Citing economic weakness locally and in Asia, Hawaii's largest banking company announced plans Wednesday to cut its work force by 11% and close 25 of its 100 branches.
Pacific Century Financial Corp. of Honolulu said it expects to cut annual expenses by $25 million and improve its efficiency ratio-expenses as a percentage of revenues-to 55% by yearend 2000 from the current 66%.
"Hawaii's stagnant economy coupled with economic turbulence in Asia has thwarted our attempts to significantly improve our performance," said Lawrence M. Johnson, chairman and chief executive officer. "We recognize that we must become more efficient and use our resources to improve performance."
In the fourth quarter, Pacific Century reported earnings per share of 41 cents, a penny lower than in the year-earlier period. The company's stock price, which closed at $21.6875 Wednesday, up 12.5 cents, was up 18% during 1997, while other regional banks' share prices were up, on average, about 50%, analysts said.
The slow economy in Hawaii, which accounts for roughly two-thirds of Pacific Century's assets and earnings, is the main culprit. The state has suffered through eight years of scant growth.
Pacific Century, formerly Bancorp Hawaii, "is definitely facing a challenging operating environment," said Joseph K. Morford, an analyst with BT Alex. Brown in San Francisco. "But it is encouraging that they are being aggressive in taking the steps necessary to offset the impacts."
The bank has credit exposure to some troubled Asian nations, including South Korea, Malaysia, Thailand, and Indonesia. Pacific Century's main subsidiary, $15 billion-asset Bank of Hawaii, charged off $10 million of loans to Thailand and added $18 million to the nonaccrual category in the fourth quarter.
Pacific Century decided to take action several months ago when it become obvious it would not hit goals of a 1.2% return on assets and a 17.5% return on equity by 2000, Mr. Johnson said in an interview Wednesday. For 1997, the bank's ROA was 0.98% and the ROE was 12.57%.
Mr. Johnson said the performance will substantially improve by the first quarter of 1999.
The cost-cutting campaign will begin with the consolidation of First Federal Savings and Loan Association of America, Honolulu, which Bank of Hawaii purchased in 1990. Some of the thrift's branches are across the street from Bank of Hawaii offices, Mr. Johnson said.
"We just have too many delivery vehicles in the markets we serve," he added.
Customer accounts at the closed offices will be consolidated into the bank's remaining 75 branches statewide.
In addition to the 550-employee reduction in its Hawaii work force, the company announced a hiring moratorium through 1999.
Pacific Century's mainland subsidiaries-California United Bank of Los Angeles and Pacific Century Bank of Phoenix-will be consolidated, with headquarters in Los Angeles.
The holding company also plans to reincorporate in Delaware while keeping its corporate base in Hawaii.
"Reincorporating in Delaware is a positive move because the tax structure there can provide some cost savings," said Eric E. Rothman, an analyst with Stephens Inc., Little Rock. But Mr. Rothman and the company would not say how much those savings would be.
To cap off the quest for improved efficiency, Aston Associates, a Greenwich, Conn., corporate reengineering firm, next year will begin a nine-month project to streamline Pacific Century's internal operations.
"They are going to do a complete review of all the processes in our entire organization, with the primary purpose of helping us reach our 55% efficiency goal," Mr. Johnson said.