century has aligned its operations into the following four major 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 1998 Annual Report to Shareholders. Note 7 to the Consolidated Financial Statements presents the line of business financial reports for Pacific Century's major market segments for the three and nine months ended September 30, 1999 and 1998. Because market segment financial reports are prepared in accordance with accounting practices that could differ from generally accepted accounting principles, 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 line of business financial report, Pacific Century also utilizes risk- adjusted return on capital (RAROC) to assess business segment performance. RAROC is the ratio of net income to risk-adjusted 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. Over the past few years the cost of capital has fluctuated between 12% to 15%. 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 72 branches in Hawaii, including both traditional full-service branches and in-store locations. Within the Hawaii segment, line of business results are divided into 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). For the quarter ended September 30, 1999, the Hawaii segment contributed $12.0 million in net income an increase from the $11.7 million reported for the third quarter of 1998. RAROC for this segment rose to 13% for the third quarter of 1999 from 12% in the same quarter of 1998. Total assets in the Hawaii segment declined to $5.1 billion at September 30, 1999 from $5.2 billion at September 30, 1998 and $5.3 billion at year-end 1998. For the nine months ended September 30, 1999, net income for the Hawaii segment was up 4.9% to $38.3 million from $36.5 million in the same year-earlier period. RAROC rose to 14% in the first nine months of 1999 from 13% in the comparable 1998 period. 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 $5.4 million for the quarter ended September 30, 1999 compared to $5.7 million in the third quarter of 1998. RAROC, including the amortization of intangibles for this segment, declined to 10% in the third quarter of 1999 from 11% for the same quarter in 1998. Total assets in the Pacific segment were $2.5 billion at the end of September 1999, about level with same year ago date. Comparatively total assets at year-end 1998 were $2.4 billion. For the first nine months of 1999, net income for the Pacific segment was $16.8 million, down from $17.4 million reported in the same period last year. Year-to-date RAROC for the Pacific segment decreased to 11% in 1999 from 12% for the first nine months of 1998. 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 short- term loans based on cash flows. 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 September 30, 1999, net income in the Asia segment was $4.2 million, compared to $3.2 million for the same quarter in 1998. RAROC for this segment was 21% in the third quarter of 1999, compared to 13% for the same quarter in 1998. The improved 1999 results in Asia were driven by higher net interest income and fee income. As of September 30, 1999, September 30, 1998 and December 31, 1998, total assets in the Asia segment were $1.3 billion, $1.0 billion and $1.0 billion, respectively. For the nine months ended September 30, 1999, net income for the Asia segment was $11.1 million, compared to $10.3 million in the comparable 1998 period. RAROC for the Asia segment was 18% and 14% for the nine months ended September 30, 1999 and 1998, respectively. For additional information on Asia, see the "International Operations" section in this report. U.S. Mainland Market Pacific Century's U.S. Mainland segment includes Pacific Century Bank, N.A. (PCB) and Bank of Hawaii operating units for large corporate lending and leasing. In the third quarter of 1999, the U.S. Mainland segment contributed net income of $9.4 million, up from $6.1 million in the same year ago quarter. Results for 1999 included a net gain of $1.3 million from the sale of Arbella Leasing Corp., a special purpose leasing subsidiary. Net income for the three months ended September 30, 1999 and 1998, included tax benefits of $4.0 million and $5.0 million, respectively, from low income housing tax credits and investment tax credits. RAROC, including the amortization of intangibles for this segment was 14% in the third quarter of 1999, improving from 9% for the same quarter in 1998. As of September 30, 1999, September 30, 1998 and December 31, 1998, total assets in the U.S. Mainland segment were $2.6 billion, $2.4 billion and $2.6 billion, respectively. For the first nine months of 1999, net income for the U.S. Mainland segment was $28.4 million, a 41.1% increase over $20.2 million in the like 1998 period. Comparison between periods reflect a pretax security gain of $6.5 million in 1999 relative to the sale of newly issued equity securities acquired in conjunction with leasing transactions. Included in net income were tax benefits from low income housing tax credits and investment tax credits of $10.3 million and $10.5 million for the nine months ended September 30, 1999 and 1998, respectively. RAROC for the U.S. Mainland segment was 14% and 10% in the first nine months of 1999 and 1998, 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 third quarter 1999 net loss of $9.4 million, that included the $22.5 million restructuring charge, compared to net income of $8.1 million in the same quarter in 1998. At September 30, 1999, September 30, 1998 and year-end 1998 this segment held assets of $3.0 billion, $3.5 billion, and $3.7 billion, respectively. For the nine months ended September 30, 1999, net income for the Treasury and Other Corporate segment was $0.7 million, compared to a net loss of $12.5 million in the same 1998 period. Both the 1999 and 1998 periods were impacted by special charges. As previously mentioned, 1999's results were affected by a restructuring charge, while 1998 included a $19.4 million restructuring charge and an increase in the consolidated provision for loan losses that exceeded the economic provision. STATEMENT OF INCOME ANALYSIS Comparability between periods in the Consolidated Statements of Income is impacted by the January 1999 acquisition of Triad and the restructuring charges recognized in 1999 and 1998. Net Interest Income In the third quarter of 1999, net interest income on a taxable equivalent basis was $143.8 million, slightly lower than $144.6 million in the same year-earlier quarter. For the nine months ended September 30, 1999, tax equivalent net interest income was $432.4 million compared to the $433.5 million in the first nine months of 1998. The decline in 1999's net interest income reflected a year-over-year drop in average earning assets of approximately $133 million and $193 million in the third quarter and first nine months of 1999, respectively. In the third quarter of 1999, the average net interest margin on earning assets improved to 4.28% from 4.24% for the same quarter in 1998 and edged up in the first nine months of 1999 to 