UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D. C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

 

 

 

 

Item 9.                                                             Regulation FD Disclosure.  The following information is being provided under Item 12 of Form 8-K

 

(a)            Exhibit 99.1

 

Press Release: Bank of Hawaii Corporation First Quarter 2003 Financial Results

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: April 28, 2003		BANK OF HAWAII CORPORATION
		/s/ Michael E. O’Neill
		Michael E. O’Neill
		Chairman, Chief Executive Officer and President

 

2

 

EXHIBIT 99.1

 

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

 

BANK OF HAWAII CORPORATION

 

 

EXHIBIT TO CURRENT REPORT ON

FORM 8-K DATED April 28, 2003

 

 

Commission File Number 1-6887

 

 

Bank of Hawaii Corporation First Quarter 2003 Financial Results

 

•          Diluted Earnings Per Share Increases to $0.47

•          Net Income of $29.8 Million for the Quarter

•          Board of Directors Declares Dividend of $0.19 Per Share

 

FOR IMMEDIATE RELEASE

 

HONOLULU, HI (April 28, 2003) — Bank of Hawaii Corporation (NYSE: BOH) today reported diluted earnings per share of $0.47 for the first quarter of 2003, up from diluted earnings per share of $0.44 in the fourth quarter of 2002 and up from $0.41 in the comparable quarter last year.  Net income for the first quarter was $29.8 million, up from $28.9 million in the previous quarter and down slightly from $31.1 million reported in the same quarter last year.

 

The return on average assets for the first quarter of 2003 was 1.31 percent, up from 1.20 percent in the fourth quarter of 2002 and up from 1.21 percent in the first quarter of 2002.  The return on average equity was 12.42 percent in the first quarter, up from 10.72 percent in the previous quarter and a significant improvement from 9.97 percent in the same quarter last year.

 

“We are encouraged by the first quarter results for 2003,” said Michael E. O’Neill, Chairman and CEO.  “Despite weak financial market conditions, our net interest income and margin are up, credit losses and other credit quality indicators have improved, and our expenses are coming down.  We are pleased to see growth in both loans and deposits.  The Hawaii economy has held up well in the face of uncertainty.  Our system conversion is on schedule and on budget, and we are looking forward to the benefits it will create for both our customers and our shareholders.”

 

Net income in the first quarter of 2003 included charges of $7.4 million related to the information technology systems replacement project.  Included in the fourth quarter of 2002 were charges of $7.0 million related to the information technology systems replacement project and $0.4 million in net restructuring expenses related to the divestiture program.  Non-core items in the first quarter of 2002 included net restructuring expenses of $2.0 million.

 

-more-

 

 

Bank of Hawaii Corporation First Quarter 2003 Financial Results

 

Financial Highlights

 

Net interest income for the first quarter of 2003 on a fully taxable equivalent basis was $91.0 million, up $0.8 million from the fourth quarter of 2002, primarily due to increased loan volumes and a reduction in rates on deposits and borrowings.  An analysis of the change in net interest income is included in Table 6.  Net interest income was down $3.9 million from the first quarter of 2002 primarily due to lower interest rates.

 

The net interest margin was 4.29 percent for the first quarter of 2003, a 24 basis point increase from 4.05 percent in the previous quarter and a 37 basis point increase from 3.92 percent in the same quarter last year.  The significant improvement in the net interest margin was largely due to lengthening the maturities of certain short-term investments, an improved earning asset mix, and reductions in short-term borrowings and time deposits, as well as debt repurchases in 2002, which lowered the Company’s cost of funds.

 

                Bank of Hawaii Corporation’s credit quality continued to improve during the first quarter of 2003.  As a result, the Company did not recognize a provision for loan and lease losses during the quarter.  The allowance for loan and lease losses was reduced by $2.8 million from December 31, 2002, which equaled the amount of net charge-offs for the quarter.  The Company did not recognize a provision for loan and lease losses during the fourth quarter of 2002.  The provision for loan and lease losses was $8.3 million in the first quarter of 2002, which equaled net charge-offs for that quarter.

 

Non-interest income was $44.8 million for the quarter compared to non-interest income of $50.4 million in the fourth quarter of 2002 and $53.0 million in the first quarter of 2002.  The decrease was largely due to a reduction in gains on sales of mortgage loans resulting from the decision at the end of 2002 to hold the majority of first quarter 2003 mortgage loan originations in the portfolio rather than selling them in the secondary market.  The decrease in sales gains offset growth in other non-interest revenue, including tax preparation fees, service charges on deposits and other service fee income.

 

Non-interest expense for the first quarter of 2003 was $90.2 million, including the previously mentioned $7.4 million in information technology system replacement costs.  Non-interest expense for the fourth quarter of 2002 also included a combined $7.4 million in information technology system replacement and net restructuring costs, as discussed above.  By comparison, non-interest expense in the first quarter of 2002 included net restructuring costs of $2.0 million.  Excluding these items, non-interest expense was $82.8 million in the first quarter of 2003, a decrease of $6.5 million, or 7.3 percent, compared to the previous quarter and a decrease of $6.7 million, or 7.4 percent, from the same quarter last year.

 

The efficiency ratio was 66.4 percent for the first quarter of 2003.  Excluding systems replacement project costs and non-core items, the efficiency ratio was 61.0 percent in the first quarter, compared to 63.5 percent in the previous quarter and 60.5 percent in the same quarter last year.

 

The Company’s business segments are defined as Retail Banking, Commercial Banking, Investment Services Group, and Treasury and Other Corporate.  Business segment results are determined based on the Company’s internal financial management reporting process and organizational structure.  Business segment performance details are summarized in Table 11.

