Bank of Hawaii Corporation (NYSE:BOH) Q4 2023 Earnings Conference Call January 22, 2024 1:00 PM ET Company Participants Cindy Wyrick - Director of Investor Relations Peter Ho - Chairman, President and Chief Executive Officer Brad Shairson - Vice Chair and Deputy Risk Officer Mary Sellers - Vice Chair and Chief Risk Officer Dean Shigemura - Vice Chair and Chief Financial Officer Conference Call Participants Jeffrey Rulis - D.A. Davidson Andrew Liesch - Piper Sandler Kelly Motta - KBW Operator Ladies and gent ...

cost of funds total deposits /h Bank of Hawaiʻi Corporation 0.05% 0.07% 0.20% 0.46% 0.75% 1.08% 1.40% 1.67% 0.08% 0.12% 0.31% 0.66% 1.09% 1.52% 1.85% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 BOH KRX median source: S&P Capital IQ; KBW Regional Banking Index (KRX) as of 1/3/23 12 deposit beta performance /h Bank of Hawai'i 0.0% 3.2% 7.1% 11.5% 15.9% 21.0% 26.1% 0.0% 3.5% 9.6% 15.4% 23.1% 28.7% 33.4% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 29.6% 31.4% 31.6% Oct-23 ...

For the quarter ended December 2023, Bank of Hawaii (BOH) reported revenue of $158.07 million, down 13.1% over the same period last year. EPS came in at $0.72, compared to $1.50 in the year-ago quarter.The reported revenue compares to the Zacks Consensus Estimate of $161.03 million, representing a surprise of -1.84%. The company delivered an EPS surprise of -19.10%, with the consensus EPS estimate being $0.89.While investors closely watch year-over-year changes in headline numbers -- revenue and earnings -- ...

Bank of Hawaii (BOH) came out with quarterly earnings of $0.72 per share, missing the Zacks Consensus Estimate of $0.89 per share. This compares to earnings of $1.50 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -19.10%. A quarter ago, it was expected that this bank holding company would post earnings of $0.96 per share when it actually produced earnings of $1.17, delivering a surprise of 21.88%.Over the last four quarters, ...

HONOLULU--(BUSINESS WIRE)--Bank of Hawai‘i Corporation (NYSE: BOH) today reported diluted earnings per common share of $4.14 for the full year of 2023 compared with diluted earnings per common share of $5.48 for the full year of 2022. An industry-wide FDIC Special Assessment resulted in a $14.7 million charge in the fourth quarter of 2023 which negatively impacted diluted earnings per common share by $0.29. Net income for the year was $171.2 million, down 24.2% from the previous year. The return on average ...

Wall Street analysts expect Bank of Hawaii (BOH) to post quarterly earnings of $0.89 per share in its upcoming report, which indicates a year-over-year decline of 40.7%. Revenues are expected to be $161.03 million, down 11.5% from the year-ago quarter.The current level reflects an upward revision of 3.9% in the consensus EPS estimate for the quarter over the past 30 days. This demonstrates how the analysts covering the stock have collectively reappraised their initial projections over this period.Before a c ...

