Bank of Hawaii Corporation Third Quarter 2013 Financial Results

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HONOLULU, HI (October 28, 2013) — Bank of Hawaii Corporation (NYSE: BOH) today reported diluted earnings per share of $0.85 for the third quarter of 2013, unchanged from the previous quarter, and down from $0.92 in the same quarter last year.  

Net income for the third quarter of 2013 was $37.7 million compared with net income of $37.8 million in the second quarter of 2013 and net income of $41.2 million in the third quarter of 2012.

“Bank of Hawaii Corporation continued to perform well during the third quarter of 2013,” said Peter Ho, Chairman, President and CEO.  “Our loan balances grew 3 percent from the second quarter and 4 percent from the third quarter last year.  Consumer and commercial deposit balances grew 2 percent from the previous quarter and 6 percent from the same quarter from last year.   The Hawaii economy is benefitting from a continued strong visitor industry and growing construction activity.  Expenses remained well controlled as did credit costs. Importantly, the steepening yield curve is beginning to have a positive impact on our net interest income and net interest margin.” 

Diluted Earnings Per Share $0.85
Net Income $37.7 Million
Board of Directors Declares Dividend of $0.45 Per Share

The return on average assets for the third quarter of 2013 was 1.09 percent, down from 1.12 percent in the previous quarter and 1.22 percent during the same quarter last year.  The return on average equity for the third quarter of 2013 was 15.02 percent, up from 14.64 percent for the second quarter of 2013 and down from 16.02 percent in the third quarter of 2012.  

For the nine-month period ended September 30, 2013, net income was $111.4 million, down from net income of $125.8 million for the same period last year.  Diluted earnings per share were $2.50 for the nine-month period in 2013 compared with diluted earnings per share of $2.77 for the same period in 2012.  The year-to-date return on average assets was 1.09 percent compared with 1.23 percent for the same period in 2012.  The year-to-date return on average equity was 14.59 percent compared with 16.49 percent for the nine months ended September 30, 2012.  
Financial Highlights  

Net interest income, on a taxable equivalent basis, for the third quarter of 2013 was $93.5 million, up $3.7 million from net interest income of $89.8 million in the second quarter of 2013 and down $2.7 million from net interest income of $96.2 million in the third quarter of 2012.  Net interest income for the nine-month period in 2013 was $274.3 million compared with net interest income of $294.0 million for the same period in 2012.  Analyses of the changes in net interest income are included in Tables 8a, 8b, and 8c.

The net interest margin was 2.83 percent for the third quarter of 2013, a 6 basis point increase from the net interest margin of 2.77 percent in the second quarter of 2013 and a 15 basis point decrease from the net interest margin of 2.98 percent in the third quarter of 2012.  The net interest margin for the first nine months of 2013 was 2.81 percent compared with 3.01 percent for the same nine-month period last year.  

Noninterest income was $45.1 million in the third quarter of 2013, a decrease of $2.9 million compared with noninterest income of $48.0 million in the second quarter of 2013, and a decrease of $7.2 million compared with noninterest income of $52.4 million in the third quarter of 2012.  Noninterest income included mortgage banking revenue of $4.1 million in the third quarter of 2013 compared with $5.8 million in the previous quarter and $11.7 million in the same quarter last year.  Noninterest income for the nine-months ended September 30, 2013 was $140.9 million, a decrease of $6.4 million compared with noninterest income of $147.3 million for the same period in 2012.

Noninterest expense was $83.0 million in the third quarter of 2013, an increase of $1.8 million compared with noninterest expense of $81.2 million in the second quarter of 2013, and a decrease of $1.9 million compared with noninterest expense of $84.9 million in the third quarter last year.  Noninterest expense in the third quarter of 2013 included separation expense of $1.8 million.  Separation expenses were $0.9 million in the second quarter of 2013 and $1.0 million in the same quarter last year.  The components of salaries and benefits are presented in Table 9.  Noninterest expense for the nine-months ended September 30, 2013 was $248.5 million, a decrease of $2.3 million compared with noninterest expense of $250.8 million for the same period in 2012.

The efficiency ratio for the third quarter of 2013 was 61.01 percent, up from 59.96 percent in the previous quarter and 58.13 percent in the same quarter last year.  The efficiency ratio for the nine-month period ended September 30, 2013 was 60.96 percent, up from 57.76 percent for the same period last year.  

