U N I T E D   S T A T E S

                 SECURITIES AND EXCHANGE COMMISSION

                      Washington, D.C.  20549

                            FORM 10-Q

  (Mark One)

[ X ]         Quarterly Report Pursuant to Section 13 or 15(d) of the
              Securities Exchange Act of 1934 for the quarterly period
              ended June 30, 1997

                                 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)

            Hawaii                          99-0148992
   ------------------------     ---------------------------------
   (State of incorporation)     (IRS Employer Identification No.)

 130 Merchant Street, Honolulu, Hawaii                    96813
- ----------------------------------------               ----------
(Address of principal executive offices)               (Zip Code)

                          (808) 643-3888
       ----------------------------------------------------
       (Registrant's telephone number, including area code)

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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

Common Stock, $2 Par Value; outstanding at July 31, 1997 -
40,143,980 shares

PACIFIC CENTURY FINANCIAL CORPORATION and subsidiaries
June 30, 1997




PART I. - Financial Information

Item 1.         Financial Statements


Consolidated Statements of Condition (Unaudited)              Pacific Century Financial Corporation and subsidiaries
- --------------------------------------------------------------------------------------------------------------------
June 30 December 31 June 30 (in thousands of dollars) 1997 1996 1996 - -------------------------------------------------------------------------------------------------------------------- Assets Interest-Bearing Deposits $562,215 $635,519 $638,204 Investment Securities - Held to Maturity (Market Value of $1,281,545, $1,261,146 and $1,288,816 respectively 1,279,349 1,258,756 1,296,708 Investment Securities - Available for Sale 2,411,882 2,372,897 2,201,538 Securities Purchased Under Agreements to Resell 1,600 -- -- Funds Sold 85,758 141,920 218,628 Loans 9,018,809 8,699,286 8,549,043 Unearned Income (197,967) (183,586) (177,225) Reserve for Possible Loan Losses (167,842) (167,795) (163,266) - -------------------------------------------------------------------------------------------------------------------- Net Loans 8,653,000 8,347,905 8,208,552 - -------------------------------------------------------------------------------------------------------------------- Total Earning Assets 12,993,804 12,756,997 12,563,630 Cash and Non-Interest Bearing Deposits 484,239 581,221 482,067 Premises and Equipment 272,080 273,122 271,762 Customers' Acceptance Liability 19,856 21,178 21,759 Accrued Interest Receivable 90,151 88,074 85,910 Other Real Estate 11,632 10,711 9,571 Intangibles, including Goodwill 112,734 96,456 96,971 Trading Securities 2,157 1,687 1,192 Other Assets 182,093 179,721 157,292 - -------------------------------------------------------------------------------------------------------------------- Total Assets $14,168,746 $14,009,167 $13,690,154 ==================================================================================================================== Liabilities Domestic Deposits Demand - Non-Interest Bearing $1,358,368 $1,435,091 $1,295,882 - Interest-Bearing 1,814,164 1,724,105 1,612,901 Savings 822,200 866,453 931,286 Time 2,738,374 2,571,569 2,517,056 Foreign Deposits Demand - Non-Interest Bearing 329,482 553,274 299,697 Time Due to Banks 736,212 804,818 769,256 Other Savings and Time 1,129,991 728,769 996,743 - -------------------------------------------------------------------------------------------------------------------- Total Deposits 8,928,791 8,684,079 8,422,821 Securities Sold Under Agreements to Repurchase 2,146,713 2,075,571 1,695,907 Funds Purchased 471,956 599,994 600,232 Short-Term Borrowings 478,134 293,257 499,580 Bank's Acceptances Outstanding 19,856 21,178 21,759 Accrued Pension Costs 19,440 17,309 23,451 Accrued Interest Payable 56,684 69,545 70,629 Accrued Taxes Payable 155,672 154,984 145,427 Minority Interest 7,466 9,307 17,057 Other Liabilities 100,232 85,678 86,166 Long-Term Debt 701,633 932,143 1,057,225 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities 13,086,577 12,943,045 12,640,254 Shareholders' Equity Common Stock ($2 par value), authorized 100,000,000 shares; outstanding, June 1997 - 39,363,421; December 1996 - 39,959,234; June 1996 - 40,830,130; 78,727 79,918 81,660 Surplus 160,375 186,391 221,897 Unrealized Valuation Adjustments (7,836) (3,722) (15,760) Retained Earnings 850,903 803,535 762,103 - -------------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 1,082,169 1,066,122 1,049,900 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $14,168,746 $14,009,167 $13,690,154 ====================================================================================================================
Consolidated Statements of Income (Unaudited) Pacific Century Financial Corporation and subsidiaries - --------------------------------------------------------------------------------------------------------------------
3 Months 3 Months 6 Months 6 Months Ended Ended Ended Ended June 30 June 30 June 30 June 30 (in thousands of dollars except per share amounts) 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------------------------------- Interest Income Interest on Loans $172,647 $166,410 $338,972 $322,848 Loan Fees 7,366 8,283 16,736 16,577 Income on Lease Financing 8,948 6,640 17,324 9,674 Interest and Dividends on Investment Securities Taxable 20,916 14,545 40,705 29,161 Non-taxable 286 298 578 609 Income on Investment Securities Available for Sale 38,546 36,481 77,547 74,050 Interest on Deposits 9,470 10,842 19,139 20,654 Interest on Security Resale Agreements 22 -- 85 -- Interest on Funds Sold 736 916 1,624 2,078 - -------------------------------------------------------------------------------------------------------------------- Total Interest Income 258,937 244,415 512,710 475,651 Interest Expense Interest on Deposits 80,560 70,360 157,457 133,362 Interest on Security Repurchase Agreements 28,399 24,582 55,032 49,925 Interest on Funds Purchased 5,493 7,352 11,793 14,718 Interest on Short-Term Borrowings 4,960 5,328 8,863 11,472 Interest on Long-Term Debt 11,128 15,587 22,529 31,982 - -------------------------------------------------------------------------------------------------------------------- Total Interest Expense 130,540 123,209 255,674 241,459 Net Interest Income 128,397 121,206 257,036 234,192 Provision for Possible Loan Losses 7,286 4,163 12,374 8,587 - -------------------------------------------------------------------------------------------------------------------- Net Interest Income After Provision for Possible Loan Losses 121,111 117,043 244,662 225,605 Non-Interest Income Trust Income 12,742 11,814 26,109 24,718 Service Charges on Deposit Accounts 6,518 6,793 13,198 12,784 Fees, Exchange, and Other Service Charges 17,538 14,023 32,193 26,552 Other Operating Income 7,913 8,264 14,449 13,928 Investment Securities Gains (Losses) 1,549 67 2,012 (62) - -------------------------------------------------------------------------------------------------------------------- Total Non-Interest Income 46,260 40,961 87,961 77,920 Non-Interest Expense Salaries 40,047 40,899 81,525 77,519 Pensions and Other Employee Benefits 12,426 12,071 27,510 25,480 Net Occupancy Expense of Premises 11,218 8,662 21,555 19,444 Net Equipment Expense 9,661 8,797 18,693 16,554 Other Operating Expense 38,610 32,857 72,024 61,711 Minority Interest 392 501 712 657 - -------------------------------------------------------------------------------------------------------------------- Total Non-Interest Expense 112,354 103,787 222,019 201,365 - -------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 55,017 54,217 110,604 102,160 Provision for Income Taxes 19,411 19,604 39,517 34,837 - -------------------------------------------------------------------------------------------------------------------- Net Income $35,606 $34,613 $71,087 $67,323 ==================================================================================================================== Earnings Per Common Share and Common Share Equivalents $0.89 $0.84 $1.77 $1.63 - -------------------------------------------------------------------------------------------------------------------- Average Common Shares and Common Share Equivalents Outstanding 39,885,681 41,276,498 40,057,959 41,411,266 - --------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity (Unaudited) Pacific Century Financial Corporation and subsidiaries - --------------------------------------------------------------------------------------------------------------------