[Part I - Financial Information](index=2&type=section&id=Part%20I%20-%20Financial%20Information) [Item 1. Financial Statements (Unaudited)](index=2&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents the unaudited consolidated financial statements for the periods ended September 30, 2023 - The statements are prepared per U.S. GAAP for interim reporting and include all necessary adjustments for fair presentation[103](index=103&type=chunk)[225](index=225&type=chunk) [Consolidated Statements of Income](index=3&type=section&id=Consolidated%20Statements%20of%20Income) Net income for Q3 2023 was $47.9 million, a decrease driven by lower net interest income Consolidated Income Statement Highlights (Q3 2023 vs Q3 2022) | Metric (in thousands, except per share) | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | **Net Interest Income** | $120,937 | $141,655 | | **Provision for Credit Losses** | $2,000 | $0 | | **Total Noninterest Income** | $50,334 | $30,660 | | **Total Noninterest Expense** | $105,601 | $105,749 | | **Net Income** | $47,903 | $52,801 | | **Diluted EPS** | $1.17 | $1.28 | Consolidated Income Statement Highlights (Nine Months Ended Sep 30) | Metric (in thousands, except per share) | 2023 | 2022 | | :--- | :--- | :--- | | **Net Interest Income** | $381,240 | $399,820 | | **Provision for Credit Losses** | $6,500 | ($8,000) | | **Total Noninterest Income** | $134,326 | $116,369 | | **Total Noninterest Expense** | $321,556 | $312,562 | | **Net Income** | $140,806 | $164,497 | | **Diluted EPS** | $3.42 | $3.98 | [Consolidated Statements of Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income improved to $29.7 million in Q3 2023 due to smaller unrealized losses on securities Comprehensive Income (Loss) (in thousands) | Period | Net Income | Other Comprehensive Loss | Comprehensive Income (Loss) | | :--- | :--- | :--- | :--- | | **Q3 2023** | $47,903 | ($18,180) | $29,723 | | **Q3 2022** | $52,801 | ($79,246) | ($26,445) | | **Nine Months 2023** | $140,806 | ($6,953) | $133,853 | | **Nine Months 2022** | $164,497 | ($381,312) | ($216,815) | [Consolidated Statements of Condition](index=5&type=section&id=Consolidated%20Statements%20of%20Condition) Total assets were $23.55 billion, with modest growth in loans and deposits as of September 30, 2023 Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | $23,549,785 | $23,606,877 | | Net Loans and Leases | $13,774,228 | $13,501,981 | | Investment Securities (AFS + HTM) | $7,475,337 | $8,258,962 | | **Total Deposits** | $20,802,309 | $20,615,696 | | **Total Shareholders' Equity** | $1,363,840 | $1,316,995 | [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) Shareholders' equity grew to $1.364 billion, driven by net income partially offset by dividends and buybacks - Total Shareholders' Equity increased to **$1,363.8 million** at September 30, 2023, from $1,317.0 million at December 31, 2022[87](index=87&type=chunk) - For the nine months ended September 30, 2023, **net income of $140.8 million** was a primary driver of the increase in equity[87](index=87&type=chunk) - Key reductions to equity included cash dividends on common stock (**$83.8 million**), preferred stock (**$5.9 million**), and common stock repurchases (**$14.1 million**)[87](index=87&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash increased by $250.5 million, with investing activities providing cash and financing activities using cash Cash Flow Summary (Nine Months Ended Sep 30, 2023, in thousands) | Activity | Amount | | :--- | :--- | | Net Cash Provided by Operating Activities | $124,570 | | Net Cash Provided by Investing Activities | $463,718 | | Net Cash Used in Financing Activities | ($337,829) | | **Net Change in Cash and Cash Equivalents** | **$250,459** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Details accounting policies, new standards, and provides breakdowns of key financial statement components [Note 3. Investment Securities](index=11&type=section&id=Note%203.