Q2 2026 Bank of Hawaii Corp Earnings Call

July 27, 2026

Operator: Good day, and thank you for standing by. Welcome to the Bank of Hawaii Corporation Q2 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, press star one one again. 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, Executive Vice President, Executive Director of Financial Performance and Investor Relations. Please go ahead.

Speaker #2: Good day, and thank you for standing by. Welcome to the Bank of Hawaii Corporation's second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode.

Speaker #2: After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press * on your telephone and wait for your name to be announced.

Speaker #2: To withdraw your question, press * and then 1 again. 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, Executive Vice President, Executive Director of Financial Performance and Investor Relations.

Speaker #2: Please go ahead.

Speaker #3: Good morning and good afternoon. Thank you for joining us today for our second quarter 2026 earnings conference call. Joining me today are our President and CEO, Peter Ho; CFO, Bradley Satenberg; Chief Risk Officer, Bradley Shairson; and Manager of Investor Relations, Patricia Lime.

Chang Park: Good morning and good afternoon. Thank you for joining us today for our Q2 2026 earnings conference call. Joining me today is our President and CEO, Jim Polk, CFO, Brad Satenberg, Chief Risk Officer, Brad Shairson, and Manager of Investor Relations, Patricia Lam. 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, boh.com, under the Investor Relations link. Now I would like to turn the call over to Jim.

Brad Shairson: Good morning and good afternoon. Thank you for joining us today for our Q2 2026 earnings conference call. Joining me today is our President and CEO, Jim Polk, CFO, Brad Satenberg, Chief Risk Officer, Brad Shairson, and Manager of Investor Relations, Patricia Lam. 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, boh.com, under the Investor Relations link. Now I would like to turn the call over to Jim.

Speaker #3: Before we get started, I want to remind you that today's conference call will contain some forward-looking statements. And while we believe our assumptions are reasonable, actual results may differ materially from those projected.

Speaker #3: 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.

Speaker #3: And now, I would like to turn the call over to Jim.

Speaker #4: Thanks, Chang. Good morning and good afternoon, everyone, and thank you for joining us today. Bank of Hawaii delivered another solid quarter, reflecting continued progress in the underlying earnings power of the franchise.

James C. Polk: Thanks, Chang. Good morning and good afternoon, everyone, and thank you for joining us today. Bank of Hawaii delivered another solid quarter reflecting continued progress in the underlying earnings power of the franchise. For the Q2, we reported diluted earnings per share of $1.47 and net income of $63.8 million, up 13% and 11% respectively from the prior quarter. Return on average common equity improved to 15.5%. Net interest income increased to $153.6 million and our net interest margin expanded by 4 basis points to 2.78%. This marked our ninth consecutive quarter of margin expansion. The improvement reflected the continued repricing of our fixed-rate assets along with disciplined deposit pricing. Our average cost of deposits remained essentially stable at 127 basis points. The interest rate environment continues to evolve, with rates now expected to remain elevated for longer.

Jim Polk: Thanks, Chang. Good morning and good afternoon, everyone, and thank you for joining us today. Bank of Hawaii delivered another solid quarter reflecting continued progress in the underlying earnings power of the franchise. For the Q2, we reported diluted earnings per share of $1.47 and net income of $63.8 million, up 13% and 11% respectively from the prior quarter. Return on average common equity improved to 15.5%. Net interest income increased to $153.6 million and our net interest margin expanded by 4 basis points to 2.78%. This marked our ninth consecutive quarter of margin expansion. The improvement reflected the continued repricing of our fixed-rate assets along with disciplined deposit pricing. Our average cost of deposits remained essentially stable at 127 basis points. The interest rate environment continues to evolve, with rates now expected to remain elevated for longer.

Speaker #4: For the second quarter, we reported diluted earnings per share of $1.47 and net income of $63.8 million, up 13% and 11%, respectively, from the prior quarter.

Speaker #4: Return on average common equity improved to 15.5%. Net interest income increased to $153.6 million, and our net interest margin expanded by 4 basis points to 2.78%.

Speaker #4: This marked our ninth consecutive quarter of margin expansion. The improvement reflected the continued repricing of our fixed-rate assets, along with disciplined deposit pricing. Our average cost of deposits remained essentially stable at 127 basis points.

Speaker #4: The interest rate environment continues to evolve, with rates now expected to remain elevated for longer. We believe our balance sheet is well positioned for this environment, as higher rates support earning asset yields and the continued repricing of our fixed-rate portfolio.

James C. Polk: We believe our balance sheet is well-positioned for this environment as higher rates support earning asset yields and the continued repricing of our fixed-rate portfolio. At the same time, the competitive environment for deposits remains elevated as customers continue to prioritize yield, which may limit opportunities for deposit cost improvement in the near term. As we have discussed previously, the Q2 is typically a seasonally lower period for deposits at Bank of Hawaii, and this quarter followed that pattern. Average deposits declined modestly from the prior quarter. At quarter end, non-interest-bearing deposits continued to represent approximately 27% of total deposits. Our deposit franchise remains one of Bank of Hawaii's most important structural advantages. Our leading market position, trusted brand, diversified customer base, and deep relationships across our markets provides a stable core funding base. These advantages allow us to manage pricing thoughtfully while continuing to meet our customers' needs.

Jim Polk: We believe our balance sheet is well-positioned for this environment as higher rates support earning asset yields and the continued repricing of our fixed-rate portfolio. At the same time, the competitive environment for deposits remains elevated as customers continue to prioritize yield, which may limit opportunities for deposit cost improvement in the near term. As we have discussed previously, the Q2 is typically a seasonally lower period for deposits at Bank of Hawaii, and this quarter followed that pattern. Average deposits declined modestly from the prior quarter. At quarter end, non-interest-bearing deposits continued to represent approximately 27% of total deposits. Our deposit franchise remains one of Bank of Hawaii's most important structural advantages. Our leading market position, trusted brand, diversified customer base, and deep relationships across our markets provides a stable core funding base. These advantages allow us to manage pricing thoughtfully while continuing to meet our customers' needs.

Speaker #4: At the same time, the competitive environment for deposits remains elevated, as customers continue to prioritize yield, which may limit opportunities for deposit cost improvement in the near term.

Speaker #4: As we have discussed previously, the second quarter is typically a seasonally lower period for deposits at Bank of Hawaii, and this quarter followed that pattern.

Speaker #4: Average deposits declined modestly from the prior quarter. At quarter end, non-interest-bearing deposits continued to represent approximately 27% of total deposits. Our deposit franchise remains one of Bank of Hawaii's most important structural advantages.

Speaker #4: Our leading market position, trusted brand, diversified customer base, and deep relationships across our markets provide a stable core funding base. These advantages allow us to manage pricing thoughtfully while continuing to meet our customers' needs.

Speaker #4: Based on our performance through the first half of the year, and our current interest rate assumptions, we continue to trend toward a net interest margin approaching 2.9% by year-end.

James C. Polk: Based on our performance through H1 and our current interest rate assumptions, we continue to trend toward a net interest margin approaching 2.9% by year-end. While the composition of margin opportunity has shifted somewhat in the current rate environment, we remain confident in the earnings trajectory of the balance sheet. Turning to lending, total loans increased $94 million during the quarter, representing annualized growth of approximately 2.6%. C&I and residential lending led the increase, while CRE growth was affected by payoff activity and the timing of deal closings. Residential mortgage growth benefited from the completion and closing of a large condominium project. Looking ahead, our commercial pipeline remains encouraging. On the consumer side, however, elevated interest rates and the absence of similar residential project closings are likely to moderate Q3 growth in consumer.

Jim Polk: Based on our performance through H1 and our current interest rate assumptions, we continue to trend toward a net interest margin approaching 2.9% by year-end. While the composition of margin opportunity has shifted somewhat in the current rate environment, we remain confident in the earnings trajectory of the balance sheet. Turning to lending, total loans increased $94 million during the quarter, representing annualized growth of approximately 2.6%. C&I and residential lending led the increase, while CRE growth was affected by payoff activity and the timing of deal closings. Residential mortgage growth benefited from the completion and closing of a large condominium project. Looking ahead, our commercial pipeline remains encouraging. On the consumer side, however, elevated interest rates and the absence of similar residential project closings are likely to moderate Q3 growth in consumer.

