Bank of Hawaii's Q1 2025: Examining Contradictions in Deposit Costs, Loan Growth, and Rate Impact

Deposit cost trends and expectations, loan growth outlook and factors affecting C&I loans, impact of tariffs and tourism on loan growth expectations, deposit cost trends, and impact of rate cuts on NII and margin are the key contradictions discussed in Bank of Hawaii's latest 2025Q1 earnings call.



Net Interest Income and Margin Improvement:
- Bank of Hawaii reported net interest income of $125.8 million for Q1 2025, up 4.6% on a linked basis, and a net interest margin of 2.32%, an increase of 13 basis points from the previous quarter.
- This improvement was driven by asset cash flow repricing, lower deposit rates, and a reduction in the headwind from deposit remixing.

Deposit Mix and Cost Management:
- Average noninterest-bearing and low-yield interest-bearing deposit balances decreased by $37 million linked quarter.
- The decline in deposit costs, which fell 17 basis points linked quarter and 27 basis points since September, was attributed to the repricing of time deposits and strategic management of deposit funding costs.

Credit Performance and Risk Management:
- Net charge-offs were $4.4 million at 13 basis points annualized, while nonperforming assets (NPAs) decreased to 12 basis points.
- This stability in credit performance is a result of the bank's conservative underwriting and the maintenance of strong credit metrics.

Economic Conditions and Market Stability:
- The visitor market in Hawaii remained stable, though impacted by Maui market dynamics, and the unemployment rate remained below the national average.
- Residential Oahu real estate trends continued positively, supported by stable economic conditions in the region.