Bank of Hawaii Corporation Q2 FY2025 earnings call

• Core business model: Bank of Hawaii has a unique business model in Hawaii where 4 local banks hold over 90% of deposits. It leverages a best-in-market brand to deposit attractively, controlling costs and generating strong returns.
• Market conditions: Hawaii employment outperforms the broader US economy, visitor industry is solid with expenditures up 6.5% year-to-date and arrivals up 2.8% through May, residential real estate in islands is stable.
• Credit profile: Credit metrics remain stable, net charge-offs were $2.6 million at 7 basis points annualized, nonperforming assets and delinquencies stable, ACL ended the quarter at $148.5 million.
• Financials: Net income $47.6 million, diluted EPS $1.06, net interest income and margin expanded for 5th consecutive quarter, noninterest income $44.8 million, noninterest expense $110.8 million, capital ratios above well-capitalized thresholds.

The bank's loan portfolio is balanced between consumer and commercial. Consumer loans represent a little over half of total loans at 56% or $7.9 billion, predominantly secured by real estate with 86% of the consumer portfolio being residential mortgage or home equity (weighted average LTV of 48% and combined weighted average FICO score of 800). The remaining 14% of consumer consists of auto and personal loans. Commercial loans make up 44% of total loans, with $6.1 billion in assets. 72% is real estate secured (weighted average LTV of 55%), with commercial real estate being the largest segment at $4 billion (29% of total loans), well-diversified across property types with low average loan sizes and conservative underwriting.

• NIM is expected to continue approaching historic levels, with beta on deposits at 29% and opportunity to reprice CDs lower.
• Noninterest income forecasted to be between $44 million and $45 million for the remainder of the year.
• Expenses expected to increase by 2% to 3%.
• Tax rate expected to be between 21% and 22%.
• Capital ratios above well-capitalized regulatory thresholds, dividend of $0.70 per common share declared for the third quarter.

• Potential impact of interest rate changes on the balance sheet.
• Commercial loan performance risks, including C&I trends.
• Seasonality in deposit flows could affect balance sheet size.

Q: Jeff Rulis of D.A. Davidson asked about the margin path and balance sheet growth.

A: Brad Satenberg said NIM is achievable to reach around 250, beta on deposits is at 29% with opportunity to reprice CDs lower, and the securities portfolio is expected to continue growing with 55% of purchases in floating securities.

Q: Jared Shaw of Barclays asked about C&I trends and commercial customer sentiment.

A: Peter S. Ho mentioned the commercial book was disappointing this quarter with commercial loan position down, CRE flat, C&I down, and construction on pause, but there are opportunities.

Q: Andrew Terrell of Stephens asked about expenses and capital priorities.

A: Bradley S. Satenberg said expenses are expected to step back in the back half of the year with a 2%-3% increase from the prior year, and the bank is maintaining a hold position on buybacks and has no significant planned securities repurchases.

Q: Kelly Motta of KBW asked about margin components, expenses, and deposits.

A: Bradley S. Satenberg expected cash flows from securities book to be around $550 million, Peter S. Ho mentioned no curtailment of investment expenditures but discipline in controlling expenses, and there is seasonality in deposit flows with expectations of flat to improved deposit balances moving forward.