The effective tax rate for the third quarter of 2013 was 28.91 percent compared with 30.33 percent in the previous quarter and 32.55 percent during the same quarter last year.  The effective tax rate for the nine-month period ended September 30, 2013 was 29.99 percent compared to 31.06 percent for the same period last year.  The lower effective tax rates during 2013 were due to the release of tax reserves and low-income housing and other tax credits.     
The Company’s business segments are defined as Retail Banking, Commercial Banking, Investment Services, and Treasury & Other.  Results are determined based on the Company’s internal financial management reporting process and organizational structure.  Selected financial information for the business segments is included in Tables 13a and 13b.  
Asset Quality

The Company’s asset quality was stable during the third quarter of 2013.  Total non-performing assets were $33.8 million at September 30, 2013, down from $36.4 million at June 30, 2013 and $40.3 million at September 30, 2012.  Non-performing assets continue to remain above historical levels due to the lengthy judicial foreclosure process for residential mortgage loans.  Non-performing assets, as a percentage of total loans and leases and foreclosed real estate, were 0.56 percent at September 30, 2013, down from 0.62 percent at June 30, 2013 and 0.70 percent at September 30, 2012.

Accruing loans and leases past due 90 days or more were $11.4 million at September 30, 2013, up from $10.6 million at June 30, 2013 and $7.5 million at September 30, 2012.  The increase in consumer delinquencies was largely due to residential mortgage loans on neighbor island properties.  Restructured loans and leases not included in non-accrual loans or accruing loans that are past due 90 days or more were $39.8 million at September 30, 2013.  Restructured loans and leases are primarily comprised of residential mortgage loans with lowered monthly payments to accommodate the borrowers’ financial needs for a period of time.  More information on non-performing assets and accruing loans and leases past due 90 days or more is presented in Table 11.

Net loans and leases charged off during the third quarter of 2013 were $0.9 million or 0.06 percent annualized of total average loans and leases outstanding.  Loan and lease charge-offs of $4.7 million during the quarter were partially offset by recoveries of $3.8 million.  Net charge-offs during the second quarter of 2013 were $2.3 million, or 0.16 percent annualized of total average loans and leases outstanding, and were comprised of $4.7 million in charge-offs partially offset by recoveries of $2.4 million.  Net charge-offs in the third quarter of 2012 were $1.5 million or 0.10 percent annualized of total average loans and leases outstanding, and were comprised of $5.0 million in charge-offs partially offset by recoveries of $3.6 million.  Net charge-offs in the nine-month period ended September 30, 2013 were $5.2 million, or 0.12 percent annualized of total average loans and leases outstanding compared with net charge-offs of $8.6 million, or 0.20 percent annualized of total average loans and leases outstanding for the same period in 2012.

The allowance for loan and lease losses was reduced to $123.7 million at September 30, 2013.  The ratio of the allowance for loan and lease losses to loans and leases outstanding was 2.06 percent at September 30, 2013, a decrease of 7 basis points from June 30, 2013.  The reserve for unfunded commitments at September 30, 2013 was $6.1 million, an increase of $0.1 million from June 30, 2013 and $0.6 million from September 30, 2012.  The increase in the reserve for unfunded commitments was primarily due to growth in commercial commitments.  Details of loan and lease charge-offs, recoveries, and the components of the total reserve for credit losses are summarized in Table 12.

Other Financial Highlights
Total assets were $13.85 billion at September 30, 2013, an increase from total assets of $13.73 billion at June 30, 2013 and total assets of $13.38 billion at September 30, 2012.  Average assets were $13.77 billion during the third quarter of 2013, up from average assets of $13.57 billion during the previous quarter and average assets of $13.49 billion during the same quarter last year.  

The total investment securities portfolio totaled $6.91 billion at September 30, 2013, an increase from total securities of $6.84 billion at June 30, 2013 and $6.60 billion at September 30, 2012.  The portfolio remains largely comprised of securities issued by U.S. government agencies and includes $4.63 billion in securities held to maturity and $2.28 billion in securities available for sale.  

Total loans and leases were $6.01 billion at September 30, 2013, up from $5.86 billion at June 30, 2013 and $5.78 billion at September 30, 2012.  The commercial loan portfolio was $2.48 billion at the end of the third quarter of 2013, up from commercial loans of $2.40 billion at the end of the second quarter of 2013 and $2.23 billion at the end of the same quarter last year.  Consumer loans were $3.53 billion at September 30, 2013, up from consumer loans of $3.46 billion at the end of the second quarter of 2013, and down slightly from $3.55 billion at the end of the third quarter last year.  Average total loans and leases were $5.89 billion during the third quarter of 2013, up from $5.78 billion during the previous quarter and $5.72 billion during the same quarter last year.  Loan and lease portfolio balances, including the higher risk loans and leases outstanding, are summarized in Table 10.

