Q3 2023 Bank of Hawaii Corp Earnings Call

Revised Content:

Participants:
– Cynthia G. Wyrick; Director of Investor Relations; Bank of Hawaii Corporation
– Dean Y. Shigemura; Vice Chair & CFO; Bank of Hawaii Corporation
– Mary E. Sellers; Vice Chair & Chief Risk Officer; Bank of Hawaii Corporation
– Peter S. Ho; Chairman, President & CEO; Bank of Hawaii Corporation
– Andrew Brian Liesch; MD & Senior Research Analyst; Piper Sandler & Co., Research Division
– Jeffrey Allen Rulis; MD & Senior Research Analyst; D.A. Davidson & Co., Research Division
– Kelly Ann Motta; MD; Keefe, Bruyette, & Woods, Inc., Research Division

Presentation:

Operator:
Good day, and welcome to the Bank of Hawaii Corporation Third Quarter 2023 Earnings Conference Call. (Operator Instructions) Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Cindy Wyrick, Director of Investor Relations. Please go ahead.

Cynthia G. Wyrick:
Thank you. Good morning, good afternoon, everyone, and thank you for joining us today as we discuss the financial results for the third quarter of 2023. Joining me today is our CEO, Peter Ho; our CFO, Dean Shigemura; our CRO, Mary Sellers; and our IR Manager, Chang Park. Before we get started, let me remind you that today’s conference call will contain some forward-looking statements. And while we believe our assumptions are reasonable, there are a variety of reasons the actual results may differ materially from those projected. During the call this morning, we will be referencing a slide presentation as well as the earnings release, both of which are available on our website, boh.com, under the Investor Relations tab. And now I’d like to turn the call over to Peter Ho. Peter?

Peter S. Ho:
Thanks, Cindy. Good morning or good afternoon, everyone. We appreciate your interest in Bank of Hawaii. Before we begin, I’d like to acknowledge the tragic events of August 8 on Maui and in particular, in Lahaina. We are so fortunate that all of our employees on Maui are safe. Unfortunately, our Lahaina brand was destroyed. I’m incredibly proud of and thankful for our Maui leadership team who immediately mobilized into action as the tragedy unfolded, providing support to our affected employees, our customers, and the broader Maui community. Here in Oahu, over 100 of our staff have teamed with Hawaii Community Foundation to provide processing support for the Maui Strong Relief Fund, which now totals over $150 million. The recovery of Lahaina will take both time and patience. Bank of Hawaii intends to be there every step of the way.

Now onto the quarter. We produced another solid financial performance for the third quarter. Average deposits grew nicely in the quarter. Loan levels were flat. Margin continued to be pressured by the inversion in the curve, although we witnessed a material slowdown in margin erosion compared to the prior quarter. Expenses were well controlled, and we improved our capital levels meaningfully. Credit, as Mary will share with you, remains a very good story for us.

I’ll start off with some commentary on funding and then touch on broader market conditions in Hawaii. I’ll then hand it over to Mary, who will discuss credit, including the impact of Lahaina wildfires, and then Dean will then share with you some more granular color on the financials.

So why don’t we start, Chang, with the deposit market share slide. This is generally where I like to begin. And just to remind the audience that Hawaii is an interesting deposit market. It’s a market where effectively 5 local institutions hold 97% of the bank deposit market share. The data that you’re looking at here is the most recent addition of the Fed, of the FDIC annual summary of deposits. And fortunately, we’re happy to see Bank of Hawaii right up there at the top, really as a result of a lot of hard work over the past 125 years serving Hawaii’s consumers, businesses, and municipalities. Today, our deposit balances are 48% consumer, 41% business and 11% municipal.

In terms of deposit makeup, you see that 58% of our deposits are either insured or uninsured but collateralized. The deposits are incredibly long-tenured. So more than 50% or 53% of our deposits are 20 years or older by relationship, and 75% of our deposits are 10 years or older by relationships.

For the quarter, we had a spot increase of 1.4%, taking us to $20.8 billion for the third quarter. You’ll see here really for the balance of 2022, our deposit base has been pretty stable. Average balances in the quarter were actually up 2.4%. Our average balances were, I want to say, $20.5 billion for Q3 as compared to $20 billion for Q2. Comparing us to the broader national market of what HA deems as the small banks, you see that on a year-to-date basis, Bank of Hawaii has performed quite nicely versus the broader national competitor set.

Onto the funding side of deposits, we take a very unique position within the marketplace and have a leading top-of-mind brand position to generate meaningful pricing advantages over mid-sized banks. Here you see that in cost of interest-bearing deposits. On the next slide, you’ll see that extends into funding costs for total deposits. And then obviously, into betas, which are lower than our primary competitor set. We have also built meaningful tertiary or secondary sources of liquidity. As of the third quarter, our backup liquidity is up to $9.6 billion comprised of cash, securities available, FHLB and/or FRB borrowing capacity. This $9.6 billion is well in excess of our uninsured or uninsured and uncollateralized deposit base.

Switching gears now to the local economy. Performance has remained strong. Unemployment as of September was still below the national average. The supply of labor will still be challenging relative to the overall demand. The visitor industry continues to do well. So year-to-date, the state has experienced nice growth, both in spending as well as arrivals. In August, the wildfires on Maui had a meaningful impact on visitor statistics. But when you back those numbers out from the overall state, the state was still robust. Our understanding or our sense for the visitor industry going forward is a ramp up back to a more normal environment post Lahaina. Lahaina itself is driven by Kaanapali, which is the primary visitor accommodation site in that part of the island. The plan is to transition from that formal visitor back to the traditional U.S. or international visitor.

We’ll see how that progresses. But it seems to be a positive outlook for the future.

Reference

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