DBRS Confirms Bank of Hawaii Corporation at A (low); Trend Remains Stable

DBRS has today confirmed the ratings of Bank of Hawaii Corporation (BOH or the Company) and its principal operating bank subsidiary – Bank of Hawaii – as indicated below. The rating action followed a detailed review of the Company’s operating results and credit fundamentals. The trend for all ratings remains Stable.

During 2006, BOH continued to generate stable earnings and above-peer group average profitability while maintaining sound credit fundamentals commensurate with those of its similarly rated peers. Given BOH’s strong market shares and franchises in Hawaii, sufficiently diverse revenues, and conservative risk management practices, DBRS expects the Company to continue producing solid performance in spite of the prevailing difficult interest rate environment and industry-wide softening of asset quality.

BOH’s ratings are supported by a strong banking and deposit franchise in Hawaii, continuing above-peer group average profitability, and low risk profile. The ratings also consider the Company’s dependence on the Hawaiian economy, its modest loan and deposit growth prospects, and the relatively high relationship exposures in its loan portfolio. The Stable trend reflects DBRS’s view that BOH has the requisite market strengths and credit discipline to continue producing strong operating results while maintaining healthy credit fundamentals.

Ranked second in Hawaii with a 28% deposit market share (behind only the First Hawaiian Bank with 32%), BOH benefits from a solid retail and commercial banking franchise. Full-service brokerage, trust services, insurance brokerage, and other fee- and commission-based products account for about 35% of net revenues (for 2006) and contribute to the Company’s sufficient earnings diversification. Low-cost core deposits, amounting to nearly 100% of loans, provide ample liquidity for the bank and contribute to both BOH’s profitability and earnings stability.

Asset quality is excellent, and among the best in BOH’s rating range based on continued low levels of loss provisions, non-performing assets (NPAs) and net charge-offs (NCOs). Moreover, NPAs including 90-plus day delinquencies amount to very low percentages of the Company’s loans, tangible capital, and pre-tax income, and these ratios compare favorably with the respective medians for its peer group. The commercial loan portfolio is sufficiently diversified among various industries. The consumer portfolio, however, is deemed by DBRS to have a relatively high exposure to the single-family housing sector; residential mortgages and home equity loans collectively accounted for over half of all loans at the end of 2006.

Capital ratios have been steadily declining because of relatively high dividend payments and stock repurchases. Notwithstanding the negative capitalization trend, the prevailing capital ratios are still strong – particularly in light of BOH’s stable earnings and excellent asset quality – and in line with those of its peers.

The holding company’s stand-alone risk profile is sound. Double leverage is not material at 106% (at September 30, 2006), and the holding company has ample unencumbered liquidity of its own, and access to other assets, to cover its operating expenses and debt service obligations.

Notes:
All figures are in U.S. dollars unless otherwise noted.
The Trust Preferred Securities contain certain unique covenants that give them some equity-like characteristics.