Bank of Hawaii Signals Steady Margins Amid Headwinds

Bank Of Hawaii ((BOH)) has held its Q1 earnings call. Read on for the main highlights of the call.

Bank of Hawaii’s latest earnings call painted a cautiously upbeat picture, with management stressing durable fundamentals despite a few notable headwinds. Net interest income and margin continued to climb, deposit costs moved lower, and credit performance remained strong, but higher seasonal expenses and softer fee income weighed on reported earnings, while macro and weather-related uncertainties lingered over the outlook.

Net Interest Margin and Income Keep Expanding

Net interest margin rose 13 basis points in the first quarter, marking the eighth straight quarter of expansion and lifting NII by $5.6 million even with two fewer days in the period. Management reaffirmed a year-end NIM target near 2.9%, citing sizable fixed-asset repricing that shifted about $643 million from roughly 4.0% to 5.6% yields, providing a mechanical tailwind of about 5 basis points per quarter.

Deposit Costs Fall as Funding Mix Improves

Average total deposit costs fell 17 basis points to 1.26%, pushing the bank’s cumulative deposit beta to 36%, slightly above its prior goal. Certificates of deposit were a key lever, with average CD costs dropping 29 basis points to 2.89% and a spot rate of 2.8%, while more than half of CDs maturing over the next three months are expected to renew at notably lower rates.

Capital Strength Underpins Dividends and Buybacks

Capital remained a clear buffer, with Tier 1 at 14.4% and total risk-based capital at 15.4%, comfortably above regulatory thresholds. Leveraging that strength, the board declared a $0.70 per share common dividend, paid $28 million to common shareholders and $5.3 million to preferred holders, and repurchased about $15 million of stock in the quarter with plans for further buybacks.

Credit Quality Remains a Standout

Asset quality metrics were a bright spot, with net charge-offs of just $1.1 million, or roughly 3 basis points annualized, down sharply from both the prior quarter and year. Nonperforming assets ticked down to 9 basis points, while the allowance for credit losses held at $147 million, or 1.04% of loans, supported by conservative underwriting in both consumer and commercial real estate portfolios.

Hedging Strategy Supports Defensive Positioning

The bank continued to lean on interest rate hedging to guard against volatility, maintaining a $1.2 billion portfolio of pay-fixed, receive-float swaps at a weighted fixed rate of 3.3% and an average life of 1.5 years. An additional $400 million of forward-starting swaps and a fixed-to-float mix of 59% give management flexibility as rate paths evolve.

Wealth Management and Strategic Initiatives Gain Traction

Management highlighted steady progress in wealth management, noting the repapering of Bankoh Advisors and an expanding partnership with Cetera that began showing early positive results late in the quarter. The newly opened Center for Family Business and Entrepreneurs is designed to seed longer-term fee growth, with a growing pipeline in valuation and advisory work expected to build meaningfully by 2027.

Tighter Expense Outlook Despite Seasonal Q1 Noise

While first-quarter noninterest expense included seasonal and one-time items, leadership emphasized better visibility and discipline on costs. The bank trimmed its annual overhead growth guidance to a 2.5%–3.0% range and now expects a quarterly FDIC assessment of roughly $3.2 million, supporting a steadier expense run-rate going forward.

Earnings Dip as Operating Costs Spike

Reported net income slipped to $57.4 million, with GAAP EPS at $1.30, down $3.5 million and $0.09 per share from the prior quarter. Adjusted for nonrecurring items, EPS would have been $1.39, but investors still faced a headline decline driven by elevated operating costs rather than deterioration in core revenue trends.

Seasonal and One-Time Items Drive Expense Surge

Total noninterest expense climbed to $116.1 million from $109.5 million, a roughly 6% sequential increase that management attributed largely to predictable factors. Higher seasonal payroll taxes and benefits, a $3.5 million accelerated vesting charge tied to share-based compensation, and a $0.75 million severance charge together created a temporary spike that is not expected to repeat.

Noninterest Income Softens on Fees and Markets

Noninterest income declined to $41.3 million from $44.3 million, a 6.8% drop that management said mostly reflected cyclical factors. On an adjusted basis, the roughly $2.3 million pullback stemmed from weaker loan and deposit fees and softer wealth revenue in a choppy market, underscoring the importance of building out more durable fee-based businesses.

Loan Growth Outlook Pulled Back

The bank now expects only low single-digit loan growth for the year, scaling back from earlier hopes for mid-single-digit expansion. Management pointed to slower demand in home equity and indirect lending and stressed that more clarity on macro conditions or rate relief will be needed before the loan book can grow at a faster clip.

Storm Impacts Introduce Short-Term Credit Uncertainty

Recent weather events, including the Kona low storm and Typhoon Sinlaku, introduced a new layer of uncertainty as management evaluates affected borrowers. The allowance for credit losses now embeds a $3.2 million qualitative overlay covering roughly 15 to 20 properties, which leadership believes is broadly sufficient, though it may take weeks to fully gauge the impact.

Early Signs of Credit Normalization

Delinquencies rose to 40 basis points, up modestly both sequentially and year over year, and criticized loans held at 2.12% of total loans with a slight uptick versus last year. While these levels remain low by historical standards, management flagged them as areas to watch, particularly if broader economic or tourism pressures intensify.

Tourism-Linked Macro Risks Loom Over Hawaii Economy

Executives noted that geopolitical tensions, higher energy prices, and the risk of persistent inflation could dampen travel demand and consumer confidence. Any sustained hit to tourism would ripple through the Hawaiian economy, potentially slowing loan and fee growth and reinforcing the bank’s focus on conservative balance sheet management.

Guidance Emphasizes Margin Expansion and Discipline

Looking ahead, management reaffirmed its ambition to approach a 2.90% NIM by year-end and sees fixed-asset repricing adding roughly 20 basis points of structural margin per year toward a 3.25%–3.50% range, assuming steady policy rates. Near-term guidance calls for about $42 million of noninterest income and $112 million of normalized noninterest expense in the second quarter, continued quarterly FDIC costs near $3.2 million, ongoing share repurchases, and a maintained $0.70 dividend, all backed by robust capital and a sizable hedging book.

Bank of Hawaii’s earnings call reinforced a story of steady fundamentals, with widening margins, falling deposit costs, and exemplary credit performance offsetting a noisy expense quarter and softer fee income. Investors will be watching how quickly costs normalize, how loan growth responds to the macro backdrop, and whether tourism-dependent risks remain contained, but the bank’s capital and risk posture provide a solid cushion for the road ahead.