Bank of Hawaii Corp. topped analysts’ second-quarter earnings expectations and achieved record deposits, but net income still fell 15.8% because the company said today it released $13.6 million less from its loan-loss reserve than it did in the year-ago quarter.
The state’s second-largest bank, like all other financial institutions, had been setting aside money for potential loan losses during the COVID-19-induced slowdown before beginning to return that money to its income statement. With interest rates now climbing and putting pressure on new homeowners, Bankoh released just $2.5 million from its reserve last quarter compared with $16.1 million in the second quarter of 2021. The discrepancy resulted in the bank earning $56.9 million, or $1.38 a share, in the April-June period versus $67.5 million, or $1.68 a share, in the year-earlier quarter. Still, the bank’s results easily beat the consensus estimate of $1.34 a share from analysts polled by Thomson Reuters.
“Bank of Hawaii performed well during the second quarter of 2022,” Chairman, president and CEO Peter Ho said in a statement. “Net interest margin expanded, driven by robust core loan growth and higher interest rates. At the same time, asset quality continued its sound and stable trend, and capital and liquidity remained strong, positioning us well for the future.”
Bankoh’s stock rose $1.40, or 1.8%, to $78.35 after the earnings were announced.
Deposits hit an all-time high of $21 billion, up 4.2% from the year-ago period, while loans grew 7.6% to $13 billion during that same time frame. Net interest margin, which measures the difference between what the bank pays out in deposits and generates from loans, improved by 10 basis points to 2.47% last quarter. The bank’s revenue also rose 4.2% to $175.1 million to top analysts’ consensus estimate of $173.5 million.
“Our robust and consistent loan and deposit growth provides the foundation for sustainable growth in our NII (net interest income) and margin, which are being further bolstered by increasing interest rates,” Bankoh Chief Financial Officer Dean Shigemura said on the company’s earnings conference call. “Our loan-to-deposit ratio remains low relative to regional and local peers. This affords us room to continue to grow our assets as well as greater pricing flexibility. As we continue to grow, we maintained our balance sheet’s asset-sensitive position to changes in interest rates and continue to benefit from higher rates.”
The high-interest rates, however, pressured the bank’s mortgage banking income, which includes refinancings and fees collected from mortgage sales. Mortgage banking income fell 59.2% to $1.3 million from $3.1 million in the year-earlier quarter.
“The run-up in rates, obviously, has had an impact on our mortgage businesses, home equity and residential, but a lot of the growth you saw for Q2 was kind of backlog or pipeline that had been built prior to some of that rate increase,” Ho said on the earnings call. “So we think that we will likely see a downturn in application volumes, certainly in residential mortgage, probably in home equity as well. Although I would say that as people are hesitant to refi first mortgages on a cash-out refi basis, that tends to push business to home equity as well as incent people with existing home equity lines to fund up their existing lines.”
The bank also announced it was maintaining its dividend at 70 cents a share. It will be payable on Sept. 15 to shareholders of record at the close of business on Aug. 31.
DOWN EARNINGS ARROW
Second-quarter net
$56.9 million
Year-earlier net
$67.5 million
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