 

2

 

Asset Quality

 

Bank of Hawaii Corporation’s credit quality reflected continued improvement in the first quarter of 2003.  Non-performing assets were $44.2 million at the end of the quarter, a decrease of $10.2 million, or 18.8 percent, from non-performing assets of $54.4 million at the end of the fourth quarter.  Compared to the same period last year, non-performing assets declined $46.5 million, or 51.3 percent.  At March 31, 2003 the ratio of non-performing assets to total loans plus foreclosed assets and non-performing loans held for sale was 0.79 percent down from 1.01 percent at December 31, 2002 and down from 1.61 percent at March 31, 2002.

 

Non-accrual loans were $35.1 million at March 31, 2003, a reduction of $9.9 million, or 22.0 percent, from $45.0 million at December 31, 2002 and down $28.6 million, or 44.9 percent, from $63.7 million at March 31, 2002.  Non-accrual loans as a percentage of total loans were 0.63 percent at March 31, 2003 down from 0.84 percent at the end of the previous quarter and down from 1.14 percent at the end of the comparable quarter last year.

 

Net charge-offs for the first quarter of 2003 were $2.8 million, or 0.21 percent (annualized) of total average loans.  Charge-offs during the quarter of $6.1 million were partially offset by recoveries of $3.3 million.  Net charge-offs in the fourth quarter of 2002 were $11.6 million, or 0.88 percent (annualized) of total average loans.  Net charge-offs during the first quarter of 2002 were $8.3 million, or 0.60 percent (annualized) of total average loans.

 

The allowance for loan and lease losses was $140.0 million at March 31, 2003.  The ratio of the allowance for loan and lease losses to total loans was 2.52 percent at March 31, 2003 compared with 2.67 percent at December 31, 2002 and 2.84 percent at the end of the same quarter last year.

 

Concentrations of credit exposure to selected components of the portfolio are summarized in Table 7.

 

Other Financial Highlights

 

Total assets were $9.4 billion at the end of March 31, 2003, down slightly from $9.5 billion at the end of December 31, 2002 and down from $10.2 billion at the end of March 31, 2002.  The decrease of $106 million from the previous quarter was largely due to reductions in short-term investments.  Partially offsetting the decrease in short-term investments was growth in loans, which increased $206 million from December 31, 2002.  Compared to the previous year, the decrease in total assets was largely due to reductions in short-term investments as excess liquidity was utilized for share repurchases and debt reduction.

 

Total deposits at March 31, 2003 were $7.0 billion, up $67 million from December 31, 2002 and up $444 million from March 31, 2002 as growth in demand and savings deposits continued to offset managed decreases in time and foreign deposits.  During the first quarter of 2003 the number of checking and savings accounts increased in response to deposit promotions and other initiatives.  Offsetting the deposit growth were decreases in short-term borrowings, which reflected the lower funding needs of the Company.

 

3

 

During the first quarter of 2003, Bank of Hawaii Corporation repurchased 2.9 million shares of common stock at a total cost of $86.3 million under the share repurchase program.  The average cost per share was $30.22 during the quarter.  From the beginning of the program through March 31, 2003, the Company had repurchased a total of 23.0 million shares and returned a total of $614.2 million to the shareholder at an average cost of $26.71 per share.  Through April 25, 2003, the Company repurchased an additional 0.14 million shares of common stock at a cost of $31.87 per share.  Remaining buyback authority was $181.3 million at April 25, 2003.

 

The Company’s capital and liquidity remained exceptionally strong during the first quarter of 2003.  At March 31, 2003 the Tier 1 leverage ratio was 10.03 percent compared to 10.34 percent at December 31, 2002 and 12.64 percent at March 31, 2002.

 

The Company’s Board of Directors declared a quarterly cash dividend of $0.19 per share on the Company’s outstanding shares.  The dividend will be payable on June 13, 2003 to shareholders of record at the close of business on May 23, 2003.

 

Information Technology Systems Replacement Project

 

Bank of Hawaii Corporation signed an agreement with Metavante Corporation in July 2002 to serve as the Company’s primary technology systems provider.  The seven-year outsourcing arrangement remains on schedule to be operational in the third quarter of 2003 and is expected to provide annual cost savings of over $17 million compared to 2002 expense levels.  In connection with this project, the Company estimates that it will recognize transition charges of approximately $35 million over the five-quarter conversion period that began in the third quarter of 2002.  During the first quarter of 2003, $7.4 million in transition costs were incurred, bringing the total project-to-date cost to $21.0 million.  System conversion costs are estimated to be approximately $10.2 million in the second quarter of 2003.  Additional details on this project may be found in Table 10.

 

Economic Outlook

 

The Hawaii economy remained relatively strong during the first quarter of 2003 and is forecast to remain healthy during the remainder of the year.  The construction and real estate investment sectors continue to lead the Hawaii economy.  Tourism, as measured by passenger arrivals, was up 4.1 percent in the first quarter of 2003 compared to the same quarter last year.  The recent conflict in Iraq had minimal effects on Hawaii tourism.  Unemployment in Hawaii declined to 3.0 percent during the quarter, about half the national unemployment level.  Job growth in the state is projected to be approximately 2.0 percent for 2003 and real income is forecast to grow about 3.0 percent.  Inflation expectations remain relatively low at 1.5 percent.  For more economic information, visit the Company’s web site http://www.boh.com/econ/.

 

Earnings Outlook

 

The Company’s previously published earnings guidance of $131 million in net income for the full year of 2003 remains unchanged.  Based on current conditions, the Company does not expect to record a provision for loan losses in 2003.  However, the actual amount of the provision for loan losses will depend on determinations of credit risk that will be made near the end of each quarter.  Earnings per share and return on equity projections continue to be dependent upon the terms and timing of share repurchases.

 

4

 

Conference Call Information

 

The Company will review its first quarter 2003 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) 915-4836 in the U.S. or (973) 317-5319 for international callers.  A replay will be available for one week beginning at 9:00 a.m. Hawaii Time (3:00 p.m. Eastern Time) on Monday, April 28, 2003 by calling (800) 428-6051 in the U.S or (973) 709-2089 for international and entering the number 273138 when prompted.  A replay of the presentation will be also available on 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.

