Bankoh profits soar 34 percent

By David Butts
Advertiser Staff Writer

After selling out-of-state assets and completing an upgrade of its technology system, Bank of Hawaii posted a 34 percent increase in profits for the fourth quarter. For the year, the bank made $135.2 million in net income. Advertiser library photo • Sept. 9, 1999

O'Neill said the bank successfully completed his three-year plan — which included selling off most operations outside the state and replacing an aging technology system — and will now embark on a new three-year plan focusing on increasing revenue by selling more products to current customers.

"This was kind of a celebration," O'Neill said in a telephone interview from New York where he was meeting with investors. "We laid down a pretty ambitious plan and we accomplished it."

Savings from the bank's technology overhaul and a growing Hawai'i economy contributed to net income of $38.7 million, or 66 cents per diluted share, in the three months to Dec. 31. That was up 33.8 percent from the $28.9 million, or 44 cents per share, it earned in the same period a year ago.

"They had a fantastic quarter," said Mike McMahon, a bank analyst at Sandler O'Neill & Partners. "They've doubled profitability since O'Neill took over."

The key to the fourth quarter profit was the bank no longer had to account for its technology systems replacement costs, O'Neill said. In the same period a year ago, the bank had a $7 million charge for the systems replacement project.

O'Neill said another big part of the profit was the lower cost of funds for the bank. More money was coming from demand and savings accounts, which pay less interest than certificates of deposit, he said.

For all of 2003, the bank exceeded its own forecast of $131 million in net income, earning $135.2 million, up 11.6 percent from a $121.2 million profit in 2002. The annual earnings per diluted share were $2.21, up 30 percent from $1.70 per share in 2002.

The bank expects net income to be $157 million in 2004, increasing to $178 million by 2006, the last year of the new three-year plan.

The new plan focuses on "accelerating revenue growth in Island markets ... improving efficiency and maintaining a discipline of dependable risk and capital management."

Allan Landon, who was appointed president of the bank last month, said most of the growth in revenue will come from getting current customers to do more business with the bank rather than taking customers away from other banks.

"We would love to have more customers, but we know there are other good banks around and we've found that Hawai'i people are incredibly loyal," Landon said.

O'Neill said the new plan will not result in layoffs on the scale of the last plan, when the bank cut about 100 employees as part of its technology upgrade.

"We don't ever guarantee full employment," O'Neill said. "But we don't see anything on the horizon that would be as significant as the systems replacement project."

McMahon praised the bank for setting out its goals for the next three years. "I always take comfort in management teams that put a three-year plan out there," he said. "There is a road map. They can't hide."

Reach David Butts at 535-2453 or dbutts@honoluluadvertiser.com.