-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
Bfm5jgIK9NN28pcL/Ru9P4ms7vc1EdLMAXXS2NC7PK7P1g6QzoF2HIoqvrEFVI/w
g1mEhD2zisDIvfqvGXd4QA==
<SEC-DOCUMENT>0001017062-01-000480.txt : 20010312
<SEC-HEADER>0001017062-01-000480.hdr.sgml : 20010312
ACCESSION NUMBER: 0001017062-01-000480
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 17
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010308
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PACIFIC CENTURY FINANCIAL CORP
CENTRAL INDEX KEY: 0000046195
STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022]
IRS NUMBER: 990148992
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-06887
FILM NUMBER: 1564136
BUSINESS ADDRESS:
STREET 1: 130 MERCHANT ST
CITY: HONOLULU
STATE: HI
ZIP: 96813-
BUSINESS PHONE: 8886433888
MAIL ADDRESS:
STREET 1: PO BOX 2900
CITY: HONOLULU
STATE: HI
ZIP: 96846
FORMER COMPANY:
FORMER CONFORMED NAME: BANCORP HAWAII INC
DATE OF NAME CHANGE: 19920703
FORMER COMPANY:
FORMER CONFORMED NAME: HAWAII BANCORPORATION INC
DATE OF NAME CHANGE: 19800128
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-K405 FOR THE FISCAL YEAR 12-31-2000
<TEXT>
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____ to ____
Commission File Number 1-6887
PACIFIC CENTURY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 99-0148992
(State of incorporation) (IRS Employer Identification No.)
130 Merchant Street, Honolulu, Hawaii 96813
(Address of principal executive offices) (Zip Code)
(808) 537-8430
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, $.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing price of said stock on the New York Stock
Exchange on December 31, 2000 ($17.69 per share): $1,342,852,104
As of February 28, 2001, 79,755,758 shares of Common Stock, $.01 par value,
of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Annual Meeting of
Shareholders to be held April 27, 2001, are incorporated by reference into Part
III of this Report.
================================================================================
<PAGE>
PART I
Item 1. Description Of Business
General
Pacific Century Financial Corporation (Pacific Century) is a Delaware
corporation and a bank holding company. Pacific Century was incorporated in
Hawaii in 1971 and in April 1998, changed its state of incorporation to
Delaware.
Through its banking subsidiaries, Pacific Century provides a diversified
range of banking financial services and products primarily in Hawaii and also
in the South and West Pacific, and selected international markets in Asia,
California and Arizona. Additional subsidiaries are engaged in various
businesses, including consumer finance, equipment leasing, insurance and
insurance agency services, securities brokerage and investment services and
other activities. Pacific Century's principal banking subsidiary is Bank of
Hawaii. Pacific Century also owns Pacific Century Bank, N.A. ("PCB") and First
Savings and Loan Association of America. Through its subsidiaries, Pacific
Century also owns the following foreign financial institutions (in the
percentages indicated): Bank of Hawaii-Nouvelle Caledonie--96%; Bank of Hawaii
(PNG) Ltd.--100%; Banque de Tahiti--95%; Banque d'Hawaii (Vanuatu), Ltd.--
100%; and National Bank of Solomon Islands--51%.
Pacific Century groups its principal revenue-producing businesses into the
following four market regions: Hawaii, Pacific, Asia, and U.S. Mainland. For
additional information about Pacific Century and its operations see the
Business Segments discussion and Note Q in the Consolidated Financial
Statements of this report.
Disposition Activity
In December 2000, Bank of Hawaii entered into a definitive agreement to
sell its credit card portfolio to American Express Centurion Bank. The sale is
expected to close in the first or second quarter of 2001.
In December 2000, Pacific Century Bank, N.A. entered into a definitive
agreement to sell its branch operations in Arizona. The transaction represents
approximately $228 million in assets and $415 million in deposits as of
December 31, 2000. Pacific Century expects to close the transaction in the
first half of 2001.
In December 2000, investments in Pacific Commercial Bank in Samoa (43%
interest) and the Bank of Tonga (30% interest) were sold to another
shareholder of these two banks.
Bank Subsidiaries
Bank of Hawaii was organized under the laws of Hawaii on December 17, 1897.
Its headquarters are in Honolulu, Hawaii, and its deposits are insured by the
Federal Deposit Insurance Corporation (FDIC). It is not a member of the
Federal Reserve System. Bank of Hawaii is the largest full-service financial
institution headquartered in the State of Hawaii with a statewide network of
76 traditional and in-store branches. Bank of Hawaii provides customary
commercial banking services through branch offices, representative offices or
subsidiary banks in Hawaii, the South and West Pacific and selected
international markets in Asia.
Pacific Century Bank, N.A. (PCB) is headquartered in Encino, California,
and its business primarily consists of providing commercial banking products
and services in Southern California and the State of Arizona. PCB is a
national bank organized under the laws of the United States. It is a member of
the Federal Reserve System and its deposits are insured by the FDIC. PCB's
operations are conducted through 19 branch offices in the State of California
and 9 branch offices in the State of Arizona. As discussed above, in December
2000 PCB entered into a definitive agreement to sell its branch operations in
Arizona.
First Savings and Loan Association of America is located in the territory
of Guam. It provides retail financial services through 6 branches.
2
<PAGE>
Regulation and Competition
Effect of Governmental Policies
The earnings of Pacific Century and its principal subsidiaries are affected
not only by general economic conditions, both domestically and
internationally, but also by the monetary and fiscal policies of the United
States and its agencies, particularly the Federal Reserve System, and foreign
governments and their agencies. The monetary policies of the Federal Reserve
System influence to a significant extent the overall growth of loans,
investments, and deposits; and the level of interest rates earned on assets
and paid for liabilities. The nature and impact of future changes in monetary
policies are often not predictable.
Competition
Pacific Century and its subsidiaries are subject to substantial competition
in all aspects of the businesses in which they engage from banks (both
domestic and foreign), savings associations, credit unions, mortgage
companies, finance companies, mutual funds, brokerage firms, insurance
companies and other providers of financial services. Pacific Century also
competes with certain non-financial institutions and governmental entities
that offer financial products and services. Many of Pacific Century's
competitors are not subject to the same level of extensive regulations and
oversight that are required of banks and bank holding companies.
Effective March 13, 2000, securities firms and insurance companies that
elect to become financial holding companies may acquire banks and other
financial institutions. This may materially change the competitive environment
in which Pacific Century and its subsidiaries conduct business.
Supervision and Regulation
General
Pacific Century is registered as a bank holding company (BHC) under the
Bank Holding Company Act of 1956, as amended (the BHC Act) and is subject to
the supervision of and to examinations by the Board of Governors of the
Federal Reserve System (FRB). Pacific Century is also registered as a bank
holding company under the Hawaii Code of Financial Institutions (the Code) and
is subject to the registration, reporting, and examination requirements of the
Code. In September 2000, Pacific Century entered into a Memorandum of
Understanding with regulatory authorities in which it agreed to take certain
actions to strengthen and maintain its operations and financial position. See
further discussion in the Management Discussion and Analysis of Financial
Conditions and Results of Operations section of the report, and Notes F, G,
and H to the Consolidated Financial Statements.
The BHC Act prohibits, with certain exceptions, a BHC from acquiring
beneficial ownership or control of more than 5% of the voting shares of any
company, including a bank, without the FRB's prior approval and from engaging
in any activity other than those of banking, managing or controlling banks or
other subsidiaries authorized under the BHC Act, or furnishing services to or
performing services for its subsidiaries. Among the permitted activities is
the ownership of shares of any company the activities of which the FRB
determines to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.
Subject to certain limits, under the Riegle-Neal Interstate Banking and
Branching Efficiency Act (Riegle-Neal Act) an adequately capitalized and
adequately managed BHC may acquire control of banks in any state. An
interstate acquisition may not be approved if immediately following the
acquisition the BHC would control 30 percent or more of the total FDIC-insured
deposits in that state (or such lesser or greater amount set by the state),
unless the acquisition is the BHC's initial entry into the state. An
adequately capitalized and adequately managed bank may apply for permission to
merge with an out-of-state bank and convert all branches of both parties into
branches of a single bank. An interstate bank merger may not be approved, if
immediately following the acquisition, the acquirer would control 30 percent
or more of the total FDIC-insured deposits in that state (or
3
<PAGE>
such lesser or greater amount set by the state), unless the acquisition is the
acquirer's initial entry into the state. Banks are also permitted to open
newly established branches in any state in which it does not already have
banking branches if such state enacts a law permitting such de novo branching.
Hawaii has enacted a statute which authorizes out-of-state banks to engage
in mergers with Hawaii banks or acquisitions of substantially all of their
assets, following which any such out-of-state bank may operate the branches of
the Hawaii bank it has acquired. The Hawaii bank must have been in continuous
operation for at least five years unless it is subject to or in danger of
becoming subject to certain types of supervisory action. This statute does not
permit out-of-state banks to acquire branches of Hawaii banks other than
through an "interstate merger transaction" under the Riegle-Neal Act (except
in the case of a bank that is subject to or in danger of becoming subject to
certain types of supervisory action) or to open branches in Hawaii on a de
novo basis.
Under the Gramm-Leach-Bliley Act, a BHC may elect to become a financial
holding company and thereby to engage in a broader range of financial and
other activities than are permissible for traditional BHC's. In order to
qualify for the election, all of the depository institution subsidiaries of
the BHC must be well capitalized and well managed and all of its insured
depository institution subsidiaries must have achieved a rating of
"satisfactory" or better under the Community Reinvestment Act. Financial
holding companies are permitted to engage in activities that are "financial in
nature" or incidental or complementary thereto as determined by the FRB. The
Gramm-Leach-Bliley Act identifies several activities as "financial in nature,"
including, among others, insurance underwriting and agency, investment
advisory services, merchant banking and underwriting, and dealing or making a
market in securities.
Subsidiary Banks
Bank of Hawaii is subject to supervision and examination by the FDIC and
the State of Hawaii Department of Commerce and Consumer Affairs' Division of
Financial Institutions. PCB is subject to supervision and examination by the
Office of the Comptroller of the Currency (OCC) and in certain respects the
FDIC. Banks, including Bank of Hawaii and PCB, are subject to extensive
federal and (in the case of Bank of Hawaii) state regulation that
significantly affects their business and activities. Regulatory authorities
have broad authority to implement standards and to initiate proceedings
designed to prohibit depository institutions from engaging in unsafe and
unsound banking practices.
Dividend Restrictions
Pacific Century is a legal entity separate and distinct from its subsidiary
banks and other subsidiaries. Its principal source of funds to pay dividends
on its common stock and debt service on its debt is dividends from its
subsidiaries. Various federal and state statutory provisions and regulations
limit the amount of dividends Pacific Century's subsidiary banks and certain
other subsidiaries may pay without regulatory approval. For information about
the restrictions applicable to Pacific Century's subsidiary banks, see Note H
to the Consolidated Financial Statements, incorporated by reference herein.
Holding Company Structure
Transfer Of Funds From Subsidiary Banks. Pacific Century's subsidiary banks
are subject to restrictions under federal law that limit the transfer of funds
or other items of value from such subsidiaries to Pacific Century and its
nonbank subsidiaries (including affiliates) in so-called "covered
transactions." In general, covered transactions include loans and other
extensions of credit, investments and asset purchases, as well as other
transactions involving the transfer of value from a subsidiary bank to an
affiliate or for the benefit of an affiliate. Unless an exemption applies,
covered transactions by a subsidiary bank with a single affiliate are limited
to 10% of the subsidiary bank's capital and surplus and, with respect to all
covered transactions with affiliates in the aggregate, to 20% of the
subsidiary bank's capital and surplus. Also, loans and extensions of credit to
affiliates generally are required to be secured in specified amounts.
4
<PAGE>
Source Of Strength Doctrine. The FRB has a policy that a BHC is expected to
act as a source of financial and management strength to its subsidiary banks
and to commit resources to support its subsidiary banks in circumstances where
it might not do so absent such a policy. This support may be required at times
when the BHC may not have the resources to provide it. Under this policy, a
BHC is expected to stand ready to use available resources to provide adequate
capital funds to its subsidiary banks during periods of financial adversity
and to maintain the financial flexibility and capital-raising capacity to
obtain additional resources for assisting its subsidiary banks.
Capital Requirements
Pacific Century is subject to risk-based capital requirements and
guidelines imposed by the FRB, which are substantially similar to the capital
requirements and guidelines imposed by the OCC and the FDIC on depository
institutions within their respective jurisdictions.
The FRB, the FDIC and the OCC also have adopted rules to incorporate market
and interest rate risk components into their risk-based capital standards.
Under the market risk requirements, capital will be allocated to support the
amount of market risk related to a financial institution's ongoing trading
activities.
As an additional means to identify problems in the financial management of
depository institutions, the FDI Act requires federal bank regulatory agencies
to establish certain non-capital safety and soundness standards for
institutions for which they are the primary federal regulator. The standards
relate generally to operations and management, asset quality, interest rate
exposure and executive compensation. The agencies are authorized to take
action against institutions that fail to meet such standards.
The FDI Act requires federal bank regulatory agencies to take "prompt
corrective action" with respect to FDIC-insured depository institutions that
do not meet minimum capital requirements. A depository institution's treatment
for purposes of the prompt corrective action provisions will depend upon how
its capital levels compare to various capital measures and certain other
factors, as established by regulation.
FDIC Insurance
The FDIC has adopted a premium schedule under which the actual assessment
rate for a particular institution depends in part upon the risk classification
the FDIC assigns to that institution. The FDIC may raise an institution's
insurance premiums or terminate insurance altogether upon a finding that the
institution has engaged in unsafe and unsound practices.
This regulatory framework is intended primarily for the protection of
depositors, federal deposit insurance funds and the banking system as a whole,
and not for the protection of security holders. To the extent that this
information describes statutory and regulatory provisions, it is qualified in
its entirety by reference to those provisions. Any change in applicable laws
or regulations may have a material effect on the business of Pacific Century
and its subsidiaries.
Employees
At December 31, 2000, Pacific Century and its subsidiaries had
approximately 4,350 employees, 3,930 of whom were full-time employees.
Item 2. Description of Property
Pacific Century and its subsidiaries own and lease premises primarily
consisting of branch and operating facilities, the majority of which are
located in Hawaii, California, Arizona, Asia, and the West and South Pacific.
Bank of Hawaii's main branch and administrative offices are located at the
Financial Plaza of the Pacific in Honolulu, Hawaii at which Bank of Hawaii
owns condominium units aggregating approximately 244,000 square
5
<PAGE>
feet and capital leases approximately 90,000 square feet. Additionally, Bank
of Hawaii owns a fee simple two-story 95,000 square foot building near
downtown Honolulu which houses data processing and certain other operational
functions; a parcel of land in downtown Honolulu which is for sale; and Hale O
Kapolei, a leasehold, 248,000 square foot operations facility in the Kapolei
area on Oahu.
Item 3. Legal Proceedings
Pacific Century and its subsidiaries are defendants in various legal
proceedings arising from normal business activities. In the opinion of
management, after reviewing these proceedings with counsel, the aggregate
liability, if any, resulting from these proceedings would not have a material
effect on Pacific Century's consolidated financial position or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of 2000 to a vote of
security holders through solicitation of proxies or otherwise.
Executive Officers of Registrant:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Michael E. O'Neill.......... 54 Chairman and Chief Executive Officer of
Pacific Century and the Bank of Hawaii (the
Bank) since November 2000; Vice Chairman
and Chief Financial Officer, BankAmerica
Corporation, 1995 to 1999.
Richard J. Dahl............. 49 President of Pacific Century and the Bank
since August 1994; Chief Operating Officer
of Pacific Century since April 1997 and the
Bank since August 1995.
Mary P. Carryer............. 53 Vice Chair--U.S. Mainland Market of Pacific
Century and the Bank since November 1997;
General Manager Consumer Marketing/Product
Development for Westpac Banking Corporation
from August 1993 to November 1997.
Alton T. Kuioka............. 57 Vice Chair of Pacific Century since April
1997; Vice Chair of the Bank since June
1994; Chief Lending Officer of Pacific
Century since April 1997 and the Bank since
August 1995.
Allan R. Landon............. 52 Vice Chair and Chief Financial Officer of
Pacific Century and the Bank since January
2001; Director of Risk Management for
Pacific Century from April 2000 to January
2001; Chief Financial Officer First
American Corporation, 1998 to 2000;
Partner, Ernst & Young, LLP, 1984 to 1998.
William C. Nelson........... 53 Vice Chair and Chief Risk Officer of Pacific
Century and the Bank since January 2001;
Managing Director, Bank of America credit
products group U.S. health care industry,
1999 to January 2001; Executive Vice
President, Bank of America credit risk
management Asia Pacific region, 1993 to
1999.
Karl K.Y. Pan............... 46 Executive Vice President, member of the
Company's Managing Committee, and Manager
of Bank of Hawaii Global Market since
November 1999. From 1994 to November 1999,
he was an Executive Vice President and
Manager of the Bank of Hawaii's
International and Pacific Markets.
</TABLE>
6
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Common Stock Listing
The common stock of Pacific Century Financial Corporation is traded on the
New York Stock Exchange (NYSE Symbol: BOH) and quoted daily in leading
financial publications.
Market Prices, Book Values, and Common Stock Dividends--See Table 3
included in Item 7 of this report.
Item 6. Selected Financial Data
Summary of Selected Consolidated Financial Data/1/
Table 1
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(in millions of dollars except per share amounts)
<S> <C> <C> <C> <C> <C>
At December 31
Balance Sheet Totals
Net Loans....................... $ 9,168.1 $ 9,280.8 $ 9,416.8 $ 9,114.3 $ 8,347.9
Total Assets.................... 14,013.8 14,440.3 15,016.6 14,995.5 14,009.2
Deposits........................ 9,080.6 9,394.2 9,576.3 9,607.7 8,684.1
Long-Term Debt.................. 997.2 727.7 585.6 705.8 932.1
Shareholders' Equity............ 1,301.4 1,212.3 1,185.6 1,117.2 1,066.1
For the Year Ended December 31
Operating Results
Total Interest Income........... 1,057.5 1,026.5 1,088.6 1,039.8 974.0
Net Interest Income............. 556.2 574.7 576.6 523.4 482.3
Provision for Loan Losses....... 142.9 60.9 84.0 30.3 22.2
Net Income...................... 113.7 133.0 107.0 139.5 133.1
Basic Earnings Per Share........ 1.43 1.66 1.33 1.75 1.63
Diluted Earnings Per Share...... 1.42 1.64 1.32 1.72 1.62
Cash Dividends Paid Per Common
Share.......................... 0.71 0.68 0.66 0.63 0.58
Tangible Basis Financial Data/2/
Net Income.................... 130.4 149.7 121.7 150.7 141.3
Basic Earnings Per Share...... 1.64 1.86 1.52 1.89 1.73
Diluted Earnings Per Share.... 1.63 1.85 1.50 1.86 1.71
Non-Financial Data
Common Shareholders of
Record at Year-End/3/ ......... 8,438 9,899 10,396 10,514 10,199
Weighted Average Shares--Basic.. 79,551,296 80,298,725 80,228,424 79,794,011 81,595,728
Weighted Average Shares--
Diluted........................ 79,813,443 81,044,558 81,142,144 80,946,170 82,424,524
</TABLE>
- --------
/1/ Comparisons between years is affected by business combinations. See Note A
to the Consolidated Financial Statements.
/2/ Tangible basis calculations exclude the effect of all intangibles
including goodwill, core deposit and trust intangibles, and other
intangibles.
/3/ The number of common shareholders is based on the number of record
holders.
7
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Overview
The year 2000 was a year of dramatic change for Pacific Century Financial
Corporation. During 2000, Pacific Century has taken the initial steps
necessary to improve financial performance by:
. Reexamining and improving where necessary its loan grading system.
. Reevaluating and adjusting risk grades where appropriate all of its
commercial credits over $250,000.
. Significantly increasing its allowance for loan losses.
. Augmenting management resources devoted to improving the credit process.
. Reducing exposure to Asia and the national syndicated loan portfolio.
. Successfully completing the New Era program designed to increase income
and reduce expense.
. Beginning the management process of reevaluating all lines of business
with the goal of increasing shareholder return.
The year began with many positive developments for the Company. The first
three quarters saw the completion of the New Era Redesign initiatives which
provided strong contributions to the Company's earnings. The goals of the
program were to improve the delivery of financial services, generate revenue
growth from new and existing sources, and reduce expenses by simplifying and
streamlining business processes. During the fourth quarter, the Company
achieved the projected annualized reduction in operating expenses of $43
million. The annualized increase in revenues of $25 million surpassed the $21
million projection.
The year was also marked by substantial improvement in the Company's
exposure to troubled Asian economies which, together with a lagging Hawaii
economy, has negatively impacted the Company's financial performance during
recent years. Exposures to borrowers in Asia totaled $672.8 million at year-
end, down from $911.8 million at the end of 1999. This exposure includes loans
as well as outstanding commitments to borrowers in Asia. See Lending in Asia
and the South Pacific.
Internally, the Company improved its credit and risk management processes.
Beginning in March 2000, the Company undertook a complete review of its
standards for loan evaluation, followed by a reevaluation of all its large
(over $250,000) commercial loans to ensure a proper grading and analysis of
the credits. These steps have resulted in an enhanced risk rating system and a
company wide training program.
This positive process, however, resulted in substantial downgradings in the
Company's syndicated loan and commercial real estate portfolios. As a result
of credit deterioration primarily in those two portfolios, net charge-offs of
$32.9 million and increases to the allowance for loan losses of $51.2 million
resulted in second quarter earnings of $6.7 million, substantially below
market expectations and prior quarters' earnings.
The remainder of 2000 was marked by the initiation of significant actions
and changes to deal with the Company's credit issues. In September 2000,
Pacific Century entered into a Memorandum of Understanding with regulatory
authorities in which it agreed to take certain actions to strengthen and
maintain its operations and financial position. Accordingly, Pacific Century
agreed to request prior approval for the payments of dividends, increases in
indebtedness, or repurchase of common stock beyond the existing Board approval
of 300,000 shares per quarter. The Company has taken and plans to take all
action necessary to achieve appropriate credit quality levels, maintain
specific capital levels, and apply management practices consistent with the
expectations of its regulators.
The Company has already made progress towards improving the quality of its
loan portfolio. In addition to the previously mentioned increase in the
allowance for loan losses, during the fourth quarter the Company reduced non-
performing assets by almost 17%, from $219.6 million on September 30 to $183.0
million at year
8
<PAGE>
end, by a combination of repayments and charge-offs. Shortly after year-end,
the Company sold off a $65 million problem loan, with the loss on the loan
largely offset by previously allocated reserves. The Company also continued to
reduce its concentration in Asia and its syndicated loan portfolio and
improved the quality of the Hawaii commercial real estate portfolio. At the
end of 2000, Pacific Century had increased its allowance for loan losses to
$246.2 million from $194.2 million at the end of 1999.
The most significant change for Pacific Century occurred on November 3,
2000, when the Board of Directors appointed Michael E. O'Neill Chairman of the
Board and Chief Executive Officer. Mr. O'Neill began his banking career in
1974 with Continental Bank Corporation. He joined BankAmerica Corporation in
1994 with the merger of those two institutions. He last served BankAmerica
Corporation as Vice Chair and Chief Financial Officer. Mr. O'Neill brings
considerable banking experience and an outstanding reputation among senior
executives of the financial services industry to the Company. His background
also includes substantial experience dealing with financial institutions with
credit quality problems and he has made the strengthening of the company's
credit quality and processes a top priority.
In early January 2001, Mr. O'Neill was joined by a new Vice Chair and Chief
Risk Officer, William Nelson, and a new Asset Recovery Officer, Executive Vice
President Scott Miller. Each of these men brings extensive international and
domestic experience to their positions and substantially upgrades Pacific
Century's capabilities in those two areas. In January 2001, Allan Landon was
appointed Vice Chair and Chief Financial Officer of Pacific Century. Mr.
Landon has a broad financial background including previous chief financial
officer and risk management experience.
During the fourth quarter, the Company entered into a definitive agreement
to sell its credit card portfolio to American Express Centurion Bank. In
addition, the Company's California bank subsidiary, Pacific Century Bank, has
agreed to sell its Arizona branch network to Zion's Bancorporation. These
transactions are scheduled to close in the first two quarters of 2001. Also,
Bank of Hawaii sold its minority ownership interest in Bank of Tonga and
Pacific Commercial Bank Limited of Samoa in December.
Of particular significance, under Mr. O'Neill's direction, Pacific Century
has undertaken a strategic assessment process driven by the goal of creating
and enhancing shareholder value. All of the Company's lines of businesses are
being analyzed in detail on the basis of risk and return on capital. Pacific
Century anticipates announcing the results of the assessment process in April
2001.
Performance Summary
Net income at Pacific Century was $113.7 million in 2000, reflecting a
decrease of 14.5% from the $133.0 million reported in 1999. This decline in
earnings was largely the result of a $142.9 million provision for loan losses
as Pacific Century experienced weaker credit quality and higher charge-offs in
its loan portfolio. Pacific Century increased its reserve coverage from 2.05%
of outstanding loans at December 31, 1999 to 2.62% at December 31, 2000.
Pacific Century also recorded an $11.9 million gain on the settlement of
certain obligations of the defined benefit pension plan and $3.2 million gain
from the sale of minority interest investments in banks located in Tonga and
Samoa. Financial results for 1999 were impacted by a restructuring charge of
$22.5 million.
9
<PAGE>
The following table presents the financial summary for 2000:
Performance Summary
Table 2
<TABLE>
<CAPTION>
2000 1999
----------------- -------------------
Five-Year
Percent Compound
Financial Performance Amount Change Amount Growth
- --------------------- --------- ------- --------- ---------
(in millions of dollars except per
share amounts)
<S> <C> <C> <C> <C>
Year Ended December 31
Net Income............................... $ 113.66 (14.5)% $ 132.96 (1.37)%
Basic Earnings Per Share................. 1.43 (13.9) 1.66 (.41)
Diluted Earnings Per Share............... 1.42 (13.4) 1.64 (.42)
Average Assets........................... 14,055.3 (3.6) 14,582.9 2.53
Average Loans............................ 9,544.3 1.1 9,444.5 4.51
Average Deposits......................... 9,005.1 (3.3) 9,315.3 5.06
Average Shareholders' Equity............. 1,234.6 2.0 1,210.0 3.77
Tangible Basis Financial Data/1/
Net Income............................. 130.40 (12.9) 149.75 0.19
Basic Earnings Per Share............... 1.64 (11.8) 1.86 1.14
Diluted Earnings Per Share............. 1.63 (11.9) 1.85 1.14
</TABLE>
<TABLE>
<CAPTION>
Five-Year
Performance Ratios 2000 1999 Average
- ------------------ ----- ----- ---------
<S> <C> <C> <C>
Year Ended December 31
Return on Average Assets................................ 0.81% 0.91% 0.88%
Return on Average Equity................................ 9.21 10.99 10.88
Average Equity to Average Assets........................ 8.78 8.30 8.15
Tangible Basis Financial Data/1/
Return on Average Assets.............................. 0.94 1.04 0.99
Return on Average Equity.............................. 12.59 15.02 14.14
At December 31
Loan Loss Reserve to Loans Outstanding.................. 2.62 2.05
Tier I Capital Ratio.................................... 11.78 10.28
Total Capital Ratio..................................... 14.64 13.22
Leverage Ratio.......................................... 9.10 8.31
</TABLE>
- --------
/1/ Tangible basis calculations exclude the effect of all intangibles
including goodwill, core deposit and trust intangibles, and other
intangibles.
The decline in total assets was the result of managed reductions of loans,
short-term interest bearing deposits and securities and an increase in the
reserve for loan losses.
Non-performing assets, exclusive of accruing loans past due 90 days or
more, were $183.0 million, or 1.89% of total loans, at year-end, compared to
$149.9 million, or 1.54% at year-end 1999. The change in the fourth quarter is
a marked improvement over the third quarter outstanding non-performing assets
of $219.6 million.
Net loan charge-offs in 2000 increased to $89.4 million from $73.8 million
in 1999. For additional information, see "Foreign Operations" and "Reserve for
Loan Losses" discussions of this report.
10
<PAGE>
The stock performance in 2000 reflects the effect of higher loan losses and
provisioning as well as the general softening of bank stocks during the year.
See Table 3.
Market Prices, Book Values and Common Stock Dividends
Table 3
<TABLE>
<CAPTION>
Market Price
(MP) Range High MP as
------------- Book Value a Percent
Year/Period High Low (BV) of BV Dividend
- ----------- ------ ------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
1996............................... $22.00 $16.57 $13.34 165% $0.58
1997............................... 28.06 20.31 14.02 200 0.63
1998............................... 25.88 14.75 14.76 175 0.66
1999............................... 24.94 17.38 15.15 165 0.68
First Quarter...................... 24.94 19.94 0.17
Second Quarter..................... 23.25 19.81 0.17
Third Quarter...................... 22.31 17.63 0.17
Fourth Quarter..................... 23.50 17.38 0.17
2000............................... $23.19 $11.06 $16.35 142% $0.71
First Quarter...................... 20.38 14.38 0.17
Second Quarter..................... 23.19 14.63 0.18
Third Quarter...................... 17.50 13.13 0.18
Fourth Quarter..................... 18.75 11.06 0.18
</TABLE>
Statement of Income Analysis
Net Interest Income
Net interest income on a taxable equivalent basis was $557.1 million in
2000, down from $575.4 million in 1999, and $577.2 million in 1998. For 2000,
the decrease in net interest income from the prior year is attributed to a
decline in average earning assets and a slightly lower net interest margin.
The decline in 2000's net interest margin relative to a year ago resulted
primarily from a rise in the average rate paid on interest-bearing liabilities
which was only partially compensated for by higher yields on earning assets.
Average balances and related income and expense are presented in Table 4.
The decreasing trend in outstanding foreign loans reflects the planned
reduction of credit exposure in Asia and the Pacific regions and the impact of
the value of foreign currency relative to the U.S. dollars.
11
<PAGE>
Consolidated Average Balances, Income and Expense
and Yields and Rates
(Taxable Equivalent)
Table 4
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------------------------------
2000 1999 1998
------------------------- ------------------------- -------------------------
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Balance Expense Rates Balance Expense Rates Balance Expense Rates
--------- ------- ------- --------- ------- ------- --------- ------- -------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets
Interest-Bearing
Deposits.............. $ 216.2 $ 14.7 6.78% $ 385.0 $ 24.9 6.48% $ 508.8 $ 36.7 7.21%
Investment Securities--
Held to Maturity
--Taxable.............. 724.3 53.0 7.32 805.2 57.8 7.18 890.6 67.7 7.60
--Tax-Exempt........... 7.6 1.4 18.24 11.7 1.7 14.41 11.8 1.7 14.34
Investment Securities--
Available for Sale.... 2,502.5 165.1 6.60 2,698.8 168.0 6.23 2,769.3 171.0 6.17
Funds Sold............. 43.2 2.7 6.22 102.0 5.4 5.31 69.7 3.8 5.45
Loans/1/
--Domestic............. 8,076.4 690.1 8.55 7,742.3 623.0 8.05 7,669.7 643.8 8.39
--Foreign.............. 1,467.9 97.7 6.65 1,702.2 106.4 6.25 1,752.6 119.2 6.80
Loan Fees.............. 33.6 39.9 45.3
--------- ------- ----- --------- ------- ----- --------- ------- -----
Total Earning Assets.. 13,038.1 1,058.3 8.12 13,447.2 1,027.1 7.64 13,672.5 1,089.2 7.97
Cash and Due From
Banks.................. 443.2 486.6 590.1
Other Assets............ 574.0 649.1 608.1
--------- --------- ---------
Total Assets.......... $14,055.3 $14,582.9 $14,870.7
========= ========= =========
Interest-Bearing
Liabilities
Domestic Deposits
--Demand............... $ 2,061.9 48.7 2.36 $ 2,137.1 48.5 2.27 $ 2,114.8 55.7 2.64
--Savings.............. 684.8 13.9 2.03 723.9 14.7 2.03 783.9 18.5 2.35
--Time................. 2,781.1 154.1 5.54 2,559.4 123.3 4.82 2,780.7 145.4 5.23
--------- ------- ----- --------- ------- ----- --------- ------- -----
Total Domestic........ 5,527.8 216.7 3.92 5,420.4 186.5 3.44 5,679.4 219.6 3.87
Foreign Deposits
--Time Due to Banks.... 505.4 30.4 6.03 641.4 33.7 5.25 596.1 40.4 6.78
--Other Savings and
Time.................. 960.5 38.9 4.05 1,165.7 41.0 3.52 1,176.1 46.7 3.97
--------- ------- ----- --------- ------- ----- --------- ------- -----
Total Foreign......... 1,465.9 69.3 4.73 1,807.1 74.7 4.13 1,772.2 87.1 4.91
--------- ------- ----- --------- ------- ----- --------- ------- -----
Total Deposits........ 6,993.7 286.0 4.09 7,227.5 261.2 3.61 7,451.6 306.7 4.12
Short-Term Borrowings.. 2,597.4 156.1 6.01 3,014.8 146.2 4.85 3,072.9 162.6 5.29
Long-Term Debt......... 886.9 59.1 6.66 685.9 44.3 6.46 676.5 42.7 6.32
--------- ------- ----- --------- ------- ----- --------- ------- -----
Total Interest-Bearing
Liabilities.......... 10,478.0 501.2 4.78 10,928.2 451.7 4.13 11,201.0 512.0 4.57
--------- ------- ----- --------- ------- ----- --------- ------- -----
Net Interest Income..... 557.1 3.34 575.4 3.51 577.2 3.40
------- ----- ------- ----- ------- -----
Spread on Earning
Assets................. 4.27% 4.28% 4.22%
----- ----- -----
Demand Deposits
--Domestic............. 1,640.0 1,652.6 1,650.4
--Foreign.............. 371.4 435.2 447.7
--------- --------- ---------
Total Demand
Deposits............. 2,011.4 2,087.8 2,098.1
Other Liabilities....... 331.3 356.9 410.8
Shareholders' Equity.... 1,234.6 1,210.0 1,160.8
--------- --------- ---------
Total Liabilities &
Shareholders'
Equity............... $14,055.3 $14,582.9 $14,870.7
========= ========= =========
Provision for Loan
Losses................. 142.9 60.9 84.0
Net Overhead............ 233.4 288.2 329.0
------- ------- -------
Income Before Taxes..... 180.8 226.3 164.2
Provision for Taxes..... 66.3 92.7 56.6
Tax Equivalency
Adjustment/2/ ......... 0.8 0.6 0.6
------- ------- -------
Net Income.............. $ 113.7 $ 133.0 $ 107.0
======= ======= =======
</TABLE>
- --------
/1/ Includes non-accrual loans.
/2/ Based upon a statutory tax rate of 35%.
12
<PAGE>
Provision for Loan Losses
The provision for loan losses was $142.9 million in 2000, compared to $60.9
million in 1999 and $84.0 million in 1998. The 2000 provision for loan losses
exceeded net loan charge-offs of $89.4 million by approximately $53.5 million.
The additional provisioning was considered necessary to provide for losses
inherent in the loan portfolio. For further information on credit quality,
refer to the section on "Reserve for Loan Losses" of this report.
Non-Interest Income
Non-interest income in 2000 decreased to $263.4 million from $265.6 million
in 1999 and compared to $211.8 million in 1998. Adjusted for nonrecurring
items in both 2000 and 1999, non-interest income showed an increase of 5.6%
year over year. In 2000, non-interest income included nonrecurring gains of
$11.9 million on the settlement of certain pension benefit obligations and
$3.2 million on the sale of minority interests in the Bank of Tonga and
Pacific Commercial Bank, Ltd. of Samoa. In 1999, non-interest income included
nonrecurring credits that contributed $18.3 million to other income and $12.1
million to securities gains. Table 5 presents the details of non-interest
income for the last five years.
Non-Interest Income
Table 5
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------
2000 1999 1998 1997 1996
--------------- -------------- ------ ------ ------
Percent Percent
Amount Change Amount Change Amount Amount Amount
------ ------- ------ ------- ------ ------ ------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Trust Income.............. $ 66.1 8.9 % $ 60.7 8.6% $ 55.9 $ 52.2 $ 49.8
Service Charges on Deposit
Accounts................. 40.1 16.9 34.3 (3.4) 35.5 29.4 26.7
Fees, Exchange and Other
Service Charges
Card Fees............... 14.2 4.4 13.6 (0.7) 13.7 13.2 10.7
Letters of Credit and
Acceptance Fees........ 11.4 (8.8) 12.5 18.1 10.6 11.1 10.1
Profit on Foreign
Currency............... 17.4 0.6 17.3 17.0 14.8 12.2 8.9
ATM..................... 18.6 17.7 15.8 51.9 10.4 9.6 8.6
Mortgage Servicing
Fees................... 9.4 6.8 8.8 11.4 7.9 7.1 6.6
Exchange Fees........... 4.2 (10.6) 4.7 25.8 3.7 4.2 3.4
Payroll Services........ 0.9 12.5 0.8 (26.9) 1.1 1.6 2.4
Cash Management......... 2.6 8.3 2.4 1.2 2.4 0.8 0.8
Other Fees.............. 9.8 (24.0) 12.9 (3.0) 13.3 7.3 7.4
Other Operating Income
Other Income............ 53.9 9.3 49.3 39.3 35.4 27.2 24.2
Gain on Settlement of
Pension Obligation..... 11.9 -- -- -- -- -- --
Gain on Sale of Leased
Equipment.............. 1.2 (92.1) 15.2 794.1 1.7 5.1 0.9
Cash Basis Interest..... 3.3 3.1 3.2 138.2 1.3 3.7 2.6
Investment Securities
Gains and Losses......... (1.6) (111.3) 14.1 244.0 4.1 3.1 1.4
------ ------ ------ ----- ------ ------ ------
Total................. $263.4 (0.8)% $265.6 25.4% $211.8 $187.8 $164.5
====== ====== ====== ===== ====== ====== ======
</TABLE>
Revenue categories that generated the largest year-over-year gains in Trust
Income were mutual fund fees and trust and agency fees. This increase is
largely attributable to re-pricing strategies developed in the New Era
Project. While trust income showed an 8.9% increase in 2000, total trust
assets administered by Pacific Century Trust decreased slightly to $12.8
billion at year-end 2000, down from $13.2 billion at year-end 1999.
13
<PAGE>
The decline in managed assets reflects the decline in the stock market during
2000. The Pacific Capital family of mutual funds and Hawaiian Tax Free Trust,
which are managed by Pacific Century Trust, have continued to experience
growth. At December 31, 2000, the aggregate balance of these funds stood at
$4.0 billion, compared to $3.7 billion and $3.1 billion at year-end 1999 and
1998, respectively.
While Service Charges on Deposit Accounts remained relatively flat in 1998
and 1999, the increase in 2000 reflects the effect of the New Era strategy.
The increase in Mortgage Servicing Fees reflects Bank of Hawaii's emphasis
on residential mortgage lending and secondary market sales activities. Pacific
Century's mortgage servicing portfolio grew to $2.8 billion at year-end 2000
from $2.5 billion at year-end 1999.
ATM fees reflected a 17.7% increase during 2000, which mainly resulted from
an increase in the ATM fee structure and increased usage. During 2000, Pacific
Century's ATM network continued to expand, ending the year with 571 machines,
an increase from 510 at year-end 1999.
Other operating income included a gain of $11.9 million from the settlement
of a portion of the Company's pension benefit obligation. The Company settled
this obligation by purchasing annuities with a portion of the pension plan
assets.
Net losses on Investment Securities in 2000 included the write-off of
venture capital investments and losses taken on the investment portfolio
partially offset by gains of $3.2 million from the sale of minority interests
in Pacific Commercial Bank Ltd. of Samoa and Bank of Tonga. Securities gains
in 1999 included a $6.5 million gain from the sale of newly issued equity
securities acquired in conjunction with leasing transactions and $5.6 million
gain from the disposition of a venture capital investment.
Non-Interest Expense
The Company made progress in expense control during 2000. After adjusting
for nonrecurring items in 1999, the decrease in 2000 is $34.4 million.
The decrease in salaries and benefits in 2000 is primarily attributable to
the New Era redesign implemented in 1999 and 2000 and the completion of the
Year 2000 computer project which increased salaries and benefits in 1999 and
1998 relative to the more normal run rate in 2000. Salaries in 2000 were down
from 1999 by $17.0 million of which approximately $14 million is attributable
to staff reductions from the New Era redesign. Salaries in 1999 also included
$2.8 million associated with the Year 2000 computer project that was completed
in 1999.
The 7.1% improvement in Other Operating Expense is mostly attributable to
the New Era redesign project. Large nonrecurring costs included in other
operating expense were $2.3 million in 1999, and $6.4 million in 1998.
The higher Legal and Professional Fees in 1999 and 1998 relative to 2000
are primarily attributed to consulting and other professional fees including
those related to the Year 2000 computer project which was completed prior to
the beginning of 2000.
