It has been about a month since the last earnings report for Bank of Hawaii (BOH). Shares have added about 1.9% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Bank of Hawaii Q3 Earnings Top Estimates on High Revenues
Bank of Hawaii reported third-quarter 2018 earnings per share of $1.36, beating the Zacks Consensus Estimate of $1.34. The reported figure compares favorably with $1.08 earned in the prior-year quarter.
Though results were driven by increased net interest income and lower provisions, investors’ concern were reflected on decline in non-interest income and rise in non-interest expenses. However, strong capital position and higher loan balances were the supporting factors.
The company’s net income came in at $56.9 million, up 24% from $45.9 million reported a year ago.
Revenues Increase, Expenses Escalate, Loans Improve
Bank of Hawaii’s total revenues increased 3.7% year over year to $164.5 million. However, the revenue figure missed the Zacks Consensus Estimate of $165.7 million.
The bank’s net interest income was recorded at $123 million, up 5.8% year over year. Net interest margin (NIM) expanded 15 basis points (bps) to 3.07% from the prior-year quarter.
Non-interest income was $41.5 million, down 2.1% year over year. This downside primarily resulted from a 39.3% plunge in mortgage-banking revenues, as well as loss in investment securities.
The bank’s non-interest expense flared up 2.1% year over year to $90.5 million. The upsurge reflected higher salaries and benefits, occupancy, equipment, as well as data-processing expenses.
Efficiency ratio came in at 55.07%, down from 55.82% recorded in the comparable quarter last year. Notably, a fall in the efficiency ratio reflects higher profitability.
As of Sep 30, 2018, total loans and leases balances climbed 6.3% from the end of the prior-year quarter to $10.2 billion, while total deposits edged down 1.3% to $14.8 billion.
Credit Quality: A Mixed Bag
As of Sep 30, 2018, allowance for loan and lease losses increased 1.7% year over year to $108.7 million, while non-performing assets decreased 18.8% year over year to $13.8 million.
Further, the company recorded provision for credit losses of $3.8 million in the reported quarter, down 5% year over year. Net charge-offs were $3.3 million or 13 bps annualized of total average loans and leases outstanding, down from $3.5 million or 15 bps recorded in the prior-year quarter.
Strong Capital and Profitability Ratios
Bank of Hawaii remained well capitalized and its profitability ratios improved during the Jul-Sep quarter.
As of Sep 30, 2018, Tier 1 capital ratio was 13.19% compared with 13.27% as of Sep 30, 2017. Total capital ratio was 14.38% compared with 14.51% witnessed in the same quarter last year. The ratio of tangible common equity to risk-weighted assets was 12.55% compared with 12.96% at the end of the year-ago quarter.
Return on average assets were up 26 bps year over year to 1.33%, while return on average shareholders' equity advanced 317 bps to 18.06%.
During the quarter under review, the company repurchased 296,500 shares of common stock at an average price of $83.04 and for a total cost of $24.6 million.
Management expects non-interest income to be nearly $42 million in fourth-quarter 2018.
In 2018, the company expects expenses to be up about 2.5-3.5% year over year due to seasonality in the current quarter.
Effective tax rate for the fourth quarter of 2018 is expected to be between 19% and 21%.
For 2018, loan growth is anticipated in mid to upper single-digits. Deposits are expected to remain flat as growth in consumer and commercial deposits may be offset by planned runoff and public time deposits.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Bank of Hawaii has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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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