DBRS Comments on Bank of Hawaii Corporation’s 4Q12 Earnings – Senior at A (low)

DBRS, Inc. (DBRS) has today commented on the 4Q12 earnings of Bank of Hawaii Corporation (BOH or the Company). DBRS rates the Company’s Issuer & Senior Debt at A (low) with a Stable trend. The Company reported net income of $40.3 million for the quarter, down modestly from $41.2 million in the third quarter, but up from $39.2 million in 4Q11.

Highlights of the quarter include loan and deposit growth, still strong mortgage banking results, solid expense control and the maintenance of the Company’s strong balance sheet. Moreover, 2012 visitor and spending levels reached record highs, as the Hawaiian economy continues to show improvement. However, margin pressure contributed to lower total revenues sequentially.

Positively, period-end loans and leases increased $72.2 million, or 1.2%, to $5.85 billion during the quarter, while period-end deposits grew $308.9 million, or 2.8%, to $11.53 billion. Deposit growth was particularly strong within noninterest-bearing deposits. DBRS notes that the excess deposit growth funded securities purchases with the securities portfolio increasing $360 million to $6.96 billion, or 51% of assets. The overall duration of the total securities portfolio was 2.89 years and the portfolio was in an unrealized gain position of $168 million.

Despite average earning asset growth, net interest income (FTE) declined by $3.5 million to $92.7 million during the quarter driven by continued margin pressure. Specifically, the margin declined 11 basis points to 2.87% reflecting lower earning asset yields.

Noninterest income was relatively stable increasing $0.6 million to $53.0 million. Mortgage banking revenues remained strong, but was the one the one major line item to show a decline sequentially.

Expenses were well controlled declining $1.4 million, or 1.7%, to $83.5 million. Moreover, the Company incurred approximately $1.5 million of charges related to closing two branches in American Samoa. Overall, the Company’s efficiency ratio was a solid 58.24% despite the difficult revenue environment, as BOH remains highly focused on controlling expenses and becoming more efficient.

Asset quality remained very strong and non-performing assets improved to just 0.63% of total loans and leases and foreclosed real estate. Meanwhile, NCOs were only $2.1 million, or 0.15% (annualized) of total loans and leases, and there was no provision for loan losses for the second consecutive quarter. Even with no provision, DBRS views the Company’s allowance for loan and lease losses as very strong at 2.20% of total loan and leases.

For the year, the Company paid out $81.4 million in dividends and $81.6 million in share repurchases, which in aggregate, comprised a high 98% of FY12 net income. Nonetheless, capital remains solid, especially on a risk-adjusted basis. Specifically, the Company’s tangible common equity to risk-weighted assets ratio was a very high 17.24%.

Notes:
All figures are in U.S. dollars unless otherwise noted.

[Amended on May the 23rd, 2014 to remove unnecessary disclosures.]