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, 2000 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____________ to _____________ Commission File Number 1-6887 PACIFIC CENTURY FINANCIAL CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 99-0148992 ----------------------------------------------------------- (State of incorporation) (IRS Employer Identification No.) 130 Merchant Street, Honolulu, Hawaii 96813 ---------------------------------------------------------- (Address of principal executive offices) (Zip Code) (888) 643-3888 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 Par Value; outstanding at October 31, 2000 - 79,510,926 shares

PACIFIC CENTURY FINANCIAL CORPORATION and subsidiaries September 30, 2000 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) 2000 1999 1999 - ------------------------------------------------------------------------------------------------------------ Assets Interest-Bearing Deposits $185,312 $278,473 $410,497 Investment Securities - Held to Maturity (Market Value of $714,920, $787,720 and $815,416, respectively) 716,392 796,322 816,728 Investment Securities - Available for Sale 2,484,482 2,542,232 2,625,545 Securities Purchased Under Agreements to Resell 5,560 0 4,103 Funds Sold 28,323 52,740 40,726 Loans 9,750,661 9,717,556 9,746,581 Unearned Income (272,219) (242,503) (213,798) Reserve for Loan Losses (244,966) (194,205) (211,306) - ------------------------------------------------------------------------------------------------------------ Net Loans 9,233,476 9,280,848 9,321,477 - ------------------------------------------------------------------------------------------------------------ Total Earning Assets 12,653,545 12,950,615 13,219,076 Cash and Non-Interest Bearing Deposits 438,312 639,895 417,142 Premises and Equipment 251,240 271,728 281,512 Customers' Acceptance Liability 10,956 7,236 10,797 Accrued Interest Receivable 86,109 78,974 77,915 Other Real Estate 5,128 4,576 5,874 Intangibles, including Goodwill 194,418 205,904 211,609 Other Assets 300,153 281,387 281,436 - ------------------------------------------------------------------------------------------------------------ Total Assets $13,939,861 $14,440,315 $14,505,361 ============================================================================================================ Liabilities Domestic Deposits Demand - Non-Interest Bearing $1,626,426 $1,676,425 $1,683,210 - Interest Bearing 2,039,325 2,076,358 2,059,662 Savings 671,437 700,720 712,968 Time 2,801,947 2,761,650 2,570,112 Foreign Deposits Demand - Non-Interest Bearing 343,828 401,613 437,110 Time Due to Banks 571,576 597,675 679,344 Other Savings and Time 766,129 1,179,777 1,147,983 - ------------------------------------------------------------------------------------------------------------ Total Deposits 8,820,668 9,394,218 9,290,389 Securities Sold Under Agreements to Repurchase 1,791,983 1,490,655 1,916,747 Funds Purchased 377,069 839,962 628,212 Short-Term Borrowings 365,407 458,962 335,416 Bank's Acceptances Outstanding 10,956 7,236 10,797 Accrued Retirement Expense 37,796 40,360 41,494 Accrued Interest Payable 80,792 64,588 60,138 Accrued Taxes Payable 97,597 85,022 90,380 Minority Interest 4,154 4,435 4,587 Other Liabilities 103,634 114,890 123,888 Long-Term Debt 999,736 727,657 794,814 - ------------------------------------------------------------------------------------------------------------ Total Liabilities 12,689,792 13,227,985 13,296,862 Shareholders' Equity Common Stock ($.01 par value), authorized 500,000,000 shares; issued / outstanding; September 2000 - 80,556,883 /79,503,301; December 1999 - 80,550,728 / 80,036,417; September 1999 - 80,550,124 / 80,308,130 806 806 806 Capital Surplus 346,016 345,851 345,477 Accumulated Other Comprehensive Income (56,620) (66,106) (52,525) Retained Earnings 979,007 942,177 919,664 Treasury Stock, at Cost - (September 2000 - 1,053,582; December 1999 - 514,311 and September 1999 - 241,994 shares) (19,140) (10,398) (4,923) - ------------------------------------------------------------------------------------------------------------ Total Shareholders' Equity 1,250,069 1,212,330 1,208,499 - ------------------------------------------------------------------------------------------------------------ Total Liabilities and Shareholders' Equity $13,939,861 $14,440,315 $14,505,361 ============================================================================================================ 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) 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------ Interest Income Interest on Loans $192,749 $173,414 $558,735 $521,050 Loan Fees 7,679 8,792 24,902 30,090 Income on Lease Financing 9,935 7,035 27,661 21,751 Interest and Dividends on Investment Securities Taxable 12,943 14,657 40,500 43,248 Non-taxable 241 268 763 820 Income on Investment Securities Available for Sale 41,772 42,808 123,966 126,508 Interest on Deposits 3,319 5,700 10,917 20,391 Interest on Security Resale Agreements 55 70 71 238 Interest on Funds Sold 577 223 1,535 4,374 - ------------------------------------------------------------------------------------------------------------ Total Interest Income 269,270 252,967 789,050 768,470 Interest Expense Interest on Deposits 73,162 63,916 212,440 193,703 Interest on Security Repurchase Agreements 26,941 21,812 75,915 70,621 Interest on Funds Purchased 8,960 9,975 25,321 31,486 Interest on Short-Term Borrowings 4,739 2,213 15,785 8,783 Interest on Long-Term Debt 16,164 11,598 42,171 32,180 - ------------------------------------------------------------------------------------------------------------ Total Interest Expense 129,966 109,514 371,632 336,773 - ------------------------------------------------------------------------------------------------------------ Net Interest Income 139,304 143,453 417,418 431,697 Provision for Loan Losses 20,145 13,500 117,074 40,038 - ------------------------------------------------------------------------------------------------------------ Net Interest Income After Provision for Loan Losses 119,159 129,953 300,344 391,659 Non-Interest Income Trust Income 15,874 14,670 49,078 44,653 Service Charges on Deposit Accounts 10,074 8,638 29,811 25,708 Fees, Exchange, and Other Service Charges 22,714 21,956 66,926 66,572 Other Operating Income 12,676 26,061 41,348 50,510 Gain on Settlement of Pension Obligation 0 0 11,900 0 Investment Securities Gains (Losses) (82) 77 (315) 8,742 - ------------------------------------------------------------------------------------------------------------ Total Non-Interest Income 61,256 71,402 198,748 196,185 Non-Interest Expense Salaries 45,220 50,768 137,227 152,093 Pensions and Other Employee Benefits 12,303 13,437 37,721 43,387 Net Occupancy Expense 12,577 11,560 36,873 35,638 Net Equipment Expense 13,365 12,380 37,498 36,192 Other Operating Expense 41,350 44,889 123,301 132,389 Restructuring Charge 0 22,478 0 22,478 Minority Interest 110 81 286 384 - ------------------------------------------------------------------------------------------------------------ Total Non-Interest Expense 124,925 155,593 372,906 422,561 - ------------------------------------------------------------------------------------------------------------ Income Before Income Taxes 55,490 45,762 126,186 165,283 Provision for Income Taxes 20,887 24,283 45,111 69,925 - ------------------------------------------------------------------------------------------------------------ Net Income $34,603 $21,479 $81,075 $95,358 ============================================================================================================ Basic Earnings Per Share $0.44 $0.27 $1.02 $1.19 Diluted Earnings Per Share $0.44 $0.27 $1.02 $1.18 Dividends Declared Per Share $0.18 $0.17 $0.53 $0.51 Basic Weighted Average Shares 79,455,040 80,274,350 79,566,807 80,332,150 Diluted Weighted Average Shares 79,525,474 80,860,870 79,791,250 81,116,106 ============================================================================================================ 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, 1999 $1,212,330 $806 $345,851 ($66,106) $942,177 ($10,398) Comprehensive Income Net Income 81,075 0 - - 81,075 - $81,075 Other Comprehensive Income, Net of Tax Investment Securities, Net of Reclassification Adjustment 9,960 0 0 9,960 0 - 9,960 Foreign Currency Translation Adjustment (474) 0 0 (474) 0 - (474) ------------ Total Comprehensive Income $90,561 ============ Common Stock Issued 62,102 Profit Sharing Plan 1,096 0 18 0 (167) 1,245 195,094 Stock Option Plan 2,610 0 0 0 (1,500) 4,110 142,421 Dividend Reinvestment Plan 2,481 0 52 0 (431) 2,860 4,973 Directors' Restricted Shares and Deferred Compensation Plan 95 0 95 0 0 0 Treasury Stock Purchased (16,957) 0 0 0 0 (16,957) Cash Dividends Paid (42,147) 0 0 0 (42,147) 0 - ---------------------------------------------------------------------------------------------------------------------- Balance at September 30, 2000 $1,250,069 $806 $346,016 ($56,620) $979,007 ($19,140) ====================================================================================================================== Balance at December 31, 1998 $1,185,594 $805 $342,932 ($22,476) $867,852 ($3,519) Comprehensive Income Net Income 95,358 0 - - 95,358 - $95,358 Other Comprehensive Income, Net of Tax Investment Securities, Net of Reclassification Adjustment (28,231) 0 0 (28,231) 0 - (28,231) Foreign Currency Translation Adjustment (1,818) 0 0 (1,818) 0 - (1,818) ----------- Total Comprehensive Income $65,309 =========== Common Stock Issued 37,419 Profit Sharing Plan 736 0 3 0 (70) 803 318,672 Stock Option Plan 5,843 0 2,265 0 (2,288) 5,866 154,515 Dividend Reinvestment Plan 3,204 1 137 0 (197) 3,263 6,595 Directors' Restricted Shares and Deferred Compensation Plan 140 0 140 0 0 0 Treasury Stock Purchased (11,336) 0 0 0 0 (11,336) Cash Dividends Paid (40,991) 0 0 0 (40,991) 0 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1999 $1,208,499 $806 $345,477 ($52,525) $919,664 ($4,923) ===================================================================================================================================

