Earnings call transcript Q2 2023

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Operator

Good day and thank you for standing by. Welcome to the Bank of Hawaii Corporation Second Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

to Wyrick, conference Director like speaker to now Cindy today, of would hand over the your I Investor Relations. ahead. go Please

Cindy Wyrick

Thank second quarter everyone welcome XXXX. us discuss like you of financial I'd the the joining we today and for results for as you. thank to

our newest today me member IR [indiscernible]. Shigemura; of CEO, Officer, Mary our CFO, Peter our Joining Risk Ho; Sellers our Dean is Chief and the team

statements. started let a will me remind while today's assumptions that our call forward-looking that variety the are get you contain actual differ conference are some projected. results we those And reasons there believe we may Before reasonable, from materially of

During Relations well our available call slide on we earnings tab. a boh.com which referencing presentation as the under are the website as Investor will release, today, be the both of

the And Ho. I'd to now like over to Peter call turn

Peter Ho

good results. over on morning Bank And to questions. the to with Thank Thanks, our is your We'll on a Hawaii or get hand then I'll which for in some off deeper financials. little entertain credit, begin Corporation. Cindy. cover Dean afternoon today's call will the call story. I'll your commentary be then, great happy interest a everyone. Good then general to Mary you into

borrowing controlled, and on was per expenses rates higher negatively the performed delivered X with quarter. We a grew basis X with for results interest respectively. cash remains immediately and costs. income net of normalized in both Bank the were and and well income enhanced Credit interest quarter earnings and Hawaii recorded liquidity during and deposits $X.XX by solid strength substantially reported position for of Fee credit charge-offs the Total points we XXXX. quarter second the points, our a quarter basis. and basis attendant NPAs available higher share of impacted lines. Net

Bank critical obviously Deposit environment, continue of expense factor to will forward. a is position. particular spend going deposit environment, a thought Hawaii's but the quality I in time ours exceptional a I'd focus of reviewing Given today's management be little

it's story deposit base deposit local country. FDIC markets marketplace, deposit the measured our State and deposit Hawaii by a is State served Hawaii’s small by national is events had bank Hawaii within all the early community other having SVB all that local nearly with many, held not XX% the compared banks on impact the Therefore, years. marketplace for marketplace. broader all Our with different of muted the many March of surprising really Signature the as from the the and begins to in as of which headquartered Bank of rather five

XXX-year over We've our a a time. history, deposit built relationship at franchise one

of deposit Even longer. XX% customers, XX% business years further jurisdiction. these XX we or base been municipalities. we've is clients are have with government or whom deposits categories, More Our with well-tenured. of our agency XX% half with and income deposits from well-diversified doing commercial are with by clients, diversification for our industry, than consumer with and and within demographic,

business with doing between years. from Another from been XX% and with clients are XX we've whom XX

deposit not stable. this our been has surprising it's backdrop performance quarters quite the Given second both and that first through

maintain costs stability keeping while been controlled. reasonably deposit to have we also Additionally, able funding

XX%. was beta deposit Our QX for

as of Broker of currently In although not do us, another end. terms $X.X to of additional deposit positions by mix form cash of billion liquidity, yet available broker liquidity deposits substantially deposits we credit within to are quarter available improved and end. immediately our our lines have quarter we

us. liquidity of Given solid the abundant and our are base stability deposits, (ph) options [backup] (ph) liquidity in deposit however, Brokered place. for [tertiary]

the on a off Hawaiian with little finish economy. I'll color

which remains includes remains total were continues to perform average in level rate spend. a Inventory, XXXX May from down year down months. Japan (ph). pre-pandemic at of in prices tight levels XX% were in expenditures at June [$X,XXX,XXX] Hawaii’s up Our XX% down levels. on X.X% from segment, XX pre-pandemic X.X% This market home well. year-end. visitor and industry inventory Oahu visitor still by Total single-family ago X% days was a -- X.X compared to on from unemployment at June however, to XX market days and recovering

me to call I over let now, the turn Mary.

