Bank of Hawaii Q1 2025 Earnings Report

Bank of Hawaii EPS Results

• Actual EPS: $0.97
• Consensus EPS: $0.89
• Beat/Miss: Beat by +$0.08
• One Year Ago EPS: $0.87

Bank of Hawaii Revenue Results

• Actual Revenue: $169.87 million
• Expected Revenue: $168.65 million
• Beat/Miss: Beat by +$1.22 million
• YoY Revenue Growth: N/A

Bank of Hawaii Announcement Details

• Quarter: Q1 2025
• Date: 4/21/2025
• Time: Before Market Opens
• Conference Call Date: Monday, April 21, 2025
• Conference Call Time: 2:00PM ET

Bank of Hawaii (NYSE:BOH) operates as the bank holding company for Bank of Hawaii that provides various financial products and services in Hawaii, Guam, and other Pacific Islands. It operates in three segments: Consumer Banking, Commercial Banking, and Treasury and Other. The Consumer Banking segment offers checking, savings, and time deposit accounts; residential mortgage loans, home equity lines of credit, automobile loans and leases, overdraft lines of credit, installment loans, small business loans and leases, and credit cards; private and international client banking, investment, credit, and trust services to individuals and families, as well as high-net-worth individuals; investment management; institutional investment advisory services to corporations, government entities, and foundations; and brokerage offerings, including equities, mutual funds, life insurance, and annuity products. The Commercial Banking segment provides corporate banking, commercial real estate loans, commercial lease financing, auto dealer financing, and deposit products. This segment also offers commercial lending and deposit products to middle-market and large companies, and government entities; commercial real estate mortgages to investors, developers, and builders; and international banking and merchant services. The Treasury and Other segment provides corporate asset and liability management services, including interest rate risk management and foreign exchange services. Bank of Hawaii Corporation was founded in 1897 and is headquartered in Honolulu, Hawaii.

Bank of Hawaii Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the Bank of Hawaii Corporation First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press 11 on your telephone.

[Operator]

You will then hear an automated message advising your hand is raised. To answer your question, please press 1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Shane Park. Please go ahead.

[Chang Park, Senior VP & Director of Investor Relations at Bank of Hawaii]

Good morning and good afternoon. Thank you for joining us today for our first quarter twenty twenty five earnings conference call. Joining me today is our Chairman and CEO, Peter Ho President and Chief Banking Officer, Jim Polk CFO, Dean Shigemura Chief Risk Officer, Brad Sheridan and our Deputy CFO, Brad Settenberg. Before we get started, I want to remind you that today's conference call will contain some forward looking statements. And while we believe our assumptions are reasonable, the actual results may differ materially from those projected.

[Chang Park, Senior VP & Director of Investor Relations at Bank of Hawaii]

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, doh.com, under the Investor Relations link. And now I would like to turn the call over to Peter.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Thanks, Chang. Good morning, everyone. Thanks for joining the call. Bank of Hawaii posted yet another solid quarter to begin 2025. Net interest income and net interest margin both improved meaningfully.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

This for the fourth consecutive quarter. Net interest income grew just over 4.6% on a linked basis to $125,800,000 Net interest income was up as well on a linked basis. Expenses were controlled quarter over quarter. Period end deposits and loans grew 7.31.1% annualized on a linked basis to $21,000,000,000 and $14,100,000,000 respectively. Non interest bearing deposits were stable in the quarter.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Credit quality remained pristine in the quarter with net charge offs and NPAs of thirteen and twelve basis points respectively. Capital levels have improved substantially from a year ago. I'll now take a moment to discuss the franchise and market conditions. Brad will then briefly touch on credit conditions, which as I mentioned, are looking quite strong. Finally, Dean will dig a little deeper into the financials, and then we'd be happy to take your questions.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

The Bank of Hawaii brand continues to perform well in our unique Hawaii market, holding the number one position in market share as shown in the latest FDIC annual summary of deposits. Bank leads in deposit market share growth on both term and long term basis. Deposit growth remained measured in the quarter as we prioritize margin over volume. Importantly, non interest bearing demand plus other low yielding deposits continue to trend positively. Deposit funding costs fell for a second straight quarter on both an interest bearing and total deposit cost basis.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Economic conditions remain stable in Hawaii. Unemployment remains well below the national average. The visitor market remains stable, but continues to be impacted somewhat by the Maui market. Residential Oahu real estate trends remain positive. Now, let me turn

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

the call over to Brad.

