Bank of Hawaii Corporation Second Quarter 2013 Financial Results

Bank of Hawaii Corporation Second Quarter 2013 Financial Results

  • Diluted Earnings Per Share $0.85

  • Net Income $37.8 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 $0.85 for the second quarter of 2013, up from $0.81 in the previous quarter, and down from $0.90 in the same quarter last year. Net income for the second quarter of 2013 was $37.8 million, an increase of $1.8 million or 5.0 percent compared with net income of $36.0 million in the first quarter of 2013, and down $3.0 million or 7.3 percent from net income of $40.7 million in the second quarter of 2012.

"Bank of Hawaii Corporation continued its trend of solid performance in the second quarter of 2013," said Peter Ho, Chairman, President and CEO. "Overall loan balances grew 3% from the same quarter last year as strong commercial, indirect automobile and certain other consumer loan growth was partially offset by refinance sensitive loan categories namely residential mortgage and home equity loans. The organization continues to attract quality deposits with consumer and commercial deposit balances up 4% in the quarter from last year. Asset quality continued its trend of improvement in the quarter with lower levels of non-performing assets and a lower ratio of net charge offs to loans. Expenses remained controlled. The recent trend in higher interest rates should positively impact our operating earnings over time through improved net interest margin. We would note, however, that nearer term, we will likely see a meaningful slowing in our mortgage banking business as the refinance market potentially slows and the purchase market remains impacted by exceptionally tight housing inventory."


The return on average assets for the second quarter of 2013 was 1.12 percent, up from 1.08 percent in the previous quarter, and down from 1.19 percent during the same quarter last year. The return on average equity for the second quarter of 2013 was 14.64 percent compared with 14.10 percent for the first quarter of 2013 and 16.19 percent in the second quarter of 2012.

For the six-month period ended June 30, 2013, net income was $73.7 million, down from net income of $84.6 million for the same period last year. Diluted earnings per share were $1.65 for the first half of 2013, down from diluted earnings per share of $1.85 for the first half of 2012. The year-to-date return on average assets was 1.10 percent, down from 1.24 percent for the same six months in 2012. The year-to-date return on average equity was 14.37 percent, down from 16.73 percent for the six months ended June 30, 2012.

Financial Highlights

Net interest income, on a taxable equivalent basis, for the second quarter of 2013 was $89.8 million, down $1.2 million from net interest income of $91.0 million in the first quarter of 2013 and down $8.1 million from net interest income of $97.9 million in the second quarter of 2012. Net interest income for the first half of 2013 was $180.8 million compared with net interest income of $197.9 million for the first half of 2012. Analyses of the changes in net interest income are included in Tables 8a, 8b, and 8c.

The net interest margin was 2.77 percent for the second quarter of 2013, a 5 basis point decrease from the net interest margin of 2.82 percent in the first quarter of 2013 and a 21 basis point decrease from the net interest margin of 2.98 percent in the second quarter of 2012. The net interest margin for the first six months of 2013 was 2.80 percent compared with 3.02 percent for the same six-month period last year. The decrease in the net interest margin was primarily due to increased levels of liquidity and lower yields on loans and investment securities.

The Company did not record a provision for credit losses during the first or second quarters of 2013. Net loans and leases charged-off were $2.3 million in the second quarter of 2013 and $2.0 million in the first quarter of 2013. The provision for credit losses during the second quarter of 2012 was $0.6 million, or $3.2 million less than net charge-offs.

Noninterest income was $48.0 million in the second quarter of 2013, an increase of $0.3 million compared with noninterest income of $47.8 million in the first quarter of 2013, and an increase of $1.2 million compared with noninterest income of $46.8 million in the second quarter of 2012. Noninterest income included mortgage banking revenue of $5.8 million in the second quarter of 2013 compared with $6.4 million in the previous quarter and $7.6 million in the same quarter last year. Noninterest income for the first half of 2013 was $95.8 million, an increase of $0.9 million compared with noninterest income of $94.9 million for the first half of 2012.

Noninterest expense was $81.2 million in the second quarter of 2013, down $3.2 million compared with $84.4 million in the first quarter of 2013, and up $0.4 million compared with $80.7 million in the second quarter last year. Noninterest expense in the first quarter of 2013 included seasonal payroll-related expenses of approximately $3.0 million and separation expense of $1.5 million. Separation expenses were $0.9 million in the second quarter of 2013 and $0.4 million in the same quarter last year. An analysis of noninterest expenses related to salaries and benefits is included in Table 9. Noninterest expense for the first half of 2013 was $165.6 million, a decrease of $0.4 million compared with noninterest expense of $166.0 million for the first half of 2012.

The efficiency ratio for the second quarter of 2013 was 59.96 percent, down from 61.90 percent in the previous quarter and up from 56.77 percent in the same quarter last year. The efficiency ratio for the first half of 2013 was 60.93 percent compared with 57.57 percent in the same period last year.

