Loans propel Bankoh’s earnings 11%

Bank of Hawaii Corp.’s earnings jumped nearly 11 percent in the third quarter on double-digit loan growth and continued strength in its deposits.

The state’s second-largest bank reported Monday it had earnings of $41.8 million, or 95 cents a share, to beat analysts’ estimate of 93 cents a share. Net income rose 10.8 percent from $37.7 million, or 85 cents a share, in the year-earlier period.

Loans grew 10 percent to $6.6 billion from the year-earlier quarter while deposits rose 6.5 percent to $12.4 billion.

"It was one of those quarters where everything you wanted to go up went up and everything you wanted to do down went down," said Peter Ho, chairman, president and chief executive officer of Bankoh.

Noninterest expenses decreased by nearly $2 million, or 2.3 percent, to $81 million last quarter while net interest margin — the spread between what Bankoh pays depositors and the interest income it generates from loans — improved slightly to 2.85 percent from 2.83 percent in the year-earlier period.

"When you put all those things together (including increases in loans and deposits), it was just a good, solid quarter for Bank of Hawaii," Ho said.

He said the increase in loans, which rose 2.8 percent from the second quarter, was broad-based.

"We had great commercial loan growth, great residential mortgage growth and strong consumer lending growth," Ho said. "It really came from all sectors."

Auto lending, in particular, was robust as it increased 24 percent for the bank over the year-earlier period and was up 6 percent from the second quarter.

"For a lot of people, your auto purchase is going to be your biggest consumer purchase," Ho said. "So people generally don’t tend to make that decision lightly. It’s good to see auto dealers doing well. We certainly enjoy financing for them."

Nashville, Tenn.-based analyst Brett Raba­­tin said he was impressed with the bank’s performance.

"They had really good loan growth this quarter and continue to manage expenses well," said Raba­tin, of brokerage firm Sterne Agee. "Their margin actually was pretty strong in what continues to be a significant challenge to the banking industry."

Construction hasn’t been as strong this year as expected, according to several of the state’s leading economists, but Ho agrees with the economists’ projections that the sector will pick up steam next year.

"Clearly, the construction sector to date has been positive, but you could argue that it has not been as positive as it should have been," Ho said. "But when you look at the projects that are slated to come out in the next year or so, one would have to be led to believe that we could see additional construction activity coming up. There are still an awful lot of condominium developments in the pipeline, International Marketplace in Wai­kiki is not even out of the ground yet, and all of that stuff surrounding rail is not in full swing.

"Our sense is we’ve seen good, positive flows (financially and with job growth) in the economy both on the consumer side and the commercial side, and we’re still of the mind that construction and real estate in the islands is going to push the economy still further out in the coming days."

Ho doesn’t foresee a renewed surge in mortgage refinancings despite 30-year rates dipping below 4 percent, because "we’ve been down at these levels before," but he’s glad to see the low rates helping the economy.

"If rates were to move up, that would help Bank of Hawaii’s bottom line. That’s kind of a given," he said. "Having said that, given the choice between higher rates and continued lower rates, which obviously is having a positive impact on the marketplace, I’m relatively agnostic. … We’re doing quite fine with all the economic activity in the marketplace — both consumer and commercial — and we’d rather do better that way than through higher rates."

Bankoh’s noninterest income, which includes service charges and fees, slipped 0.4 percent last quarter to $45 million from $45.1 million. The bank added $1.9 million to its non­interest income by selling 23,000 Visa Class B shares that it received for its membership stake in the card company when it went public in 2008. The bank also lowered its tax rate by contributing 5,700 Visa Class B shares to the Bank of Hawaii Foundation, which benefits nonprofit organizations. As of Sept. 30 the bank had 424,214 Visa Class B shares remaining.

In addition, the bank reduced its nonperforming assets — loans overdue by 90 days or more — to $33.3 million from $33.8 million in the year-earlier quarter. It also returned to its income statement $2.7 million it previously had set aside for potential loan losses. The so-called "negative provision" was due to a reduction in the reserve related to one commercial client.

Bankoh’s net interest income rose 4.9 percent to $95.4 million from $90.9 million in the year-earlier quarter while its assets rose 4.8 percent to $14.5 billion from $13.8 billion.