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Why Is Bank of Hawaii (BOH) Down 2.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Bank of Hawaii (BOH - Free Report) . Shares have lost about 2.8% 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 the most recent earnings report in order to get a better handle on the important drivers.

Bank of Hawaii Q1 Earnings Beat Estimates, Revenues Up

Bank of Hawaii delivered first-quarter 2020 positive earnings surprise of 35.9%. Earnings per share of 87 cents surpassed the Zacks Consensus Estimate of 64 cents. However, the bottom line compares unfavorably with $1.43 reported in the prior-year quarter.

Results reflect revenue growth on the back of a rise in non-interest income. Also, a strong capital position along with higher loan and deposit balances was a supporting factor. However, a substantial rise in provisions due to the adoption of the new accounting method was a headwind. Also, the contraction of the NIM hurt results to some extent.

The company’s net income came in at $34.7 million, down 41% from the prior-year quarter.

Revenues Up, Loans & Deposits Rise

The company’s total revenues increased 2.1% year over year to $172.1 million in the quarter. Also, the figure surpassed the Zacks Consensus Estimate of $168.4 million.

The bank’s net interest income was $126 million, marginally up year over year. NIM shrunk 16 basis points (bps) to 2.96%.

Non-interest income came in at $46.1 million, up 5.7% year over year. This upsurge primarily resulted from a rise in components, including trust and asset management, and mortgage banking and service charges on deposit accounts.

The bank’s non-interest expenses rose 3.5% year over year to $96.3 million. This rise reflects higher net occupancy, data-processing and other expenses.

Efficiency ratio came in at 55.96% compared with 55.22% recorded in the year-ago quarter. Notably, a rise in the efficiency ratio reflects lower profitability.

As of Mar 31, 2020, total loans and leases balance grew 3.3% from the end of the prior quarter to $11.4 billion and total deposits improved 1.7% to $16.1 billion.

Credit Quality Deteriorated

As of Mar 31, 2020, allowance for loan and lease losses increased 30.3% year over year to $138.2 million and non-performing assets surged 14.9% to $20.6 million. In addition, the company recorded provision for credit losses of $33.6 million, significantly up from the prior-year quarter.

Also, net charge-offs were $3.74 million, up from $3.7 million recorded in the prior-year quarter.

Strong Capital and Profitability Ratios

As of Mar 31, 2020, Tier 1 capital ratio was 11.85% compared with 12.75%, as of Mar 31, 2019. Total capital ratio was 13.1%, down from 13.87%. The ratio of tangible common equity to risk-weighted assets was 11.85% compared with 12.28% recorded at the end of the year-ago quarter.

Return on average assets was down 61 bps year over year to 0.77%. Return on average shareholders' equity was 10.64% compared with 18.81%, as of Mar 31, 2019.

Share Repurchase Update

During the first quarter, Bank of Hawaii repurchased 156,400 shares of common stock at an average price of $89.32 per share and for a total cost of $14 million. The company has $113.1 million left under the buyback authorization.

Second-Quarter 2020 Outlook

Management anticipates net interest margin for the second quarter to be 1-2 bps lower than first-quarter 2020.

Non-interest revenues are expected to decline due to lower levels of customer derivative activity and certain fee waivers that the company is offering through June 2020 in order to assist customers during the COVID-19 pandemic.

It predicts non-interest expense to decline 10% sequentially.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 421.05% due to these changes.

VGM Scores

At this time, Bank of Hawaii has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. 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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