Bank of Hawaii Marginally Beats on Q3 Earnings

Zacks

Bank of Hawaii Corporation (BOH) reported third-quarter 2013 earnings per share of 85 cents, beating the Zacks Consensus Estimate by a penny. However, this was below 92 cents earned in the year-ago quarter. Net income came in at $37.7 million, down 8.5% from the year-ago quarter.

Better-than-expected results came on the back of lower than expected expenses. Additionally, improved credit quality aided the earnings. However, a fall in revenues due to decline in both net interest and non-interest income was the downside.

Bank of Hawaii’s revenues were $145.7 million, down 7.0% from the prior-year quarter, primarily due to decline in interest income and non-interest income.

Quarter in Detail

Bank of Hawaii’s net interest income was recorded at $90.9 million, down 2.9% year over year. Moreover, net interest margin (NIM) declined 15 basis points (bps) to 2.83% from the prior-year quarter.

Non-interest income was $45.1 million, down 6.1% year over year. The decline was due to fall in mortgage-banking revenues to $4.1 million in the reported quarter from $11.7 million in the previous-year quarter.

The bank’s non-interest expense was down 2.2% year over year to $83.0 million. The decline resulted from fall in salaries and benefits expenses as well as net occupancy costs.

Total loan and lease balances rose 4.0% from the end of the prior-year quarter to $6.01 billion, aided by an improvement in the commercial loan portfolio, partially offset by decline in consumer loans. Moreover, total deposits were $11.61 billion, up 3.5% year over year, due to continued growth in consumer and commercial deposits.

Credit Quality

Credit quality considerably improved in the quarter. Net loans and leases charged off were $0.9 million (0.06% annualized of total average loans and leases outstanding), compared with $1.5 million (0.10%) in the year-ago quarter.

As of Sep 30, 2013, allowance for loan and lease losses fell to $123.7 million from $131.0 million in the year-ago quarter. The ratio of allowance for loan and lease losses to total loans and leases came in at 2.06%, down 21 bps year over year.

As of Sep 30, 2013, nonperforming assets as a percentage of total loans and leases, and foreclosed real estates were 0.56%, down from 0.70% as of Sep 30, 2012.

In the reported quarter, the company did not record provision for credit losses. Notably, this was the fifth consecutive quarter with no provision for credit losses.

Capital Ratios

Capital ratios were a mixed bag in the quarter. The ratio of tangible common equity to risk-weighted assets was 15.43% compared with 17.43% at the end of the year-ago quarter. The Tier 1 leverage ratio was 6.95%, up from 6.78% in the year-ago quarter. Tier 1 capital ratio was 15.42%, down from 16.12% in the year-ago quarter.

As of Sep 30, 2013, total assets at Bank of Hawaii were recorded at $13.85 billion, up 3.5% year over year.

Capital Deployment Update

In the said quarter, the company repurchased 1.65 million shares of common stock at an average price of $54.18 per share. From Oct 1 to Oct 25, 2013, the company repurchased an additional 19,000 shares of common stock at an average price of $55.31 per share.

As of Sep 30, 2013, Bank of Hawaii repurchased 50.8 million shares and returned over $1.9 billion to shareholders at an average price of $36.50 per share. As of Sep 30, 2013, the company had $39.0 million remaining under its share repurchase program.

Bank of Hawaii’s board of directors also declared a quarterly cash dividend of 45 cents per share. The dividend will be paid on Dec 13, 2013, to shareholders of record at the close of business on Nov 29.

Performance of Peers

Among other West banks, Zions Bancorp. (ZION) reported third-quarter 2013 adjusted earnings per share of 44 cents, beating the Zacks Consensus Estimate by a penny. Better-than-expected results were driven by lower operating expenses, partially offset by a decline in the top line.

On the other hand, Westamerica Bancorp’s (WABC) third-quarter 2013 earnings came in at 63 cents per share, missing the Zacks Consensus Estimate.  Results suffered due to a fall in net interest income, partially offset by lower operating expenses.

Similarly, First Republic Bank (FRC) reported third-quarter 2013 adjusted earnings of 64 cents per share, missing the Zacks Consensus Estimate by a penny. Top-line growth, aided by rise in net interest and non-interest income was the positive for the quarter.

Our Take

We expect higher loan balances and an enhanced credit quality to serve as catalysts for Bank of Hawaii in the near term. Well-controlled risk management efforts are also expected to improve the company’s bottom line. Additionally, the bank’s capital deployment activities will likely raise investors’ confidence in the stock. However, the low interest rate environment will probably keep the net interest margin under pressure in the coming quarters.

Bank of Hawaii Corporation currently carries a Zacks Rank #3 (Hold).

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