Pacific Century Financial Corporation and subsidiaries Consolidated Statements of Cash Flows (Unaudited) - -------------------------------------------------------------------------------------------------------------- Nine Months ended September 30 (in thousands of dollars) 2000 1999 - -------------------------------------------------------------------------------------------------------------- Operating Activities Net Income 81,075 95,358 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses, depreciation, and amortization of income and expense 125,319 46,428 Deferred income taxes (35,743) (34,140) Realized and unrealized investment security (gains) losses 387 (8,779) Other assets and liabilities, net 14,198 (4,657) ----------------------- Net cash provided by operating activities 185,236 94,210 - -------------------------------------------------------------------------------------------------------------- Investing Activities Proceeds from redemptions of investment securities held to maturity 106,539 191,667 Purchases of investment securities held to maturity (26,609) (355,592) Proceeds from sales of investment securities available for sale 158,690 1,184,289 Purchases of investment securities available for sale (84,727) (829,680) Net decrease in interest-bearing deposits 93,161 49,530 Net decrease in funds sold 18,857 854 Net decrease (increase) in loans (34,369) 110,783 Premises and equipment, net (8,474) (15,474) 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 223,068 332,919 - -------------------------------------------------------------------------------------------------------------- Financing Activities Net decrease in demand, savings, and time deposits (573,550) (311,733) Proceeds from lines of credit and long-term debt 300,072 434,126 Principal payments on lines of credit and long-term debt (27,993) (225,058) Net decrease in short-term borrowings (255,120) (427,343) Net common stock repurchased (10,675) (1,413) Cash dividends (42,147) (40,991) ------------------------ Net cash used by financing activities (609,413) (572,412) - -------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash (474) (1,818) ------------------------ Decrease in cash and non-interest bearing deposits (201,583) (147,101) Cash and non-interest bearing deposits at beginning of year 639,895 564,243 ------------------------ Cash and non-interest bearing deposits at end of period 438,312 417,142 ============================================================================================================== Pacific Century Financial Corporation Notes to Consolidated Financial Statements (Unaudited) Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements of Pacific Century Financial Corporation (Pacific Century) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the consolidated financial statements reflect all adjustments of a normal and recurring nature, including adjustments related to completed acquisitions, which are necessary for a fair presentation of the results for the interim periods, and should be read in conjunction with the audited consolidated financial statements and related notes included in Pacific Century's 1999 Annual Report on Form 10-K. Operating results for the nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. International operations include certain activities located domestically in Hawaii, as well as branches and subsidiaries domiciled outside the United States. The operations of Bank of Hawaii and First Savings and Loan Association of America located in the West and South Pacific that are denominated in U.S. dollars are classified as domestic. Pacific Century's international operations are primarily concentrated in Hong Kong, Japan, Singapore, South Korea, Taiwan, French Polynesia, Fiji, New Caledonia, Papua New Guinea and Vanuatu. Certain amounts in prior period financial statements have been reclassified to conform to the 2000 presentation. Note 2. Recent Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes new accounting and reporting standards for derivative instruments. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133," and in June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- An Amendment of FASB Statement No. 133." SFAS 133, as amended, establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the statement of financial position as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. These rules become effective for the Company on January 1, 2001. The Company has made an initial estimate of the impact from adoption of these new accounting standards. This estimate indicates that the change will not have a material impact on its financial position or results of operations. Note 3. Gain on Settlement of Pension Obligation In the second quarter of 2000, the Employees Retirement Plan of Bank of Hawaii, a defined benefit plan, purchased an annuity for retirees currently receiving benefits from the Plan. Benefits for approximately 880 retirees were settled eliminating about $36 million of the projected benefit obligation of the Plan. This partial settlement caused the recognition of a gain of $11,900,000 for Bank of Hawaii as the Plan sponsor. Note 4. Earnings Per Share For the three and nine months ended September 30, 2000 and 1999, there were no adjustments to net income (the numerator) for purposes of computing basic and diluted earnings per share (EPS). The weighted average shares (the denominator) for computing basic and diluted EPS for the three and nine months ended September 30, 2000 and 1999 are presented in the Consolidated Statements of Income. Included in the weighted average shares for computing EPS is the dilutive effect of stock options of 70,434 and 586,520 shares for the three months ended September 30, 2000 and 1999, respectively and 224,443 and 783,956 for the nine months ended September 30, 2000 and 1999, 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, income from bank owned life insurance policies, low income housing tax credits, foreign tax credits and investment tax credits. Note 6. Restructuring Charge In the third quarter of 1999, Pacific Century recorded a restructuring charge of $22.5 million 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 for staff reductions, occupancy and equipment abandonment, and included period costs that were directly related to completing the project. Staffing costs consisted of projected employee severance payments. The occupancy and equipment portion consisted of estimated lease termination costs and losses on the disposal of fixed assets. Project costs included costs relative to the assessment phase of the redesign project of which $14.7 million was paid in September 1999. The project has been largely completed as of September 30, 2000, with approximately $613,000 of the restructuring charge unutilized and recognized as credit to other income during the quarter. Note 7. Regulatory Matters On September 22, 2000, Pacific Century entered into a Memorandum of Understanding ("MOU") with its regulator, whereby Pacific Century has agreed to comply with certain directives which are intended to assess or correct certain potential deficiencies in the operation and management of the company. Under the terms of the MOU, Pacific Century may not declare or pay any dividends, redeem any shares in excess of the existing repurchase programs authorized by the Board in August 1998 and October 1999, or incur any debt, directly or indirectly, without the prior written approval of its regulator. Pacific Century has received approval for the next dividend of $0.18 per common share payable on December 14, 2000 to shareholders of record on November 24, 2000. The company has also received approval to pay the December 15, 2000 dividend on the 8.25% Capital Securities issued by Bancorp Hawaii Capital Trust I which mature in 2026. Pacific Century has also received approval for the continuation of its existing commercial paper issuance program. Note 8. Business Segments Pacific Century is a financial services organization that maintains a broad presence throughout the Pacific region. Pacific Century assesses the financial performance of its operating components in accordance with geographic and functional areas of operations. Geographically, Pacific Century has aligned its operations into four principal segments: Hawaii, the Pacific, Asia, and the U.S. Mainland. In addition, the Treasury and Other Corporate segment includes corporate asset and liability management activities and the unallocated portion of various administrative and support units. Business segment results are determined based on Pacific Century's internal financial management reporting process and organization structure. The financial management reporting process uses various techniques to assign and transfer balance sheet and income statement amounts between business segments including allocations for overhead, economic provision and capital. In its business segment financial reporting process, Pacific Century utilizes certain accounting practices that could differ from accounting principles generally accepted in the United States. Accordingly, certain balances reflected in the business segment report may not agree with corresponding amounts in the Consolidated Financial Statements. For example, the economic provision for loan losses differs from the provision determined under generally accepted accounting principles. 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. This approach eliminates the unusual loss provisions which allows for a normalized perspective in managing the line of business. Pacific Century's business segment management reporting process may change based on refinements in segment reporting policies or changes in accounting systems, information systems, organizational structure, or product lines. These changes could result in a realignment of business segments or modifications to allocation and transfer methodologies. Should material changes be made to the financial management reporting process, prior period reports would be restated. Presented below are the financial results for each of Pacific Century's principal market segments for the three and nine months ended September 30, 2000 and 1999.