Common Unrealized Retained (in thousands of dollars except per share amounts) Total Stock Surplus Valuation Adj. Earnings - -------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1996 $1,066,122 $79,918 $186,391 ($3,722) $803,535 Net Income 71,087 - - - 71,087 Sale of Common Stock 57,643 Profit Sharing Plan 2,552 115 2,437 - - 131,711 Stock Option Plan 3,451 263 3,188 - - 72,163 Dividend Reinvestment Plan 3,283 145 3,138 - - 770 Directors' Restricted Shares and Deferred Compensation Plan 34 2 32 - - Stock Repurchased (36,527) (1,716) (34,811) - - Unrealized Valuation Adjustments Investment Securities (1,434) - - (1,434) - Foreign Exchange Translation Adjustment (2,680) - - (2,680) - Cash Dividends Paid of $.60 Per Share (23,719) - - - (23,719) - -------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1997 $1,082,169 $78,727 $160,375 ($7,836) $850,903 ==================================================================================================================== Balance at December 31, 1995 $1,054,436 $82,682 $240,080 $13,902 $717,772 Net Income 67,323 - - - 67,323 Sale of Common Stock 35,803 Profit Sharing Plan 1,231 72 1,159 - - 151,216 Stock Option Plan 3,549 302 3,247 - - 92,394 Dividend Reinvestment Plan 3,634 184 3,450 - - 1,800 Restricted Share Plan 64 4 60 - - Stock Repurchased (27,683) (1,584) (26,099) - - Unrealized Valuation Adjustments Investment Securities (22,349) - - (22,349) - Foreign Exchange Translation Adjustment (7,313) - - (7,313) - Cash Dividends Paid of $.56 Per Share (22,992) - - - (22,992) - -------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1996 $1,049,900 $81,660 $221,897 ($15,760) $762,103 ==================================================================================================================== /TABLE Consolidated Statements of Cash Flows (Unaudited) Pacific Century Financial Corporation and subsidiaries - -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30 (in thousands of dollars) 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Activities Net Income $71,087 $67,323 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses, depreciation, and amortization of income and expense 11,683 6,935 Deferred income taxes 6,281 (1,704) Realized and unrealized investment security gains (1,971) 94,067 Net decrease in trading securities (470) 1,163 Other assets and liabilities, net (13,725) 19,810 ----------- --------- Net cash provided by operating activities 72,885 187,594 - ----------------------------------------------------------------------------------------------------------------------------------- Investing Activities Proceeds from redemptions of investment securities held to maturity 59,641 419,088 Purchases of investment securities held to maturity (32,765) (548,108) Proceeds from sales of investment securities available for sale 304,648 527,659 Purchases of investment securities available for sale (344,052) (645,939) Net decrease in interest-bearing deposits placed in other banks 74,162 355,537 Net decrease (increase) in funds sold 54,562 (102,455) Net increase in loans and lease financing (274,587) 241,710 Premises and equipment, net (12,380) (21,936) Purch of addtnl int, net of cash and non-int deposits, Credipac Polynesie and Credipac Nouvelle Caledonie -- 1,291 Purchase of majority interest of Banque de Tahiti & New Caledonie net of cash and non-interest bearing deposits acquired -- 23,892 Purchase of Bank of Hawaii (PNG), Ltd., net of cash and non-interest bearing deposits acquired (5,371) -- Purchase of Home Savings of America branches, net of cash and non-interest bearing deposits acquired 235,020 -- ----------- --------- Net cash provided by investing activities 58,878 250,739 - ----------------------------------------------------------------------------------------------------------------------------------- Financing Activities Net increase in demand, savings, and time deposits (72,584) 25,549 Proceeds from lines of credit and long-term debt 14,207 571,293 Principal payments on lines of credit and long-term debt (244,717) (577,504) Net increase (decrease) in short-term borrowings 127,955 (395,125) Net proceeds from sale (repurchase) of stock (27,207) (19,205) Cash dividends (23,719) (22,992) ----------- --------- Net cash used by financing activities (226,065) (417,984) Effect of exchange rate changes on cash (2,680) (7,313) ----------- --------- Decrease in cash and non-interest bearing deposits (96,982) 13,036 Cash and non-interest bearing deposits at beginning of year 581,221 469,031 ----------- --------- Cash and non-interest bearing deposits at end of period $484,239 $482,067
Note 1. Name Change On April 25, 1997, the company's name was changed from Bancorp Hawaii, Inc. to Pacific Century Financial Corporation ("Pacific Century"). The change was made to better reflect the company's strategic goals to grow in Hawaii and throughout the Pacific and to position it as a full-service financial provider. Bank of Hawaii will maintain its name along with First Federal Savings & Loan Association of America, however, several of the company's other subsidiaries will adopt names with a Pacific Century theme. Note 2. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the consolidated financial statements reflect all adjustments of a normal and recurring nature, including adjustments related to completed acquisitions which are necessary for a fair presentation of the results for the interim periods, and should be read in conjunction with the audited consolidated financial statements and related notes included in Pacific Century's 1996 Annual Report to Shareholders. Operating results for the six months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. Certain reclassifications have been made from prior year amounts to conform to the 1997 presentation. Note 3. Recent Accounting Pronouncements In June 1996, Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" was issued. In the first half of 1997, there was no impact of SFAS No. 125. In accordance with the statement, an entity recognizes the financial assets it controls and the liabilities it has incurred, recognizes when control over financial assets has been surrendered and recognizes when liabilities are extinguished. The statement also requires that servicing assets and other retained interests in the transferred assets be measured by allocating the previous carrying amount between the assets sold, if any, and retained interests, if any, based on their relative fair values at the date of transfer. Servicing assets and liabilities would subsequently be measured by (a) amortization in proportion to and over the period of estimated net servicing income or loss and (b) assessment for asset impairment or increased obligation based on their fair values. The statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. In October 1996 Financial Accounting Standards Board (Board) issued SFAS No. 127 which deferred for one year paragraphs 9-12 (Accounting for Transfers and Servicing of Financial Assets) for securities lending, repurchase agreements, dollar rolls, and other similar secured transactions. The Board also agreed to defer for one year paragraph 15 (Secured borrowings and Collateral) for all transactions. In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" and SFAS No. 129, "Capital Structure". SFAS