Bank of Hawaii Corporation (NYSE:BOH) reported its financial results for the second quarter of 2024, showcasing the company's resilience and adaptability in the face of a dynamic economic landscape. The bank's net income for the quarter stood at $34.1 million, while the annual net income for 2023 reached $171.2 million. The company's revenue for the quarter was $156.9 million, contributing to the annual revenue of $982.7 million in 2023.

Business Overview

The bank's performance was underpinned by its strong presence in the Hawaiian market, where the economy has remained relatively stable. The state's unemployment rate stood at 3.0% in May 2024, outperforming the national average of 4.0%. The visitor market, a crucial driver of Hawaii's economy, has shown signs of recovery, with visitor spending and arrivals up 6% and 4%, respectively, in May 2024, excluding the impact of the Lahaina fires.

Financials

The bank's net interest income for the second quarter of 2024 was $114.8 million, a decrease of 8% from the same period in 2023. This decline was primarily due to higher funding costs, partially offset by higher earning asset yields. The net interest margin for the quarter was 2.15%, a decrease of 7 basis points from the same period in 2023. The bank's management expects modest improvements in net interest income and net interest margin in the second half of 2024, driven by continued asset repricing and a potential slowdown in deposit remix.

Noninterest income for the second quarter of 2024 was $42.1 million, a decrease of 3% from the same period in 2023. The bank's management anticipates a slight uptick in core noninterest income in the second half of the year as market conditions improve.

The bank's provision for credit losses for the second quarter of 2024 and 2023 was $2.4 million and $2.5 million, respectively, reflecting the bank's prudent risk management approach. The bank's net charge-offs during the second quarter of 2024 were $3.4 million or 10 basis points annualized of total average loans and leases outstanding, up from $1.4 million or 4 basis points in the same period of 2023.

Noninterest expense for the second quarter of 2024 was $109.2 million, an increase of 5% from the same period in 2023. This increase was primarily due to higher allocated FDIC insurance costs, separation expenses, and annual merit increases. The bank's management expects normalized expenses in 2024 to increase 1% to 2% from 2023 levels.

The bank's effective tax rate for the second quarter of 2024 was 24.77%, compared to 24.57% during the same quarter of 2023. The bank expects the full-year 2024 tax rate to be approximately 24.5%.

As of June 30, 2024, the bank's total assets stood at $23.3 billion, a decrease of 2% from December 31, 2023. The investment securities portfolio was $7.1 billion, a decrease of 4% from the end of 2023, while total loans and leases were $13.8 billion, a decrease of 1% from the end of 2023.

The bank's total deposits were $20.4 billion as of June 30, 2024, a decrease of 3% from December 31, 2023. The bank's management has adopted a disciplined approach to deposit pricing and is preparing for a potential pivot to a lower rate environment.

Bank of Hawaii's capital position was strengthened during the quarter, with the successful completion of a $165 million preferred stock offering in June 2024. As a result, the bank's Tier 1 capital ratio increased to 13.99%, and the total capital ratio rose to 15.05% as of June 30, 2024.

The bank's credit quality remained strong, with non-performing assets (NPAs) at $15.2 million, or 0.11% of total loans and leases and foreclosed real estate, as of June 30, 2024, up from 0.08% at the end of 2023. The allowance for credit losses on loans and leases was $147.5 million, or 1.07% of total loans and leases, as of June 30, 2024, up from 1.05% at the end of 2023.

In terms of geographic breakdown, the bank's loan portfolio is predominantly concentrated in Hawaii, accounting for 92% of the total, with 5% in the Western Pacific region and 3% on the U.S. Mainland. This geographic focus aligns with the bank's long-standing credit philosophy of lending primarily in its core markets, where its expertise enables sound credit decisions.

Outlook

The bank's management remains cautiously optimistic about the outlook for the remainder of 2024. While the Hawaiian economy is expected to maintain its stability, the bank is closely monitoring the potential impact of any changes in the interest rate environment and the ongoing recovery of the visitor market. The bank's disciplined approach to deposit pricing and expense management, coupled with its strong capital position, positions it well to navigate the evolving market conditions.

Conclusion

Overall, Bank of Hawaii's second-quarter 2024 results demonstrate the bank's ability to deliver solid financial performance while navigating the challenges of the current economic landscape. The bank's focus on its core Hawaiian market, prudent risk management, and strategic initiatives have contributed to its resilience and positioned it for continued success.