The effective tax rate for the second quarter of 2013 was 30.33 percent compared with 30.74 percent in the previous quarter and 33.04 percent during the same quarter last year. The lower effective tax rates during 2013 are 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 overall asset quality remained strong during the second quarter of 2013. Total non-performing assets were $36.4 million at June 30, 2013, down from $38.4 million at March 31, 2013 and down from $41.5 million at June 30, 2012. Non-performing assets remain above historical levels due to the lengthy judicial foreclosure process for residential mortgage loans. As a percentage of total loans and leases and foreclosed real estate, non-performing assets were 0.62 percent at June 30, 2013, down from 0.66 percent at March 31, 2013 and down from 0.73 percent at June 30, 2012.

Accruing loans and leases past due 90 days or more were $10.6 million at June 30, 2013, down from $11.7 million at March 31, 2013 and up from $7.2 million at June 30, 2012. The increase in consumer delinquencies compared with the prior year was largely due to residential mortgage loans and home equity loans, primarily 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 $39.2 million at June 30, 2013 and 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 second quarter of 2013 were $2.3 million or 0.16 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 $2.4 million. Net charge-offs during the first quarter of 2013 were $2.0 million, or 0.14 percent annualized of total average loans and leases outstanding, and were comprised of $5.3 million in charge-offs partially offset by recoveries of $3.3 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 were comprised of $5.9 million in charge-offs partially offset by recoveries of $2.1 million. Net charge-offs in the first half of 2013 were $4.3 million, or 0.15 percent annualized of total average loans and leases outstanding compared with net charge-offs of $7.1 million, or 0.26 percent annualized of total average loans and leases outstanding for the first half of 2012.

The allowance for loan and lease losses was reduced to $124.6 million at June 30, 2013. The ratio of the allowance for loan and lease losses to total loans and leases was 2.13 percent at June 30, 2013, a decrease of 6 basis points from the previous quarter and commensurate with improvements in credit quality and the Hawaii economy. The reserve for unfunded commitments at June 30, 2013 was $5.9 million, an increase of $0.5 million or 9% from the balance at March 31, 2013 and June 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 $13.73 billion at June 30, 2013, up from total assets of $13.53 billion at March 31, 2013 and down from total assets of $13.92 billion at June 30, 2012. Average total assets were $13.57 billion during the second quarter of 2013, up from $13.56 billion during the previous quarter and down from $13.75 billion during the same quarter last year.

The total investment securities portfolio totaled $6.84 billion at June 30, 2013, down from $6.89 billion at March 31, 2013 and $7.07 billion at June 30, 2012. The portfolio remains largely comprised of securities issued by U.S. government agencies.

Total loans and leases were $5.86 billion at June 30, 2013, up from $5.78 billion at March 31, 2013 and $5.67 billion at June 30, 2012. The commercial loan portfolio was $2.40 billion at the end of the second quarter of 2013, up from commercial loans of $2.33 billion at the end of the first quarter of 2013 and $2.12 billion at the end of the same quarter last year. Consumer loans were $3.46 billion at the end of the second quarter of 2013, up slightly from the end of the first quarter of 2013, and down from $3.55 billion at the end of the second quarter of 2012 due to a decline in the residential mortgage and home equity loan portfolios that offset growth in other consumer lending. Average total loans and leases were $5.78 billion during the second quarter of 2013, down from $5.80 billion during the first quarter of 2013 and up from average total loans and leases of $5.64 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 $11.45 billion at June 30, 2013, up from $11.25 billion at March 31, 2013 due to growth in nearly all deposit categories. Total deposits were down from $11.55 billion at June 30, 2012 primarily due to a reduction in public deposits. Average total deposits were $11.24 billion in the second quarter of 2013, down from average deposits of $11.29 billion during the previous quarter, and up from average deposits of $10.62 billion during the same quarter last year.

During the second quarter of 2013, the Company repurchased 304.6 thousand shares of common stock at a total cost of $15.0 million under its share repurchase program. The average cost was $49.22 per share repurchased. From the beginning of the share repurchase program initiated during July 2001 through June 30, 2013, the Company has repurchased 50.7 million shares and returned over $1.8 billion to shareholders at an average cost of $36.44 per share. Remaining buyback authority under the share repurchase program was $47.9 million at June 30, 2013. From July 1 through July 19, 2013, the Company has repurchased an additional 70.0 thousand shares of common stock at an average cost of $53.51 per share.

Total shareholders' equity was $0.99 billion at June 30, 2013, compared with $1.03 billion at March 31, 2013 and $1.0 billion at June 30, 2012. The ratio of tangible common equity to risk-weighted assets was 15.65 percent at the end of the second quarter of 2013, compared with 17.04 percent at the end of the first quarter of 2013, and 17.57 percent at the end of the same quarter last year. The Tier 1 leverage ratio at June 30, 2013 was 6.95 percent, up from 6.90 percent at March 31, 2013 and 6.57 percent at June 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 September 16, 2013 to shareholders of record at the close of business on August 30, 2013.