%20Investment%20Securities) The company held $7.84 billion in securities, with unrealized losses of $1.35 billion due to interest rates Investment Securities Portfolio (Amortized Cost, in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Available-for-Sale | $2,752,093 | $3,172,436 | | Held-to-Maturity | $5,088,013 | $5,414,139 | | **Total** | **$7,840,106** | **$8,586,575** | - The company sold various corporate and municipal bonds from its AFS portfolio in Q3 2023, resulting in a **realized loss of $4.6 million**[117](index=117&type=chunk) - Gross unrealized losses of **$365.3 million in AFS** and **$983.5 million in HTM** securities as of Sep 30, 2023, were attributed to interest rate changes, not credit quality issues[92](index=92&type=chunk)[244](index=244&type=chunk) - As of September 30, 2023, investment securities with a carrying value of **$7.2 billion were pledged** to secure deposits, repurchase agreements, and FRB discount window borrowing[116](index=116&type=chunk) [Note 4. Loans and Leases and the Allowance for Credit Losses](index=14&type=section&id=Note%204.%20Loans%20and%20Leases%20and%20the%20Allowance%20for%20Credit%20Losses) Total loans grew to $13.92 billion, with an Allowance for Credit Losses of $145.3 million (1.04% of loans) Loan and Lease Portfolio (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Commercial | $5,679,469 | $5,464,503 | | Consumer | $8,240,022 | $8,181,917 | | **Total Loans and Leases** | **$13,919,491** | **$13,646,420** | Allowance for Credit Losses (ACL) Activity (Nine Months Ended Sep 30, 2023, in thousands) | Description | Amount | | :--- | :--- | | Balance at Beginning of Period | $144,439 | | Net Charge-Offs | ($6,094) | | Provision for Credit Losses | $6,918 | | **Balance at End of Period** | **$145,263** | - The ACL as of Sep 30, 2023, considered the impact of the **Maui wildfires**, factoring in insurance coverage and collateral values[141](index=141&type=chunk) - **Non-accrual loans decreased to $10.5 million** as of Sep 30, 2023, from $11.6 million at year-end 2022[164](index=164&type=chunk) [Note 10. Business Segments](index=32&type=section&id=Note%2010.%20Business%20Segments) Consumer and Commercial Banking were profitable, while the Treasury segment recorded a significant loss Net Income (Loss) by Business Segment (Nine Months Ended Sep 30, in thousands) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Consumer Banking | $103,222 | $57,026 | | Commercial Banking | $98,197 | $88,576 | | Treasury and Other | ($60,613) | $18,895 | | **Consolidated Total** | **$140,806** | **$164,497** | - The company's internal management accounting process, including funds transfer pricing and expense allocations, is used to measure segment performance[233](index=233&type=chunk)[234](index=234&type=chunk) [Note 11. Derivative Financial Instruments](index=35&type=section&id=Note%2011.%20Derivative%20Financial%20Instruments) The company uses interest rate swaps to manage risk, with a notional hedging amount of $2.0 billion Derivative Financial Instruments (Notional Amounts, in thousands) | Instrument | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Designated as Hedges:** | | | | Interest Rate Swaps | $2,000,000 | $0 | | **Not Designated as Hedges:** | | | | Interest Rate Swaps (Receive/Pay) | $4,010,552 | $3,642,866 | | Interest Rate Lock Commitments | $11,764 | $3,860 | - The company entered into pay-fixed, receive-floating interest rate swaps designated as fair value hedges to manage exposure to changes in the fair value of its AFS securities and fixed-rate loans[247](index=247&type=chunk) [Note 13. Fair Value of Assets and Liabilities](index=39&type=section&id=Note%2013.%20Fair%20Value%20of%20Assets%20and%20Liabilities) Details the fair value hierarchy for assets and liabilities, with Level 3 assets primarily in derivatives Assets Measured at Fair Value on a Recurring Basis (Sep 30, 2023, in thousands) | Category | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Investment Securities AFS | $142,059 | $2,245,265 | $0 | $2,387,324 | | Mortgage Servicing Rights | $0 | $0 | $685 | $685 | | Derivatives | $0 | $71 | $210,663 | $210,734 | | Other Assets | $51,435 | $1,450 | $0 | $52,885 | Fair Value of Financial Instruments Not on Balance Sheet (Sep 30, 2023, in thousands) | Instrument | Carrying Amount | Fair Value | | :--- | :--- | :--- | | Investment Securities HTM | $5,088,013 | $4,104,469 | | Loans | $13,651,759 | $12,416,800 | | Time Deposits | $2,659,014 | $2,627,361 | - **Level 3 assets**, requiring significant management judgment, include Mortgage Servicing Rights (**$27.1M fair value**) and Interest Rate Swap Agreements (**$8.2M net fair