Bank of Hawai‘i Corporation (NYSE: BOH) today reported diluted earnings per common share of $1.17 for the third quarter of 2023, compared with diluted earnings per common share of $1.12 in the previous quarter and $1.28 in the same quarter of 2022. Net income for the third quarter of 2023 was $47.9 million, up 4.0% from the previous quarter and down 9.3% from the same quarter of 2022. The return on average common equity for the third quarter of 2023 was 15.38% compared with 14.95% in the previous quarter and 16.98% in the same quarter of 2022.
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“Bank of Hawai‘i delivered another quarter of solid financial results,” said Peter Ho, Chairman, President, and CEO. “Total deposits were up 1.4% linked quarter, and average deposits were up by 2.4%, driven by growth in core relationship deposits. Our credit quality remained strong, with non-performing assets of 0.08% at quarter end and net charge offs of 0.06% in the quarter. NIM declined modestly by 9 basis points, while our core noninterest income and operating expense remained steady. Finally, one of our key priorities this quarter was to support our clients, employees, and community as we coped with the tragic situation in Maui. Taking care of our community has always been a fundamental priority and we will continue to support our community as we build a stronger Maui.”
Financial Highlights
Net interest income for the third quarter of 2023 was $120.9 million, a decrease of 2.7% from the previous quarter and a decrease of 14.6% from the same quarter of 2022. The decrease in net interest income in the third quarter of 2023 was primarily due to higher funding costs, partially offset by higher earning asset yields.
Net interest margin was 2.13% in the third quarter of 2023, a decrease of 9 basis points from the previous quarter and 47 basis points from the same quarter of 2022. The decrease in net interest margin was due to higher funding costs and increased liquidity, partially offset by higher earning asset yields.
The average yield on loans and leases was 4.34% in the third quarter of 2023, up 15 basis points from the prior quarter and up 85 basis points from the same quarter of 2022. The average yield on total earning assets was 3.72% in the third quarter of 2023, up 16 basis points from the prior quarter and up 88 basis points from the same quarter of 2022. The average cost of interest-bearing deposits was 1.95% in the third quarter of 2023, up 41 basis points from the prior quarter and up 165 basis points from the same quarter of 2022. The average cost of total deposits, including noninterest-bearing deposits, was 1.40%, up 32 basis points from the prior quarter and up 120 basis points from the same quarter of 2022. The changes in yields and rates over the linked quarter and year over year period reflected the higher rate environment, including higher benchmark interest rates.
Noninterest income was $50.3 million in the third quarter of 2023, an increase of 16.4% from the previous quarter and an increase of 64.2% from the same period in 2022. Noninterest income in the third quarter of 2023 included a $14.7 million gain from the early termination of private repurchase agreements, partially offset by a $4.6 million net loss related to investment securities sales and a negative $0.8 million adjustment related to a change in the Visa Class B conversion ratio. Noninterest income in the second quarter of 2023 included $1.5 million from the sale of a low-income housing tax credit investment. Noninterest income in the third quarter of 2022 included a one-time pre-tax charge of $6.9 million related to our agreement to sell assets that terminated certain leveraged leases and a negative $0.9 million adjustment related to a change in the Visa Class B conversion ratio. Adjusted for these items, noninterest income in the third quarter of 2023 was $41.0 million, down 1.6% from adjusted noninterest income in the previous quarter, and up 6.6% from adjusted noninterest income in the same period in 2022.
Noninterest expense was $105.6 million in the third quarter of 2023, an increase of 1.5% from the previous quarter and a decrease of 0.1% from the same quarter of 2022. Noninterest expense in the third quarter of 2023 included separation expenses of $2.1 million and extraordinary expenses related to the Maui wildfires of $0.4 million. Noninterest expense in the third quarter of 2022 included $1.8 million in separation expenses. Adjusted noninterest expense in the third quarter of 2023 was $103.1 million, down 0.9% from the previous quarter and down 0.8% from adjusted noninterest expense in the same period in 2022.
