Posted on: Saturday, May 1, 2004

Bank of Hawaii sees 4% annual growth

By Deborah Adamson
Advertiser Staff Writer

Bank of Hawaii sees higher profits ahead as it benefits from a three-year restructuring effort and the Hawai'i economy continues to strengthen.

At the bank's annual shareholders meeting yesterday, chief executive Michael O'Neill said the company is targeting revenue growth at 4 percent annually for 2004-2006. Operating income is forecasted to grow by 10 percent annually.

From 2001 to 2003, the bank embarked on a restructuring plan that included divestiture of lackluster operations outside of Hawai'i, sale of its unprofitable credit-card operations and raising the credit quality of its loans.

During the three-year period, Bank of Hawaii earnings per share rose 56 percent, return on equity improved 63 percent and return on assets increased 75 percent. The bank's stock reflected the gains, rising 138 percent in the three years.

Looking ahead, O'Neill sees fine tuning of operations rather than fundamental changes. "We've done the heavy lifting; we've put away the power tools," he said. "We now have a scalpel and a chisel."

The bank is seeking to lower costs, improve efficiency in needed areas and strengthen community relations. It will continue to use capital to buy back stock and issue dividends. Bank of Hawaii also seeks to expand its suite of products, such as insurance.

One thing it won't do, at least for now, is consider a stock split.

"I'm from the Warren Buffett school of stock splits," O'Neill said, eliciting laughter from shareholders. Buffett, chairman of Berkshire Hathaway and the world's second-richest man, has never split his company's stock. Yesterday, "A" shares of his company closed at $93,390, down $110 a share.

"There's no evidence stock splits lead to better performance," O'Neill said. "The only benefit is a lower price so it's more affordable to some."

As for future expansion, O'Neill said it would be difficult for Bank of Hawaii to acquire a local thrift or bank, because it would run into antitrust issues as regulators might fear an acquisition would hamper competition in the market.

Expanding into other islands in the Pacific isn't on the table, since Bank of Hawaii ran into problems with an earlier attempt. As for expanding into the Mainland market, O'Neill said it had not been done successfully.

O'Neill also discounted the possibility that Bank of Hawaii would be a takeover target for a larger Mainland bank. "We're an expensive buy," he said, as the stock has more than doubled under his watch.

For now, he's content to keep the bank independent, the CEO said, noting that the higher its stock price, the greater its ability to remain so.

Gordon Lau, a 50-year-old Bank of Hawaii shareholder with 1,000 shares, applauded management's performance thus far.

"Management did a terrific job," he said. "The board of directors did the right thing when they brought this fellow (O'Neill) in."

But he expressed concern that O'Neill might leave for a new challenge, such as taking the helm of another troubled company, and take his management team with him.

"I hope he likes living in Hawai'i and would choose to stay," the investor said.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.