 

This news release contains forward-looking statements concerning the expected efficiency ratio, expected level of loan loss provisioning, anticipated costs and annual savings of our technology systems replacement project, and anticipated revenues and expenses in 2003 and beyond.  We believe the assumptions underlying our forward-looking statements are reasonable.  However, any of the assumptions 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, fiscal and monetary policies, or legislation in Hawaii and the other markets we serve; 2) changes in our credit quality or risk profile which may increase or decrease the required level of allowance for loan and lease losses; 3) changes in market interest rates may deteriorate our credit markets and ability to maintain our net interest margin; 4) changes to the amount and timing of our proposed equity repurchases; 5) inability to achieve expected benefits of our technology outsourcing project and other business process changes due to adverse changes in implementation processes or costs, operational savings, or timing; 6) actions by the United States military and real or threatened terrorist activity affecting business conditions; and 7) adverse weather and other natural conditions impacting our and customers’ operations.  We do not undertake any obligation to update any forward-looking statements to reflect later events or circumstances.

 

# # # #

 

5

 

Bank of Hawaii Corporation and Subsidiaries

Highlights  (Unaudited)

Table 1

 

(dollars in thousands except per share amounts)

 

		Three Months Ended
Earnings Highlights and Performance Ratios		March 31, 2003			March 31, 2002(1)
Net Income		$	29,801		$	31,056
Basic Earnings Per Share		0.49			0.42
Diluted Earnings Per Share		0.47			0.41
Cash Dividends		11,562			13,177
Return on Average Assets		1.31		%	1.21		%
Return on Average Equity		12.42		%	9.97		%
Net Interest Margin		4.29		%	3.92		%
Efficiency Ratio		66.44		%	61.81		%
Efficiency Ratio excluding ITSRP and Restructuring Costs		60.98		%	60.47		%

 

Statement of Condition Highlights and Performance Ratios		March 31, 2003			March 31, 2002(1)
Total Assets		$	9,410,210		$	10,245,021
Net Loans		5,425,343			5,442,601
Total Deposits		6,987,331			6,543,781
Total Shareholders’ Equity		952,007			1,265,907
Book Value Per Common Share		$	15.76		$	17.24
Allowance / Loans Outstanding		2.52		%	2.84		%
Average Equity / Average Assets		10.53		%	12.13		%
Employees (FTE)		2,891			3,082
Branches and offices		91			104
Market Price Per Share of Common Stock for the Quarter Ended:
Closing		$	30.80		$	26.06
High		$	31.50		$	27.79
Low		$	29.25		$	23.79

 

(1) Certain 2002 information has been reclassified to conform to 2003 presentation.

 

6

 

Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

Table 2

 

		Three Months Ended(1)
(dollars in thousands except per share amounts)		March 31, 2003			March 31, 2002
Interest Income
Interest and Fees on Loan and Leases		$	85,773		$	98,645
Income on Investment Securities - Held to Maturity		2,283			5,145
Income on Investment Securities - Available for Sale		22,463			27,193
Deposits		1,307			5,047
Funds Sold and Security Resale Agreements		764			1,003
Other		1,189			1,332
Total Interest Income		113,779			138,365
Interest Expense
Deposits		14,447			23,978
Security Repurchase Agreements		2,242			10,293
Funds Purchased		205			231
Short-Term Borrowings		24			649
Long-Term Debt		5,861			8,319
Total Interest Expense		22,779			43,470
Net Interest Income		91,000			94,895
Provision for Loan and Lease Losses		—			8,292
Net Interest Income After Provision for Loan and Lease Losses		91,000			86,603
Non-Interest Income
Trust and Asset Management		13,190			14,818
Mortgage Banking		283			7,957
Service Charges on Deposit Accounts		8,950			8,410
Fees, Exchange, and Other Service Charges		12,980			12,452
Investment Securities Gains		583			—
Insurance		2,982			2,599
Other		5,785			6,789
Total Non-Interest Income		44,753			53,025
Non-Interest Expense
Salaries		36,459			39,187
Pensions and Other Employee Benefits		9,970			9,996
Net Occupancy Expense		9,613			9,593
Net Equipment Expense		9,748			10,121
Restructuring and Other Related Costs		—			1,979
Information Technology Systems Replacement Project		7,417			—
Other		16,993			20,547
Total Non-Interest Expense		90,200			91,423
Income Before Income Taxes		45,553			48,205
Provision for Income Taxes		15,752			17,149
Net Income		$	29,801		$	31,056
Basic Earnings Per Share		$	0.49		$	0.42
Diluted Earnings Per Share		$	0.47		$	0.41
Dividends Per Share		$	0.19		$	0.18
Basic Weighted Average Shares		61,294,460			73,312,573
Diluted Weighted Average Shares		63,535,609			75,199,181

 

(1) Certain 2002 information has been reclassified to conform to 2003 presentation.

 

7

 

Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Condition (Unaudited)

Table 3

 

