To Our Shareholders:
Pacific Century Financial Corporation's continued steady
earnings performance assures us that we are on course with our
strategy of growth and diversification. Your company posted
second-quarter earnings of $35.6 million, up 2.9 percent from the
same period last year. Earnings per share for the second quarter
were $0.89 compared to $0.84 for the second quarter of 1996, an
increase of 6.0 percent. Year-to-date return on average assets
was 1.04 percent and return on average equity was 13.37 percent.
Earnings for the first six months of 1997 were $71.1
million, compared to $67.3 million for the first half of 1996, a
5.6 percent increase. Year-to-date earnings per share of $1.77
were 8.6 percent higher than the $1.63 reported for the first
half of 1996. Pacific Century's total assets at the end of June
1997 were $14.2 billion, an increase of 3.5 percent from $13.7
billion at June 30, 1996. Deposits and repurchase agreements
ended the quarter at $11.1 billion, up from $10.1 billion on the
same date a year earlier.
Pacific Century achieved growth in loans of 5.4 percent
above last year's second-quarter level and 3.0 percent above the
first-quarter 1997 level. Net loans at June 30, 1997 were $8.7
billion, an encouraging figure given the state's lackluster
economy.
At quarter-end, non-performing assets (NPAs) excluding loans
90-plus days past due totaled $93.6 million or 1.04 percent of
total loans. This compares to $84.0 million or 0.98 percent of
total loans on the same date last year.
We are pleased to welcome Stephen G. Carpenter, CEO, David
I. Rainer, president, and the rest of the management and staff of
California United Bank to the Pacific Century family. On June
27, shareholders of CU Bancorp voted overwhelmingly to approve
the merger with Pacific Century Financial Corporation. The
acquisition was completed on July 3, 1997, and approximately 2.3
million shares of Pacific Century Financial Corporation common
stock have been issued to CU Bancorp shareholders in conjunction
with the merger. Pacific Century's board of directors authorized
the discretionary repurchase of a similar number of shares of its
common stock in open market transactions.
California United Bank (CUB) provides a platform from which
we will leverage our already-strong presence in Asia and
throughout the Pacific region. CUB is an excellent match for us
in terms of its service orientation and market focus, and the
synergy that develops between CUB and Pacific Century's other
subsidiaries, principally Bank of Hawaii, will benefit
shareholders and customers alike. CUB, based in Encino,
California, has assets of approximately $800 million and serves
primarily middle market businesses and consumers in the greater
Los Angeles area.
Pacific Century Financial Corporation continues to look for
opportunities to diversify and grow through acquisition. On June
19, Bank of Hawaii signed a non-binding letter of intent to
acquire the interest of Paribas Group in Banque Paribas Pacifique
and Banque Paribas Polynesie, located respectively in New
Caledonia and French Polynesia. The bank also announced plans to
expand its service delivery network in Hawaii by providing Bankoh
BankMachine ATM services at 47 7-Eleven store locations
throughout the state.
Bank of Hawaii is proud to be the first bank in Hawaii to
bring Internet banking to market. During the second quarter,
Bankoh announced that it will begin offering secure Internet
banking to customers this Fall and launched a demonstration site
of its virtual bank, known as e-bankoh, on the Net at
<www.boh.com>. The addition of e-bankoh will complement the
company's extensive branch and ATM network, making our delivery
channel system unparalleled in the Pacific.
In June, Eduardo A 'Champ' Calvo, managing partner of the
law firm of Calvo and Clark, was named to the board of directors
of Bank of Hawaii. As a resident of Guam, his perspective will
add diversity to our board and strengthen the management of our
franchise.
At its meeting on July 25th, your board declared a quarterly
dividend of 32 1/2 cents per share on the outstanding common
stock, an increase of 8.3 percent from the previous rate of 30
cents per share. Pacific Century last increased its dividend in
July 1996 when the board approved a 2 cent per share increase.
The dividend will be payable on September 16, 1997 to
shareholders of record at the close of business on August 22,
1997.
Your company's performance continues to reflect its
management's long-term approach to growth, diversification and
development of its pan-Pacific franchise. We value your support
and continually seek to enrich the value of your investment in
Pacific Century Financial Corporation.
