Bank of Hawaii Corporation Third Quarter 2019 Financial Results

Bank of Hawaii Corporation (NYSE: BOH) today reported diluted earnings per share of $1.29 for the third quarter of 2019, down from $1.40 in the second quarter of 2019 and $1.36 in the third quarter of 2018. Net income for the third quarter of 2019 was $52.1 million compared with net income of $56.9 million in the previous quarter and $56.9 million in the same quarter last year. Net income in the third quarter of 2019 included the previously announced increase in the legal reserve of $6.0 million related to the tentative settlement of a class action lawsuit regarding the Company’s overdraft practices.

Loan and lease balances increased to $10.9 billion at September 30, 2019, up 1.1 percent from June 30, 2019 and up 6.4 percent compared with September 30, 2018. Deposits were $15.3 billion at the end of the third quarter of 2019, down 1.0 percent from the previous quarter primarily due to a seasonal decline in public deposits and up 3.4 percent compared with the third quarter last year.

"We were pleased with Bank of Hawaii’s overall financial results during the third quarter of 2019," said Peter S. Ho, Chairman, President, and CEO. “Loan balances continue to grow, deposits were in line with our expectations, total revenue increased, asset quality remains strong, and our core expenses were well controlled.”

The return on average assets for the third quarter of 2019 was 1.17 percent compared with 1.31 percent in the previous quarter and 1.33 percent in the same quarter last year. The return on average equity for the third quarter of 2019 was 16.02 percent compared with 17.97 percent for the second quarter of 2019 and 18.06 percent in the third quarter of 2018. The efficiency ratio for the third quarter of 2019 was 58.55 percent compared with 54.69 percent in the previous quarter and 55.07 percent in the same quarter last year.

For the nine-month period ended September 30, 2019, net income was $167.8 million, an increase of $2.1 million from net income of $165.7 million for the same period last year. Diluted earnings per share were $4.11 for the nine-month period in 2019 compared with diluted earnings per share of $3.93 for the same period in 2018. The 2019 year-to-date return on average assets was 1.29 percent compared with 1.31 percent for the same period in 2018. The 2019 year-to-date return on average equity was 17.58 percent compared with 17.83 percent for the nine months ended September 30, 2018. The efficiency ratio for the nine-month period ended September 30, 2019 was 56.16 percent compared with 56.36 percent for the same period last year.

Financial Highlights

Net interest income, on a taxable equivalent basis, for the third quarter of 2019 was $125.2 million, an increase of $0.5 million from net interest income of $124.7 million in the second quarter of 2019 and an increase of $1.0 million from net interest income of $124.2 million in the third quarter of last year. Net interest income for the nine-month period in 2019 was $375.7 million, an increase of $9.4 million from net interest income of $366.3 million for the same period in 2018. Analyses of the changes in net interest income are included in Tables 8a, 8b, and 8c.

The net interest margin was 3.01 percent for the third quarter of 2019, a decrease of 3 basis points from the net interest margin of 3.04 percent in the second quarter of 2019 and a 6 basis point decrease from the net interest margin of 3.07 percent in the third quarter of 2018. The net interest margin for the first nine months of 2019 was 3.05 percent, an increase of 1 basis point compared with 3.04 percent for the same nine-month period last year.

Results for the third quarter of 2019 included a provision for credit losses of $4.3 million compared with a provision for credit losses of $4.0 million in the previous quarter and $3.8 million in the same quarter last year. The provision for credit losses during the first nine months of 2019 was $11.3 million compared with $11.4 million during the same period in 2018.

Noninterest income was $46.5 million in the third quarter of 2019, up $1.0 million from noninterest income of $45.5 million in the second quarter of 2019 and up $5.0 million from $41.5 million in the same quarter last year. Noninterest income during the third quarter of 2019 included a negative adjustment of $0.5 million related to a change in the Visa Class B conversion ratio. There were no significant items in noninterest income during the second quarter of 2019 or the third quarter of 2018. The increase in noninterest income compared to the third quarter of 2018 was largely due to an increase in mortgage banking income and customer derivative activity. Noninterest income for the nine-months ended September 30, 2019 was $135.6 million, an increase of $8.8 million compared with noninterest income of $126.8 million for the same period in 2018.

