Visitors to the 50th state liken it to heaven, and for many years its bankers-in a climate of limited competition and boundless economic growth-shared that view.

But in the 1990s those sweet conditions turned sour, forcing the biggest bank here, $14 billion-asset Pacific Century Financial Corp., to radically transform itself.

"We went from a position of being in a strong economy with very limited competition, to a flat economy with competition coming at us from all different directions," said Lawrence M. Johnson, chief executive and chairman of Pacific Century, formerly Bancorp Hawaii.

The new name is just the most recent in a series of changes that has altered the bank inside and outside. In the nearly three years since Mr. Johnson took the reins, Pacific Century has:

Instituted performance-based employee incentives.

Expanded its 10-year-old presence on the U.S. mainland through a recent acquisition of a southern California business bank.

Beefed up its Pacific Rim locations, including the recent purchase of a Papua New Guinea bank.

Embraced alternative delivery systems, including more ATMs, supermarket branches, and a pilot Internet banking site.

Diversified its asset mix.

"Johnson has taken the bank down the right path," said Joseph K. Morford 3d, an analyst with Alex. Brown & Sons, San Francisco. "The investments in technology, the attempts to improve efficiency, diversifying outside of Hawaii-they've been very busy on a number of fronts."

The bank had little choice.

Since 1992, net income has remained stubbornly flat, ranging between $117.7 million and $133.1 million. Returns on equity and assets have also refused to move much and were stuck at a disappointing 13.40% and 1.02%, respectively, at the end of the first quarter.

But these numbers have served as a wake-up call, Mr. Johnson said. For most of the four decades since Hawaii became a state, the bank had little reason to innovate, he acknowledged. An influx of tourists starting in the 1960s and 1970s made the economy flourish.

But the economic aftermath of the Gulf War brought tourism from Japan to a halt. And weak economies in Japan and the United States-primarily in California-hurt the economy too.

Historically, when one of those areas slowed, the bank could rely on the fruits of the other. For the first time in decades, however, both suffered simultaneously.

Consequently, island unemployment has hovered around 6% for much of the past four years, well above the national average. And hotel occupancy rates are still below levels of the late 1980s.

"We never had to be very strategic before," Mr. Johnson said. "We had done some long-range financial planning before, but never any long-range strategic planning.

"So we began asking ourselves basic questions like, 'Who are we, and what do we want to be?"'

The transformation began internally. Two years ago, for example, the bank offered an early retirement plan, which led to some 350 departures. About 130 of those jobs have since been filled by younger employees or newcomers, bank officials said.

"For those that felt uncomfortable with a performance culture, it was a gracious way for them to exit the company," said Alton T. Kuioka, vice chairman and chief lending officer of Pacific Century's lead subsidiary.

Mr. Kuioka, who has been with the bank for 28 years, said the program allowed the younger, more aggressive employees a chance to move up. Still, he added, "It has nothing to do with how long you've been here, but how well you perform."

At the same time, the bank strived to overhaul its balance sheet. For much of the 1980s, it derived a healthy chunk of net income from arbitraging public deposits, Mr. Johnson said. In 1993, for example, the bank made more than $75 billion from that business.

But such income was not based on a "solid core business" such as consumer lending, Mr. Johnson said. So the bank sought to diversify and is now close to its goal of 20% of assets in investment securities, 40% in consumer loans, and 40% in commercial loans, he said.

Geographical diversification followed.

In February, the bank announced the acquisition of $844 million-asset CU Bancorp, a southern California institution specializing in lending to small and midsize businesses-just the sort of customers taking advantage of the trade flows throughout the Pacific Rim.

But Pacific Century's ambitions in California are not satisfied, Mr. Johnson said. "We don't want to stop. We'd like to do two more acquisitions there, totaling another $2.5 billion of assets."

Possible candidates in that size range include Cathay Bancorp, Los Angeles;, GBC Bancorp, also in Los Angeles; Santa Barbara Bancorp; and First Business Corp., Los Angeles.

Though vital, the western U.S. is a tiny piece of Pacific Century's network. Much smaller than international behemoths such as Citicorp and BankAmerica Corp., Pacific Century nevertheless has a strong presence in the Pacific.

With more than 160 offices in 15 Pacific Rim countries, including such remote locales as Vanuatu, Tonga, and Palau, the bank believes it is perfectly positioned for the burgeoning growth there.

Richard J. Dahl, president and chief operating officer, who spends about half his time traveling to these locations, said the bank's 35 years of experience in many of these markets makes it capable of handling their unique challenges.

"In a place like the Solomon Islands, we are dealing with customers ranging from a member of a local tribe trying to buy a boat to Mobil Oil," he said. "So we are dealing with the full range of the banking market."

Until 1989, Pacific Century served as Tonga's central bank, printing currency and performing other vital functions. Its largest shareholder there remains the king of Tonga.

Mr. Johnson said his company is ideally situated to benefit from the anticipated rise in trade across the Pacific, which sometime in the 21st century is expected to be twice as large as current trans-Atlantic trade.

"The real value of this company is the strategic positioning that we've got in Asia, the Pacific islands, and now in the western part of the U.S.," Mr. Johnson said. "That should put us in all kinds of favor when it comes to the growing amount of business out here."

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