Bank of Hawaii (NYSE:BOH) released first-quarter financial results and hosted an earnings call on Monday. Read the complete transcript below.
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Summary
Bank of Hawaii reported solid financial performance for Q1 2026, with net interest income and margin expanding for the eighth consecutive quarter, driven by fixed asset repricing and a decline in deposit costs.
Earnings per share were $1.39, and the company maintained strong capital and credit quality, with a focus on their leading deposit market share in Hawaii.
Strategic initiatives include expanding wealth management capabilities and supporting family-owned businesses through the new Center for Family Business and Entrepreneurs.
The company’s outlook remains cautious due to potential headwinds such as Middle East tensions and rising energy costs, but it remains optimistic about achieving a 2.9% net interest margin by year-end.
Management highlighted the stable economic environment in Hawaii, characterized by low unemployment and strong visitor spending, but noted external risks that could impact consumer confidence.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the Bank of Hawaii Corporation first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question and answer session. To ask the question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising. Your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today. Cheng Park, Executive Vice President, Investor Relations. Please go ahead.
Cheng Park
Good morning and good afternoon. Thank you for joining us today for our first quarter 2026 earnings conference call. Joining me today is our President and CEO Jim Polk, CFO Brad Satenberg and Chief Risk Officer Brad Sherson. Before we get started, I want to remind you that today’s conference call will contain some forward looking statements.
Jim Polk
And while we believe our assumptions are reasonable, the actual results may differ materially from those projected during the call. Today, we’ll be referencing a slide presentation as well as the earnings release. Both of these are available on our website boh.com under the Investor relations link. And now I would like to turn the call over to Jim. Thanks, Chang. Good morning and good afternoon everyone. Thank you for joining us today. Before I get into the quarter, as this is my first earnings call as CEO, I want to say a few words about my predecessor, Peter.
Brad Shearson (Chief Risk Officer)
Peter Ho. Peter built something truly special here. A franchise defined by discipline, consistency and a genuine commitment to the people of our island communities. With 16 years as CEO, he left this institution much stronger in every way that matters. I’m grateful for his confidence in me and I’m honored to carry this forward. Now on to the quarter. Bank of Hawaii delivered another solid set of Results to open 2026. Net Interest Income and our net interest margin expanded for the eighth consecutive quarter. Driven by continued fixed asset repricing and a meaningful decline in total deposit costs. NIM increased 13 basis points as our fixed asset repricing engine continues to perform as expected. During the quarter, we remixed $643 million in fixed rate loans and investments from a roll off yield of approximately 4% to a roll on yield of 5.6%, continuing to lift the overall yield on earning assets. We remain on track toward our stated goal of approaching 2.9% NIM by the end of the year and we feel good about that trajectory even against an uncertain rate backdrop. Deposit trends continue to be encouraging as our average cost of total deposits declined 17 basis points, achieving a beta of 36%, normalizing for nonrecurring expenses and noninterest income. Our EPS came in at $1.39, reflecting the steady underlying earnings power of the franchise. We maintained strong capital and excellent credit quality while continuing to build on our leading deposit market share position here in Hawaii. The strategic formula has not changed. Bank of Hawaii operates in one of the most distinctive banking markets in the country, concentrated and relationship driven where four locally headquartered banks hold more than 90% of FDIC recorded deposits. In that environment, brand and trust are our structural advantages. They allow us to price deposits attractively, manage funding costs actively, and generate superior risk adjusted returns across cycles. Turning to our home market, Hawaii’s economy entered 2026 on solid footing near record low unemployment, strong visitor spending and an active construction pipeline anchored by significant military and public infrastructure investment. That said, we are watching the environment carefully. Tensions in the Middle east, rising energy costs and the potential for sustained inflation are headwinds that could affect consumer confidence and travel demand as the year progresses. Our credit portfolio continues to reflect the underwriting discipline this bank has maintained through many cycles. I want to briefly address the recent Konalo storm in Hawaii and Typhoon Srinlaku in the West Pacific. First and foremost, bank of Hawaii remains focused on supporting our employees, customers and communities impacted by these events. We are in the early stages of assessing the potential impact of Typhoon Sinlaku and it will take several weeks to gain clearer insight. Brad Shearson will cover the potential impact of the Konalo storm as well as our overall credit profile in more detail shortly. I also want to highlight the progress we are making in wealth management, an area I expect will become an increasingly important part of the franchise’s story. Through Banco Advisors and our partnership with Cetera, we continue to expand investment capabilities for our retail and private banking clients. Simultaneously, we are deepening coordination between our commercial and private banking teams around our