Introduction

Bank of Hawaii Corporation (BOH) is a leading regional financial services company deeply rooted in the Hawaiian Islands. With a history spanning over a century, the bank has weathered economic storms and emerged as a reliable pillar of the local community. As the state’s second-largest bank by assets, Bank of Hawaii has strategically positioned itself to capitalize on Hawaii’s unique financial dynamics while maintaining a steadfast commitment to prudent risk management.

Historical Background

Tracing its origins back to 1897, Bank of Hawaii has long been a fixture in the Pacific region, serving businesses, consumers, and governments across the Hawaiian archipelago and the broader West Pacific area. The company’s principal operating subsidiary, Bank of Hawaii, has established a strong foothold in its home market, boasting a network of 50 branch locations and 317 ATMs throughout the state. This extensive reach, combined with the bank’s deep understanding of the local economy, has enabled it to cater to the diverse financial needs of its customers with precision and efficiency.

Bank of Hawaii’s journey began as a state-chartered bank, focusing initially on providing basic banking services to the local community. As the islands’ economy expanded, the bank grew alongside it, diversifying its product offerings and expanding its presence across the Hawaiian islands. A significant milestone in the bank’s history was its conversion to a national bank charter in 1949, which allowed it to broaden its services and geographic reach. This strategic move positioned Bank of Hawaii to become the dominant player in the local market, maintaining the top deposit market share position in Hawaii for decades.

Throughout its history, Bank of Hawaii has demonstrated remarkable resilience in the face of major economic challenges. The bank successfully navigated through the Great Depression and World War II, maintaining its operations and supporting the local community during these tumultuous times. This ability to weather economic storms has been a hallmark of the bank’s conservative, relationship-based approach to banking, which has proven invaluable in navigating challenging economic environments.

Today, Bank of Hawaii stands as the largest locally-based bank in Hawaii, with operations extending to Guam and other Pacific islands. The company offers a comprehensive range of financial products and services to its business, consumer, and government customers, solidifying its position as a leading financial institution in the region.

Financials

Bank of Hawaii’s financial performance has remained robust, even in the face of broader economic challenges. As of September 30, 2024, the company reported total assets of $23.8 billion, a slight decrease of 0.3% from the previous year-end. This solid asset base is complemented by a healthy deposit portfolio, which stood at $21.0 billion as of the same date, reflecting a modest decline of 0.4% from December 31, 2023.

The bank’s loan and lease portfolio has also demonstrated resilience, reaching $13.9 billion as of September 30, 2024, a slight decrease of 0.3% from the prior year-end. This portfolio is well-diversified, with commercial loans and leases comprising 43% of the total and consumer loans and leases accounting for the remaining 57%. The bank’s conservative underwriting standards and focus on its core Hawaii and West Pacific markets have contributed to its consistently strong asset quality metrics.

One of the standout features of Bank of Hawaii’s balance sheet is its robust capital position. As of September 30, 2024, the company’s Tier 1 capital ratio stood at 14.05%, significantly exceeding the regulatory well-capitalized threshold of 8%. This solid capitalization, combined with the bank’s prudent risk management practices, has enabled it to navigate challenging economic environments with confidence.

Bank of Hawaii’s earnings performance has also been commendable, with net income of $110.8 million for the nine months ended September 30, 2024. This figure represents a decrease of 21.3% compared to the same period in the previous year, primarily driven by a decline in net interest income and higher noninterest expenses. The bank’s net interest margin, a key metric for profitability, increased by 5 basis points year-over-year to 2.18% in the third quarter of 2024, reflecting the company’s ability to effectively manage its interest rate risk.

In the most recent quarter, Bank of Hawaii reported revenue of $220,648,000 and net income of $40,358,000. The company’s operating cash flow (OCF) for the quarter was -$19,226,000, while its free cash flow (FCF) stood at -$23,860,000. These figures reflect the bank’s ongoing operations and investments in its business.

Liquidity

Bank of Hawaii maintains a strong liquidity position, which is crucial for its ability to meet customer needs and navigate potential economic uncertainties. The bank’s diverse funding sources, including its robust deposit base and access to wholesale funding markets, provide it with ample liquidity to support its operations and growth initiatives. Additionally, the bank’s conservative approach to balance sheet management ensures that it maintains adequate levels of high-quality liquid assets to meet potential funding needs in various market conditions.

Market Position and Future Outlook

Looking ahead, Bank of Hawaii remains well-positioned to capitalize on the unique opportunities presented by the Hawaiian economy. The state’s relatively low unemployment rate of 2.9%, which is significantly below the national average, coupled with a resilient real estate market, suggest a favorable backdrop for the bank’s operations. Additionally, the bank’s strategic focus on serving the commercial and consumer segments in its core markets has enabled it to build a diversified revenue stream and mitigate concentration risks.

Despite the challenges posed by the COVID-19 pandemic and its lingering effects on the local tourism industry, Bank of Hawaii has demonstrated its resilience and adaptability. The company has remained steadfast in its commitment to serving its customers, supporting its employees, and strengthening its community ties throughout this difficult period.

Bank of Hawaii operates through three main business segments: Consumer Banking, Commercial Banking, and Treasury and Other. The Consumer Banking segment offers a broad range of financial products and services, including loan and lease financing, deposit products, brokerage and insurance services, private banking, trust services, and investment management. In the third quarter of 2024, this segment’s net income decreased by $1.6 million or 5% compared to the same period in 2023, primarily due to increases in noninterest expense and the provision for credit losses, as well as a decrease in net interest income, partially offset by an increase in noninterest income.

The Commercial Banking segment provides products such as commercial and industrial loans, commercial real estate loans, commercial lease financing, auto dealer financing, merchant services, and cash management services. This segment’s net income decreased by $2.0 million or 6.7% in the third quarter of 2024 compared to the same period in 2023, primarily due to decreases in net interest income and noninterest income, partially offset by a decrease in noninterest expense and a reduction in the tax provision.

The Treasury and Other segment manages corporate asset and liability activities, including interest rate risk management and foreign currency exchange business. In the third quarter of 2024, this segment’s net income decreased by $3.9 million compared to the same period last year, primarily due to lower noninterest income.

For the fourth quarter of 2024, Bank of Hawaii expects to recognize a one-time $2.3 million charge related to the Visa Class B conversion ratio change. Excluding this charge, the bank anticipates core non-interest income to be in the range of $44 million to $45 million. The bank also expects normalized core expenses in 2024 to increase 1% to 1.5% from the 2023 normalized expenses of $419 million. The effective tax rate for the full year of 2024 is projected to be 24.25%. Additionally, the bank’s Board has declared a dividend of $0.70 per common share for the fourth quarter of 2024.

Conclusion

In conclusion, Bank of Hawaii’s longstanding presence, prudent risk management, and diverse revenue streams position it as a reliable stalwart in the Hawaiian financial landscape. As the state’s economy continues to navigate the evolving landscape, Bank of Hawaii stands ready to leverage its unique strengths and capitalize on the opportunities that arise, cementing its status as a trusted financial partner for businesses, individuals, and communities across the islands. The bank’s solid performance in recent quarters, coupled with its strategic focus on its core markets and segments, suggests a positive outlook for the future, despite the ongoing challenges in the broader economic environment.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.