The effective tax rate for the third quarter of 2023 was 24.76% compared with 24.57% in the previous quarter and 20.68% during the same quarter of 2022. The increase in the effective tax rate on a linked quarter basis was mainly due to a decrease in benefits from tax credit investments from the second quarter. The year over year increase was primarily due to tax benefits in the third quarter of 2022 related to the aforementioned agreement to sell assets that terminated certain leveraged leases.
Asset Quality
The Company’s overall asset quality remained strong during the third quarter of 2023. Provision for credit losses for the third quarter of 2023 was $2.0 million compared with $2.5 million in the previous quarter. The Company had no provision for credit loss in the third quarter of 2022.
Total non-performing assets were $11.5 million at September 30, 2023, flat from June 30, 2023 and down $2.3 million from September 30, 2022. Non-performing assets as a percentage of total loans and leases and foreclosed real estate were 0.08% at the end of the quarter, flat from the end of the prior quarter and a decrease of 2 basis points from the same quarter of 2022.
Net loan and lease charge-offs during the third quarter of 2023 were $2.0 million or 6 basis points annualized of total average loans and leases outstanding. Net loan and lease charge-offs for the third quarter of 2023 were comprised of charge-offs of $3.6 million partially offset by recoveries of $1.6 million. Compared to the prior quarter, net loan and lease charge-offs increased by $0.7 million or 2 basis points annualized on total average loans and leases outstanding. Compared to the same quarter of 2022, net loan and lease charge-offs increased by $0.9 million or 3 basis points annualized on total average loans and leases outstanding.
The allowance for credit losses on loans and leases was $145.3 million at September 30, 2023, a decrease of $0.1 million from June 30, 2023 and a decrease of $1.2 million from September 30, 2022. The ratio of the allowance for credit losses to total loans and leases outstanding was 1.04% at the end of the quarter, flat from the end of the prior quarter and down 6 basis points from the same quarter of 2022.
Balance Sheet
Total assets were $23.5 billion at September 30, 2023, a decrease of 5.6% from June 30, 2023 and an increase of 1.8% from September 30, 2022. The decrease from the prior quarter was primarily due to a decrease in funds sold. The increase from the same period in 2022 was primarily due to an increase in our loans and leases.
Total funds sold and cash and due from banks was $0.6 billion at September 30, 2023, a decrease of $1.0 billion from June 30, 2023 and flat from September 30, 2022. The decrease was primarily due to termination of $1.8 billion of wholesale funding during the quarter, including Federal Home Loan Bank advances and private repurchase agreements.
The investment securities portfolio was $7.5 billion at September 30, 2023, a decrease of 5.0% from June 30, 2023 and a decrease of 5.2% from September 30, 2022. These decreases were due to sales of $159.1 million of investment securities during the quarter and cashflows from the portfolio not being reinvested into securities. The investment portfolio remains largely comprised of securities issued by U.S. government agencies and U.S. government-sponsored enterprises.
Total loans and leases were $13.9 billion at September 30, 2023, flat from June 30, 2023 and an increase of 4.5% from September 30, 2022. Total commercial loans were $5.7 billion at September 30, 2023, an increase of 1.2% from the prior quarter and an increase of 7.3% from the same quarter of 2022. The increase from the same period in 2022 was primarily due to increases in our commercial mortgage and commercial and industrial portfolios. Total consumer loans were $8.2 billion as of September 30, 2023, a decrease of 0.8% from the prior quarter and an increase of 2.7% from the same period in 2022. The increase from the same period in 2022 was primarily driven by increases in our residential mortgage and home equity portfolios.
