DBRS: Bank of Hawaii’s 4Q13 Solid Loan and Deposit Growth Contribute to Higher QoQ Net Income

Summary:

• Loans and leases, and deposits grew nicely during the quarter.
• Disciplined expense control and modest revenue growth sequentially.
• DBRS rates Bank of Hawaii Corporation Issuer & Senior Debt at A (low) with a Stable trend.

DBRS considers Bank of Hawaii Corporation (BOH or the Company) 4Q13 results as solid reflecting broad-based loan and lease growth, deposit growth, modest net interest margin expansion, and lower expenses. The balance sheet remains strong with robust liquidity, sound capital, and better-than-peer asset quality, all of which supports the rating.

With the exception of construction loan balances, all loan and lease categories grew sequentially. Moreover, deposit growth was also broad-based with consumer, commercial, and public and other deposit reporting higher balances. The increase in average earning assets, as well as modest margin expansion, contributed to higher net interest income and revenue growth sequentially. Overall, BOH reported net income of $39.1 million, an increase of 4% sequentially.

Hawaii’s economic indicators are trending positively including tourism, which is on track for another record tourism year in 2013. Positively, management noted that China will now have three airlines offering direct service in 2014, up from one in 2013.

Noninterest expense was down sequentially, as well as down in FY13 compared to FY12 evidencing disciplined expense control. BOH has targeted a 1% reduction in total noninterest expenses in 2014.

For the year and adjusting for non-core items, DBRS notes that net interest income pressure and weaker mortgage banking revenues resulted in negative operating leverage despite lower adjusted expenses given the difficult operating environment. Positively, BOH reported revenue growth in 4Q13 despite lower mortgage banking revenues.

Asset quality remains strong, although one large commercial loan in Guam, contributed to higher net charge-offs. DBRS notes that the Company did not record any provision for credit losses in 2013, which benefited earnings.

DBRS rates Bank of Hawaii Corporation Issuer & Senior Debt at A (low) with a Stable trend.

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

[Amended on December 23th, 2014 to remove unnecessary disclosures.]