Total deposits were $11.61 billion at September 30, 2013, an increase from total deposits of $11.45 billion at June 30, 2013 and $11.22 billion at September 30, 2012 due to continued growth in consumer and commercial deposits.  Average total deposits were $11.48 billion in the third quarter of 2013, up from average deposits of $11.24 billion during the previous quarter, and up from average deposits of $11.30 billion during the same quarter last year.

During the third quarter of 2013, the Company repurchased 164.5 thousand shares of common stock at a total cost of $8.9 million under its share repurchase program.  The average cost was $54.18 per share repurchased.  From the beginning of the share repurchase program initiated during July 2001 through September 30, 2013, the Company has repurchased 50.8 million shares and returned $1.86 billion to shareholders at an average cost of $36.50 per share.  The remaining buyback authority under the share repurchase program was $39.0 million at September 30, 2013.  From October 1 through October 25, 2013, the Company repurchased an additional 19.0 thousand shares of common stock at an average cost of $55.31 per share.  

Total shareholders’ equity was $0.99 billion at September 30, 2013, up slightly from June 30, 2013 and down from $1.02 billion at September 30, 2012.  The ratio of tangible common equity to risk-weighted assets was 15.43 percent at the end of the third quarter of 2013, compared with 15.65 percent at the end of the second quarter of 2013, and 17.43 percent at the end of the same quarter last year.  The Tier 1 leverage ratio at September 30, 2013 was 6.95 percent, unchanged from June 30, 2013 and up from 6.78 percent at September 30, 2012.

The Company’s Board of Directors declared a quarterly cash dividend of $0.45 per share on the Company’s outstanding shares.  The dividend will be payable on December 13, 2013 to shareholders of record at the close of business on November 29, 2013.  

Hawaii Economy
General economic conditions in Hawaii continued to improve during the third quarter of 2013, led by a strong tourism industry, relatively low unemployment, and rising real estate prices.  For the first eight months of 2013, total visitor arrivals and visitor spending both increased by 5.1% compared to the same period in 2012.  We continue to experience strong visitor spending growth from U.S. Mainland visitors.  The statewide seasonally-adjusted unemployment rate was at 4.3% in August 2013, compared to 7.3% nationally.  For the first nine months of 2013, the volume of single-family home sales on Oahu was 7.0% higher compared to the same period in 2012 while the volume of condominium sales on Oahu was 16.5% higher compared to the same period in 2012.  The median price of single-family home sales on Oahu was 3.3% higher for the first nine months of 2013 compared to same period in 2012, while the median price of condominium sales on Oahu was 5.4% higher compared to the same period in 2012.  As of September 30, 2013, months of inventory of single-family homes and condominiums on Oahu remained low at approximately 2.8 months and 3.0 months, respectively.  

Conference Call Information
The Company will review its third quarter 2013 financial results today at 8:00 a.m. Hawaii Time.  The conference call will be accessible via teleconference and via the Investor Relations link of Bank of Hawaii Corporation’s website, www.boh.com.  Conference call participants located in the United States or Canada should dial 1 (800) 447-0521.  All other international call participants should dial 1 (847) 413-3238.  Use the pass code “Bank of Hawaii” to access the call.  A replay will be available for one week beginning Monday, October 28, 2013 by calling 1 (888) 843-7419 in the United States or Canada and 1 (630) 652-3042 from other international locations and entering the pass code number 35825438# when prompted.  A replay will also be available via the Investor Relations link on the Company’s website.

Forward-Looking Statements
This news release, and other statements made by the Company in connection with it may contain “forward-looking statements”, such as forecasts of our financial results and condition, expectations for our operations and business prospects, and our assumptions used in those forecasts and expectations.  Do not unduly rely on forward-looking statements.  Actual results might differ significantly from our forecasts and expectations because of a variety of factors. More information about these factors is contained in Bank of Hawaii Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the U.S. Securities and Exchange Commission.  We have not committed to update forward-looking statements to reflect later events or circumstances.

Bank of Hawaii Corporation is a regional financial services company serving businesses, consumers and governments in Hawaii, American Samoa and the West Pacific.  The Company’s principal subsidiary, Bank of Hawaii, was founded in 1897 and is the largest independent financial institution in Hawaii.  For more information about Bank of Hawaii Corporation, see the Company’s web site, www.boh.com.