Bank of Hawaii(BOH) - 2023 Q2 - Quarterly Report

Part I Item 1. Financial Statements (Unaudited) Presents unaudited consolidated financial statements for Bank of Hawai'i Corporation, including income, condition, equity, and cash flow statements Consolidated Statements of Income 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 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 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 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] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 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] - 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] - 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] - 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][274] Analysis of Statements of Income 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][306] - Noninterest expense increased by 1% in Q2 2023 YoY, primarily due to a $1.6 million increase in FDIC insurance expense[271][314] Analysis of Statements of Condition 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] - 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] - 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] Corporate Risk Profile 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] | 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 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] Controls and Procedures 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] - 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] Part II - Other Information Legal Proceedings 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][221] Risk Factors 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][415] Unregistered Sales of Equity Securities and Use of Proceeds 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] Exhibits 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][418][433]