Bankoh reports 4.7% growth in earnings
The bank boosts its quarterly dividend by nearly 11 percent
Bank of Hawaii Corp. said yesterday its earnings rose 4.7 percent in the third quarter as strong lending growth and a low level of nonperforming assets and loan losses more than offset a drop in interest-rate margins and deposits.
The state's second-largest bank, which beat analysts' per-share earnings estimates by a penny, also boosted its quarterly dividend nearly 11 percent and reconfirmed its earnings of about $178 million for all of 2006.
The dividend of 41 cents a share, up from 37 cents, will be payable on Dec. 14.
Net income was $46.9 million, or 93 cents a share, compared with $44.8 million, or 85 cents a share, a year earlier. A survey of nine analysts by Thomson Financial had expected 92 cents a share. The third quarter of 2005 included a $10 million write-off for a mainland-based airline's aircraft lease.
The stock jumped $2.71, or 5.5 percent, to close at $51.57 in trading yesterday on the New York Stock Exchange.
"Bank of Hawaii ... had another solid financial performance during the third quarter ... despite a challenging rate environment," said Al Landon, chairman and chief executive.
Brett Rabatin, an analyst with Nashville, Tenn.-based FTN MidWest Research, said the bank outperformed his own earnings-per-share estimate of 91 cents and did well in a tough interest-rate environment, which has seen other banks struggling this earnings season.
"It's obviously a tough environment for banks, and for a bank to come in about in line as expected, that's a big positive because we've seen a lot of weak earnings this quarter from a lot of institutions," Rabatin said. "BOH is just like other banks in the industry in that it's a tough environment and core deposits tend not to be very positive, but they're managing through this environment very well."
The bank's net interest margin, which reflects the difference between the rate it pays depositors and what it brings in from loans, fell to 4.2 percent from 4.3 percent in the year-earlier period, due to an inverted yield curve and depositors shifting their money from savings accounts to higher-yielding accounts such as money-market funds and certificates of deposit.
An inverted yield results when short-term interest rates are higher than long-term rates -- an unusual occurrence because lenders typically receive a higher yield when committing their money for a longer period of time.
"Certainly (the yield curve) is a challenge and our net interest income was impacted," Landon said.
Net interest income fell 1.6 percent to $100.5 million from $102.1 million in the third quarter of 2005 while noninterest income, which includes service charges and fees, gained 2.5 percent to $56.9 million from $55.5 million.
Bankoh, whose total assets rank only behind First Hawaiian Bank in the state, said assets at the end of the third quarter were $10.4 billion, up 2.8 percent from $10.1 billion a year ago.
Landon said he's not concerned about the slowdown in Hawaii's housing market.
"Right now, we think that the Hawaii market is reacting to normal pressures," he said. "The housing prices have moderated, some volume of activity has slowed down and we think that's probably appropriate. I would say that low interest rates continue to be a positive factor in real estate transactions. But on balance, I think we don't see any particular reason for concern at this point."
Total loans and leases remained strong even in the face of the housing slowdown, growing 4.6 percent to $6.5 billion from $6.2 billion. Commercial loans increased $170 million to $2.4 billion, and consumer loans gained $116 million to $4.1 billion from a year earlier.
Nonperforming assets, which include foreclosed real estate, decreased 34 percent to $5.4 million from $8.3 million a year earlier, while non-accrual loans and leases, which are 90 days or more past due, declined 30.8 percent to $5 million from $7.2 million.
Total deposits slipped 0.9 percent to $7.7 billion from $7.8 billion as depositors sought higher yields.
The bank's return-on-assets ratio, which indicates how many dollars of profit it achieves for each dollar of assets it controls, rose to 1.81 percent from 1.74 percent a year earlier. Bankoh's return-on-equity ratio, or earnings divided by shareholder equity, increased to 27.09 percent from 24.61 percent.
Rabatin also took note of the bank's share repurchases -- 950,000 shares for $46.6 million at an average cost of $49.03.
"They've made it pretty clear that they're going to be a heavy repurchaser of their shares with their profits," he said. "They generate a lot of capital, and if they're not able to grow the balance sheet meaningfully, they're returning their earnings to shareholders via buybacks."
Landon said the bank expects to return about 90 percent of its income to shareholders either as a dividend or stock repurchase.