Bank of Hawaii (BOH) has announced pricing on their new non cumulative perpetual preferred stock issue.
The issue is priced at 8.00% for 6.6 million shares. The early redemption date starts 8/1/2029.
The issue is rated Baa3 by Moodys (on negative credit watch) and BBB by Dun and Bradstreet.
The pricing term sheet is here.
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When I see an 8% piece of new paper coming out from a Bank I say I suspect there’s alot more to this story. I would bet if you did the proper DD there would be some problems lurking there.
BOH…..
CRE / Equity = 322.5%….higher default rates are of concern when 300% threshold crossed. Higher yield, higher risk.
Moody’s placing it on negative credit watch is saying exactly that – 2nd potential downgrade may be coming (they were BAA2 at one point).
Steve:
BOH is somewhat protected by the “moat” of Hawaii, but their latest financial metrics from 3/31/24 are trending in the wrong direction.
Deposits down 2% to $20.7B, net interest margin fell from 2.47% to 2.11%, almost 60% of their deposits remain uninsured, and they still have a $809M unrealized loss on their $5B Held To Maturity Portfolio (where the yield is only 1.79%).
They have been truly getting hammered on rising costs to keep deposits at the bank (up from $38M to $89M year-over-year). Tangible book value is $30+ with the common trading for $57+. When you take into account the unrealized losses on the HTM portfolio, TBV falls to $10+. Not sure how anyone can own this common and say there is value there.
The good news is that 20% of their $250M in quarterly revenues comes from non-interest income sources like trust, asset management, mortgage banking, etc. They have a lot of older customers that have been with the bank for decades.
But paying 8% to issue $165M in preferred now seems a bit strange. They already have $215M of cash on the balance sheet and the Fed is likely to start its rate cutting cycle later this year.
What was the rush to pay 8% on a preferred when the last one they issued 4 years ago was done at 4.375%?
Their 2nd quarter results are to be announced in about 4 weeks and it may be one of those “bite the bullet and take the hits to the capital ratios now”
Interesting. So you are saying when the HMI book is marked to market you get a TBV of ~$10 when common is trading at ~$50?
Thats worth spending some time on.
Their loan loss reserves are probably going to go into the stratosphere and they are using this preferred issue to cushion their Capital ratios
Seems consistent with following:
https://weissratings.com/en/bank/18053
GnG, I had bought BOH-A a few months ago, but I sold it (Mid-May) based on that Weiss Rating. Not surprised at all at the deterioration in coupon for this next one.
AW:
Yes, that is correct. About 40M shares outstanding of BOH and the HTM portfolio (almost all Mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac) has a balance of $4,913,457 on the 3/31/24 balance sheet with a “fair value” stated as $4,104,622.
That $809M unrealized loss clips book value by another $20/share.
42% of their loan book is commercial real estate, but just about all of it is in the state of Hawaii. Likely not big oversupply issues on the islands – so I don’t think BOH will have the potential CRE problems of banks like OZK or VLY.
BOH+A holding steady today at a 6.9% yield.
not bad for a BBB