(dollars in thousands)		March 31, 2003			December 31, 2002			March 31, 2002(1)
Assets
Interest-Bearing Deposits		$	157,067		$	549,978		$	1,347,611
Investment Securities - Held to Maturity (Market Value of $180,043, $236,016 and $354,187, respectively)		175,600			229,720			344,723
Investment Securities - Available for Sale		2,497,508			2,287,201			1,980,378
Funds Sold		175,000			195,000			135,000
Loans Held for Sale		47,269			40,118			99,773
Loans		5,565,371			5,359,004			5,601,580
Allowance for Loan and Lease Losses		(140,028		)	(142,853		)	(158,979		)
Net Loans		5,425,343			5,216,151			5,442,601
Total Earning Assets		8,477,787			8,518,168			9,350,086
Cash and Non-Interest Bearing Deposits		331,994			374,352			248,307
Premises and Equipment		170,696			176,969			192,291
Customers’ Acceptance Liability		1,372			2,680			1,007
Accrued Interest Receivable		36,845			36,722			40,940
Foreclosed Real Estate		9,097			9,434			19,181
Mortgage Servicing Rights		25,801			28,820			30,501
Goodwill		36,216			36,216			36,216
Other Assets		320,402			333,057			326,492
Total Assets		$	9,410,210		$	9,516,418		$	10,245,021
Liabilities
Domestic Deposits
Non-Interest Bearing Demand		$	1,714,601		$	1,719,633		$	1,592,955
Interest Bearing Demand		1,162,202			1,169,128			933,801
Savings		2,669,409			2,535,219			2,089,257
Time		1,416,860			1,461,780			1,807,015
Foreign Deposits
Time Due to Banks		276			1,130			42,261
Other Savings and Time		23,983			33,271			78,492
Total Deposits		6,987,331			6,920,161			6,543,781
Securities Sold Under Agreements to Repurchase		646,317			735,621			1,544,718
Funds Purchased		69,890			64,467			43,485
Current Maturities of Long-Term Debt		118,792			114,781			64,975
Short-Term Borrowings		12,096			33,420			20,644
Banker’s Acceptances Outstanding		1,372			2,680			1,007
Retirement Benefits Payable		62,091			61,385			37,055
Accrued Interest Payable		12,761			13,731			27,983
Taxes Payable		206,139			196,813			146,360
Other Liabilities		70,644			82,596			84,874
Long-Term Debt		270,770			275,004			464,232
Total Liabilities		8,458,203			8,500,659			8,979,114
Shareholders’ Equity
Common Stock ($.01 par value); authorized 500,000,000 shares; issued / outstanding:  March 2003 - 81,276,420 / 60,418,539; December 2002 - 81,294,730 / 63,015,442; March 2002 - 81,346,027 / 73,409,966		807			806			806
Capital Surplus		372,887			372,192			369,541
Accumulated Other Comprehensive Income		8,273			11,659			20,389
Retained Earnings		1,133,642			1,115,910			1,065,706
Deferred Stock Grants		74			(1,424		)	(4,933		)
Treasury Stock, at Cost (Shares:  March 2003 - 20,857,881; December 2002 - 18,279,288; March 2002 - 7,936,061)		(563,676		)	(483,384		)	(185,602		)
Total Shareholders’ Equity		952,007			1,015,759			1,265,907
Total Liabilities and Shareholders’ Equity		$	9,410,210		$	9,516,418		$	10,245,021

 

(1) Certain 2002 information has been reclassified to conform to 2003 presentation.

 

8

 

Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity (Unaudited)

Table 4

 

(dollars in thousands)				Total			Common Stock			Capital Surplus			Accum. Other Compre– hensive Income			Retained Earnings			Deferred Stock Grants			Treasury Stock			Compre– hensive Income
Balance at December 31, 2002				$	1,015,759		$	806		$	372,192		$	11,659		$	1,115,910		$	(1,424	)	$	(483,384	)
Comprehensive Income
Net Income				29,801			—			—			—			29,801			—			—			$	29,801
Other Comprehensive Income, Net of Tax Unrealized Gain on Investment Securities				(3,386		)	—			—			(3,386		)	—			—			—			(3,386		)
Total Comprehensive Income																									$	26,415
Common Stock Issued
9,930		Profit Sharing Plan		216			—			—			—			—			—			216
245,213		Stock Option Plan		5,834			—			1,083			—			(507		)	(44		)	5,302
24,969		Dividend Reinvestment Plan		543			—			—			—			—			—			543
690		Directors’ Restricted Shares and Deferred Compensation Plan		(6		)	1			20			—			—			—			(27		)
(19,000)		Employees’ Restricted Shares		1,134			—			(408		)	—			—			1,542			—
Treasury Stock Purchased  (2,856,600 shares)				(86,326		)	—			—			—			—			—			(86,326		)
Cash Dividends Paid				(11,562		)	—			—			—			(11,562		)	—			—
Balance at March 31, 2003				$	952,007		$	807		$	372,887		$	8,273		$	1,133,642		$	74		$	(563,676	)
Balance at December 31, 2001				$	1,247,012		$	806		$	367,672		$	22,761		$	1,055,424		$	(7,637	)	$	(192,014	)
Comprehensive Income
Net Income				31,056			—			—			—			31,056			—			—			$	31,056
Other Comprehensive Income, Net of Tax Unrealized Gain on Investment Securities				(1,913		)	—			—			(1,913		)	—			—			—			(1,913		)
Foreign Currency Translation Adjustment				(459		)	—			—			(459		)	—			—			—			(459		)
Total Comprehensive Income																									$	28,684
Common Stock Issued
12,113		Profit Sharing Plan		325			—			37			—			—			—			288
884,893		Stock Option Plan		18,237			—			2,455			—			(7,595		)	746			22,631
27,454		Dividend Reinvestment Plan		731			—			77			—			(2		)	—			656
(114)		Directors’ Restricted Shares and Deferred Compensation Plan		(16		)	—			(1		)	—			—			—			(15		)
(31,100)		Employees’ Restricted Shares		1,259			—			(699		)	—			—			1,958			—
Treasury Stock Purchased  (701,000 shares)				(17,148		)	—			—			—			—			—			(17,148		)
Cash Dividends Paid				(13,177		)	—			—			—			(13,177		)	—			—
Balance at March 31, 2002				$	1,265,907		$	806		$	369,541		$	20,389		$	1,065,706		$	(4,933	)	$	(185,602	)

 

9

 

Bank of Hawaii Corporation and Subsidiaries

Consolidated Average Balances and Interest Rates - Taxable Equivalent Basis (Unaudited)

Table 5

 

