Bank of Hawaii: Cheap And With An Interesting Dividend Yield

Core Viewpoint - Bank of Hawaii (BOH) is currently undervalued with a low Price/TBV ratio of 1.80x compared to its 10-year average of 2.55x, indicating potential for price appreciation as the bank maintains a solid deposit base and high-quality loan portfolio [11][25][46]. Group 1: Financial Performance - Total deposits in Q1 2024 averaged a cost of 1.74%, lower than the median of regional banks, which is above 2.10% [15]. - The loan portfolio remains stagnant at $13.90 billion, with a loan-to-deposit ratio of only 68%, indicating no immediate need to attract new depositors with high yields [16][15]. - The bank's net interest margin (NIM) could improve in the coming quarters due to reinvestment opportunities from $3 billion in expected prepayments and maturities throughout 2024 [19][26]. Group 2: Market Position and Competitive Advantage - BOH controls one-third of total deposits in its market, benefiting from low competition where 97% of the deposit market is held by only five banks [12][11]. - The stability of deposits is reinforced by long-term relationships, with 53% of the deposit base having a relationship of over 20 years [11]. - The bank's conservative approach to lending, with only 27% of loans in commercial real estate, contributes to its high loan quality, as evidenced by a weighted average FICO score of 791 [8][11]. Group 3: Dividend and Valuation - The current dividend yield is approximately 5%, which is attractive to investors despite slow growth expectations [21][23]. - BOH's dividend has remained resilient during economic downturns, indicating the bank's ability to manage through challenging periods [20][23]. - Based on the current TBV per share of $30.83, the fair value is estimated at $78.61, suggesting significant upside potential from the current trading price of $55 [25][26]. Group 4: Economic and Operational Outlook - The outlook for the remainder of 2024 is flat, with expectations of high interest rates persisting, which may suppress credit demand [8][5]. - The bank's operations are heavily reliant on Hawaii's economy, which is vulnerable to downturns in tourism, potentially impacting its financial stability [41][44]. - Despite the challenges, the bank's management is focused on improving capital ratios and maintaining a strong deposit base, which is crucial for navigating economic uncertainties [30][32].