Bank of Hawaii (NYSE:BOH) reported second-quarter 2026 net income of $63.8 million, or $1.47 per diluted share, as net interest income and net interest margin continued to rise. Net income increased 11% from the prior quarter, while diluted earnings per share rose 13%, President and CEO James Polk said on the company’s earnings call.
Return on average common equity improved to 15.5%. Net interest income rose to $153.6 million, and net interest margin expanded four basis points sequentially to 2.78%, marking the company’s ninth straight quarter of margin expansion.
Margin Outlook and Deposit Trends
Management said it continues to expect net interest margin to approach 2.9% by year-end, based on its interest-rate assumptions. Chief Financial Officer Brad Satenberg said the company’s forecast assumes a 25-basis-point rate increase in mid-September, with December net interest margin expected to be “just about 290.”
Satenberg said earning-asset yields increased five basis points in the quarter, aided by a $2.8 million contribution from fixed-asset repricing. He expects earning-asset yields to continue improving at a similar pace through the rest of the year if interest rates remain stable.
Deposit pricing has become more competitive as customers continue to prioritize yield, executives said. The company’s deposit beta declined slightly to 35.5%, while the cost of deposits was expected to settle in a range of 1.25% to 1.3% in the near term.
Average deposits declined modestly in the second quarter, which Polk characterized as seasonally typical for Bank of Hawaii. Noninterest-bearing deposits represented about 27% of total deposits at quarter-end. During the question-and-answer session, management said the quarter also included outflows of project-related condominium funds and described the decline in noninterest-bearing deposits as part of normal seasonal fluctuations.
The bank expects certain higher-cost public deposits to run off in the third quarter. Satenberg said public deposits total approximately $2 billion and that 10% to 15% of that balance could run off during the quarter, primarily deposits carrying rates of roughly 3.5% to 4%.
Loan Growth Led by Commercial and Residential Lending
Total loans increased $94 million during the quarter, representing annualized growth of about 2.6%. Commercial and industrial lending and residential mortgages drove the increase, while commercial real estate growth was affected by payoffs and the timing of deal closings.
Residential mortgage growth benefited from the completion and closing of a large condominium project. Polk said that without similar projects in the near term, residential lending growth is expected to return to a more organic level in the third quarter. He also cited challenges in indirect auto lending and home-equity lending due to elevated rates and vehicle financing costs.
Still, management reiterated its outlook for full-year loan growth in the lower-middle-single-digit range. Polk said the commercial lending pipeline began building early in the year and remains healthy, with some deals expected in the second quarter closing during the third quarter instead.
Management said loan spreads have remained stable, with no current indication of significant compression in the approximately 160-basis-point spread between maturing and adjustable-rate cash flows and reinvestment yields.
Credit Quality Remains Strong Despite Rise in Criticized Assets
Chief Risk Officer Brad Shairson said credit performance remained strong. Net charge-offs totaled $3.4 million, or 10 basis points annualized, compared with an unusually low three basis points in the first quarter that reflected a large recovery.
Nonperforming assets declined one basis point to eight basis points, while delinquency levels increased one basis point to 41 basis points. The criticized asset ratio rose to 2.81% from 2.12%, driven by a single borrower relationship rather than broader portfolio weakness, Shairson said. The associated loans continue to perform and are well secured by real estate.
- Consumer loans represented 56% of total loans, or about $8 billion.
- Residential mortgage and home-equity loans accounted for 86% of consumer loans, with a weighted average loan-to-value ratio of 49% and weighted average FICO score of 799.
- Commercial loans totaled $6.2 billion, or 44% of total loans, with 72% secured by real estate.
- Commercial real estate loans totaled $4.3 billion, representing 30% of total loans.
The allowance for credit losses on loans and leases ended the quarter at $147 million, unchanged from the prior quarter. The allowance-to-loans ratio was 1.03%.
Fee Income, Expenses and Capital Actions
Noninterest income increased to $43.3 million from $41.3 million in the first quarter. After adjusting for charges tied to a Visa conversion ratio change, normalized noninterest income rose $2.2 million, driven primarily by wealth management performance, including market gains, higher annuity demand and other advisory fees.
Polk said wealth-management fee growth in the third quarter was expected to be supported roughly equally by market performance and production, excluding changes in market conditions. He cited investments in Bankoh Advisors, its partnership with Cetera, additional product availability and new advisers as factors supporting sales activity.
Satenberg forecast normalized noninterest income of about $43 million in the third quarter. Noninterest expense totaled $111.2 million, down from $116.1 million in the first quarter, which had included seasonal payroll taxes, benefit expenses and nonrecurring compensation and severance charges. Third-quarter normalized noninterest expense is expected to be about $112.5 million.
The company maintained capital ratios above well-capitalized regulatory thresholds, reporting a Tier 1 capital ratio of 14.5% and total risk-based capital ratio of 15.5%. Bank of Hawaii repurchased $17 million of common shares during the second quarter at an average price of about $78 per share and plans to repurchase an additional $20 million in the third quarter. Management also expects another $20 million of repurchases in the fourth quarter before reassessing the program for 2027.
The board declared a common dividend of $0.70 per share, payable in the third quarter.
Polk said Hawaii’s economy remains resilient, supported by low unemployment, visitor spending, construction activity and military investment. Hawaii’s Department of Business, Economic Development & Tourism projects 1.6% real economic growth in 2026, though the bank said it continues to monitor inflation, energy costs, consumer confidence, travel demand and geopolitical and fiscal developments.
About Bank of Hawaii (NYSE:BOH)
Bank of Hawaii (NYSE: BOH) is a regional commercial bank headquartered in Honolulu, Hawaii, with roots tracing back to its founding in 1897 by Charles Montague Cooke and Peter Cushman Jones. As one of the oldest financial institutions in the U.S. West Coast region, the bank has built a reputation for stability and community focus. It operates as the principal subsidiary of Bank of Hawaii Corporation, a publicly traded company on the New York Stock Exchange.
The bank offers a comprehensive suite of personal and business banking products and services.
