Bank of Hawaii Corporation (BOH) Q1 2022 Earnings Call Transcript

Bank of Hawaii Corporation  (NYSE: BOH) Q1 2022 earnings call dated Apr. 25, 2022

Corporate Participants:

Janelle Higa — Investor Relations

Peter S. Ho — Chairman, President and Chief Executive Officer

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Mary E. Sellers — Vice Chair and Chief Risk Officer

Analysts:

Jeff Rulis — D. A. Davidson — Analyst

Andrew Liesch — Piper Sandler — Analyst

Ebrahim Poonawala — Bank of America — Analyst

Kelly Motta — KBW — Analyst

Laurie Hunsicker — Compass Point — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Bank of Hawaii Corporation First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. There will be a question-and-answer session after the prepared remarks. [Operator Instructions].

I would now like to turn the call over to your host, Janelle Higa. You may begin.

Janelle Higa — Investor Relations

Thank you, Kevin, and good morning, good afternoon, everyone. Thank you for joining us today. On the call with me this morning is our Chairman, President and CEO, Peter Ho; our Chief Financial Officer, Dean Shigemura; and our Chief Risk Officer, Mary Sellers.

Before we get started, let me remind you that today’s conference call will contain some forward-looking statements. And while we believe our assumptions are reasonable, there are a variety of reasons the actual results may differ materially from those projected.

During the call, we’ll be referencing a Slide presentation, as well as the earnings release. A copy of the presentation and release are available on our website boh.com under Investor Relations.

And now, I’d like to turn the call over to Peter Ho.

Peter S. Ho — Chairman, President and Chief Executive Officer

Thanks, Janelle. Hello, everyone. We appreciate your interest in Bank of Hawaii. First quarter was the — was a good start to 2022 for the organization. As is our custom, I’ll share with you some thoughts on the broader market here in the island; I’ll then turn the call over to Dean to talk about the financials; and then he’ll turn the call over to Mary to give you some perspective on the credit side; and then I’ll close with some concluding thoughts; and then we’d be happy to take your questions.

So beginning with the economy, things appear to be shaping up stable and improving is what I would call it. Here you see our unemployment numbers, unemployment now down to 4.1%. I think when you look at the forecast numbers out that UHERO has put in there, obviously, I think clearly those are due for adjustment, and I think probably impacted by some of the changes of the Bureau of Labor Statistics. So all-in-all, I think a pretty good performance unemployment wise.

When you look at the — some of the high frequency data that the University also puts out, what they call their economic pulse, which is an aggregation of a bunch of high frequency data. You’ll see that really that rating is up to its highest level ever in the new environment that we find ourselves in. So, as of the past couple of weeks that ratings hit 81 points. To give you some frame of reference, our prior peak was 75 in the summer of 2020 just before Delta hit, and then as those numbers took a dip with Delta and then omicron. So nice to be back up at a high and hopefully moving forward from there.

Switching to real estate, here you see that the real estate market at least here on Oahu, our primary market continues to do quite well. So price points still elevated at very high levels both single family as well as condominium. And also you see that the pervasive inventory or shortage of inventory continues to be the case and not likely to see much change in that environment anytime soon, and then, therefore, I wouldn’t expect to see too much erosion in price point, certainly not in ’22.

Next Slide. Switching over to the visitor side, this is really an evolving story. You see — you can see in the chart that 2022 levels are getting closer to 2019 levels or pre-pandemic levels. The numbers are from a arrivals down point down still 25% from 2019, but that’s really the tale of two marketplaces. U.S. arrivals both East and West U.S. arrivals are up year-to-date 8% from 2019, but clearly the drag was dragging down the entire market are the Japanese down 98%, Canada down 61%, and other international marketplace is down 70%.

