Hawaii Banks

Return on assets for Hawaii's six banks rose to 0.82% in Q1 2026, up 91 basis points from negative 0.09% in Q1 2025 and 14 basis points from 0.68% in Q4 2025. The year-over-year improvement marks a return to profitability after the loss position a year earlier, the most significant profitability swing in the cohort's recent history. Quarter-over-quarter, the 14-basis-point gain signals continued momentum, though the pace of improvement slowed from the 91-basis-point YoY recovery. The cohort remains 38 basis points below the national ROA benchmark of 1.20%.

Net interest margin widened to 3.32%, up 22 basis points from 3.10% a year earlier and 9 basis points from 3.23% in Q4 2025. The YoY expansion of 22 basis points outpaced the QoQ gain of 9 basis points, indicating margin improvement is decelerating. Hawaii banks' NIM trails the national average of 3.82% by 49 basis points. The efficiency ratio deteriorated sharply to 74.12% from 66.73% in Q4 2025, a 7.39-percentage-point jump, and rose 0.85 percentage points from 73.27% a year earlier. The cohort now operates 9.98 percentage points above the national efficiency ratio of 64.14%, reflecting higher operating costs relative to revenue. The QoQ efficiency deterioration coincided with the sharp drop in net interest income as a percentage of revenue (from 0.69% to 0.12%), suggesting a noninterest revenue spike in Q4 2025 that normalized in Q1 2026, mechanically raising the efficiency ratio.

The profitability trajectory is improving but fragile. ROA recovery from negative territory a year ago is the headline, but the 38-basis-point gap to national ROA and the 9.98-percentage-point efficiency disadvantage indicate structural cost pressures. Among the six banks, the specialization mix shows two Commercial specialists (ROA 1.20% nationally, NIM 3.92%) and four in the Other category (ROA 1.17% nationally, NIM 3.63%). If the cohort's efficiency ratio continues its current upward trajectory, the ROA recovery may stall absent further NIM expansion or noninterest revenue growth.

Annualized asset growth for Hawaii banks turned negative at -0.12% in Q1 2026, down from 0.19% in Q4 2025 and 2.26% in Q1 2025. The year-over-year deceleration of 105.39 percentage points and the quarter-over-quarter deceleration of 162.58 percentage points mark the first contraction in the series shown. The cohort now lags the national asset-growth rate of 5.15% by 5.28 percentage points. The contraction reflects both loan and deposit headwinds, with loan growth decelerating more sharply than deposit growth.

Loan growth fell to -0.52% in Q1 2026 from 0.51% in Q4 2025 and 2.80% in Q1 2025, decelerating 118.58 percentage points year-over-year and 201.59 percentage points quarter-over-quarter. The cohort trails the national loan-growth rate of 6.20% by 6.72 percentage points. Deposit growth decelerated to 0.35% from 1.13% in Q4 2025 and 2.03% in Q1 2025, a YoY deceleration of 82.83 percentage points and a QoQ deceleration of 68.96 percentage points. Hawaii banks lag the national deposit-growth rate of 5.02% by 4.67 percentage points. The divergence between loan growth (-0.52%) and deposit growth (0.35%) mechanically compressed the loan-to-deposit ratio by 0.29 percentage points QoQ and 0.92 percentage points YoY.

The growth profile is decelerating sharply. Both loan and deposit growth turned negative or near-zero in Q1 2026 after positive YoY growth a year earlier. The six-bank cohort's aggregate balance sheet shrank modestly in Q1 2026, the first contraction in the series shown. The national banking industry expanded assets at 5.15%, loans at 6.20%, and deposits at 5.02% over the same period, underscoring Hawaii's divergence from the broader U.S. trend. If the current quarterly pace of loan contraction persists, the cohort's loan-to-deposit ratio will fall below 70% by year-end 2026.

Delinquency for Hawaii banks rose to 0.59% in Q1 2026, up 31 basis points from 0.29% in Q1 2025 and 10 basis points from 0.49% in Q4 2025. The year-over-year increase more than doubled the delinquency rate, though the cohort remains 10 basis points below the national benchmark of 0.70%. The QoQ increase of 10 basis points signals continued deterioration but at a slower pace than the 31-basis-point YoY climb. The delinquency trajectory is worsening, not stabilizing.

Nonperforming assets as a percentage of total assets increased to 0.39% from 0.19% a year earlier and from 0.33% in Q4 2025, a 19-basis-point YoY rise and a 6-basis-point QoQ increase. The cohort trails the national NPA ratio of 0.51% by 12 basis points. The YoY doubling of the NPA ratio parallels the delinquency trend, reflecting migration of troubled credits into nonaccrual status. Tier 1 capital rose to 14.39% from 14.02% a year earlier and from 14.29% in Q4 2025, a 37-basis-point YoY gain and an 11-basis-point QoQ increase. Hawaii banks now hold 13 basis points more Tier 1 capital than the national average of 14.26%, providing a modest cushion against the rising credit-quality headwinds.

The risk profile is deteriorating modestly but remains manageable. Delinquency and NPA ratios both doubled year-over-year, yet both metrics remain below national benchmarks. The 37-basis-point YoY increase in Tier 1 capital suggests the six banks are building loss-absorption capacity as credit quality weakens. Among the specialization categories present nationally, Credit Card specialists show delinquency of 2.57% (more than four times the cohort's 0.59%), while Mortgage specialists show 0.57% (close to the cohort average). If delinquency continues rising at the current quarterly pace of 10 basis points, Hawaii banks will exceed the national 0.70% average by Q3 2026.

Hawaii banks' loan-to-deposit ratio declined to 73.30% in Q1 2026, down 0.92 percentage points from 74.23% a year earlier and 0.29 percentage points from 73.59% in Q4 2025. The ratio now sits 3.07 percentage points below the national benchmark of 76.38%. The contraction reflects deposit growth outpacing loan growth: deposits expanded at an annualized 0.35% rate in Q1 2026 while loans contracted at -0.52%. Year-over-year, deposit growth decelerated from 2.03% to 0.35%, but loan growth decelerated more sharply from 2.80% to -0.52%, mechanically compressing the LDR.

Noninterest-bearing deposit share decreased to 21.11% from 21.44% a year earlier and from 21.28% in Q4 2025, a decline of 0.34 percentage points YoY and 0.17 percentage points QoQ. The cohort now trails the national NIB share of 21.60% by 49 basis points. Net interest income as a percentage of revenue fell sharply to 0.12% from 0.69% in Q4 2025, though it remained essentially stable year-over-year at 0.12% versus 0.12% in Q1 2025 (a change of less than 1 basis point). The metric sits 21 basis points below the national 0.32%, reflecting a revenue mix shift toward noninterest income in the most recent quarter.

The engagement profile is mixed: deposit franchise stability (NIB share down modestly but still near national levels) contrasts with lending contraction and a deteriorating LDR. The QoQ NII revenue-share collapse from 0.69% to 0.12% suggests a one-time noninterest revenue event or seasonal pattern in Q1 2026, given the YoY stability. The six-bank cohort shows conservative liquidity positioning—LDR below national average—but limited loan-growth momentum entering 2026.