It’s not easy increasing earnings in a low-interest-rate environment, but First Hawaiian Bank had just the tonic last year: loan growth.
The state’s largest bank boosted loans and leases 7.5 percent to a record $9 billion from $8.4 billion in 2012 as an improving state economy helped lift First Hawaiian’s bottom line.
A 3.1 percent rise in fourth-quarter net income helped the bank finish the year at record levels for not only loans and leases, but also for assets and deposits as well.
"Since we are a community bank, investing in our communities by making loans is important to us," First Hawaiian President and CEO Bob Harrison said. "That’s a key part of what we do. So growing our loan portfolio benefits both the community and the bank, particularly in a low-interest-rate environment."
The bank, due to report earnings today, said it had net income of $53.1 million in the fourth quarter compared with $51.5 million in the year-ago period. For all of 2012 the bank’s earnings rose 3.8 percent to $216.9 million from $209 million in 2011.
First Hawaiian made more than $3.6 billion in new loans during the year.
Nashville, Tenn.-based banking analyst Brett Rabatin said loan growth is imperative for all banks in this economy.
"Right now loans are probably the most important thing for any bank for the simple reason that interest rates are so low and banks don’t have much, if any, ability to lower further their cost of funds — i.e, their deposit costs," said Rabatin of brokerage firm Sterne Agee.
"Banks’ deposit costs have gotten basically to the floor, and their deposit flows have been strong, so a lot of banks’ balance sheets are liquid. In order to keep net interest margin (the spread between lending rates and deposit rates) pressure from reducing revenue, banks have to just grow their way out of that. So loan growth is the most important variable in this current environment."
Like all banks, First Hawaiian was squeezed by low interest rates as its net interest margin declined to 3.36 percent in the fourth quarter from 3.74 percent a year earlier. Net interest income fell 3.1 percent to $118 million from $121.8 million.
Noninterest income, which includes service charges and fees, declined 7 percent to $39.6 million from $42.6 million.
But assets and deposits rose to all-time highs. Assets gained 5.1 percent to $16.6 billion from $15.8 billion, while deposits went up 6 percent to $12.9 billion from $12.2 billion.
First Hawaiian’s efficiency ratio, which measures how much it costs the bank to make a dollar of revenue, remained strong at 44.3 cents compared with 43.7 cents a year earlier.
The bank’s credit quality also was solid as its nonperforming assets to total assets remained one of the lowest in the industry at 0.25 percent, up slightly from 0.21 percent a year ago. First Hawaiian reduced the amount it set aside for potential loan losses to $8 million in the fourth quarter from $9.4 million a year earlier.
Harrison said the bank was able to grow its loan volume in what he called "a competitive marketplace" because of the bank’s strong relationship with its customers.
"We listen to their needs and provide them with competitive solutions to meet those needs," he said.
Harrison is looking forward to a continued resurgence in the economy this year.
"With tourism clearly rebounding and construction projects beginning in the market, we are optimistic that we will continue to see steady economic growth in 2013," he said.