[Bradley Shairson, Vice Chair & Chief Risk Officer at Bank of Hawaii]

Thanks, Peter. The Bank of Hawaii prioritizes serving our community, lending in our core markets where our expertise enables us to make sound credit decisions. The majority of our loan book is to long standing relationships, but about 60% of our clients on both the commercial and consumer sides, having been with us for over ten years. This combination has greatly contributed to our strong credit performance for many years and has resulted in a loan portfolio that is 93% Hawaii, four % Western Pacific, and just 3% mainland, where we support our clients that do business in both Hawaii and on the Mainland.

[Bradley Shairson, Vice Chair & Chief Risk Officer at Bank of Hawaii]

As I walk through our credit portfolios first quarter performance, you can see that it has remained strong and is consistent with prior recent quarters. Our loan book is balanced between consumer and commercial, with consumer representing a little over half of total loans at 56% or $7,900,000,000 We lend predominantly on a secured basis against real estate. 86% of our consumer portfolio is either residential mortgage or home equity, with a weighted average LTV of just 48% and a combined weighted average FICO score of seven ninety nine. The remaining 14% of consumer consists of auto and personal loans, where our average FICO scores are 731 7 50 9, respectively. Moving on to commercial, our portfolio size is $6,200,000,000 or 44% of total loans.

[Bradley Shairson, Vice Chair & Chief Risk Officer at Bank of Hawaii]

The largest share of commercial is commercial real estate with 4,000,000,000 in assets, which equates to 29 percent of total loans. This book is well diversified across industries and carries a weighted average LTV of only 55%. Looking at the dynamics for Hawaiian real estate in Oahu, the largest market, a combination of consistent vacancy rates and flat inventory levels supports a stable real estate market. Within the different segments, vacancy rates for industrial, office, retail, and multifamily are all below or close to their ten year averages. Total office space has decreased about 10% over the past ten years, driven by conversions.

[Bradley Shairson, Vice Chair & Chief Risk Officer at Bank of Hawaii]

This long term trend of office space reduction, as well as return to office has brought the vacancy rate almost back to its ten year average. Breaking down our CRE portfolio, it is well diversified amongst property types with no sector being greater than 7% of total loans. Our conservative underwriting has been applied consistently with all weighted average LTVs between 5356%. You can see that overall, it's a diverse portfolio with low average loan sizes. And our scheduled maturities are fairly evenly spread out with more than half of our loans maturing in 02/1930 or later.

[Bradley Shairson, Vice Chair & Chief Risk Officer at Bank of Hawaii]

Looking at the distribution of LTVs, there isn't much tail risk in our CRE portfolio. Only 1.9% of CRE loans have greater than 80% LTV and almost nothing's over 85%. Turning to C and I, which comprises 12% of our total loans, you will notice that it is extremely well diversified across industries with small average loan sizes. In addition, a very small portion of loans were leveraged. Turning to our asset quality, credit metrics remain stable and our asset quality remains strong.

[Bradley Shairson, Vice Chair & Chief Risk Officer at Bank of Hawaii]

Net charge offs were $4,400,000 at 13 basis points annualized, up three basis points from Q4 and six basis points from a year ago, while nonperforming assets came down two basis points from the linked quarter. Delinquencies ticked down by four basis points to 30 basis points this quarter. Criticized loans dropped by two basis points to 2.08 of total loans and just 11 basis points higher than a year ago. And 75% of those criticized assets are real estate secured with a 54% LTV. As an update on the allowance for credit losses on loans and leases, the ACL ended the quarter at $147,700,000 that's down $800,000 from the linked period and flat to last year.

[Bradley Shairson, Vice Chair & Chief Risk Officer at Bank of Hawaii]

The ratio of our ACL to outstandings was 1.05%, that's down one basis point from both the linked quarter and last year's first quarter. I'll now turn this over to Dean for an update on our financials.

