Bank of Hawaii(BOH) - 2024 Q3 - Quarterly Report

Part I - Financial Information Presents the unaudited financial statements and management's analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements and accompanying notes for the periods ended September 30, 2024 Consolidated Statements of Condition Details the company's assets, liabilities, and shareholders' equity at the end of the reporting period Consolidated Statements of Condition | (dollars in thousands) | September 30, 2024 | December 31, 2023 | |:-----------------------|:-------------------|:------------------| | Total Assets | $23,799,174 | $23,733,296 | | Total Liabilities | $22,133,700 | $22,319,054 | | Total Shareholders' Equity | $1,665,474 | $1,414,242 | - Total Assets increased by $65.9 million (0.28%), Total Liabilities decreased by $185.4 million (0.83%), and Total Shareholders' Equity increased by $251.2 million (17.76%) from December 31, 2023, to September 30, 2024[5] Consolidated Statements of Income Reports the company's revenues, expenses, and net income over the reporting period Consolidated Statements of Income | (dollars in thousands, except per share amounts) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Total Interest Income | $220,648 | $211,945 | $644,534 | $600,028 | | Total Interest Expense | $103,030 | $91,008 | $298,132 | $218,788 | | Net Interest Income | $117,618 | $120,937 | $346,402 | $381,240 | | Provision for Credit Losses | $3,000 | $2,000 | $7,400 | $6,500 | | Total Noninterest Income | $45,110 | $50,334 | $129,482 | $134,326 | | Total Noninterest Expense | $107,092 | $105,601 | $322,177 | $321,556 | | Net Income | $40,358 | $47,903 | $110,832 | $140,806 | | Basic Earnings Per Common Share | $0.94 | $1.17 | $2.62 | $3.44 | | Diluted Earnings Per Common Share | $0.93 | $1.17 | $2.61 | $3.42 | - Net Income for the three months ended September 30, 2024, decreased by $7.5 million (15.75%) compared to the same period in 2023, while for the nine-month period, it decreased by $30.0 million (21.29%)[6] Consolidated Statements of Comprehensive Income Outlines net income and other comprehensive income changes, including unrealized gains and losses Consolidated Statements of Comprehensive Income | (dollars in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net Income | $40,358 | $47,903 | $110,832 | $140,806 | | Total Other Comprehensive Income (Loss) | $39,001 | $(18,180) | $61,328 | $(6,953) | | Comprehensive Income | $79,359 | $29,723 | $172,160 | $133,853 | - Comprehensive Income for Q3 2024 significantly increased by $49.6 million (167%) year-over-year, driven by unrealized gains on investment securities[7] - For the nine months ended September 30, 2024, Comprehensive Income increased by $38.3 million (28.62%) compared to the same period in 2023[7] Consolidated Statements of Shareholders' Equity Summarizes the changes in shareholders' equity accounts during the reporting period Consolidated Statements of Shareholders' Equity | (dollars in thousands) | Balance as of Sep 30, 2024 | Balance as of Dec 31, 2023 | |:-----------------------|:---------------------------|:---------------------------| | Preferred Stock Series A | $180,000 | $180,000 | | Preferred Stock Series B | $165,000 | — | | Common Stock | $585 | $583 | | Capital Surplus | $643,620 | $636,422 | | Accumulated Other Comprehensive Loss | $(335,360) | $(396,688) | | Retained Earnings | $2,127,585 | $2,107,569 | | Treasury Stock, at Cost | $(1,115,956) | $(1,113,644) | | Total Shareholders' Equity | $1,665,474 | $1,414,242 | - Total Shareholders' Equity increased by $251.2 million (17.76%) from December 31, 2023, to September 30, 2024, primarily due to the issuance of Series B Preferred Stock and an increase in retained earnings[5][9] Consolidated Statements of Cash Flows Details cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows | (dollars in thousands) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------------|:-------------------------------|:-------------------------------| | Net Cash Provided by Operating Activities | $84,936 | $124,570 | | Net Cash Provided by Investing Activities | $245,680 | $463,718 | | Net Cash Used in Financing Activities | $(58,797) | $(337,829) | | Net Change in Cash and Cash Equivalents | $271,819 | $250,459 | | Cash and Cash Equivalents at End of Period | $1,272,763 | $652,226 | - For the nine months ended September 30, 2024, net cash from operating activities decreased by $39.6 million (31.82%) and from investing activities by $218.0 million (47.02%) year-over-year[10] - Net cash used in financing activities significantly decreased by $279.0 million (82.59%), primarily due to the issuance of preferred stock and reduced debt repayments[10] Notes to Consolidated Financial Statements Provides detailed explanations of the accounting policies and figures in the financial statements Note 1. Summary of Significant Accounting Policies Outlines the key accounting principles and policies applied in the financial statements - Bank of Hawaii Corporation is a bank holding company providing financial services in Hawai'i and the West Pacific, with unaudited financial statements prepared under U.S. GAAP[11] - On June 21, 2024, the Company issued 6,600,000 depositary shares representing Series B Preferred Stock, with net proceeds of $160.6 million[12] Note 2. Cash and Cash Equivalents Details the components of the company's cash and cash equivalents Cash and Cash Equivalents | (dollars in thousands) | September 30, 2024 | |:-----------------------|:-------------------| | Interest-Bearing Deposits in Other Banks | $8,287 | | Funds Sold | $992,854 | | Cash and Due From Banks | $271,622 | | Total Cash and Cash Equivalents | $1,272,763 | Note 3. Investment Securities Provides a breakdown of available-for-sale and held-to-maturity investment securities Investment Securities by Category | (dollars in thousands) | September 30, 2024 Fair Value | December 31, 2023 Fair Value | |:-----------------------|:------------------------------|:-----------------------------| | Available-for-Sale | $2,550,324 | $2,408,933 | | Held-to-Maturity | $4,072,596 | $4,253,637 | | Total | $6,622,920 | $6,662,570 | - As of September 30, 2024, total gross unrealized losses were $219.7 million on Available-for-Sale (AFS) securities and $638.0 million on Held-to-Maturity (HTM) securities, attributed to interest rate changes rather than credit quality[14][17] Net Gains (Losses) on Sales of Investment Securities | (dollars in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net Gains (Losses) on Sales of Investment Securities | $(1,103) | $(6,734) | $(4,201) | $(9,836) | - Net losses on sales of investment securities decreased by $5.6 million for Q3 2024 and by $5.6 million for the nine-month period compared to 2023, due to a large realized loss in Q3 2023 and higher fees paid in 2023[15][16] Note 4. Loans and Leases and the Allowance for Credit Losses Details the composition of the loan portfolio and the allowance for potential credit losses Loans and Leases and Allowance for Credit Losses | (dollars in thousands) | September 30, 2024 | December 31, 2023 | |:-----------------------|:-------------------|:------------------| | Total Loans and Leases | $13,918,583 | $13,965,026 | | Allowance for Credit Losses | $147,331 | $146,403 | - Total loans and leases decreased by $46.4 million (0.33%) from year-end 2023, while the Allowance for Credit Losses increased by $0.9 million (0.63%)[5][20] Net Charge-Offs | (dollars in thousands) | Three Months Ended Sep 30, 2024 Net Charged-Off | Three Months Ended Sep 30, 2023 Net Charged-Off | Nine Months Ended Sep 30, 2024 Net Charged-Off | Nine Months Ended Sep 30, 2023 Net Charged-Off | |:-----------------------|:------------------------------------------------|:------------------------------------------------|:-----------------------------------------------|:-----------------------------------------------| | Commercial | $(955) | $(222) | $(1,811) | $(533) | | Consumer | $(2,875) | $(1,827) | $(7,693) | $(5,561) | | Total | $(3,830) | $(2,049) | $(9,504) | $(6,094) | - Net charge-offs increased by $1.8 million (86.92%) for Q3 2024 and by $3.4 million (55.96%) for the nine-month period compared to 2023, driven by higher charge-offs in both commercial and consumer portfolios[23] Non-Performing Assets | (dollars in thousands) | September 30, 2024 | December 31, 2023 | |:-----------------------|:-------------------|:------------------| | Total Non-Accrual Loans and Leases | $17,114 | $9,649 | | Total Non-Performing Assets | $19,781 | $11,747 | | Total Accruing Loans and Leases Past Due 90 Days or More | $7,535 | $6,595 | - Non-accrual loans