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, 2000 Net Interest Income $210,874 $90,033 $16,136 $84,424 $15,951 $417,418 Economic Provision (1) (21,982) (9,840) (13,113) (9,696) (62,443) (117,074) ------------------------------------------------------------------------ Risk-Adjusted Net Interest Income 188,892 80,193 3,023 74,728 (46,492) 300,344 Non-Interest Income 109,728 25,983 14,634 11,333 37,070 198,748 ------------------------------------------------------------------------ Total Risk-Adjusted Revenue 298,620 106,176 17,657 86,061 (9,422) 499,092 Non-Interest Expense 204,147 72,853 19,507 53,480 22,919 372,906 ------------------------------------------------------------------------ Net Income Before Income Taxes 94,473 33,323 (1,850) 32,581 (32,341) 126,186 Income Taxes (2) (40,287) (14,147) 743 (7,272) 15,852 (45,111) ------------------------------------------------------------------------ Net Income $54,186 $19,176 ($1,107) $25,309 ($16,489) $81,075 ======================================================================== Total Assets (End of Period) $5,281,505 $2,186,350 $1,146,062 $3,078,099 $2,247,845 $13,939,861 ========================================================================= Nine Months Ended September 30, 1999 Net Interest Income $217,969 $90,916 $17,723 $77,495 $27,594 $431,697 Economic Provision (1) (3) (25,038) (10,368) (14,625) (8,252) 18,245 (40,038) ------------------------------------------------------------------------- Risk-Adjusted Net Interest Income 192,931 80,548 3,098 69,243 45,839 391,659 Non-Interest Income 100,275 30,078 13,635 27,289 24,908 196,185 ------------------------------------------------------------------------- Total Risk-Adjusted Revenue 293,206 110,626 16,733 96,532 70,747 587,844 Non-Interest Expense 222,430 80,933 19,852 52,042 47,304 422,561 ------------------------------------------------------------------------- Net Income Before Income Taxes 70,776 29,693 (3,119) 44,490 23,443 165,283 Income Taxes (2) (30,785) (12,856) 1,066 (16,043) (11,307) (69,925) ------------------------------------------------------------------------ Net Income $39,991 $16,837 ($2,053) $28,447 $12,136 $95,358 ========================================================================= Total Assets (End of Period) $5,255,893 $2,498,351 $1,572,218 $2,632,591 $2,546,308 $14,505,361 ========================================================================= (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) Tax benefits are allocated to the business segment to which they relate. For each nine month period ended September 30, 2000 and 1999, income taxes for the U. S. Mainland segment included $10.3 million in tax benefits from low income housing tax credits and investment tax credits. (3) The 1999 results were retroactively adjusted to reflect the economic provision for Asia which was adjusted upwards from the amount reported previously to reflect the normalized loss factors resulting from the company's assessment of reform measures initiated to deal with the financial turmoil in the region. Previously, economic provisions for uncertainty in the region were reflected in the provision for Treasury. 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, 2000 of $34.6 million, significantly greater than $21.5 million for the same period in 1999. Earnings for the third quarter of 1999 included a restructuring charge of $22.5 million in connection with the New Era Redesign program whose purpose was to increase revenues and improve efficiencies. Basic and diluted earnings per share in the third quarter of 2000 were both $0.44. Comparatively, both basic and diluted earnings per share were $0.27 for the same period last year. Earnings in the first nine months of 2000 totaled $81.1 million, a 15.0% decrease from $95.4 million in the same period last year. Basic earnings per share were $1.02 in the first nine months of 2000, down from $1.19 in the comparable 1999 period. Diluted earnings per share were also $1.02 for the nine months ended September 30, 2000, compared to $1.18 in the like year ago period. Performance ratios for the three months ended September 30, 2000 reflected improvement from the same period in 1999. In the third quarter of 2000, return on average assets (ROAA) and return on average equity (ROAE) increased to 0.98% and 11.20%, respectively from 0.59% and 7.01% in the like 1999 period. For the nine months ended September 30, 2000, ROAA and ROAE were 0.77% and 8.85%, compared to 0.87% and 10.55%, respectively, in the same year ago period. For the full year of 1999, ROAA was 0.91% and ROAE was 10.99%. 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 2000 were $38.8 million, up from $25.9 million for the same quarter in 1999. Tangible earnings in the first nine months of 2000 and 1999 were $93.7 million and $107.4 million, respectively. On a per share basis, tangible diluted earnings per share were $0.49 and $0.32 in the third quarters of 2000 and 1999, respectively, and were $1.17 and $1.32 in the first nine months of 2000 and 1999, respectively. Third quarter tangible ROAA for Pacific Century was 1.12% in 2000 and 0.72% in 1999. Tangible ROAE was 14.94% and 10.25% for the similar quarters of 2000 and 1999, respectively. In the first nine months of 2000 tangible ROAA and ROAE were 0.90% and 12.23%, respectively, compared to 0.99% and 14.45%, respectively, for the same period in 1999. On a taxable equivalent basis, net interest income for the three and nine months ended September 30, 2000 were $139.6 million and $418.2 million, respectively, reflecting a decline from $143.8 million and $432.4 million in the same year ago periods. The decline in net interest income is attributed to a decrease in average earning assets combined with a decline in net interest margin comparing the third quarters of 2000 and 1999. Total assets at September 30, 2000 declined to $13.9 billion relative to $14.5 billion at September 30, 1999 and $14.4 billion at December 31, 1999. The decline in total assets was the result of managed reductions of loans and short-term interest bearing deposits and securities. In addition, less productive assets such as cash and non-interest bearing deposits have also been managed down. Average assets in the third quarter and nine months of 2000 were down 2.6% and 3.5%, respectively, from the same year-earlier periods. Non-performing assets (NPAs), exclusive of accruing loans past due 90 days or more, ended the third quarter at $219.6 million, or 2.25% of total loans, up from $210.6 million at June 30, 2000. Comparatively, NPAs were $154.8 million or 1.59% of total loans at September 30, 1999 and $149.9 million or 1.54% at December 31, 1999. The increase in NPAs were primarily from syndicated loans and commercial real estate loans in Hawaii. The reserve for loan losses totaled $245.0 million at the end of September 2000, representing 2.58% of loans outstanding, compared to $211.3 million and 2.22%, respectively, on the same date in 1999. Net charge-offs for the third quarter of 2000 were $19.6 million, or 0.81% (annualized) of average loans, compared to $32.9 million and 1.37% (annualized), respectively, in 2000's second quarter and $13.5 million, or 0.57% (annualized) in the third quarter of 1999. For the first nine months of 2000 net charge-offs were $63.8 million, up from $37.0 million in the like period last year. In the third quarter, provisions for loan losses of $20.1 million were charged to income, up from $13.5 million for the same quarter in 1999. For the nine months ended September 30, 2000 and 1999 provision for loan losses were $117.1 million and $40.1 million, respectively. The higher 2000 loan loss provision reflects the increase in NPAs and net charge-offs. In September 1999, Pacific Century announced its redesign program to improve the delivery of financial services in Hawaii and the West Pacific, generate revenue growth from new and existing sources, and reduce expenses by simplifying and streamlining processes. The implementation phase of the redesign began in fourth quarter of 1999 and has been substantially completed as of September 30, 2000. In a significant development since the end of the third quarter, on November 3, 2000, Michael E. O'Neill replaced Lawrence M. Johnson as Chairman and CEO of the company. Performance Highlights Table 1 - --------------------------------------------------------------------------------------------------- (in millions of dollars except per share amounts) Percentage Earnings Highlights and Performance Ratios 2000 1999 Change - --------------------------------------------------------------------------------------------------- Three Months Ended September 30 Net Income $34.6 $21.5 61.1% Basic Earnings Per Share 0.44 0.27 63.0% Diluted Earnings Per Share 0.44 0.27 63.0% Cash Dividends 14.3 13.7 Return on Average Assets 0.98% 0.59% Return on Average Equity 11.20% 7.01% Net Interest Margin 4.25% 4.28% Efficiency Ratio 62.26% 72.44% Nine Months Ended September 30 Net Income $81.1 $95.4 -15.0% Basic Earnings Per Share 1.02 1.19 -14.3% Diluted Earnings Per Share 1.02 1.18 -13.6% Cash Dividends 42.1 41.0 Return on Average Assets 0.77% 0.87% Return on Average Equity 8.85% 10.55% Net Interest Margin 4.27% 4.27% Efficiency Ratio 60.49% 68.25% Summary of Results Excluding the Effect of Intangibles (a) - --------------------------------------------------------------------------------------------------- Three Months Ended September 30 Net Income $38.8 $25.8 49.9% Basic Earnings per Share $0.49 $0.32 53.1% Diluted Earnings per Share $0.49 $0.32 53.1% Return on Average Assets 1.12% 0.72% Return on Average Equity 14.94% 10.25% Efficiency Ratio 59.83% 70.04% Nine Months Ended September 30 Net Income $93.7 $107.4 -12.8% Basic Earnings per Share $1.18 $1.34 -11.9% Diluted Earnings per Share $1.17 $1.32 -11.4% Return on Average Assets 0.90% 0.99% Return on Average Equity 12.23% 14.45% Efficiency Ratio 58.12% 66.03% (a) Intangibles include goodwill, core deposit and trust intangibles, and other intangibles.