Sincerely,
LAWRENCE M. JOHNSON
Lawrence M. Johnson
Chairman and Chief Executive Officer
Corporate Offices:
Financial Plaza of the Pacific
130 Merchant Street
Honolulu, Hawaii 96813
Investor/Analyst Inquiries:
David A. Houle, EVP and Chief Financial Officer
(808) 537-8288
or
Sharlene K. Bliss
Investor Relations
(808) 537-8037
or
Cori C. Weston
Corporate Secretary
(808) 537-8272
Highlights (Unaudited) Pacific Century Financial Corporation and subsidiaries
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June 30 June 30
1997 1996
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Return on Average Assets 1.04% 1.04%
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Return on Average Equity 13.37% 12.70%
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Average Spread on Earning Assets 4.05% 3.89%
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Average Equity/Average Assets 7.75% 8.20%
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Book Value Per Common Share $27.49 $25.71
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Loss Reserve/Loans and Leases Outstanding 1.90% 1.95%
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Common Stock Price Range High Low Dividend
1996............................. $44.00 $33.13 $1.16
1997 First Quarter............... $46.38 $41.13 $0.30
Second Quarter.............. $47.88 $40.63 $0.30
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) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
Total Interest Income $258,937 $244,415 $512,710 $475,651
Total Interest Expense 130,540 123,209 255,674 241,459
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Net Interest Income 128,397 121,206 257,036 234,192
Provision for Possible Loan Losses 7,286 4,163 12,374 8,587
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Net Interest Income After Provision for Possible Loan Losses 121,111 117,043 244,662 225,605
Total Non-Interest Income 46,260 40,961 87,961 77,920
Total Non-Interest Expense 112,354 103,787 222,019 201,365
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Income Before Income Taxes 55,017 54,217 110,604 102,160
Provision for Income Taxes 19,411 19,604 39,517 34,837
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Net Income $35,606 $34,613 $71,087 $67,323
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Earnings Per Common Share and Common Share Equivalents $0.89 $0.84 $1.77 $1.63
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Average Common Shares and Common Share Equivalents Outstanding 39,885,681 41,276,498 40,057,959 41,411,266
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Consolidated Statements of Condition (Unaudited)
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June 30 December 31 June 30
(in thousands of dollars) 1997 1996 1996
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Assets
Interest-Bearing Deposits $562,215 $635,519 $638,204
Investment Securities
(Market Value of $3,693,427; $3,634,043; and $3,490,354; respectively) 3,691,231 3,631,653 3,498,246
Securities Purchased Under Agreements to Resell 1,600 -- --
Funds Sold 85,758 141,920 218,628
Loans 9,018,809 8,699,286 8,549,043
Unearned Income (197,967) (183,586) (177,225)
Reserve for Possible Loan Losses (167,842) (167,795) (163,266)
Net Loans 8,653,000 8,347,905 8,208,552
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Total Earning Assets 12,993,804 12,756,997 12,563,630
Cash and Non-Interest Bearing Deposits 484,239 581,221 482,067
Premises and Equipment 272,080 273,122 271,762
Other Assets 418,623 397,827 372,695
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Total Assets $14,168,746 $14,009,167 $13,690,154
==================================================================================================================
Liabilities
Deposits $8,928,791 $8,684,079 $8,422,821
Securities Sold Under Agreements to Repurchase 2,146,713 2,075,571 1,695,907
Funds Purchased 471,956 599,994 600,232
Short-Term Borrowings 478,134 293,257 499,580
Other Liabilities 359,350 358,001 364,489
Long-Term Debt 701,633 932,143 1,057,225
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Total Liabilities 13,086,577 12,943,045 12,640,254
Shareholders' Equity
Common Stock ($2 par value), authorized 100,000,000 shares;
outstanding, June 1997 - 39,363,421;
December 1996 - 39,959,234; June 1996 - 40,830,130; 78,727 79,918 81,660
Surplus 160,375 186,391 221,897
Unrealized Valuation Adjustments (7,836) (3,722) (15,760)
Retained Earnings 850,903 803,535 762,103
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Total Shareholders' Equity 1,082,169 1,066,122 1,049,900
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Total Liabilities and Shareholders' Equity $14,168,746 $14,009,167 $13,690,154
==================================================================================================================