Hawaii Economy

Hawaii's economy continued to improve during the second quarter of 2013 led by tourism, the State's largest industry. For the first five months of 2013, total visitor arrivals increased by 5.7% and visitor spending increased by 5.1% compared to the same period in 2012. The statewide seasonally-adjusted unemployment rate was 4.6% in June 2013, compared to 5.1 percent at year-end and 7.6% nationally. For the first six months of 2013, the volume of single-family home sales on Oahu was 11.6% higher compared to the same period in 2012 and the volume of condominium sales on Oahu was 18.8% higher compared to the same period in 2012. As of June 30, 2013 Oahu single-family home inventory was 2.7 months compared to 3.9 months at June 30, 2012. Oahu condominium inventory was 2.7 months at June 30, 2013 compared to 4.2 months last year. Oahu median single-family home prices increased 9.2 percent in June compared to last year and 0.8 percent year-to-date. Oahu median condominium home prices increased 11.1 percent in June compared to last year and 6.8 percent year-to-date. More information on current Hawaii economic trends is presented in Table 15.

Conference Call Information

The Company will review its second 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 web site, www.boh.com. Conference call participants located in the United States should dial (866) 788-0542. International participants should dial (857) 350-1680. Use the pass code "Bank of Hawaii" to access the call. A replay will be available for one week beginning Monday, July 22, 2013 by calling (888) 286-8010 in the United States or (617) 801-6888 internationally and entering the pass code number 45894681 when prompted. A replay will also be available via the Investor Relations link on 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, 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.

Bank of Hawaii Corporation and Subsidiaries

Financial Highlights

Table 1a

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

(dollars in thousands, except per share amounts)

2013

2013

2012

2013

2012

For the Period:

Operating Results

Net Interest Income

$

87,340

$

88,560

$

95,381

$

175,900

$

193,329

Provision for Credit Losses

-

-

628

-

979

Total Noninterest Income

48,041

47,778

46,848

95,819

94,930

Total Noninterest Expense

81,181

84,387

80,747

165,568

165,954

Net Income

37,763

35,980

40,747

73,743

84,557

Basic Earnings Per Share

0.85

0.81

0.90

1.66

1.86

Diluted Earnings Per Share

0.85

0.81

0.90

1.65

1.85

Dividends Declared Per Share

0.45

0.45

0.45

0.90

0.90

Performance Ratios

Return on Average Assets

1.12

%

1.08

%

1.19

%

1.10

%

1.24

%

Return on Average Shareholders' Equity

14.64

14.10

16.19

14.37

16.73

Efficiency Ratio 1

59.96

61.90

56.77

60.93

57.57

Net Interest Margin 2

2.77

2.82

2.98

2.80

3.02

Dividend Payout Ratio 3

52.94

55.56

50.00

54.22

48.39

Average Shareholders' Equity to Average Assets

7.62

7.63

7.36

7.63

7.41

Average Balances

Average Loans and Leases

$

5,781,898

$

5,803,503

$

5,641,588

$

5,792,641

$

5,602,473

Average Assets

13,572,329

13,557,358

13,750,488

13,564,885

13,715,859

Average Deposits

11,244,600

11,287,485

10,622,420

11,265,924

10,526,317

Average Shareholders' Equity

1,034,366

1,034,843

1,012,182

1,034,603

1,016,425

Per Share of Common Stock

Book Value

$

22.09

$

22.87

$

22.18

$

22.09

$

22.18

Market Value

Closing

50.32

50.81

45.95

50.32

45.95

High

52.17

50.91

49.99

52.17

49.99

Low

46.04

44.88

44.02

44.88

44.02

June 30,

March 31,

December 31,

June 30,

2013

2013

2012

2012

As of Period End:

Balance Sheet Totals

Loans and Leases

$

5,859,152

$

5,782,969

$

5,854,521

$

5,671,483

Total Assets

13,733,418

13,525,667

13,728,372

13,915,626

Total Deposits

11,449,198

11,251,860

11,529,482

11,547,993

Long-Term Debt

174,727

177,427

128,055

28,075

Total Shareholders' Equity

986,368

1,026,104

1,021,665

1,003,825

Asset Quality

Allowance for Loan and Lease Losses

$

124,575

$

126,878

$

128,857

$

132,443

Non-Performing Assets

36,431

38,374

37,083

41,494

Financial Ratios

Allowance to Loans and Leases Outstanding

2.13

%

2.19

%

2.20

%

2.34

%

Tier 1 Capital Ratio

15.53

16.12

16.13

16.41

Total Capital Ratio

16.79

17.38

17.39

17.67

Tier 1 Leverage Ratio

6.95

6.90

6.83

6.57

Total Shareholders' Equity to Total Assets

7.18

7.59

7.44

7.21

Tangible Common Equity to Tangible Assets 4

6.97

7.37

7.23

7.00

Tangible Common Equity to Risk-Weighted Assets 4

15.65

17.04

17.24

17.57

Non-Financial Data

Full-Time Equivalent Employees

2,227

2,269

2,276

2,312

Branches and Offices

75

75

76

77

ATMs

486

489

494

494

1 Efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and total noninterest income).