Forward-Looking Statements This report contains forward-looking information. The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Forward-looking statements are subject to significant risk and uncertainties, many of which are beyond the Company's control. Although the Company believes that the assumptions underlying its forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate and actual results may differ from those contained in or implied by such forward-looking statements for a variety of reasons. Factors which might cause such a difference include, but are not limited to, competitor pressures in the banking and financial services industry increase significantly, particularly in connection with product delivery and pricing; business disruption related to implementation of New Era Redesign programs or methodologies; inability to achieve expected customer acceptance of revised pricing structure and strategies; general economic conditions in the geographic areas where the Company operated are weaker than expected; deterioration of credit quality may cause higher level of provisioning; continued increase to interest rates may put additional pressure on those weaker obligors in servicing their debt which in turn may cause further deterioration to the portfolio; continued weakness in the syndicated national credit market creating greater difficulty for companies to create, find or roll over credit facilities; increased volatility in Asia or the Pacific either politically or economically; economic recovery in Hawaii slows because of U. S. Mainland economic slowdown which may restrict our ability to grow our relationship portfolio as originally forecasted; the need to maintain market competitiveness may require much higher levels of capital expenditures than originally forecasted; higher oil prices reducing tourism; loss of confidence by customers/borrowers/depositors erodes funding and asset base; loss of staff confidence creating higher rates of turnover and the consequent ability to attract new staff may cause a higher than expected increase to non-interest expense. The Company does not undertake and specifically disclaims any obligation to update any forward-looking statements to reflect events or circumstance after the date of such statements. LINE OF BUSINESS FINANCIAL REVIEW Pacific Century is a financial services organization that maintains a broad presence throughout the Pacific region and operates through a unique trans-Pacific network of locations. Its activities are conducted primarily through more than 180 branches and representative and extension offices (including branches of affiliate banks). Pacific Century provides diverse financial products and services to individuals, businesses, governmental agencies and financial institutions. Pacific Century assesses the financial performance of its operating components primarily in accordance with geographic and functional areas of operations. Geographically, Pacific Century has aligned its operations into four principal geographic segments: Hawaii, the Pacific, Asia, and the U.S. Mainland. In addition, there is also a segment for Treasury and Other Corporate. Note 8 to the Consolidated Financial Statements presents Pacific Century's business segment financial reports for the three and nine months ended September 30, 2000 and 1999. Because business segment financial reports are prepared in accordance with accounting practices that could differ from accounting principles generally accepted in the United States, the amounts reflected therein may not agree with the corresponding amounts reported in the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. For example, the economic provision for loan losses differs from the provision determined under generally accepted accounting principles. 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. This approach eliminates the unusual loss provisions which allows for a normalized perspective in managing the line of business. In addition to the performance measurements in the business segment financial report, Pacific Century also utilizes risk- adjusted return on capital (RAROC) to assess segment performance. RAROC is the ratio of risk-adjusted net income to equity. Equity is allocated to business units based on various risk factors inherent in the operations of each unit. A second performance measurement is net income after capital charge (NIACC). NIACC is net income available to common shareholders less a charge for allocated capital. The cost of capital is based on the estimated minimum rate of return expected by the financial markets. The minimum rate of return consists of the following components: the long-term government bond rate plus an additional level of return for the average risk premium of an equity investment adjusted for Pacific Century's market risk. Hawaii Market Pacific Century's oldest and largest market is Hawaii, where operations are conducted primarily through its principal subsidiary, Bank of Hawaii. Bank of Hawaii was established in 1897, and is the largest bank headquartered in the State of Hawaii offering a wide array of financial products and services. Bank of Hawaii operates through 76 branches in Hawaii, including both traditional full-service branches and in-store locations. The Hawaii segment includes retail and commercial operating units. Retail operating units service and sell a broad line of consumer financial products. These units include consumer deposits, consumer lending, residential real estate lending, auto financing, credit cards, and private and institutional services (trust, mutual funds, and stock brokerage). In the business banking area, Bank of Hawaii is a major commercial lender and maintains a significant presence throughout the State. Commercial operating units in the Hawaii market include small business, Hawaii commercial banking, commercial products and commercial real estate. For the quarter ended September 30, 2000, the Hawaii segment contributed $19.7 million in net income an increase of 57.8% from the $12.5 million reported for the third quarter of 1999. The increase in the quarter's results was primarily driven by the continued implementation of redesign initiatives during the quarter which resulted in a $3.8 million increase in non-interest income and a $3.3 million reduction in non-interest expense. RAROC for this segment rose to 21% for the third quarter of 2000 from 13% in the same quarter of 1999. Total assets in the Hawaii segment were $5.3 billion at September 30, 2000, year-end 1999, and September 30, 1999. For the nine months ended September 30, 2000, net income for the Hawaii segment was up 35.5% to $54.2 million from $40.0 million in the same year-earlier period. RAROC rose to 20% in the first nine months of 2000 from 14% in the comparable 1999 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 $7.7 million for the quarter ended September 30, 2000, up from $5.4 million in the third quarter of 1999. Implementation of redesign initiatives which reduced non-interest expenses by 14% quarter-over-quarter enhanced the performance of the West Pacific operations during the third quarter. In the South Pacific, 2000 results were lower primarily due to unfavorable fluctuations in currency exchange rates. RAROC, including the amortization of intangibles for this segment, increased to 14% in the third quarter of 2000 from 10% for the same quarter in 1999. Total assets in the Pacific segment were $2.2 billion at the end of September 2000, down from $2.5 billion from year-end 1999 and the same year ago date, respectively. For the first nine months of 2000, net income for the Pacific segment was $19.2 million, a 13.9% increase from $16.8 million reported in the same period last year. Year-to-date RAROC for the Pacific segment moved to 12% in 2000 from 11% for the first nine months of 1999. Asia Market Pacific Century operates in Asia through Bank of Hawaii branches in Hong Kong, Japan, Singapore, South Korea and Taiwan and a representative office with extensions in the Philippines. Pacific Century's business focus in Asia is correspondent banking and trade financing. The lending emphasis is on credits relating to and resulting from trade activities, trade finance and working capital loans for companies that have business interests in the Asia-Pacific markets. Pacific Century's network of locations in the Pacific and its presence on the U.S. Mainland help customers facilitate the flow of business and investment transactions across Asia-Pacific. For the quarter ended September 30, 2000, the Asia segment reflected a net loss of $0.4 million, compared to net loss of $0.2 million for the same quarter in 1999. RAROC for this segment was (2)% in the third quarter of 2000, compared to (1)% for the same quarter in 1999. As of September 30, 2000, December 31, 1999 and September 30, 1999, total assets in the Asia segment were $1.1 billion, $1.4 billion and $1.6 billion, respectively. For the nine months ended September 30, 2000, net loss for the Asia segment was $1.1 million, compared to a loss of $2.1 million in the comparable 1999 period. RAROC for the Asia segment was (2)% and (3)% for the nine months ended September 30, 2000 and 1999. 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. and Bank of Hawaii operating units for large corporate lending and leasing. In the third quarter of 2000, the U.S. Mainland segment contributed net income of $7.3 million, down from $9.4 million in the same year ago quarter. Comparison between periods reflect a net gain of $1.3 million from the 1999 sale of Arbella Leasing Corp., a special purpose leasing subsidiary. Net income for the three months ended September 30, 2000 and 1999, included tax benefits of $3.4 million and $4.0 million for each period, respectively, from low income housing tax credits and investment tax credits. RAROC, including the amortization of intangibles for this segment was 9% in the third quarter of 2000, declining from 13% for the same quarter in 1999. As of September 30, 2000, December 31, 1999 and September 30, 1999, total assets in the U.S. Mainland segment were $3.1 billion, $2.7 billion and $2.6 billion, respectively. For the first nine months of 2000, net income for the U.S. Mainland segment was $25.3 million, down from $28.4 million in the like 1999 period. Included in net income were tax benefits from low income housing tax credits and investment tax credits of $10.3 million for each nine month period ended September 30, 2000 and 1999. RAROC for the U.S. Mainland segment was 12% and 14% in the first nine months of 2000 and 1999, 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 third quarter 2000 net income of $0.3 million, compared to a net loss of $5.6 million in the same quarter in 1999. The economic provision for loan losses reflects the expected normalized loss factor determined by a statistically applied approach that considers risk factors, including historical loss experience, within a given portfolio. The economic provision differs from the provision determined under generally accepted accounting principles. The difference between the sum of the economic provision for business segments and the provision in the consolidated financial statements is included in Treasury and Other Corporate. During the quarter, Pacific Century recorded loan loss provisions totaling $20.1 million to cover losses sustained in certain credit portfolios. At September 30, 2000, year-end 1999 and September 30, 1999 this segment held assets of $2.2 billion, $2.6 billion, and $2.6 billion, respectively. The year-over-year reduction in assets is primarily due to a decline in investment securities and other short-term interest earning assets. For the nine months ended September 30, 2000, net loss for the Treasury and Other Corporate segment was $16.5 million, compared to net income of $12.1 million in the same 1999 period. STATEMENT OF INCOME ANALYSIS Net Interest Income In the third quarter of 2000, net interest income on a taxable equivalent basis was $139.6 million, down from $143.8 million in the same year-earlier quarter. For the nine months ended September 30, 2000, tax equivalent net interest income was $418.2 million about 3.3% lower than the $432.4 million in the same period last year. The decline in 2000's net interest income reflected a year-to-year drop in average earning assets of $228.2 million (1.7%) and $442.8 million (3.3%) compared with the third quarter and first nine months of 1999, respectively. The decline in average earning assets is largely attributed to the impact of foreign exchange rates in the South Pacific and the reduction in both syndicated loans and the Asian portfolios. In the third quarter of 2000, the average net interest margin on earning assets was 4.25% similar to 4.28% for the same quarter in 1999 and remained constant for both the first nine months of 2000 and 1999 at 4.27%. The changes in net interest margin was driven by the changes in the mix of earning assets, previously referred to in the discussion on total assets. The year-over-year improvement in the yield on earning assets was 65 and 46 basis points in 2000's September quarter and first nine months, respectively. Comparatively, the cost of funds was 4.94% and 4.70% for the third quarter of 2000 and year-to-date, respectively, an increase of 88 and 61 basis points over the same periods last year. Presented in Table 2 are average balances, yields, and rates paid for the three and nine months ended September 30, 2000 and 1999. Consolidated Average Balances and Interest Rates Taxable Equivalent (Unaudited) Table 2 - ------------------------------------------------------------------------------------------------ Three Months Ended Three Months Ended September 30, 2000 September 30, 1999 Average Income/Yield/ Average Income/ Yield/ (in millions of dollars) Balance Expense Rate Balance Expense Rate - ------------------------------------------------------------------------------------------------ Earning Assets Interest Bearing Deposits $197.3 $3.3 6.69% $348.5 $5.7 6.49% Investment Securities Held to Maturity -Taxable 711.7 12.9 7.23 804.8 14.7 7.23 -Tax-Exempt 8.3 0.4 17.70 11.7 0.4 14.04 Investment Securities Available for Sale 2,490.2 41.8 6.67 2,677.5 42.8 6.31 Funds Sold 38.8 0.6 6.48 38.9 0.5 5.57 Net Loans -Domestic 8,193.4 177.6 8.62 7,692.0 154.6 7.98 -Foreign 1,435.2 25.2 7.00 1,729.7 25.8 5.92 Loan Fees 7.7 8.8 --------------------------------------------------- Total Earning Assets 13,074.9 269.5 8.20 13,303.1 253.3 7.55 Cash and Due From Banks 418.2 425.2 Other Assets 523.6 655.2 --------- --------- Total Assets $14,016.7 $14,383.5 ========= ========= Interest Bearing Liabilities Domestic Dep- Demand $2,043.7 11.9 2.31 $2,128.8 12.3 2.30 - Savings 680.4 3.5 2.03 720.5 3.7 2.03 - Time 2,799.4 40.3 5.73 2,492.7 29.4 4.68 --------------------------------------------------- Total Domestic 5,523.5 55.7 4.01 5,342.0 45.4 3.37 Foreign Deposits - Time Due to Banks 552.6 8.5 6.13 606.7 8.1 5.27 - Other Time and Savings 821.4 9.0 4.36 1,175.7 10.4 3.52 ---------------------------------------------------- Total Foreign 1,374.0 17.5 5.07 1,782.4 18.5 4.11 ---------------------------------------------------- Total Interest Bearing Deposits 6,897.5 73.2 4.22 7,124.4 63.9 3.56 Short-Term Borrowings 2,599.4 40.6 6.22 2,837.3 34.0 4.75 Long-Term Debt 963.4 16.1 6.67 732.3 11.6 6.28 ---------------------------------------------------- Total Interest Bearing Liabilities 10,460.3 129.9 4.94 10,694.0 109.5 4.06 ---------------------------------------------------- Net Interest Income 139.6 143.8 Interest Rate Spread 3.26% 3.49% Net Interest Margin 4.25% 4.28% Demand Deposit- Domestic 1,619.8 1,633.7 - Foreign 345.6 438.6 ---------- ----------- Total Demand Deposits 1,965.4 2,072.3 Other Liabilities 361.6 401.2 Shareholders' Equity 1,229.4 1,216.0 ----------- ----------- Total Liabilities and Shareholders' Equity $14,016.7 $14,383.5 =========== =========== Provision for Loan Losses 20.1 13.5 Net Overhead 63.7 84.2 ------ ------ Income Before Income Taxes 55.8 46.1 Provision for Income Taxes 20.9 24.3 Tax-Equivalent Adjustment 0.3 0.1 ------ ------ Net Income $34.6 $21.7 ====== ====== Consolidated Average Balances and Interest Rates Taxable Equivalent (Unaudited) Table 2 - ----------------------------------------------------------------------------------------------- Nine Months Ended Nine Months Ended September 30, 2000 September 30, 1999 Average Income/Yield/ Average Income/ Yield/ (in millions of dollars) Balance Expense Rate Balance Expense Rate - ----------------------------------------------------------------------------------------------- Earning Assets Interest Bearing Deposits $216.4 $10.9 6.74% $424.2 $20.4 6.43% Investment Securities Held to Maturity -Taxable 736.8 40.5 7.34 808.9 43.2 7.15 -Tax-Exempt 8.9 1.2 17.67 11.7 1.3 14.44 Investment Securities Available for Sale 2,510.6 124.0 6.60 2,735.4 126.5 6.18 Funds Sold 35.3 1.6 6.07 125.2 4.9 5.20 Net Loans -Domestic 8,065.7 511.5 8.47 7,721.9 461.6 7.99 -Foreign 1,517.6 75.2 6.62 1,706.8 81.2 6.36 Loan Fees 24.9 30.1 - ----------------------------------------------------------------------------------------------- Total Earning Assets 13,091.3 789.8 8.06 13,534.1 769.2 7.60 Cash and Due From Banks 456.1 475.6 Other Assets 597.7 648.5 --------- --------- Total Assets $14,145.1 $14,658.2 ========= ========= Interest Bearing Liabilities Domestic Dep- Demand $2,085.6 36.4 2.33 $2,146.0 36.4 2.27 - Savings 690.6 10.5 2.03 728.0 11.0 2.03 - Time 2,769.5 111.8 5.39 2,534.0 90.9 4.80 --------------------------------------------------- Total Domestic 5,545.7 158.7 3.82 5,408.0 138.3 3.42 Foreign Deposits - Time Due to Banks 487.7 21.7 5.95 646.7 25.0 5.17 - Other Time and Savings 1,024.9 32.0 4.18 1,163.7 30.4 3.49 --------------------------------------------------- Total Foreign 1,512.6 53.7 4.75 1,810.4 55.4 4.09 --------------------------------------------------- Total Interest Bearing Deposits 7,058.3 212.4 4.02 7,218.4 193.7 3.59 Short-Term Borrowings 2,651.2 117.0 5.90 3,118.3 110.9 4.75 Long-Term Debt 848.3 42.2 6.64 665.2 32.2 6.47 --------------------------------------------------- Total Interest Bearing Liabilities 10,557.8 371.6 4.70 11,001.9 336.8 4.09 --------------------------------------------------- Net Interest Income 418.2 432.4 Interest Rate Spread 3.36% 3.51% Net Interest Margin 4.27% 4.27% Demand Deposit- Domestic 1,649.9 1,649.2 - Foreign 376.9 427.6 --------- --------- Total Demand Deposits 2,026.8 2,076.8 Other Liabilities 336.6 370.8 Shareholders' Equity 1,223.9 1,208.7 --------- --------- Total Liabilities and Shareholders' Equity $14,145.1 $14,658.2 ========== ========== Provision for Loan Losses 117.1 40.0 Net Overhead 174.2 226.4 ----- ----- Income Before Income Taxes 126.9 166.0 Provision for Income Taxes 45.1 69.9 Tax-Equivalent Adjustment 0.7 0.7 ----- ----- Net Income $81.1 $95.4 ===== =====

