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Bank of Hawaii Gains From Organic Growth, Costs Increase

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Bank of Hawaii (BOH - Free Report) remains well poised to grow on the back of improving non-interest-bearing deposits. However, mounting expenses pose a near-term headwind.

Given the company’s organic efforts and increasing net interest income (NII), revenues have been witnessing growth. Further, NII and net interest margin are likely to gain from non-interest-bearing deposits, which accounts for 32% of total deposits.

Moreover, Bank of Hawaii’s loans and deposits are witnessing an increasing trend. Thus, strong deposit balances will help the company generate higher loans and fund other business needs. Furthermore, backed by a strong capital position and stability in earnings, the bank’s steady capital-deployment activities, which include regular dividend payouts and share buyback, seem sustainable.

Shares of Bank of Hawaii have surged 46% so far this year, outperforming the industry’s growth of 27.7%.

However, its non-interest expenses are increasing continuously, primarily due to rise in salaries expenses. This rising trend exposes the bank to operational risks and affects its bottom-line growth. Costs are likely to continue rising in the near term as the company is focusing on growing its franchise.

Lack of revenue diversification is another key concern for Bank of Hawaii. Though driven by rate cuts the mortgage banking activities improved and resulted in higher fee income in the first nine months of 2019, the same had been on a declining trend over the past few years. Thus, absence of diversifying efforts are likely to hurt its top-line growth.

The Zacks Consensus Estimate for earnings of $5.53 and $5.50 has remained unchanged for 2019 and 2020, respectively, over the past 30 days.

The stock currently carries a Zacks Rank #3 (Hold).

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