Bank of Hawaii reports stellar quarter

Bank of Hawaii Corp. reported double-digit loan growth for the 10th straight quarter and achieved record earnings per share as it continued to benefit from the state’s robust economy.

The state’s second-largest bank said Monday that first-quarter net income rose 1.9 percent to $51.2 million, or $1.20 a share, from $50.2 million, or $1.16 a share, in the year-earlier period. The previous high for earnings per share was in the first quarter of 2008, when it was $1.18.

Loans jumped 13 percent to $9.11 billion while deposits rose 7.3 percent to an all-time high of $14.48 billion and assets increased 6.4 percent to a record $16.66 billion.

“We’re happy with the quarter,” Peter Ho, chairman, president and CEO of Bank of Hawaii, said in a phone interview. “We had good-quality growth in loans this quarter. We had good deposit growth. Both of those items reflect continued strength in the Hawaii economy. Expenses were pretty well controlled for us in the first quarter.”

Bankoh easily beat analysts’ earnings-per-share consensus of $1.08, but not all of the analysts factored in the sale of Visa Inc. shares that the bank made in the quarter.

“Year over year they’re still holding their own, so overall it was a pretty good start for the year for them,” Piper Jaffray & Co. analyst Brett Rabatin said.

The bank’s earnings were boosted by a $12.5 million gain resulting from the sale of 90,000 Class B shares of the credit card company Visa. In the year-earlier quarter, Bankoh recorded an $11.4 million gain from selling 100,000 Visa Class B shares. The bank, which now sells its Visa stock only in the first quarter of each year, obtained the shares for its membership stake in the card company when it went public in 2008. As of March 31 Bankoh had 90,914 shares remaining.

Ho said the bank might hold onto its remaining shares during the first quarter of 2018 because of potential litigation that Visa is facing with retailers that could drag down the stock’s value.

“We’re going to really think about that because that would be the last sale for us,” Ho said.

Bankoh’s financial results included $4.4 million it set aside from income for potential loan losses due to the growth in its loan portfolio. In the year-earlier quarter the bank returned $2 million to its income statement that had been put into its loan-loss reserve largely due to a recovery of loans previously charged off to a commercial client on Guam.

Analyst Aaron Deer called the results “another solid quarter” for Bankoh and said he was impressed by the bank’s improved net interest margin, which rose 6 basis points to 2.89 percent from 2.83 percent in the fourth quarter and was up from 2.86 in the year-ago period. The net interest margin is the difference between what Bankoh earns on loans and investments and the interest it pays on deposits.

“The 6 basis points was double the expansion I was looking for. That was definitely a highlight,” said Deer, of San Francisco-based Sandler O’Neill + Partners.

Ho said higher interest rates in the first quarter were partly responsible for the bank’s improved margins.

“It’s partly because of interest rates, and it’s also partly because of loan growth,” Ho said. “Loans generally have higher yields than investments, so when you book more loans, you improve your margins as well.”

Deer said Hawaii’s improving economy has helped local banks grow faster than the norm.

“Historically, Hawaii wasn’t always considered the fastest growth market, but over the past few years with the economy as strong as it’s been in Hawaii with tourism and spending, Hawaii has been doing great,” Deer said. “There’s been a lot of activity in Kakaako, and the local banks have financed a lot of that. There’s a lot of new development going on that has helped the banks as well.”

Separately, Ho said he doesn’t regret the recent decision to pull the bank’s ATMs out of McDonald’s systemwide by the end of May.

“Really, there were a couple things going on,” he said. “There were better places to deploy the ATMs than the volumes we were getting at McDonald’s. And two, McDonald’s has been a great partner, but they have their own modifications they’re doing at their stores as well. When we thought about it, it made sense for both parties to do what they did.”