BOH - Earnings call 4 2023 | Bank of Hawaii Corporation

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to Bank of Hawaii Corporation Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Cindy Wyrick, Director of Investor Relations. Please go ahead.

Cynthia Wyrick

everyone. welcome, and you, Thank Thank you financial full we the today of joining for the us results the as fourth XXXX. discuss for quarter year and

Shigemura; Peter Joining Chair Vice Investor Risk and our our Relations, today Shairson; Deputy Risk CEO, Brad Manager me CFO, Mary is and Dean our our Officer, Sellers; Chang Chief Officer, Ho; of Park.

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

link. the earnings a release. referencing slide on we'll these the of Relations as available are well under During Both boh.com, call, our presentation be website, as Investor the

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

Peter Ho

strong X quarter. Expenses continued special Cindy. grew the Margins fourth Capital of second X.XX% were good morning the Bank flat performance industry-wide basis Hawaii. everyone. again Bank ] your solid leverage Credit quarter. by year-over-year. a on Tier appreciate income the of Hawaii story. flat quarter measured and quarter, or XXXX. for a of NIM up as linked capital the controlled Loans ebbed Tier We to for financial interest to X.X% with produced second deposits another total [ quarter FDIC and consecutive well in and assessment of solid. of up were the fee outside X% in the was remains CETX, X, in Good Thanks, afternoon, Average improve.

some conditions call our and granular to to color the then then liquidity the Mary as touch you then commentary credit, on more some with in I'll over start off and funding discuss will with hand and on I'll market financials. share Hawaii. Dean is custom broader on

deposits. on a me bit our let So touch little

time. slowly the franchise, jewel think you deposit of base as be our built know, islands, over of one in our of consider history XXX at to crown the I a many years the we relationship

Hawaii deposit headquartered As the hold state's the reported you unique maybe X locally the XX% country, FDIC of most know, deposits. most banks of in is market where

As stabilize, deposits I regional Despite an year. of of our of more, throughout the with have bank balances our and created XX% the a growing our month XX quarter in deposits XXXX, relationships in in we and been deposit with deposits have years average by crisis Further, volatility tenure flat first and years the the tenure tenure XX a December deposits amazing more. to noninterest-bearing of or with or steady mentioned, XX% average of begun to November's noninterest-bearing both have spot having average.

Bank Hawaii note, HX in flattening. usage of industry of strong remains the performance to that generated meaningly a appear story of I'd of be you in that as bases For cost broker total we year, data. can funds, nationally cost Deposit growth, the pricing deposits. of outperformed shown the deposit deposits without averages and see banks too, and relative interest-bearing to terms broader

abundant. remain liquidity of sources Additional

the up the year-on-year, recover compared as ex been you is figures November and visitor over Maui continues to modestly or Maui down but fires. Hawaii market, days of to switch Lahaina the the certainly were to continued down ex know, slow a perspective, by broader Hawaiian Visitor job's The figures. XXX% outperform forecasts levels. marketplace. economy to which continues The stability. at University be tragic UHERO spending Japan me fire it's pre-pandemic XXXX, let and still The visitor Now entity research market the impacted market our XX% but has up modestly from the from to in

year for in seeing that us into and think year. upside I next market. into some represents the actually, improvement And on the Japan we're down So later

As you however, RevPAR on XX are prices single-family Oahu hotels from condominiums, days of homes respectively. and homes for stable Residential months median. tight up days levels remain steadily. estate the condos homes ago for on single-family for with in perform months with extremely on with supply condos can Inventory is inventory here, average X.X% month days continue X.X to and and a market up see real median of down and XX well chart December, X.X from and year respectively, single-family X%

board, team stepping before like Brad. you And over amazing. Mary's as do, and upcoming think to banks. of her an me call welcome been dog has have been [ into let know, years, point many XX brings I'd ears let Mary years with of retirement has on past Mary, Risk he's our Mary those Regions also me truly Officer. experience joined Now Mary of company much-deserved places like doing us this excited experience call this and But Bank to wealth with outstanding among who of on I congratulate Chief role seems I be MUFG a May. the truly turn XX. as to other I'm a the Brad Brad terrific Union job, member Sellers. But It March and the he'll with on XX ]. BOH for like shortly. from us Bank, our

say to a few like you would Brad, So words?

