Bank of Hawaii Corporation (BOH) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial performance with increased net income and margin expansion. The Q&A session reveals positive outlooks for deposit growth, loan growth, and market share gains. Despite some unclear responses, the overall sentiment remains positive due to strategic capital deployment and anticipated fee income growth. The market cap suggests moderate volatility, supporting a positive stock price movement prediction.
Key Financial Performance
Fully Diluted Earnings Per Share (EPS) $1.39 per share, 63% higher than results from a year ago and 16% higher than last quarter. The increase was driven by the continued expansion of net interest income and net interest margin.
Net Interest Margin (NIM) Improved for the seventh straight quarter, up 15 basis points to 2.61%. This was achieved through fixed asset repricing, improving deposit remix, and rate cuts.
Return on Common Equity Improved to 15%. No specific reasons for the change were mentioned.
Noninterest-Bearing Demand Deposits Grew 6.6% on a linked basis. No specific reasons for the change were mentioned.
Interest-Bearing Deposit Costs Improved by 20 basis points. This was due to successful repricing of deposits.
Total Cost of Funds Improved by 16 basis points in the quarter. This was due to deposit repricing and mix shifts.
Net Charge-Offs $4.1 million or 12 basis points annualized, up 5 basis points from the linked quarter and 2 basis points higher year-over-year. No specific reasons for the change were mentioned.
Nonperforming Assets Declined to 10 basis points, down 2 basis points from the linked quarter and 4 basis points year-over-year. No specific reasons for the change were mentioned.
Delinquencies Increased to 36 basis points, up 7 basis points from the linked quarter and 2 basis points year-over-year. No specific reasons for the change were mentioned.
Criticized Loans Increased to 2.12% of total loans, up 7 basis points from the linked quarter and 2 basis points higher year-over-year. No specific reasons for the change were mentioned.
Allowance for Credit Losses (ACL) Ended the quarter at $146.8 million, down $2 million from the linked quarter. The ratio of ACL to outstandings dropped 2 basis points to 1.04%. No specific reasons for the change were mentioned.
Net Income $60.9 million, an increase of $7.6 million compared to the linked quarter. This was primarily due to the continued expansion of net interest income and net interest margin.
Noninterest Income $44.3 million during the quarter compared to $46 million during the linked quarter. The decrease was due to the impact of a gain on the sale of the Merchant Services portfolio and a loss incurred in connection with the repositioning of the investment portfolio.
Noninterest Expense $109.5 million compared to $112.4 million during the linked quarter. The decrease was due to a reduction in FDIC special assessment and nonrecurring expenses related to the Merchant Services portfolio.
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Operating Highlights
Market Share Growth: Bank of Hawaii achieved a 40 basis point increase in market share in 2025, continuing its trend of outperforming competitors in Hawaii. The bank remains the deposit market share leader in the region.
Net Interest Margin (NIM) Expansion: NIM improved for the seventh consecutive quarter, reaching 2.61% in Q4 2025, exceeding the year-end goal of 2.50%. The bank anticipates NIM to reach 2.90% by the end of 2026.
Deposit Repricing and Mix Shift: The bank successfully repriced $659 million in fixed rate loans and investments, improving the roll-on rate to 5.8%. Deposit costs improved by 20 basis points, and the deposit mix shift positively impacted earnings for the first time since 2022.
Credit Quality: Credit quality remained strong with nonperforming assets at 10 basis points and net charge-offs at 12 basis points annualized. The allowance for credit losses ended at $146.8 million, representing 1.04% of total loans.
Capital Management: The bank resumed its stock repurchase program, buying back $5 million in shares at an average price of $65 per share. It plans to increase repurchases next quarter, with $121 million remaining under the current plan.
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Risk or Challenges
Credit Portfolio Concentration: 93% of loans are based in Hawaii, with 4% in the Western Pacific and 3% on the Mainland. This geographic concentration could expose the bank to localized economic or natural disaster risks.
