It has been about a month since the last earnings report for Bank of Hawaii (BOH - Free Report) . Shares have added about 2.5% in that time frame, underperforming 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 Q3 Earnings Disappoint, Costs Escalate
Bank of Hawaii reported a negative earnings surprise of 6.5% in third-quarter 2019. Earnings per share of $1.29 lagged the Zacks Consensus Estimate of $1.38. Further, the reported figure compares unfavorably with $1.36 earned in the prior-year quarter.
Results were negatively impacted by elevated expenses and provisions. Also, lower net interest margin was on the downside. Yet, higher revenues were a positive factor. Further, strong capital position, along with higher loan balances, was the supporting factor.
The company’s net income came in at $52.1 million, down 8.4% from the $56.9 million reported in the prior-year quarter.
Revenues Increase, Expenses Escalate, Loans Improve
The company’s total revenues increased 3.6% year over year to $171.7 million in the quarter. The revenue figure also beat the Zacks Consensus Estimate of $168.8 million.
The bank’s net interest income was recorded at $125.2 million, up around 1% year over year. NIM shrunk 6 basis points (bps) to 3.01%, year on year.
Non-interest income came in at $46.5 million, up 12% year over year. This upsurge primarily resulted from rise in almost all components of income.
The bank’s non-interest expense flared up 10.8% year over year to $100.3 million, including legal reserve. This upsurge reflects higher salaries and benefits, occupancy, equipment, as well as data-processing and other expenses.
Efficiency ratio came in at 58.55%, up from the 55.07% recorded in the comparable quarter last year. Notably, a rise in the efficiency ratio reflects lower profitability.
As of Sep 30, 2019, total loans and leases balances inched up 1.1% from the end of the prior quarter to $10.9 billion, while total deposits edged down 1% to $15.3 billion.
Credit Quality: A Mixed Bag
As of Sep 30, 2019, allowance for loan and lease losses increased slightly year over year to $108.9 million, while non-performing assets surged 56.5% year over year to $21.6 million.
In addition, the company recorded provision for credit losses of $4.3 million in the reported quarter, up 13.2% year over year. Further, net charge-offs were $3 million or 11 bps annualized of total average loans and leases outstanding, down from the $3.3 million or 13 bps recorded in the prior-year quarter.
Strong Capital and Profitability Ratios
Bank of Hawaii was well capitalized with robust profitability ratios during the July-September quarter.
As of Sep 30, 2019, Tier 1 capital ratio was 12.33% compared with 13.2% as of Sep 30, 2018. Total capital ratio was 13.44% compared with 14.38% witnessed in the comparable period last year. The ratio of tangible common equity to risk-weighted assets was 12.10% compared with 12.56% recorded at the end of the year-ago quarter.
Return on average assets were down 16 basis points year over year to 1.17%, while return on average shareholders' equity contracted 204 bps to 16.02%.
During the third quarter, the company repurchased 0.4 million shares of common stock, at an average price of $83.07 and for a total cost of $29.9 million.
Given the current challenging-rate environment, management anticipates net interest margin in the fourth quarter to be down 4-5 basis points from the third-quarter tally. Non-interest income is expected to be around $45 million in the fourth quarter of 2019, excluding a previously-announced gain of $3.8 million associated with the early buyout of a leveraged lease.
In 2019, the company predicts non-interest expenses to flare up about 2-3% year over year, excluding legal settlement. Effective tax rate for fourth-quarter 2019 will likely be 22-23%, which includes a one-time increase of $2.1 million related to tax adjustment items.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
Currently, Bank of Hawaii has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Bank of Hawaii has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.