Tech fix
costs Bankoh

Bills for the bank's information
technology systems upgrade
pull down its first-quarter net

Bank of Hawaii Corp., shrinking its balance sheet as it streamlines operations and sheds underperforming assets, posted a 4 percent decline in net income in the first quarter.

Earnings fell to $29.8 million from $31.1 million a year earlier. However, the bank's net income would have risen 7.1 percent on an after-tax basis without a $7 million charge for the bank's ongoing information technology systems replacement project and $400,000 in net restructuring expenses related to the company's divestiture program. Noncore items in the first quarter of 2002 included restructuring expenses of $200,000.

Art "I think once we get through this conversion, by the end of this year we should be operating more respectively," said Michael O'Neill, Bank of Hawaii's chairman and chief executive officer. "I've been in banking long enough to never declare victory, but boy, when you look at us at the end of this year to where we were three years ago, there will be no comparisons."

The outsourcing of the bank's information services to Milwaukee-based Metavante Corp. will force the company to take $35 million in charges over a five-quarter conversion period that began in the third quarter of 2002. The company said the conversion is on target to be operational in the third quarter and that it will save the bank $17 million annually in cost savings.

O'Neill also reiterated what he revealed to shareholders Friday that he would give up more than $1.5 million in salary and bonus for the second year in a row.

"To do this Metavante conversion, people will lose their jobs," he said "I feel it's important that I sacrifice, too, but I'm not going to work for nothing forever. I just felt it was important the last two years while we had this work to do."

Bank of Hawaii continued to make progress on several fronts. Its earnings per share rose 14.6 percent to 47 cents a share from 41 cents a share a year ago as the bank repurchased 2.9 million shares of stock at a cost of $86.3 million. The average cost per share was $30.22 during the quarter.

"We have extremely strong liquidity, too much cash," O'Neill said. "We want to steadily continue with our buyback program and won't buy the stock back at 40 if we can buy it back at 32."

The bank's shares closed up 53 cents today at $32.89.

The bank also improved its return on equity, which measures how well it used reinvested earnings to generate additional earnings, to 12.4 percent from 10 percent a year ago. O'Neill said he expects that number to improve to 18 percent by year-end after the Metavante conversion is completed and following the repurchasing of about $800 million in capital.

"We are the only one of the five banks here in town that has not done this (system outsourcing) and it has put us at a competitive disadvantage," O'Neill said. "This is a significant undertaking, but is one I think will bear fruit. It (will provide us with) a very significant return on investment that will make us much more competitive."

Meanwhile, the bank's return on assets also improved as it went to 1.3 percent from 1.2 percent a year ago. The return on assets indicates how effectively the assets are working to generate a profit.

The bank's efficiency ratio, which measures in percentages how much it costs the bank to make a dollar of revenue, worsened, though, as it climbed to 66.4 percent, or 66.4 cents, from 61.8 percent, or 61.8 cents. O'Neill, who is maintaining the bank's earnings guidance of $131 million in net income for the full year, said he expects the efficiency ratio to improve to 58 percent by the end of December as the Metavante conversion takes hold.

Net interest margin, the difference between what the bank earns on loans and investments and the interest it pays on deposits, rose to 4.29 percent from 3.92 percent a year earlier.

Total assets fell 8.1 percent to $9.4 billion from $10.2 billion a year ago due to reductions in short-term investments as excess liquidity was used for share repurchases and debt reduction. Total deposits were up 6.8 percent to $7 billion from $6.5 billion. Net loans slipped 0.3 percent to $5.43 billion from $5.44 billion.

The bank also said it was maintaining its 19 cent quarterly dividend. It will be payable June 13 to shareholders at the close of business on May 23.

Bank of Hawaii

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