value**)[271](index=271&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Discusses a 9% YoY net income decline, the Maui wildfire impact, and the company's strong overall risk profile [Overview and Maui Wildfires](index=48&type=section&id=Overview%20and%20Maui%20Wildfires) Details the company's response to the Maui wildfires, with an estimated potential loss exposure of $10.8 million - The company's business strategy focuses on balancing growth and risk management, leveraging market knowledge and brand strength[288](index=288&type=chunk) - In response to the Maui wildfires, the company donated **$100,000 to the Maui Strong Fund** and implemented emergency relief programs for affected customers[289](index=289&type=chunk) Maui Wildfire Loan Exposure (as of Sep 30, 2023) | Exposure Category | Amount (in millions) | | :--- | :--- | | Total Loans to Impacted Customers | $169.2 | | Loans Under Payment Deferral | $136.4 | | **Estimated Potential Loss Exposure** | **$10.8** | [Earnings Summary](index=49&type=section&id=Earnings%20Summary) Q3 2023 net income fell 9% to $47.9 million due to a 15% drop in net interest income Q3 2023 vs. Q3 2022 Performance | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Net Income | $47.9M | $52.8M | -9% | | Diluted EPS | $1.17 | $1.28 | -9% | | Net Interest Income | $120.9M | $141.7M | -15% | | Provision for Credit Losses | $2.0M | $0 | +$2.0M | | Noninterest Income | $50.3M | $30.7M | +64% | - The return on average common equity was **15.38% for Q3 2023**, compared to 16.98% in Q3 2022[11](index=11&type=chunk) - The Board of Directors declared a quarterly cash dividend of **$0.70 per common share**[26](index=26&type=chunk) - **No shares of common stock were repurchased** in Q3 2023, with total remaining buyback authority at $126.0 million[26](index=26&type=chunk) [Analysis of Statements of Income](index=51&type=section&id=Analysis%20of%20Statements%20of%20Income) Net interest income declined 15% YoY as rising funding costs outpaced growth in earning asset yields - Net interest income is analyzed through average balances, yields, and rates, with detailed tables provided for changes on a taxable-equivalent basis[12](index=12&type=chunk)[13](index=13&type=chunk) [Analysis of Statements of Condition](index=56&type=section&id=Analysis%20of%20Statements%20of%20Condition) Total assets remained flat at $23.5 billion, with loan growth offsetting a decline in investment securities - The carrying value of the investment securities portfolio **decreased to $7.5 billion** at Sep 30, 2023, from $8.3 billion at Dec 31, 2022[22](index=22&type=chunk) - Total loans and leases **increased by $273.1 million (2%)** from year-end 2022, primarily from growth in commercial and residential lending[430](index=430&type=chunk) - Total deposits **increased by $186.6 million (1%)** from year-end 2022, with a notable shift into time deposits[435](index=435&type=chunk) [Analysis of Business Segments](index=61&type=section&id=Analysis%20of%20Business%20Segments) Consumer and Commercial Banking net income grew, while the Treasury segment reported a significant net loss Business Segment Net Income (Nine Months Ended Sep 30, in thousands) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Consumer Banking | $103,222 | $57,026 | | Commercial Banking | $98,197 | $88,576 | | Treasury and Other | ($60,613) | $18,895 | | **Consolidated Total** | **$140,806** | **$164,497** | [Corporate Risk Profile](index=63&type=section&id=Corporate%20Risk%20Profile) The company maintains a strong risk profile with low credit risk, managed market risk, and robust liquidity - Non-Performing Assets (NPAs) decreased to **$11.5 million (0.08% of loans)** at Sep 30, 2023, from $12.6 million at Dec 31, 2022[352](index=352&type=chunk) - The total Reserve for Credit Losses stood at **$151.7 million** as of Sep 30, 2023, with the Allowance for Credit Losses ratio at 1.04% of total loans[343](index=343&type=chunk) - The company manages interest rate risk using Net Interest Income (NII) and Economic Value of Equity (EVE) sensitivity analysis, remaining within board-approved limits[360](index=360&type=chunk) - As of Sep 30, 2023, the company had significant contingent liquidity, including **$6.1 billion in borrowing capacity** from the Federal Reserve and **$2.5 billion from the FHLB**[391](index=391&type=chunk) [Capital