Bradley Shairson

take just fortunate to months And several that a transition. Yes. maintain feel she'll that see managing risk. I such to through our to had be I also to be her behind. have leaving behind do that the the quality, like to Peter. plan to to I a my that and footsteps under say continue fortunate past disciplined same I can also Mary for I and planned work legacy would she best the in feel with approach incredible for moment strong Thanks, asset leadership, her portfolio will opportunity leaving

turn one said, she so last Mary, of time. do to this that All back could let's this

Mary Sellers

remarks. Okay. for Thank your Peter, And you, Brad. kind

goes our relationship working the our our management, with you most probably managers customers. our team, as for credit that quality say must strong to entire credit strong our and as though and well during credit Brad, line enjoyed particularly to I've consistently I the transition. importantly team First,

I'm been terrific a You've job. capable pleased and hands, do your I'm to terrific leave a in sure it you'll partner.

to the stuff. on usual Now

Bank for We of and relationships Pacific. risk. West philosophy management, exiting ongoing lend to lending be has on and appropriately First, asset of is with weighted in XX% loan-to-value categories in average exposures positions fundamental economic the XX% different Hawaii lower through grounded have portfolio to those cycles. loan consumer X proven a net combine with we long-standing and with sized core relationships estate secured this commercial, with Hawaii's segments diversified actively of higher our This long-tenured products tenants. understand that that disciplined portfolio is built by portfolio charge-offs our is real markets continued XX%. or The We combined XX%

types. Our of leveraged with portfolio various commercial across asset on XX% is XX%. of experience with loan average demonstrated relationships which loan-to-value diversified a total the is and portfolio estate the portfolios, conservatively weighted The built represent capacity financial

the has Our supported average XX% the Central of office This a in in loan-to-value Business weighted of granular and segment weighted loan-to-value by has are through office Honolulu XX% portfolio is is the segment and District. maturing of average loans the further downtown is of exposure guarantees. a the X% XX% repayment portfolio XX%. XXXX.

market rents dynamics in immune market Oahu office the have across overall remained conversions office inventory and impacting U.S., While vacancy relatively resilient continued not use the changing alternative as the on to the from reduce levels. to

this off will of together vacancy be continue less long-term X the housing issue feet supply estimated stress. years of where in removed to periods create served be during is in In high an the demand. volatility segment. These square next years. compounded unique to square Tight continue and its inventory rates onerous the the also to million lows, removed conditions and strong markets last an and X consistent, rental This constraints in of X additional our Oahu is at estate alone, Hawaii's several regulatory relative the with historic XXX,XXX market constraints stability severely sub-X%. drive particularly its geography sector, market approximately factors persist in to driven real feet Supply have supply limited continue cost been homeownership. the industrial by over process pronounced in

RevPAR Japanese more to of other occupancy levels in inventory levels support in a Hawaiian visitors per segment. and Oahu's disruptions, supply average Oahu's and state. in Oahu island terms shutdowns relatively the and with daily any top this flat X levels rate inventory lodging pre-pandemic real to islands market, levels, the and average delay levels. room rents with destination in highest whether remain The Despite segment outperform. tourist backlog manufacturing the vacancy returning Grocery seaports chain helped and return stability in of inflation to estate support drug-anchored Again, it's continue the revenue pre-pandemic time. attracting than over to flat helped

continued XX%. commercial mortgage the in strength an Tail our with to having estate just fundamentals, loans greater 'XX, risk commercial in our real portfolio minimizing repricing portfolio X.X% the of risk maturing we -- addition portfolio. in just the in estate real remains markets modest X% In have LTV than

portfolio chronically with the our of or Our being X% undersupplied majority affordable represents construction total in to in loans, continues markets. be which housing, low income

down strong lease for remained quarter or annualized million basis points $X.X point the outstandings, net total and were $XXX,XXX in X lease year-over-year. average down $XXX,XXX charge-offs linked quality or quarter, loan Asset fourth basis and and of X loan the

charge-offs were $X.X or full XXXX. $X.X the with net compared or For lease X million basis million loan and points X points in year, basis

