It's not every day that a big regional bank comes to the stock market in an initial public offering. It's rarer still when that bank is the no. 1 issuer in its locale.
That's what will go down later this week, when First Hawaiian floats its IPO on the NASDAQ. Here's a brief rundown of this irregular and intriguing situation.
A bank that pre-dates statehood
First Hawaiian is the holding company for First Hawaiian Bank, and their shared name is no lie. According to the company, its antecedent founded in 1858 was "the first successful banking partnership in the Kingdom of Hawaii and the second oldest bank formed west of the Mississippi River."
That year, by the way, was over a century before Hawaii was granted U.S. statehood.
That's given the bank plenty of time to amass enough market share to be number one in the state in terms of assets, loans, deposits, and net income, according to the company. All told, it has 62 branches -- 57 in Hawaii, three in Guam, and two in Saipan.
It's owned by French multinational financial services company BNP Paribas (NASDAQOTH: BNPQY). That company will maintain a strong controlling stake of nearly 85% after the IPO.
Competition? What competition?
One unbeatable advantage of being a lender focused almost exclusively on the Hawaiian market is that there's almost no major competition.
The state's distance from the American mainland, plus its relatively small population (roughly 1.4 million souls) makes it impractical for incumbents like Bank of America or JPMorgan Chase to set up shop there. The same goes for ambitious mainland regional banks.
So, effectively this means that the Big Two on the islands are First Hawaiian and its longtime rival, Bank of Hawaii (NYSE:BOH). Both offer roughly the same services -- although the latter has proportionally more investment securities on its balance sheet -- and their businesses tend to move in lockstep. For example, the total revenue figures of both companies have flitted within a range of $30 million or so in the five most recent fiscal years. Meanwhile, First Hawaiian and Bank of Hawaii have both sported annual net profit margins in the high-20% to low-30% range across that five-year stretch.
A deeper dive into the fundamentals reveals some crucial differences, though. First Hawaiian has by far the better efficiency ratio, consistently clocking in around 45% in the last half-decade. Bank of Hawaii tends to have efficiency ratios in the high 50% range.
First Hawaiian also beats on arguably the most critical valuation for banks, price to book value. If we stick a pin in the midpoint of the anticipated IPO price range and mash it against the latest book value figure, the company would trade at a price/book of 1.2. That's way cheaper than Bank of Hawaii's current quarter P/B of 2.53.
And for the income investors in the crowd, First Hawaiian says it intends to pay an initial quarterly dividend of $0.20 per share. That annualizes to $0.80, which would yield a robust 3.6% at that aforementioned share price midpoint. Bank of Hawaii pays a generous dividend, but it's not that generous; its yield is currently 2.8%.
So of the two, First Hawaiian looks like the more tempting buy. Zooming out a bit, however, even at that comparatively low price/book it's significantly more expensive than most American incumbents, and a handful of regional/specialty lenders. Also, of course, unlike most of them its market is limited by geography.
But you can't beat that beautiful market position, the impressive efficiency ratio, and that strong and steady profitability. First Hawaiian certainly has a lot of things going for it, so we shouldn't be surprised if its newly minted stock proves to be desirable.
First Hawaiian's IPO is scheduled for this Friday, Aug. 5. Just under 21.1 million shares are to be sold, at a price of $21 to $23 apiece. The stock will trade on the NASDAQ under the ticker symbol FHB.
The global joint coordinators of the issue are Bank of America's Merrill Lynch unit, Goldman Sachs and, of course, BNP Paribas.