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Bank of Hawaii (BOH)
Q1 2013 Earnings Call
April 22, 2013 2:00 pm ET
Cynthia G. Wyrick - Executive Vice President and Director of Investor Relations
Peter S. Ho - Chairman, Chief Executive Officer, President and Director of Bank of Hawali
Kent T. Lucien - Vice Chairman, Chief Financial Officer and Director of Bank of Hawaii
Mary E. Sellers - Vice Chairman and Chief Risk Officer
Joe Morford - RBC Capital Markets, LLC, Research Division
Jeffrey Rulis - D.A. Davidson & Co., Research Division
Nicholas Karzon - Crédit Suisse AG, Research Division
Casey Haire - Jefferies & Company, Inc., Research Division
Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division
Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division
Jacquelynne Chimera - Keefe, Bruyette, & Woods, Inc., Research Division
Ken A. Zerbe - Morgan Stanley, Research Division
Matthew J. Keating - Barclays Capital, Research Division
Erin Davis - Morningstar Inc., Research Division
Bryce W. Rowe - Robert W. Baird & Co. Incorporated, Research Division
Erika Penala - BofA Merrill Lynch, Research Division
Previous Statements by BOH
» Bank of Hawaii Corporation CEO discusses Q4 2012 Results - Earnings Call Transcript
» Bank of Hawaii's CEO Presents at Bank of America Merrill Lynch Banking and Financial Services Conference (Transcript)
» Bank of Hawaii's CEO Discusses Q3 2012 Earnings Results - Earnings Call Transcript
Cynthia G. Wyrick
Thank you, Philip, and good morning, everyone. Thank you for joining us today as we review the financial results for the first quarter of 2013. Joining me this morning is our Chairman, President and CEO, Peter Ho; our Vice Chairman and Chief Financial Officer, Kent Lucien; and our Vice Chairman and Chief Risk Officer, Mary Sellers.
Comments today will refer to the financial information included in this morning's earnings announcement.
Before we get started, let me remind you that today's call will contain some forward-looking statements. And while we believe our assumptions are reasonable, there are a variety of reasons that actual results may differ materially from those projected.
And now, I'd like to turn the call over to Peter Ho.
Peter S. Ho
Thanks, Cindy. Aloha, everyone, and thanks for listening in this morning. The continuing low rate environment provided for a challenging first quarter for Bank of Hawaii. As Kent will expand on shortly, our spread income was negatively impacted by lower reinvestment rates. Noninterest income compared with the prior quarter was impacted by lower gain on sale levels and lock activity in our residential mortgage business, both of which were at exceptionally high levels last quarter. Likewise, loan levels in Q1 were negatively impacted by refinance activity in both our residential mortgage and home equity portfolios. Certain other portfolios experienced what I would term modest growth.
Expenses were higher versus the prior quarter, resulting from normal seasonal elements and higher severance costs.
On the positive side, average core consumer and business deposits continued to grow; capital levels remained robust; and credit quality, already a strong point for us, improved even further.
And now, let me turn the call over to Kent.
Kent T. Lucien
Thank you, Peter. Good morning. Net income for the first quarter was $36 million or $0.81 per share, compared to $40.3 million or $0.90 per share in the fourth quarter and $43.8 million or $0.95 per share in the first quarter of 2012. Our return on assets in the first quarter was 1.08%, and return on equity was 14.1%. Our net interest margin in the first quarter was 2.82%, compared to 2.87% in the fourth quarter and 3.06% in the first quarter of 2012. The lower margin was primarily due to the continued reinvestment in lower yielding securities in our investment portfolio and relatively high premium amortization. The investment portfolio reinvestment differential was 101 basis points in Q1. Premium amortization was $16.5 million compared to $14.1 million in Q1 2012. There were no credit provisions in the first and fourth quarter, compared to $0.4 million in the first quarter of 2012. Our allowance decreased by $2 million in the first quarter and by $2.1 million in the fourth quarter, which equaled net charge-offs for the respective quarter. The credit provision for the first quarter of 2012 included net charge-offs of $3.4 million and a $3 million decrease to the allowance. Our allowance for loan and lease losses at the end of the first quarter was $126.9 million or 2.2% of outstanding loan and leases.
Noninterest income for the first quarter was $47.8 million, compared to $53 million in the fourth quarter and $48.1 million in the first quarter of 2012. The decrease compared to the fourth quarter was primarily due to a decrease in mortgage banking income. First quarter mortgage applications compared to Q4 2012 were down 7%. Locked loans were down 21% and the gain rate on locked loans was down 32%. Mortgage results were lower compared to Q4 2012, which was exceptional, but 25% ahead of Q1 2012.
Noninterest expense totaled $84.4 million in the first quarter, compared to $83.5 million in the fourth quarter and $85.2 million in the first quarter of 2012. The increase compared to the fourth quarter was primarily due to seasonally higher payroll taxes and 401(k) contributions associated with incentive compensation accrued in 2012 and paid in the first quarter of 2013 and an increase in separation expense. The decrease compared to the first quarter of 2012 was primarily due to $1.2 million for our personal computer refresh program and lower net occupancy expense as well as most other expense categories.