Bank of Hawaii Corporation 2012 Financial Results

Bank of Hawaii Corporation 2012 Financial Results

• 2012 Diluted Earnings Per Share $3.67

• 2012 Net Income $166.1 Million

• Diluted Earnings Per Share for the Fourth Quarter of 2012 $0.90

• Net Income for the Fourth Quarter of 2012 $40.3 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 $0.90 for the fourth quarter of 2012, down from $0.92 per share in the previous quarter, and up from $0.85 per share in the same quarter last year. Net income for the fourth quarter of 2012 was $40.3 million, compared to net income of $41.2 million in the third quarter of 2012 and $39.2 million in the same quarter last year.

Loan and lease balances were $5.9 billion at December 31, 2012, up 5.7 percent compared with December 31, 2011. Deposit growth remained strong during the quarter, increasing 8.8 percent to $11.5 billion at December 31, 2012. The allowance for loan and lease losses decreased by $2.1 million from the third quarter to $128.9 million at December 31, 2012 and represents 2.20 percent of outstanding loans and leases.

"We are very pleased with the continued stability and strength of our earnings," said Peter S. Ho, Chairman, President, and CEO. "During the quarter loan balances increased across most categories and deposits continued to grow. Credit quality remained solid, our balance sheet and capital ratios are strong, and we maintained our focus on disciplined expense management."

The return on average assets for the fourth quarter of 2012 was 1.19 percent, compared with 1.22 percent in the previous quarter and 1.17 percent in the same quarter last year. The return on average equity for the fourth quarter of 2012 was 15.47 percent, compared with 16.02 percent in the previous quarter and 15.23 percent in the same quarter last year. The return on average assets for the full year of 2012 was 1.22 percent, unchanged from 2011. The return on average equity for the full year of 2012 was 16.23 percent, an increase from the return on average equity of 15.69 percent in 2011.

Financial Highlights

Net interest income, on a taxable-equivalent basis, for the fourth quarter of 2012 was $92.7 million, down $3.5 million from net interest income of $96.2 million in the third quarter of 2012 and down $4.5 million from net interest income of $97.2 million in the fourth quarter last year. Net interest income, on a taxable-equivalent basis, for the full year of 2012 was $386.7 million, a decrease of $5.6 million from net interest income of $392.3 million in 2011. Analyses of changes in net interest income are included in Tables 8a, 8b and 8c.

The net interest margin was 2.87 percent for the fourth quarter of 2012, an 11 basis point decrease from the previous quarter and a 17 basis point decrease from the same quarter last year. The net interest margin for the full year of 2012 was 2.97 percent, a 16 basis point decrease from 3.13 percent in 2011. The reduction in the net interest margin was largely the result of lower interest rates which resulted in decreased yields on loans and investments.

During the fourth and third quarters of 2012, the Company did not record a provision for credit losses. Net loans and leases charged-off were $2.1 million in the fourth quarter of 2012 and $1.5 million in the third quarter of 2012. During the fourth quarter of 2011 the provision for credit losses was $2.2 million, or $4.8 million less than net charge-offs. The provision for credit losses for the full year of 2012 was $1.0 million compared with $12.7 million in 2011.

Noninterest income was $53.0 million for the fourth quarter of 2012, up $0.6 million or 1.2 percent compared with noninterest income of $52.4 million in the third quarter of 2012 and up $9.6 million or 22.1 percent compared with noninterest income of $43.4 million in the fourth quarter of 2011. The increase compared with the prior year quarter was largely due to strong mortgage banking revenue of $11.3 million during the fourth quarter of 2012 compared with $3.4 million in the fourth quarter last year. Noninterest income for the full year of 2012 was $200.3 million compared with noninterest income of $197.7 million in 2011.