increased by $7.5 million (77.37%) from year-end 2023, primarily due to increases in commercial and industrial and residential mortgage non-accrual loans[36][131][132] - Total Non-Performing Assets increased by $8.0 million (68.4%) over the same period[36][131] Note 5. Mortgage Servicing Rights Discusses the valuation and performance of the company's mortgage servicing rights portfolio - The portfolio of residential mortgage loans serviced for third parties was $2.5 billion as of September 30, 2024, down from $2.6 billion at year-end 2023[50] - Key valuation assumptions as of September 30, 2024, include a weighted-average constant prepayment rate of 4.20% and a discount rate of 9.28%[52] Mortgage Servicing Rights Balance | (dollars in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Balance at End of Period (Amortization Method) | $18,911 | $20,588 | $18,911 | $20,588 | Note 6. Affordable Housing Projects Tax Credit Partnerships Describes investments in affordable housing projects and related tax credit benefits - The Company invests in affordable housing projects using Low-Income Housing Tax Credits (LIHTC) to achieve returns and meet Community Reinvestment Act goals[53][55] Unfunded Commitments | (dollars in thousands) | September 30, 2024 | |:-----------------------|:-------------------| | Total Unfunded Commitments | $105,365 | Tax Benefits Recognized | (dollars in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Tax Credits and Other Tax Benefits Recognized (Proportional Amortization Method) | $6,210 | $3,696 | $18,631 | $14,572 | | Amortization Expense in Provision for Income Taxes (Proportional Amortization Method) | $5,348 | $3,203 | $16,044 | $12,630 | Note 7. Securities Sold Under Agreements to Repurchase Details the company's repurchase agreements used for short-term funding Repurchase Agreements | (dollars in thousands) | September 30, 2024 | December 31, 2023 | |:-----------------------|:-------------------|:------------------| | Total Repurchase Agreements | $100,490 | $150,490 | - Securities sold under agreements to repurchase decreased by $50.0 million (33.22%) from year-end 2023, as a private institution called a $50.0 million agreement in May 2024[58][61][126] Note 8. Accumulated Other Comprehensive Income (Loss) Breaks down the components of accumulated other comprehensive income, such as unrealized gains Changes in Accumulated Other Comprehensive Income (Loss) | (dollars in thousands) | Three Months Ended Sep 30, 2024 Net of Tax | Three Months Ended Sep 30, 2023 Net of Tax | Nine Months Ended Sep 30, 2024 Net of Tax | Nine Months Ended Sep 30, 2023 Net of Tax | |:-----------------------|:-------------------------------------------|:-------------------------------------------|:------------------------------------------|:------------------------------------------| | Net Unrealized Gains (Losses) on Investment Securities | $38,833 | $(18,264) | $60,823 | $(7,205) | | Defined Benefit Plans, Net | $168 | $84 | $505 | $252 | | Other Comprehensive Income (Loss) | $39,001 | $(18,180) | $61,328 | $(6,953) | - Total Other Comprehensive Income shifted from a loss of $18.2 million in Q3 2023 to a gain of $39.0 million in Q3 2024, driven by net unrealized gains on investment securities[62][63][64][65] Note 9. Earnings Per Common Share Presents the calculation of basic and diluted earnings per common share Earnings Per Common Share Calculation | (dollars in thousands, except per share amounts) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net Income Available to Common Shareholders | $36,922 | $45,934 | $103,457 | $134,898 | | Basic Earnings Per Common Share | $0.94 | $1.17 | $2.62 | $3.44 | | Diluted Earnings Per Common Share | $0.93 | $1.17 | $2.61 | $3.42 | - Basic EPS decreased by $0.23 (19.66%) for Q3 2024 and by $0.82 (23.84%) for the nine-month period compared to 2023[68] Note 10. Business Segments Describes the company's primary operating segments: Consumer, Commercial, and Treasury - The Company operates through three segments: Consumer Banking, Commercial Banking, and Treasury and Other[69] - Consumer Banking offers a broad range of financial products and services to individuals and small businesses[69][70] - Commercial Banking provides lending, deposit, and cash management services to middle-market companies, large corporations, and government