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, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.
Bank of Hawaii’s Q1 Earnings Beat, Revenues Escalate
Bank of Hawaii reported a positive earnings surprise of 5.1% in first-quarter 2019. Earnings per share of $1.43 surpassed the Zacks Consensus Estimate of $1.36. Further, the reported figure compares favorably with $1.28 earned in the prior-year quarter.
Results reflect growth in revenues, with support from higher loans and deposits, along with improving interest margin. Also, lower provisions and the company’s strong capital position were a tailwind. However, rising expenses and lower non-interest income were the undermining factors.
The company’s net income came in at $58.8 million, up 8.8% from the $54 million reported a year ago.
Revenues Increase, Expenses Escalate, Loans & Deposits Improve
The company’s total revenues increased 3.1% year over year to $169.5 million in the reported quarter. The revenue figure also outpaced the Zacks Consensus Estimate of $166.5 million.
The bank’s net interest income was recorded at $125.8 million, up 4.6% year over year. Net interest margin (NIM) expanded 12 basis points (bps) to 3.12% from the prior-year quarter.
Non-interest income was $43.7 million, down nearly 1% year over year. This fall primarily resulted from fall in almost all components of income, partially mitigated by higher mortgage banking fees, service charges on deposit accounts, and annuity and insurance income.
The bank’s adjusted non-interest expense increased nearly 1% year over year to $90.4 million. The upside reflects higher salaries and benefits, equipment, as well as data-processing expenses.
Efficiency ratio came in at 55.22%, down from 57.91% recorded in the comparable quarter last year. Notably, a fall in the efficiency ratio reflects higher profitability.
As of Mar 31, 2019, total loans and leases balances inched up nearly 1% from the end of the prior quarter to $10.5 billion, while total deposits were up 1.6% to $15.3 billion.
Credit Quality: A Mixed Bag
As of Mar 31, 2019, allowance for loan and lease losses edged down 1.8% year over year to $106 million, while non-performing assets increased 13.9% year over year to $17.9 million. Further, net charge-offs were $3.7 million or 14 bps annualized of total average loans and leases outstanding, up from $3.5 million or 15 bps recorded in the prior-year quarter.
However, the company recorded provision for credit losses of $3 million in the Mar-end quarter, down 27.3% year over year.
Strong Capital and Profitability Ratios
Bank of Hawaii remained well capitalized with strong profitability ratios during the Jan-Mar quarter.
As of Mar 31, 2019, Tier 1 capital ratio was 12.75% compared with 13.37% as of Mar 31, 2018. Total capital ratio was 13.87% compared with 14.58% witnessed in the same quarter last year. The ratio of tangible common equity to risk-weighted assets was 12.28% compared with 12.80% at the end of the year-ago quarter.
Return on average assets were up 9 bps year over year to 1.38%, while return on average shareholders' equity advanced 107 bps to 18.81%.
During the first quarter, the company repurchased 513,400 shares of common stock at average price of $77.79 and for a total cost of $39.9 million.
Given the current rate environment and the company’s strong liquidity position at the end of the first quarter, management anticipates net interest margin to be flat to modestly low in second-quarter 2019.
Non-interest income is expected to be around $42 million per quarter for the remainder of 2019.
In 2019, the company expects non-interest expenses to be up about 2-3% year over year.
Effective tax rate for 2019 will likely be around 22%.
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 a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. 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 D. 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 these revisions 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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