Noninterest expense was $83.5 million in the fourth quarter of 2012, down $1.4 million or 1.7 percent from noninterest expense of $84.9 million in the third quarter of 2012, and down $0.9 million or 1.1 percent from noninterest expenses of $84.4 million in the fourth quarter of 2011. Noninterest expense in the fourth quarter of 2012 included total charges of $1.5 million related to the Company's previously announced plans to close two branches in American Samoa. Noninterest expense in the third quarter of 2012 included an increase in profit sharing and incentive accruals of $1.0 million, $1.0 million related to the launch of a new consumer credit card product, and $1.0 million in separation expense. There were no significant noninterest expense items in the fourth quarter of 2011. Noninterest expense for the full year of 2012 was $334.3 million, down $13.9 million from noninterest expense of $348.2 million in 2011. Results for 2011 included a second quarter litigation settlement of $9.0 million.

The efficiency ratio for the fourth quarter of 2012 was 58.24 percent compared with 58.13 percent in the previous quarter and 60.42 percent in the same quarter last year. The efficiency ratio for the full year of 2012 was 57.88 percent compared with 59.23 percent during the full year of 2011.

The effective tax rate for the fourth quarter of 2012 was 32.67 percent compared with 32.55 percent in the previous quarter and 26.06 percent in the same quarter last year. The effective tax rate for the full year of 2012 was 31.46 percent compared with 29.49 percent for the full year of 2011. The effective tax rate for the fourth quarter of 2011 was favorably impacted by the release of tax reserves determined during the quarter.

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 in the fourth quarter of 2012 reflects the improving Hawaii economy. Total non-performing assets decreased to $37.1 million at December 31, 2012 compared with $40.3 million at September 30, 2012 and $40.8 million at December 31, 2011. As a percentage of total loans and leases, including foreclosed real estate; non-performing assets were 0.63 percent at the end of the fourth quarter of 2012, down from 0.70 percent as of the end of the third quarter and 0.74 percent at the end of the fourth quarter last year.

Accruing loans and leases past due 90 days or more were $10.4 million at December 31, 2012, up from $7.5 million at September 30, 2012 and $9.2 million at December 30, 2011. The increase in accruing loan and leases past due compared with the prior quarter is in residential mortgages and are three loans that are expected to return to current status. Restructured loans not included in non-accrual loans or accruing loans past due 90 days or more were $31.8 million at December 31, 2012, up slightly from $31.4 million at September 30, 2012, and down from $33.7 million at December 31, 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 charge-offs during the fourth quarter of 2012 were $2.1 million or 0.15 percent annualized of total average loans and leases outstanding. Loan and lease charge-offs of $5.4 million during the quarter were partially offset by recoveries of $3.3 million. Net charge-offs during the third quarter of 2012 were $1.5 million or 0.10 percent annualized, and were comprised of charge-offs of $5.0 million and recoveries of $3.5 million. Net charge-offs during the fourth quarter of 2011 were $7.0 million, or 0.51 percent annualized, and were comprised of charge-offs of $9.6 million and recoveries of $2.6 million. Net charge-offs for the full year of 2012 were $10.7 million, or 0.19 percent of total average loans and leases, down from $21.4 million, or 0.40 percent of total average loans and leases in 2011.

The allowance for loan and lease losses was $128.9 million at December 31, 2012, down $2.1 million from the allowance for loan and lease losses of $131.0 million at September 30, 2012 and down $9.7 million from the allowance for loan and lease losses of $138.6 million at December 31, 2011. The ratio of the allowance for loan and lease losses to total loans and leases was 2.20 percent at December 31, 2012, a decrease of 7 basis points from the previous quarter and 30 basis points from the same quarter last year. The reserve for unfunded commitments at December 31, 2012 was unchanged from September 30, 2012 and remained 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 increased to $13.73 billion at December 31, 2012, up $345.9 million from total assets of $13.38 billion at September 30, 2012, and down $118.0 million from total assets of $13.85 billion at December 31, 2011. Average total assets were $13.52 billion during the fourth quarter of 2012, up $25.7 million from average total assets of $13.49 billion during the third quarter of 2012, and up $158.9 million from average total assets of $13.36 billion during the fourth quarter of 2011.

Total loans and leases grew to $5.85 billion at December 31, 2012, up $72.2 million or 1.2 percent from total loans and leases of $5.78 billion at the end of the previous quarter, and up $316.2 million or 5.7 percent from total loans and leases of $5.54 billion at December 31, 2011. Average total loans and leases were $5.80 billion during the fourth quarter of 2012, up from $5.72 billion during the previous quarter, and up from $5.42 billion during the same quarter last year. Loan and lease portfolio balances, including the higher risk loans outstanding, are summarized in Table 10.

