Pacific Century Beats Its Cost-Cutting Timetable

Less than halfway through a two-year cost-cutting campaign, Pacific Century Financial Corp. is well ahead of schedule, according to chief executive officer Lawrence Johnson.

As of last week, the parent of Bank of Hawaii had shuttered 27 branches, 15 months before a company-imposed deadline.

The Honolulu-based company said in February it would close 25 branches as part of an effort to pare $25 million from annual expenses by 2000.

"It's a very pleasant surprise," Mr. Johnson said in an interview last week. "We planned well, executed well, and everything so far has happened to work out well."

The branch closings have already started to boost Pacific Century's performance, which had been dragged down by seven years of local economic sluggishness. The bank's efficiency ratio, which measures expenses as a percentage of revenues, improved to 66.4% in the third quarter from 67.6% in the second.

That is still well above the goal of 55%, but analysts said they were encouraged by the early results.

"They are on the right track," said Eric E. Rothmann, an analyst at Stephens Inc. in Little Rock, Ark. "Management is very methodical, and this shows their strong capabilities, especially when they are in an economy that is working against them."

Through the branch closures, the bank is aiming to eliminate 400 positions by 2000. So far, 250 have been cut.

Annual savings of $22 million from the branch closings are expected to boost fourth-quarter earnings slightly. But the real benefits will begin to kick in during the first quarter of 1999, Mr. Johnson said.

Several other steps have been taken to streamline the organization, he said. Pacific Century's mainland subsidiaries-California United Bank of Los Angeles and Pacific Century Bank of Phoenix-were consolidated in August, with headquarters in Los Angeles. Thirty jobs were cut in the process, Mr. Johnson said.

Further reducing costs, the $15 billion-asset bank this month turned its debit and credit card processing over to Total System Services Inc. of Columbus, Ga. That move eliminated 60 positions and should cut annual costs by $2.5 million, the bank said.

Outsourcing arrangements like this are especially crucial for companies located in Hawaii, according to James R. Bradshaw, an analyst with Pacific Crest Securities, Portland, Ore.

"Land and labor are so expensive on the islands that it's important to outsource anything you can to the mainland," Mr. Bradshaw said.

Further savings are expected from a nine-month project, to start in March, that would streamline Pacific Century's internal operations. The bank has hired Aston Associates, a Greenwich, Conn., corporate reengineering firm, to conduct that project.

"It will be a top-down and bottom-up process, and they will look everywhere in the organization for any way to enhance revenue and decrease expenses," Mr. Johnson said.

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