Bank of Hawaii Delivers Strong Q1 Earnings, Driven by Deposit Growth and Margin Expansion

Bank of Hawaii Corporation (NYSE: BOH) kicked off 2025 with robust first-quarter earnings, reporting diluted EPS of $0.97, surpassing analyst expectations by $0.08 and marking a 20.9% year-over-year increase. Net income rose to $44.0 million, fueled by expanding net interest margins and disciplined cost management. The results highlight the bank’s resilience in a shifting interest rate environment, with deposit growth and credit quality metrics reinforcing its position as a stable regional financial institution.

Financial Highlights: A Quarter of Strategic Momentum

The quarter’s standout performance was driven by:
- Net Interest Income Growth: Up 4.7% sequentially to $125.8 million, supported by a 13-basis-point (bps) expansion in the net interest margin (NIM) to 2.32%. This improvement stemmed from lower deposit costs, which fell 21 bps QoQ to 2.16%, while loan yields remained relatively stable at 4.72%.
- Deposit Growth: Total deposits rose 1.8% QoQ to $21.0 billion, with noninterest-bearing deposits accounting for 26.1% of the total—a slight dip from prior quarters but indicative of balanced funding costs.
- Asset Quality Stability: Non-performing assets (NPAs) decreased $1.8 million sequentially to $17.5 million, though the ratio inched up 3 bps YoY to 0.12%, reflecting cautious underwriting in a volatile economic climate.

Net Interest Margin: The Engine of Growth

The NIM expansion was the star of the quarter, with management emphasizing disciplined balance sheet management. Lower deposit rates—particularly for interest-bearing accounts—offset declines in earning asset yields, which dipped 2 bps QoQ to 3.95%. This strategy underscores the bank’s ability to navigate Fed policy shifts, as reduced funding costs outpaced the drag from a slowdown in loan demand.

Deposit Growth: A Foundation for Future Profitability

Deposit growth remained steady, with $21.0 billion in total deposits marking a 1.6% annual increase. While noninterest-bearing deposits dipped slightly in proportion, the bank’s focus on optimizing deposit mix has paid off. Lower interest costs contributed to a 21-bps YoY decline in average deposit rates, a critical factor in margin expansion. Management noted that the slower shift toward higher-rate deposit products further supported profitability.

Asset Quality: Caution Amid Growth

Despite rising NPAs $5.6 million YoY, the allowance for credit losses remained robust at $147.7 million (or 1.05% of total loans), reflecting conservative risk management. Net charge-offs, however, rose to $4.4 million, signaling potential headwinds as economic uncertainty lingers.

Balance Sheet Strength and Capital Position

Total assets grew 1.2% QoQ to $23.9 billion, bolstered by a $7.4 billion investment securities portfolio (up 1.6% QoQ) and $14.1 billion in loans. Commercial lending surged 7.3% YoY, driven by construction and commercial real estate demand, while consumer lending dipped slightly amid softening auto and home equity markets.

Capital ratios remain strong, with the Tier 1 capital ratio at 13.93%, well above regulatory requirements. This stability supports the $0.70 per share dividend, which yields 1.1% at current prices—a modest but consistent reward for shareholders.

Analyst Outlook: Bullish on BOH’s Resilience

Analysts are cautiously optimistic, with an average $70.67 price target (implying an 8.7% upside from current levels). GuruFocus projects an even higher $75.75 target, citing undervaluation relative to its earnings power.

Conclusion: A Steady Hand in Volatile Waters

Bank of Hawaii’s Q1 results underscore its ability to thrive in a challenging environment. With deposit growth stabilizing funding costs, margins expanding, and capital ratios robust, the bank is positioned to capitalize on Hawaii’s economic rebound. While headwinds like elevated charge-offs warrant vigilance, BOH’s conservative risk management and strategic focus on its core markets provide a solid foundation for sustained performance.

Investors should note the 1.1% dividend yield and the bank’s 11.8% ROE, which outperforms regional peers. With analyst targets signaling further upside and a balance sheet fortified for cyclical shifts, BOH remains a compelling play on the resilience of Hawaii’s financial backbone.

This analysis synthesizes BOH’s operational strengths, financial metrics, and market context to provide a clear roadmap for investors seeking stability in a dynamic banking landscape.