Bank of Hawaii Corporation, the holding company for Bank of Hawaiʻi, has long been a cornerstone of the Pacific region's financial landscape. With a history dating back to 1897, this regional banking powerhouse has weathered economic storms, adapted to technological advancements, and solidified its position as a trusted financial partner for businesses, consumers, and governments across Hawaiʻi, Guam, and other Pacific Islands.

Business Overview

Bank of Hawaiʻi was founded in 1897 and has since grown to become the largest independent financial institution in the state. Originally chartered by the Territory of Hawaii, the bank has weathered numerous economic challenges throughout its 125-year history, including the Great Depression and World War II. In 1984, Bank of Hawaii underwent a significant transformation, converting from a mutual savings bank structure to a publicly-owned bank holding company structure. This transition allowed the bank to access capital markets and expand its operations. Over the following decades, Bank of Hawaii grew organically and through strategic acquisitions to solidify its market position in Hawaii.

The bank faced a significant challenge following the September 11, 2001 terrorist attacks, which heavily impacted Hawaii's tourism industry and the local economy. However, through prudent risk management and continued investment in the community, Bank of Hawaii successfully navigated this difficult period. Similarly, during the 2008 financial crisis, the bank performed relatively well compared to many of its mainland peers, maintaining strong capital levels and credit quality.

Today, Bank of Hawaiʻi operates a network of 50 branches and 317 ATMs throughout the Hawaiian islands, as well as in Guam and other Pacific locations. The company's principal operating subsidiary, Bank of Hawaiʻi, is a state-chartered bank that provides a wide range of financial products and services, including commercial and consumer banking, trust services, investment management, and brokerage services. The bank's operations are primarily concentrated in Hawaiʻi, Guam, and other Pacific Islands, with a focus on serving the unique needs of the local communities.

Financials and Performance

In the fiscal year 2024, Bank of Hawaii reported net income of $150 million, a decrease of 12.4% from the previous year's $171.2 million. This translates to diluted earnings per common share of $3.46, down from $4.14 in 2023. The company's return on average common equity for the full year of 2024 was 10.8%, compared to 13.9% in the prior year.

The bank's net interest income for 2024 was $466.6 million, a decrease of 6.1% from the $497 million reported in 2023. This decline was primarily due to higher funding costs, partially offset by higher earning asset yields. The net interest margin for the year ended December 31, 2024, was 2.16%, down from 2.24% in the previous year.

Noninterest income for 2024 was $172.5 million, a decrease of 2.3% from the $176.6 million recorded in 2023. This decline was largely attributable to lower investment securities gains and a one-time charge related to the Visa Class B conversion ratio change.

Noninterest expense for 2024 was $430.1 million, a decrease of 1.7% from the $437.5 million reported in the prior year. The decrease was primarily due to lower FDIC insurance expense, partially offset by higher medical costs.

As of December 31, 2024, Bank of Hawaii had total assets of $23.6 billion, down from $23.7 billion at the end of 2023. Total loans and leases stood at $14.1 billion, up from $14 billion a year earlier, while total deposits were $20.6 billion, down from $21.1 billion in the prior year.

In the most recent quarter (Q4 2024), Bank of Hawaii reported revenue of $219.2 million and net income of $39.2 million. The company's cash on hand as of December 31, 2024, was $763.6 million.

Liquidity

The bank's capital levels remained strong, with a Tier 1 capital ratio of 13.95% and a total capital ratio of 15.00% as of December 31, 2024, well above the regulatory well-capitalized thresholds. Bank of Hawaii has an undrawn line of credit with the Federal Home Loan Bank (FHLB) of $1.7 billion as of December 31, 2024, providing additional liquidity if needed.

Operational Highlights

During 2024, Bank of Hawaii continued to focus on delivering exceptional customer service and innovative financial solutions to its clients. The bank's branch network, which spans 50 locations throughout Hawaiʻi and the West Pacific, remains a key competitive advantage, allowing the company to maintain a deep understanding of local market dynamics and customer needs.

