Bank of Hawaii Corporation Third Quarter 2016 Financial Results

Bank of Hawaii Corporation Third Quarter 2016 Financial Results

• Diluted Earnings Per Share $1.02
• Net Income $43.5 Million
• Board of Directors Declares Dividend of $0.48 Per Share

Bank of Hawaii Corporation (NYSE:BOH) today reported diluted earnings per share of $1.02 for the third quarter of 2016, down from $1.03 in the second quarter of 2016 and up from $0.79 in the third quarter of 2015. Net income for the third quarter of 2016 was $43.5 million, down from net income of $44.2 million in the previous quarter and up from $34.3 million in the same quarter last year. Results for the third quarter of 2015 included impairment charges totaling $6.5 million, net of tax, related to the Company’s decision to dispose of its remaining aircraft leases.

Loan and lease balances increased to $8.7 billion at September 30, 2016, up 4.4 percent from June 30, 2016 and up 13.1 percent compared with September 30, 2015. Deposits grew to $13.8 billion at the end of the third quarter of 2016, up 1.2 percent from the previous quarter and up 6.7 percent compared with the same quarter last year.

“Bank of Hawaii’s operating results were strong in the third quarter of 2016,” said Peter S. Ho, Chairman, President and CEO. “Loan and deposit balances continued to grow, asset quality remained strong and our core expenses remain on track.”

The return on average assets for the third quarter of 2016 was 1.09 percent, down from 1.14 percent in the previous quarter and up from 0.89 percent in the same quarter last year. The return on average equity for the third quarter of 2016 was 14.89 percent, down from 15.56 percent for the second quarter of 2016 and up from 12.45 percent in the third quarter of 2015. The efficiency ratio for the third quarter of 2016 was 57.58 percent compared with 57.35 percent in the previous quarter and 65.12 percent in the same quarter last year. The higher efficiency ratio in the third quarter of 2015 was largely due to the aircraft impairment charges.

For the nine-month period ended September 30, 2016, net income was $137.9 million, an increase from net income of $117.9 million for the same period last year. Diluted earnings per share were $3.21 for the nine-month period in 2016 compared with diluted earnings per share of $2.71 for the same period in 2015. The 2016 year-to-date return on average assets was 1.17 percent compared with 1.05 percent for the same period in 2015. The 2016 year-to-date return on average equity was 16.09 percent compared with 14.62 percent for the nine months ended September 30, 2015. The efficiency ratio for the nine-month period ended September 30, 2016 was 56.57 percent compared with 60.47 percent for the same period last year.

Financial Highlights

Net interest income, on a taxable equivalent basis, for the third quarter of 2016 was $106.9 million, up slightly from net interest income of $106.5 million in the second quarter of 2016 and up from net interest income of $100.9 million in the third quarter of 2015. Net interest income in the third quarter of 2016 included a reversal of $0.8 million for an interest recovery previously recorded in the second quarter of 2016. Net interest income in the second quarter of 2016 included interest recoveries of $1.0 million. Net interest income for the nine-month period in 2016 was $319.4 million compared with $301.4 million for the same period in 2015. Analyses of the changes in net interest income are included in Tables 8a, 8b, and 8c.

The net interest margin was 2.80 percent for the third quarter of 2016, a 5 basis point decrease from 2.85 percent in the second quarter of 2016 and a 3 basis point increase from 2.77 percent in the third quarter of 2015. Adjusted for the interest reversal and recoveries previously mentioned, the net interest margin in the third and second quarters of 2016 were stable at 2.82 percent. The net interest margin for the first nine months of 2016 was 2.84 percent compared with 2.79 percent for the same nine-month period last year.

Results for the third quarter of 2016 included a provision for credit losses of $2.5 million due to the continued strong growth of loans and leases. Results for the second quarter of 2016 included a provision for credit losses of $1.0 million. There was no provision for credit losses during the third quarter of 2015.