Interestingly, when we look at spending patterns the news isn’t quite as bad there. Spending is down. And I — remember I told you arrivals were down 25%, but spending is only down 9.9% this year-to-date [Phonetic] through February, and this reflects a very robust U.S. consumer. So U.S. spending — our U.S. market spending in the islands year-to-date, February is up 27% and offset somewhat by Japan, Canada and other international.

Just to finish off on the visitor side, RevPAR performance, which as you can imagine, has been quite difficult through the pandemic is really starting to look up. So the last three months beginning in December, RevPAR in the state was actually plus 7.6% versus 2019 levels, January was off slightly at minus 1.3% versus 2019 and February bounced back nicely at plus 4% versus 2019.

So all-in-all what we see in the visitor segment is a reasonable performance given what’s happening in the various marketplaces. I think a good, a fair amount of — for case for optimism, as we look forward. And hopefully welcome the Japanese visitors back hopefully at the — towards the tail end of this year. So that’s it for my opinion.

Let me now turn the call over to Dean, who will share the financials. Dean?

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Thank you, Peter. Our strong core loan growth continued in the first quarter. Our loans net of PPP waivers increased by $354 million or 2.9% linked quarter and by $1.1 billion year-over-year or 9.4%. Growth was across both commercial and consumer loan portfolios at 2.5% and 3.2% respectively, linked quarter. PPP loan balances declined by $69 million and $58 million remained at the end of the quarter.

Net interest income in the first quarter was $125.3 million and included $1.8 million from PPP loans. The fourth quarter, net interest income included a one-time reduction of $900,000 for an adjustment to deferred mortgage loan fees and $5.7 million in PPP loan interest income.

Adjusting for the one-time charge in the fourth quarter and total PPP loan interest income in both quarters, the first quarter’s core net interest income was $123.4 million, up $1.9 million or 1.6% linked quarter, driven by strong loan growth and rising interest rates. Our core net interest margin, which excludes PPP loan, interest income increased by 7 basis points linked quarter to 2.31%.

Our loan to deposit ratio remains low, well below regional and local peers. This affords us a strong and stable base of low cost deposits, that is a readily available source of liquidity to fund loan growth and provides pricing flexibility.

One of the driving factors of this strong deposit base is Hawaii’s unique deposit market and our strong position within this market. According to the FDIC deposit study data, the top five banks make up nearly 97% of deposits in the State of Hawaii. Bank of Hawaii is well positioned, as the market share leader with exceptional brand recognition and customer relationships.

The composition of our deposits further demonstrates the strength of our deposit franchise. 94% of deposits are from core commercial and consumer customers, and the remaining 6% in public deposits are predominantly government operating accounts. While analyzing — when analyzing our deposit products, 96% of our deposits are in core savings and checking accounts, with checking balances comprising nearly 60% of total deposits. Our solid base of low cost deposits provides us with flexibility in a rising rate environment.

Total deposit balances increased $356 million or 1.7% linked quarter and $392 million in core commercial and consumer customer account, while our deposit costs decreased by one basis point to five basis points in the quarter. During the last rising rate period, we demonstrated pricing discipline at approximately 20% beta, while continuing to grow deposit balances.

Our balance sheet remains asset sensitive to changes in interest rates, and we will continue to benefit from higher rates. The recent increases in medium and long-term rates are already having a positive impact on our core net interest income and margin.

In the first quarter of 2022, net interest income will — net income was $54.8 million and earnings per common share were $1.32. Net interest income in the first quarter was $125.3 million. As discussed earlier, core net interest income, which excludes PPP loan interest income was $123.4 million, up $1.9 million linked quarter, driven by strong core loan growth and rising interest rates. As Mary will discuss later, we recorded a negative provision for credit losses of $5.5 million this quarter.

Noninterest income totaled $43.6 million in the first quarter, up $1 million from the fourth quarter. The increase was primarily due to higher swap revenue and deposit fees partially offset by seasonal decreases in service charges and other transaction fees. Also included in the first quarters noninterest income was a one-time negative adjustment of $400,000 for a change in the Visa Class B conversion ratio, which was reported as a contra-revenue item in the investment securities gains, losses.

