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Why Is Bank of Hawaii (BOH) Up 32.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Bank of Hawaii (BOH). Shares have added about 32.1% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

Bank of Hawaii Q3 Earnings Top Estimates, Provisions Up

Bank of Hawaii delivered a positive earnings surprise of 8% in third-quarter 2020. Earnings per share of 95 cents surpassed the Zacks Consensus Estimate of 88 cents. However, the bottom line compares unfavorably with earnings of $1.29 reported in the prior-year quarter.

The company’s third-quarter results witnessed a fall in expenses which reflected prudent cost management. Also, higher deposit balances supported the results. However, contraction of the NIM was a major drag. Further, a substantial rise in provisions was a headwind.

The company’s net income came in at $37.8 million, down 27.4% from the prior-year quarter’s figure.

Revenues & Expenses Down, Deposits Rise

The company’s total revenues declined 3.2% year over year to $165.9 million in the quarter. However, the figure surpassed the Zacks Consensus Estimate of $162.5 million.

The bank’s net interest income was $124.2 million, down marginally year over year. NIM shrunk 34 basis points (bps) year over year to 2.67% on low rates and elevated levels of liquidity.

Non-interest income came in at $41.7 million, down 10.3% year over year. This downswing primarily resulted from a decline in fee income due to muted customer and visitor activity related to the pandemic.

The bank’s non-interest expenses declined 10.4% year over year to $89.9 million. This fall mainly reflects lower salaries and benefits and other expenses, partly negated by higher net equipment costs and professional fees.

Efficiency ratio came in at 54.22% compared with the 58.55% recorded in the year-ago quarter. Notably, a fall in the efficiency ratio reflects higher profitability.

As of Sep 30, 2020, total loans and leases balance remained unchanged from the end of the prior quarter at $11.8 billion and total deposits improved 1.8% to $17.7 billion.

Credit Quality: A Mixed Bag

As of Sep 30, 2020, allowance for credit losses jumped 86.8% year over year to $203.5 million. In addition, the company recorded provision for credit losses of $28.6 million, significantly up from the prior-year quarter’s levels. However, non-performing assets declined 13.9% to $18.6 million.

Also, net recoveries were $1.5 million, compared to net charge-offs of $3 million recorded in the prior-year quarter.

Capital and Profitability Ratios Deteriorate

As of Sep 30, 2020, Tier 1 capital ratio was 12.09% compared with 12.33%, as of Sep 30, 2019. Total capital ratio was 13.35%, down from 13.44%. The ratio of tangible common equity to risk-weighted assets was 12.02% compared with the 12.10% reported at the end of the year-ago quarter.

Return on average assets was down 41 bps year over year to 0.76%. Return on average shareholders' equity was 11.01% compared with 16.02%, as of Sep 30, 2019.

Outlook

Fourth-Quarter 2020

Management expects NIM to shrink approximately seven-eight basis points in the fourth quarter on the continued impact of lower rates and additional liquidity. However, net interest income is expected to be approximately flat sequentially, net of the interest recovery as loan growth and asset mix change are expected to mitigate the impact of the lower margin.

Non-interest revenues are expected to be about $42 million. Challenges continued due to lower levels of customer activity during the COVID pandemic.

For the fourth quarter, quarterly non-interest expenses are likely to be flat sequentially at more than $90 million.

Effective tax rate is estimated to be 20-21%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 13.99% 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 a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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 these revisions 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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