14
<PAGE>
Non Interest Expense
Table 6
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
2000 1999 1998 1997 1996
-------------- -------------- ------ ------ ------
Percent Percent
Amount Change Amount Change Amount Amount Amount
------ ------- ------ ------- ------ ------ ------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries................. $181.7 (8.6)% $198.7 2.2 % $194.5 $173.2 $159.2
Pensions and Other
Employee Benefits....... 47.9 (13.4) 55.3 (1.2) 56.0 53.5 48.8
Net Occupancy Expense.... 48.8 1.9 47.9 2.3 46.8 46.7 39.4
Net Equipment Expense.... 50.6 3.9 48.7 (0.7) 49.0 38.5 34.0
Other Operating Expense
Legal and Other
Professional Fees..... 25.4 (21.6) 32.4 (9.5) 35.8 23.4 17.7
Stationery and
Supplies.............. 8.1 (17.3) 9.8 (11.3) 11.1 10.7 10.7
Amortization of
Intangible Assets..... 19.5 0.5 19.4 11.7 17.4 13.6 9.8
Credit Card
Processing............ 17.6 2.3 17.2 16.2 14.8 14.2 9.1
Other.................. 96.8 (4.4) 101.3 6.1 95.5 87.6 91.2
Restructuring Charge..... -- 100.0 22.5 15.9 19.4 -- --
Minority Interest........ 0.4 (20.0) 0.5 8.7 0.4 1.5 1.4
------ ----- ------ ----- ------ ------ ------
Total................ $496.8 (10.3)% $553.7 2.4 % $540.7 $462.9 $421.3
====== ===== ====== ===== ====== ====== ======
</TABLE>
Income Taxes
The tax structure at Pacific Century is complex given the various foreign
and domestic locations in which it operates. The 2000 provision for taxes
reflected an effective tax rate of 36.9%, compared to 41.1% and 34.6% in 1999
and 1998, respectively. The higher effective tax rate in 1999 is largely
explained by the Arbella sale that generated a $14.0 million gain and $12.7
million in income tax.
Pacific Century invests in low income housing tax credits and lease
financing. Low income housing investments provided tax credits of $12.0
million and $11.1 million in 2000 and 1999, respectively. See Note N to the
Consolidated Financial Statements for more information regarding the Company's
taxes.
15
<PAGE>
Balance Sheet Analysis
Loans
Loans comprise the largest category of earning assets for Pacific Century
and produce the highest level of income. Table 7 presents the composition of
the loan portfolio by major loan categories.
Loan Portfolio Balances
Table 7
<TABLE>
<CAPTION>
December 31
--------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(in millions of dollars)
<S> <C> <C> <C> <C> <C>
Domestic Loans
Commercial and Industrial....... $2,443.3 $2,493.0 $2,579.7 $2,104.3 $1,806.7
Real Estate
Mortgage--Residential......... 3,035.1 2,645.4 2,699.4 2,738.9 2,635.3
--Commercial.......... 1,125.5 1,244.8 1,139.1 1,354.5 1,227.8
Installment..................... 729.9 756.1 763.0 891.6 849.3
Lease Financing................. 725.5 627.6 554.5 519.4 437.8
Construction.................... 307.4 328.9 299.8 281.0 235.9
-------- -------- -------- -------- --------
Total Domestic Loans........ 8,366.7 8,095.8 8,035.5 7,889.7 7,192.8
Foreign Loans
Banks and Other Financial
Institutions................... 132.6 207.7 158.2 207.7 281.8
Commercial and Industrial....... 744.8 943.4 1,281.5 1,074.9 923.2
Other........................... 424.2 470.7 378.8 326.1 301.5
-------- -------- -------- -------- --------
Total Foreign Loans......... 1,301.6 1,621.8 1,818.5 1,608.7 1,506.5
-------- -------- -------- -------- --------
Total Loans................. $9,668.3 $9,717.6 $9,854.0 $9,498.4 $8,699.3
======== ======== ======== ======== ========
</TABLE>
Commercial and Industrial Loans
C&I loans consist of loans made for commercial, financial, and agricultural
purposes and involves lending on both a secured and unsecured basis.
Collateral requirements vary, but are based on Pacific Century's underwriting
standards.
Geographically C&I loans are concentrated in the U.S. Mainland and Hawaii
representing 53.0% and 38.3%, respectively, of the total C&I portfolio as of
year-end 2000. In Hawaii, Bank of Hawaii is a major commercial lender and
maintains a significant presence throughout the State. Bank of Hawaii supports
the business community in Hawaii by offering a wide range of products and
services. In the U.S. Mainland market, C&I lending is comprised of small and
middle market business loans that were originated by Pacific Century's U.S.
Mainland subsidiary bank and loans to Fortune 500 industrial and service
companies and the media and communication industry.
Real Estate Mortgage Loans
Pacific Century's real estate loan portfolio consists of loans that are
secured by residential as well as commercial properties. The largest component
of the real estate loan portfolio consists of loans secured by 1-to-4 family
residential properties. Approximately 91% of these loans are secured by real
estate in Hawaii (see Table 8). Pacific Century sells most fixed-rate loans in
the secondary mortgage market. Included in the residential mortgage total at
year-end 2000 were $179 million in available for sale loans. In 2000,
residential mortgage originations by Bank of Hawaii totaled $910 million,
compared to $980 million in 1999.
16
<PAGE>
Also included in the residential real estate portfolio are home equity
credit lines. The total available credit under these lines was $521 million at
year-end 2000, compared to $506 million at year-end 1999. Outstandings
increased to $290 million at year-end 2000 from $267 million at year-end 1999.
Home equity credit lines are underwritten primarily based on the borrower's
repayment ability rather than the value of the underlying property.
Commercial Real Estate loans were secured by commercial real estate
primarily in Hawaii and the U.S. Mainland, with the remainder mostly in the
West Pacific. The commercial real estate portfolio is diversified in the type
of property securing the obligations, including loans secured by commercial
offices, hotels, retail facilities, industrial properties and warehouses.
Installment Loans
As of December 31, 2000, installment loans consisted of credit cards and
consumer loans (e.g., auto loans and unsecured credit lines). Consumer loans
totaled $504.9 million at December 31, 2000, compared to $503.5 million at
December 31, 1999.
The credit card portfolio balance was $225.0 million at year-end 2000, a
decrease of 10.9% from year-end 1999. Pacific Century has reached agreement to
sell the entire credit card portfolio with expected closure of the sale in the
first or second quarter of 2001.
Construction Loans
Construction Loans are secured primarily by commercial properties located
in the U.S. Mainland and Hawaii. Residential construction was 8% and 4% of the
total at the end of 2000 and 1999, respectively. Because construction lending
is generally considered to involve greater risk than financing on improved
properties, Pacific Century utilizes tighter underwriting and disbursement
standards. The majority of these loans are underwritten based on the projected
cash flows of the completed project, rather than the value of the underlying
property, and generally require a committed source for permanent financing.
Lending in Asia and the South Pacific
In Asia the business emphasis is primarily on correspondent banking
activities and undertaking credit risk relating to and resulting from trade
activities, trade finance and loans for companies that have business interests
in the Asia-Pacific markets. The majority of loans in Asia are short-term and
are largely based on Pacific Century's traditional focus on cash flow lending.
The South Pacific market largely consists of the operations of subsidiary
banks in French Polynesia and New Caledonia. Foreign loans in both Asia and
the South Pacific totaled $1.3 billion at the end of 2000, down 19.7% from
year-end 1999. At year-end 2000 foreign loans represented 13.5% of the total
loan portfolio, compared to 16.7% at year-end 1999.
Foreign loans in the South Pacific totaled $892 million at December 31,
2000, relatively flat with year-end 1999. Outstanding commitments associated
with letters of credit and unused loan commitments in the South Pacific were
$213 million and $190 million at the end of 2000 and 1999 respectively.
At December 31, 2000, outstanding loans to borrowers in Asia totaled $377.0
million, down from $644.8 million and $690.5 million at December 31, 1999 and
1998, respectively. Outstanding commitments represented primarily by letters
of credit and unused loan commitments relative to borrowers in Asia were
approximately $295.8 million at year-end 2000, compared to $267 million at
year-end 1999. This overall reduction reflects Pacific Century's efforts to
manage down its exposure in Asia.
Additional information on foreign credit exposure is contained in the
"Foreign Operations" section of this report.
17
<PAGE>
Geographic Distribution of the Loan Portfolio
A geographic distribution of the loan portfolio is presented in Table 8
based on the geographic location of borrowers.
The amounts reflected in the West Pacific include Guam and other locations
in the region where both Bank of Hawaii and First Savings have branches.
Geographic Distribution of Loan Portfolio
Table 8
<TABLE>
<CAPTION>
December 31, 2000
--------------------------------------------------------------
West South Mainland
Total Hawaii Pacific Pacific U.S. Japan Other
-------- -------- ------- ------- -------- ------ ------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial and Industrial.. $2,443.3 $ 936.9 $193.9 $ 18.7 $1,293.8 $ -- $ --
Real Estate
Mortgage--Residential.... 3,035.1 2,762.4 257.3 1.1 14.3 -- --
--Commercial..... 1,125.5 648.7 151.1 7.9 317.8 -- --
Installment................ 729.9 555.6 125.2 36.9 12.2 -- --
Foreign.................... 1,301.6 33.1 -- 891.5 -- 183.1 193.9
Lease Financing............ 725.5 84.6 1.8 -- 598.5 -- 40.6
Construction............... 307.4 160.7 14.0 -- 132.7 -- --
-------- -------- ------ ------ -------- ------ ------
Total.................. $9,668.3 $5,182.0 $743.3 $956.1 $2,369.3 $183.1 $234.5
======== ======== ====== ====== ======== ====== ======
Percentage of Total........ 100.0% 53.6% 7.7% 9.9% 24.5% 1.9% 2.4%
======== ======== ====== ====== ======== ====== ======
</TABLE>
Investment Securities
Pacific Century's investment portfolio is managed to provide liquidity and
interest income, offset interest rate risk positions and provide collateral
for cash management needs. Table 19 presents the maturity distribution, market
value and weighted-average yield to maturity of securities.
Deposits
Competition for deposits by banks and other financial institutions, as well
as securities brokerage firms, continues to impact the ability to attract and
retain deposits.
Table 23 presents average deposits by type for the five years ended
December 31, 2000.
Borrowings
The decrease in short-term debt was due to the replacement of short-term
borrowings with advances from FHLB that are classified as long-term debt.
During 2000, Pacific Century borrowed $310 million from the FHLB of which $202
million will mature before the end of 2001. See Notes F and G to the
Consolidated Financial Statements for the detail of borrowings. Repos are
offered to governmental entities as an alternative to deposits.
Foreign Operations
Through its Asia Division, the Bank of Hawaii offers international banking
services to its corporate and financial institution customers in most of the
major Asian financial centers with support from its New York and
18
<PAGE>
Honolulu operations. Bank of Hawaii's offices that offer these services are
located in Hong Kong, the Philippines, Seoul, Singapore, Tokyo and Taipei. The
Asia Division continues to focus on correspondent banking and trade-related
financing activities and lending to customers with which it has a direct
relationship.
The South Pacific Division in Honolulu oversees subsidiary banks in French
Polynesia, New Caledonia, Papua New Guinea, Vanuatu, and Bank of Hawaii branch
operations in Fiji and American Samoa and an affiliate in Solomon Islands.
Since American Samoa is U.S. dollar based, its operation is included as
domestic. Bank of Hawaii sold its equity interest in affiliate banks located
in Samoa and Tonga in December 2000.
Exposure to foreign currency fluctuations is limited to the unhedged
positions of Pacific Century's capital investment in these subsidiaries (see
"Market Risk"). The largest South Pacific subsidiary operations are in the
French territories of French Polynesia and New Caledonia.
The West Pacific Division includes Bank of Hawaii branches in Guam and in
other locations in the region. Since the U.S. dollar is used in these
locations, Pacific Century's operations in the West Pacific are not considered
foreign for financial reporting purposes.
Table 9 provides a summary of average assets and liabilities, operating
revenue, and net income for Pacific Century's foreign operations for the last
three years. The net losses in these years reflect significantly higher
foreign loan loss provisions in comparison to historical levels (see "Reserve
for Loan Losses").
Summary of International Average Assets and Liabilities, and Income and
Percent of Consolidated Totals
Table 9
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------
2000 1999 1998
----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Average Assets............ $2,891.4 20.6% $3,413.0 23.4% $3,426.6 23.0%
Average Liabilities....... 2,673.0 20.8 3,271.6 24.5 3,348.8 24.4
Operating Revenue......... 236.7 17.9 252.1 19.5 287.9 21.9
Net Income (Loss)......... (0.2) N/A (1.4) N/A (0.8) N/A
</TABLE>
Credit limits are established for each country to control risk in the
foreign portfolio. These credit limits are monitored and reviewed on a regular
basis so that risks and exposures are understood and properly assessed.
Pacific Century's foreign lending consists of both local currency and
cross-border lending. Local currency loans are those that are funded and will
be repaid in the currency of the borrower's country. Cross-border lending, on
the other hand, involves loans that will be repaid in a currency other than
that of the borrower's country. This type of lending involves greater risk
because the borrower's ability to repay is additionally dependent on changes
in the currency exchange rate.
Table 10 presents, for the last three years, a geographic distribution of
international assets for which Pacific Century has cross-border exposure
exceeding 0.75% of total assets.
19
<PAGE>
Geographic Distribution of Cross-Border International Assets/1/
Table 10
<TABLE>
<CAPTION>
Government
and Other Banks and Commercial
Official Other Financial and Industrial
Institutions Institutions/2/ Companies Total
------------ --------------- -------------- --------
(in millions of dollars)
<S> <C> <C> <C> <C>
December 31, 2000
Japan.................... $ -- $249.9 $ 48.9 $ 298.8
South Korea.............. -- 233.7 48.3 282.0
All Others/3/ ........... 21.8 331.5 156.3 509.6
------ ------ ------ --------
$ 21.8 $815.1 $253.5 $1,090.4
====== ====== ====== ========
December 31, 1999
Japan.................... $ -- $217.8 $102.6 $ 320.4
South Korea.............. 24.3 198.0 72.0 294.3
France................... 16.2 178.7 0.2 195.1
All Others............... 10.7 290.5 262.2 563.4
------ ------ ------ --------
$ 51.2 $885.0 $437.0 $1,373.2
====== ====== ====== ========
December 31, 1998
Japan.................... $ -- $224.6 $131.1 $ 355.7
South Korea.............. 85.8 94.4 84.7 264.9
Taiwan................... -- 41.6 82.3 123.9
All Others............... 68.5 462.1 188.7 719.3
------ ------ ------ --------
$154.3 $822.7 $486.8 $1,463.8
====== ====== ====== ========
</TABLE>
- --------
/1/ This table details by country cross-border outstandings that individually
amounted to 0.75% or more of consolidated total assets as of year-end
2000, 1999 and 1998. Cross-border outstandings are defined as foreign
monetary assets that are payable to Pacific Century in U.S. dollars or
other non-local currencies, plus amounts payable in local currency but
funded with U.S. dollars or other non-local currencies. Cross-border
outstandings include loans, acceptances, interest-bearing deposits with
other banks, other interest-bearing investments, and other monetary
assets.
/2/ Includes U.S. dollar advances to foreign branches and affiliate banks
which were used to fund local currency transactions. Totals at December
31, 2000, 1999, and 1998 were $364.8 million, $378.2 million, and
$411.1 million, respectively.
/3/ At December 31, 2000, the All Others category included cross-border
outstandings of $57.7 million in French Polynesia and $47.1 million in New
Caledonia. The currency of both of these countries is the Pacific franc.
Corporate Risk Profile
Credit Risk
Pacific Century experienced weaknesses in its credit risk exposure over the
past three years. Resolving credit quality issues is the Company's top
priority for 2001. Pacific Century is initiating new credit practices.
Pacific Century's policy is to place loans on non-accrual status when a
loan is over 90 days delinquent, unless collection is likely based on specific
factors such as the type of borrowing agreement and/or collateral. At the time
a loan is placed on non-accrual, all accrued but unpaid interest is reversed
against current earnings.
20
<PAGE>
Non-Performing Assets and Past Due Loans
Non-performing assets (NPAs) consist of non-accrual loans, restructured
loans and foreclosed real estate.
Total non-accrual loans rose to $178.5 million at year-end 2000, up 22.8%
over year-end 1999 but declined by 16.7% from the end of the third quarter
2000. The progress achieved in the fourth quarter reflected the payoff of one
large loan and the charge-off of loans previously reserved.
The increase in Commercial Real Estate loans on non-accrual status is
mainly due to the transfer of several large Hawaii-based Commercial Real
Estate loans to non-accrual in 2000.
Table 11 presents a five-year history of non-performing assets and accruing
loans past due 90 days or more.
Non-Performing Assets and Accruing Loans
Past Due 90 Days or More
Table 11
<TABLE>
<CAPTION>
December 31
--------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(in millions of dollars)
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans
Commercial and Industrial............ $ 55.4 $ 23.7 $ 28.2 $ 10.7 $ 20.9
Real Estate
Construction....................... 6.4 1.1 2.9 1.0 0.3
Commercial......................... 60.1 19.0 5.4 2.8 4.1
Residential........................ 22.7 29.7 36.4 32.9 23.6
Installment.......................... -- 0.5 0.8 2.0 1.3
Foreign.............................. 33.5 67.4 57.5 39.9 22.3
Lease Financing...................... 0.4 3.9 0.7 -- --
------ ------ ------ ------ ------
Total Non-Accrual Loans.......... 178.5 145.3 131.9 89.3 72.5
------ ------ ------ ------ ------
Restructured Loans
Real Estate--Commercial.............. -- -- -- 1.6 --
------ ------ ------ ------ ------
Total Restructured Loans......... -- -- -- 1.6 --
------ ------ ------ ------ ------
Foreclosed Real Estate
Domestic............................. 4.2 4.3 5.5 6.2 10.7
Foreign.............................. 0.3 0.3 0.1 -- --
------ ------ ------ ------ ------
Total Foreclosed Real Estate..... 4.5 4.6 5.6 6.2 10.7
------ ------ ------ ------ ------
Total Non-Performing Assets.... 183.0 149.9 137.5 97.1 83.2
------ ------ ------ ------ ------
Accruing Loans Past Due 90 Days or More
Commercial and Industrial............ 5.0 5.9 0.4 2.0 2.0
Real Estate
Construction....................... -- -- 0.4 -- 0.4
Commercial......................... 1.3 1.9 -- 0.6 6.8
Residential........................ 3.3 4.0 4.5 7.3 6.8
Installment.......................... 5.6 4.5 7.3 7.6 9.0
Foreign.............................. 3.2 1.0 7.9 7.4 9.5
Lease Financing...................... 0.4 1.2 0.3 0.1 0.2
------ ------ ------ ------ ------
Total Past Due Loans............. 18.8 18.5 20.8 25.0 34.7
------ ------ ------ ------ ------
Total Non-Performing Assets and
Past Due Loans................ $201.8 $168.4 $158.3 $122.1 $117.9
====== ====== ====== ====== ======
Ratio of Non-Performing Assets to Total
Loans................................. 1.89% 1.54% 1.40% 1.02% 0.96%
Ratio of Non-Performing Assets and
Accruing Loans Past Due 90 Days or
More to Total Loans................... 2.09% 1.73% 1.61% 1.29% 1.36%
</TABLE>
21
<PAGE>
Foregone Interest on Non-Accruals
Table 12
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
2000 1999 1998 1997 1996
----- ----- ---- ---- ----
(in millions of dollars)
<S> <C> <C> <C> <C> <C>
Interest Income Which Would Have Been Recorded
Under Original Terms:
Domestic......................................... $10.2 $11.2 $8.4 $6.6 $6.3
Foreign.......................................... 2.8 7.1 4.1 2.4 2.3
Interest Income Recorded During the Current Year on
Non-Accruals:
Domestic......................................... 3.4 1.1 1.3 1.5 1.6
Foreign.......................................... 1.0 3.0 1.4 0.5 0.6
</TABLE>
Reserve for Loan Losses
Pacific Century maintains the reserve for loan losses at a level that it
believes is adequate to absorb estimated inherent losses on all loans. The
reserve level is determined based on a continuing assessment of problem
credits, recent loss experience, changes in collateral values, and current and
anticipated economic conditions. For loans other than consumer loans, a risk
rating system is used. Loans are rated based on the degree of risk at
origination by the lending officer and thereafter, are reviewed periodically
as appropriate. An independent evaluation of this process is performed by the
Credit Review department to ensure compliance with the internal risk rating
system and timeliness of rating changes.
Pacific Century performs a comprehensive quarterly analysis to determine
the adequacy of its reserve for loan losses. The methodology was modified
during 2000, the results of which required Pacific Century to increase its
reserve levels. This analysis incorporates loss migration modeling and
transfer risk. Pacific Century utilizes a methodology that establishes
reserves for both specific loans and pools of loans as well as general
unallocated reserves. Commercial loans and leases are individually reviewed
according to specified criteria to determine specific loss exposure. Loans for
which a specific reserve allocation is not established are placed in loan
pools for purposes of determining the reserve allocation.
At Pacific Century, reserve allocations for various loan pools are
determined based on a loss migration analysis. The migration model determines
potential loss factors based on historical loss experience for homogeneous
loan portfolios and based on risk ratings for risk-rated portfolios. The
methodology also includes an evaluation of the changes in the nature and
volume of the portfolio, delinquency and non-accrual trends, lending policies
and procedures, and other relevant factors. For foreign credits, reserves are
further stratified to address transfer risk. Reserve allocations for transfer
risk are determined based on the type of credit facility and internal country
risk ratings.
A summary of the activity in the reserve for loan losses for the last five
years is presented in Table 13.
At year-end 2000, the reserve for loan losses provided coverage of 135% of
non-performing loans, compared to 130% coverage at year-end 1999 and 154% at
year-end 1998. Additionally, the ratio of year-end reserves to gross charge-
offs was 2.2 times, 1.9 times, and 2.6 times for 2000, 1999, and 1998,
respectively.
Gross charge-offs in 2000 totaled $110.8 million, representing 1.2% of
average loans outstanding. Comparatively, gross charge-offs were $103.3
million in 1999 and $82.0 million in 1998, resulting in gross charge-offs to
average loans ratios of 1.09% and 0.87%, respectively.
Gross charge-offs as a percentage of the reserve for loan losses were
45.0%, 53.2% and 38.8% in 2000, 1999 and 1998, respectively.
The decrease in recoveries from 1999 to 2000 reflects the recovery of one
large loan in 1999 while 2000 reflects a more normal level of recoveries.
22
<PAGE>
Reserve for Loan Losses
Table 13
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(in millions of dollars)
<S> <C> <C> <C> <C> <C>
Average Amount of Loans Outstanding.. $9,544.3 $9,444.5 $9,422.3 $8,929.7 $8,353.6
======== ======== ======== ======== ========
Balance of Reserve for Loan Losses at
Beginning of Period................. $ 194.2 $ 211.3 $ 174.4 $ 167.8 $ 152.0
Loan Charge-Offs
Commercial and Industrial.......... 22.1 18.5 15.3 12.7 8.7
Real Estate--
Construction..................... 0.6 1.4 -- -- --
Mortgage--Commercial............. 15.2 4.5 2.5 1.3 3.3
--Residential............ 6.5 7.8 2.9 1.9 1.9
Installment........................ 20.1 25.1 25.8 28.1 28.9
Foreign............................ 45.8 45.8 34.8 10.6 0.9
Lease Financing.................... 0.5 0.2 0.7 0.5 0.4
-------- -------- -------- -------- --------
Total Charge-Offs.................... 110.8 103.3 82.0 55.1 44.1
Recoveries of Loans Previously
Charged-Off Commercial and
Industrial.......................... 5.5 14.0 2.8 16.4 21.8
Real Estate--
Construction..................... -- 0.1 0.1 -- 0.7
Mortgage--Commercial............. 0.6 1.6 1.2 0.6 1.1
--Residential............ 1.1 0.6 0.2 1.0 0.4
Installment........................ 6.9 7.6 6.4 6.3 4.7
Foreign............................ 7.3 5.6 5.6 0.6 1.8
Lease Financing.................... -- -- -- -- 0.6
-------- -------- -------- -------- --------
Total Recoveries..................... 21.4 29.5 16.3 24.9 31.1
-------- -------- -------- -------- --------
Net Loan Charge-Offs................. (89.4) (73.8) (65.7) (30.2) (13.0)
Provisions Charged to Operating
Expense............................. 142.9 60.9 84.0 30.3 22.2
Other Net Additions/1/ .............. (1.5) (4.2) 18.6 6.5 6.6
-------- -------- -------- -------- --------
Balance at End of Period............. $ 246.2 $ 194.2 $ 211.3 $ 174.4 $ 167.8
======== ======== ======== ======== ========
Ratio of Net Charge-Offs to Average
Loans Outstanding................... 0.94% 0.78% 0.70% 0.34% 0.16%
Ratio of Reserve to Loans
Outstanding......................... 2.62% 2.05% 2.19% 1.88% 1.97%
Details of the foreign reserve for loan losses, which are included in the
table above, are as follows:
Beginning Balance.................... $ 78.4 $ 74.7 $ 31.0 $ 28.4 $ 15.1
Charge-Offs........................ 45.8 45.8 34.8 10.6 0.9
Recoveries......................... 7.3 5.6 5.6 0.6 1.8
-------- -------- -------- -------- --------
Net Loan (Charge-Offs) Recoveries.. (38.5) (40.2) (29.2) (10.0) 0.9
Provisions Charged to Operating
Expense........................... 34.7 42.2 54.2 17.6 5.8
Other Net Additions/1/ ............ (1.3) 1.7 18.7 (5.0) 6.6
-------- -------- -------- -------- --------
Ending Balance....................... $ 73.3 $ 78.4 $ 74.7 $ 31.0 $ 28.4
======== ======== ======== ======== ========
</TABLE>
- --------
/1/ Includes balance transfers, reserves acquired, and foreign currency
translation adjustments.
23
<PAGE>
(Table 14 presents an allocation of the loan loss reserve for the last five
years. At year-end 2000, the reserve allocation for foreign loans was $68.3
million, compared to $78.4 million at December 31, 1999. On a percentage of
outstanding loan basis, reserves allocated to the foreign portfolio
represented 5.24% of outstandings at year-end 2000, compared with 4.83% at
year-end 1999. For year-end 2000, the allocation of reserves to the commercial
real estate category increased to $27.5 million from $17.3 million at December
31, 1999, which reflects the rise in loans with lower risk ratings in this
portfolio. The higher reserve allocation to the C&I portfolio is largely
attributable to the regrading of loans using Pacific Century's improved
grading system and the decline in the quality of syndicated commercial loans.
Lower reserves allocated to the installment category is due to improvements in
the risk characteristics of this portfolio.
Allocation of Reserve for Loan Losses
Table 14
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------- ---------------- ---------------- ---------------- ----------------
Percent Percent Percent Percent Percent
of Out- of Out- of Out- of Out- of Out-
standing standing standing standing standing
Reserve Loan Reserve Loan Reserve Loan Reserve Loan Reserve Loan
Amount Amount Amount Amount Amount Amount Amount Amount Amount Amount
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and Industrial.. $ 90.0 3.68% $ 50.5 2.03% $ 60.8 2.36% $ 57.5 2.73% $ 60.0 3.32%
Real Estate Construction... 6.0 1.95 5.0 1.52 1.0 0.33 4.2 1.50 4.5 1.91
Commercial................. 27.5 2.44 17.3 1.39 3.3 0.29 21.8 1.61 18.5 1.51
Residential................ 8.3 0.27 8.3 0.31 8.1 0.30 13.8 0.50 20.0 0.76
Installment................ 15.5 2.13 20.0 2.65 27.1 3.55 34.9 3.91 26.0 3.06
Foreign.................... 66.3 5.09 78.4 4.83 86.6 4.76 31.0 1.93 28.4 1.89
Lease Financing............ 3.7 0.52 3.0 0.48 5.9 1.06 2.6 0.50 2.0 0.46
Not allocated/1/ .......... 28.9 -- 11.7 -- 18.5 -- 8.6 -- 8.4 --
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
$246.2 2.62% $194.2 2.05% $211.3 2.19% $174.4 1.88% $167.8 1.97%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
- --------
/1/ Includes both foreign and domestic unallocated reserves.
Market Risk
Pacific Century's market risk management process involves measuring,
monitoring, controlling and managing risks that can significantly impact the
Company's financial position and operating results. Market risks resulting
from the fluctuation of interest rates, foreign exchange rates, commodity
prices and equity prices are balanced with expected returns to enhance
earnings performance and shareholder value, while limiting the volatility of
each. The activities associated with these market risks are categorized into
"other than trading" and "trading."
Other Than Trading Activities
In the normal course of business, elements of Pacific Century's balance
sheet are exposed to varying degrees of market risk. The Company's primary
market risk exposures are interest rate risk and foreign exchange risk (see
below). A key element in the process of managing market risk involves
oversight by the Board of Directors and senior management as to the level of
such risk assumed by Pacific Century in its balance sheet.
The Board reviews and approves risk management policies, including risk
limits and guidelines and delegates to the Asset Liability Management
Committee (ALCO) oversight functions. The ALCO, consisting of the Managing
Committee and senior business and finance officers, monitors Pacific Century's
market risk exposure and as market conditions dictate, modifies balance sheet
positions or directs the use of derivative instruments.
24
<PAGE>
Interest Rate Risk. Pacific Century's balance sheet is sensitive to changes
in the general level of interest rates. This interest rate risk arises
primarily from Pacific Century's normal business activities of making loans
and taking deposits. Many other factors also affect Pacific Century's exposure
to changes in interest rates. These factors include general economic and
financial conditions, customer preferences, and historical pricing
relationships.
A key element in Pacific Century's ongoing process to measure and monitor
interest rate risk is the utilization of a net interest income (NII)
simulation model. This model is used to estimate the amount that NII will
change over a one-year time horizon under various interest rate scenarios.
These estimates are based on numerous assumptions that include loan and
deposit volumes and pricing, prepayment speeds on mortgage-related assets, and
principal amortization and maturities on other financial instruments. While
such assumptions are inherently uncertain, management believes that these
assumptions are reasonable. As a result, the NII simulation model captures the
dynamic nature of the balance sheet and provides a sophisticated estimate
rather than a precise prediction of NII's exposure to higher or lower interest
rates.
Table 15 presents as of December 31, 2000, 1999 and 1998, the estimate of
the change in NII from a gradual 200 basis point increase or decrease in
interest rates, moving in parallel fashion for the entire yield curve, over
the next 12-month period relative to the measured base case scenerio for NII.
The resulting estimate in NII exposure is well within the approved ALCO
guidelines
Market Risk Exposure to Interest Rate Changes
Table 15
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------
2000 1999 1998
----------------------------------- -----------------
Interest Rate Interest Rate Interest Rate
Change Change Change
(in basis points) (in basis points) (in basis points)
----------------- ----------------- -----------------
-200 +200 -200 +200 -200 +200
--------- ------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Estimated Exposure as a
Percent of Net Interest
Income................. (2.3)% 0.5% 1.4% (1.7)% 1.9% (2.1)%
</TABLE>
To enhance and complement the results from the NII simulation model,
Pacific Century also reviews other measures of interest rate risk. These
measures include the sensitivity of market value of equity and the exposure to
basis risk and non-parallel yield curve shifts. There are inherent limitations
to these measures but used along with the NII simulation model, Pacific
Century gets a better overall insight for managing its exposure to changes in
interest rates.
In managing interest rate risks, Pacific Century uses several approaches,
both on- and off-balance sheet, to modify its risk position. Approaches that
are used to shift balance sheet mix or alter the interest rate characteristics
of assets and liabilities include changing product pricing strategies,
modifying investment portfolio characteristics, or using financial derivative
instruments. The use of financial derivatives, as detailed in Note O to the
Consolidated Financial Statements, has been limited over the past several
years. During this period, Pacific Century has relied more on the use of on-
balance sheet alternatives to manage its interest rate risk position.
Foreign Currency Risk
Pacific Century's broad area of operations throughout the South Pacific and
Asia has the potential to expose the Company to foreign currency risk. In
general, however, most foreign currency denominated assets are funded by like
currency liabilities, with imbalances corrected through the use of various
hedge instruments as disclosed in Note O to the Consolidated Financial
Statements. In accordance with policy, the net foreign currency exposure in
those balance sheet activities described above is insignificant.
25
<PAGE>
On the other hand, Pacific Century is exposed to foreign currency exchange
rate changes from the capital invested in its foreign subsidiaries and
branches located throughout the South Pacific and Asian Rim. These investments
are designed to diversify Pacific Century's total balance sheet exposure.
While a portion of the capital investment in French Polynesia and New
Caledonia is offset by a borrowing denominated in euro and foreign exchange
hedge transactions, the remainder of these capital positions, aggregating
$71.2 million at December 31, 2000, is not hedged. To estimate the potential
loss from foreign currency exposure Pacific Century uses a value-at-risk (VAR)
calculation. For net investments in subsidiaries, Pacific Century's VAR
calculation determines the potential one-year loss within a 95% confidence
interval. In other words, a loss greater than VAR has approximately a 5%
probability of occurring.
Table 16 presents as of December 31, 2000 and 1999 Pacific Century's
foreign currency exposure from its net investment in subsidiaries and branch
operations that are denominated in a foreign currency as measured by the VAR.
Market Risk Exposure From Changes in Foreign Exchange Rates
Table 16
<TABLE>
<CAPTION>
December 31
-------------------------------------
2000 1999
------------------ ------------------
Book Value-at- Book Value-at-
Value/2/ Risk/1/ Value/2/ Risk/1/
-------- --------- -------- ---------
(in millions of dollars)
<S> <C> <C> <C> <C>
Net Investments in Foreign Subsidiaries and Branches
Japanese Yen...................................... $10.6 $ 1.4 $ 9.4 $ 1.8
Korean Won........................................ 29.6 5.1 34.3 4.2
Pacific Franc..................................... 32.0 6.2 25.9 4.2
Other Currencies.................................. (1.0) 14.4 18.0 17.0
----- ----- ----- -----
Total........................................... $71.2 $27.1 $87.6 $27.2
===== ===== ===== =====
</TABLE>
- --------
/1/ The average value-at-risk for the Japanese yen, Korean won, Pacific franc,
and other currencies was $1.8 million, $3.9 million, $5.9 million and
$17.0 million, respectively for the year ended December 31, 2000 and was
$2.0 million, $5.5 million, $4.7 million, and $15.3 million, respectively,
for the year ended December 31, 1999.
/2/ The book value of net investments in foreign subsidiaries and branches is
net of a $37 million and $40 million borrowing at December 31, 2000 and
1999, respectively, denominated in euro and foreign exchange hedge
transactions of $26 million and $23 million at December 31, 2000 and 1999,
respectively.
Trading Activities
Pacific Century's trading activities include foreign currency and foreign
exchange contracts that expose Pacific Century to a minor degree of foreign
currency risk. These transactions are executed on behalf of customers and for
the Company's own account. Pacific Century, however, manages its trading
account such that it does not maintain significant foreign currency open
positions. The exposure from foreign currency trading positions measured by
the VAR methodology as of year-end 2000 continues to be immaterial.
Liquidity Management
Liquidity is managed to ensure that Pacific Century has continuous access
to sufficient, reasonably priced funding to conduct its business in a normal
manner. Pacific Century's ALCO monitors sources and uses of funds and modifies
asset and liability positions as liquidity requirements change. This process
combined with Pacific
26
<PAGE>
Century's ability to raise funds in money and capital markets and through
private placements provides flexibility in managing the exposure to liquidity
risk.
To ensure that its liquidity needs are met, Pacific Century actively
manages both the asset and liability sides of the balance sheet. The primary
sources of liquidity on the asset side of the balance sheet are available-for-
sale investment securities, interest-bearing deposits, and cash flows from
loans and investments, as well as the ability to securitize certain assets.
With respect to liabilities, liquidity is generated through growth in deposits
and the ability to obtain wholesale funding in national and local markets
through a variety of sources. Pacific Century focused on maintaining strong
liquidity in the second half of 2000.
Pacific Century obtains short-term wholesale funding through federal funds,
repos, and commercial paper. Pacific Century issues commercial paper in
various denominations with maturities of generally 90 days or less. During
2000, Pacific Century issued commercial paper only in the Hawaii marketplace.
Repos are financing transactions, whereby securities are pledged as
collateral for short-term borrowings. Nearly all of Pacific Century's repos
consist of transactions with governmental entities. Pacific Century's balance
sheet is unique given the high level of state and local government funding.
Historically, these governmental entities have provided a stable source of
funds.
Pacific Century maintained a $25 million, annually renewable line of credit
for working capital purposes. Fees are paid on the unused balance of the line.
During 2000, the line was not drawn upon.
Bank of Hawaii and First Savings are both members of the Federal Home Loan
Bank of Seattle. The FHLB provides these institutions with an additional
source for short and long-term funding. Borrowings from the FHLB were $520
million and $397 million at the end of 2000 and 1999, respectively.
Additionally, Bank of Hawaii maintains a $1 billion senior and subordinated
bank note program. Under this facility, Bank of Hawaii may issue additional
notes provided that at any time the aggregate amount outstanding does not
exceed $1 billion. At year-end for both 1999 and 2000, $125 million of
subordinated notes was outstanding under this bank note program.
Pacific Century may not issue debt without advance approval of its
regulator.
Capital Management
Pacific Century manages its capital level to optimize shareholder value,
support asset growth, reflect risks inherent in its markets, provide
protection against unforeseen losses and comply with regulatory requirements.
Capital levels are reviewed periodically relative to Pacific Century's risk
profile and current and projected economic conditions. Pacific Century's
objective is to hold sufficient capital on a regulatory basis to exceed the
minimum guidelines of a "well capitalized" institution.
At year-end 2000, Pacific Century's shareholders' equity grew to $1.3
billion, an increase of 7.3% over year-end 1999. The source of growth in
shareholders' equity in 2000 included retention of earnings and issuance of
common stock under the dividend reinvestment plan and various stock-based
employee benefit plans and unrealized valuation adjustments of $41.0 million.
Offsetting these increases were cash dividends paid of $56.5 million and
treasury stock purchases of $17.0 million.
Pacific Century's regulatory capital ratios at year-end 2000 were: Tier 1
Capital Ratio of 11.78%, Total Capital Ratio of 14.64%, and Leverage Ratio of
9.10%. All three capital ratios exceeded the federal bank regulators' minimum
threshold levels for an institution to qualify as well capitalized. The
regulatory standards for well capitalized are as follows: Tier 1 Capital 6%;
Total Capital 10%; and the Leverage Ratio 5%. These standards represent
minimum guidelines and Pacific Century manages its capital base in accordance
with the attributes noted at the beginning of this section. Table 17 presents
a five-year history of activities and balances in Pacific Century's capital
accounts along with key capital ratios.
27
<PAGE>
As of December 31, 2000, $100 million of 8.25% Capital Securities that
mature in 2026 were outstanding. These securities qualify as Tier I Capital
for regulatory accounting purposes, but are classified as long-term debt in
the Consolidated Statement of Condition. In addition, Pacific Century had
subordinated debt of $172.1 million at the end of 2000 that qualified as total
capital for regulatory purposes.
Over the past few years, Pacific Century has repurchased shares under
various stock repurchase programs in order to maintain its capital position at
a desired level. In 1999, Pacific Century's Board of Directors approved a
share repurchase program that authorizes the repurchase of up to 300,000
shares of common stock per quarter beginning in the fourth quarter of 1999.
During 2000 and 1999's fourth quarter, Pacific Century repurchased
approximately 1,453,000 shares under this program. Pacific Century did not use
this repurchase authority in the last 6 months of 2000.
Equity Capital
Table 17
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(in millions of dollars)
<S> <C> <C> <C> <C> <C>
Year Ended December 31
Source of Shareholders' Equity
Net Income.................... $ 113.7 $ 133.0 $ 107.0 $ 139.5 $ 133.1
Dividends Paid................ (56.5) (54.6) (52.8) (49.7) (47.4)
Dividend Reinvestment
Program...................... 3.3 4.0 5.4 6.8 6.8
Stock Issued for Acquisition.. -- -- -- 108.4 --
Stock Repurchases............. (17.0) (21.8) (7.3) (142.5) (70.4)
Other/1/ ..................... 45.6 (33.9) 16.1 (11.4) (10.4)
--------- --------- --------- --------- ---------
Increase in Shareholders'
Equity....................... $ 89.1 $ 26.7 $ 68.4 $ 51.1 $ 11.7
========= ========= ========= ========= =========
As of December 31
Shareholders' Equity.......... $ 1,301.4 $ 1,212.3 $ 1,185.6 $ 1,117.2 $ 1,066.1
Add: 8.25% Capital
Securities of Bancorp
Hawaii Capital Trust
I.................... 100.0 100.0 100.0 100.0 100.0
Minority Interest...... 4.5 4.4 7.4 5.8 9.3
Less: Intangibles........... 163.9 175.8 186.2 180.9 68.9
Unrealized Valuation and
Other Adjustments....... 2.2 (37.9) 3.6 5.5 2.2
--------- --------- --------- --------- ---------
Tier I Capital................ 1,239.8 1,178.8 1,103.2 1,036.6 1,104.3
Allowable Reserve for Loan
Losses..................... 132.8 143.9 147.2 139.2 131.1
Subordinated Debt........... 172.1 195.8 95.0 118.7 118.7
Investment in Unconsolidated
Subsidiary................. (3.4) (3.2) (2.5) (1.9) --
--------- --------- --------- --------- ---------
Total Capital............. $ 1,541.3 $ 1,515.3 $ 1,342.9 $ 1,292.6 $ 1,354.1
========= ========= ========= ========= =========
Risk Weighted Assets.......... $10,512.3 $11,461.0 $11,708.5 $11,098.6 $10,452.1
========= ========= ========= ========= =========
Key Capital Ratios
Growth in Common Equity....... 7.3% 2.3% 6.1% 4.8% 1.1%
Average Equity/Average Assets
Ratio........................ 8.78% 8.30% 7.81% 7.79% 8.05%
Tier I Capital Ratio.......... 11.78% 10.28% 9.42% 9.34% 10.57%
Total Capital Ratio........... 14.64% 13.22% 11.47% 11.65% 12.96%
Leverage Ratio................ 9.10% 8.31% 7.48% 7.21% 7.98%
</TABLE>
- --------
/1/ Includes profit sharing; stock options and directors' restricted shares
and deferred compensation plans; and unrealized valuation adjustments for
investment securities, foreign currency translation and pension liability.