Management](index=69&type=section&id=Capital%20Management) The company remains 'well-capitalized' with a CET1 ratio of 11.29% and all ratios exceeding regulatory minimums Regulatory Capital Ratios | Ratio | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Common Equity Tier 1 | 11.29% | 10.92% | | Tier 1 Capital | 12.53% | 12.15% | | Total Capital | 13.56% | 13.17% | | Tier 1 Leverage | 7.22% | 7.37% | - As of September 30, 2023, the Company's capital levels remained characterized as **'well-capitalized'**[380](index=380&type=chunk) - Remaining buyback authority under the share repurchase program was **$126.0 million** as of September 30, 2023[383](index=383&type=chunk) - In October 2023, the Board declared a quarterly cash dividend of **$0.70 per common share**[396](index=396&type=chunk) [Part II - Other Information](index=72&type=section&id=Part%20II%20-%20Other%20Information) [Risk Factors](index=72&type=section&id=Item%201A.%20Risk%20Factors) Highlights new risks from banking sector instability, including potential adverse regulatory changes - Recent bank failures have led to **decreased confidence in the banking sector**, market disruption, and could adversely impact the company's stock price and volatility[415](index=415&type=chunk) - There is a risk of potentially adverse changes to laws or regulations, including **higher capital requirements or increased FDIC premiums**, which could materially impact the business[416](index=416&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=73&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No shares were repurchased in Q3 2023, with $126.0 million remaining under the buyback authorization Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | Remaining Authorization (USD) | | :--- | :--- | :--- | :--- | :--- | | Jul 2023 | 2,923 | $43.00 | 0 | 126,038,927 | | Aug 2023 | 0 | - | 0 | 126,038,927 | | Sep 2023 | 0 | - | 0 | 126,038,927 | | **Total** | **2,923** | **$43.00** | **0** | **126,038,927** | [Controls and Procedures](index=71&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes in the quarter - The CEO and CFO concluded that the Company's **disclosure controls and procedures were effective** as of September 30, 2023[400](index=400&type=chunk) - **No material changes** to the Company's internal control over financial reporting occurred during the third quarter of 2023[412](index=412&type=chunk)

Financial Data and Key Metrics Changes - Net income for Q3 2023 was $47.9 million, with earnings per common share increasing by $0.05 to $1.17 compared to the previous quarter [18] - Return on common equity was 15.38%, and the efficiency ratio was 61.66% [18] - Net interest income decreased by $3.4 million to $120.9 million, with net interest margin down by nine basis points to 2.13% [69][110] - Noninterest income totaled $50.3 million, including $14.7 million from gains on repurchase agreements, offset by a loss of $4.6 million from the sale of AFS securities [17][96] Business Line Data and Key Metrics Changes - The commercial real estate portfolio represents 27% of total loans, with a weighted average loan-to-value of 55% [64] - The construction portfolio is 2% of total loans, primarily focused on low-income or affordable housing [12] - Loans delinquent by 30 days or more remained stable at 23 basis points, with criticized loans at 2% of total loans [68] Market Data and Key Metrics Changes - Average deposits grew by 2.4% to $20.5 billion in Q3, with a spot increase of 1.4% [57] - The visitor industry in Hawaii saw a 10% increase in spending and an 8% increase in arrivals year-to-date, despite a temporary decline due to the Maui wildfires [84] - The unemployment rate in Hawaii remains below the national average, indicating a strong local economy [59] Company Strategy and Development Direction - The company aims to maintain a strong deposit base and has built secondary sources of liquidity to support its operations [58] - The focus remains on lending in core markets of Hawaii and the West Pacific, leveraging long-standing relationships [63] - The company is actively managing its asset duration and has added $1.8 billion in interest rate swaps to hedge against rising rates [70][111] Management's Comments on Operating Environment and Future Outlook - Management noted a material slowdown