Q2 2025 Bank of Hawaii Corp Earnings Call

Unknown Executive: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.

Unknown Executive: Please be advised that today's conference is being recorded.

Good day and thank you for standing by. Welcome to the Bank of Hawaii Corporation's second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *1, 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press *1, 1 again.

Chang Park: I would now like to hand the conference over to your speaker today, Chang Park, Director of Investor Relations. Please go ahead. Good morning and good afternoon.

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chang Park, Director of Investor Relations. Please go ahead.

Chang Park: Thank you for joining us today for our second quarter 2025 earnings conference call.

Chang Park: Joining me today is our Chairman and CEO Peter Ho, President and Chief Banking Officer Jim Polk, CFO Brass at Merck, and Chief Risk Officer Brad Shairson. Before we get started, I want to remind you today that today's conference call will contain some forward-looking statements. And while we believe our assumptions are reasonable, the actual results may differ materially from those projected.

Good morning and good afternoon. Thank you for joining us today for our second quarter 2025 earnings conference call. Joining me today is our Chairman and CEO, Peter Ho; President and Chief Banking Officer, Jim Paul; CFO, Brass at Merc; and Chief Risk Officer, Brad Harrison.

Chang Park: During the call today, we'll be referencing a slide presentation as well as the earnings release. Both of these are available on our website, boh.com, under the investor relations link.

Peter Ho: And now I'll turn the call over to Peter. Thanks Chang and good morning or good afternoon everyone. Thanks for your interest in Bank of Hawaii. The second quarter of 2025 was another solid quarter for the bank. Earnings per share advanced for the fourth consecutive quarter. Net interest income and net interest margin expanded for the fifth consecutive quarter as our margin reversion continues towards more historical levels. Expenses were well controlled. Credit remains pristine. Capital advanced to 14.2% on a tier one basis while ROCE hit 12.5%.

Before we get started, I want to remind you that today's conference call will contain some forward-looking statements. While we believe our assumptions are reasonable, the actual results may differ materially from those projected during the call. Today, we'll be referencing a slide presentation as well as the earnings release. Both of these are available on our website, v.com.

Under the investor relations link, and now I'll turn the call over to Peter.

Thanks, Chang, and good morning or good afternoon, everyone.

Thanks for your interest in Bank of Hawaii.

The second quarter of 2025 was another solid quarter for the bank.

Earnings per share advanced for the fourth consecutive quarter, as interest income and net interest margin expanded for the fifth consecutive quarter. Our margin reversal continues towards more historical levels.

Expenses were welcomed; credit remains pristine.

Peter Ho: I'll begin by quickly reviewing our core and longstanding operating and then touch on conditions in our core Hawaii market.

Capital advanced to 14.2% on a Tier 1 basis, while ROCE is 12.5%.

I'll begin by quickly reviewing our core and long-standing operating strategy.

Bradley Shairson: I'll then kick it over to Brad Shairson to discuss our credit profile, and then Brad Sattenberg will expand a bit on the financials.

And then touch on conditions in our core Hawaii market.

Peter Ho: And this is First Earnings Call as officially our new CFO. As I think most of you know, Bank of Hawaii has a unique business model. Fundamentally, we lean into a unique marketplace in which four locally headquartered banks hold more than 90% of the market's FDIC-reported deposits. We built a fortress market position by leveraging a best in market brand position, which enables us to deposit price attraction. This cost advantage has historically allowed us to generate strong returns on a superior risk-adjusted basis. We've been successful on both short and long term on both a short and long term basis methodically building market share.

I'll then kick it over to Brad Shairson to discuss our credit profile. After that, Brad Saten will expand a bit on the financials. This is his first earnings call as officially our new CFO.

I think most of you know that Bank of Hawaii has a unique business model. Fundamentally, we lean into a unique marketplace in which our headquarters are located in a region where more than 90% of the market's FDIC-reported deposits are held.

We built a fortress market position by leveraging a best-in-market brand position, which enables us.

To deposit price effectively, this cost advantage has historically allowed us to generate strong returns on a superior risk-adjusted basis.

Peter Ho: For several quarters now, we've been successful in stemming deposit remix from lower or no-yield deposits to higher-yielding deposits, while holding overall deposit levels relatively stable. This has helped us bring down both our cost of interest-bearing deposits and total cost of deposits. Concurrently, our fixed assets have been remixing into higher yielding earning assets. In the quarter, $572 million in fixed slash variable assets cash flowed off at a roll-off rate of 4% and into a roll-on rate of 6.3%. It is a slowing of deposit remix matched with the continued deal accretion in the fixed asset cash flow that has largely enabled us to drive up both net interest margin and net interest income for five quarters now.

We've been successful on both short and long term on both the short and long term basis, methodically building market share.

For several quarters now, we've been successful in stemming deposit remix from lower or no-yield deposits to higher-yielding deposits while holding overall deposit levels relatively stable.

This has helped us bring down both our cost of interest-bearing deposits and total costs to deposits.

Concurrently, our fixed assets have been remixing into higher-yielding earning assets.

In the quarter, $572 million in fixed and variable assets cash flowed off at a roll-off rate of 4% and into a roll-on rate of 6.3%.

Peter Ho: Assuming rates hold, we would anticipate that this trend will continue approaching more historic NIM levels, albeit with substantially higher earning asset levels than previously.

