Bank of Hawaii Corporation Third Quarter 2017 Financial Results

Bank of Hawaii Corporation (NYSE: BOH) today reported diluted earnings per share of $1.08 for the third quarter of 2017, up from $1.05 in the second quarter of 2017 and $1.02 in the third quarter of 2016. Net income for the third quarter of 2017 was $45.9 million, an increase of $1.2 million from net income of $44.7 million in the previous quarter and an increase of $2.4 million from net income of $43.5 million in the same quarter last year.

Loan and lease balances increased to $9.6 billion at September 30, 2017, up 2.0 percent from June 30, 2017 and up 10.1 percent compared with September 30, 2016. Deposits grew to $15.0 billion at the end of the third quarter of 2017, up 1.8 percent from the previous quarter and up 9.0 percent compared with the same quarter last year.

“Bank of Hawaii’s financial results remained strong through the third quarter of 2017,” said Peter S. Ho, Chairman, President and CEO. “Loan and deposit balances increased, asset quality remained solid, our net interest margin was stable, and our core expenses declined during the quarter.”

The return on average assets for the third quarter of 2017 was 1.07 percent, down from 1.09 percent in the previous quarter and 1.09 percent in the same quarter last year. The return on average equity for the third quarter of 2017 was 14.89 percent, up from 14.87 percent for the second quarter of 2017 and equal to the return on average equity of 14.89 percent in the third quarter of 2016. The efficiency ratio for the third quarter of 2017 was 55.82 percent compared with 55.99 percent in the previous quarter and 57.58 percent in the same quarter last year.

For the nine-month period ended September 30, 2017, net income was $141.7 million, an increase of $3.8 million from net income of $137.9 million for the same period last year. Diluted earnings per share were $3.32 for the nine-month period in 2017 compared with diluted earnings per share of $3.21 for the same period in 2016. The 2017 year-to-date return on average assets was 1.14 percent compared with 1.17 percent for the same period in 2016. The 2017 year-to-date return on average equity was 15.77 percent compared with 16.09 percent for the nine months ended September 30, 2016. The efficiency ratio for the nine-month period ended September 30, 2017 declined to 55.05 percent compared with 56.57 percent for the same period last year.

Financial Highlights

Net interest income, on a taxable equivalent basis, for the third quarter of 2017 was $119.2 million, an increase of $3.9 million from net interest income of $115.3 million in the second quarter of 2017 and an increase of $12.3 million from net interest income of $106.9 million in the third quarter of last year. 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 for the nine-month period in 2017 was $347.5 million, an increase of $28.1 million from net interest income of $319.4 million for the same period in 2016. Analyses of the changes in net interest income are included in Tables 8a, 8b, and 8c.

The net interest margin was 2.92 percent for the third quarter of 2017, unchanged from the second quarter of 2017 and a 12 basis point increase from the net interest margin of 2.80 percent in the third quarter of 2016. Adjusted for the interest reversal, the net interest margin in the third quarter of 2016 was 2.82 percent. The net interest margin for the first nine months of 2017 was 2.91 percent compared with 2.84 percent for the same nine-month period last year.

Results for the third quarter of 2017 included a provision for credit losses of $4.0 million due to the continued strong growth of loans and leases. Second quarter of 2017 results included a provision for credit losses of $4.3 million. Results for the third quarter of 2016 included a provision for credit losses of $2.5 million. The provision for credit losses during the first nine months of 2017 was $12.7 million compared with $1.5 million during the same period in 2016. Provision expense in 2016 reflected a recovery of $6.6 million related to one commercial client in Guam.

Noninterest income was $42.4 million in the third quarter of 2017, down $2.8 million from noninterest income of $45.2 million in the second quarter of 2017 and down $5.7 million from $48.1 million in the same quarter last year. Mortgage banking income decreased to $3.2 million in the third quarter of 2017 compared with $3.8 million in the second quarter of 2017 and $6.4 million in the third quarter last year. Noninterest income for the nine-months ended September 30, 2017 was $143.6 million compared with noninterest income of $150.8 million for the same period in 2016. The decrease from the previous year was primarily due to the decline in mortgage banking income, lower revenue from the customer derivative program and gains on sales of assets during 2016.

