Bank of Hawaii Corporation (BOH) reported third-quarter 2014 earnings per share of 95 cents, outpacing the Zacks Consensus Estimate of 93 cents. With this, the company managed to keep its surprise streak for the six straight quarters alive. Also, the bottom line came in comfortably higher than 85 cents earned in the prior-year quarter.
Results were driven by an increased net interest income and lower expenses, partially offset by a decline in non-interest income. Strong capital position, increased loan and deposit balances, improved asset quality and profitability ratios counted among the positives.
The company’s net income was $41.8 million, improving 10.9% from the year-ago quarter.
Quarter in Detail
Bank of Hawaii’s total revenue increased 3.2% year over year to $140.3 million. However, it lagged the Zacks Consensus Estimate of $142 million.
The bank’s net interest income came in at $95.4 million, up 4.9% year over year. Net interest margin (NIM) increased 2 basis points (bps) to 2.85% from the prior-year quarter.
Non-interest income was $45.0 million, edging down 0.4% year over year. The fall was primarily due to a 60.2% decline in mortgage-banking revenues.
Non-interest expense was down 2.3% year over year to $81.0 million. The decline primarily resulted from lower salaries and benefits, a fall in net occupancy and net equipment, and decrease in professional fees and FDIC insurance, partly offset by a rise in other expenses.
Efficiency ratio of the company stood at 57.74%, down from 61.01% in the prior-year quarter. A fall in the efficiency ratio reflects higher profitability.
As of Sep 30, 2014, net loan and lease balances rose 10.4% from the end of the prior-year quarter to $6.5 billion while total deposits increased 6.5% year over year to $12.4 billion.
Credit Quality
Credit quality showed continued improvement in the quarter. As of Sep 30, 2014, allowance for loan and lease losses fell 10.8% year over year to $110.4 million while nonperforming assets declined 1.6% year over year to $33.3 million.
Further, the company recorded a negative provision (benefit) for credit losses of $2.7 million in the third quarter while no provision was recorded in the prior-year quarter.
Capital and Profitability Ratios
Bank of Hawaii remained well capitalized and its profitability ratios improved.
As of Sep 30, 2014, Tier 1 capital ratio was 15.32% compared with 16.04% as of Sep 30, 2013. Total capital ratio stood at 16.57%, down from 17.30% as of Sep 30, 2013. The ratio of tangible common equity to risk-weighted assets was 15.23% compared with 15.62% at the end of the year-ago quarter.
Return on average assets climbed 6 bps year over year to 1.15% while return on average shareholders’ equity jumped 55 bps to 15.57%.
Capital Deployment Update
The company repurchased around 340.9 thousand shares of common stock at an average price of $58.00 per share during the quarter. As of Sep 30, 2014, share buyback authorization of $89.2 million was left. Within Oct 1, 2014 and Oct 24, 2014, Bank of Hawaii repurchased an additional 144 thousand common shares at an average price of $55.58 per share.
Our Take
According to our opinion, a disciplined approach to risk and capital management, continuously improving commercial segment, organic growth and prudent expense management will act as growth drivers for the company in the near term. Additionally, the bank’s capital deployment activities are likely to raise investors’ confidence on the stock.
However, the low interest rate environment, stringent regulatory conditions and absence of credible improvement in the mortgage market will keep the bottom line under pressure in the coming quarters.
Bank of Hawaii currently carries a Zacks Rank #3 (Hold).
Performance of Other West Banks
Among other Western banks, Zions Bancorporation (ZION) reported third-quarter adjusted earnings of 38 cents, which missed the Zacks Consensus Estimate of 45 cents.
Westamerica Bancorp. (WABC) reported in-line third-quarter earnings of 58 cents per share.
SVB Financial Group (SIVB) reported third-quarter 2014 earnings of $1.22 per share, which missed the Zacks Consensus Estimate of $1.24.
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