Bank earnings results for Q3 continue to trickle in, including some of the lesser-known regionals. Amidst the big and small, a conservative, low-key Hawaiian bank also reported results: the well-respected Bank of Hawaii.
A cautious, stable bank
Bank of Hawaii is headquartered in Honolulu and is very much a Pacific Regional bank -- having locations throughout Hawaii, as well as American Samoa, Guam, Saipan, and Palau. It is also a very conservative bank, a characteristic that served it well during the financial crisis.
BOH beat its earnings per share estimate by $0.03, unchanged since one year ago, but up by $0.02 from last quarter. Net income fell by $2.1 million year over year, as did net interest income, albeit by less than $1 million. The bank's net interest margin -- something that is being squeezed throughout the sector -- held fast to 2.98 from Q2, but represented a loss of 11 basis points from Q3 2011.
Economic outlook is brighter
The lending picture brightened appreciably from last year. Management noted that loan activity had picked up by 2% since last quarter, and the bank's loan and lease portfolio showed that those items increased year over year by 8%. Residential mortgage activity in particular rose by 11%.
More good news is the continuing improvement in credit quality. The bank's provision for credit losses was $1 million for the first nine months of 2012, compared with $10.5 million one year ago. Loans and leases 90 days past due fell to $7.5 million from $33 million, and net charge-offs of total monies loaned declined to 0.20%, annualized from 0.36%.
The foregoing points toward a more hospitable economic outlook, and the bank notes that Hawaiian tourism picked up quite a bit last quarter, with a 10% increase in visitors, paired with a nice 20% hike in spending.
Despite headwinds, this bank will do just fine
Bank of Hawaii has a reputation of being well-run, and well-regarded by analysts like Forbes, which consistently lists BOH right near the top of its yearly list of bank rankings, putting it miles ahead of larger regionals BB&T (NYSE: BBT ) and Regions Financial (NYSE: RF ) , as well as megabanks Wells Fargo (NYSE: WFC ) and JPMorgan Chase (NYSE: JPM ) .
With current NIM pressures, which are affecting big boys like Wells and JPMorgan as well, investors may worry that Bank of Hawaii's stellar dividend payment might be in jeopardy. Recently, Credit Suisse noted that credit quality improvements and increases in mortgage writing at Bank of Hawaii, BB&T, and Regions are positive, but that increased commercial and industrial lending is needed for balance-sheet growth over the long term.
Bank of Hawaii has increased its C&I lending by 6% year over year, versus 5% from 2010 to 2011, which seems like a good start. In addition, BOH has an excellent dividend history, with an upward trend overall, and a stable payout since Feb. 2009, so there seems no reason for investors to be concerned on that point.
The challenges that may impact BOH are the same ones that face all financial institutions at the moment, and the bank's strong asset quality, and excellent management -- among other positives -- will give it a leg up on less stable institutions, especially as the overall economy improves.
With so many of the big finance firms getting bad press these days, you may be inclined to stay away from the sector entirely, but that could be a huge mistake. In fact, some of the best opportunities over the next few years can be found there, including one small, under-the-radar bank: Bank of Hawaii. It's been called one of The Stocks Only the Smartest Investors Are Buying. You can learn about it, and more, in our exclusive free report. Just click here to keep reading.