Exhibit 99.1
Bank of Hawaii Corporation Second Quarter 2006 Financial Results
· Board of Directors Increases Share Repurchase Authorization $100 Million
· Board of Directors Declares Dividend of $0.37 Per Share
FOR IMMEDIATE RELEASE
HONOLULU, HI (July 24, 2006) — Bank of Hawaii Corporation (NYSE: BOH) today reported diluted earnings per share of $0.73 for the second quarter of 2006, down from $0.87 in the second quarter of 2005 and down from $0.87 in the first quarter of 2006. Net income for the second quarter of 2006 was $37.2 million, down $9.3 million from $46.4 million in the second quarter of 2005 and down $8.2 million from $45.4 million in the first quarter of 2006.
Results for the second quarter of 2006 included the previously announced charge of approximately $9.0 million, or $0.17 per diluted share, as a result of the recently-enacted Tax Increase Prevention and Reconciliation Act (“TIPRA”) which repealed the exclusion from federal income taxation of a portion of the income from foreign sales corporations. The TIPRA adjustment included a reduction of $0.6 million to net interest income and an increase of $8.2 million in the provision for income taxes, which represents the total amount of additional future tax payments.
The return on average assets for the second quarter of 2006 was 1.47 percent, compared to 1.87 percent in the second quarter of 2005 and 1.82 percent in the first quarter of 2006. The return on average equity was 21.70 percent for the second quarter of 2006, down from 25.98 percent in the second quarter last year and down from 26.13 percent in the previous quarter. Excluding the TIPRA adjustment, the return on average assets for the second quarter of 2006 was 1.81 percent and the return on average equity was 26.86 percent.
“Our underlying financial performance continues to be strong despite the disappointing effect of this change in tax legislation,” said Allan R. Landon, Chairman and CEO. “We are especially pleased with our commercial and consumer loan growth, asset quality and expense control.”
For the six months ended June 30, 2006, net income was $82.5 million, down $9.4 million compared to net income of $92.0 million for the same period last year. Diluted earnings per share were $1.60 for the first half of 2006, down from diluted earnings per share of $1.69 for
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the first half of 2005. Excluding the TIPRA adjustment, results for the first half of 2006 were $91.4 million, a decrease of $0.6 million compared with the same period last year. Results for the first half of 2006 included a provision for credit losses of $4.8 million. The Company did not record a provision for credit losses during the comparable period in 2005.
The year-to-date return on average assets was 1.64 percent, down from 1.87 percent for the same six months in 2005. The year-to-date return on average equity was 23.93 percent, down from 24.78 percent for the six months ended June 30, 2005. Excluding the TIPRA adjustment, the return on average assets for the first half of 2006 was 1.82 percent and the return on average equity was 26.49 percent.
Financial Highlights
Net interest income, on a taxable equivalent basis, for the second quarter of 2006 was $100.1 million, down $1.0 million from $101.1 million in the second quarter of 2005 and down $2.3 million from $102.4 million in the first quarter of 2006. The decrease in net interest income was due to increased deposit costs and the $0.6 million TIPRA adjustment. An analysis of the change in net interest income from the previous quarter is included in Table 6.
The net interest margin was 4.25 percent for the second quarter of 2006, an 11 basis point decrease from 4.36 percent in the second quarter of 2005 and a 16 basis point decrease from 4.41 percent in the first quarter of 2006. The decrease from the previous quarter was primarily due to the effects of the flattening yield curve, a shift in the funding mix as well as a 3 basis point decrease resulting from the TIPRA adjustment.
Results for the second quarter of 2006 included a provision for credit losses of $2.1 million compared to $2.8 million in the first quarter of 2006. The provision equaled net charge-offs for both quarters. As previously mentioned, the Company did not record a provision for credit losses during the second quarter of 2005.
Non-interest income was $53.2 million for the second quarter of 2006, an increase of $2.5 million or 5.0 percent compared to non-interest income of $50.7 million in the second quarter of 2005 and up $0.6 million or 1.2 percent compared to non-interest income of $52.6 million in the first quarter of 2006.