No. 128 simplifies the calculation of earnings per share (EPS) and makes it comparable to international standards. SFAS No. 129 consolidates the existing guidance from several other pronouncements relating to an entity's capital structure. Under SFAS No. 128 primary EPS is replaced with a calculation called basic EPS. Basic EPS is calculated by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Fully diluted EPS has not changed significantly but has been renamed diluted EPS. Under the new rules, income available to common shareholders should be adjusted for the assumed conversion of all potentially dilutive securities. The treasury stock method is used to calculate the dilutive effect of options and warrants. The treasury stock method is applied using the average market price of the company's common stock during the period rather than the higher of the average market price or the ending market price. The dilutive effect of convertible debt or convertible preferred stock will be calculated using the if- converted method, which assumes conversion at the beginning of the period if the effect is dilutive. SFAS No. 128 is effective for both interim and annual financial statements for periods ending after December 15, 1997. Earlier application is not permitted. Under SFAS No. 128, basic EPS for the second quarter would have been $0.90 and dilutive EPS $0.89. For the year-to-date, the basic and dilutive EPS would have been $1.80 and $1.77, respectively. Note 4. Mergers and Acquisitions In February 1997, Bank of Hawaii International Inc. acquired 100% of the Indosuez Niugini Bank, Ltd. from Indosuez Bank, Ltd. for approximately $5.6 million. Indosuez Niugini Bank, Ltd. has been renamed Bank of Hawaii (PNG), Ltd. At June 30, 1997 the Bank had approximately $93 million in total assets. As a result of the acquisition the Bank recognized $2.5 million in goodwill and will amortize it over 15 years. The acquisition was accounted for as a purchase. In March 1997, Pacific Century Bank, N.A. (PCB), a wholly- owned subsidiary of Pacific Century purchased approximately $254 million in deposits from Home Savings' Arizona operations. As a result of the purchase, PCB now has a combined total of ten branches servicing customers in the greater Phoenix vicinity, Tucson and Yuma, Arizona. Pacific Century paid approximately $19.7 million for the core deposit base, deposit premium intangibles and other items. On February 24, 1997, Pacific Century announced the signing of a definitive agreement for Pacific Century to acquire CU Bancorp and its subsidiary bank, California United Bank. California United Bank has 21 branches in Southern California. The transaction received all regulatory approvals and was approved by shareholders on June 27, 1997. On July 3, 1997, the transaction was closed with Pacific Century common shares exchanged for approximately 60% of CU Bancorp shares at the rate of 0.3278 Pacific Century shares for every CU Bancorp share. Remaining CU Bancorp shareholders electing to take cash in exchange for their shares. The transaction will be accounted for using the purchase method with California United Bank becoming a wholly-owned subsidiary of Pacific Century. Note 5. Income Taxes The provision for income taxes is computed by applying statutory federal and state income tax rates to income before income taxes as reported in the financial statements after deducting non-taxable items, principally from state taxes, net of federal income tax and foreign tax adjustments, low income housing and investment tax credits and tax exempt interest income. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Review Performance Highlights Pacific Century Financial Corporation (Pacific Century) reported earnings for the second quarter of 1997 of $35.6 million, 2.9% above earnings for the second quarter of 1996. On a per share basis, earnings were $0.89 for the second quarter of 1997, an increase from the $0.84 reported for the second quarter of 1996, and from the $0.88 reported for the first quarter of 1997. For the six months ended June 30, 1997, Pacific Century reported net income of $71.1 million, 5.6% above that for the same period in 1996. Earnings per share were $1.77 for the first half of 1997, compared with $1.63 for the same period in 1996. Earnings growth reflects the economy in Hawaii, Pacific Century's main market, the improvement in Pacific Century's net interest margin, and the effect of the acquisition of the majority interest of Banque de Tahiti (BDT) and Banque de Nouvelle Caledonie (BNC) recognized in the second quarter of 1996. With the increased ownership, Pacific Century's consolidated financial statements included the balance sheet of BDT and BNC since June 30, 1996 and earnings from May 2, 1996, the acquisition date. Earnings comparisons with prior periods should consider this change. Performance ratios for the year-to-date period improved over those reported for the year ended December 31, 1996. Return on average assets and return on average equity were 1.04% and 13.37%, respectively, for the first half of 1997. These ratios were 1.04% and 12.70%, respectively, for the like period in 1996 and 0.99% and 12.43%, respectively, for all of 1996. Total assets ended June 30, 1997 at $14.2 billion, an increase from $14.0 billion at December 31, 1996 and $13.7 billion at June 30, 1996. Net loans outstanding increased from June 30, 1996 and year-end 1996 by 5.4% and 3.7%, respectively. Total investment securities increased to $3.7 billion at June 30, 1997, representing a 1.6% increase from year-end 1996 and 5.5% from the same date a year ago. Total deposits increased to $8.9 billion, compared to $8.7 billion reported at year-end 1996 and increased from the $8.4 billion reported a year ago on June 30. Securities sold under agreements to repurchase (repos) as of June 30, 1997 totaled $2.1 billion, an increase of 3.4% from year-end 1996 and a 26.6% increase from June 30, 1996. The changes in repo balances, which are mainly comprised of government funds, are explained later in this report. Non-performing assets (NPAs) have increased to $93.6 million at June 30, 1997. A further discussion on NPAs and the Reserve for Loan Losses follows later in this report. Non-interest income for the second quarter of 1997 totaled $46.3 million, a 12.9% increase from the same quarter in 1996. Non-interest expense has likewise increased by 8.3% comparing the same periods. The change in these categories are discussed later in this report. The average net interest margin on earning assets for the second quarter of 1997 was 4.00%, bringing year-to-date net interest margin through June 30 to 4.05%. Comparatively, net interest margin was 3.95% for the same quarter in 1996 and 3.89% for the first half of 1996. A further discussion of net interest margin follows in this report. Risk Elements in Lending Activities At June 30, 1997, total loans were $9.0 billion, a 3.7% increase from year-end 1996 and 5.5% above total loans on June 30, 1996. The comparisons with prior periods are affected by the February 1997 acquisition of Indosuez Niugini Bank, Limited which reported total loans of $30.2 million at the end of June 1997. The following table presents Pacific Century's total loan portfolio balances for the periods indicated. Loan Portfolio Balances Pacific Century Financial Corporation and subsidiaries - --------------------------------------------------------------------------------
June 30 December 31 June 30 (in millions of dollars) 1997 1996 1996 - -------------------------------------------------------------------------------- Domestic Loans Commercial and Industrial $1,860.6 $1,806.7 $1,771.7 Real Estate Construction -- Commercial 242.2 212.3 210.6 -- Residential 16.3 23.6 26.2 Mortgage -- Commercial 1,219.4 1,227.8 1,283.9 -- Residential 2,671.8 2,635.3 2,550.9 Installment 845.7 849.3 815.4 Lease Financing 482.3 437.8 406.8 - -------------------------------------------------------------------------------- Total Domestic 7,338.3 7,192.8 7,065.5 - -------------------------------------------------------------------------------- Foreign Loans 1,680.5 1,506.5 1,483.5 - -------------------------------------------------------------------------------- Total Loans $9,018.8 $8,699.3 $8,549.0 ================================================================================