Noninterest expense was $88.6 million in the third quarter of 2017, up $0.4 million from noninterest expense of $88.2 million in the previous quarter and up $1.1 million from $87.5 million in the same quarter last year. Noninterest expense in the third quarter of 2017 included $2.1 million in severance which was partially offset by a reduction of $0.9 million in share-based compensation. Noninterest expense for the nine-months ended September 30, 2017 was $265.4 million compared with noninterest expense of $261.0 million for the same period in 2016. An analysis of noninterest expenses related to salaries and benefits is included in Table 9.

The effective tax rate for the third quarter of 2017 was 30.62 percent compared with 31.37 percent in the previous quarter and 29.84 percent during the same quarter last year. Taxes for the third quarter of 2016 included a $0.7 million release of reserves. The effective tax rate for the nine-month period ended September 30, 2017 was 30.54 percent compared with 30.62 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 solid during the third quarter of 2017. Total non-performing assets were $17.0 million at September 30, 2017 compared with $16.4 million at June 30, 2017 and $18.7 million at September 30, 2016. As a percentage of total loans and leases and foreclosed real estate, non-performing assets were 0.18 percent at September 30, 2017 compared with 0.17 percent at June 30, 2017 and 0.21 percent at September 30, 2016.

Accruing loans and leases past due 90 days or more were $6.7 million at September 30, 2017 compared with $7.0 million at June 30, 2017 and $5.6 million at September 30, 2016. Restructured loans and leases not included in non-accrual loans or accruing loans past due 90 days or more were $55.0 million at September 30, 2017 compared with $53.2 million at June 30, 2017 and $52.1 million at September 30, 2016. 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 2017 were $3.5 million or 0.15 percent annualized of total average loans and leases outstanding. Loan and lease charge-offs of $6.2 million during the quarter were partially offset by recoveries of $2.7 million. Net charge-offs during the second quarter of 2017 were $3.0 million or 0.13 percent annualized of total average loans and leases outstanding and were comprised of $5.5 million in charge-offs partially offset by recoveries of $2.5 million. Net charge-offs during the third quarter of 2016 were $2.4 million or 0.11 percent annualized of total average loans and leases outstanding and were comprised of $4.9 million in charge-offs partially offset by recoveries of $2.5 million. Net charge-offs in the nine-month period ended September 30, 2017 were $10.0 million, or 0.15 percent annualized of total average loans and leases outstanding compared with net charge-offs of $0.3 million, or 0.01 percent annualized of total average loans and leases outstanding for the same period in 2016. The lower charge-off rate during 2016 was largely due to the previously mentioned recovery of previously charged off loans to a commercial client in Guam.

The allowance for loan and lease losses increased to $106.9 million at September 30, 2017 due to continued strong loan growth. The allowance for loan and lease losses was $106.4 million at June 30, 2017 and $104.0 million at September 30, 2016. The ratio of the allowance for loan and lease losses to total loans and leases outstanding was 1.12 percent at September 30, 2017, a decrease of 1 basis point from the previous quarter and down 8 basis points from the end of the same quarter last year. The reserve for unfunded commitments at September 30, 2017 of $6.8 million was unchanged from June 30, 2017 and up from $6.6 million at September 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 $17.3 billion at September 30, 2017, an increase of $287.0 million from total assets of $17.0 billion at June 30, 2017 and $1.3 billion from total assets of $16.0 billion at September 30, 2016. Average total assets were $17.0 billion during the third quarter of 2017 compared with $16.5 billion during the previous quarter and $15.9 billion during the same quarter last year.

The investment securities portfolio was $6.3 billion at September 30, 2017, reflecting increases of $183.8 million from total securities of $6.1 billion at June 30, 2017 and $253.9 million from total securities of $6.0 billion at September 30, 2016. The portfolio remains largely comprised of securities issued by U. S. government agencies and included $4.0 billion in securities held to maturity and $2.3 billion in securities available for sale at September 30, 2017.