All or a XX XX stable from loan-to-value $XXX,XXX points or weighted year-over-year. end point modestly quarter were secured estate Loans remained and nonperforming of basis X real the more XX%. or the Nonperforming with at at of $XX.X million with days and basis assets are assets down low points, quarter. third basis X delinquent increased the average

million leases million prior of to and the quarter for the continue number X.XX% point of see credit X up performance allowance total credit financial the a the up at losses at of $XXX.X The million, the points from was for allowance $X.X down had impacts which basis we and quarter The credits, outstandings Criticized recover loans X ratio been loans down as ancillary basis period was the the to improved end loans percentage X the of year-over-year. of for losses for in total and quarter a of as and the slower and linked X.XX% point COVID. $X up quarter from linked were basis loans lease year-over-year. to end

I'll now to over call the turn Dean.

Dean Shigemura

Mary, interest an the your $X sensitivity a pay notional. rate billion in fixed To float rate billion our retirement. upcoming better received notional and interest profile of added Thank balance on total of fourth we $X quarter, you, congratulations swaps for additional

the at greater have funds sold. assets of uncertain of floating Fed and loans more well to rate to proportion continue XX% from actions we addition, XX% floating rate originate These hold our environment. this In end a rate for adjustable and increased XXXX us positioned exposure

Net million interest income quarter. a was decrease million $XXX.X fourth quarter, of in linked $X.X the

bank balance crisis liquidity. unfolded, adding our second As the by the in sheet quarter fortified regional we

As deposits $XXX by reduced billion. $X.X million uncertainty decreased and sheet our quarter. noncore These in and and remained liquidity reduce did reduced the balance on the on-balance our in by we sheet our capital reducing improved the but actions our earning wholesale third asset leverage by funding fourth quarter core average position, strong, base

margin quarter was repricing costs. offset higher stable interest Net deposit asset as linked

exercise of our deposit continuing as outperform to total by growing pricing continue We while that to evidenced deposit discipline banks. balances peer beta

began quarter XXXX, as deposit stabilized XX% of fourth deposits. XX% that believe in We our flatten beta to our betas have peaked December deposits rates deposit of cumulative our was total and total noninterest-bearing deposit have at the XX.X%. to As

In linked by consumer million granular more deposits $XXX average on addition, cost lower quarter. and increased

to into trend XXXX. this continue expect We

and an paydowns and to interest swap margin portfolio in continue assets, growth. income of deposit annually. that Annual and billion ongoing assets includes supporting supplement the portfolios reprice of maturities our $X.X reprice to which provide $X to Our net higher, continue loan billion rate interest

at on preserve paydowns are predominantly X.X%, greater which average. and loans and yielding cash We're earns X.X% maturities Fed, the approximately to yield reinvested loans, in on quarter liquidity. The into investments respectively. attractive yield continue X.X% held than fourth an and which new the and be of These was in flows cash

of as yields repricing have steadily our increased result these are to asset of a overall As increase cash assets yields runoff higher, well yield. and flows in are our expected new asset continue the excess to

of with of asset result to repricing, points expected to is the the basis our the XXXX. a continued deposit X in by margin X increase quarter As first peaking together of beta,

