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Bank of Hawaii Beats on Earnings, Revs

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Shares of Bank of Hawaii Corporation (BOH - Free Report) inched up 1.3% since it reported yet another strong quarter on Jan 27. Fourth-quarter 2013 earnings per share came in at 88 cents, beating the Zacks Consensus Estimate of 86 cents. However, this was below the prior-year quarter figure of 90 cents. With this, the company delivered positive earnings surprises in three of the last four quarters.

For full-year 2013, Bank of Hawaii’s earnings per share of $3.38 missed the Zacks Consensus Estimate marginally. Also, it came in below the prior-year figure of $3.67.

Bank of Hawaii’s impressive results were driven by increased net interest income and lower expenses. Further, loan and deposit balances improved in the reported quarter. However, a fall in revenues due to decline in non-interest income was the downside.

The company’s net income of $39.1 million in the reported quarter reflects a decline of 3.1% from the year-ago quarter. Also, for 2013, it was $150.5 million, down 9.4% year over year.

Performance in Detail

Bank of Hawaii’s total revenue declined 4.4% year over year to $147.0 million. However, it surpassed the Zacks Consensus Estimate of $140 million.

For full-year 2013, total revenue stood at $584.7 million, down 5.8% year over year. However, it outpaced the Zacks Consensus Estimate by 4.5%.

Bank of Hawaii’s net interest income was recorded at $92.1 million, up 2.0% year over year. However, net interest margin (NIM) declined 2 basis points (bps) to 2.85% from the prior-year quarter.

Non-interest income was $45.3 million, down 14.5% year over year. The fall was primarily driven by a 75% decline in mortgage-banking revenues.

The bank’s non-interest expense was down 1.2% year over year to $82.4 million. The decline primarily resulted from lower personnel expenses as well as net occupancy costs.

As of Dec 31, 2013, total loan and lease balances rose 4.1% from the end of the prior-year quarter to $6.1 billion while total deposits were $11.9 billion, up 3.3% year over year.

Credit Quality

Credit quality exhibited partial improvement in the quarter. As of Dec 31, 2013, allowance for loan and lease losses fell 10.4% year over year to $115.5 million while nonperforming assets increased 6.9% to $39.7 million from the prior-year quarter.

In the reported quarter, the company did not record provision for credit losses. Notably, this was the sixth consecutive quarter with no provision for credit losses.

Capital and Profitability Ratios

Capital ratios remained strong while profitability ratios deteriorated in the quarter.  The ratio of tangible common equity to risk-weighted assets was 15.49% compared with 17.24% at the end of the year-ago quarter. The Tier 1 leverage ratio was 7.07%, up from 6.83% in the year-ago quarter.

Return on average assets declined 7 bps year over year to 1.12% while return on average shareholders' equity was down 11 bps to 15.36%.

Capital Deployment Update

In the quarter, the company repurchased around 86,300 shares of common stock at an average price of $57.87 per share. From Jan 2, 2014 to Jan 24, 2014, the company further repurchased 56,000 shares of common stock at an average price of $58.95 per share.

Our Take

Though Bank of Hawaii started with a dismal performance in the first quarter of 2013, results of the following quarters reflect a decent performance. We believe a continuously improving commercial segment, organic growth and expense management will benefit the company’s bottom line in the near term. Additionally, the bank’s capital deployment activities are likely to raise investors’ confidence in the stock.

However, the low interest rate environment, stringent regulatory conditions and absence of credible improvement in the mortgage market will probably keep the net interest margin under pressure in the coming quarters.

Bank of Hawaii Corporation currently carries a Zacks Rank #2 (Buy)

Performance of Other West Banks

SVB Financial Group’s (SIVB - Free Report) fourth-quarter 2013 earnings beat the Zacks Consensus Estimate, while both Westamerica Bancorp. and Zions Bancorporation (ZION - Free Report) missed the Zacks Consensus Estimate in their latest releases.

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