entities[70] - Treasury and Other manages corporate asset and liability, interest rate risk, and foreign currency exchange[70] Note 11. Derivative Financial Instruments Outlines the use of derivative instruments for hedging and customer service purposes Derivative Financial Instruments | (dollars in thousands) | September 30, 2024 Notional Amount | September 30, 2024 Fair Value | December 31, 2023 Notional Amount | December 31, 2023 Fair Value | |:-----------------------|:-----------------------------------|:------------------------------|:----------------------------------|:-----------------------------| | Derivatives designated as hedging instruments (Interest Rate Swap Agreements) | $2,800,000 | $(40,563) | $3,000,000 | $(48,672) | | Derivatives not designated as hedging instruments (Total) | $4,238,301 | $152 | $4,249,948 | $(164) | - The Company uses derivatives to manage market risks and assist customers, with fair value hedges used for AFS investment securities and fixed-rate loans[73][81] - Makewhole agreements related to Visa Class B shares were valued at zero as of September 30, 2024, as the likelihood of payment was not reasonably estimable[80] Note 12. Commitments and Contingencies Discloses off-balance sheet commitments, letters of credit, and potential legal contingencies Credit Commitments | (dollars in thousands) | September 30, 2024 | December 31, 2023 | |:-----------------------|:-------------------|:------------------| | Unfunded Commitments to Extend Credit | $3,175,339 | $3,433,061 | | Standby Letters of Credit | $94,841 | $88,512 | | Commercial Letters of Credit | $11,248 | $16,551 | | Total Credit Commitments | $3,281,428 | $3,538,124 | - Total credit commitments decreased by $256.7 million (7.25%) from year-end 2023, primarily due to a decrease in unfunded commitments to extend credit[82] - The Company is subject to various legal proceedings and establishes reserves for probable losses, believing the eventual outcome will not materially exceed reserved amounts[83] Note 13. Fair Value of Assets and Liabilities Explains the methodology for measuring assets and liabilities at fair value - Fair value is measured using a three-level hierarchy: Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[84] - Mortgage Servicing Rights and Interest Rate Lock Commitments are classified as Level 3 measurements due to the use of significant unobservable inputs[86][87][93] Assets and Liabilities Measured at Fair Value | (dollars in thousands) | September 30, 2024 Fair Value | December 31, 2023 Fair Value | |:-----------------------|:------------------------------|:-----------------------------| | Total Assets Measured at Fair Value on a Recurring Basis | $2,650,428 | $2,521,252 | | Total Liabilities Measured at Fair Value on a Recurring Basis | $115,092 | $143,857 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's analysis of financial condition, results of operations, and key risk factors Forward-Looking Statements Cautions readers about statements concerning future performance and associated risks - The report contains forward-looking statements based on assumptions and subject to various risks and uncertainties, including economic conditions, interest rate changes, and regulatory initiatives[101] Investor Announcements Details the channels used for disseminating material information to investors - The Company uses its investor relations website, social media, press releases, and SEC filings to disclose financial and other information in compliance with Regulation FD[102] Critical Accounting Policies Confirms no significant changes to critical accounting policies since the last annual report - No significant changes in critical accounting policies, which require estimates and judgments in accordance with GAAP, have occurred since December 31, 2023[103] Overview Summarizes the company's business, market focus, and strategic objectives - Bank of Hawaii Corporation is a regional financial services company serving Hawai'i and the Pacific Islands, focusing on balancing growth with prudent risk management[104] Hawai'i Economy Provides an overview of the economic conditions in Hawai'i, the company's primary market - Hawai'i's economy is favorable, with a strong visitor industry, high construction activity, and an unemployment rate of 2.9% in September 2024, below