Bank of Hawaii Corp., a conservative lender that avoided the subprime mortgage mess, nudged its dividend higher Monday and posted a third-quarter profit that was little changed from its results a year earlier.
In what Allan R. Landon, its chairman and chief executive officer, called "a strong signal of confidence," Bank of Hawaii increased its dividend by a penny, to 45 cents a share.
"It's steady as she goes," Mr. Landon said in an interview. "We had a strong performance."
The $10.3 billion-asset Bank of Hawaii said its third-quarter earnings fell less than 0.8% from a year earlier, to $47.4 million, or 99 cents a share, which met the average estimate of analysts polled by Thomson Reuters.
But the Honolulu company beefed up its loan-loss reserves, and Mr. Landon said a weakening economy has begun to hasten credit deterioration and would continue to pose a threat into next year. Hawaii's unemployment rate, though below the national level of 6.1%, rose 30 basis points last month from August, to 4.5%.
Bank of Hawaii's return on average assets climbed 3 basis points from a year earlier, to 1.82%, but with the weakening economy and the expectation of gradual credit deterioration, the company increased its loan-loss reserves by fivefold, to $20.3 million.
The provision far exceeded third-quarter net chargeoffs of $7.4 million.
Mr. Landon said the buildup in reserves was meant to guard against the possibility of a prolonged economic slump and was not a direct reaction to deepening losses in any one area of lending.
"It's just the prudent thing to do," he said.
Noninterest income declined 7%, at $57 million, because of accounting volatility in mortgage banking income and lower investment management fees, the company said.
Third-quarter net interest income rose 5%, to $103.8 million, and the net interest margin increased 30 basis points, to 4.33%.
But both loans and deposits decreased, reflecting in part consumers' diminished spending power and demand for loans, Mr. Landon said. Total loans and leases fell 1%, to $6.54 billion, and total deposits decreased 2.8%, to $7.66 billion.
"We do see less demand for loans and, broadly, we see people being more conservative as the economy slows," he said. "I think we're still better off here in Hawaii than a lot of areas, but we're certainly watching the economy very closely."
With a Tier 1 capital ratio of 7.27%, Bank of Hawaii's capital levels are above regulators' preferred level of 6%. But Mr. Landon said he is carefully considering whether to apply to participate in the Treasury Department's program to further boost capital. The application deadline is Nov. 14.
Brett Rabatin, an analyst at First Horizon National Corp.'s FTN Midwest Securities Research, said in an interview Monday that Bank of Hawaii will get bruised as the economy slows. However, Hawaii's housing market is relatively stable, and its economy is "slowing from a much healthier level" than others in terms of employment.
"It's awful tough to complain about Bank of Hawaii's results, given the environment," Mr. Rabatin said. "They're not immune to a weak economy, but I still think they are a safe haven" for investors.