Commercial Real Estate (CRE) Exposure: CRE loans represent 30% of total loans. While vacancy rates are low, any downturn in the real estate market or economic conditions in Hawaii could impact this portfolio.
Criticized Loans: Criticized loans increased to 2.12% of total loans, up 7 basis points from the previous quarter. Although 86% are real estate secured, this increase could signal emerging credit risks.
Delinquencies: Delinquencies increased to 36 basis points, up 7 basis points from the previous quarter. This rise could indicate potential future credit quality issues.
Interest Rate Sensitivity: The bank's net interest margin (NIM) is sensitive to interest rate changes. While NIM has improved, future rate cuts or adverse rate environments could pressure margins.
Deposit Mix Shift: The shift from noninterest-bearing to higher-cost deposits, while moderating, could increase funding costs if it accelerates again.
Provision for Credit Losses: The provision for credit losses remained unchanged at $2.5 million, which may not fully account for potential future credit deterioration.
Economic Dependency: The bank's performance is heavily tied to the Hawaiian economy, which is influenced by tourism and could be vulnerable to global economic downturns or travel restrictions.
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Guidance & Outlook
Net Interest Margin (NIM): The company anticipates NIM to reach approximately 2.90% by the end of 2026, driven by fixed asset repricing, deposit remix, and rate cuts.
Deposit Costs: The cost of deposits is expected to improve further in Q1 2026, with CDs repricing down and a significant portion of CDs maturing at lower rates.
Interest Rate Swaps: Forward starting swaps totaling $500 million will become active in 2026, with $300 million effective in the first half and $200 million in Q3, at a weighted average fixed rate of 3.1%.
Noninterest Income: Normalized noninterest income for Q1 2026 is projected to be between $42 million and $43 million.
Noninterest Expense: Expenses are forecasted to increase by 3% to 3.5% in 2026 compared to 2025 normalized expenses. Q1 2026 expenses are expected to be approximately $113 million.
Tax Rate: The effective tax rate is anticipated to rise to approximately 23% in 2026 due to forecasted discrete items.
Capital Management: The company plans to increase stock repurchases in Q1 2026, with $121 million remaining under the current plan.
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Shareholder Return Plan
Dividends Paid: $28 million on common stock and $5.3 million on preferreds during the quarter.
Dividend Declaration: Board declared a dividend of $0.70 per common share to be paid during the first quarter.
Stock Repurchase Program: Resumed in the fourth quarter, purchasing approximately $5 million of common shares at an average price of $65 per share.
Future Plans for Stock Repurchase: Planning to increase the level of repurchases next quarter with $121 million remaining available under the current plan.
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Key Q&A
Q:Can you provide details on the noninterest-bearing deposit growth this quarter and its outlook for the year?
A:The fourth quarter saw a 6% increase in noninterest-bearing deposits, which was outsized due to seasonality and contributions from various business segments. Growth is expected to continue but not at the same 6% rate.
Q:What is the outlook for loan growth this year?
A:Loan growth is expected to remain in the low single digits unless both consumer and commercial segments contribute. There is potential for improvement, with a mid-single-digit growth outlook for the year.
Q:Do you have the special mention and classified balances at the end of the year?
A:Special mention balances were $63.4 million, down $46.8 million year-over-year. Total classified balances were $298.5 million.
Q:Can you confirm the margin update to reach near 2.90% by year-end?
A:Yes, the margin is expected to reach near 2.90% by year-end, not as a fourth-quarter average.
Q:What was the December margin average?
A:The December margin average was 2.67%, which was 6 basis points above the fourth-quarter end.
Q:What is the sensitivity of the margin to rate changes?
A:The margin is not significantly impacted by rate changes. Rate cuts, if orderly, could benefit the margin, and deposit mix shifts could also contribute positively.
Q:What is the outlook for credit quality and reserve release?
A:Credit quality remains strong with stable trends in delinquencies and criticized assets. The allowance for credit losses (ACL) declined due to an improved economic outlook for 2026. Special mention balances decreased, and a $1 million charge-off was related to a previously identified nonperforming asset.