		Three Months Ended March 31, 2003								Three Months Ended(1) December 31, 2002								Three Months Ended(1) March 31, 2002
(dollars in millions)		Average Balance			Income/ Expense			Yield/ Rate		Average Balance			Income/ Expense			Yield/ Rate		Average Balance			Income/ Expense			Yield/ Rate
Earning Assets
Interest Bearing Deposits		$	253.8		$	1.3		2.09	%	$	796.6		$	3.6		1.78	%	$	1,154.7		$	5.0		1.77	%
Funods Sold		250.5			0.8			1.22		234.5			0.8			1.42		237.3			1.0			1.69
Investment Securities
- Held-to-Maturity		202.0			2.3			4.61		253.8			3.2			4.98		368.7			5.2			5.66
- Available for Sale		2,268.1			22.5			3.96		2,273.3			24.1			4.24		1,939.1			27.2			5.61
Loans Held for Sale		10.1			0.1			5.16		38.9			0.6			5.88		340.9			5.7			6.66
Net Loans and Lease Financing Domestic
- Commercial and Industrial		871.7			10.7			4.96		867.7			11.4			5.20		1,150.9			14.5			5.11
- Construction		115.4			1.4			5.08		131.5			1.8			5.30		169.8			2.2			5.20
-Commercial Mortgage		597.8			9.0			6.14		610.5			9.9			6.40		625.9			10.5			6.77
-Residential Mortgage		2,249.0			37.7			6.70		2,212.6			38.5			6.97		2,394.0			42.8			7.15
-Installment		501.9			12.6			10.21		443.3			11.5			10.38		390.6			11.0			11.46
-Home Equity		434.5			5.7			5.28		422.2			5.9			5.50		347.9			5.3			6.22
-Purchased Home Equity		180.2			2.6			5.78		10.1			—			—		—			—			—
-Lease Financing		495.6			5.9			4.81		498.5			6.3			5.03		492.0			6.6			5.46
Total Domestic Loans		5,446.1			85.6			6.33		5,196.4			85.3			6.54		5,571.1			92.9			6.72
Foreign		14.7			—			—		14.0			—			—		14.3			0.1			1.71
Total Loans		5,460.8			85.6			6.32		5,210.4			85.3			6.52		5,585.4			93.0			6.71
Other		74.6			1.2			6.47		78.7			1.3			6.62		88.4			1.3			6.12
Total Earning Assets		8,519.9			113.8			5.38		8,886.2			118.9			5.33		9,714.5			138.4			5.73
Cash and Non-interest Bearing Deposits		331.6								305.2								304.0
Other Assets		391.5								363.4								398.3
Total Assets		$	9,243.0							$	9,554.8							$	10,416.8
Interest Bearing Liabilities
Interest Bearing Deposits
Domestic Deposits
-Demand		$	1,149.2		0.7			0.26		$	1,099.9		1.1			0.38		$	926.4		1.0			0.45
- Savings		2,608.2			4.6			0.71		2,468.2			6.4			1.03		2,045.5			7.2			1.43
- Time		1,443.3			9.1			2.55		1,501.1			10.1			2.66		1,891.0			14.8			3.17
Total Domestic Deposits		5,200.7			14.4			1.12		5,069.2			17.6			1.37		4,862.9			23.0			1.92
Foreign Deposits
- Time Due to Banks		1.0			—			—		2.9			—			—		118.7			0.6			2.09
- Other Time and Savings		30.5			0.1			1.23		39.4			0.1			1.38		83.9			0.4			1.70
Total Foreign Deposits		31.5			0.1			1.11		42.3			0.1			1.29		202.6			1.0			1.93
Total Interest Bearing Deposits		5,232.2			14.5			1.12		5,111.5			17.7			1.37		5,065.5			24.0			1.92
Short-Term Borrowings		649.8			2.5			1.54		1,053.5			5.1			1.90		1,738.8			11.2			2.61
Long-Term Debt		390.4			5.8			6.09		389.9			5.9			6.05		538.2			8.3			6.27
Total Interest Bearing Liabilities		6,272.4			22.8			1.47		6,554.9			28.7			1.73		7,342.5			43.5			2.40
Net Interest Income					$	91.0							$	90.2							$	94.9
Interest Rate Spread								3.91	%							3.60	%							3.33	%
Net Interest Margin								4.29	%							4.05	%							3.92	%
Non-Interest Bearing Demand Deposits (Domestic)		1,636.8								1,601.0								1,508.9
Other Liabilities		360.7								329.3								301.9
Shareholders’ Equity		973.1								1,069.6								1,263.5
Total Liabilities and Shareholders’ Equity		$	9,243.0							$	9,554.8							$	10,416.8

 

(1) Certain 2002 information has been reclassified to conform to 2003 presentation.

 

10

 

Bank of Hawaii Corporation and Subsidiaries

Analysis of Change in Net Interest Income –Tax Equivalent Basis (Unaudited)

Table 6

 

		Three Months Ended March 31, 2003 Compared to December 31, 2002(2)
(dollars in millions)		Volume(1)			Rate(1)			Time(1)			Total
Change in Interest Income:
Interest Bearing Deposits		$	(2.8	)	$	0.6		$	(0.1	)	$	(2.3	)
Fed Funds Sold		0.1			(0.1		)	—			—
Investment Securities
Held-to-Maturity		(0.6		)	(0.3		)	—			(0.9		)
Available for Sale		(0.1		)	(1.5		)	—			(1.6		)
Loans Held for Sale		(0.4		)	(0.1		)	—			(0.5		)
Loans
Commercial and Industrial		—			(0.5		)	(0.2		)	(0.7		)
Construction		(0.2		)	(0.1		)	(0.1		)	(0.4		)
Commercial Mortgage		(0.3		)	(0.4		)	(0.2		)	(0.9		)
Residential Mortgage		0.7			(1.5		)	—			(0.8		)
Installment		1.5			(0.2		)	(0.2		)	1.1
Home Equity		0.2			(0.2		)	(0.2		)	(0.2		)
Purchased Home Equity		2.4			0.2			—			2.6
Lease Financing		—			(0.3		)	(0.1		)	(0.4		)
Total Loans		4.3			(3.0		)	(1.0		)	0.3
Other		(0.1		)	—			—			(0.1		)
Total Change in Interest Income		0.4			(4.4		)	(1.1		)	(5.1		)
Change in Interest Expense:
Interest Bearing Deposits
Demand		—			(0.4		)	—			(0.4		)
Savings		0.2			(1.9		)	(0.1		)	(1.8		)
Time		(0.4		)	(0.4		)	(0.2		)	(1.0		)
Total Interest Bearing Deposits		(0.2		)	(2.7		)	(0.3		)	(3.2		)
Short-Term Borrowings		(1.6		)	(0.9		)	(0.1		)	(2.6		)
Long-Term Debt		—			—			(0.1		)	(0.1		)
Total Change in Interest Expense		(1.8		)	(3.6		)	(0.5		)	(5.9		)
Change in Net Interest Income		$	2.2		$	(0.8	)	$	(0.6	)	$	0.8