4.27% from 4.25% in the comparable year ago period. The improvement in net interest margin was driven by lower cost of funds, which declined 60 basis points in the third quarter of 1999 to 4.06% from 4.66% in the same year earlier quarter. For the first nine months of 1999, the cost of funds was 4.09% reflecting a decrease of 54 basis points from 4.63% in the first nine months of 1998. During these same periods, the yield on earning assets also fell, but by a lesser extent. The year-over- year decline in the yield on earning assets was 46 and 45 basis points in 1999's September quarter and first nine months, respectively. Presented in Table 2 are average balances, yields, and rates paid for the three and nine months ended September 30, 1999 and 1998. Pacific Century Financial Corporation and subsidiaries Consolidated Average Balances and Interest Rates Taxable Equivalent (Unaudited) - -------------------------------------------------------------------------------------------------- Three Months Ended Three Months Ended September 30, 1999 September 30, 1998 Average Income/ Yield/ Average Income/ Yield/ (in millions of dollars) Balance Expense Rate Balance Expense Rate - -------------------------------------------------------------------------------------------------- Earning Assets Interest Bearing Deposits $348.5 $5.7 6.49% $560.6 $8.6 6.08% Investment Securities Held to Maturity -Taxable 804.8 14.7 7.23 845.9 16.4 7.70 -Tax-Exempt 11.7 0.4 14.04 11.3 0.3 11.94 Investment Securities Available for 2,677.5 42.8 6.31 2,763.0 43.1 6.18 Funds Sold 38.9 0.5 5.57 71.2 1.1 5.80 Net Loans -Domestic 7,692.0 154.6 7.98 7,638.2 164.7 8.56 -Foreign 1,729.7 25.8 5.92 1,643.6 26.7 6.45 Loan Fees 8.8 12.5 ------------------------------ ------------------------------ Total Earning Assets 13,303.1 253.3 7.55 13,533.8 273.4 8.01 Cash and Due From Banks 425.2 595.8 Other Assets 655.2 387.1 ------------ ------------ Total Assets $14,383.5 $14,516.7 ============ ============ Interest Bearing Liabilities Domestic Dep- Demand $2,128.8 12.3 2.30 $2,023.8 14.4 2.83 - Savings 720.5 3.7 2.03 763.2 4.6 2.39 - Time 2,492.7 29.4 4.68 2,682.2 35.6 5.26 ------------------------------ ------------------------------ Total Domestic 5,342.0 45.4 3.37 5,469.2 54.6 3.96 Foreign Deposits - Time Due to Banks 606.7 8.1 5.27 621.3 10.6 6.79 - Other Time and Savings 1,175.7 10.4 3.52 1,172.6 12.4 4.20 ------------------------------ ------------------------------ Total Foreign 1,782.4 18.5 4.11 1,793.9 23.0 5.10 ------------------------------ ------------------------------ Total Interest Bearing Deposits 7,124.4 63.9 3.56 7,263.1 77.6 4.24 Short-Term Borrowings 2,837.3 34.0 4.75 3,030.8 40.4 5.29 Long-Term Debt 732.3 11.6 6.28 672.5 10.8 6.36 ------------------------------ ------------------------------ Total Interest Bearing Liabilitie 10,694.0 109.5 4.06 10,966.4 128.8 4.66 Net Interest Income 143.8 144.6 Interest Rate Spread 3.49% 3.35% Net Interest Margin 4.28% 4.24% Demand Deposit- Domestic 1,633.7 1,574.9 - Foreign 438.6 542.7 ------------ ------------ Total Demand Deposits 2,072.3 2,117.6 Other Liabilities 401.2 268.5 Shareholders' Equity 1,216.0 1,164.2 ------------ ------------ Total Liabilities and Shareholder $14,383.5 $14,516.7 ============ ============ Provision for Loan Losses 13.5 10.7 Net Overhead 84.2 82.6 --------- --------- Income Before Income Taxes 46.1 51.3 Provision for Income Taxes 24.3 16.4 Tax-Equivalent Adjustment 0.1 0.1 --------- --------- Net Income $21.7 $34.8 ========= ========= Pacific Century Financial Corporation and subsidiaries Consolidated Average Balances and Interest Rates Taxable Equivalent (Unaudited) - ----------------------------------------------------------------------------------------------------- Nine Months Ended Nine Months Ended September 30, 1999 September 30, 1998 Average Income/ Yield/ Average Income/ Yield/ (in millions of dollars) Balance Expense Rate Balance Expense Rate - ----------------------------------------------------------------------------------------------------- Earning Assets Interest Bearing Deposits $424.2 $20.4 6.43% $508.4 $25.8 6.78% Investment Securities Held to Maturity -Taxable 808.9 43.2 7.15 964.9 54.4 7.54 -Tax-Exempt 11.7 1.3 14.44 11.8 1.3 14.39 Investment Securities Available for 2,735.4 126.5 6.18 2,697.3 127.1 6.30 Funds Sold 125.2 4.9 5.20 91.1 3.0 4.41 Net Loans -Domestic 7,721.9 461.6 7.99 7,650.3 487.4 8.52 -Foreign 1,706.8 81.2 6.36 1,728.4 87.9 6.80 Loan Fees 30.1 35.1 ------------------------------ ------------------------------ Total Earning Assets 13,534.1 769.2 7.60 13,652.2 822.0 8.05 Cash and Due From Banks 475.6 591.8 Other Assets 648.5 606.9 ------------ ------------ Total Assets $14,658.2 $14,850.9 ============ ============ Interest Bearing Liabilities Domestic Dep- Demand $2,146.0 36.4 2.27 $2,128.5 42.5 2.67 - Savings 728.0 11.0 2.03 793.7 14.5 2.44 - Time 2,534.0 90.9 4.80 2,774.8 110.9 5.34 ------------------------------ ------------------------------ Total Domestic 5,408.0 138.3 3.42 5,697.0 167.9 3.94 Foreign Deposits - Time Due to Banks 646.7 25.0 5.17 584.7 30.3 6.92 - Other Time and Savings 1,163.7 30.4 3.49 1,171.9 34.2 3.91 ------------------------------ ------------------------------ Total Foreign 1,810.4 55.4 4.09 1,756.6 64.5 4.91 ------------------------------ ------------------------------ Total Interest Bearing Deposits 7,218.4 193.7 3.59 7,453.6 232.4 4.17 Short-Term Borrowings 3,118.3 110.9 4.75 3,086.7 123.4 5.34 Long-Term Debt 665.2 32.2 6.47 689.0 32.7 6.35 ------------------------------ ------------------------------ Total Interest Bearing Liabilitie 11,001.9 336.8 4.09 11,229.3 388.5 4.63 Net Interest Income 432.4 433.5 Interest Rate Spread 3.51% 3.42% Net Interest Margin 4.27% 4.25% Demand Deposit- Domestic 1,649.2 1,651.1 - Foreign 427.6 426.1 ------------ ------------ Total Demand Deposits 2,076.8 2,077.2 Other Liabilities 370.8 392.0 Shareholders' Equity 1,208.7 1,152.4 ------------ ------------ Total Liabilities and Shareholder $14,658.2 $14,850.9 ============ ============ Provision for Loan Losses 40.0 71.0 Net Overhead 226.4 253.2 --------- Income Before Income Taxes 166.0 109.3 Provision for Income Taxes 69.9 36.8 Tax-Equivalent Adjustment 0.7 0.5 --------- --------- Net Income $95.4 $72.0 ========= ========= Provision for Loan Losses The provision for loan losses was $13.5 million in 1999's third quarter, up from $10.7 million for the same quarter last year. In the first nine months of 1999, the provision for loan losses totaled $40.0 million, a $31.0 million decline from $71.0 million in the year earlier period. The lower 1999 year-to-date provision reflects a decline in net loan charge-offs. Additionally, the 1998 provision included a build up of reserves to cover an increase in NPAs. 