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

Thanks, Brad. We expanded our net interest income and net interest margin for the fourth consecutive quarter. Net interest income for the first quarter was $125,800,000 and the net interest margin expanded to 2.32%, increases of $5,600,000 and 13 basis points from the fourth quarter respectively. The improvements in NII and NIM resulted from asset cash flow repricing and lower deposit rates. In addition, the headwind from our deposit remix from non interest bearing and lower cost deposits into higher cost deposits slowed significantly.

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

During the first quarter, our earning assets with fixed or adjustable rates generated $553,000,000 of cash flows from maturities and prepayments. Reinvestment of these cash flows into current market rates at current market rates resulted in incremental growth of $3,700,000 in quarterly net interest income, with a spread of 2.6%. With a fixed asset ratio of 56%, we are well positioned for a variety of rate environments, and we'll continue to realize positive NII from fixed and adjustable asset cash flow repricing, even if rates were to fall. We again realized slowing deposit mix shift with average non interest bearing and low yield interest bearing deposit balances declining by $37,000,000 linked quarter. This compares to a decline of $488,000,000 and $105,000,000 in the same period in 2024 and linked quarter respectively.

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

Assuming the majority of these balance shifted into higher yielding interest bearing deposits, such mix shift negatively impacted our net interest income by 300,000 in the first quarter, down from the negative $900,000 impact in the fourth quarter. Total deposit costs decreased by 17 basis points linked quarter and 27 basis points since the Fed began reducing the Fed funds rate in September, and total deposit costs remain well below peers. Deposit costs are expected to fall further as we continue to reprice our time deposits lower. 74% of total time deposits are scheduled to mature in the next six months. With interest rates continuing to be volatile and unpredictable, we are managing our exposures to our fixed asset mix and hedging program.

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

As I previously mentioned, our fixed asset mix declined slightly to 56% during the quarter, and we maintained our interest rate hedges at $2,000,000,000 notional. Earlier in this second quarter, we added $200,000,000 of currently active pay fixed received floating swaps, with an average fixed rate of 3.4% and an average maturity of two point five years. In addition, we added $200,000,000 of forward starting swaps that will become active in one year with an average rate of 3.17. These are in addition to the $2,000,000,000 active swaps and $300,000,000 in forward starting swaps that were in place at March 31. Thus, our current active swap position is $2,200,000,000 with an average fixed rate of 3.97 and average maturity of one point nine years.

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

We also now have $500,000,000 of forward starting swaps with an average fixed rate of 3%. During the quarter, we purchased $242,000,000 of securities that have a positive 110 basis point spread to cash, improving our net interest income and margin. We continue to strategically position our balance sheet for a range of rate outcomes. Our rate sensitive assets totaled $7,400,000,000 while our rate sensitive interest bearing deposits were at 10,200,000,000 at the end of the quarter. We intend to continue to closely manage the interest rate sensitivity of our balance sheets to ensure that we are well positioned for a variety of rate environments.

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

Noninterest income totaled $44,100,000 in the first quarter, which included a $600,000 charge related to the Visa Class B conversion ratio change. In the fourth quarter, non interest income was $45,400,000 after adjusting for a $2,400,000 charge for a similar Visa Class B conversion ratio change. Adjusting for these non core charges, first quarter adjusted non interest income was $44,600,000 lower by $800,000 from the adjusted fourth quarter non interest income, as revenue from trust services were negatively impacted by market volatility and customer derivative transactions were also lower. Non interest income is expected to be 44,000,000 to $45,000,000 per quarter this year, as market volatility and uncertainty continue to pressure Trust Services revenue and other transaction volume. Reported expenses were $110,500,000 in the first quarter.

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

This compares to expenses of $107,900,000 in the fourth quarter. Included in the first quarter expenses were $2,800,000 of seasonal payroll taxes and benefits expenses related to the payout of annual incentives and vesting of restricted shares. Also included was an FDIC special assessment reimbursement of 2,300,000.0 offset by an increase in our variable incentive compensation expenses and an increase to our medical costs during the quarter. Expenses continued to be a focus in 2025, with core expenses projected to increase two to 3% from 2024, which includes an allocation of 1% of expenses to invest in revenue enhancing initiatives in wealth, mobile and data analytics. As a reminder, the second quarter's expenses will include an annual merit increase of approximately $2,000,000 per quarter.

