Pacific Century Financial Corp. of Honolulu said fallout from Asia will force it to add $42 million to its loan-loss reserve for the second quarter.
The provision would be more than double the $18 million of the first quarter and would exceed the $30.3 million set aside in all of 1997.
The total for the first two quarters of 1998 would be larger than Pacific Century's total loss provisions in the previous two calendar years.
It is an indication that U.S. banks are not yet in the clear from Asia's troubles, and Pacific Century-the parent of Bank of Hawaii-is in the thick of them.
It said the second-quarter provision would cover chargeoffs of $27 million, including $14 million in Thailand and $3 million in Indonesia. It also said it must "further bolster the reserve for loan losses in recognition of the continuing financial volatility in the Asian markets."
At the same time, the $14.8 billion-asset bank holding company, the largest based in Hawaii, pre-announced a $19.4 million restructuring charge in the second quarter related to previously announced branch closings and mergers.
The end result will be "a nominal net profit" for the quarter and no change in dividend outlays, a statement said.
Chairman and chief executive officer Lawrence M. Johnson said, "The provisioning is consistent with our traditionally conservative credit philosophy."
He said, "We view this as a positive step which will enable us to move ahead focused on our financial objectives as well as our previously announced redesign initiatives."
Richard J. Dahl, president and chief operating officer, said the losses are concentrated in Thailand and Indonesia. He said Pacific Century expects to weather the Asian storm and has no plans to change its strategy in the region.
"We still believe very strongly in the long-term fate of Asia," Mr. Dahl said. "We've been doing business there for 40 years."
The company had $850 million of its loans, 8% of the portfolio, in Asia at yearend 1997. Total exposure in Asia is $1.6 billion, Mr. Dahl said.
"Asia itself has not been a problem for us, but Indonesia and Thailand, in particular, have been," Mr. Dahl said. "We made a decision to move forward. The credits are performing, but we see weakness in the collateral. Our way of doing business is to move pretty quickly to write those things down."
Analyst Joseph Morford of Van Kasper & Co., San Francisco, said the end is not near. "I think this is going to be an issue for the next few quarters," Mr. Morford said.
Even if Pacific has its loan situation under control in Thailand and Indonesia, they are a small portion of its Asian business, Mr. Morford said. "The wild card," he said, "is what's going to happen in Japan and Korea, where there is more uncertainty."
Of the $1.6 billion exposure, $1 billion is in Korea and Japan, Mr. Dahl said. Of those markets he said, "We're comfortably situated, but concerned."
Many of Pacific's Japanese loans are to companies' U.S. operations. The losses in Thailand and Indonesia were related mostly to banks, finance companies, and manufacturers that depended on capital from those companies.
Larger banks, including BankAmerica Corp. and Citicorp, have been able to weather the Asian economic downturn, but a smaller entity such as Pacific has proportionately greater exposure. Pacific divides its geography four ways: Hawaii, South Pacific, Asia, and the U.S. West Coast.
The charge against earnings is intended to cover previously announced branch closings and related severance. Pacific said in February that it would lay off 550 employees, or 11% of its work force, and close 25 of its 100 branches.