Non-interest expense was $78.7 million in the second quarter of 2006, down $0.3 million or 0.3 percent from non-interest expense of $79.0 million in the same quarter last year and down $2.1 million or 2.6 percent from $80.8 million in the prior quarter. An analysis of salary and benefit expenses is included in Table 7.
The efficiency ratio for the second quarter of 2006 was 51.45 percent, an improvement from 52.07 percent in the same quarter last year and from 52.22 percent in the previous quarter. For six months ended June 30, 2006, the efficiency ratio was 51.83 percent compared to 52.47 percent for the same period in 2005.
The Company’s business segments are defined as Retail Banking, Commercial Banking, Investment Services Group, and Treasury and Other Corporate. 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 11a and 11b.
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Asset Quality
The Company’s asset quality remained stable during the second quarter of 2006. Non-performing assets decreased to $5.4 million at the end of the second quarter of 2006, down $5.5 million, or 50.8 percent, compared to $10.9 million at the end of the same quarter last year and down $0.5 million, or 9.0 percent, compared to $5.9 million at the end of the previous quarter. At June 30, 2006 the ratio of non-performing assets to total loans, foreclosed real estate, and other investments was 0.08 percent, down from 0.18 percent at June 30, 2005 and down from 0.09 percent at March 31, 2006.
Non-accrual loans and leases were $5.1 million at June 30, 2006, down $4.8 million or 48.6 percent from $9.9 million at June 30, 2005 and a reduction of $0.1 million, or 2.7 percent from $5.2 million at March 31, 2006. Non-accrual loans and leases as a percentage of total loans and leases at June 30, 2006 were 0.08 percent, down from 0.16 percent at June 30, 2005 and unchanged from March 31, 2006.
Net charge-offs for the second quarter of 2006 were $2.1 million, or 0.13 percent annualized, of total average loans and leases compared to net charge-offs of $3.7 million, or 0.25 percent annualized, of total average loans and leases in the same quarter last year. Net charge-offs in the first quarter of 2006 were $2.8 million, or 0.18 percent annualized, of total average loans and leases. Details of the reserve for credit losses are summarized in Table 10.
The allowance for loan and lease losses was $91.0 million at June 30, 2006, down from $101.6 million at June 30, 2005 and down slightly from $91.1 million at March 31, 2006. The ratio of the allowance for loan and lease losses to total loans was 1.41 percent at June 30, 2006, down from 1.65 percent at June 30, 2005 and down from 1.46 percent at March 31, 2006. The reserve for unfunded commitments at June 30, 2006 was $5.1 million, up from $4.6 at June 30, 2005 and unchanged from $5.1 million at March 31, 2006.
Credit exposure to the air transportation industry is summarized in Table 8.
Other Financial Highlights
Total assets were $10.33 billion at June 30, 2006, up from $10.06 billion at June 30, 2005 and down from $10.53 billion at March 31, 2006. Total loans and leases were $6.44 billion at June 30, 2006, up from $6.15 billion at June 30, 2005 and up from $6.25 billion at March 31, 2006. Commercial loans were $2.32 billion at June 30, 2006, up from $2.19 billion at June 30, 2005 and up from $2.17 billion at March 31, 2006. Consumer loans were $4.13 billion at June 30, 2006, up from $3.96 billion at June 30, 2005 and up from $4.07 billion at March 31, 2006 due to continued growth in home equity lending and a strong Hawaii residential real estate market.
Total deposits at June 30, 2006 were $7.77 billion, up from $7.73 billion at June 30, 2005 and down from $8.15 billion at March 31, 2006. The decrease in deposits compared to March 31, 2006 was primarily due to the drawdown of a large commercial deposit. Although total deposits decreased as customers sought higher yielding products, the total number of deposit accounts increased compared to March 31, 2006 and June 30, 2005.