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

To summarize the remainder of our financial performance, in the first quarter, net income was $44,000,000 and earnings per common share was $0.97 increases of $4,800,000 and $0.12 per common share linked quarter, respectively. Our return on common equity was 11.8%, up from 10.3% linked quarter. We recorded a provision for credit losses of $3,300,000 this quarter. The effective tax rate in the first quarter was 21.67%, and the effective tax rate for the remainder of 2025 is expected to be approximately 22.5%. We continue to maintain healthy excesses above regulatory minimum well capitalized requirements.

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

Our Tier one capital ratio is 13.9%, and total capital ratio is 15%. Our risk weighted assets to total assets ratio remains well below peer median, reflecting the low risk nature of our assets and provides greater flexibility on future asset mix and liquidity. During the first quarter, we paid out $28,000,000 to common shareholders in dividends and $5,300,000 in preferred stock dividends. And finally, our Board declared a dividend of $0.70 per common share for the second quarter of twenty twenty five. Now I'll turn the call back over to Peter.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Thanks, Dean. This concludes our prepared remarks. Before we move on to Q and A, I'd like to congratulate Dean on a much deserved retirement from his CFO role at the company. Dean's been an integral part of the team for years now, and he will be missed. Dean's retirement date from the CFO role is set for June 30.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

I'm also very excited to announce that our Deputy CFO, Brad Sattenberg, will be taking over the CFO role effective June 30. Brad already manages a large part of the finance operation, has been part of our IR efforts for many months now. And now we'd be happy to entertain whatever questions you might have.

[Operator]

As a reminder, if you would like to ask a question, please press 1 on your telephone. We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q and A roster. Our first question for the day will be coming from Jarrod Shaw of Barclays. Your line is open.

[Jared Shaw, Managing Director at Barclays]

Hey, good morning. Good afternoon, everybody.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Morning.

[Jared Shaw, Managing Director at Barclays]

Dean, congratulations on on a well deserved retirement. And, Brad, congratulations on on your new role. I'm looking forward to working with you more going forward too. Maybe just first on on the margin. In the past, I think you had indicated a two fifty target or goal or opportunity as we got towards the end of the year.

[Jared Shaw, Managing Director at Barclays]

Is that something you still feel is attainable here? And I guess as a component of that, how should we think about the ability for deposit costs to continue to come down more broadly in more of a static rate environment?

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Let me take a stab at that and Dean and Brad can clean up whatever I mess up. The two fifty is actually, I think, came about as a question a couple of calls ago around whether or not we could attain that level mechanically, given how the balance sheet's geared. We still believe that is a possibility. What would have to happen is the fixed asset turnover, as you know, is pretty mechanical at this point, because most of those amortizations are running at contractual levels. So that's pretty out of everything, that's pretty much the biggest known.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

It looks like given where rates are and even where rates possibly trend out that kind of that roll off to roll on premium is reasonably in good shape there. A driver of whether we can hit the $2.50 by year end is going to be contingent upon our ability to continue to manage low cost deposits in an effective way, which we have been able to the past couple of quarters, couple of three quarters now at this point. And then finally, we were to get additional rate cuts at some point this year, that would actually be accretive to our opportunity here. So you put all that together, Jared, and basically, yeah, if things trend out the way they have for the past several quarters now, kind of that the type of number at two fifty is definitely within range. If not, things could be otherwise.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

And then on top of that, if we do get rate cuts that actually should, depending on the timing of those cuts, should be potentially accretive to the mix there.

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

Yeah. I don't have anything really to add. I think that is pretty accurate and there is a path to two fifty margin. However, as you know, the market has been quite volatile recently. What

[Jared Shaw, Managing Director at Barclays]

was the end of period deposit cost, the spot rate?

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

The deposit cost was one point

[Jared Shaw, Managing Director at Barclays]

was the average or the spot or both?

[Bradley Shairson, Vice Chair & Chief Risk Officer at Bank of Hawaii]

That was the average for March.

[Jared Shaw, Managing Director at Barclays]

Yes. So do you know what the exit rate was?

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

It's approximately about that level. And I think going forward what we're seeing is on the time deposit repricing that's what's going to give us a little more of a lay down on rates.

[Jared Shaw, Managing Director at Barclays]

Okay. Got it. Thanks. And then maybe on the credit side, did you change any of the qualitative assumptions going into the ACL discussion? Or did you change the weighting of any of your scenarios this quarter?