Total deposits were $20.8 billion at September 30, 2023, an increase of 1.4% from June 30, 2023 and a decrease of 0.4% from September 30, 2022. Noninterest-bearing deposits made up 27% of total deposit balances as of September 30, 2023, down from 29% as of June 30, 2023, and down from 35% as of September 30, 2022. Average deposits were $20.5 billion for the third quarter of 2023, up 2.4% from $20.0 billion in the prior quarter, and down 1.8% from $20.9 billion in the third quarter of 2022. As of September 30, 2023, insured and uninsured but collateralized deposits represent 58% of total deposit balances, down from 61% as of June 30, 2023, and up from 56% as of September 30, 2022. As of September 30, 2023, our readily available liquidity of $9.6 billion exceeded total uninsured and uncollateralized deposits.
Capital and Dividends
The Company’s capital levels increased quarter over quarter and remain well above regulatory well-capitalized minimums.
The Tier 1 Capital Ratio was 12.53% at September 30, 2023 compared with 12.21% at June 30, 2023 and 12.72% at September 30, 2022. The Tier 1 Leverage Ratio was 7.22% at September 30, 2023, up 1 basis point from 7.21% at June 30, 2023 and down 6 basis points from 7.28% at September 30, 2022. The increases from the prior quarter were due to an increase in Tier 1 capital as a result of retained earnings growth and a decrease in risk-weighted assets. The decreases from the same period in 2022 were due to an increase in risk-weighted assets and average total assets, as a result of loan growth over the period.
No shares of common stock were repurchased under the share repurchase program in the third quarter of 2023. Total remaining buyback authority under the share repurchase program was $126.0 million at September 30, 2023.
The Company’s Board of Directors declared a quarterly cash dividend of $0.70 per share on the Company’s outstanding common shares. The dividend will be payable on December 14, 2023 to shareholders of record at the close of business on November 30, 2023.
On October 5, 2023, the Company announced that the Board of Directors declared the quarterly dividend payment of $10.94 per share, equivalent to $0.2735 per depositary share, on its preferred stock. The depositary shares representing the Series A Preferred Stock are traded on the NYSE under the symbol “BOH.PRA.” The dividend will be payable on November 1, 2023 to shareholders of record of the preferred stock as of the close of business on October 17, 2023.
Conference Call Information
The Company will review its third quarter financial results today at 8:00 a.m. Hawai‘i Time (2:00 p.m. Eastern Time). The live call, including a slide presentation, will be accessible on the investor relations link of Bank of Hawai‘i Corporation's website, www.boh.com. The webcast can be accessed via the link: https://register.vevent.com/register/BId0e4643fbbd64cdfae5f15202d1ffbba. A replay of the conference call will be available for one year beginning approximately 11:00 a.m. Hawai‘i Time on Monday, October 23, 2023. The replay will be available on the Company's website, www.boh.com.
Investor Announcements
Investors and others should note that the Company intends to announce financial and other information to the Company’s investors using the Company’s investor relations website at https://ir.boh.com, social media channels, press releases, SEC filings and public conference calls and webcasts, all for purposes of complying with the Company’s disclosure obligations under Regulation FD. Accordingly, investors should monitor these channels, as information is updated, and new information is posted.
Forward-Looking Statements
This news release, and other statements made by the Company in connection with it may contain "forward-looking statements" (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties that could cause results to be materially different from expectations. Forecasts of our financial results and condition, expectations for our operations and business prospects, and our assumptions used in those forecasts and expectations are examples of certain of these forward-looking statements. Do not unduly rely on forward-looking statements. Actual results might differ significantly from our forecasts and expectations because of a variety of factors. More information about these factors is contained in Bank of Hawai‘i Corporation's Annual Report on Form 10-K for the year ended December 31, 2022 and its Form 10-Q for the fiscal quarter ended March 31, 2023 and June 30, 2023, which were filed with the U.S. Securities and Exchange Commission. These forward-looking statements are not guarantees of future performance and speak only as of the date made, and, except as required by law, the Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.
