Bank of Hawaii Corporation Second Quarter 2020 Financial Results

Bank of Hawaii Corporation (NYSE: BOH) today reported diluted earnings per share of $0.98 for the second quarter of 2020 compared with diluted earnings per share of $0.87 in the previous quarter and diluted earnings per share of $1.40 in the same quarter last year. Net income for the second quarter of 2020 was $38.9 million compared with net income of $34.7 million in the first quarter of 2020 and net income of $56.9 million in the second quarter of 2019.

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Loan and lease balances increased to $11.8 billion at June 30, 2020, up 4.0 percent from March 31, 2020 and up 9.7 percent compared with June 30, 2019. Total deposits reached a new record high of $17.4 billion at the end of the second quarter of 2020, up 8.5 percent from March 31, 2020 and up 12.5 percent compared with June 30, 2019.

“Bank of Hawaii Corporation continued to perform well in this very challenging environment,” said Peter Ho, Chairman, President and CEO. “Our balance sheet continued to grow while maintaining strong levels of capital and liquidity. Our asset quality remained stable during the quarter and we are well positioned for the future. During the quarter we reopened nine of our branches and our dedicated employees were able to support the needs of our customers and community during this unprecedented period.”

The return on average assets for the second quarter of 2020 was 0.82 percent, up from 0.77 percent in the previous quarter and down from 1.31 percent in the same quarter last year. The return on average equity for the second quarter of 2020 was 11.58 percent, up from 10.64 percent for the first quarter of 2020 and down from 17.97 percent for the second quarter of 2019. The efficiency ratio for the second quarter of 2020 improved to 49.95 percent compared with 55.96 percent in the previous quarter and 54.69 percent in the same quarter last year.

For the six-month period ended June 30, 2020, net income was $73.7 million, down from net income of $115.7 million during the same period last year. Diluted earnings per share were $1.85 for the first half of 2020 compared with diluted earnings per share of $2.82 for the first half of 2019.

The return on average assets for the six-month period ended June 30, 2020 was 0.79 percent compared with the return on average assets of 1.34 percent for the same six months in 2019. The year-to-date return on average equity was 11.11 percent for the first half of 2020 compared with the return on average equity of 18.39 percent for the first half of 2019. The efficiency ratio for the first half of 2020 improved to 52.90 percent compared with 54.95 percent in the same period last year.

Financial Highlights

Net interest income, on a taxable equivalent basis, for the second quarter of 2020 was $127.0 million, an increase of $0.7 million compared with $126.3 million in the first quarter of 2020 and an increase of $2.3 million compared with $124.7 million in the second quarter of 2019. Net interest income in the second quarter of 2020 included an interest recovery of $2.9 million. Net interest income, on a taxable equivalent basis, for the first half of 2020 was $253.4 million, an increase of $2.9 million compared with net interest income of $250.5 million for the first half of 2019. Analyses of the changes in net interest income are included in Tables 8a, 8b and 8c.

The net interest margin was 2.83 percent for the second quarter of 2020, down 13 basis points from 2.96 percent in the previous quarter and down 21 basis points from the net interest margin of 3.04 percent in the second quarter of 2019. The decrease in the net interest margin is largely due to lower rates and higher levels of liquidity. The net interest margin for the first six months of 2020 was 2.90 percent compared with the net interest margin of 3.08 percent for the same six-month period last year.

Results for the second quarter of 2020 included a provision for credit losses of $40.4 million compared with $33.6 million in the previous quarter and $4.0 million in the same quarter last year. The provision for credit losses during the first half of 2020 was $74.0 million compared with a provision for credit losses of $7.0 million during the same period in 2019.

Noninterest income was $51.3 million in the second quarter of 2020, an increase of $5.2 million compared with $46.1 million in the first quarter of 2020 and an increase of $5.8 million compared with $45.5 million in the second quarter of 2019. Noninterest income during the second quarter of 2020 included a gain of $14.2 million related to a sale of Visa Class B shares. There were no significant items in noninterest income during the first quarter of 2020 or the second quarter of 2019. Adjusted for the sale of the Visa shares, the decline in noninterest income compared to the prior quarter was due to reductions in overdraft and ATM fees and lower customer derivative activity. Noninterest income for the first half of 2020 was $97.4 million, an increase of $8.3 million compared with noninterest income of $89.1 million for the first half of 2019.

Noninterest expense was $88.9 million in the second quarter of 2020, a decrease of $7.4 million compared with $96.3 million in the first quarter of 2020 and a decrease of $3.8 million compared with $92.7 million in the second quarter last year. There were no significant items in noninterest expense during the second quarter of 2020 or the second quarter of 2019. Noninterest expense in the first quarter of 2020 included seasonal payroll expenses of approximately $3.1 million and severance expenses of $4.7 million that were partially offset by the elimination of corporate incentive accruals. Noninterest expense for the first half of 2020 was $185.2 million, a decrease of $0.6 million compared with noninterest expense of $185.8 million for the first half of 2019. An analysis of noninterest expenses related to salaries and benefits is included in Table 9.

The effective tax rate for the second quarter of 2020 was 20.05 percent compared with 17.68 percent in the previous quarter and 21.84 percent in the same quarter last year. The effective tax rate for the first half of 2020 was 18.95 percent compared with an effective tax rate of 20.35 percent during the same period last year.

The Company’s business segments are defined as Consumer Banking, Commercial Banking, and Treasury & Other. Results for the business segments are determined based on the Company’s internal financial management reporting process and organizational structure. Selected financial information is included in Tables 13a and 13b.