28
<PAGE>
Business Segments
Pacific Century is a financial services organization that maintains a broad
presence throughout the Pacific region and operates through a unique trans-
Pacific network of locations. Pacific Century's activities are conducted
primarily through more than 180 branches and representative and extension
offices (including branches of affiliate banks). Its staff of approximately
4,350 employees provides diverse financial products and services to
individuals, businesses, governmental agencies and financial institutions.
Pacific Century assesses the financial performance of its operating
segments by geographic and functional operations. Geographically, Pacific
Century has aligned certain of its operations into four major segments:
Hawaii, Pacific, Asia, and the U.S. Mainland. In addition, the Treasury and
Other Corporate segment includes corporate asset and liability management
activities and the unallocated portion of various administrative and support
units.
Business segment results are determined based on Pacific Century's internal
financial management reporting process and organization structure. This
process uses various techniques to assign balance sheet and income statement
amounts to business segments, including allocations of overhead, economic
credit loss provision, and capital. This process is dynamic and requires
certain allocations based on judgement and subjective factors. During the
fourth quarter of 2000, management revised the structure used to analyze
financial performance and further evolution is anticipated. Unlike financial
accounting, there is no comprehensive, authoritative guidance for management
accounting that is equivalent to accounting principles generally accepted in
the United States. The management accounting process measures the performance
of the operating segments based on the management structure of the Company and
is not necessarily comparable with similar information for any other financial
institution. Pacific Century's operating segments are largely geographically
defined. Changes in management structure and/or the allocation process has
caused changes in allocations, transfers and assignments. To the extent
practicable, results for prior periods have been restated to facilitate
comparability.
The table in Note Q to the Consolidated Financial Statements presents
business segment financial information for each of Pacific Century's major
market segments for the years ended December 31, 2000, 1999, and 1998. Because
business segment financial reports are prepared using accounting practices
that differ from accounting principles generally accepted in the United
States, certain amounts reflected therein do not agree with corresponding
amounts contained in the Consolidated Financial Statements and Management
Discussion and Analysis of Operations.
Pacific Century utilizes "risk-adjusted return on capital" (RAROC) as a
measurement of business segment performance. RAROC is the ratio of net income
to risk-adjusted equity. Equity is allocated to business segments based on
risk factors inherent in the operations of each segment.
Hawaii Market
The Hawaii segment primarily includes retail and commercial operating
units. Retail operating units sell and service a broad line of consumer
financial products. These units include consumer deposits, consumer lending,
residential real estate lending, auto financing, credit cards, consumer lines
of insurance including life and homeowners, and private and institutional
services (trust, mutual funds, and stock brokerage). In business banking, Bank
of Hawaii is a major commercial lender and maintains a significant presence
throughout the State. Commercial operating units in the Hawaii market include
small business, corporate banking, commercial products, commercial real
estate, and commercial property and casualty insurance.
On December 20, 2000, Pacific Century announced the sale of its credit card
portfolio to American Express Centurian Bank. At December 31, 2000 the
outstanding balances totaled $225 million. Under the terms of the agreement,
American Express will establish a card marketing program with Bank of Hawaii,
whereby American Express will issue and market Bank of Hawaii-branded American
Express Cards to the bank's customer base. The cards will be marketed through
the Bank of Hawaii in Hawaii and the West Pacific and Pacific Century Bank in
California, as well as through more than 500 ATM's and via direct mail. The
transfer of the portfolio is expected to be completed in the first or second
quarter of 2001.
29
<PAGE>
In addition to offering traditional branch banking services, Bank of Hawaii
has actively introduced new electronic based products and services that
provide enhanced customer convenience. Its internet banking product, E-Bankoh,
provides clients 24-hour access to a wide range of financial products and
services, including checking, savings and time deposit accounts, trust and
401(k) services, and investment products.
For the year ended December 31, 2000, the Hawaii segment contributed $71.6
million in net income, up 30.4% from $54.9 million in 1999. The increase in
non-interest income and the reduction in non-interest expense is largely due
to the pricing and expense reduction strategies implemented through the New
Era redesign. RAROC for this segment was 20% in 2000 and 15% in 1999. Total
assets in the Hawaii segment remained flat at $5.3 billion at year-end 2000,
compared to year-end 1999.
Pacific Market
Pacific Century has maintained a presence in the Intra-Pacific region for
41 years, where it offers financial products and services to both retail and
commercial customers. Today, this market spans island nations across the West
and South Pacific. Pacific Century is the only U.S. financial institution to
have such a broad presence in this region.
Pacific Century serves the West Pacific through branches of both Bank of
Hawaii and First Savings and Loan Association of America, F.S.A. (First
Savings). Bank of Hawaii's presence in the West Pacific consists of branches
in Guam, the Commonwealth of the Northern Mariana Islands (Saipan), the
Federated States of Micronesia (Yap, Pohnpei, and Kosrae), the Republic of the
Marshall Islands (Majuro) and the Republic of Palau (Koror). First Savings
operates several branches in Guam.
Pacific Century maintains a presence in the South Pacific through branches
of Bank of Hawaii and subsidiary and affiliate banks. The Bank of Hawaii
locations in this region consist of branches in Fiji and American Samoa.
Pacific Century's subsidiary banks in the South Pacific are located in French
Polynesia, New Caledonia, Papua New Guinea, and Vanuatu. Additionally, Pacific
Century maintains a 51% investment interest in a bank located in the Solomon
Islands. Minority ownership of affiliated banks located in Samoa and Tonga was
sold on December 28, 2000. In Australia, Pacific Century holds a minority
ownership in Bank of Queensland and maintains a strategic alliance with the
bank that provides opportunities to expand markets in the region. Pacific
Century's largest markets in the South Pacific are in French Polynesia and New
Caledonia.
For the year ended December 31, 2000, net income in the Pacific segment was
$27.0 million, up from $22.5 million in 1999. Non-interest revenue improvement
came from the West Pacific operations while these revenues decreased in the
South Pacific region. RAROC, including the amortization of intangibles, for
this segment was 13% in 2000 and 11% in 1999. Total assets in the Pacific
segment stood at $2.1 billion at year-end 2000, down from $2.5 billion year-
end 1999
Asia Market
Asia is a market that Pacific Century has developed for more than 20 years.
Pacific Century operates in Asia through Bank of Hawaii branches in Hong Kong,
Japan, Singapore, South Korea and Taiwan and a representative office with
extensions in the Philippines.
Pacific Century's business focus in Asia is correspondent banking and trade
financing. Activities include letters of credit, remittance processing,
foreign exchange, cash management, export bills collection, and trade related
working capital loans. The lending emphasis is on short-term loans based on
cash flows. Pacific Century's network of locations in the Pacific and its
presence on the U.S. Mainland facilitates the flow of customers' business and
investment transactions across the Asia-Pacific region.
30
<PAGE>
For the year ended December 31, 2000, net loss in the Asia segment was $100
thousand, an improvement from $2.9 million loss in 1999. During 2000, this
market's economic credit loss provision decreased approximately $2.9 million
to reflect an improved credit risk profile resulting from reform measures
initiated by management to deal with the financial instability in that region.
RAROC for Asia increased to 0% in 2000 from (3)% in 1999. Total assets in the
Asia segment were $1.1 billion at year-end 2000 reflecting a decrease from
year-end 1999. The decrease in this market's assets is a result of
management's effort in reducing the risk exposure of this segment.
For additional information on Asia, see "Foreign Operations" in this
report.
U.S. Mainland Market
Pacific Century operates on the U.S. Mainland primarily through its banking
subsidiary Pacific Century Bank, N.A. (PCB). PCB provides financial products
and services through branches in Southern California and Arizona. PCB's
emphasis is on providing asset based lending and related services for small
and middle market businesses. On December 27, 2000, Pacific Century announced
a definitive agreement to sell its Arizona branch network to Zions
Bancorporation. The transaction is expected to close during the second quarter
of 2001. The sale supports PCB's strategy to focus on developing its franchise
in the small and middle market business in Southern California. Additionally,
PCB's West Coast presence provides opportunities for Pacific Century to expand
relationships with customers who have ties to the Asia-Pacific region.
The U.S. Mainland segment also includes business units for corporate
banking and leasing. The corporate banking unit primarily targets large
corporate clients that have interests in the Asia-Pacific region and companies
in the media and communications industries. Leasing activities consist of
providing financing to businesses, largely for aircraft, watercraft, rail,
vehicles and equipment.
In 2000, net income for the U.S. Mainland segment dropped slightly to $37.4
million from $37.6 million in 1999. The 1999 results include approximately
$5.3 million in nonrecurring after-tax gains related to one-time transactions
(i.e., securities sale and subsidiary divestiture) by the Leasing Business.
Income taxes for this segment were reduced in 2000 and 1999 by $13.7 million
and $14.0 million, respectively due to low income housing tax credits and
investment tax credits. RAROC for this segment, which includes the
amortization of intangibles, decreased to 13% in 2000 from 14% in 1999. As of
December 31, 2000, total assets in the U.S. Mainland segment were $3.0
billion, up 12.5% over year-end 1999.
Treasury and Other Corporate
Treasury consists of corporate asset and liability management activities
including investment securities, federal funds purchased and sold, government
deposits, short and long-term borrowings, and derivative activities for
managing interest rate and foreign currency risks. Additionally, the net
residual effect of transfer pricing assets and liabilities is included in
Treasury, as is any corporate-wide interest rate risk.
Other corporate items included in this segment consist of the operations of
certain non-bank subsidiaries, unallocated overhead expenses, and the
reconciling of a $69 million difference between the economic provision used in
reporting business segments and the loan loss provision in the consolidated
financial statements.
In addition, non-recurring income in the amount of $14.0 million was
recorded in this segment of which $11.9 million was gains from the settlement
of pension liability and $3.2 million was gains from the sale of interests in
banks in Tonga and Samoa. Pacific Century does not use RAROC to measure
Treasury and Other Corporate.
31
<PAGE>
Fourth Quarter Results and Other Matters
Earnings in 2000's fourth quarter were $32.6 million, a decrease of 13.3%
from the $37.6 million reported in the fourth quarter of 1999. Basic earnings
per share were $.41 and $.47 in the fourth quarter of 2000 and 1999,
respectively. Diluted earnings per share were $.41 and $.47 in the same
respective periods.
Net interest income on a tax equivalent basis totaled $138.8 million in the
fourth quarter of 2000, about 3.0% lower than the same period in 1999. The net
interest margin in 2000's fourth quarter was 4.29%, compared to 4.31% in the
fourth quarter of 1999. This decline was primarily driven by a 78 basis points
rise in the average rate on interest bearing liabilities for the quarter from
the same year earlier period partially offset by a 53 basis points rise in the
average yield on earning assets in 2000's fourth quarter relative to the same
period last year.
In the fourth quarter of 2000, the provision for loan losses was $25.8
million, up from $20.9 million in the same quarter a year ago. The current
quarter loan loss provision was slightly greater than net charge-offs of
$25.6 million.
Non-performing assets (NPAs), exclusive of loans past due 90+ days were
materially reduced by 16.7 percent during the quarter, dropping from $219.6
million at September 30, 2000 to $183.0 million at year-end 2000. NPAs totaled
$149.9 million at December 31, 1999.
During the quarter, two commercial real estate non-accrual loans totaling
approximately $29 million were repaid in full. In commercial and industrial
(C&I), one syndicated non-accrual loan of $11.2 million returned to accrual
status and two syndicated loans totaling $22.7 million were placed on non-
accrual status. Charge-offs of four Asia loans totaling approximately $7.5
million and South Pacific loans, primarily in the French Territories totaling
approximately $10.0 million, also contributed to the reduction in NPAs.
Subsequent to year-end, Pacific Century took additional steps to improve
asset quality by selling at a discount the $65 million problem loan first
referenced in 2000's second quarter. As a result, the company will charge off
the amount of the discount in the first quarter, which will be largely offset
by reserves previously allocated for this credit. At year-end, this credit was
carried as a performing loan.
Non-interest income in the final quarter of 2000 decreased to $64.7 million
from $69.4 million in 1999's comparable period. During the fourth quarter, the
sale of minority interests in banks in Tonga and Samoa contributed $3.2
million to non-interest income while the disposition of two venture capital
related assets contributed $4.3 million in 1999. Securities losses in the
fourth quarter were $1.3 million compared to a gain of $5.3 million in the
prior year quarter.
Non-interest expense totaled $123.9 million, 5.5% lower than 1999's fourth
quarter and $1 million less than reported in 2000's third quarter.
32
<PAGE>
Consolidated Quarterly Results of Operations
Table 18
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------
2000 1999
----------------------------- ---------------------------
Mar. Jun. Sept. Dec. Mar. Jun. Sept. Dec.
------ ------ ------ ------ ------ ------ ------ ------
(in millions of dollars except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Interest Income... $256.4 $263.4 $269.3 $268.4 $260.5 $255.0 $253.0 $258.0
Total Interest Expense.. 116.9 124.8 130.0 129.6 116.7 110.6 109.5 115.0
Net Interest Income..... 139.5 138.6 139.3 138.8 143.8 144.4 143.5 143.0
Provision for Loan
Losses................. 13.5 83.4 20.1 25.8 12.6 13.9 13.5 20.9
Investment Securities
Gains (Losses)......... 0.3 (0.5) (0.1) (1.3) 1.9 6.8 0.1 5.3
Non-Interest Income..... 63.6 74.1 61.4 65.9 59.3 56.8 71.3 64.1
Non-Interest Expense.... 126.1 121.9 124.9 123.9 134.9 132.1 155.6 131.1
------ ------ ------ ------ ------ ------ ------ ------
Income Before Taxes..... 63.8 6.9 55.6 53.7 57.5 62.0 45.8 60.4
Provision for Taxes..... 24.0 0.2 21.0 21.1 22.1 23.5 24.3 22.8
------ ------ ------ ------ ------ ------ ------ ------
Net Income.............. $ 39.8 $ 6.7 $ 34.6 $ 32.6 $ 35.4 $ 38.5 $ 21.5 $ 37.6
====== ====== ====== ====== ====== ====== ====== ======
Basic Earnings Per
Share.................. $ 0.50 $ 0.08 $ 0.44 $ 0.41 $ 0.44 $ 0.48 $ 0.27 $ 0.47
Diluted Earnings Per
Share.................. $ 0.50 $ 0.08 $ 0.44 $ 0.41 $ 0.44 $ 0.47 $ 0.27 $ 0.47
</TABLE>
33
<PAGE>
Supplementary Data
Maturity Distribution, Market Value and Weighted-Average Yield to Maturity of
Securities
Table 19
<TABLE>
<CAPTION>
1 Year After After
or 1 Year- 5 Years- Over Approximate
Less 5 Years 10 Years 10 Years Total Market Value
------ ------- -------- -------- -------- ------------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Maturity Distribution Based on Amortized Cost
December 31, 2000
U.S. Government Agencies................... $ 6.8 $ -- $ -- $ -- $ 6.8 $ 6.8
Obligations of States and Political
Subdivisions.............................. -- 3.8 0.2 -- 4.0 4.3
Corporate Equity Securities................ -- 0.5 -- 87.4 87.9 88.0
Mortgage-Backed Securities/1/ ............. 0.1 1.8 4.4 541.1 547.4 553.8
Other...................................... 18.7 4.8 0.4 -- 23.9 23.7
Available for Sale Securities/1/ .......... 87.0 68.1 133.0 2,215.7 2,503.8 2,507.1
------ ------ ------ -------- -------- --------
Total--December 31, 2000................. $112.6 $ 79.0 $138.0 $2,844.2 $3,173.8 $3,183.7
====== ====== ====== ======== ======== ========
--December 31, 1999................. $163.2 $ 88.7 $ 99.4 $3,059.5 $3,410.8 $3,329.9
====== ====== ====== ======== ======== ========
--December 31, 1998................. $239.3 $184.7 $170.6 $3,072.0 $3,666.6 $3,686.5
====== ====== ====== ======== ======== ========
Weighted-Average Yield to Maturity/2/
U.S. Government Agencies................... 7.2% -- % -- % -- % 7.2%
Obligations of States and Political
Subdivisions.............................. -- 0.3 -- -- 0.3
Mortgage-Backed Securities................. 7.8 7.5 8.1 7.2 7.2
Other...................................... 12.3 4.4 3.0 -- 10.6
Available for Sale Securities/3/ .......... 6.0 5.6 6.8 6.8 6.7
------ ------ ------ -------- --------
Total--December 31, 2000................. 7.1% 5.3% 6.8% 6.7% 6.7%
====== ====== ====== ======== ========
Tax Equivalent Adjustment Amount............. $ -- $ (0.1) $ -- $ -- $ (0.1)
</TABLE>
- --------
/1/ Contractual maturities do not anticipate reductions for periodic paydowns.
/2/ Tax equivalent at 35% tax rate.
/3/ The weighted-average yields on available for sale securities are based on
amortized cost.
34
<PAGE>
Average Assets
Table 20
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
--------------- --------------- --------- --------- ---------
Amount Mix Amount Mix Amount Amount Amount
--------- ----- --------- ----- --------- --------- ---------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Bearing Deposits.. $ 216.2 1.5% $ 385.0 2.6% $ 508.8 $ 486.3 $ 579.9
Investment Securities
--Held to Maturity....... 731.9 5.2 816.9 5.6 902.4 1,232.9 1,091.1
--Available for Sale..... 2,502.5 17.8 2,698.8 18.5 2,769.3 2,452.0 2,288.7
Funds Sold................. 43.2 0.3 102.0 0.7 69.7 76.4 92.1
Loans...................... 9,544.3 68.0 9,444.5 64.8 9,422.3 8,929.7 8,353.6
--------- ----- --------- ----- --------- --------- ---------
Total Earning Assets... 13,038.1 92.8 13,447.2 92.2 13,672.5 13,177.3 12,405.4
Non-Earning Assets......... 1,017.2 7.2 1,135.7 7.8 1,198.2 1,065.0 889.8
--------- ----- --------- ----- --------- --------- ---------
Total.................. $14,055.3 100.0% $14,582.9 100.0% $14,870.7 $14,242.3 $13,295.2
========= ===== ========= ===== ========= ========= =========
</TABLE>
Average Loans
Table 21
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
-------------- -------------- -------- -------- --------
Amount Mix Amount Mix Amount Amount Amount
-------- ----- -------- ----- -------- -------- --------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial and Industrial.. $2,466.3 25.8% $2,402.7 25.4% $2,258.3 $1,923.8 $1,784.0
Real Estate
Construction............. 304.4 3.2 318.1 3.4 284.0 264.6 229.6
Mortgage................. 3,903.8 40.9 3,742.3 39.6 3,838.6 3,882.0 3,863.2
Installment................ 712.5 7.5 723.9 7.7 793.2 846.3 814.8
Foreign.................... 1,467.9 15.4 1,702.2 18.0 1,752.6 1,540.3 1,253.7
Lease Financing............ 689.4 7.2 555.3 5.9 495.6 472.7 408.3
-------- ----- -------- ----- -------- -------- --------
Total.................. $9,544.3 100.0% $9,444.5 100.0% $9,422.3 $8,929.7 $8,353.6
======== ===== ======== ===== ======== ======== ========
</TABLE>
Maturities and Sensitivities of Loans to Changes in Interest Rates/1/
Table 22
<TABLE>
<CAPTION>
December 31, 2000
----------------------------------------------------
Due in One Due After One Due After
Year or Less to Five Years/2/ Five Years/2/ Total
------------ --------------- ------------ --------
(in millions of dollars)
<S> <C> <C> <C> <C>
Commercial and Industrial.... $ 868.9 $1,392.1 $ 182.4 $2,443.4
Real Estate--Construction.... 160.6 82.0 64.9 307.5
Other Loans.................. 563.5 1,733.2 3,319.1 5,615.8
Foreign Loans................ 656.6 344.7 300.3 1,301.6
-------- -------- -------- --------
Total.................... $2,249.6 $3,552.0 $3,866.7 $9,668.3
======== ======== ======== ========
</TABLE>
- --------
/1/ Based on contractual maturities.
/2/ As of December 31, 2000, loans maturing after one year consisted of
$4,215.0 with floating rates and $3,203.8 with fixed rates.
35
<PAGE>
Average Deposits
Table 23
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
-------------- -------------- -------- -------- --------
Amount Mix Amount Mix Amount Amount Amount
-------- ----- -------- ----- -------- -------- --------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Domestic
Non-Interest Bearing
Demand............... $1,640.0 18.2% $1,652.6 17.7% $1,650.4 $1,516.8 $1,371.5
Interest-Bearing
Demand............... 2,061.9 22.9 2,137.1 22.9 2,114.8 1,945.3 1,726.6
Regular Savings....... 684.8 7.6 723.9 7.8 783.9 865.5 937.0
Private Time
Certificates of
Deposit ($100,000 or
More)................ 1,128.4 12.5 948.9 10.2 941.7 848.1 719.2
Public Time
Certificates of
Deposit ($100,000 or
More)................ 83.7 0.9 94.3 1.0 86.5 205.9 310.6
Bearer Certificates of
Deposit.............. -- -- -- -- -- -- 1.3
All Other Time and
Savings
Certificates......... 1,569.0 17.5 1,516.2 16.3 1,752.5 1,804.7 1,433.9
-------- ----- -------- ----- -------- -------- --------
Total Domestic...... 7,167.8 79.6 7,073.0 75.9 7,329.8 7,186.3 6,500.1
-------- ----- -------- ----- -------- -------- --------
Foreign
Non-Interest Bearing
Demand............... 371.4 4.1 435.2 4.7 447.7 264.0 194.2
Time Due to Banks..... 505.4 5.6 641.4 6.9 596.1 718.7 733.5
Other Savings and
Time................. 960.5 10.7 1,165.7 12.5 1,176.1 1,079.0 745.0
-------- ----- -------- ----- -------- -------- --------
Total Foreign....... 1,837.3 20.4 2,242.3 24.1 2,219.9 2,061.7 1,672.7
-------- ----- -------- ----- -------- -------- --------
Total............... $9,005.1 100.0% $9,315.3 100.0% $9,549.7 $9,248.0 $8,172.8
======== ===== ======== ===== ======== ======== ========
</TABLE>
36
<PAGE>
Interest Differential
Table 24
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
2000 Compared to 1999 1999 Compared to 1998
------------------------ -------------------------
Volume/1/ Rate/1/ Total Volume/1/ Rate/1/ Total
--------- ------- ------ --------- ------- ------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Change in Interest Income
Interest-Bearing Deposits
Foreign................ $(11.4) $ 1.1 $(10.3) $ (8.3) $ (3.4) $(11.7)
Investment Securities--
Held to Maturity
Taxable................ (5.9) 1.1 (4.8) (6.3) (3.6) (9.9)
Tax-Exempt............. (0.7) 0.4 (0.3) -- -- --
Investment Securities--
Available for Sale...... (12.6) 9.7 (2.9) (4.5) 1.6 (2.9)
Funds Sold............... (3.5) 0.8 (2.7) 1.7 (0.1) 1.6
Loans, Net of Unearned
Income
Domestic............... 25.0 35.9 60.9 4.9 (31.2) (26.3)
Foreign................ (15.2) 6.5 (8.7) (3.4) (9.4) (12.8)
------ ----- ------ ------ ------ ------
Total Interest
Income.............. $(24.3) $55.5 $ 31.2 $(15.9) $(46.1) $(62.0)
====== ===== ====== ====== ====== ======
Change in Interest Expense
Interest-Bearing Deposits
Demand Deposits........ $ (1.7) $ 1.9 $ 0.2 $ 0.6 $ (7.8) $ (7.2)
Savings Deposits....... (0.8) -- (0.8) (1.4) (2.4) (3.8)
Time Deposits.......... 11.3 19.5 30.8 (11.1) (11.0) (22.1)
Deposits in Foreign
Offices............... (15.2) 10.0 (5.2) 1.7 (14.1) (12.4)
Short-Term Borrowings.... (22.0) 31.9 9.9 (3.0) (13.3) (16.3)
Long-Term Debt........... 13.4 1.4 14.8 0.6 1.0 1.6
------ ----- ------ ------ ------ ------
Total Interest
Expense............. (15.0) 64.7 49.7 $(12.6) $(47.6) $(60.2)
====== ===== ====== ====== ====== ======
Net Interest Differential
Domestic................. 2.1 (6.8) (4.7) $ 10.1 $ 0.2 $ 10.3
Foreign.................. (11.4) (2.4) (13.8) (13.4) 1.3 (12.1)
------ ----- ------ ------ ------ ------
Total Interest
Differential........ $ (9.3) $(9.2) $(18.5) $ (3.3) $ 1.5 $ (1.8)
====== ===== ====== ====== ====== ======
</TABLE>
- --------
/1/ The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
Item 7a. Qualitative and Quantitative Disclosure About Market Risk
See the Market Risk discussion of Management's Discussion and Analysis of
Financial Condition and Results of Operations.
37
<PAGE>
Forward-Looking Statements
This report contains forward-looking statements regarding Pacific Century's
beliefs, estimates, projections and assumptions, which are provided to assist
in the understanding of certain aspects of Pacific Century's anticipated
future financial performance. Pacific Century cautions readers not to place
undue reliance on any forward-looking statement. Forward-looking statements
are subject to significant risks and uncertainties, many of which are beyond
Pacific Century's control. Although Pacific Century believes that the
assumptions underlying its forward-looking statements are reasonable, any
assumption could prove to be inaccurate and actual results may differ from
those contained in or implied by such forward-looking statements for a variety
of reasons. Factors that might cause differences to occur include, but are not
limited to, economic conditions in the markets Pacific Century serves
including those in Hawaii, the U.S. Mainland, Asia and the South Pacific;
shifts in interest rates; fluctuations in currencies of Asian Rim and South
Pacific countries relative to the U.S. dollar; changes in credit quality;
changes in applicable federal, state, and foreign income tax laws and
regulatory and monetary policies; and increases in competitive pressures in
the banking and financial services industry, particularly in connection with
product delivery and pricing. Pacific Century does not undertake and
specifically disclaims any obligation to update any forward-looking statements
to reflect events or circumstances after the date of such statements.
Item 8. Financial Statements and Supplementary Data
Consolidated Quarterly Results of Operations--See Narrative and Table 18
included in Item 7 of this report.
38
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Pacific Century Financial Corporation
We have audited the accompanying consolidated statements of condition of
Pacific Century Financial Corporation and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pacific
Century Financial Corporation and subsidiaries at December 31, 2000 and 1999,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Honolulu, Hawaii
January 26, 2001
39
<PAGE>
PACIFIC CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------
2000 1999 1998
---------- ---------- ----------
(in thousands of dollars
except per share amounts)
<S> <C> <C> <C>
Interest Income
Interest on Loans.......................... $ 750,141 $ 699,939 $ 737,276
Loan Fees.................................. 33,620 39,899 45,340
Income on Lease Financing.................. 37,357 29,391 25,699
Interest and Dividends on Investment
Securities
Taxable.................................. 53,009 57,809 67,717
Non-Taxable.............................. 902 1,094 1,096
Income on Investment Securities Available
for Sale.................................. 165,111 168,349 170,963
Interest on Deposits....................... 14,663 24,960 36,676
Interest on Security Resale Agreements..... 158 244 82
Interest on Funds Sold..................... 2,532 4,834 3,718
---------- ---------- ----------
Total Interest Income.................... 1,057,493 1,026,519 1,088,567
Interest Expense
Interest on Deposits....................... 286,035 261,184 306,700
Interest on Security Repurchase
Agreements................................ 104,536 92,175 121,445
Interest on Funds Purchased................ 32,636 41,677 26,720
Interest on Short-Term Borrowings.......... 18,959 12,414 14,376
Interest on Long-Term Debt................. 59,096 44,326 42,725
---------- ---------- ----------
Total Interest Expense................... 501,262 451,776 511,966
---------- ---------- ----------
Net Interest Income........................ 556,231 574,743 576,601
Provision for Loan Losses.................. 142,853 60,915 84,014
---------- ---------- ----------
Net Interest Income After Provision for
Loan Losses............................. 413,378 513,828 492,587
Non-Interest Income
Trust Income............................... 66,077 60,700 55,879
Service Charges on Deposit Accounts........ 40,063 34,267 35,459
Fees, Exchange and Other Service Charges... 88,500 88,838 77,881
Other Operating Income..................... 58,463 67,720 38,446
Gain on Settlement of Pension Obligation... 11,900 -- --
Investment Securities Gains (Losses)....... (1,574) 14,056 4,086
---------- ---------- ----------
Total Non-Interest Income................ 263,429 265,581 211,751
Non-Interest Expense
Salaries................................... 181,669 198,743 194,522
Pensions and Other Employee Benefits....... 47,925 55,343 56,003
Net Occupancy Expense...................... 48,789 47,893 46,799
Net Equipment Expense...................... 50,607 48,674 49,009
Other Operating Expense.................... 167,440 180,107 174,546
Restructuring Charge....................... -- 22,478 19,400
Minority Interest.......................... 387 485 446
---------- ---------- ----------
Total Non-Interest Expense............... 496,817 553,723 540,725
---------- ---------- ----------
Income Before Taxes.......................... 179,990 225,686 163,613
Provision for Taxes.......................... 66,329 92,729 56,649
---------- ---------- ----------
Net Income............................... $ 113,661 $ 132,957 $ 106,964
========== ========== ==========
Basic Earnings Per Share..................... $ 1.43 $ 1.66 $ 1.33
Diluted Earnings Per Share................... $ 1.42 $ 1.64 $ 1.32
Basic Weighted Average Shares................ 79,551,296 80,298,725 80,228,424
Diluted Weighted Average Shares.............. 79,813,443 81,044,558 81,142,144
</TABLE>
See Notes to Consolidated Financial Statements.
40
<PAGE>
PACIFIC CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31
--------------------------
2000 1999
------------ ------------
(in thousands of dollars,
except share data)
<S> <C> <C>
Assets
Interest-Bearing Deposits.......................... $ 188,649 $ 278,473
Investment Securities
--Held to Maturity (Market Value of $676,621 in
2000 and $787,720 in 1999)....................... 670,038 796,322
--Available for Sale.............................. 2,507,076 2,542,232
Securities Purchased Under Agreements to Resell.... 3,969 --
Funds Sold......................................... 134,644 52,740
Loans.............................................. 9,668,290 9,717,556
Unearned Income................................... (253,903) (242,503)
Reserve for Loan Losses........................... (246,247) (194,205)
------------ ------------
Net Loans......................................... 9,168,140 9,280,848
------------ ------------
Total Earning Assets.............................. 12,672,516 12,950,615
Cash and Non-Interest Bearing Deposits............. 523,969 639,895
Premises and Equipment............................. 254,621 271,728
Customers' Acceptance Liability.................... 14,690 7,236
Accrued Interest Receivable........................ 68,585 78,974
Other Real Estate.................................. 4,526 4,576
Intangibles, Including Goodwill.................... 192,264 205,904
Other Assets....................................... 282,645 281,387
------------ ------------
Total Assets...................................... $ 14,013,816 $ 14,440,315
============ ============
Liabilities
Domestic Deposits
Demand--Non-Interest Bearing...................... $ 1,707,724 $ 1,676,425
--Interest Bearing.......................... 2,008,730 2,076,358
Savings........................................... 665,239 700,720
Time.............................................. 2,836,083 2,761,650
Foreign Deposits
Demand--Non-Interest Bearing...................... 385,366 401,613
Time Due to Banks................................. 535,126 597,675
Other Savings and Time............................ 942,313 1,179,777
------------ ------------
Total Deposits.................................... 9,080,581 9,394,218
Securities Sold Under Agreements to Repurchase..... 1,655,173 1,490,655
Funds Purchased.................................... 413,241 839,962
Short-Term Borrowings.............................. 211,481 458,962
Bank's Acceptances Outstanding..................... 14,690 7,236
Accrued Retirement Expense......................... 37,868 40,360
Accrued Interest Payable........................... 72,460 64,588
Accrued Taxes Payable.............................. 130,766 85,022
Minority Interest.................................. 4,536 4,435
Other Liabilities.................................. 94,512 114,890
Long-Term Debt..................................... 997,152 727,657
------------ ------------
Total Liabilities................................. 12,712,460 13,227,985
============ ============
Shareholders' Equity
Common Stock ($.01 par value):
authorized 500,000,000 shares; issued/outstanding;
December 2000--80,558,811/79,612,178 and
December 1999--80,550,728/80,036,417.............. 806 806
Capital Surplus.................................... 346,045 345,851
Accumulated Other Comprehensive Income............. (25,079) (66,106)
Retained Earnings.................................. 996,791 942,177
Treasury Stock, at Cost (946,633 shares in 2000 and
514,311 shares in 1999)........................... (17,207) (10,398)
------------ ------------
Total Shareholders' Equity........................ 1,301,356 1,212,330
------------ ------------
Total Liabilities and Shareholders' Equity........ $ 14,013,816 $ 14,440,315
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
41
<PAGE>
PACIFIC CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Common Capital Comprehensive Retained Treasury Comprehensive
Total Stock Surplus Income Earnings Stock Income
---------- -------- -------- ------------- -------- -------- -------------
(in thousands of dollars except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997.. $1,117,207 $159,369 $168,920 $(24,766) $813,684 $ --
Net Income.................... 106,964 -- -- -- 106,964 -- $106,964
Other Comprehensive Income,
Net of Tax
Investment Securities, Net of
Reclassification
Adjustment.................. (2,732) -- -- (2,732) -- -- (2,732)
Foreign Currency Translation
Adjustment.................. 5,671 -- -- 5,671 -- -- 5,671
Pension Liability
Adjustment.................. (649) -- -- (649) -- -- (649)
--------
Total Comprehensive
Income.................... $109,254
========
Common Stock Issued
125,889 Profit Sharing Plan.. 3,559 225 2,627 -- -- 707
543,256 Stock Option Plan.... 10,084 530 8,408 -- (20) 1,166
153,574 Dividend Reinvestment
Plan........................ 5,441 199 3,335 -- -- 1,907
5,100 Directors' Restricted
Shares and Deferred
Compensation Plan........... 139 1 123 -- -- 15
Treasury Stock Purchased...... (7,314) -- -- -- -- (7,314)
Change in Par Value of Common
Stock from
$2.00 Per Share to $ .01 Per
Share........................ -- (159,519) 159,519 -- -- --
Cash Dividends Paid........... (52,776) -- -- -- (52,776) --
---------- -------- -------- -------- -------- --------
Balance at December 31, 1998.. $1,185,594 $ 805 $342,932 $(22,476) $867,852 $ (3,519)
Net Income.................... 132,957 -- -- -- 132,957 -- $132,957
Other Comprehensive Income,
Net of Tax
Investment Securities, Net of
Reclassification
Adjustment.................. (44,803) -- -- (44,803) -- -- (44,803)
Foreign Currency Translation
Adjustment.................. 1,154 -- -- 1,154 -- -- 1,154
Pension Liability
Adjustment.................. 19 -- -- 19 -- -- 19
--------
Total Comprehensive
Income.................... $ 89,327
========
Common Stock Issued
57,249 Profit Sharing Plan.. 1,096 -- 4 -- (71) 1,163
501,929 Stock Option Plan.... 8,616 -- 2,620 -- (3,651) 9,647
198,851 Dividend Reinvestment
Plan........................ 4,032 -- 142 -- (270) 4,160
7,199 Directors' Restricted
Shares and Deferred
Compensation Plan........... 154 1 153 -- -- --
Treasury Stock Purchased...... (21,849) -- -- -- -- (21,849)
Cash Dividends Paid........... (54,640) -- -- -- (54,640) --
---------- -------- -------- -------- -------- --------
Balance at December 31, 1999.. $1,212,330 $ 806 $345,851 $(66,106) $942,177 $(10,398)
Net Income.................... 113,661 -- -- -- 113,661 -- $113,661
Other Comprehensive Income,
Net of Tax
Investment Securities, Net of
Reclassification
Adjustment.................. 45,300 -- -- 45,300 -- -- 45,300
Foreign Currency Translation
Adjustment.................. (4,273) -- -- (4,273) -- -- (4,273)
--------
Total Comprehensive
Income.................... $154,688
========
Common Stock Issued
86,670 Profit Sharing Plan.. 1,470 -- 18 -- (230) 1,682
228,438 Stock Option Plan.... 2,948 -- 3 -- (1,763) 4,708
193,689 Dividend Reinvestment
Plan........................ 3,261 -- 51 -- (583) 3,793
6,901 Directors' Restricted
Shares and Deferred
Compensation Plan........... 122 -- 122 -- -- --
Treasury Stock Purchased...... (16,992) -- -- -- -- (16,992)
Cash Dividends Paid........... (56,471) -- -- -- (56,471) --
---------- -------- -------- -------- -------- --------
Balance at December 31, 2000.. $1,301,356 $ 806 $346,045 $(25,079) $996,791 $(17,207)
========== ======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
42
<PAGE>
PACIFIC CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
2000 1999 1998
--------- --------- ----------
(in thousands of dollars)
<S> <C> <C> <C>
Operating Activities/1/
Net Income.................................. $ 113,661 $ 132,957 $ 106,964
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Loan Losses................. 142,853 60,915 84,014
Depreciation and Amortization............. 64,934 61,503 55,539
Deferred Income Taxes..................... 8,224 (10,599) (27,118)
Realized (Gains) Losses on Investment
Securities Available for Sale............ 948 (13,695) (4,444)
Amortization of Deferred Lease Income..... (37,357) (29,391) (32,470)
Amortization of Deferred Loan Fee Income.. (10,332) (17,509) (17,169)
Decrease in Interest Receivable........... 10,389 6,644 10,740
Increase (Decrease) in Interest Payable... 7,872 8,795 (3,315)
Increase in Other Assets.................. (6,940) (25,676) (18,946)
Increase (Decrease) in Other Liabilities.. (15,449) (17,756) 44,939
--------- --------- ----------
Net Cash Provided by Operating Activities... 278,803 156,188 198,734
--------- --------- ----------
Investing Activities
Proceeds from Redemptions of Investment
Securities Held to Maturity................ 146,559 212,739 763,158
Purchases of Investment Securities Held to
Maturity................................... (20,275) (356,258) (195,745)
Proceeds from Sales of Investment
Securities Available for Sale.............. 185,820 651,532 1,993,405
Proceeds from Redemptions of Investment
Securities Available for Sale.............. 27,555 615,941 399,426
Purchases of Investment Securities
Available for Sale......................... (103,667) (852,255) (2,825,677)
Net Decrease (Increase) in Interest-Bearing
Deposits Placed in Other Banks............. 89,824 181,554 (90,628)
Decrease (Increase) in Funds Sold........... (85,873) (7,057) 34,774
Decrease (Increase) in Loans, Net........... 17,544 141,689 (113,925)
Purchases of Premises and Equipment......... (36,139) (21,511) (43,390)
Proceeds from Sale of Premises and
Equipment.................................. 7,684 2,117 13,032
Purchases, Net of Cash and Non-Interest
Bearing Deposits Acquired:
Triad Insurance Agency, Inc............... -- (2,183) --
Additional Interest in Bank of Hawaii
Nouvelle Caledonie....................... -- (642) --
Additional Interest in Banque de Tahiti... -- (633) --
Banque Paribas Pacifique and Banque
Paribas Polynesie........................ -- -- 6,327
--------- --------- ----------
Net Cash Provided (Used) by Investing
Activities................................. 229,032 565,033 (59,243)
--------- --------- ----------
Financing Activities
Net Decrease in Demand, Savings, and Time
Deposits................................... (313,637) (207,904) (302,296)
Proceeds from Lines of Credit and Long-Term
Debt....................................... 300,096 434,126 190,117
Principal Payments on Lines of Credit and
Long-Term Debt............................. (30,601) (292,215) (311,333)
Net Increase (Decrease) in Short-Term
Borrowings................................. (509,684) (518,139) 88,128
Proceeds from Sale of Common Stock.......... 7,801 13,898 19,223
Stock Repurchased........................... (16,992) (21,849) (7,314)
Cash Dividends.............................. (56,471) (54,640) (52,776)
--------- --------- ----------
Net Cash Used by Financing Activities....... (619,488) (646,723) (376,251)
--------- --------- ----------
Effect of Exchange Rate Changes on Cash..... (4,273) 1,154 5,671
--------- --------- ----------
Increase (Decrease) in Cash and Non-
Interest Bearing Deposits.................. (115,926) 75,652 (231,089)
--------- --------- ----------
Cash and Non-Interest Bearing Deposits at
Beginning of Year.......................... 639,895 564,243 795,332
--------- --------- ----------
Cash and Non-Interest Bearing Deposits at
End of Year................................ $ 523,969 $ 639,895 $ 564,243
========= ========= ==========
</TABLE>
- --------
/1/ During the years ended December 31, 2000, 1999 and 1998, Pacific Century
Financial Corporation made interest payments of $493,390,000, $442,882,000
and $513,784,000, respectively, and paid income taxes of $42,029,000,
$62,674,000 and $89,770,000, respectively.
See Notes to Consolidated Financial Statements.
43
<PAGE>
Note A--Summary of Significant Accounting Policies
The accounting principles followed by Pacific Century Financial Corporation
and its subsidiaries (Pacific Century), and the methods of applying those
principles conform with accounting principles generally accepted in the United
States and general practices within the banking industry. The preparation of
financial statements in conformity with these accounting principles requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results may differ
from those estimates and such differences could be material to the financial
statements. Certain accounts in prior years have been reclassified to conform
with the 2000 presentation. The significant accounting policies are summarized
below.
