American Savings Bank’s mortgage banking income jumped fivefold in the third quarter but net income fell nearly in half as the company set aside $14 million for potential loan losses.
The state’s third-largest bank, a subsidiary of Hawaiian Electric Industries Inc., reported today that earnings fell 46.9% to $12.2 million from $22.9 million in the year-earlier quarter after adding to its reserve. American Savings, which only had a loan-loss provision of $3.3 million in the third quarter of 2019, said last quarter’s provision included about $12.3 million in additional reserves related to economic impacts from the COVID-19 pandemic.
American Savings said that total COVID-19 related reserves for the year have now reached $23.4 million of the total $39.5 million it has set aside for potential loan losses. Setting aside funds for loan losses reduces a company’s income.
“I continue to be impressed by the resilience of our customers as they adapt to the ongoing challenges of Hawaii’s still-suppressed economy,” American Savings President and CEO Rich Wacker said in a statement. “Even so, because the timing of a sustained reopening of our tourism sector remains uncertain, our results again reflect elevated provision for potential credit losses.”
Mortgage banking income rose to $7.7 million from $1.5 million in the year-earlier quarter due to increased loan originations because of the lower interest rate environment.
“While low-interest rates continue to compress lending margins, in the third quarter we were able to reduce expenses and improve noninterest income from core activities, including strong mortgage banking income from our residential lending activity, replacing most of the prior quarter’s gains on sales of securities,” Wacker said.
The bank’s loans rose 7.8% to $5.48 billion from $5.08 billion in the year-earlier quarter while deposits jumped 13.6% to $7.04 billion from $6.20 billion.
Revenue fell 2.7% to $76.3 million from $78.4 million, but the bank received a boost from the reinstatement of certain fees that had been temporarily suspended to support customers during the initial impact of COVID-19.
The bank’s net interest margin worsened 70 basis points to 3.12% from 3.82% in the year-earlier quarter and by 9 basis points from 3.21% in the second quarter.
Parent company Hawaiian Electric Industries will announce its full third-quarter results next Friday. HEI’s stock rose 53 cents, or 1.6%, to $33.04 on Friday before American Savings’ results were announced.