Isle real estate boom a boon for Bankoh, too

Bank of Hawaii Corp.’s loan portfolio swelled by $1 billion in the second quarter amid ongoing strength in the state’s real estate market.

With construction cranes dotting the Honolulu landscape and residential home prices on Oahu near an all-time high, the state’s second-largest bank said Monday that loans jumped 15.6 percent to $7.43 billion from $6.43 billion in the year-earlier period.

That increase helped the bank beat analysts’ earnings estimate by 3 cents a share even as net income slipped 0.8 percent to $41.2 million, or 95 cents a share, due to one-time items in the year-earlier period.

In the second quarter of 2014, the bank had net income of $41.5 million, or 94 cents a share. Those earnings were boosted by $2 million in non­interest income after Bankoh sold 23,500 Visa Class B shares it received for its membership stake when Visa went public in 2008. There were no sales of Visa stock in this most recent quarter.

In that same quarter, the bank also returned $2.2 million to its income statement that it previously had set aside for potential loan losses. There were no such credits in this year’s second quarter.

The number of projects happening on Oahu is fueling a boom in the lending market, said Peter Ho, chairman, president and CEO of Bank of Hawaii.

“What’s happening is the real estate market is very strong and, in particular, there’s a lot of volume coming out of the new condominium projects sprouting up around town,” Ho said.

Bankoh’s commercial loan portfolio rose 13 percent last quarter to $3.04 billion from $2.69 billion in the year-earlier period while its consumer loan portfolio increased 17.5 percent to $4.39 billion from $3.73 billion.

“The condo development around town is effectively a component of the overall health of the economy,” Ho said. “So all of this construction work you see happening — all the cranes in the sky — are good for the economy. At the same time, we have the rail project happening, we have International Marketplace coming up, we have a major addition to Ala Moana shopping center. All of this is happening at one time. It obviously has been positive for our local economy. And on top of that, the visitor industry continues to perform pretty darn well.”

During the quarter, Bankoh sold $64.4 million in loans to Fannie Mae amid strong mortgage origination. The sales increased the bank’s noninterest income by $1.2 million.

“We’re the largest mortgage originator in the state, and every quarter we make a decision on how best to manage that production,” Ho said. “Some quarters we sell the production. Some quarters we choose to book those loans onto our own balance sheets. Over the past year we’ve done one or the other. In this particular quarter because loan production was so strong, we decided to do both. All the stuff we sell we still service here locally. So even though we sell into the Fannie Mae marketplace, we’re the servicing provider on all those loans.”

Analyst Aaron Deer of San Francisco-based Sandler O’Neill + Partners said that “all in all it was another solid quarter.”

“Bank of Hawaii continues to put up good loan growth and show strong performance and profitability,” he said.

The bank’s noninterest income, which includes service charges and the fees it makes from loans, rose 3.2 percent to $45.9 million from $44.5 million in the year-ago quarter. It was fueled by $3.5 million in mortgage banking income.

Bankoh’s net interest income, the spread between loans and deposits, rose 3.6 percent to $97.8 million from $94.4 million, while its net interest margin slipped to 2.81 percent from 2.86 percent.

Deposits rose 3.3 percent to $13.09 billion, while assets increased 2.7 percent to $15.25 billion.

“We’re pretty optimistic about the rest of the year,” Ho said. “The construction sector is putting a lot of energy into the economy. The visitor industry, despite what’s happening with the falloff in Japanese spending, is performing awfully well. And despite the fact that we’re looking to lose a few thousand troops with the sequestration, I would say, on balance, our congressional delegation has done a pretty nice job faring better than most markets on the military front. So I guess what all that would imply is that the economy would continue to perform pretty well in the islands.”