[Bradley Satenberg, Senior EVP & Deputy CFO at Bank of Hawaii]

No. So we didn't really change anything from the qualitative. As you know, obviously, using our UHERO forecast and looking at the economy and Hawaii, the outlook on the economy is a little bit worse than it was previously. But we didn't change any real qualitative factors there.

[Jared Shaw, Managing Director at Barclays]

Great, thanks very much.

[Bradley Satenberg, Senior EVP & Deputy CFO at Bank of Hawaii]

Okay, thank you.

[Operator]

Thank you. And one moment for the next question. And our next question will be coming from the line of Jeff Rulis of D. A. Davidson.

[Operator]

Please go ahead.

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

Yeah. Thanks. Good morning.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Hi, Jeff.

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

Maybe taking a step back, Peter, the economics front.

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

Just to touch on the tariff related impact or perceived impact and maybe tourism just to kind of get a handle on what you're seeing real time, if anything, that's disrupted.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Tourism for the most part year to date hung in there pretty nicely. There are early indications that Canadian traffic, which is a meaningful component of market, has been affected by the sentiment around the tariffs. Early to tell, but I think that that's not likely to go unscathed given all the chatter that's been out there, Jeff. The Japan market, I don't it's hard for us to tell whether that segment sentiment wise is going to be impacted. And those really are kind of the big international drivers.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

For now, The US domestic consumer continues to hang in there pretty nicely. So I would anticipate the reasonable possibility for kind of a flattish year in visitor this year. And obviously, if the economy begins to trend out a little bit worse than what we're looking at right now, that may change. If tariff sentiments become even more inflamed, may change as well.

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

Got it, thanks. And maybe sort of in a related, more specifically to your outlook on loan growth. And I think you exited the year with some pretty good pipelines. And I guess, has that in the last few months sort of disrupted thoughts on expectations for this year? Are you seeing any from a customer standpoint on the net growth front?

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

Are those the same components that you've mentioned or is that shifted some?

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

I'll let Jim to that.

[James Polk, President & Chief Banking Officer at Bank of Hawaii]

Yeah, I'd say our outlook at this point remains the same as the guidance we've given previously kind of in that low single digit. Again, noting sort of the greater uncertainty in the market could have an impact on that obviously going forward. But the commercial pipeline remains pretty solid. We actually saw a pickup in number of transactions and opportunities and value in Q1. And on the consumer side, we've seen a nice pickup in daily applications on both the mortgage and the HELOC front, which we believe at least will get us a chance to maybe offset some of the runoff we've seen in more recent quarters.

[James Polk, President & Chief Banking Officer at Bank of Hawaii]

So I think we're still in line with what we've been providing in the past and we'll just see how the market continues to evolve given what's happening out there.

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

Gotcha. And maybe one quick last one. It's a small number, but just a little increase in the net charge offs still peer to peer very solid. Brad, don't know if

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

there was

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

anything that is noteworthy to call out or it was just a little lumpy, but anything to touch on there?

[Bradley Satenberg, Senior EVP & Deputy CFO at Bank of Hawaii]

Well, so what I would say about the net charge offs actually, consumer was actually down slightly from last quarter. It was really the small increase was just caused by a single loan that was about $1,100,000 that was formerly in the nonperforming assets and we've since charged it off. So actually the trend is pretty positive there.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Yeah, I mean, so the NCO performance is kind of the outcome of the rule of small numbers, Jeff.

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

Yeah, didn't mean to make too much light of it. Just checking in. So thanks.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Yep, take care.

[Operator]

Thank you. One moment for the next question. And the next question will be coming from the line of Andrew Leach of Piper Sandler. Your line is open.

[Andrew Liesch, Managing Director at Piper Sandler Companies]

Thanks. Good morning, everyone. Thanks for taking the questions. You've covered most everything I want to go over. But just on the new swaps that were added, What does that then shift the fixed rate percentage of earning assets to relative to that 56% that you had at March 31?

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

It brings it down a little to about 55%. So there's a little bit of lower mix, fixed asset mix.

[Andrew Liesch, Managing Director at Piper Sandler Companies]

Got it. So not too much of a difference.