Noninterest expense was $100.3 million in the third quarter of 2019, up $7.6 million from noninterest expense of $92.7 million in the previous quarter and up $9.8 million from $90.5 million in the same quarter last year. Noninterest expense during the third quarter of 2019 included the previously mentioned $6.0 million increase in the legal reserve. There were no significant items in noninterest expense during the second quarter of 2019 or the third quarter of 2018. Noninterest expense for the nine-months ended September 30, 2019 was $286.1 million compared with noninterest expense of $275.7 million for the same period in 2018. An analysis of noninterest expenses related to salaries and benefits is included in Table 9.

The effective tax rate for the third quarter of 2019 was 22.08 percent compared with 21.84 percent in the previous quarter and 18.75 percent during the same quarter last year. The effective tax rate for the nine-month period ended September 30, 2019 was 20.89 percent compared with 18.00 percent for the same period last year.

The Company’s business segments are defined as Retail Banking, Commercial Banking, Investment Services and Private Banking, and Treasury and 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 2019. Total non-performing assets were $21.6 million at September 30, 2019, down from $21.8 million at June 30, 2019 and up from $13.8 million at September 30, 2018. As a percentage of total loans and leases and foreclosed real estate, non-performing assets were 0.20 percent at September 30, 2019, unchanged from June 30, 2019 and up from 0.13 percent at September 30, 2018.

Accruing loans and leases past due 90 days or more were $6.1 million at September 30, 2019 compared with $6.4 million at June 30, 2019 and $8.1 million at September 30, 2018. Restructured loans and leases not included in non-accrual loans or accruing loans past due 90 days or more were $46.2 million at September 30, 2019, down from $48.6 million at June 30, 2019 and $49.5 million at September 30, 2018. 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 2019 were $3.0 million or 0.11 percent annualized of total average loans and leases outstanding. Loan and lease charge-offs of $5.8 million during the quarter were partially offset by recoveries of $2.8 million. Net charge-offs during the second quarter of 2019 were $2.4 million or 0.09 percent annualized of total average loans and leases outstanding and were comprised of $5.1 million in charge-offs partially offset by recoveries of $2.8 million. Net charge-offs during the third quarter of 2018 were $3.3 million or 0.13 percent annualized of total average loans and leases outstanding and were comprised of $6.0 million in charge-offs partially offset by recoveries of $2.7 million. Net charge-offs in the nine-month period ended September 30, 2019 were $9.0 million, or 0.11 percent annualized of total average loans and leases outstanding compared with net charge-offs of $10.1 million, or 0.14 percent annualized of total average loans and leases outstanding for the same period in 2018.

The allowance for loan and lease losses was $108.9 million at September 30, 2019 compared with $107.7 million at June 30, 2019 and $108.7 million at September 30, 2018. The ratio of the allowance for loan and lease losses to total loans and leases outstanding was 1.00 percent at September 30, 2019, unchanged from the previous quarter and down 6 basis points from the end of the same quarter last year. The reserve for unfunded commitments at September 30, 2019 of $6.8 million was unchanged from June 30, 2019 and September 30, 2018. 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 $17.7 billion at September 30, 2019, down $16.7 million from June 30, 2019 and up $680.4 million from total assets of $17.0 billion at September 30, 2018. Average total assets were $17.6 billion during the third quarter of 2019 compared with $17.5 billion during the previous quarter and $17.0 billion during the same quarter last year.

The investment securities portfolio was $5.5 billion at September 30, 2019, a decrease of $68.3 million from total securities of $5.6 billion at June 30, 2019 and a decrease of $172.9 million from total securities of $5.7 billion at September 30, 2018. The portfolio remains largely comprised of securities issued by U. S. government agencies and included $2.9 billion in securities held to maturity and $2.6 billion in securities available for sale at September 30, 2019.

Total loans and leases were $10.9 billion at September 30, 2019, an increase of $122.2 million from total loans and leases of $10.8 billion at June 30, 2019 and up $650.2 million from total loans and leases of $10.2 billion at September 30, 2018. Average total loans and leases were $10.8 billion during the third quarter of 2019 compared with $10.6 billion during the previous quarter and $10.1 billion during the same quarter last year. The commercial loan portfolio increased to $4.2 billion at the end of the third quarter of 2019, up $54.4 million from $4.1 billion at the end of the previous quarter and up $256.4 million from $3.9 billion at the end of the third quarter last year. Total consumer loans increased to $6.7 billion at the end of the third quarter of 2019, up $67.8 million from $6.7 billion at the end of the previous quarter and up $393.8 million from $6.3 billion at the end of the third quarter last year. Loan and lease portfolio balances are summarized in Table 10.