Q:Can you provide details on market share gains in demand deposits and the potential for further growth?
A:Market share gains in demand deposits are attributed to focused efforts and stable market conditions. There is no perceived ceiling for growth, and the bank aims to continue gaining market share.
Q:What is the outlook for commercial and residential mortgage pipelines?
A:The commercial pipeline has grown, particularly in commercial real estate and middle market businesses. Residential mortgage activity was strong in Q4, with a good pipeline for Q1, supporting potential mid-single-digit loan growth for the year.
Q:What is driving the margin expansion, and will it continue in 2027?
A:Margin expansion is driven by fixed asset repricing, securities repositioning, and rate cuts. Fixed asset repricing benefits are expected to continue for a couple of years but may diminish gradually.
Q:What was the total net interest income (NII) impact of swaps in the fourth quarter?
A:The total NII impact of swaps in the fourth quarter was just over $1 million, including the amortization of termination costs.
Q:What is the bank's approach to capital deployment and share buybacks?
A:The bank plans to deploy capital into buybacks, with an anticipated range of $15 million to $20 million per quarter, as long as loan growth remains tepid.
Q:What is the outlook for fee income growth, particularly in wealth management?
A:Fee income growth in wealth management is expected to reach 10% or higher as the bank builds momentum through client engagement and educational initiatives.
Q:What is the normalized expense base for calculating the 3% to 3.5% increase in expenses?
A:The normalized expense base is approximately $440 million to $441 million for 2025.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the question about special mention and classified balances initially, stating they would check and come back later. Additionally, while discussing margin sensitivity to rate changes, the response included generalities without specific data or detailed analysis.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CDs rate
CRE category
CRE component
CRE market
Chair Chief
Consumer loan
Credit charge
Credit quality
Fed rate
Fortress risk
Foundation severance
Geographically loan
Hawaii Foundation
Hawaii Interest
LTV emphasis
Loans deposit
Mainland loan
Merchant Services
NIM end
NIM expansion
NIM goal
advantage
beta
charge Merchant
goal NIM
interest asset
lending
market brand
overview credit
point cost
point rate
repricing deposit
repurchase
roll rate
sale
yield interest
BOH Transcript
Bank of Hawaii Corporation (BOH) Q4 2025 Earnings Call Transcript
Positive1-26
The earnings call summary indicates strong financial performance with increased net income and margin expansion. The Q&A session reveals positive outlooks for deposit growth, loan growth, and market share gains. Despite some unclear responses, the overall sentiment remains positive due to strategic capital deployment and anticipated fee income growth. The market cap suggests moderate volatility, supporting a positive stock price movement prediction.
Bank Of Hawaii Corporation (BOH) Q3 2025 Earnings Call Transcript
Positive10-27
The earnings call summary indicates strong financial performance, with improvements in NIM, net income, and noninterest income. The Q&A section reveals positive sentiment towards growth and strategic initiatives, such as leveraging partnerships and market share gains. Despite some unclear responses, the overall outlook is positive, with expectations of capital repurchases and stable dividend payouts. The company's market cap suggests a moderate reaction, leading to a positive stock price movement prediction of 2% to 8% over the next two weeks.
Bank of Hawaii Corporation (BOH) Q2 2025 Earnings Call Transcript
Unknown7-28
The earnings call presents mixed signals. While there is growth in net interest income, net income, and EPS, the guidance on loans and deposits is modest. Management's cautious stance on buybacks and lack of specifics on cost containment and DDA growth further dampen enthusiasm. The market cap indicates a moderate reaction, leading to a neutral outlook for stock price movement in the next two weeks.
Bank of Hawaii Corporation (NYSE:BOH) Q1 2025 Earnings Call Transcript
Unknown4-23
The earnings call presents a mixed picture. Financial performance shows improvement with increased EPS and NII, but noninterest income decreased slightly. The dividend declaration is positive, but the Q&A reveals uncertainty in loan growth and vague management responses, which could concern investors. Overall, the stable economic conditions and strong capital ratios balance the risks, leading to a neutral sentiment.
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