Robust loan performance lifts American Savings’ net 2.7%

American Savings Bank’s net income rose 2.7 percent in the first quarter amid strong loan growth and a $2 million after-tax gain from the sale of municipal bonds.

The state’s third largest bank said Wednesday it had earnings of $14.5 million compared with $14.2 million in the year-earlier quarter.

Loans and leases rose 9.1 percent to $4.15 billion from $3.80 billion.

American Savings President and Chief Executive Officer Rich Wacker said the bank sold its municipal bond holdings because of new federal regulations.

Wacker said a lot of banks hold munis, which he calls "very good securities," but he said under the regulations that municipal bonds don’t qualify as high-quality liquid assets.

"We primarily invest our deposits into loans in the community," he said. "We don’t have a lot of deposits that we use strictly for investments. So our investment portfolio is primarily a liquidity portfolio."

The bank’s deposits rose 3.8 percent last quarter to $4.48 billion from $4.31 billion in the year-earlier period.

American Savings’ lending portfolio, meanwhile, saw increases last quarter from the year-ago period in commercial real estate, up 20 percent; commercial and industrial (general business) loans, up 12.4 percent; home equity lines of credit, up 17.8 percent; and residential, up 3.7 percent.

But mortgage fee income that the bank made from loan sales to the secondary market fell 81.2 percent to $628,000 from $3.3 million in the year-ago quarter.

"Refinancings have dropped dramatically from last year and our overall production is down about a third compared to the fourth quarter," he said. "Refinancing used to be 80 percent of our volume and now it’s a little bit less than 40 percent."

When American Savings originates mortgages, it sells some mortgages to Fannie Mae or Freddie Mac and receives a small gain for originating them. It holds on to the rest of the mortgages.

"What you saw this quarter was a lower volume of mortgages originated and we sold less of what we originated," Wacker said.

Still, Wacker was pleased with the pace of overall loan growth.

"We’ve had loan growth for three years and recently we’re seeing more demand as we see more confidence from business owners," Wacker said. "We also have the construction-related growth, and I think the health of the economy is helping."

The bank’s noninterest income fell 9.6 percent to $16.9 million from $18.7 million in the year-earlier period.

Its noninterest income, which included the municipal bond sale and the lower mortgage fees, also was affected by the Durbin Amendment, a federal law that puts a cap on the swipe fees that banks charge to merchants every time a customer pays with a debit card.

During the second quarter of 2013, American Savings earned an average of 49 cents per electronic debit transaction. Now it is getting only 21 cents to 24 cents per transaction under the recent law, which was designed to lower costs for merchants and, subsequently, customers.

The law went into effect July 1 for American Savings, and the bank took in $1 million less after taxes from those fees in the first quarter than it did in the year-earlier quarter.

American Savings’ net interest income — the spread between lending rates and deposit rates — rose 1.1 percent in the quarter to $44.1 million from $43.6 million a year ago. Net interest margin declined to 3.64 percent from 3.78 percent.

The institution’sasset quality improved as it set aside just $995,000 during the quarter for potential loan losses compared with $1.9 million in the year-earlier quarter. Its ratio of nonperforming assets — loans delinquent 90 or more days — to total loans improved to 1.12 percent from 1.89 percent in the year-earlier quarter.

Total assets increased 5 percent to $5.37 billion from $5.12 billion.

American Savings’ parent company, Hawaiian Electric Industries Inc., plans to announce its full quarterly results on May 7.

HEI’s stock fell 48 cents, or 2 percent, to $23.99 Wednesday on the New York Stock Exchange.