Bank of Hawaii Corporation BOH reported third-quarter 2023 earnings per share of $1.17, beating the Zacks Consensus Estimate of 96 cents. However, the bottom line declined 8.6% from the year-ago quarter’s number.

Investors have been bullish on the stock, as the share price gained 4.6% in the Oct 23 trading session on higher fee income and decent loan and deposit balance. However, a fall in net interest income (NII) and a rise in provisions was a significant drag.

The company’s net income came in at $47.9 million, down 9.3% year over year.

Revenues & Expenses Decline

BOH’s total revenues fell marginally year over year to $171.3 million in the third quarter, outpacing the Zacks Consensus Estimate of $159.8 million.

The bank’s NII was $120.9 million, down 14.6% year over year, primarily due to higher funding costs, partially offset by higher earning asset yields. Our estimate for the metric was $119.8 million. Net interest margin decreased 47 basis points (bps) to 2.13%.

Non-interest income came in at $50.3 million, jumping 64.2% year over year. The rise primarily resulted from an increase in almost all the components of non-interest income, except fees, exchange and other service charges and net investment securities losses. Our estimate for the same was $40.6 million.

Non-interest expenses decreased slightly to $105.6 million. The fall mainly resulted from a decline in salaries and benefits expenditures, net equipment and other expenses. Our estimate for non-interest expenses was $103.7 million.

The efficiency ratio was 61.66% compared with 61.37% recorded in the year-ago period. A rise in the efficiency ratio reflects lower profitability.

As of Sep 30, 2023, total loans and leases balance remained flat from the prior-quarter end to $13.9 billion. Total deposits increased 1.4% sequentially to $20.8 billion. Our estimates for total loans and leases and total deposits were $14.5 billion and $21.9 billion, respectively.

Credit Quality: Mixed Bag

As of Sep 30, 2023, non-performing assets and allowance for credit losses decreased 16.9% and nearly 1% year over year to $11.5 million and $145.3 million, respectively.

The company recorded a provision for credit losses of $2 million compared to nil provision in the year-ago quarter. Moreover, $2 million was recorded in net loans and lease charge-offs compared with $1.1 million in the prior-year quarter.

Capital and Profitability Ratios Deteriorate

As of Sep 30, 2023, the Tier 1 capital ratio was 12.53%, down from 12.72% as of Sep 30, 2022. The total capital ratio was 13.56%, down from 13.82%. However, the ratio of tangible common equity to risk-weighted assets was 8.10%, up from 7.97% reported at the end of the year-ago quarter.