Critical Analysis: Bank of Hawaii (NYSE:BOH) versus Preferred Bank (NASDAQ:PFBC)

Bank of Hawaii (NYSE:BOH) and Preferred Bank (NASDAQ:PFBC) are both finance companies, but which is the superior investment? We will contrast the two companies based on the strength of their dividends, analyst recommendations, valuation, profitability, institutional ownership, risk and earnings.

Volatility & Risk

Bank of Hawaii has a beta of 0.84, suggesting that its share price is 16% less volatile than the S&P 500. Comparatively, Preferred Bank has a beta of 0.78, suggesting that its share price is 22% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings for Bank of Hawaii and Preferred Bank, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Bank of Hawaii	1	3	1	0	2.00
Preferred Bank	0	2	1	0	2.33

Bank of Hawaii presently has a consensus target price of $75.00, indicating a potential upside of 12.66%. Preferred Bank has a consensus target price of $103.67, indicating a potential upside of 10.80%. Given Bank of Hawaii’s higher probable upside, equities analysts clearly believe Bank of Hawaii is more favorable than Preferred Bank.

Valuation and Earnings

This table compares Bank of Hawaii and Preferred Bank”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Bank of Hawaii	$1.04 billion	2.55	$149.99 million	$3.81	17.47
Preferred Bank	$522.66 million	2.58	$130.66 million	$9.46	9.89

Bank of Hawaii has higher revenue and earnings than Preferred Bank. Preferred Bank is trading at a lower price-to-earnings ratio than Bank of Hawaii, indicating that it is currently the more affordable of the two stocks.

Dividends

Bank of Hawaii pays an annual dividend of $2.80 per share and has a dividend yield of 4.2%. Preferred Bank pays an annual dividend of $3.00 per share and has a dividend yield of 3.2%. Bank of Hawaii pays out 73.5% of its earnings in the form of a dividend. Preferred Bank pays out 31.7% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Bank of Hawaii has raised its dividend for 1 consecutive years and Preferred Bank has raised its dividend for 5 consecutive years.

Insider and Institutional Ownership

82.2% of Bank of Hawaii shares are owned by institutional investors. Comparatively, 72.8% of Preferred Bank shares are owned by institutional investors. 2.1% of Bank of Hawaii shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Profitability

This table compares Bank of Hawaii and Preferred Bank’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Bank of Hawaii	16.30%	12.67%	0.72%
Preferred Bank	25.04%	16.64%	1.80%

About Bank of Hawaii

Bank of Hawaii Corporation operates as the bank holding company for Bank of Hawaii that provides various financial products and services in Hawaii, Guam, and other Pacific Islands. It operates in three segments: Consumer Banking, Commercial Banking, and Treasury and Other. The Consumer Banking segment offers checking, savings, and time deposit accounts; residential mortgage loans, home equity lines of credit, automobile loans and leases, overdraft lines of credit, installment loans, small business loans and leases, and credit cards; private and international client banking, investment, credit, and trust services to individuals and families, as well as high-net-worth individuals; investment management; institutional investment advisory services to corporations, government entities, and foundations; and brokerage offerings, including equities, mutual funds, life insurance, and annuity products. The Commercial Banking segment provides corporate banking, commercial real estate loans, commercial lease financing, auto dealer financing, and deposit products. This segment also offers commercial lending and deposit products to middle-market and large companies, and government entities; commercial real estate mortgages to investors, developers, and builders; and international banking and merchant services. The Treasury and Other segment provides corporate asset and liability management services, including interest rate risk management and foreign exchange services. Bank of Hawaii Corporation was founded in 1897 and is headquartered in Honolulu, Hawaii.

About Preferred Bank

Preferred Bank provides various commercial banking products and services to small and mid-sized businesses and their owners, entrepreneurs, real estate developers and investors, professionals, and high net worth individuals. The company accepts checking, savings, and money market deposit accounts; fixed-rate and fixed maturity retail, and non-retail certificates of deposit; and individual retirement accounts. It also provides real estate mortgage loans that are secured by retail, industrial, office, special purpose, and residential single and multi-family properties; real estate construction loans; commercial loans comprising lines of credit for working capital, term loans for capital expenditures, and commercial and stand-by letters of credit; and small business administration loans. In addition, the company offers trade finance services, including commercial and export letters of credit, import lines of credit, documentary collections, international wire transfers, acceptances/trust receipt financing products, export financing, and bills purchase programs. Further, it provides cash management services; and internet, mobile, and tablet banking services. The company operates through full-service branch offices in the California counties of Los Angeles, Orange and San Francisco; Flushing, New York; Houston suburb of Sugar Land, Texas; and a satellite office in Manhattan, New York. The company was incorporated in 1991 and is headquartered in Los Angeles, California.