Organization/Consolidation
Pacific Century is a bank holding company providing a broad range of
financial products and services to customers in Hawaii, the Pacific, Asia and
the U.S. Mainland. The majority of Pacific Century's operations consist of
customary commercial and consumer banking services including, but not limited
to, lending, leasing, deposit services, trust and investment activities and
trade financing. Pacific Century's principal subsidiary is Bank of Hawaii. The
consolidated financial statements include the accounts of Pacific Century and
all significant majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation and minority
interests have been recognized.
Accounting Changes
On December 31, 1998, Pacific Century implemented SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the reporting of financial information about
operating segments in annual financial statements to stockholders, and
requires certain selected segment information in interim reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS No. 131 had no
material impact on Pacific Century's financial position or results of
operations.
On December 31, 1998, Pacific Century adopted SFAS No. 132 "Employers'
Disclosure about Pensions and Other Postretirement Benefits." This statement
standardizes, to the extent practicable, disclosure requirements and requires
additional information on changes in benefit obligations, fair value of plan
assets and certain other disclosures. The implementation of SFAS No. 132 had
no impact on Pacific Century's financial position or results of operations.
Financial Accounting Standards Board's Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, is amended by SFAS Nos. 137 and
138 and is effective for fiscal years beginning after June 15, 2000. SFAS No.
133 standardizes the accounting for derivative instruments by requiring the
recognition of those instruments as assets or liabilities measured at fair
value in the statement of financial condition. Gains or losses resulting from
changes in the fair values of derivatives would be accounted for depending on
the use of the derivatives and whether they qualify for hedge accounting. In
order to qualify for hedge accounting, the hedging relationship must be highly
effective in achieving offsetting changes in fair value or cash flows.
SFAS No. 133 requires matching the timing of gain or loss recognition on
derivative instruments with the recognition of the changes in the fair value
of the hedged asset or liability that is attributed to the hedged risk or the
effect on earnings of the hedged forecasted transaction. The adoption of SFAS
No. 133 is not expected to have a material impact on Pacific Century's
financial position or results of operations.
SFAS 138 amends the accounting and reporting standards of SFAS 133 for
certain derivative instruments and certain hedging activities. SFAS 138 will
be adopted concurrently with SFAS 133 and is not expected to have a material
impact on Pacific Century's financial position or results of operations.
44
<PAGE>
Restructuring Charges
In the third quarter of 1999, Pacific Century recorded a restructuring
charge of $22.5 million in connection with a redesign program to enhance
revenues, improve efficiencies and reduce expenses. Implementation of this
project was completed on September 30, 2000. Included in the restructuring
charge are direct and incremental costs associated with the redesign
consisting of accruals for staff reduction of $6.1 million and occupancy and
equipment of $0.5 million. In addition, the restructuring charge included
period costs of $15.9 million that were directly related to completing the
project. Staffing costs relate to projected severance payments associated with
the termination of exempt employees. Severance amounts were determined based
on the redesign severance payment program and were paid out at time of
termination. The occupancy and equipment portion consists of estimated lease
termination costs and losses on the disposal of fixed assets. Project costs
include costs relative to the assessment phase of the redesign project.
At December 31, 1999, the restructuring accrual balance was $4.3 million,
of which $3.8 million related to staffing. In 1999 and 2000 payments were made
relative to all of the project costs. Details of the 1999 restructuring charge
follow:
<TABLE>
<CAPTION>
Premises
and Staff
Equipment Reduction Other Total
--------- --------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C> <C>
1999 Restructuring Charge............ $ 700 $ 6,100 $ 15,678 $ 22,478
Transfers............................ (194) -- 194 --
Accrual Utilized..................... -- (2,265) (15,872) (18,137)
----- ------- -------- --------
Balance at December 31, 1999......... 506 3,835 -- 4,341
Accrual Utilized..................... (79) (3,835) -- (3,914)
Adjustment........................... (427) -- -- (427)
----- ------- -------- --------
Balance at December 31, 2000......... $ -- $ -- $ -- $ --
===== ======= ======== ========
</TABLE>
In the second quarter of 1998, Pacific Century recognized a $19.4 million
restructuring charge in connection with its strategic actions to improve
efficiencies through consolidating subsidiaries, closing branches, and
outsourcing activities. The restructuring charge included expected direct and
incremental costs associated with termination of lease obligations, disposal
of premises and equipment, staff reduction, and data processing and other
costs.
All of the restructuring accruals made in 1998 have been fully paid or
adjusted through the income statement as of December 31, 1999.
Acquisitions
In January 1999, Pacific Century acquired Triad Insurance Agency, Inc.
(Triad), a Hawaii-based property/casualty insurance agency. In Hawaii, Triad
represents a number of large U.S. property/casualty insurance companies for
whom it acts as a servicing agent. The merger, accounted for as a purchase,
has expanded Pacific Century's range of financial services offered to
customers. Goodwill resulting from the acquisition of approximately $4 million
is being amortized over 15 years on a straight-line basis.
In August 1999, Pacific Century concluded the transaction to increase its
ownership by acquiring 5.8 million shares, or approximately 10%, of the
outstanding shares of the Bank of Queensland Limited in Australia. This
transaction is in addition to a 1998 purchase of notes convertible into 5.4
million shares of the Bank of Queensland Limited.
In May 1998, Pacific Century concluded an agreement to acquire the interest
of Group Paribas in Banque Paribas Pacifique in New Caledonia and Banque
Paribas Polynesie in French Polynesia. As of the acquisition date, Banque
Paribas Pacifique and Banque Paribas Polynesie had total assets of
approximately $238 million and $83 million, respectively. The acquired banks
were merged into other Pacific Century subsidiaries in the region. The
acquisitions were accounted for under the purchase method and the combined
goodwill of approximately $17.1 million is being amortized over 15 years on a
straight-line basis.
45
<PAGE>
In conjunction with these acquisitions, the following table discloses
assets acquired and liabilities assumed for the years ended December 31, 2000,
1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- ---------
(in thousands of dollars)
<S> <C> <C> <C>
Assets Acquired.............................. $ -- $ 38,393 $ 321,081
Cash and Shares Paid for Capital Stock....... -- (6,806) (33,412)
-------- -------- ---------
Liabilities Assumed.......................... $ -- $ 31,587 $ 287,669
======== ======== =========
</TABLE>
Advertising Costs
The nature of Pacific Century's marketing programs generally do not include
direct-response advertising. Pacific Century, therefore, recognizes its
advertising costs as incurred. Advertising costs were $6,156,000; $5,360,000
and $7,633,000 in 2000, 1999 and 1998, respectively.
Cash and Non-Interest Bearing Deposits
For purposes of reporting cash flows, cash and cash equivalents include
cash and non-interest bearing deposits, which consist of amounts due from
other financial institutions as well as in-transit clearings. Under the terms
of the Depository Institutions Deregulation and Monetary Control Act, Pacific
Century is required to place reserves with the Federal Reserve Bank based on
the amount of deposits held. During 2000 and 1999, the average amount of these
reserve balances was $7,171,000 and $137,008,000, respectively.
Credit Card Costs
Pacific Century issues its own VISA and Mastercard credit cards for which
all costs are recognized as period costs. In 1996, Pacific Century entered
into certain arrangements with third parties to originate VISA cards in
specific target markets. As of year-end 2000 and 1999, the unamortized
capitalized origination costs totaled $130,000 and $648,000, respectively.
These costs are being amortized over the anticipated life of the cards,
currently five years.
46
<PAGE>
Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the dilutive impact of stock
options and stock appreciation rights and uses the average share price during
the period in determining the number of incremental shares to be added to the
weighted average number of common shares outstanding. For the years ended
December 31, 2000, 1999 and 1998 there were no adjustments to net income (the
numerator) for purposes of computing basic EPS. A reconciliation of the
weighted average common shares outstandings for computing diluted EPS for
2000, 1999 and 1998 follows:
<TABLE>
<CAPTION>
Weighted Average Shares
--------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Denominator for Basic EPS................. 79,551,296 80,298,725 80,228,424
Dilutive Effect of Stock Options.......... 262,147 745,833 913,720
---------- ---------- ----------
Denominator for Diluted EPS............... 79,813,443 81,044,558 81,142,144
========== ========== ==========
</TABLE>
Income Taxes
Pacific Century files a consolidated federal income tax return with the
Bank of Hawaii and its other domestic subsidiaries. Deferred income taxes are
provided to reflect the tax effect of temporary differences between financial
statement carrying amounts and the corresponding tax basis of assets and
liabilities. Deferred taxes are calculated by applying enacted statutory tax
rates and tax laws to future years in which temporary differences are expected
to reverse. The impact on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that the rate change is
enacted. A deferred tax valuation reserve is established if it is more likely
than not that a deferred tax asset will not be realized.
Pacific Century's tax sharing policy provides for the settlement of income
taxes between each relevant subsidiary as if the subsidiary had filed a
separate return. Payments are made to Pacific Century by subsidiaries with tax
liabilities, and subsidiaries that generate tax benefits receive payments for
those benefits as used.
For lease arrangements that are accounted for by the financing method,
investment tax credits are deferred and amortized over the lives of the
respective leases.
Intangible Assets and Amortization
Intangible assets include goodwill and identifiable intangible assets such
as core deposits resulting from acquisitions accounted for under the purchase
method and certain servicing assets. Goodwill and core intangibles are being
amortized using the straight line method over periods of 15 to 25 years. These
intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable.
Amortization of goodwill and core intangibles are included in other operating
expense and totaled $16,089,000, $16,229,000 and $15,614,000 in 2000, 1999 and
1998, respectively. As of December 31, 2000 and 1999, the unamortized balance
of these intangibles were $176,070,000 and $190,693,000, respectively.
Servicing assets are recognized when mortgage loans are originated and sold
or securitized with servicing rights retained. The capitalized cost of
servicing assets is amortized over the estimated life of the related loans.
The fair value of servicing assets is estimated based on a review of servicing
right values of loans with similar characteristics. An impairment analysis is
performed on a periodic basis and includes a review of prepayment trends,
delinquency and other relevant factors. For purposes of measuring impairment,
servicing assets are stratified by product type. Impairment is recognized when
the carrying value of the servicing assets for a stratum exceed its fair
value.
47
<PAGE>
Interest Rate/Foreign Currency Risk Management
Pacific Century utilizes off-balance sheet derivative financial
instruments, primarily as an end-user in connection with its risk management
activities and, to a lesser extent, as a service to accommodate the needs of
customers. Most of Pacific Century's derivative transactions consist of
interest rate swaps and foreign exchange contracts. Other derivative
instruments may be employed, from time to time, but in the aggregate, the use
of these instruments are limited.
From time to time Pacific Century utilizes interest rate swaps for purposes
other than trading to manage its exposure to interest rate risks. Interest
rate swaps are contractual agreements that generally require the exchange of
fixed and floating rate payments based on specified financial indices and the
underlying notional amount over the life of the agreements.
The accrual method is used to account for interest rate swaps. Under this
method, the differential between interest to be paid and received is accrued
and recognized as an adjustment to interest income or expense of the
designated asset or liability. The fair value of these agreements is not
recorded in the consolidated financial statements. Changes in the fair value
of swap contracts are not recognized as long as the hedge correlation
continues to exist. If the hedge correlation ceases to exist based on
effectiveness tests, any existing gain or loss is amortized over the remaining
term of the agreement, and future changes in fair value are accounted for on a
mark-to-market basis. If the designated asset or liability matures, or is
extinguished, any unrealized gain or loss on the related derivative instrument
is recognized immediately. In 2000 Pacific Century did not utilize interest
rate swaps. All open swap contracts closed in the first quarter of 1999.
A foreign exchange contract is a commitment to exchange foreign currency at
a contracted price on a specified date. These derivative instruments are used
for purposes other than trading primarily for asset and liability management
activities, and changes in the fair value of both the foreign exchange
contracts and related assets or liabilities hedged are offset and not included
in the financial results.
Derivative instruments entered into for trading purposes consist of foreign
exchange contracts that are used to offset foreign currency positions taken on
behalf of customers and for Pacific Century's own account. These derivatives
are carried at fair value, and the associated unrealized gains and losses are
recognized currently in the statement of income.
International Operations
International operations include certain activities located domestically in
the International Banking Group, as well as branches and subsidiaries
domiciled outside the United States. The operations of Bank of Hawaii and
First Savings located in the West and South Pacific which are denominated in
U.S. dollars are classified as domestic. Pacific Century's international
operations are primarily concentrated in Japan, South Korea, Singapore, Hong
Kong, Taiwan, French Polynesia and New Caledonia.
Investment Securities
Investment securities held to maturity are those securities, which Pacific
Century has the ability and positive intent to hold to maturity. These
securities are stated at cost adjusted for amortization of premiums and
accretion of discounts. Restricted equity securities represent Federal Home
Loan Bank and Federal Reserve Bank shares, recorded at par, which also
reflects fair value. In 2000, 1999 and 1998, there were no transfers from
investment securities held to maturity.
Investment securities available for sale are recorded at fair value with
unrealized gains and losses recorded as an unrealized valuation adjustment in
other comprehensive income, net of taxes.
Trading securities are those securities that are purchased for Pacific
Century's trading activities and are expected to be sold in the near term.
Securities in the trading portfolio are carried at fair value with unrealized
holding gains and losses recognized currently in income. Trading securities
were $3,844,000 and $8,345,000 as
48
<PAGE>
of December 31, 2000 and 1999, respectively. During 2000, 1999 and 1998, the
net gain (loss) from the trading securities portfolio was $(627,000), $361,000
and $(358,000), respectively, and is recognized as a component of investment
securities gains and (losses) in the income statement. Income from trading
securities was $464,000, $247,000 and $220,000 during 2000, 1999 and 1998,
respectively, and is included as part of other operating income.
Pacific Century uses the specific identification method to determine the
cost of all investment securities sold.
Loans
Loans are carried at the principal amount outstanding. Interest income is
generally recognized on the accrual basis. Net loan fees are deferred and
amortized as an adjustment to yield.
Pacific Century's policy is to place loans on non-accrual when a loan is
over 90 days delinquent, unless collection is probable based on specific
factors such as the type of borrowing agreement and/or collateral. At the time
a loan is placed on non-accrual, all accrued but unpaid interest is reversed
against current earnings. Subsequent payments received are generally applied
to reduce the principal balance.
Other Real Estate
Other real estate consists of properties acquired through foreclosure
proceedings, acceptance of a deed-in-lieu of foreclosure, and abandoned bank
premises. These properties are carried at the lower of cost or fair value
based on current appraisals less selling costs. Losses arising at the time of
acquiring such property are charged against the reserve for loan losses.
Subsequent declines in property value are recognized through charges to
operating expense.
Premises and Equipment
Premises and equipment are stated at cost less allowances for depreciation
and amortization. Depreciation is computed using the straight line method over
lives of two to fifty years for premises and improvements, and three to ten
years for equipment.
Reserve for Loan Losses
The reserve for loan losses is established through provisions that are
charged against income. Loans deemed to be uncollectible are charged against
the reserve for loan losses, and subsequent recoveries, if any, are credited
to the reserve.
The reserve for loan losses is maintained at a level believed adequate by
management to absorb estimated inherent losses. Management's periodic
evaluation of the adequacy of the reserve is based on Pacific Century's past
loan loss experience, known and inherent risks in the portfolio, adverse
conditions that may affect the borrower's ability to repay (including the
timing of future payments), the estimated value of any underlying collateral,
composition of the loan portfolio, current economic conditions and other
factors. This evaluation is inherently subjective as it requires material
estimates including the amounts and timing of expected cash flows that may be
susceptible to significant changes.
A loan is considered impaired when it is probable that all amounts due
according to the contractual terms of the loan will not be collected.
Impairment is measured based on discounted cash flows using the loan's initial
effective interest rate or the fair value of the collateral for certain
collateral dependent loans. Cash receipts on impaired loans generally are
applied to reduce the carrying value of the loan. Large groups of smaller
balance homogeneous loans, such as residential mortgages and consumer loans
are evaluated collectively for impairment based primarily on the historical
loss experience for each portfolio.
49
<PAGE>
Stock-Based Compensation
Pacific Century's accounts for its stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25 (APB No. 25) and
related interpretations. SFAS No. 123 "Accounting for Stock-Based
Compensation," permits companies to elect to recognize stock-based
compensation expense based on the estimated fair value of the awards on the
grant date or to continue to use the accounting under APB No. 25. Included in
Note L is the impact of the fair value of employee stock-based compensation
plans on net income and earnings per share on a pro forma basis for awards
granted in 2000, 1999 and 1998.
Regulatory Matters
In September 2000, Pacific Century entered into a Memorandum of
Understanding with regulatory authorities in which it agreed to take certain
actions to strengthen and maintain its operations and financial position.
Accordingly, Pacific Century agreed to request prior approval for the payments
of dividends, increases in indebtedness, or repurchases of common stock beyond
the existing Board approval of 300,000 shares per quarter.
Note B--Investment Securities
The following presents the details of the investment securities portfolio:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(in thousands of dollars)
<S> <C> <C> <C> <C>
At December 31, 2000
Securities Held to Maturity:
Restricted Equity Securities...... $ 87,991 $ -- $ -- $ 87,991
Debt Securities Issued by the
U.S. Treasury and Agencies....... 6,812 -- (39) 6,773
Debt Securities Issued by State
and Municipalities of the United
States........................... 3,984 303 -- 4,287
Debt Securities Issued by Foreign
Governments...................... 18,631 -- -- 18,631
Mortgage-Backed Securities........ 547,463 7,412 (1,093) 553,782
Other Debt Securities............. 5,157 -- -- 5,157
---------- ------- -------- ----------
Total........................... $ 670,038 $ 7,715 $ (1,132) $ 676,621
========== ======= ======== ==========
Securities Available for Sale:
Equity Securities................. $ 26,266 $ -- $ (449) $ 25,817
Debt Securities Issued by the
U.S. Treasury and Agencies....... 195,920 1,262 (147) 197,035
Debt Securities Issued by State
and Municipalities of the United
States........................... 11,634 126 (18) 11,742
Debt Securities Issued by Foreign
Governments...................... 490 -- -- 490
Mortgage-Backed Securities........ 2,235,987 9,599 (8,426) 2,237,160
Other Debt Securities............. 33,502 1,391 (61) 34,832
---------- ------- -------- ----------
Total........................... $2,503,799 $12,378 $ (9,101) $2,507,076
========== ======= ======== ==========
At December 31, 1999
Securities Held to Maturity:
Restricted Equity Securities...... $ 76,002 $ 6 $ -- $ 76,008
Debt Securities Issued by the
U.S. Treasury and Agencies....... 41,981 2 (42) 41,941
Debt Securities Issued by State
and Municipalities of the United
States........................... 11,852 582 -- 12,434
Debt Securities Issued by Foreign
Governments...................... 45,725 17 -- 45,742
Mortgage-Backed Securities........ 617,455 6,239 (15,406) 608,288
Other Debt Securities............. 3,307 -- -- 3,307
---------- ------- -------- ----------
Total........................... $ 796,322 $ 6,846 $(15,448) $ 787,720
========== ======= ======== ==========
Securities Available for Sale:
Equity Securities................. $ 29,300 $ -- $ (4,474) $ 24,826
Debt Securities Issued by the
U.S. Treasury and Agencies....... 185,613 1,407 (1,521) 185,499
Debt Securities Issued by State
and Municipalities of the United
States........................... 15,076 75 (104) 15,047
Debt Securities Issued by Foreign
Governments...................... 1,029 -- -- 1,029
Mortgage-Backed Securities........ 2,356,163 5,624 (72,972) 2,288,815
Other Debt Securities............. 27,364 -- (348) 27,016
---------- ------- -------- ----------
Total........................... $2,614,545 $ 7,106 $(79,419) $2,542,232
========== ======= ======== ==========
</TABLE>
50
<PAGE>
The following presents an analysis of the contractual maturities of the
investment securities portfolio as of December 31, 2000:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- ----------
(in thousands of
dollars)
<S> <C> <C>
Securities Held to Maturity
Due in One Year or Less............................. $ 25,443 $ 25,404
Due After One Year Through Five Years............... 8,534 8,829
Due After Five Years Through Ten Years.............. 607 615
---------- ----------
34,584 34,848
Mortgage-Backed Securities.......................... 547,463 553,782
Restricted Equity Securities........................ 87,991 87,991
---------- ----------
$ 670,038 $ 676,621
========== ==========
Securities Available for Sale
Due in One Year or Less............................. $ 86,979 $ 86,986
Due After One Year Through Five Years............... 63,087 63,238
Due After Five Years Through Ten Years.............. 67,812 69,941
Due After Ten Years................................. 23,668 23,934
---------- ----------
241,546 244,099
Mortgage-Backed Securities.......................... 2,235,987 2,237,160
Equity Securities................................... 26,266 25,817
---------- ----------
$2,503,799 $2,507,076
========== ==========
</TABLE>
Proceeds from sales and maturities of investment securities available for
sale were $213,375,000, $1,267,473,000 and $2,392,831,000 in 2000, 1999 and
1998, respectively. Gross gains of $364,000 and gross losses of $1,312,000
were realized with respect to 2000 sales. Taxes related to 2000 gains and
losses were $350,000. The Accumulated Other Comprehensive Income component
from investment securities available for sale was $2,235,000 (net of taxes) as
of December 31, 2000.
Investment securities carried at $2,876,547,000 and $3,090,325,000 were
pledged to secure deposits of certain public (governmental) entities and
repurchase agreements at December 31, 2000 and 1999, respectively. The
December 31, 2000 amount included investment securities with a carrying value
of $1,828,198,000 and a market value of $1,834,116,000 which were pledged as
collateral for repurchase agreements.
51
<PAGE>
Note C--Loans
Loans consisted of the following at December 31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
(in thousands of dollars)
<S> <C> <C>
Domestic Loans
Commercial and Industrial....................... $ 2,443,341 $ 2,492,984
Real Estate
Mortgage--Residential......................... 3,035,060 2,645,441
--Commercial.......................... 1,125,508 1,244,809
Installment..................................... 729,859 756,078
Construction.................................... 307,352 328,839
------------ ------------
Total Domestic Loans.......................... 7,641,120 7,468,151
Foreign Loans..................................... 1,301,634 1,621,849
------------ ------------
Subtotal...................................... 8,942,754 9,090,000
------------ ------------
Lease Financing
Direct.......................................... 295,830 304,109
Leveraged....................................... 429,706 323,447
------------ ------------
Total Lease Financing......................... 725,536 627,556
------------ ------------
Total Loans................................... $ 9,668,290 $ 9,717,556
============ ============
</TABLE>
Commercial and mortgage loans totaling $904,015,000 and $837,519,000 were
pledged to secure certain public deposits and Federal Home Loan Bank advances
at December 31, 2000 and 1999, respectively.
Included in the Mortgage--Residential category were $179,229,000 and
$136,097,000 of available for sale loans as of December 31, 2000 and 1999,
respectively. These loans were recorded at the lower of cost or market on an
aggregate basis.
Servicing assets are summarized in the following table:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
(in thousands of dollars)
<S> <C> <C>
Balance at Beginning of Year..................... $ 15,215 $ 11,752
Originated Mortgage Servicing Rights............. 1,840 5,303
Purchased Servicing Rights....................... 2,049 1,366
Amortization..................................... (2,909) (3,206)
------------ ------------
Balance at End of Year........................... $ 16,195 $ 15,215
============ ============
Fair Value at End of Year........................ $ 36,618 $ 44,258
============ ============
</TABLE>
As of December 31, 2000 and 1999, Pacific Century's loan servicing
portfolio totaled $2,847,839,000 and $2,471,743,000, respectively.
Pacific Century's lending activities are concentrated in its primary
geographic markets of Hawaii, the U.S. Mainland, Asia, and the West and South
Pacific.
Certain directors and executive officers of Pacific Century, its subsidiary
companies, companies in which they are principal owners, and trusts in which
they are involved, have loans with Pacific Century subsidiaries. These loans
were made in the ordinary course of business at normal credit terms, including
interest rate and collateral requirements. Such loans at December 31, 2000 and
1999 amounted to $22,648,000 and $22,429,000, respectively. During 2000, the
activity in these loans included new borrowings of $1,548,000, repayments of
52
<PAGE>
$3,954,000, and other changes of $2,625,000. Other changes relate to new and
retiring directors or companies and trusts in which they are involved.
Activity in the reserve for loan losses was as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Balance at Beginning of Year................. $194,205 $211,276 $174,362
Charge-Offs.................................. (110,781) (103,267) (82,005)
Recoveries................................... 21,405 29,440 16,336
-------- -------- --------
Net Charge-Offs............................ (89,376) (73,827) (65,669)
-------- -------- --------
Provision Charged to Operations.............. 142,853 60,915 84,014
Reserves Acquired............................ -- -- 13,636
Foreign Currency Valuation Adjustments and
Other....................................... (1,435) (4,159) 4,933
-------- -------- --------
Balance at End of Year....................... $246,247 $194,205 $211,276
======== ======== ========
</TABLE>
The following table presents information on impaired loans as of December
31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------- ------------
(in thousands of dollars)
<S> <C> <C>
Recorded Investment in Impaired Loans Not
Requiring a Reserve for Loan Losses........... $ 15,170 $29,160
Recorded Investment in Impaired Loans
Requiring a Reserve for Loan Losses........... 205,878 52,047
------------- ------------
Recorded Investment in Impaired Loans.......... $221,048 $81,207
============= ============
Reserve for Losses on Impaired Loans........... $ 53,631 $14,054
Average Recorded Investment in Impaired
Loans During the Year......................... $150,334 $64,021
</TABLE>
Note D--Premises and Equipment
The following is a summary of premises and equipment:
<TABLE>
<CAPTION>
Accumulated
Depreciation and Net Book
Cost Amortization Value
-------- ---------------- --------
(in thousands of dollars)
<S> <C> <C> <C>
December 31, 2000
Premises................................ $320,155 $(139,096) $181,059
Capital Leases.......................... 4,464 (1,429) 3,035
Equipment............................... 242,229 (171,702) 70,527
-------- --------- --------
$566,848 $(312,227) $254,621
======== ========= ========
December 31, 1999
Premises................................ $321,128 $(129,201) $191,927
Capital Leases.......................... 4,464 (1,250) 3,214
Equipment............................... 231,585 (154,998) 76,587
-------- --------- --------
$557,177 $(285,449) $271,728
======== ========= ========
</TABLE>
Depreciation and amortization (including capital lease amortization)
included in non-interest expense were $45,562,000, $42,068,000 and $38,156,000
in 2000, 1999 and 1998, respectively.
53
<PAGE>
Pacific Century leases certain branch premises and data processing
equipment. Most of the leases for premises provide for a base rent over a
specified period with renewal options thereafter. Portions of certain
properties are subleased for periods expiring in various years through 2010.
Lease terms generally provide for the lessee to pay taxes, maintenance and
other operating costs.
Future minimum payments, by year and in the aggregate, for non-cancelable
operating leases with initial or remaining terms of one year or more and
capital leases consisted of the following at December 31, 2000:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------------ -------------
(in thousands of dollars)
<S> <C> <C>
2001............................................. $ 7 $ 12,888
2002............................................. 7 10,706
2003............................................. 605 9,917
2004............................................. 605 11,517
2005............................................. 605 10,756
Thereafter....................................... 33,110 77,382
------------ -------------
Total Minimum Lease Payments..................... $ 34,939 $ 133,166
=============
Amounts Representing Interest.................... 27,187
------------
Present Value of Net Minimum Lease Payments...... $ 7,752
============
</TABLE>
Minimum future rentals receivable under subleases for non-cancelable
operating leases at December 31, 2000, amounted to $4,961,000.
Rental expense for all operating leases for the years ended December 31,
2000, 1999 and 1998 is presented below:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Minimum Rentals............................... $ 22,934 $ 21,867 $ 22,269
Sublease Rental Income........................ (1,490) (1,331) (1,244)
-------- -------- --------
$ 21,444 $ 20,536 $ 21,025
======== ======== ========
</TABLE>
Note E--Deposits
Interest on deposit liabilities for the years ended December 31, 2000, 1999
and 1998 consisted of the following:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Domestic Interest-Bearing Demand Accounts....... $ 48,674 $ 48,512 $ 55,735
Domestic Savings Accounts....................... 13,925 14,682 18,454
Domestic Time Accounts.......................... 154,066 123,325 145,431
Foreign Deposits................................ 69,370 74,665 87,080
-------- -------- --------
$286,035 $261,184 $306,700
======== ======== ========
</TABLE>
Time deposits with balances of $100,000 or more totaled $2,225,372,000 at
December 31, 2000. Of this amount, $50,206,000 consisted of deposits of public
(governmental) entities, which require collaterization by acceptable
securities. The majority of deposits in the foreign category were in
denominations of $100,000 or more.
54
<PAGE>
Maturities of time deposits of $100,000 or more at December 31, 2000, are
summarized as follows:
<TABLE>
<CAPTION>
Domestic Foreign
------------- ------------
(in thousands of dollars)
<S> <C> <C>
Under 3 Months.................................... $ 452,692 $ 836,980
3 to 6 Months..................................... 243,941 13,569
7 to 12 Months.................................... 494,085 46,145
Greater than 1 to 2 Years......................... 44,289 61,359
Greater than 2 to 3 Years......................... 7,986 8,850
Greater than 3 to 4 Years......................... 2,470 2,746
Greater than 4 to 5 Years......................... 1,412 1,498
Greater than 5 Years.............................. 3,401 3,949
------------- -----------
$1,250,276 $ 975,096
============= ===========
</TABLE>
Note F--Short-Term Borrowings
Details of short-term borrowings for 2000, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Securities
Sold Under Other
Funds Agreements Commercial Short-Term
Purchased to Repurchase Paper Borrowings
--------- ------------- ---------- ----------
(in thousands of dollars)
<S> <C> <C> <C> <C>
2000
Amounts Outstanding at
December 31.................. $ 413,241 $1,655,173 $154,664 $ 56,817
Average Amount Outstanding
During Year.................. 518,916 1,702,129 119,472 256,854
Maximum Amount Outstanding at
Any Month End................ 742,085 1,806,197 175,142 432,016
Weighted Average Interest Rate
During Year/1/ .............. 6.29% 6.14% 5.81% 4.68%
Weighted Average Interest Rate
on Balance Outstanding at End
of Year...................... 5.77% 6.42% 6.04% 5.19%
1999
Amounts Outstanding at
December 31.................. $ 839,962 $1,490,655 $ 97,319 $361,643
Average Amount Outstanding
During Year.................. 821,755 1,868,485 111,894 212,676
Maximum Amount Outstanding at
Any Month End................ 1,351,672 2,100,987 172,290 361,643
Weighted Average Interest Rate
During Year/1/ .............. 5.07% 4.93% 4.81% 3.31%
Weighted Average Interest Rate
on Balance Outstanding at End
of Year...................... 4.62% 5.37% 5.00% 5.46%
1998
Amounts Outstanding at
December 31.................. $ 942,062 $2,008,399 $127,311 $229,511
Average Amount Outstanding
During Year.................. 506,978 2,267,823 108,778 189,258
Maximum Amount Outstanding at
Any Month End................ 942,062 2,476,152 127,311 300,211
Weighted Average Interest Rate
During Year/1/ .............. 5.27% 5.36% 5.10% 4.66%
Weighted Average Interest Rate
on Balance Outstanding at End
of Year...................... 4.87% 4.97% 4.91% 4.44%
</TABLE>
- --------
/1/ Average rates for the year are computed by dividing actual interest
expense on borrowings by average daily borrowings.
Funds purchased generally mature on the day following the date of purchase.
Securities sold under agreements to repurchase are accounted for as
financing transactions and the obligations to repurchase these securities are
recorded as liabilities in the Consolidated Statements of Financial Condition.
The securities underlying the agreements to repurchase continue to be
reflected as an asset of Pacific Century and are delivered to and held in
collateral accounts with third party trustees. At December 31, 2000, the
weighted average contractual maturity of these agreements was 106 days and
consisted of transactions with
55
<PAGE>
public (governmental) entities, primarily the State of Hawaii ($1.1 billion)
and local municipalities ($0.6 billion). A schedule of maturities of
repurchase agreements follows:
<TABLE>
<CAPTION>
December 31
2000
-------------
(in thousands
of dollars)
<S> <C>
Overnight...................................................... $ 1,201
Less than 30 days.............................................. 356,440
30 to 90 days.................................................. 646,469
Over 90 days................................................... 651,063
----------
$1,655,173
==========
</TABLE>
Commercial paper is issued by the parent corporation in various
denominations generally maturing 90 days or less from date of issuance.
At December 31, 2000, other short-term borrowings consisted of Federal Home
Loan Bank advances and Treasury Tax and Loan balances. The Federal Home Loan
Bank advance totaling $2.5 million bears interest at 6.40% and matures within
90 days. Treasury Tax and Loan balances represent tax payments collected on
behalf of the U.S. government, which are callable at any time and bear market
interest rates.
A line of credit totaling $25,000,000 is maintained for working capital
purposes. At December 31, 2000 there was no amount drawn on this line. Fees
related to this line were $30,000 in 2000.
Pacific Century, by agreement with its regulator, may not incur any
additional debt without the prior approval of its regulator.
Note G--Long-Term Debt
Amounts outstanding as of December 31, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
(in thousands of dollars)
<S> <C> <C>
8.25% Capital Securities.......................... $ 100,000 $ 100,000
Privately Placed Notes............................ 90,000 90,000
Federal Home Loan Bank Advances................... 518,145 246,545
Subordinated Notes................................ 243,476 243,381
Foreign Debt...................................... 36,946 39,537
Capitalized Lease Obligations..................... 7,820 7,301
Other Long-Term Debt.............................. 765 893
------------ ------------
$997,152 $ 727,657
============ ============
</TABLE>
The $100 million 8.25% Capital Securities (the Securities) were issued in
1996 by Bancorp Hawaii Capital Trust I, a grantor trust wholly-owned by
Pacific Century. The Securities bear a cumulative fixed interest rate of 8.25%
and mature on December 15, 2026. Interest payments are semi-annual. In
addition, Pacific Century has entered into an expense agreement with the trust
obligating Pacific Century to pay any costs, expenses or liabilities of the
trust, other than obligations of the trust to pay amounts due pursuant to the
terms of the Securities. The sole assets of the trust are Junior Subordinated
Debt Securities (the Debt) issued by Pacific Century to the trust. The Debt is
redeemable prior to the stated maturity at Pacific Century's option. The
Securities are subject to mandatory redemption upon repayment of the related
Debt at their stated maturity dates or their earlier redemption at a
redemption price equal to their liquidation amount plus accrued distributions
to the date fixed for redemption and the premium, if any, paid by Pacific
Century upon concurrent repayment of the related Debt. Pacific Century has
issued guarantees for the payment of distributions and payments on liquidation
or redemption of the Securities, but only to the extent of funds held by the
trust. The guarantees are junior
56
<PAGE>
subordinated obligations of Pacific Century. Distributions to securities
holders may be deferred for up to five consecutive years. During any such
deferred period Pacific Century's ability to pay dividends on its common
shares will be restricted. The Federal Reserve has announced that certain
cumulative preferred securities, having the characteristics of the Securities,
qualify as minority interest, which is included in Tier 1 capital for bank
holding companies.
Privately placed notes issued by Pacific Century totaled $90 million at
December 31, 2000. These notes carry seven year terms and bear floating
interest rates, which are tied to the three-month LIBOR rate which was 6.40%
at December 31, 2000.
Federal Home Loan Bank (FHLB) advances bear interest at rates from 5.38% to
8.00% and mature from 2001 through 2005. At December 31, 2000, loans totaling
$621,774,000 were pledged to secure these advances along with all FHLB stock.
Total subordinated notes issued by Bank of Hawaii include $118,891,000
issued in 1993 and $124,585,000 issued in 1999 under the Bank's $1 billion
note program that mature in 2003 and 2009, respectively. These notes bear a
fixed interest rate of 6.875%. In 1999 Bank of Hawaii converted its existing
revolving note program into a $1 billion revolving senior and subordinated
note program. Under the terms of this program Bank of Hawaii may issue
additional notes provided that at any time the aggregate amount outstanding
does not exceed $1 billion.
Foreign debt is comprised of a private placement borrowing denominated in
European monetary unit (euro). This debt has a fixed interest rate of 3.28%
and matures in 2001.
Capitalized lease obligations are for certain condominium units in the
Financial Plaza of the Pacific, the headquarters of Pacific Century and Bank
of Hawaii. The lease began in 1993 and has a 60 year term. Lease payments are
fixed at $7,000 per year until 2002; $605,000 per year from 2003 to 2007 and
$665,000 per year from 2008 to 2012 and are negotiable thereafter.
Pacific Century, by agreement with its regulator, may not incur any
additional debt without the prior approval of its regulator.
Long-term debt maturities for the five years succeeding December 31, 2000,
are $410,446,000 in 2001, $120,645,000 in 2002, $126,891,000 in 2003,
$96,000,000 in 2004 and $10,000,000 in 2005.
Interest paid on long-term debt in 2000, 1999 and 1998 totaled $58,195,000,
$41,200,000 and $43,820,000, respectively.
Note H--Shareholders' Equity
Certain of Pacific Century's consolidated banking subsidiaries (including
Bank of Hawaii, Pacific Century Bank, N.A., and First Savings) are subject to
federal regulatory restrictions that limit cash dividends and loans to Pacific
Century. As of December 31, 2000, approximately $607,568,000 of undistributed
earnings of Pacific Century's consolidated subsidiaries would normally be
available for distribution to Pacific Century without prior regulatory
approval. However, Pacific Century has agreed to obtain prior approval from
its regulator for dividend payments.
In evaluating capital adequacy, federal regulators require bank holding
companies and insured depository institutions to maintain three capital ratios
at specific minimum levels. Tier 1 Capital (common shareholders' equity
reduced by certain intangibles and increased for qualifying preferred shares
and minority interests) expressed as a percentage of average risk weighted
assets is the Tier 1 Capital Ratio. Total Capital (Tier 1 capital plus
qualifying portions of the reserve for loan losses) expressed as a percentage
of average risk weighted assets is the Total Capital Ratio. The third ratio is
the Leverage Ratio which is Tier 1 Capital divided by average assets.
57
<PAGE>
The table below presents the minimum Capital levels that an institution must
maintain to qualify as "well capitalized" as it applies to Pacific Century and
its subsidiaries Bank of Hawaii, Pacific Century Bank, N.A. and First Savings.
The Federal Deposit Insurance Corporation Improvements Act of 1991 requires
federal banking regulators to take "prompt corrective action" with respect to
depository institutions that do not meet minimum capital requirements. For
purposes of applying the prompt corrective action framework, federal bank
regulators group institutions into five categories based on their capital
ratios: "well capitalized," "adequately capitalized," "under capitalized,"
"significantly undercapitalized" and "critically undercapitalized."
Institutions that fail to meet the applicable capital requirements are subject
to increased regulatory monitoring and certain other enforcement actions that
could include restricting dividend payments.
As of December 31, 2000, Pacific Century, Bank of Hawaii, Pacific Century
Bank, N.A. and First Savings were all well capitalized under the regulatory
provisions for prompt and corrective action. There were no conditions or
events since year-end that management believes have changed Pacific Century's
or its subsidiaries' capital rating. The table below sets forth regulatory
capital for Pacific Century and its depository subsidiaries at December 31,
2000 and 1999:
<TABLE>
<CAPTION>
Well-Capitalized Bank of Pacific Century First
Minimum Ratio Pacific Century Hawaii Bank, N.A. Savings
---------------- --------------- ---------- --------------- -------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
At December 31, 2000
Shareholders' Equity.... $1,301,356 $1,100,243 $162,758 $46,653
Tier 1 Capital.......... 1,239,552 1,044,150 149,276 46,653
Total Capital........... 1,541,225 1,331,073 162,455 47,942
Tier 1 Capital Ratio.... 6% 11.78% 11.17% 14.22% 46.18%
Total Capital Ratio..... 10% 14.64% 14.23% 15.48% 47.46%
Leverage Ratio.......... 5% 9.10% 8.48% 12.54% 25.02%
At December 31, 1999
Shareholders' Equity.... $1,212,330 $1,029,065 $156,167 $50,397
Tier 1 Capital.......... 1,178,751 1,005,812 141,486 50,397
Total Capital........... 1,515,264 1,326,564 154,374 51,643
Tier 1 Capital Ratio.... 6% 10.28% 9.86% 13.79% 51.30%
Total Capital Ratio..... 10% 13.22% 13.00% 15.04% 52.57%
Leverage Ratio.......... 5% 8.31% 7.81% 11.98% 27.17%
</TABLE>
The following is a breakdown of the components of accumulated other
comprehensive income as of December 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Foreign Currency Translation Adjustment....... $(26,684) $(22,411) $(23,565)
Investment Securities Valuation............... 2,235 (43,065) 1,738
Pension Liability Adjustment.................. (630) (630) (649)
-------- -------- --------
Accumulated Other Comprehensive Income........ $(25,079) $(66,106) $(22,476)
======== ======== ========
</TABLE>
58
<PAGE>
The schedule below discloses for the years ended December 31, 2000, 1999
and 1998 the adjustment of gains and losses on available for sale investment
securities that were included in net income and that have also been included
in other comprehensive income as unrealized holding gains in the period in
which they arose.