Mary Sellers

Bank know two in Peter. and and is we Thank to grounded understand. you, philosophy longstanding markets we tenants. of Lending Hawaii's fundamental relationships lending

portfolio have in to creating ongoing portfolio time, credit over loan focus While segments profiles, way growing outsized that products measured management. losses or our disciplined is and exit higher consistently, those a risk on volatility. the We proved safe actively and

these portfolio, portfolios, our indirect product, our interest-only Oregon, segments pools, land purchased in auto card home consumer in revolving the included residential portfolio. equity line originated and flex loans personal loans and credit In non-core our

that large with losses different has economic products a proven cycles. Similarly, through lower in itself to have small risk. by credits, conservative carry scored non-relationship profile ticket continually This Concurrently, portfolio. net charge-off the we consistent a a our of portfolio to business through mix of to continue lower optimizing realize focused our working commercial out core of years a shared proven national portfolio, spent lower the disciplined over number leasing positions underwriting and segments risk to within on it portfolio and our years we're pool biasing and portfolio, rates within those credit the management coupled

loan reflected on categories sized weighted is exposures, diversified our estate value with construct built and which this XX% of commercial, appropriately long-tenured and XX% in by a secured real is of All combined asset relationships, average portfolio to XX%. consumer with XX% with today,

diversified portfolio, represents capacity average various loan financial experience estate a across portfolio commercial portfolio very on across XX% to real real types. leveraged The manageable conservatively with built and XX% of maturing loan is remain XX%. the commercial relationships with with value XXXX. the of demonstrated portfolio, which asset is Maturities to total prior Our weighted estate

the is and Honolulu downtown district. has weighted average central XX% loans XX% and of X% XX%. in commercial granular of a XX%. segment Tail in having estate weighted just supported of with exposure X.X% total than the maturing repayment an the real the office by the modest of XXXX. loans loan-to-value of business in has greater LTV portfolio is through X.X% a This Our risk remains is office guarantees. and average portfolio the segment further loan-to-value portfolio XX% are

the this be points X Our annualized leases remained first Credit of charge-offs quarter loan-to-value represents in which and X to X million quarter markets. $XX.X total of of undersupplied X X% points are point basis strong points majority All housing, X down for non-performing quarter outstanding XX%. average a our Non-performing debt total assets down average basis points up with basis or construction portfolio loans, year-over-year. of the quality basis the and the basis linked down assets first secured million X were points, weighted real continues low in affordable or were with year-over-year. income and with chronically $X.X estate up basis from loans in with

days linked for was was flat year-over-year, end of stable lease Loans loans the of for allowance ratio total $XXX.X of X.XX%. the quarter the as at basis to the more modestly the delinquent loans quarter, At at quarter XX but and million losses for outstanding of X.XX%, XXXX. million, credit the allowance linked end at loans up $X.X XQ points the up a the comparable and and total were the remained to XX or percentage quarter. Criticized

the no there University from Given Economic were Research and significant stable economic Hawaii growth. Organization, forecast changes modest of in quality the asset

$X.X as unemployment, well and general the allowance does our including interest down million, in the rates, risk, as reserve commitments higher for The was continue linked inflation, downside environment. $XXX,XXX The to unfunded consider uncertainty period. for

turn the call now to Dean. I'll over

Dean Shigemura

income higher primarily funding decrease margin $XX.X of linked income higher income was $XXX.X growth margin. curve in XX X.XX%, interest by a the partially Net our and points quarter. both interest rates yields quarter costs, million pressure short-term quarter. Thank loan and asset continue second decreases you, Mary. margin and to net quarter, Net interest yield a and offset were basis inverted linked to million was in as higher Linked of the decrease due

are as by mix to exercise non-interest savings interest-bearing that and from into and pricing deposits. we our time to beta continue moderate rates also rise deposit discipline shift a to to peer of deposit deposit bearing expected expect We outperform banks. continued Nevertheless, evidenced continuing continue

result, the fourth a in approximately deposit cumulative still which, our quarter, well expect peers. we in As beta higher our XX% peak at this historic of below than will XX%, while cycle is levels of beta

variable comprise and investment we our a floating During of now approximately originations, run new which by allowing our continued loan rate greater the quarter off. portfolio exposure shifting loans to while to remixing XX%

basis the impacted points. longer higher liquidity In addition, as a our mitigant by approximately margin proactively X rates, on-balance it against short-term sheet negatively liquidity although add higher for we

