Bank of Hawaii (BOH) Gains From Loan Growth, High Costs a Woe
Improvement in the local economy and strong deposit balances will help Bank of Hawaii Corporation BOH generate higher loans and pursue other general business purposes. However, investments in technology, innovation and other variable expenses keep the cost base high.
Bank of Hawaii’s balance sheet strength is reflected in its deposits and loan growth. The company’s deposit base recorded a five-year compounded annual growth rate (CAGR) of 8.1% (2017-2021), while loans witnessed a CAGR of 5.8% during the same time frame. A low-cost and long-duration core deposit base and a healthy variable loan mix position BOH well for the anticipated higher-rate environment.
Backed by loan growth and interest rate hikes, BOH is likely to see an increase in net interest income (NII) and margin in the upcoming period. Hence, we believe the company is well-positioned to maintain its increasing revenue trend in the days to come.In fact, revenues witnessed a CAGR of 1% over the last five years (2017-2021) on increasing NII.
We remain encouraged by the Bank of Hawaii’s efforts to enhance shareholder value through its capital-deployment activities. In July 2021, the company sequentially hiked its quarterly dividend by 4.5% to 70 cents per share. It has a share repurchase program in place with $75.8 million of authority remaining as of the first-quarter end. Its strong capital levels and income-generation capacity will enable it to continue repurchase activity.
Also, the company’s debt/equity ratio compares favorably with that of the broader industry, reflecting that such activities are sustainable in the future.
Bank of Hawaii’s rising cost base exposes the company to operational risks and remains a near-time headwind for bottom-line growth. As the company continues to make additional investments in technology, innovation and other variable expenses, its cost base is likely to remain high in the upcoming period. Management expects 2022 expenses to rise 6-7% year over year to the $414-$415-million range due to inflationary pressures. Therefore, mounting expenses will likely remain a near-time headwind for bottom-line growth.
BOH’s fee income has been declining over the past few years. Going forward, the lack of diversifying efforts to expand sources of revenue might keep restricting top-line growth. Further, management expects mortgage banking income and asset management fees to be lower in 2022 due to higher interest rates and muted markets.
Also, given high debt levels and low cash balance, we believe that the Bank of Hawaii may face problems repaying its borrowings if the economic situation worsens.
So far this year, shares of BOH have lost 7.3% compared with a 24% decline of the industry it belongs to.
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Currently, BOH carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks That Warrant a Look
A couple of better-ranked stocks in the banking space are Independent Bank Corporation IBCP and Civista Bancshares, Inc. CIVB. IBCP sports a Zacks Rank of 1 while CIVB currently carries a Zacks Rank of 2 (Buy).
Independent Bank’s Zacks Consensus Estimate for current-year earnings has been revised 6.5% upward over the past 30 days. Over the past six months, shares of IBCP have declined 14.9%.
Civista Bancshares also witnessed 3% upward earnings estimate revision for 2022 over the past 30 days. Over the past six months, shares of CIVB have declined 11.3%.
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