<TABLE>
<CAPTION>
2000 1999 1998
-------- --------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Investment Securities Valuation Adjustment on
Available for Sale Securities................ $ 44,279 $ (35,540) $ 157
Adjustment for Realized Amounts Included in
Income....................................... 1,021 (9,263) (2,889)
-------- --------- --------
Unrealized investment securities valuation
adjustment included in other accumulated
comprehensive income......................... $ 45,300 $ (44,803) $ (2,732)
======== ========= ========
</TABLE>
The amount of income tax allocated to each component of comprehensive
income for the years ended December 31, 2000, 1999 and 1998 is provided below:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Foreign Currency Translation Adjustment......... $ (2,301) $ 621 $ 3,053
Investment Securities........................... 30,200 (29,869) (1,821)
Pension Liability Adjustment.................... -- 10 (350)
</TABLE>
In April 1998, Pacific Century changed its state of incorporation from
Hawaii to Delaware. The Delaware Certificate of Incorporation authorizes
500,000,000 shares of Common Stock and reduces the par value to $.01 per share
from $2.00 per share under the Hawaii Restated Articles of Incorporation.
Note I--International Operations
The following table provides selected financial data for Pacific Century's
international operations for the years ended December 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ----------
(in thousands of dollars)
<S> <C> <C> <C>
International
Average Assets......................... $2,891,364 $3,413,003 $3,426,614
Average Loans.......................... 1,467,923 1,702,188 1,752,657
Average Deposits....................... 2,080,728 2,481,802 2,383,074
Operating Revenue...................... 236,720 252,060 287,872
Income Before Taxes.................... 7,302 6,486 1,193
Net Income (Loss)...................... (181) (1,374) (804)
</TABLE>
Average assets include short-term interest-bearing deposits with foreign
branches of U.S. banks and large international banks. On average, these
deposits were $354,391,000, $577,257,000 and $494,325,000 during 2000, 1999
and 1998, respectively.
To measure international profitability, Pacific Century maintains an
internal transfer pricing system that makes certain income and expense
allocations, including interest expense for the use of domestic funds.
Interest rates used in determining charges on advances of funds are based on
prevailing deposit rates. Overhead is allocated based on services rendered by
administrative units to profit centers.
Note J--Contingent Liabilities
Pacific Century is a defendant in various legal proceedings and, in
addition, there are various other contingent liabilities arising in the normal
course of business. After consultation with legal counsel, management does not
anticipate that the disposition of these proceedings and contingent
liabilities will have a material effect upon the consolidated financial
statements.
59
<PAGE>
Note K--Profit Sharing, Retirement and Postretirement Benefit Plans
A deferred-compensation profit sharing plan (Profit Sharing Plan) is
provided for the benefit of all employees of Pacific Century and its
subsidiaries who have met the Profit Sharing Plan's eligibility requirements.
The Profit Sharing Plan provides for annual contributions based on a schedule
of performance levels. The schedule establishes the percentage of adjusted net
income to be contributed based on Pacific Century's adjusted return on equity.
Participants in the Profit Sharing Plan receive up to 50% of their annual
allocation in cash. The remaining amounts are deferred and may be invested in
various options including mutual funds, a collective trust, and common shares
of Pacific Century. In 1998, the portion of the Profit Sharing Plan consisting
of the Pacific Century Stock Fund was converted to an employee stock ownership
plan. Pacific Century's contributions to the Profit Sharing Plan totaled
$4,569,000 in 2000, $6,849,000 in 1999, $8,472,000 in 1998. The Profit Sharing
Plan provides for a company match of $1.25 for each $1.00 in 401(k)
contributions made by qualified employees up to a maximum of 2% of the
employee's compensation. For 2000, 1999 and 1998, matching contributions under
this plan totaled $3,169,000, $3,176,000 and $2,981,000, respectively.
Pacific Century has a defined-contribution money purchase plan (Money
Purchase Plan) under which it contributes 4% of an employee's compensation for
employees meeting certain eligibility and vesting requirements. The Money
Purchase Plan has a one year eligibility requirement and a five year vesting
period. For 2000, 1999 and 1998, Pacific Century contributed $5,553,000,
$5,898,000 and $5,192,000, respectively, to the Money Purchase Plan.
Pacific Century also has an Excess Profit Sharing Plan and an Excess Money
Purchase Plan, which cover certain employees for amounts exceeding the limits
under those plans.
Pacific Century froze its non-contributory, qualified defined-benefit
retirement plan (Retirement Plan) and non-qualified excess retirement plan
(Excess Plan) in 1995. The Retirement Plan and Excess Plan had covered certain
employees meeting eligibility requirements. Since the Plans were frozen, no
new participants have been added, but qualifying participants' benefits have
been adjusted for changes in salaries through December 31, 2000.
During 2000, annuities were purchased by the Plan to settle the obligations
to almost 900 retirees in payout status. The purchase satisfied obligations of
$35,070,000 and allowed for the recognition of a settlement gain of
$11,900,000 during the year.
Retirement Plan assets are managed by investment advisors in accordance
with investment policies established by the plan trustees. Retirement Plan
investments primarily consist of marketable securities including stocks, U.S.
Government agency securities, a money market fund, mutual funds, and a
collective investment fund. The assets of the Retirement Plan include
securities of related parties (Pacific Capital Funds, a Pacific Century Trust
collective investment fund, and a Pacific Century Trust money market fund).
Pacific Century Trust is a division of Bank of Hawaii and either manages or
advises the Pacific Capital Funds and Pacific Century Trust collective
investment fund and money market fund. The fair value of securities of related
parties as of December 31, 2000 was $10,269,000.
The Excess Plan is a non-qualified excess retirement benefit plan which
covers certain employees of Pacific Century and participating subsidiaries.
The unfunded Excess Plan recognizes the liability to participants for amounts
exceeding the limits allowed under the Retirement Plan.
Pacific Century's Postretirement Benefit Plans provide retirees with group
life, dental and medical insurance coverage. The cost of providing
postretirement benefits are "shared costs" where both the employer and former
employees pay a portion of the premium. Most employees of Pacific Century and
its subsidiaries who have met the eligibility requirements are covered by this
plan. Beginning in 1993, Pacific Century began recognizing the transition
obligation over 20 years. Pacific Century has no segregated assets to provide
postretirement benefits.
60
<PAGE>
The following table sets forth the change in benefit obligation, change in
fair value of plan assets, funded status, and net amount recognized in the
Consolidated Statements of Financial Condition for the aggregated pension
plans (Retirement Plan and Excess Plan) and Postretirement Benefit Plans for
the years ended December 31, 2000 and 1999.
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Benefits
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit Obligation at Beginning of
Year.............................. $ 84,771 $ 91,262 $ 24,105 $ 29,090
Service Cost....................... -- -- 932 1,059
Interest Cost...................... 5,142 6,305 1,716 1,709
Obligation Settled................. (35,070) -- -- --
Actuarial (Gain) Loss.............. 3,969 (7,152) (597) (6,653)
Employer Benefits Paid/1/ ......... (3,825) (5,644) (942) (1,100)
-------- -------- -------- --------
Benefit Obligation at End of Year.. $ 54,987 $ 84,771 $ 25,214 $ 24,105
======== ======== ======== ========
Change in Fair Value of Plan Assets
Fair Value of Plan Assets at
Beginning of Year................. $ 96,849 $ 85,055 $ -- $ --
Actual Return on Plan Assets....... 2,966 17,050 -- --
Employer Contribution.............. 481 388 942 1,100
Employer Benefits Paid............. (3,825) (5,644) (942) (1,100)
Annuity Purchased.................. (36,053) -- -- --
-------- -------- -------- --------
Fair Value of Plan Assets at End of
Year.............................. $ 60,418 $ 96,849 $ -- $ --
======== ======== ======== ========
Funded Status...................... $ 5,431 $ 12,078 $(25,214) $(24,105)
Unrecognized Net Actuarial Gain.... (2,088) (23,855) (12,432) (12,451)
Unrecognized Transition
Obligation........................ -- -- 8,358 9,054
-------- -------- -------- --------
Net Amount Recognized; Accrued..... $ 3,343 $(11,777) $(29,288) $(27,502)
======== ======== ======== ========
Amounts Recognized in the
Consolidated Statements of
Financial Condition Consist of:
Prepaid Benefit Cost............. $ 10,439 $ -- $ -- $ --
Accrued Benefit Liability........ (8,066) (12,747) (29,288) (27,502)
Accumulated Other Comprehensive
Income.......................... 970 970 -- --
-------- -------- -------- --------
Net Amount Recognized; Accrued..... $ 3,343 $(11,777) $(29,288) $(27,502)
======== ======== ======== ========
</TABLE>
- --------
/1/ Participants' contributions relative to the Postretirement Benefits Plan
are offset against employer benefits paid in the above table. For the years
ended December 31, 2000 and 1999, participants' contributions for
postretirement benefits totaled $896,000 and $817,000, respectively. There
were no participants' contributions in the pension plans.
For the unfunded Excess Plan, the projected benefit obligation and
accumulated benefit obligation for the Excess Plan were both $8.1 million as
of December 31, 2000 and $7.8 million and $7.7 million, respectively, as of
December 31, 1999. The accrued benefit liability as of December 31, 2000 and
1999 was $7.8 million and $7.7 million, respectively.
61
<PAGE>
Components of net periodic benefit cost for the aggregated pension plans
and the Postretirement Benefit Plans are presented in the following table for
the years ended December 31, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Benefits
------------------------- ----------------------
2000 1999 1998 2000 1999 1998
------- ------- ------- ------ ------ ------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Components of Net
Periodic Benefit Cost:
Service Cost.......... $ -- $ -- $ -- $ 932 $1,059 $1,292
Interest Cost......... 5,142 6,305 6,146 1,716 1,709 1,999
Expected Return on
Plan Assets.......... (7,157) (7,425) (6,982) -- -- --
Amortization of
Unrecognized Net
Transition (Asset)
Obligation........... -- (315) (318) 696 696 696
Recognized Net
Actuarial (Gain)
Loss................. (724) 125 (159) (616) (399) (153)
------- ------- ------- ------ ------ ------
Net Periodic Benefit
Cost................. $(2,739) $(1,310) $(1,313) $2,728 $3,065 $3,834
======= ======= ======= ====== ====== ======
</TABLE>
Assumptions used for the aggregated pension plans and Postretirement
Benefit Plans at December 31, 2000, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
---------------- ----------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted Average Assumptions as of
December 31:
Discount Rate....................... 7.50% 7.75% 7.00% 7.50% 7.75% 7.00%
Expected Return on Plan Assets...... 9.00% 9.00% 9.00% -- -- --
Rate of Compensation Increase....... 5.00% 5.00% 5.00% -- -- --
</TABLE>
The medical cost trend rate for employees under the age of 65 was revised
at December 31, 1998 to 8.0% for 1999 and leveling thereafter to 6.0%. The
medical cost trend rate for employees over the age of 65 and the dental cost
trend rate were both revised at December 31, 1998 to a flat rate of 6.0% per
year. A one percent change in this assumption (with all other assumptions
remaining constant) would impact the service and interest cost components of
the net periodic postretirement benefit cost and the postretirement benefit
obligation for 2000 as follows:
<TABLE>
<CAPTION>
One One
Percent Percent
Increase Decrease
-------- --------
(in thousands of
dollars)
<S> <C> <C>
Effect on the total of service and interest cost
components............................................. $ 259 $ (200)
Effect on postretirement benefit obligation............. $1,830 $(1,521)
</TABLE>
Note L--Stock Option Plans
The Pacific Century Stock Option Plans (the Plans) are administered by the
Compensation Committee which is composed entirely of non-employee directors.
The Plans provide participants with the option to purchase shares of common
stock at a specified exercise price beginning one year after the date the
option was granted and expiring ten years from the date of grant. The exercise
price is the fair market value of the shares on the date the option was
granted. The Plans also provide certain participants with stock options in
tandem with stock appreciation rights (SAR). A SAR entitles an optionee, in
lieu of exercising the stock option, to receive cash equal to the excess of
the market value of the shares as of the exercise date over the option price.
The Compensation Committee has limited the exercise of SARs to $1 million per
year, allocated among the participants. The expense for the SARs recognized in
the Consolidated Statements of Income was zero in 2000, $370,000 in 1999 and
$614,000 in 1998.
62
<PAGE>
Pacific Century has a Director Stock Option Plan that grants restricted
common shares to directors and requires directors to retain shares exercised
throughout the service period as a director. The plan automatically grants
annually an option for 1,000 shares to each Pacific Century director, who is
also a director of Bank of Hawaii and an option for 500 shares to directors
who are only directors of Pacific Century or Bank of Hawaii. The exercise
price is based on the closing market price of the shares on the date that the
option was granted. Each option expires on the tenth anniversary date of its
grant and is generally not transferable. If an optionee ceases to serve as a
director for any reason other than death, the option immediately terminates
and any restricted shares that were previously acquired are subject to
redemption at a price equal to the market value of the shares at the time of
grant. As of December 31, 2000, 99,000 options were outstanding under this
plan.
The following information relates to options outstanding as of December 31,
2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------
Number of Weighted Average Number of
Shares Weighted Average Remaining Shares Weighted Average
Range of Exercise Price Outstanding Exercise Price Contractual Life Exercisable Exercise Price
----------------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$10.87--$12.88.......... 111,434 $12.86 46.8 111,434 $12.86
13.56-- 15.54.......... 4,129,925 13.81 102.0 986,025 14.58
16.01-- 18.13.......... 1,673,965 17.46 91.2 1,654,965 17.47
18.25-- 20.56.......... 621,048 18.58 61.2 600,548 18.53
20.88-- 22.19.......... 767,072 21.22 68.4 763,572 21.21
23.94-- 26.06.......... 677,706 25.83 75.6 677,706 25.83
--------- ---------
Total................... 7,981,150 16.66 91.2 4,794,250 $18.68
========= =========
</TABLE>
The following table presents the activity of Stock Option Plans for the
years ended December 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1.... 5,079,388 $18.65 4,787,562 $17.99 4,097,050 $18.13
Granted..................... 3,487,650 13.65 1,014,000 18.69 1,117,000 17.43
Exercised/1/ ............... (245,506) 12.81 (553,676) 12.44 (706,506) 13.99
Forfeited................... (74,300) 18.28 (115,000) 18.79 (57,500) 24.24
Expired..................... (266,082) 21.24 (53,498) 24.33 (9,944) 17.34
Exchanged in conjunction
with purchase of CU
Bancorp.................... -- -- -- -- 347,462 11.06
--------- --------- ---------
Outstanding at December 31.. 7,981,150 $16.66 5,079,388 $18.65 4,787,562 $17.99
========= ========= =========
Options Exercisable at
December 31................ 4,794,250 4,105,388 3,712,062
Shares Available for Future
Grants..................... 1,718,480 974,144 1,819,646
</TABLE>
- --------
/1/ The price per share of options exercised on an actual exercise price basis
ranged between $10.87 and $26.06 for 2000, $7.24 and $21.13 for 1999, and
$7.44 and $21.88 for 1998.
63
<PAGE>
The following table presents for the years ended December 31, 2000, 1999 and
1998 the pro forma disclosures of the impact that option grants would have had
on net income and earnings per share had the grants been measured using the
fair value of accounting prescribed by SFAS No. 123:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ----------
(in thousands of dollars except
per share and option data)
<S> <C> <C> <C>
Pro Forma Data/1/
Net Income.............................. $ 109,336 $ 130,749 $ 103,160
Basic Earnings Per Share................ $ 1.37 $ 1.63 $ 1.29
Diluted Earnings Per Share.............. $ 1.37 $ 1.61 $ 1.27
Weighted Average Fair Value of Options
Granted During the Year/1/ ............ $ 3.76 $ 5.37 $ 3.80
Assumptions
Average Risk Free Interest Rate....... 5.81% 5.96% 5.08%
Average Expected Volatility........... 29.36% 31.47% 24.52%
Expected Dividend Yield............... 3.28% 3.18% 3.10%
Expected Life 6 years 5 years 5 years
</TABLE>
- --------
/1/ The Black-Scholes option pricing model was used to develop the fair values
of the grants.
Note M--Other Operating Expense
Other operating expense for the years ended December 31, 2000, 1999 and 1998
was as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Legal and Other Professional Fees................ $ 25,405 $ 32,391 $ 35,772
Stationery and Supplies.......................... 8,112 9,807 11,062
Amortization of Intangible Assets................ 19,484 19,435 17,383
Credit Card Processing........................... 17,597 17,217 14,824
Other............................................ 96,842 101,257 95,505
-------- -------- --------
Total.......................................... $167,440 $180,107 $174,546
======== ======== ========
</TABLE>
Note N--Income Taxes
The significant components of the provision for income taxes for the years
ended December 31, 2000, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Current:
Federal..................................... $28,567 $ 72,234 $ 54,553
State....................................... 8,378 11,970 11,193
Foreign..................................... 21,160 19,124 18,021
------- -------- --------
$58,105 $103,328 $ 83,767
------- -------- --------
Deferred:
Federal..................................... $ 9,084 $(14,508) $(25,376)
State....................................... 2,481 2,817 (511)
Foreign..................................... (3,341) 1,092 (1,231)
------- -------- --------
$ 8,224 $(10,599) $(27,118)
------- -------- --------
Provision for Income Taxes.................... $66,329 $ 92,729 $ 56,649
======= ======== ========
</TABLE>
64
<PAGE>
The current income tax provision includes taxes on gains and losses on the
sale of securities of $(580,000), $5,776,000 and $1,415,000 for 2000, 1999 and
1998, respectively. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Significant components of Pacific Century's deferred tax liabilities and
assets as of December 31, 2000 and 1999 reclassified based on the tax returns
as filed, are as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
(in thousands of
dollars)
<S> <C> <C>
Deferred Tax Liabilities:
Lease Transactions..................................... $205,954 $169,774
Deferred Investment Tax Credits........................ 2,224 2,646
Accelerated Depreciation............................... 54 (947)
Core Deposit Intangible................................ 4,881 5,946
-------- --------
Total Deferred Tax Liabilities....................... $213,113 $177,419
-------- --------
Deferred Tax Assets:
Reserve for Loan Losses................................ $ 87,295 $ 60,446
Accrued Pension Cost................................... (3,931) 1,959
Net Operating Loss Carry Forwards...................... 4,393 1,052
Securities Valuation Reserve........................... (1,464) 28,105
Postretirement Benefits................................ 12,198 11,418
Other, Net............................................. 9,944 8,405
Foreign Tax Credit Carry Forwards...................... 5,000 --
-------- --------
Total Deferred Tax Assets............................ $113,435 $111,385
-------- --------
Net Deferred Tax Liabilities............................. $ 99,678 $ 66,034
======== ========
</TABLE>
For financial statement purposes, Pacific Century had deferred investment
tax credits for property purchased for lease to customers of $2,224,000,
$2,646,000 and $2,977,000 at December 31, 2000, 1999 and 1998, respectively.
In 2000, 1999 and 1998, investment tax credits included in the computation of
the provision for income taxes were $422,000, $331,000 and $2,643,000,
respectively. Pacific Century has foreign tax credit carry forwards of
approximately $5,000,000 at December 31, 2000, which may be used to offset
future federal income tax expense. The foreign tax credit carry forwards will
expire at the end of 2005. Management expects to generate sufficient foreign
source income to utilize the foreign tax credit carry forwards.
The following analysis reconciles the Federal statutory income tax rate to
the effective consolidated income tax rate for the years ended December 31,
2000, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Statutory Federal Income Tax Rate........................ 35.0% 35.0% 35.0%
Increase (Decrease) in Tax Rate Resulting From:
State Taxes, Net of Federal Income Tax and Foreign Tax
Adjustments........................................... 3.9 4.4 4.2
Tax-Exempt Interest Income............................. (0.3) (0.3) (0.3)
Intangibles............................................ 2.0 1.6 2.1
Low Income Housing and Investment Tax Credits.......... (5.6) (4.7) (6.2)
Other/1/ .............................................. 1.9 5.1 (0.2)
---- ---- ----
Effective Tax Rate....................................... 36.9% 41.1% 34.6%
==== ==== ====
</TABLE>
- --------
/1/ For 1999, income taxes associated with the sale of a special purpose
leasing subsidiary increased the effective tax rate by 3.5%.
65
<PAGE>
For financial statement purposes, no deferred income tax liability has been
recorded for tax bad debt reserves that arose in tax years beginning before
December 31, 1987. Such tax bad debt reserves total approximately $18.2
million for which no provision for federal income taxes has been provided. If
these amounts are used for purposes other than to absorb bad debt losses, they
will be subject to federal income taxes at the then applicable rates.
Note O--Financial Instruments with Off-Balance Sheet Risk
Pacific Century is a party to financial instruments with off-balance sheet
risk in the normal course of its business to meet the financing needs of
customers and to manage its own exposure to fluctuations in interest and
foreign exchange rates. These financial instruments include commitments to
extend credit, standby letters of credit, foreign exchange contracts, and
interest rate options. To varying degrees, these instruments involve elements
of credit and interest rate risk in excess of the amount recognized in the
statements of condition. The contract or notional amounts of these instruments
reflect the extent of involvement that Pacific Century has in each class of
financial instrument. The FASB has categorized certain of these off-balance
sheet financial instruments that include foreign currency contracts and
interest rate swaps as derivative financial instruments. FASB has further
categorized these derivative financial instruments into "held or issued for
purposes other than trading" or "trading."
Pacific Century's exposure to off-balance sheet credit risk is defined as
the possibility of sustaining a loss due to the failure of the counterparty to
perform in accordance with the terms of the contract. Credit risks associated
with off-balance sheet financial instruments are similar to those relating to
on-balance sheet financial instruments. Pacific Century manages off-balance
sheet credit risk with the same standards and procedures applied to its
commercial lending activity.
Traditional Off-Balance Sheet Risk Instruments
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of the terms or conditions established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since commitments may
expire without being drawn, the total commitment amount does not necessarily
represent future cash requirements. Pacific Century evaluates each customer's
credit worthiness on an individual basis. The amount of collateral obtained is
based on management's credit evaluation of the customer. The type of
collateral varies, but may include cash, accounts receivable, inventory, and
property, plant, and equipment.
Standby letters of credit are conditional commitments issued by Pacific
Century to guarantee the performance of a customer to a third party. These
guarantees are primarily issued to support borrowing agreements. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Pacific Century holds cash
and deposits as collateral on those commitments for which collateral is deemed
necessary.
Derivative Financial Instruments Held for Trading
Foreign exchange contracts are contracts for delayed delivery of a foreign
currency in which the seller agrees to make delivery at a specified future
date at a specified price. Risks arise from the possible inability of
counterparties to meet the terms of their contracts and from movements in
currency rates. Collateral is generally not required for these transactions.
At December 31, 2000, the notional amount of foreign exchange contracts held
for trading totaled $905.6 million, with a fair value of $11.0 million,
compared to $686.7 million, with a fair value of $3.7 million at December 31,
1999. Pacific Century uses foreign exchange contracts to offset foreign
currency positions taken on behalf of its customers and for its own account.
66
<PAGE>
Derivative Financial Instruments Held or Issued for Other Than Trading
At December 31, 2000, the notional amount of foreign exchange contracts
held for other than trading totaled $181.8 million with a fair value of $13.4
million, compared to $229.3 million at December 31, 1999 with a fair value of
$(3.0) million. Pacific Century uses these foreign exchange contracts
primarily for asset and liability management activities.
Interest rate options, which primarily consist of caps and floors, are
interest rate protection instruments that involve the obligation of the seller
to pay the buyer an interest rate differential in exchange for a premium paid
by the buyer. This differential represents the difference between current
interest rates and an agreed-upon rate applied to a notional amount. Exposure
to loss on these options will increase or decrease over their respective lives
as interest rates fluctuate. Pacific Century transacts interest rate options
on behalf of its customers and does not maintain significant open positions.
From time to time Pacific Century utilizes interest-rate swaps in managing
its exposure to interest-rate risk. These financial instruments require the
exchange of fixed and floating rate interest payments based on the notional
amount of the contract for a specified period. Pacific Century has used swap
agreements to effectively convert portions of its floating rate loan portfolio
to fixed rate. At December 31, 2000, no swaps were in effect.
Pacific Century's credit risk exposure on interest-rate swaps is equal to
the total market value of those instruments with gains. As of December 31,
2000 and 1999 Pacific Century had no credit risk exposure from swaps. At year-
end 1998, the aggregate credit risk of swaps was $0.3 million and the net
market value of all positions was $0.3 million. Net expense on interest rate
swap agreements totaled $0.1 million and $1.5 million for 1999 and 1998,
respectively.
The table below summarizes by notional amounts the activity for each major
category of interest-rate swaps in 2000. Pacific Century had no deferred gains
or losses relating to terminated swap contracts in 2000 and 1999.
<TABLE>
<CAPTION>
Receive Fixed
-------------
(in thousands
of dollars)
<S> <C>
Balance, December 31, 1997................................... $ 492,549
Additions.................................................. --
Maturities/Amortizations................................... (354,970)
---------
Balance, December 31, 1998................................... $ 137,579
Additions.................................................. --
Maturities/Amortizations................................... (137,579)
---------
Balance, December 31, 1999................................... $ --
Additions.................................................. --
Maturities/Amortizations................................... --
---------
Balance, December 31, 2000................................... $ --
=========
</TABLE>
Note P--Fair Values of Financial Instruments
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced liquidation sale. When possible, fair values
are measured based on quoted market prices for the same or comparable
instruments. Because many of Pacific Century's financial instruments lack an
available market price, management must use its best judgment in estimating
the fair value of those instruments based on present value or other valuation
techniques. Such techniques are significantly affected by estimates and
assumptions, including the discount rate, future cash flows, economic
conditions, risk characteristics, and other relevant factors. These estimates
are subjective in nature and
67
<PAGE>
involve uncertain assumptions and, therefore, cannot be determined with
precision. Many of the derived fair value estimates cannot be substantiated by
comparison to independent markets and could not be realized in immediate
settlement of the instrument. Certain financial instruments and all non-
financial instruments are excluded from disclosure requirements. Accordingly,
the aggregate fair value amounts presented do not represent the underlying
value of Pacific Century.
The following methods and assumptions were used by Pacific Century in
estimating fair values of financial instruments:
Cash and Cash Equivalents: The carrying amounts reported in the balance
sheet for cash and short term investments approximate the fair value of
these assets.
Investment Securities Held to Maturity, Investment Securities Available
for Sale and Trading Securities: Fair values for investment securities are
based on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of comparable
instruments.
Loans: Fair values of loans are determined by discounting the expected
future cash flows of pools of loans with similar characteristics. Loans are
first segregated by type such as commercial, real estate, consumer, and
foreign and are then further segmented into fixed and adjustable rate and
loan quality categories. Expected future cash flows are projected based on
contractual cash flows, adjusted for estimated prepayments.
Deposit Liabilities: Fair values of non-interest bearing and interest-
bearing demand deposits and savings deposits are equal to the amount
payable on demand (e.g., their carrying amounts) because these products
have no stated maturity. Fair values of time deposits are estimated using
discounted cash flow analyses. The discount rates used are based on rates
currently offered for deposits with similar remaining maturities.
Short-Term Borrowings: The carrying amounts of securities sold under
agreements to repurchase, funds purchased, commercial paper, and other
short-term borrowings approximate their fair values.
Long-Term Debt: Fair values of long-term debt are estimated using
discounted cash flow analyses, based on Pacific Century's current
incremental borrowing rates for similar types of borrowings.
Off-Balance Sheet Instruments: Fair values of off-balance sheet
instruments (e.g., commitments to extend credit, standby letters of credit,
commercial letters of credit, foreign exchange and swap contracts, and
interest rate swap agreements) are based on fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing, current settlement
values or quoted market prices of comparable instruments.
68
<PAGE>
The following table presents the fair values of Pacific Century's financial
instruments at December 31, 2000 and 1999.
<TABLE>
<CAPTION>
2000 1999
------------------------- -------------------------
Book or Book or
Notional Value Fair Value Notional Value Fair Value
-------------- ---------- -------------- ----------
(in thousands of dollars)
<S> <C> <C> <C> <C>
Financial Instruments--Assets
Loans/1/ ....................................... $8,591,262 $8,968,128 $8,818,300 $8,970,900
Investment Securities/2/ ....................... 3,177,100 3,183,700 3,338,600 3,330,000
Other Financial Assets/3/ ...................... 327,100 327,100 339,600 339,600
Financial Instruments--Liabilities
Deposits........................................ 9,101,600 9,101,800 9,394,200 9,381,000
Short-Term Borrowings/4/ ....................... 2,279,900 2,279,900 2,789,600 2,789,600
Long-Term Debt/5/ .............................. 997,200 1,048,000 720,400 696,700
Financial Instruments--Off-Balance Sheet
Financial Instruments Whose Contract Amounts
Represent Credit Risk:
Commitments to Extend Credit.................. 3,347,600 8,900 4,155,200 11,600
Standby Letters of Credit..................... 290,700 1,500 513,400 2,900
Commercial Letters of Credit.................. 125,900 300 159,000 600
Financial Instruments Whose Notional or Contract
Amounts Exceed the Amount of Credit Risk:
Foreign Exchange and Swap Contracts........... 1,087,400 24,400 916,000 700
Interest Rate Swap Agreements................. -- -- -- --
</TABLE>
- --------
/1/ Includes all loans, net of unearned income and reserve for loan losses,
and excludes net leases.
/2/ Includes both held to maturity and available for sale securities.
/3/ Includes interest-bearing deposits, funds sold and trading securities.
/4/ Includes securities sold under agreements to repurchase, funds purchased
and short-term borrowings.
/5/ Excludes capitalized lease obligations.
Note Q--Business Segments
Pacific Century is a financial services organization that maintains a broad
presence throughout the Pacific region. The financial performance of
individual operating components are assessed by the chief operating decision
maker of Pacific Century in accordance with geographic and functional area of
operations. Geographically, Pacific Century has aligned its operations into
four major segments: Hawaii, the Pacific, Asia, and the U.S. Mainland. In
addition, the Treasury and Other Corporate segment includes corporate asset
and liability management activities, the unallocated portion of various
administrative costs, and reconciling differences between economic and
financial statement results.
Business segment results are determined based on Pacific Century's internal
financial management reporting process and organization structure. The
financial management reporting process uses various techniques to assign and
transfer balance sheet and income statement amounts between business units. In
measuring line of business financial performance, Pacific Century utilizes
certain accounting practices that differ from accounting principles generally
accepted in the United States. Accordingly, certain balances reflected in the
line of business report differ from the corresponding amounts in the
consolidated financial statements. Accounting practices and other key elements
of Pacific Century's line of business financial management reporting process
follows:
. Economic Provision--Business units are allocated an economic provision
for loan losses that reflects the expected normalized loss determined
by a statistically applied approach that considers risk factors,
including historical loss experience, within a given portfolio. The
economic provision is different from the method used to determine
Pacific Century's consolidated provision for loan losses, which is
based on an evaluation of the adequacy of the reserve for loan losses.
69
<PAGE>
. Net Interest Income--Pacific Century relies primarily on net interest
income as the relevant revenue measure in assessing segment financial
performance. Interest revenue and interest expense are allocated to
business units using a funds transfer pricing process.
. Non-Interest Expense--Expenses for centrally provided services are
based on estimated usage of those services using various allocation
techniques.
. Income Taxes--Income taxes are charged to business units based on
Pacific Century's consolidated effective tax rate, exclusive of tax
benefits. Tax benefits resulting from permanent differences between
book and tax income are allocated to the business segment to which they
relate.
From time to time, Pacific Century's line of business management reporting
process may change based on refinements in segment reporting policies or
changes in organizational structure, accounting systems, product lines or
information systems. These changes could result in a realignment of business
lines or modifications to allocation and transfer methodologies. When material
changes are made to the financial management reporting process prior period
reports would be restated.
70
<PAGE>
Presented below is the financial results for each of Pacific Century's
business segments for the years ended December 31, 2000, 1999, and 1998.
Business Segment Selected Financial Information
<TABLE>
<CAPTION>
Treasury
U.S. and Other Consolidated
Hawaii Pacific Asia Mainland Corporate Total
---------- ---------- ---------- ---------- ---------- ------------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 2000
Net Interest Income................ $ 287,205 $ 119,452 $ 22,561 $ 117,252 $ 9,761 $ 556,231
Economic Provision................. (29,669) (12,864) (16,648) (14,270) (69,402) (142,853)
---------- ---------- ---------- ---------- ---------- -----------
Risk-Adjusted Net Interest Income.. 257,536 106,588 5,913 102,982 (59,641) 413,378
Non-Interest Income................ 144,282 39,355 19,239 15,012 45,541 263,429
---------- ---------- ---------- ---------- ---------- -----------
Total Risk-Adjusted Revenue........ 401,818 145,943 25,152 117,994 (14,100) 676,807
Non-Interest Expense............... 274,881 98,038 25,232 70,281 28,385 496,817
---------- ---------- ---------- ---------- ---------- -----------
Net Income Before Income Taxes..... 126,937 47,905 (80) 47,713 (42,485) 179,990
Income Taxes....................... (55,376) (20,930) (24) (10,304) 20,305 (66,329)
---------- ---------- ---------- ---------- ---------- -----------
Net Income......................... $ 71,561 $ 26,975 $ (104) $ 37,409 $ (22,180) $ 113,661
========== ========== ========== ========== ========== ===========
Actual Loan Loss Provision......... $ 90,407 $ 25,529 $ 13,503 $ 13,414 $-- $ 142,853
========== ========== ========== ========== ========== ===========
Total Assets at December 31, 2000.. $5,254,122 $2,132,307 $1,118,014 $3,025,236 $2,484,137 $14,013,816
========== ========== ========== ========== ========== ===========
Year Ended December 31, 1999
Net Interest Income................ $ 288,412 $ 121,780 $ 23,836 $ 105,805 $ 34,910 $ 574,743
Economic Provision/1/,/2/ ......... (33,053) (14,105) (19,500) (10,908) 16,651 (60,915)
---------- ---------- ---------- ---------- ---------- -----------
Risk-Adjusted Net Interest Income.. 255,359 107,675 4,336 94,897 51,561 513,828
Non-Interest Income................ 135,383 40,485 17,929 30,301 41,483 265,581
---------- ---------- ---------- ---------- ---------- -----------
Total Risk-Adjusted Revenue........ 390,742 148,160 22,265 125,198 93,044 779,409
Non-Interest Expense/3/ ........... 292,868 108,644 26,810 69,173 56,228 553,723
---------- ---------- ---------- ---------- ---------- -----------
Net Income Before Income Taxes..... 97,874 39,516 (4,545) 56,025 36,816 225,686
Income Taxes/4/,/5/ ............... (42,978) (17,022) 1,639 (18,412) (15,956) (92,729)
---------- ---------- ---------- ---------- ---------- -----------
Net Income......................... $ 54,896 $ 22,494 $ (2,906) $ 37,613 $ 20,860 $ 132,957
========== ========== ========== ========== ========== ===========
Actual Loan Loss Provision......... $18,328 $11,052 $34,507 $(2,972) $-- $ 60,915
========== ========== ========== ========== ========== ===========
Total Assets at December 31, 1999.. $5,294,346 $2,466,435 $1,607,704 $2,688,031 $2,383,799 $14,440,315
========== ========== ========== ========== ========== ===========
Year Ended December 31, 1998
Net Interest Income................ $ 294,898 $ 121,642 $ 25,365 $ 100,342 $ 34,354 $ 576,601
Economic Provision................. (37,012) (12,910) (5,031) (11,257) (17,804) (84,014)
---------- ---------- ---------- ---------- ---------- -----------
Risk-Adjusted Net Interest Income.. 257,886 108,732 20,334 89,085 16,550 492,587
Non-Interest Income................ 114,094 43,348 15,847 10,938 27,524 211,751
---------- ---------- ---------- ---------- ---------- -----------
Total Risk-Adjusted Revenue........ 371,980 152,080 36,181 100,023 44,074 704,338
Non-Interest Expense............... 288,258 113,770 25,016 73,251 40,430 540,725
---------- ---------- ---------- ---------- ---------- -----------
Net Income Before Income Taxes..... 83,722 38,310 11,165 26,772 3,644 163,613
Income Taxes....................... (35,083) (15,314) (4,156) 31 (2,127) (56,649)
---------- ---------- ---------- ---------- ---------- -----------
Net Income......................... $ 48,639 $ 22,996 $ 7,009 $ 26,803 $ 1,517 $ 106,964
========== ========== ========== ========== ========== ===========
Actual Loan Loss Provision......... $27,647 $17,100 $36,709 $2,568 $-- $ 84,014
========== ========== ========== ========== ========== ===========
Total Assets at December 31, 1998.. $5,272,787 $2,432,873 $1,613,369 $2,629,987 $3,067,547 $15,016,563
========== ========== ========== ========== ========== ===========
</TABLE>
- --------
/1/ The economic provision for loan losses reflects the expected normalized
loss determined by a statistically applied approach that considers risk
factors, including historical loss experience, within a given portfolio.
The economic provision differs from the provision determined under
generally accepted accounting principles. The difference between the sum
of the economic provision for business segments and the provision in the
consolidated financial statements is included in Treasury and Other
Corporate.
/2/ The economic provision for Asia in 1999 reflects adjustments for
normalized loss factors resulting from the company's assessment of reform
measures initiated to deal with the financial turmoil in the region.
/3/ Non-interest expense for the Treasury and Other Corporate segment in 1999
included a restructuring charge of $22.5 million.
/4/ Tax benefits are allocated to the business segment to which they relate.
In 2000 and 1999, income taxes for the U.S. Mainland segment included
$13.7 million and $14.0 million, respectively, in tax benefits from low
income housing tax credits and investment tax credits.
/5/ Income taxes in 1999 included $12.7 million relative to the sale of a
special purpose leasing subsidiary, which generated $14.0 million in
gains.
71
<PAGE>
The Hawaii segment includes both retail and commercial operating units.
Retail operating units sell and service a broad line of consumer financial
products. These units include consumer deposits, consumer lending, residential
real estate lending, auto financing, credit cards, insurance, and private and
institutional services (trust, mutual funds, and stock brokerage). With
respect to the commercial component, operating units in Hawaii include small
business, corporate banking, commercial products, commercial real estate, and
commercial property and casualty insurance.
In the Pacific segment, Pacific Century offers financial products and
services to both retail and commercial customers. This segment includes
operations in the West and South Pacific.
Pacific Century serves the West Pacific through Bank of Hawaii branches in
Guam, the Commonwealth of the Northern Mariana Islands, the Federated States
of Micronesia, the Republic of the Marshall Islands and the Republic of Palau.
Additionally, First Savings maintains branches in Guam.
Pacific Century's presence in the South Pacific includes branches of Bank
of Hawaii and various subsidiary and affiliate banks. The Bank of Hawaii
branches in this region are in Fiji and American Samoa. Pacific Century's
subsidiary banks in the South Pacific are located in French Polynesia, New
Caledonia, Papua New Guinea, and Vanuatu. Additionally, Pacific Century
maintains an investment in an affiliate bank located in the Solomon Islands.
Pacific Century operates in Asia through Bank of Hawaii branches in Hong
Kong, Japan, Singapore, South Korea and Taiwan and a representative office
with extensions in the Philippines. Pacific Century's business focus in Asia
is correspondent banking and trade financing. The activities include letters
of credit, remittance processing, foreign exchange, cash management, export
bills collection, and working capital and relationship lending. The lending
emphasis is on short-term loans based on cash flows.
In the U.S. Mainland segment, consumer and business financial products and
services are provided through Pacific Century Bank, N.A. (PCB) which has
branches in Southern California and Arizona. PCB's emphasis is to develop a
niche in the small and middle business markets and expand relationships with
customers who have an interest in the Asia-Pacific region.
In addition to the operations of PCB, this segment also includes operating
units for large corporate lending and leasing. The large corporate lending
unit targets businesses that have interests in the Asia-Pacific region and
companies in certain targeted industries. Leasing activities consist of
providing financing to businesses largely for aircraft, vehicles and
equipment.
The operations in the Treasury and Other Corporate segment, consist of
corporate asset and liability management activities including investment
securities, federal funds purchased and sold, institutional deposits, short
and long-term borrowings, and derivative activities for managing interest rate
and currency risks. Additionally, the net residual effect of transfer pricing
assets and liabilities also is included in Treasury.
Other items in this segment consist of the following:
. The operations of certain non-bank subsidiaries.
. The residual effect of unallocated expenses for support and
administrative units.
. The difference between the sum of the economic provisions allocated to
business segments and the provision in the consolidated financial
statements.
. The difference between the sum of the equity allocated to business
segments and total equity in the consolidated financial statements.
. Significant nonrecurring income and expense items.