On years funding we deposit of maturity at an rate $XXX X.X and of average balances $X.XX an the time million at liability our average of side, billion And average X.X%. term added by rate of X.XX%. also increased fixed-rate

loan we hedge to of million In a received fixed on-balance portion our addition sheet quarter $XXX notional swaps of the pay float added exposure. in to fixed our actions, rate

income are and of pay higher-yielding higher asset $X.X opportunity to cash asset assets. repricing funds overall flow loans ample rates. From we earning an at and With and supported and redeploy perspective, downs annual net maturities flows billion from margin cash interest have being investments, strong by of into

a added further liquidity securities and strong $X.X billion provides approximately to that sensitivity. and repricing in addition in interest rate are In cash annually, flow, resulted rate additional the assets which swaps loans repricing,

These maturities new held is of loans are quarter yielding was loans, respectively. X.X%, Fed in fixed to predominantly X%, preserves the cash yielding pay X.X% reinvested at approximately cash on into and X.XX%. and rate be in which and flows continue yield second liquidity, downs investments currently The were the and which

$XX.X second sale tax results million credit $X.X a gain a totaled the of was Included Non-interest quarter. investment. income the from in million low-income in the housing

in was second non-interest the included a $XXX,XXX Adjusting $XXX,XXX from related B to quarter The in is as investments charge results $XX.X quarter which in the of reported first contra million by a conversion lower item XXXX. quarter, items, second Class of gains losses. quarter $XXX,XXX Visa and for ratio, the income an linked revenue these securities change increase

growth. fees the expected Trends and see to $XX improved than asset management is off to and year, for income starting and per of the million of higher is to have remainder non-interest guidance. million our prior be activity Core transaction levels $XX which we modest quarter are lower

be non-core further will from conversion not B included there Visa the non-interest third guidance. charge $XXX,XXX income is charge the This adjustment Class ratio. core a to in of quarter a the $XXX,XXX However, in

from expenses as Included expenses second totaled a first quarter the quarter payouts, severance and seasonal During and disciplined was our incentive is $X.X in were manner practice, our in million. we inflationary Expenses as payroll conditions million taxes second managed benefit quarter continued. expenses million. the which the $X in $XXX of

of for quarter $X.X and quarter, the from benefits and expenses merit second severance as annual payroll and year-over-year of the The and to under is XXXX. included were quarter as decreased the annual in by million rate, linked FDIC well the increase seasonal second inflation rate up insurance increase Adjusting a considerable first the in of expenses X.X% the well employee quarter increases. $XXX,XXX

second expected third in expected are be the the quarter. lower are quarter, but trend quarter to Expenses approximately to the fourth the same in as

While to that and reduced projects being growth. expenses, other actions in expense hiring, are moderate inflation delay non-core continues pressure taken

second summarize per of common net income $XX.X in the performance, financial share our To was earnings XXXX of and was the $X.XX. million remainder quarter

recorded tax the our XX.XX% rate year this a efficiency $X.X Our XX.XX% common was second approximately ratio XXXX for return and XX.X%. to We expected be provision and of the The was for of quarter the XX.XX%. million in rate effective full credit is on quarter. was loss equity

within well-capitalized with prior from remains Our ratios well capital capital regulatory regulatory quarter. increasing all levels the

maintain healthy excesses continue regulatory the well-capitalized minimum We to requirements. above

quarter common and a second paid dividends. not of common dividends during of Board dividend out per million million share stock preferred the $X.XX repurchase $X for our repurchase program. to the $XX And common the declared in During XXXX. -- finally, stock share of shares we We quarter third in under did common quarter, and shareholders our

to your Now take we'll questions. be happy

Operator

session. first Our Instructions] from Thank conduct you. time, of line the comes Rulis with At D.A. question-and-answer the Jeff Davidson. [Operator this we’ll question

Your line is open.

Jeff Rulis

Thanks. Good morning.

Peter Ho

Hi, Jeff.

Jeff Rulis

Maybe a question for Dean.

guess, What the end the if that for have I you Just at well quarter the overall? quarter. though, it then the How costs, funding as monthly does June that at the funds the X.XX%. of was number? of compare cost And on margin

Dean Shigemura

about talking on you are -- overall or... costs funding the just Yes, the side -- the liability

Jeff Rulis

of cost -- quarter at the what end, first For was the Just spot just rate? the quarter, that

Peter Ho

[XXX] (ph)

Dean Shigemura

in for like liquidity or brought the Yes, quarter, But that during X.XX%. that the and [XXX] mind for is was -- (ph) number the keep -- X.XX%. quarter that actually when so more the margin the adjust on we then month for you

an impact liquidity margin the the during did our So have month. on

Jeff Rulis

Got you.