Hey, this is Sloan with Deposit Remix. Match with the continued deal accretion in the fixed asset cash flow has largely enabled us to drive up both that interest margin and that interest income for five quarters. Now,

Assuming rates hold, we would anticipate that this trend will continue, approaching more historic NIM levels, albeit with substantially higher earnings and asset levels.

Peter Ho: Switching to local market conditions, here you can see that the employment picture in Hawaii continues to outperform the broader U.S. economy. The visitor industry remains solid with visitor expenditures up 6.5% year-to-date and arrivals up 2.8% through May. This growth is being driven by the U.S. continental market, both east and west, and offset partially by lower international performance out of Japan and Canada. Rampart continues to perform consistently. Residential real estate in the islands remains stable, the single family home prices rising modestly, while condo prices were off 0.5% year to date.

Than previously.

Switching to local market conditions, here you can see that the employment picture in Hawaii continues to outperform the broader U.S. economy.

The visitor industry remains solid, with visitor expenditures up 6.5% here today and arrivals up 2.8% through May. This growth is being driven by the U.S. continental market, both East and West, and is partially offset by lower international performance out of Japan and Canada.

Rev Park continues to perform consistently.

Bradley Shairson: And now let me turn the call over to Brad Shairson to talk about credit, Brad. Thanks, Peter. The Bank of Hawaii is dedicated to serving our community, lending in our core markets where our expertise allows us to make sound credit decisions. Most of our loan book is comprised of longstanding relationships with approximately 60% of clients in both commercial and consumer, having been with us for over a decade. This combination has significantly contributed to our strong credit performance over the years, resulting in a loan portfolio that is 93% Hawaii, 4% Western Pacific, and just 3% mainland.

Residential real estate in the islands remains stable, with single-family home prices rising modestly, while the content of prices was off 0.5% year-to-date.

And now, let me turn the call over to Brad, Sheriff, to talk about credit. Brad.

Thanks Peter.

The Bank of Hawaii is dedicated to serving our community.

Lending in our core markets, where our expertise allows us to make sound credit decisions. Most of our loan book is comprised of long-standing relationships, with approximately 60% of clients in both commercial and consumer having been with us for over a decade.

Bradley Shairson: where we support our clients who conduct business both in Hawaii and on the mainland. As I review our credit portfolio's second quarter performance, you will see that it has remained strong and consistent with recent quarters. Our loan book is balanced between consumer and commercial with consumer representing a little over half of total loans at 56% or $7.9 billion. We predominantly lend on a secured basis against real estate. 86% of our consumer portfolio consists of either residential mortgage or home equity, with a weighted average LTV of just 48% and a combined weighted average FICO score of 800.

This combination has significantly contributed to our strong credit performance over the years, resulting in a loan portfolio that is 93% Hawaii, 4% Western Pacific, and just 3% mainland.

where we support our clients, who conduct business both in Hawaii and on the mainland,

As we review our credit portfolio's second quarter performance, you will see that it has remained strong and consistent with recent quarters.

Bradley Shairson: The remaining 14% of consumer consists of auto and personal loans, where our average FICO scores are 731 and 760 respectively. Moving on to commercial, our portfolio size is 6.1 billion, or 44% of total loans. 72% is real estate secured with a weighted average LTV of only 55%. The largest segment of this book is commercial real estate with $4 billion in assets, which equates to 29% of total loans. Looking at the dynamics for real estate in Oahu, the state's largest market, a combination of consistently low vacancy rates and flat inventory levels continue to support a stable real estate market.

Our loan book is balanced between consumer and commercial, with consumer representing a little over half of total loans at 56%, or $7.9 billion. We predominantly lend on a secured basis against real estate. Eighty-six percent of our consumer portfolio consists of either residential mortgages or home equity, with a weighted average loan-to-value (LTV) of just 48% and a combined weighted average FICO score of 800.

The remaining 14% of consumer loans consists of auto and personal loans, where our average FICO scores are 731 and 760, respectively.

Moving on to our commercial portfolio, the size is $6.1 billion, or 44% of total loans. Seventy-two percent is real estate, secured with a weighted average loan-to-value (LTV) of only 55%. The largest segment of this book is commercial real estate, with $4 billion in assets, which equates to 29% of total loans.

Bradley Shairson: Within the different segments, vacancy rates for industrial, office, retail, and multifamily are all below or close to their tenure average. total office space has decreased about 10% over the past 10 years. This has been driven by conversions, primarily to multifamily or lodging. This long-term trend of office space reduction, along with return to office movement, has brought the vacancy rate almost back to its 10-year average and well below national average. Breaking down our CRE portfolio, it is well diversified across property types, with no sector representing more than 7% of total loans. Our conservative underwriting has been consistently applied with all weighted average LTVs under 60%.

Looking at the dynamics for real estate in Hawaii, the state's largest market, a combination of consistently low vacancy rates and flat inventory levels continues to support a stable real estate market.

Within the different segments, vacancy rates for industrial, office, retail, and multifamily are all below or close to their tenure averages.

Total office space has decreased about 10% over the past 10 years. This has been driven by conversions, primarily to multifamily or lodging.

This long-term trend of office space reduction, along with the returned office movement, has brought the vacancy rate almost back to its 10-year average and well below national averages.