in margin erosion compared to the prior quarter, with well-controlled expenses and improved capital levels [3] - The impact of the Maui wildfires on employment is uncertain, but there is optimism for recovery in the affected areas [6][8] - The lending environment is expected to remain modest, with potential opportunities arising from the rebuilding phase post-wildfires [22] Other Important Information - The company paid out $28 million in dividends to common shareholders during the quarter and declared a dividend of $0.70 per common share for Q4 2023 [35] - The allowance for loan and lease losses was $145.3 million, with a ratio of 1.04% to total loans [109] Q&A Session Summary Question: What is the outlook for noninterest-bearing deposits? - Management indicated that noninterest-bearing deposits were down 2.9% on average for Q3, with expectations of stabilization around 28.5% [99] Question: How does the company view the impact of potential rate hikes? - Management believes that if the Fed maintains higher rates, it could lead to margin expansion, especially with hedges in place [101] Question: What are the expectations for loan growth into 2024? - The outlook for loan growth is moderate, with management anticipating a flat to slightly up trend in the lending environment [22][115]

Financial Data and Key Metrics Changes - Net interest income was $124.3 million in Q2 2023, a decrease of $11.6 million from the previous quarter [9] - Net interest margin decreased to 2.22%, down 25 basis points from the linked quarter [9] - Earnings per share for the quarter was $1.12, with net income reported at $46.1 million [14][47] - The efficiency ratio was 62.07%, and the return on common equity was 14.95% [47] Business Line Data and Key Metrics Changes - Non-interest income totaled $43.3 million in Q2 2023, with an adjusted figure of $41.7 million, reflecting a $400,000 increase from the previous quarter [24] - The commercial real estate portfolio represents 27% of total loans, with a weighted average loan-to-value of 50% [40] - The allowance for credit losses was $145.4 million, flat at 1.04% of total loans and leases outstanding [41] Market Data and Key Metrics Changes - Total deposits grew during the quarter, with a stable deposit performance noted [14][37] - Hawaii's unemployment rate decreased to 3% in June, down from 3.7% at year-end [38] - Visitor expenditures in May were up 19% from pre-pandemic levels, indicating a recovering tourism sector [38] Company Strategy and Development Direction - The company is focused on expense management and maintaining deposit quality in the current economic environment [4][14] - There is an emphasis on disciplined portfolio management and optimizing the risk profile within the core portfolio [19] - The company plans to maintain its dividend levels while assessing capital needs and earnings retention [71] Management's Comments on Operating Environment and Future Outlook - Management noted that credit quality remains strong, with non-performing assets at 8 basis points and net charge-offs at 4 basis points [14] - The company anticipates continued pressure on non-interest-bearing deposits as rates rise, with a projected deposit beta of 30% by Q4 [22][64] - Future loan growth is expected to be flat, with a cautious outlook on consumer and commercial lending activity [60] Other Important Information - The company added $1.25 billion of fixed-rate term funding at an average rate of 4.3% [10] - The capital ratios remain well above regulatory minimums, with a dividend of $0.70 per common share declared for Q3 2023 [27] Q&A Session Summary Question: What was the cost of funds for the quarter? - The cost of funds for the quarter was 1.08%, with a margin of 2.14% for June [31][51] Question: What is the outlook for non-interest-bearing deposits? - The guidance incorporates a mix shift, with non-interest-bearing deposits expected to decrease to around 26%-27% [64][65] Question: How does the company view its dividend payout? - The company aims to maintain its dividend levels, contingent on earnings and economic conditions [71]

