Seeking out the 10 mid caps to rule them all is the only logical follow-up to seeking the 10 small caps to rule them all. Unlike small-cap companies that offer investors the potential for high-risk, high-reward returns, mid-cap companies usually have significantly less risk built in because of their proven business track records. These companies offer either distinctive products or exceptional value to investors -- or possibly both.

For reference, here are the choices for the previous six weeks.

This week we're going to dig deep into the regional banking sector for a company that's been churning profits in a very depressed housing market: Bank of Hawaii (NYSE: BOH).

What it does
Bank of Hawaii is a full-service regional banking company that provides banking and lending to consumers and small to midsized businesses, as well as investment services to residents of Hawaii, Guam, and the Pacific Islands.

How it stacks up
Many investors will immediately dismiss a regional bank located in the West because of the weak housing environment in that region, but Bank of Hawaii has kept both its profits and its dividend steady in the midst of the worst housing downturn in seven decades. Before you call me nuts and note that the company's revenue has fallen for three straight years before provisions, consider that its profits have generally held up over the financial crisis, and it hasn't reduced its quarterly distribution since 1988. Currently yielding 3.9% with a dividend payout ratio of 50%, the company balances a very juicy return potential with a highly sustainable payout.

Poor loan decisions and a housing-price implosion have left many West Coast banks battered and bruised -- but not Bank of Hawaii. Let's look at the company next to a few competitors, some big and some small, and you'll see why this company could be a no-brainer.


Profit Margin

PEG Ratio

Dividend Yield

Bank of Hawaii




Zions Bancorp (Nasdaq: ZION)




East West Bancorp (Nasdaq: EWBC)




Central Pacific Financial (NYSE: CPF)




Citigroup (NYSE: C)




Bank of America (NYSE: BAC)




Data from Yahoo! Finance.

The regional banking sector is a graveyard for dividends, but Bank of Hawaii is a true standout. Half of the list, including Bank of America, currently has profit margins in the red. East West and Citigroup are the closest in terms of being a value to Bank of Hawaii, but Citi's tainted loan portfolio, coupled with East West's and Citi's pitiful dividends, are Bank of Hawaii's selling point.

How it could make you money
The reason Bank of Hawaii has been so successful in light of the economic downturn is its proactive rather than reactive business practices.

The bank has always maintained a relatively spotless balance sheet, which has allowed it to cope with industry downturns with relative ease. In its latest quarterly filing, profits did fall from the year-ago period, but deposits were up, credit and loan loss reserves fell by 77%, and the net interest margin rose. The efficiency ratio, which measures expenses as a percentage of revenue, decreased this past quarter from 60 to 56, evidence that the company is finding ways to become more profitable even with a tightening revenue stream.

Non-performing assets continue to fall as well. As of its latest quarter, non-performing assets totaled just 0.65% of all outstanding loans, which is on the low end of the industry average in the Pacific. This figure speaks to the company's strict lending practices even before the housing collapse. I'd rather see revenue stagnate for two or three years than see this company lend to the wrong crowd.

With the credit quality of its loan portfolio improving and on the heels of a likely series of interest-rate increases in the coming years, Bank of Hawaii is sitting in the driver's seat and appears to be a solid choice for the 10 mid caps to rule them all.

What's your opinion on Bank of Hawaii? Share your thoughts in the comments section below, and consider adding Bank of Hawaii to your watchlist to keep up on the latest in the Pacific regional banking sector.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.