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Loan growth propels Bank of Hawaii in Q2

built up its loanbook during the second quarter, riding the momentum of a strong local economy whilekeeping costs in check.

The Honolulu-basedbank posted second-quarter earnings per share of $1.03,up from 95 cents a year earlier. It reported net income of $44.2 million, up from$41.2 million in the second quarter of 2015.

Loan and lease balances jumped more than 12% from a year earlier to$8.3 billion, driven by solid activity in both the commercial and consumer businesses.Consumer loans were up nearly 15% from a year earlier, reflecting the strength ofa robust Hawaiian economy.

"It'sbeen a very strong consumer cycle," Bank of Hawaii Chairman, President andCEO Peter Ho said in an interview July 25 after posting second-quarter results. He said growth spanned multiple categories,from residential mortgages to home equity to auto loans. Ho added that he does notsee signs of consumer activity leveling off any time soon.

"Theeconomy is doing well," he said. "Consumers are borrowing more freely."

The surge in loan volume helped Bank of Hawaii defend its net interestmargin in an era of persistently low interest rates. Its NIM of 2.85% for the secondquarter of 2016 was up 4 basis points from a year earlier. Net interest income,on a taxable-equivalent basis, totaled $106.5 million in the second quarter,up $5.7 million from a year earlier.

Ho saidHawaii's tourism-driven economy is on solid ground, with steady construction activity,a robust real estate market and low unemployment. According to Bank of Hawaii, duringthe first five months of 2016, total visitor spendingincreased 1.0% and tourist numbers increased 3.1% from the same period last year,when activity also was strong.

Hawaii's jobless rate was 3.3% in June, well below the 4.9% national rate. On the real estate front, for the firsthalf of 2016, the volume of single-family home sales on Oahu, the state'slargest market, increased 7.8% from the same period ayear earlier. The volume of condominium sales on Oahu increased 10.7%, according to Bank of Hawaii.

"Ido think it is one of the better markets in the country," Piper Jaffray analyst BrettRabatin said in an interview. Bank of Hawaii's loan growth "reallywas good as a result" and "it really was a good quarter for them."

The favorable conditions also buoyed credit quality. Total nonperformingassets fell to $16.3 million from $29.5million a year earlier.

Bank of Hawaii provided $1 million in the second quarter for creditlosses, describing it as a conservative step alongside its strong loan growth. Thebank had no provision for credit losses during the second quarter of 2015.

Ho saidhe expects credit quality to remain favorable in the second half of this year.

Modestexpenses were another bright spot, Rabatin said. "They were well-managed,"he said, which is notable given the company's growth.

Noninterestexpenses of $86.1 million in the second quarter were up$2.5 million from a year earlier, reflecting inpart higher incentive compensation tied to business growth. But expenses were down$1.3 million from the first quarter.

The bank's second-quarter efficiency ratio of 57.35% was down from 58.16%a year earlier.

Alsoof note in the second half of this year is the expected initial public offering of First Hawaiian Inc., the holding company for the largestbank based in Honolulu and Bank of Hawaii's in-market rival, First Hawaiian Bank.

Ho said he did not think the IPO would change the banking landscapein a way that could affect Bank of Hawaii in any significant way. He noted the FirstHawaiian's currentultimate parent, Paris-based BNP ParibasSA, has long left the Honolulu bank mostly"unfettered," with decisions made by an established local managementteam. Ho expects that team to remain in place.

"Iwouldn't expect much in the way of change," Ho said. "They are tough competitors.… I think that will continue."