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 third quarter of 1999, was $71.4 million, compared to $53.6 million for the same quarter in 1998, an increase of 33.2%. For the first nine months of 1999, total non-interest income was $196.2 million, up 25.5% over the same year-earlier period. The rise in non-interest income is mostly accounted for by the sale of Arbella Leasing Corp., a special purpose leasing subsidiary, that resulted in a one-time gain of $14.0 million. The net impact of this sale resulted in an increase in earnings of $1.3 million after providing for income taxes of $12.7 million. Incremental non-interest income attributed to the Triad acquisition was approximately $2.1 million in the third quarter of 1999 and $6.3 million in the first nine months of 1999. Non-Interest Income Table 3 3 Months Ended 3 Months Ended 9 Months Ended9 Months Ended (in millions) Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999Sept. 30, 1998 - ---------------------------------------------------------------------------------------------------- Trust Income $14.7 $13.7 $44.7 $41.6 Service Charges on Deposit Accounts 8.6 9.1 25.7 26.0 Fees, Exchange and Other Service Charges 22.0 20.1 66.6 57.8 Other Operating Income 26.0 11.2 50.5 28.1 Investment Securities Gains 0.1 (0.5) 8.7 2.8 - ---------------------------------------------------------------------------------------------------- Total Non-Interest Income $71.4 $53.6 $196.2 $156.3 ==================================================================================================== Trust income for the third quarter of 1999 increased to $14.7 million, up 6.8% from the same quarter last year. Year-to- date trust income totaled $44.7 million, reflecting a 7.4% increase over the first nine months of 1998. The year-over-year rise in trust income is primarily attributed to increases in investment management fees, agency fees, and trust 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. Service charges on deposit accounts for the September 1999 quarter decreased to $8.6 million, from $9.1 million in the same quarter last year. For the first nine months of 1999, service charges from deposit accounts at $25.7 million were almost level with the same year ago period. Fees, exchange and other service charges increased to $22.0 million for the third quarter of 1999, from $20.1 million in the same 1998 quarter. The year-to-date total for this category was $66.6 million in 1999, an increase of $8.8 million, or 15.2%, over the first nine months of 1998. Income generated from international activities including letter of credit and acceptance fees, profit on foreign currency, and exchange fees totaled $17.0 million for the first nine months of 1999, up $2.7 million, or 19.3% over the same period in 1998. Mortgage servicing fees increased to $6.5 million in the first nine months of 1999, up 25.0% from $5.2 million for the same period in 1998. This increase is due to the growth in Pacific Century's mortgage servicing portfolio to $2.4 billion at September 30, 1999 from $1.9 billion at September 30, 1998. The growth in the servicing portfolio reflects Bank of Hawaii's exceptionally high residential loan origination levels over the last twelve months. Also, included in fees, exchange and other service charges are fees earned through Pacific Century's ATM network. Pacific Century's ATM network at the end of September 1999 comprised 495 machines, compared to 492 at year-end 1998. Fees generated by this network totaled $11.4 million in the first nine months of 1999, up 47.2% from $7.8 million for the same period in 1998. Other operating income in 1999's third quarter was $26.0 million, an increase of $14.8 million over the same quarter of 1998. Year-to-date other income increased 79.5% over the first nine months of 1998. As mentioned earlier, the Arbella Leasing sale contributed a one-time gain of $14 million to other operating income in 1999. Additionally, the increase in year-to- date other operating income also reflected insurance commissions from the Triad acquisition. Sales of investment securities during the nine months ended September 30, 1999 resulted in net investment security gains of $8.7 million, compared to $2.8 million in the comparable year earlier period. Approximately $6.5 million of the 1999 gain resulted from the sale of newly issued equity securities acquired in conjunction with leasing transactions. Non-Interest Expense Total non-interest expense for the September 1999 quarter was $155.6 million, compared to $136.2 million in the similar quarter of 1998, an increase of $19.4 million. Year-to-date non- interest expense was $422.6 million, up 3.2% from the first nine months of 1998. Comparability between periods is affected by restructuring charges of $22.5 million and $19.4 million, that were recognized in the third quarter of 1999 and in the second quarter of 1998, respectively. The 1999 restructuring charge is related to a redesign program to increase revenues, reduce expenses, and improve financial services and products. The components of the 1999 restructuring charge consisted of accruals of $6.1 million for staff reductions and $0.7 million for occupancy and equipment plus period costs of $15.7 million associated with the assessment phase of the redesign project. In the third quarter of 1999, $14.7 million of the redesign project costs were paid. The 1998 restructuring charge was related to strategic actions to improve efficiencies through consolidating subsidiaries, closing branches and outsourcing subsidiaries and consisted of $9.1 million for lease obligation termination costs, $5.4 million for fixed assets disposal, $1.6 million for staff reduction, and $3.3 million for data processing and other costs. In the third quarter of 1999, restructuring liabilities of $1.8 million and $0.3 million from the lease obligation and other costs categories, respectively, were transferred to the fixed assets category. In the first nine months of 1999, $9.5 million was charged against the restructuring accrual (including amounts set aside to settle long-term lease obligations). An adjustment of $134,000, netted against non-interest expense was made in 1999's third quarter to eliminate the residual restructuring accrual. Incremental non-interest expense attributed to the Triad acquisition was approximately $1.7 million and $5.2 million for the three and nine months ended September 30, 1999. Non-Interest Expense Table 4 3 Months Ended 3 Months Ended 9 Months Ended9 Months Ended (in millions) Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999Sept. 30, 1998 - ----------------------------------------------------------------------------------------------------- Salaries $50.8 $50.2 $152.1 $145.9 Pension and Other Employee Benefits 13.4 14.5 43.4 42.2 Net Occupancy Expense 11.5 13.1 35.6 35.0 Net Equipment Expense 12.4 13.0 36.2 35.8 Other Operating Expense 44.9 45.3 132.4 130.6 Restructuring Charge 22.5 - 22.5 19.4 Minority Interest 0.1 0.1 0.4 0.7 - ---------------------------------------------------------------------------------------------------- Total Non-Interest Expense $155.6 $136.2 $422.6 $409.6 ==================================================================================================== Salaries and pension and other employee benefits expense totaled $64.2 