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Loans a concern as First Hawaiian income grows 2%

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First Hawaiian Bank boosted its net income 2 percent in the second quarter as assets increased to a record $14.7 billion, but warned that earnings growth might slow in future quarters due to weak loan demand.

The state’s largest bank said it had earnings of $54.7 million in the three months ended June 30 compared with $53.6 million in the year-earlier period. Last quarter’s net income also represented a 6.5 percent increase over the bank’s earnings of $51.3 million in the first quarter of this year.

"Despite a stubborn and sluggish economy, the bank continued to perform well," said Don Horner, chairman and chief executive officer of First Hawaiian. "Overall, the bank remains committed and well positioned to support our customers through an anticipated painfully slow recovery."

First Hawaiian said it’s encouraged that credit card transactions it processes from a broad section of industries and the government were up 6 percent in the first six months over the year-earlier period.

"With several thousand merchants across the state, we process about $3 billion per year in retail sales, so the numbers are very encouraging," Horner said in a telephone interview yesterday. "The challenge is we’re finding that customers, even though they’re getting increases in revenue, they’re not increasing inventories or hiring people or making investments. They’re still taking a wait-and-see attitude. Loan demand compared to last year is still weak because business owners and investors are being prudent and waiting in anticipation to see how fragile the recovery will be."

Horner also said there’s slowness in the state economy due to this being an election year.

"The fact that we’ll have a new governor and mayor in Honolulu always makes people pause before making strategic investments, especially on the development side," he said.

Senior research analyst Brett Rabatin of Birmingham, Ala.-based Sterne Agee said he was impressed that First Hawaiian was able to grow its loans despite the sluggish economy. The bank’s loans and leases grew 2.5 percent to $8.1 billion from $7.9 billion.

"In this environment, loan growth is a challenge, so First Hawaiian growing its loan portfolio may be the most impressive metric with its current earnings," said Rabatin, who follows the Hawaii banking industry.

"Deposit growth generation is certainly a positive, but it’s also something that many institutions are experiencing because of people waiting on the economy. Banks have benefited from this excess cash that you or a company might have that’s not being put into either the stock market or companies investing them in projects."

Rabatin said First Hawaiian also has benefited from its strong credit portfolio.

"We’re not through the entire credit storm yet," Rabatin said. "But, generally speaking, for many institutions there are signs of stabilization or improvement. If you just look at First Hawaiian or Bank of Hawaii (which reports earnings Monday), those are two banks that have stellar asset quality."

First Hawaiian’s assets rose 8.8 percent last quarter to $14.7 billion from $13.6 billion while deposits increased 5.9 percent to $10.5 billion from $9.9 billion and loans and leases grew 2.5 percent to $8.1 billion from $7.9 billion.

Nonperforming assets remained among the strongest in the nation at 0.2 percent of total assets.

First Hawaiian has 58 branches in Hawaii, three on Guam and two on Saipan.

The bank is a subsidiary of BancWest Corp., whose parent is French banking giant BNP Paribas.

 

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