Provision for Loan Losses The provision for loan losses was $20.1 million in the third quarter of 2000, an increase from $13.5 million for the same quarter in 1999. For the first nine months of 2000, the provision for loan losses totaled $117.1 million, compared to $40.1 million in the like year ago period. For further discussion on credit quality, refer to the section on "Credit Risk - Reserve for Loan Losses." Non-Interest Income Total non-interest income in the third quarter of 2000, was $61.3 million, compared to $71.4 million for the same quarter in 1999, a decrease of 14.2%. The decrease reflects the gain on the sale of Arbella Leasing of $14.0 million recognized in the third quarter of 1999. For the first nine months of 2000, total non- interest income was $198.7 million, up 1.3% over the same year- earlier period. The gain on the pension settlement recorded in the second quarter of 2000 and the Arbella gain affect the comparison. Excluding both these transactions, the increase in non-interest income was 2.6% year-over-year. The changes between periods are discussed in each section following. Non-Interest Income Table 3 3 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended (in millions) Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000 Sept. 30, 1999 - -------------------------------------------------------------------------------------------------- Trust Income $15.9 $14.7 $49.1 $44.7 Service Charges on Deposit Accounts 10.1 8.6 29.8 25.7 Fees, Exchange and Other Service 22.7 21.9 66.9 66.6 Charges Other Operating Income 12.7 26.1 41.3 50.5 Gain on Settlement of Pension Obligation - - 11.9 - Investment Securities Gains (Losses) (0.1) 0.1 (0.3) 8.7 - --------------------------------------------------------------------------------------------------- Total Non-Interest Income $61.3 $71.4 $198.7 $196.2 =================================================================================================== Trust income for the third quarter of 2000 increased to $15.9 million, up 8.2% from the same quarter last year. Year-to- date trust income totaled $49.1 million, reflecting a 9.9% increase over the first nine months of 1999. Pacific Century continues to show growth in the trust category due in part, to organizational changes that have allowed relationship officers to deliver a wider array of financial services to customers. New Era brought changes to trust pricing strategy that rationalized pricing and the cost of providing the service. Finally, the Pacific Capital family of mutual funds and Hawaiian Tax Free Trust, which are managed by Pacific Century Trust, have continued to experience strong growth. At the end of September 2000, the Pacific Capital fund family of investments totaled $4.1 billion compared to $3.5 billion on the same date in 1999 and $3.7 billion at year-end 1999. Service charges on deposit accounts for the September 2000 quarter increased to $10.1 million, from $8.6 million in the third quarter of 1999. The increase largely reflecting the pricing changes developed in the New Era Redesign project. Pricing changes developed in New Era were to realign fees commensurate with the cost to provide the service. For the year- to-date, service charges on deposit accounts increased to $29.8 million, 16.0% increase over the same period in 1999. Fees, exchange and other service charges were $22.7 million for the third quarter of 2000, up modestly from $21.9 million for the same quarter in 1999. The year-to-date total for this category was $66.9 million in 2000, a modest increase from $66.6 million for the first nine months of 1999. The change between year-to-date 2000 and 1999 was the net of increases in fees reflecting New Era changes offset by a decline in fees earned in the South Pacific banks. The decline in the South Pacific fees is partly due to the weakening of the exchange rate against the dollar. Other operating income in the third quarter of 2000 was $12.7 million, a 51.3% decrease from $26.1 million reported in the same quarter of 1999. As previously discussed, in the third quarter of 1999, Arbella Leasing a subsidiary of Pacific Century Leasing was sold at a gain of $14.0 million. Excluding that gain, the increase would have been 5.1% comparing the third quarters of 1999 and 2000. Year-to-date other operating income decreased 18.1% from the same period in 1999. The year-to-year comparison is also affected by the non-recurring gain ($2.0 million) on the sale of shares received as an insurance company demutualized in the first quarter of 2000 as well as the Arbella transaction. Without these two transactions, year to date other income would have grown 7.8% over the same period in 1999. There were no significant securities transactions reported for the third quarter of 2000 and 1999. For the year-to-date 2000, securities losses of $0.3 million were recognized, compared with gains of $8.7 million for the same period in 1999. The gains reported in 1999 were related to investments held by Pacific Century Small Business Investment Company. Non-Interest Expense Total non-interest expense for the September 2000 quarter was $124.9 million, compared to $155.6 million in the similar quarter of 1999, a decrease of $30.7 million. As previously stated, in the third quarter of 1999, a restructuring charge of $22.5 million was recorded relative to the New Era Redesign program. Without that charge, non-interest expense for the quarter would have still decreased by 6.2%. Year-to-date total non-interest expense was $372.9 million, down from $422.6 million for the first nine months of 1999. Comparisons between 2000 and 1999 largely reflect the impact of the implementation of New Era ideas on the redesign of processes and procedures (excluding the impact of the restructuring charge in 1999). The implementation of New Era had its greatest impact on salaries and benefits which is discussed in further detail following.

Non-Interest Expense Table 4 3 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended (in millions) Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000 Sept. 30, 1999 - -------------------------------------------------------------------------------------------------- Salaries $45.2 $50.8 $137.2 $152.1 Pension and Other Employee Benefits 12.3 13.4 37.7 43.4 Net Occupancy Expense 12.6 11.5 36.9 35.6 Net Equipment Expense 13.4 12.4 37.5 36.2 Other Operating Expense 41.3 44.9 123.3 132.4 Restructuring Charge - 22.5 - 22.5 Minority Interest 0.1 0.1 0.3 0.4 - -------------------------------------------------------------------------------------------------- Total Non-Interest Expense $124.9 $155.6 $372.9 $422.6 ================================================================================================== Salaries and pension and other employee benefits expense totaled $57.5 million in the third quarter of 2000 compared to $64.2 million in the same quarter last year. For the first nine months, total salaries and benefits declined 10.5% to $174.9 million from $195.5 million in the same period last year. This significant change in salary and benefit expense largely reflects the implementation of the process changes in the New Era Redesign. The implementation of changes in processes and procedures identified in New Era allowed the reduction of staff and, along with it, lower salary and benefit costs. Net occupancy and equipment expense in the third quarter of 2000 quarter increased to $26.0 million from $23.9 million for the same period in 1999. For the first nine months of 2000, net occupancy and equipment expense totaled $74.3 million, up 3.5% from $71.8 million in the similar period last year. Other operating expense decreased to $41.3 million in the third quarter of 2000, a 7.9% decline from $44.9 million for the same quarter in 1999. Year-to-date other operating expense decreased $9.1 million to $123.3 million from $132.4 million for the same period in 1999. Much of the decrease in other expense is attributed to the Year 2000 remediation costs incurred in 1999. For the third quarter of 1999, Year 2000 expenses were $1.9 million and $9.1 million for 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 2000, the efficiency ratio was 62.3% and 60.5%, respectively. Comparatively, this ratio was 72.4% in the same quarter last year and 68.3% for the nine months of 1999. As mentioned earlier, both 2000 and 1999 efficiency ratios were affected by the one- time items, without these transactions, the efficiency ratios would have been 62.3% and 66.3% for the third quarters of 2000 and 1999, respectively. On a year-to-date basis, the ratios would have improved from 66.1% for 1999 to 61.7% for 2000. On a tangible basis, the efficiency ratio was 59.8% and 70.0% for the third quarters of 2000 and 1999, respectively. For the respective years-to-date, the tangible efficiency ratio was 58.1% and 66.0% for 2000 and 1999 and 59.3% and 63.8% for 2000 and 1999 without the one-time transactions in both years. 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, 2000, loans outstanding were $9.7 billion, the same as at year-end 1999 and September 30, 1999. 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, 2000, December 31, 1999 and September 30, 1999. Pacific Century Financial Corporation and subsidiaries Loan Portfolio Balances Table 5 - --------------------------------------------------------------------- September December 31 September (in millions of dollars) 2000 1999 1999 - --------------------------------------------------------------------- Domestic Loans Commercial and Industrial $2,562.3 $2,493.0 $2,491.5 Real Estate Constructio-- Commercial 284.7 315.1 303.7 -- Residential 22.3 13.8 12.4 Mortgage --Commercial 1,169.3 1,244.8 1,264.5 -- Residential 2,908.9 2,645.4 2,584.0 Installment 735.4 756.1 743.9 Lease Financing 729.8 627.6 547.1 - --------------------------------------------------------------------- Total Domestic 8,412.7 8,095.8 7,947.1 - --------------------------------------------------------------------- Foreign Loans 1,338.0 1,621.8 1,799.5 - --------------------------------------------------------------------- Total Loans $9,750.7 $9,717.6 $9,746.6 =====================================================================

