Bank of Hawaii (BOH) reported mixed results for the second quarter of 2024, exceeding earnings estimates but experiencing a decline in net income and revenues. The company’s adjusted earnings per share came in at 86 cents, beating the Zacks Consensus Estimate of 85 cents, but falling short of the $1.12 earned in the same period last year. This performance was driven by an increase in net interest margin (NIM) due to higher earning asset yields, partially offset by lower provision for credit losses. However, higher expenses, a decline in net interest income, and a drop in loan and deposit balances proved to be undermining factors.
The company’s net income, on a GAAP basis, was $34.1 million, representing a 26% year-over-year decrease. Total revenues for the quarter fell 6.4% year-over-year to $156.9 million, also missing the Zacks Consensus Estimate of $157 million. This decline was primarily attributed to a 7.6% decrease in net interest income, driven by increased funding costs partially offset by higher earning asset yields. Non-interest income also saw a decrease of 2.7% year-over-year to $42.1 million, although adjusted for the sale of a low-income housing tax credit investment, it inched up 0.9% year-over-year.
Expenses for the quarter increased 5% to $109.2 million, including an industry-wide FDIC Special Assessment and separation expenses. When adjusted for these items, the metric rose 1.8% year-over-year, leading to an efficiency ratio of 69.60% compared to 62.07% in the same period last year. This increase reflects lower profitability for the company.
Credit quality for Bank of Hawaii presented a mixed picture. Non-performing assets rose 32.3% year-over-year to $15.2 million as of June 30, 2024. Net loans and lease charge-offs also saw an increase of $2 million year-over-year to $3.4 million. However, the provision for credit losses decreased 4% to $2.4 million, and the allowance for credit losses inched up 1.5% to $147.5 million.
Despite the mixed credit quality, capital ratios for the company improved. The Tier 1 capital ratio increased to 13.99% from 12.21% as of June 30, 2023. The total capital ratio also saw a rise, reaching 15.05% from 13.24% in the same period last year. The ratio of tangible common equity to risk-weighted assets increased to 8.82% from 7.97% at the end of the previous year. However, profitability ratios deteriorated, with return on average assets falling to 0.59% from 0.77% in the prior-year quarter and return on average shareholders’ equity dropping to 9.53% from 13.55% as of June 30, 2023.
Looking ahead, Bank of Hawaii anticipates NIM to remain stable or increase slightly from 2.15% in the second quarter of 2024. Management expects core non-interest income to increase marginally in the second half of the year as market conditions improve. However, the company anticipates expenses to be 1-2% higher than normalized expenses of $419 million in 2023, primarily due to inflationary pressures and annual merit increases. The projected tax rate is 24.5%.
Despite these projections, recent estimates for Bank of Hawaii have trended downwards, leading to a Zacks Rank #4 (Sell). This suggests a below-average return for the stock in the coming months. While the stock’s Momentum Score is a B, its Growth and Value scores are F and D respectively, indicating a poor overall VGM Score of F. This suggests that investors are not optimistic about the stock’s future performance, especially considering the mixed earnings results and the downward trend in estimates.
