Bank of Hawaii Corporation Third Quarter 2012 Financial Results

Bank of Hawaii Corporation Third Quarter 2012 Financial Results

• Diluted Earnings Per Share $0.92

• Net Income for the Quarter $41.2 Million

• Board of Directors Declares Dividend of $0.45 Per Share

HONOLULU--(BUSINESS WIRE)-- Bank of Hawaii Corporation (NYS: BOH) today reported diluted earnings per share of $0.92 for the third quarter of 2012, up $0.02 from diluted earnings per share of $0.90 in the second quarter of 2012 and unchanged from diluted earnings per share of $0.92 in the third quarter of 2011. Net income for the third quarter was $41.2 million, up $0.5 million compared to net income of $40.7 million in the previous quarter, and down $2.1 million from net income of $43.3 million in the same quarter last year.

Loans grew 2.0 percent during the third quarter with loan and lease balances increasing to $5.78 billion at September 30, 2012. Total deposits declined during the third quarter of 2012 due to management's planned reduction in government time deposits. The net interest margin remained stable at 2.98 percent. The allowance for loan and lease losses decreased by $1.5 million to $131.0 million and represented 2.27 percent of outstanding loans and leases at September 30, 2012.

"Bank of Hawaii Corporation had good results for the third quarter of 2012," said Peter S. Ho, Chairman, President, and CEO. "We were pleased to see the growth in total loans this quarter and strong mortgage banking results. Our overall credit quality is improving, which allowed us to further reduce our reserves. Capital continues to be strong."

The return on average assets for the third quarter of 2012 was 1.22 percent, up from 1.19 percent in the second quarter of 2012. The return on average equity for the third quarter was 16.02 percent compared to 16.19 percent for the previous quarter. The efficiency ratio for the third quarter of 2012 was 58.13 percent compared to 56.77 percent in the previous quarter.

For the nine months ended September 30, 2012, net income was $125.8 million, up $5.0 million compared to net income of $120.8 million for the same period last year. Diluted earnings per share were $2.77 for the nine-month period in 2012, up $0.23 from diluted earnings per share of $2.54 for the same period in 2011. The year-to-date return on average assets was 1.23 percent compared to 1.24 percent for the same period in 2011. The year-to-date return on average equity was 16.49 percent, up from 15.85 percent for the nine months ended September 30, 2011. The efficiency ratio for the nine-month period ended September 30, 2012 was 57.76 percent, down from 58.86 percent for the same period last year.

Results for the nine months ended September 30, 2012 included a gain of $3.5 million on the early termination of leveraged leases for two cargo ships offset by a loss of $1.0 million on the sale of an aircraft lease, expenses of $1.2 million for the final phase of a refresh of the Company's personal computers, and expenses of $1.0 million related to the launch of a new consumer credit card product. Results for the same period in 2011 included net gains of $6.1 million on the sales of investment securities and a gain of $2.0 million related to a contingent payment from the sale of the Company's proprietary mutual funds in 2010. These gains were offset by a litigation settlement of $9.0 million and a $2.0 million donation to the Bank of Hawaii Foundation.

Financial Highlights

Net interest income, on a taxable-equivalent basis, for the third quarter of 2012 was $96.2 million, down $1.7 million from net interest income of $97.9 million in the second quarter of 2012, and down $0.9 million from net interest income of $97.1 million in the third quarter of 2011. For the nine months ended September 30, 2012, net interest income, on a taxable-equivalent basis, was $294.0 million compared to $295.1 million for the same period in 2011. Analyses of the changes in net interest income are included in Tables 8a, 8b and 8c.

The net interest margin was 2.98 percent for the third quarter of 2012, unchanged from the second quarter of 2012, and down 11 basis points from the net interest margin of 3.09 percent in the third quarter of 2011. For the nine months ended September 30, 2012, the net interest margin was 3.01 percent compared to 3.16 percent for the same nine months in 2011.