$X.X Noninterest to of of Visa Recall from the fourth securities change repurchase and in $XX.X increase in third income net a ratio. termination related Class $X.X quarter B over the normalized the million from gains of of million the million totaled partially a offset private million that sale quarter by million $XX.X of an loss quarter, results agreements, third conversion the $XXX,XXX $XXX AFS results. an of charge included

and steady. in quarter Market conditions improved the transaction were volumes

these of the we income noninterest the be As trend XXXX, into half levels the conditions continue in core as to first second to half. expect quarter higher fourth the at year persist similar in and

our expenses charge. a Expenses inflationary fourth $XXX the fourth a in is in continued. disciplined we that During were special conditions quarter, managed as in industry-wide FDIC an assessment million $XX.X manner included as quarter which million, our practice, the resulted

the savings fourth in $X.X recur the in was XXXX. Thus, million. expected to of realized, core million the quarter in quarter, which expense addition, are level In fourth $XXX.X expense adjusted were not

third Adjusting $XXX,XXX Thus, linked quarter to items, X.X% despite the expenses continued expenses to wildfires. for of pressures. be lower $XXX Expenses inflation were Third was are expenses expected modestly $XXX.X expenses to quarter Maui expenses included these and $X.X million higher in of the million. extraordinary XXXX quarter expenses million. normalized in X% XXXX core related severance of

reminder, and $X.X benefits million estimated versus incentive of taxes a in from related first currently the million will to quarter quarter's include the $X.X first results XXXX. seasonal payroll As expenses at payouts,

common and common remainder the results assessment, decrease quarter of $X.XX income $X.XX FDIC per was EPS earnings $XX.X the The by fourth respectively. reduced and the performance, To of share per summarize net of our special quarter per included in financial share. million million which $XX.X a $X.XX, industry-wide share, was fourth XXXX,

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

maintain grow the organically to capital quarters to healthy our regulatory we prior excesses minimum from above continue continue requirements. We and well-capitalized

reflecting ratio assets well below total to are peer assets mix. low-risk risk-weighted of Our asset nature median the our

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

Now I'll the back Peter. call turn to over

Peter Ho

Thanks, our prepared to Dean. take questions. be That remarks. your happy We'll concludes

Operator

[Operator Instructions].

Davidson. The first question with comes Rulis from D.A. Jeff

Jeff Rulis

you early that the or considerably, a sense up get like just for maybe think mentioned kind -- of was increase I the November that kind noninterest came quarter kind quarter anything mentioned to that still Maui noninterest-bearing spot flat, payouts pretty in you fire-related to well, that wanted to of December. in bearing? the of part I deposits led Peter, insurance of end -- I think increase

Peter Ho

stuff say, And it oftentimes the probably, of and Jeff, quarter December know, as million year-end. a of want just kind Yes, is kind quarter-end out. because end spot of in funny is the we you saw pop million, to $XXX I $XXX

you is why the of compares better Kind about is which that that I that was NIBD understand the quarter quarter. part of third noninterest-bearing the in just for to spot, look the on just number $X.X billion, the in to to $X.X and billion think, saw Some for was average up. jump

So a be that least stable. number And insight anticipate, I there. pretty feels would Jeff, flattening into to real quarter, this our at early

Jeff Rulis

Okay.

again, of, Like that? would some average in that the at you look I out here, if do balance, you any outflows temporary kind that is anticipate from balance flat. then not there was kind related. Maui think average and it's of So of Or

Peter Ho

the call that have We that average And quarter and about there's our probably came that hopeful we that's think on you're balance we're $X.X Overall If in balances. We're $XXX average running kind at right we I million, ]. of, aid it, balances, -- through have now. related yes, surprised [ me maintain would million do Maui out right. $XXX XX.X% sheet. balance of XX.X%, million of flowing of NIBD's Yes. can

unpredictable. little a so And

of most form it though, for thankfully them. Got yield Some it. earning the of it in some of NIB,

Jeff Rulis

Okay.

