On Thursday, Jefferies made adjustments to the financial outlook for Bank of Hawaii shares, reducing the price target to $53 from the previous $55 while maintaining a Hold rating on the stock.
The firm took this action after Bank of Hawaii announced a $165 million preferred equity raise with an 8% coupon. This capital infusion is expected to increase the bank's Tier 1 and Total capital ratios by 120 basis points, bringing them to 14% and 15%, respectively.
The equity raise is anticipated to have a significant impact on the bank's earnings per share, with an estimated 9% reduction in the first quarter of 2024 run rate. Despite the boost to Bank of Hawaii's capital ratios, the preferred raise does not improve the tangible common equity (TCE) or common equity tier 1 (CET1) with held-to-maturity (HTM) ratios. These ratios remain areas where Bank of Hawaii does not compare favorably with its industry peers.
The decision to raise capital has come as a surprise to market observers, and there is speculation that regulatory pressures may have influenced the bank's move. However, the equity issuance does not address the bank's weaker ratios, which have been a point of concern.
The financial institution's move to strengthen its capital position through the preferred equity raise reflects a proactive approach to maintaining robust capital levels, even though it may come at the cost of near-term earnings performance.
In other recent news, Bank of Hawaii experienced a range of financial developments. The bank's Q1 2024 performance showed stability with an improved net interest margin (NIM) and solid credit quality, despite a slight decline in net interest income. Non-interest income remained consistent at $42.3 million, and net income for the quarter was reported at $36.4 million with earnings per share of $0.87.
Analysts from Keefe, Bruyette & Woods and Piper Sandler have adjusted their outlooks for the bank. Keefe, Bruyette & Woods raised the stock price target to $58 from $55, maintaining an Underperform rating due to a miss on margin guidance. Despite this, the bank's expense outlook has shown slight improvement, potentially mitigating challenges faced by net interest income.
On the other hand, Piper Sandler reduced its price target to $60 from $65, retaining a Neutral rating. This adjustment follows an analysis anticipating narrower net interest margins and a reduced size of earning assets, leading to lower net interest income. The bank's expense guidance was revised, projecting a cost increase of only 1%-2% this year.
These recent developments highlight the evolving financial landscape for Bank of Hawaii, with focus on its net interest income, expense outlook, and analyst ratings.
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