In addition, we recognized a $1.8 million recovery for MSR impairment in the mortgage banking income, which afforded us the flexibility to hold more mortgage loans. We expect noninterest income will be approximately $42 million to $43 million per quarter through the end of the year, as mortgage banking income and asset management fees are expected to be lower due to higher interest rates and lower markets.

Noninterest expense in the first quarter totaled $103.9 million, up from $101.7 million in the fourth quarter. Included in the first quarter’s expenses were seasonal payroll tax and benefit expenses of $3.7 million related to annual incentive payouts made during the quarter. Included in the fourth quarter’s expenses was a one-time $1.2 million charge for an additional employee benefits that increased our vacation carryover limits.

Adjusting for these items, the first quarter’s expenses were $100.2 million, down $300,000 from the normalized fourth quarter expenses of $100.5 million. Thus, in the first quarter, we were able to maintain our overall expense discipline, while continuing with our innovation investments.

For the full year of 2022, expenses will be approximately $414 million to $415 million, as inflation pressures have increased overall expenses. The annual merit increases and one-time cost of living adjustment, which together total a 5% increase for employees began on April 1st.

Our return on assets during the first quarter was 0.97%, the return on common equity was 15.44%, and our efficiency ratio was 61.53%. Our net interest margin in the first quarter was 2.34%, unchanged from the fourth quarter. Excluding total PPP loan interest income, the core margin was 2.31%, an increase of 7% — seven basis points linked quarter. The increase in the margins in the first quarter reflects the ongoing impact of strong core loan growth and rising rates.

Excluding the impact of PPP loan interest income, we expect continued improvement in our core margin, with increases of five basis points to six basis points per quarter for the remainder of 2022 of continued loan growth and higher interest rates. This is an improvement from the previous NIM guidance of 3 basis points to 5 basis points per quarter.

Our capital level remains strong and it is well positioned to support continued growth. Our CET1 and total capital ratios were 11.83% and 14.41% respectively, with a healthy excess above the regulatory minimum well capitalized requirements.

Higher interest rates negatively impacted the valuation of our available for sale portfolio, resulting in an AOCI adjustment, a reduction in our book and tangible common equity. However, this had no impact on our regulatory capital and our capital distribution capabilities.

During the first quarter, we paid out $28 million or 53% of net income available to common shareholders in dividends and $2 [Phonetic] million in preferred stock dividends. We repurchased 117,000 shares of common stock for a total of $10 million. And finally, our Board declared a dividend of $0.70 per common share for the second quarter of 2022.

Now, I’ll turn the call over to Mary.

Mary E. Sellers — Vice Chair and Chief Risk Officer

Thank you, Dean. Credit performance remained very strong in the first quarter. Net loan and lease charge-offs were $1.5 million or 5 basis points of average loans and leases annualized. This compared with 2 basis points in the fourth quarter of ’21 and 10 basis points in the first quarter of last year.

Non-performing assets totaled $20 million or 16 basis points, up 1 basis point for both the linked period and year-over-year. All non-performing assets are secured with real estate, with a weighted average loan to value of 54%.

Loans delinquent 30 days or more remained stable at $28.3 million or 23 basis points, while down $11.6 million or 10 basis points year-over-year. And criticized exposure was down to just 1.6% of total loans, driven by continued improvement in the financial performance of those customers, who had been most impacted by COVID.

The quality of our loan production in the first quarter was strong and reflective of our continued conservative and consistent approach to underwriting. For the quarter, 62% of commercial production was secured with quality real estate, modestly leveraged. Our commercial mortgage production had a weighted average loan to value of 60% and construction production had a weighted average loan to value of 65%. 83% of the quarter’s consumer production was secured with real estate, again, conservatively leveraged.