Bradley Shairson: Overall, it's a granular portfolio with low average loan sizes. And our scheduled maturities are fairly evenly spread out, with more than half of our loans maturing in 2030 or later. Looking at the distribution of LTVs, there isn't much tail risk in our CRE portfolio. Only 1.3% of CRE loans have greater than an 80% LTV. Turning to CNI, which comprises 11% of our total loans, you will notice that the book is extremely well diversified across industries with modest to average loan sizes. Additionally, only a small portion of these loans are leveraged. Turning to asset quality, credit metrics remain stable and the portfolio continues to perform well.

With no sector representing more than 7% of total loans, our conservative underwriting has been consistently applied, with all weighted average LTVs under 60% overall. It's a granular portfolio with low average loan sizes.

And our scheduled maturities are fairly evenly spread out, with more than half of our loans maturing in 2030 or later.

Looking at the distribution of LTVs, there isn't much tail risk in our CRA portfolio. Only 1.3% of CRA loans have greater than an 80% LTV.

Turning to CNI, which comprises 11% of our total loans, you will notice that the book is extremely well diversified across industries with modest average loan sizes. Additionally, only a small portion of these loans are leveraged.

Bradley Shairson: Net charge-offs were just $2.6 million at 7 basis points annualized, down 6 basis points from linked quarter and 3 basis points lower than a year ago. Non-performing assets were up a basis point from the linked quarter to 13 basis points, and just two basis points higher than a year ago. Delinquencies ticked up by three basis points to 33 basis points this quarter, and just four basis points higher than a year ago. And creditized loans dropped by two basis points to 2.06% of total loans, which is 17 basis points lower than a year ago. And the vast majority, 78% of those criticized assets, are real estate secured with a weighted average LTV of 54%.

Turning to asset quality, credit metrics remain stable, and the portfolio continues to perform well.

Net charge-offs were just $2.6 million at 7 basis points annualized, down 6 basis points from the linked quarter and 3 basis points lower than a year ago.

Non-performing assets were up a basis point from the linked quarter to 13 basis points and just 2 basis points higher than a year ago.

Delinquencies ticked up by 3 basis points to 33 basis points this quarter, and are just 4 basis points higher than a year ago. Criticized loans dropped by 2 basis points to 2.06% of total loans, which is 17 basis points lower than a year ago.

Bradley Shairson: As an update on the allowance for credit losses on loans and leases, the ACL ended the quarter at $148.5 million, up $800,000 for linked quarter. The ratio of our ACL to outstandings ticked up one basis point to 1.06%.

And the vast majority, 78% of those criticized assets are real estate, secured with a weighted average LTV of 54%.

Brad Sattenberg: I will now turn this over to Brad Sattenberg for an update on our financial. Thanks, Brad.

Brad Sattenberg: And before I jump into our financial results for the quarter, I'd like to take a moment to recognize my predecessor, Dean Shigemura, and thank him for his outstanding leadership, mentorship and invaluable contributions to the bank over the past 26 years. I also want to congratulate him on a well-deserved retirement. Now moving into the financials for the quarter, we reported net income of $47.6 million and a diluted EPS of $1.06, an increase of $3.7 million and nine cents per common share compared to the link quarter. These increases were primarily driven by the continued expansion of our net interest income and net interest margin, which increased by $3.9 million and seven basis points respectively.

As an update on the allowance for credit losses on loans and leases, the ACL stood at $148.5 million, up from $800,000 for the linked quarter. The ratio of our ACL to outstandings picked up 1 basis point to 1.06%. I will now turn this over to Brad Shairson for an update on our financials.

Thanks, Brad. Before I jump into our financial results for the quarter, I'd like to take a moment to recognize my predecessor in Chamora and thank him for his outstanding leadership, mentorship, and invaluable contributions to the bank over the past 26 years. I also want to congratulate him on a well-deserved retirement.

Brad Sattenberg: As Peter mentioned, this is the fifth consecutive quarter that we expanded both our NII and NIM. A primary reason for this improvement is our fixed asset repricing, whereby cash flows from our fixed rate assets are rolling off at lower interest rates and being reinvested at higher current rates. During the quarter, this repricing contributed approximately $3.2 million for NII. Partially offsetting this benefit is the deposit remix, which represents deposits shifting from non-interest bearing and low yielding deposits to higher cost deposits. The deposit mix shift has moderated during the past several quarters, and during the second quarter, the mix shift was $59 million and had a $500,000 negative impact on our NII.

Now moving into the financials for the quarter, we reported net income of $47.6 million and a diluted EPS of $1.06, an increase of $3.7 million and $0.09 per common share compared to the linked quarter. These increases were primarily driven by the continued expansion of our net interest income and net interest margin, which increased by $3.9 million and 7 basis points, respectively.

As Peter mentioned, this is the fifth consecutive quarter that we expanded both our knee and NM. A primary reason for this improvement is our fixed asset repricing, whereby cash flows from our fixed-rate assets are rolling off at lower interest rates and being reinvested at higher current rates.

During the quarter, this repricing contributed approximately $3.2 million for our knee.

Partially offsetting this benefit is the deposit remix, which represents deposit shifting from non-interest bearing and low-yielding deposits to higher-cost deposits.

