Bank Of Hawaii (BOH) Q4 Earnings Beat Estimates, Revenues Up

Bank of Hawaii Corporation (NYSE:BOH) delivered fourth-quarter 2019 positive earnings surprise of 6.6%. Earnings per share of $1.45 surpassed the Zacks Consensus Estimate of $1.36. Further, the bottom line improved 11.5% from the prior-year quarter.

Results reflect decline in expenses and rise in non-interest income. Also, strong capital position, along with higher loan and deposit balances, was a supporting factor. However, increasing provisions and lower net interest margin (NIM) hurt results to some extent.

The company’s net income came in at $58.1 million, up 7.8% from the prior-year quarter.

For 2019, earnings of $5.56 per share improved 6.3% from the prior year’s figure. Also, the same outpaced the consensus estimate of $5.46. Net income grew 2.9% to $225.9 million.

Revenues Up, Expenses Decline, Loans & Deposits Rise

The company’s total revenues increased 3.3% year over year to $171.6 million in the quarter. However, the figure missed the Zacks Consensus Estimate of $173 million.

For 2019, total revenues were $681.1 billion, up 3.9%. However, the top line missed the consensus estimate of $682 million.

The bank’s net interest income was $123.9 million, marginally down year over year. NIM shrunk 15 basis points (bps) to 2.95%.

Non-interest income came in at $47.7 million, up 13.3% year over year. This upsurge primarily resulted from rise in components including trust and asset management, mortgage banking and service charges on deposit accounts.

The bank’s non-interest expenses declined 2.9% year over year to $93.1 million. This fall reflects lower salaries and benefits, net occupancy, data-processing and other expenses.

Efficiency ratio came in at 54.26% compared with 57.75% recorded in the year-ago quarter. Notably, a fall in the efficiency ratio reflects higher profitability.

As of Dec 31, 2019, total loans and leases balances grew 1% from the end of the prior quarter to $11 billion, and total deposits improved 2.9% to $15.8 billion.

Credit Quality: A Mixed Bag

As of Dec 31, 2019, allowance for loan and lease losses increased 3.1% year over year to $110 million, and non-performing assets surged 55.6% to $20.1 million. In addition, the company recorded provision for credit losses of $4.8 million, significantly up from the prior-year quarter.

However, net charge-offs were $3.7 million or 13 bps annualized of total average loans and leases outstanding, down from the $4 million or 15 bps recorded in the prior-year quarter.

Strong Capital and Profitability Ratios

As of Dec 31, 2019, Tier 1 capital ratio was 12.18% compared with 13.07% as of Dec 31, 2018. Total capital ratio was 13.28%, down from 14.21%. The ratio of tangible common equity to risk-weighted assets was 11.85% compared with 12.52% recorded at the end of the year-ago quarter.

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Return on average assets were up 3 bps year over year to 1.29%, and return on average shareholders' equity expanded 79 bps to 17.84%.

Share Repurchase Update

During the fourth quarter, Bank of Hawaii repurchased 336.2K shares of common stock, at an average price of $89.11 per share and for a total cost of $30 million. From Jan 2 to Jan 24, the company repurchased 71.5K shares at an average price of $93.50 per share.

Also, it increased the authorization under the share repurchase program by an additional $100 million. On Jan 24, $120.4 million was left under the buyback authorization.

Conclusion

Rising loan and deposit balances are likely to continue supporting Bank of Hawaii’s top line. In addition, controlled expenses are likely to keep stoking the bank’s bottom-line growth. Furthermore, the company’s profitability ratios indicate solid returns. However, increasing provisions pose a key concern. Also, lower interest rates are likely to hurt NIM.