American Savings Bank reports 2017 year-end and Q4 financial results

American Savings Bank, reported net income for the full year of 2017 of $67.0 million compared to $57.3 million in 2016.  Net income for the fourth quarter of 2017 was $16.9 million, compared to $17.6 million in the third, or linked, quarter of 2017 and $16.2 million in the fourth quarter of 2016.  The Bank benefited by the enactment of the Tax Cuts and Jobs Act of 2017, through lower federal corporate tax rates.  The Bank recognized a one-time tax benefit of $1.7 million and passed on $1.2 million of increased compensation to its employees, excluding senior management, through a $1,000 cash bonus paid in December 2017.

"Our results for the fourth quarter and year show that we continue to deliver well for our customers, the bank, and for shareholders," said Richard Wacker, president and chief executive officer of American.  "Solid deposit growth and improved asset quality continue to fuel the bank's broad profitability improvement compared to last year.  While loans declined slightly due to the timing of paydown and payoff of specific Commercial Markets loans, we see good levels of activity and believe the effect of the recent tax reforms will be positive for the Hawaii economy and workforce."

Financial Highlights

Net interest income was $223.9 million in 2017, higher than the $206.2 million in 2016.  Fourth quarter 2017 net interest income was $57.0 million, compared to $56.1 million in the linked quarter and $53.0 million in fourth quarter of 2016.  The increase in net interest income was primarily due to strong deposit growth that funded earning asset growth in the investment portfolio and retail loan portfolios which include consumer loans, residential loans and home equity lines of credit. Net interest margin was 3.69% in 2017 compared to 3.59% in 2016. Fourth quarter of 2017 net interest margin was 3.68% compared to 3.69% in the linked quarter and 3.59% in the fourth quarter of 2016.  The improvement in net interest margin was primarily attributable to higher yields on interest-earning assets and growth in higher-yielding loan portfolios.

The provision for loan losses was $10.9 million in 2017 compared to $16.8 million in 2016. The fourth quarter of 2017 provision for loan losses was $3.7 million compared to $0.5 million in the linked quarter and $1.5 million in the fourth quarter of 2016.  The year over year lower provision for loan losses reflects the strategic decision to improve American's credit risk profile through the reduction in our syndicated national credit portfolio and resolution of specific problem loans, partially offset by reserves required for growth in the retail loan portfolio.  The increase in the fourth quarter of 2017 provision for loan losses compared to the linked quarter and the fourth quarter of 2016 was primarily due to reserves required for growth and a slight increase in the reserve levels for the retail portfolios.  The 2017 net charge-off ratio was 0.27% compared to 0.24% in 2016 primarily due to continued growth in our consumer loan portfolio.  Nonaccrual loans as a percent of total loans receivable held for investment was 0.51% compared to 0.50% in the linked quarter and 0.49% in the prior year quarter.  

Reflecting lower mortgage banking income throughout 2017, noninterest income for 2017 was $61.6 million, compared to $67.0 million in 2016 and fourth quarter 2017 noninterest income was $15.0 million, compared to $15.2 million in the linked quarter and $16.5 million in the fourth quarter of 2016.

Noninterest expense for 2017 was $175.9 million compared to $169.1 million in 2016.  Fourth quarter of 2017 noninterest expense was $45.3 million compared to $44.1 million in the linked quarter and $43.1 million in the fourth quarter of 2016.  2017 noninterest expense was impacted by the $1.2 million bonus awarded to employees at the end of December 2017, in addition to increases in performance-based incentive cost.

Total loans were $4.7 billion at December 31, 2017, with retail loans up $161 million or 5.2%, offset by an overall reduction in commercial and commercial real estate loans of $233 million or 14.4% compared to December 31, 2016.  The $72 million decrease in total loans reflects our work to improve American's credit risk profile through the strategic reduction in our exposure to national syndicated credits by $75 million as well as the resolution of specific problem loans.

Total deposits were $5.9 billion at December 31, 2017, an increase of $138 million or 9.6% annualized from September 30, 2017, and $342 million or 6.2% from December 31, 2016.  The average cost of funds was 0.21% for the full year 2017, down 2 basis points from the prior year.  For the fourth quarter of 2017, the average cost of funds was 0.21%, up 1 basis point from the linked quarter and down 1 basis point from the prior year quarter.

Overall, American's return on average equity for the full year was solid at 11.20% in 2017 compared to 9.90% in 2016 and the return on average assets for the full year was 1.02% in 2017 compared to 0.92% in 2016.  For the fourth quarter of 2017, the return on average equity was 11.09%, compared to 11.64% in the linked quarter and 11.09% in the fourth quarter of 2016.  Return on average assets was 1.01% for the fourth quarter of 2017, compared to 1.07% in the linked quarter and 1.02% in the same quarter last year.

In 2017, American paid dividends of $37.5 million to HEI while maintaining healthy capital levels -- leverage ratio of 8.6% and total capital ratio of 14.2% at December 31, 2017.

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