Bank of Hawaii Corporation's BOH growth story is aided by a decent revenue growth trend. Also, growth in loans and deposit balances fortifies its balance sheet. However, persistently rising expenses are likely to hurt its bottom-line growth. Further, declining fee income restricts top-line expansion.

Steady organic growth is a key strength at Bank of Hawaii. Revenues have been rising over the years, supported by a rise in net interest income (NII), backed by high interest rates.

Though a rise in funding costs is likely to weigh on the company's NII and net interest margin (NIM), the Federal Reserve's expectations to keep the interest rates high in the near term will aid both metrics. We expect NIM to be 2.17%, 1.98% and 2% in 2023, 2024 and 2025, respectively.

Bank of Hawaii's diversified and long-duration deposit base, along with diversified and lower-risk loan, positions the company well to maintain a robust balance sheet. The company's deposit base and net loans and leases have been rising over the years.

Going forward, strong deposit balances will also help the company to generate higher loans and pursue other general business purposes. We anticipate total deposits, and net loans and leases to increase 7.7% and 0.6%, respectively, in the current year.

The company has a solid liquidity profile, comprising cash and cash equivalents of $1.7 billion, available-for-sale investment securities of $2.7 billion and total deposits of $20.5 billion. On the other hand, total debt aggregated to $2.49 billion as of the same date.

BOH's substantial liquidity lines, strong capital levels and decent income-generation capacity will enable it to continue its capital distribution activities. This is likely to stoke investors' confidence in the stock.

However, Bank of Hawaii's rising cost base exposes it to operational risks. Non-interest expenses have been rising over the years as the company continues to make additional investments in technology, innovation, and other variable expenses. Our model estimates total non-interest expenses to witness a compound annual growth rate of 3.5% over the next three years.

Unimpressive fee income growth is a major headwind for Bank of Hawaii. A decline in mortgage banking income on high rates, and volatility in trust and assets management income have been affecting non-interest income.

Moreover, the lack of efforts to diversify and expand sources of fee income is concerning. Though we anticipate the metric to rise this year, the same is estimated to decline 3% in 2024.