million in the third quarter of 1999 compared to $64.7 million in the same quarter last year. For the first nine months, total salaries and benefits rose 3.9% to $195.5 million from $188.1 million in the same period last year. Approximately $2.3 million of the year-to-date increase is attributed to the Triad acquisition. The Year 2000 project also continues to affect salaries and benefits for 1999. Net occupancy and equipment expense in the September 1999 quarter declined to $23.9 million from $26.1 million for the same period in 1998. For the first nine months of 1999, net occupancy and equipment expense totaled $71.8 million, up 1.4% from $70.8 million in the similar period last year. Other operating expense decreased to $44.9 million in the third quarter of 1999, a 0.9% decline from $45.3 million for the same quarter in 1998. Year-to-date other operating expense, however, increased $1.8 million to $132.4 million from $130.6 million in the first nine months of 1998. Incremental other operating expense attributed to the Triad acquisition was approximately $2.5 million in the first nine months of 1999. 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 third quarter and first nine months of 1999, the efficiency ratio was 72.4% and 68.3%, respectively. Comparatively, this ratio was 68.6% in the same quarter last year and 69.8% in the first nine months of 1998. Comparison of the efficiency ratio between periods is affected by the restructuring charges and the sale of Arbella Leasing Corp. BALANCE SHEET ANALYSIS Loans Loans comprise the largest category of earning assets for Pacific Century and produce the highest level of earnings. At September 30, 1999, loans outstanding were $9.7 billion, compared to $9.9 billion at year-end 1998 and $9.5 billion at September 30, 1998. 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 September 30, 1999, December 31, 1998 and September 30, 1998. Loan Portfolio Balances Table 5 - ------------------------------------------------------------------------------- September 30 December 31 September 30 (in millions of dollars) 1999 1998 1998 - ------------------------------------------------------------------------------- Domestic Loans Commercial and Industrial $2,491.5 $2,579.7 $2,375.1 Real Estate Constructio-- Commercial 303.7 276.3 279.4 -- Residential 12.4 23.5 15.7 Mortgage --Commercial 1,264.5 1,139.1 1,237.1 -- Residential 2,584.0 2,699.4 2,618.6 Installment 743.9 763.0 795.3 Lease Financing 547.1 554.5 479.6 - ------------------------------------------------------------------------------- Total Domestic 7,947.1 8,035.5 7,800.8 - ------------------------------------------------------------------------------- Foreign Loans 1,799.5 1,818.5 1,748.9 - ------------------------------------------------------------------------------- Total Loans $9,746.6 $9,854.0 $9,549.7 =============================================================================== 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 September 30, 1999, available- for-sale securities decreased to $2.6 billion from $2.8 billion a year ago and $3.0 billion at year-end 1998. Securities held to maturity were $817 million at September 30, 1999, up from $774 million a year ago and $653 million at year-end 1998. Deposits As of September 30, 1999, deposits totaled $9.3 billion, down from $9.4 billion at September 30, 1998 and $9.6 billion at year-end 1998. As of September 30, 1999, the mix of deposits has changed with domestic deposits decreasing and foreign deposits increasing. At $7.0 billion, domestic deposits at September 30, 1999 were $483 million lower than year-end 1998, while during this same time foreign deposits increased $197 million. A lower level of interest-bearing demand accounts accounted for most of the decline in domestic deposits. Table 6 presents average deposits by type for the third quarters of 1999 and 1998 and the full year 1998. Average Deposits Table 6 - --------------------------------------------------------------------------------------- Quarter Ended Year Ended Quarter Ended September 30, 1999 December 31, 1998 September 30, 1998 (in millions of dollars) Amount Mix Amount Mix Amount Mix - --------------------------------------------------------------------------------------- Domestic Non-Interest Bearing Demand $1,633.7 17.8% $1,650.4 17.3% $1,574.9 16.8% Interest-Bearing Demand 2,128.8 23.1 2,114.8 22.1 2,023.8 21.6 Regular Savings 720.5 7.8 783.9 8.2 763.2 8.1 Time Certificates of Deposit ($100,000 or More) 1,024.1 11.1 1,028.2 10.8 1,085.2 11.6 All Other Time and Savings Certificates 1,468.6 16.0 1,752.5 18.4 1,597.0 17.0 - --------------------------------------------------------------------------------------- Total Domestic 6,975.7 75.8 7,329.8 76.8 7,044.1 75.1 - --------------------------------------------------------------------------------------- Foreign Non-Interest Bearing Demand 438.6 4.8 447.7 4.7 542.7 5.8 Time Due to Banks 606.7 6.6 596.1 6.2 621.3 6.6 Other Time and Savings 1,175.7 12.8 1,176.1 12.3 1,172.6 12.5 - --------------------------------------------------------------------------------------- Total Foreign 2,221.0 24.2 2,219.9 23.2 2,336.6 24.9 - --------------------------------------------------------------------------------------- Total $9,196.7 100.0% $9,549.7 100.0% $9,380.7 100.0% ======================================================================================= Borrowings Short-term borrowings, including funds purchased and securities sold under agreements to repurchase, totaled $2.9 billion at September 30, 1999, $3.3 billion at year-end 1998 and $3.0 billion at September 30, 1998. Long-term debt on September 30, 1999 increased to $795 million from $586 million at year-end 1998. This increase is primarily attributed to $125 million in subordinated notes issued by Bank of Hawaii in the first quarter of 1999. The notes bear a fixed rate of interest at 6.875%, mature in 10 years (March 1, 2009), and qualify as Tier 2 capital. INTERNATIONAL 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 1998 Annual Report to Shareholders. There has been no significant change to that process during the quarter. 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 South Korea, Japan and Taiwan. Table 7 presents as of September 30, 1999, December 31, 1998, and September 30, 1998 a geographic distribution of Pacific Century's cross-border assets for each country in which such assets exceeded 0.75% of total assets. Geographic Distribution of Cross-Border International Assets (1) Table 7 (in millions) Country September 30, 1999 December 31, 1998 September 30, 1998 - ---------------------------------------------------------------------------------------------------- Japan $282.1 $354.8 $354.9 South Korea 345.8 264.9 255.2 Taiwan 115.1 123.9 127.1 France 166.7 35.5 55.1 All Others 580.4 593.6 561.6 ----------- ----------- ----------- $1,490.1 $1,372.7 $1,353.9 ======= ======= ======= (1) In this table, 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. Monetary assets include loans, acceptances, and interest-bearing deposits with other banks. Pacific Century's cross-border credit assets in Thailand and Indonesia at September 30, 1999 were $13 million and $13 million, respectively, compared to $20 million and $16 million, respectively, at June 30, 1999 and $24 million and $17 million, respectively at December 31, 1998. 