Brad Sattenberg: This compares to a mixed shift of $37 million during the first quarter and $448 million during the same period last year. During the quarter, the cost of our deposits remained stable at 160 basis points compared to the link quarter, and declined by 21 basis points compared to the same period last year. Our beta on this recent downward cycle is currently at 29%. During the quarter, our cost of CD's declined by 15 basis points, and we believe that an opportunity still exists to continue to reprice down these deposits. During the next three months, over 51% of our CDs will mature at an average rate of 3.61%.

The deposit mix shift has moderated during the past several quarters. During the second quarter, the mix shift was $59 million and had a $100,000 negative impact on our knee.

This compares to a mixed ship of 37 million during the first quarter and 448 million during the same period last year.

During the quarter, the cost of our deposits remained stable at 160 basis points compared to the linked quarter and declined by 21 basis points compared to the same period last year. Our beta on this recent downward cycle is currently at 29%.

During the quarter, our costs are projected to climb by 50. Our cost of CVS declined by 15 basis points, and we believe that an opportunity still exists to continue to reprice down these deposits.

Brad Sattenberg: And we anticipate that the majority of these CDs will reprice lower. With rate cuts forecast for later this year, we are comfortable with our balance sheet position in our fixed asset ratio of 55 percent, and with $7.3 billion of floating rate assets and $10.1 billion of interest rate sensitive liabilities, we believe that we are well positioned to navigate any changes in the current interest rate environment. We are also closely monitoring our swap portfolio. At the end of the quarter, we had $2.2 billion of active pay fixed, received float interest rate swaps at a weighted average fixed rate of 4%.

During the next 3 months, over 51% of our CDs will mature at an average rate of 3.61%, and we anticipate that the majority of these CDs will.

With rates, cuts, and forecasts for later this year, we are comfortable with our balance sheet position in our fixed asset ratio of 55%.

And with $7.3 billion of floating-rate assets and $10.1 billion of interest rate-sensitive liabilities, we believe that we are well positioned to navigate any changes in the current interest rate environment.

Brad Sattenberg: One and a half billion of these swaps are hedging our loan portfolio, while 700 million are hedging our AFS security. In addition, we have $600 million of forward-starting swaps at a weighted average fixed rate of 3.1%. $200 million of these swaps will become active later this year, while the remaining $400 million will start in the middle of 2020. Non-interest income increased to $44.8 million during the quarter compared to $44.1 million in the linked quarter. Non-interest income during the current quarter included a one-time gain of approximately $800,000 related to a BOLI recovery, while the linked quarter included a $600,000 charge related to a Visa B conversion ratio issue.

we are also closely monitoring our swap portfolio. At the end of the quarter, we had 2.2 billion dollars of active pay fixed received float interest rate swaps at a weighted average 6 rate of 4%, 1 and a half billion of these swaps are hedging. Our loan portfolio while 700 million are hedging, our AFS securities.

In addition, we have $600 million of forward-starting swaps at a weighted average fixed rate of 3.1%.

Later this year, while the remaining 400 million will start in the middle of 2026.

Brad Sattenberg: Adjusting for these non-core items, non-interest income declined by $700,000 due to lower customer derivative activity, partially offset by an increase in earnings in connection with our trust services business. We are forecasting that non-interest income will be between $44 and $45 million for the remainder of the year. Non-interest expense was $110.8 million compared to $110.5 million during the prior quarter. Included in non-interest expense this quarter was a severance-related charge of $1.4 million, while the link quarter included seasonal payroll taxes and benefit expenses of $2.8 million and an FDIC special assessment reimbursement of $2.3 million. Excluding the impact of these items, non-interest expense was down $600,000 compared to the prior quarter.

Non-insured income increased to $44.8 million during the quarter compared to $44.1 million in the linked quarter of non-interest income. During the current quarter, we included a one-time gain of approximately $100,000 related to a bully recovery. While the linked quarter included a $600,000 charge related to obesity conversion ratio change.

Adjusting for these non-core items, non-interest income declined by $700,000 to the lower customer derivative activity, partially offset by an increase in earnings in connection with our Trust Services business.

We are forecasting that non-interest income will be between $44 million and $45 million for the remainder of the year.

Non-interest expense was $110.8 million compared to $110.5 million in non-interest expense. This quarter included a separate charge of $1.4 million, while the linked quarter incorporated seasonal payroll taxes and benefit expenses of $2.8 million, along with the FDIC special assessment and reimbursement of $2.3 million.

Brad Sattenberg: This change was primarily due to lower incentive compensation and medical insurance charges partially offset by our annual merit increases that took effect in early April. The percentage increase in forecasted expenses remains unchanged at 2-3%. During the quarter, we recorded a provision of for-credit losses of $3.3 million, and our effective tax rate was 21.2%. The decline in our tax rate during the year is being caused by higher tax-exempt investment earnings, as well as certain discrete items. We now expect our tax rate for the full year to be between 21 and 22%. Our capital ratios remained above the well-capitalized regulatory thresholds during the quarter, with Tier 1 capital and total risk-based capital improving to 14.2 and 15.2%, respectively.

Excluding the impact of these items, note that interest expense was down $600,000 compared to the prior quarter.

This change was primarily due to lower incentive, compensation, and medical insurance charges, partially offset by our annual merit increases that took effect in early April.

The percentage increase in forecasted expenses remains unchanged at 2% to 3%.

During the quarter, we recorded a provision for credit losses of $3.3 million, and our effective tax rate was 21.2%.

