Continued positive momentum for financials and rising interest rates should continue to propel shares of fundamentally solid banking institution First Hawaiian (FHB) - Get Report higher in the new year.
Medium- to longer-term investors should consider building a long position in First Hawaiian and holding shares of this company throughout 2017. First Hawaiian is the largest publicly traded company headquartered in Hawaii.
One of the first positives for First Hawaiian was the outstanding list of 16 underwriters for its August IPO, including Banco Sandander, Barclays Capital, BNP Paribas Securities, Citigroup, Credit Suisse Securities, Deutsche Bank, Goldman Sachs and JPMorgan Chase.
Founded in 1858, First Hawaiian has 62 branches throughout Hawaii and has operated as a subsidiary of the French banking company PNB Paribas since its acquisition by the bank in 2001.
After the acquisition, First Hawaiian continued to operate as a separate institution.
Ahead of the bank's IPO, First Hawaiian reported that it had $19.1 billion in assets as of March 31, and it generated net income of $65.5 million in the first quarter.
Despite income falling slightly in the third quarter, the earnings release in October reinforced the bank's overall strength. First Hawaiian posted earnings of $53.2 million or 38 cents a share, in line with analysts' estimates.
As expected from First Hawaiian's IPO regulatory filings, the bank also declared a quarterly dividend of 20 cents a share. The payout equates to a 3% annualized yield based on a closing price of $26.90 on Oct. 27.
The bank said in its third-quarter earnings report that loans had increased 9% to $11.40 billion from $10.45 billion a year earlier, while deposits rose 10% to $16.97 billion from $15.48 billion.
Assets also grew as a result of the IPO, and the third-quarter release said that the bank had $19.89 billion in assets.
The company's earnings release also said that First Hawaiian had received an overall rating of outstanding from the FDIC for its performance under the Community Reinvestment Act for the eighth consecutive evaluation period beginning in 1995.
This kind of track record highlights the underlying strength of the institution and the bank's consistent standards.
First Hawaiian is scheduled to release fourth-quarter results on Jan. 26.
The company's stock performance has been solid, gaining 5.4% in the first day of trading and 53% since the IPO.
This kind of gradual, positive performance bodes well for the stock's performance in the year ahead, especially against the backdrop of rising rates and the post-presidential election rally.
One much-talked-about policy that could have a huge impact on First Hawaiian would be President-elect Donald Trump's proposal to lower corporate taxes. Under this proposal, which was at the top of his agenda throughout the campaign, corporate taxes would be lowered to 15% from 35%.
Although large-capitalization global financial companies are already able to tax arbitrage to reduce what they have to pay in taxes, companies such as First Hawaiian in the small- to mid-cap range would certainly benefit from this type of decrease.
First Hawaiian pays a forward tax rate of 40%. If this rate is reduced to 15%, there could be a major increase in the bottom line.
Shorter-term investors might want to consider buying a position in First Hawaiian ahead of the earnings report next month and selling shares shortly after. The even bigger opportunity is for mid- to longer-term investors looking for a solid financial stock to add to their portfolios next year.
This article is commentary by an independent contributor. At the time of publication, the author owned FHB.