Part I [Item 1. Financial Statements (Unaudited)](index=2&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents unaudited consolidated financial statements for Bank of Hawai'i Corporation, including income, condition, equity, and cash flow statements [Consolidated Statements of Income](index=3&type=section&id=Consolidated%20Statements%20of%20Income) Reports net income decline in Q2 and six months 2023, driven by increased interest expense outpacing interest income growth | Metric (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | **Total Interest Income** | $199,751 | $139,562 | $388,083 | $270,135 | | **Total Interest Expense** | $75,403 | $6,660 | $127,780 | $11,970 | | **Net Interest Income** | $124,348 | $132,902 | $260,303 | $258,165 | | **Provision for Credit Losses** | $2,500 | ($2,500) | $4,500 | ($8,000) | | **Net Income** | $46,061 | $56,862 | $92,903 | $111,696 | | **Diluted EPS** | $1.12 | $1.38 | $2.26 | $2.70 | [Consolidated Statements of Condition](index=5&type=section&id=Consolidated%20Statements%20of%20Condition) Details the balance sheet as of June 30, 2023, showing increased assets and liabilities, driven by loan growth and other debt | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | $24,947,936 | $23,606,877 | | Net Loans and Leases | $13,769,522 | $13,501,981 | | Investment Securities (AFS + HTM) | $7,869,421 | $8,258,962 | | **Total Liabilities** | $23,589,657 | $22,289,882 | | Total Deposits | $20,508,615 | $20,615,696 | | Other Debt | $1,760,243 | $410,294 | | **Total Shareholders' Equity** | $1,358,279 | $1,316,995 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Presents cash flow changes for H1 2023, noting a shift to cash used in operations and significant cash from financing activities | Activity (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | ($19,369) | $158,349 | | Net Cash Provided by (Used in) Investing Activities | $118,946 | ($439,043) | | Net Cash Provided by Financing Activities | $1,172,098 | $559,626 | | **Net Change in Cash and Cash Equivalents** | **$1,271,675** | **$278,932** | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Provides detailed disclosures on accounting policies and financial statement items, including investment securities and loan portfolio - In January 2023, the Company adopted **ASU 2022-02**, which eliminated the accounting guidance for **troubled debt restructurings (TDRs)** and enhanced disclosure requirements for loan modifications to borrowers experiencing financial difficulty[19](index=19&type=chunk) - The company's lending activity is primarily concentrated with customers in the **State of Hawaii**, with a substantial portion of real estate loans secured by properties in Hawaii[69](index=69&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=45&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2023 financial results, highlighting net income decrease due to funding costs and risk management - Net income for Q2 2023 was **$46.1 million**, a **19% decrease** from Q2 2022, with diluted EPS at **$1.12**[242](index=242&type=chunk) - Net interest margin was **2.22%** in Q2 2023, a **25 basis points decrease** from the same period in 2022, due to higher funding costs and increased liquidity[243](index=243&type=chunk) - The Hawaii unemployment rate was **3.0%** in June 2023, below the U.S. rate of **3.6%**, indicating a resilient local economy despite a slowdown in the housing market[267](index=267&type=chunk) - The company maintained a strong balance sheet with total assets increasing to **$24.9 billion**, up **7.4%** from year-end 2022, and total loans and leases growing **2.0%** to **$13.9 billion**[273](index=273&type=chunk)[274](index=274&type=chunk) [Analysis of Statements of Income](index=48&type=section&id=Analysis%20of%20Statements%20of%20Income) Analyzes income statement changes, noting decreased net interest income due to rising funding costs and increased noninterest expense - Yields on earning assets increased by **96 basis points** in Q2 2023 compared to Q2 2022, while rates paid on interest-bearing liabilities increased by **167 basis points** over the same period[254](index=254&type=chunk)[306](index=306&type=chunk) - Noninterest expense increased by **1%** in Q2 2023 YoY, primarily due to a **$1.6 million** increase in FDIC insurance expense[271](index=271&type=chunk)[314](index=314&type=chunk) [Analysis of Statements of Condition](index=53&type=section&id=Analysis%20of%20Statements%20of%20Condition) Examines balance sheet changes, including investment securities losses, loan