Bank of Hawaii Corporation (NYSE:BOH) $BOH
Bank of Hawaii Corporation is a bank holding company that operates through its subsidiary, Bank of Hawaii. Founded in 1893, it is the second largest bank in the island state of Hawaii. The bank provides a range of financial services and products primarily to customers in Hawaii, Guam and other Pacific Islands.
Hawaii’s banking industry is much more consolidated than the banking industry in other U.S. states. From 1994 through 2015, Bank of Hawaii’s deposit share in that state ranged from about 27% (on the eve of the 2008 financial crisis) to 32% today. Generally, Bank of Hawaii has had a deposit share of about 30%. In most U.S. states, no bank has anywhere near 30% of all deposits. This means the bank is largely insulated from competitor actions.
The banking industry ordinarily has high customer retention, minimizing rivalry among firms. And the banking industry in Hawaii--unlike most other states--is an oligopoly. An oligopoly where each of the oligopolists has a very, very loyal customer base. Hawaii’s population growth is low. New branches are rarely opened in the state. In fact, Bank of Hawaii has shrunk its number of branches even while increasing its deposits. It’s a wide moat stock. If interest rates never rise, it’s a wide moat stock that would be on a trajectory to return 7% a year.
If interest rates increase, it’ll then be a wide moat stock on a trajectory to return 10% a year. And if you buy the stock today and then hold the stock while the Fed raises interest rates – you’ll get a one-time boost in reported earnings. Bank of Hawaii will be an acceptable but not especially profitable investment if the Fed never raises interest rates. Once the Fed does raise rates, it’ll be a good long-term investment from that point on. And in the medium-term – say from 2016 through 2021 – Bank of Hawaii is an excellent speculation on higher interest rates. The stock should provide excellent annual returns during the 5-year period where interest rates increase at the fastest pace. That time may be now. That part is speculative. But it adds to the stock’s appeal.