A month has gone by since the last earnings report for Bank of Hawaii (BOH). Shares have lost about 11.8% 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 Q4 Earnings Beat Estimates on Higher Revenues
Bank of Hawaii delivered fourth-quarter 2019 positive earnings surprise of 6.6%. Earnings per share of $1.45 surpassed the Zacks Consensus Estimate of $1.36. Further, the bottom line improved 11.5% from the prior-year quarter.
Results reflect decline in expenses and rise in non-interest income. Also, strong capital position, along with higher loan and deposit balances, was a supporting factor. However, increasing provisions and lower NIM hurt results to some extent.
The company’s net income came in at $58.1 million, up 7.8% from the prior-year quarter.
For 2019, earnings of $5.56 per share improved 6.3% from the prior year’s figure. Also, the same outpaced the consensus estimate of $5.46. Net income grew 2.9% to $225.9 million.
Revenues Up, Expenses Decline, Loans & Deposits Rise
The company’s total revenues increased 3.3% year over year to $171.6 million in the quarter. However, the figure missed the Zacks Consensus Estimate of $173 million.
For 2019, total revenues were $681.1 billion, up 3.9%. However, the top line missed the consensus estimate of $682 million.
The bank’s net interest income was $123.9 million, marginally down year over year. NIM shrunk 15 basis points (bps) to 2.95%.
Non-interest income came in at $47.7 million, up 13.3% year over year. This upsurge primarily resulted from rise in components including trust and asset management, mortgage banking and service charges on deposit accounts.
The bank’s non-interest expenses declined 2.9% year over year to $93.1 million. This fall reflects lower salaries and benefits, net occupancy, data-processing and other expenses.
Efficiency ratio came in at 54.26% compared with 57.75% recorded in the year-ago quarter. Notably, a fall in the efficiency ratio reflects higher profitability.
As of Dec 31, 2019, total loans and leases balances grew 1% from the end of the prior quarter to $11 billion, and total deposits improved 2.9% to $15.8 billion.
Credit Quality: A Mixed Bag
As of Dec 31, 2019, allowance for loan and lease losses increased 3.1% year over year to $110 million, and non-performing assets surged 55.6% to $20.1 million. In addition, the company recorded provision for credit losses of $4.8 million, significantly up from the prior-year quarter.
However, net charge-offs were $3.7 million or 13 bps annualized of total average loans and leases outstanding, down from the $4 million or 15 bps recorded in the prior-year quarter.
Strong Capital and Profitability Ratios
As of Dec 31, 2019, Tier 1 capital ratio was 12.18% compared with 13.07% as of Dec 31, 2018. Total capital ratio was 13.28%, down from 14.21%. The ratio of tangible common equity to risk-weighted assets was 11.85% compared with 12.52% recorded at the end of the year-ago quarter.
Return on average assets were up 3 bps year over year to 1.29%, and return on average shareholders' equity expanded 79 bps to 17.84%.
Share Repurchase Update
During the fourth quarter, Bank of Hawaii repurchased 336.2K shares of common stock, at an average price of $89.11 per share and for a total cost of $30 million. From Jan 2 to Jan 24, the company repurchased 71.5K shares at an average price of $93.50 per share.
Also, it increased the authorization under the share repurchase program by an additional $100 million. On Jan 24, $120.4 million was left under the buyback authorization.
Management anticipates net interest margin in 2020 to be slightly lower than 2019 but up from the fourth quarter run rate as balance sheet growth and an improved asset mix are expected to offset the lower rate environment. Non-interest income is expected to be around $44 million per quarter in 2020.
In 2020, the company predicts non-interest expenses to flare up about 2-3% year over year. Effective tax rate for the year will likely be 22%. Notably, for the first quarter of 2020, non-interest expenses will include seasonal payroll expenses of about $3 million.
The company’s capital-management strategy in 2020 remain unchanged including pay out approximately 50% of net income in dividends to maintain adequate capital to support the business growth with a minimum Tier 1 leverage ratio of 7% and with the remainder available for share repurchases.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Bank of Hawaii has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, 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.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. 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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