Residential mortgage and home equity production had weighted average loan to values and combined weighted average loan to values of 62% and 58% respectively. 79% of home equity production was in first lien. FICO scores for all our consumer production remained very strong and consistent.Importantly, when we look at the bottom quartile of our loan production, we continue to see solid credit metrics.

As Dean noted, we recorded a negative provision for credit losses of $5.5 million this quarter. This included a negative provision to the allowance for credit losses of $4.3 million, which with net charge-offs, reduced our allowance to $152 million or 1.21% of total loans and leases or 1.22% net of PPP balances. The decrease in the allowance reflects the improving economic outlook and forecast for our market, coupled with our credit risk profile, while continuing to provide for the uncertainty and potential downside risk associated with recent geopolitical events and tighter monetary policy. The reserve for unfunded credit commitments was $5.2 million at the end of the quarter, down $800,000 for the linked period.

I’ll now turn the call back to Peter.

Peter S. Ho — Chairman, President and Chief Executive Officer

Thanks, Mary. So to conclude, just a little few thoughts on where we — where we see ourselves moving forward. We believe we are extremely well positioned for what we see as a evolving environment. We’re asset sensitive. As Dean mentioned, we operate in a interesting deposit marketplace, where the top five local — locally headquartered players represent 97% of the market. I think equally interesting of that five is that the weighted average loan to deposit ratio of those participants is 61%. Bank of Hawaii has a terrific position within this marketplace.

From a credit standpoint, we’re, as Mary described in very good position as well. We have a high quality securities portfolio. And our loan portfolio is well diversified, well balanced and has a 79% collateral position with weighted average loan to value of 56%. 97% of our loans are in markets we know — we’ve known for decades, and our current strategy ensures this continued familiarity.

Finally, from a liquidity standpoint, as Dean mentioned our deposit base is incredibly core in nature, with 94% consumer and commercial and 96% being either demand or savings. As Dean also mentioned, we have historically market leading deposit betas, which we would anticipate deploying through the cycle. And our operating model generate some of the highest returns of capital in the industry.

So now, we’re happy to take your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Jeff Rulis with D. A. Davidson.

Jeff Rulis — D. A. Davidson — Analyst

Thanks. Good morning.

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Hey, Jeff.

Jeff Rulis — D. A. Davidson — Analyst

Just a question on the buyback. Just want to check in on the appetite. It was up linked quarter, but it’s been higher in the past that — just interested at AOCI consideration or just general macro kind of give us an update on where you think on buybacks?

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Yeah. It is up about $3 million quarter-over-quarter. We continue to implement our capital plan, which generally will hold capital for growth, and then, our dividend, and of course, what’s remaining is the available for share repurchases. We continue to believe that’s a important part of our capital plan. And going forward, I think it will depend on how the environment evolves, given the volatility in the rate environment, we will continue to repurchase shares, but it could change depending on the outlook.

Peter S. Ho — Chairman, President and Chief Executive Officer

Yeah. So I think our intent is to continue with repurchase probably similar to what you’ve seen in the most recent quarter, but obviously subject Jeff to what’s happening in the rate environment, you would understand.

Jeff Rulis — D. A. Davidson — Analyst

Sure. Yeah. Thanks. And Peter, you mentioned that it looks like the UHERO forecast are kind of lagging real time and maybe a question for Mary, just on that. Does the first quarter provision recapture sort of baked in, as of March end. In other words, if we’ve seen some economic improvement is — can we kind of assume that, that would be reflected in the second quarter provisioning consideration in other words.

Mary E. Sellers — Vice Chair and Chief Risk Officer

Exactly, Jeff. Exactly.

Jeff Rulis — D. A. Davidson — Analyst

Okay. Got it. And last one, maybe, Peter. Just trying to circle back to the islands behavior on for the last up rate cycle, how both loans and deposits you talked about the uniqueness of the local participants on the deposit side. My guess is last up rate cycle, deposit betas were lower, but if you could just touch on both how loan, pricing — loan and deposit pricing kind of played out in the last cycle?

