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Why Is Bank of Hawaii (BOH) Up 10.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Bank of Hawaii (BOH - Free Report) . Shares have added about 10.6% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Bank of Hawaii Q4 Earnings Lag Estimates, Provisions Up

Bank of Hawaii reported fourth-quarter 2020 earnings per share of $1.06, which lagged the Zacks Consensus Estimate of $1.11. Also, the bottom line compares unfavorably with $1.45 reported in the prior-year quarter.

Results were affected by a decline in revenues on lower fee income and interest income. Also, contraction of the net interest margin (NIM) was a major drag. Further, substantial rise in provisions was a headwind. Nevertheless, higher loans and deposit balances supported the results to some extent.

The company’s net income came in at $42.3 million, down 27.2% from the prior-year quarter’s figure.

In full-year 2020, Bank of Hawaii reported net income of $153.8 million or $3.86 per share compared with $225.9 million or $5.56 in 2019.

Revenues Fall, Expenses Climb, Loans & Deposits Rise

In 2020, the company reported revenues of $680.7 million, which surpassed with the consensus estimate of $671.2 million. However, the figure declined marginally year over year.

The company’s total revenues declined 4% year over year to $164.8 million in the fourth quarter. Also, the top line lagged the Zacks Consensus Estimate of $165.8 million.

The bank’s net interest income was $119.5 million, down 3.5% year over year. Net interest margin (NIM) shrunk 34 basis points (bps) to 2.67% on low rates and elevated levels of liquidity.

Non-interest income came in at $45.3 million, down 5.1% year over year. This downswing primarily resulted from a decline in service charges on deposit accounts, fees, exchange, and other service charges along with annuity and insurance income.

The bank’s non-interest expenses rose 6% year over year to $98.7 million. This rise mainly reflects higher net occupancy and equipment costs.

Efficiency ratio was 59.88% compared with the 49.95% recorded in the year-ago quarter. Notably, a rise in the efficiency ratio reflects lower profitability.

As of Dec 31, 2020, total loans and leases balance increased 1.2% from the end of the prior quarter to $11.9 billion and total deposits improved 2.7% to $18.2 billion.

Credit Quality: A Mixed Bag

As of Dec 31, 2020, allowance for credit losses jumped significantly year over year to $216.3 million. In addition, the company recorded provision for credit losses of $15.2 million, significantly up from $4.8 million.

However, non-performing assets declined 8.1% to $18.5 million. Also, net recoveries were $0.3 million against net charge-offs of $3.7 million recorded in the prior-year quarter.

Capital and Profitability Ratios

As of Dec 31, 2020, Tier 1 capital ratio was 12.06% compared with 12.18%, as of Dec 31, 2019. Total capital ratio was 13.31%, up from 13.28%. The ratio of tangible common equity to risk-weighted assets was 11.89% compared with the 11.85% reported at the end of the year-ago quarter.

Return on average assets was down 46 bps year over year to 0.83%. Return on average shareholders' equity was 12.26% compared with 17.84%, as of Dec 31, 2019.

Outlook

Non-interest revenues are expected to be between $42 million and $43 million in 2021.

For 2021, non-interest expenses are anticipated to remain flat or increase 1%. For the first quarter, expenses are expected to include seasonal payroll expenses between $2 million and $3 million.

Effective tax rate is estimated to be around 23%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. 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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