Speaker #4: While the composition of margin opportunity has shifted somewhat in the current rate environment, we remain confident in the earnings trajectory of the balance sheet.

Speaker #4: Turning to lending, total loans increased $94 million during the quarter, representing annualized growth of approximately 2.6%. CNI and residential lending led the increase, while CRE growth was affected by payoff activity and the timing of deal closings.

Speaker #4: Residential mortgage growth benefited from the completion and closing of a large condominium project. Looking ahead, our commercial pipeline remains encouraging. On the consumer side, however, elevated interest rates and the absence of similar residential project closings are likely to moderate third-quarter growth in consumer.

Speaker #4: We continue to expect full-year loan growth in the lower mid-single-digit range. Credit quality continues to be strong, and Brad will provide some additional details shortly.

James C. Polk: We continue to expect full year loan growth in the lower mid-single-digit range. Credit quality continues to be strong and Brad will provide some additional details shortly. We also made progress on the strategic priorities we discussed last quarter. In wealth management, we are strengthening coordination across commercial banking, the private bank, Bankoh Advisors, and our broader advisory capabilities. The Center for Family Business & Entrepreneurs, which opened in April, continues to develop its client pipeline around succession and estate planning, business valuation, merger and acquisitions, and other complex needs. Bank of Hawaii is uniquely positioned in our markets to bring together capabilities to help clients navigate these consequential financial and business decisions. Beyond these initiatives, our teams remain focused on disciplined execution, protecting our strong balance sheet, deepening customer relationships, investing in our people and technology, and supporting the communities we serve.

Jim Polk: We continue to expect full year loan growth in the lower mid-single-digit range. Credit quality continues to be strong and Brad will provide some additional details shortly. We also made progress on the strategic priorities we discussed last quarter. In wealth management, we are strengthening coordination across commercial banking, the private bank, Bankoh Advisors, and our broader advisory capabilities. The Center for Family Business & Entrepreneurs, which opened in April, continues to develop its client pipeline around succession and estate planning, business valuation, merger and acquisitions, and other complex needs. Bank of Hawaii is uniquely positioned in our markets to bring together capabilities to help clients navigate these consequential financial and business decisions. Beyond these initiatives, our teams remain focused on disciplined execution, protecting our strong balance sheet, deepening customer relationships, investing in our people and technology, and supporting the communities we serve.

Speaker #4: We also made progress on the strategic priorities we discussed last quarter. In wealth management, we are strengthening coordination across Commercial Banking, the Private Bank, Bankoh Advisors, and our broader advisory capabilities.

Speaker #4: The Center for Family Business and Entrepreneurs, which opened in April, continues to develop its client pipeline around succession and estate planning, business valuation, mergers and acquisitions, and other complex needs.

Speaker #4: Bank of Hawaii is uniquely positioned in our markets to bring together capabilities to help clients navigate these consequential financial and business decisions. Beyond these initiatives, our teams remain focused on disciplined execution, protecting our strong balance sheet, deepening customer relationships, investing in our people and technology, and supporting the communities we serve.

Speaker #4: And although the interest rate outlook continues to evolve, the fundamental strengths of Bank of Hawaii remain unchanged: a leading deposit franchise, a trusted brand, deep customer relationships, strong credit quality, and a conservatively positioned balance sheet.

James C. Polk: Although the interest rate outlook continues to evolve, the fundamental strengths of Bank of Hawaii remain unchanged. A leading deposit franchise, a trusted brand, deep customer relationships, strong credit quality, and a conservatively positioned balance sheet. These strengths give us confidence in our ability to perform across a range of economic and interest rate environments. Turning to the economic outlook, Hawaii's economy remains resilient, supported by low unemployment, healthy visitor spending, strong construction activity, and military investment. The Department of Business, Economic Development, and Tourism currently projects real economic growth of 1.6% in 2026. At the same time, we continue to monitor inflation, energy costs, consumer confidence, travel demand, and broader geopolitical and fiscal developments. With that said, I'll turn the call over to Brad Shairson to discuss credit. Brad Satenberg will then review our financial results in greater detail, after which we'll be pleased to take your questions.

Jim Polk: Although the interest rate outlook continues to evolve, the fundamental strengths of Bank of Hawaii remain unchanged. A leading deposit franchise, a trusted brand, deep customer relationships, strong credit quality, and a conservatively positioned balance sheet. These strengths give us confidence in our ability to perform across a range of economic and interest rate environments. Turning to the economic outlook, Hawaii's economy remains resilient, supported by low unemployment, healthy visitor spending, strong construction activity, and military investment. The Department of Business, Economic Development, and Tourism currently projects real economic growth of 1.6% in 2026. At the same time, we continue to monitor inflation, energy costs, consumer confidence, travel demand, and broader geopolitical and fiscal developments. With that said, I'll turn the call over to Brad Shairson to discuss credit. Brad Satenberg will then review our financial results in greater detail, after which we'll be pleased to take your questions.

Speaker #4: These strengths give us confidence in our ability to perform across a range of economic and interest rate environments. Turning to the economic outlook, Hawaii's economy remains resilient.

Speaker #4: Supported by low unemployment, healthy visitor spending, strong construction activity, and military investment. The Department of Business, Economic Development, and Tourism currently projects real economic growth of 1.6% in 2026.

Speaker #4: At the same time, we continue to monitor inflation and energy costs, consumer confidence, travel demand, and broader geopolitical and fiscal developments. With that said, I'll turn the call over to Brad Shairson to discuss credit.

Speaker #4: Brad Satenberg will then review our financial results in greater detail, after which we'll be pleased to take your questions.

Speaker #1: Thanks, Jim. I'll begin with an overview of our credit portfolio and conclude with asset quality metrics. As you will see, our performance has remained strong, consistent with prior quarters.

Brad Shairson: Thanks, Jim. I'll begin with an overview of our credit portfolio and conclude with asset quality metrics. As you will see, our performance has remained strong, consistent with prior quarters. Turning to our lending philosophy, the Bank of Hawaii is dedicated to serving our local communities, lending primarily within our core markets, where our expertise allows us to make informed and disciplined credit decisions. Our portfolio is built on long tenured relationships with approximately 60% of both our commercial and consumer clients having been with the bank for more than 10 years. Geographically, our loan book is concentrated in markets we know well. Approximately 94% of loans are based in Hawaii, with 4% in the Western Pacific and just 2% on the mainland, primarily supporting existing clients who operate both locally and on the mainland. Our loan portfolio remains well-balanced between consumer and commercial exposure.

Speaker #1: Turning to our lending philosophy, Bank of Hawaii is dedicated to serving our local communities, lending primarily within our core markets where our expertise allows us to make informed and disciplined credit decisions.

Speaker #1: Our portfolio is built on long-tenured relationships, with approximately 60% of both our commercial and consumer clients having been with the bank for more than 10 years.

Speaker #1: Geographically, our loan book is concentrated in markets we know well. Approximately 94% of loans are based in Hawaii, with 4% in the Western Pacific, and just 2% on the mainland, primarily supporting existing clients who operate both locally and on the mainland.

Speaker #1: Our loan portfolio remains well balanced between consumer and commercial exposure. Consumer loans represent 56% of total loans, or approximately $8 billion. Within the consumer portfolio, 86% consists of residential mortgage and home equity loans, with a weighted average LTV of 49% and a weighted average FICO score of 799.

Brad Shairson: Consumer loans represent 56% of total loans, or approximately $8 billion. Within the consumer portfolio, 86% consists of residential mortgage and home equity loans, with a weighted average LTV of 49% and weighted average FICO score of 799. The remaining 14% of consumer loans are comprised of auto and personal lending. Credit quality in these segments also remains strong, with FICO scores of 729 for auto loans and 761 for personal loans. Turning to commercial lending, the portfolio totals $6.2 billion, representing 44% of total loans. 72% is secured by real estate with a weighted average LTV of 55%. This reflects our ongoing emphasis on collateral protection. CRE remains our largest component of the commercial book, totaling $4.3 billion, or 30% of total loans.

Speaker #1: The remaining 14% of consumer loans are comprised of auto and personal lending. Credit quality in these segments also remains strong, with FICO scores of 729 for auto loans and 761 for personal loans.

Speaker #1: Turning to commercial lending, the portfolio totals $6.2 billion, representing 44% of total loans. Seventy-two percent is secured by real estate, with a weighted average LTV of 55%.

