Bankoh looks to future
after 33.8 percent
net income rise

It's one three-year strategic plan down, another to go for Bank of Hawaii Corp.

Chairman and Chief Executive Officer Michael O'Neill -- who has changed the bank's fortunes, not to mention its name, since taking over in November 2000 -- unveiled a new three-year blueprint yesterday in conjunction with a fourth-quarter earnings report that showed a 33.8 percent jump in net income.

O'Neill, who along with President Allan Landon went to New York to personally deliver the news to Wall Street analysts and investors, said he had visited New York in early 2001 to lay out the original plan and felt it was appropriate to make a return visit to explain what lies ahead.

"We feel, to this point, that (the initial three-year) plan has been accomplished, and accomplished pretty much how we said it was going to be," O'Neill said in a telephone interview from New York yesterday morning. "It's appropriate for our investors to ask the question, 'OK, what are you going to do for an encore?' "

Art The five key elements of the new plan include accelerating revenue growth in island markets, better integrating the bank's business segments, developing its management teams, improving efficiency and maintaining a discipline of dependable risk and capital management.

"We're not complacent," O'Neill said. "I think there's more good news here and we want to make sure our investors understand what it is we plan to do going forward."

The bank, which completed the outsourcing of an information technology systems replacement project in the third quarter, began to reap the dividends last quarter as evidenced by the big jump in earnings. The conversion to Milwaukee-based Metavante Corp., which resulted in a $35.5 million charge over five quarters, is expected to produce annual cost savings of more than $17 million a year.

Bank of Hawaii's return on equity, which measures how well it used reinvested earnings to generate additional earnings, improved to 18.6 percent from 10.7 percent a year earlier and from 9 percent for the full-year 2000, which preceded the launch of the first three-year plan. Return on equity for the full year was 15 percent vs. 10.2 percent in 2002.

"I had said that once we got through this systems replacement project you'd see this company have a very dramatic jump," O'Neill said.

Bank of Hawaii's fourth-quarter net income was $38.7 million, or 66 cents a share, compared with $28.9 million, or 44 cents a share, a year ago. The consensus of nine analysts surveyed by Thomson Financial was 65 cents a share.

For the year, the company's net income grew 11.6 percent to $135.2 million, or $2.21 a share, from $121.2 million, or $1.70 a share, in 2002. O'Neill forecast the bank's net income this year would grow approximately 16 percent to $157 million.

The bank's board of directors also declared a dividend of 30 cents a share for the second straight quarter. It will be payable March 12 to shareholders of record at the close of business on March 1.

O'Neill, who sold off noncore assets during the first three years of the plan, also changed the bank's corporate name to Bank of Hawaii Corp. from Pacific Century Financial Corp. in April 2002 to reflect the bank's refocused emphasis on Hawaii, as well as American Samoa and the western Pacific.

"We have had to do three things (during the past three years) that I would describe as extraordinary," O'Neill said. "We had to fix our bad loan problems; get rid of the businesses or fix the businesses that were not performing at an acceptable level; and change out our system. Those were all major events. At the same time we were changing the tire while the car was running, we basically focused on the marketplace and improved our customer satisfaction results.

"Today, we don't have any of those various difficult tasks to pull off. All we need to do is focus exclusively on our customers, learn more about them and sell them what they need. We have a full range of services and products, and that becomes our exclusive task to do a better job with our customers."

O'Neill also said the bank's improved performance over the last three years makes it unlikely the bank will be an acquisition target, refuting speculation that has popped up over the years.

"I would say our bank was a very big acquisition target three years ago because we were trading at $11.25," O'Neill said. "Today, we're at $42 plus and we're a very expensive acquisition target. So, I think very few suitors, if any, would be interested in paying this kind of price."

Bank of Hawaii, which has 89 branches, saw its total assets dip 0.6 percent to $9.46 billion from $9.52 billion a year ago as a result of its loan "cleansing process," as O'Neill refers to it. Total loans grew 7.4 percent to $5.8 billion from $5.4 billion a year ago. And total deposits rose to 6 percent to $7.3 billion from $6.9 billion.

The bank's net interest margin, which reflects the difference of what a bank pays depositors and what it brings in from loans, rose to 4.35 percent in the fourth quarter from 4.05 percent a year ago.

Bank of Hawaii's return on assets ratio, which indicates how many dollars of profits it achieves for each dollar of assets it controls, improved to 1.7 percent from a year ago.

Bank of Hawaii's efficiency ratio, which measures in percentages how much it costs the bank to make a dollar of revenue, improved to 58.4 percent from 63.5 percent, excluding systems replacement and net restructuring costs that were accounted for in the year-ago quarter.

Bank of Hawaii

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