8-K: Bank of Hawaii Corporation Reports Second Quarter 2024 Results, Impacted by FDIC Assessment

Bank of Hawaii Corporation announced diluted earnings per common share of $0.81 for the second quarter of 2024, down from both the previous quarter and the same quarter last year, impacted by a one-time FDIC special assessment.

Summary

• Bank of Hawaii Corporation reported diluted earnings per common share of $0.81 for the second quarter of 2024.
• This is a decrease compared to $0.87 in the previous quarter and $1.12 in the same quarter of 2023.
• Net income for the quarter was $34.1 million, a 6.3% decrease from the previous quarter and a 26.0% decrease from the same quarter last year.
• The results were impacted by a $2.6 million one-time charge due to an industry-wide FDIC special assessment, which reduced diluted earnings per share by $0.05.
• Net interest margin increased by 4 basis points to 2.15% from the previous quarter.
• The return on average common equity was 10.41%, down from 11.20% in the previous quarter and 14.95% in the same quarter of 2023.
• Non-performing assets were 0.11% at quarter end, and net charge-offs were 0.10% during the quarter.
• The company successfully raised $165 million through a preferred stock offering in late June, strengthening capital levels.
• Average deposits decreased by 0.9%, and average loans decreased modestly.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to decreased earnings and net income, offset by positive capital raising and strong credit quality. The one-time FDIC charge is a concern, but the company's underlying performance is stable.

Positives

• Net interest margin increased by 4 basis points from the previous quarter, indicating improved profitability in lending activities.
• The company successfully raised $165 million through a preferred stock offering, bolstering its capital position.
• Credit quality remained strong with low non-performing assets at 0.11% and net charge-offs at 0.10%.
• The Tier 1 Capital Ratio increased to 13.99% and the Tier 1 Leverage Ratio increased to 8.37%, both well above regulatory minimums.
• The average yield on loans and leases increased by 13 basis points from the prior quarter to 4.76%.

Negatives

• Diluted earnings per common share decreased to $0.81, down from $0.87 in the previous quarter and $1.12 in the same quarter of 2023.
• Net income decreased by 6.3% from the previous quarter and 26.0% from the same quarter of 2023.
• The company incurred a $2.6 million non-recurring charge due to an industry-wide FDIC special assessment.
• Return on average common equity decreased to 10.41%, down from 11.20% in the previous quarter and 14.95% in the same quarter of 2023.
• Average deposits decreased by 0.9% from the previous quarter.
• Noninterest expense increased by 3.2% from the previous quarter and 5.0% from the same quarter of 2023.

Risks

• The company's financial results were negatively impacted by a one-time FDIC special assessment, which may indicate vulnerability to regulatory changes.
• Decreases in net income and earnings per share could negatively affect investor confidence.
• The decrease in average deposits could indicate a potential challenge in maintaining funding sources.
• Increased noninterest expenses could put pressure on profitability if not managed effectively.
• The decrease in total assets by 6.6% from the same period in 2023 could indicate a contraction in the company's overall business activity.

Future Outlook

The document contains forward-looking statements that involve risks and uncertainties, and actual results may differ materially from expectations. The company does not commit to updating these statements.

Management Comments

• Peter Ho, Chairman and CEO, stated that Bank of Hawaii delivered strong financial results in the second quarter of 2024.
• He noted that credit quality remained exceptional and the net interest margin increased due to cashflows repricing.
• He also mentioned the successful closing of a preferred stock offering, strengthening capital levels.

Industry Context

The industry-wide FDIC special assessment impacted Bank of Hawaii's results, reflecting a broader trend of regulatory costs affecting financial institutions. The company's focus on maintaining strong credit quality and capital levels aligns with industry best practices in a challenging economic environment.

Comparison to Industry Standards

• Bank of Hawaii's net interest margin of 2.15% is within the range of regional banks, but the increase of 4 basis points is modest compared to some peers who have seen larger improvements due to interest rate changes.
• The return on average common equity of 10.41% is lower than some high-performing regional banks, such as those with a focus on fee-based income, which can achieve ROE's in the 12-15% range.
• The non-performing asset ratio of 0.11% is very low, indicating strong credit quality compared to the industry average, which can range from 0.2% to 0.5% depending on the economic cycle.
• The successful capital raise of $165 million through preferred stock is a positive step, but the cost of this capital will need to be managed to ensure it does not negatively impact future profitability.
• Compared to other regional banks, Bank of Hawaii's deposit base is considered stable and long-tenured, which is a competitive advantage in a market with limited competition.

Stakeholder Impact

• Shareholders will be impacted by the decrease in earnings per share and return on equity.
• Employees may be affected by the company's efforts to manage expenses.
• Customers may not be directly impacted by this report, but the company's financial health is important for long-term stability.
• Creditors will be interested in the company's strong capital levels and asset quality.

Next Steps

• The company will hold a conference call to review the second quarter financial results.
• A replay of the conference call will be available on the company's website.
• Investors should monitor the company's investor relations website, social media channels, press releases, SEC filings, and public conference calls for updates.

Key Dates

Keywords

Bank of Hawaii, Financial Results, Earnings, Net Income, Net Interest Margin, FDIC Assessment, Preferred Stock, Capital Ratios, Asset Quality, Non-Performing Assets, Deposits, Loans