the U.S. rate of 4.1%[105] - For the first nine months of 2024, Oahu's median single-family home prices increased by 4.8% year-over-year, while sales volume increased by 5.8%[105] Earnings Summary Presents a high-level summary of the company's financial performance for the quarter Q3 2024 Financial Highlights | Metric | Q3 2024 | Q3 2023 | Change (YoY) | |:-------|:--------|:--------|:-------------| | Net Income | $40.4M | $47.9M | -16% | | Diluted EPS | $0.93 | $1.17 | -21% | | Return on Average Common Equity | 11.50% | 15.38% | -3.88 pp | | Net Interest Income | $117.6M | $120.9M | -3% | | Net Interest Margin | 2.18% | 2.13% | +5 bps | | Provision for Credit Losses | $3.0M | $2.0M | +$1.0M | | Noninterest Income | $45.1M | $50.3M | -10% | | Noninterest Expense | $107.1M | $105.6M | +1% | | Effective Tax Rate | 23.33% | 24.76% | -1.43 pp | - Total assets were $23.8 billion as of September 30, 2024, with total loans and leases at $13.9 billion and the allowance for credit losses at $147.3 million (1.06% of loans)[106] - Total shareholders' equity increased by 18% to $1.7 billion due to the issuance of Series B Preferred Stock, with $126.0 million remaining in buyback authority[106] Analysis of Unaudited Statements of Income Provides a detailed breakdown and analysis of the income statement components Net Interest Income Analyzes the key drivers of net interest income, including margin and asset yields Net Interest Income Summary | (dollars in millions) | Q3 2024 | Q3 2023 | Change (YoY) | |:----------------------|:--------|:--------|:-------------| | Net Interest Income | $117.6 | $120.9 | $(3.3) | | Interest Rate Spread | 1.47% | 1.54% | -7 bps | | Net Interest Margin | 2.18% | 2.13% | +5 bps | - Net interest income decreased by $3.3 million (2.73%) in Q3 2024 year-over-year, while net interest margin increased by 5 basis points to 2.18%[108][111] - The cost of interest-bearing liabilities increased by 41 basis points in Q3 2024, driven by customer migration to higher-rate deposit products[111] Noninterest Income Details the sources of noninterest income and explains period-over-period changes Noninterest Income Breakdown | (dollars in thousands) | Q3 2024 | Q3 2023 | Change (YoY) | |:-----------------------|:--------|:--------|:-------------| | Fees, Exchange, and Other Service Charges | $14,945 | $13,824 | +$1,121 | | Trust and Asset Management | $11,916 | $10,548 | +$1,368 | | Bank-Owned Life Insurance | $3,533 | $2,749 | +$784 | | Investment Securities Losses, Net | $(1,103)| $(6,734)| +$5,631 | | Other Income | $5,096 | $19,889 | $(14,793) | | Total Noninterest Income | $45,110 | $50,334 | $(5,224) | - Total noninterest income decreased by $5.2 million (10.38%) in Q3 2024, primarily due to a $14.7 million gain on extinguishments of repurchase agreements in 2023[111][112] - Trust assets under management increased to $13.0 billion as of September 30, 2024, from $10.6 billion a year prior[111] Noninterest Expense Breaks down noninterest expenses and discusses the reasons for any significant fluctuations Noninterest Expense Breakdown | (dollars in thousands) | Q3 2024 | Q3 2023 | Change (YoY) | |:-----------------------|:--------|:--------|:-------------| | Total Salaries and Benefits | $58,626 | $58,825 | $(199) | | Net Occupancy | $10,806 | $10,327 | +$479 | | Net Equipment | $10,120 | $9,477 | +$643 | | Professional Fees | $4,725 | $3,846 | +$879 | | FDIC Insurance | $3,355 | $3,361 | $(6) | | Total Other Expense | $14,748 | $15,059 | $(311) | | Total Noninterest Expense | $107,092| $105,601| +$1,491 | - Total noninterest expense increased by $1.5 million (1.41%) in Q3 2024 year-over-year, driven by higher net occupancy, equipment, and professional fees[113] - For the nine-month period, FDIC insurance expense increased by $4.4 million (45%) due to an industry-wide special assessment[113] Provision for Income Taxes Explains the calculation of the income tax provision and the effective tax rate Income Tax Provision | (dollars in thousands) | Q3 2024 | Q3 2023 | Change (YoY) | |:-----------------------|:--------|:--------|:-------------| | Provision for Income Taxes | $12,278 | $15,767 | $(3,489) | | Effective Tax Rate | 23.33% | 24.76% | -1.43 pp | - The provision for income taxes decreased by $3.5 million (22.13%) in Q3 2024, with the effective tax rate falling