Total deposits were $15.3 billion at September 30, 2019, a decrease of $148.1 million from total deposits of $15.5 billion at June 30, 2019 and an increase of $497.4 million from total deposits of $14.8 billion at September 30, 2018. Average total deposits were $15.3 billion during the third quarter of 2019 compared with $15.2 billion during the previous quarter and $14.8 billion during the same quarter last year. Consumer deposits were $7.9 billion at the end of the third quarter of 2019, up $13.2 million from $7.9 billion at the end of the previous quarter and up $265.9 million from $7.6 billion at the end of the same quarter last year. Commercial deposits were $6.2 billion at the end of the third quarter of 2019, down $25.5 million from $6.2 billion at the end of the previous quarter and up $186.1 million from $6.0 billion at the end of the same quarter last year. Other deposits, including public funds, were $1.3 billion at September 30, 2019, down $135.7 million from $1.4 billion at June 30, 2019 and up $45.3 million from $1.2 billion at September 30, 2018. Deposit balances are summarized in Tables 7 and 10.

During the third quarter of 2019, the Company repurchased 0.4 million shares of common stock at a total cost of $29.9 million under its share repurchase program. The average cost was $83.07 per share repurchased. From the beginning of the share repurchase program initiated during July 2001 through September 30, 2019, the Company has repurchased 56.6 million shares and returned $2.3 billion to shareholders at an average cost of $40.09 per share. Remaining buyback authority under the share repurchase program was $57.0 million at September 30, 2019. From October 1 through October 25, 2019 the Company repurchased an additional 92.0 thousand shares of common stock at an average cost of $84.46 per share.

Total shareholders’ equity was $1.29 billion at September 30, 2019, up slightly from $1.29 billion at June 30, 2019 and up from $1.25 billion at September 30, 2018. The Tier 1 Capital Ratio was 12.33 percent at September 30, 2019 compared with 12.46 percent at June 30, 2019 and 13.20 percent at September 30, 2018. The Tier 1 leverage ratio at September 30, 2019 was 7.32 percent compared with 7.36 percent at June 30, 2019 and 7.55 percent at September 30, 2018.

The Company’s Board of Directors declared a quarterly cash dividend of $0.67 per share on the Company’s outstanding shares. The dividend will be payable on December 13, 2019 to shareholders of record at the close of business on November 29, 2019.

Hawaii Economy

General economic conditions in Hawaii remained positive during the third quarter of 2019 although recent trends indicate a more modest growth rate for the State going forward. The statewide seasonally-adjusted unemployment rate continues to remain low at 2.7 percent in September 2019 compared to 3.5 percent nationally. Total visitor arrivals increased 5.2 percent in the first eight months of 2019 compared to the same eight-month period in 2018 supported by strong growth in air seat capacity. Total visitor spending decreased 0.5 percent for the eight-month period in 2019 compared with the same eight-month period in 2018. The real estate market remains active with strong growth in single-family home sales during the third quarter of 2019. For the first nine months of 2019, the median sales price of a single-family home on Oahu decreased 0.5 percent and the median price of a condominium on Oahu decreased 1.0 percent compared with the same period in 2018. The volume of single-family home sales on Oahu increased 0.8 percent and the volume of condominium sales on Oahu decreased 6.7 percent for the first nine months of 2019 compared to the same nine-month period in 2018. As of September 30, 2019, months of inventory of single-family homes and condominiums on Oahu were 3.5 months and 3.9 months, respectively. More information on current Hawaii economic trends is presented in Table 15.

Conference Call Information

The 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 (844) 543-5235 in the United States and Canada and 1 (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 28, 2019. The replay number is 1 (855) 859-2056 in the United States and Canada and 1 (404) 537-3406 from other international locations. Enter the conference ID 2768225 when prompted. 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, 2018, 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 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.