Bank of Hawaii tops analysts’ expectations

Bank of Hawaii Corp. is riding the momentum of the state’s booming housing market.

Record median prices for single-family homes and condominiums helped the state’s second-largest bank post double-digit loan growth in the second quarter as net income rose 7.5 percent to easily blow past analysts’ estimates.

Bankoh reported Monday that it earned $44.2 million, or $1.03 a share, to top analysts’ estimates by 10 cents. Bankoh earned $41.2 million, or 95 cents a share, in the year-earlier period.

“The quarter reflects strong market and economic activity here in the islands,” Peter Ho, the bank’s chairman, president and CEO, said in a telephone interview Monday. “We got nice loan growth across almost every category. We had nice deposit growth. Particularly, consumer and commercial deposit growth was very strong. And really, the strength of the housing market enabled us to have a very solid month in residential mortgage and gave us some additional fee income in the quarter.”

Loans jumped 12.2 percent to $8.3 billion from $7.4 billion in the year-earlier quarter while deposits rose 4.2 percent to $13.6 billion from $13.1 billion. Mortgage banking income increased 17.8 percent to $4.1 million due to higher loan production and increased sales of conforming loans. The bank set aside $1 million during the quarter for potential loan losses due to the strong growth of loans. It had no such provision in the year-earlier quarter.

Bankoh’s shares bucked a down day for the major stock indexes and closed up 89 cents, or 1.3 percent, at $69.54.

The bank, which received a big lift from home equity loans, saw its consumer loan portfolio jump 14.6 percent from the year-earlier period, while commercial loans rose 8.6 percent over the same period.

“Home equity is a very strong category,” Ho said. “The residential market is performing very well, and people are building equity into their residences and have the financial capacity to do things with their equity, and that’s turning into home equity volumes. The other category that’s growing nicely is auto. It’s a reflection of overall economic activity, and it’s enabled the auto industry to have a nice sales trend right now.”

Bankoh also has been moving ahead with its ATM upgrades and branch expansions and renovations.

Ho said the bank completed installation of 116 Easy Deposit ATMs during the quarter. Those machines allow customers to deposit checks without using an envelope. He said the bank also is hoping to roll out, in the fourth quarter, cardless cash machines in which customers can use their mobile smartphones to get cash out of Bank of Hawaii ATMs without using their ATM cards.

“Traditionally, you have to use an ATM card to access cash out of an ATM machine,” Ho said. “What cardless cash ATMs do is enable Bank of Hawaii customers to have the option of either using their ATM cards or, instead, their mobile smartphones to access cash directly from an ATM. To use the cardless cash feature, Bank of Hawaii customers will simply access their Bank of Hawaii mobile banking app, authenticate, enter the amount of cash desired and simply point their mobile smartphones at the receiving ATM.”

Ho also said that the bank is progressing on the 40 branch projects it has slated over the next five years. He said renovation of the bank’s Pearl City branch is underway and should be completed by the end of this year, and the new branch being built on Manoa Road should be finished next year, as should a new branch near Pearlridge Center. Ho said in addition to these projects, two other projects, not yet announced, also could be completed by the end of next year. He said the bank’s renovations are intended to provide a more pleasant, convenient and service-oriented experience for customers.

Nashville, Tenn.-based banking analyst Brett Rabatin of Piper Jaffray & Co. said Bankoh “basically hit on all their cylinders” during the quarter.

“They had really good loan growth. They had good mortgage banking results. Their credit quality continues to perform well, and their net interest margin, which is difficult for the banking industry with rates this low, is holding up pretty well despite pressures on securities portfolio yields and loan originations,” said Rabatin.

“If you look at the midcap bank group ($500 million to $5 billion in market capitalization), most of the industry had pressure on earnings expectations going through this year and for 2017, but Bank of Hawaii is a little bit unique in that consensus analyst expectations have actually been flat to slightly higher over the past year. They’re executing despite the difficulty in operating in low rates.”

Rabatin acknowledged that Bankoh is becoming more focused on technology.

“In the banking environment overall, people are using branches less, and everything is moving to app-based mobile banking-type services,” Rabatin said. “They’ve done well in fine-tuning their branch network. That’s something the whole industry will do, and they’ve been executing well on that.”

Bankoh, which increased its assets 4 percent to $15.9 billion, finished the quarter with just over $150 million in revenue. Its net interest income, the difference between the interest Bankoh pays on deposits and the interest it receives on loans, increased 5.9 percent to $103.6 million, while its noninterest income, which includes service charges and fees, edged up 1.3 percent to $46.5 million. Net interest income and noninterest income are the two components that form revenue. The bank’s net interest margin improved to 2.85 percent from 2.81 percent in the year-ago period.

Nonperforming assets, which are delinquent loans not accruing interest and foreclosed real estate, plunged 44.7 percent to $16.3 million from $29.5 million due to the successful resolution of a couple of challenging loans that the bank has in its portfolio.