Asset Quality

The Company’s asset quality remained relatively stable during the second quarter of 2020. Total non-performing assets were $22.7 million at June 30, 2020 compared with $20.6 million at March 31, 2020 and $21.8 million at June 30, 2019. As a percentage of total loans and leases, including foreclosed real estate, non-performing assets were 0.19 percent at the end of the second quarter of 2020 compared with 0.18 percent at the end of the first quarter of 2020 and 0.20 percent at the end of the second quarter last year.

Accruing loans and leases past due 90 days or more were $8.9 million at June 30, 2020 compared with $8.5 million at March 31, 2020 and $6.4 million at June 30, 2019. Restructured loans not included in non-accrual loans or accruing loans past due 90 days or more were $59.7 million at June 30, 2020, compared with $61.4 million at March 31, 2020 and $48.6 million at June 30, 2019. More information on non-performing assets and accruing loans and leases past due 90 days or more is presented in Table 11.

Net loan and lease charge-offs during the second quarter of 2020 were $5.1 million or 0.18 percent annualized of total average loans and leases outstanding. Loan and lease charge-offs of $8.3 million during the quarter were partially offset by recoveries of $3.2 million. Net charge-offs during the first quarter of 2020 were $3.7 million or 0.14 percent annualized of total average loans and leases outstanding and comprised of $7.2 million in charge-offs and recoveries of $3.4 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 comprised of $5.1 million in charge-offs and recoveries of $2.8 million. Net charge-offs during the first half of 2020 were $8.9 million or 0.16 percent annualized of total average loans and leases outstanding compared with net charge-offs of $6.0 million or 0.12 percent annualized of total average loans and leases outstanding for the first half of 2019.

The allowance for credit losses was $173.4 million at June 30, 2020 compared with $138.2 million at March 31, 2020 and $107.7 million at June 30, 2019. The ratio of the allowance for credit losses to total loans and leases was 1.47 percent at June 30, 2020 compared with 1.22 percent at March 31, 2020 and 1.00 percent at June 30, 2019. The reserve for unfunded commitments was $2.5 million at June 30, 2020 compared with $3.3 million at March 31, 2020 and $6.8 million at June 30, 2019. Details of loan and lease charge-offs, recoveries and components of the total reserve for credit losses are summarized in Table 12.

Other Financial Highlights

Total assets increased to $19.8 billion at June 30, 2020 compared with $18.5 billion at March 31, 2020 and $17.7 billion at June 30, 2019. Average total assets were $19.2 billion during the second quarter of 2020 compared with $18.2 billion during the previous quarter and $17.5 billion during the second quarter last year.

The investment securities portfolio was $6.0 billion at June 30, 2020, up from $5.7 billion at March 31, 2020 and $5.6 billion at June 30, 2019. The portfolio remains largely comprised of securities issued by U.S. government agencies and includes $3.3 billion in securities held to maturity and $2.7 billion in securities available for sale. The securities portfolio at March 31, 2020 included $3.0 billion in securities held to maturity and $2.7 billion in securities available for sale compared with $3.0 billion in securities held to maturity and $2.6 billion in securities available for sale at June 30, 2019.

Total loans and leases were $11.8 billion at June 30, 2020, up from $11.4 billion at March 31, 2020 and $10.8 billion at June 30, 2019. Average total loans and leases increased to $11.7 billion during the second quarter of 2020 compared with $11.1 billion during the previous quarter and $10.6 billion during the same quarter last year. The commercial loan portfolio was $5.0 billion at June 30, 2020, up $492.2 million or 10.9 percent from commercial loans of $4.5 billion at March 31, 2020, and up $920.4 million or 22.4 percent from commercial loans of $4.1 billion at June 30, 2019. The consumer loan portfolio decreased to $6.8 billion at June 30, 2020, down $39.6 million or 0.6 percent from consumer loans of $6.8 billion at March 31, 2020 and increased $125.8 million or 1.9 percent from consumer loans of $6.7 billion at June 30, 2019. Loan and lease portfolio balances are summarized in Table 10.

Total deposits were $17.4 billion at June 30, 2020, up from $16.1 billion at March 31, 2020 and $15.5 billion at June 30, 2019. Average total deposits were $16.7 billion during the second quarter of 2020, up from $15.8 billion during the previous quarter and $15.2 billion during the same quarter last year. Consumer deposits increased to $8.8 billion at June 30, 2020, up $472.4 million or 5.7 percent from consumer deposits of $8.3 billion at March 31, 2020 and up $886.6 million or 11.3 percent from consumer deposits of $7.9 billion at June 30, 2019. Commercial deposits increased to $7.3 billion at June 30, 2020, up $936.5 million or 14.7 percent from commercial deposits of $6.4 billion at March 31, 2020 and up $1.1 billion or 18.1 percent from commercial deposits of $6.2 billion at June 30, 2019. Other deposits, including public funds, were $1.4 billion at June 30, 2020, down $41.1 million or 2.9 percent from March 31, 2020 and down $68.3 million or 4.8 percent from June 30, 2019. Deposit balances are summarized in Tables 7a, 7b, and 10.

Total shareholders’ equity increased to $1.4 billion at June 30, 2020 compared with $1.3 billion at March 31, 2020 and June 30, 2019. There were no shares repurchased during the second quarter of 2020. The Tier 1 Capital Ratio at June 30, 2020 was 12.04 percent compared with 11.81 percent at March 31, 2020 and 12.46 percent at June 30, 2019. The Tier 1 leverage ratio at June 30, 2020 was 6.90 percent compared with 7.12 percent at March 31, 2020 and 7.36 percent at June 30, 2019.

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 September 15, 2020 to shareholders of record at the close of business on August 31, 2020.

Conference Call Information

The Company will review its second quarter 2020 financial results today at 2:00 p.m. Eastern Time (8:00 a.m. Hawaii Time). The conference call including presentation materials 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, July 27, 2020. 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 5959108 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, 2019, 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 a 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.