Business context and reporting period
Bank of Hawaii Corporation is a bank holding company headquartered in Honolulu, serving consumers, businesses, and governments in Hawaii, Guam, and other Pacific Islands. This Form 10-K reports the fiscal year ended December 31, 2022, with comparisons primarily to 2021. The company reports Consumer Banking, Commercial Banking, and Treasury and Other segments.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Net interest income | $540.6 million | $497.3 million |
| Noninterest income | $157.5 million | $171.4 million |
| Net income | $225.8 million | $253.4 million |
| Diluted earnings per common share | $5.48 | $6.25 |
| Net interest margin, taxable-equivalent | 2.50% | 2.36% |
| Return on average assets | 0.98% | 1.14% |
| Return on average shareholders’ equity | 16.10% | 16.94% |
- Revenue and costs: Net interest income plus noninterest income was approximately $698.1 million, up from $668.6 million. Noninterest expense increased 6% to $415.3 million. The filing does not provide a single reported “revenue” line.
- Credit: Provision for credit losses was a net benefit of $7.8 million, versus a $50.5 million net benefit in 2021. Net charge-offs were $5.1 million, or 0.04% of average loans. The loan allowance was $144.4 million, 1.06% of loans, compared with $157.8 million and 1.29% a year earlier.
- Balance sheet: Total assets were $23.6 billion, loans and leases $13.6 billion, and deposits $20.6 billion at year-end. Loans grew 11%; deposits grew 1%.
- Liquidity and funding: Cash and cash equivalents were $401.8 million; available-for-sale securities had a carrying value of $2.8 billion. The company reported additional borrowing capacity of $2.8 billion from the FHLB and $603.4 million from the Federal Reserve. Estimated uninsured deposits were $10.7 billion.
- Debt and capital: Repurchase agreements totaled $725.5 million and other debt was $410.3 million, including $400 million of FHLB advances due in 2027. The company’s CET1, Tier 1, total capital, and leverage ratios were 10.92%, 12.15%, 13.17%, and 7.37%, respectively; the Bank was classified as well capitalized.
- Cash flow: Operating activities provided $333.0 million; investing activities used $1.25 billion; financing activities provided $761.8 million. Cash and cash equivalents declined $158.7 million to $401.8 million.
- Shareholder returns: The company paid $112.6 million in common dividends and repurchased $55.1 million of common stock during 2022. The common dividend declared was $2.80 per share for the year.
Material changes versus the prior comparable period
- Net income fell 11% and diluted EPS fell 12%, despite higher net interest income. Management attributed the earnings decline mainly to the substantially smaller credit-loss benefit, lower mortgage banking income, security-sale losses, and higher expenses.
- Higher interest rates and loan growth lifted net interest income 9%; the taxable-equivalent net interest margin increased 14 basis points to 2.50%. Deposit and borrowing costs also rose.
- Mortgage banking income declined 60% to $6.0 million as higher mortgage rates reduced originations and loan sales. Trust and asset management income decreased 5%.
- Loans grew $1.4 billion, led by commercial mortgage, residential mortgage, and home equity lending. Deposits increased modestly, with growth in public and other deposits offsetting declines in consumer and commercial balances.
- Shareholders’ equity declined 18% to $1.3 billion, primarily reflecting $368.3 million of after-tax other comprehensive loss, chiefly from investment-security valuation declines as interest rates rose. The company transferred approximately $1.3 billion of securities from available-for-sale to held-to-maturity during 2022.
- Fourth-quarter net income was $61.3 million; net income available to common shareholders was $59.3 million and diluted EPS was $1.50, down 3% from the fourth quarter of 2021. Fourth-quarter net interest margin was 2.60%.
Outlook, risks, contingencies, and unusual items
- The filing gives no quantified earnings, revenue, or margin guidance. Management describes a focus on customer service, growth, prudent risk and capital management, and community support.
- Management’s interest-rate simulation estimated that a gradual 200-basis-point rise would increase next-12-month net interest income by 2.4%, while a gradual 100-basis-point decline would reduce it by 0.7%. These are model estimates, not guidance; results are sensitive to assumptions and yield-curve movements.
- Key exposures include Hawaii and Pacific Island economic conditions—especially tourism, real estate, and military spending—interest-rate and deposit competition, credit deterioration, climate events, cybersecurity and third-party operations, regulatory changes, and LIBOR transition execution.
- Investment securities had gross unrealized losses of approximately $1.13 billion at year-end, attributed primarily to interest-rate changes rather than credit deterioration. Management stated it did not intend, and was not more likely than not required, to sell the affected securities before recovery; the held-to-maturity portfolio’s fair value was $4.62 billion versus a $5.41 billion carrying amount.
- Unusual items included a $6.9 million loss tied to an agreement to sell assets that would terminate leveraged leases, and $6.1 million of net investment-security losses, primarily fees associated with prior Visa Class B share sale transactions.
- Credit commitments totaled $3.75 billion, including $3.59 billion of unfunded commitments to extend credit. The company is involved in ordinary-course legal proceedings; management said known matters were not expected to materially affect results, while acknowledging outcomes could differ.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. The allowance for credit losses was identified as a critical audit matter because of the judgment involved in qualitative adjustments.
Important facts for investors to verify
- Whether net interest income growth can continue as deposit costs rise and rate-sensitive balances reprice.
- The durability of loan growth and credit quality, particularly in Hawaii real estate and consumer portfolios, and the adequacy of the $144.4 million allowance under changing forecasts.
- Liquidity under deposit outflows: uninsured deposits were estimated at $10.7 billion, and substantial securities were in unrealized-loss positions.
- The effects of the securities transfer to held-to-maturity classification, including reduced flexibility to sell and the ongoing impact of unrealized losses on accumulated other comprehensive income.
- Capital and shareholder-return capacity, including regulatory limits on Bank dividends to the parent, ongoing common dividends, and authorized repurchases.
- Whether management’s economic and interest-rate assumptions remain reasonable; actual results may differ materially from forward-looking statements and model scenarios.