a the And just be I Maybe if The follow-on guess, the that would I baked you cost have of margin. in to available. in kind what was don't of that points there basis -- margin of I a the that's in that terms all of is few Is so impactful? that added what if lean into know quarter. you that I hedge, on added -- Dean, consider that. Was

Dean Shigemura

It was our of accretive about in net terms of million. interest $X income

the our does hedge short at did of it kind us, help it end. exposure or but So neutralize

Jeff Rulis

Okay.

the you've first generally up, question we cut or margins things a of you see than also is frame could Dean, maybe half you X expectations, think benefit of guess more bigger So short-term equal? bound, the trends, balances out I kind going second how that, just kind mentioned it's and you quarter then, if range or being should all forward? the

Dean Shigemura

Yes. margin rates, we from we What and be just the is coming that we're -- be at in changes to much the asset higher increase -- All expecting have, things -- the asset equal, flow the side on expect we expect the invested neutral. off cash to yields. from short-term the repricing

Operator

The next with Andrew Sandler. question comes from Piper Liesch

Andrew Liesch

and have swaps -- on Dean, the clarification rates receive question pay a What right just are do the you now? figure. what

Dean Shigemura

million it, X.X from approximately income total of years. tenor is $X average clarify total was on haven't previous on the -- is the to $X interest We the just the And the disclosed the based -- and billion $X billion. question,

Peter Ho

quarter right? $X the billion, was incremental The in

Dean Shigemura

swaps. Of

Peter Ho

Yes.

X/X call So it. there'll be less some number than

Andrew Liesch

margin also All right. it. the And just a then Got clarification on commentary.

rates the be neutral that to pretty should cutting Fed's gradually margin? correct? the Was With

Dean Shigemura

Yes.

Andrew Liesch

costs is Or we there look aware as And projects pressures guide, opportunities? we other it anything really alternatively cost-saving 'XX expense else is just different the as on into that or inflationary as be operating far higher? should in then that pushing Okay. of just

Dean Shigemura

-- it's pressures. There for online. increase. be are going be generally the projects increases to the that for and like some are it's generally, coming is going that inflationary There But to merit

continuing expenses course, Of our we're as practice. to opportunities reduce look the to has always for been

Peter Ho

me margin. or the Is impact reduces context on of will your the wanted question. I let Fed the our the on on question as and ask rates, that what short the it just Andrew, Fed to if as understand NIM? you be -- question? Was the

Andrew Liesch

Yes.

But basis I that flat there what's does to what repricing, to or a no repricing few think the offset maybe available environment end, you the in change expansion. to mean that lower it's clear margin? reinvested on the being the have rate rate short of the the Fed adjustable pretty points with starts product. differential enough if maturing of and any Is

Peter Ho

it would way think time, seen floating mean leave here, of is that okay. a Yes, it, period portion that of would funding the upshot think rates, but of I obviously an period and we reasonably margins our conservatively over for that assets, [indiscernible] I over improvement time, longer result work kind about have I be time, we over our of I right? just stable, Fed hurt our the kind call the of modestly. kind lower short higher say cutting then NIM. adjustment of in whatever So would up let's of is earning costs, would in

Dean Shigemura

the on clear the be see repricing short that effectively to that I we're mentioned yes, means also asset is side. end, continue that what to do that we hedged, when Just

were cut expect to would the if to we margin Fed increasing. the continue even rates, So

Operator

[Operator Instructions].

with Kelly Motta from KBW. next question Our comes

Kelly Motta

moderate to we immediately the portion rate some your horse that it now understanding of Or up saying continue will to higher for It dead the margin level the to change like it margin, continue like quarter but just you'll see are Am up both about understanding correctly. longer, in X, lower that or it's I'm initially? I comments -- with think still clear make you seems XX% I square correctly, as away compression go be there. to Dean, rates? in sure seems cuts. with first you to with both on to at here least want what hate could Just variable at some I trying resets to