to 23.33% from 24.76% due to an increase in tax-exempt income[114][115] Analysis of Unaudited Statements of Condition Provides a detailed analysis of key balance sheet accounts and their changes Investment Securities Discusses the composition and performance of the investment securities portfolio - The carrying value of the investment securities portfolio decreased to $7.3 billion as of September 30, 2024, from $7.4 billion at year-end 2023[115] - Net unrealized losses in the portfolio improved to $0.9 billion as of September 30, 2024, from $1.0 billion at year-end 2023[115] Loans and Leases Analyzes the growth and composition of the commercial and consumer loan portfolios Loans and Leases by Type | (dollars in thousands) | September 30, 2024 | December 31, 2023 | Change (YoY) | |:-----------------------|:-------------------|:------------------|:-------------| | Total Commercial Loans and Leases | $5,930,074 | $5,777,486 | +$152,588 | | Total Consumer Loans and Leases | $7,988,509 | $8,187,540 | $(199,031) | | Total Loans and Leases | $13,918,583 | $13,965,026 | $(46,443) | - Total loans and leases decreased by $46.4 million (0.33%) from year-end 2023, as a $199.0 million decrease in consumer loans offset a $152.6 million increase in commercial loans[115][116][117] Other Assets Details the components and changes within the 'Other Assets' category on the balance sheet Other Assets Breakdown | (dollars in thousands) | September 30, 2024 | December 31, 2023 | Change (YoY) | |:-----------------------|:-------------------|:------------------|:-------------| | Low-Income Housing and Other Equity Investments | $221,255 | $208,858 | +$12,397 | | Deferred Tax Assets | $163,996 | $183,691 | $(19,695) | | Derivative Financial Instruments | $74,414 | $95,069 | $(20,655) | | Deferred Compensation Plan Assets | $19,982 | $13,448 | +$6,534 | | Total Other Assets | $620,355 | $639,458 | $(19,103) | - Total other assets decreased by $19.1 million (2.99%) from year-end 2023, primarily due to decreases in deferred tax assets and derivative financial instruments[120] Deposits Analyzes deposit trends by type and customer segment Deposits by Customer Type | (dollars in thousands) | September 30, 2024 | December 31, 2023 | Change (YoY) | |:-----------------------|:-------------------|:------------------|:-------------| | Consumer Deposits | $10,340,466 | $10,319,809 | +$20,657 | | Commercial Deposits | $8,356,239 | $8,601,224 | $(244,985) | | Public and Other Deposits | $2,281,617 | $2,134,012 | +$147,605 | | Total Deposits | $20,978,322 | $21,055,045 | $(76,723) | - Total deposits decreased by $76.7 million (0.36%) from year-end 2023, as a $245.0 million decrease in commercial deposits was partially offset by growth in consumer and public deposits[121] Savings Deposits by Type | (dollars in thousands) | September 30, 2024 | December 31, 2023 | Change (YoY) | |:-----------------------|:-------------------|:------------------|:-------------| | Money Market | $3,595,930 | $3,258,631 | +$337,299 | | Regular Savings | $5,067,217 | $4,930,841 | +$136,376 | | Total Savings Deposits | $8,663,147 | $8,189,472 | +$473,675 | - Total savings deposits increased by $473.7 million (5.78%) from year-end 2023, driven by growth in money market and regular savings accounts[122] Securities Sold Under Agreements to Repurchase Explains the changes in repurchase agreements used for funding Repurchase Agreements by Counterparty | (dollars in thousands) | September 30, 2024 | December 31, 2023 | Change (YoY) | |:-----------------------|:-------------------|:------------------|:-------------| | Private Institutions | $100,000 | $150,000 | $(50,000) | | Government Entities | $490 | $490 | $0 | | Total | $100,490 | $150,490 | $(50,000) | - Securities sold under agreements to repurchase decreased by $50.0 million (33.22%) from year-end 2023 after a private institution exercised a call option[124][126] Other Debt Details the composition of other debt, including FHLB advances and lease obligations Other Debt Breakdown | (dollars in thousands) | September 30, 2024 | December 31, 2023 | Change (YoY) | |:-----------------------|:-------------------|:------------------|:-------------| | Federal Home Loan Bank of Des Moines Advances | $550,000 | $550,000 | $0 | | Finance Lease Obligations | $8,297 | $10,190 | $(1,893) | | Total | $558,297 | $560,190 | $(1,893) | - Total other debt decreased by $1.9 million (0.34%) from year-end 2023 due to a decrease in finance lease obligations[127] Analysis of Business Segments Reviews the financial performance of the Consumer, Commercial, and Treasury segments Consumer Banking Reports the financial results and key drivers for the Consumer Banking segment Consumer Banking Net Income | (dollars in thousands) | Q3 2024 | Q3 2023 | Change (YoY) | |:-----------------------|:--------|:--------|:-------------| | Net Income | $32,993 | $34,587 | $(1,594) | - Consumer Banking net income decreased by $1.6 million (4.61%) in Q3 2024 year-over-year, due to higher expenses and credit provisions[129] Commercial Banking Reports the financial results and key drivers for the Commercial Banking segment Commercial Banking Net Income | (dollars in thousands) | Q3 2024 | Q3 2023 | Change (YoY) | |:-----------------------|:--------|:--------|:-------------| | Net Income | $28,929 | $31,015 | $(2,086) | - Commercial Banking net income decreased by $2.1 million (6.73%) in Q3 2024 year-over-year, mainly due to lower net interest and noninterest income[129] Treasury and Other Reports the financial results for the Treasury and Other segment Treasury and Other Net Income (Loss) | (dollars in thousands) | Q3 2024 | Q3 2023 | Change (YoY) | |:-----------------------|:--------|:--------|:-------------| | Net Income (Loss) | $(21,564)| $(17,699)| $(3,865) | - Treasury and Other net loss increased by $3.9 million in Q3 2024 year-over-year, primarily due to lower noninterest income compared to gains in Q3 2023[130] Corporate Risk Profile Outlines the company's approach to managing credit, market, liquidity, and operational risks Credit Risk Analyzes key credit quality indicators, including non-performing assets and charge-offs Credit Quality Indicators | (dollars in thousands) | September 30, 2024 | December 31, 2023 | Change (YoY) | |:-----------------------|:-------------------|:------------------|:-------------| | Total Non-Accrual Loans and Leases | $17,114 | $9,649 | +$7,465 | | Total Non-Performing Assets | $19,781 | $11,747 | +$8,034 | | Total Accruing Loans and Leases Past Due 90 Days or More | $7,535 | $6,595 | +$940 | | Ratio of Non-Performing Assets to Total Loans and Leases and Foreclosed Real Estate | 0.14% | 0.08% | +0.06 pp | - Non-accrual loans increased by $7.5 million (77%) from year-end 2023, mainly due to commercial and industrial and residential mortgage loans[131][132] Allowance for Credit Losses Activity | (dollars in thousands) | Q3 2024 Net Charged-Off | Q3 2023 Net Charged-Off | YTD Q3 2024 Net Charged-Off | YTD Q3 2023 Net Charged-Off | |:-----------------------|:------------------------|:------------------------|:----------------------------|:----------------------------| | Net Charged-Off - Loans and Leases | $(3,830) | $(2,049) | $(9,504) | $(6,094) | | Provision for Credit Losses | $3,000 | $2,000 | $7,400 | $6,500 | | Allowance for Credit Losses - Loans and Leases | $147,331 | $145,263 | $147,331 | $145,263 | | Ratio of Allowance for Credit Losses to Loans and Leases Outstanding | 1.06% | 1.04% | 1.06% | 1.04% | - Net charge-offs increased to $3.8 million (0.11% annualized) in Q3 2024 from $2.0 million (0.06% annualized) in Q3 2023[133] - The Allowance for Credit Losses was $147.3 million, or 1.06% of total loans, as of September 30, 2024[133][134][135] Market Risk Discusses the company's exposure to interest rate risk and its management strategies - The Company's primary market risk is interest rate risk, managed through Net Interest Income (NII) and Economic Value of Equity (EVE) sensitivity guidelines[135][136] Net Interest Income Sensitivity | (dollars in thousands) | September 30, 2024 Impact on Future Annual Net Interest Income | December 31, 2023 Impact on Future Annual Net Interest Income | |:-----------------------|:---------------------------------------------------------------|:--------------------------------------------------------------| | +400 bps | $60,576 (11.6%) | $109,909 (21.6%) | | +200 bps | $33,245 (6.4%) | $59,228 (11.6%) | | -200 bps | $(41,298) (7.9%) | $(64,601) (12.7%) | - NII sensitivity to interest rate changes was less sensitive as of September 30, 2024, compared to year-end 2023, due to an increase in assumed deposit