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Bank of Hawaii Corp. CEO Peter Ho calls the resurgence of the state economy "a great story" as the tourism, housing and job markets continue to rebound.
He said Monday that improvement is spilling over to the state’s second-largest bank as it navigates through a lengthy low-interest-rate environment.
Bankoh reported Monday that growth and improved quality in its loan portfolio helped it beat analysts’ earnings estimates by 3 cents a share in the third quarter even as its net income declined 4.8 percent from a year ago. Investors welcomed the news on a flat day for the overall stock market and sent the bank’s shares up $1.74, or 4 percent, to $45.76 on the New York Stock Exchange.
"Our loans are up in just about every category," Ho said. "Deposits of our core consumers and business deposits are up. Mortgage income is up, which means we’re helping people refinance their mortgage and creating value for consumers that way. Of all the things operational — items within our control — I think we’re doing a nice job."
Net income fell to $41.2 million, or 92 cents a share, from $43.3 million, or 92 cents a share, a year ago. The consensus estimate of Thomson First Call, a financial research firm, was 89 cents a share. Loans and leases jumped 8.1 percent to $5.8 billion from $5.3 billion while deposits rose 12.1 percent to $11.2 billion from $10 billion.
"It was a fantastic quarter in an environment that was challenging," said Nashville, Tenn.-based analyst Brett Rabatin of brokerage firm Sterne Agee. "I think they’ll continue to do a lot better than most of the banks out there."
Ho said earnings were down from a year ago partly because of $4 million in lost fees from the Durbin Amendment, a federal law, which went into effect Oct. 1, 2011, and reduced by nearly 50 percent the average amount that all banks collect from so-called interchange or swipe fees. He said interest rates also were lower than a year ago and cut into profits.
"With the rate environment, it’s tougher with the lower interest rates, but that cuts both ways," Ho said. "It’s providing relief to businesses and ventures, which is a good thing, and it’s reducing the debt burden for consumers, which is a good thing. It’s just not a particular good thing for the profit-and-loss statement of a bank."
Bankoh’s net interest margin, the spread between its lending rates and deposit rates, narrowed to 2.98 percent from 3.09 percent a year ago but was unchanged from the second quarter of this year.
"In this environment, expanding profitability is difficult, and they managed to hold the net interest margin flat (from the second quarter)," Rabatin said. "Generally speaking, revenue benefited from strong mortgage banking results in the loan portfolio that actually showed pretty good strength as the Hawaii economy continued to solidify. The question, though, is what happens in mortgage banking if those numbers are not sustainable with interest rates as low as they are."
Bankoh’s revenue, comprising net interest income and noninterest income, slipped 1.1 percent to $146 million from $147.6 million a year ago. Net interest income decreased 3.2 percent to $93.6 million from $96.8 million. Noninterest income, which includes service charges and fees, rose 3 percent to $52.4 million from $50.9 million.
The bank’s overall credit quality improved as it did not need to set aside any money for potential loan losses after taking a loan-loss provision of $2.2 million in the third quarter of 2011. Net loan and lease charge-offs last quarter were $1.5 million, or 0.10 percent annualized of total average loans and leases outstanding, compared with $3.7 million, or 0.28 percent, a year ago.
Total assets edged up 0.6 percent to $13.4 billion from $13.3 billion.
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