[July 23, 2018]

Bank of Hawaii Corporation Second Quarter 2018 Financial Results

Bank of Hawaii Corporation (NYSE: BOH) today reported diluted earnings per share of $1.30 for the second quarter of 2018, up from diluted earnings per share of $1.28 in the previous quarter, and up from diluted earnings per share of $1.05 in the same quarter last year. Net income for the second quarter of 2018 was $54.7 million compared with net income of $54.0 million in the first quarter of 2018 and net income of $44.7 million in the second quarter of 2017.

Loan and lease balances increased to $10.1 billion at June 30, 2018, up 1.4 percent from March 31, 2018, and up 7.1 percent compared with June 30, 2017. Total deposits were $14.9 billion at the end of the second quarter, down slightly from March 31, 2018 due to the planned decline in public time deposits. Total deposits were up 1.1 percent compared with June 30, 2017.

"Bank of Hawaii Corporation continued to perform well during the second quarter of 2018," said Peter Ho, Chairman, President and CEO. "Loans continued to grow, our margin expanded, asset quality remains strong, and we maintained our disciplined approach to risk and capital management."

The return on average assets for the second quarter of 2018 was 1.30 percent, up from 1.29 percent in the previous quarter and 1.09 percent in the same quarter last year. The return on average equity for the second quarter of 2018 was 17.68 percent down slightly from 17.74 percent for the first quarter of 2018 and up from 14.87 percent for the second quarter of 2017. The efficiency ratio for the second quarter of 2018 was 56.12 percent compared with 57.91 percent in the previous quarter and 55.99 percent in the same quarter last year.

For the six-month period ended June 30, 2018, net income was $108.8 million, an increase of $13.0 million from net income of $95.8 million during the same period last year. Diluted earnings per share were $2.57 for the first half of 2018, an increase from diluted earnings per share of $2.24 for the first half of 2017. The return on average assets for the six-month period ended June 30, 2018 was 1.29 percent compared with 1.17 percent for the same six months in 2017. The year-to-date return on average equity was 17.71 percent for the first half of 2018 compared with 16.22 percent for the six-month period ended June 30, 2017. The efficiency ratio for the first half of 2018 was 57.01 percent compared with 54.67 percent in the same period last year.

Financial Highlights

Net interest income, on a taxable equivalent basis, for the second quarter of 2018 was $121.8 million, an increase of $1.5 million compared with net interest income of $120.3 million in the first quarter of 2018 and an increase of $6.5 million compared with net interest income of $115.3 million in the second quarter of 2017. Net interest income for the first half of 2018 was $242.1 million, an increase of $13.8 million compared with net interest income of $228.3 million for the first half of 2017. Analyses of the changes in net interest income are included in Tables 8a, 8b and 8c.

The net interest margin was 3.04 percent for the second quarter of 2018, up 4 basis points from the net interest margin of 3.00 percent in the previous quarter and a 12 basis point increase from the net interest margin of 2.92 percent in the second quarter of 2017. The net interest margin for the first six months of 2018 was 3.02 percent compared with 2.90 percent for the same six-month period last year.

Results for the second quarter of 2018 included a provision for credit losses of $3.5 million compared with a provision for credit losses of $4.1 million in the previous quarter and a provision for credit losses of $4.3 million in the same quarter last year. The provision for credit losses during the first half of 2018 was $7.6 million compared with $8.7 million during the same period in 2017.

Noninterest income was $41.3 million in the second quarter of 2018, a decrease of $2.7 million compared with noninterest income of $44.0 million in the first quarter of 2018 and a decrease of $3.9 million compared with noninterest income of $45.2 million in the second quarter of 2017. Noninterest income during the second quarter of 2018 included a negative adjustment of $1.0 million related to a change in the Visa Class B conversion ratio. Noninterest income in the first quarter of 2018 included $2.8 million resulting from a low-income housing investment sale and distribution. There were no significant items in noninterest income during the second quarter of 2017. The decrease compared with the second quarter last year was primarily due to lower mortgage banking income and a decline in service charges. Noninterest income for the first half of 2018 was $85.3 million, a decrease of $15.9 million compared with noninterest income of $101.2 million for the first half of 2017. Noninterest income in the first half of 2017 included a gain of $12.5 million resulting from the sale of 90,000 Visa Class B shares.

