Bank of Hawaii Corporation

Bank of Hawaii reported third-quarter diluted EPS of $1.49 and net income of $64.3 million, up 0.7% and 1.4% from the prior quarter and up 24.2% and 20.5% year over year, respectively. Return on average common equity was 15.4%. Net interest income increased to $156.1 million and net interest margin expanded to 2.82%, up 4 basis points sequentially. Average deposits declined 0.8% while average loan balances increased by $85 million, or 0.6%. Credit metrics stayed favorable, with delinquencies at 46 basis points and net charge-offs at 9 basis points; criticized assets improved to 2.37%, while nonperforming assets rose to 30 basis points due to one commercial loan. The ACL ended at $146.2 million, or 1.02% of loans. Looking ahead, management expects modest deposit growth in the fourth quarter, low mid-single-digit loan growth with commercial as the main driver, normalized fourth-quarter noninterest income of about $44 million, and normalized noninterest expense of about $112.5 million.

Jim Polk said the quarter reflected continued improvement in financial performance, the strength of the franchise, and disciplined balance sheet management. He emphasized that earnings are still being helped by repricing, but longer-term growth will need more organic deposits, loans, and fee income. His tone was constructive but measured: he highlighted Hawaii’s stability, the bank’s 125-year brand and 34% deposit market share, and said the real opportunity is to translate those advantages into stronger organic growth.

Brad Satenberg focused on margin mechanics, funding, and capital. He said NII rose $2.5 million and NIM expanded to 2.82% due mainly to fixed-asset repricing, partly offset by deposit mix pressure; he expects that mix drag to moderate in the fourth quarter. He noted deposit costs held at 1.27%, the cost of interest-bearing liabilities stayed at 1.83%, and the bank used about $200 million of runoff from high-cost public funds plus short-term borrowings, which averaged $120 million. Capital remained solid with Tier 1 capital at 14.4% and total risk-based capital at 15.4%, and the company bought back $20 million of stock in the quarter with plans for another $20 million in the fourth quarter.

Analysts pressed on margin sensitivity, deposit runoff, loan demand, capital deployment, and buybacks. Management said the September rate hike should add several basis points to earning asset yields in the fourth quarter, that public-fund runoff may provide about a 1 basis point tailwind to deposit costs and NIM, and that there is still some additional public-fund runoff opportunity but not expected this quarter. On loans, management said commercial demand and pipelines remain solid, while consumer/residential lending is still challenged by rates but home equity growth could improve. On the large nonperforming commercial loan, management said the issue is idiosyncratic, the expected loss is immaterial and already reserved, and resolution should not increase future provision expense. On buybacks, management said the stock looks undervalued, but repurchases will be evaluated quarter by quarter and capital will still be managed conservatively.