Bank of Hawai‘i Corporation is an independent regional financial services company serving businesses, consumers, and governments in Hawai‘i and the West Pacific. The Company's principal subsidiary, Bank of Hawai‘i, was founded in 1897. For more information about Bank of Hawai‘i Corporation, see the Company’s website, www.boh.com. Bank of Hawai‘i Corporation is a trade name of Bank of Hawaii Corporation.
| Bank of Hawai‘i Corporation and Subsidiaries | ||||||||||||||||||||
| Financial Highlights | Table 1 | |||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30, | June 30, | September 30, | September 30, | |||||||||||||||||
| (dollars in thousands, except per share amounts) | 2023 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||
| For the Period: | ||||||||||||||||||||
| Operating Results | ||||||||||||||||||||
| Net Interest Income | $ | 120,937 | $ | 124,348 | $ | 141,655 | $ | 381,240 | $ | 399,820 | ||||||||||
| Provision for Credit Losses | 2,000 | 2,500 | - | 6,500 | (8,000 | ) | ||||||||||||||
| Total Noninterest Income | 50,334 | 43,255 | 30,660 | 134,326 | 116,369 | |||||||||||||||
| Total Noninterest Expense | 105,601 | 104,036 | 105,749 | 321,556 | 312,562 | |||||||||||||||
| Pre-Provision Net Revenue | 65,670 | 63,567 | 66,566 | 194,010 | 203,627 | |||||||||||||||
| Net Income | 47,903 | 46,061 | 52,801 | 140,806 | 164,497 | |||||||||||||||
| Net Income Available to Common Shareholders | 45,934 | 44,092 | 50,832 | 134,899 | 158,590 | |||||||||||||||
| Basic Earnings Per Common Share | 1.17 | 1.12 | 1.28 | 3.44 | 4.00 | |||||||||||||||
| Diluted Earnings Per Common Share | 1.17 | 1.12 | 1.28 | 3.42 | 3.98 | |||||||||||||||
| Dividends Declared Per Common Share | 0.70 | 0.70 | 0.70 | 2.10 | 2.10 | |||||||||||||||
| Performance Ratios | ||||||||||||||||||||
| Return on Average Assets | 0.78 | % | 0.77 | % | 0.91 | % | 0.78 | % | 0.96 | % | ||||||||||
| Return on Average Shareholders' Equity | 13.92 | 13.55 | 15.31 | 13.91 | 15.25 | |||||||||||||||
| Return on Average Common Equity | 15.38 | 14.95 | 16.98 | 15.37 | 16.81 | |||||||||||||||
| Efficiency Ratio 1 | 61.66 | 62.07 | 61.37 | 62.37 | 60.55 | |||||||||||||||
| Net Interest Margin 2 | 2.13 | 2.22 | 2.60 | 2.27 | 2.47 | |||||||||||||||
| Dividend Payout Ratio 3 | 59.83 | 62.50 | 54.69 | 61.05 | 52.50 | |||||||||||||||
| Average Shareholders' Equity to Average Assets | 5.60 | 5.65 | 5.91 | 5.61 | 6.28 | |||||||||||||||
| Average Balances | ||||||||||||||||||||
| Average Loans and Leases | $ | 13,903,214 | $ | 13,876,754 | $ | 13,126,717 | $ | 13,833,164 | $ | 12,709,045 | ||||||||||
| Average Assets | 24,387,421 | 24,114,443 | 23,135,820 | 24,124,360 | 22,959,246 | |||||||||||||||
| Average Deposits | 20,492,082 | 20,018,601 | 20,863,681 | 20,314,079 | 20,621,310 | |||||||||||||||
| Average Shareholders' Equity | 1,365,143 | 1,363,059 | 1,367,946 | 1,353,815 | 1,441,706 | |||||||||||||||
| Per Share of Common Stock | ||||||||||||||||||||
| Book Value | $ | 29.78 | $ | 29.66 | ||||||||||||||||