During the third quarter of 2012 the Company did not record a provision for credit losses, although net charge-offs were $1.5 million during the quarter. During the second quarter of 2012 the provision for credit losses was $0.6 million, or $3.2 million less than net charge-offs. During the third quarter of 2011 the provision for credit losses was $2.2 million, or $1.6 million less than net charge-offs. For the nine months ended September 30, 2012, the provision for credit losses was $1.0 million compared to $10.5 million for the same period in 2011.

Noninterest income was $52.4 million for the third quarter of 2012; an increase of $5.5 million compared to noninterest income of $46.8 million in the second quarter of 2012, and was up $1.5 million from noninterest income of $50.9 million in the third quarter of 2011. Mortgage banking produced noninterest income of $11.7 million in the third quarter of 2012 compared to $7.6 million in the second quarter of 2012 and $5.5 million in the third quarter last year. There were no significant nonrecurring noninterest income items during the third quarter or second quarter of 2012. Noninterest income in the third quarter of 2011 included a $2.0 million gain related to a contingent payment from the sale of the Company's proprietary mutual funds in 2010.

Noninterest expense was $84.9 million in the third quarter of 2012, up $4.1 million from noninterest expense of $80.7 million in the previous quarter, and up $0.9 million from noninterest expense of $84.0 million in the same quarter last year. Noninterest expense in the third quarter of 2012 included an increase in profit sharing and incentive accruals of $1.0 million, which is based in part on higher overall earnings, expenses of $1.0 million related to the launch of a new consumer credit card product, and $1.0 million in separation expense. In addition, mortgage banking expenses, including overtime and commissions were elevated due to the increased mortgage banking activity. There were no significant nonrecurring noninterest expense items during the second quarter of 2012. Noninterest expense in the third quarter of 2011 included a donation of $2.0 million to the Bank of Hawaii Foundation. An analysis of salary and benefit expenses is included in Table 9.

The effective tax rate for the third quarter of 2012 was 32.55 percent compared to 33.04 percent in the previous quarter and 29.58 percent in the same quarter last year. The effective tax rate for the nine-month period ended September 30, 2012 was 31.06 percent compared to 30.54 percent for the same period last year.

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 overall asset quality continued to improve during the third quarter of 2012. Total non-performing assets were $40.3 million at September 30, 2012, down from $41.5 million at June 30, 2012. Non-performing assets remain elevated above historical levels due to the lengthy judiciary foreclosure process for residential mortgage loans. As a percentage of total loans and leases and foreclosed real estate, non-performing assets were 0.70 percent at September 30, 2012, down from 0.73 percent at June 30, 2012 and 0.71 percent at September 30, 2011.

Accruing loans and leases past due 90 days or more were $7.5 million at September 30, 2012, up slightly from $7.2 million at June 30, 2012 and down from $10.9 million at September 30, 2011. Restructured loans not included in non-accrual loans or accruing loans past due 90 days or more were $31.4 million at September 30, 2012, up slightly from $31.1 million at June 30, 2012 and down from $33.1 million at September 30, 2011. Restructured loans 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 2012 were $1.5 million or 0.10 percent annualized of total average loans and leases outstanding. Loan and lease charge-offs of $5.0 million during the quarter were partially offset by recoveries of $3.6 million. Net charge-offs in the second quarter of 2012 were $3.8 million, or 0.27 percent annualized of total average loans and leases outstanding, and comprised of $5.9 million in charge-offs partially offset by recoveries of $2.1 million. Net charge-offs during the third quarter of 2011 were $3.7 million or 0.28 percent annualized of total average loans and leases outstanding, and comprised of $10.8 million in charge-offs partially offset by recoveries of $7.0 million. Net charge-offs during the nine months ended September 30, 2012 were $8.6 million or 0.20 percent annualized compared to $14.4 million or 0.36 percent annualized for the same period in 2011.

