DBRS Confirms Bank of Hawaii Corporation’s Long-Term Issuer Rating at ‘A’; Trend Stable

DBRS, Inc. (DBRS) confirmed the ratings of Bank of Hawaii Corporation (BOH or the Company), including the Company’s Long-Term Issuer Rating of ‘A’. At the same time, DBRS confirmed the ratings of its primary banking subsidiary, Bank of Hawaii (the Bank). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is A (high), while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY RATING CONSIDERATIONS
The ratings confirmation and Stable trend reflect BOH’s strong banking franchise that is underpinned by a deeply entrenched presence within the Hawaiian markets. In addition, the Company has consistently generated strong financial results even during times of stress, while sustaining sound balance sheet fundamentals. DBRS notes that the ratings also consider BOH’s high level of real estate exposure, as well as its dependence on the Hawaiian economy.

RATING DRIVERS
DBRS views BOH as comfortably placed within its rating category. Over the longer term, positive rating implications could arise if the Company can grow its fee-based businesses to further diversify its revenue generation. Conversely, a sustained level of credit deterioration, or if BOH’s risk appetite materially increases, could result in negative rating pressure.

RATING RATIONALE
BOH benefits from having a strong brand within the Hawaiian Islands. In addition, the Company operates the most branches in Hawaii, has the second largest deposit market share at 31% and is the top residential mortgage provider in the state, in both the number of loans and total dollar amount. Providing further support, the Hawaiian economy and operating environment remain favorable, with low unemployment, strong tourism, a solid construction industry and a strong real estate market.

DBRS views BOH’s earnings power as strong, having generated a return on assets (ROA) above 1% and a double-digit return on equity (ROE) for 16 consecutive years, including another strong performance in 2018. For the year, the Company reported $220 million of net income, representing a ROA of 1.29% and ROE of 17.6%. Bottom line results were significantly improved from 2017 primarily due to the impact from tax reform, as operating performance was consistent with recent years. Highlights from the year included continued solid loan growth, net interest margin expansion and well-contained expenses. These trends more than offset lower fee income, as mortgage banking revenue declined.

Providing key support to the ratings, balance sheet fundamentals remain strong, underpinned by a substantial core deposit base and sound capital levels. Indeed, low-cost core deposits easily fund the loan portfolio, while a common equity tier 1 ratio (CET1) of 13.1% remains sound despite a high payout ratio of 86%. Moreover, BOH’s risk profile remains strong, notwithstanding its geographic concentration in Hawaii and loan portfolio that is heavily reliant on real estate, given still rising real estate values and resiliency during prior periods of stress. Additionally, asset quality metrics remain pristine, with very low levels of nonperforming assets and net charge-offs (2018 NCO ratio of 0.14%).

Bank of Hawaii Corporation, a diversified financial services provider headquartered in Honolulu, HI, reported $17.1 billion in assets at December 31, 2018.

The Grid Summary Scores for BOH are as follows: Franchise Strength – Strong/Good; Earnings Power – Strong; Risk Profile – Strong; Funding & Liquidity – Strong; Capitalization – Strong/Good.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Global Methodology for Rating Banks and Banking Organisations (July 2018), which can be found on our website under Methodologies.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com.

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