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

Yeah, I would add Yes. That we're it's continuing to drift lower, but the just to clarify that also that the investments, they come off at a fixed rate. So using the swap portfolio to make adjustments to that.

[Andrew Liesch, Managing Director at Piper Sandler Companies]

Got it. Very helpful. And then sounds like you had some pretty constructive commentary for loan growth in the pipeline, but have you seen any projects like fall out of the pipeline with concerns over the economy and some uncertainty there? Or is it really just sort of building?

[James Polk, President & Chief Banking Officer at Bank of Hawaii]

Yeah, not at this point. I think there's a lot of conversations going on between developers and suppliers and contractors as they try and get a handle on the situation, but it's pretty fluid at this point. So I think we're going to just have to kind of see how things evolve. But at this point, the deal, the transactions we see are still moving forward.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Yeah, I mean, we're not seeing anything in particular right now, but I would note caution, frankly. I mean, I think it was such an uncertain environment that we could see pipeline trends move pretty quickly here, certainly on the commercial side. So we're hopeful that we can hang on to our current guidance, but I would no caution around that.

[Andrew Liesch, Managing Director at Piper Sandler Companies]

Got it, makes sense. Thanks so much. You've covered everything else. I'll step back.

[Operator]

Thank

[Operator]

you. One moment for the next question. And the next question will be coming from the line

[Operator]

of Steven Johnson. Your line is open.

[Analyst]

Hey, good morning.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Good morning.

[Analyst]

Just to start, Dean, it's been great working with you in the past several months.

[Analyst]

Congratulations. Look forward to hearing more about what you've got in store for retirement. If I could start just on the margin, if you have it, do you know what the margin for the month of March was, just

[Analyst]

to start there?

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

Yes, it was $2.34.

[Analyst]

Got it. Okay. And if I could just clarify some of the commentary on the margin, it was all really helpful. But I mean, it sounded like you were fairly optimistic on hitting that two fifty or so exit margin this year even without rate cuts. And then maybe if forward curve plays out, and I hear you on the volatility, but we do get some rate cuts that would be accretive to that forecast.

[Analyst]

I guess, a fair read on the margin commentary?

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Yeah, I mean, I think the biggest driver of hitting that number is going to be the ability to hang on to non interest bearing and other lower yielding types of deposits. And to the extent that we have stability in that space, that's going to allow the fixed asset turnover to kind of reveal its full capacity. So if we continue to have that phenomena and basically overall reasonable deposit performance, yeah, that number becomes a reasonable target for year end.

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

And I would just add that, I think the shape of the yield curve is also going to be important to that. Having pulled up the fixed asset repricing is dependent on higher yield or a higher rate on the midterm to longer term of the curve.

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

So that would have an impact as well.

[Analyst]

Yes. Okay. Thank you very much. I appreciate it. If I could ask just on the point of deposits, I'm looking at the savings line that grew pretty materially this quarter.

[Analyst]

It seems like it does bounce around a little bit, at least the past several quarters or so. Is there any kind of predictable seasonality in that line item? Or could you just speak to, in a very basis, pretty substantial growth, just kind of what's driving that this quarter?

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Yes. Well, I mean, I think it was nice to see the bump up at quarter end. That could be some tax element in there. But when I look at the average deposit stats for savings, they're kind of call it flattish on a linked basis down actually 1%. So I think we're happy with our deposit levels and we're just you do see some seasonality into the first quarter given what's happening with people's income taxes.

[Analyst]

Okay, so more appropriate to think about it just from an average standpoint?

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Yeah, I think so.

[Analyst]

Okay, fair enough. If I could just ask on expenses and I apologize if I missed this in the prepared. Could you quantify if there was or to what extent there was a onetime benefit on the FDIC insurance line this quarter? And then just wanted to check-in, I think last quarter, we talked about 2% to 3% OpEx growth for the full year that included some reinvestment. It seems like you're tracking maybe a little bit above that as of the first quarter.

[Analyst]

Just wanted to check-in to see if that 2% to 3% was still kind of a good expense growth guide for the year?

