A month has gone by since the last earnings report for Bank of Hawaii (BOH Quick QuoteBOH - Free Report) . Shares have lost about 1.2% in that time frame, underperforming 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 drivers.

Bank of Hawaii Q4 Earnings and Revenues Beat Estimates

Bank of Hawaii reported fourth-quarter 2021 earnings per share of $1.55, surpassing the Zacks Consensus Estimate of $1.38. The bottom line showed a rise of 46.2% from the year-ago quarter’s number.

Revenue growth on higher interest income was a tailwind. Net benefit from provision for credit losses, which improved economic conditions, was a key positive factor. In addition, higher loan balances supported the company to some extent. However, a rise in expenses and contraction of the net interest margin (NIM) were significant drags.

The company’s net income came in at $63.8 million, up 50.8% from the prior-year quarter figure.

In 2021, earnings per share reached a record of $6.25, beating the consensus estimate of $6.10 and increasing 62% from 2020. Also, net income of $253.4 million was up 64.8% from 2020.

Revenues & Expenses Rise, Loans Up & Deposits Decrease

The company’s total revenues improved 2.6% year over year to $168.96 million in the fourth quarter. However, the top line missed the Zacks Consensus Estimate of $170.07 million.

In 2021, total revenues decreased 1.8% to $668.6 million. Also, the top line lagged the consensus estimate of $669.7 million.

The bank’s NII was $126.4 million, up 5.8% year over year. The NIM shrunk 14 basis points (bps) to 2.34% on low rates and higher levels of liquidity.

Non-interest income came in at $42.6 million, down 5.96% year over year. This decline primarily resulted from a fall in mortgage banking, bank-owned life insurance and other non-interest income, along with a rise in net investment securities’ losses.

The bank’s non-interest expenses increased 3.1% year over year to $101.7 million. This upswing mainly reflects a rise in all components, except net occupancy, net equipment and other costs.

Efficiency ratio was 60.18% compared with 59.88% recorded in the year-ago period. Notably, a rise in the efficiency ratio reflects lower profitability.

As of Dec 31, 2021, total loans and leases balance increased 1.5% from the end of the prior quarter to $12.3 billion, while total deposits decreased marginally to $20.4 billion from $20.5 billion, sequentially.

Credit Quality: A Mixed Bag

As of Dec 31, 2021, non-performing assets increased 2.5% year over year to $18.97 million. Moreover, $0.67 million were recorded in net loans and lease charge-offs against recovery of $0.26 million in the prior-year quarter.

Nonetheless, the company recorded net benefit for provision for credit losses of $9.7 million against provision expenses of $15.2 million in the year-ago quarter. In addition, allowance for credit losses decreased 27% year over year to $157.8 million.

Capital and Profitability Ratios Improve

As of Dec 31, 2021, Tier 1 capital ratio was 13.56%, improving from 12.06% as of Dec 31, 2020. Total capital ratio was 14.81%, up from 13.31%. Yet, the ratio of tangible common equity to risk-weighted assets was 11.44%, down from 11.89% reported at the end of the year-ago quarter.

Return on average assets expanded 29 bps year over year to 1.12%. Return on average shareholders' equity was 15.92% compared with 12.26% as of Dec 31, 2020.

Capital Deployment Update

In the reported quarter, the company repurchased 87,500 shares at a weighted average price of $83.83 per share.

2022 Outlook

Excluding the paycheck protection program or PPP loan waivers, the company anticipates a continued improvement of 3-5 bps in core margin per quarter in 2022, backed by continued loan and deposit growth, and higher interest rates.

Management expects 2022 core expenses to rise 2.3%. Together with the continued strategic innovation investments, total expenses will increase 5.9% from the 2021 normalized expenses of $390 million. In the first quarter of 2022, the company estimates that the seasonal payroll tax and benefit expenses related to the payment of annual incentives will be about $3 million compared with the nearly $2 million in the first quarter of 2021.

First quarter non-interest income will be in tandem with that reported in the fourth quarter 2021, and increase to nearly $44 million by the end of 2022. Mortgage banking income is expected to decline due to high interest rates and lower gain on sales spread. The rise in fee income will be on grounds of improving service charges and transaction fees throughout the year.

The effective tax rate is estimated to be 23% for 2022.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Bank of Hawaii has an average Growth Score of C, however its Momentum Score is doing a bit 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Bank of Hawaii has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.