Okay.

Peter Ho

quarter. in Later the

Dean Shigemura

the Later in yes. quarter,

Jeff Rulis

Yes.

the guide that the on Okay. I in remarks, suggest if And specific a little I A quarter on more somewhat quarter. manage to know changes. pretty fourth third expenses. lean wanted circle the to prepared back in kind don't or it Peter, the that of possibly or that lower. could seem

I was expenses core out am reading into year cost the full a XXXX about Or changed base. just up that commentary guidance off think for of Has I is you've all? said that Or further more X% at into XXXX? of management?

Peter Ho

fee margins what rates if of is candidly. that the be -- looking items going at Yes, We be. income in as environment and one have where so controllable to we are it's we challenged. to expenses are item we're Jeff, And that see likely line an

So to anticipate look. into see later of for to reasonable would this I is some kind expense us this place impact of reductions a year.

the and I'm by into would but those next certainly, levels fourth year. lower. be, not quarter then what ready guidance kind provide So of on to quite

Jeff Rulis

Yes. Okay.

I provided -- -- on you've clunky. one that. sorry, and it. this just last Peter, on is wanted check And appreciate to Just also in the

It about that You've two that kind kind a of just could can't sit TCE? that a I remember update us direction build you or was where you've portfolio talked was build. matures. year of on on -- TCE. of the where securities process to organically it one you Could a if capital

Peter Ho

the reality on if liquidity coming situation And we've generally, capital the to candidly, have as is, the for base mean, of good-sized line that our hard good I chest is in retention, good asset well though was backup of Signature a build obviously, built running as reason, the look that and I you TCE capital we The to taking clear has Jeff, of earnings been a piece. credit. looking quite we're a will. that available immediately company. think pretty SVB, little base obviously out stable, Not And of counter through, deposit build, March. war incredibly at

of that lever some at the which to bring that point down may that so, is cash capital billion over holding, time. this And available would we're $X.X slowly be improve in

with overall an well as emphasis organic our really one on it plan characterize earnings sheet. is, balance so, at And this capital point, the retaining I of would as as the size an managing

Jeff Rulis

Great.

Thanks. back. step I’ll Okay.

Peter Ho

Jeff. Thanks,

Operator

Thank moment One question. for our you. next

question Piper next Liesch the line comes Our from Andrew of with Sandler.

Your line is open.

Andrew Liesch

Hey, good morning everyone.

Peter Ho

Good morning, Andrew.

Andrew Liesch

the question deployed quick in build on Has liquidity this is been be Just that a assets? on that to front? came some on investments earning made that later there still into all quarter. Or

Dean Shigemura

now. It's primarily right funds sold in Fed sitting

yield So, we're in we're The on effective. readily funds? of where funds so investments, for liquidity it's Fed, the the we're available that's placing at looking -- earning We're us. balance fed earning at the also -- sheet terms

Andrew Liesch

it. Got

margin a on right? net will Yes. NII. income, effect picking you're So the up on maybe I little that mean, lower, that Is -- bit be interest sounds like seems net it the it but

Dean Shigemura

Right. Yes.

Peter Ho

Yes.

So -- It's to to right. dilutive to exactly NII capital. dilutive it's and accretive that's margin,

Andrew Liesch

modest, It like on total Got growth? mean, going good some you. low you gains growth I'm looking pretty mid-single-digit that. then on portfolio just just loan then All the curious seems commercial do trend what the I you out, like right. And drove expect side. how And to forward. had

Peter Ho

Yes.

I'm sure coming think I had a quarter. replicable good in not we C&I quarters. the necessarily that's

So point as bit down their positive change hands a muted, consumers flat growth we commercial would on as loan like we'll moving that Hopefully, anticipate more transactions. in a come I seems to be I just hopefully. is, consumer. reasonably forward. on as likely at see And like growth feels clients rate, based commercial bit slowed the this sitting economy, the what had It well signals of now, are out But on seems for think. both

Andrew Liesch

for Thanks you. step I will back. taking Got the question.

Operator

next question. our One moment for

line of the comes Motta question KBW. next with Our from Kelly

line is Your open.