Speaker #1: This reflects our ongoing emphasis on collateral protection. CRE remains our largest component of the commercial book, totaling $4.3 billion, or 30% of total loans.

Speaker #1: And in O'ahu, the state's largest CRE market, a combination of consistently low vacancy rates and flat inventory levels continues to support a stable real estate market.

Brad Shairson: In Oahu, the state's largest CRE market, a combination of consistently low vacancy rates and flat inventory levels continues to support a stable real estate market. Across industrial, office, retail, and multifamily property types, vacancy rates remain below or close to their 10-year averages. Total office space on Oahu has declined by approximately 10% over the past decade, driven primarily by conversions to multifamily residential and lodging. This structural reduction in supply, combined with the return to office trend, has brought vacancy rates back down to the long-term average and well below national levels. Our CRE portfolio remains well diversified, with no single property type exceeding 9% of total loans. Conservative underwriting practices continue to be applied consistently, with weighted average LTVs below 60% across all CRE categories. In addition, diversification within each segment remains strong, supported by modest average loan sizes.

Speaker #1: Across industrial, office, retail, and multifamily property types, vacancy rates remain below or close to their ten-year averages. Total office space on O'ahu has declined by approximately 10% over the past decade, driven primarily by conversions to multifamily residential and lodging.

Speaker #1: This structural reduction in supply, combined with the return-to-office trend, has brought vacancy rates back down to the long-term average and well below national levels.

Speaker #1: Our CRE portfolio remains well diversified, with no single property type exceeding 9% of total loans. Conservative underwriting practices continue to be applied consistently, with weighted average LTVs below 60% across all CRE categories.

Speaker #1: In addition, diversification within each segment remains strong, supported by modest average loan sizes. Scheduled maturities are also well balanced, with more than 60% of CRE loans maturing in 2030 or later, reducing near-term refinancing risk.

Brad Shairson: Scheduled maturities are also well-balanced, with more than 60% of CRE loans maturing in 2030 or later, reducing near-term refinancing risk. Looking at the distribution of LTVs, there isn't much tail risk in our CRE portfolio. Less than 3% of CRE loans have greater than an 80% LTV. C&I accounts for 12% of total loans totaling $1.7 billion. This portfolio is diversified across industries characterized by modest average loan sizes, and there is very little leveraged lending. Turning to asset quality, overall credit performance remains strong and consistent with the trends we've seen over the past several quarters. Delinquencies, non-performing assets, and net charge-offs all remained at favorable levels during the quarter. Net charge-offs were just $3.4 million, or 10 basis points annualized, in line with the last several quarters, but up from the abnormally low three basis points last quarter that resulted from a large recovery.

Speaker #1: Looking at the distribution of LTVs, there isn’t much tail risk in our CRE portfolio—less than 3% of CRE loans have greater than an 80% LTV.

Speaker #1: CNI accounts for 12% of total loans, totaling $1.7 billion. This portfolio is diversified across industries, characterized by modest average loan sizes, and there is very little leveraged lending.

Speaker #1: Turning to asset quality, overall credit performance remains strong and consistent with the trends we've seen over the past several quarters. Delinquencies, non-performing assets, and net charge-offs all remained at favorable levels during the quarter.

Speaker #1: Net charge-offs were just $3.4 million, or 10 basis points annualized, in line with the last several quarters, but up from the abnormally low 3 basis points last quarter that resulted from a large recovery.

Speaker #1: Non-performing assets declined a basis point to 8 basis points, while delinquency levels increased a basis point to 41 basis points. The one notable change this quarter was an increase in the criticized asset ratio to 2.81% from 2.12%.

Brad Shairson: Non-performing assets declined one basis point to eight basis points, while delinquency levels increased one basis point to 41 basis points. The one notable change this quarter was an increase in the criticized asset ratio to 2.81% from 2.12%. That increase was driven by a single borrower relationship rather than broader weakness across the portfolio. The loans related to the borrower continue to perform, and the exposure is well secured by real estate. More broadly, 93% of our criticized assets are secured by real estate with a weighted average LTV of 58%. As an update on the allowance for credit losses on loans and leases, the ACL ended the quarter at $147 million, flat to the linked quarter. The ratio of our ACL to outstandings ends down one basis point to 1.03%. This concludes my remarks.

Speaker #1: That increase was driven by a single borrower relationship rather than broader weakness across the portfolio. The loans related to the borrower continue to perform, and the exposure is well secured by real estate. More broadly, 93% of our criticized assets are secured by real estate, with a weighted average LTV of 58%.

Speaker #1: And as an update on the allowance for credit losses on loans and leases, the ACL ended the quarter at $147 million, flat to the linked quarter.

Speaker #1: The ratio of our ACL to outstandings ends down 1 basis point to 1.03%. This concludes my remarks. I will now turn the call over to Brad Satenberg for a discussion on our financial performance.

Brad Shairson: I will now turn the call over to Brad Satenberg for a discussion on our financial performance.

Speaker #2: Thanks, Brad. For the quarter, we reported net income of $63.8 million and a diluted EPS of $1.47, up $6.4 million and $0.17 per share from the linked quarter.

Brad S. Satenberg: Thanks, Brad. For the quarter, we reported net income of $63.8 million and diluted EPS of $1.47, up $6.4 million and $0.17 per share from the linked quarter. As Jim mentioned, for the ninth consecutive quarter, both our NII and NIM expanded. Compared to Q1, NII increased $2.6 million and NIM improved four basis points to 2.78%. The expansion was primarily driven by our fixed asset pricing, partially offset by deposit mix shift, which accelerated for the first time in several quarters. Despite the increase this quarter, the broader trend remains positive, and over the past 12 months, the aggregate mix shift was only $17 million compared to $516 million during the same period a year ago. The yield on earning assets improved by five basis points during the quarter, which benefited from a $2.8 million contribution to our NII from the fixed asset repricing.

Brad Satenberg: Thanks, Brad. For the quarter, we reported net income of $63.8 million and diluted EPS of $1.47, up $6.4 million and $0.17 per share from the linked quarter. As Jim mentioned, for the ninth consecutive quarter, both our NII and NIM expanded. Compared to Q1, NII increased $2.6 million and NIM improved four basis points to 2.78%. The expansion was primarily driven by our fixed asset pricing, partially offset by deposit mix shift, which accelerated for the first time in several quarters. Despite the increase this quarter, the broader trend remains positive, and over the past 12 months, the aggregate mix shift was only $17 million compared to $516 million during the same period a year ago. The yield on earning assets improved by five basis points during the quarter, which benefited from a $2.8 million contribution to our NII from the fixed asset repricing.

Speaker #2: And as Jim mentioned, for the ninth consecutive quarter, both our NII and NIM expanded. Compared to the first quarter, NII increased $2.6 million, and NIM improved 4 basis points to 2.78%.

Speaker #2: The expansion was primarily driven by our fixed asset pricing, partially offset by the deposit mix shift, which accelerated for the first time in several quarters.

Speaker #2: Despite the increase this quarter, the broader trend remains positive, and over the past 12 months, the aggregate mix shift was only $17 million compared to $516 million during the same period a year ago.

Speaker #2: The yield on earning assets improved by 5 basis points during the quarter, which benefited from a $2.8 million contribution to our NII from the fixed asset repricing.

Speaker #2: Assuming that interest rates remain stable, I expect that the yield on our earning assets will continue to improve at a similar pace for the remainder of the year.

Brad S. Satenberg: Assuming that interest rates remain stable, I expect that the yield on our earning assets will continue to improve at a similar pace for the remainder of the year. The cost of interest-bearing liabilities increased by one basis point during the quarter, consistent with the rise in deposit costs. Deposit costs were 1.27%, and the deposit beta declined slightly to 35.5%. As interest rate expectations have shifted, deposit pricing has become more competitive than earlier in the year, contributing to the higher deposit mix shift along with the modest increase in deposit costs this quarter. In the current rate environment, I expect our cost to deposits to settle in the range of 1.25% to 1.3% in the near term. I also expect public deposits to decline in Q3 as we strategically allow certain higher cost funds to run off.