 

(1) The changes for each category of interest income and expense are allocated between the portion of changes attributable to the variance in volume, rate or time for that category.

 

(2) Certain 2002 information has been reclassified to conform to 2003 presentation.

 

11

 

Bank of Hawaii Corporation and Subsidiaries

Loan Portfolio Balances (Unaudited)

Table 7

 

(dollars in millions)		March 31, 2003			December 31, 2002			March 31, 2002(1)
Domestic
Commercial
Commercial and Industrial		$	824.9		$	875.0		$	1,114.9
Commercial Mortgage		691.7			591.1			617.6
Construction		86.7			127.5			161.4
Lease Financing		430.4			427.3			436.1
Total Commercial		2,033.7			2,020.9			2,330.0
Consumer
Residential Mortgage		2,305.3			2,131.4			2,409.4
Home Equity		439.1			428.2			369.8
Purchased Home Equity		170.9			185.8			—
Other Consumer		518.5			493.3			389.5
Lease Financing		33.8			34.5			37.9
Total Consumer		3,467.6			3,273.2			3,206.6
Total Domestic		5,501.3			5,294.1			5,536.6
Foreign		64.1			64.9			65.0
Total Loans		$	5,565.4		$	5,359.0		$	5,601.6

 

(1) Certain 2002 information has been reclassified to conform to 2003 presentation.

 

Selected Concentrations of Credit Exposure (Unaudited)

 

		March 31, 2003									Dec. 31, 2002			Mar. 31, 2002
(dollars in millions)		Outstanding			Unused Commitments			Total Exposure(1)			Total Exposure			Total Exposure
Air Transportation
Regional Passenger Carriers		$	46.4		$	12.3		$	58.7		$	57.3		$	59.8
United States Based Passenger Carriers		39.7			—			39.7			39.6			48.7
International Based Passenger Carriers		31.9			—			31.9			32.1			32.4
Cargo Carriers		14.7			—			14.7			15.0			14.8
Total Air Transportation		$	132.7		$	12.3		$	145.0		$	144.0		$	155.7
Guam
Hotels		$	42.8		$	—		$	42.8		$	44.4		$	42.8
Other Commercial		139.6			31.7			171.3			166.0			230.5
Consumer		254.0			9.9			263.9			257.4			283.2
Total Guam		$	436.4		$	41.6		$	478.0		$	467.8		$	556.5
Syndicated Exposure		$	319.4		$	633.1		$	952.5		$	1,002.1		$	1,352.2

 

(1)  Exposure includes loans, leveraged and operating leases.

 

12

 

Bank of Hawaii Corporation and Subsidiaries

Consolidated Non-Performing Assets and Accruing Loans Past Due 90 Days or More  (Unaudited)

Table 8

 

(dollars in millions)		March 31, 2003			December 31, 2002			September 30, 2002(1)			June 30, 2002(1)			March 31, 2002(1)
Non-Performing Assets
Non-Accrual Loans
Commercial
Commercial and Industrial		$	2.4		$	5.9		$	6.4		$	14.4		$	27.4
Commercial Mortgage		17.9			20.3			18.1			25.3			15.1
Construction		—			0.5			0.9			0.7			1.0
Lease Financing		3.2			4.1			5.7			6.9			4.4
Total Commercial		23.5			30.8			31.1			47.3			47.9
Consumer
Residential Mortgage		11.5			13.9			14.3			14.2			15.3
Home Equity		0.1			0.3			0.2			0.1			0.4
Other Consumer		—			—			0.1			—			0.1
Total Consumer		11.6			14.2			14.6			14.3			15.8
Total Non-Accrual Loans		35.1			45.0			45.7			61.6			63.7
Non-Accrual Loans Held for Sale		—			—			—			—			7.8
Foreclosed Real Estate		9.1			9.4			17.6			17.2			19.2
Total Non-Performing Assets		$	44.2		$	54.4		$	63.3		$	78.8		$	90.7
Accruing Loans Past Due 90 Days or More
Commercial
Commercial and Industrial		$	—		$	0.2		$	—		$	—		$	0.2
Commercial Mortgage		0.4			0.3			—			—			1.2
Total Commercial		0.4			0.5			—			—			1.4
Consumer
Residential Mortgage		1.6			0.6			1.4			0.9			2.1
Other Consumer		2.3			0.7			0.3			0.5			0.7
Lease Financing		—			—			—			0.1			0.1
Total Consumer		3.9			1.3			1.7			1.5			2.9
Total Accruing and Past Due		$	4.3		$	1.8		$	1.7		$	1.5		$	4.3
Total Loans		$	5,565.4		$	5,359.0		$	5,259.3		$	5,409.2		$	5,601.6
Ratio of Non-Accrual Loans to Total Loans		0.63		%	0.84		%	0.87		%	1.14		%	1.14		%
Ratio of Non-Performing Assets to Total Loans, Foreclosed Real Estate and Non-Performing Loans Held for Sale		0.79		%	1.01		%	1.20		%	1.45		%	1.61		%
Ratio of Non-Performing Assets and Accruing Loans Past Due 90 Days or More to Total Loans		0.87		%	1.05		%	1.24		%	1.48		%	1.70		%
Quarter to Quarter Changes in Non-Performing Assets
Balance at Beginning of Quarter		$	54.4		$	63.3		$	78.8		$	90.7		$	79.7
Additions		4.8			12.0			7.0			20.5			36.4
Reductions
Payments and Sales of Loans		(5.6		)	(6.9		)	(8.5		)	(20.6		)	(12.9		)
Return to Accrual		(5.6		)	(1.9		)	(9.1		)	(6.2		)	(6.3		)
Sales of Foreclosed Assets		(1.1		)	(9.4		)	(1.4		)	(3.5		)	(0.9		)
Charge-offs		(2.7		)	(2.7		)	(3.5		)	(2.1		)	(5.3		)
Total Reductions		(15.0		)	(20.9		)	(22.5		)	(32.4		)	(25.4		)
Balance at End of Quarter		$	44.2		$	54.4		$	63.3		$	78.8		$	90.7