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Yeah. I would say that the deposit front was pretty stable. I mean, I think we had about a 20% deposit beta, and we didn’t have the best betas in the marketplace. So there is a good amount of stability, I’d say, on the deposit front in par. And the reason — one of the reasons why I mentioned the loan to deposit — the weighted loan to deposit ratio for the top five is, there is always been a bit of a mismatch between funding and assets in the islands. And I think that’s in part how you get those betas right.So as we look forward, Jeff, interestingly, the liquidity dynamics of the marketplace are not a lot different than the last cycle. So then, therefore, I wouldn’t anticipate much to change on the deposit front.

On the loan front, like I said, it’s always been a funding heavy asset, lighter environment, there’s always going to be competition there. But with rates rising that will be kind of interesting to see kind of where people position because it’s really the yield or the income side really been very volume driven to-date for the past call it 10 years, 5 years, 10 years. But as margins are picking up, I think maybe people would be more sanguine just to kind of pickup on the rate side versus the volume side. We’ll see though.

Jeff Rulis — D. A. Davidson — Analyst

Yeah. Okay. I appreciate it. Thank you.

Operator

Our next question comes from Andrew Liesch with Piper Sandler.

Andrew Liesch — Piper Sandler — Analyst

Hi, good morning everyone.

Peter S. Ho — Chairman, President and Chief Executive Officer

Hi, Andrew.

Andrew Liesch — Piper Sandler — Analyst

Just questions on the loan growth continues to be really strong. It sounds like you retained more on the mortgage side, so that may have driven that. But is there anything you can point to, what’s going on in your market or maybe at your — with your bankers and lenders specifically that’s driving this, just given how strong it has been for several quarters now.

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Yeah. Sure. So, well, first of all, we saw growth in just about every category both consumer and commercial. C&I was a bit flattish, but CRE was up 3.4%, construction was up 12.7%. So clearly on the commercial side, I think we’re the beneficiary of a healing economy, increased activity as people are generally a lot better capitalize, and you might imagine, coming out of the pandemic. And then having a consistency of team for many, many years that’s just allowed us to one ensure that we’ve got quality staff out there in the marketplace taking care of clients; and then two, having staff that’s been managing the same clients for an awful long time. And so as opportunity begins to peak it’s head out execution becomes that much more possible.

On the consumer side, yeah, I think we probably held on to a little bit more resi mortgage production just as kind of, I think the fee side was not quite as attractive, as earlier quarters. But in general, I’d say that resi was up, home equity was up, indirect was up, even indirect with the inventory challenges of the marketplace, and there is a combination of, I think really great programming. We’re really starting to see traction on our marketing front. We’re seeing great traction on our channel diversification side, good movement into our SimpliFi online platform. So really kind of a combination of things that’s helped to deliver that, that outcome, Andrew.

Andrew Liesch — Piper Sandler — Analyst

Yeah. That’s great color. And then how our pipeline shaping up so far this quarter, I know it’s still early, but how are things trending now?

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Yeah. I mean, we have a monthly pipeline meeting with the entire consumer and commercial team, it’s always much anticipated. And I’d say, you know, Q2 looks pretty good. Again, I mean, you never know, I mean it’s a pretty volatile geopolitical environment we find ourselves in. But for now, we’re feeling pretty good about growth. I don’t know if we’re going to get 2.9% core. So that’s pretty — that’s getting pretty frothy. But I think solid loan growth is definitely — definitely built into the pipeline, as it stands right now.

Andrew Liesch — Piper Sandler — Analyst

Got it. That’s very helpful. Thanks for taking the questions and I’ll step back.

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Sure. Take Care.

Operator

Our next question comes from Ebrahim Poonawala with Bank of America.

Ebrahim Poonawala — Bank of America — Analyst

Hey, good morning.

