Bankoh aims to preserve capital in down economy


POSTED: Tuesday, October 27, 2009

Bank of Hawaii Corp. has been preserving capital to protect itself against the backdrop of a slow economy.

It didn't repurchase any shares during the third quarter, and, for the first time since 2001, it didn't increase its dividend this year. The bank, which typically boosts its dividend in October, said yesterday it will keep its quarterly payout at 45 cents a share.

But even though the company's third-quarter net income fell 23.1 percent from a year ago, the bank's stock jumped $1.53, or 3.6 percent, to $44.21 in a down market yesterday after its earnings easily beat analysts' expectations.

The state's second-largest bank in terms of assets posted earnings of $36.5 million, or 76 cents a share, compared with $47.4 million, or 99 cents a share, a year ago when the quarter included a net credit for the $8.9 million resolution of sale in/lease out leases with the Internal Revenue Service. Analysts were looking for earnings of 68 cents a share last quarter.

Revenue rose 3.2 percent to $165.7 million from $160.6 million.






        $36.5 million

        $47.4 million


“;We've been increasing (our capital levels) over the course of the last 15 months, and we think that's a prudent action in the slow economy,”; said Al Landon, chairman and chief executive officer of Bank of Hawaii.

Landon said the bank had developed a tradition of increasing its dividend each fall and looks at its dividend situation each quarter. However, he said that this time, the board of directors decided to hold it steady, “;recognizing the slow economy and the fact that the Bank of Hawaii has not reduced its dividend unlike so many other banks around the country.”;

The dividend, which equates to an annual yield of 4.1 percent as of yesterday's close, will be payable Dec. 14 to shareholders of record at the close of business on Nov. 30.

Meanwhile, the bank improved its net interest margin last quarter to 3.85 percent from 3.73 percent in the second quarter, largely due to lower interest rates, increased deposits and the bank's investments into very low-risk and short-term securities. Bankoh's interest margin in the year-earlier quarter was 4.33 percent.

Net interest income, reflecting the difference between what Bankoh pays depositors and what it brings in from loans, rose 5.1 percent to $108.9 million from $103.6 million a year ago. Noninterest income, which includes fees and service charges, fell 0.3 percent to $56.8 million from $57 million a year ago.

Bankoh set aside $27.5 million for potential loan losses last quarter, down from $28.7 million in the second quarter but up from $20.4 million in the third quarter of 2008. The provision for credit losses exceeded net charge-offs by $5.2 million last quarter.

“;We continue to build reserves, and that reflects our concern for our customers who are facing decreased income levels, making it more difficult for them to retain their loans from Bank of Hawaii,”; Landon said.

Brett Rabatin, senior research analyst of Birmingham, Ala.-based Sterne Agee, said Bankoh's margin was a little better than he expected and that its credit quality “;is sort of indicative of the environment.”;

“;It's well managed,”; Rabatin said of the bank's credit portfolio. “;All in all, I think Bank of Hawaii continues to do very well despite the environment. It's obviously a well-run company, and they continue to do well in a poor economy.”;

Bankoh's total assets jumped 18.4 percent to $12.2 billion from $10.3 billion. Total deposits rose 20.8 percent to $9.3 billion from $7.7 billion. And loans and leases decreased 9.2 percent to $5.9 billion from $6.5 billion.

Separately, the bank said it finalized a sale on Thursday of its wholesale insurance company, Triad Insurance Agency Inc., to Itasca, Ill.-based Arthur J. Gallagher & Co., which will retain the insurance unit's 24 employees. Bankoh said the sale of Triad resulted in a pretax gain of about $1.5 million, which will be included in the bank's fourth-quarter results.