Noninterest expense was $90.8 million in the second quarter of 2018, a decrease of $3.6 million compared with noninterest expense of $94.4 million in the first quarter of 2018 and an increase of $2.6 million compared with noninterest expense of $88.2 million in the second quarter last year. There were no significant items in noninterest expense during the second quarter of 2018 or the second quarter of 2017. Noninterest expense in the first quarter of 2018 included seasonal payroll expenses of approximately $2.5 million, a legal reserve of $2.0 million, and severance expenses of $1.0 million. Noninterest expense for the first half of 2018 was $185.2 million, an increase of $8.4 million compared with $176.8 million for the first half of 2017. Adjusted for the legal reserve and severance, the increase is largely related to salaries and benefits, including minimum wage increases. An analysis of noninterest expenses related to salaries and benefits is included in Table 9.

The effective tax rate for the second quarter of 2018 was 18.94 percent compared with 16.19 percent in the previous quarter and 31.37 percent in the same quarter last year. The lower effective tax rate in the first and second quarters of 2018 was primarily due to the reduction in the federal corporate tax rate from 35 percent to 21 percent as a result of the Tax Cuts and Jobs Act. The tax rate during the first quarter of 2018 was also favorably impacted by a $2.0 million adjustment to the Company's low-income housing investments. The effective tax rate for the first half of 2018 was 17.60 percent compared with 30.50 percent during the same period last year.

The Company's business segments are defined as Retail Banking, Commercial Banking, Investment Services and Private Banking, and Treasury & Other. Their 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 13a and 13b.

Asset Quality

The Company's asset quality continued to remain solid during the second quarter of 2018. Total non-performing assets were $15.2 million at June 30, 2018, down from non-performing assets of $15.7 million at March 31, 2018 and down from non-performing assets of $16.4 million at June 30, 2017. As a percentage of total loans and leases, including foreclosed real estate, non-performing assets were 0.15 percent at the end of the second quarter of 2018, down from 0.16 percent at the end of the first quarter of 2018 and down from 0.17 percent at the end of the second quarter last year.

Accruing loans and leases past due 90 days or more were $13.3 million at June 30, 2018, up from $8.2 million at March 31, 2018 and $7.0 million at June 30, 2017. Restructured loans not included in non-accrual loans or accruing loans past due 90 days or more were $50.2 million at June 30, 2018, down from $56.7 million at March 31, 2018 and down from $53.2 million at June 30, 2017. 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 2018 were $3.3 million or 0.13 percent annualized of total average loans and leases outstanding. Loan and lease charge-offs of $5.7 million during the quarter were partially offset by recoveries of $2.4 million. Net charge-offs during the first quarter of 2018 were $3.5 million or 0.15 percent annualized of total average loans and leases outstanding and comprised of $6.0 million in charge-offs and recoveries of $2.5 million. Net charge-offs during the second quarter of 2017 were $3.0 million or 0.13 percent annualized of total average loans and leases outstanding and comprised of $5.5 million in charge-offs and recoveries of $2.5 million. Net charge-offs during the first half of 2018 were $6.8 million or 0.14 percent annualized of total average loans and leases outstanding compared with net charge-offs of $6.6 million or 0.15 percent annualized of total average loans and leases outstanding for the first half of 2017.

The allowance for loan and lease losses increased to $108.2 million at June 30, 2018 compared with $107.9 million at March 31, 2018 and $106.4 million at June 30, 2017. The ratio of the allowance for loan and lease losses to total loans and leases was 1.08 percent at June 30, 2018, a decrease of 1 basis point from the previous quarter and 5 basis points from the second quarter last year. The allowance for loan and lease losses at June 30, 2018 is commensurate with the Company's strong asset quality and the Hawaii economy. The reserve for unfunded commitments of $6.8 million at June 30, 2018 was unchanged from March 31, 2018 and June 30, 2017. Details of loan and lease charge-offs, recoveries and the components of the total reserve for credit losses are summarized in Table 12.

Other Financial Highlights

Total assets were $17.12 billion at June 30, 2018, down slightly from total assets of $17.14 billion at March 31, 2018 and up from total assets of $16.98 billion at June 30, 2017. Average total assets were $16.92 billion during the second quarter of 2018 compared with $16.96 billion during the previous quarter and $16.50 billion during the same quarter last year.

The investment securities portfolio was $5.69 billion at June 30, 2018, down from $5.97 billion at March 31, 2018 and $6.10 billion at June 30, 2017. The portfolio remains largely comprised of securities issued by U.S. government agencies and included $3.60 billion in securities held to maturity and $2.09 billion in securities available for sale at June 30, 2018.