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

Yes, there was a 2,300,000 benefit on the FDIC line. And the guidance is still 2% to 3% for the full year. And to clarify, it's based on our normalized 2024 results, which was $426,000,000 So to kind of simplify it, if you look at our reported numbers for 2024, it's really about 1% to 2% above that number, which came in at $430,000,000 So that's still intact. In terms of how it's tracking over the year, we'll probably see about a similar level in Q2 as what we saw in Q1, but kind of trend a little bit lower in the second half of the year as some of our initiatives are implemented expense initiatives to reduce some of that.

[Analyst]

Got it. Okay. So similar 2Q expenses to 1Q and then backs off from there. But okay, very good. Those are all my questions.

[Analyst]

I appreciate it.

[Operator]

Thank

[Operator]

you. One moment for the next question. And our next question is coming from the line of Kelly Motta of KBW. Your line is open.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hi, good morning. Thanks for the question, and congrats again, Dean and Brad. Excellent news. So, I was hoping if we could just circle back on the deposits. I really love the new color on CD repricing.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

In terms of where deposits are coming on now, it looks like you're running a special in the mid threes. Is that a good kind of assumption for where the incremental role of CDs are coming on now?

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

So what we have in our advertised specials, they're in the mid-3s, but when you look at what really is coming on in the average rates, it's about 3.3 to 3.4%, so a little lower than that, and then about 30 to 40 basis points below what's maturing off.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it, thank you. Also, can you remind us when the forward starting swaps, when those start to kick in and the cadence of that, just for the purposes of margin modeling?

[Dean Shigemura, Vice Chair & CFO at Bank of Hawaii]

Yeah, we have $100,000,000 coming on in the third quarter, fourth quarter, first quarter, and then $200,000,000 in the second quarter of next year.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. That's helpful. And I apologize if I missed this, but it looks like you guys acknowledge that there's really nominal direct tariff exposure. Wondering what your outreach has been to clients, what you're hearing, and the work you're doing to stay on the ground and be in touch with your customers, because you guys do have a great track record with managing through credit.

[Peter Ho, Chairman, President & CEO at Bank of Hawaii]

Yeah, well go ahead Brett.

[Bradley Satenberg, Senior EVP & Deputy CFO at Bank of Hawaii]

Okay, yeah, that's a good question. So like many other banks, we've been running analysis to assess the potential impact on how tariffs might affect our clients, and we've determined that we do have that, as you mentioned, the nominal direct tariff exposure. Our analysis focused on where there would be direct impacts, including industry verticals such as auto dealers, contractors, retail, wholesale trade, manufacturing, and construction. And excluding real estate secured loans with low LTVs. And given that Hawaii's economy is really service oriented, this resulted in only 4% of loan portfolio or $640,000,000 in exposure in total.

[Bradley Satenberg, Senior EVP & Deputy CFO at Bank of Hawaii]

That number includes all the borrowers in these industries, but in reality, a number of them may not be impacted much if their international trade is minimal or if they have wide profit margins. And by the way, that's why we put that slide in on C and I this quarter, so that you could really get a sense for just how little exposure there is. It's very diversified. Our C and I is very diversified among a high number of industry segments and a very low average loan size. You

[Bradley Satenberg, Senior EVP & Deputy CFO at Bank of Hawaii]

Okay.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Appreciate the color. I'll step back. Thank you very much.

[Bradley Satenberg, Senior EVP & Deputy CFO at Bank of Hawaii]

Thanks Kelly.

[Operator]

Thank you. That concludes today's Q and A session. I would like to turn the call back over to Chang Park. Please go ahead for closing remarks.

[Chang Park, Senior VP & Director of Investor Relations at Bank of Hawaii]

Thank you, everyone, for joining us today, and thank you for your continued interest in Bank of Hawaii. As always, please feel free to reach out to me if you have any questions. Thank you.

[Operator]

This concludes today's conference call. You may all disconnect. Thank you for joining.

Participants

Executives

• Chang Park, Senior VP & Director of Investor Relations
• Peter Ho, Chairman, President & CEO
• Bradley Shairson, Vice Chair & Chief Risk Officer
• Dean Shigemura, Vice Chair & CFO
• Bradley Satenberg, Senior EVP & Deputy CFO
• James Polk, President & Chief Banking Officer

Analysts

• Jared Shaw, Managing Director at Barclays
• Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies
• Andrew Liesch, Managing Director at Piper Sandler Companies
• Analyst
• Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)