Bank Of Hawaii: New Preferred Shares Offering 7.8% Yield

Core Viewpoint - The Bank of Hawaii's low net interest margin and limited buffer for loan losses are significant concerns, making its common shares less attractive for investment compared to peers like JPMorgan Chase [1][4]. Financial Performance - The Bank of Hawaii's common shares are trading at 16 times earnings, which is considered expensive relative to JPMorgan Chase's 12 times earnings [1]. - The bank's Series A preferred shares offer a dividend yield of just over 6%, while the newly issued Series B preferred shares provide a more attractive yield of 7.8% [1][4]. - Recent interest rate increases have pressured the bank's net interest margin, which has been declining, although at a slower pace in recent quarters [6][7]. - The bank has experienced five consecutive quarters of declines in net interest income, with interest income growth stalling despite higher interest rates [8]. Loan and Deposit Management - The Bank of Hawaii has maintained conservative lending growth, currently flat year-over-year, which is viewed positively in the context of recent challenges in the banking sector [10]. - The bank's loan to deposit ratio is under 70%, which is below the average for commercial banks, indicating a conservative approach to capital management [18]. - The bank's largest loan exposure is in residential real estate, accounting for approximately half of its loan portfolio, with commercial real estate mortgages making up $3.7 billion of the $13.8 billion total [20]. Credit Quality and Risks - The bank's loan performance is currently strong, with only $2 million in loans identified as delinquent or on nonaccrual status, representing less than 0.5% of total loans [21]. - The allowance for credit losses is around 1% of gross loans, which is below the industry average of 1.6%, indicating a potential risk if loan performance deteriorates [21]. - The bank has over $8.6 billion in uninsured deposits, which constitutes more than 40% of total deposits, posing a liquidity risk despite having sufficient borrowing capacity [22].