• Net Income: $40.4 million for the third quarter.
• Earnings Per Share (EPS): $0.93 per common share.
• Net Interest Income: Increased by $2.8 million in the third quarter.
• Net Interest Margin (NIM): Increased by 3 basis points.
• Non-Interest Income: Totaled $45.1 million, up $3 million from the second quarter.
• Operating Expenses: Reported and core expenses were $107.1 million in the third quarter.
• Provision for Credit Losses: $3 million for the quarter.
• Tier 1 Capital Ratio: Increased to 14.05%.
• Total Capital Ratio: Increased to 15.11%.
• Dividends: $28 million paid to common shareholders and $3.4 million in preferred stock dividends.
• Allowance for Credit Losses (ACL): Ended the quarter at $147.3 million.
• Net Charge-Offs: $3.8 million or 11 basis points annualized.

• Warning! GuruFocus has detected 3 Warning Signs with CFPUF.

Release Date: October 28, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Bank of Hawaii Corp (NYSE:BOH) reported an increase in net income and diluted earnings per share for the third quarter of 2024.
• Net interest income and net interest margin expanded for the second consecutive quarter.
• The company maintained its top deposit market share position in Hawaii for 2024.
• Credit quality remains strong with low net charge-offs and stable non-performing assets.
• Capital levels improved across all measures, with a Tier 1 capital ratio of 14.05% and a total capital ratio of 15.11%.

Negative Points

• Loan growth has slowed due to suppressed demand from the high rate environment.
• Deposit mix shift negatively impacted net interest income by $2.6 million in the third quarter.
• Non-interest bearing and low-yield interest bearing deposit balances declined by $315 million linked quarter.
• Criticized assets grew slightly, reaching 2.42% at quarter end.
• The company expects a one-time charge of $2.3 million related to the Visa Class B conversion ratio change in the fourth quarter.

Q & A Highlights

Q: Were there any interest recoveries or one-timers in the margin this quarter? A: Dean Shigemura, CFO: There was a small amount of reversals, about $100,000, so nothing material. The margin in September was 2.17%.

Q: Can you summarize the impact of the rate cut on the margin? A: Dean Shigemura, CFO: We expect net interest income (NII) and margin to gently increase quarter-over-quarter. Asset repricing from cash flows will be partially offset by continued deposit remix. Over the longer term, the Fed funds rate cut will be accretive, initially having a slight negative impact.

Q: Is there a specific sector causing the increase in non-accruals? A: S. Bradley Shairson, Chief Risk Officer: The rise in non-accruals wasn't from a specific sector but from non-core lending activities done historically. If pressed, the lodging sector, particularly those dependent on international visitors, might show slight weakness, but overall, there's nothing systemic in the portfolio.

Q: Should we expect end-of-period deposits to trend towards average? A: James Polk, Chief Banking Officer: We saw unexpected large public deposits and seasonal builds at the end of the quarter. In Q4, we expect moderation towards the average as temporary deposits run off and new business migrates to asset management.

Q: What's the exposure to lodging tied to international visitors? A: James Polk, Chief Banking Officer: It's hard to isolate, but it's a fraction of the $700 million in lodging. The international segment is performing well, with Japan visitor arrivals and spending up significantly.

Q: What drove commercial real-estate gains this quarter? A: James Polk, Chief Banking Officer: It was a mix of commercial mortgage and some construction. Pipelines and production have built nicely through Q3, indicating a positive trend.

Q: Can you clarify the expected expenses for Q4? A: Dean Shigemura, CFO: We guided to a 1% to 1.5% increase for the full year, implying a higher end of about $109 million for Q4, but likely on the lower end. There were some one-time items in Q3, but they netted out.

Q: What is the impact of the Fed funds rate on NII? A: Peter Ho, CEO: The short-term NII impact of $2.5 million is from immediate repricing of rate-sensitive assets and deposits, not including cash flow reinvestment at higher rates, which contributes to a general NII lift.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.