The decline in our tax rate during the year is being caused by higher tax-exempt investment earnings, as well as certain discrete items. We now expect our tax rate for the full year to be between 21% and 22%.

Brad Sattenberg: And consistent with the link quarter, we paid dividends of $28 million on our common stock and $5.3 million on our preferred. We did not repurchase any shares of common stock during the quarter under our repurchase program. As a reminder, $126 million remains available under the current plan.

Our capital ratios remained above the well-capitalized regulatory thresholds during the quarter, with Tier 1 capital and total risk-based capital improving to 14.2% and 15.2%, respectively, consistent with the link quarter. We paid dividends of $28 million on our common stock and $5.3 million on our preferreds.

Brad Sattenberg: And finally, our board declared a dividend of 70 cents per common share that will be paid during the third quarter.

We did not repurchase any shares of common stock during the quarter under our repurchase program. As a reminder, $126 million remains available under the current plan.

Unknown Executive: Now, I'll turn the call back over to.

And finally, our board declared a dividend of $0.70 per common share, which will be paid during the third quarter.

Unknown Executive: Thanks, Brad.

Unknown Executive: This concludes our prepared remarks, and now we'd be happy to take your questions. Thank you.

Now, I'll turn the call back over to Peter.

Unknown Executive: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Thanks, Brad. This includes our prepared remarks, and now we'd be happy to take your questions. Thank you.

As a reminder to ask a question, please press *1, 1 on your telephone and wait for your name to be announced to withdraw your question. Please press *1, 1 again and stand by while we compile the Q&A roster.

Jeffrey Rulis: And our first question comes from Jeff Rulis of D.A. Davidson. Your line is open. Thanks. Good morning, Jeff.

And our first question comes from Jeff Rulis of DA Davidson. Your line is open.

Jeffrey Rulis: I wanted to check back in on the on the margin path. I think we've kind of talked about or you've referenced maybe a 250 margin by year end, maybe not a Q4 average, but I want to see if that path is reasonable and kind of the second part of that question is sort of the cost of funds sort of stalling out a little bit and I think mentioned some CD opportunities, but particularly on that side, sounds like the opportunities on the earning asset yield, but So we're at two parts. Sorry for the lengthy question. Sure.

Thanks, good morning.

Hey, Jeff.

Um wanted to check back in on the on the margin path. I think we've kind of talked about or you've you've referenced maybe a a 250 margin by by year end maybe not a Q4 average but want to see if that path is reasonable and and kind of the second part of that question is is sort of the cost of funds, sort of stalling out a little bit. And and I think mentioned subsidy opportunities. But particularly on that side sounds like the opportunities on the uh earning asset yield. But um

Bradley Shairson: This is Brad. I think as far as the NIM, I do think 250 is an achievable number. I don't see anything that's going to get in the way of that path. I mean, again, this was our fifth consecutive quarter of expanding our NIM, and I think that's going to continue.

Sort of 2 parts. Sorry for the lengthy question.

Bradley Shairson: As it relates to our cost of deposit. You know, our spot rate at the end of the quarter was at 158, and I do think our beta, you know, it is at 29%. I think after the CD repricing this quarter, I think we've got the opportunity to pick up about 15 to 25 basis points on that CD repricing. I think our beta is going to be, you know, north of 30. And so I think we're going to see this quarter. Assuming no rate cuts, you know, a continued beta that continues to move towards 35%.

Sure. Um this is Brad, I think I with the as far as the Nim, I I do think 250 is an achievable number. I I don't see anything that's going to get in the way of that path. I mean again, this was our, our fifth consecutive quarter of expanding our Nim. And and I think that's going to continue um,

As it relates to, um, our our cost of deposits. Um, you know, our spot rate at the end of the quarter was at 158 and I I do think our our beta, you know, it's it is at 29%. I think after the CD re-pricing, this quarter, I think we've got the opportunity to pick up about 15 to 25 basis points on that CD re-pricing. Um, I I think our beta is going to be, you know, north of 30. And so I think we're going to see this this quarter um,

Assuming no rate cuts, you know, a continued beta that continues to move towards 35%.

Jeffrey Rulis: Perfect.

Unknown Executive: Okay, thanks.

Bradley Shairson: And more of a other question is just on sort of balance sheet growth, I, you know, Based on loan growth, more the question on securities. Should loan growth be on a net base be modest? you see yourself continue to grow the securities balance. from here. Yeah, yeah, I do think we're going to continue to see the securities portfolio grow. I mean, I think this quarter, the cash flows were about $170 million, and we invested in our investment portfolio about $270 or $275 million. So we are increasing that portfolio when we see an opportunity, if there is modest long growth or, you know, if liquidity increases, we're using that excess liquidity at the moment to, you know, increase our investment portfolio.

Perfect. Okay, thanks and and um,

You see yourself continuing to grow the securities balance.

Um, from here.

Bradley Shairson: I want to touch on the diversity of what we're purchasing in the portfolio. Yeah, that's a good point. I would also add that, you know, we continue to sort of balance our purchases between fixed and floating rate. And so this quarter, it actually leaned more towards floating rate, I think 55% of our purchases are in our floating securities. And then the other portion, obviously, 45% are in fixed securities.