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Hi, Ebrahim.

Ebrahim Poonawala — Bank of America — Analyst

I guess maybe one, first on expenses. I think Dean mentioned full year $414 million or $415 million, that’s about 6% to 7% up year-over-year. Just talk to us, Peter, as we look forward beyond this year around the puts and takes, I mean, it feels like inflationary pressure will be higher relative to what we saw post financial crisis, that’s going to have some upward push to the expenses. Give us a sense of where you’re investing, where the bank is it [Phonetic] from an investment spend perspective and areas of incremental cost savings to offset the growth.

Peter S. Ho — Chairman, President and Chief Executive Officer

Yeah. So — yeah, good, that — that’s really the question these days, isn’t it. The — maybe take a slightly higher lens view of the situation. We’re in the last five years, if you look at our expense trend, our investment expenditures have grown by about 11%, just over 11% annually. So obviously a big investment in the categories like technology or data analytics or marketing or e-commerce and those types of things. The overall growth of expenses in the Company has been 3%. And so kind of those non-strategic areas, those areas other than what — what we deem to be investment and strategic has grown at 0.9% clip. So we’ve been able to accommodate the investments that we think we need to do, clearly the world is changing and clearly consumers are changing. And who’s paid for that is in fact kind of every other expenditure.

So as we move forward the challenges, we do see a more inflationary environment. Obviously, I don’t think we can keep of other expenses kind of the rest of the Company at 1% call it, that’s got to go up. But I think what will happen too, Ebrahim, is clearly that 11%, it was not an intended sustainable CAGR. I mean that number is going to come down meaningfully.

And so I think where we’re going to land out is kind of 4%-ish [Phonetic] kind of annual growth rate that as you know for Bank of Hawaii is a little bit on the high end, but I think we’re just in a different inflationary environment than we have been previously, and there are still some investment spend to be made. But I’ll tell you a good portion of that is already built into our expense bloodstream. And so a lot of the kind of pre-work that you got to do to get these platforms, whether it’s marketing or e-commerce going, it takes a lot of upfront expense.

Ebrahim Poonawala — Bank of America — Analyst

Got it. So like a 4%-ish [Phonetic] core expense growth, is the right way to think about that. That was helpful. Thanks, Peter.

Peter S. Ho — Chairman, President and Chief Executive Officer

Yeah.

Ebrahim Poonawala — Bank of America — Analyst

And on the — and I think you mentioned Dean about five basis points to six basis points per quarter for the rest of the year, and you all have provided us some color on just deposit dynamics. But anything on the deposit front like as you think about as maybe some of the non-core competitors get more competitive on pricing, do you see any subset of your deposit balances leaving the bank, which inherently might be more rate sensitive, so maybe they’re going to money markets or market-related kind of funds, where they can get a higher rate.

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

That’s certainly a possibility, and something that we continue to look at. But we are — we do have, as we manage our deposit base plans for alternatives also. We do have a pretty significant trust area that can help us there. But the intent is to kind maintain our customer base and deposit balances.

Ebrahim Poonawala — Bank of America — Analyst

Got it. And just one last question. When we look at the tangible the TCE to TA ratio, I think you mentioned you’re still going to do some modest buyback similar to 1Q levels, and I realized the AOCI impact is transitory. When we — when you look at the TCE at 5.4 [Phonetic] does that have any impact in terms of influencing capital management or you look past AOCI as near term noise?

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

It’s certainly something that we pay attention to. We’re not — it’s not maybe the highest ratio that we look at. We look at primarily the regulatory capital ratios. And from that perspective, the AOCI hasn’t — doesn’t impact that.

Ebrahim Poonawala — Bank of America — Analyst

Yeah.

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

So that’s kind of what we look at if it — if there’s a significant change, there could be some different actions. But right now, it’s certainly just a regulatory capital ratios that are top of mind.

