Bankoh profit exceeds estimates

The bank's net was down for the year but up 13.7% for the quarter

Bank of Hawaii Corp., beginning a new three-year business plan, ended its most recent strategic initiative on an upbeat note as its earnings rose 13.7 percent in the fourth quarter and also exceeded analysts' average estimate by six cents.

Bolstered by strong loan growth, the bank yesterday posted net income of $50.9 million, or $1.01 a share, compared with $44.8 million, or 86 cents a share, in the year-ago period. Analysts surveyed by Thomson Financial had forecast 95 cents a share.

For the year, Bankoh's net income fell 0.7 percent to $180.4 million from $181.6 million, but its earnings per share rose to $3.52 a share from $3.41 a share.

The bank's board also maintained its quarterly dividend at 41 cents a share. It will be payable March 14 to shareholders of record at the close of business on Feb. 28.

"Bank of Hawaii had a good financial performance during the fourth quarter," Bankoh Chairman and Chief Executive Allan Landon said. "Loan growth and asset quality continued to be strong (and) our net interest margin held up rather well in spite of the challenging interest rate environment."

The bank also made several other announcements:

» Chief Financial Officer Richard Keene, in one of several administrative changes, is leaving during this quarter to take a position with another Hawaii-based company.

Landon declined to say where Keene was going, pending a formal announcement by the other company.

» Mark Rossi has been elected vice chairman and chief administrative officer and corporate secretary on the bank's board. Rossi was previously president of Lane Powell in Seattle, a 180-attorney law firm with six offices in Washington, Oregon, Alaska and London.

» Vice Chairman Donna Tanoue, who previously served as chief administrative officer, will concentrate on client relations and community activities, areas of major emphasis under the bank's new three-year business plan. Tanoue will continue as a vice chairman and director, member of the managing committee and president of the bank's charitable foundation.

» It will follow a growing industry trend and no longer offer earnings guidance;

In addition, Bankoh unveiled a new three-year plan that calls for no expansion beyond the bank's "current footprint."

"We think we've got more opportunities here in Hawaii and on Guam and our other locations and that's where we're going to continue to focus," Landon said.

The bank's 2007+ Plan, based on forecasts of a "flat" yield curve continuing well into 2007, emphasizes growth in revenue, integration of service delivery and business units, development of people, enhancement of the Bank of Hawaii brand, and discipline in managing risk and financial performance.

The company said it anticipates operating results under its three-year plan to include an annual return on assets above 1.7 percent, a return on equity above 25 percent, and an efficiency ratio approaching 50 percent, based on a stable economy and a return to a more traditional interest rate environment.

The plan allows for an increase in loan losses.

Bankoh, which has 86 branches, was aided in the last quarter by a tax rate of 26.19 percent compared with 35.57 percent a year earlier and 37.14 percent in the previous quarter. The lower rate last quarter was primarily due to accrual adjustments for tax matters that were resolved in the quarter.

"Without the lower tax rate, we would have not taken some expenses during the quarter," Landon said. "As a result, we were able to share some of that with employees and the community."

During the quarter, Bankoh contributed $1.5 million to the Bank of Hawaii Charitable Foundation and also distributed $1.5 million in bonuses to some employees not participating in other incentive plans.

"The tax rate in the fourth quarter was largely responsible for the deviation in expectations from Wall Street," said FTN MidWest Research analyst Brett 2Rabatin, whose estimate was below consensus at 93 cents a share. "Their revenue (net interest income and noninterest income) didn't really grow much from the previous quarter and they were kind of flat year over year."

Despite those concerns, Rabatin said it's tough for banks to grow earnings now due to the yield curve and modest margin pressures.

"They're doing a good job in the current environment," he said.

Net interest income, which reflects the difference between what the bank pays depositors and what it brings in from loans, decreased 3 percent to $100.4 million, from $103.6 million in the fourth quarter of 2005. The net interest margin fell to 4.15 percent from 4.43 percent a year earlier because of an inverted yield curve and depositors shifting their money from savings accounts to higher-yielding accounts such as money-market funds and certificates of deposit.

An inverted yield curve results when short-term interest rates are higher than long-term rates.

Noninterest income, which includes service charges and fees, rose 5.3 percent to $53.5 million from $50.8 million a year earlier.

In the fourth quarter, total assets rose about 4 percent to $10.57 billion from $10.19 billion at the end of 2005 and total deposits increased just more than 1 percent to $8.02 billion from $7.91 billion.

Total loans and leases grew about 7 percent to $6.62 billion from $6.17 billion as commercial loans rose about 17 percent to $2.46 billion and consumer loans gained about 2 percent to $4.16 billion.

Non-performing assets decreased slightly to $6.4 million at the end of the fourth quarter from $6.5 million a year earlier.