Bancorp Hawaii, one of a handful of bank stocks that have fallen this year, lost its "buy" rating from Bear, Stearns & Co.
Analyst Lawrence R. Vitale on Monday lowered the shares to "neutral," citing slower earnings growth and a modest rise in nonperforming loans in the sluggish Hawaiian economy.
Bancorp Hawaii was ahead 25 cents to $42.75 in late trading but is 3.3% behind its yearend level. In contrast, the American Banker index bank stocks is up 9.3% this year.
The stock trades at 135% of book value, versus an average of around 170% for regional banks.
Mr. Vitale said he cut the rating with reluctance.
"This is an excellent bank, and I still see growth in my [earnings] model, but [the state of] Hawaii right now has stopped in its tracks," he said.
Although Hawaii's jobless rate is relatively low at 5%, the crucial tourist business has been hurt by the economic recessions in both California and Japan, which usually provide large numbers of visitors.
Tourism accounts for 40% of the state's economic activity. Mr. Vitale said he is concerned that a slow economy would dampen balance-sheet growth for the bank.
Realty Market Has Cooled
Moreover, the real estate market has cooled, and some loan problems have resulted.
Nonperforming assets rose to 1.52% of loans and foreclosed. real estate on June 30 from only 0.78% a year earlier.
"It appears that some of the California problems have finally reached Hawaii," the Bear Stearns analyst said.
Nonperformers are expected to rise only slowly, and the bank is equipped to deal with them, he said.
So far, most of the rise has been due to a few large credits, but he said he expected further chargeoffs in this area.
The loan-loss reserve equaled 127% of nonperformers at mid-year, down from 280% a year earlier and 154% at yearend.
Earnings Estimates Cut
The analyst cut his earnings estimates to $4.70 per share from $4.85 for this year and to $4.90 from $5.25 for next year.
The bank earned $4.88 per. share last year and $2.33 in the first six months of this year.
Annual earnings growth has slowed to 4% to 5%, Mr. Vitale. said, compared with a 13% compound annual rate of earnings growth over the past 15 years. In that period, the dividend has grown at a 9% rate.
Bancorp Hawaii had assets of $12.7 billion on June 30. Its main subsidiary is Bank of Hawaii.
The company dominates Hawaii, with nearly 50% of the banking market. It has few instate competitors and a growing Pacific Rim franchise, with offices in Tokyo, Seoul, Hong Kong, and Singapore, as well as Guam and other Pacific islands.
The economies of both Hawaii and Guam are underpinned by military bases, which have become more important as the United States has closed or reduced bases in other areas, notably the Philippines.
Bancorp Hawaii is among seven of 42 banks tracked by Bear Stearns that have posted stockprice declines this year.
The others are First Hawaiian Inc., NBD Bancorp, Comerica Inc., Bank of Boston Corp., U.S. Bancorp. of Oregon, and CoreStates Financial Corp.