Ebrahim Poonawala — Bank of America — Analyst

Got it. Thanks for taking my questions.

Operator

Our next [Phonetic] question comes from Kelly Motta with KBW.

Kelly Motta — KBW — Analyst

Hi, good morning. Thanks for the question. The first is just on your new core NIM guidance of 5 basis points to 6 basis points a quarter. Just wanted a quick clarification if that was incorporating the forward curve or any rate assumptions going into that?

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

It’s not the entire curve. It’s certainly expecting rates to rise. But it’s slightly — actually less than the forward curves would predict currently. And it assumes about a 2.5% Fed funds rate and 2.85 [Phonetic] on the 10-year.

Kelly Motta — KBW — Analyst

Great. Thank you so much. And then turning to loan growth, I mean across the board, it was really, really strong. There — it does look like core C&I came down a little bit. Just wondering, if you could provide us an update on utilization rates and where they are versus where they’ve been historically? And what — when and if you think they are going to start normalizing?

Mary E. Sellers — Vice Chair and Chief Risk Officer

Hi. They were 34% this quarter, that was down from 37% last quarter. They tend to range around probably 33% to 40% [Phonetic] really just episodically as customers look to excess liquidity.

Peter S. Ho — Chairman, President and Chief Executive Officer

Yeah. I don’t think that utilization rates are kind of — I don’t think they represent either an upside or downside risk to outstandings. It’s just kind of pretty normal at this point.

Kelly Motta — KBW — Analyst

Got it. That’s super helpful. Thanks so much. I’ll step back.

Operator

Our next question comes from Laurie Hunsicker with Compass Point.

Laurie Hunsicker — Compass Point — Analyst

Yeah. Hi, good morning.

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Hi, Laurie.

Laurie Hunsicker — Compass Point — Analyst

Just wondered if we could go back to net interest income for a moment. I just wanted to understand with respect to the PPP fees, so there was $1.8 million this quarter, that leaves you round number of $600,000. Is that a right number? Or have I — is that a better number?

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

It’s actually about 800 [Phonetic] remaining on the fees [Phonetic]. Yeah.

Laurie Hunsicker — Compass Point — Analyst

800 [Phonetic]. Great. Okay. And you probably expect most of that to occur in the June quarter? Or how are you thinking about that?

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

I would say it’s becoming less and less of a material part of our balance sheet and income statement. But I would say roughly half of that would run off in the second quarter. And maybe — and then another half of what’s remaining in the third and — so we’ll probably have some stragglers throughout the year. But kind of — its stepped down enough, where it’s not a meaningful part of our balance sheet.

Laurie Hunsicker — Compass Point — Analyst

Okay. Great. And then I think in Kelly and Ebrahim, you touched on this but — with their questions, but wondering if you could sort of help us think about it a little bit more. So simply in terms of — your deposits are fabulous and they’re low costing, and they were, If we rewind back to 2019, I think your deposit betas will be fabulous as well. Can you just help us think a little bit about for every 25 basis points, what that looks like? Maybe just drill it down a little bit more since your forward guide is looking less than the forward curve? Can you just help us think about it a little bit more because the 5 basis points to 6 basis points per quarter increase, at least by my math, is looking really pretty light. I’m just trying to understand that because you are so asset sensitive?

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

So every 25 basis point increase in Fed funds is about $900,000 per core, so about $300,000 per month. And that’s only on the Fed front, the short end of the curve. If the curve — the long end were to go up 25 [Phonetic], it’s a little bit more nuanced. But it’s about $40,000 per month, but it compounds because it’s just — that’s how the nature of the longer-term assets, as they reprice.

Peter S. Ho — Chairman, President and Chief Executive Officer

The other factor, Laurie, to think about too is, as rates were coming down, our bias was to invest a little bit longer in the securities portfolio. And now with kind of an inversion in that trend, we’re probably going to be investing shorter and even maybe also [Phonetic] towards floaters in that environment. So it’s going to give us a lower initial yield, but hopefully, a higher yield down the path.

