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Bank of Hawaii (BOH) Displays Organic Growth: Time to Hold?

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On Mar 23, we issued an updated research report on Bank of Hawaii (BOH - Free Report) . The company’s top line gets support from improving non-interest-bearing deposits and rising loan balance. However, mounting expenses and a lack of diversification in fee income sources pose a near-term headwind.

The Zacks Consensus Estimate for the company’s current-year earnings has been revised 1.8% downward in the past 30 days. It currently carries a Zacks Rank #3 (Hold).

Shares of Bank of Hawaii have fallen 40.5% so far this year compared with the industry’s decline of 36.8%.



The company’s organic growth efforts and increasing net interest income (NII) have supported revenue 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 to 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.

However, its non-interest expenses are increasing continuously primarily due to a 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.

The 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 2019; the same has been on a declining trend over the past few years. Thus, the absence of diversifying efforts is likely to hurt Bank of Hawaii’s top-line growth.

Key Picks

Some better-ranked stocks in the same space are PennyMac Financial Services (PFSI - Free Report) and Virtu Financial, Inc. (VIRT - Free Report) , currently sporting a Zacks Rank #1 (Strong Buy), and Moody's Corporation (MCO - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PennyMac Financial’s earnings estimates for the current year have been witnessing upward revisions over the past 30 days. Further, the company’s shares have gained 16.9% in the past three years.

Virtu Financial’s consensus estimate for current-year earnings has witnessed upward revisions over the past 60 days. Moreover, in the past three years, its shares have gained 19.6%.

The Zacks Consensus Estimate for 2020 earnings for Moody's has been witnessing upward revisions in the past 60 days. Also, its share price has increased 48.1% in the past three years.

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