high net worth client relationships. Importantly, we recently opened the center for Family Business and Entrepreneurs where we provide dedicated planning resources to Hawaii’s family owned businesses, encompassing financial and estate planning, succession planning, business valuation and MA advisory capabilities. For many of these families whose wealth is largely concentrated in their company, these are among the most consequential decisions they will face. It is a capability uniquely suited to bank of Hawaii’s depth of relationships and trusted role in this market. I’ll close with this. We remain focused on the strategy, the culture and the values that have made bank of Hawaii successful. I fully intend to carry forward the intensity of execution, the continued investment in our people and technology and an unwavering commitment to the island communities that have trusted this institution for 128 years. I’m proud to be in this role and I look forward to the work ahead. With that, I’ll turn the call over to Brad Shearson to discuss credit, after which Brad Sattenberg will walk through the financials in detail. We’ll then be pleased to take your questions. Thanks, Jim. I’ll begin with an overview of our credit portfolio and conclude with asset quality metrics and as you will see, our performance remains strong, consistent with prior quarters. Turning to our lending philosophy, the bank of Hawaii is dedicated to serving our local communities, lending primarily within our core markets where our expertise allows us to make informed and disciplined credit decisions. Our portfolio is built on long tenured relationships, with approximately 60% of both our commercial and consumer clients having been with the bank for more than 10 years. Geographically, our loan book is concentrated in markets we know well. Approximately 93% of loans are based in Hawaii, with 4% in the Western Pacific and just 3% on the mainland. Primarily supporting existing clients who operate both locally and on the mainland, our loan portfolio remains well balanced between consumer and commercial exposure. Consumer loans represent 56% of total loans, or approximately $8 billion. Within the consumer portfolio, 86% consists of residential, mortgage and home equity loans with a weighted average LTV of 48% and weighted average FICO score of 798. The remaining 14% of consumer loans are comprised of auto and personal lending. Credit quality in these segments also remains strong, with average FICO scores of 729 for auto loans and 760 for personal loans. Turning to commercial lending, the portfolio totals $6.2 billion, representing 44% of total loans. 73% is secured by real estate with a weighted average LTV of 55%. This reflects our ongoing emphasis on collateral protection. CRE remains the largest component of the commercial book, totaling $4.3 billion or 31% of total loans. And in Oahu, the state’s largest CRE market, a combination of consistently low vacancy rates and flat inventory levels continues to support a stable real estate market across industrial, office, retail and multifamily property types, vacancy rates remain below or close to their 10 year averages. Total office space on Oahu has declined by approximately 10% over the past decade, driven primarily by conversions to multifamily residential and lodging. This structural reduction in supply combined with the return to office trend has brought vacancy rates closer to long term averages and well below national levels. Our CRE portfolio remains well diversified with no single property type exceeding 9% of total loans. Conservative underwriting practices continue to be applied consistently with weighted average LTVs below 60% across all CRE categories. In addition, diversification within each segment remains strong, supported by modest average loan sizes. Scheduled maturities are also well balanced, with more than 60% of CRE loans maturing in 2030 or later reducing any near term refinancing risk. Looking at the distribution of LTVs, there isn’t much tail risk in our CRE portfolio. Less than 3% of CRE loans have greater than 80% LTV. CNI accounts for 11% of total loans totaling $1.6 billion. This portfolio is diversified across industries characterized by modest average loan sizes and there is very little leveraged lending. Turning to asset quality, credit metrics continue to perform exceptionally well. Net charge offs totaled $1.1 million or just 3 basis points annualized, down 9 basis points from linked quarter and 10 basis points lower year over year. 3 basis points is abnormally low. This was driven by a small net recovery in commercial as well as a slight decline in consumer net charge offs. Non Performing assets declined to 9 basis points, down 1 basis point from linked quarter and 3 basis points year over year. Delinquencies increased to 40 basis points, up 4 basis points from linked quarter and up 10 basis points year over year and criticized loans remained flat to the linked quarter at 2.12% of total loans. That’s up 4 basis points year over year. Notably, 84% of criticized assets are real estate secured with a weighted average LTV of 53%. And as an update on the allowance for credit losses on loans and leases, the ACL ended the quarter at $147 million, up 200,000 from linked quarter. The ratio of our ACL to outstandings remained flat at 1.04%. This ACL coverage does include a $3.2 million qualitative overlay specifically related to the recent Kona Low storm. This overlay accounts for the potential impact of flood damage to approximately 15 to 20 properties in our portfolio net of anticipated insurance recoveries. We are monitoring these exposures closely but can already see that the potential loss would not deviate greatly from the amount we have reserved. And in light of recent industry discussions around private credit, I want to provide clear assurance that we …
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