Bank of Hawaii's Q2 2025: Unraveling Contradictions in Deposit Costs, Loan Growth, and Market Sentiment

Deposit cost and management, loan growth expectations, commercial loan growth outlook, deposit growth and seasonality, commercial loan growth and sentiment are the key contradictions discussed in Bank of Hawaii Corporation's latest 2025Q2 earnings call.



Net Interest Income and Margin Expansion:
- Bank of Hawaii reported net interest income of $186.7 million for Q2, an increase of $3.9 million compared to the previous quarter. The net interest margin expanded by 7 basis points, marking the fifth consecutive quarter of expansion.
- The growth was primarily driven by the repricing of fixed assets, with cash flows from low-rate assets rolling off and being reinvested at higher current rates, and a continued shift in deposit remixing.

Credit Quality and Loan Portfolio Stability:
- The bank's credit metrics remained stable, with net charge-offs at $2.6 million (7 basis points annualized), a 6 basis points decrease from the linked quarter.
- This stability is attributed to the bank's conservative underwriting and diversified loan portfolio, with a significant portion (93%) of loans in Hawaii and Western Pacific markets, and a high weighted average FICO score for consumer loans.

Deposit Stability and Remixing:
- Deposit levels remained relatively stable, with a slight decline in total deposits during the quarter. The bank successfully stemmed deposit remix from low-yield to higher-yield deposits.
- The stability is due to the bank's unique business model, which allows it to attract and retain deposits at lower costs, enabling deposit price advantages and strong risk-adjusted returns.

Commercial Loan Growth Challenges:
- Commercial loan growth was flat compared to the previous quarter, with a 6% decline in C&I loans and a pause in construction lending.
- This was attributed to increased market uncertainty, particularly around tariff situations, and unusually high prepayments on certain loans.

Capital and Capital Allocation:
- Bank of Hawaii's capital ratios improved to 14.2% on a Tier 1 basis and 15.2% for total risk-based capital.
- The bank maintains a focus on capital strength and is considering securities repurchases as opportunities arise, but no dramatic capital actions are planned without clarity on the economic and rate environments.