Bank of Hawaii (BOH) Up 1.5% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Bank of Hawaii (BOH). Shares have added about 1.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Bank of Hawaii due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Bank of Hawaii Q1 Earnings Beat Estimate
Bank of Hawaii reported first-quarter 2022 earnings per share of $1.32, surpassing the Zacks Consensus Estimate of $1.22. Yet, the bottom line declined from $1.50 in the year-ago quarter.
Revenue growth on higher interest income was a tailwind. In addition, higher loan balances supported the company to some extent. However, a rise in expenses and the contraction of the net interest margin (NIM) were significant drags.
The company’s net income was $54.8 million, down from the prior-year quarter’s $59.9 million.
Revenues & Expenses Rise, Loans Increase & Deposits Decrease
The company’s total revenues improved 3.2% year over year to $168.8 million in the first quarter. However, the top line missed the Zacks Consensus Estimate of $169.4 million.
The bank’s NII was $125.3 million, up 3.9% year over year. The NIM shrunk 9 basis points (bps) to 2.34%.
Non-interest income was $43.6 million, down 1.4% year over year. This decline primarily resulted from a fall in mortgage banking, and fees, exchange and other service charges.
The bank’s non-interest expenses increased 5.1% year over year to $103.9 million. The upswing mainly reflects a rise in salaries and benefits, net occupancy, and net equipment costs.
Efficiency ratio was 61.53 % compared with 60.45% recorded in the year-ago period. Notably, a rise in the efficiency ratio reflects lower profitability.
As of Mar 31, 2022, total loans and leases balance rose 2.3 % from the end of the prior quarter to $12.5 billion, while total deposits increased 1.8% to $20.7 billion.
Credit Quality: A Mixed Bag
As of Mar 31, 2022, non-performing assets increased 11.7% year over year to around $20 million. Moreover, net loans and lease charge-offs were $1.5 million, decreasing $1.4 million from the prior-year quarter.
Nonetheless, the company recorded a provision for credit losses of $5.5 million, lower than the prior year’s $14.3 million. In addition, the allowance for credit losses decreased 24% year over year to $152 million.
Capital Ratios Mixed, Profitability Falls
As of Mar 31, 2022, Tier 1 capital ratio was 13.22%, improving from 12.35% as of Mar 31, 2021. Total capital ratio was 14.41%, up from 13.61%. Yet, the ratio of tangible common equity to risk-weighted assets was 9.77%, down from 11.78% in the year-ago quarter.
Return on average assets declined year over year to 0.97% from 1.15%. Return on average shareholders' equity was 14.18% compared with 17.65% as of Mar 31, 2021.
2022 Outlook
Excluding the paycheck protection program or PPP loan interest income, the company anticipates core NIM improvement of five to six bps per quarter in 2022, backed by continued loan and deposit growth, and assuming fed fund rate to be 2.5% by 2022 end.
Management expects non-interest income to be in the $42-$43-million range per quarter through the end of 2022 as mortgage banking income and asset management fees are expected to be lower due to higher interest rates and lower markets.
Management expects expenses to rise 6-7% year over year to $414-$415-million range, due to inflationary pressures which might increase overall expenses in 2022.
The effective tax rate is estimated to be 23% for 2022.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, Bank of Hawaii has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Bank of Hawaii has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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