It has been about a month since the last earnings report for Bank of Hawaii (BOH). Shares have lost about 0.1% 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 Q2 Earnings Beat Estimates, Revenues Up
Bank of Hawaii delivered an earnings surprise of 3.2% in second-quarter 2020. Earnings per share of 98 cents surpassed the Zacks Consensus Estimate of 95 cents. However, the bottom line compares unfavorably with the $1.40 reported in the prior-year quarter.
Results reflect revenue growth on rise in net interest as well as non-interest income. Fall in expenses reflected prudent cost management. Also, higher loan and 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 $38.9 million, down 31.6% from the prior-year quarter.
Revenues Up, Loans & Deposits Rise
The company’s total revenues increased 5% year over year to $178 million in the quarter. Also, the figure surpassed the Zacks Consensus Estimate of $167.6 million.
The bank’s net interest income was $126.7 million, up 2.1% year over year, including an interest recovery. NIM shrunk 21 basis points (bps) to 2.83% on low rates and elevated levels of liquidity.
Non-interest income came in at $51.3 million, up 12.7% year over year. This upsurge primarily resulted from a rise in investment securities gains and mortgage banking revenues. This was partly offset by lower service charges on deposit accounts and trust and asset management income.
The bank’s non-interest expenses declined 4.1% year over year to $88.9 million. This fall mainly reflects lower salaries and benefits and other expenses, partly negated by higher net occupancy, net equipment and professional fees.
Efficiency ratio came in at 49.95% compared with the 54.69% recorded in the year-ago quarter. Notably, a fall in the efficiency ratio reflects higher profitability.
As of Jun 30, 2020, total loans and leases balance grew 3.5% from the end of the prior quarter to $11.8 billion and total deposits improved 8.1% to $17.4 billion.
Credit Quality Deteriorates
As of Jun 30, 2020, allowance for credit losses jumped 61% year over year to $173.4 million and non-performing assets climbed 4.1% to $22.7 million. In addition, the company recorded provision for credit losses of $40.4 million, significantly up from the prior-year quarter.
Also, net charge-offs were $5.1 million, up from the $2.4 million recorded in the prior-year quarter.
Strong Capital and Profitability Ratios
As of Jun 30, 2020, Tier 1 capital ratio was 12.04% compared with 12.46%, as of Jun 30, 2019. Total capital ratio was 13.29%, down from 13.57%. The ratio of tangible common equity to risk-weighted assets was 12.07% compared with the 12.17% reported at the end of the year-ago quarter.
Return on average assets was down 49 bps year over year to 0.82%. Return on average shareholders' equity was 11.58% compared with 17.97%, as of Jun 30, 2019.
Including the interest recovery, management expects net interest margin to shrink approximately six-seven basis points in the third quarter on the continued impact of lower rates and additional liquidity. However, net interest income is expected to be approximately flat with the second quarter, net of the interest recovery as loan growth and asset mix change are expected to mitigate the impact of the lower margin.
Management anticipates moderate loan growth for the remaining of 2020.
For the third quarter, non-interest revenues are expected to be about $37-$38 million. Challenges continued due to lower levels of customer activity during the COVID pandemic.
For the rest of 2020, quarterly non-interest expenses are likely to be flat with the second quarter at around $89 million.
Effective tax rate is estimated to be 20-21% for the remainder of 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -15.81% due to these changes.
At this time, Bank of Hawaii has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Bank of Hawaii has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Bank of Hawaii Corporation (BOH): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.