The bank's commercial banking segment experienced solid growth in 2024, with commercial and industrial loans and commercial mortgage loans both increasing from the prior year. The consumer banking division saw stable performance, with residential mortgage and home equity loans remaining flat year-over-year.

Bank of Hawaii has also made strategic investments in its wealth management and trust services offerings, which contributed to a 9.0% year-over-year increase in trust and asset management revenue in 2024. The bank's focus on this high-margin business line has helped diversify its revenue streams and enhance its overall profitability.

Business Segments

Bank of Hawaii Corporation 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, and brokerage and insurance products. In 2024, this segment accounted for $134.6 million in net interest income and $126.4 million in noninterest income, with net income of $129.5 million.

The Commercial Banking segment provides commercial and industrial loans, commercial real estate loans, commercial lease financing, auto dealer financing, merchant services, deposit products, and cash management services. In 2024, Commercial Banking generated $206.5 million in net interest income and $28.8 million in noninterest income, with net income of $119.4 million.

The Treasury and Other segment consists of corporate asset and liability management activities, including interest rate risk management and a foreign currency exchange business. In 2024, this segment contributed $131 million in net interest income and $9.2 million in noninterest income, with net income of $98.9 million.

Recent Performance and Guidance

In the fourth quarter of 2024, Bank of Hawaii reported solid financial results. Net interest income grew 2.2% on a linked-quarter basis to $120.2 million, while net interest margin expanded to 2.19% for the quarter. Average deposits and average loans grew 1.3% and 1.1% on a linked-quarter basis, respectively. Credit quality remained strong with net charge-offs at 10 basis points and non-performing assets at 14 basis points.

For 2025, Bank of Hawaii provided guidance indicating that net interest income and net interest margin are expected to continue increasing due to asset cash-flow repricing, slowing deposit remix, and benefits from lower Fed funds rates. Non-interest income is expected to be $44 million to $45 million in the first quarter of 2025 and increase over the year. Expenses are projected to increase 2% to 3% from 2024 levels, with 1% allocated to revenue-enhancing initiatives. The effective tax rate in 2025 is expected to be approximately 24%. The Board declared a dividend of $0.70 per common share for the first quarter of 2025.

Risks and Challenges

As with any financial institution, Bank of Hawaii faces a variety of risks and challenges that could impact its future performance. These include:

1. Concentration risk: The bank's operations are heavily concentrated in Hawaiʻi and the West Pacific, making it vulnerable to economic conditions and events specific to these regions.

2. Interest rate risk: Changes in interest rates can significantly affect the bank's net interest income and margin, as the majority of its assets and liabilities are interest-rate sensitive.

3. Regulatory environment: The banking industry is heavily regulated, and changes in laws, regulations, or regulatory interpretations could increase the bank's compliance costs and operational complexity.

4. Competition: Bank of Hawaii operates in a highly competitive market, facing challenges from both traditional financial institutions and non-bank competitors, such as fintech companies.

5. Cyber threats: Like other financial institutions, Bank of Hawaii is exposed to the risk of cyber attacks, which could compromise customer information, disrupt operations, and result in significant financial and reputational damage.

Outlook and Conclusion

Despite the challenges faced in 2024, Bank of Hawaii remains well-positioned to navigate the evolving financial landscape. The bank's strong capital position, diversified revenue streams, and deep understanding of its local markets provide a solid foundation for continued growth and success.

Looking ahead, the company's focus on enhancing its wealth management and trust services offerings, as well as its commitment to delivering innovative digital solutions, are expected to drive future performance. Additionally, the bank's strong credit quality and prudent risk management practices should help it weather any potential economic headwinds.

The management team has expressed optimism about the commercial loan pipeline and the potential for continued loan growth. While specific quantitative targets for loan growth and deposit growth beyond the fourth quarter of 2024 were not provided, the overall outlook remains positive.

Overall, Bank of Hawaii's long-standing history, robust financial position, and unwavering commitment to its customers and communities make it a compelling investment opportunity for those seeking exposure to the dynamic and resilient Pacific regional banking market. The bank's ability to adapt to changing market conditions and its focus on delivering value to shareholders through consistent dividend payments further enhance its appeal as a stable and reliable financial institution in the region.