 

(1) Certain 2002 information has been reclassified to conform to 2003 presentation.

 

13

 

 

		Three Months Ended(1)
(dollars in millions)		March 31, 2003			December 31, 2002			March 31, 2002
Balance at Beginning of Period		$	142.9		$	154.5		$	159.0
Loans Charged-Off
Commercial
Commercial and Industrial		(1.6		)	(2.0		)	(7.3		)
Construction		(0.5		)	—			(0.5		)
Lease Financing		—			(9.6		)	—
Consumer
Residential Mortgage		(0.7		)	(0.4		)	(1.4		)
Home Equity		(0.1		)	(0.1		)	(0.1		)
Other Consumer		(3.1		)	(2.8		)	(3.7		)
Lease Financing		(0.1		)	(0.1		)	(0.1		)
Total Charge-Offs		(6.1		)	(15.0		)	(13.1		)
Recoveries on Loans Previously Charged-Off
Commercial
Commercial and Industrial		0.6			1.4			0.7
Commercial Mortgage		—			0.1			1.8
Construction		0.9			0.2			—
Consumer
Residential Mortgage		0.2			0.3			0.3
Home Equity		0.1			—			0.1
Other Consumer		1.3			1.3			1.8
Lease Financing		0.1			0.1			—
Foreign		0.1			—			0.1
Total Recoveries		3.3			3.4			4.8
Net Loan Charge-Offs		(2.8		)	(11.6		)	(8.3		)
Provision for Loan and Lease Losses		—			—			8.3
Balance at End of Period(2)		$	140.0		$	142.9		$	159.0
Average Loans Outstanding		$	5,460.8		$	5,210.4		$	5,585.4
Ratio of Net Charge-Offs to Average Loans Outstanding (annualized)		0.21		%	0.88		%	0.60		%
Ratio of Allowance to Loans Outstanding		2.52		%	2.67		%	2.84		%

 

(1)     Certain 2002 information has been reclassified to conform to 2003 presentation.

(2)     Totals may not add due to rounding.

 

14

 

Bank of Hawaii Corporation and Subsidiaries
Information Technology Systems Replacement Project (Unaudited)	Table 10

 

(dollars in millions)		Professional Fees			Employee Termination Benefits			Accelerated Depreciation			Other Associated Costs(1)			Total
Costs Incurred:
Three Months Ended:
September 30, 2002		$	1.9		$	1.0		$	3.2		$	0.5		$	6.6
December 31, 2002		3.2			0.2			2.2			1.4			7.0
Year Ended December 31, 2002		5.1			1.2			5.4			1.9			13.6
Three Months Ended March 31, 2003		3.5			0.4			2.0			1.5			7.4
Total Costs Incurred		$	8.6		$	1.6		$	7.4		$	3.4		$	21.0
Total Expected Project Costs		$	13.1		$	5.9		$	9.2		$	7.3		$	35.5

 

(1)  Includes contract termination, equipment, excise tax and other costs.

 

15

 

Bank of Hawaii Corporation and Subsidiaries
Business Segment Selected Financial Information (Unaudited)	Table 11

 

(dollars in thousands)		Retail Banking			Commercial Banking			Investment Services Group			Treasury and Other Corporate			Consolidated Total
Three Months Ended March 31, 2003
Net Interest Income		$	54,988		$	36,383		$	3,970		$	(4,341	)	$	91,000
Provision for Loan and Lease Losses		(848		)	(2,151		)	—			2,999			—
Net Interest Income After Provision for Loan and Lease Losses		54,140			34,232			3,970			(1,342		)	91,000
Non-Interest Income		17,364			8,415			15,680			3,294			44,753
		71,504			42,647			19,650			1,952			135,753
Information Technology Systems Replacement Project		(583		)	(23		)	(244		)	(6,567		)	(7,417		)
Non-Interest Expense		(40,846		)	(22,541		)	(15,904		)	(3,492		)	(82,783		)
Income Before Income Taxes		30,075			20,083			3,502			(8,107		)	45,553
Provision for Income Taxes		(11,128		)	(7,334		)	(1,296		)	4,006			(15,752		)
Allocated Net Income (Loss)		18,947			12,749			2,206			(4,101		)	29,801
Allowance Funding Value		(152		)	(1,141		)	(10		)	1,303			—
GAAP Provision		848			2,151			—			(2,999		)	—
Economic Provision		(2,708		)	(3,058		)	(132		)	(6		)	(5,904		)
Tax Effect of Adjustments		744			758			53			629			2,184
Capital Charge		(5,403		)	(5,367		)	(1,517		)	(14,464		)	(26,751		)
Net Income (Loss) After Capital Charge (NIACC)		$	12,276		$	6,092		$	600		$	(19,638	)	$	(670	)
RAROC (ROE for the Company)		36		%	24		%	16		%	(4		)%	12		%
Total Assets at March 31, 2003		$	3,471,677		$	2,242,681		$	145,925		$	3,549,927		$	9,410,210
Three Months Ended March 31, 2002
Net Interest Income		$	49,556		$	35,630		$	3,001		$	6,708		$	94,895
Provision for Loan and Lease Losses		(1,942		)	(6,510		)	—			160			(8,292		)
Net Interest Income After Provision for Loan and Lease Losses		47,614			29,120			3,001			6,868			86,603
Non-Interest Income		24,052			8,621			17,824			2,528			53,025
		71,666			37,741			20,825			9,396			139,628
Restructuring and Other Related Costs		—			—			—			(1,979		)	(1,979		)
Non-Interest Expense		(46,314		)	(24,955		)	(16,061		)	(2,114		)	(89,444		)
Income Before Income Taxes		25,352			12,786			4,764			5,303			48,205
Provision for Income Taxes		(9,380		)	(4,655		)	(1,763		)	(1,351		)	(17,149		)
Allocated Net Income		15,972			8,131			3,001			3,952			31,056
Allowance Funding Value		(267		)	(1,551		)	(7		)	1,825			—
GAAP Provision		1,942			6,510			—			(160		)	8,292
Economic Provision		(2,504		)	(4,239		)	(127		)	(1		)	(6,871		)
Tax Effect of Adjustments		307			(266		)	50			(617		)	(526		)
Capital Charge		(5,323		)	(6,559		)	(1,501		)	(21,366		)	(34,749		)
Net Income (Loss) After Capital Charge (NIACC)		$	10,127		$	2,026		$	1,416		$	(16,367	)	$	(2,798	)
RAROC (ROE for the Company)		32		%	15		%	22		%	24		%	10		%
Total Assets at March 31, 2002		$	3,243,345		$	2,598,482		$	113,914		$	4,289,280		$	10,245,021