Total loans and leases were $10.05 billion at June 30, 2018, up from total loans and leases of $9.92 billion at March 31, 2018, and up from total loans and leases of $9.39 billion at June 30, 2017. Average total loans and leases increased to $9.96 billion during the second quarter of 2018 from $9.80 billion during the previous quarter and $9.22 billion during the same quarter last year.

The commercial loan portfolio was $3.82 billion at June 30, 2018, up from $3.79 billion at March 31, 2018, and up from $3.70 billion at June 30, 2017. The consumer loan portfolio increased to $6.24 billion at June 30, 2018 compared with $6.12 billion at March 31, 2018 and $5.68 billion at June 30, 2017. Loan and lease portfolio balances are summarized in Table 10.

Total deposits were $14.94 billion at June 30, 2018, down from total deposits of $14.96 billion at March 31, 2018 and up from total deposits of $14.78 billion at June 30, 2017. Average total deposits were $14.71 billion during the second quarter of 2018, down slightly from $14.72 billion during the previous quarter and up from total deposits of $14.25 billion during the same quarter last year.

Consumer deposits of $7.67 billion at June 30, 2018 were up slightly from March 31, 2018 and up from $7.28 billion at June 30, 2017. Commercial deposits of $5.92 billion at June 30, 2018 also reflected a small increase from commercial deposits of $5.90 billion at March 31, 2018 and June 30, 2017. Other deposits, including public funds, were $1.35 billion at June 30, 2018, down from $1.39 billion at March 31, 2018 and $1.60 billion at June 30, 2017 largely due to the decline in public time deposits. Deposit balances are summarized in Tables 7a, 7b, and 10.

During the second quarter of 2018, the Company repurchased 292.0 thousand shares of common stock at a total cost of $24.8 million under its share repurchase program. The average cost was $84.93 per share repurchased. From the beginning of the share repurchase program initiated during July of 2001 through June 30, 2018, the Company has repurchased 54.6 million shares and returned over $2.1 billion to shareholders at an average cost of $38.68 per share. Remaining buyback authority under the share repurchase program was $81.3 million at June 30, 2018. From July 2 through July 20, 2018, the Company repurchased an additional 68.0 thousand shares of common stock at an average cost of $84.55 per share.

Total shareholders' equity increased to $1.25 billion at June 30, 2018 compared with $1.24 billion at March 31, 2018 and $1.21 billion at June 30, 2017. The Tier 1 Capital Ratio at June 30, 2018 was 13.27 percent compared with 13.37 percent at March 31, 2018 and 13.34 percent at June 30, 2017. The Tier 1 leverage ratio at June 30, 2018 was 7.53 percent compared with 7.46 percent at March 31, 2018 and 7.37 percent at June 30, 2017.

The Company's Board of Directors declared a quarterly cash dividend of $0.60 per share on the Company's outstanding shares. The dividend will be payable on September 17, 2018 to shareholders of record at the close of business on August 31, 2018.

Hawaii Economy

Economic conditions in Hawaii continue to remain positive due to growing tourism, healthy construction activity, record low unemployment, and a strong real estate market. The statewide seasonally-adjusted unemployment rate in Hawaii continues to remain among the lowest in the United States at 2.1 percent in June 2018 compared to 4.0 percent nationally. For the first five months of 2018, total visitor spending increased 10.9 percent and visitor arrivals increased 8.4 percent compared to the same period in 2017. For the first five months of 2018, all four of Hawaii's largest visitor markets, U.S. West, U.S. East, Japan, and Canada, have reported strong growth compared with the first five months of 2017. For the first six months of 2018, the volume of single-family home sales on Oahu decreased 1.6 percent while the median sales price increased 3.9 percent compared with the same period in 2017. The volume of condominium sales during the first half of 2018 on Oahu increased 1.3 percent and the median sales price was 6.5 percent higher compared with 2017. As of June 30, 2018, months of inventory of single-family homes and condominiums on Oahu remained low at 2.7 months and 3.0 months, respectively. More information on current Hawaii economic trends is presented in Table 15.

Conference Call Information

The Company will review its second quarter 2018 financial results today at 2:00 p.m. Eastern Time (8:00 a.m. Hawaii Time). The call 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 23, 2018. 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 pass code 2584747 when prompted. Participants can also dial 1 (800) 585-8367 to access the replay. 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, 2017, 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, American Samoa, 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.