growth, and significant increase in other debt - Total loans and leases increased by **$268.5 million (2%)** from December 31, 2022, driven by growth in commercial and industrial, commercial mortgage, residential mortgage, and home equity lines of credit[296](index=296&type=chunk) - Total deposits decreased by **$107.1 million (1%)** from year-end 2022, with consumer and commercial core deposits declining while time deposits and public deposits increased[348](index=348&type=chunk) - FHLB advances increased by **$1.35 billion** from December 31, 2022, to a total of **$1.75 billion**, providing fixed-rate funding to mitigate interest rate risk[329](index=329&type=chunk) [Corporate Risk Profile](index=60&type=section&id=Corporate%20Risk%20Profile) Assesses the company's strong credit risk profile, robust liquidity, and capital ratios exceeding regulatory thresholds | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Non-Performing Assets (in thousands) | $11,477 | $12,647 | | NPA Ratio to Loans & REO | 0.08% | 0.09% | | Allowance for Credit Losses (in thousands) | $145,367 | $144,439 | | Allowance to Total Loans | 1.04% | 1.06% | - As of June 30, 2023, the company had additional borrowing capacity of **$5.2 billion** from the Federal Reserve Bank and **$1.4 billion** from the Federal Home Loan Bank[379](index=379&type=chunk) | Capital Ratio | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Common Equity Tier 1 | 11.00% | 10.92% | | Tier 1 Capital | 12.21% | 12.15% | | Total Capital | 13.24% | 13.17% | [Quantitative and Qualitative Disclosures About Market Risk](index=68&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Refers to the detailed discussion of market risk within the Management's Discussion and Analysis (MD&A) section - The information required for this item is incorporated by reference from the **'Market Risk' section of the MD&A**[425](index=425&type=chunk) [Controls and Procedures](index=68&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of June 30, 2023, with no material changes to internal controls - The CEO and CFO concluded that the Company's disclosure controls and procedures were **effective** as of June 30, 2023[426](index=426&type=chunk) - **No changes** occurred during the quarter ended June 30, 2023, that have **materially affected**, or are reasonably likely to materially affect, the Company's internal control over financial reporting[389](index=389&type=chunk) Part II - Other Information [Legal Proceedings](index=69&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal proceedings arising from the normal course of business - Information regarding legal proceedings is incorporated by reference from **Note 12**, which states the company has established **reserves** for legal claims where a loss is probable and reasonably estimable[413](index=413&type=chunk)[221](index=221&type=chunk) [Risk Factors](index=69&type=section&id=Item%201A.%20Risk%20Factors) No material changes from the 10-K, except for new risks related to recent financial industry events and potential adverse regulatory changes - Recent bank failures (Silicon Valley Bank, Signature Bank, First Republic Bank) have resulted in **decreased confidence** in the banking sector, **market volatility**, and could lead to **adverse regulatory changes** such as higher capital requirements or increased FDIC premiums[435](index=435&type=chunk)[415](index=415&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=70&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase shares under its program in Q2 2023, but acquired shares for tax withholding | Period (2023) | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | April 1 - 30 | 2,353 | $51.32 | 0 | | May 1 - 31 | 0 | N/A | 0 | | June 1 - 30 | 406 | $42.59 | 0 | | **Total** | **2,759** | **$50.03** | **0** | - The remaining authority under the share repurchase program was approximately **$126.0 million** as of June 30, 2023[416](index=416&type=chunk) [Exhibits](index=70&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including corporate governance documents, CEO/CFO certifications, and XBRL files - Filed exhibits include **CEO and CFO certifications** pursuant to **Sarbanes-Oxley Act Sections 302 and 906**, and **Inline XBRL documents**[89](index=89&type=chunk)[418](index=418&type=chunk)[433](index=433&type=chunk)