Investment Securities Pacific Century's investment portfolio is managed to provide collateral for cash management needs, to meet strategic asset/liability positioning, and to provide both interest income and balance sheet liquidity. At $2.5 billion, available-for-sale securities at September 30, 2000 were almost level with year-end 1999, but were down from $2.6 billion at the same date last year. Securities held to maturity were down to $0.7 billion at September 30, 2000, declining from $0.8 billion at year-end 1999 and a year ago. Other short-term interest bearing assets totaled $0.2 billion at the end of the third quarter, down from $0.3 billion and $0.5 billion at December 31, 1999 and September 30, 1999, respectively. The decline in investment securities and other short-term interest earning assets relative to year-end 1999 and September 30, 1999, is primarily the result of managed reductions of lower yielding assets to improve balance sheet efficiency. Deposits As of September 30, 2000, deposits totaled $8.8 billion, down from $9.3 billion from September 30, 1999 and $9.4 billion at year-end 1999. As of September 30, 2000, the mix of deposits has changed with domestic deposits increasing and foreign deposits decreasing. At $7.1 billion, domestic deposits at September 30, 2000 were $76 million lower than year-end 1999, while foreign deposits decreased $497 million. Foreign deposits are declining largely due to the impact of exchange rates particularly in French Polynesia and a reduction in foreign time deposits due to banks (functionally a form of short-term borrowings handled centrally by the Treasury function). Table 6 presents deposits by type as of September 30, 2000 and 1999 and year-end 1999.

Deposits Table 6 - --------------------------------------------------------------------------------------------------------- September 30, 2000 December 31, 1999 September 30, 1999 -------------------------------------------------------------------- (in millions of dollars) Amount Mix Amount Mix Amount Mix - --------------------------------------------------------------------------------------------------------- Domestic Non-Interest Bearing Demand $1,626.4 18.4% $1,676.4 17.8% $1,683.2 18.1% Interest-Bearing Demand 2,039.3 23.1% 2,076.4 22.1% 2,059.7 22.2% Regular Savings 671.4 7.6% 700.1 7.5% 713.0 7.7% Time Certificates of Deposit ($100,000 or More) 1,289.7 14.6% 1,203.7 12.8% 1,110.1 11.9% All Other Time and Savings Certificates 1,512.3 17.2% 1,557.9 16.6% 1,460.0 15.7% - --------------------------------------------------------------------------------------------------------- Total Domestic 7,139.1 80.9% 7,214.5 76.8% 7,026.0 75.6% - --------------------------------------------------------------------------------------------------------- Foreign Non-Interest Bearing Demand 343.8 3.9% 401.6 4.3% 437.1 4.7% Time Due to Banks 571.6 6.5% 597.7 6.4% 679.3 7.3% Other Time and Savings 766.1 8.7% 1,179.8 12.5% 1,148.0 12.4% - --------------------------------------------------------------------------------------------------------- Total Foreign 1,681.5 19.1% 2,179.1 23.2% 2,264.4 24.4% - --------------------------------------------------------------------------------------------------------- Total $8,820.6 100.0% $9,393.6 100.0% $9,290.4 100.0% =========================================================================================================

Borrowings Short-term borrowings, including funds purchased and securities sold under agreements to repurchase, totaled $2.5 billion at September 30, 2000 compared with $2.8 billion at year- end 1999 and $2.9 billion at September 30, 1999. Long-term debt on September 30, 2000 increased to $1.0 billion from $728 million at year-end 1999 and $795 million at September 30, 1999. This increase is primarily attributed to new Federal Home Loan Bank advances, net of maturities. INTERNATIONAL OPERATIONS Pacific Century maintains an extensive international presence in the Asia-Pacific region that provides opportunities to take part in lending, correspondent banking, trade financing and deposit-taking activities in these markets. Pacific Century divides its international business into two areas: the Asia Market and the Pacific Market, the latter of 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 Asia Division of Bank of Hawaii continues to focus on correspondent banking and trade- related financing activities and lending to customers with which it has a direct relationship. The South Pacific Division consists of investments in subsidiary banks in French Polynesia, New Caledonia, Papua New Guinea, Vanuatu, and Bank of Hawaii branch operations in Fiji and American Samoa. Since American Samoa is U.S. dollar based, its operation is included as domestic. Additionally, Bank of Hawaii has interests in affiliate banks located in Samoa, Solomon Islands and Tonga. The West Pacific Division includes Bank of Hawaii branches in Guam and in other locations in the region. Since the U.S. dollar is used in these locations, Pacific Century's operations in the West Pacific are not considered foreign for financial reporting purposes. A detailed description of controls over risk exposure in international lending is provided in Pacific Century's 1999 Annual Report on Form 10-K. There has been no significant change to that process during 2000. Pacific Century continues to monitor its exposure in international lending with particular attention provided to Asia and the South Pacific. The foreign countries to which Pacific Century maintains its largest credit exposure on a cross border basis are Japan, South Korea and France (as it relates to French Polynesia and New Caledonia). Table 7 presents as of September 30, 2000, December 31, 1999, and September 30, 1999 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, 2000 December 31, 1999 September 30, 1999 - -------------------------------------------------------------------------------------------------- Japan $293.1 $320.4 $282.1 South Korea 305.5 294.3 345.8 France 93.6 195.1 166.7 All Others 462.4 563.4 695.5 ----------- ----------- ----------- $1,154.6 $1,373.2 $1,490.1 ======= ======= ======= (1) This table details by country cross-border outstandings that individually amounted to 0.75% or more of consolidated total assets as of September 30, 2000, December 31, 1999 and September 30, 1999. Cross-border outstandings are defined as foreign monetary assets that are payable to Pacific Century in U.S. dollars or other non-local currencies, plus amounts payable in local currency but funded with U.S. dollars or other non-local currencies. Cross-border outstandings include loans, acceptances, and interest-bearing deposits with other banks. 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 $219.6 million at September 30, 2000 from $154.8 million a year ago and $149.9 million at the end of 1999. The management of non-performing assets has received an elevated level of management focus and attention. The reevaluation of the loan grading system was completed during the third quarter. This change and its resulted impact on loan grades is reflected in the increase in NPA. During the third quarter, NPA were impacted by payments of more than $33 million and charge-offs of $21 million. Loans aggregating $64 million, largely loans in the commercial real estate category, were added to non-performing status during the quarter. Total non-accrual loans rose to $214.5 million at September 30, 2000, up from $145.3 million and $148.9 million at year-end 1999 and September 30, 1999, respectively. The most significant components of the increase in non-accrual loans relative to year- end were noted in commercial industrial and commercial real estate categories. Since year-end, foreign and residential real estate non-accruals have decreased $19.1 million and $7.7 million, respectively. At September 30, 2000, the ratio of NPAs to outstanding loans was 2.25%. Comparatively the ratio was 1.54% at year-end 1999 and 1.59% at September 30, 1999. Table 8 presents Pacific Century's NPAs and ratio of NPAs to total loans. 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. Non-performing residential mortgages (excluding construction loans) totaled $22.0 million at September 30, 2000 compared to $29.7 million at year-end 1999 and $33.1 million a year ago. This decreasing trend in 2000 reflects the first quarter sale of certain non-performing residential loans ($4.8 million), an aggressive collection effort and an improving residential real estate market. Foreclosed real estate totaled $5.1 million at September 30, 2000 compared to $4.6 million at year-end 1999 and $5.9 million a year ago. At September 30, 2000, the foreclosed real estate portfolio consisted of 42 properties, mostly residential property located in Hawaii. The largest property is a commercial property and represented approximately 11% of the total. Accruing loans past due 90 days or more was $20.6 million as of September 30, 2000. Accruing loans past due 90 days or more were $18.5 million at year-end 1999, and $21.6 million at September 30, 1999. Potential Problem Loans Management continues to closely monitor the $65 million loan in the syndicated portfolio mentioned in the second quarter 10-Q. Non-Performing Assets and Accruing Loans Past Due 90 Days or More Table 8 - --------------------------------------------------------------------------- September 30 December 31 September 30 (in millions of dollars) 2000 1999 1999 - --------------------------------------------------------------------------- Non-Accrual Loans Commercial and Industrial $49.0 $23.7 $31.7 Real Estate Construction 8.1 1.1 2.1 Commercial 86.8 19.0 20.8 Residential 22.0 29.7 33.1 Installment 0.1 0.5 0.7 Leases 0.2 3.9 4.8 Total Domestic 166.2 77.9 93.2 Foreign 48.3 67.4 55.7 ------------------------------- Subtotal 214.5 145.3 148.9 Foreclosed Real Estate Domestic 4.9 4.3 5.6 Foreign 0.2 0.3 0.3 ------------------------------- Subtotal 5.1 4.6 5.9 ------------------------------- Total Non-Performing Assets 219.6 149.9 154.8 ------------------------------- Accruing Loans Past Due 90 Days or More Commercial and Industrial 2.2 5.9 6.2 Real Estate Construction 0.1 0.0 0.5 Commercial 4.9 1.9 2.4 Residential 7.2 4.0 2.8 Installment 4.6 4.5 4.5 Leases 0.1 1.2 0.2 Total Domestic 19.1 17.5 16.6 Foreign 1.5 1.0 5.0 -------------------------------- Subtotal 20.6 18.5 21.6 -------------------------------- Total $240.2 $168.4 $176.4 ================================ - --------------------------------------------------------------------------- Ratio of Non-Performing Assets to Total Loans 2.25% 1.54% 1.59% - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- Ratio of Non-Performing Assets and Accruing Loans Past Due 90 Days or More to Total Loans 2.46% 1.73% 1.81% - ---------------------------------------------------------------------------