72
<PAGE>
Note R--Parent Company Financial Statements
Condensed financial statements of Pacific Century Financial Corporation
(Parent only) follow:
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------
2000 1999 1998
-------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Dividends From
Bank Subsidiaries........................... $ 83,945 $ 80,545 $ 85,600
Other Subsidiaries.......................... 7,176 1,500 --
Interest Income
From Subsidiaries........................... 11,794 9,130 10,120
From Others................................. -- 35 83
Other Income.................................. 776 4,695 1,758
Securities Gains (Losses)..................... (509) 7,009 (316)
-------- -------- --------
Total Income.............................. 103,182 102,914 97,245
Interest Expense.............................. 21,506 18,845 22,244
Other Expense................................. 9,107 10,780 10,341
-------- -------- --------
Total Expense............................. 30,612 29,625 32,585
-------- -------- --------
Income Before Income Taxes and Equity in
Undistributed Income of Subsidiaries......... 72,570 73,289 64,660
Income Tax Benefits........................... 5,032 1,192 6,070
-------- -------- --------
Income Before Equity in Undistributed Income
of Subsidiaries.............................. 77,602 74,481 70,730
Equity in Undistributed Income of Subsidiaries
Bank Subsidiaries........................... 40,038 53,460 30,854
Other Subsidiaries.......................... (3,979) 5,016 5,380
-------- -------- --------
36,059 58,476 36,234
-------- -------- --------
Net Income.................................... $113,661 $132,957 $106,964
======== ======== ========
</TABLE>
73
<PAGE>
Condensed Statements of Condition
<TABLE>
<CAPTION>
December 31
---------------------
2000 1999
---------- ----------
(in thousands of
dollars)
<S> <C> <C>
Assets
Cash in Bank of Hawaii.............................. $ 280 $ 264
Investment Securities Available for Sale............ 31 220
Equity in Net Assets of Bank Subsidiaries........... 1,262,946 1,182,187
Equity in Net Assets of Other Subsidiaries.......... 54,843 58,534
Interest-Bearing Deposits from Bank................. 234,100 158,100
Advances to Other Subsidiaries...................... -- 266
Trading Securities.................................. 3,845 3,406
Other Assets........................................ 106,006 120,879
---------- ----------
Total Assets...................................... $1,662,051 $1,523,856
========== ==========
Liabilities and Shareholders' Equity
Commercial Paper and Short-Term Borrowings.......... $ 154,664 $ 97,319
Long-Term Debt...................................... 193,093 193,093
Other Liabilities................................... 12,938 21,114
Shareholders' Equity................................ 1,301,356 1,212,330
---------- ----------
Total Liabilities and Shareholders' Equity........ $1,662,051 $1,523,856
========== ==========
</TABLE>
74
<PAGE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
2000 1999 1998
-------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Operating Activities
Net Income..................................... $113,661 $132,957 $106,964
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Amortization Expense......................... 7,960 7,890 7,961
Realized Investment Securities (Gains)
Losses...................................... 116 (6,635) (44)
Undistributed Income from Subsidiaries....... (36,059) (56,226) (36,234)
Net Decrease (Increase) in Trading
Securities.................................. (439) (1,097) 43
Other Assets and Liabilities, Net............ (1,276) 362 14,208
-------- -------- --------
Net Cash Provided by Operating Activities.. 83,963 77,251 92,898
Investing Activities
Investment Securities Transactions, Net........ 104 6,721 330
Interest-Bearing Deposits, Net................. (76,000) 17,100 (3,203)
Loan Transactions, Net......................... -- 782 21
Capital Contributions to Subsidiaries, Net..... -- (9,015) (11,100)
Advances Made to Subsidiaries, Net............. 266 (266) --
-------- -------- --------
Net Cash Provided (Used) by Investing
Activities................................ (75,630) 15,322 (13,952)
Financing Activities
Net Proceeds (Payments) from Borrowings........ 57,345 (29,992) (37,905)
Proceeds from Sale of Stock.................... 7,801 13,898 19,223
Stock Repurchased.............................. (16,992) (21,849) (7,314)
Cash Dividends Paid............................ (56,471) (54,640) (52,776)
-------- -------- --------
Net Cash Used by Financing Activities...... (8,317) (92,583) (78,772)
-------- -------- --------
Increase (Decrease) in Cash...................... 16 (10) 174
Cash at Beginning of Year........................ 264 274 100
-------- -------- --------
Cash at End of Year.............................. $ 280 $ 264 $ 274
======== ======== ========
</TABLE>
75
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
The following information required by the Instructions to Form 10-K is
incorporated herein by reference (except as otherwise indicated below) from
various pages of the Pacific Century Financial Corporation Proxy Statement for
the annual meeting of shareholders to be held on April 27, 2001, as summarized
below:
Item 10. Directors and Executive Officers of the Registrant
Board of Directors on pages 5-7. Section 16 (a) Beneficial Ownership
Reporting Compliance on page 23.
For information relative to executive officers of the Registrant, see
"Executive Officers of the Registrant" at the end of Part I of this report.
Item 11. Executive Compensation
Executive Compensation on pages 13-21.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Beneficial Ownership on pages 8.
Item 13. Certain Relationships and Related Transactions
Certain Transactions with Management and Others on page 23.
76
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements and Schedules
The following consolidated financial statements of Pacific Century
Financial Corporation and subsidiaries are included in Item 8 of this report:
<TABLE>
<C> <S>
Consolidated Statements of Condition--December 31, 2000 and 1999
Consolidated Statements of Income--Years ended December 31, 2000, 1999,
and 1998
Consolidated Statements of Shareholders' Equity--Years ended December 31,
2000, 1999, and 1998
Consolidated Statements of Cash Flows--Years ended December 31, 2000,
1999, and 1998
Notes to Consolidated Financial Statements
</TABLE>
All other schedules to the consolidated financial statements stipulated by
Article 9 of Regulation S-X and all other schedules to the financial
statements of the registrant required by Article 5 of Regulation S-X are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
Financial statements (and summarized financial information) of (1)
unconsolidated subsidiaries or (2) 50% or less owned persons accounted for by
the equity method have been omitted because they do not, considered
individually or in the aggregate, constitute a significant subsidiary.
77
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
3.1 Certificate of Incorporation of Pacific Century Financial Corporation
(incorporated herein by reference to Appendix C of Pacific Century
Financial Corporation 1998 Proxy Statement dated March 10, 1998)
3.2 By-Laws of Pacific Century Financial Corporation (incorporated herein
by reference to Appendix D of Pacific Century Financial Corporation
1998 Proxy Statement dated March 10, 1998)
4.1 Instruments Defining the Rights of Holders of Long-Term Debt
10.1 Pacific Century Financial Corporation, One-Year Incentive Plan
Effective January 1, 1999 (incorporated herein by reference to Exhibit
10.1 of Form 10K for the fiscal year ended December 31, 1998)*
10.2 Pacific Century Financial Corporation, Long-Term Incentive
Compensation Plan Effective January 1, 1999 (incorporated herein by
reference to Exhibit 10.4 of Form 10K for the fiscal year ended
December 31, 1998)*
10.3 Pacific Century Financial Corporation, Sustained Profit Growth Plan
Effective January 1, 1998 (incorporated herein by reference to Exhibit
10.3 of Form 10K for the fiscal year ended December 31, 1997)*
10.4 Bancorp Hawaii, Inc., Sustained Profit Growth Plan Effective January
1, 1994 (incorporated herein by reference to Exhibit C of Bancorp
Hawaii, Inc. 1994 Proxy Statement dated March 10, 1994)*
10.5 Pacific Century Financial Corporation Stock Option Plan of 1988
(incorporated herein by reference to Exhibit 4(a) of Registration No.
33-23495)*
10.6 Pacific Century Financial Corporation Stock Option Plan of 1988
Amendment 99-1 (incorporated herein by reference to Exhibit 10.11 of
Form 10K for the fiscal year ended December 31, 1998)*
10.7 Pacific Century Financial Corporation Stock Option Plan of 1994
(incorporated herein by reference to Exhibit 4(a) of Registration No.
33-54777)*
10.8 Pacific Century Financial Corporation Stock Option Plan of 1994
Amendment 97-1 (incorporated herein by reference to Exhibit 10.13 of
Form 10K for the fiscal year ended December 31, 1998)*
10.9 Pacific Century Financial Corporation Stock Option Plan of 1994
Amendment 97-2 (incorporated herein by reference to Appendix A of
Pacific Century Financial Corporation 1998 Proxy Statement dated March
10, 1998)*
10.10 Pacific Century Financial Corporation Stock Option Plan of 1994
Amendment 99-1*
10.11 Pacific Century Financial Corporation Stock Option Plan of 1994
Amendment 99-2 (incorporated herein by reference to Exhibit 10.15 of
Form 10K for the fiscal year ended December 31, 1998)*
10.12 Pacific Century Financial Corporation Stock Option Plan of 1994
Amendment 2000-1*
10.13 Pacific Century Financial Corporation Stock Option Plan of 1994
Amendment 2000-2*
10.14 Pacific Century Financial Corporation Stock Option Plan of 1994
Amendment 2000-3*
10.15 Bancorp Hawaii, Inc. Key Executive Severance Plan dated April 27, 1983
(incorporated herein by reference to Exhibit 10.4 of Form 10K for the
fiscal year ended December 31, 1995)*
10.16 Executive Severance Agreement (incorporated herein by reference to
Exhibit 19(e) of Form 10K for fiscal year ended December 31, 1989) for
L. M. Johnson *
10.17 Amended Key Executive Change-in-Control Severance Agreement
(incorporated herein by reference to Exhibit 10(e) of Form 10K for the
fiscal year ended December 31, 1994--October 3, 1994 for R. J. Dahl)*
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
10.18 Key Executive Change-in-Control Severance Agreement (incorporated
herein by reference to Exhibit 10(f) of Form 10K for the fiscal year
ended December 31, 1994--October 3, 1994 for A. T. Kuioka)*
10.19 Key Executive Change-in-Control Severance Agreement (incorporated
herein by reference to Exhibit 10(g) of Form 10K for the fiscal year
ended December 31, 1994--January 28, 2000 for D. A. Houle)*
10.20 Key Executive Change-in-Control Severance Agreement dated December 12,
1997 for M. P. Carryer*
10.21 Key Executive Change-in-Control Severance Agreement dated January 28,
2000 for K. K. Y. Pan*
10.22 Key Executive Change-in-Control Severance Agreement dated April 3,
2000 for A. R. Landon*
10.23 Key Executive Change-in-Control Severance Agreement dated January 26,
2001 for W. C. Nelson*
10.24 Pacific Century Financial Corporation Directors' Deferred Compensation
Plan (Restatement Effective 1/1/96) with Amendment No. 96-1; Trust
Agreement (Effective 9/1/96) (incorporated by reference herein to
Exhibit (4) of Registration No. 333-14929).
10.25 Pacific Century Financial Corporation Directors Stock Compensation
Program (incorporated herein by reference herein to Exhibit (4) of
Registration No. 333-02835).
10.26 Pacific Century Financial Corporation Directors Stock Compensation
Program Amendment 97-1
10.27 Separation Agreement between Lawrence M. Johnson, former Chairman and
CEO, and Pacific Century Financial Corporation dated September 22,
2000.*
10.28 Employment Agreement dated November 3, 2000 between Michael E.
O'Neill, Chairman and CEO, and Pacific Century Financial Corporation.*
12.1 Statement Regarding Computation of Ratios
19.1 Report to Shareholders for Quarter ended September 30, 2000
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
</TABLE>
- --------
* Management contract or compensatory plan or arrangement
(b) Registrant filed four Form 8-Ks during the quarter ended December 31,
2000.
. A Form 8-K was filed on October 20, 2000 announcing Pacific Century
Financial Corporation earnings for the third quarter of 2000.
. A Form 8-K was filed on November 6, 2000 announcing Michael E. O'Neill as
Chairman and CEO of Pacific Century Financial Corporation and Bank of
Hawaii.
. A Form 8-K was filed on December 1, 2000 announcing the engagement of
Credit Suisse First Boston to explore the possible sale of Pacific
Century Bank, N.A.'s nine branches in Arizona.
. A Form 8-K was filed on December 21, 2000 announcing the signing of a
definitive agreement with American Express Company for American Express
Centurion Bank to acquire the credit card portfolio of Bank of Hawaii.
(c) Response to this item is the same as Item 14(a).
(d) Response to this item is the same as Item 14(a).
79
<PAGE>
STATISTICAL DISCLOSURES
CONTENTS AND REFERENCE
The following statistical disclosures required by the Instructions to Form
10-K are summarized below:
Item I. Distribution of Assets, Liabilities, and Shareholders' Equity;
Interest Rates and Interest Differential
Interest Differential--Table 24 included in Item 7 of this report.
Consolidated Average Balances, Income and Expense Summary, and Yields
and Rates--Taxable Equivalent--Table 4 included in Item 7 of this
report.
Average Loans--Table 21 included in Item 7 of this report.
Average Deposits--Table 23 included in Item 7 of this report.
Item II. Investment Portfolio
Note B to the Consolidated Financial Statements included in Item 8 of
this report.
Maturity Distribution, Market Value and Weighted-Average Yield to
Maturity of Securities--Table 19 included in Item 7 of this report.
Item III. Loan Portfolio
Loan Portfolio Balances--Table 7 included in Item 7 of this report.
Maturities and Sensitivities of Loans to Changes in Interest Rates--
Table 22 included in Item 7 of this report.
Non-Performing Assets and Accruing Loans Past Due 90 Days or More--
Table 11 included in Item 7 of this report.
Foregone Interest on Non-Accruals--Table 12 included in Item 7 of this
report.
Geographic Distribution of Cross-Border International Assets--Table 10
included in Item 7 of this report.
Item IV. Summary of Loan Loss Experience
Reserve for Loan Losses--Table 13 included in Item 7 of this report.
Allocation of Reserve for Loan Loss--Table 14 included in Item 7 of
this report.
Narrative discussion of "Reserve for Loss Losses" included in Item 7
of this report.
Item V. Deposits
Consolidated Average Balances, Income and Expense and Yields and
Rates--Taxable Equivalent--Table 4 included in Item 7 of this report.
Note E to the Consolidated Financial Statements included in Item 8 of
this report.
80
<PAGE>
Item VI. Return on Equity and Assets
<TABLE>
<CAPTION>
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Return on Average Assets............................. 0.81% 0.91% 0.72%
Return on Average Equity............................. 9.21% 10.99% 9.22%
Dividend Payout Ratio................................ 49.68% 41.46% 49.81%
Average Equity to Average Assets Ratio............... 8.78% 8.30% 7.81%
</TABLE>
Item VII. Short-Term Borrowings
Note F to the Consolidated Financial Statements included in Item 8 of
this report.
81
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 6, 2001 Pacific Century Financial
Corporation
/s/ Michael E. O'Neill
By: _________________________________
Michael E. O'Neill,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
Date: March 6, 2001
/s/ Michael E. O'Neill /s/ Donald M. Takaki
- ------------------------------------- -------------------------------------
Michael E. O'Neill, Donald M. Takaki,
Director Director
/s/ Peter D. Baldwin /s/ Martin A. Stein
- ------------------------------------- -------------------------------------
Peter D. Baldwin, Martin A. Stein,
Director Director
/s/ Mary G. F. Bitterman /s/ Fred E. Trotter
- ------------------------------------- -------------------------------------
Mary G. F. Bitterman, Fred E. Trotter,
Director Director
/s/ Richard J. Dahl /s/ Stanley S. Takahashi
- ------------------------------------- -------------------------------------
Richard J. Dahl, Stanley S. Takahashi,
Director Director
/s/ David A. Heenan /s/ Robert A. Huret
- ------------------------------------- -------------------------------------
David A. Heenan, Robert A. Huret,
Director Director
/s/ Allan R. Landon /s/ Leslie F. Paskett
- ------------------------------------- -------------------------------------
Allan R. Landon, Leslie F. Paskett,
Chief Financial Officer Chief Accounting Officer
82
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.1
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>INSTRUMENTS DEFINING RIGHTS OF HOLDERS OF LONG-TERM DEBT
<TEXT>
<PAGE>
Exhibit 4.1
Instruments defining the rights of holders of long-term debt of the
Registrant are not filed as exhibits because the amount of debt authorized under
any such instrument does not exceed 10% of the total assets of the Registrant
and its consolidated subsidiaries. The Registrant hereby undertakes to furnish a
copy of any such instrument to the Commission upon request.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>AMENDMENT 99-1 TO STOCK OPTION PLAN OF 1994
<TEXT>
<PAGE>
Exhibit 10.10
AMENDMENT 99-1 TO THE
PACIFIC CENTURY FINANCIAL CORPORATION
STOCK OPTION PLAN OF 1994
-------------------------
In accordance with Article 13 of the Pacific Century Financial
Corporation Stock Option Plan of 1994 (hereinafter "Plan"), and conditioned on
the approval of shareholders no later than one year after the date of adoption
by the Board of Directors of Pacific Century Financial Corporation, the Plan is
hereby amended by this Amendment No.99-1, effective as of the date of adoption
by the Board of Directors, as follows:
1. 1. The first sentence of Section 4.1 of the Plan shall be amended to
increase the total number of Shares reserved and available for grant under the
Plan by revising such sentence to read in its entirety as follows:
4.1 Number of Shares. Subject to adjustment as provided in Section
---------------------
4.3 herein, the total number of Shares available for grant under the Plan shall
be 9,650,000.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>AMENDMENT 2000-1 TO STOCK OPTION PLAN OF 1994
<TEXT>
<PAGE>
Exhibit 10.12
AMENDMENT 2000-1 TO THE
PACIFIC CENTURY FINANCIAL CORPORATION
STOCK OPTION PLAN OF 1994
-------------------------
In accordance with Article 13 of the Pacific Century Financial
Corporation Stock Option Plan of 1994 (hereinafter "Plan"), the Plan is hereby
amended by this Amendment No. 2000-1, effective as of the date of adoption by
the Board of Directors, in the following respect:
1. Section 2.1(ab) of the Plan shall be amended to read in its
entirety as follows:
(ab) "Retirement" means termination of employment after satisfying the
age and service requirements for the current payment of an unreduced
retirement allowance under the Employees' Retirement Plan of Bank of Hawaii
(whether or not the Participant actually participates in the Employees'
Retirement Plan of Bank of Hawaii). For this purpose, a Participant's
termination of employment shall be treated as a Retirement to the extent
that such termination is deemed to meet such age and service requirements
pursuant to a written agreement between the Company and the Participant.
To record the adoption of this amendment, Pacific Century Financial
Corporation has executed this document this 27th day of October, 2000.
---- -------
PACIFIC CENTURY FINANCIAL
CORPORATION
By /s/ RICHARD J. DAHL
-----------------------------------
Its Richard J. Dahl
President & Chief Financial Officer
By /s/ NEAL C. HOCKLANDER
-----------------------------------
Its Neal C. Hocklander
Executive Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>AMENDMENT 2000-2 TO STOCK OPTION PLAN OF 1994
<TEXT>
<PAGE>
Exhibit 10.13
AMENDMENT 2000-2 TO THE
PACIFIC CENTURY FINANCIAL CORPORATION
STOCK OPTION PLAN OF 1994
-------------------------
In accordance with Article 13 of the Pacific Century Financial
Corporation Stock Option Plan of 1994 (hereinafter "Plan"), the Plan is hereby
amended by this Amendment No. 2000-2, effective as of November 3, 2000, in the
following respect:
1. Section 6.1 of the Plan shall be amended by inserting the
following provision immediately after the second sentence of Section 6.1:
However, the number of Shares subject to Options granted to a Participant
who is hired as Chief Executive Officer of the Company at the time of such
Participant's initial hire shall not be limited by, and shall be
disregarded in applying, the 20 percent of authorized pool limitation as
described in the preceding sentence, and rather the Shares subject to such
Options granted upon initial hire shall be limited to a separate maximum
limitation equal to 23 percent of the total authorized pool of Shares
specified in Section 4.1.
To record the adoption of this amendment, Pacific Century Financial
Corporation has executed this document this 17th day of November, 2000.
PACIFIC CENTURY FINANCIAL
CORPORATION
By /s/ MICHAEL E. O'NEILL
---------------------------------
Its Chief Executive Officer
By /s/ RICHARD J. DAHL
---------------------------------
Its President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>AMENDMENT 2000-3 TO STOCK OPTION PLAN OF 1994
<TEXT>
<PAGE>
Exhibit 10.14
AMENDMENT 2000-3 TO THE
PACIFIC CENTURY FINACIAL CORPORATION
STOCK OPTION PLAN OF 1994
In accordance with Article 13 of the Pacific Century Financial
Corporation Stock Option Plan of 1994 (hereinafter "Plan"), the Plan is hereby
amended by this Amendment No. 2000-3, effective as of the date of adoption by
the Board of Directors, in the following respect:
Section 6.10 of the Plan shall be amended by removing the second
sentence in Section 6.10 and inserting the following provisions in lieu thereof:
If the employment of a Participant is terminated by the Company for
any reason other than the reasons set forth in Section 6.8 or 6.9, all Options
held by the Participant which are vested as of the effective date of such
employment termination shall be exercisable only within the period beginning on
such date and ending three months after such date, and such Options shall be
forfeited immediately following the end of such period. However,
notwithstanding the preceding sentence, a vested Option which is an NQSO may be
exercisable following such employment termination for a period longer than the
otherwise applicable three-month period in accordance with the terms and
conditions of the NQSO as may be established by the Committee.
To record the adoption of this amendment, Pacific Century Financial
Corporation has executed this document this 8th day of December, 2000.
PACIFIC CENTURY FINANCIAL
CORPORATION
By /s/ RICHARD J. DAHL
--------------------------
Its Richard J. Dahl
President & Chief Operating Officer
By /s/ NEAL C. HOCKLANDER
--------------------------
Its Neal C. Hocklander
Executive Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.20
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>SEVERANCE AGREEMENT DATED DECEMBER 12, 1997
<TEXT>
<PAGE>
Exhibit 10.20
Key Executive
Change-in-Control
Severance Agreement
__________
Pacific Century Financial Corporation
<PAGE>
Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Article 1. Establishment and Purpose.................................... 1
Article 2. Definitions and Construction................................. 2
Article 3. Severance Benefits........................................... 4
Article 4. Just Cause................................................... 6
Article 5. Form and Timing of Severance Benefits........................ 7
Article 6. Parachute Payments........................................... 7
Article 7. Other Rights and Benefits Not Affected....................... 7
Article 8. Successors................................................... 8
Article 9. Administration............................................... 8
Article 10. Legal Fees and Arbitration................................... 9
</TABLE>
<PAGE>
Pacific Century Financial Corporation
Key Executive
Change-in-Control Severance Agreement
Article 1. Establishment and Purpose
-------------------------
1.1 Effective Date. This Executive Change-in-Control Severance Agreement
(the "Agreement) is made and entered into pursuant to Bancorp's Key Executive
Severance Plan (the "Plan"), and is effective as of this 12th day of December,
1997 (the "Effective Date"), by and between Pacific Century Financial
Corporation ("PCFC"), a Hawaii corporation, and Mary P. Carryer, an executive
(the "Executive") of PCFC and its subsidiary, Bank of Hawaii (the "Bank"). This
Agreement shall supersede and replace any prior severance agreement entered into
between PCFC and the Executive.
1.2 Term of the Agreement. The Agreement shall commence as of the
Effective Date written above, and shall continue until the Board of Directors of
PCFC (the "Board") determines, in good faith and in its sole discretion, that
the Executive is no longer to be included in the Plan and so notifies in writing
the Executive during the term of this Agreement of such determination.
Provided, however, in the event that a Change in Control of
PCFC, as defined in Section 2.1 herein, occurs during the term of this
Agreement, this Agreement shall remain irrevocably in effect for the greater of
twenty-four (24) months from the date of such Change in Control, or until all
benefits have been paid to the Executive hereunder.
Further, in the event that the Board has knowledge that a third party
has taken steps reasonably calculated to effect a Change in Control of PCFC,
including, but not limited to, the commencement of a tender offer for the voting
stock of PCFC, or the circulation of a proxy to PCFC's shareholders, then this
Agreement shall remain irrevocably in effect until the Board, in good faith,
determines that such third party has fully abandoned or terminated its effort to
effect a Change in Control of PCFC.
1.3 Purpose of the Agreement. The purpose of this Agreement pursuant to
the Plan, is to advance the interests of PCFC and the Bank by assuring that PCFC
and the Bank will have the continued employment and dedication of the Executive
and the availability of his advice and counsel in the event that an acquisition
or Change in Control of PCFC occurs. This Agreement shall also assure the
Executive of equitable treatment during the period of uncertainty that surrounds
an acquisition or Change in Control, and allow the Executive to act at all times
in the best interests of PCFC and its shareholders.
1
<PAGE>
1.4 Contractual Right to Benefits. This Agreement establishes and vests in
the Executive a contractual right to the benefits which he or she is entitled
hereunder, enforceable by the Executive against PCFC. However, nothing herein
shall require PCFC to segregate, earmark, or otherwise set aside any funds or
other assets to provide for any payments hereunder.
This Agreement shall be considered an unfunded agreement to provide
benefits to a select group of management or highly compensated employees, and is
therefore intended to be a "top-hat" plan exempt from the requirements of the
provisions of Parts 2, 3, and 4 of Title I of ERISA.
Article 2. Definitions and Construction
----------------------------
2.1 Definitions. Whenever used in the Agreement, the following terms shall
have the meanings set forth below and, when the meaning is intended, the initial
letter of the word is capitalized.
(a). "Base Salary" means the annualized salary at the beginning of
each Year, which includes all regular basic wages, before
reduction for any amounts deferred on a tax-qualified or
nonqualified basis, payable in cash to an Executive for services
rendered during the Year. Base Salary shall exclude bonuses,
incentive compensation, special fees or awards, commissions,
allowances, or any other form of premium or incentive pay, or
amounts designated by PCFC as payment toward or reimbursement of
expenses.
(b). "Beneficial Owner" shall have the meaning ascribed to such term
in Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(c). "Beneficiary" with respect to an Executive means the person or
entities designated or deemed designated by an Executive pursuant
to Section 8.2 herein.
(d) "Board" means the Board of Directors of PCFC.
(e) "Change in Control" of PCFC means any one or more of the
following occurrences:
(i) Any Person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, becomes the
beneficial owner of shares of PCFC having 25 percent or more
of the total number of votes that may be cast for the
election of Directors of PCFC; or
2
<PAGE>
(ii) As the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale
of assets or contested election, or any combination of the
foregoing transactions, the person who were Directors of
PCFC before the transaction shall cease to constitute a
majority of the Board of Directors of PCFC or any successor
to PCFC.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "PCFC" means Pacific Century Financial Corporation, a Hawaii
corporation, or any successor thereto that adopts the Agreement,
as provided in Section 8.1 herein.
(h) "Committee" means the Compensation Committee of the Board of
Directors of PCFC or any other committee appointed by the Board
to administer this Agreement.
(i) "Disability" means a physical or mental condition which renders
an Executive unable to discharge his or her normal work
responsibility with PCFC or the Bank and which, in the opinion of
a licensed physician selected by the Executive, subject to
reasonable approval by the Committee based upon sufficient
medical evidence, can be reasonably expected to continue for a
period of at least one full calendar year. If an Executive fails
to select a physician with ten (10) business days of a written
request made by PCFC, then PCFC may select a physician for
purposes of this paragraph.
(j) "Effective Date" means the date the Agreement is approved by the
Board, or such other date as the Board shall designate in its
resolution approving the Agreement, and as provided in Section
1.1 herein.
(k) "Effective Date of Termination" means the date on which a
voluntary employment termination or involuntary employment
termination other than for Just Cause occurs within twenty-four
(24) months of a Change in Control which triggers Severance
Benefits hereunder.
(l) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor act thereto.
(m) "Expiration Date" means the date the Agreement expires, as
provided in Section 1.2 herein.
(n) "Just Cause" means a termination of an Executive's employment by
PCFC for which no Severance Benefits are payable hereunder, as
provided in Article 4 herein.
(o) "Normal Retirement Date" shall mean the date the Executive
reaches
3
<PAGE>
65 years of age.
(p) "Person" shall have the meaning ascribed to such terms in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).
(q) "Plan" means the Bancorp Hawaii, Inc. Key Executive Severance
Plan, adopted April 27, 1983.
(r) "Severance Benefit" means the payment of severance compensation
as provided in Article 3 herein.
(s) "Year" means the consecutive 12-month period beginning each
January 1 and ending December 31.
2.2 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
2.3 Severability. In the event any provision of the Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.
2.4 Modification. No express provisions of this Agreement may be modified,
waived, or discharged unless such modification, waiver, or discharge is agreed
to by the Executive in writing and approved by the Compensation Committee of the
Board of Directors.
2.5 Applicable Law. To the extent not preempted by the laws of the United
States, the laws of the State of Hawaii shall be the controlling law in all
matters relating to the Agreement.
Article 3. Severance Benefits
------------------
3.1 Right to Severance Benefits. The Executive shall be entitled to
receive from PCFC Severance Benefits as described in Section 3.2 herein, if
there has been a Change in Control of PCFC, as defined in Section 2.1(e) herein,
and if, within twenty-four (24) months thereafter, the Executive voluntarily
terminates employment or is involuntarily terminated without Just Cause with
PCFC. An Executive shall not be entitled to receive Severance Benefits if the
Executive's employment with PCFC or Bank of Hawaii ends due to an involuntary
termination by PCFC for Just Cause, as provided under Article 4 herein.
4
<PAGE>
3.2 Description of Severance Benefits. In the event that an Executive
becomes entitled to receive Severance Benefits, as provided in Section 3.1
herein, PCFC shall pay to the Executive and provide the Executive with the
following:
(a) An amount equal to three (3) times the Executive's highest annual
Base Salary earned (i) at any time during the three (3) complete
fiscal years immediately preceding the Effective Date of
Termination, or (ii) if the Executive was not employed during
such time period, at any time thereafter; and
(b) An amount equal to three (3) times the Executive's highest annual
bonus earned under the One-Year Incentive Plan during the three
(3) complete fiscal years prior to the Effective Date of
Termination, or, if shorter, over the Executive's entire period
of employment. However, if the Executive's period of employment
is less than one year, the bonus shall be considered zero (0);
and
(c) An amount equal to three (3) times the Executive's highest annual
incentive compensation earned under the Pacific Century Financial
Corporation Profit Sharing Plan, the Sustained Profit Growth
Plan, or any successor plans thereto over the three (3) complete
fiscal years prior to the Effective Date of Termination, or, if
shorter, over the Executive's entire period of employment.
However, if the Executive's period of employment is less than one
year, the average incentive compensation shall be considered zero
(0); and
(d) An amount equal to the excess of (i) the maximum payment the
Executive would have received under the One-Year Incentive Plan
if he had continued in the employment of PCFC and the Bank
through the end of the performance period following the Effective
Date of Termination, and if the Bank had met its maximum
performance goals as provided under the terms of the Plan and the
maximum amount payable to the Executive had been paid, over (ii)
the actual payout under the One-Year Incentive Plan resulting
from the Executive's termination of employment; and
(e) A payout under the Sustained Profit Growth Plan, in accordance
with the terms of such Plan; and
(f) A continuation of all welfare benefits at no direct cost to the
Executive, including medical insurance, long-term disability, and
group term life insurance for three (3) full years from the
Effective Date of Termination or until the Executive reaches his
Normal Retirement Date, whichever occurs earlier.
5
<PAGE>
3.3 Reduction of Severance Benefits. In the event there are fewer than
thirty-six (36) whole or partial months remaining from the Executive's Effective
Date of Termination until the Executive's Normal Retirement Date, as defined
under the Retirement Plan, then the amounts provided for under Sections 3.2(a),
(b), and (c) above shall be reduced by a fraction, the numerator of which shall
be the number of whole or partial months remaining until the Executive's Normal
Retirement Date, and the denominator of which shall be thirty-six (36).
3.4 Fringe Benefits. The Executive's participation in fringe benefits
prior to the Executive's Effective Date of Termination shall be continued, or
equivalent benefits shall be provided, at no cost to the Executive, for a period
of three (3) years from the Executive's Effective Date of Termination (or until
he or she reaches his Normal Retirement Date, whichever occurs earlier).
3.5 Relocation Benefits. Should the Executive move his residence in order
to pursue other business opportunities within two (2) years of Executive's
Effective Date of Termination, the Executive shall be reimbursed for any moving
expenses (as defined in Section 217(b) of the Code) incurred in that relocation
(including taxes, if any, payable on the reimbursement) which are not reimbursed
by another employer. Benefits provided herein shall not exceed the assistance
and benefits customarily provided by PCFC to transferred employees prior to the
Change in Control.
3.6 Incentive Compensation. Any deferred awards previously granted to the
Executive under PCFC's incentive compensation plans and not previously paid to
the Executive, shall immediately vest on the date of the Executive's Effective
Date of Termination and shall be paid no later than ninety (90) calendar days
following that date, and be included as compensation in the month paid.
3.8 Stock Options and SARs. Stock options ("options") and stock
appreciation rights ("SARs"), if any, granted to the Executive by PCFC will be
exercisable pursuant to the terms of the applicable plans.
Article 4. Just Cause
----------
4.1 Just Cause. Nothing in this Agreement shall be construed to prevent
PCFC or the Bank from terminating an Executive's employment for Just Cause. In
such case, no Severance Benefits shall be payable to the Executive under this
Agreement.
Just Cause shall mean the criminal conviction of the Executive for an
act of fraud, embezzlement, theft or any other act constituting a felony.
The determination that the Executive's actions constitute Just Cause
for termination shall be made by the Board, acting in good faith.
6
<PAGE>
Article 5. Form and Timing of Severance Benefits
-------------------------------------
5.1 Form and Timing of Severance Benefits. The Severance Benefits
described in Sections 3.4(a), (b), (c) (d) and 3.8 herein, shall be paid in cash
to the Executive in a single lump sum as soon as practicable following the
Executive's Effective Date of Termination, but in no event beyond ninety (90)
calendar days from such date.
The Severance Benefits described in Section 3.2(f) and 3.5 herein
shall be provided by PCFC to the Executive immediately upon the Executive's
Effective Date of Termination and shall continue to be provided for three (3)
full calendar years from the Executive's Effective Date of Termination or until
the Executive reaches his or her Normal Retirement date, whichever occurs
earlier.
5.2 Withholding of Taxes. PCFC shall withhold from any amounts payable
under this Agreement all Federal, state, city, or other taxes as legally shall
be required.
Article 6. Parachute Payments
------------------
6.1 Excise Tax Cap. In the event that a Change in Control of PCFC shall
occur and a determination is made by PCFC, pursuant to Sections 280G and 4999 of
the Code (and corresponding state law provisions) that a golden parachute excise
tax is due, the Executive's Severance Benefits under this Plan shall be grossed
up for the amount equal to and only equal to the amount necessary to pay the
excise tax.
6.2 Subsequent Recalculation. In the event the Internal Revenue Service
adjusts the excise tax computation of PCFC, as provided in Section 6.1 herein,
such that the Executive is liable for the payment of a greater excise tax under
Sections 280G and 4999 of the Code, or such that the Executive does not receive
the full benefit that he or she would have received, PCFC shall reimburse the
Executive for the full amount necessary to make the Executive whole (less any
amounts received by the Executive that he or she would not have received had the
computation initially been computed as subsequently adjusted), including the
value of the excise tax and all corresponding interest and penalties due to the
Internal Revenue Service.
Article 7. Other Rights and Benefits Not Affected
--------------------------------------
7.1 Other Benefits. Neither the provisions of this Agreement nor the
Severance Benefits provided for hereunder shall reduce any amounts otherwise
payable, or in any way diminish the Executive's rights as an employee of PCFC,
whether existing now or hereafter, under any benefit, incentive, retirement,
stock option, stock bonus, stock purchase plan, or any employment agreement, or
other plan or arrangement.
7
<PAGE>
7.2 Employment Status. This Agreement does not constitute a contract of
employment or impose on the Executive or PCFC any obligation to retain the
Executive as an employee, to change the status of the Executive's employment, or
to change PCFC's policies regarding termination of employment.
Article 8. Successors
----------
8.1 Successors. PCFC will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) of all or
substantially all of the business and/or assets of PCFC or of any division or
subsidiary thereof to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that PCFC would be required to perform it
if no such succession had taken place. Failure of PCFC to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation from
PCFC in the same amount and on the same terms as they would be entitled
hereunder if terminated voluntarily following a Change in Control. Except for
the purposes of implementing the foregoing, the date on which any succession
becomes effective shall be deemed the Effective Date of Termination.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If an Executive should
die while any amount would still be payable hereunder had the Executive
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement, to the Executive's devisee,
legatee, or other designee, or if there is no such designee, to the Executive's
estate.
8.2 Beneficiaries. The beneficiary of the Executive under the Pacific
Century Financial Corporation Money Purchase Plan shall be the beneficiary of
the Executive's benefits under this Agreement, unless a beneficiary is otherwise
designated by the Executive in the form of a signed writing acceptable to the
Committee. An Executive may make or change such designation at any time.
Article 9. Administration
--------------
9.1 Administration. This Agreement shall be administered by the
Compensation Committee of the Board of Directors. The Committee is authorized to
interpret this Agreement, to prescribe and rescind rules and regulations, to
provide conditions and assurances deemed necessary and advisable, to protect the
interests of PCFC, and to make all other determinations necessary or advisable
for the Agreement's administration.
In fulfilling its administrative duties hereunder, the Committee may
rely on outside counsel, independent accountants, or other consultants to render
advice or assistance.
8
<PAGE>
9.2 Indemnification and Exculpation. The members of the Board, its agents
and officers, directors, and employees of PCFC and its affiliates shall be
indemnified and held harmless by PCFC against and from any and all loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by them in
connection with or resulting from any claim, action, suit, or proceeding to
which they may be a party or in which they may be involved by reason of any
action taken or failure to act under this Agreement and against and from any and
all amounts paid by them in settlement (with PCFC's written approval) or paid by
them in satisfaction of a judgment in any such action, suit, or proceeding. The
foregoing provision shall not be applicable to any person if the loss, cost,
liability, or expense is due to such person's gross negligence or willful
misconduct.
Article 10. Legal Fees
----------
10.1 Legal Fees and Expenses. PCFC shall pay all reasonable legal fees,
costs of litigation, and other expenses incurred in good faith by the Executive
as a result of PCFC's refusal to provide the Severance Benefits to which the
Executive becomes entitled under this Agreement, or as a result of PCFC's
contesting the validity, enforceability, or interpretation of the Agreement.
Provided, however, that such payments shall not exceed the amount permitted by
law and PCFC's Restated Articles of Incorporation.
IN WITNESS WHEREOF, PCFC has caused this Agreement to be executed by a
resolution of the Board of Directors, as of the day and year first above
written.
Pacific Century Financial Corporation
By: /S/ RICHARD J. DAHL
--------------------------
Its: President
By: /S/ MARY CARRYER
--------------------------
(Executive)
ATTEST:
/S/ DUANE FEEKIN
- --------------------------
9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.21
<SEQUENCE>8
<FILENAME>0008.txt
<DESCRIPTION>SEVERANCE AGREEMENT DATED JANUARY 28, 2000
<TEXT>
<PAGE>
EXHIBIT 10.21
Key Executive
Change-in-Control
Severance Agreement
_____________
Pacific Century Financial Corporation
<PAGE>
Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Article 1. Establishment and Purpose................................... 1
Article 2. Definitions and Construction................................ 2
Article 3. Severance Benefits.......................................... 4
Article 4. Just Cause.................................................. 6
Article 5. Form and Timing of Severance Benefits....................... 7
Article 6. Parachute Payments.......................................... 7
Article 7. Other Rights and Benefits Not Affected...................... 7
Article 8. Successors.................................................. 8
Article 9. Administration.............................................. 8
Article 10. Legal Fees and Arbitration.................................. 9
</TABLE>
<PAGE>
Pacific Century Financial Corporation
Key Executive
Change-in-Control Severance Agreement
Article 1. Establishment and Purpose
-------------------------
1.1 Effective Date. This Executive Change-in-Control Severance Agreement
(the "Agreement) is made and entered into pursuant to Bancorp's Key Executive
Severance Plan (the "Plan"), and is effective as of this 28th day of January,
2000 (the "Effective Date"), by and between Pacific Century Financial
Corporation ("PCFC"), a Hawaii corporation, and Karl K. Y. Pan, an executive
(the "Executive") of PCFC and its subsidiary, Bank of Hawaii (the "Bank"). This
Agreement shall supersede and replace any prior severance agreement entered into
between PCFC and the Executive.
1.2 Term of the Agreement. The Agreement shall commence as of the
Effective Date written above, and shall continue until the Board of Directors of
PCFC (the "Board") determines, in good faith and in its sole discretion, that
the Executive is no longer to be included in the Plan and so notifies in writing
the Executive during the term of this Agreement of such determination.
Provided, however, in the event that a Change in Control of PCFC, as
defined in Section 2.1 herein, occurs during the term of this Agreement, this
Agreement shall remain irrevocably in effect for the greater of twenty-four (24)
months from the date of such Change in Control, or until all benefits have been
paid to the Executive hereunder.
Further, in the event that the Board has knowledge that a third party
has taken steps reasonably calculated to effect a Change in Control of PCFC,
including, but not limited to, the commencement of a tender offer for the voting
stock of PCFC, or the circulation of a proxy to PCFC's shareholders, then this
Agreement shall remain irrevocably in effect until the Board, in good faith,
determines that such third party has fully abandoned or terminated its effort to
effect a Change in Control of PCFC.
1.3 Purpose of the Agreement. The purpose of this Agreement pursuant to
the Plan, is to advance the interests of PCFC and the Bank by assuring that PCFC
and the Bank will have the continued employment and dedication of the Executive
and the availability of his advice and counsel in the event that an acquisition
or Change in Control of PCFC occurs. This Agreement shall also assure the
Executive of equitable treatment during the period of uncertainty that surrounds
an acquisition or Change in Control, and allow the Executive to act at all times
in the best interests of PCFC and its shareholders.
1
<PAGE>
1.4 Contractual Right to Benefits. This Agreement establishes and vests in
the Executive a contractual right to the benefits which he or she is entitled
hereunder, enforceable by the Executive against PCFC. However, nothing herein
shall require PCFC to segregate, earmark, or otherwise set aside any funds or
other assets to provide for any payments hereunder.
This Agreement shall be considered an unfunded agreement to
provide benefits to a select group of management or highly compensated
employees, and is therefore intended to be a "top-hat" plan exempt from the
requirements of the provisions of Parts 2, 3, and 4 of Title I of ERISA.
Article 2. Definitions and Construction
----------------------------
2.1 Definitions. Whenever used in the Agreement, the following terms shall
have the meanings set forth below and, when the meaning is intended, the initial
letter of the word is capitalized.