Commercial and Industrial Loans Commercial and Industrial loans outstanding were $1.9 billion as of June 30, 1997, an increase of 3.0% from year-end 1996 and 5.0% from June 30, 1996. The change in Commercial and Industrial loans has been impacted by the Hawaii economy which has affected loan demand, low pricing in the U.S. corporate market, and aggressive management of substandard borrowers. Real Estate Loans Real estate loans totaled $4.1 billion at June 30, 1997, a 1.2% increase from year-end 1996 and a 1.9% increase from the same date a year ago. The increase since year-end 1996 was reflected in residential mortgage lending and commercial construction. Other Lending Installment loans and leases have remained at similar levels compared to year-end 1996 balances. At June 30, 1997, total installment loans were $845.7 million, compared with $849.3 million reported at year-end 1996, and $815.4 million on the same date in 1996. The change since year-end reflected a decrease of 3.2% in charge card and revolving plan credits and an increase in consumer installment loans of 1.6% to $497.7 million. Total leases at June 30, 1997 increased to $482.3 million from $437.8 million at year-end 1996. Foreign loan balances were $1.7 billion as of June 30, 1997, compared to $1.5 billion at both year-end 1996 and June 30, 1996. The rise in the foreign loan total since year-end reflects the PNG loan portfolio acquired during the quarter and loan growth in the South Pacific branches and affiliates. Non-Performing Assets and Past Due Loans Pacific Century's non-performing assets include non-accrual loans, restructured loans and foreclosed real estate. NPAs as of June 30, 1997 increased to $93.6 million. The growth, largely in the residential loan category, reflects a migration from the 90 day past due category. While NPAs in the residential real estate loan category have grown over the last six months, 90 day past due loans have decreased as discussed later in this report. NPAs as of June 30, 1997 represented 1.04% of total loans outstanding. This ratio compares with 1.00% at the end of the first quarter 1997 and 0.96% as of year-end 1996. This ratio was 0.98% at the end of the second quarter 1996. Pacific Century continues its effort to monitor and manage NPAs aggressively. Total non- performing assets and loans 90 days past due represented 1.29% of loans outstanding compared with 1.36% at year-end 1996 and 1.34% at March 31, 1997. Non-accrual loans increased during the quarter to $82.0 million from $76.3 million at the March 1997 quarter-end and $72.5 million at year-end 1996. The increases are largely reported in the residential real estate category with the commercial category reflecting the largest decrease (see table following). Accruing 90 day past due loans have decreased to $22.6 million mainly in the real estate categories, both commercial and residential. Installment past due loans (including charge cards) decreased to $8.2 million at June 30, 1997 from $10.2 million as of March 31, 1997, the result of continuing stepped up collection efforts and charge-offs. Residential real estate past due 90 days decreased to $2.6 million, 0.10% of total residential real estate loans. Past due commercial real estate loans decreased to $0.3 million, 0.02% of total commercial real estate loans. For residential real estate loans, the underlying collateral which represented, at original booking, loan to value ratios of 70-80%, reduces loss exposure. The foreclosed real estate category remained stable, totaling $11.6 million at June 30, 1997, compared with $11.3 million at March 31, 1997 and $10.7 million at year-end 1996. There were 26 properties in Other Real Estate at June 30, 1997, the three largest representing 68.3% of the total in dollars. The following table presents NPAs and past due loans for the periods indicated. Pacific Century Financial Corporation and subsidiaries Consolidated Non-Performing Assets and Accruing Loans Past Due 90 Days or More - -----------------------------------------------------------------------------------
June 30 December 31 June 30 (in millions of dollars) 1997 1996 1996 - ----------------------------------------------------------------------------------- Non-Accrual Loans Commercial $16.6 $20.9 $17.7 Real Estate Construction 0.7 0.3 -- Commercial 3.5 4.1 14.7 Residential 35.7 23.6 19.0 Installment 1.7 1.3 1.1 Leases 0.3 -- 1.8 Foreign 23.5 22.3 20.1 - ----------------------------------------------------------------------------------- Subtotal 82.0 72.5 74.4 Foreclosed Real Estate Domestic 11.6 10.7 9.6 Foreign 0.0 -- -- - ----------------------------------------------------------------------------------- Subtotal 11.6 10.7 9.6 - ----------------------------------------------------------------------------------- Total Non-Performing Assets 93.6 83.2 84.0 - ----------------------------------------------------------------------------------- Accruing Loans Past Due 90 Days or More Commercial 0.7 2.0 1.9 Real Estate Construction 0.1 0.4 0.4 Commercial 0.3 6.8 3.5 Residential 2.6 6.8 7.3 Installment 8.2 9.0 8.0 Leases 0.2 0.2 0.1 Foreign 10.5 9.5 13.8 - ----------------------------------------------------------------------------------- Subtotal 22.6 34.7 35.0 - ----------------------------------------------------------------------------------- Total $116.2 $117.9 $119.0 =================================================================================== - ----------------------------------------------------------------------------------- Ratio of Non-Performing Assets to Total Loans 1.04% 0.96% 0.98% - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- Ratio of Non-Performing Assets and Accruing Loans Past Due 90 Days or More to Total Loans 1.29% 1.36% 1.39% - -----------------------------------------------------------------------------------
Summary of Loan Loss Experience The reserve for loan losses stood at $167.8 million at June 30, 1997, representing 1.90% of loans outstanding. This compares with 1.98% as of March 31, 1997, 1.97% at year-end 1996 and 1.95% on June 30, 1996. Loan loss provisions were $7.3 million for the second quarter of 1997, compared with the $5.1 million reported for the first quarter of 1997. Pacific Century reported net charge-offs of $8.4 million for the second quarter of 1997, bringing year-to- date net charge-offs to $9.9 million. Comparatively, strong recoveries for the first six months of 1996 resulted in net charge-offs of $3.9 million. Gross charge-offs increased to $11.9 million for the second quarter of 1997, compared to $7.2 million for the first quarter of 1997. Year-to-date, gross charge-offs totaled $19.1 million, compared with $20.9 million for the same period in 1996. Recoveries reported for the quarter ended June 30, 1997 were $3.5 million, bringing year-to-date recoveries to $9.2 million. Recoveries reported last year through June 30, were boosted by an $11.5 million recovery on loans secured by commercial leasehold property charged off in 1992 and 1993. The annualized ratio of net charge-offs to average loans outstanding for the second quarter 1997 was 0.39%. The ratio of net charge-offs to average loans were 0.23% for the first half of 1997 and 0.09% for the comparable period in 1996. For the full year of 1996, Pacific Century reported a ratio of 0.16%. A detailed breakdown of charge-offs and recoveries by loan category is presented in the following table. Summary of Loss Experience Pacific Century Financial Corporation and subsidiaries - -----------------------------------------------------------------------------------------------------
