Bank of Hawaii(US:BOH)2023-04-24 16:00Part I - Financial Information Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Bank of Hawai'i Corporation for the quarter ended March 31, 2023, including detailed notes on key financial components Consolidated Statements of Income For Q1 2023, net income decreased by 14.6% to $46.8 million, primarily due to a $7.5 million negative swing in provision for credit losses and higher noninterest expenses Q1 2023 vs. Q1 2022 Income Statement Highlights | Metric | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $136.0M | $125.3M | +8.5% | | Provision for Credit Losses | $2.0M | ($5.5M) | -$7.5M | | Noninterest Income | $40.7M | $43.6M | -6.7% | | Noninterest Expense | $111.9M | $103.9M | +7.7% | | Net Income | $46.8M | $54.8M | -14.6% | | Diluted EPS | $1.14 | $1.32 | -13.6% | Consolidated Statements of Condition As of March 31, 2023, total assets increased slightly to $23.93 billion, supported by loan growth, while deposits saw a minor decrease and shareholders' equity rose Balance Sheet Comparison | (in thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $23,931,977 | $23,606,877 | | Net Loans and Leases | $13,680,945 | $13,501,981 | | Total Investment Securities | $8,127,898 | $8,258,962 | | Total Deposits | $20,491,300 | $20,615,696 | | Total Shareholders' Equity | $1,354,430 | $1,316,995 | Consolidated Statements of Cash Flows Q1 2023 saw net cash used in operating activities of $31.0 million, a significant shift from the prior year, with investing activities decreasing and financing activities providing $258.3 million Cash Flow Summary (Q1 2023 vs. Q1 2022) | (in thousands) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $(30,959) | $41,795 | | Net Cash from Investing Activities | $(17,133) | $(321,424) | | Net Cash from Financing Activities | $258,310 | $314,249 | | Net Change in Cash | $210,218 | $34,620 | Notes to Consolidated Financial Statements The notes detail the $8.1 billion investment portfolio's unrealized losses, the growing $13.8 billion loan portfolio, and the use of derivative instruments for customer risk management - The company's investment portfolio is comprised of Available-for-Sale (AFS) securities with a fair value of $2.8 billion and Held-to-Maturity (HTM) securities with an amortized cost of $5.3 billion Both portfolios contain significant unrealized losses, primarily due to changes in interest rates25 - The loan and lease portfolio grew to $13.82 billion, with increases in commercial mortgage, residential mortgage, and home equity loans The majority of lending activity is concentrated in Hawaii4970 - The company's derivative financial instruments, primarily interest rate swaps, are used to facilitate customer risk management strategies and are not designated as formal hedging relationships249295 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial results, highlighting a 15% net income decline due to higher credit loss provisions and expenses, alongside a strong balance sheet, loan growth, and robust risk management strategies Overview & Earnings Summary Q1 2023 net income was $46.8 million, down 15% YoY, driven by a $2.0 million provision for credit losses and an 8% rise in noninterest expense, despite a 9% increase in net interest income - Net income decreased by $8.0 million (15%) compared to Q1 2022, with diluted EPS falling by $0.18 (14%)122 - The provision for credit losses was $2.0 million, a negative swing from a $5.5 million net benefit in the prior-year period123 - Net interest income increased by 9% YoY to $136.0 million, with the net interest margin rising to 2.47%320 Analysis of Financial Condition As of March 31, 2023, total assets grew 1.4% to $23.9 billion, with loans increasing 1.3% to $13.8 billion, while the investment portfolio decreased to $8.1 billion with significant unrealized losses - Total loans and leases grew by $178.1 million (1.3%) from December 31, 2022, driven by commercial and consumer demand126137 - The investment securities portfolio stood at $8.1 billion, with gross unrealized losses of $1.0 billion, primarily due to the impact of higher interest rates on mortgage-backed securities323392 - Total deposits decreased by $124.4 million (0.6%) from year-end 2022, with a decline in consumer core deposits partially offset by growth in time deposits141350370 Credit Risk Management The company maintains a strong credit risk profile with total non-performing assets at $12.1 million and an allowance for credit losses of $143.6 million, despite an increase in net charge-offs Non-Performing Assets (NPAs) | (in thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Non-Accrual Loans | $11,084 | $11,607 | | Foreclosed Real Estate | $1,040 | $1,040 | | Total NPAs | $12,124 | $12,647 | | NPA Ratio | 0.09% | 0.09% | - The Allowance for Credit Losses (ACL) was $143.6 million, or 1.04% of total loans outstanding, as of March 31, 2023 This includes a qualitative overlay to account for economic uncertainty and recession risk411 - Net charge-offs for Q1 2023 were $2.7 million (0.08%) of average loans, an increase from $1.5 million (0.05%) in Q1 2022178322 Market, Liquidity, and Capital Management The company is asset-sensitive to interest rate changes, maintains strong liquidity with significant borrowing capacity, and exceeds all "well-capitalized" regulatory capital thresholds Net Interest Income Sensitivity (as of March 31, 2023) | Immediate Rate Change (bps) | Impact on NII (in thousands) | % Change | | :--- | :--- | :--- | | +200 | $30,986 | +5.5% | | +100 | $18,236 | +3.2% | | -100 | $(14,352) | -2.6% | - The company maintains a strong liquidity position with additional borrowing capacity of $2.3 billion from the FHLB and $4.5 billion from the FRB as of March 31, 2023417 - All key regulatory capital ratios remained well above the 'well-capitalized' minimums, with a Common Equity Tier 1 ratio of 10.88% and a Total Capital Ratio of 13.13%419448 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period454 - There were no material changes in the company's internal control over financial reporting during the first quarter of 2023200 Part II - Other Information Item 1. Legal Proceedings The company is involved in various legal proceedings, with management assessing contingencies quarterly and not expecting outcomes to materially exceed established reserves - The company is subject to various pending and threatened legal proceedings from its normal business operations299 - Management believes that the eventual outcome of any claims will not be materially in excess of the amounts already reserved299426 Item 1A. Risk Factors A new risk factor addresses recent financial industry events, including potential decreased depositor confidence, market volatility, and adverse regulatory changes like higher capital requirements or FDIC premiums - Recent events, including the failure of Silicon Valley Bank and Signature Bank, have resulted in decreased confidence in the banking industry and significant market disruption202 - Potential impacts include adverse changes to laws or regulations, higher capital requirements, increased funding costs, and higher FDIC insurance premiums427 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2023, the company repurchased 202,408 shares of common stock at an average price of $68.14, with $126.0 million remaining authorized for future repurchases Issuer Purchases of Equity Securities (Q1 2023) | Period | Total Shares Purchased | Avg. Price Paid | Shares Purchased Under Plan | Remaining Authorization | | :--- | :--- | :--- | :--- | :--- | | Jan 2023 | 8,936 | $76.30 | 6,000 | $135.4M | | Feb 2023 | 107,222 | $75.80 | 57,750 | $131.0M | | Mar 2023 | 86,250 | $57.77 | 86,250 | $126.0M | | Total | 202,408 | $68.14 | 150,000 | $126.0M | - The Board of Directors authorized an additional $100.0 million for the share repurchase program in January 2023161 Item 6. Exhibits This section indexes all exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents for machine-readable financial data - The report includes CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906205430195 - Financial data is provided in an interactive format using Inline XBRL, as detailed in exhibits 101 and 104459460