 

16

 

Bank of Hawaii Corporation and Subsidiaries
Quarterly Summary of Selected Consolidated Financial Data (Unaudited)	Table 12

 

		Three Months Ended(1)
(dollars in thousands except per share amounts)		March 31, 2003			December 31, 2002			September 30, 2002			June 30, 2002			March 31, 2002
Quarterly Operating Results
Interest Income
Interest and Fees on Loan and Leases		$	85,773		$	85,945		$	89,335		$	92,441		$	98,645
Income on Investment Securities - Held to Maturity		2,283			3,122			3,963			4,544			5,145
Income on Investment Securities - Available for Sale		22,463			24,088			26,175			26,805			27,193
Deposits		1,307			3,578			5,384			6,011			5,047
Funds Sold and Security Resale Agreements		764			834			914			752			1,003
Other		1,189			1,312			1,575			1,395			1,332
Total Interest Income		113,779			118,879			127,346			131,948			138,365
Interest Expense
Deposits		14,447			17,657			20,547			22,166			23,978
Security Repurchase Agreements		2,242			4,585			7,039			8,256			10,293
Funds Purchased		205			255			299			245			231
Short-Term Borrowings		24			217			334			289			649
Long-Term Debt		5,861			5,947			6,946			8,055			8,319
Total Interest Expense		22,779			28,661			35,165			39,011			43,470
Net Interest Income		91,000			90,218			92,181			92,937			94,895
Provision for Loan and Lease Losses		—			—			—			3,324			8,292
Net Interest Income After Provision for Loan and Lease Losses		91,000			90,218			92,181			89,613			86,603
Non-Interest Income
Trust and Asset Management		13,190			13,085			13,655			14,175			14,818
Mortgage Banking		283			4,398			3,669			2,842			7,957
Service Charges on Deposit Accounts		8,950			8,326			7,925			7,956			8,410
Fees, Exchange, and Other Service Charges		12,980			12,963			13,114			13,065			12,452
Investment Securities Gains		583			612			—			3			—
Insurance		2,982			3,099			2,677			2,563			2,599
Other		5,785			7,872			5,997			7,314			6,789
Total Non-Interest Income		44,753			50,355			47,037			47,918			53,025
Non-Interest Expense
Salaries		36,459			38,462			37,994			37,884			39,187
Pensions and Other Employee Benefits		9,970			6,272			7,377			9,391			9,996
Net Occupancy Expense		9,613			10,638			9,597			9,321			9,593
Net Equipment Expense		9,748			11,077			10,058			9,997			10,121
Restructuring and Other Related Costs		—			385			—			—			1,979
Information Technology Systems Replacement Project		7,417			7,052			6,576			—			—
Other		16,993			22,827			20,141			22,777			20,547
Total Non-Interest Expense		90,200			96,713			91,743			89,370			91,423
Income Before Income Taxes		45,553			43,860			47,475			48,161			48,205
Provision for Income Taxes		15,752			14,952			17,275			17,145			17,149
Net Income		$	29,801		$	28,908		$	30,200		$	31,016		$	31,056
Basic Earnings Per Share		$	0.49		$	0.45		$	0.44		$	0.43		$	0.42
Diluted Earnings Per Share		$	0.47		$	0.44		$	0.43		$	0.42		$	0.41
Balance Sheet Totals
Total Assets		9,410,210			9,516,418			9,702,700			9,824,065			10,245,021
Net Loans		5,425,343			5,216,151			5,104,857			5,250,216			5,442,601
Total Deposits		6,987,331			6,920,161			6,627,673			6,455,981			6,543,781
Total Shareholders’ Equity		952,007			1,015,759			1,100,706			1,191,072			1,265,907
Performance Ratios
Return on Average Assets		1.31		%	1.20		%	1.22		%	1.23		%	1.21		%
Return on Average Equity		12.42		%	10.72		%	10.40		%	9.94		%	9.97		%
Efficiency Ratio		66.44		%	68.80		%	65.90		%	63.45		%	61.81		%
Efficiency Ratio excluding ITSRP and Restructuring Costs		60.98		%	63.51		%	61.18		%	63.45		%	60.47		%

 

(1) Certain 2002 information has been reclassified to conform to 2003 presentation.

 

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