Here's What Makes Bank of Hawaii a Solid Pick for Investors Right Now

Bank of Hawaii Corporation BOH is well-positioned to benefit from rising loan and deposit balances. Further, the Federal Reserve’s rate cuts are expected to support the bank’s net interest income (NII) expansion over time. A solid liquidity position is another positive.

The Zacks Consensus Estimate for BOH’s 2024 and 2025 has been revised upward over the past 60 days. The positive estimate revision indicates that analysts are optimistic regarding the company’s prospects and earnings potential.

Estimate Revision Trend

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Here’s What Makes Bank of Hawaii Stock a Solid Pick Now

Fed’s Rate Cuts to Aid NII: Since September 2024, the Fed has cut interest rates by 100 basis points. At present, the fed fund rate stands at 4.25-4.5%. For 2025, the Fed indicates two rate cuts. These reductions will likely support BOH’s NII in the upcoming period. BOH’s NII has witnessed a five-year (ended 2023) CAGR of nearly 1%. The metric declined in the first nine months of 2024 due to higher funding costs.

As the interest rates come down, the funding costs will stabilize gradually and the demand for loans will start to improve, in turn, will lead to NII expansion over time. This is expected to result in greater profitability for BOH as it earns more interest on these loans.

Although our model projects NII to decline 6.8% in 2024, it will rebound and grow marginally in 2025 and 2.1% in 2026.

Solid Organic Growth: The company is committed to growing organically. The company’s net loans and leases witnessed a five-year (2018-2023) compound annual growth rate (CAGR) of 6% while the deposit base saw a CAGR of 7% during the same time frame. In the first nine months of 2024, net loans and leases remained flat while the total deposit balance increased. 

Going forward, BOH’s diversified and long-duration deposit base, along with diversified and lower-risk loan assets, will allow it to maintain a robust balance sheet. Our model projects total loans to increase marginally and total deposits to rise 1.2% in 2024.

Strong Balance Sheet Position: The company has a solid liquidity profile. As of Sept. 30, 2024, its liquidity amounted to $10.6 billion. Total debt (comprising securities sold under agreements to repurchase, as well as other debt) aggregated to $696.3 million as of the same date. 

Given substantial liquidity, 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.

Strong Capital Position: As of Sept. 30, 2024, the company’s common equity tier 1 ratio and total capital ratio were 11.66% and 15.11%, respectively, well-capitalized above regulatory requirements. This indicates a strong capital position, which enables the company to maintain capital distribution plans efficiently.

The company currently pays a common stock dividend of 70 cents per share. At present, BOH's dividend payout ratio is 83%. The company has raised its dividend once in the past five years. 

Also, Bank of Hawaii has a share repurchase program in place. BOH’s board of directors approved a $70 million worth of share repurchase program in 2001 without any expiration date. As of Sept. 30, 2024, $126 million remained available under the buyback authorization. 

Superior Return on Equity (ROE): Bank of Hawaii’s trailing 12-month ROE indicates its growth potential. The company’s ROE of 11.33% compares favorably with the industry’s 10.89%, highlighting its efficiency in using shareholders’ funds.

BOH’s Price Performance & Zacks Rank

Bank of Hawaii’s shares have gained 16.6% in the past three months compared with the industry’s 12.4% growth. 

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The company currently carries a Zacks Rank #2 (Buy).

Other Finance Stocks Worth a Look

Some other top-ranked stocks from the banking space are First Hawaiian, Inc. FHB and Glacier Bancorp, Inc. GBCI, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings estimates for FHB for the current year have remained unchanged over the past seven days. The company’s shares have gained 15% in the past three months.

Estimates for GBCI’s current-year earnings have remained unchanged over the past seven days. The company’s shares have risen 13.7% in the past six months.

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