BANK OF HAWAII CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

Forward-looking statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the fact that they do not relate strictly to historical or current facts and may include statements regarding, among other things, the expected economic and business environment in our service area and elsewhere, credit quality and other financial and business matters for future periods, our future results of operations and financial condition, our business strategy and plans , as well as our goals and future operations. We may also make forward-looking statements in our other documents filed or provided to US Securities and Exchange Commission (the second”). In addition, our senior management may make forward-looking statements orally to analysts, investors, media representatives and others. Our forward-looking statements are based on numerous assumptions, each of which may prove to be inaccurate, and the results actual may differ materially from those projected due to a variety of risks and uncertainties, including, but not limited to: 1) general economic conditions whether national, international or local may differ from what was planned, and in particular, any event that has a negative impact on the tourism industry in
Hawaii; 2) the cumulative effects of the COVID-19 pandemic, including reduced tourism in Hawaii, the length and scope of government mandates or other limitations on travel and their lingering effects, volatility in the international and domestic economy and credit markets, worker absenteeism, quarantines or other travel restrictions or health-related, the duration and severity of COVID -19, the pace of recovery from the COVID-19 pandemic, and the effect of governmental, commercial and individual actions to mitigate the effects of the COVID pandemic -19; 3) changes in market interest rates that may affect credit markets and our ability to maintain our net interest margin; 4) changes in our credit quality or risk profile that may increase or decrease the required level of our credit loss reserve; 5) the impact of legislative and regulatory initiatives, in particular the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018; 6) changes in the amount and timing of proposed common stock repurchases; 7) unforeseen changes in securities markets, public debt markets and other capital markets in the WE and internationally, including, without limitation, the early elimination of the London Interbank Offered Rate (“LIBOR”) as the benchmark interest rate; 8) changes in the fiscal and monetary policies of the markets in which we operate; 9) increase in the cost of maintaining or increasing the Company’s ability to maintain adequate liquidity and capital, as required by the Basel Committee on Banking Supervision
and WE regulators; 10) changes in accounting standards; 11) the effect of changes or interpretations of tax laws or regulations, including Public Law 115-97, commonly known as the Tax Cuts and Jobs Act; 12) any failure or interruption or breach of our operational or security systems, information systems or infrastructure, or those of our merchants, third-party vendors and other service providers; 13) any disruption or breach of security of our information systems resulting in failures or disruptions in customer account management, general ledger processing, and loan or deposit systems; 14) Acts of God, civil unrest or adverse weather, public health, epidemics and other conditions affecting our business and that of our customers or adversely impacting the tourism industry in Hawaii; 15) competitive pressures in the markets for financial services and products; 16) actual or alleged conduct that could damage our reputation; and 17) the impact of the Company’s litigation and regulatory investigations, including costs, expenses, settlements and judgments. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements to predict our actual results. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from these forward-looking statements is included in the section entitled “Risk Factors” in Part II of this report and in Part I of our annual report on Form 10-K for the year ended December 31, 2021and subsequent periodic and routine reports filed with the SECOND. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identify these statements. We undertake no obligation to update forward-looking statements to reflect subsequent events or circumstances, except as required by law.

For the reasons described above, we caution you against relying on any forward-looking statements. You should not consider a list of these factors to be an exhaustive statement of all risks, uncertainties or potentially inaccurate assumptions that could cause our current expectations or beliefs to change. In addition, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unforeseen events, except as otherwise required by federal securities laws.

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Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with WE
generally accepted accounting principles (“GAAP”) and follow the general practices of the industries in which we operate. The most significant accounting policies we follow are set forth in Note 1 to the Company’s Annual Report on Form 10-K for the year ended. December 31, 2021. Applying these principles requires us to make estimates, assumptions and judgments that affect the amounts presented in the consolidated financial statements and accompanying notes. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is essential in the preparation of consolidated financial statements. These factors include, among others, whether the policy requires management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different terms. or using different assumptions. The accounting policies that we consider to be the most critical in the preparation of our consolidated financial statements are presented in the section entitled “Critical Accounting Policies” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the company’s annual report on Form 10-K. for the year ended December 31, 2021. There have been no material changes in the Company’s application of critical accounting policies since December 31, 2021.

Insight

Bank of Hawaii Corporation (the “parent”) is a Delaware company and a bank holding company headquartered in Honolulu Hawaii. The main operating subsidiary of the parent company is Bank of Hawaii (the bank”).

The Bank, directly and through its subsidiaries, provides a wide range of financial services and products to businesses, consumers and governments in
Hawaii, Guam, and other Pacific islands. References to “we”, “us”, “our” or the “Company” refer to the parent company and its subsidiaries which are consolidated for financial reporting purposes.

The Company’s business strategy is to use our unique market knowledge, prudent management discipline and brand strength to deliver exceptional value to our stakeholders.