Dean Shigemura

we've -- the I've assets what rate Yes. And look repricing from flow. the out we way it separated the at in floating cash is is

deposit cash So well, in rate bringing our to the deposits from margin. flows asset side, what the offsetting rates. floating repricing decrease going assets The increase the liability be we side, we on is the -- the down as would to continue our

an that deposit on X the to reduce further. those more with opportunity side move So would -- to

Peter Ho

rates, But -- soon drop rates Yes. us to timing will right, you're as book. a contractually bring take there it within period earning assets, of time those a certain issue, right, because is that down on drops as our will Fed the margins and our deposit margins

that lower period, should get So of But there over we do could Kelly. kind rates. reasonable short out order, think a we able be of interest that to margin intermediary be expansion

Kelly Motta

impacts of commentary Got it. And accretion back help Can swaps is I appreciate how the X.X AOCI that years. tenor understand average the that me the capital. that you to

seeing may muted Is value back, way I is average that of that about start quarter. X.X-year greater provided the tenor after a tangible think benefit of lower We'll rates up. think come that move this book have the portion to to it? some right

-- Just cadence trying of of of will kind a understand how impacts that creep back that to that AOCI. impact better the

Dean Shigemura

Yes.

about swaps AFS -- swaps $X.X are portfolio. of hedging the the So billion

billion. $X entire the not So

XX% And so about it's hedge. a of when approximately --

that reduce you did it the XX% if up does then nothing. will over time And So we mitigate time, down. recognize over the or movement as fall we'll

is going more program. it Now to be a active

XX% but is now -- right the hedge. So

Kelly Motta

switching loan Maybe sheet balance it. to the Got Okay. growth. and

loan potentially well the Just of rebuild well that the your how as just both that we impact wondering, there island impacts next as as what should loan expectations year, could potentially into tourism coming out be out growth and we to about for with expectation? how on you as growth look as the fits Maui that how see thinking the

Peter Ho

about Maui first. let's talk Well,

off rebuild on still funding think Kelly. activity date. the The right the Maui to coming Maui of now I of in ways around is awful efforts most is relief

constructive this just Maui hypothesize have what anticipated, had impact well. from state visitor perspective, is the to might that's that part So performing even But of a that people a is that not time. back kind the probably anecdotal faster at the least get lot I from coming state. -- probably of than it's economic at

to generated for wildfires that much So shortfall shortfall of -- even think a of of the tourism on still just going there's the then stimulus form a of the ability impact by too next I a what in think I be all several, we rebuild months. And over coming kick have long-term the of or don't activity-wise in, kind of off that out over of like. terms the to because any ways yet potentially that's Lahaina don't could just don't would really project we look design several

early too just probably determine. again, So to

Kelly Motta

it. Got growth for excluding outlook thinking guess, about we next be should year? how then, Maui, And I the

Peter Ho

higher going of think think Interestingly, loan impacted still that by anticipating, we're unless view don't to aggressive I I be is to rates not with similar the which low last too seem that tepid, cuts, in to rates. to We just to rate outside Xs be is be Yes. terribly gets growth going mean reasonably what historical consumer quarter's norm. mortgage the somewhat perceive Fed they be the really

good years, have We go on demand back a having I did impact quarter. that's consumer reasonably a still, the you but front. and If negative years think C&I on

is the of commercial there driver So in our our but low-income as a housing well, really there reasonable a although quarter portfolio had of lot commercial small real kind -- the a of with big activity are the projects is the estate. fine, people recession And marketplace. Construction portfolio or were of landing. out to transactional, way market interest think is or of on expansion their sitting and or but people out, see the which soft hands rates are waiting take just kind for takes doing which kind I recession economy just that's now

lot anticipate So until this activity I end of -- a back year. wouldn't maybe before the of whole

Operator

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

Cynthia Wyrick

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

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

Operator

conference today's concludes participating. for This call. you Thank

disconnect. may You now

Bank of Hawaii (BOH) 22 Jan 242023 Q4 Earnings call transcript