Brad Satenberg: Assuming that interest rates remain stable, I expect that the yield on our earning assets will continue to improve at a similar pace for the remainder of the year. The cost of interest-bearing liabilities increased by one basis point during the quarter, consistent with the rise in deposit costs. Deposit costs were 1.27%, and the deposit beta declined slightly to 35.5%. As interest rate expectations have shifted, deposit pricing has become more competitive than earlier in the year, contributing to the higher deposit mix shift along with the modest increase in deposit costs this quarter. In the current rate environment, I expect our cost to deposits to settle in the range of 1.25% to 1.3% in the near term. I also expect public deposits to decline in Q3 as we strategically allow certain higher cost funds to run off.

Speaker #2: The cost of interest-bearing liabilities increased by 1 basis point during the quarter, consistent with the rise in deposit costs. Deposit costs were 1.27%, and the deposit beta declined slightly to 35.5%.

Speaker #2: As interest rate expectations have shifted, deposit pricing has become more competitive than earlier in the year, contributing to the higher deposit mix shift, along with the modest increase in deposit costs this quarter.

Speaker #2: In the current rate environment, I expect our cost of deposits to settle in the range of 1.25% to 1.3% in the near term. I also expect public deposits to decline in the third quarter, as we strategically allow certain higher-cost funds to run off.

Speaker #2: I'm forecasting that any interest rate hikes would initially benefit NII and NIM, but would ultimately become a modest headwind once our deposits fully reprice.

Brad S. Satenberg: I'm forecasting that any interest rate hikes would initially benefit NII and NIM, but would ultimately become a modest headwind once our deposits fully reprice. The velocity of the impact from any change in rates will depend on the timing of deposit pricing adjustments and the terminal beta reached. I expect the deposit beta of any potential rate hikes to ultimately land at approximately 34%, which would mirror our beta from the last rate hike cycle. Regardless of any potential rate changes, I believe that we are well positioned and remain balanced from an interest rate sensitivity perspective. At quarter end, our fix-to-float ratio was 58%, down one percentage point from the prior quarter. We finished the quarter with an active pay fixed receive float swap portfolio of $1.4 billion, with a weighted average fixed rate of 3.3% and an average life of 1.4 years.

Brad Satenberg: I'm forecasting that any interest rate hikes would initially benefit NII and NIM, but would ultimately become a modest headwind once our deposits fully reprice. The velocity of the impact from any change in rates will depend on the timing of deposit pricing adjustments and the terminal beta reached. I expect the deposit beta of any potential rate hikes to ultimately land at approximately 34%, which would mirror our beta from the last rate hike cycle. Regardless of any potential rate changes, I believe that we are well positioned and remain balanced from an interest rate sensitivity perspective. At quarter end, our fix-to-float ratio was 58%, down one percentage point from the prior quarter. We finished the quarter with an active pay fixed receive float swap portfolio of $1.4 billion, with a weighted average fixed rate of 3.3% and an average life of 1.4 years.

Speaker #2: The velocity of the impact from any change in rates will depend on the timing of deposit pricing adjustments and the terminal beta reached. I expect the deposit beta of any potential rate hikes to ultimately land at approximately 34%, which would mirror our beta from the last rate hike cycle.

Speaker #2: Regardless of any potential rate changes, I believe that we are well positioned to remain balanced from an interest rate sensitivity perspective. At quarter end, our fixed-to-float ratio was 58%, down 1 percentage point from the prior quarter.

Speaker #2: We finished the quarter with an active pay-fixed, receive-float swap portfolio of $1.4 billion, with a weighted average fixed rate of 3.3% and an average life of 1.4 years.

Speaker #2: $1 billion of these swaps hedge our loan portfolio, while $400 million hedge our securities. In addition, we have $200 million of forward starting swaps with a weighted average fixed rate of 3% and an average life of 2.1 years.

Brad S. Satenberg: $1 billion of these swaps hedge our loan portfolio, while $400 million hedge our securities. In addition, we have $200 million of forward-starting swaps with a weighted average fixed rate of 3% and an average life of 2.1 years. These swaps will become effective during Q3. Non-interest income was $43.3 million during the quarter, compared to $41.3 million during the linked quarter. This quarter included a $400,000 charge related to our Visa B conversion ratio change, while Q1 included a similar $200,000 charge. Adjusting for these normalizing items, non-interest income was up $2.2 million. This improvement was primarily due to the strength of our wealth management division, which benefited from a strong market, as well as increased customer demand for annuity investments and other advisory-related fees. My forecast for Q3 is that normalized non-interest income will be approximately $43 million.

Brad Satenberg: $1 billion of these swaps hedge our loan portfolio, while $400 million hedge our securities. In addition, we have $200 million of forward-starting swaps with a weighted average fixed rate of 3% and an average life of 2.1 years. These swaps will become effective during Q3. Non-interest income was $43.3 million during the quarter, compared to $41.3 million during the linked quarter. This quarter included a $400,000 charge related to our Visa B conversion ratio change, while Q1 included a similar $200,000 charge. Adjusting for these normalizing items, non-interest income was up $2.2 million. This improvement was primarily due to the strength of our wealth management division, which benefited from a strong market, as well as increased customer demand for annuity investments and other advisory-related fees. My forecast for Q3 is that normalized non-interest income will be approximately $43 million.

Speaker #2: These swaps will become effective during the third quarter. Non-interest income was $43.3 million during the quarter, compared to $41.3 million during the linked quarter.

Speaker #2: This quarter included a $400,000 charge related to our BCB conversion ratio change, while the first quarter included a similar $200,000 charge. Adjusting for these normalizing items, non-interest income was up $2.2 million.

Speaker #2: This improvement was primarily due to the strength of our Wealth Management division, which benefited from a strong market, as well as increased customer demand for annuity investments and other advisory-related fees.

Speaker #2: My forecast for the third quarter is that normalized non-interest income will be approximately $43 million. Non-interest expense was $111.2 million, compared to $116.1 million during the linked quarter.

Brad S. Satenberg: Non-interest expense was $111.2 million, compared to $116.1 million during the linked quarter. As a reminder, Q1 included a seasonal payroll tax and benefits charge of $2.8 million, as well as non-recurring charges related to the accelerated vesting of restricted stock awards of $3.5 million and an unrelated severance charge of $750,000. This quarter includes our annual merit increases of approximately $1.2 million and a $500,000 benefit in connection with the net forfeiture of unvested restricted stock. Excluding the impact of these items, expenses were up slightly compared to Q1. Q3 normalized non-interest expense is expected to be approximately $112.5 million. During the quarter, we also recorded a provision for credit losses of $3.6 million, resulting in a coverage ratio of 1.03%. In addition, we reported a provision for taxes of $18.3 million during the quarter, resulting in an effective tax rate of 22.3%.

Brad Satenberg: Non-interest expense was $111.2 million, compared to $116.1 million during the linked quarter. As a reminder, Q1 included a seasonal payroll tax and benefits charge of $2.8 million, as well as non-recurring charges related to the accelerated vesting of restricted stock awards of $3.5 million and an unrelated severance charge of $750,000. This quarter includes our annual merit increases of approximately $1.2 million and a $500,000 benefit in connection with the net forfeiture of unvested restricted stock. Excluding the impact of these items, expenses were up slightly compared to Q1. Q3 normalized non-interest expense is expected to be approximately $112.5 million. During the quarter, we also recorded a provision for credit losses of $3.6 million, resulting in a coverage ratio of 1.03%. In addition, we reported a provision for taxes of $18.3 million during the quarter, resulting in an effective tax rate of 22.3%.

Speaker #2: As a reminder, the first quarter included a seasonal payroll tax and benefits charge of $2.8 million, as well as non-recurring charges related to the accelerated vesting of restricted stock awards of $3.5 million, and an unrelated severance charge of $750,000.

Speaker #2: This quarter includes our annual merit increases of approximately $1.2 million and a $500,000 benefit in connection with the net forfeiture of unvested restricted stock.

Speaker #2: Excluding the impact of these items, expenses were up slightly compared to the first quarter. Third quarter normalized non-interest expense is expected to be approximately $112.5 million.

Speaker #2: During the quarter, we also recorded a provision for credit losses of $3.6 million, resulting in a coverage ratio of 1.03%. In addition, we reported a provision for taxes of $18.3 million during the quarter, resulting in an effective tax rate of 22.3%.

Speaker #2: The drop in the tax rate, compared to the linked quarter, was primarily due to higher benefits from certain tax-advantaged investments. Our capital ratios remained above the well-capitalized regulatory capital thresholds during the quarter, with Tier 1 capital and total risk-based capital of 14.5% and 15.5%, respectively.