Second Second First Six First Six Quarter Quarter Months Months (in millions of dollars) 1997 1996 1997 1996 - ----------------------------------------------------------------------------------------------------- Average Loans Outstanding $8,659.1 $8,464.6 $8,568.2 $8,242.3 Balance of Reserve for Possible Loan Losses at Beginning of Period $170.1 $152.1 $167.8 $152.0 Loans Charged Off Commercial and Industrial 3.3 1.7 4.7 3.1 Real Estate - Construction -- -- -- -- Real Estate - Mortgage Commercial 0.2 0.8 0.2 1.3 Residential 0.6 0.7 0.7 0.9 Installment 7.7 10.0 13.3 14.6 Foreign -- 0.8 -- 0.8 Leases 0.1 -- 0.2 0.2 - ----------------------------------------------------------------------------------------------------- Total Charged Off 11.9 14.0 19.1 20.9 Recoveries on Loans Previously Charged Off Commercial and Industrial 1.0 12.7 5.3 13.5 Real Estate - Construction -- -- -- 0.7 Real Estate - Mortgage Commercial 0.3 0.1 0.3 0.1 Residential 0.7 0.1 0.7 0.2 Installment 1.5 1.1 2.8 2.1 Foreign -- -- 0.1 -- Leases -- 0.2 -- 0.4 - ----------------------------------------------------------------------------------------------------- Total Recoveries 3.5 14.2 9.2 17.0 - ----------------------------------------------------------------------------------------------------- Net Charge Offs 8.4 (0.2) 9.9 3.9 Provision Charged to Operating Expenses 7.3 4.2 12.4 8.6 Other Net Additions (Deductions) * (1.2) 6.8 (2.5) 6.6 - ----------------------------------------------------------------------------------------------------- Balance at End of Period $167.8 $163.3 $167.8 $163.3 ===================================================================================================== Ratio of Net Charge Offs to Average Loans Outstanding (annualized) 0.39% -0.01% 0.23% 0.09% - ----------------------------------------------------------------------------------------------------- Ratio of Reserve to Loans Outstanding 1.90% 1.95% 1.90% 1.95% - ----------------------------------------------------------------------------------------------------- * Includes foreign currency translation adjustments and reserves acquired. /TABLE Capital Pacific Century continues to manage its capital levels through the target ratios outlined in Pacific Century's 1996 Annual Report. Pacific Century's average equity to average assets ratio for the second quarter of 1997 was 7.75%, a decrease from the 7.95% reported for 1996, but an increase from the 7.64% for the first quarter of 1997. Pacific Century's shareholders' equity at June 30, 1997 totaled $1.1 billion. New shares issued for the profit sharing, stock option and dividend reinvestment plans increased capital by $4.1 million during the quarter. Under Pacific Century's continuing stock repurchase programs, share repurchases totaled $18.6 million during the second quarter of 1997 and $36.5 million for the first six months of 1997. Dividends for the quarter totaled $11.8 million, a decrease from the first quarter dividends, as fewer shares were outstanding. Dividends were paid at $0.30 per share for both quarters of 1997. Regulatory risk-based capital ratios remain well above minimum guidelines. At June 30, 1997, Pacific Century's Total Capital and Tier 1 Capital ratios were 12.80% and 10.42%, respectively. This compares with year-end 1996, when the Total Capital Ratio was 12.96% and the Tier 1 Capital Ratio was 10.57%. These ratios reflect the fourth quarter 1996 issuance of $100 million in Capital Securities by Bancorp Hawaii Capital Trust I, a subsidiary of Pacific Century. Regulatory guidelines prescribe a minimum Total Capital Ratio of 10.00% and a Tier 1 Capital Ratio of 6.00% for an institution to qualify as well capitalized. Pacific Century's strategy is to maintain its capital ratios at levels to meet this qualification to benefit from the financial and regulatory incentives provided to well capitalized companies. In addition, the leverage ratio, which represents the ratio of Tier 1 Capital to Total Average Assets, was 8.00% at June 30, 1997, compared to 7.98% at year-end 1996. The minimum ratio to qualify an institution as well capitalized is 5.00%. Net Interest Margin Management The average net interest margin on earning assets for the second quarter of 1997 improved to 4.00% from 3.95% reported for the second quarter of 1996. Year-to-date net interest margin through June 1997 was 4.05% compared to 3.89% for the same period in 1996. The improvement is partly attributed to the acquisition of the South Pacific banks whose net interest margin is higher and an increased level of earning assets. The cost of funds rate for the second quarter of 1997 was 4.75%, which was above the 4.63% reported for the second quarter of 1996. The earning asset yield was 8.07% for the second quarter of 1997, an increase over the second quarter 1996 yield of 7.95%. Pacific Century Financial Corporation and subsidiaries Consolidated Average Balances and Interest Rates Taxable Equivalent - ----------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended June 30 1997 June 30 1996 Average Income/Yield/ Average Income/Yield/ (in millions of dollars) Balance Expense Rate Balance Expense Rate - ---------------------------------------------------------------------------------------------------------- Earning Assets Interest Bearing Deposits $529.7 $9.5 7.17% $665.6 $10.8 6.55% Investment Securities Held to Maturity -Taxable 1,223.2 20.9 6.86 888.2 14.5 6.59 -Tax-Exempt 12.6 0.4 14.02 13.1 0.5 14.11 Investment Securities Available for Sale 2,397.5 38.5 6.45 2,255.7 36.5 6.50 Funds Sold 63.0 0.8 4.83 87.5 0.9 4.21 Net Loans -Domestic 7,140.0 149.1 8.37 7,216.7 148.8 8.29 -Foreign 1,519.1 32.6 8.61 1,246.9 24.4 7.86 Loan Fees 7.4 8.3 ------------------------ ------------------------ Total Earning Assets 12,885.1 259.2 8.07 12,373.7 244.7 7.95 Cash and Due From Banks 480.0 475.4 Other Assets 496.4 434.6 ---------- ---------- Total Assets $13,861.5 $13,283.7 ========== ========== Interest Bearing Liabilities Domestic Deposits - Demand $1,831.0 12.7 2.78 $1,672.2 11.9 2.86 - Savings 842.3 5.3 2.52 956.5 5.9 2.49 - Time 2,876.6 39.0 5.44 2,360.5 31.6 5.38 ------------------------ ------------------------ Total Domestic 5,549.9 57.0 4.12 4,989.2 49.4 3.98 Foreign Deposits - Time Due to Banks 869.8 12.8 5.88 844.1 9.8 4.65 - Other Time and Savings 949.3 10.8 4.56 822.7 11.1 5.46 ------------------------ ------------------------ Total Foreign 1,819.1 23.6 5.19 1,666.8 20.9 5.05 ------------------------ ------------------------ Total Deposits 7,369.0 80.6 4.38 6,656.0 70.3 4.25 Short-Term Borrowings 2,836.6 38.9 5.49 2,869.0 37.3 5.22 Long-Term Debt 812.6 11.1 5.49 1,181.4 15.6 5.31 ------------------------ ------------------------ Total Interest Bearing Liabilities 11,018.2 130.6 4.75 10,706.4 123.2 4.63 ------------------------ ------------------------ Net Interest Income 128.6 3.32 121.5 3.32 Average Spread on Earning Assets 4.00% 3.95% Demand Deposits - Domestic 1,365.5 1,214.8 - Foreign 267.3 149.6 ---------- ---------- Total Demand Deposits 1,632.8 1,364.4 Other Liabilities 140.1 149.1 Shareholders' Equity 1,070.4 1,063.8 ---------- ---------- Total Liabilities and Shareholders' Equity $13,861.5 $13,283.7 ========== ========== Provision for Possible Loan Losses 7.3 4.2 Net Overhead 66.1 62.8 ------- ------- Income Before Income Taxes 55.2 54.5 Provision for Income Taxes 19.4 19.6 Tax-Equivalent Adjustment 0.2 0.3 ------- ------- Net Income $35.6 $34.6 ======= =======
