At least on paper, Hawaii's banks seem to have a sunny outlook — loan activity has picked up in some areas, and tourists came back in force over the summer.
But the delta variant has already tempered some of this progress, and the virus could cause more damage to the state's economy if it leads to new restrictions in the winter.
"The hotel rooms are booked. They just have to see if people show up," First Hawaiian Bank Chairman and CEO Robert Harrison said on the Honolulu company’s recent third-quarter earnings call.
At issue: After Hawaii fully reopened to travelers earlier this year and welcomed a surge in summer vacationers, the
This in turn prompted downgrades to local economic forecasts, stagnant loan totals and renewed uncertainty among bankers about what lies ahead. That
“We now believe the Hawaii economy is on the path to recovery,” but it “is still not totally out of the woods,” said Wells Fargo analyst Jared Shaw, adding that tourism accounts for 20% of the state's economy.
The University of Hawaii Economic Research Organization, or UHERO, said coronavirus mitigation measures that lasted into October forced it to curtail its growth projections. In its fall forecast, UHERO said it expects the state economy to expand by 3.5% in 2021, down from its spring forecast of 4%.
The possibility of
Pandemic-related supply chain challenges also continue to hamper Hawaii, a state that depends on imports more than most on the mainland.
Bank of Hawaii reported third-quarter net income of $62.1 million, up 64% from a year earlier. First Hawaiian, however, reported third-quarter net income of $64.3 million, down 1% from a year earlier.
The $25.5 billion-asset First Hawaiian, the state’s largest bank, said its auto dealer finance book, for example, had plunged to $176 million in the third quarter from more than $860 million at the end of 2019. Harrison said $460 million of that decline occurred over the first three quarters of this year as car and truck manufacturers struggled to source electronics for new vehicles.
"You can't really pick the bottom on this," Harrison said. "We had thought it would have already started to increase a bit. Obviously, supply chain issues didn't allow that to happen. So we'll be watching this along with everybody else, but hopefully, the car manufacturers will start to be able to produce in volume."
At the same time, while the bank’s commercial clients are eager to borrow and invest in economic recovery, commercial and industrial lending has been mostly flat because of virus interruptions.
“We haven't seen a huge amount of new growth, a modest amount,” Harrison said. “We'll see what the next few months bring as dealmaking typically starts in the beginning of the year, but we'll just have to wait and see.”
First Hawaiian said third-quarter loans and leases totaled $12.8 billion, down $269 million from the end of the prior quarter. Excluding the impact of Paycheck Protection Program loans and lower auto dealer balances, loans grew a modest $142 million. The bank said it expects fourth-quarter loans to be essentially flat with the third quarter.
The state's other leading bank, the $23 billion-asset Bank of Hawaii in Honolulu, said its total third-quarter loans of $12.1 billion were up just 0.3% from the prior quarter. Excluding PPP, loans were $11.8 billion, up 2.4%.
Bank of Hawaii Chairman and CEO Peter Ho said the local economy had rebounded in the spring and early summer, creating loan demand, but “we went through a pretty meaningful spate with the delta variant in mid-late summer,” he said on the company’s earnings call this week. “So we're in a bit of a repositioning phase, I think, at this point. … Absent any recurring surge here in the islands or nationally speaking, I think we should be in for kind of a resumption of that upward trend in arrivals.”
But the virus remains a substantial wild card. “We'll see how this all plays out,” Ho said.