Brad S. Satenberg: The drop in the tax rate compared to the linked quarter was primarily due to higher benefits from certain tax-advantaged investments. Our capital ratios remained above the well-capitalized regulatory capital thresholds during the quarter, with Tier 1 capital and total risk-based capital of 14.5% and 15.5%, respectively. Consistent with the linked quarter, we paid dividends of $28 million on our common stock and $5.3 million on our preferreds. During Q2, we repurchased $17 million of common shares at an average price of approximately $78 per share. I am currently planning to purchase an additional $20 million of stock during Q3, and $89 million remains available under the current repurchase plan. Finally, the board declared a dividend of $0.70 per common share that will be paid during Q3. Now I'll turn the call back over to Jim.

Brad Satenberg: The drop in the tax rate compared to the linked quarter was primarily due to higher benefits from certain tax-advantaged investments. Our capital ratios remained above the well-capitalized regulatory capital thresholds during the quarter, with Tier 1 capital and total risk-based capital of 14.5% and 15.5%, respectively. Consistent with the linked quarter, we paid dividends of $28 million on our common stock and $5.3 million on our preferreds. During Q2, we repurchased $17 million of common shares at an average price of approximately $78 per share. I am currently planning to purchase an additional $20 million of stock during Q3, and $89 million remains available under the current repurchase plan. Finally, the board declared a dividend of $0.70 per common share that will be paid during Q3. Now I'll turn the call back over to Jim.

Speaker #2: In consistent with the linked quarter, we paid dividends of 28 million dollars on our common stock and 5.3 million dollars on our preferreds. During the second quarter, we repurchased 17 million dollars of common shares at an average price of approximately 78 dollars per share.

Speaker #2: I am currently planning to purchase an additional $20 million of stock during the third quarter, and $89 million remains available under the current repurchase plan.

Speaker #2: Finally, the Board declared a dividend of $0.70 per common share that will be paid during the third quarter. Now I'll turn the call back over to Jim.

Speaker #1: Thanks, Brad. We’d now be happy to answer any questions that you might have.

James C. Polk: Thanks, Brad. We'd now be happy to answer any questions that you might have.

Jim Polk: Thanks, Brad. We'd now be happy to answer any questions that you might have.

Speaker #3: Thank you. As a reminder, to ask a question, please press star on your telephone and wait for your name to be announced.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeff Rulis with D.A. Davidson. Your line is now open.

Speaker #3: To withdraw your question, please press star one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeff Rulis with D.A. Davidson.

Speaker #3: Your line is now open.

Speaker #4: Thanks. Good morning.

Jeff Rulis: Thanks. Good morning.

Speaker #5: Hey, good morning, Jeff.

James C. Polk: Hey. Good morning, Jeff.

Jim Polk: Hey. Good morning, Jeff.

Speaker #4: Jim, you alluded to, in your initial remarks, the wealth management momentum, and Brad kind of followed with the pieces of that strength. I just want to see what's looking pretty solid for trust and the asset management side. What kind of growth do you see for the rest of the year? I guess if you strip out the strong market as a variable, just wanted to see the outlook for that line item.

Jeff Rulis: Jim, you alluded to in your initial remarks on the wealth management momentum, and Brad kind of followed with the pieces of that strength. I just kind of want to see pretty solid for trust and asset management. What kind of growth do you see the rest of the year, I guess, if you strip out, I guess, the strong market is a variable. Just wanted to see the outlook for that line item as you see it.

Speaker #4: As you see it.

James C. Polk: Yeah. It's always hard to judge these things with market conditions, but we feel really good about where we're at. Obviously, we've talked on several calls now just about the investments we've made in both Bankoh Advisors as well as the overall wealth platform. I would say that if you looked at the performance in Q3 on the wealth management side, the increase in fees was driven probably half by market and half by production. We had some trust and testamentary fees that came in as well. I would see that as sustainable without market change going forward.

Jim Polk: Yeah. It's always hard to judge these things with market conditions, but we feel really good about where we're at. Obviously, we've talked on several calls now just about the investments we've made in both Bankoh Advisors as well as the overall wealth platform. I would say that if you looked at the performance in Q3 on the wealth management side, the increase in fees was driven probably half by market and half by production. We had some trust and testamentary fees that came in as well. I would see that as sustainable without market change going forward.

Speaker #5: Yeah, I mean, it's always hard to judge these things with market conditions, but we feel really good about where we're at. Obviously, we've talked on several calls now just about the investments we've made in both Banco advisors as well as the overall wealth platform.

Speaker #5: I would say that if you looked at the performance in Q3 on the wealth management side, the increase in fees was driven probably half by market and half by production.

Speaker #5: And then we had some trust and testamentary fees that came in as well. So I would see that as sustainable without market change going forward.

Speaker #5: And then, on the Banco advisor side, the annuity income is—really, I think you're beginning to see sort of the partnership with Cetera, the greater efficiency that we've incorporated into the business, additional products that we've availed through the segment, and then the advisors that we're adding to the team just helping to drive overall sales.

James C. Polk: On the Bankoh Advisors side, the annuity income is really. I think you're really beginning to see sort of the partnership with Cetera, the greater efficiency that we've incorporated into the business, additional products that we've availed through the segment, and then the advisors that we're adding to the team just helping to drive overall sales.

Jim Polk: On the Bankoh Advisors side, the annuity income is really. I think you're really beginning to see sort of the partnership with Cetera, the greater efficiency that we've incorporated into the business, additional products that we've availed through the segment, and then the advisors that we're adding to the team just helping to drive overall sales.

Speaker #4: Appreciate it. And then one other question I had is just to check in on that margin you mentioned, of the high 2% or approaching 2.9% by year-end.

Jeff Rulis: Appreciate it. One other one I had is just to check in on that margin you've mentioned, the high 2% or approaching 2.9% by year-end. It sounded like the composition of how you get there shifted a little bit and just, I guess if you couch this quarter's sequential increase in how you get there, if you could just provide a little more color through the back half of how you get there, it would be helpful.

Speaker #4: And it sounded like the composition of how you get there shifted a little bit, and just, I guess, have you couched this quarter’s sequential increase in how you get there?

Speaker #4: If you could just provide a little more color through the back half of how you get there, it would be helpful.

Speaker #5: Sure. Maybe I'll have Brad answer that question.

James C. Polk: Sure. Maybe I'll have Brad answer that question.

Jim Polk: Sure. Maybe I'll have Brad answer that question.

Speaker #2: Yeah, thanks, Jeff. That's a good question. So our NIM for the quarter was 2.78%. June was at 2.79%. Now, we're forecasting one rate hike this year—mid-September is what we have in our forecast.

Brad S. Satenberg: Yeah. Thanks, Jeff. That's a good question. Our NIM for the quarter was two seventy-eight. June was at two seventy-nine. Now we're forecasting one rate hike this year. Mid-September is what we have in our forecast. All the components are still in place for the NIM to continue to grind higher. We've got the fixed asset repricing, which we feel real good about, and the mix shift has moderated even though we took a step back this quarter. Really, if you look at over the longer-term trend, it's been positive. With the rate hike and with the mix shift and with the fixed asset repricing, I think we get to two ninety by the end of the year, and that's I think we're looking at 5 basis points in NIM per quarter going forward.

Brad Satenberg: Yeah. Thanks, Jeff. That's a good question. Our NIM for the quarter was two seventy-eight. June was at two seventy-nine. Now we're forecasting one rate hike this year. Mid-September is what we have in our forecast. All the components are still in place for the NIM to continue to grind higher. We've got the fixed asset repricing, which we feel real good about, and the mix shift has moderated even though we took a step back this quarter. Really, if you look at over the longer-term trend, it's been positive. With the rate hike and with the mix shift and with the fixed asset repricing, I think we get to two ninety by the end of the year, and that's I think we're looking at 5 basis points in NIM per quarter going forward.

Speaker #2: So all the components are still in place for the NIM to continue to grind higher. We've got the fixed asset repricing, which we feel real good about, and the mix shift has moderated. Even though we took a step back this quarter, really, if you look at the longer-term trend, it's been positive.

Speaker #2: So, with the rate hike and with the makeshift, and with the fixed asset repricing, I think we get to 2.90% by the end of the year. And that's—I think we're looking at five basis points in NIM per quarter going forward.

