Bankoh CEO to resign

By Deborah Adamson
Advertiser Staff Writer

At the end of the year, Walter Dods will relinquish oversight of day-to-day operations to become the nonexecutive chairman of First Hawaiian Bank and its parent, BancWest Corp. Ron Migita, president and CEO of the parent of City Bank, will become the nonexecutive chairman of Central Pacific Financial Corp. after the two banks merge.

The coincidental management changes could be unsettling for Hawai'i's banking industry.

"A changing of the guard is somewhat destabilizing," said Harlan Cadinha Sr., chairman and CEO of Cadinha & Co., a Honolulu-based investment management firm that handles $750 million in assets.

At Bank of Hawaii and First Hawaiian Bank, O'Neill's and Dods' successors remain untested as CEOs. Despite being groomed by the departing CEOs, it's uncertain how they will perform in the top job, whose policies would affect Hawai'i consumers, small business borrowers and home owners.

But O'Neill said such concerns are overstated.

"Every CEO at one point never was a CEO before," he said. "I think Al has got all the makings of a very good CEO."

Dods echoed the sentiment about his heir apparent: "Don Horner has been my No. 2 for years and years and years. I think it's a natural evolution."

When Dods was promoted to CEO at First Hawaiian, he said it was his first shot at the position as well.

"It won't make a difference whatsoever," he said. "We're a team effort at First Hawaiian."

Yesterday, O'Neill said he was leaving Bank of Hawaii to get "a little rest." He's been a busy man — his nearly four-year tenure at the bank has been marked by a top-to-bottom restructuring that turned around its flagging performance.

The former Bank of America executive is departing at a time when Bank of Hawaii has hit its stride — it reported record earnings for the second quarter this morning. Since taking the helm in November 2000, O'Neill has divested underperforming businesses, especially operations outside of Hawai'i, to concentrate on the core local market.

To boost his effectiveness in the community, he made himself known to kama'aina through his "Tell Mike" campaign, where he asked people to e-mail him personally for comments or complaints. He got an earful, which the bank incorporated into their ads.

At present, O'Neill sits on 14 corporate and nonprofit boards. He said he plans to give up some, but not all of his directorships.

When he was hired, Bank of Hawaii had 4,100 employees. Today, it's down to around 2,800. He said 900 of the jobs cut were in operations they had sold or closed and most were outside of Hawai'i. Another 100 or so were technology-related jobs that were outsourced to a Mainland company. The rest were shifts in positions through the ordinary course of business, he said.

Such divestitures and cost-cuts endeared the bank to Wall Street. The stock soared from a nine-year low of $11.25 a share in 2000 to a 52-week high of $47.45 in March. The shares closed at $44 yesterday, down $1.32.

"The board and I agree that the job was done," said 57-year-old O'Neill. "I'm very proud of it."

O'Neill has no current plans to continue his corporate career beyond some business interests in the Mainland. He and his wife expect to keep their Hawai'i residence and shuttle between here and the East Coast, where their two sons are going to school.

O'Neill said he expects to remain a significant shareholder at Bank of Hawaii. He controls about 2.7 million shares, or more than 5 percent of Bank of Hawaii's total outstanding shares.

Unlike other corporate executives, O'Neill said his resignation doesn't come with a big payout.

"I have no golden parachute," he said. "I am getting no cash whatsoever."

Such compensation might seem trivial, since O'Neill owns $101.7 million worth of Bank of Hawaii stock and unexercised options as of the end of 2003, the highest among CEOs running Hawai'i's public companies. O'Neill has not drawn a salary from Bank of Hawaii since 2002.

Looking ahead, Landon said Bank of Hawaii's customers should expect business to continue as usual.

"We've got great momentum at the Bank of Hawaii," he said. "Unlike the banks that are going through a lot of change, what you can expect from us is more of the same."

He will continue with the 2004 to 2006 business plan presented at the bank's annual shareholders meeting earlier this year. The plan calls for a target revenue growth of 4 percent a year while the goal for operating income is an annual 10 percent increase.

Jim Bradshaw, an analyst at D.A. Davidson in Portland, said he believes Landon's challenge is revenue growth.

"I think Al's a terrific person. They've done a superb job," he said. But now the focus has to be "revenue growth. That's what we're all worried about. Bank of Hawaii is good at getting people in the door, but can it sell more products to the same person?"

O'Neill said the bank can do a better job of cross-selling products. But raising revenue should come hand in hand with cost controls.

"Hawai'i is not a place where banks are going to get double-digit growth," he said.

That's why it's critical to keep costs down to achieve strong earnings, a formula that has worked during O'Neill's tenure.

In the second quarter, Bank of Hawaii reported a 65 percent increase in earnings per share to 79 cents compared with 48 cents in the same period a year ago. Net income came to $44.2 million, up from $30 million the year before.

Revenue — interest income plus noninterest income — rose by 6.7 percent to $150.7 million compared with $141.2 million a year ago.

In a conference call with analysts, Landon said that because of stronger-than-expected performance at the bank, fiscal 2004 net income would be coming in at $163 million to $167 million instead of the $157 million previously forecasted.

Gordon Lau, an East O'ahu resident who owns more than 1,000 shares of Bank of Hawaii, isn't concerned about the management transition.

"O'Neill said his team is supposed to be all in place," he said. "I have confidence in the group. They were handpicked by this guy."

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.