Deposit generation continued to remain strong during the fourth quarter of 2012, increasing to $11.53 billion at December 31, 2012, up $308.9 million or 2.8 percent from total deposits of $11.22 billion at September 30, 2012, and up $936.9 million or 8.8 percent from total deposits of $10.59 billion at December 31, 2011. Securities sold under agreements to repurchase were $758.9 million at December 31, 2012, down $59.1 million from $818.1 million at September 30, 2012, and down $1.17 billion from $1.93 billion at December 31, 2011. Average total deposits were $11.38 billion in the fourth quarter of 2012, higher than average deposits of $11.30 billion during the previous quarter, and up from average deposits of $10.16 billion during the same quarter last year. Deposit balances are summarized in Tables 7a, 7b, and 10.

Long-term debt was $128.1 million at December 31, 2012, up from $28.1 million at September 30, 2012 and $30.7 million at December 31, 2011. The increase in long-term debt was primarily for asset/liability management purposes.

As a result of the strong deposit growth, which exceeded loan growth during the fourth quarter, the investment portfolio increased to $6.96 billion at December 31, 2012, compared to $6.60 billion at September 30, 2012, and was down slightly from $7.11 billion at December 31, 2011. The investment portfolio remains largely comprised of securities issued by U. S. government agencies.

During the fourth quarter of 2012, the Company repurchased 339.0 thousand shares of common stock at a total cost of $14.9 million under its share repurchase program. The average cost was $44.06 per share repurchased. From January 2 through January 25, 2013, the Company repurchased an additional 34.0 thousand shares of common stock at an average cost of $46.60 per share repurchased. From the beginning of the share repurchase program initiated during July 2001 through December 31, 2012, the Company has repurchased 50.3 million shares and returned over $1.8 billion to shareholders at an average cost of $36.34 per share. Remaining buyback authority under the share repurchase program was $67.9 million at January 25, 2013.

Total shareholders' equity was $1.02 billion at December 31, 2012, down slightly from September 30, 2012, and up from $1.00 billion at December 31, 2011. The ratio of tangible common equity to risk-weighted assets was 17.24 percent at December 31, 2012 compared with 17.43 percent at September 30, 2012 and 17.93 percent at December 31, 2011. The Tier 1 leverage ratio at December 31, 2012 was 6.83 percent, up from 6.78 percent at September 30, 2012 and 6.73 percent at December 31, 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 March 14, 2013 to shareholders of record at the close of business on February 28, 2013.

Hawaii Economy

Hawaii's economy continued to improve during the fourth quarter of 2012 primarily due to a strong visitor industry. A record 8.0 million total visitors arrived in Hawaii during 2012, up 9.6 percent compared with 2011, and exceeding the previous high of 7.6 million visitors during 2006. Total visitor spending reached a record high of $14.3 billion in 2012, up 18.7 percent compared with 2011, and was largely due to strong spending by international visitors. The statewide seasonally-adjusted unemployment rate continued to decline during the fourth quarter of 2012 to 5.2% in December compared with 7.8% nationally. Median sales prices for single-family homes and condominiums as well as closed sales on Oahu increased during 2012 compared with the prior year. Months of inventory at December 31, 2012 for single-family homes on Oahu declined to 2.5 and 3.0 for condominiums. More information on current Hawaii economic trends is presented in Table 15.

Conference Call Information

The Company will review its 2012 financial results today at 8:00 a.m. Hawaii Time (1:00 p.m. Eastern Time). The call will be accessible via teleconference and via the Investor Relations link of Bank of Hawaii Corporation's web site, www.boh.com. The conference call number for participants in the United States is 800-299-9086. International participants should call 617-786-2903. Use the pass code "Bank of Hawaii" to access the call. A replay of the conference call will be available for one week beginning Wednesday, January 30, 2013 by calling 888-286-8010 in the United States or 617-801-6888 internationally and entering the number 46643910 when prompted. A replay will also be available via the Investor Relations link of the Company's web site.

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 do not promise 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.