BANK OF HAWAII CORP (BOH) stock intrinsic value fair value estimate & owner earnings analysis

Bank of Hawaii is one of the two dominant banks in Hawaii, with about $24.2 billion of assets, $21.2 billion of deposits and $14.1 billion of loans at the end of 2025, plus small operations in Guam, Saipan and Palau. It earns the spread between what it pays local depositors and what it earns on loans (mostly Hawaii residential mortgages and commercial real estate) and a $7.8 billion securities portfolio, plus fee income. Its edge is a large, sticky, low-cost local deposit base built over more than a century; its weakness is that nearly everything depends on one island economy driven by tourism, the military and real estate. How we measured earnings. We start from operating cash flow, strip out timing swings in other assets and liabilities and loans held for sale, and charge stock compensation and the capital spending needed to maintain the branch and technology base. Because this is a bank, we made four further judgements: we charge actual net loan losses instead of the accounting provision (so the large 2020 reserve build and 2021 release do not distort those years), we charge operating lease costs, we charge the amortization of premiums paid on securities as a real cost of their yield, and we deduct the dividends on the bank's two preferred stock issues ($180 million at 4.375% and $165 million at 8.00%, about $21 million a year, or $0.53 per common share) because those holders are paid before common shareholders. Deposits and borrowings are the raw material of a bank, so no debt is subtracted; the risk of the bank's roughly 12-to-1 leverage is carried in the bear case instead. On this basis owner earnings per share ran $4.08 (2016), $3.64, $4.64, $4.45, $5.01, $4.28, $5.21, $4.26, $3.31 (2024 trough) and $4.27 (2025). Starting point. The ten years 2016-2025 cover a full interest-rate cycle (near-zero rates, two hiking cycles and the 2023-2024 margin squeeze), so we use their median, about $4.28, and trim it to roughly $4.05 to reflect today's larger preferred dividend. Earnings have since moved above that level for an identifiable reason: low-yielding securities bought in 2020-2021 are maturing and being replaced at higher yields, and the bank sold $16.8 million-loss securities in 2025 to reinvest at current rates. Net interest margin rose from 2.16% in 2024 to 2.45% in 2025, and in the first half of 2026 net interest income rose 19% and net income to common shareholders rose 37% from a year earlier. Owner earnings grew 29% in 2025; our base case assumes about 14% for 2026 (to roughly $4.85 per share, allowing for elevated capital spending of $33 million in the first half), below the trailing rate. Base case ($82 per share). 2026 at about $4.85 and 2027 at $5.10 as the remaining low-yield assets reprice, then a through-cycle level of about $4.60 (between the long-run median and today's run rate, because future rate cycles will compress margins again as they did in 2023-2024), growing 1% a year, the per-share growth the bank actually delivered over 2016-2025 (earnings per share went from $4.23 to $4.63 while the share count fell from 42.9 million to 39.9 million). After year ten the deposit franchise is assumed to keep earning that level without further growth; its 129-year history and dominant local branch presence are the evidence it persists. No deposit growth, loan growth, market share gains or margin expansion beyond 2027 is credited: deposits actually slipped from $21.2 billion to $20.9 billion in the first half of 2026 and loans were flat at $14.1 billion in 2025. Bear case ($53 per share). Rate cuts and deposit competition push the margin back toward the 2024 trough (owner earnings about $3.60 in 2027), and a Hawaii downturn of the kind seen in 2020 or after the 2023 Maui wildfire turns into real credit losses in 2028 (owner earnings about $3.00), with earnings settling near $3.50 thereafter and shrinking 1% a year after year ten as deposits erode. The bear case does not assume a forced sale of the underwater securities portfolio or a dilutive capital raise; those would require a deposit run the bank did not suffer even in 2023, but they are the main way this estimate could prove too high. Bull case ($119 per share). Repricing continues longer, lifting owner earnings to about $5.50 in 2027 and $5.70 in 2028, then growing 2% a year through year ten (in line with retained earnings and the bank's 2016-2025 dividend growth of almost 4% a year) and 1% a year thereafter. Compared with our previous estimate, the base value is slightly higher ($82 versus $79), the bear case higher ($53 versus $45) and the bull case lower ($119 versus $126). We now discount every case at the same 6% rate and anchor on a full rate cycle rather than the latest year, and we credit the documented 2025-2026 margin recovery, which the earlier estimate predated. Because this is a leveraged, single-economy lender exposed to interest-rate cycles, the margin-of-safety price is set wide, at around $50, roughly the bear-case value; the dividend of $2.80 a year is part of what the cases imply from that price. What would make this wrong: a sharp Hawaii tourism or real estate downturn, a fast return to near-zero interest rates, or a deposit outflow that forced losses on the securities book.