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 increased to $154.8 million at September 30, 1999 from $151.5 million a year ago and $137.5 million at the end of 1998. Compared with the prior two quarter-ends, NPAs ended the current quarter at $5.4 million above June 30, 1999 and $8.5 million below March 31, 1999. At September 30, 1999, the ratio of NPAs to outstanding loans was 1.59%. Comparatively the ratio was 1.40% at year-end 1998 and 1.59% at September 30, 1998. 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 rose to $148.9 million at September 30, 1999, up from $131.9 million and $140.6 million at year-end 1998 and September 30, 1998, respectively. Higher non-accrual balances in the commercial real estate, commercial and industrial loan, and lease categories accounted for most of the increase relative to year-end 1998 and September 1998. Foreign non- accrual loans at September 30, 1999 declined $1.8 million from year-end 1998 and $12.2 million from the same date last year. Non-performing residential mortgages (excluding construction loans) totaled $33.1 million at September 30, 1999, compared to $36.4 million at year-end 1998 and $35.9 million a year ago. Because residential mortgages are secured by real estate, the credit risk on these loans are 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. Foreclosed real estate totaled $5.9 million at September 30, 1999 compared to $5.6 million at year-end 1998 and $10.9 million a year ago. At September 30, 1999, the foreclosed real estate portfolio consisted of properties located mostly in Hawaii. Accruing loans past due 90 days or more have remained relatively constant since year-end 1998 totaling $21.6 million at September 30, 1999 and $20.8 million at year-end 1998. Compared to September 30, 1998 accruing loans past due 90 days or more declined $5.7 million. Potential Problem Loans Pacific Century is currently involved in ongoing discussions with a Korean group of related borrowers who are experiencing financial difficulties. As of September 30, 1999, Pacific Century's aggregate credit exposure to this group totaled approximately $34 million. Although these credits were on an accrual status at the end of the third quarter, it is difficult, at this time, to predict the ultimate outcome of the discussions and any resulting impact to Pacific Century. Non-Performing Assets and Accruing Loans Past Due 90 Days or More Table 8 - ---------------------------------------------------------------------------------- September 30 December 31 September 30 (in millions of dollars) 1999 1998 1998 - ---------------------------------------------------------------------------------- Non-Accrual Loans Commercial and Industrial $31.7 $28.2 $24.0 Real Estate Construction 2.1 2.9 4.4 Commercial 20.8 5.4 6.7 Residential 33.1 36.4 35.9 Installment 0.7 0.8 0.9 Leases 4.8 0.7 0.8 Foreign 55.7 57.5 67.9 ----------------------------------------- Subtotal 148.9 131.9 140.6 Foreclosed Real Estate Domestic 5.6 5.5 10.8 Foreign 0.3 0.1 0.1 ----------------------------------------- Subtotal 5.9 5.6 10.9 ----------------------------------------- Total Non-Performing Assets 154.8 137.5 151.5 ----------------------------------------- Accruing Loans Past Due 90 Days or More Commercial and Industrial 6.2 0.4 7.3 Real Estate Construction 0.5 0.4 0.6 Commercial 2.4 0.0 0.8 Residential 2.8 4.5 4.8 Installment 4.5 7.3 6.6 Leases 0.2 0.3 0.1 Foreign 5.0 7.9 7.1 ----------------------------------------- Subtotal 21.6 20.8 27.3 ----------------------------------------- Total $176.4 $158.3 $178.8 ========================================= - ---------------------------------------------------------------------------------- Ratio of Non-Performing Assets to Total Loans 1.59% 1.40% 1.59% - ---------------------------------------------------------------------------------- Ratio of Non-Performing Assets and Accruing Loans Past Due 90 Days or More to Total Loans 1.81% 1.61% 1.87% - ---------------------------------------------------------------------------------- Reserve for Loan Losses Pacific Century maintains the reserve for loan losses at a level that it believes is adequate to absorb estimated future 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 1998 Annual Report to Shareholders. Reserve for loan losses ended the third quarter of 1999 at $211.3 million, level with year-end 1998 and $1.6 million above the same date last year. Net charge-offs for the third quarter of 1999 were $13.5 million or 0.57% of average loans, compared to $10.2 million, or 0.43% of average loans for the same quarter last year. For the nine months ended September 30, 1999, net charge-offs were $37.0 million, or 0.52% of average loans, compared to $54.1 million and 0.77%, respectively, in same 1998 period. The ratio of reserves to loans outstanding at September 30, 1999 was 2.22%, compared to 2.24% at this date last year and 2.19% at year-end 1998. A summary of the activity in the reserve for loan losses is presented in Table 9. At September 30, 1999, the reserve for loan losses provided coverage of 136% of non-performing loans, compared to 154% coverage at year-end 1998 and 138% at September 30, 1998. Additionally, the annualized ratio of reserves to gross charge- offs was 2.6 times for the first nine months of 1999, compared to 2.6 times for all of 1998 and 2.5 times for the first nine months of 1998. For the nine months ended September 30, 1999, recoveries totaled $23.7 million partially driven by a $7.0 million recovery of a U.S. mainland loan in the commercial and industrial portfolio and $4.0 million in foreign loan recoveries. Comparatively, recoveries were $8.9 million in the first nine months of 1998 and $16.3 million for all of 1998. Reserve for Loan Losses Table 9 - ------------------------------------------------------------------------------------------ Third Third First Nine First Nine Quarter Quarter Months Months (in millions of dollars) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------ Average Amount of Loans Outstanding $9,421.7 $9,499.6 $9,428.7 $9,378.7 - ------------------------------------------------------------------------------------------ Balance of Reserve for Loan Losses at Beginning of Period $209.6 $204.0 $211.3 $174.4 Loans Charged-Off Commercial and Industrial 0.3 4.3 15.7 13.8 Real Estate Construction -- -- 0.2 -- Commercial 0.1 0.3 2.3 0.5 Residential 2.0 0.8 5.6 1.6 Installment 6.2 6.9 19.1 20.1 Foreign 11.8 0.6 17.6 26.8 Leases 0.1 -- 0.2 0.2 - ------------------------------------------------------------------------------------------ Total Charged-Off 20.5 12.9 60.7 63.0 Recoveries on Loans Previously Charged-Off Commercial and Industrial 3.4 0.6 12.9 2.2 Real Estate Commercial 0.8 0.2 1.0 