BANK OF HAWAII CORP Q4 FY2024 earnings call

Key Points

• Net interest income and margin improved for the third consecutive quarter, with net interest income at $120.2 million, up 2.2% from prior quarter, and net interest margin at 2.19%.
• Expenses were controlled quarter-over-quarter. Average non-interest bearing deposits stabilized and trended positively in December. Deposit funding costs fell for the first time in the rate cycle.
• Economic conditions in Hawaii were stable with low unemployment, stable visitor market (impacted by Maui), and positive residential Oahu real-estate trends.
• Loan book prioritized core markets with strong relationships; 60% of clients on commercial and consumer sides have been with the bank over 10 years.
• Credit metrics remained stable with net charge-offs at 10 basis points annualized, non-performing assets at 14 basis points, and criticized assets at 2.1%.
• Non-interest income totaled $43 million in Q4, adjusting for a one-time Visa Class B charge, non-interest income was $45.4 million, up $300,000 linked quarter. Expenses in Q4 were $107.9 million, with normalized expenses for 2024 up 1.7% from 2023.
• Capital levels were strong with Tier-1 capital ratio at 13.95% and total capital ratio at 15%. Dividends paid to common and preferred shareholders, and a dividend of $0.70 per common share declared for Q1 2025.

Net interest income grew just over 2% on a linked basis to $120.2 million. Non-interest income, excluding an adjustment to Visa Class B shares, was up modestly on a linked basis. Average deposits grew 1.3% to $20.8 billion and average loans grew 1.1% to $14 billion on a linked basis. Credit quality remained strong with net charge-offs at 9 basis points and NPAs at 14 basis points. Criticized loans improved from 2.42% to 2.1%. The loan portfolio is 93% Hawaii, 4% Western Pacific, and 3% Mainland. Consumer loans make up a little over half of total loans at 56% ($8 billion), with 85% secured by real-estate; commercial loans are $6.1 billion (44% of total), with commercial real-estate being the largest share at $4 billion.

Forward-Looking Statements

• Net interest income and margin expected to continue increasing due to asset cash-flow repricing, slowing deposit remix, and lower Fed funds rates.
• Non-interest income expected to increase in 2025 as revenues from trust services, merchant services, and other transaction volume steadily improve.
• Expenses expected to increase 2%-3% in 2025, with core expenses projected to increase 1%-2% from 2024 and an additional 1% allocated to revenue-enhancing initiatives.
• Dividend of $0.70 per common share declared for the first quarter of 2025.

Q: Jeff Rulis asked about the margin starting point for December and loan growth pipeline.

A: Dean Shigemura said December margin of 2.26% was a good jumping-off point with asset repricing continuing and deposit rate lowering active. Peter Ho mentioned loan growth was headlined by commercial growth, consumer was sideways, and commercial back book remained strong.

Q: Jared Shaw asked about hedges, office loan maturity, and capital buyback.

A: Peter Ho said fixed-rate mix was at 57% near-term. Dean Shigemura noted office loan maturity not highly concentrated. Peter Ho stated buyback would depend on clearer line-of-sight into credit, economy, and rates.

Q: Andrew Liesch asked about revenue enhancing initiatives.

A: Peter Ho mentioned initiatives directed at commercial and wealth areas, with trust and broker sales revenues up over 9% in Q4, and exciting plans for 2025 to enhance growth.

Q: Andrew Tyrrell asked about swaps allocation, margin outlook, CD portfolio, and medical costs.

A: Dean Shigemura discussed swap allocation, Peter Ho mentioned margin trend possibility with multiple factors needed. Dean Shigemura spoke to CD offering rates generally, and Peter Ho/Dean Shigemura noted medical costs increase was $1.5 million.

Q: Kelly Motta asked about loan pipeline and FHLB maturities.

A: Jim Polk said commercial loan pipelines were active with strong deal flow, expecting continued growth. Bradley Shairson stated no FHLB maturities in 2025, first maturities in 2026, and they actively look at prepaying as rates are accretive to NII.