Bank of Hawaii Corporation (BOH) reported first-quarter 2013 earnings of 81 cents per share, which lagged the Zacks Consensus Estimate of 87 cents. Moreover, the results fell from the year-ago earnings of 95 cents. Net income came in at $36.0 million, down 18% from the year-ago quarter.
Lower-than-expected results were due to a decrease in net interest and non-interest income. The persistent low interest rate environment acted as a dampener as well, affecting net interest margin. However, these were offset by declining expenses as well as higher loans and deposits.
Bank of Hawaii’s revenues were $146.6 million, down 7% from the prior-year quarter, primarily due to a decline in both non-interest and interest income. However, the revenues surpassed the Zacks Consensus Estimate of $142.0 million.
Quarter in Detail
Bank of Hawaii’s net interest income was recorded at $88.6 million, down 10% year over year. Moreover, net interest margin declined 24 basis points (bps) year over year to 2.87%.
Non-interest income reached $47.8 million, sliding 1% year over year. Non-interest income in the year-ago quarter included a gain of $3.5 million on the early termination of leveraged leases for 2 cargo ships and a loss of $1.0 million on the termination and sale of an aircraft lease.
The bank’s non-interest expense dropped 1% year over year to $84.4 million. Non-interest expense in the reported quarter included $1.5 million in separation expense related to the implementation of expense-reduction initiatives and seasonal payroll-related expenses, resulting from annual payments from incentive compensation plans and higher payroll taxes.
Bank of Hawaii experienced improvements in both loan balances and deposits. Total loan and lease balances climbed 3% from the end of the prior-year quarter to $5.78 billion, aided by an improvement in the commercial loan portfolio. Moreover, total deposits were $11.25 billion, up 6% year over year.
The company’s credit quality metrics were a mixed bag in the quarter. Net loans and leases charged off were $2.0 million (0.14% annualized of total average loans and leases outstanding) compared with $2.1 million (0.15%) in the prior quarter and $3.4 million (0.24%) in the year-ago quarter.
As of Mar 31, 2013, allowance for loan and lease losses fell to $126.9 million from $128.9 million in the prior quarter and $135.6 million in the year-ago quarter. The ratio of allowance for loan and lease losses to total loans and leases came in at 2.19%, down 1 basis point sequentially and 23 bps year over year.
As of Mar 31, 2013, nonperforming assets as a percentage of total loans and leases, and foreclosed real estates were 0.66%, up from 0.63% as of Dec 31, 2012 and down from 0.74% as of Mar 31, 2012.
During the reported quarter, the company did not record a provision for credit losses. This was the second consecutive quarter with no provision for credit losses.
Capital ratios were also mixed in the quarter. The ratio of tangible common equity to risk- weighted assets was 17.04% compared with 17.24% at the end of the prior quarter and 17.62% at the end of the year-ago quarter. The Tier 1 leverage ratio was 6.90%, up from 6.83% in the prior quarter and 6.57% in the year-ago quarter. Tier 1 capital ratio was 16.12% in the reported quarter, down from 16.13% in the prior quarter and 16.50% in the year-ago quarter.
As of Mar 31, 2013, total assets at Bank of Hawaii were recorded at $13.53 billion, down 1% sequentially and 2% year over year.
Capital Deployment Update
Bank of Hawaii’s capital deployment efforts are encouraging. During the first quarter, the company repurchased 137.0 thousand shares of common stock at an average price of $48.46 per share. Further, from Apr 1 to Apr 19, the company repurchased an additional 37.5 thousand shares of common stock at an average price of $49.04 per share.
As of Mar 31, 2013, Bank of Hawaii repurchased 50.4 million shares and returned over $1.8 billion to shareholders at an average cost of $36.38 per share. As of Mar 31, 2013, the company had 62.9 million remaining under its share repurchase program.
Bank of Hawaii’s board also declared a quarterly cash dividend of 45 cents per share. The dividend will be paid on Jun 14, 2013 to shareholders of record at the close of business on May 31.
We believe that the improvement in loan balances and deposits at Bank of Hawaii will serve as a positive catalyst. Well-controlled risk management efforts are also expected to improve its bottom line. Additionally, the company’s capital deployment activities are likely to raise investors’ confidence in the stock.
However, a low interest rate environment remains a matter of concern. Net interest margin is also likely to be under pressure in the upcoming quarters.
Bank of Hawaii Corporation currently carries a Zacks Rank #3 (Hold). Other banks that are performing better include BofI Holding, Inc. (BOFI), CU Bancorp (CUNB) and BBCN Bancorp, Inc. (BBCN). All these stocks carry a Zacks Rank #2 (Buy).
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