Bank of Hawaii Corp. showed strong loan growth in the third quarter but saw its stock price tumble to a 52-week low Monday after reporting a 14.9% decline in net income primarily due to some one-time items.
The state’s second-largest bank took a one-time, pretax charge of $6.9 million related to its agreement to sell assets that will terminate leveraged leases related to 31 locomotives. The sale and lease termination will complete the company’s process of exiting the leveraged lease market.
In addition, the bank made a negative adjustment of $900,000 related to a change in its Visa Class B stock conversion ratio. And the bank took no provision for potential loan losses last quarter after releasing $10.4 million from its loan-loss reserve in the year-earlier period. Finally, the bank had lower Paycheck Protection Program income last quarter than it did a year ago.
Bankoh’s stock fell $4.71, or 6.2%, to a 52-week low of $70.99 after the earnings were announced.
“BOH delivered a 3Q EPS (earnings per share) headline miss, although not all analysts had adjusted EPS to reflect the previously announced exit of the leverage lease book, hence there was a substantial divergence in estimates,” Compass Point analyst Laurie Havener Hunsicker, who reiterated her buy rating, wrote in an investors’ note. She has a 12-month target price on the stock of $86.
The bank’s loan growth, excluding Paycheck Protection Program loans, rose 12.7% to $13.3 billion from the year-earlier quarter and increased 2.9% from the previous three months to put the loans on track for an annualized gain of 11.6%.
“Q3 was another solid quarter for the bank,” Chairman, President and CEO Peter Ho said on a conference call with analysts. “Our growth was balanced across both consumer and commercial categories, and sourced predominantly from our core Hawaii and West- specific markets. Production quality was strong.”
Bankoh’s net income fell to $52.8 million, or $1.28 a share, to miss analysts’ consensus estimate of $1.43 a share. In the year-earlier quarter, Bankoh had earnings of $62.1 million, or $1.52 a share. Revenue increased 2.4% to $172.3 million to miss analysts’ estimate of $183 million.
“We experienced quality core market loan growth and continued net interest income and margin expansion,” Ho said in a statement. “Asset quality, capital, and liquidity remained strong.”
Net interest income, the spread between what the bank generates in loans and pays out for deposits, rose 11.7% to $141.7 million from the year-earlier quarter. The bank’s net interest margin jumped 28 basis points to 2.60% from 2.32%, primarily due to the higher rate environment and continued strong loan growth.
Ho said the bank was active in the national leverage lease market from 1987 to 2004 but in 2005 made the strategic decision to exit this business and begin the orderly wind-down of its portfolio.
“With the termination of this lease, I’m pleased to note that we have now effectively exited the leverage lease business,” Ho said.
Ho said the bank is well positioned for a possible recession.
“As we look forward, higher rates and the specter of recession position us well on a relative basis, given the quality of our deposit franchise, our liquidity, and our history of risk conservatism,” he said.
Bankoh maintained its quarterly dividend at 70 cents a share. It will be payable Dec. 4 to shareholders of record at the close of business Nov. 30.
The company also repurchased 187,500 shares last quarter at a cost of $15 million at an average cost of $79.84.
“Given where our currency is right now, we’re very anxious to be buying,” Ho said. “So, we will be active again this quarter. We’re tempered a bit … to some of the capital considerations as well as just kind of overall economic conditions. We’ve got a great portfolio of earning assets, but we just can’t get away from the fact that given where rates have gone, we’ll just have to see in the next couple of quarters what that means for us from an overall economic standpoint.
“But I think the bottom line … is we want to be at an active purchaser of our stock at these prices for sure, and we’ve got the liquidity and earnings power to do that.”
Third-quarter net
$52.8 million
Year-earlier net
$62.1 million