Pacific Century Financial Corporation and subsidiaries Consolidated Average Balances and Interest Rates Taxable Equivalent - ----------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended June 30, 1997 June 30, 1996 Average Income/Yield/ Average Income/Yield/ (in millions of dollars) Balance Expense Rate Balance Expense Rate - ---------------------------------------------------------------------------------------------------------- Earning Assets Interest Bearing Deposits $545.1 $19.2 7.08% $598.0 $20.7 6.95% Investment Securities Held to Maturity -Taxable 1,219.4 40.7 6.73 907.3 29.2 6.46 -Tax-Exempt 12.6 0.9 14.23 13.4 0.9 14.03 Investment Securities Available for Sale 2,387.9 77.6 6.55 2,279.5 74.0 6.53 Funds Sold 74.7 1.7 4.62 85.9 2.1 4.86 Net Loans -Domestic 7,097.9 293.5 8.34 7,204.1 295.9 8.26 -Foreign 1,470.3 62.9 8.63 1,037.7 36.9 7.16 Loan Fees 16.7 16.6 ------------------------ ------------------------ Total Earning Assets 12,807.9 513.2 8.08 12,125.9 476.3 7.90 Cash and Due From Banks 533.2 451.4 Other Assets 490.3 425.4 ---------- ---------- Total Assets $13,831.4 $13,002.7 ========== ========== Interest Bearing Liabilities Domestic Deposits - Demand $1,803.5 25.0 2.80 $1,707.4 23.7 2.80 - Savings 873.1 10.7 2.47 978.2 12.4 2.54 - Time 2,788.5 75.5 5.46 2,286.4 61.7 5.42 ------------------------ ------------------------ Total Domestic 5,465.1 111.2 4.10 4,972.0 97.8 3.95 Foreign Deposits - Time Due to Banks 882.3 25.5 5.83 784.6 19.3 4.95 - Other Time and Savings 922.6 20.8 4.54 604.5 16.3 5.41 ------------------------ ------------------------ Total Foreign 1,804.9 46.3 5.17 1,389.1 35.6 5.15 ------------------------ ------------------------ Total Deposits 7,270.0 157.5 4.37 6,361.1 133.4 4.22 Short-Term Borrowings 2,804.8 75.7 5.44 2,877.7 76.1 5.32 Long-Term Debt 828.2 22.5 5.49 1,201.3 32.0 5.35 ------------------------ ------------------------ Total Interest Bearing Liabilities 10,903.0 255.7 4.73 10,440.1 241.5 4.65 ------------------------ ------------------------ Net Interest Income 257.5 3.35 234.8 3.25 Average Spread on Earning Assets 4.05% 3.89% Demand Deposits - Domestic 1,373.6 1,296.1 - Foreign 262.8 92.0 ---------- ---------- Total Demand Deposits 1,636.4 1,388.1 Other Liabilities 219.8 108.8 Shareholders' Equity 1,072.2 1,065.7 ---------- ---------- Total Liabilities and Shareholders' Equity $13,831.4 $13,002.7 ========== ========== Provision for Possible Loan Losses 12.4 8.6 Net Overhead 134.1 123.4 ------- ------- Income Before Income Taxes 111.0 102.8 Provision for Income Taxes 39.5 34.8 Tax-Equivalent Adjustment 0.4 0.7 ------- ------- Net Income $71.1 $67.3 ======= =======
Interest Rate Risk and Derivatives As discussed in Pacific Century's 1996 Annual Report, Pacific Century utilizes interest rate sensitivity analysis and computer simulation techniques to measure the exposure of its earnings to interest rate movements. The objective of the process is to position its balance sheet to optimize earnings without unduly increasing risk. The Interest Rate Sensitivity Table presents the traditional method of quantifying the possible exposure to interest rate movements for various time frames at June 30, 1997. As the table indicates, Pacific Century's one year cumulative asset sensitivity gap totaled $0.5 billion, representing 3.19% of total assets. Comparatively, the one year cumulative gap was $0.4 billion at year-end 1996, 2.6% of total assets. Simulation models are also utilized by Pacific Century to measure the interest rate sensitivity of its balance sheet. These models simulate changes in interest rates and project the impact on Pacific Century's net interest income. The results of these simulations are all within established guidelines. Pacific Century uses swaps as a cost effective risk management tool for dealing with interest rate risk from time to time. One new swap agreement with a notional amount of $50 million was entered into during the quarter. At June 30, 1997, the notional amount of swaps totaled $0.6 billion, compared with $0.7 billion at year-end 1996 and $0.8 billion a year ago. Net expense on interest rate swap agreements totaled $0.7 million for the second quarter of 1997 and $1.2 million for the first six months of 1997. Comparatively, net expense of $0.8 million was recognized in the second quarter of 1996 and $2.2 million for the first half of 1996. Interest Rate Sensitivity Table Pacific Century Financial Corporation and subsidiaries - ---------------------------------------------------------------------------------------------
JUNE 30, 1997 OVER NON-INTEREST (in millions of dollars) 0 - 90 DAYS 91-365 DAYS 1 - 5 YEARS 5 YEARS BEARING - --------------------------------------------------------------------------------------------- ASSETS (1) INVESTMENT SECURITIES 1,723.0 861.0 713.7 393.5 - SHORT TERM INVESTMENTS 117.5 4.9 - - - INTERNATIONAL ASSETS 1,154.7 358.9 217.9 104.1 24.6 DOMESTIC LOANS (2) 2,760.8 2,024.5 2,014.0 661.2 57.4 TRADING SECURITIES - - 2.2 - - OTHER ASSETS 77.5 38.7 271.2 116.7 470.7 - --------------------------------------------------------------------------------------------- TOTAL ASSETS 5,833.5 3,288.0 3,219.0 1,275.5 552.7 ============================================================================================= LIABILITIES AND CAPITAL (1) NON-INT BEARING DEMAND (3) 282.9 168.3 684.2 223.0 - INT BEARING DEMAND (3) 346.8 272.1 840.5 354.8 - SAVINGS (3) 98.7 98.7 460.4 164.4 - TIME DEPOSITS 766.7 1,331.5 593.2 47.0 - FOREIGN DEPOSITS 1,525.1 197.8 131.6 6.7 334.4 S/T BORROWINGS 2,128.2 918.7 49.9 0.0 - LONG-TERM DEBT 40.0 154.9 286.0 220.7 - OTHER LIABILITIES - - - - 359.3 CAPITAL - - - - 1,082.2 - --------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND CAPITAL 5,188.4 3,142.0 3,045.8 1,016.6 1,775.9 ============================================================================================= INTEREST RATE SWAPS -536.0 196.3 339.7 - - - --------------------------------------------------------------------------------------------- INTEREST SENSITIVITY GAP 109.1 342.3 512.9 258.9 -1,223.2 - --------------------------------------------------------------------------------------------- CUMULATIVE GAP 109.1 451.4 964.3 1,223.2 - PERCENTAGE OF TOTAL ASSETS 0.77% 3.19% 6.81% 8.63% - ============================================================================================= Assumptions used: (1) Based on repricing date. (2) Includes the effect of estimated amortization. (3) Historical analysis shows that these deposit categories, while technically subject to immediate withdrawal, actually display sensitivity characteristics that generally fall within one and five years. The allocation presented is based on that historic analysis.
Liquidity The ability to meet day-to-day financial needs of Pacific Century's customer base is essential. Much of the strategy of meeting liquidity needs was described in Pacific Century's 1996 Annual Report and remains in place. At June 30, 1997, deposits were $8.9 billion, compared to $8.7 billion and $8.4 billion reported at year-end 1996 and June 30, 1996, respectively. The increase in deposits reflects the acquisition of $254 million of Home Savings deposits acquired by Pacific Century Bank, N.A. in Arizona. The acquisition, which closed in the second quarter, increased Pacific Century Bank, N.A. deposits to $460.5 million as of June 30, 1997. The competition for deposits, not only by banks and savings and loan companies, but also by securities brokerage firms continues to impact the level of deposits. Repos which are offered to government depositors as an alternative to deposits were $2.1 billion at June 30, 1997, compared to $1.7 billion on June 30, 1996, and $2.1 billion at year-end 1996. Short term borrowings, including Fed Funds, were $0.95 billion at June 30, 1997, compared with $0.89 billion at year-end 1996 and $1.1 billion at June 30, 1996. Long term debt decreased to $0.7 billion at June 30, 1997 from $0.9 billion at year-end 1996 and $1.1 billion at March 31, 1996. Long term debt outstanding included $100 million of Capital Securities issued by Pacific Century in Bancorp Hawaii Capital Trust I, a subsidiary of Pacific Century in December 1996. Non-Interest Income and Expense Pacific Century utilizes the efficiency ratio to measure its success in managing non-interest income and non-interest expense. Pacific Century determines its efficiency ratio by dividing non- interest expense by the sum of net interest income and non- interest income (excluding securities transactions). For the first half of 1997, Pacific Century's ratio was 64.7% compared with 64.6% for all of 1996. The non-interest income and non- interest expense components of the efficiency ratio are discussed following.
