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Bank of Hawaii (BOH) Down 0.5% Since Last Earnings Report: Can It Rebound?

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  • BOH

It has been about a month since the last earnings report for Bank of Hawaii (BOH). Shares have lost about 0.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Bank of Hawaii due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Bank of Hawaii Q3 Earnings Beat Estimates, Revenues Up

Bank of Hawaii reported third-quarter 2021 earnings per share of $1.52, surpassing the Zacks Consensus Estimate of $1.34. Also, the bottom line compares favorably with the 95 cents reported in the prior-year quarter.

Revenue growth on higher interest income was a tailwind. Net benefit for credit losses, on improvement in economic conditions, was a key positive factor. In addition, higher loan and deposit balances supported the company to some extent. However, rise in expenses and contraction of the net interest margin (NIM) was a major drag.

The company’s net income came in at $62.1 million, up 64% from the prior-year quarter figure.

Revenues Climb, Expenses Flare Up, Loans & Deposits Rise

The company’s total revenues improved 1.4% year over year to $168.2 million in the third quarter. Also, the top line surpassed the Zacks Consensus Estimate of $167.6 million.

The bank’s NII was $126.8 million, up 2% year over year. The NIM shrunk 35 basis points (bps) to 2.32% on low rates and higher levels of liquidity.

Non-interest income came in at $41.4 million, down marginally year over year. This decline primarily resulted from a fall in annuity and insurance, mortgage banking, and other non-interest income, along with higher net investment securities losses.

The bank’s non-interest expenses flared up 7% year over year to $96.5 million. This upswing mainly reflects a rise in all components, except net occupancy and net equipment costs.

Efficiency ratio was 57.38% compared with the 54.22% recorded in the year-ago period. Notably, a rise in the efficiency ratio reflects lower profitability.

As of Sep 30, 2021, total loans and leases balance increased slightly from the end of the prior quarter to $12.1 billion, while total deposits improved 1.6% to $20.5 billion.

Credit Quality: A Mixed Bag

As of Sep 30, 2021, non-performing assets increased 10.7% year over year to $20.6 million. Moreover, net loan and lease charge-offs of $1.2 million increased by $2.7 million year over year.

Nonetheless, the company recorded net benefit for credit losses of $10.4 million against provisions of $28.6 million in the year-ago quarter. In addition, allowance for credit losses decreased 17.5% year over year to $167.9 million.

Capital and Profitability Ratios Improve

As of Sep 30, 2021, tier 1 capital ratio was 13.47% compared with 12.09%, as of Sep 30, 2020. Total capital ratio was 14.72%, up from 13.35%. Yet, the ratio of tangible common equity to risk weighted assets was 11.46% compared with the 12.02% reported at the end of the year-ago quarter.

Return on average assets expanded 31 bps year over year to 1.07%. Return on average shareholders' equity was 17.08% compared with 11.01%, as of Sep 30, 2020.

Outlook

Core NII (excluding paycheck protection program or PPP loan waivers) is expected to increased 2% sequentially in the fourth quarter. Management expects continued loan growth and stable interest rates to drive sequential margin expansion by low-single digits in the fourth quarter, excluding the impact of further PPP loan waivers.

Expenses are projected to be $98-$99 million for the fourth quarter.

The effective tax rate is estimated to be 24% for the fourth quarter.

For 2021, adjusted for one-time items, non-interest expenses are anticipated to be $388 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 7.12% due to these changes.

VGM Scores

At this time, Bank of Hawaii has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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. It comes with little surprise Bank of Hawaii has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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