1.2 Residential -- -- 0.2 0.2 Installment 2.0 1.8 5.6 4.8 Foreign 0.8 0.1 4.0 0.5 - ------------------------------------------------------------------------------------------ Total Recoveries 7.0 2.7 23.7 8.9 - ------------------------------------------------------------------------------------------ Net Charge-Offs (13.5) (10.2) (37.0) (54.1) Provision Charged to Operating Expenses 13.5 10.7 40.0 71.0 Other Net Additions (Reductions)* 1.7 5.2 (3.0) 18.4 - ------------------------------------------------------------------------------------------ Balance at End of Period $211.3 $209.7 $211.3 $209.7 ========================================================================================== Ratio of Net Charge-Offs to Average Loans Outstanding (annualized) 0.57% 0.43% 0.52% 0.77% - ------------------------------------------------------------------------------------------ Ratio of Reserve to Loans Outstanding 2.22% 2.24% 2.22% 2.24% - ------------------------------------------------------------------------------------------ * Includes balance transfers, reserves acquired, and foreign currency translation adjustments. 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 1998 Annual Report to Shareholders. 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 September 30, 1999, December 31, 1998 and September 30, 1998, 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 a favorable short-term impact on NII in periods of declining interest rates.

Market Risk Exposure to Interest Rate Changes Table 10 September 30, 1999 December 31, 1998September 30, 1998 - ---------------------------------------------------------------------------------------------------- Interest Rate ChangeInterest Rate ChangeInterest Rate Change (in basis points) (in basis points) (in basis points) -200 +200 -200 +200 -200 +200 - ---------------------------------------------------------------------------------------------------- Estimated Exposure as a Percent of Net Interest Income 0.8% (1.3)% 1.9% (2.1)% 1.6% (1.1)% - ---------------------------------------------------------------------------------------------------- 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 September 30, 1999, the remainder of these capital positions which aggregated $92.7 million, was not hedged. The comparative unhedged position at year-end 1998 was $93.0 million. 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 September 30, 1999, December 31, 1998 and September 30, 1998 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.

Market Risk Exposure From Changes in Foreign Exchange Rates Table 11 - ---------------------------------------------------------------------------------------------------- September 30, 1999 December 31, 1998 September 30, 1998 Book Value Value-at-Risk Book Value Value-at-Risk Book Value Value-at-Risk (in millions of dollars) - ---------------------------------------------------------------------------------------------------- Net Investments in Foreign Subsidiaries and Branches Japanese Yen $ 8.2 $ 1.9 $ 9.6 $ 2.7 $11.8 $ 3.4 Korean Won 40.5 3.7 44.2 7.9 36.3 9.1 Pacific Franc (1) 25.3 4.6 22.8 3.6 27.8 4.3 Other Currencies 18.7 17.1 16.4 15.3 13.4 18.5 ------- ------- ------- ------- --------- ------- Total $92.7 $27.3 $93.0 $29.5 $89.3 $35.3 ===== ===== ==== ==== ===== ==== (1) Net of a $42 million, $46 million and $46 million borrowing at September 30, 1999, December 31, 1998 and September 30, 1998, respectively, denominated in euro and foreign exchange hedge transactions of $24 million, $26 million and $23 million at September 30, 1999, December 31, 1998 and September 30, 1998. 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 September 30, 1999. 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 1998 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 third quarter of 1999, 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 third quarter of 1999 at $312 million, compared to $173 million at the prior quarter-end. The increase is accounted for by $150 million in new borrowings in the third quarter for terms of six and 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 September 30, 1999, there was $125 million issued and outstanding under this program. 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 September 30, 1999, Pacific Century's shareholders' equity grew to $1.2 billion, an increase of 3.5% over the same date in 1998. The source of growth in shareholders' equity during the first nine months of 1999 included retention of earnings, and issuance of common stock under various stock-based plans. Offsetting these increases were cash dividends paid of $41.0 million, net treasury stock purchases of $11.3 million and unrealized valuation adjustments of $30.0 million. The negative unrealized valuation adjustment primarily is attributed to a decline in the market value of available-for-sale investment securities due to a rise in interest rates. Comparatively, shareholders' equity at September 30, 1999 was about equivalent with the prior quarter-end. Pacific Century's regulatory capital ratios at September 30, 1999 were: Tier 1 Capital Ratio of 10.00%, Total Capital Ratio of 12.93%, and Leverage Ratio of 8.15%. Comparatively these ratios were 9.65%, 11.74% and 7.32%, respectively, at September 30, 1998. 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. Equity Capital Table 12 - ------------------------------------------------------------------------------- Quarter Ended Year Ended Quarter Ended September 30 December 31 September 30 (in millions of dollars) 1999 1998 1998 - ------------------------------------------------------------------------------- Source of Common Equity Net Income $21.5 $107.0 $34.8 Dividends Paid (13.7) (52.8) (13.1) Dividend Reinvestment Program 0.9 5.4 1.2 Stock Repurchases (2.4) (7.3) (2.1) Other (1) (12.0) 16.1 5.7 - ------------------------------------------------------------------------------- Increase in Equity ($5.7) $68.4 $26.5 =============================================================================== Common Equity $1,208.5 $1,185.6 $1,167.0 Add: 8.25% Capital Securities of Bancorp Hawaii Capital Trust I 100.0 100.0 100.0 Minority Interest 4.6 7.4 7.7 Less: Intangibles 180.1 186.2 190.3 Unrealized Valuation and Other Adjustments (24.3) 3.6 10.3 - ------------------------------------------------------------------------------- Tier I Capital 1,157.3 1,103.2 1,074.1 Allowable Loan Loss Reserve 145.4 147.2 140.1 Subordinated Debt 195.8 95.0 95.0 Investment in Unconsolidated Subsidiary (2.7) (2.5) (2.1) - ------------------------------------------------------------------------------- Total Capital $1,495.8 $1,342.9 $1,307.1 =============================================================================== Risk Weighted Assets $11,569.6 $11,708.5 $11,135.2 =============================================================================== Key Ratios Tier I Capital Ratio 10.00% 9.42% 9.65% Total Capital Ratio 12.93% 11.47% 11.74% Leverage Ratio 8.15% 7.48% 7.32% =============================================================================== (1) Includes