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During the second quarter of 2006, the Company repurchased 0.5 million shares of common stock at a total cost of $28.2 million under its share repurchase program. The average cost was $52.14 per share repurchased. From the beginning of the share repurchase program in July 2001 through June 30, 2006, the Company has repurchased a total of 41.2 million shares and returned nearly $1.4 billion to shareholders at an average cost of $33.88 per share.
The Company’s Board of Directors has increased the authorization under the share repurchase program by an additional $100 million. This new authorization, combined with the previously announced authorizations of $1.45 billion, brings the total repurchase authority to $1.55 billion. From July 1, 2006 through July 21, 2006, the Company repurchased an additional 80.0 thousand shares of common stock at an average cost of $48.61 per share. Remaining buyback authority under the share repurchase program was $151.2 million at July 21, 2006.
At June 30, 2006 the Tier 1 leverage ratio was 7.09 percent compared to 7.14 percent at June 30, 2005 and 7.19 percent at March 31, 2006.
The Company’s Board of Directors has declared a quarterly cash dividend of $0.37 per share on the Company’s outstanding shares. The dividend will be payable on September 15, 2006 to shareholders of record at the close of business on August 31, 2006.
Financial Outlook
The Company’s previous earnings estimate of approximately $187 million in net income for the full year of 2006 has been revised to reflect the $9 million TPIRA adjustment. The Company currently expects net income for the full year of 2006 to be approximately $178 million. Good credit quality is expected to allow the provision for loan losses to be lower than previously estimated, however the continued flatness of the yield curve and customers seeking higher return uses of cash is expected to reduce the previous estimate for net interest income during the second half of 2006. An analysis of credit quality is performed quarterly to determine the adequacy of the reserve for credit losses. This analysis determines the timing and amount of the provision for credit losses.
Conference Call Information
The Company will review its second quarter 2006 financial results today at 8:00 a.m. Hawaii Time (2:00 p.m. Eastern Time). The presentation will be accessible via teleconference and via the Investor Relations link of Bank of Hawaii Corporation’s web site, www.boh.com. The conference call number is 800-706-7749 in the United States or 617-614-3474 for international callers. No passcode is required to access the call. A replay will be available for one week beginning Monday, July 24, 2006 by calling 888-286-8010 in the United States or 617-801-6888 internationally and entering the number 94430073 when prompted. A replay of the presentation will also be available via the Investor Relations link of the Company’s web site.
Bank of Hawaii Corporation is a regional financial services company serving businesses, consumers and governments in Hawaii, American Samoa and the West Pacific. The Company’s principal subsidiary, Bank of Hawaii, was founded in 1897 and is the largest independent financial institution in Hawaii. For more information about Bank of Hawaii Corporation, see the Company’s web site, www.boh.com.
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Forward-Looking Statements
This news release contains, and other statements made by the Company in connection with this earnings release may contain, forward-looking statements concerning, among other things, the economic and business environment in our service area and elsewhere, credit quality, anticipated net income and other financial and business matters in future periods. Our forward-looking statements are based on numerous assumptions, any of which could prove to be inaccurate and actual results may differ materially from those projected for a variety of reasons, including, but not limited to: 1) unanticipated changes in business and economic conditions, the competitive environment, taxing authority interpretations, legislation in Hawaii and the other markets we serve, or the timing and interpretation of proposed accounting standards; 2) changes in our credit quality or risk profile that may increase or decrease the required level of reserve for credit losses; 3) changes in market interest rates that may affect our credit markets and ability to maintain our net interest margin; 4) unpredictable costs and other consequences of legal, tax or regulatory matters involving the Company; 5) changes to the amount and timing of our proposed equity repurchases; 6) real or threatened acts of war or terrorist activity affecting business conditions; and 7) adverse weather, public health and other natural conditions impacting the Company and its customers’ operations. For further discussion of these and other risks and uncertainties that could cause actual results to differ materially from such forward-looking statements, please refer to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2005 filed with the U.S. Securities and Exchange Commission. We do not undertake an obligation to update forward-looking statements to reflect later events or circumstances.
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