BANK OF HAWAII CORP Q3 FY2026 earnings call

• Financial Performance: Diluted EPS rose to $1.49 (+0.7% QoQ, +24.2% YoY), with net income at $64.3 million. Return on average common equity stood at 15.4%.
• Net Interest Margin (NIM): NIM expanded four basis points to 2.82%, marking the 10th consecutive quarter of expansion. This was driven by fixed asset repricing, partially offset by an unfavorable deposit mix shift.
• Deposit Franchise: Average deposits declined 0.8% due to liquidity deployment from real estate projects and distributions. The bank strategically reduced ~$200 million in higher-cost public deposits. Average cost of deposits remained stable at 1.27%.
• Loan Growth: Total loans increased by $85 million (0.6% QoQ, 2.4% annualized). Commercial loans grew by $73 million, while consumer lending saw marginal growth due to high interest rates impacting residential mortgages.
• Wealth Management: Targeted investments are yielding results, with trust/asset management and insurance fees up 11.5% over the prior year. Coordination between commercial banking and wealth management via the Center for Family Businesses is seen as a key growth driver.
• Credit Quality: Credit remains strong with delinquencies at 46 bps and net charge-offs at 9 bps. Criticized assets declined to 2.37%. A single non-performing commercial loan increased NPAs to 30 bps but is expected to be resolved soon with immaterial loss impact.
• Balance Sheet & Capital: Tier 1 capital ratio was 14.4%. The bank utilized short-term borrowings to supplement liquidity during deposit outflows. Fixed-to-float swap ratio was 57%.

The transcript does not provide a breakdown of financial performance by specific product segments (e.g., Commercial Banking, Wealth Management) in terms of absolute revenue contribution percentages. However, it highlights that Net Interest Income was $156.1 million and Non-Interest Income was $42.7 million for the quarter. Trust and asset management fees combined with annuity and insurance fees totaled $45.2 million for the nine-month period, representing an 11.5% increase year-over-year.

• Non-Interest Income: Forecast normalized non-interest income for Q4 2026 to be approximately $44 million.
• Non-Interest Expense: Forecast normalized non-interest expense for Q4 2026 to be approximately $112.5 million.
• Deposit Growth: Anticipate returning to modest deposit growth in Q4 2026 and continuing into early 2027, which will help mitigate reliance on short-term borrowings.
• Expense Growth: Normalized annual expense growth is expected to remain in the 2.5% to 3.0% range.
• Share Repurchases: Plan to repurchase an additional $20 million of common stock in Q4 2026. The board approved increasing the repurchase authorization by $200 million, providing flexibility for opportunistic buybacks if the stock is deemed undervalued.

• Interest Rate Sensitivity: Rising interest rates continue to challenge residential lending demand. The bank monitors borrower stress scenarios to assess debt service capacity under various rate environments.
• Deposit Mix Shift: An unfavorable shift in deposit mix negatively impacted NII, though this is expected to moderate in Q4. Continued competition could pressure deposit costs.
• Concentrated NPA: A single commercial real estate loan moved to non-performing status, increasing NPAs. While expected to exit soon, it highlights idiosyncratic credit risk.
• Economic Environment: Hawaii’s economy shows modest growth (1.6% projected for 2027). Mixed tourism results and potential impacts from inflation and energy costs on consumer spending are monitored risks.

Q: Analyst asked about September NIM excluding the non-performing asset impact and the effect of late-run public deposit runoff on margins. / A: CFO stated that excluding the NPA impact, September NIM would have been 2.83%. The strategic runoff of public funds towards the end of the quarter provides a modest tailwind of about one basis point to deposit costs and NIM going forward. The bank sees opportunities to run off more public deposits but does not expect significant action in Q4.

Q: Analyst queried the interest-bearing deposit beta through the cycle and expectations for CD rollover rates. / A: CFO indicated the long-term deposit beta on the way up is expected to be around 34%, though achieving this may take several quarters depending on competition. Regarding CDs, over 50% mature within three months at ~290 bps; these are expected to roll on at roughly 3%, causing a slight bump in the three-month CD rate this quarter.

Q: Analyst asked about drivers behind DDA/outflows beyond public funds and the reserve adequacy for the new NPA. / A: CEO explained that DDA pressures stemmed from normal business activities, including working capital needs, real estate project funding, owner distributions, and completed condominium projects, rather than a single issue. CRO noted the NPA is an idiosyncratic situation where the borrower is selling the property; any associated loss is expected to be immaterial and already adequately reserved for, requiring no future provision increase.

Q: Analyst inquired about the pace of share buybacks and what might accelerate them beyond the planned $20M per quarter. / A: CFO confirmed the plan to buy $20M in Q4 and reevaluate in 2027. He views current levels as attractive given perceived undervaluation. Acceleration depends on quarterly assessments of valuation and capital availability. CEO added that the increased $200M authorization provides flexibility for opportunistic buys while maintaining organic capital accretion toward a 9% Tier 1 leverage goal.