Noninterest income was $48.1 million in the third quarter of 2016, up from $46.5 million in the second quarter of 2016 and $43.2 million in the third quarter of 2015. Mortgage banking income increased to $6.4 million in the third quarter of 2016 due to higher loan production, up from $4.1 million in the second quarter of 2016 and $3.3 million in the third quarter last year. Noninterest income in the second quarter of 2016 included a service fee of $1.2 million resulting from the sale of trust real estate. Noninterest income in the third quarter of 2015 included a $1.0 million estimated loss on the pending sale of an aircraft lease. Noninterest income for the nine-months ended September 30, 2016 was $150.8 million compared with noninterest income of $141.5 million for the same period in 2015. The increase was primarily due to an increase in mortgage banking income.

Noninterest expense was $87.5 million in the third quarter of 2016, up from $86.1 million in the previous quarter and down from $91.9 million in the same quarter last year. The decrease compared with the prior year quarter was primarily due to a $9.5 million impairment charge on aircraft in which the leases had expired. Noninterest expense for the nine-months ended September 30, 2016 was $261.0 million compared with noninterest expense of $262.4 million for the same period in 2015. An analysis of noninterest expenses related to salaries and benefits is included in Table 9.

The effective tax rate for the third quarter of 2016 was 29.84 percent compared with 29.77 percent in the previous quarter and 30.37 percent during the same quarter last year. Taxes for the third quarter of 2016 included a $.7 million release of reserves. Taxes for the second quarter of 2016 included a $1.3 million release of reserves. Taxes for the third quarter of 2015 included a benefit of $4.0 million related to the aircraft impairment charges. The effective tax rate for the nine-month period ended September 30, 2016 was 30.62 percent, down from 31.28 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 remained strong during the third quarter of 2016. Total non-performing assets were $18.7 million at September 30, 2016 compared with $16.3 million at June 30, 2016 and $29.5 million at September 30, 2015. As a percentage of total loans and leases and foreclosed real estate, non-performing assets were 0.21 percent at September 30, 2016 compared with 0.20 percent at June 30, 2016 and 0.38 percent at September 30, 2015.

Accruing loans and leases past due 90 days or more were $5.6 million at September 30, 2016, down from $8.8 million at June 30, 2016 and $8.1 million at September 30, 2015. Restructured loans and leases not included in non-accrual loans or accruing loans past due 90 days or more were $52.1 million at September 30, 2016 compared with $52.2 million at June 30, 2016 and $49.5 million at September 30, 2015. 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 2016 were $2.4 million or 0.11 percent annualized of total average loans and leases outstanding. Loan and lease charge-offs of $4.9 million during the quarter were partially offset by recoveries of $2.5 million. Net charge-offs during the second quarter of 2016 were $1.7 million or 0.09 percent annualized of total average loans and leases outstanding and were comprised of $3.7 million in charge-offs partially offset by recoveries of $2.0 million. Net charge-offs during the third quarter of 2015 were $2.0 million or 0.10 percent annualized of total average loans and leases outstanding and were comprised of $4.4 million in charge-offs partially offset by recoveries of $2.4 million. Net charge-offs in the nine-month period ended September 30, 2016 were $0.3 million, or 0.01 percent annualized of total average loans and leases outstanding compared with net charge-offs of $4.7 million, or 0.09 percent annualized of total average loans and leases outstanding for the same period in 2015. The lower charge-off rate during 2016 is largely due to the full recovery of loans previously charged off relating to a commercial client in Guam.

The allowance for loan and lease losses increased to $104.0 million at September 30, 2016. The ratio of the allowance for loan and lease losses to total loans and leases outstanding was 1.20 percent at September 30, 2016, a decrease of 5 basis points from the previous quarter and commensurate with continued improvements in credit quality and the Hawaii economy. The reserve for unfunded commitments at September 30, 2016 was unchanged at $6.6 million from June 30, 2016. 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 $16.01 billion at September 30, 2016, up from $15.86 billion at June 30, 2016 and $15.16 billion at September 30, 2015. Average total assets were $15.91 billion during the third quarter of 2016, up from $15.64 billion during the previous quarter and $15.22 billion during the same quarter last year.

The investment securities portfolio was $6.03 billion at September 30, 2016, down from $6.10 billion at June 30, 2016 and $6.40 billion at September 30, 2015 as loan growth continued to outpace deposit growth. The portfolio remains largely comprised of securities issued by U. S. government agencies and included $3.82 billion in securities held to maturity and $2.21 billion in securities available for sale at September 30, 2016.