Hawaii Economy

The COVID-19 pandemic has had and continues to have an impact on the Hawaii
economy. Prior to the COVID-19 pandemic, at-risk leisure and hospitality industries accounted for 19% of jobs and 10% of Hawaii GDP. Hawaii boasts a wide range of industries that help provide stability in times of economic shocks. Federal government jobs, primarily military, have always been a stabilizing element of Hawaii economy, providing about 20% of GDP. Construction activity, including Honolulu Rail Projectand other non-visitor related activities have continued despite the COVID-19 pandemic.
Hawaii a large retiree population also contributes to a stable economic base.
Hawaii the unemployment rate was 4.1% in March 2022while remaining above the pre-pandemic level, it has fallen significantly since its peak in April and May 2020.

For the first three months of 2022, the sales volume of single-family homes in
Oahu decreased by 2.6%, while the volume of condominium sales Oahu increased by 16.8% compared to the same period in 2021. The median price of sales of single-family homes and sales of condominiums in Oahu increased by 20.2% and 12.1% respectively for the first three months of 2022 compared to the same period in 2021. March 31, 2022months of inventory of single-family homes and condominiums on Oahu remained low at 1.0 months and 1.5 months, respectively.

Earnings Summary

The net result for the first quarter of 2022 was $54.8 milliona decrease of $5.1 million or 9% over the same period in 2021. Diluted earnings per common share were $1.32 for the first quarter of 2021, a decrease of $0.18 i.e. 12% compared to the same period in 2021.

   •  The return on average assets for the first quarter of 2022 was 0.97%
      compared with 1.15% in the same period in 2021.


   •  The return on average common equity for the first quarter of 2022 was 15.44%
      compared with 17.65% in the same period in 2021.


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   •  Net interest income for the first quarter of 2022 was $125.3 million, an
      increase of 3.9% from the same period in 2021. Net interest margin was 2.34%
      in the first quarter of 2022, a decrease of 9 basis points from the same
      period in 2021. The decrease in the net interest margin from prior year is
      largely due to lower interest rates on loans, partially offset by higher
      loan volume and lower rate on interest-bearing deposits.


   •  The provision for credit losses for the first quarter of 2022 was a net
      benefit of $5.5 million compared with a net benefit of $14.3 million in the
      same period in 2021.


   •  Noninterest income was $43.6 million in the first quarter of 2022, an
      increase of 1.4% from the same period in 2021.


   •  Noninterest expense was $103.9 million in the first quarter of 2022, an
      increase of 5.1% compared to the same period in 2021.


   •  The efficiency ratio during the first quarter of 2022 was 61.53% compared
      with 60.45% in the same period in 2021.


   •  The effective tax rate for the first quarter of 2022 was 22.15% compared
      with 24.09% in the same period in 2021.


   •  Total non-performing assets were $20.0 million at March 31, 2022, an
      increase of $2.1 million compared to March 31, 2021. Non-performing assets
      as percentage of total loans and leases and foreclosed real estate were
      0.16% at March 31, 2022, an increase of 1 basis point compared to March 31,
      2021.


   •  Net loan and lease charge-offs during the first quarter of 2022 were $1.5
      million or 0.05% annualized of total average loans and leases outstanding,
      comprised of charge-offs of $3.9 million partially offset by recoveries of
      $2.4 million. Compared to the first quarter of 2021, net loan and lease
      charge-offs decreased by $1.4 million or 5 basis points on total average
      loans and leases outstanding.


   •  The allowance for credit losses on loans and leases was $152.0 million at
      March 31, 2022, a decrease of $46.3 million from March 31, 2021. The ratio
      of the allowance for credit losses to total loans and leases outstanding was
      1.21% at the end of the quarter, a decrease of 42 basis points from the end
      of the same period in 2021.

We maintained a strong balance sheet during the first quarter of 2022, with what we believe to be adequate reserves for credit losses and high levels of liquidity and capital.

   •  Total assets increased to $23.0 billion at March 31, 2022, an increase of
      1.0% from December 31, 2021.


   •  The investment securities portfolio was $8.7 billion at March 31, 2022, a
      decrease of 2.5% from December 31, 2021. The portfolio remains largely
      comprised of securities issued by U.S. government agencies and U.S.
      government-sponsored enterprises.


   •  Total loans and leases were $12.5 billion at March 31, 2022, an increase of
      2.3% from December 31, 2021, primarily due to growth in home equity,
      commercial mortgage and residential mortgage loans.


   •  Total deposits were $20.7 billion at March 31, 2022, an increase of 1.7%
      from December 31, 2021.


   •  Total shareholders' equity was $1.4 billion as of March 31, 2022, a decrease
      of $0.2 billion or 10% from December 31, 2021.


   •  In the first three months of 2022, we repurchased 116,787 shares of common
      stock at a total cost of $10.0 million. Cash dividends of $28.3 million on
      common shares, and $1.97 million on preferred shares, were distributed
      during the first quarter of 2022.




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