Bank of Hawaii Corporation Q4 FY2025 earnings call

Key Points

• Strong Q4 results: Fully diluted earnings per share was $1.39, 63% higher than the prior year and 16% higher than the previous quarter. Net interest margin improved to 2.61%, the seventh straight quarter of expansion.
• Business model: Leverages Hawaii market, dominant brand, and fortress risk profile. Market share growth nearly four times competitors over 20 years, with 40 basis points growth in 2025.
• Financials: Interest bearing deposit costs improved 20 basis points, total cost of funds improved 16 basis points. Remixed $659 million in fixed rate loans and investments, NIM exceeded year-end goal. Net interest income expanded by $8.7 million with 15 basis points increase in NIM.
• Credit portfolio: Diversified, with 93% of loans in Hawaii. Consumer loans (57% of total loans) and commercial loans (43% of total loans) have strong credit quality. Credit metrics strong with net charge-offs at $4.1 million, nonperforming assets at 10 basis points, etc.
• ACL: Ended the quarter at $146.8 million, down $2 million from the prior quarter.

The company reported net income of $60.9 million and diluted EPS of $1.39 for the quarter, an increase from the prior quarter. Net interest margin improved to 2.61% for the seventh consecutive quarter. Loans and deposits grew modestly, with noninterest bearing demand deposits increasing 6.6% on a linked basis. Net interest income expanded by $8.7 million, and noninterest income was $44.3 million, slightly down from the prior quarter but flat when adjusting for normalizing items. Noninterest expense was $109.5 million, down from the prior quarter. Capital ratios remained above well capitalized regulatory thresholds.

Forward-Looking Statements

• NIM is expected to be near the $2.90 range in 2026.
• Noninterest expense for 2026 is forecasted to increase by 3 to 3.5% from 2025 normalized expenses.
• First quarter normalized noninterest expense is anticipated to be approximately $113 million.
• Tax rate is expected to be closer to 23% in 2026 due to forecasted discrete items.
• Resumed stock repurchase in the fourth quarter, with plans to increase repurchases in the first quarter, and $121 million remaining available under the current plan.
• Board declared a dividend of $0.70 per common share to be paid in the first quarter.

Risks

• Actual results may differ materially from forward-looking statements.
• Interest rate changes could impact net interest margin and earnings.
• Credit quality could be affected by macroeconomic conditions.
• Dependence on the Hawaii market, which may be impacted by local economic factors.
• Regulatory changes could affect operations and profitability.

Q: About noninterest bearing deposit growth, outlook?

A: Peter Ho states directionally the growth is likely to continue but not at the 6% linked quarter clip seen in Q4.

Q: On loan growth pipeline?

A: Peter Ho and James Polk mention mid single digit loan growth possible, with consumer and commercial segments contributing.

Q: Margin near 2.90 range?

A: Peter Ho says orderly rate cuts and mix shift are supportive of margin, with fixed asset repricing continuing to be a positive factor.

Q: Credit ACL decline, reserve release?

A: Bradley Shairson says the ACL decline was due to an idiosyncratic charge off, and the UHERO economic forecast improvement supports the ACL decline.

Q: Market share gain from DDA growth?

A: Peter Ho states historic performance indicates continued market share gain, with DDA growth related to economic outcome and team focus.

Q: Margin drivers, fixed asset repricing?

A: Bradley S. Satenberg says fixed asset repricing will continue to have an impact, with rate cuts and mix shift also supporting margin.

Q: Swap impact on NII?

A: Bradley S. Satenberg says the impact on net interest income in the fourth quarter was just over a million dollars, including amortization of termination costs.

Q: Buyback and capital return?

A: Peter Ho expects higher buybacks in the first quarter, around 15-20 million per quarter, given tepid loan growth.

Q: Wealth fee opportunity?

A: James Polk says traction in wealth is building, with Q4 fees up and strong pipeline, expecting growth in the fee side.

Q: Expense increase guidance?

A: Bradley S. Satenberg says the normalized expense base is around $4.41, with a 3-3.5% increase expected in 2026 expenses.