Non-Interest Income 3 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended (in millions) June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996 - --------------------------------------------------------------------------------------------------- Trust Income $12.8 $11.8 $26.1 $24.7 Service Charges on Deposits 6.5 6.8 13.2 12.8 Fees, Exchange and Other Service 17.5 14.0 32.2 26.5 Charges Other Income 7.9 8.3 14.5 14.0 Securities Gain (Loss) 1.6 0.1 2.0 (0.1) - ---------------------------------------------------------------------------------------------------- Total Non-Interest Income $46.3 $41.0 $88.0 $77.9 ====================================================================================================
Non-interest income for the second quarter was $46.3 million, a 12.9% increase from the same quarter in 1996. For the year-to-date, non-interest income totaled $88.0 million, an increase of 12.9% over the same period in 1996. The increases between years are affected by the BDT and BNC acquisition which occurred in May 1996 and the PNG acquisition which took place in 1997. Trust income for the second quarter was $12.8 million, compared with $11.8 million for the same quarter in 1996. This 7.9% increase is largely due to the increasing value of assets under administration through new customer acquisitions and growth in values of trust customer assets administered. At June 30, 1997, total assets under administration totaled $12.4 billion, compared with $12.2 billion at year-end 1996. Service charges on deposit accounts for the second quarter totaled $6.5 million, a decrease from $6.8 million reported for the same quarter of 1996. The decrease is largely due to the lower level of analysis fees assessed on commercial deposit accounts. On a year-to-date basis, service charges totaled $13.2 million, compared to $12.8 million for the same period in 1996. This increase again reflects the impact of the acquisition on the earnings between years. Fees exchange and other service charges for the second quarter were $17.5 million, bringing the year-to-date total to $32.2 million. This increase of 21.2% reflects the growth in fees from the acquisitions as much of the affiliate banks' fees are recorded in this category. Other operating income decreased 4.2% from the same quarter last year to $7.9 million. The year-to-date income in this category was $14.4 million, improving to $13.9 million compared to the same period in 1996. For the year to date, securities gains were $2.0 million, compared with a $0.6 million loss for the same period in 1996.
Non-Interest Expense 3 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended (in millions) June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------- Salaries $40.1 $40.9 $81.5 $77.5 Pension and Other Benefits 12.4 12.1 27.5 25.5 Net Premises 11.2 8.7 21.6 19.4 Net Equipment 9.7 8.8 18.7 16.6 Other Expense 38.6 32.8 72.0 61.7 Minority Interest 0.4 0.5 0.7 0.7 - ------------------------------------------------------------------------------------------------------- $112.4 $103.8 $222.0 $201.4 =======================================================================================================
Non-interest expense for the quarter was $112.4 million, an increase of 8.3% from the same quarter last year and 2.4% from the first quarter of 1997. The acquisition of BDT, BNC, and PNG have impacted these comparisons due to the timing of the acquisitions. For the year-to-date, non-interest expense was $222.0 million, compared with $201.4 million at this time last year. This is an increase of 10.3%, but expenses included only two months of BDT and BNC expenses in the first six months of 1996. Salary and benefit expense totaled $52.5 million for the second quarter, compared with $52.9 million for the same quarter of 1996 and $56.5 million for the first quarter of 1997. For the year-to-date, salary and benefit expense increased to $109.0 million from $103.0 million for the same period in 1996. Again, the increase is partly due to the acquisitions in May 1996. Occupancy and equipment expense totaled $21.6 million and $18.7 million for the first six months of 1997, respectively. Compared to the same period in 1996, these would be increases of 10.9% and 12.9%, respectively. The growth of these expenses has been driven by Pacific Century's continuing effort to improve efficiency through technology. The "Year 2000 Issue" continues to gain coverage by the media. As the year 2000 approaches, application software programs and operating systems will need to be updated. Based on a preliminary study, Pacific Century expects to spend approximately $25 to $30 million through 1998 to address this issue. Pacific Century continues to evaluate alternative solutions to assure that systems will transition smoothly in 2000. Alternatives being considered include the replacement of systems (the cost of which would be capitalized and depreciated) and the update of existing applications to assure they function properly in the year 2000. The cost of the latter would be expensed in the periods incurred. Pacific Century's technology staff will undertake most of this effort with certain projects handled by consultants. Other operating expense for the second quarter of 1997 totaled $38.6 million, an increase of 17.5% from the same quarter in 1996. Again, the comparison is affected by the acquisitions. PART II. - Other Information Items 1, 2, 3 and 5 omitted pursuant to instructions. Item 4 - Submission of Matters to a Vote of Security Holders (a) Pacific Century's Annual Shareholders' Meeting was held on April 25, 1997. (b) Omitted per instructions. (c) A brief description of each matter voted upon at the Annual Shareholders' Meeting held on April 25, 1997 and number of votes cast for, against or withheld, including a separate tabulation with respect to each nominee for office is presented below: (1) Election of four Class II directors for terms expiring in 2000 and a successor to fill the unexpired terms of one retiring Class I director, whose term expires in 1999. Class II director: David A. Heenan - Votes cast for: 34,729,296 Votes cast against: 0 Votes withheld: 740,382 Stuart T. K. Ho - Votes cast for: 34,731,928 Votes cast against: 0 Votes withheld: 737,750 Lawrence M. Johnson - Votes cast for: 34,726,740 Votes cast against: 0 Votes withheld: 742,938 Fred E. Trotter - Votes cast for: 34,727,912 Votes cast against: 0 Votes withheld: 741,766 Class I director: Donald M. Takaki - Votes cast for: 34,724,460 Votes cast against: 0 Votes withheld: 745,218 (2) Election of Ernst & Young as Auditor. Votes cast for: 35,225,276 Votes cast against: 156,419 Votes abstained: 87,983 (3) Proposal to approve an amendment to section 4.1 of Bancorp Hawaii, Inc. Stock Option Plan of 1994 to increase to 2,875,000 the number of shares of common stock available for grant under the plan. Votes cast for: 32,828,926 Votes cast against: 2,344,462 Votes abstained: 296,290 (4) Proposal to approve an amendment to the Restated Articles of Incorporation to change the name of Bancorp Hawaii, Inc. to Pacific Century Financial Corporation. Votes cast for: 32,954,363 Votes cast against: 2,174,228 Votes abstained: 341,087 (d) None. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibit Index Exhibit Number Description 2 Agreement and Plan of Reorganization, dated as of February 24, 1997, between Registrant and CU Bancorp (incorporated by reference to Appendix A of the Proxy Statement/Prospectus included in Registrant's Registration Statement on Form S-4, Amendment No. 1, filed May 6, 1997, Registration No. 333-24379) 3 Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of Registrant's Registration Statement on Form S-4, filed April 2, 1997, Registration No. 333-24379) 11 Statement Regarding Computation of Per Share Earnings 20 Quarterly Report to Shareholders 27 Financial Data Schedule 99 Statement of Ratios (b) No Form 8-K was filed during the quarter. SIGNATURES Pursuant to the requirements 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 August 12, 1997 PACIFIC CENTURY FINANCIAL CORPORATION DAVID A. HOULE (Signature) David A. Houle Executive Vice President, Treasurer and Chief Financial Officer