Speaker #4: And Brad, just to clarify, that's a true exit, not the quarterly average in Q4.

Jeff Rulis: Brad, just to clarify, that's a true exit, not the quarterly average in Q4 of two ninety.

Speaker #2: Yeah, so I think it's going to be, yeah, my expectation is December would be just about 290.

Brad S. Satenberg: Yeah. My expectation is December would be just about two ninety.

Brad Satenberg: Yeah. My expectation is December would be just about two ninety.

Speaker #4: Sounds good. Thank you. I'll step back.

Jeff Rulis: Sounds good. Thank you. Step back.

Speaker #5: Thanks, Jeff.

James C. Polk: Thanks, Jeff.

Jim Polk: Thanks, Jeff.

Speaker #3: Our next question comes from the line of Matthew Clark with Piper Sandler. Your line is now open.

Operator: Our next question comes from the line of Matthew Clark with Piper Sandler. Your line is now open.

Speaker #6: Hey, good morning, everyone.

Matthew Clark: Hey, good morning, everyone.

Speaker #5: Good morning.

James C. Polk: Good morning.

Jim Polk: Good morning.

Matthew Clark: Maybe just a little more on the margin. If you had the spot rate on deposits at the end of June-

Speaker #6: Maybe just a little more on the margin if you had the spot rate on deposits. At the end of June, and how your and I was just going to as a follow-on to that, just how your whether or not you're having to make any tweaks on exception pricing here, any upward pressure there, or any changes to your promotional rates.

James C. Polk: Yes

Jim Polk: Yes

Matthew Clark: I was just going to as a follow-on to that, just whether or not you're having to make any tweaks on exception pricing here, any upward pressure there, or any changes to your promotional rates.

Speaker #2: All right. So, the spot rates answer your first question, Matt. The spot rate was 1.26, so it was down one basis point from what our cost was for the quarter.

Brad S. Satenberg: All right. Just to answer your first question, Matt, the spot rate was 126, so it was down 1 basis point from what our cost was for the quarter. As far as exception pricing, obviously, I think competition has increased slightly, and I think there are some additional requests for some exception pricing. It hasn't been material or significant. We are looking at opportunities to grow deposits, and with that comes some additional pricing on our CDs. We do think we're going to be pushing CD rates up slightly in the 3 and 12 month categories. Nothing material, but we do see that moving up.

Brad Satenberg: All right. Just to answer your first question, Matt, the spot rate was 126, so it was down 1 basis point from what our cost was for the quarter. As far as exception pricing, obviously, I think competition has increased slightly, and I think there are some additional requests for some exception pricing. It hasn't been material or significant. We are looking at opportunities to grow deposits, and with that comes some additional pricing on our CDs. We do think we're going to be pushing CD rates up slightly in the 3 and 12 month categories. Nothing material, but we do see that moving up.

Speaker #2: And as far as exception pricing, obviously I think competition has increased slightly, and I think there are some additional requests for exception pricing, but it hasn't been material or significant.

Speaker #2: But we are looking at opportunities to grow deposits, and with that comes some additional pricing on our CDs. So we do think we're going to be pushing CD rates up slightly in the 3- and 12-month categories, but nothing material. But we do see that moving up.

Speaker #6: Okay. And then, just on the securities portfolio—down this quarter—should we continue to assume that shrinks, or are you going to start reinvesting there?

Matthew Clark: Okay. Just on the securities portfolio down this quarter, should we continue to assume that shrinks, or are you going to start reinvesting there?

Speaker #2: I mean, I wouldn't assume it's going to shrink, but I think this quarter, between the loan growth that we experienced, as well as—we had some deposit runoff—so we used the excess cash flows from the investment portfolio to support those two.

Brad S. Satenberg: I wouldn't assume it's going to shrink. I think this quarter, between the loan growth that we experienced as well as we had some deposit runoff, we used the excess cash flows from the investment portfolio to support those two. We did take a step back in our investments. I think we'll just continue to reinvest at a pace. It will really be dictated by what we see from the loan growth standpoint.

Brad Satenberg: I wouldn't assume it's going to shrink. I think this quarter, between the loan growth that we experienced as well as we had some deposit runoff, we used the excess cash flows from the investment portfolio to support those two. We did take a step back in our investments. I think we'll just continue to reinvest at a pace. It will really be dictated by what we see from the loan growth standpoint.

Speaker #2: But we did take a step back in our investments, and I think we'll just continue to reinvest at a pace, and it will only be dictated by what we see from the long growth perspective, from the long growth standpoint.

Speaker #6: Got it. Thank you.

Matthew Clark: Got it. Thank you.

Speaker #3: Thank you. Our next question comes from the line of Jared Shaw with Barclays. Your line is now open.

Operator: Thank you. Our next question comes from the line of Jared Shaw with Barclays. Your line is now open.

Speaker #5: Hey, Jared.

James C. Polk: Hey, Jared. Good morning.

Jim Polk: Hey, Jared. Good morning.

Speaker #6: Hi, thank you.

Jared Shaw: Hi. Thank you. Good morning. Yeah, I guess sticking with the deposits, was there anything unique about the DDA trends this quarter, maybe apart from some of the public funds? How are you thinking about sort of DDA as a component of growth going forward?

Speaker #5: Good morning. Yeah, I guess sticking with the deposits, was there anything unique about the DDA trends this quarter, maybe apart from some of the public funds? And how are you thinking about DDA as a component of growth going forward?

Speaker #5: Yeah, I think the way I would characterize it is, obviously, the quarter was down. But if you look over the last several quarters, we've grown consistently.

James C. Polk: Yeah, I think the way I would characterize it is obviously the quarter was down. If you look over the last five quarters, we've grown consistently. I just went back five quarters. We've had really nice growth going back to the beginning of 2025, and we had particularly strong growth in Q4 and in Q1 of 2026. I really look at, particularly on the NIBD side, as just sort of the normal ebbs and flows and the seasonality of Q2. There were some project-related funds that built up related to some of the condo stuff that moved out. We're confident that the long-term trend and sustainability of growth in the space still remains.

Jim Polk: Yeah, I think the way I would characterize it is obviously the quarter was down. If you look over the last five quarters, we've grown consistently. I just went back five quarters. We've had really nice growth going back to the beginning of 2025, and we had particularly strong growth in Q4 and in Q1 of 2026. I really look at, particularly on the NIBD side, as just sort of the normal ebbs and flows and the seasonality of Q2. There were some project-related funds that built up related to some of the condo stuff that moved out. We're confident that the long-term trend and sustainability of growth in the space still remains.

Speaker #5: I just went back five quarters. We've had really nice growth going back to the beginning of 2025, and we had particularly strong growth in Q4 and in Q1 of '26.

Speaker #5: So I really look at, particularly on the NIBD side, as just sort of the normal ebbs and flows in the seasonality of Q2. There were some project-related funds that built up related to some of the condo stuff that moved out, but we're confident that the long-term sort of trend and sustainability of growth in the space still remains.

Speaker #5: Okay, all right. Thanks. And then on the buyback—thanks for the update on the $20 million expected for the third quarter. Is that $20 million a quarter, given capital and growth dynamics? And is that a good level to sort of assume for the next few quarters beyond the third quarter?

Jared Shaw: Okay. All right, thanks. Then on the buyback, thanks for the update on the $20 million expected for Q3. Is that $20 million a quarter given capital and growth dynamics, and is that a good level to assume for the next few quarters beyond Q3?

Speaker #2: Yeah, this is Brad. I would say, obviously, $20 million for the third quarter. I would expect $20 million for the fourth quarter as our forecast and our expectation, and then we're going to reevaluate it going into 2027.

Brad S. Satenberg: Yeah, this is Brad. I would say, obviously, $20 million for Q3. I would expect $20 million for Q4 as our forecast and our expectation, then we're going to reevaluate it going into 2027.

Brad Satenberg: Yeah, this is Brad. I would say, obviously, $20 million for Q3. I would expect $20 million for Q4 as our forecast and our expectation, then we're going to reevaluate it going into 2027.

Speaker #5: Okay. Thank you.

Jared Shaw: Okay. Thank you.

Speaker #3: Thank you. Our next question comes from the line of Andrew Terrell with Stevens. Your line is now open.

