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The Honolulu Advertiser

Posted on: Tuesday, October 23, 2001

Bankoh parent's profit drops 10.2%

By Frank Cho
Advertiser Staff Writer

A trimmed-down Pacific Century Financial Corp., Hawai'i's No. 2 bank holding company, yesterday said that third-quarter profits fell 10.2 percent from the same period a year ago, primarily because of costs associated with the divestiture of its overseas and Mainland operations.

The results, released before the market opened yesterday, still beat Wall Street expectations.

The company also said it had completed a previously announced $70 million share repurchase plan, and is initiating an additional $200 million buyback program.

The parent company of Bank of Hawaii reported net income for the quarter ended Sept. 30 fell to $31.1 million, or 39 cents a share, from $34.6 million, or 44 cents a share, in the same year-earlier period.

The earnings exceeded analysts' estimates of 34 cents to 38 cents a share. The company's stock, buoyed by the news, closed at $21.25, up 4.3 percent. Trading was heavy at 978,600 shares, nearly double the stocks' usual daily trading average of 420,590.

"We're pleased with our progress in the execution of our strategic plan," said Michael O'Neill, the company's chairman and chief executive officer.

The strategic plan, announced earlier this year, is aimed at refocusing the company on its core markets. On Aug. 31, the company closed its Bank of Hawaii Hong Kong branch and its representative office and two extension offices in the Philippines. The remaining Asia branches and subsidiaries have stopped accepting business and will be closed by the end of the year.

"Because of the quarter's extensive restructuring activity ... we acknowledge that charting our progress continues to be difficult," O'Neill told banking analysts during a conference call yesterday. "The noise will continue for one more quarter as we complete our divestiture. 2002 operating results should be more straightforward and our progress should become more transparent."

On Sept. 7, the company completed the sale to U.S. Bancorp of all 20 branches of Pacific Century Bank in Southern California. On Oct. 3, Pacific Century reached an agreement to sell its operations in Papua New Guinea, Vanuatu and Fiji to Australia-based ANZ. The sale, which is subject to regulatory approvals, is expected to be completed before the end of the year.

O'Neill said the company is in "serious" discussions with interested potential buyers of its banks in French Polynesia and New Caledonia.

Compared with the previous quarter ended June 30, profits were up 16.1 percent from $26.7 million, and up 12.8 percent to $91.5 million for the first nine months of 2001 compared with $81.1million the same period last year.

Net interest income for the quarter was $112 million, down $20.9 million from the same period last year primarily because of the sale of Pacific Century Bank's branches and the reduction of loans to improve the company credit profile.

Non-interest income was $113.9 million for the quarter, down $4.7 million from a year ago. The company said the biggest impact in the decrease was from fees, exchange and other service charges.

Total assets were $11.9 billion, down from $13.9 billion a year ago. Total deposits fell to $7.4 billion, down from $8.8 billion, primarily because of the sale of Pacific Century Bank branches, which reduced deposits by $700,000. Total loans fell to $6.6 billion, down from $9.1 billion as the company shed its higher-risk loans.

While the Sept. 11 terrorist attacks have had a significant effect on Hawai'i's tourism-based economy, O'Neill said the impact on the bank has been light and he is not sure how it will affect the bank's future performance.

"Because there are so many moving parts, we cannot provide you with a credible economic forecast for 2002," O'Neill told analysts.

Nonperforming assets declined $12.5 million in the third quarter to $106.4 million, down 51.5 percent from the same period last year.

"I think they are making strong progress in normalizing the size of the company and divesting the non-core business," said James Bradshaw, a Portland, Ore.-based banking analyst with D.A. Davidson & Co. "Even despite all the negative tone throughout the U.S. economy, it doesn't look like asset quality is turning negative for the folks at (Pacific Century). Even if it did, they have the highest level of reserves relative to loans compared to anyone in our universe. They have a nice rainy day fund if you will."

The provision for loan losses was less than $1 million in the third quarter, reflecting improved asset quality, the company said. Provision for loan losses in the second quarter was $6.4 million and in the third quarter of 2000 was $20.1 million.

Included in the earnings for the third quarter was a $49.4 million gain from the sale of Pacific Century's California franchise. But the company said that gain was largely offset by related sales costs and increased tax obligations because of the restructuring.

Pacific Century said it plans to use proceeds from the sale of operations to help pay for its $200 million stock buyback program.