Kelly Motta

questions. morning. Hi. Good for the Thanks

-- deposits. pressure deposits continued betas. some color I I the outlook And the you noninterest-bearing the appreciate suggested on updated in believe commentary around really for I and deposit think

Just rate of where wondering outlook kind noninterest-bearing as terms another in Or timing? what terms and as those accounts of this higher into the really of or well incorporates there Is a of it? bottom a percentage could last of in continuation, off run could get deposits, hike rate your be two? we a quarter assuming

Dean Shigemura

shift, guidance deposits. does noninterest-bearing The on the so Yes. some interest-bearing it into incorporate the around the mix beta, drawdown

So peaking Right that XX% XX%. XX% coming XX%, -- mix at fourth down looking at at maybe now, in quarter. to noninterest-bearing the was XX% we're We're it.

Peter Ho

the at kind which higher it, us between XX%-ish. Yes, And levels XXXX the would mid-XXs. put the were Kelly, interestingly, about, obviously, call midpoint kind levels, rates, were, of that the pre-pandemic of where

we'll way And we're which to base which kind -- so to knowing about of it. that's thinking kind of not right head a handicap

mix see do into the quarter, third fourth. this some potentially quarter, we continuing So, the shift into

I decline. flattening would the however, was to just X% year, bit of compares like kind It we flattening like a which -- down around that seen down looks of past X%, per mention, month. some have that June on-average over

So now. pretty right and July an looking is that was improvement flat

So, be a performance But days our have a in true, we year the about probably few would best month. if that a to left that monthly still holds basis. on

Kelly Motta

Can liquidity borrowings on then the And on which put Got terms you June, it. margin, of build in some on of the about terms [X.XX%] when timing -- rate (ph) commentary the threw month the just those you of that. cash you you that us and took had. remind fixed That's the being of of in super helpful. incorporates the for margin of

the And from expectations the that's should we as a be assuming [NIV] Just rate here, given wondering for and how go-forward kind look about two? we around out, deposit margin on thinking June your of fully (ph) hike that beta, declines if or another basis, commentary reflected margin? then in

Dean Shigemura

Yes.

Okay.

placed, say, part middle the I So the middle of in of quarter. the May, right funding in the so term was would of right kind

liquidity. would So margin that the at of June full the have impact reflected X.XX%

into look of and So that's what in -- bottom the of fourth from you -- so expect do quarter. out the in margin the to we second we the kind saw when as the quarter -- towards year, end decelerating the

So, the kind bottoming in of decrease and then a gradual fourth.

Kelly Motta

provide get quarter. the may of swaps to it. would Got put appreciate color you missed that? how helpful just on sense that some on in that. to more And model just around said amount just trying I you a during modeling? you Can bit some the terms of have us be that, I so

Dean Shigemura

of hedging Sure. end that it it's rate some million a on, was $XXX -- They we put fixed towards swap, the fixed our the received were loans. notional flow quarter of so pay

So X.X-year term. of two about year, a type

Kelly Motta

said it. you're last Got I know I With Okay. the one it for rebuild in Maybe in. sneak you if me, could capital, mode.

of Obviously, in $X.XX how terms the you stage. reiterated But come bit in wondering earnings terms the the guys the earnings. of this level? dividend just you Just the I'm comfort have I you're of around margin. at about how feeling feel down this level dividend, with think payout a wondering the

Peter Ho

Yes.

levels. the strategic dividends, us so is maintain our dividend our Kelly, desire to So and to obviously, are

those and rates -- Of interest willing, course, that's earnings factors. inflation and all willing and credit

that now, And of And that maintain to to our every is so, process at with our level. is for Board quarter. the our assess desire end

Kelly Motta

step much. I’ll back. Thank you so

Peter Ho

Take Yes. care.

Operator

turn would That session. remarks. the to call Cindy to back for At like concludes closing time, you. Wyrick I Thank this the question-and-answer

Cindy Wyrick

today Thank Hawaii. your for Bank in us interest for joining you, continued of everyone, again, and

either today. additional have or or you a any on day. of As clarification reach feel everyone. Thanks, any topics always, Chang to the to Have discussed me further if out you good questions if need free please

Operator

your the today's does you participation for This conference. program. Thank conclude in

You may now disconnect.

Bank of Hawaii (BOH) 24 Jul 232023 Q2 Earnings call transcript