Yeah. Yeah, I do think we're going to continue to see the Securities portfolio, um, grow. I mean, I think this quarter, um, the cash flows were about $170 million, and we invested, um, in our Investment Portfolio about $270 or $275 million. So, we are increasing that portfolio when we see an opportunity. Um, if there is modest loan growth or, you know, if liquidity increases, we're using that excess liquidity at the moment, um, to, you know, increase our Investment Portfolio. I want to touch on the diversity of what we're purchasing in the port. Yeah, I, I that's a good point. I would also add that, you know, we continue to sort of balance, um, our.

Jeffrey Rulis: Thanks, Brad.

Purchases between fixed and floating rate. And so this quarter, um, it actually leaned more towards floating rate, I think, 55% of our purchases are in our floating Securities. Um, and then the other portion, obviously at 45% are unfixed, securities.

Unknown Executive: I'll step back.

Unknown Executive: Appreciate it.

Unknown Executive: Thanks, Jeff.

Unknown Executive: Thank you.

Thanks, Brad. I'll step back. Appreciate it.

Thanks Jeff. Thank you.

Jared Shaw: Our next question comes from Jared Shaw of Barclays. Your line is open. Hey, thanks. Good morning.

Our next question comes from Jared Shaw of Barclay. Your line is open.

Hey, thanks. Good morning.

Peter Ho: I guess maybe just on C&I, any trends that we should be thinking about to call out? Yeah, I'll, Jared, maybe I'll start and Jim can specifically speak to CNI. On the commercial book, we were frankly a little disappointed with performance this quarter. We were we took a 6% year-on-year average commercial loan position, but on a linked basis, just about flat. And that was really pretty much across the board. CRE, which had been an 8% performer on a year-on-year basis, was flat. As you pointed out, CNI was down pretty substantively. And construction took a bit of a pause.

Um and I guess maybe just on on cni uh any any trends that we should be thinking about that you to call out on, on the Delta there, this quarter and, um, house house, commercial customer sentiment, and and pipelines, and, and thoughts for the year there.

Yeah, I'll, um, Jerry. Maybe I'll start, and Jim can specifically speak to CNI, uh, on the commercial book. We were frankly a little disappointed with performance this quarter. We took a, um,

Jim Polk: And I think that's a little bit of a more structural than typical situation. I think there is some opportunity there.

Jim Polk: So yeah, it was an off quarter. I'm hoping that if and as we get a little more clarity around the environment with the tariff situation and the like, we can begin to resemble more the year-on-year average loan basis in commercial. But yeah, you're not incorrect.

Jim Polk: It was a little bit of a disappointing quarter commercial production-wise for us. And that's on CNI. Yeah, I think what I would say is that, you know, we have seen pipelines continue to build from the beginning of the year. Obviously, it wasn't a terrific quarter, but I think it was driven by two things, right? The greater uncertainty that we saw in the market, which obviously impacted loan volumes, or at least what we put on the books. And then we just saw some unusually high level of prepayments on a couple loans, which resulted in the decline.

U 6% year on year average commercial loan uh position. Uh, but on a linked basis, uh, just about flat. Um, and that was really, um, pretty much um, across the board CRA which had been, you know, an 8% performer on our year-on-year. Basis was flat. Uh, as you pointed out C, and I was was down pretty substantively and construction took a bit of a pause and I think that's a little bit of a more structural than cyclical situation. I think there is some opportunity there. Um, so yeah, it was it was an off quarter. I'm hoping that if and as we get a little more clarity around the environment, with the Tariff situation and the like uh we can begin to resemble more, the year-on-year average loan basis in commercial. Uh but yeah, you're you're not incorrect.

It was a little bit of a disappointing quarter, uh, commercial production-wise for us. And Jim, you want to touch on CNI?

Jim Polk: I think, as we go we begin to see the pipeline start to materialize, we'll move back into, you know, a modest level of growth as we move towards the end of the year.

Yeah, I I think what I would say is that, um, you know, we have seen pipelines continue to build from the beginning of the year. Obviously, it wasn't a, a terrific quarter, but I think it was driven by 2 things, right? The, the greater uncertainty that we saw in the market which, uh, obviously impacted, uh, um, loan volumes, or at least put what we put on the books. And then, we just saw some unusually high level of, uh, um, prepayments, uh, on a couple of loans, which resulted in the decline I think. Um, as we go forward, we begin to see the pipelines start to materialize. We'll move back into, you know, a modest level of growth as we move towards the end of the year.

Jim Polk: On the deposit side, if we look at DDAs as a percentage of deposits, Is that how we should maybe think about it, you know, staying right around the 26% level and as total deposits move, DDAs sort of stick with that? Well, yeah, we've got a lot of effort and energy around building DDAs. Obviously, given the rate environment, those are high margin products for us. I was encouraged that average NIBD for the quarter was up 1% on a linked basis, as compared to minus 0.2% on a year-on-year average basis. So, we are seeing some acceleration there.

Thanks for that. And then, um, on the deposit side, uh,

You know, if we look at ddas as a percentage of of deposits, it's it's staying pretty flat. Is this is that how we should maybe think about it. You know, staying right around the 26% level and and as total deposits move, Evas or stick with that, or

Is there potential opportunity for those? Move higher or lower? Well, yeah, we've got a lot of effort and energy around building DDAs. Obviously, given the rate environment, those are high-margin products for us. Um, I was encouraged that average IBD for the quarter was up 1% on a length basis as compared to minus 0.2%.