Operator: Thank you. Our next question comes from the line of Andrew Terrell with Stephens. Your line is now open.

Speaker #7: Hey, good morning.

Andrew Terrell: Hey, good morning.

Speaker #5: Good morning.

James C. Polk: Good morning.

Jim Polk: Good morning.

Speaker #7: And if I could go back to just the loan growth quickly, I think you mentioned in the prepared remarks that the low- to mid-single-digit kind of goalpost was still where you were looking for kind of full-year loan growth.

Andrew Terrell: Hey, if I could go back to just the loan growth quickly. I think you mentioned in the prepared remarks, the low mid-single digit kind of goalposts was still where you were looking for kind of full year loan growth. I heard some of the comments around just maybe some tougher consumer in Q3. I'm hoping you could just talk to maybe how the pipeline's building up overall, specifically on the commercial side. What gives you confidence in growth that I think the guide implies stable to maybe improving growth in H2?

Speaker #7: I heard some of the comments around just maybe some tougher consumer in the third quarter. I'm hoping you could just talk to maybe how the pipeline's building up overall, specifically on the commercial side. What gives you confidence in growth that I think the guide implies—stable to maybe improving growth—in the back half of the year?

Speaker #5: Yeah, so on the residential side, or on the consumer side, overall production was quite strong relative to our recent history. A component of that—maybe 25% of the total production—was related to a condominium project that closed out this quarter.

James C. Polk: Yeah. On the residential side or on the consumer side, overall production was quite strong relative to our recent history. A component of that, maybe 25% of the total production, was related to a condominium project that closed out Q2. That gave us some extra juice on the residential side to maybe drive some, I'll use the term outsized performance, at least relative to our recent history. Without any projects in the near horizon, we'll kind of go down to a more organic level of growth in residential. It'll still be positive, but it's not going to be nearly the level it was for Q2. We continue to see challenges in indirect and home equity, just given the rate environment and sort of the realities of cost of cars and financing of cars and so forth.

Jim Polk: Yeah. On the residential side or on the consumer side, overall production was quite strong relative to our recent history. A component of that, maybe 25% of the total production, was related to a condominium project that closed out Q2. That gave us some extra juice on the residential side to maybe drive some, I'll use the term outsized performance, at least relative to our recent history. Without any projects in the near horizon, we'll kind of go down to a more organic level of growth in residential. It'll still be positive, but it's not going to be nearly the level it was for Q2. We continue to see challenges in indirect and home equity, just given the rate environment and sort of the realities of cost of cars and financing of cars and so forth.

Speaker #5: So that gave us some extra juice on the residential side to maybe drive some—I’ll use the term—outsized performance, at least relative to our recent history.

Speaker #5: So, without any projects on the near horizon, we'll kind of go down to a more organic level of growth in residential. It'll still be positive, but it's not going to be nearly at the level it was for Q2.

Speaker #5: And we continue to see challenges in direct and home equity, just given the rate environment and the realities of the cost of cars and financing of cars, and so forth.

Speaker #5: So, it’ll be positive for the quarter, and it’ll contribute to the guide that I’ve already provided. The commercial side’s looking pretty good.

James C. Polk: It'll be positive for Q3, and it'll contribute to sort of the guide that I've already provided. The commercial side's looking pretty good. We really started to see the pipeline build out in the beginning part of the year. Q1 was a solid quarter. Q2, we were expecting a little bit better performance, but we had some deals move out to Q3. We've seen those close already, and the pipeline remains pretty good from my standpoint. Healthy. I feel pretty good about commercial growth, and I think the combination of what we see on the commercial side as well as consumer will keep us in that low mid-single digit range.

Jim Polk: It'll be positive for Q3, and it'll contribute to sort of the guide that I've already provided. The commercial side's looking pretty good. We really started to see the pipeline build out in the beginning part of the year. Q1 was a solid quarter. Q2, we were expecting a little bit better performance, but we had some deals move out to Q3. We've seen those close already, and the pipeline remains pretty good from my standpoint. Healthy. I feel pretty good about commercial growth, and I think the combination of what we see on the commercial side as well as consumer will keep us in that low mid-single digit range.

Speaker #5: I mean, the pipeline—we really started to see the pipeline build out in the beginning part of the year. Q1 was a solid quarter.

Speaker #5: Q2, we were expecting a little bit better performance, but we had some deals move out to the third quarter. We've seen those close already, and the pipeline remains pretty good from my standpoint—healthy.

Speaker #5: So, I feel pretty good about commercial growth, and I think the combination of what we see on the commercial side as well as consumer will keep us in that low- to mid-single-digit range.

Speaker #7: Okay, great. And then just one on the margin—just to confirm, the expectation for a 2.90% exit rate for the year does include the assumption for the September rate hike of 25 basis points in there.

Andrew Terrell: Okay, great. Just one on the margin, just to confirm the expectation for 290 exit rate of the year. That does include the assumption for the September rate hike of 25 basis points in there. Then I was hoping you could talk to, we heard something around the competitive dynamics on the deposit side, just competition for new loans today and your comfortability with, I think your kind of blended reinvestment yield for the fixed and adjustable cash flows was still 160 basis points Q2, same as Q1. Your comfortability with that remaining relatively stable moving forward?

Speaker #7: And then I was hoping you could talk to—we heard some around the competitive dynamics, some on the deposit side. Just competition for new loans today and your comfortability with, I think, your kind of blended reinvestment yield for the fixed and adjustable cash flows was still 160 basis points this quarter.

Speaker #7: Same as last quarter. Are you comfortable with that remaining relatively stable moving forward?

James C. Polk: There was a lot in there. Can you repeat that again just to make sure we're answering your question correctly?

Jim Polk: There was a lot in there. Can you repeat that again just to make sure we're answering your question correctly?

Speaker #5: There was a lot in there. Can you repeat that again, just to make sure we're answering your question correctly? No, it's okay.

Andrew Terrell: Yeah. I'm sorry.

James C. Polk: No, that's okay.

Jim Polk: No, that's okay.

Andrew Terrell: Does your guide include the 290 exit margin include the 25 basis point September hike?

Speaker #7: Because your guide includes, there's a 2.90% exit margin, including the 25 basis point September hike.

Speaker #2: Yeah, that's correct. So, we're expecting mid-September to have one hike—25 bps.

Brad S. Satenberg: That's correct. Yeah. We're expecting mid-September to have one hike, 25 bps.

Brad Satenberg: That's correct. Yeah. We're expecting mid-September to have one hike, 25 bps.

Speaker #7: Okay. And then, regarding competition for new loans today, do you feel like there's any risk to that incremental spread on page 20 of the deck—the 160 basis point pickup for the maturity and adjustable cash flow reinvestment?

Andrew Terrell: Okay. Competition for new loans today. Do you feel like there's any risk to that incremental spread on page 20 of the deck, 160 basis point pickup for the maturity and adjustable cash flow reinvestment? Do you feel like there's any risk of spread compression there?

Speaker #7: Do you feel like there's any risk of spread compression there?

Speaker #5: No, I don't see that at this point. I mean, spreads have been pretty stable for a while on the loan side. As we've said in previous quarters, there's always a one-off, but the market remains pretty rational.

James C. Polk: No, I don't see that at this point. Spreads have been pretty stable for a while on the loan side. As we've said in previous quarters, there's always a one-off, but the market remains pretty rational.

Jim Polk: No, I don't see that at this point. Spreads have been pretty stable for a while on the loan side. As we've said in previous quarters, there's always a one-off, but the market remains pretty rational.

Speaker #7: Okay. Thank you.

Andrew Terrell: Okay. Thank you.

Speaker #3: Thank you. Our next question comes from the line of Andrew Leish with Stonex Group. Your line is now open.

Operator: Thank you. Our next question comes from the line of Andrew Liesch with StoneX Group. Your line is now open.

Speaker #6: Hey, everyone. Good morning.

Andrew Liesch: Hey, everyone. Good morning.

Speaker #5: Hey, good morning, Andrew.

James C. Polk: Hey. Good morning, Andrew.

Jim Polk: Hey. Good morning, Andrew.

Speaker #6: Just wanted to see, just kind of looking at the size of the average earning asset base here going forward—have you seen deposits come back in seasonally or seasonally this quarter?

