A month has gone by since the last earnings report for Bank of Hawaii (BOH). Shares have added about 2.7% in that time frame, outperforming the market.
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 drivers.
Bank of Hawaii Q2 Earnings In Line, Provisions Down
Bank of Hawaii reported second-quarter 2018 earnings per share of $1.30, in line with the Zacks Consensus Estimate. The reported figure compared favorably with $1.05 earned in the prior-year quarter.
Results were driven by increased net interest income and lower provisions, partially offset by decline in non-interest income and rise in non-interest expenses. Strong capital position and higher loan balances were the supporting factors.
The company’s net income came in at $54.7 million, up 22.5% from $44.7 million reported a year ago.
Revenues Increase, Expenses Escalate, Loans Rise
Bank of Hawaii’s total revenues increased 2.7% year over year to $162.4 million. However, the revenue figure missed the Zacks Consensus Estimate of $164.8 million.
The bank’s net interest income was recorded at $120.5 million, up 7.3% year over year. Net interest margin (NIM) expanded 12 basis points (bps) to 3.04% from the prior-year quarter.
Non-interest income was $41.3 million, down 8.7% year over year. This fall primarily resulted from a 42.9% plunge in mortgage-banking revenues, as well as loss in investment securities.
The bank’s non-interest expense increased 3% to $90.8 million from $88.2 million in the year-earlier quarter. The upsurge primarily resulted from higher salaries and benefits, as well as data-processing expenses.
Efficiency ratio came in at 56.12%, up from 55.99% recorded in the comparable quarter last year. Notably, a rise in efficiency ratio reflects lower profitability.
As of Jun 30, 2018, total loans and leases balances inched up 1.4% from the end of the prior-year quarter to $10.1 billion, while total deposits decreased marginally to $14.9 billion.
Credit Quality: A Mixed Bag
As of Jun 30, 2018, allowance for loan and lease losses increased 0.8% year over year to $108.2 million, while non-performing assets decreased 6% year over year to $15.2 million.
Further, the company recorded provision for credit losses of $3.5 million in the reported quarter, down 17.7% year over year. However, net charge-offs were $3.3 million or 13 bps annualized of total average loans and leases outstanding, expanding from $3 million or 13 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 April-June quarter.
As of Jun 30, 2018, Tier 1 capital ratio was 13.27% compared with 13.34% as of Jun 30, 2017. Total capital ratio was 14.47% compared with 14.58% witnessed in the same quarter last year. The ratio of tangible common equity to risk-weighted assets was 12.68% compared with 13.01% at the end of the year-ago quarter.
Return on average assets was up 21 bps year over year to 1.30%, while return on average shareholders' equity advanced 281 bps to 17.68%.
Management expects non-interest income to be nearly $42 million each quarter for remaining 2018.
In 2018, the company expects expenses to be up about 2.5-3.5% year over year.
Effective tax rate for the second half of 2018 is expected to be between 19% and 21%.
For the remainder of 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 an upward trend in fresh estimates.
Currently, Bank of Hawaii has a subpar Growth Score of D, however its Momentum is doing a lot 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.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Interestingly, BOH has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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