Isolate Your Banking Stock Risk With Bank Of Hawaii

|
 |  About: Bank of Hawaii Corporation (BOH)
by: Christopher Lum Lee

The financial sector in the market is generally a volatile sector- considering quantitative easing, the mortgage crisis, fluctuating interest rates, and so on. Big banks such as Bank of America (NYSE:BAC), JP Morgan (NYSE:JPM), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC) are examples of the country's major financial institutions that have huge exposure and huge risks. In considering financial stocks, I'd like to consider a financial institution that is confined to a smaller geography which limits the amount of risk that is faced by other major financial institutions. Allow me to introduce one bank- Bank of Hawaii!

Bank of Hawaii (NYSE:BOH) is the primary subsidiary of the Bank of Hawaii Corporation, which is a regional bank holding company. The Bank of Hawaii Corporation- through its subsidiaries- provides various financial services to business, individual consumers, and governments in Hawaii, American Samoa, and the Pacific Islands- including Guam. While there are several other financial institutions in Hawaii, Bank of Hawaii is the largest independent financial institution in Hawaii- becoming the first chartered and incorporated bank to do business in the Republic of Hawaii on December 28, 1897- Hawaii was first a Republic, then became the Territory of Hawaii on July 7, 1898, and finally became a State on August 21, 1959.

Services

Bank of Hawaii operates in four segments: Retail Banking, Commercial Banking, Investment Services, and Treasury and Other. The Retail Banking segment offers financial products and services to consumers and small businesses such as deposit products; loan and lease products; and installment loans. The Commercial Banking segment's product lines include corporate banking, commercial real estate loans, commercial and auto dealer financing, and deposit products. It offers commercial lending and deposit products to middle-market and large companies; commercial real estate mortgages to investors, developers, and builders operating in Hawaii, international banking services; and merchant services to small business customers. The Investment Services segment provides private banking, trust, investment management, and institutional investment advisory services. It serves individuals and families, individuals with a high net worth, corporations, government entities, and foundations. Services includes brokerage services for equities, mutual funds, life insurance, and annuity products. The Treasure and Other segment offers corporate asset and liability management services, including interest rate risk management and foreign exchange services.

Statistics

Yahoo! Finance has posted the following data, provided by Capital IQ:

Valuation Measures

Market Cap:

2.34B

Enterprise Value (as of July 4, 2013):

2.96B

Trailing P/E:

14.76

Forward P/E (fye December 31, 2014):

15.55

PEG Ratio (5 yr expected):

2.23

Price/Sales:

4.08

Price/Book:

2.27

Enterprise Value/Revenue:

5.19

Enterprise Value/EBITDA:

N/A

Click to enlarge

Financial Highlights

Fiscal Year

Fiscal Year Ends

12/30/13

Most Recent Quarter:

03/31/13

Profitability

Profit Margin:

27.73%

Operating Margin:

43.12%

Management Effectiveness

Return on Assets

1.16%

Return on Equity

15.65%

Income Statement

Revenue:

570.74M

Revenue Per Share:

12.73

Quarterly Revenue Growth:

-4.10%

Gross Profit:

N/A

EBITDA:

N/A

Net Income Avl to Common:

158.25M

Diluted EPS:

3.53

Quarterly Earnings Growth:

-17.90%

Balance Sheet

Total Cash:

318.77M

Total Cash Per Share:

7.11

Total Debt:

1.02B

Total Debt/Equity:

N/A

Current Ratio:

N/A

Book Value Per Share:

22.87

Cash Flow Statement

Operating Cash Flow:

200.69M

Leveraged Free Cash Flow:

N/A

Click to enlarge

Trading Information

Stock Price History

Beta:

1.04

52-Week Change:

13.06%

S&P 500 52-Week Change:

18.12%

52-Week High (July 3, 2013)

52.2

52-Week Low (November 16, 2012)

41.41

50-Day Moving Average:

50.1

200-Day Moving Average:

48.54

Click to enlarge

Buy, Sell, or Hold?

Bank of Hawaii faces a lot of competition in Hawaii by credit unions, local banks, and national banks. Despite the competition, Bank of Hawaii maintains a reasonably consistent Net Income Applicable to Common Shares range- 2010 was approximately $183.9M, 2011 was approximately $160M, and 2012 was approximately $166M. As of the end of Q1 2013, total assets were approximately $13.7B, total liabilities were approximately $12.7B, and total shareholders' equity were approximately $1B. I want to point out that of the liabilities, approximately $11.2B was from deposits- both interest bearing and non-interest bearing. With a dividend yield of $1.80/3.6% annually and a payout ratio of 51%, investors can enjoy some degree of comfort in the sustainability of their dividend.

Fundamentally, Bank of Hawaii is doing well. This is demonstrated by their commitment to improving customer service through building upon such initiatives such as online and mobile banking; in-store branches; consolidating branches; introducing home equity lines of credit to include the purchase of a photovoltaic system; and expanding credit card offerings, to name just a few.

More information can be found in Bank of Hawaii's 2012 Annual Report.

While I like Bank of Hawaii as a business, my real hang-up is in two areas- as of July 4th, shares are approximately 1% off of their 52-week high. I would like to wait to see if Bank of Hawaii share prices could pullback to approximately $47 a share- or 10% off of the 52-week high- before I consider buying in. I personally don't advocate buying into a company when it's within 5-10% of its 52-week high, so if you haven't bought in yet, don't. If you have sold already, keep your profits until a pullback. Otherwise, if you have shares and am considering buying, I say hold.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.