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Organic Growth Aids Bank of Hawaii (BOH) Despite High Costs
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Bank of Hawaii Corporation’s (BOH - Free Report) organic growth is aided by a rising revenue trend. Also, strength in loans and deposit balances fortifies its balance sheet. However, persistently rising expenses are likely to hurt its bottom-line growth. Further, declining fee income restricts the top-line expansion.
The company reported third-quarter 2023 earnings per share of $1.17, beating the Zacks Consensus Estimate of 96 cents. Decent loan and deposit balances were positives. As of Sep 30, 2023, total loans and leases balance remained flat with the prior-quarter end to $13.9 billion. Total deposits increased 1.4% sequentially to $20.8 billion.
Notably, the company’s diversified and long-duration deposit base, along with diversified and lower-risk loan assets, positions it to maintain a robust balance sheet. Going forward, strong deposit balances will also help BOH generate higher loans and pursue other general business purposes.
Although revenues declined in 2020 and 2021 due to the coronavirus mayhem and low interest rates, the same witnessed a compound annual growth rate (CAGR) of 1.7% over the last six years (2017-2022). Revenue growth was supported by a rise in net interest income (NII), backed by high interest rates.
As the Federal Reserve is expected to keep the interest rates high in the near term, the same is likely to support Bank of Hawaii’s NII and net interest margin (NIM). However, a rise in funding costs will weigh on NII and NIM.
As of Sep 30, 2023, its liquidity amounted to $9.6 billion.Given substantial liquidity lines, we believe that Bank of Hawaii is not likely to face problems repaying its borrowings in the near term, even if the economic situation worsens. Moreover, decent liquidity will enable Bank of Hawaii to enhance shareholder value through its capital-distribution activities.
However, Bank of Hawaii’s rising cost base exposes the company to operational risks. Non-interest expenses witnessed a CAGR of 3% over the last six years (2017-2022). The uptrend persisted in the first nine months of 2023. 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. This is likely to impede bottom-line growth.
Also, unimpressive fee income growth is a major headwind for Bank of Hawaii. Though fee income improved in 2019 and 2020, the same decreased, seeing a six-year CAGR (ended 2022) of 3.2%. Any decline in mortgage banking income on high rates, and volatility in trust and assets management income will affect non-interest income. Moreover, the lack of efforts to diversify and expand sources of fee income is concerning.
Lastly, a substantial portion of Bank of Hawaii’s real estate loans is concentrated in the Hawaii region. Such geographic concentration makes the company vulnerable to potential economic or political doldrums in the region.
Shares of this Zacks Rank #3 (Hold) company have lost 26.8% over the past year compared with the industry’s 29.2% decline.
Image Source: Zacks Investment Research
Finance Stocks Worth Considering
A couple of better-ranked stocks from the finance space are UMB Financial (UMBF - Free Report) and Peoples Bancorp (PEBO - Free Report) .
UMBF’s current-year earnings estimate has been revised 3.2% upward over the past 30 days. Its shares have lost 3.2% over the past three months. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for PEBO’s current-year earnings has been revised 1.9% downward over the past month. Over the past three months, its share price has increased 3.1%. The company currently carries a Zacks Rank of 2.
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Organic Growth Aids Bank of Hawaii (BOH) Despite High Costs
Bank of Hawaii Corporation’s (BOH - Free Report) organic growth is aided by a rising revenue trend. Also, strength in loans and deposit balances fortifies its balance sheet. However, persistently rising expenses are likely to hurt its bottom-line growth. Further, declining fee income restricts the top-line expansion.
The company reported third-quarter 2023 earnings per share of $1.17, beating the Zacks Consensus Estimate of 96 cents. Decent loan and deposit balances were positives. As of Sep 30, 2023, total loans and leases balance remained flat with the prior-quarter end to $13.9 billion. Total deposits increased 1.4% sequentially to $20.8 billion.
Notably, the company’s diversified and long-duration deposit base, along with diversified and lower-risk loan assets, positions it to maintain a robust balance sheet. Going forward, strong deposit balances will also help BOH generate higher loans and pursue other general business purposes.
Although revenues declined in 2020 and 2021 due to the coronavirus mayhem and low interest rates, the same witnessed a compound annual growth rate (CAGR) of 1.7% over the last six years (2017-2022). Revenue growth was supported by a rise in net interest income (NII), backed by high interest rates.
As the Federal Reserve is expected to keep the interest rates high in the near term, the same is likely to support Bank of Hawaii’s NII and net interest margin (NIM). However, a rise in funding costs will weigh on NII and NIM.
As of Sep 30, 2023, its liquidity amounted to $9.6 billion.Given substantial liquidity lines, we believe that Bank of Hawaii is not likely to face problems repaying its borrowings in the near term, even if the economic situation worsens. Moreover, decent liquidity will enable Bank of Hawaii to enhance shareholder value through its capital-distribution activities.
However, Bank of Hawaii’s rising cost base exposes the company to operational risks. Non-interest expenses witnessed a CAGR of 3% over the last six years (2017-2022). The uptrend persisted in the first nine months of 2023. 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. This is likely to impede bottom-line growth.
Also, unimpressive fee income growth is a major headwind for Bank of Hawaii. Though fee income improved in 2019 and 2020, the same decreased, seeing a six-year CAGR (ended 2022) of 3.2%. Any decline in mortgage banking income on high rates, and volatility in trust and assets management income will affect non-interest income. Moreover, the lack of efforts to diversify and expand sources of fee income is concerning.
Lastly, a substantial portion of Bank of Hawaii’s real estate loans is concentrated in the Hawaii region. Such geographic concentration makes the company vulnerable to potential economic or political doldrums in the region.
Shares of this Zacks Rank #3 (Hold) company have lost 26.8% over the past year compared with the industry’s 29.2% decline.
Image Source: Zacks Investment Research
Finance Stocks Worth Considering
A couple of better-ranked stocks from the finance space are UMB Financial (UMBF - Free Report) and Peoples Bancorp (PEBO - Free Report) .
UMBF’s current-year earnings estimate has been revised 3.2% upward over the past 30 days. Its shares have lost 3.2% over the past three months. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for PEBO’s current-year earnings has been revised 1.9% downward over the past month. Over the past three months, its share price has increased 3.1%. The company currently carries a Zacks Rank of 2.