Bankoh profit rises 5 percent

Bank of Hawaii Corp., enjoying a loan boom in the wake of a strong housing market, increased its net income 5 percent in the second quarter from a year earlier to beat analysts' forecasts.

Hawaii's second-largest bank based on assets posted net income of $46.4 million, or 87 cents a share, compared with $44.2 million, or 79 cents a share, a year earlier. The consensus estimate of nine analysts surveyed by Thomson Financial was 84 cents. Last year's quarter included a before-tax benefit of $3.5 million, or 4 cents a share after taxes, that the bank returned to income from a portion of its allowance for loan and lease losses.

"I think the strong Hawaii economy is helping us a lot and our people are really focused on meeting customers' needs," Bank of Hawaii's chairman and chief executive, Allan Landon, said yesterday. "Businesses are growing and development continues. Overall, loans were up in several categories."

Commercial loans rose 8.9 percent to $2.2 billion and consumer loans grew 5.1 percent to nearly $4 billion. Overall, total loans and leases gained 6.2 percent to $6.2 billion from $5.8 billion.

"It was a solid quarter," Landon said.

Bankoh's return on equity, or earnings divided by shareholder equity, rose to 26 percent in the quarter from 24.3 percent a year earlier.

Analyst Brett Rabatin, who has a "neutral rating" on Bankoh's stock, said he was impressed by the quarter.

"It was a nice solid quarter from the company -- very high profitability," said Rabatin of Nashville, Tenn.-based FTN Midwest Research. "I don't cover many companies that have a (return on equity) this high. In fact, this has the highest one of those that I cover. Management has to be commended for maintaining the company's profitability at such a high level."

Rabatin said his "neutral" rating is based mostly on the stock's current valuation.

"(Bankoh has) continued to exceed my expectations," he said. "My thesis (in rating the company's stock) has been a little conservative."

Rabatin said the company's net income last quarter was close to what he was expecting but that the earnings per share were higher than his estimate because the bank bought back stock from shareholders. The bank bought back 1.3 million shares at a total cost of $60.8 million, or $47.22 a share, during the quarter.

Landon said the bank has been taking steps to adjust to the Federal Reserve's string of quarter-point rate increases.

"We try to manage so that rate changes by the Fed aren't a big factor," he said. "Short-term rates have increased and the long-term rates have not increased as much. That typically does not help our bank's profits. We would expect that later in the year that long-term rates will go up."

Bankoh also said yesterday its board was maintaining the company's quarterly dividend at 33 cents a share. It will be payable Sept. 15 to shareholders as of Aug. 29. The bank has now kept its dividend at the same level for four straight quarters.

Net interest income, which reflects the difference of what the bank pays depositors and what it brings in from loans, grew 5.4 percent to $101.1 million from $95.9 million. The net interest margin rose to 4.36 percent from 4.17 percent a year ago. Noninterest income, which includes revenue from service charges and fees, fell 7.5 percent to $50.7 million from $54.8 million in the second quarter of 2004. The year-earlier quarter included a partnership distribution of $3.2 million and a gain of $2.5 million on the sale of land. Excluding those items, noninterest income last quarter rose 3 percent over the second quarter of 2004.

Noninterest expenses fell 7.2 percent to $79 million from $85.1 million a year ago. Included in the second quarter of 2004 were charges of $2.2 million to settle litigation.

The bank's assets grew 3.8 percent to $10.1 billion from $9.7 billion a year ago and deposits increased 3.5 percent to $7.7 billion from $7.5 billion.

Its return on assets ratio, which indicates how many dollars of profit it achieves for each dollar of assets it controls, rose to 1.87 percent from 1.8 percent a year earlier.