Laurie Hunsicker — Compass Point — Analyst

Okay. Great. That’s helpful. And then with the noninterest income, I just wanted to understand two things. Like you had mentioned that included in your securities loss was a one-time negative adjustment for the Visa Class B conversion? Did I get that right, $400,000, is that correct?

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Yeah.

Laurie Hunsicker — Compass Point — Analyst

Okay. And can you just expand on that a little bit more?

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Yeah. So when we sold our Visa Class B shares, we took back a swap on the conversion ratio. So Visa reset that ratio. And as part of the trades that we did, the reset cost to us was $400,000. So it’s a one-time reset. And then going forward, we have that about $1.2 million per quarter.

Laurie Hunsicker — Compass Point — Analyst

Okay. Perfect.

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

[Indecipherable].

Laurie Hunsicker — Compass Point — Analyst

Okay. And then — okay. Great. And then —

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

[Speech Overlap] that was why there’s a bump in that line.

Laurie Hunsicker — Compass Point — Analyst

Right. Makes a lot of sense. Okay. And then, can you also talk a little bit about within your noninterest income, if you could just remind us where you are on NSF fee and overdraft fees? And where you were specifically for this quarter? And how you’re thinking about it? What your plans are to become a little bit more consumer friendly and any impact that we would see on fee income?

Peter S. Ho — Chairman, President and Chief Executive Officer

So what are the numbers for the quarter?

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Yeah. For the quarter, in total, it’s about $4 million, of which $3 million is OD fees and $1 million is NSF fees.

Peter S. Ho — Chairman, President and Chief Executive Officer

Yeah. We’re — obviously, that’s a very topical discussion right now, Laurie. And I would say we’re looking at our practices. One thing I would note, and I think most — this is true for most of the banks in this marketplace, we don’t charge an account level fee on our accounts. So basically, they’re fee free. So I think that’s a little bit different than some of the larger banks out there and something we’re thinking through consideration wise.

And so we’re looking at both OD, as well as NSF, maybe NSF in particular, nothing kind of decided at this point. But I guess the last thing, I would say is our practices have evolved pretty dramatically over the past several years really and always in the direction of being more supportive to our client base. And I think we’re going to continue to evolve in that direction. But clearly, there’s just a lot of activity around that space right now. We’re aware of that.

Laurie Hunsicker — Compass Point — Analyst

Okay. That’s helpful. Okay. And then last question. Mary, this one is for you, and I love your loan production quality side. I think it’s great, and I appreciate all the credit detail. So yeah, your reserves to loans ex-PPP at 1.22 [Phonetic]. It looks like there’s still a chunk of COVID cushion. Can you help us think about where that reserve to loan line may go in terms of us thinking about a normalized loan loss provision?

Mary E. Sellers — Vice Chair and Chief Risk Officer

I would expect it to move back to where we were at day 1 pre-COVID, which was really at about 99 basis points in total coverage.

Laurie Hunsicker — Compass Point — Analyst

Great. Thanks for taking my questions.

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Take care, Laurie.

Operator

Our next question comes from Kelly Motta with KBW.

Kelly Motta — KBW — Analyst

Hi. Thanks for having me jump back on. I just wanted to ask, Dean, quickly on the tax rate is 23% still a good rate to use for the full year?

Dean Y. Shigemura — Vice Chair and Chief Financial Officer

Yes, 23% is still a good rate for the full year.

Kelly Motta — KBW — Analyst

Great. Thanks.

Operator

And I’m not showing any further questions at this time. I’d like to turn the call back over to our host for any closing remarks.

Janelle Higa — Investor Relations

I’d like to thank everyone for joining us today and for your continued interest in Bank of Hawaii. Please feel free to contact me, if you have any additional questions or need further clarifications on any of the topics discussed today. Thank you so much, everyone.