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Expenses inch up, but Bank of Hawaii finishes '16 strong

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Expenses inch up, but Bank of Hawaii finishes '16 strong

Bank of Hawaii Corp. generated robust loan growth during the final quarter of 2016, ending a banner year on a high note, as the Honolulu-based lender capitalized on a prosperous local economy and continued confidence among its clients.

"Things continue to look very good," Chairman, President and CEO Peter Ho said in Jan. 23 interview after the bank posted fourth-quarter net income of $43.5 million, or $1.02 per share, up from $42.8 million, or 99 cents per share, a year earlier. The Hawaiian economy, he added, is "quite healthy."

Bank of Hawaii's total loans and leases of $8.9 billion at the close of the year were up about 3% from the end of the third quarter and up 13.6% from a year earlier. Its commercial portfolio climbed 14.7% from a year earlier to $3.6 billion. The bank's consumer book advanced 12.8% to $5.3 billion.

The growth came from "a pretty balanced book of business," Ho said.

Bank of Hawaii's fourth-quarter net interest income, on a taxable-equivalent basis, rose to $110.1 million from $104.7 million a year earlier. Its net interest margin advanced 3 basis points during the quarter to 2.83%.

Noninterest income of $46.5 million in the final quarter of 2016 was up from $44.8 million a year earlier, bolstered notably by momentum in mortgage banking and fee income generated by that business. Though long-term interest rates rose late in the fourth quarter, introducing a possible headwind to home-loan demand, Hawaii's steady housing market continued to drive solid business for the bank. Mortgage banking income roughly doubled from a year earlier to more than $6.2 million.

The volume of single-family home sales on Oahu, Hawaii's largest housing market, increased 6.5% during 2016, and the volume of condominium sales on Oahu rose 8.4%, Bank of Hawaii said in its earnings release. The median single-family home price, it said, increased 5.0% and the median price of condos climbed 8.3%.

"The real estate market continues to chug along," Ho said.

Ho said the favorable housing market conditions reflected overall economic vigor in the state, driven by tourism, its largest industry. Through November, the most recent month for which data is posted, total visitors to Hawaii in 2016 rose 3.0% from the same period in 2015, and visitor spending increased 4.1%. And 2015 was a strong year for tourism in the state.

Hawaii's seasonally adjusted unemployment rate was 2.9% in December 2016, well below the 4.7% national rate.

The solid operating conditions continue to provide a base for sound asset quality at Bank of Hawaii. Nonperforming assets as a percentage of total loans and leases and foreclosed real estate came in at 0.22% for the fourth quarter, compared with 0.21% the previous quarter and 0.37% a year earlier.

For all of 2016, Bank of Hawaii posted net income of $181.5 million, up nearly 13% from the previous year. On a per-share basis, full-year earnings climbed more than 14% from 2015 to $4.23, a company record.

The bank's return on average assets for all of 2016 came in at 1.15%, compared with 1.06% the previous year. The return on average equity for the year reached 15.79%, up from 14.82% in 2015. The 2016 efficiency ratio of 57.0% compared favorably to 59.99% the year before.

"You have to look back at '16 and see it as a heck of a year for them," Piper Jaffray analyst Brett Rabatin said in an interview after Bank of Hawaii reported earnings.

Along with the growth in loans and income, expenses pushed up in the fourth quarter and across all of 2016, making it an area of focus for analysts heading into this year. Noninterest expense was $89.6 million in the fourth quarter, up from $85.7 million a year earlier. Noninterest expense for all of 2016 was $350.6 million, up from $348.1 million the previous year.

"That is something to keep an eye on," Rabatin said. But given Bank of Hawaii's history in recent years of keeping expenses in check, "I would think they will manage that pretty tight going forward."

Separate from earnings, Bank of Hawaii also announced this month that, effective March 1, Vice Chair and CFO Kent Lucien will become chief strategy officer, a new position. Dean Shigemura will be promoted from controller to CFO.

Ho said that Bank of Hawaii, like most U.S. banking companies, finds itself in the midst of increasingly improving online and mobile products and services for its clients, as Americans every year do more of their routine banking business via digital means. He said the bank reached a point that it needed a seasoned executive devoted to this area full time, and Lucien, having served about nine years as finance chief, fit that bill.

"We just have a lot more going on these days" on the digital front, Ho said.