Bank of Hawaii Preferreds: Series A Stands Superior To Newly Issued Series B

Bank of Hawaii’s BOH.PR.A is highlighted as the better preferred share, trading at a significant discount to par while offering an approximately 6.9% current yield and stronger dividend coverage. BOH.PR.B carries a higher coupon near 8% but trades above par, creating negative convexity and a weaker yield-to-call of about 6.78%. The note favors Series A over Series B on a risk-adjusted basis, with modest upside from capital appreciation.

Analysis

The cleaner expression here is not “buy the richer coupon,” but “buy the lower strike on the capital structure.” BOH.PR.A is effectively a duration/convexity trade with credit overlay: if rates drift lower or remain range-bound, the discount to par can compress meaningfully while carrying a coupon that is already competitive on a current-yield basis. BOH.PR.B is the classic value trap for preferred investors — the extra stated coupon is largely being handed back to the issuer through call optionality, leaving holders with little upside and a higher probability of reinvestment risk.

Second-order effect: this should widen relative demand for discounted bank preferreds versus premium-to-par issues across the regional bank universe, especially from income mandates that screen on current yield but underweight yield-to-call. That can create a self-reinforcing bid for securities with visible capital appreciation optionality, while premium preferreds face persistent supply from investors rotating out ahead of calls. For BOH specifically, the market is signaling that the balance sheet and dividend coverage are sufficient to keep the preferred stack functional, but not so compelling that investors should pay up for optionality they don’t own.

The main catalyst is rates, not credit. A 25-50 bp decline in Treasury yields should disproportionately help the discounted series because it can move on both spread compression and price-to-par convergence; the higher-coupon series has much less torque because its upside is capped near call value. The contrarian risk is that a sharp risk-off move in regional banks or a widening of bank preferred spreads overwhelms the rate benefit, in which case both series cheapen, but Series A should still prove more resilient on a total-return basis.

Key Decisions for Investors

• Long BOH.PR.A / short BOH.PR.B as a relative-value preferred arbitrage; target a 3-6 month window where call-risk and discount-to-par should drive convergence. Risk: if BOH becomes more likely to redeem the A series first, the spread can compress less than expected.
• Buy BOH.PR.A on weakness below current discount levels and size for a 12-month hold; the payoff is asymmetric if rates fall modestly, with upside from both carry and price accretion toward par.
• Avoid initiating fresh long exposure to BOH.PR.B unless hedging a liability-matching book; the negative convexity makes the expected return inferior for new money despite the higher coupon.
• Pair BOH preferred exposure versus a basket of premium-to-par regional bank preferreds; the trade benefits from a flattening/declining rate path and from investors rotating toward securities with embedded capital appreciation.
• Use a rate-sensitive trigger: if 10-year Treasury yields fall another 25-50 bps, add to BOH.PR.A; if bank preferred spreads widen 75+ bps on credit stress, cut risk quickly because spread widening will swamp call-value arithmetic.