BOH Financial Analysis

Analysis Date: 1/28/2025

Business Model

Bank of Hawai'i Corporation generates revenue primarily through net interest income, which is the difference between interest income earned on loans and investments and interest expense paid on deposits and borrowings. They also generate noninterest income from sources like service charges, trust and asset management, and fees.

Revenue Sources

• Net Interest Income: Majority of revenue is derived from the difference between interest earned on assets (loans, securities) and interest paid on liabilities (deposits).
• Noninterest Income: Includes fees, exchange and other service charges, trust and asset management income, service charges on deposit accounts, bank-owned life insurance, annuity and insurance income, mortgage banking income, and other miscellaneous income.

Income Statement Analysis

• Net Interest Income increased by 2.2% QoQ, a positive trend driven by higher average earning asset balances and improved net interest margin.
• Provision for Credit Losses increased significantly by 25% QoQ, which could be a concern if this trend continues, although asset quality remains strong overall.
• Noninterest Income decreased by 4.6% QoQ, negatively impacting total revenue. Adjusted noninterest income (excluding Visa charge) showed a slight increase, suggesting underlying strength.
• Noninterest Expense increased slightly by 0.8% QoQ, indicating good expense control. Adjusted noninterest expense (excluding FDIC special assessment and non-recurring savings from previous year) increased by 4.9% YoY mainly due to higher medical costs, which are expected to be non-recurring.

Balance Sheet Analysis

• Cash and Cash Equivalents decreased significantly by 40% QoQ, primarily contributing to the decrease in total assets. This decrease is mentioned in the press release as a primary driver for asset reduction.
• Investment Securities increased slightly by 0.6% QoQ, indicating continued investment activity, primarily in floating rate securities as mentioned in the report.
• Net Loans and Leases increased by 1.1% QoQ, driven by growth in commercial loans, particularly commercial mortgage portfolio, suggesting healthy lending activity.
• Total Deposits decreased by 1.6% QoQ, with noninterest-bearing deposits slightly increasing as a percentage of total deposits, while overall deposit balances saw a slight decline.
• Shareholders' Equity remained relatively stable with a slight increase of 0.1% QoQ, indicating consistent capital base.

Cash Flow Analysis

• Cash Flow Statement data is not available in the provided documents to analyze trends.

Capital Allocation

Dividends: BOH declared a quarterly cash dividend of $0.70 per common share, consistent with previous quarters, indicating a commitment to shareholder returns. Share Repurchases: No shares of common stock were repurchased in Q4 2024. Business Reinvestment: Bank of Hawai'i is focused on optimizing its balance sheet, as evidenced by securities purchases and sales activity, and managing deposit costs. They are also investing in technology and human capital as reflected in salaries and benefits expenses.

Management Commentary

"Bank of Hawai‘i finished 2024 with strong financial performance."

"In the fourth quarter, our net interest income and net interest margin continued their upward trajectories and average loan balances and average deposit balances grew."

"During 2024, we strengthened capital levels, controlled core expenses and maintained excellent credit quality."

"Noninterest income in the fourth quarter of 2024 included a $2.4 million charge incurred in connection with a change in our Visa Class B conversion ratio."

"The increase [in noninterest expense] was primarily due to higher medical cost in the fourth quarter of 2024 that are not expected to repeat."

Overall Sentiment: Positive. Management expresses confidence in the bank's performance, highlighting improvements in key areas like net interest income and credit quality. While acknowledging a charge in noninterest income and a rise in noninterest expenses due to medical costs, the overall tone is optimistic about the bank's financial health and future prospects.

Recommendation

Rating: Hold

Reason for Rating: Based on the analysis, a Hold recommendation is appropriate for BOH stock at this time.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 1/28/2025, 5:17:03 AM