Aloha: Banking on Hawaii

09/14/2020 5:00 am EST

Focus: FINANCIALS

Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

Bank of Hawaii Corporation (BOH), a 123-year-old firm, is now the second largest bank in the state, notes Ingrid Hendershot, a value-oriented money manager and editor of Hendershot Investments.

Serving Hawaii, Guam and other Pacific Islands, it operates in a unique competitive landscape where the top four banks control more than 80% of the regional market, providing the bank with a sticky, low-cost deposit base that reduces its sensitivity to pricing pressure.

In addition to its low-cost deposit base, Bank of Hawaii is a low-cost operator, evidenced by its 2019 efficiency ratio (non-interest expense divided by total revenues) of 55.7%, which places it among the country’s most efficiently run banks.

The conservatively managed bank maintains a pristine balance sheet with solid asset quality and robust liquidity and capital levels, far exceeding regulators’ requirements.

During the past five years, Bank of Hawaii has banked profitable growth with revenues compounding 4% annually, net income growing by 9% annually and EPS increasing at an 11% annual pace.

Since becoming a public company in 1972, Bank of Hawaii has paid uninterrupted quarterly dividends to shareholders, which have increased at a 10% annual pace during the past five years.

While the bank has suspended share repurchases, it is still paying a substantial dividend as the bank generates significant capital in excess of well-capitalized minimums. Bank of Hawaii increased its dividend 3% to an annualized $2.68 per share with the dividend currently yielding 4.8%.

The bank has performed well in a challenging environment with tourism halted due to the virus yet the balance sheet continued to grow while maintaining strong levels of capital and liquidity. The efficiency ratio for the second quarter improved to 50% from 55% in the prior year quarter.

Total shareholders’ equity increased to $1.4 billion with book value equal to $33.76 per share at quarter end. Investors banking on attractive long-term returns should consider Bank of Hawaii, a high-quality market leader with an efficient cost structure, profitable growth and an attractive 4.8% dividend yield. Buy.

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