Shares of Bank of Hawaii Corporation (BOH) gained 2.9% as it reported yet another impressive quarter with earnings per share of 94 cents outpacing the Zacks Consensus Estimate of 89 cents. With this, the company managed to keep its surprise streak alive, marking five straight quarters of earnings beat. Also, the second-quarter figure compared favorably with 85 cents earned in the prior-year quarter.
Results were driven by increased net interest income and lower expenses, partially offset by a decline in non-interest income. Strong capital position, increased loan and deposit balances and improved asset quality were among the positives.
The company’s net income was $41.5 million, up 9.9% from the year-ago quarter.
Quarter in Detail
Bank of Hawaii’s total revenue increased 2.6% year over year to $138.9 million. However, it marginally lagged the Zacks Consensus Estimate of $140 million.
The bank’s net interest income was recorded at $94.4 million, up 8.1% year over year. Net interest margin ('NIM') increased 9 basis points (bps) to 2.86% from the prior-year quarter.
Non-interest income was $44.5 million, down 7.4% year over year. The fall was primarily due to a 69% decline in mortgage-banking revenues.
The bank’s non-interest expense was slightly down to $81.1 million from $81.2 million in the prior-year quarter. The decline primarily resulted from lower salaries and benefits as well as fall in net occupancy
Efficiency ratio of the company stood at 58.38%, down from 59.96% in the prior-year quarter. A fall in the efficiency ratio reflects higher profitability.
As of Jun 30, 2014, net loan and lease balances rose 10.1% from the end of the prior-year quarter to $6.3 billion while total deposits increased 10.7% year over year to $12.7 billion.
Credit quality showed continued improvement in the quarter. As of Jun 30, 2014, allowance for loan and lease losses fell 8.6% year over year to $113.8 million while nonperforming assets declined 5.6% year over year to $34.4 million.
Further, after recording no provision for credit losses for seven consecutive quarters, the company recorded a negative provision (benefit) of $2.2 million in the reported quarter.
Capital and Profitability Ratios
Bank of Hawaii remained well capitalized and its profitability ratios improved.
As of Jun 30, 2014, Tier 1 capital ratio was 15.66% compared with 16.40% as of Jun 30, 2013. Total capital ratio stood at 16.91%, up from 17.66% as of Jun 30, 2013.The ratio of tangible common equity to risk-weighted assets was 15.54% compared with 15.87% at the end of the year-ago quarter.
Return on average assets increased 5 bps year over year to 1.17% while return on average shareholders' equity jumped 123 bps to 15.87%.
Capital Deployment Update
The company repurchased around 220.3 thousand shares of common stock at an average price of $56.70 per share during the quarter. The board of directors increased its share repurchase authorization by an additional $100.0 million, bringing the total authorization to $2.0 billion. From Jul 1, 2014 to Jul 25, 2014, the company further repurchased 43.0 thousand shares of common stock at an average price of $57.45 per share.
We believe a disciplined approach to risk and capital management, continuously improving commercial segment, organic growth and prudent expense management will act as growth drivers in the near term. Additionally, the bank’s capital deployment activities are likely to raise investors’ confidence in the stock.
However, the low interest rate environment, stringent regulatory conditions and absence of credible improvement in the mortgage market will keep the bottom line under pressure in the coming quarters.
Bank of Hawaii currently carries a Zacks Rank #3 (Hold).
Performance of Other West Banks
Effective cost control aided Zions Bancorporation (ZION) to post second-quarter adjusted earnings of 57 cents. The figure comfortably beat the Zacks Consensus Estimate of 46 cents, and was much higher than the prior-year quarter figure of 31 cents.
SVB Financial Group (SIVB) reported second-quarter earnings per share of $1.04, beating the Zacks Consensus Estimate of 84 cents. This marked the fourteenth consecutive quarter of delivering positive earnings surprise. Results, however, came in lower than $1.06 earned in the year-ago quarter.
Westamerica Bancorp.’s (WABC) second-quarter earnings of 58 cents per share were in line with the Zacks Consensus Estimate, but came in below 64 cents earned in the year-ago quarter.
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