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
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Return on Average Assets 0.66% 1.01%
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Return on Average Equity 7.65% 12.36%
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Average Spread on Earning Assets 4.28% 4.26%
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Average Equity/Average Assets 8.59% 8.14%
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Book Value Per Common Share $15.23 $15.12
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Loss Reserve/Loans Outstanding 2.53% 2.23%
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Common Stock Price Range High Low Dividend
1999......................... $24.94 $17.38 $0.68
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2000 First Quarter........... $20.38 $14.35 $0.17
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Second Quarter.......... $23.19 $14.63 $0.18
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Consolidated Statements of Income (Unaudited)
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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
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Net Interest Income 138,606 144,400 278,114 288,244
Provision for Loan Losses 83,407 13,948 96,929 26,538
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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
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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)
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June 30 December 31 June 30
(in thousands of dollars) 2000 1999 1999
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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
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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
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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
====================================================================================================================