                                         Pacific Century Financial Corporation
                   Exhibit 11 - Statement Regarding Computation of Per Share Earnings
                                             Six Months Ended June 30

Fully Primary Diluted ----------- ----------- 1997 ---- Net Income $71,087,000 $71,087,000 =========== =========== Daily Average Shares Outstanding 39,558,745 39,558,745 Shares Assumed Issued for Stock Options 499,214 541,752 ----------- ----------- 40,057,959 40,100,497 =========== =========== Earnings Per Common Share and Common Share Equivalents $1.77 $1.77 =========== =========== 1996 ---- Net Income $67,323,000 $67,323,000 =========== =========== Daily Average Shares Outstanding 41,014,193 41,014,193 Shares Assumed Issued for Stock Options 397,073 401,426 ----------- ----------- 41,411,266 41,415,619 =========== =========== Earnings Per Common Share and Common Share Equivalents $1.63 $1.63 =========== ===========


To Our Shareholders:

        This quarter's solid financial performance validates once
again the company's long-term growth and diversification
strategies.  These strategies are now reflected in our name which
officially changed from Bancorp Hawaii, Inc., to Pacific Century
Financial Corporation (Pacific Century) following shareholder
approval at the April 25th Annual Meeting of Shareholders.  Your
company's stock ticker symbol (NYSE:BOH) will remain the same as
will the name of its principal subsidiary, Bank of Hawaii.

        Also, at the Annual Meeting, Donald M. Takaki was named to
the Pacific Century Board of Directors, succeeding K. Tim Yee who
reached mandatory retirement age.  David A. Heenan, Stuart T.K.
Ho, Lawrence M. Johnson and Fred E. Trotter were re-elected to
the Pacific Century Board.  Shareholders also approved an
amendment to increase the number of shares available under the
Stock Option Plan of 1994 and appointed Ernst & Young, LLP as
independent auditor for 1997.

        In the first quarter of 1997, Bancorp posted earnings of
$35.5 million, an increase of 8.5 percent over last year's first
quarter.  Earnings per share for the first three months of this
year were $0.88 compared to $0.79 for the corresponding period in
1996, an increase of 11.4 percent.  Return on average assets was
1.02 percent and return on average equity was 13.40 percent. 
Contributions from the company's South Pacific acquisitions
(Banque de Tahiti and Banque de Nouvelle Caledonie) and an
improved net interest margin were among the factors that
bolstered Pacific Century's first quarter results.

        In February, Bancorp Hawaii announced a definitive agreement
to acquire California United Bank (CUB) through a merger with its
parent company, CU Bancorp. The acquisition, expected to close in
third quarter, is an important element of the company's strategy
of geographical diversification.  In March, Pacific Century
completed the acquisition of four branches in Arizona from Home
Savings of America. 

        Also in March, Indosuez Niugini Bank, Limited in Papua New
Guinea became a part of the Pacific Century network.  The bank,
now known as Bank of Hawaii (PNG), Limited, has total assets
equivalent to approximately US $93.0 million.

        On April 25th, the Board of Directors declared a cash
dividend of 30 cents per share on the outstanding common stock
for the second quarter of 1997.  The dividend is payable on June
13, 1997 to shareholders of record at the close of business on
May 22, 1997.

        Pacific Century's growing and unique presence spanning
Hawaii, Asia, the West and South Pacific and the western US
Mainland enables us to participate in the economic activity
occurring throughout this dynamic region.  We are confident that
each of our four markets holds revenue potential and growth
opportunities.  We remain committed to enhancing the value of
your company, and we appreciate your continued confidence in our
stewardship of Pacific Century Financial Corporation.

Sincerely,

LAWRENCE M. JOHNSON

Lawrence M. Johnson
Chairman and CEO


SELECTED FINANCIAL DATA PACIFIC CENTURY AND SUBSIDIARIES (in millions except per share data)
- ------------------------------------------------------------------------------------------------------------------------------
Earnings Highlights and Performance Ratios Three months ended March 31 - ------------------------------------------------------------------------------------------------------------------------------- Net Interest Income $128,639 $112,986 Provision for Possible Loan Losses $5,088 $4,424 Total Non-Interest Income $43,757 $37,477 Total Non-Interest Expense $109,665 $97,578 Net Income $35,481 $32,710 Earnings Per Common Share and Equivalents $0.88 $0.79 Cash Dividends Paid per Common Share $0.30 $0.28 Return on Average Assets 1.02% 1.03% Return on Average Equity 13.40% 12.32% Average Spread on Earning Assets 4.02% 3.81% Statement of Condition Highlights and Performance Ratios March 31, 1997 March 31, 1996 December 31, 1996 - ------------------------------------------------------------------------------------------------------------------------------- Net Loans $8,400.9 $7,949.7 $8,347.9 Total Earning Assets $12,744.2 $11,854.5 $12,757.0 Total Assets $13,986.8 $12,905.1 $14,009.2 Total Deposits $11,108.1 $9,307.2 $8,684.1 Total Long-Term Debt $698.4 $1,142.1 $932.1 Total Shareholder's Equity $1,061.4 $1,046.7 $1,066.1 Reserve for Losses to Outstanding Loans 1.98% 1.88% 1.97% Total Capital Ratio 12.97% 12.58% 12.96% Leverage Ratio 7.90% 7.72% 7.98% Book Value per Common Share $26.75 $25.65 $26.68 Corporate Offices: Financial Plaza of the Pacific 130 Merchant Street Honolulu, Hawaii 96813 Investor/Analyst Inquiries: David A. Houle, EVP and Chief Financial Officer (808) 537-8288 or Sharlene K. Bliss Investor Relations Officer (808) 537-8037 or Cori C. Weston Corporate Secretary (808) 537-8272


                                    Pacific Century Financial Corporation
                    Exhibit 99 - Statement Regarding Computation of Ratios
                                          Six Months Ended June 30
(in millions of dollars) 1997 1996 Earnings: 1. Income Before Income Taxes $110.6 $102.2 2. Plus: Fixed Charges Including Interest on Deposits 259.0 243.0 3. Earnings Including Fixed Charges 369.6 345.2 4. Less: Interest on Deposits 157.5 133.4 5. Earnings Excluding Interest on Deposits $212.1 $211.8 Fixed Charges: 6. Fixed Charges Including Interest on Deposits $259.0 $243.0 7. Less: Interest on Deposits 157.5 133.4 8. Fixed Charges Excluding Interest on Deposits $101.5 $109.6 Ratio of Earnings to Fixed Charges: Including Interest on Deposits (Line 3 divided by Line 6) 1.4 x 1.4 x Excluding Interest on Deposits (Line 5 divided by Line 8) 2.1 x 1.9 x
 

9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF CONDITION AND CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 6-MOS DEC-31-1996 JUN-30-1997 484239 562215 85758 2157 2411882 1279349 1281545 9018809 167842 14168746 8928791 3096803 359350 701633 0 0 78727 1003442 14168746 373032 118830 20848 512710 157457 255674 257036 12374 2012 222019 110604 110604 0 0 71087 1.77 1.77 4.05 82000 22600 0 0 167795 11900 3500 167842 0 0 0