Reserve for Loan Losses The reserve for loan losses ended the third quarter of 2000 at $245.0 million, a $50.8 million increase from year-end 1999 and a $33.7 million increase over the same date last year. Net charge-offs for the third quarter of 2000 were $19.6 million or 0.81% (annualized) of average loans, compared to $13.5 million, or 0.57% (annualized) of average loans for the same quarter last year and $73.8 million, or 0.78% of average loans for all of 1999. For the nine months ended September 30, 2000, net charge- offs were $63.8 million, or 0.89% (annualized) of average loans, compared to $37.0 million and 0.52% (annualized), respectively in same 1999 period. The ratio of reserves to loans outstanding at September 30, 2000 was 2.58%, compared to 2.22% at this date last year and 2.05% at year-end 1999. A summary of the activity in the reserve for loan losses is presented in Table 9. At September 30, 2000, the reserve for loan losses provided coverage of 112% of non-performing loans, compared to 130% coverage at year-end 1999 and 137% at September 30, 1999. Additionally, the ratio of reserves to annualized gross charge- offs was 2.3 times for the first nine months of 2000, compared to 1.9 times for all of 1999 and 2.6 times for the first nine months of 1999. For the first nine months of 2000, recoveries totaled $15.4 million compared to $23.7 million for the same period last year. The 1999 total was enhanced by two large recoveries, a $7.0 million recovery of a U.S. mainland loan in the commercial and industrial portfolio and $3.2 million in foreign loan recoveries. During the third quarter, the Company recorded a provision for loan losses of $20.2 million. This provision level is lower than the provision made for the second quarter of $83.4 million. The provision in the second quarter was to bolster the reserve to support increases in non-performing assets and increased risk in the loan portfolio. The increased risk arose from deterioration in the quality of the Hawaii commercial real estate and the Company's syndicated loan portfolios, the turmoil in Fiji, and the finalization of the grading reevaluation to assess the accuracy of its loan grading system. The finalization of this review, the collection efforts of the quarter, and the comprehensive reexamination of lending and credit practices were reflected in the increased provisions in both the second and third quarters. The Company continues its effort to enhance the credit process and improve credit quality. The ad hoc Credit Quality Committee established by the Board of Bank of Hawaii, a special committee consisting of three outside Directors that is charged with monitoring management's progress, has met regularly during the quarter. The Company has hired an industry expert as an advisor to assist in this effort which includes hiring a new Chief Credit Officer. Pacific Century Financial Corporation and subsidiaries Reserve for Loan Losses Table 9 - ---------------------------------------------------------------------------------------------- Third Third First Nine First Nine Quarter Quarter Months Months (in millions of dollars) 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------- Average Amount of Loans Outstanding $9,628.6 $9,421.7 $9,583.3 $9,428.7 Balance of Reserve for Loan Losses at Beginning of Period $246.6 $209.6 $194.2 $211.3 Loans Charged-Off Commercial and Industrial 8.0 0.3 17.7 15.7 Real Estate Construction 0.0 0.0 0.5 0.2 Commercial 2.8 0.1 14.3 2.3 Residential 1.5 2.0 5.2 5.6 Installment 4.6 6.2 14.5 19.1 Leases 0.2 0.1 0.4 0.2 - ---------------------------------------------------------------------------------------------- Total Domestic 17.1 8.7 52.6 43.1 Foreign 9.5 11.8 26.6 17.6 - ---------------------------------------------------------------------------------------------- Total Charged-Off 26.6 20.5 79.2 60.7 Recoveries on Loans Previously Charged-Off Commercial and Industrial 2.2 3.4 5.1 12.9 Real Estate Construction 0.0 0.0 0.0 0.0 Commercial 0.1 0.8 0.3 1.0 Residential 0.3 0.0 1.0 0.2 Installment 1.7 2.0 5.3 5.6 Total Domestic 4.3 6.2 11.7 19.7 - ---------------------------------------------------------------------------------------------- Foreign 2.7 0.8 3.7 4.0 Total Recoveries 7.0 7.0 15.4 23.7 - ---------------------------------------------------------------------------------------------- Net Charge-Offs (19.6) (13.5) (63.8) (37.0) Provision Charged to Operating Expenses 20.2 13.5 117.1 40.1 Other Net Additions (Reductions)* (2.2) 1.7 (2.5) (3.1) - ---------------------------------------------------------------------------------------------- Balance at End of Period $245.0 $211.3 $245.0 $211.3 ============================================================================================== Ratio of Net Charge-Offs to Average Loans Outstanding (annualized) 0.81% 0.57% 0.89% 0.52% - ---------------------------------------------------------------------------------------------- Ratio of Reserve to Loans Outstanding 2.58% 2.22% 2.58% 2.22% - ---------------------------------------------------------------------------------------------- * 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 with the objective to maximize earnings performance and shareholder value, while limiting the volatility of each. 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, 2000, December 31, 1999 and September 30, 1999, the results from this model. The NII simulation model provides an estimate of the change in NII from a gradual 200 basis point increase or decrease in interest rates, moving in parallel fashion over the entire yield curve, over the next 12-month period relative to what the NII would have been if interest rates did not change. The resulting estimate in NII exposure is well within the approved Asset Liability Management Committee guidelines. Market Risk Exposure to Interest Rate Changes Table 10 September 30, 2000 December 31, 1999 September 30, 1999 - -------------------------------------------------------------------------------------------------- Interest Rate Change Interest Rate Change Interest Rate Change (in basis points) (in basis points) (in basis points) -200 +200 -200 +200 -200 +200 - --------------------------------------------------------------------------------------------------- Estimated Exposure as a Percent of Net Interest Income (0.8)% 0.1% 1.4% (1.7)% 0.8% (1.3)% - -------------------------------------------------------------------------------------------------- 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 presented in Table 11, the remainder of these capital positions which aggregated $70.3 million, was not hedged as of September 30, 2000. The comparative unhedged position at year-end 1999 was $87.6 million and $92.7 million at September 30, 1999. The increased provisioning and charge-off of loans in the South Pacific and Asia has created situations where liabilities exceeded assets as of September 30, 2000. This anomaly results in the negative value reported in Table 11 for the other currency category. 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, 2000, December 31, 1999 and September 30, 1999 Pacific Century's foreign currency exposure from its net investment in subsidiaries and branch operations that are denominated in a foreign currency as measured by the VAR.

Market Risk Exposure From Changes in Foreign Exchange Rates Table 11 - ---------------------------------------------------------------------------------------------------- September 30, 2000 December 31, 1999 September 30, 1999 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 $10.5 $1.5 $9.4 $1.8 $8.2 $1.9 Korean Won 32.4 3.9 34.3 4.2 40.5 3.7 Pacific Franc (1) 30.4 6.1 25.9 4.2 25.3 4.6 Other Currencies (3.0) 18.2 18.0 17.0 18.7 17.1 ------- ------- ------- ------- -------- ------- Total $70.3 $29.7 $87.6 $27.2 $92.7 $27.3 ==== ==== ==== ==== ===== ==== (1) Net of a $35 million, $40 million and $42 million borrowing at September 30, 2000, December 31, 1999 and September 30, 1999, respectively, denominated in euro and foreign exchange hedge transactions of $20 million, $23 million and $24 million at September 30, 2000, December 31, 1999 and September 30, 1999. 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, 2000. Liquidity Management Liquidity is managed to ensure that Pacific Century has continuous access to sufficient, reasonably priced funding to conduct its business in a normal manner. Pacific Century's liquidity management process is described in the 1999 Annual Report to Shareholders. Additional borrowings are subject to regulators approval (see footnote 7). 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 2000, the line was not drawn upon. Bank of Hawaii and First Savings are both members of the Federal Home Loan Bank of Seattle. The FHLB provides these institutions with an additional source for short and long-term funding. Borrowings from the FHLB ended the third quarter of 2000 at $533 million, compared to $626 million at the prior quarter- end and $247 million at the end of 1999. 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, 2000, there was $125 million issued and outstanding under this program. No new notes have been issued in 2000.

Equity Capital Table 12 - --------------------------------------------------------------------------------------- Nine Months Ended Year Ended Nine Months Ended September 30 December 31 September 30 (in millions of dollars) 2000 1999 1999 - --------------------------------------------------------------------------------------- Source of Common Equity Net Income $81.1 $133.0 $95.4 Dividends Paid (42.1) (54.6) (41.0) Dividend Reinvestment Program 2.5 4.0 3.2 Stock Repurchases (17.0) (21.8) (11.3) Other (1) 13.3 (33.9) (23.4) - --------------------------------------------------------------------------------------- Increase (Decrease) in Equity $37.8 $26.7 $22.9 ======================================================================================= Common Equity $1,250.1 $1,212.3 $1,208.5 Add: 8.25% Capital Securities of Bancorp Hawaii Capital Trust I 100.0 100.0 100.0 Minority Interest 4.2 4.4 4.6 Less: Intangibles 166.3 175.8 180.1 Unrealized Valuation and Other Adjustments (31.5) (37.9) (24.3) - --------------------------------------------------------------------------------------- Tier I Capital 1,219.5 1,178.8 1,157.3 Allowable Loan Loss Reserve 135.5 143.9 145.5 Subordinated Debt 172.1 195.8 195.8 Investment in Unconsolidated Subsidiary (3.8) (3.2) (2.7) - --------------------------------------------------------------------------------------- Total Capital $1,523.3 $1,515.3 $1,495.9 ======================================================================================= Risk Weighted Assets $10,729.5 $11,461.0 $11,569.6 ======================================================================================= Key Ratios Tier I Capital Ratio 11.37% 10.28% 10.00% Total Capital Ratio 14.20% 13.22% 12.93% Leverage Ratio 8.80% 8.31% 8.15% ======================================================================================== (1) Includes common stock issued under the profit sharing and stock option plans and unrealized valuation adjustments for investment securities, foreign currency translation and pension liability.