(a). "Base Salary" means the annualized salary at the beginning of
each Year, which includes all regular basic wages, before
reduction for any amounts deferred on a tax-qualified or
nonqualified basis, payable in cash to an Executive for services
rendered during the Year. Base Salary shall exclude bonuses,
incentive compensation, special fees or awards, commissions,
allowances, or any other form of premium or incentive pay, or
amounts designated by PCFC as payment toward or reimbursement of
expenses.
(b). "Beneficial Owner" shall have the meaning ascribed to such term
in Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(c). "Beneficiary" with respect to an Executive means the person or
entities designated or deemed designated by an Executive pursuant
to Section 8.2 herein.
(d) "Board" means the Board of Directors of PCFC.
(e) "Change in Control" of PCFC means any one or more of the
following occurrences:
(i) Any Person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, becomes the
beneficial owner of shares of PCFC having 25 percent or more
of the total number of votes that may be cast for the
election of Directors of PCFC; or
2
<PAGE>
(ii) As the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale
of assets or contested election, or any combination of the
foregoing transactions, the person who were Directors of
PCFC before the transaction shall cease to constitute a
majority of the Board of Directors of PCFC or any successor
to PCFC.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "PCFC" means Pacific Century Financial Corporation, a Hawaii
corporation, or any successor thereto that adopts the Agreement,
as provided in Section 8.1 herein.
(h) "Committee" means the Compensation Committee of the Board of
Directors of PCFC or any other committee appointed by the Board
to administer this Agreement.
(i) "Disability" means a physical or mental condition which renders
an Executive unable to discharge his or her normal work
responsibility with PCFC or the Bank and which, in the opinion of
a licensed physician selected by the Executive, subject to
reasonable approval by the Committee based upon sufficient
medical evidence, can be reasonably expected to continue for a
period of at least one full calendar year. If an fails to select
a physician with ten (10) business days of a written request made
by PCFC, then PCFC may select a physician for purposes of this
paragraph.
(j) "Effective Date" means the date the Agreement is approved by the
Board, or such other date as the Board shall designate in its
resolution approving the Agreement, and as provided in Section
1.1 herein.
(k) "Effective Date of Termination" means the date on which a
voluntary employment termination or involuntary employment
termination other than for Just Cause occurs within twenty-four
(24) months of a Change in Control which triggers Severance
Benefits hereunder.
(l) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor act thereto.
(m) "Expiration Date" means the date the Agreement expires, as
provided in Section 1.2 herein.
(n) "Just Cause" means a termination of an Executive's employment by
PCFC for which no Severance Benefits are payable hereunder, as
provided in Article 4 herein.
(o) "Normal Retirement Date" shall mean the date the Executive
reaches
3
<PAGE>
65 years of age.
(p) "Person" shall have the meaning ascribed to such terms in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).
(q) "Plan" means the Bancorp Hawaii, Inc. Key Executive Severance
Plan, adopted April 27, 1983.
(r) "Severance Benefit" means the payment of severance compensation
as provided in Article 3 herein.
(s) "Year" means the consecutive 12-month period beginning each
January 1 and ending December 31.
2.2 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
2.3 Severability. In the event any provision of the Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.
2.4 Modification. No express provisions of this Agreement may be modified,
waived, or discharged unless such modification, waiver, or discharge is agreed
to by the Executive in writing and approved by the Compensation Committee of the
Board of Directors.
2.5 Applicable Law. To the extent not preempted by the laws of the United
States, the laws of the State of Hawaii shall be the controlling law in all
matters relating to the Agreement.
Article 3. Severance Benefits
------------------
3.1 Right to Severance Benefits. The Executive shall be entitled to
receive from PCFC Severance Benefits as described in Section 3.2 herein, if
there has been a Change in Control of PCFC, as defined in Section 2.1(e) herein,
and if, within twenty-four (24) months thereafter, the Executive voluntarily
terminates employment or is involuntarily terminated without Just Cause with
PCFC. An Executive shall not be entitled to receive Severance Benefits if the
Executive's employment with PCFC or Bank of Hawaii ends due to an involuntary
termination by PCFC for Just Cause, as provided under Article 4 herein.
4
<PAGE>
3.2 Description of Severance Benefits. In the event that an Executive
becomes entitled to receive Severance Benefits, as provided in Section 3.1
herein, PCFC shall pay to the Executive and provide the Executive with the
following:
(a) An amount equal to three (3) times the Executive's highest annual
Base Salary earned (i) at any time during the three (3) complete
fiscal years immediately preceding the Effective Date of
Termination, or (ii) if the Executive was not employed during
such time period, at any time thereafter; and
(b) An amount equal to three (3) times the Executive's highest annual
bonus earned under the One-Year Incentive Plan during the three
(3) complete fiscal years prior to the Effective Date of
Termination, or, if shorter, over the Executive's entire period
of employment. However, if the Executive's period of employment
is less than one year, the bonus shall be considered zero (0);
and
(c) An amount equal to three (3) times the Executive's highest annual
incentive compensation earned under the Pacific Century Financial
Corporation Profit Sharing Plan, the Sustained Profit Growth
Plan, or any successor plans thereto over the three (3) complete
fiscal years prior to the Effective Date of Termination, or, if
shorter, over the Executive's entire period of employment.
However, if the Executive's period of employment is less than one
year, the average incentive compensation shall be considered zero
(0); and
(d) An amount equal to the excess of (i) the maximum payment the
Executive would have received under the One-Year Incentive Plan
if he had continued in the employment of PCFC and the Bank
through the end of the performance period following the Effective
Date of Termination, and if the Bank had met its maximum
performance goals as provided under the terms of the Plan and the
maximum amount payable to the Executive had been paid, over (ii)
the actual payout under the One-Year Incentive Plan resulting
from the Executive's termination of employment; and
(e) A payout under the Sustained Profit Growth Plan, in accordance
with the terms of such Plan; and
(f) A continuation of all welfare benefits at no direct cost to the
Executive, including medical insurance, long-term disability, and
group term life insurance for three (3) full years from the
Effective Date of Termination or until the Executive reaches his
Normal Retirement Date, whichever occurs earlier.
5
<PAGE>
3.3 Reduction of Severance Benefits. In the event there are fewer than
thirty-six (36) whole or partial months remaining from the Executive's Effective
Date of Termination until the Executive's Normal Retirement Date, as defined
under the Retirement Plan, then the amounts provided for under Sections 3.2(a),
(b), and (c) above shall be reduced by a fraction, the numerator of which shall
be the number of whole or partial months remaining until the Executive's Normal
Retirement Date, and the denominator of which shall be thirty-six (36).
3.4 Fringe Benefits. The Executive's participation in fringe benefits
prior to the Executive's Effective Date of Termination shall be continued, or
equivalent benefits shall be provided, at no cost to the Executive, for a period
of three (3) years from the Executive's Effective Date of Termination (or until
he or she reaches his Normal Retirement Date, whichever occurs earlier).
3.5 Relocation Benefits. Should the Executive move his residence in order
to pursue other business opportunities within two (2) years of Executive's
Effective Date of Termination, the Executive shall be reimbursed for any moving
expenses (as defined in Section 217(b) of the Code) incurred in that relocation
(including taxes, if any, payable on the reimbursement) which are not reimbursed
by another employer. Benefits provided herein shall not exceed the assistance
and benefits customarily provided by PCFC to transferred employees prior to the
Change in Control.
3.6 Incentive Compensation. Any deferred awards previously granted to the
Executive under PCFC's incentive compensation plans and not previously paid to
the Executive, shall immediately vest on the date of the Executive's Effective
Date of Termination and shall be paid no later than ninety (90) calendar days
following that date, and be included as compensation in the month paid.
3.8 Stock Options and SARs. Stock options ("options") and stock
appreciation rights ("SARs"), if any, granted to the Executive by PCFC will be
exercisable pursuant to the terms of the applicable plans.
Article 4. Just Cause
----------
4.1 Just Cause. Nothing in this Agreement shall be construed to prevent
PCFC or the Bank from terminating an Executive's employment for Just Cause. In
such case, no Severance Benefits shall be payable to the Executive under this
Agreement.
Just Cause shall mean the criminal conviction of the Executive for an
act of fraud, embezzlement, theft or any other act constituting a felony.
The determination that the Executive's actions constitute Just Cause
for termination shall be made by the Board, acting in good faith.
6
<PAGE>
Article 5. Form and Timing of Severance Benefits
-------------------------------------
5.1 Form and Timing of Severance Benefits. The Severance Benefits
described in Sections 3.4(a), (b), (c) (d) and 3.8 herein, shall be paid in cash
to the Executive in a single lump sum as soon as practicable following the
Executive's Effective Date of Termination, but in no event beyond ninety (90)
calendar days from such date.
The Severance Benefits described in Section 3.2(f) and 3.5 herein
shall be provided by PCFC to the Executive immediately upon the Executive's
Effective Date of Termination and shall continue to be provided for three (3)
full calendar years from the Executive's Effective Date of Termination or until
the Executive reaches his or her Normal Retirement date, whichever occurs
earlier.
5.2 Withholding of Taxes. PCFC shall withhold from any amounts payable
under this Agreement all Federal, state, city, or other taxes as legally shall
be required.
Article 6. Parachute Payments
------------------
6.1 Excise Tax Cap. In the event that a Change in Control of PCFC shall
occur and a determination is made by PCFC, pursuant to Sections 280G and 4999 of
the Code (and corresponding state law provisions) that a golden parachute excise
tax is due, the Executive's Severance Benefits under this Plan shall be grossed
up for the amount equal to and only equal to the amount necessary to pay the
excise tax.
6.2 Subsequent Recalculation. In the event the Internal Revenue Service
adjusts the excise tax computation of PCFC, as provided in Section 6.1 herein,
such that the Executive is liable for the payment of a greater excise tax under
Sections 280G and 4999 of the Code, or such that the Executive does not receive
the full benefit that he or she would have received, PCFC shall reimburse the
Executive for the full amount necessary to make the Executive whole (less any
amounts received by the Executive that he or she would not have received had the
computation initially been computed as subsequently adjusted), including the
value of the excise tax and all corresponding interest and penalties due to the
Internal Revenue Service.
Article 7. Other Rights and Benefits Not Affected
--------------------------------------
7.1 Other Benefits. Neither the provisions of this Agreement nor the
Severance Benefits provided for hereunder shall reduce any amounts otherwise
payable, or in any way diminish the Executive's rights as an employee of PCFC,
whether existing now or hereafter, under any benefit, incentive, retirement,
stock option, stock bonus, stock purchase plan, or any employment agreement, or
other plan or arrangement.
7
<PAGE>
7.2 Employment Status. This Agreement does not constitute a contract of
employment or impose on the Executive or PCFC any obligation to retain the
Executive as an employee, to change the status of the Executive's employment, or
to change PCFC's policies regarding termination of employment.
Article 8. Successors
----------
8.1 Successors. PCFC will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) of all or
substantially all of the business and/or assets of PCFC or of any division or
subsidiary thereof to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that PCFC would be required to perform it
if no such succession had taken place. Failure of PCFC to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation from
PCFC in the same amount and on the same terms as they would be entitled
hereunder if terminated voluntarily following a Change in Control. Except for
the purposes of implementing the foregoing, the date on which any succession
becomes effective shall be deemed the Effective Date of Termination.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If an Executive should
die while any amount would still be payable hereunder had the Executive
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement, to the Executive's devisee,
legatee, or other designee, or if there is no such designee, to the Executive's
estate.
8.2 Beneficiaries. The beneficiary of the Executive under the Pacific
Century Financial Corporation Money Purchase Plan shall be the beneficiary of
the Executive's benefits under this Agreement, unless a beneficiary is otherwise
designated by the Executive in the form of a signed writing acceptable to the
Committee. An Executive may make or change such designation at any time.
Article 9. Administration
--------------
9.1 Administration. This Agreement shall be administered by the
Compensation Committee of the Board of Directors. The Committee is authorized to
interpret this Agreement, to prescribe and rescind rules and regulations, to
provide conditions and assurances deemed necessary and advisable, to protect the
interests of PCFC, and to make all other determinations necessary or advisable
for the Agreement's administration.
In fulfilling its administrative duties hereunder, the Committee may
rely on outside counsel, independent accountants, or other consultants to render
advice or assistance.
8
<PAGE>
9.2 Indemnification and Exculpation. The members of the Board, its agents
and officers, directors, and employees of PCFC and its affiliates shall be
indemnified and held harmless by PCFC against and from any and all loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by them in
connection with or resulting from any claim, action, suit, or proceeding to
which they may be a party or in which they may be involved by reason of any
action taken or failure to act under this Agreement and against and from any and
all amounts paid by them in settlement (with PCFC's written approval) or paid by
them in satisfaction of a judgment in any such action, suit, or proceeding. The
foregoing provision shall not be applicable to any person if the loss, cost,
liability, or expense is due to such person's gross negligence or willful
misconduct.
Article 10. Legal Fees
----------
10.1 Legal Fees and Expenses. PCFC shall pay all reasonable legal fees,
costs of litigation, and other expenses incurred in good faith by the Executive
as a result of PCFC's refusal to provide the Severance Benefits to which the
Executive becomes entitled under this Agreement, or as a result of PCFC's
contesting the validity, enforceability, or interpretation of the Agreement.
Provided, however, that such payments shall not exceed the amount permitted by
law and PCFC's Restated Articles of Incorporation.
IN WITNESS WHEREOF, PCFC has caused this Agreement to be executed by a
resolution of the Board of Directors, as of the day and year first above
written.
Pacific Century Financial Corporation
By: /S/ RICHARD J. DAHL
--------------------------
Its: President
By: /S/ KARL K. Y. PAN
--------------------------
(Executive)
ATTEST:
/S/ DENIS ISONO
- -------------------------
9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.22
<SEQUENCE>9
<FILENAME>0009.txt
<DESCRIPTION>SEVERANCE AGREEMENT DATED APRIL 3, 2000
<TEXT>
<PAGE>
Exhibit 10.22
Key Executive
Change-in-Control
Severance Agreement
__________________
Pacific Century Financial Corporation
<PAGE>
Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Article 1. Establishment and Purpose........................................................ 1
Article 2. Definitions and Construction..................................................... 2
Article 3. Severance Benefits............................................................... 4
Article 4. Just Cause....................................................................... 6
Article 5. Form and Timing of Severance Benefits............................................ 7
Article 6. Parachute Payments............................................................... 7
Article 7. Other Rights and Benefits Not Affected........................................... 7
Article 8. Successors....................................................................... 8
Article 9. Administration................................................................... 8
Article 10. Legal Fees and Arbitration....................................................... 9
</TABLE>
<PAGE>
Pacific Century Financial Corporation
Key Executive
Change-in-Control Severance Agreement
Article 1. Establishment and Purpose
-------------------------
1.1 Effective Date. This Executive Change-in-Control Severance Agreement
(the "Agreement) is made and entered into pursuant to Bancorp's Key Executive
Severance Plan (the "Plan"), and is effective as of this 26th day of January
2001 (the "Effective Date"), by and between Pacific Century Financial
Corporation ("PCFC"), a Hawaii corporation, and Allan R. Landon, an executive
(the "Executive") of PCFC and its subsidiary, Bank of Hawaii (the "Bank"). This
Agreement shall supersede and replace any prior severance agreement entered into
between PCFC and the Executive.
1.2 Term of the Agreement. The Agreement shall commence as of the
Effective Date written above, and shall continue until the Board of Directors of
PCFC (the "Board") determines, in good faith and in its sole discretion, that
the Executive is no longer to be included in the Plan and so notifies in writing
the Executive during the term of this Agreement of such determination.
Provided, however, in the event that a Change in Control of PCFC, as
defined in Section 2.1 herein, occurs during the term of this Agreement, this
Agreement shall remain irrevocably in effect for the greater of twenty-four (24)
months from the date of such Change in Control, or until all benefits have been
paid to the Executive hereunder.
Further, in the event that the Board has knowledge that a third party
has taken steps reasonably calculated to effect a Change in Control of PCFC,
including, but not limited to, the commencement of a tender offer for the voting
stock of PCFC, or the circulation of a proxy to PCFC's shareholders, then this
Agreement shall remain irrevocably in effect until the Board, in good faith,
determines that such third party has fully abandoned or terminated its effort to
effect a Change in Control of PCFC.
1.3 Purpose of the Agreement. The purpose of this Agreement pursuant to
the Plan, is to advance the interests of PCFC and the Bank by assuring that PCFC
and the Bank will have the continued employment and dedication of the Executive
and the availability of his advice and counsel in the event that an acquisition
or Change in Control of PCFC occurs. This Agreement shall also assure the
Executive of equitable treatment during the period of uncertainty that surrounds
an acquisition or Change in Control, and allow the Executive to act at all times
in the best interests of PCFC and its shareholders.
1
<PAGE>
1.4 Contractual Right to Benefits. This Agreement establishes and vests in
the Executive a contractual right to the benefits which he or she is entitled
hereunder, enforceable by the Executive against PCFC. However, nothing herein
shall require PCFC to segregate, earmark, or otherwise set aside any funds or
other assets to provide for any payments hereunder.
This Agreement shall be considered an unfunded agreement to provide
benefits to a select group of management or highly compensated employees, and is
therefore intended to be a "top-hat" plan exempt from the requirements of the
provisions of Parts 2, 3, and 4 of Title I of ERISA.
Article 2. Definitions and Construction
----------------------------
2.1 Definitions. Whenever used in the Agreement, the following terms shall
have the meanings set forth below and, when the meaning is intended, the initial
letter of the word is capitalized.
(a). "Base Salary" means the annualized salary at the beginning of
each Year, which includes all regular basic wages, before
reduction for any amounts deferred on a tax-qualified or
nonqualified basis, payable in cash to an Executive for services
rendered during the Year. Base Salary shall exclude bonuses,
incentive compensation, special fees or awards, commissions,
allowances, or any other form of premium or incentive pay, or
amounts designated by PCFC as payment toward or reimbursement of
expenses.
(b). "Beneficial Owner" shall have the meaning ascribed to such term
in Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(c). "Beneficiary" with respect to an Executive means the person or
entities designated or deemed designated by an Executive pursuant
to Section 8.2 herein.
(d) "Board" means the Board of Directors of PCFC.
(e) "Change in Control" of PCFC means any one or more of the
following occurrences:
(i) Any Person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, becomes the
beneficial owner of shares of PCFC having 25 percent or more
of the total number of votes that may be cast for the
election of Directors of PCFC; or
2
<PAGE>
(ii) As the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale
of assets or contested election, or any combination of the
foregoing transactions, the person who were Directors of
PCFC before the transaction shall cease to constitute a
majority of the Board of Directors of PCFC or any successor
to PCFC.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "PCFC" means Pacific Century Financial Corporation, a Hawaii
corporation, or any successor thereto that adopts the Agreement,
as provided in Section 8.1 herein.
(h) "Committee" means the Compensation Committee of the Board of
Directors of PCFC or any other committee appointed by the Board
to administer this Agreement.
(i) "Disability" means a physical or mental condition which renders
an Executive unable to discharge his or her normal work
responsibility with PCFC or the Bank and which, in the opinion of
a licensed physician selected by the Executive, subject to
reasonable approval by the Committee based upon sufficient
medical evidence, can be reasonably expected to continue for a
period of at least one full calendar year. If an Executive fails
to select a physician with ten (10) business days of a written
request made by PCFC, then PCFC may select a physician for
purposes of this paragraph.
(j) "Effective Date" means the date the Agreement is approved by the
Board, or such other date as the Board shall designate in its
resolution approving the Agreement, and as provided in Section
1.1 herein.
(k) "Effective Date of Termination" means the date on which a
voluntary employment termination or involuntary employment
termination other than for Just Cause occurs within twenty-four
(24) months of a Change in Control which triggers Severance
Benefits hereunder.
(l) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor act thereto.
(m) "Expiration Date" means the date the Agreement expires, as
provided in Section 1.2 herein.
(n) "Just Cause" means a termination of an Executive's employment by
PCFC for which no Severance Benefits are payable hereunder, as
provided in Article 4 herein.
(o) "Normal Retirement Date" shall mean the date the Executive
reaches
3
<PAGE>
65 years of age.
(p) "Person" shall have the meaning ascribed to such terms in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).
(q) "Plan" means the Bancorp Hawaii, Inc. Key Executive Severance
Plan, adopted April 27, 1983.
(r) "Severance Benefit" means the payment of severance compensation
as provided in Article 3 herein.
(s) "Year" means the consecutive 12-month period beginning each
January 1 and ending December 31.
2.2 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
2.3 Severability. In the event any provision of the Agreement
shall be held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of the Agreement, and the Agreement shall
be construed and enforced as if the illegal or invalid provision had not been
included.
2.4 Modification. No express provisions of this Agreement may be modified,
waived, or discharged unless such modification, waiver, or discharge is agreed
to by the Executive in writing and approved by the Compensation Committee of the
Board of Directors.
2.5 Applicable Law. To the extent not preempted by the laws of the United
States, the laws of the State of Hawaii shall be the controlling law in all
matters relating to the Agreement.
Article 3. Severance Benefits
------------------
3.1 Right to Severance Benefits. The Executive shall be entitled to
receive from PCFC Severance Benefits as described in Section 3.2 herein, if
there has been a Change in Control of PCFC, as defined in Section 2.1(e) herein,
and if, within twenty-four (24) months thereafter, the Executive voluntarily
terminates employment or is involuntarily terminated without Just Cause with
PCFC. An Executive shall not be entitled to receive Severance Benefits if the
Executive's employment with PCFC or Bank of Hawaii ends due to an involuntary
termination by PCFC for Just Cause, as provided under Article 4 herein.
4
<PAGE>
3.2 Description of Severance Benefits. In the event that an Executive
becomes entitled to receive Severance Benefits, as provided in Section 3.1
herein, PCFC shall pay to the Executive and provide the Executive with the
following:
(a) An amount equal to three (3) times the Executive's highest annual
Base Salary earned (i) at any time during the three (3) complete
fiscal years immediately preceding the Effective Date of
Termination, or (ii) if the Executive was not employed during
such time period, at any time thereafter; and
(b) An amount equal to three (3) times the Executive's highest annual
bonus earned under the One-Year Incentive Plan during the three
(3) complete fiscal years prior to the Effective Date of
Termination, or, if shorter, over the Executive's entire period
of employment. However, if the Executive's period of employment
is less than one year, the bonus shall be considered zero (0);
and
(c) An amount equal to three (3) times the Executive's highest annual
incentive compensation earned under the Pacific Century Financial
Corporation Profit Sharing Plan, the Sustained Profit Growth
Plan, or any successor plans thereto over the three (3) complete
fiscal years prior to the Effective Date of Termination, or, if
shorter, over the Executive's entire period of employment.
However, if the Executive's period of employment is less than one
year, the average incentive compensation shall be considered zero
(0); and
(d) An amount equal to the excess of (i) the maximum payment the
Executive would have received under the One-Year Incentive Plan
if he had continued in the employment of PCFC and the Bank
through the end of the performance period following the Effective
Date of Termination, and if the Bank had met its maximum
performance goals as provided under the terms of the Plan and the
maximum amount payable to the Executive had been paid, over (ii)
the actual payout under the One-Year Incentive Plan resulting
from the Executive's termination of employment; and
(e) A payout under the Sustained Profit Growth Plan, in accordance
with the terms of such Plan; and
(f) A continuation of all welfare benefits at no direct cost to the
Executive, including medical insurance, long-term disability, and
group term life insurance for three (3) full years from the
Effective Date of Termination or until the Executive reaches his
Normal Retirement Date, whichever occurs earlier.
5
<PAGE>
3.3 Reduction of Severance Benefits. In the event there are fewer
than thirty-six (36) whole or partial months remaining from the Executive's
Effective Date of Termination until the Executive's Normal Retirement Date, as
defined under the Retirement Plan, then the amounts provided for under Sections
3.2(a), (b), and (c) above shall be reduced by a fraction, the numerator of
which shall be the number of whole or partial months remaining until the
Executive's Normal Retirement Date, and the denominator of which shall be
thirty-six (36).
3.4 Fringe Benefits. The Executive's participation in fringe benefits
prior to the Executive's Effective Date of Termination shall be continued, or
equivalent benefits shall be provided, at no cost to the Executive, for a period
of three (3) years from the Executive's Effective Date of Termination (or until
he or she reaches his Normal Retirement Date, whichever occurs earlier).
3.5 Relocation Benefits. Should the Executive move his residence in order
to pursue other business opportunities within two (2) years of Executive's
Effective Date of Termination, the Executive shall be reimbursed for any moving
expenses (as defined in Section 217(b) of the Code) incurred in that relocation
(including taxes, if any, payable on the reimbursement) which are not reimbursed
by another employer. Benefits provided herein shall not exceed the assistance
and benefits customarily provided by PCFC to transferred employees prior to the
Change in Control.
3.6 Incentive Compensation. Any deferred awards previously granted to the
Executive under PCFC's incentive compensation plans and not previously paid to
the Executive, shall immediately vest on the date of the Executive's Effective
Date of Termination and shall be paid no later than ninety (90) calendar days
following that date, and be included as compensation in the month paid.
3.8 Stock Options and SARs. Stock options ("options") and stock
appreciation rights ("SARs"), if any, granted to the Executive by PCFC will be
exercisable pursuant to the terms of the applicable plans.
Article 4. Just Cause
----------
4.1 Just Cause. Nothing in this Agreement shall be construed to prevent
PCFC or the Bank from terminating an Executive's employment for Just Cause. In
such case, no Severance Benefits shall be payable to the Executive under this
Agreement.
Just Cause shall mean the criminal conviction of the Executive for an
act of fraud, embezzlement, theft or any other act constituting a felony.
The determination that the Executive's actions constitute Just Cause
for termination shall be made by the Board, acting in good faith.
6
<PAGE>
Article 5. Form and Timing of Severance Benefits
-------------------------------------
5.1 Form and Timing of Severance Benefits. The Severance Benefits
described in Sections 3.4(a), (b), (c) (d) and 3.8 herein, shall be paid in cash
to the Executive in a single lump sum as soon as practicable following the
Executive's Effective Date of Termination, but in no event beyond ninety (90)
calendar days from such date.
The Severance Benefits described in Section 3.2(f) and 3.5
herein shall be provided by PCFC to the Executive immediately upon the
Executive's Effective Date of Termination and shall continue to be provided for
three (3) full calendar years from the Executive's Effective Date of Termination
or until the Executive reaches his or her Normal Retirement date, whichever
occurs earlier.
5.2 Withholding of Taxes. PCFC shall withhold from any amounts
payable under this Agreement all Federal, state, city, or other taxes as legally
shall be required.
Article 6. Parachute Payments
------------------
6.1 Excise Tax Cap. In the event that a Change in Control of PCFC shall
occur and a determination is made by PCFC, pursuant to Sections 280G and 4999 of
the Code (and corresponding state law provisions) that a golden parachute excise
tax is due, the Executive's Severance Benefits under this Plan shall be grossed
up for the amount equal to and only equal to the amount necessary to pay the
excise tax.
6.2 Subsequent Recalculation. In the event the Internal Revenue Service
adjusts the excise tax computation of PCFC, as provided in Section 6.1 herein,
such that the Executive is liable for the payment of a greater excise tax under
Sections 280G and 4999 of the Code, or such that the Executive does not receive
the full benefit that he or she would have received, PCFC shall reimburse the
Executive for the full amount necessary to make the Executive whole (less any
amounts received by the Executive that he or she would not have received had the
computation initially been computed as subsequently adjusted), including the
value of the excise tax and all corresponding interest and penalties due to the
Internal Revenue Service.
Article 7. Other Rights and Benefits Not Affected
--------------------------------------
7.1 Other Benefits. Neither the provisions of this Agreement nor the
Severance Benefits provided for hereunder shall reduce any amounts otherwise
payable, or in any way diminish the Executive's rights as an employee of PCFC,
whether existing now or hereafter, under any benefit, incentive, retirement,
stock option, stock bonus, stock purchase plan, or any employment agreement, or
other plan or arrangement.
7
<PAGE>
7.2 Employment Status. This Agreement does not constitute a contract of
employment or impose on the Executive or PCFC any obligation to retain the
Executive as an employee, to change the status of the Executive's employment, or
to change PCFC's policies regarding termination of employment.
Article 8. Successors
----------
8.1 Successors. PCFC will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) of all or
substantially all of the business and/or assets of PCFC or of any division or
subsidiary thereof to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that PCFC would be required to perform it
if no such succession had taken place. Failure of PCFC to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation from
PCFC in the same amount and on the same terms as they would be entitled
hereunder if terminated voluntarily following a Change in Control. Except for
the purposes of implementing the foregoing, the date on which any succession
becomes effective shall be deemed the Effective Date of Termination.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If an Executive should
die while any amount would still be payable hereunder had the Executive
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement, to the Executive's devisee,
legatee, or other designee, or if there is no such designee, to the Executive's
estate.
8.2 Beneficiaries. The beneficiary of the Executive under the Pacific
Century Financial Corporation Money Purchase Plan shall be the beneficiary of
the Executive's benefits under this Agreement, unless a beneficiary is otherwise
designated by the Executive in the form of a signed writing acceptable to the
Committee. An Executive may make or change such designation at any time.
Article 9. Administration
--------------
9.1 Administration. This Agreement shall be administered by the
Compensation Committee of the Board of Directors. The Committee is authorized to
interpret this Agreement, to prescribe and rescind rules and regulations, to
provide conditions and assurances deemed necessary and advisable, to protect the
interests of PCFC, and to make all other determinations necessary or advisable
for the Agreement's administration.
In fulfilling its administrative duties hereunder, the Committee may
rely on outside counsel, independent accountants, or other consultants to render
advice or assistance.
8
<PAGE>
9.2 Indemnification and Exculpation. The members of the Board, its agents
and officers, directors, and employees of PCFC and its affiliates shall be
indemnified and held harmless by PCFC against and from any and all loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by them in
connection with or resulting from any claim, action, suit, or proceeding to
which they may be a party or in which they may be involved by reason of any
action taken or failure to act under this Agreement and against and from any and
all amounts paid by them in settlement (with PCFC's written approval) or paid by
them in satisfaction of a judgment in any such action, suit, or proceeding. The
foregoing provision shall not be applicable to any person if the loss, cost,
liability, or expense is due to such person's gross negligence or willful
misconduct.
Article 10. Legal Fees
----------
10.1 Legal Fees and Expenses. PCFC shall pay all reasonable legal fees,
costs of litigation, and other expenses incurred in good faith by the Executive
as a result of PCFC's refusal to provide the Severance Benefits to which the
Executive becomes entitled under this Agreement, or as a result of PCFC's
contesting the validity, enforceability, or interpretation of the Agreement.
Provided, however, that such payments shall not exceed the amount permitted by
law and PCFC's Restated Articles of Incorporation.
IN WITNESS WHEREOF, PCFC has caused this Agreement to be executed by a
resolution of the Board of Directors, as of the day and year first above
written.
Pacific Century Financial Corporation
By: /S/ MICHAEL E. O'NEILL
--------------------------------------
Its: Chairman & Chief Executive Officer
By: /S/ ALLAN R. LANDON
-------------------------------------
(Executive)
ATTEST:
/S/ NEAL HOCKLANDER
- -----------------------------
9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.23
<SEQUENCE>10
<FILENAME>0010.txt
<DESCRIPTION>SEVERANCE AGREEMENT DATED JANUARY 26, 2001
<TEXT>
<PAGE>
Exhibit 10.23
Key Executive
Change-in-Control
Severance Agreement
----------
Pacific Century Financial Corporation
<PAGE>
Contents
Page
Article 1. Establishment and Purpose................................... 1
Article 2. Definitions and Construction................................ 2
Article 3. Severance Benefits.......................................... 4
Article 4. Just Cause.................................................. 6
Article 5. Form and Timing of Severance Benefits....................... 7
Article 6. Parachute Payments.......................................... 7
Article 7. Other Rights and Benefits Not Affected...................... 7
Article 8. Successors.................................................. 8
Article 9. Administration.............................................. 8
Article 10. Legal Fees and Arbitration.................................. 9
<PAGE>
Pacific Century Financial Corporation
Key Executive
Change-in-Control Severance Agreement
Article 1. Establishment and Purpose
-------------------------
1.1 Effective Date. This Executive Change-in-Control Severance
Agreement (the "Agreement) is made and entered into pursuant to Bancorp's Key
Executive Severance Plan (the "Plan"), and is effective as of this 26th day of
January 26, 2001 (the "Effective Date"), by and between Pacific Century
Financial Corporation ("PCFC"), a Hawaii corporation, and William C. Nelson, an
executive (the "Executive") of PCFC and its subsidiary, Bank of Hawaii (the
"Bank"). This Agreement shall supersede and replace any prior severance
agreement entered into between PCFC and the Executive.
1.2 Term of the Agreement. The Agreement shall commence as of the
Effective Date written above, and shall continue until the Board of Directors of
PCFC (the "Board") determines, in good faith and in its sole discretion, that
the Executive is no longer to be included in the Plan and so notifies in writing
the Executive during the term of this Agreement of such determination.
Provided, however, in the event that a Change in Control of PCFC,
as defined in Section 2.1 herein, occurs during the term of this Agreement, this
Agreement shall remain irrevocably in effect for the greater of twenty-four (24)
months from the date of such Change in Control, or until all benefits have been
paid to the Executive hereunder.
Further, in the event that the Board has knowledge that a third
party has taken steps reasonably calculated to effect a Change in Control of
PCFC, including, but not limited to, the commencement of a tender offer for the
voting stock of PCFC, or the circulation of a proxy to PCFC's shareholders, then
this Agreement shall remain irrevocably in effect until the Board, in good
faith, determines that such third party has fully abandoned or terminated its
effort to effect a Change in Control of PCFC.
1.3 Purpose of the Agreement. The purpose of this Agreement pursuant to
the Plan, is to advance the interests of PCFC and the Bank by assuring that PCFC
and the Bank will have the continued employment and dedication of the Executive
and the availability of his advice and counsel in the event that an acquisition
or Change in Control of PCFC occurs. This Agreement shall also assure the
Executive of equitable treatment during the period of uncertainty that surrounds
an acquisition or Change in Control, and allow the Executive to act at all times
in the best interests of PCFC and its shareholders.
1
<PAGE>
1.4 Contractual Right to Benefits. This Agreement establishes and vests
in the Executive a contractual right to the benefits which he or she is entitled
hereunder, enforceable by the Executive against PCFC. However, nothing herein
shall require PCFC to segregate, earmark, or otherwise set aside any funds or
other assets to provide for any payments hereunder.
This Agreement shall be considered an unfunded agreement to provide
benefits to a select group of management or highly compensated employees, and is
therefore intended to be a "top-hat" plan exempt from the requirements of the
provisions of Parts 2, 3, and 4 of Title I of ERISA.
Article 2. Definitions and Construction
----------------------------
2.1 Definitions. Whenever used in the Agreement, the following terms
shall have the meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized.
(a). "Base Salary" means the annualized salary at the beginning
of each Year, which includes all regular basic wages, before
reduction for any amounts deferred on a tax-qualified or
nonqualified basis, payable in cash to an Executive for
services rendered during the Year. Base Salary shall exclude
bonuses, incentive compensation, special fees or awards,
commissions, allowances, or any other form of premium or
incentive pay, or amounts designated by PCFC as payment
toward or reimbursement of expenses.
(b). "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(c). "Beneficiary" with respect to an Executive means the person
or entities designated or deemed designated by an Executive
pursuant to Section 8.2 herein.
(d) "Board" means the Board of Directors of PCFC.
(e) "Change in Control" of PCFC means any one or more of the
following occurrences:
(i) Any Person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of
1934, becomes the beneficial owner of shares of PCFC
having 25 percent or more of the total number of
votes that may be cast for the election of Directors
of PCFC; or
2
<PAGE>
(ii) As the result of, or in connection with, any cash
tender or exchange offer, merger or other business
combination, sale of assets or contested election,
or any combination of the foregoing transactions,
the person who were Directors of PCFC before the
transaction shall cease to constitute a majority of
the Board of Directors of PCFC or any successor to
PCFC.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "PCFC" means Pacific Century Financial Corporation, a Hawaii
corporation, or any successor thereto that adopts the
Agreement, as provided in Section 8.1 herein.
(h) "Committee" means the Compensation Committee of the Board of
Directors of PCFC or any other committee appointed by the
Board to administer this Agreement.
(i) "Disability" means a physical or mental condition which
renders an Executive unable to discharge his or her normal
work responsibility with PCFC or the Bank and which, in the
opinion of a licensed physician selected by the Executive,
subject to reasonable approval by the Committee based upon
sufficient medical evidence, can be reasonably expected to
continue for a period of at least one full calendar year. If
an Executive fails to select a physician with ten (10)
business days of a written request made by PCFC, then PCFC
may select a physician for purposes of this paragraph.
(j) "Effective Date" means the date the Agreement is approved by
the Board, or such other date as the Board shall designate
in its resolution approving the Agreement, and as provided
in Section 1.1 herein.
(k) "Effective Date of Termination" means the date on which a
voluntary employment termination or involuntary employment
termination other than for Just Cause occurs within twenty-
four (24) months of a Change in Control which triggers
Severance Benefits hereunder.
(l) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor act
thereto.
(m) "Expiration Date" means the date the Agreement expires, as
provided in Section 1.2 herein.
(n) "Just Cause" means a termination of an Executive's
employment by PCFC for which no Severance Benefits are
payable hereunder, as provided in Article 4 herein.
(o) "Normal Retirement Date" shall mean the date the Executive
reaches
3
<PAGE>
65 years of age.
(p) "Person" shall have the meaning ascribed to such terms in
Section 3(a)(9) of the Exchange Act and used in Sections
13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d).
(q) "Plan" means the Bancorp Hawaii, Inc. Key Executive
Severance Plan, adopted April 27, 1983.
(r) "Severance Benefit" means the payment of severance
compensation as provided in Article 3 herein.
(s) "Year" means the consecutive 12-month period beginning each
January 1 and ending December 31.
2.2 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
2.3 Severability. In the event any provision of the Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.
2.4 Modification. No express provisions of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is agreed to by the Executive in writing and approved by the Compensation
Committee of the Board of Directors.
2.5 Applicable Law. To the extent not preempted by the laws of the
United States, the laws of the State of Hawaii shall be the controlling law in
all matters relating to the Agreement.
Article 3 Severance Benefits
------------------
3.1 Right to Severance Benefits. The Executive shall be entitled to
receive from PCFC Severance Benefits as described in Section 3.2 herein, if
there has been a Change in Control of PCFC, as defined in Section 2.1(e) herein,
and if, within twenty-four (24) months thereafter, the Executive voluntarily
terminates employment or is involuntarily terminated without Just Cause with
PCFC. An Executive shall not be entitled to receive Severance Benefits if the
Executive's employment with PCFC or Bank of Hawaii ends due to an involuntary
termination by PCFC for Just Cause, as provided under Article 4 herein.
4
<PAGE>
3.2 Description of Severance Benefits. In the event that an Executive
becomes entitled to receive Severance Benefits, as provided in Section 3.1
herein, PCFC shall pay to the Executive and provide the Executive with the
following:
(a) An amount equal to three (3) times the Executive's highest
annual Base Salary earned (i) at any time during the three
(3) complete fiscal years immediately preceding the
Effective Date of Termination, or (ii) if the Executive was
not employed during such time period, at any time
thereafter; and
(b) An amount equal to three (3) times the Executive's highest
annual bonus earned under the One-Year Incentive Plan during
the three (3) complete fiscal years prior to the Effective
Date of Termination, or, if shorter, over the Executive's
entire period of employment. However, if the Executive's
period of employment is less than one year, the bonus shall
be considered zero (0); and
(c) An amount equal to three (3) times the Executive's highest
annual incentive compensation earned under the Pacific
Century Financial Corporation Profit Sharing Plan, the
Sustained Profit Growth Plan, or any successor plans thereto
over the three (3) complete fiscal years prior to the
Effective Date of Termination, or, if shorter, over the
Executive's entire period of employment. However, if the
Executive's period of employment is less than one year, the
average incentive compensation shall be considered zero (0);
and
(d) An amount equal to the excess of (i) the maximum payment the
Executive would have received under the One-Year Incentive
Plan if he had continued in the employment of PCFC and the
Bank through the end of the performance period following the
Effective Date of Termination, and if the Bank had met its
maximum performance goals as provided under the terms of the
Plan and the maximum amount payable to the Executive had
been paid, over (ii) the actual payout under the One-Year
Incentive Plan resulting from the Executive's termination of
employment; provided however, that in the event the
Executive becomes entitled to receive Severance Benefits
within the first twelve months of employment, the amount of
the payment under this section 3.2 (d) will be the One-Year
Incentive Plan payout amount stated in the Executive's offer
letter dated December 8, 2000; and
(e) A payout under the Sustained Profit Growth Plan, in
accordance with the terms of such Plan; and
(f) A continuation of all welfare benefits at no direct cost to
the Executive, including medical insurance, long-term
disability, and group term life insurance for three (3) full
years from the Effective Date of Termination
5
<PAGE>
or until the Executive reaches his Normal Retirement Date,
whichever occurs earlier.
3.3 Reduction of Severance Benefits. In the event there are fewer than
thirty-six (36) whole or partial months remaining from the Executive's Effective
Date of Termination until the Executive's Normal Retirement Date, as defined
under the Retirement Plan, then the amounts provided for under Sections 3.2(a),
(b), and (c) above shall be reduced by a fraction, the numerator of which shall
be the number of whole or partial months remaining until the Executive's Normal
Retirement Date, and the denominator of which shall be thirty-six (36).
