Hawaii's leading banks reported steady third-quarter loan growth, solid credit quality and healthy profits. But a cloud of uncertainty hangs over the state's economy as interest rates spike and inflation festers.
This leaves bankers optimistic, but cautiously so, as the economically important winter vacation season approaches.
"We're tempered a bit by … overall economic conditions," Bank of Hawaii Chairman and CEO Peter Ho said on the company's earnings call. "We've got a great portfolio of earning assets, but we just can't get away from the fact that, given where rates have gone, we'll just have to see, in the next couple of quarters, what that means for us from an overall economic standpoint."
At issue: Following multiple Federal Reserve
The global economy, too, is under pressure from high costs.
Visitor arrivals to Hawaii in September dropped 15% from the prior month, according to the latest state data.
This in turn resulted in forecasts for substantially weaker economic activity. The University of Hawaii Economic Research Organization, or UHERO, said in its fall forecast that it expects the state economy's growth rate to slow from 4.4% this year to 1.9% in 2023.
"The global economy has slowed sharply, and the U.S. is headed for a mild recession in the first half of next year," said UHERO Executive Director Carl Bonham. "
Bonham said Hawaii itself could avoid contraction in part because of an anticipated jump in vacationers from Japan following recently lifted pandemic travel restrictions in that country. But a U.S. downturn would nevertheless slow Hawaii's economy substantially.
"Japanese visitors are finally returning to the Islands, even as a weak yen and high costs weigh on their vacation spending. The timing of Hawaii's international tourism recovery will provide needed lift as growth in other sectors slows in 2023," Bonham said.
Bank of Hawaii's Ho echoed that thinking. He said the bank is "happy to see Japanese visitors returning to the islands," providing "a nice buffer against potential economic slowdown conditions on the U.S. mainland," he said.
The good news: Banks in the state would
The $23.1 billion-asset Bank of Hawaii, based in Honolulu, the state's second-largest bank, said its total third-quarter loans of $13.3 billion were up 3% from the prior quarter and up 10% from a year earlier. Ho cited advances across consumer and commercial business lines.
The company's profit declined on higher costs but remained strong. Net income for the third quarter of 2022 was $52.8 million, or $1.28 per share. That compared with $62.1 million, or $1.53 per share, a year earlier.
Meanwhile, First Hawaiian in Honolulu, the largest bank based on the islands, said its total third-quarter loans also grew 3% from the prior quarter, to $13.5 billion, on broad-based demand. Its loan portfolio grew 5% from a year earlier and, like Bank of Hawaii, its credit losses remained low.
The $24.9 billion-asset First Hawaiian reported net income of $69 million, or 54 cents per share, up from $64.3 million, or 50 cents, in the third quarter of 2021.
Hawaii's unemployment rate in September was 3.5% — on par with the national rate that month — and First Hawaiian Chairman and CEO Robert Harrison said the bank expects the state's economic activity to withstand modest recessionary headwinds. The national unemployment rate, however, rose to 3.7% last month.
Hawaii's economy "continues to be resilient," Harrison said on the company's earnings call. "The fourth-quarter loan pipeline remains robust."
But the bank is mindful of potential headwinds, he said.
Raymond James analyst David Feaster, addressing First Hawaiian's results, said the bank is in sound shape yet wise to brace for more difficult times, "given increased cautiousness on the broader economy and the potential for slower tourism activity."