Jim Polk: Whether we can get numbers well beyond that, I'm not sure. As much as we'd like to build demand deposits, all of our competitors would like to build demand deposits. So, it's a pretty competitive private space. So, we'll see.

Jared Shaw: I mean, it's an important product for us, and we're going to do our best to try and make that an outsized component of our overall deposit base. Okay. Thanks. Thanks for taking the questions. Yep. Thank you.

2% on a year-on-year average basis. So we are seeing some acceleration there, whether whether we can get numbers. Well, beyond that, I'm not, I'm not sure. Um, as much as we'd like to build demand, deposits, all of our competitors would like to build demand deposits. So, it's a pretty competitive crowded space. Um, so we'll see. I mean, it's an important, it's an important product for us and, and we're going to do our best to to try and make that outside component of our overall deposit base,

Okay, thanks. Thanks for taking the question. Yep. Thank you. Thank you.

Andrew Terrell: And our next question comes from Andrew Terrell of Stevens, your line is open. Hey, good morning. Morning, Andrew. I wanted to check in on expenses first. It sounds like, you know, still thinking that got two to three percent expense growth rate. It seems like that kind of implies a little bit of a step back in the back half of the year, a little bit of relief on expenses in the next couple of quarters. I just want to see if you could, you know, kind of confirm that and just maybe refine kind of back half expense expectations.

Andrew Terrell of Stevens. Your line is open.

Hey, good morning.

Good morning, Andrew.

Um, I wanted to check in on expenses. First, sounds like, you know, still thinking that got 2% to 3%.

Expense growth rate, it seems like that kind of implies a little bit of a step back in the back. After the year, a little bit of relief on expenses in, in the next couple of quarters.

Brad Sattenberg: Yeah, I think that's right. I mean, I think obviously, the first quarter was elevated. The second quarter, we had a severance charge of about $1.4 million. So I do think it will take a step back the second half of the year. You know, we still feel comfortable with the two to 3% increase from from the prior year. And so, yeah, I think you should see expenses come down from where they were during the first six Great.

I just want to see if you could, you know, kind of confirm that and just maybe refine kind of back half expense expectations.

Andrew Terrell: Thank you. I appreciate it.

Yeah, I think that's right. I mean, I think obviously the first quarter was elevated, the the second quarter we had a severance charge of about 1.4 million dollars. Um, so I I do think it will take a step back the second half of the year, um, you know, we still feel comfortable with the 2 to 3%. Um, you know, increase from from the prior year and so, yeah, I think you should see expenses come down from where they were, um, during the first 6 months of the year,

Brad Sattenberg: And then I also just wanted to check in just kind of on capital priorities. I know you've got a buyback out there. We've talked about some securities restructuring at a certain point in time. But you know, just wanted to take your temperature on what makes sense or kind of what you're thinking about from a capital standpoint today. Yeah, so I think we're probably going to maintain our whole position on buybacks until we get a little better clarity around both the economy and the right path forward. Around securities repurchases, we're not, we don't have anything significant planned there, but certainly to the extent that we pick up certain income opportunities, the opportunity to you know, reconstitute those gains into securities repositioning is something that we think about.

Great. Um, thank you, I appreciate it. And then also just wanted to check in, just kind of on capital priorities. I know you've got a buyback out there. We've talked about some securities restructuring at a certain point in time, but you know, just wanted to take your temperature on what makes sense or kind of what you're thinking about from a capital standpoint today.

Unknown Executive: So probably the way I'd frame that is nothing, nothing dramatic at all. But opportunistically, as we see opportunities in our income stream to help kind of smooth the balance sheet, that's what we would pursue. Understood. Okay. Thank you for taking the questions. Thank you. And as a reminder, if you have a question, please press star one one.

Yeah. So I think we're probably um going to maintain our our whole position on BuyBacks um until uh we get a little better Clarity around. Both the economy and the right path, uh forward um around uh, Securities repurchases. Um, we're not, we don't have anything significant plan there, but certainly to the extent that we pick up certain income opportunities, the opportunity to, uh, you know, uh, reconstitute those gains into Securities. Um, repositioning is, is something that we think about. So probably I, the way I frame that is nothing. Nothing dramatic at all. But um, opportunistically as we see opportunities that are in our income stream to to help um, kind of smooth, the balance sheet. That's that's what we will pursue.

Understood. Okay. Thank you for taking the questions.

Take care.

Kelly Motta: And our next question comes from Kelly Motta of KBW. Your line is open. Hey, good morning. Thanks for the question.

Thank you. And as a reminder, if you have a question, please press star, 1, 1 1.

And our next question comes from Kelly Ma of KBW. Your line is open.

Brad Sattenberg: If I could, I'd like to circle back on the components of margin, specifically the expected cash flows off of the securities book and loans fixed and adjustable resetting expectations over the back half of the year. Do you have the expected cash flows on that, just so we can manage NII Assumption from here. I would say the cash flows are going to be in the range of $550 million in total. I think these are contractual. It's not an acceleration of prepayments or anything like that. And so I think 550 is probably what to expect. And as far as what they're coming off at, I think what you saw in the first and the second quarter, if you took those together, I think there have been some minor blips in both periods.

Hey, good morning, thanks for the question. Um, if if I could, I'd like to Circle back on on the components of margin specifically, um, the expected cash flows off of the Securities book and and um, loan fixed and and adjustable. Um, resetting expectations over the back, half of the year. Do you, do you have the expected cash flows on on that? Just just so we can manage, um,

Knee assumptions from here.