The allowance for loan and lease losses was $131.0 million at September 30, 2012, down $1.5 million from the allowance for loan and lease losses of $132.4 million at June 30, 2012 and $143.4 million at September 30, 2011. The ratio of the allowance for loan and lease losses to total loans and leases was 2.27 percent at September 30, 2012, down from 2.34 percent at June 30, 2012 and 2.68 percent at September 30, 2011. The reserve for unfunded commitments at September 30, 2012 was unchanged at $5.4 million. 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 $13.38 billion at September 30, 2012, down from total assets of $13.92 billion at June 30, 2012, and up from $13.30 billion at September 30, 2011. Average total assets were $13.49 billion during the third quarter of 2012, down from average assets of $13.75 billion during the previous quarter, and up from $13.13 billion during the third quarter last year.

Total loans and leases were $5.78 billion at September 30, 2012, up from $5.67 billion at June 30, 2012, and up from $5.35 billion at September 30, 2011 with growth in all categories except lease financing and residential lending. Average total loans and leases were $5.72 billion during the third quarter of 2012, up from $5.64 billion during the previous quarter, and up from $5.34 billion during the third quarter last year. Loan and lease portfolio balances, including the higher risk loans outstanding, are summarized in Table 10.

Consumer and commercial deposits remained stable during the third quarter of 2012. Total deposit balances declined to $11.22 billion at September 30, 2012 primarily due to the previously mentioned decrease in public time deposits. Average total deposits were $11.30 billion in the third quarter of 2012, up from average deposits of $10.62 billion during the previous quarter, and up from $9.87 billion during the third quarter last year. Deposit balances are summarized in Tables 7a, 7b, and 10.

As a result of the reduction in deposits and increase in loans, the investment securities portfolio decreased to $6.60 billion at September 30, 2012, compared to $7.07 billion at June 30, 2012, and $6.97 billion at September 30, 2011.

During the third quarter of 2012, the Company repurchased 312.9 thousand shares of common stock at a total cost of $14.5 million under its share repurchase program. The average cost was $46.62 per share repurchased. From the beginning of the share repurchase program initiated during July 2001 through September 30, 2012, the Company has repurchased 49.9 million shares and returned over $1.8 billion to shareholders at an average cost of $36.28 per share. From October 1 through October 19, 2012, the Company repurchased an additional 87.5 thousand shares of common stock at an average cost of $44.83 per share repurchased. Remaining buyback authority under the share repurchase program was $80.5 million at October 19, 2012.

Total shareholders' equity was $1.02 billion at September 30, 2012, up from $1.00 billion at June 30, 2012 and relatively unchanged from September 30, 2011. The ratio of tangible common equity to risk-weighted assets was 17.43 percent at September 30, 2012, compared to 17.57 percent at June 30, 2012 and 18.90 percent at September 30, 2011. The Tier 1 leverage ratio at September 30, 2012 was 6.78 percent, up from 6.57 percent at June 30, 2012 and down from 6.95 percent at September 30, 2011.

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 14, 2012 to shareholders of record at the close of business on November 30, 2012.

Hawaii Economy

Hawaii's economy continued to improve during the third quarter of 2012 primarily due to increasing visitor arrivals and spending. For the first eight months of 2012, total visitor arrivals increased 10.0 percent and visitor spending increased by 20.0 percent compared to the same period in 2011. The most significant growth continues to come from international markets. During 2012, hotel occupancy and revenue per available room also continued to improve. The statewide seasonally adjusted unemployment rate declined to 5.7% in September 2012, compared to 7.8% nationally. The median sales price for single-family homes and condominiums as well as closed sales on Oahu have increased through August 2012 compared to the prior year.

Conference Call Information

The Company will review its third quarter 2012 financial results today at 8:00 a.m. Hawaii Time. The conference call will be accessible via teleconference and the Investor Relations link of Bank of Hawaii Corporation's web site, www.boh.com. Conference call participants in the United States should dial 888-299-8538 and international participants should dial 617-786-2902. Use the pass code "Bank of Hawaii" to access the call. A replay of the call will be available for one week beginning Monday, October 22, 2012 by dialing 888-286-8010 in the United States or 617-801-6888 internationally and entering the pass code number 71907319 when prompted. A replay will also be available via the Investor Relations link of the Company's web site, www.boh.com.

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, 2011, 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.