Total loans and leases were $9.6 billion at September 30, 2017, an increase of $186.3 million from total loans and leases of $9.4 billion at June 30, 2017 and $879.9 million from total loans and leases of $8.7 billion at September 30, 2016. Average total loans and leases increased to $9.5 billion during the third quarter of 2017 compared with $9.2 billion during the second quarter of 2017 and $8.5 billion during the same quarter last year. The commercial loan portfolio increased to $3.7 billion at the end of the third quarter of 2017, up slightly from the end of the previous quarter and up from $3.5 billion at the end of the same quarter last year. Total consumer loans increased to $5.8 billion at the end of the third quarter of 2017, up from $5.7 billion at the end of the second quarter of 2017 and $5.2 billion at the end of the third quarter of 2016. Loan and lease portfolio balances are summarized in Table 10.

Total deposits were $15.0 billion at September 30, 2017, an increase of $263.5 million from total deposits of $14.8 billion at June 30, 2017 and $1.2 billion from total deposits of $13.8 billion at September 30, 2016. Average total deposits increased to $14.7 billion during the third quarter of 2017 compared with $14.3 billion during the previous quarter and $13.7 billion during the same quarter last year. Consumer deposits were $7.3 billion at the end of the third quarter of 2017, up slightly from the end of the previous quarter and up from $6.8 billion at the end of the same quarter last year. Commercial deposits were $6.1 billion at the end of the third quarter of 2017, up from $5.9 billion at the end of the previous quarter and up from $5.8 billion at the end of the same quarter last year. Other deposits, including public funds, were $1.7 billion at the end of the third quarter of 2017, up from $1.6 billion at the end of the previous quarter and up from $1.3 billion at the end of the same quarter last year. Deposit balances are summarized in Tables 7 and 10.

During the third quarter of 2017, the Company repurchased 183.5 thousand shares of common stock at a total cost of $14.8 million under its share repurchase program. The average cost was $80.89 per share repurchased. From the beginning of the share repurchase program initiated during July 2001 through September 30, 2017, the Company repurchased 54.1 million shares and returned nearly $2.1 billion to shareholders at an average cost of $38.19 per share. The Company’s Board of Directors increased the authorization under the share repurchase program by an additional $100.0 million. From October 2 through October 20, 2017 the Company repurchased an additional 44.5 thousand shares of common stock at an average cost of $83.97 per share. Remaining buyback authority under the share repurchase program was $126.9 million at October 20, 2017.

Total shareholders’ equity was $1.2 billion at September 30, 2017. The Tier 1 Capital Ratio was 13.27 percent at September 30, 2017 compared with 13.34 percent at June 30, 2017 and 13.40 percent at September 30, 2016. The Tier 1 leverage ratio at September 30, 2017 was 7.24 percent compared with 7.37 percent at June 30, 2017 and 7.25 percent at September 30, 2016.

The Company’s Board of Directors has declared a quarterly cash dividend of $0.52 per share on the Company’s outstanding shares. The dividend will be payable on December 14, 2017 to shareholders of record at the close of business on November 30, 2017.

Hawaii Economy

General economic conditions in Hawaii remained positive during the third quarter of 2017. The statewide seasonally-adjusted unemployment rate continues to remain low, declining to 2.5 percent in September 2017 compared to 4.2 percent nationally. Tourism remained robust through the first eight months of 2017. Total visitor spending increased 8.5 percent due to growth of 4.7 percent in visitor arrivals and an increase of 3.9 percent in daily spending compared to the same eight-month period in 2016. The real estate market also remains strong. For the first nine months of 2017, the volume of single-family home sales on Oahu increased 5.0 percent and the volume of condominium sales on Oahu increased 5.8 percent compared with the same period in 2016. The median sales price of a single-family home on Oahu increased 3.4 percent and the median price of a condominium on Oahu increased 5.4 percent for the first nine months of 2017 compared to the same nine-month period in 2016. As of September 30, 2017, months of inventory of single-family homes and condominiums on Oahu were 2.4 months and 2.6 months, respectively. More information on current Hawaii economic trends is presented in Table 15.

Conference Call Information

The Company will review its third quarter 2017 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 (844) 543-5235 in the United States and Canada and (703) 318-2209 for other 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 23, 2017. The replay number is (855) 859-2056 in the United States and Canada and (404) 537-3406 from other international locations. Enter the pass code 95696390 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, 2016, 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.