Brad Sattenberg: But if you look at them together, I think that's probably a reasonable average of what they'll come off at. And then the reinvestments obviously should be stable unless there are changes in interest rates. And then obviously that we'll see a slight shift based on that. Got it. Thanks for that.

I would say the cash flows are going to be in the range of $550 million, like in total. I think it's going to, you know, these are contractual; it's not, um, you know, an acceleration of prepayments or anything like that. So I think $550 million is probably what to expect. And as far as what they're coming off at, I think what you saw in the first and the SEC for the second quarter. If you took those together, I think there have been some, you know, minor blips in both periods. But if you look at them together, I think that's probably a reasonable average of what they'll come off at. Um, and then the reinvestments, um, obviously, um, should be stable unless there are changes in interest rates, and then obviously, that we'll see a slight shift based on that.

Peter Ho: And then switching over as a follow up to the expenses and the run rate coming down in the back half of the year. How much of that may be pushing off certain investments into 2026 and beyond versus are there any, you know, because expenses are otherwise well controlled, anything you're doing to help mitigate expenses here and cost containment efforts, just just to get a sense of the moving parts of the back half of the year coming down. Yeah, Kelly, I'll begin on that. Maybe Brad can clean up whatever mess I create. But I think that no, we're not curtailing investment expenditures.

Got it. Thanks for that. And then, um, switching over as a follow-up to the expenses and the run rate coming down in the back half of the year, um, how much of that may be pushing off certain investments into 2026 and beyond versus are there any, you know, because expenses are otherwise.

All controlled. Anything you're doing, um, to help mitigate, um,

You know, expenses here and cost containment efforts, just to get a sense of the moving parts of the back half of the year coming down.

Peter Ho: That, frankly, is not in the plan. And I don't see environmentally the need to do that. We've got a lot of interesting ideas and thoughts out there that are going to require some capital investment, and we're happy to do that and garner a quality return around those. In terms of just bringing down expenses in general, that is, frankly, a discipline that we're deploying in every quarter. And we did, you did notice the, the severance in the, in the structuring that we've done. I would anticipate that we'll probably see some more of that in the third and fourth quarter.

Yeah, Kelly. I'll, I'll I'll begin on that. Maybe Brad can clean up whatever best I create, but I, I think that, um, no, we're not curtailing investment expenditures. Um, that frankly is not in the plan and I don't see, environmentally the re the need to do that.

Brad Sattenberg: But nothing, nothing major, but really just kind of reflective of our intent to always be looking to figure out ways to bring down expenses to the organization. Got it. That's helpful.

The, uh, Severance in the, in the quarter. Uh, that really was a result of some restructuring that we've done. Um, I would anticipate that we'll probably see some more of that in the third and fourth quarter, uh, but, you know, nothing, nothing major, but really, just kind of reflective of our of our intent to always be looking to figure out ways to bring down expenses to the organization.

Peter Ho: And then in terms of overall, you know, deposit flows, like deposits for down this quarter, can you can you remind us any seasonality in there? And, you know, being that deposits will likely be the driver of the size of the balance sheet, just kind of overall expectations in terms of the outlook for deposit growth from here. Yeah, I think that there is some seasonality into the quarter, the second quarter, as well as, frankly, the third quarter. When we look at the past four years of deposit balances in for a year, the second and third quarter are kind of the shoulder quarters, if you will.

Got it, that's helpful. Um,

Piece of overall, you know, deposit flows, like deposits were down this quarter. Can you remind us of any seasonality in there? And, um, you know, being that deposits will likely be the driver of the size of the balance sheet, um, just kind of overall expectations in terms of the outlook for deposit growth from here.

Kelly Motta: As far as what we're expecting for the balance of the year, frankly, I would anticipate that if we come out flat from where we are, but improve, to Jared's question a few minutes ago, around the componentry, hopefully laying a little bit deeper into NIBD. That's about where we would think would be an appropriate place for us to end up. Thanks, Peter. I appreciate the call. I'll step back. Thank you.

Yeah, I I think that there is some seasonality into the quarter. This um, the second quarter as well as frankly, the third quarter, when we look at the past 4 years of deposit, balances, you know, in for a year, the second and third quarter are out of the the shoulder quarters if you will. Uh, as far as what we're expecting for the balance of the Year practically, I would, I would anticipate that if we come out flat, uh, from where we are. Uh, but improve uh, to Jared's question, a few minutes ago around the componentry, hopefully laying a little bit deeper into nibd that's about where we would.

Where we would take them would be an appropriate place for us to end up.

Unknown Executive: This concludes our question and answer session.

Thanks, Peter. I appreciate the caller. I'll step back.

Chang Park: I'd like to turn it back to Chang Park for closing remarks. Thank you everyone for joining us today and for your continued interest in Bank of Hawaii. As always, please feel free to reach out to me if you have any additional questions. Thank you.

Thank you. This concludes our question and answer session. I'd like to turn it back to Chang Park for closing remarks.

Unknown Executive: This concludes today's conference call. Thank you for participating and you may now disconnect.

Thank you, everyone, for joining us today and for your continued interest in Bank of Hawaii. As always, please feel free to reach out to me if you have any additional questions. Thank you.

Thank you for participating in today's conference call. You may now disconnect.