3.4 Fringe Benefits. The Executive's participation in fringe benefits
prior to the Executive's Effective Date of Termination shall be continued, or
equivalent benefits shall be provided, at no cost to the Executive, for a period
of three (3) years from the Executive's Effective Date of Termination (or until
he or she reaches his Normal Retirement Date, whichever occurs earlier).
3.5 Relocation Benefits. Should the Executive move his residence in
order to pursue other business opportunities within two (2) years of Executive's
Effective Date of Termination, the Executive shall be reimbursed for any moving
expenses (as defined in Section 217(b) of the Code) incurred in that relocation
(including taxes, if any, payable on the reimbursement) which are not reimbursed
by another employer. Benefits provided herein shall not exceed the assistance
and benefits customarily provided by PCFC to transferred employees prior to the
Change in Control.
3.6 Incentive Compensation. Any deferred awards previously granted to
the Executive under PCFC's incentive compensation plans and not previously paid
to the Executive, shall immediately vest on the date of the Executive's
Effective Date of Termination and shall be paid no later than ninety (90)
calendar days following that date, and be included as compensation in the month
paid.
3.8 Stock Options and SARs. Stock options ("options") and stock
appreciation rights ("SARs"), if any, granted to the Executive by PCFC will be
exercisable pursuant to the terms of the applicable plans.
Article 4. Just Cause
----------
4.1 Just Cause. Nothing in this Agreement shall be construed to prevent
PCFC or the Bank from terminating an Executive's employment for Just Cause. In
such case, no Severance Benefits shall be payable to the Executive under this
Agreement.
Just Cause shall mean the criminal conviction of the Executive for
an act of fraud, embezzlement, theft or any other act constituting a felony.
6
<PAGE>
The determination that the Executive's actions constitute Just
Cause for termination shall be made by the Board, acting in good faith.
Article 5. Form and Timing of Severance Benefits
-------------------------------------
5.1 Form and Timing of Severance Benefits. The Severance Benefits
described in Sections 3.4(a), (b), (c) (d) and 3.8 herein, shall be paid in cash
to the Executive in a single lump sum as soon as practicable following the
Executive's Effective Date of Termination, but in no event beyond ninety (90)
calendar days from such date.
The Severance Benefits described in Section 3.2(f) and 3.5 herein
shall be provided by PCFC to the Executive immediately upon the Executive's
Effective Date of Termination and shall continue to be provided for three (3)
full calendar years from the Executive's Effective Date of Termination or until
the Executive reaches his or her Normal Retirement date, whichever occurs
earlier.
5.2 Withholding of Taxes. PCFC shall withhold from any amounts payable
under this Agreement all Federal, state, city, or other taxes as legally shall
be required.
Article 6. Parachute Payments
------------------
6.1 Excise Tax Cap. In the event that a Change in Control of PCFC shall
occur and a determination is made by PCFC, pursuant to Sections 280G and 4999 of
the Code (and corresponding state law provisions) that a golden parachute excise
tax is due, the Executive's Severance Benefits under this Plan shall be grossed
up for the amount equal to and only equal to the amount necessary to pay the
excise tax.
6.2 Subsequent Recalculation. In the event the Internal Revenue Service
adjusts the excise tax computation of PCFC, as provided in Section 6.1 herein,
such that the Executive is liable for the payment of a greater excise tax under
Sections 280G and 4999 of the Code, or such that the Executive does not receive
the full benefit that he or she would have received, PCFC shall reimburse the
Executive for the full amount necessary to make the Executive whole (less any
amounts received by the Executive that he or she would not have received had the
computation initially been computed as subsequently adjusted), including the
value of the excise tax and all corresponding interest and penalties due to the
Internal Revenue Service.
Article 7. Other Rights and Benefits Not Affected
--------------------------------------
7.1 Other Benefits. Neither the provisions of this Agreement nor the
Severance Benefits provided for hereunder shall reduce any amounts otherwise
payable, or in any way
7
<PAGE>
diminish the Executive's rights as an employee of PCFC, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock purchase plan, or any employment agreement, or other plan or arrangement.
7.2 Employment Status. This Agreement does not constitute a contract of
employment or impose on the Executive or PCFC any obligation to retain the
Executive as an employee, to change the status of the Executive's employment, or
to change PCFC's policies regarding termination of employment.
Article 8. Successors
----------
8.1 Successors. PCFC will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) of all or
substantially all of the business and/or assets of PCFC or of any division or
subsidiary thereof to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that PCFC would be required to perform it
if no such succession had taken place. Failure of PCFC to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation from
PCFC in the same amount and on the same terms as they would be entitled
hereunder if terminated voluntarily following a Change in Control. Except for
the purposes of implementing the foregoing, the date on which any succession
becomes effective shall be deemed the Effective Date of Termination.
This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If an Executive should
die while any amount would still be payable hereunder had the Executive
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement, to the Executive's devisee,
legatee, or other designee, or if there is no such designee, to the Executive's
estate.
8.2 Beneficiaries. The beneficiary of the Executive under the Pacific
Century Financial Corporation Money Purchase Plan shall be the beneficiary of
the Executive's benefits under this Agreement, unless a beneficiary is otherwise
designated by the Executive in the form of a signed writing acceptable to the
Committee. An Executive may make or change such designation at any time.
Article 9. Administration
--------------
9.1 Administration. This Agreement shall be administered by the
Compensation Committee of the Board of Directors. The Committee is authorized to
interpret this Agreement, to prescribe and rescind rules and regulations, to
provide conditions and assurances deemed necessary and advisable, to protect the
interests of PCFC, and to make all other determinations necessary or advisable
for the Agreement's administration.
8
<PAGE>
In fulfilling its administrative duties hereunder, the Committee
may rely on outside counsel, independent accountants, or other consultants to
render advice or assistance.
9.2 Indemnification and Exculpation. The members of the Board, its
agents and officers, directors, and employees of PCFC and its affiliates shall
be indemnified and held harmless by PCFC against and from any and all loss,
cost, liability, or expense that may be imposed upon or reasonably incurred by
them in connection with or resulting from any claim, action, suit, or proceeding
to which they may be a party or in which they may be involved by reason of any
action taken or failure to act under this Agreement and against and from any and
all amounts paid by them in settlement (with PCFC's written approval) or paid by
them in satisfaction of a judgment in any such action, suit, or proceeding. The
foregoing provision shall not be applicable to any person if the loss, cost,
liability, or expense is due to such person's gross negligence or willful
misconduct.
Article 10. Legal Fees
----------
10.1 Legal Fees and Expenses. PCFC shall pay all reasonable legal fees,
costs of litigation, and other expenses incurred in good faith by the Executive
as a result of PCFC's refusal to provide the Severance Benefits to which the
Executive becomes entitled under this Agreement, or as a result of PCFC's
contesting the validity, enforceability, or interpretation of the Agreement.
Provided, however, that such payments shall not exceed the amount permitted by
law and PCFC's Restated Articles of Incorporation.
IN WITNESS WHEREOF, PCFC has caused this Agreement to be executed
by a resolution of the Board of Directors, as of the day and year first above
written.
Pacific Century Financial Corporation
By: /S/ MICHAEL E. O'NEILL
------------------------------------
Its: Chairman & Chief Executive Officer
By: /S/ WILLIAM C. NELSON
------------------------------------
(Executive)
ATTEST:
/S/ JOSEPH KIEFER
- ---------------------------
9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26
<SEQUENCE>11
<FILENAME>0011.txt
<DESCRIPTION>AMENDMENT 97-1 TO DIRECTORS STOCK COMPENSATION PROGRAM
<TEXT>
<PAGE>
Exhibit 10.26
AMENDMENT NO. 97-1 TO
THE PACIFIC CENTURY FINANCIAL CORPORATION
DIRECTOR STOCK COMPENSATION PROGRAM
-----------------------------------
In accordance with the provisions of its Article 7, the Pacific
Century Financial Corporation Director Stock Compensation Program ("Program") is
amended effective as of November 1, 1997, as follows:
1. New Section 8A shall be added at the end of Section 8, Plan I,
Pacific Century Financial Corporation Director Stock Option Plan, as follows:
Section 8A. Option Rights Upon Disability of Optionee. If an optionee
under this Plan ceases to serve as a Director due to "Disability", his
option shall expire one year after the date of such termination of service
unless by its terms it expires sooner. During this one year or shorter
period, the option may be exercised, to the extent that it remains
unexercised on the date of such termination of service, by the optionee or
by his legal guardian on behalf of the optionee. For purposes of this
Section 8A, the term "Disability" shall mean disability as defined under
the then existing insured disability income benefit program maintained by
the Bank of Hawaii, regardless of whether the optionee is covered under
such program.
2. The reference to "death" in Section 7, Plan I, Pacific Century
Financial Corporation Director Stock Option Plan, shall be revised to refer to
the phrase "death or Disability (as described in Section 8A below)".
3. The first sentence, Section 7, Plan II, Pacific Century Financial
Corporation Restricted Share Plan, shall be removed and the following provisions
shall be inserted in lieu thereof:
<PAGE>
The restrictions set forth in Section 3 above relating to the forfeiture or
redemption of restricted shares and Section 4 above relating to the
nontransferability of restricted shares shall lapse and no longer apply
upon the earlier of (a) the expiration of the Restriction Period, (b) the
death of the Director, (c) the cessation of service as a Director due to
"Disability", (d) the occurrence of a "Change in Control" of the Company,
or (e) the removal of the Director from office by stockholders without
cause. A "Disability" shall mean disability as defined under the then
existing insured disability income benefit program maintained by the Bank
of Hawaii, regardless of whether the Director is covered under such
program.
4. The references to "clause (b), (c), or (d) of Section 7 below"
which are contained in Section 3, Plan II, Pacific Century Financial Corporation
Restricted Share Plan, shall be revised to refer to "clause (b), (c), (d), or
(e) of Section 7 below".
To record the adoption of this amendment to the Program, Pacific Century
Financial Corporation has executed this document this 24th day of October, 1997.
PACIFIC CENTURY FINANCIAL
CORPORATION
By /S/ LAWRENCE M. JOHNSON
---------------------------
Its Chief Executive Officer
By /S/ RICHARD J. DAHL
-----------------------------
Its President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.27
<SEQUENCE>12
<FILENAME>0012.txt
<DESCRIPTION>SEPARATION AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.27
SEPARATION AGREEMENT
--------------------
THIS SEPARATION AGREEMENT (the "Agreement") is made and entered into
as of the 22nd day of September, 2000, by and between LAWRENCE M. JOHNSON
("Executive") and PACIFIC CENTURY FINANCIAL CORPORATION, a Delaware corporation
(the "Company").
STATEMENT OF PURPOSE
Executive is employed as an executive officer of the Company and
Executive's employment with the Company and membership on the Company's Board of
Directors will terminate on such date as the Company shall employ a successor to
Executive (the "Date of Termination"). The Company and Executive wish to set out
in this Agreement the termination payments and other benefits that will be
provided to Executive to settle in full all matters relating to Executive's
employment and termination with the Company.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Termination of Employment; Termination Payments.
------------------------------------------------
(a) The Company and Executive acknowledge that Executive shall
serve as the Chief Executive Officer of the Company and shall remain on the
Company's payroll and receive base salary at the current annual rate through the
Date of Termination. In addition, until the Date of Termination Executive shall
continue to participate in all stock option, performance grants, board
<PAGE>
compensation programs, bonus, pension, savings, retirement, profit-sharing,
subscription, or other incentive or deferred compensation plans of the Company,
as well as any welfare and benefit plans, practices, policies and programs of
the Company in accordance with their respective terms in which Executive
participates as of the date hereof.
(b) Upon the Date of Termination, Executive shall receive a
lump-sum payment of $2,940,000.
2. Incentive Plan Continuation. Executive will continue participation
---------------------------
in the Company's 2000 1-year Incentive Plan and in the Company's 1998, 1999, and
2000, 3-year Incentive Plans per plan specifications.
3. Defined Benefit Plans. Executive currently participates in the
---------------------
Employees' Retirement Plan of Bank of Hawaii (the "Retirement Plan") and the
Excess Benefit Plan. In the year immediately following the Date of Termination,
Executive shall be entitled to receive a pension benefit under the Retirement
Plan and the Excess Benefit Plan. For purposes of each of these plans, Executive
shall receive age and service credit through age 62 whether through such plans
or otherwise.
4. Money Purchase and Profit Sharing Plans. Executive shall be
---------------------------------------
eligible to receive the Profit Sharing Plan, Excess Profit Sharing Plan, Money
Purchase Plan, and Excess Money Purchase Plan contributions for the year in
which the Date of Termination occurs.
5. Continuation of Medical and Dental Benefits; Retiree Medical. The
-------------------------------------------
Company shall continue to provide Executive and his current spouse with medical
and dental benefits on the basis such benefits are currently provided until
Executive attains age 62. After Executive attains age
<PAGE>
62, Executive and his current spouse shall be provided with retiree medical
benefits in accordance with the terms and provisions of the Company's retiree
medical plan.
6. Stock Awards. Executive has been awarded options to purchase the
------------
Company's common stock under the Company's Stock Option Plan of 1994 (the "1994
Plan") and the Company's Stock Option Plan of 1988 (the "1988 Plan").
Non-qualified stock options (NSO's) granted under the 1994 Plan and exercisable
on the Date of Termination shall remain exercisable for a period of five years
following the Date of Termination, but not longer than the exercise period, in
accordance with the terms of the 1994 Plan. NSO's granted under the 1988 Plan
and exercisable on the Date of Termination shall remain exercisable for a period
of one year following the Date of Termination, but not longer than the exercise
period, in accordance with the terms of the 1988 Plan. Executive's incentive
stock options (ISO's) granted under the 1994 and 1988 Plan will be disqualified
and be treated as NSO's as provided above.
7. Life Insurance and Supplemental Life Insurance.
-----------------------------------------------
(a) Beginning in the year following the Date of Termination, the
Company shall provide Executive with Basic Life Insurance in the amount of
$50,000. Each succeeding year, the amount of coverage shall be reduced by 15%.
After the fourth year of coverage, the coverage shall remain constant at
$20,000, subject to no further reductions.
(b) Following the Date of Termination, Executive shall also have
the right to continue his Supplemental Life Insurance in the amount of $100,000.
Each succeeding year,
<PAGE>
the amount of coverage shall be reduced by 15%. After the fourth year of
coverage, the Supplemental Life Insurance will terminate.
8. Additional Benefits. In addition to the foregoing, the Company
-------------------
agrees that, until Executive attains age 70, the Company will provide and
maintain Executive with a furnished office in downtown Honolulu, parking space,
and part-time (20 hours per week) executive secretary and will continue to
provide the security system including security gate installed at Executive's
current residence, but not any replacement residence. The Company will provide
the services of a security officer (currently David Oyama) to respond to alarms
at Executive's residence and to provide miscellaneous services such as drop off
and pick up at airport. Security officer services are not to exceed 10 hours per
month.
9. Tax Withholding and Reporting. The Company shall be entitled to
-----------------------------
withhold from the benefits and payments described herein any and all taxes
required to be withheld by applicable law.
10. Release of the Company. Executive, on behalf of himself and his
----------------------
heirs, personal representatives, successors and assigns, hereby releases and
forever discharges the Company, its affiliates, and each and every one of their
respective present and former directors, officers, employees, agents, successors
and assigns from and against any and all claims, demands, damages, actions,
causes of action, costs and expenses, which Executive now has, may ever have had
or may have hereafter upon or by reason of any matter, cause or thing occurring,
done or omitted to be done prior to the date of this Agreement, including
without limitation all
<PAGE>
"Employment-Related Claims" and all rights and claims Executive has or might
have under the Worker Adjustment and Retraining Notification Act, the Age
Discrimination in Employment Act of 1967, as amended ("ADEA"), Title VII of the
Civil Rights amended, and the Americans with Disabilities Act of 1990, as
amended. For purposes of this Agreement, "Employment-Related Claims" means all
rights and claims Executive has or may have related to his employment by or
status as an employee, officer or director of the Company or any of its
affiliates or the termination of that employment or status or to any employment
practices and policies of the Company or its affiliates.
Executive acknowledges and agrees that he has read this release in its
entirety and that this release is a general release of all known and unknown
claims, including rights and claims arising under ADEA. Executive further
acknowledges and agrees that:
(a) This release does not release, waive or discharge any rights or
claims that may arise for actions or omissions after the date of
this Agreement;
(b) Executive is entering into this Agreement and releasing, waiving
and discharging rights or claims only in exchange for
consideration which he is not already entitled to receive;
(c) Executive has been advised, and is being advised by this release,
to consult with an attorney before executing this Agreement;
(d) Executive has been advised, and is being advised by this release,
that he has up to twenty-one (21) days within which to consider
this release; and
(e) Executive is aware that this release will not become effective or
enforceable until seven (7) days following his execution of this
Agreement and that he may revoke this release at any time during
such period by delivering (or causing to be delivered) to the
Company at the address provided in Paragraph 11 hereof written
notice of his revocation of this release no later than 5:00 p.m.
eastern time on the seventh (7th) full date following his
execution of this Agreement.
<PAGE>
11. Release of Executive. In consideration of Executive's entering
--------------------
into this Agreement, the Company, for itself, its affiliates and their
respective predecessors, successors and assigns hereby releases and forever
discharges Executive from and against any and all claims, demands, damages,
actions, causes of action, costs and expenses, of whatever kind or nature, in
law, equity or otherwise, which the Company or any of said entities now has, may
ever have had or may have hereafter upon or by reason of any matter, cause or
thing occurring, done or omitted to be done prior to the date of this Agreement,
including without limitation all rights and claims the Company or any of said
entities or any third parties have or might have as a result of Executive's
status as an officer, director or employee of the Company or any of said
entities or the termination of that status; provided, however that this release
-------- -------
shall not apply to any claims the Company may have which arise out of or relate
to (a) the conviction of Executive for the commission of a felony involving
dishonesty with respect to the Company, its affiliates or their respective
predecessors or (b) gross and willful misconduct by Executive that is
demonstrably and materially injurious to the Company, its affiliates or their
respective predecessors, whether monetarily or otherwise. For purposes of this
Paragraph 11, no act or failure to act on Executive's part shall be considered
"willful" unless done or failed to be done by Executive in bad faith and without
reasonable belief that Executive's action or omission was in the best interest
of the Company. As of the date of this Agreement, the Company has no knowledge
of any potential claims against Executive arising out of any of the events
described in (a) or (b) above.
12. Confidentiality. Executive hereby covenants and agrees to keep in
---------------
full confidence all information concerning this Agreement except (i) to the
extent disclosure is or may be required by applicable law or (ii) to the extent
disclosure to Executive's legal counsel and
<PAGE>
personal financial advisors is reasonably necessary in connection with
Executive's consideration of the terms of this Agreement or Executive's personal
financial dealings. Executive acknowledges and agrees that the Company shall be
entitled to enforce specifically the covenant in this Paragraph 12 by seeking an
injunction against Executive in addition to any other remedies available to the
Company at law or in equity.
13. Non-competition and Non-solicitation. Executive agrees that,
------------------------------------
during Executive's employment and for a period of one year following the Date of
Termination (the "Protected Period"), Executive will not, without the written
consent of the Company, engage in any business of, or enter the employ of, or
have any interest in, directly or indirectly, any other person, firm,
corporation or other entity engaged in any business of the Company. Nothing
herein shall restrict Executive from owning 2% or less of the outstanding
securities of any corporation or other entity whose securities are listed on any
national securities exchange or traded over-the-counter, if Executive has no
other connection or relationship with the issuer of such securities. During the
Protected Period, the Executive agrees not directly or indirectly to solicit for
employment other than employment as Executive's executive secretary any person
employed by the Company or its affiliates or solicit any client or customer of
the Company or its affiliates at the Date of Termination or six months prior
thereto.
14. Notices. All notices, requests, demands or other communications
-------
under this Agreement shall be in writing and shall be deemed to have been duly
given when delivered in person or deposited in the United States mail, postage
prepaid, by registered or certified mail, return receipt requested, to the party
to whom such notice is being given as follows:
<PAGE>
As to Executive: Lawrence M. Johnson
3833 Old Pali Road
Honolulu, Hawaii 96817
As to the Company: Pacific Century Financial Corporation
P. O. Box 2900
Honolulu, Hawaii 96846
Attention: Director of Human Resources
Either party may change his or its address or the name of the person to whose
attention the notice or other communication shall be directed from time to time
by serving notice thereof upon the other party as provided herein.
15. Miscellaneous. This Agreement, and the rights and obligations of
-------------
the parties hereto, shall be governed by and construed in accordance with the
laws of the State of Hawaii. If any provision hereof is unenforceable, such
provision shall be fully severable, and this Agreement shall be construed and
enforced as if such unenforceable provision had never comprised a part hereof,
the remaining provisions hereof shall remain in full force and effect, and the
court construing the Agreement shall add as a part hereof a provision as similar
in terms and effect to such unenforceable provision as may be enforceable, in
lieu of the unenforceable provision. No representations, inducements, promises
or agreements, oral or otherwise, which are not embodied herein, shall be of any
force or effect. As used in this Agreement, the term "affiliate" means a
corporation which is a member of the same controlled group of corporations
(within the meaning of Section 1563(a) of the Code) as the Company. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, personal representatives, successors and assigns.
<PAGE>
IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company has caused this Agreement to be executed by its duly
authorized representative, all as of the date first above written.
Witness:
September 21, 2000 /S/ LAWRENCE M. JOHNSON
- -------------------------------- ------------------------------
Lawrence M. Johnson
PACIFIC CENTURY FINANCIAL
CORPORATION
By: /S/ MARY G. BITTERMAN
--------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.28
<SEQUENCE>13
<FILENAME>0013.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.28
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and among Pacific Century Financial Corporation, a
Delaware corporation (the "Company") and Michael E. O'Neill (the "Executive")
dated as of the 3rd day of November, 2000.
1. Employment Period. The Company hereby agrees to employ the
-----------------
Executive, and the Executive hereby agrees to enter into the employ of the
Company, subject to the terms and conditions of this Agreement until such time
as such employment is terminated hereunder.
2. Terms of Employment. (a) Position and Duties. (i) the Executive
------------------- -------------------
shall serve as Chairman of the Board of Directors of the Company and as Chief
Executive Officer of the Company and of Bank of Hawaii, with such authority,
duties and responsibilities as are commensurate and consistent with such
position and (ii) the Executive's services shall be performed primarily at the
Company's office in Honolulu, Hawaii.
(b) Compensation. (i) Base Salary. The Executive shall receive a base
------------ -----------
salary at an annual rate of $900,000, subject to annual review (the "Annual Base
Salary").
(ii) Annual Bonus. The Executive shall be eligible for an annual
------------
bonus, as determined by the Compensation Committee of the Board, provided that
the Executive shall receive a bonus of $600,000 on the first anniversary of the
date hereof.
(iii) Stock Incentives. On the date hereof, the Company shall
----------------
grant the Executive a nonqualified stock option to acquire that number of shares
of common stock of the Company that have a fair market value of $30 million
based on the closing price (the "Closing Price") of the Company's common stock
on the New York Stock Exchange on the date hereof (the "Option"). The Option
shall have a per share exercise price equal to the Closing Price and shall vest
in three equal annual installments on the first three anniversaries on the date
of grant, subject to acceleration as provided herein. The Option shall become
immediately exercisable upon a Change of Control of the Company (as defined in
the Company's Stock Option Plan). The Option shall have a ten year term and
shall remain exercisable for the full term unless the Executive's employment is
tenninated by the Company for Cause or by the Executive without Good Reason.
(iv) Other Employee Benefit Plans and Expenses. The Executive
-----------------------------------------
shall be entitled to participate in all employee benefit, welfare and other
plans, practices, policies and programs generally applicable to similarly
situated executives of the Company as in effect from time to time. The Company
shall reimburse the Executive on an after-tax basis for all reasonable
relocation expenses incurred in moving to Honolulu and shall pay for the
Executive's accommodation on an after-tax basis until such time as the Executive
finds a permanent residence, provided that the Company shall not be required to
pay for such accommodation for more than 90 days.
3. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the
<PAGE>
Executive written notice in accordance with Section 9(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive calendar days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or the Executive's
legal representative.
(b) Cause. The Company may terminate the Executive's employment for
-----
Cause or without Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of
its affiliated companies (other than any such failure resulting
from incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to the
Executive by the Board of Directors of the Company (the "Board")
which specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct, which is materially and demonstrably injurious to the Company
or any of its affiliated companies, or
(iii) conviction of a felony or guilty or nolo contendere plea by
the Executive with respect thereto.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board of Directors of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the Company
and its affiliated companies. The cessation of employment of the Executive shall
not be deemed to be for Cause unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote of
not less than two-thirds of the entire membership of the Board of Directors of
the Company at a meeting of such Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in subparagraph (i) or (ii) above, and specifying the particulars
thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean in the absence of a written consent of the Executive:
<PAGE>
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 2(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 2(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any
office or location outside of Honolulu, Hawaii;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 8(c) of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
---------------------
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 9(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein within 30 days of such notice, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
4. Obligations of the Company Upon Termination. (a) Good Reason;
------------------------------------------- -----------
Other Than for Cause, Death or Disability. If, during the Employment Period, the
- -----------------------------------------
Company shall terminate the Executive's employment other than for Cause, death
or Disability or the Executive shall terminate employment for Good Reason:
<PAGE>
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the Executive's Annual Base
Salary through the Date of Termination to the extent not theretofore paid
("Accrued Base Salary");
(ii) the Option shall vest and shall become immediately
exercisable and shall remain exercisable until the tenth anniversary of the date
of grant; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice of, or contract or agreement with,
the Company or its affiliated companies through the Date of Termination (such
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Base Salary and the
timely payment or provision of Other Benefits. Accrued Base Salary shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall
include death benefits as in effect on the date of the Executive's death
generally with respect to similarly situated executives of the Company. In
addition, the Option shall vest and shall become immediately exercisable until
the tenth anniversary of the date of grant.
(c) Disability. If the Executive's employment is terminated by reason
----------
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Base Salary and the timely payment or provision of Other Benefits.
Accrued Base Salary shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 4(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability benefits as in effect on the Disability Effective Date
generally with respect to similarly situated executives of the Company. In
addition, the Option shall vest and shall become immediately exercisable and
shall remain exercisable until the tenth anniversary of the date of grant.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination and (y)
Other Benefits, in each case to the extent theretofore unpaid.
5. Full Settlement. The Company's obligation to make the payments
---------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent
<PAGE>
permitted by law, all legal fees and expenses which the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
6. Certain Additional Payments by the Company. (a) Anything in this
------------------------------------------
Agreement to the contrary notwithstanding and except as set forth below, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 6(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Payments do not exceed 110% of the greatest
amount (the "Reduced Amount") that could be paid to the Executive such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the aggregate, shall
be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 6(c), all determinations
required to be made under this Section 6, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by such
certified public accounting firm reasonably acceptable to the Executive as may
be designated by the Company (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-
Up Payment, as determined pursuant to this Section 6, shall be paid by the
Company to the Executive within five days of (i) the later of the due date for
the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 6(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-
<PAGE>
Up Payment. Such notification shall be given as soon as practicable but no later
than ten business days after the Executive is informed in writing of such claim
and shall apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid. The Executive shall not pay such claim prior
to the expiration of the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 6(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 6(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 6(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by
<PAGE>
the Company pursuant to Section 6(c), a determination is made that the Executive
shall not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
7. Confidential Information. (a) The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it.
(b) In the event of a breach or threatened breach of this Section 7,
the Executive agrees that the Company shall be entitled to injunctive relief in
a court of appropriate jurisdiction to remedy any such breach or threatened
breach, the Executive acknowledges that damages would be inadequate and
insufficient.
(c) Any termination of the Executive's employment or of this
Agreement shall have no effect on the continuing operation of this Section 7.
8. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company and/or the Parent would be required to perform it if no
such succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to their respective
businesses and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling or
under common control with the Company.
9. Miscellaneous. (a) This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
<PAGE>
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
-------------------
Michael E. O'Neill
22nd Floor, Pacific Century Tower
130 Merchant Street
Honolulu, HI 96813
If to the Company:
-----------------
Pacific Century Financial Corporation
130 Merchant Street
Honolulu, HI 96813
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c) of this Agreement, shall not be deemed to be a waiver
of such provision or right or any other provision or right of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from the Board of Directors of the
Company, has caused these presents to be executed in its name on its behalf, all
as of the day and year first above written.
/S/ MICHAEL E. O'NEILL
-------------------------------
MICHAEL E. O'NEILL
PACIFIC CENTURY FINANCIAL CORPORATION
By /S/ MARY G. BITTERMAN
----------------------------
Name: MARY G. BITTERMAN
Title: LEAD DIRECTOR
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.1
<SEQUENCE>14
<FILENAME>0014.txt
<DESCRIPTION>STATEMENT REGARDING COMPUTATION OF RATIOS
<TEXT>
<PAGE>
Exhibit 12.1
Pacific Century Financial Corporation
Statement Regarding Computation of Ratios
Twelve Months Ended December 31, 2000 and 1999
<TABLE>
<CAPTION>
(in millions of dollars) 2000 1999
<S> <C> <C>
Earnings:
1. Income Before Income Taxes $180.0 $225.7
2. Plus: Fixed Charges Including Interest on Deposits 505.9 453.6
------ ------
3. Earnings Including Fixed Charges 685.9 679.3
4. Less: Interest on Deposits 286.0 261.2
------ ------
5. Earnings Excluding Interest on Deposits $399.9 $418.1
Fixed Charges:
6. Fixed Charges Including Interest on Deposits $505.9 $453.6
7. Less: Interest on Deposits 286.0 261.2
------ ------
8. Fixed Charges Excluding Interest on Deposits $219.9 $192.4
Ratio of Earnings to Fixed Charges:
Including Interest on Deposits (Line 3 divided by Line 6) 1.4 x 1.5 x
Excluding Interest on Deposits (Line 5 divided by Line 8) 1.8 x 2.2 x
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-19.1
<SEQUENCE>15
<FILENAME>0015.txt
<DESCRIPTION>REPORT TO SHAREHOLDERS FOR QUARTER ENDED 9/30/00
<TEXT>
<PAGE>
Exhibit 19.1
To Our Shareholders:
On November 3, 2000, I had the privilege of being appointed by your Board
of Directors as Chairman and CEO of Pacific Century Financial Corporation and
Bank of Hawaii, succeeding retired Chairman and CEO Lawrence M. Johnson. I am
enthusiastic about joining the Pacific Century family of companies and about the
opportunities and potential that exist for our organization. I look forward to
working closely with your Board, the Managing Committee and the staff of Pacific
Century and Bank of Hawaii as we focus on achieving our primary objective:
increasing shareholder value.
I recognize our company faces some immediate challenges, but I am confident
that we are prepared to address these issues in a timely, forceful manner and
successfully put them behind us. It will require creative thinking and concerted
effort by many within the organization to resolve these challenges, but I
believe it is achievable.
Our strategy for improving asset quality includes strengthening our credit
administration and review process, emphasizing discipline and accountability,
increasing education and training, and reducing risk by lowering selected
exposures. We are currently in the process of recruiting a chief credit officer,
and I will be intimately involved in the selection and will work closely with
that person once he/she is on board.
The Managing Committee and I will be reassessing the strategic plan and our
business lines for the next 90 to 120 days. By the end of the first quarter
2001, our plan will be clearly articulated and everything we do as a company
will be a direct function of that comprehensive plan, including the businesses
that we are involved in and the way we manage credit and risk.
On October 17, 2000, your Board of Directors declared a quarterly cash
dividend of 18 cents per share on the outstanding common stock. The dividend
will be payable on December 14, 2000 to shareholders of record at the close of
business on November 24, 2000.
I am pleased to note that during the third quarter, your company
successfully completed its yearlong implementation phase of New Era Redesign and
exceeded the program's expectations for reducing costs and enhancing revenues.
Last year, we projected total benefits would reach an annualized run-rate of $64
million. The actual run-rate benefit at September 30, 2000 totaled $68 million.
The success of New Era implementation clearly demonstrates the diligence,
capability and commitment of Pacific Century's staff.
During the third quarter, Pacific Century Financial Corporation reported
net income of $34.6 million, up 61.1 percent compared to $21.5 million for the
third quarter of 1999, which reflected a pre-tax restructuring charge of $22.5
million related to the company's New Era Redesign program. Diluted earnings per
share were $0.44, up 63.0 percent relative to $0.27 reported for the third
quarter of 1999.
As we bring 2000 to a close, I look forward to the opportunities that lie
ahead. I appreciate your continued confidence and support as we move forward in
becoming a stronger, more efficient, and more shareholder-focused organization.
Sincerely,
/S/ MICHAEL E. O'NEILL
Michael E. O'Neill
Chairman and CEO
<PAGE>
Corporate Offices:
Financial Plaza of the Pacific
130 Merchant Street
Honolulu, Hawaii 96813
Investor or Analyst Inquiries:
Allan R. Landon
Vice Chair and Chief Financial Officer
(808) 538-4727
or
Sharlene K. Bliss
Investor Relations
(808) 537-8037
or
Cori C. Weston
Corporate Secretary
(808) 537-8272
<PAGE>
<TABLE>
<CAPTION>
Highlights (Unaudited) Pacific Century Financial Corporation and subsidiaries
- -----------------------------------------------------------------------------------
9 Months 9 Months
Ended Ended
Sept 30 Sept 30
2000 1999
- -----------------------------------------------------------------------------------
<S> <C> <C>
Return on Average Assets 0.77% 0.87%
- -----------------------------------------------------------------------------------
Return on Average Equity 8.85% 10.55%
- -----------------------------------------------------------------------------------
Net Interest Margin 4.27% 4.27%
- -----------------------------------------------------------------------------------
Average Equity/Average Assets 8.65% 8.25%
- -----------------------------------------------------------------------------------
Book Value Per Common Share $15.72 $15.05
- -----------------------------------------------------------------------------------
Loss Reserve/Loans Outstanding 2.58% 2.22%
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Common Stock Price Range High Low Dividend
<S> <C> <C> <C>
1999 $24.94 $17.38 $0.68
2000 First Quarter $20.38 $14.35 $0.17
Second Quarter $23.19 $14.63 $0.18
Third Quarter $17.50 $13.13 $0.18
</TABLE>
Consolidated Statements of Income (Unaudited)
- ---------------------------------------------
<TABLE>
<CAPTION>
3 Months 3 Months 9 Months 9 Months
Ended Ended Ended Ended
Sept 30 Sept 30 Sept 30 Sept 30
(in thousands of dollars except per share amounts) 2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Interest Income $ 269,270 $ 252,967 $ 789,050 $ 768,470
Total Interest Expense 129,966 109,514 371,632 336,773
- ---------------------------------------------------------------------------------------------------------
Net Interest Income 139,304 143,453 417,418 431,697
Provision for Loan Losses 20,145 13,500 117,074 40,038
- ---------------------------------------------------------------------------------------------------------
Net Interest Income After
Provision for Loan Losses 119,159 129,953 300,344 391,659
Total Non-Interest Income 61,256 71,402 198,748 196,185
Total Non-Interest Expense 124,925 155,593 372,906 422,561
- ---------------------------------------------------------------------------------------------------------
Income Before Income Taxes 55,490 45,762 126,186 165,283
Provision for Income Taxes 20,887 24,283 45,111 69,925
- ---------------------------------------------------------------------------------------------------------
Net Income $ 34,603 $ 21,479 $ 81,075 $ 95,358
- ---------------------------------------------------------------------------------------------------------
Basic Earnings Per Share $ 0.44 $ 0.27 $ 1.02 $ 1.19
Diluted Earnings Per Share $ 0.44 $ 0.27 $ 1.02 $ 1.18
Basic Weighted Average Shares 79,455,040 80,274,350 79,566,807 80,332,150
Diluted Weighted Average Shares 79,525,474 80,860,870 79,791,250 81,116,106
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Consolidated Statements of Condition (Unaudited)
- ------------------------------------------------
<TABLE>
<CAPTION>
September 30 December 31 September 30
(in thousands of dollars) 2000 1999 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Interest-Bearing Deposits $ 185,312 $ 278,473 $ 410,497
Investment Securities
(Market Value of $3,199,402, $3,329,952,
and $3,440,961, respectively) 3,200,874 3,338,554 3,442,273
Securities Purchased Under Agreements to Resell 5,560 0 4,103
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Funds Sold 28,323 52,740 40,726
Loans 9,750,661 9,717,556 9,746,581
Unearned Income (272,219) (242,503) (213,798)
Reserve for Loan Losses (244,966) (194,205) (211,306)
Net Loans 9,233,476 9,280,848 9,321,477
- --------------------------------------------------------------------------------------------------
Total Earning Assets 12,653,545 12,950,615 13,219,076
Cash and Non-Interest Bearing Deposits 438,312 639,895 417,142
Premises and Equipment 251,240 271,728 281,512
Other Assets 596,764 578,077 587,631
- --------------------------------------------------------------------------------------------------
Total Assets $13,939,861 $14,440,315 $14,505,361
- --------------------------------------------------------------------------------------------------
Liabilities
Deposits $ 8,820,668 $ 9,394,218 $ 9,290,389
Securities Sold Under Agreements
to Repurchase 1,791,983 1,490,655 1,916,747
Funds Purchased 377,069 839,962 628,212
Short-Term Borrowings 365,407 458,962 335,416
Other Liabilities 334,929 316,531 331,284
Long-Term Debt 999,736 727,657 794,814
- --------------------------------------------------------------------------------------------------
Total Liabilities 12,689,792 13,227,985 13,296,862
Shareholders' Equity
Common Stock ($.01 par value), authorized 500,000,000 shares;
issued / outstanding; September 2000 - 80,556,883 /79,503,301;
December 1999 - 80,550,728 / 80,036,417
September 1999 - 80,550,124 / 80,308,130; 806 806 806
Capital Surplus 346,016 345,851 345,477
Accumulated Other Comprehensive Income (56,620) (66,106) (52,525)
Retained Earnings 979,007 942,177 919,664
- --------------------------------------------------------------------------------------------------
Treasury Stock, at Cost -
(September 2000 - 1,053,582; December 1999 - 514,311
and September 1999 - 241,994 shares) (19,140) (10,398) (4,923)
- --------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,250,069 1,212,330 1,208,499
- --------------------------------------------------------------------------------------------------
Total Liabilities
and Shareholders' Equity $13,939,861 $14,440,315 $14,505,361
- --------------------------------------------------------------------------------------------------
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>16
<FILENAME>0016.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
<PAGE>
Exhibit 21.1
PACIFIC CENTURY FINANCIAL CORPORATION
SUBSIDIARIES OF THE REGISTRANT
The required information with respect to subsidiaries of Pacific Century
Financial Corporation at December 31, 2000 is provided below. All domestic
subsidiaries are wholly owned except for those entities for which directors own
qualifying shares. Each entity is consolidated with its immediate parent company
except as noted.
PACIFIC CENTURY FINANCIAL CORPORATION (Parent)
Bank Holding Company
Subsidiaries:
FIRST SAVINGS & LOAN ASSOCIATION OF AMERICA, F.S.A. (Guam)
Federally Chartered
PACIFIC CENTURY BANK, N.A.
California
PACIFIC CENTURY SMALL BUSINESS INVESTMENT COMPANY, INC.
Hawaii
BANCORP HAWAII CAPITAL TRUST I
Delaware
BANK OF HAWAII
Subsidiaries:
Bank of Hawaii International Corp., New York - (Edge Act Office)
New York
Bank of Hawaii International, Inc. - (Foreign Holding Company)
Hawaii
<PAGE>
Subsidiaries/Affiliates:
Bank of Hawaii-Nouvelle Caledonie (95.8%)
New Caledonia
Bank of Hawaii (PNG) Ltd. (100%)
Papua New Guinea
Banque de Tahiti (95.4%)
French Polynesia
Banque d'Hawaii (Vanuatu), Ltd. (100%)
Vanuatu
National Bank of Solomon Islands (51%)*
Solomon Islands
Pacific Century Investment Services, Inc.
Hawaii
Pacific Century Insurance Services, Inc.
Hawaii
Bankoh Corporation (fka Hawaiian Hong Kong Holdings, Ltd.)
Hawaii
Pacific Century Advisory Services, Inc. - (Advisory Services)
Hawaii
Pacific Century Leasing, Inc. (Parent) - (Leasing)
Hawaii
Subsidiaries:
BNE Airfleets Corporation
Barbados
Pacific Century Leasing International, Inc.
Delaware
S.I.L., Inc.
Delaware
Coach Finance Company, LLC
Delaware
Pacific Century Life Insurance Corporation
Arizona
<PAGE>
Triad Insurance Agency, Inc.
Hawaii
Bank of Hawaii Insurance Services, Inc.
Hawaii
* Accounted for under the equity method
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>17
<FILENAME>0017.txt
<DESCRIPTION>CONSENT OF INDEPENDENT AUDITORS
<TEXT>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements
(Form S-8 Nos. 2-96329, 33-29872, 2-63615, 2-84164, 33-23495, 33-49836,
33-54777, 33-57267, 333-02835, 333-14929 and 333-80127), (Form S-3 Nos.
33-25036, 33-44395 and 33-54775) and (Form S-4 Nos. 333-22497, 333-22497-01 and
333-24379) of Pacific Century Financial Corporation and subsidiaries of our
report dated January 26, 2001, with respect to the consolidated financial
statements of Pacific Century Financial Corporation and subsidiaries included in
this Annual Report on Form 10-K for the year ended December 31, 2000.
/s/ ERNST & YOUNG LLP
Honolulu, Hawaii
March 6, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----