BOH posts 11 percent growth in 2Q

HONOLULU—Bank of Hawaii Corp. issued yesterday its second quarter financial results for this year, reporting an 11 percent increase in its net income, which grew from $39.8 million in the previous quarter to $44.2 million.

The bank also reported diluted earnings per share of $0.79 for the second quarter, up $0.10 or 14.5 percent from $0.69 in the first quarter of 2004, and up $0.31 or 64.6 percent from $0.48 in the comparable quarter last year.

Net income for the second quarter of 2004 was up $4.4 million from $39.8 million in the previous quarter and up $14.2 million or 47.3 percent from $30.0 million reported in the same quarter last year, the report adds.

Return on average assets for the second quarter of 2004 was 1.80 percent, up from 1.65 percent in the first quarter of 2004, and up from 1.27 percent in the second quarter of 2003. Return on average equity was 24.28 percent for the second quarter of 2004, up from 19.98 percent in the previous quarter and a significant improvement from 12.93 percent in the same quarter last year.

For six months ended June 30, 2004, net income was $84.0 million, up $24.2 million or 40.4 percent from net income of $59.8 million for the same period last year. Diluted earnings per share were $1.48 for the first half of 2004, an increase of 55.8 percent from diluted earnings per share of $0.95 for the first half of 2003. The year-to-date return on average assets was 1.73 percent, up from 1.29 percent for the same six months in 2003. The year-to-date return on average equity was 22.03 percent, up from 12.67 percent for the six months ended June 30, 2003.

“I am pleased to report that we continue to make solid progress in improving our operating efficiency, asset quality and customer service levels,” said Michael E. O’Neill, chairman and CEO. “The Hawaii economy continues to strengthen, and our leadership team remains keenly focused on growing our businesses in our key markets and achieving the goals of our new three-year plan.”

Financial highlights

Net interest income for the second quarter of 2004 was $95.9 million, down $0.2 million from net interest income of $96.1 million in the first quarter of 2004, and up $5.4 million from net interest income of $90.5 million in the second quarter of 2003. The increase from the previous year was largely the result of lower interest rates paid on deposits and a reduction in long-term debt.

The net interest margin was 4.17 percent for the second quarter of 2004, down 13 basis points from the net interest margin of 4.30 percent in the previous quarter and up 5 basis points from 4.12 percent in the same quarter last year. The decrease in the net interest margin compared to the previous quarter was largely due to a decrease in the average yield on the loan portfolio.

Credit quality continued to improve during the second quarter of 2004. The company recognized a $3.5 million negative provision for loan and lease losses during the quarter and did not record a provision for the previous seven quarters. The allowance for loan and lease losses was reduced $2.3 million from March 31, 2004, reflecting the reduced credit risk profile.

Non-interest income was $54.8 million for the second quarter of 2004 compared to non-interest income of $48.8 million in the first quarter of 2004 and $50.7 million in the second quarter of 2003. The improvement from the previous quarter was largely due to a partnership distribution of $3.2 million, a gain of $2.5 million on the sale of land, and increased mortgage banking income. Growth in fee income, including annuity and brokerage fees, was partially offset by a seasonal decline in tax service income and service charges on deposits.

Non-interest expense for the second quarter of 2004 was $85.1 million, up $2.1 million from $83.0 million in the previous quarter and down $10.3 million or 10.8 percent from non-interest expense of $95.4 million in the second quarter of 2003. The increase from the previous quarter was largely the result of charges of $2.2 million to settle litigation and a contribution of $1.0 million to the Bank of Hawaii Charitable Foundation. Non-interest expense in the second quarter of 2003 included $10.1 million in systems replacement costs. Excluding these items, non-interest expense in the second quarter of 2004 was down $2.8 million or 3.3 percent from the same quarter last year.

Asset Quality

Bank of Hawaii’s credit quality remained strong during the second quarter of 2004. Non-performing assets declined to $21.2 million at the end of the second quarter of 2004, a decrease of $6.7 million, or 24.1 percent, from non-performing assets of $27.9 million at the end of the first quarter of 2004. Non-performing assets decreased $20.8 million, or 49.6 percent, compared to non-performing assets of $42.0 million at the end of the same quarter last year. At June 30, 2004, the ratio of non-performing assets to total loans and foreclosed real estate was 0.37 percent, down from 0.49 percent at March 31, 2004 and down from 0.77 percent at June 30, 2003.

The allowance for loan and lease losses was $124.9 million at June 30, 2004. The ratio of the allowance for loan and lease losses to total loans was 2.16 percent at June 30, 2004 compared with 2.23 percent at March 31, 2004 and 2.52 percent at the end of the same quarter last year.

Other financial highlights

Total assets decreased to $9.7 billion at June 30, 2004, compared to total assets of $10.0 billion at March 31, 2004 and were slightly up from $9.6 billion at June 30, 2003. The decrease in total assets from the previous quarter was primarily due to a lower level of funding resulting from securities sold under agreements to repurchase by public entities.

Total deposits at June 30, 2004 were $7.5 billion, up from total deposits of $7.4 billion at March 31, 2004 and up from total deposits of $7.1 billion at June 30, 2003 due to continued strong growth in demand and savings deposits.

During the second quarter of 2004, Bank of Hawaii repurchased 2.1 million shares of common stock at a total cost of $92.9 million under the share repurchase program. The average cost per share was $43.91 during the quarter. From the beginning of the share repurchase program in July 2001 through June 30, 2004, the company repurchased a total of 33.2 million shares and returned a total of $1,005.7 million to the shareholders at an average cost of $30.27 per share.

The company’s board has increased the authorization under the share repurchase program by an additional $100 million of common stock.

The company’s capital and liquidity remain strong. At June 30, 2004, the Tier 1 leverage ratio was 7.16 percent compared to 7.88 percent at March 31, 2004 and 9.29 percent at June 30, 2003.

The board has declared a quarterly cash dividend of $0.30 per share on the company’s outstanding shares. The dividend will be payable on Sept. 15, 2004 to shareholders of record at the close of business on August 30, 2004.

* * *

* Diluted earnings per share increases to $0.79, up 65 percent

* Net income of $44.2 million for the quarter, up 47 percent

* Additional share repurchase authorization of $100 million

* Board of directors declares dividend of $0.30 per share