Bank Of Hawaii (BOH) Q3 Earnings Miss Estimates, Costs Up

Bank of Hawaii Corporation (NYSE:BOH) 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. Net interest margin (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.

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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%.

Capital Deployment

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.

Conclusion

Rising loans aiding revenues remain key positives for Bank of Hawaii. In addition, controlled expenses will likely keep stoking the bank’s bottom-line growth. Furthermore, the company’s profitability ratios indicate solid returns. Nevertheless, elevated provisions are concerns.

Written By: Zacks Investment Research