profit sharing; stock options and directors' restricted shares and deferred compensation plans; and unrealized valuation adjustments for investment securities, foreign currency translation and pension liability. Year 2000 A significant issue facing all banks nationwide is the transition to the new millennium. Year 2000 concerns arise primarily from past date-coding practices in both software and hardware that used two-digits rather than four-digits to represent years. If not corrected, systems that use the two- digit format will be unable to correctly distinguish dates after December 31, 1999. This problem could cause these systems to fail or produce inaccurate information. State of Readiness The resolution of Year 2000 issues is a top priority at Pacific Century. Recognizing the importance of having its systems ready for the Year 2000, Pacific Century Financial Corporation established Project 2000 as an enterprise-wide initiative in 1996. Project 2000 is a global strategic plan supported by senior management and approved by the Board of Directors. As described in Pacific Century's 1998 Annual Report to Shareholders, Pacific Century's Year 2000 project plan includes five phases: awareness, assessment, renovation, validation testing and implementation. Pacific Century has completed all five phases of its Year 2000 plan for critical systems. Additionally, Pacific Century has completed development of Year 2000 contingency plans for all critical functions. During the remainder of 1999, Pacific Century will continue to test and validate those plans and refine them as necessary and will focus on monitoring the readiness of third parties that it relies on to conduct business and serve customers. Pacific Century understands that successfully addressing Year 2000 issues extends well beyond the remediation of internal systems. Pacific Century has a detailed and extensive process to ascertain and monitor the Year 2000 readiness of its vendors and service providers. Additionally, Pacific Century has embarked on a Year 2000 risk assessment program to determine the Year 2000 readiness of all material customers, counterparties and business partners. Notwithstanding these actions, Pacific Century recognizes there can be no assurances that significant customers or critical third parties will adequately address their Year 2000 issues in a timely manner. Consequently, Pacific Century has developed a "Year 2000 event plan" as part of its contingency planning process to cover all critical business operations in the event that circumstances outside of its control causes business disruptions. Estimated Year 2000 Costs Pacific Century estimates that costs directly related to Project 2000 issues will approximate $41 million, including $30 million in estimated incremental cost. Costs associated with Project 2000 primarily include estimates for technology and program management staff, staff retention, consultant fees, and software and hardware costs, as well as, costs for customer education and public relations. Through December 31, 1998, cumulative costs for Project 2000 totaled approximately $25.4 million of which approximately $22.2 million were incurred in 1998. During the first nine months of 1999, additional expenditures aggregating $9.1 million were incurred, bringing the total Project 2000 cost to $34.5 million at September 30, 1999. As Project 2000 progresses, the cost estimate could change depending on a number of factors, including the failure of third party vendors to address Year 2000 issues in a timely manner. Year 2000 compliance costs are expected to be funded from operating cash flow. Forward-looking statements contained in the above Year 2000 disclosure should be read in conjunction with the cautionary statements included in the introductory section of this report under "Forward-Looking Statements."

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 20 Quarterly Report to Shareholders 27 Financial Data Schedule 99 Statement of Ratios (b) On September 16, 1999, Pacific Century Financial Corporation filed a Form 8-K regarding the redesign program. 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 November 15, 1999 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

To Our Shareholders: This quarter's earnings were among the highest in the history of Pacific Century Financial Corporation. Your company reported strong net income of $38.5 million for 1999's second quarter, up from $3.1 million for 1998's second quarter. Diluted earnings per share were $0.47, up from $0.04 for the same period last year. Year-over-year comparisons reflect the $19.4 million restructuring charge and extra provisioning to the reserve for loan losses incurred in the second quarter of 1998. Tangible or "cash" earnings for the quarter were $42.3 million compared to $7.4 million reported for the similar period last year. On a per share basis, tangible diluted earnings were $0.52, up from $0.09 in 1998's second quarter. These results reflect our continuing efforts to make the balance sheet more efficient, control non-interest expense and improve asset quality. For the first six months of 1999, return on average assets grew to 1.01 percent, up from 0.50 percent in 1998's first half year. Return on average equity was 12.36 percent, compared with 6.53 percent reported in last year's like period. We are pleased to note that Asia's economic recovery is shaping up to be stronger and faster than expected. We also see compelling evidence of gradually accelerating economic recovery in Hawaii. The consensus economic forecast calls for 2 percent real economic growth for the state through 1999 and into 2000. In June, Bank of Hawaii agreed to boost its ownership in the Bank of Queensland by acquiring 5.8 million shares, or approximately 10 percent, of that bank's outstanding common stock. This will bring our ownership stake in the Bank of Queensland to approximately 17 percent. The transaction is expected to close in the third quarter of this year, pending regulatory approval, and will strengthen and enhance the strategic alliance between the two banks that began in 1997. Your company met the final major regulatory milestone for Year 2000 readiness last month. By June 30, 1999, all of our critical computer systems had been successfully tested to handle the year 2000 change in date, and the Y2K contingency plans were in place. During the remainder of 1999, we will focus on validating our year 2000 contingency plans and monitoring the readiness of third parties we rely on to serve our customers. Pacific Century's Board of Directors has declared a quarterly cash dividend of 17 cents per share on its outstanding common shares. The dividend will be payable on September 15, 1999 to shareholders of record at the close of business on August 24, 1999. The value of your holdings in Pacific Century remains our utmost priority, and we appreciate your confidence in our ability to guide your company into the 21st century. Sincerely, /s/ LAWRENCE M. JOHNSON Lawrence M. Johnson Chairman and CEO Corporate Offices: Financial Plaza of the Pacific 130 Merchant Street Honolulu, HI 96813 Investor or Analyst Inquiries: David A. Houle Executive Vice President, Treasurer and Chief Financial Officer (808) 537-8288 or Sharlene K. Bliss Investor Relations (808) 537-8037 or Cori C. Weston Corporate Secretary (808) 537-8272 Highlights (Unaudited) Pacific Century Financial Corporation and subsidiaries - ------------------------------------------------------------------------------------------------------------------------------ June 30 June 30 1999 1998 Return on Average Assets 1.01% 0.50% Return on Average Equity 12.36% 6.53% Average Spread on Earning Assets 4.26% 4.25% Average Equity/Average Assets 8.14% 7.63% Book Value Per Common Share $15.12 $14.19 Loss Reserve/Loans and Leases Outstanding 2.23% 2.20% Common Stock Price Range High Low Dividend 1998................................ $25.88 $14.75 $0.6575 1999 First Quarter.................. $24.94 $19.94 $0.17 Second Quarter............ $23.25 $19.81 $0.17 Consolidated Statements of Income (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------ 3 Months 3 Months 6 Months 6 Months Ended Ended Ended Ended June 30 June 30 June 30 June 30 (in thousands of dollars except per share amounts) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ Total Interest Income $255,037 $278,934 $515,503 $548,263 Total Interest Expense 110,637 132,082 227,259 259,693 - ------------------------------------------------------------------------------------------------------------------------------ Net Interest Income 144,400 146,852 288,244 288,570 Provision for Possible Loan Losses 13,948 41,982 26,538 60,285 - ------------------------------------------------------------------------------------------------------------------------------ Net Interest Income After Provision for Possible Loan Losses 130,452 104,870 261,706 228,285 Total Non-Interest Income 63,613 49,798 124,783 102,662 Total Non-Interest Expense 132,128 151,716 266,968 273,419 - ------------------------------------------------------------------------------------------------------------------------------ Income Before Income Taxes 61,937 2,952 119,521 57,528 Provision for Income Taxes 23,475 (144) 45,642 20,412 - ------------------------------------------------------------------------------------------------------------------------------ Net Income $38,462 $3,096 $73,879 $37,116 ============================================================================================================================== Basic Earnings Per Share $0.48 $0.04 $0.92 $0.47 Diluted Earnings Per Share $0.47 $0.04 $0.91 $0.46 Basic Weighted Average Shares 80,302,154 80,258,217 80,361,529 80,070,764 Diluted Weighted Average Shares 81,121,840 81,416,341 81,263,475 81,170,893 - ------------------------------------------------------------------------------------------------------------------------------ Consolidated Statements of Condition (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------ June 30 December 31 June 30 (in thousands of dollars) 1999 1998 1998 - ------------------------------------------------------------------------------------------------------------------------------ Assets Interest-Bearing Deposits $411,239 $453,527 $542,966 Investment Securities (Market Value of $3,547,199, $3,686,471, and $3,728,525, respectively) 3,550,115 3,671,205 3,713,420 Securities Purchased Under Agreements to Resell 4,325 -- -- Funds Sold 34,995 45,683 31,715 Loans 9,610,980 9,854,000 9,464,901 Unearned Income (219,717) (225,915) (207,742) Reserve for Loan Losses (209,573) (211,276) (204,049) Net Loans 9,181,690 9,416,809 9,053,110 - ------------------------------------------------------------------------------------------------------------------------------ Total Earning Assets 13,182,364 13,587,224 13,341,211 Cash and Non-Interest Bearing Deposits 493,483 564,243 575,553 Premises and Equipment 288,955 293,591 297,392 Other Assets 586,656 571,505 516,954 - ------------------------------------------------------------------------------------------------------------------------------ Total Assets $14,551,458 $15,016,563 $14,731,110 ============================================================================================================================== Liabilities Deposits $9,286,155 $9,576,342 $9,505,968 Securities Sold Under Agreements to Repurchase 1,990,178 2,008,399 2,313,784 Funds Purchased 715,398 942,062 366,066 Short-Term Borrowings 353,177 356,822 379,129 Other Liabilities 337,489 361,728 360,583 Long-Term Debt 654,847 585,616 665,106 - ------------------------------------------------------------------------------------------------------------------------------ Total Liabilities 13,337,244 13,830,969 13,590,636 Shareholders' Equity Common Stock ($.01 par value), authorized 500,000,000 shares; issued / outstanding; June 1999 - 80,544,104 / 80,287,805; December 1998 - 80,512,372 / 80,325,998; June 1998 - 80,385,041 / 80,385,041 805 805 804 Capital Surplus 345,468 342,932 340,872 Accumulated Other Comprehensive Income (39,245) (22,476) (25,958) Retained Earnings 912,686 867,852 824,756 Treasury Stock, at Cost - (June 1999 - 256,299 and December 1998 - 186,374 Shares) (5,500) (3,519) -- - ------------------------------------------------------------------------------------------------------------------------------ Total Shareholders' Equity 1,214,214 1,185,594 1,140,474 - ------------------------------------------------------------------------------------------------------------------------------ Total Liabilities and Shareholders' Equity $14,551,458 $15,016,563 $14,731,110 ==============================================================================================================================

Bank of Hawaii Exhibit 99 - Statement Regarding Computation of Ratios Nine Months Ended September 30 (in millions of dollars) 1999 1998 Earnings: 1. Income Before Income Taxes $165.3 $108.7 2. Plus: Fixed Charges Including Interest on Deposits 337.4 393.3 ------- ------- 3. Earnings Including Fixed Charges 502.7 502.0 4. Less: Interest on Deposits 193.7 232.4 ------- ------- 5. Earnings Excluding Interest on Deposits $309.0 $269.6 ======= ======= Fixed Charges: 6. Fixed Charges Including Interest on Deposits $337.4 $393.3 7. Less: Interest on Deposits 193.7 232.4 ------- ------- 8. Fixed Charges Excluding Interest on Deposits $143.7 $160.9 ======= ======= Ratio of Earnings to Fixed Charges: Including Interest on Deposits (Line 3 divided by Line 6) 1.5 x 1.3 x Excluding Interest on Deposits (Line 5 divided by Line 8) 2.2 x 1.7 x

9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF CONDIITON AND CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 9-MOS DEC-31-1998 SEP-30-1999 417142 410497 40726 2935 2625545 816728 815416 9746581 211306 14505361 9290389 2880375 331284 794814 0 0 806 1207693 14505361 572891 170576 25003 768470 193703 336773 431697 40038 8742 422561 165283 95358 0 0 95358 1.19 1.18 4.27 148948 21624 0 0 211276 60675 23750 211306 0 0 0