repricing sensitivity[139][141] Liquidity Risk Management Details the company's liquidity position, funding sources, and borrowing capacity - As of September 30, 2024, the Company had $7.2 billion in remaining borrowing capacity at the Federal Reserve Discount Window and $1.9 billion at the FHLB Des Moines[141] - Other liquidity sources include $2.6 billion in AFS investment securities, the ability to sell loans, and core deposits[144][145] Capital Management Reviews the company's capital adequacy, regulatory ratios, and capital return strategies - The Company actively manages capital to exceed 'well-capitalized' regulatory thresholds[145] Regulatory Capital Ratios | (dollars in thousands) | September 30, 2024 | December 31, 2023 | |:-----------------------|:-------------------|:------------------| | Common Equity Tier 1 Capital Ratio | 11.66% | 11.33% | | Tier 1 Capital Ratio | 14.05% | 12.56% | | Total Capital Ratio | 15.11% | 13.60% | | Tier 1 Leverage Ratio | 8.38% | 7.51% | - Shareholders' equity increased by $251.2 million (18%) to $1.7 billion as of September 30, 2024, with remaining buyback authority at $126.0 million[147] Operational Risk Describes the framework for managing operational risks across the organization - Operational risk is managed through the Operational Risk Committee (ORC), which provides oversight for losses arising from internal processes, people, systems, or external events[148] Off-Balance Sheet Arrangements, Credit Commitments, and Contractual Obligations Discloses off-balance sheet arrangements and confirms no material changes to commitments - The Company holds interests in unconsolidated VIEs, primarily low-income housing partnerships, and confirms no material changes to credit commitments since year-end 2023[148] Item 3. Quantitative and Qualitative Disclosures About Market Risk Refers to the Market Risk section within the MD&A for detailed disclosures - Information regarding market risk is incorporated by reference from the "Market Risk" section of Management's Discussion and Analysis[149] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and internal controls over financial reporting - Management concluded that disclosure controls and procedures were effective as of September 30, 2024[149] - There were no material changes in the Company's internal control over financial reporting during the quarter[149] Part II - Other Information Contains other required information, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings Incorporates by reference the disclosure on legal proceedings from the financial statement notes - Information regarding legal proceedings is incorporated by reference from "Contingencies" in Note 12 to the Consolidated Financial Statements[150] Item 1A. Risk Factors States there are no material changes to risk factors from the latest Annual Report - There are no material changes from the risk factors set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2023[150] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details common stock repurchases and the remaining buyback authority Share Repurchases in Q3 2024 | Period | Total Number of Shares Purchased | Average Price Paid Per Share | |:-----------------------|:---------------------------------|:-----------------------------| | July 1 - 31, 2024 | 1,246 | $56.18 | | August 1 - 31, 2024 | 380 | $68.22 | | September 1 - 30, 2024 | 792 | $63.13 | | Total | 2,418 | $60.35 | - During Q3 2024, 2,418 shares were acquired from employees for income tax withholdings and by the Director Deferred Compensation Plan trustee[151] - The remaining buyback authority under the share repurchase program was $126.0 million as of September 30, 2024[151] Item 5. Other Information Confirms no new or terminated Rule 10b5-1 trading plans by executives - During the fiscal quarter, none of the Company's directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangements[151] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q report - A list of exhibits to this Form 10-Q, including corporate governance documents and officer certifications, is set forth on the Exhibit Index[153] Signatures Contains the certifying signatures of the CEO and CFO - The report is duly signed on October 28, 2024, by the Chairman and CEO, and the Vice Chair and CFO, on behalf of Bank of Hawaii Corporation[154]