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, 2000, Pacific Century's shareholders' equity was $1.25 billion, an increase from $1.21 billion reported on this date in 1999. Table 12 presents the changes in capital by category for the nine months ended September 30, 1999 and 2000 and all of 1999. As noted in footnote 7 of the financial statements, continuation of the share repurchase program has been authorized by both the Board and the regulators. During the third quarter, no treasury shares were purchased. Pacific Century's regulatory capital ratios at September 30, 2000 were: Tier 1 Capital Ratio of 11.37%, Total Capital Ratio of 14.20%, and Leverage Ratio of 8.80%. All three capital ratios exceeded the minimum threshold levels that were established by federal bank regulations 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 also presents the activities and balances in Pacific Century's capital accounts along with key capital ratios. Regulatory Matters Please see Note 7 to the Financial Statement which is incorporated herein by reference.

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) During the third quarter of 2000, two events were reported by Pacific Century Financial Corporation on Form 8-K. A Form 8-K was filed on August 22, 2000. The 8-K announced the pending retirement of Mr. Lawrence Johnson, Chairman and Chief Executive Officer of Pacific Century Financial Corporation. A Form 8-K was filed on September 14, 2000. The 8-K announced Mr. Robert Huret as a new director of Pacific Century Financial Corporation. 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 13, 2000 PACIFIC CENTURY FINANCIAL CORPORATION /s/ Richard J. Dahl (Signature) Richard J. Dahl President and Chief Operating Officer /s/ David A. Houle (Signature) David A. Houle Executive Vice President, Treasurer and Chief Financial Officer

To Our Shareholders: In reviewing Pacific Century's performance for the first half of 2000, two important factors have had an impact on earnings - New Era Redesign and asset quality. During the second quarter, asset quality issues overshadowed the positive contributions of New Era Redesign. Specifically, Pacific Century increased its provisioning to the reserve for loan losses to offset net charge-offs and bolster the reserve by approximately $50 million. As a result, earnings for the second quarter were $6.7 million, and diluted earnings per share were $0.08. Comparatively, earnings for the second quarter of 1999 were $38.5 million and $0.47 per share. During the second quarter, we took prudent and appropriate action to address weaknesses and issues related to asset quality. Alongside New Era Redesign, asset quality improvement is a key priority. With respect to New Era Redesign, we are pleased to report that the program remains solidly on track and continues to contribute to our overall efforts to improve efficiency. Both non-interest income and non-interest expense reflected the quarterly incremental impact to earnings that we expected to see from implementation. At June 30, 2000, net loans totaled $9.5 billion compared to $9.2 billion at second quarter-end 1999. Total deposits at the end of the second quarter were $9.1 billion relative to $9.3 billion at June 30, 1999. Pacific Century's board of directors declared a quarterly cash dividend of 18 cents per share on the outstanding common stock. The dividend will be payable on September 15, 2000 to shareholders of record at the close of business on August 25, 2000. News on Hawaii's economy continues to be positive, with economists' 2000 forecast for real gross state product growth between 3.0 and 3.5 percent. Visitor arrivals grew by 4.0 percent during the first five months of 2000. The State of Hawaii Department of Business, Economic Development and Tourism expects visitor arrivals to grow by 3.8 percent in 2000 and 3.5 percent in 2001. Our highest priority is maximizing the value of your holdings in Pacific Century Financial Corporation. I want to assure you that your management team remains firmly committed to doing what it takes to achieve the performance goals and financial objectives that we have set. We are confident in the strength of our company and the ability of our people to accomplish what needs to be done as we move forward. Sincerely, /s/ LARRY JOHNSON Lawrence M. Johnson Chairman and CEO Corporate Offices: Financial Plaza of the Pacific 130 Merchant Street Honolulu, Hawaii 96813 Website: www.boh.com Investor or Analyst Inquiries: David A. Houle Executive Vice President, Treasurer and Chief Executive Officer Phone: (808) 537-8288 E-mail: dhoule@boh.com or Sharlene K. Bliss Investor Relations Phone: (808) 537-8037 E-mail: sbliss@boh.com or Cori C. Weston Corporate Secretary Phone: (808) 537-8272 E-mail: cweston@boh.com

Highlights (Unaudited) Pacific Century Financial Corporation and subsidiaries June 30 June 30 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Return on Average Assets 0.66% 1.01% - -------------------------------------------------------------------------------------------------------------------- Return on Average Equity 7.65% 12.36% - -------------------------------------------------------------------------------------------------------------------- Average Spread on Earning Assets 4.28% 4.26% - -------------------------------------------------------------------------------------------------------------------- Average Equity/Average Assets 8.59% 8.14% - -------------------------------------------------------------------------------------------------------------------- Book Value Per Common Share $15.23 $15.12 - -------------------------------------------------------------------------------------------------------------------- Loss Reserve/Loans Outstanding 2.53% 2.23% - -------------------------------------------------------------------------------------------------------------------- Common Stock Price Range High Low Dividend 1999......................... $24.94 $17.38 $0.68 - -------------------------------------------------------------------------------------------------------------------- 2000 First Quarter........... $20.38 $14.35 $0.17 - -------------------------------------------------------------------------------------------------------------------- Second Quarter.......... $23.19 $14.63 $0.18 - -------------------------------------------------------------------------------------------------------------------- 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) 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------- Total Interest Income $263,075 $255,037 $519,497 $515,503 Total Interest Expense 124,469 110,637 241,383 227,259 - ------------------------------------------------------------------------------------------------------------------- Net Interest Income 138,606 144,400 278,114 288,244 Provision for Loan Losses 83,407 13,948 96,929 26,538 - ------------------------------------------------------------------------------------------------------------------- Net Interest Income After Provision for Loan Losses 55,199 130,452 181,185 261,706 Total Non-Interest Income 73,565 63,613 137,492 124,783 Total Non-Interest Expense 121,899 132,128 247,981 266,968 - ------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 6,865 61,937 70,696 119,521 Provision for Income Taxes 158 23,475 24,224 45,642 - ------------------------------------------------------------------------------------------------------------------- Net Income $6,707 $38,462 $46,472 $73,879 =================================================================================================================== Basic Earnings Per Share $0.08 $0.48 $0.58 $0.92 Diluted Earnings Per Share $0.08 $0.47 $0.58 $0.91 Basic Weighted Average Shares 79,425,245 80,302,154 79,623,305 80,361,529 Diluted Weighted Average Shares 80,002,989 81,121,840 79,975,904 81,263,475 =================================================================================================================== Consolidated Statements of Condition (Unaudited) - ------------------------------------------------------------------------------------------------------------------- June 30 December 31 June 30 (in thousands of dollars) 2000 1999 1999 - ------------------------------------------------------------------------------------------------------------------- Assets Interest-Bearing Deposits $199,020 $278,473 $411,239 Investment Securities (Market Value of $3,214,683, $3,329,952, and $3,547,199, respectively) 3,223,511 3,338,554 3,550,115 Securities Purchased Under Agreements to Resell 0 0 4,325 Funds Sold 50,646 52,740 34,995 Loans 10,071,517 9,717,556 9,610,980 Unearned Income (327,520) (242,503) (219,717) Reserve for Loan Losses (246,559) (194,205) (209,573) - -------------------------------------------------------------------------------------------------------------------- Net Loans 9,497,438 9,280,848 9,181,690 - -------------------------------------------------------------------------------------------------------------------- Total Earning Assets 12,970,615 12,950,615 13,182,364 Cash and Non-Interest Bearing Deposits 473,950 639,895 493,483 Premises and Equipment 259,037 271,728 288,955 Other Assets 591,023 578,077 586,656 - -------------------------------------------------------------------------------------------------------------------- Total Assets $14,294,625 $14,440,315 $14,551,458 ==================================================================================================================== Liabilities Deposits $9,109,146 $9,394,218 $9,286,155 Securities Sold Under Agreements to Repurchase 1,573,980 1,490,655 1,990,178 Funds Purchased 663,234 839,962 715,398 Short-Term Borrowings 530,231 458,962 353,177 Other Liabilities 306,461 316,531 337,489 Long-Term Debt 902,174 727,657 654,847 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities 13,085,226 13,227,985 13,337,244 Shareholders' Equity Common Stock ($.01 par value), authorized 500,000,000 shares; issued / outstanding; June 2000 - 80,555,424 / 79,399,919; December 1999 - 80,550,728 / 80,036,417; June 1999 - 80,544,104 / 80,287,805 806 806 805 Capital Surplus 346,018 345,851 345,468 Accumulated Other Comprehensive Income (75,462) (66,106) (39,245) Retained Earnings 959,041 942,177 912,686 Treasury Stock, at Cost - (June 2000 - 1,155,505; December 1999 - 514,311 and June 1999 - 256,299 shares) (21,004) (10,398) (5,500) - -------------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 1,209,399 1,212,330 1,214,214 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $14,294,625 $14,440,315 $14,551,458 ====================================================================================================================

Pacific Century Financial Corporation Exhibit 99 - Statement Regarding Computation of Ratios Nine Months Ended September 30, 2000 & 1999 (in millions of dollars) 2000 1999 Earnings: 1. Income Before Income Taxes $126.2 $165.3 2. Plus: Fixed Charges Including Interest on Deposits 375.6 337.4 ------------------ 3. Earnings Including Fixed Charges 501.8 502.7 4. Less: Interest on Deposits 212.4 193.7 ------------------ 5. Earnings Excluding Interest on Deposits $289.4 $309.0 ================== Fixed Charges: 6. Fixed Charges Including Interest on Deposits $375.6 $337.4 7. Less: Interest on Deposits 212.4 193.7 ------------------ 8. Fixed Charges Excluding Interest on Deposits $163.2 $143.7 =================== Ratio of Earnings to Fixed Charges: Including Interest on Deposits (Line 3 divided by Line 6) 1.3 x 1.5 x Excluding Interest on Deposits (Line 5 divided by Line 8) 1.8 x 2.2 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-31-1999 SEP-30-2000 438312 185312 28323 4441 2484482 716392 714920 9750661 244966 13939861 8820668 2534459 334929 999736 0 0 806 1249263 13939861 611298 165229 12523 789050 212440 371632 417418 117074 (315) 372906 126186 126186 0 0 81075 1.02 1.02 4.27 214534 20587 0 0 194205 79213 15424 244966 0 0 0