Total loans and leases increased to $8.69 billion at September 30, 2016, up from $8.33 billion at June 30, 2016 and $7.69 billion at September 30, 2015. Average total loans and leases were $8.48 billion during the third quarter of 2016, up from $8.21 billion during the second quarter of 2016 and $7.55 billion during the same quarter last year. The commercial loan portfolio increased to $3.49 billion at the end of the quarter, up from commercial loans of $3.31 billion at the end of the previous quarter and up from $3.12 billion at the end of the same quarter last year. Total consumer loans increased to $5.20 billion at the end of the third quarter of 2016, up from $5.03 billion at the end of the second quarter of 2016 and up from $4.57 billion at the end of the third quarter of 2015. Loan and lease portfolio balances are summarized in Table 10.

Total deposits were $13.81 billion at September 30, 2016, up from $13.64 billion at June 30, 2016 and up from $12.94 billion at September 30, 2015. Average total deposits were $13.69 billion during the third quarter of 2016, up from $13.45 billion during the previous quarter and $13.01 billion during the same quarter last year.

During the third quarter of 2016, the Company repurchased 204.0 thousand shares of common stock at a total cost of $14.3 million under its share repurchase program. The average cost was $69.94 per share repurchased. From the beginning of the share repurchase program initiated during July 2001 through September 30, 2016, the Company has repurchased 53.5 million shares and returned over $2.0 billion to shareholders at an average cost of $37.74 per share. Remaining buyback authority under the share repurchase program was $75.4 million at September 30, 2016. From October 1 through October 21, 2016, the Company repurchased an additional 54.0 thousand shares of common stock at an average cost of $73.39 per share.

Total shareholders’ equity was $1.16 billion at September 30, 2016, up slightly from June 30, 2016 and an increase from $1.10 billion at September 30, 2015. The Tier 1 Capital Ratio was 13.40 percent at the end of the third quarter of 2016 compared with 13.66 percent at the end of the second quarter of 2016 and 14.11 percent at the end of the same quarter last year. The Tier 1 leverage ratio at September 30, 2016 was 7.25 percent compared with 7.29 percent at June 30, 2016 and 7.18 percent at September 30, 2015.

The Company’s Board of Directors declared a quarterly cash dividend of $0.48 per share on the Company’s outstanding shares. The dividend will be payable on December 14, 2016 to shareholders of record at the close of business on November 30, 2016.

Hawaii Economy

General economic conditions in Hawaii remained positive during the third quarter of 2016 due to stable tourism, low unemployment, the strong real estate market, and ongoing construction activity. For the first eight months of 2016, total visitor spending increased 3.0 percent and total visitor arrivals increased 2.6 percent compared to the same period in 2015. The statewide seasonally-adjusted unemployment rate was 3.3 percent in September 2016 compared to 5.0 percent nationally. For the first nine months of 2016, the volume of single-family home sales on Oahu increased 4.8 percent and the volume of condominium sales on Oahu increased 9.0 percent compared with the same period in 2015. The median sales price of a single-family homes on Oahu increased 5.2 percent and the median price of a condominium on Oahu increased 8.7 percent for the first nine months of 2016 compared to the same nine-month period in 2015. As of September 30, 2016, months of inventory of single-family homes and condominiums on Oahu remained low at 2.9 months and 3.0 months, respectively. More information on current Hawaii economic trends is presented in Table 15.

Conference Call Information

The Company will review its third quarter 2016 financial results today at 2:00 p.m. Eastern Time (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. The toll-free number is 1 (877) 783-7534 in the United States and 1 (530) 379-4714 for international callers. Use the pass code “Bank of Hawaii” to access the call. A replay will be available for one week beginning approximately 11:00 a.m. Hawaii Time on Monday, October 24, 2016. The replay number is 1 (855) 859-2056 in the United States and 1 (404) 537-3406 from international locations. Enter the pass code 40167040 when prompted. Participants can also dial 1 (800) 585-8367 to access the replay. In addition, a replay will be available on the Company's website, 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, 2015, 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 an independent 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. For more information about Bank of Hawaii Corporation, see the Company’s web site, www.boh.com.