To Our Shareholders:
Pacific Century Financial Corporation reported a profit of
$34.0 million and diluted earnings per share of $0.42 for the
first quarter of 1998. While slightly below the corresponding
figures reported at the end of last year's first quarter, these
results were up from the fourth quarter of 1997 and in line with
stock analysts' expectations, given the economic outlook for
Hawaii and continuing uncertainties about Asia.
On a tangible basis, earnings for the quarter were $36.5
million compared to $37.1 million for the same period last year.
Tangible diluted earnings per share for the quarter were $0.45
compared to $0.46 for 1997's first quarter and $0.44 for 1997's
fourth quarter. Your company's total assets at the end of March
1998 were $14.8 billion, up from $14.0 billion at March 31, 1997.
At the annual meeting of shareholders held April 24, 1998,
shareholders approved four proposals, including (1) the election
of four Class III directors for 3-year terms expiring in 2001
(Mary G.F. Bitterman, Herbert M. Richards, Jr., H. Howard
Stephenson, and Stanley S. Takahashi); (2) the election of Ernst
& Young, LLP as Independent Auditor for fiscal year 1998; (3)
approval of an amendment to the Pacific Century Stock Option Plan
of 1994 providing for issuance of replacement options to certain
employees of California United Bank and for the issuance of stock
compensation in future mergers or acquisitions; and (4) approval
of a change in the state of incorporation from Hawaii to
Delaware.
The company's board of directors declared a quarterly cash
dividend for the first quarter of 16 1/4 cents per share on the
outstanding common stock. The dividend will be payable on June
12, 1998 to shareholders of record at the close of business on
May 22, 1998.
In light of Hawaii's continuing economic doldrums,
management's near-term focus will be on improving efficiency and
enhancing revenues through expense reduction and process
improvement. Pacific Century has launched a two-year
reorganization and restructuring program to accelerate expense
reduction and improve efficiency. Upon regulatory approval, the
program will see the merger of First Federal Savings & Loan
Association of America with Bank of Hawaii, the closing of
approximately 25 branches in Hawaii, and a comprehensive
customer-focused redesign process in 1999. Through strategic
alliances and rationalization of delivery channels in the State
of Hawaii, as well as initiatives relating to the company's
corporate charters and the merger of its two mainland
subsidiaries, Pacific Century expects to achieve significant
operating efficiencies and expense reductions. Subsequent to
receiving the necessary regulatory approvals and identifying the
branches to be closed, Pacific Century will quantify and realize
a restructuring cost.
The value of your investment in Pacific Century Financial
Corporation continues to be our utmost priority. We have set a
goal to lower (improve) our efficiency ratio to 55% by the end of
year 2000 and to achieve significant efficiencies in our
processes, our delivery systems and our structure. I pledge to
you that we are committed to doing what it takes to achieve these
goals.
Sincerely,
/c/ 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 or Analyst Inquiries:
David A. Houle, Executive Vice President, Treasurer and Chief
Financial Officer
(808) 537-8288
or
Sharlene K. Bliss
Investor Relations
(808) 537-8037
or
Cori C. Weston
Corporate Secretary
(808) 537-8272
Highlights (Unaudited) Pacific Century Financial Corporation and subsidiaries
------------------------------------------------------------------------------------------------------------------
March 31 March 31
1998 1997
------------------------------------------------------------------------------------------------------------------
Return on Average Assets 0.95% 1.04%
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Return on Average Equity 12.11% 13.40%
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Average Spread on Earning Assets 4.29% 3.99%
------------------------------------------------------------------------------------------------------------------
Average Equity/Average Assets 7.81% 7.77%
------------------------------------------------------------------------------------------------------------------
Book Value Per Common Share $14.27 $13.38
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Loss Reserve/Loans Outstanding 1.90% 1.98%
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Common Stock Price Range High Low Dividend
1997............................. $28.06 $20.31 $0.625
1998 First Quarter............... $25.13 $20.31 $0.1625
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Consolidated Statements of Income (Unaudited)
------------------------------------------------------------------------------------------------------------------
3 Months 3 Months
Ended Ended
March 31 March 31
(in thousands of dollars except per share amounts) 1998 1997
------------------------------------------------------------------------------------------------------------------
Total Interest Income $273,066 $250,169
Total Interest Expense 131,348 125,134
------------------------------------------------------------------------------------------------------------------
Net Interest Income 141,718 125,035
Provision for Possible Loan Losses 18,303 5,088
------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 123,415 119,947
Total Non-Interest Income 52,864 41,701
Total Non-Interest Expense 121,703 106,061
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Income Before Income Taxes 54,576 55,587
Provision for Income Taxes 20,556 20,106
------------------------------------------------------------------------------------------------------------------
Net Income $34,020 $35,481
==================================================================================================================
Basic Earnings Per Share $0.43 $0.45
Diluted Earnings Per Share $0.42 $0.44
Basic - Weighted Average Shares 79,881,229 79,438,552
Diluted - Weighted Average Shares 80,735,604 80,542,522
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Consolidated Statements of Condition (Unaudited)
------------------------------------------------------------------------------------------------------------------
March 31 December 31 March 31
(in thousands of dollars) 1998 1997 1997
------------------------------------------------------------------------------------------------------------------
Assets
Interest-Bearing Deposits $425,637 $335,847 $547,722
Investment Securities
(Market Value of $3,805,037, $3,874,505, and $3,718,250 respectively) 3,800,428 3,871,485 3,723,139
Funds Sold 119,480 80,457 72,499
Loans 9,403,406 9,498,408 8,753,384
Unearned Income (202,865) (209,721) (182,472)
Reserve for Loan Losses (175,194) (174,362) (170,059)
------------------------------------------------------------------------------------------------------------------
Net Loans 9,025,347 9,114,325 8,400,853
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Total Earning Assets 13,370,892 13,402,114 12,744,213
Cash and Non-Interest Bearing Deposits 586,746 795,332 532,009
Premises and Equipment 285,916 288,358 269,506
Other Assets 514,261 509,660 441,066
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Total Assets $14,757,815 $14,995,464 $13,986,794
==================================================================================================================
Liabilities
Deposits $9,435,399 $9,607,695 $9,101,050
Securities Sold Under Agreements to Repurchase 2,304,423 2,279,124 1,995,206
Funds Purchased 559,573 710,472 376,688
Short-Term Borrowings 259,604 226,127 381,039
Other Liabilities 370,738 349,050 373,057
Long-Term Debt 684,782 705,789 698,350
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Total Liabilities 13,614,519 13,878,257 12,925,390
Shareholders' Equity
Common Stock ($2 par value), authorized 200,000,000 shares;
issued and outstanding, March 31 - 80,140,398;
December 1997 - 79,684,553; March 1997 - 39,685,182; 160,281 159,369 79,370
Capital Surplus 176,496 168,920 174,180
Accumulated Other Comprehensive Income (28,193) (24,766) (19,237)
Retained Earnings 834,712 813,684 827,091
------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,143,296 1,117,207 1,061,404
------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $14,757,815 $14,995,464 $13,986,794
==================================================================================================================