Andrew Liesch: Just want to see, just kind of looking at the size of the average earning asset base here going forward. Have you seen deposits come back in seasonally this quarter? It also sounds like you're going to have some other public funds outflows. I guess, how should we be thinking about where earning assets shake out?

Speaker #6: And it also sounds like you're going to have some other public funds outflows. So I guess, how should we be thinking about where earning assets shake out?

Brad S. Satenberg: Well, I'll start and then Jim can chime in. This is Brad. Yeah, our average earning assets definitely took a step down from previous quarters. I expect it to come in probably in the range of $100 to 200 million this quarter, so relatively consistent where we ended this past quarter.

Brad Satenberg: Well, I'll start and then Jim can chime in. This is Brad. Yeah, our average earning assets definitely took a step down from previous quarters. I expect it to come in probably in the range of $100 to 200 million this quarter, so relatively consistent where we ended this past quarter.

Speaker #5: Well, I'll start, and then Jim can chime in. This is Brad. Yeah, our average earning assets definitely took a step down.

Speaker #5: And from previous quarters, I expect it to come in probably in the range of $100 to $200 million this quarter, so relatively consistent with where we ended this past quarter.

Speaker #6: Got it. All right. That's helpful. And then, just on the—yeah, go ahead. Sorry.

Andrew Liesch: Got it. All right. That's helpful.

Brad S. Satenberg: Just on the-

Brad Satenberg: Just on the-

Andrew Liesch: Yeah, go ahead, sorry.

Speaker #5: No, I was just going to add, I think one of the things that we see out there, particularly in the deposit space, is sort of the higher-cost public deposits.

James C. Polk: No, I was just going to add, I think one of the things that we see out there, particularly in the deposit space, is sort of the higher cost public deposits. We're going to take a pretty strategic approach on how we look at those things, and that could have an impact on the ultimate earning asset base.

Jim Polk: No, I was just going to add, I think one of the things that we see out there, particularly in the deposit space, is sort of the higher cost public deposits. We're going to take a pretty strategic approach on how we look at those things, and that could have an impact on the ultimate earning asset base.

Speaker #5: So, we're going to take a pretty strategic approach in how we look at those things, and that could have an impact on the ultimate earning asset base.

Speaker #6: Got it. Makes sense. Okay. And then, just on the fee income, did I hear you're currently at $43 million for the third quarter?

Andrew Liesch: Got it. Makes sense. Okay. Just on the fee income, did I hear correctly like $43 million for the Q3?

Speaker #2: That's correct.

Brad S. Satenberg: That's correct.

Brad Satenberg: That's correct.

Speaker #6: Okay. So, if I take that you had $43.3 million this last quarter, if I back out the securities loss there, I mean, you're kind of close to $44.3 million.

Patricia Lam: Okay. If I take the $43.3 this Q3, if I back out the securities loss there, you're kind of close to $44.3 million, I mean, or $44 million. I guess, what's going to cause the step down here? Especially given the good commentary on the wealth side.

Andrew Liesch: Okay. If I take the $43.3 this Q3, if I back out the securities loss there, you're kind of close to $44.3 million, I mean, or $44 million. I guess, what's going to cause the step down here? Especially given the good commentary on the wealth side.

Speaker #6: I mean, or $44 million. I guess, where does—I mean, what's going to cause the step down here, especially given the good commentary on the wealth side?

Speaker #5: Well, it's really not a step down. I mean, if you think about those securities losses, really what those are, are the vis-à-vis conversion ratio from cost.

Brad S. Satenberg: Well, it's really not a step down. If you think about those securities losses, really what those are are the Visa B conversion ratio.

Brad Satenberg: Well, it's really not a step down. If you think about those securities losses, really what those are are the Visa B conversion ratio.

Patricia Lam: Right. Yes.

Andrew Liesch: Right. Yes.

Brad S. Satenberg: Those are consistent quarter to quarter, the $43 million is really just consistent to where we finished Q2. It's really a step up from Q1 and sort of remaining relatively flat from Q2.

Speaker #5: And so, those are consistent quarter to quarter. The $43 million is really just consistent with where we finished the second quarter, so it's really a step up from the first quarter.

Brad Satenberg: Those are consistent quarter to quarter, the $43 million is really just consistent to where we finished Q2. It's really a step up from Q1 and sort of remaining relatively flat from Q2.

Speaker #5: And sort of remaining relatively flat from the second quarter.

Speaker #6: Okay, got it. That's a good way to think about it. Thanks so much. I'll step back.

Patricia Lam: Okay. Got it. That's a good way to think about it. Thanks so much. I'll step back.

Andrew Liesch: Okay. Got it. That's a good way to think about it. Thanks so much. I'll step back.

Speaker #5: Thanks.

Brad S. Satenberg: Thank you.

Brad Satenberg: Thank you.

Speaker #3: Thank you. As a reminder, to ask a question at this time, please press *11 on your touchtone telephone. Our next question comes from the line of Kelly Motta with KBW.

Operator: Thank you. As a reminder to ask a question at this time, please press star one one on your touch-tone telephone. Our next question comes from the line of Kelly Motta with KBW. Your line is now open.

Speaker #3: Your line is now open.

Speaker #4: Hi, thank you so much for the question. It seems like, based on Q2 results as well as your expense guide of $112.5 million in Q3, that you're at least at the lower end of the 2.5% to 3% expense guide range you had previously given.

Kelly Motta: Hi, thank you so much for the question. It seems like based on Q2 results as well as your expense guide of $112.5 million in Q3, that you're running below or at least at the lower end of the 2.5% to 3% expense guide range you had previously given. If there's any updated color on how you see expenses coming in for the year. Thanks.

Speaker #4: Can you provide any color or context to the drivers of that? And if there's any updated color on how you see expenses coming in for the year?

Speaker #4: Thanks.

Speaker #5: Yeah, I think the 2.5% to 3% is still consistent. And the way I look at it is our normalized non-interest expense going into the year was $435 million.

Brad S. Satenberg: Yeah, I think the 2.5% to 3% is still consistent. The way I look at it is our normalized non-interest expense going into the year was $435 million. We're just adjusting for normalizing items. At 3%, it should come in about $448 for this year. I'm thinking on average, quarter by quarter, it's about $112 million. The first two quarters we came in slightly below that. I'm expecting Q3 and Q4 to come in in that $112.5 range, which would land us at the end of the year right at about 3% from that normalized level I was just referencing.

Brad Satenberg: Yeah, I think the 2.5% to 3% is still consistent. The way I look at it is our normalized non-interest expense going into the year was $435 million. We're just adjusting for normalizing items. At 3%, it should come in about $448 for this year. I'm thinking on average, quarter by quarter, it's about $112 million. The first two quarters we came in slightly below that. I'm expecting Q3 and Q4 to come in in that $112.5 range, which would land us at the end of the year right at about 3% from that normalized level I was just referencing.

Speaker #5: So, we're just adjusting for normalizing items. And so, at 3%, it should come in at about $448 million for this year. And so, I'm thinking, on average, quarter by quarter, it's about $112 million.

Speaker #5: And so, the first two quarters, we came in slightly below that. I'm expecting the third and fourth quarters to come in in that 112.5 range, which would land us at the end of the year right at about 3% from that normalized level.

Speaker #5: I was just referencing.

Speaker #4: Got it. Okay, that's helpful. And then, with the government deposits being strategic there, can you quantify how large that is in your deposit base?

Kelly Motta: Got it. Okay. That's helpful. Then with the government deposit being strategic there, can you quantify how large that is in your deposit base? What within that, because I'm sure there's some operating accounts, what within that is the target for strategic reduction?

Speaker #4: Is that kind of the "what within that"? Because I'm sure there are some operating accounts. What within that is the target for strategic production?

Speaker #5: So our public deposits are about $2 billion of our total deposit base. In my expectation for this quarter, as far as running off public deposits, about 10 to 15 percent of those should run off.

Brad S. Satenberg: Our public deposits are about $2 billion of our total deposit base. My expectation is this quarter for us as far as running off public deposits, about 10% to 15% of those should run off, and those would be high-cost deposits. When I say high cost, I'm thinking somewhere in the range of 3.5% to 4%.

Brad Satenberg: Our public deposits are about $2 billion of our total deposit base. My expectation is this quarter for us as far as running off public deposits, about 10% to 15% of those should run off, and those would be high-cost deposits. When I say high cost, I'm thinking somewhere in the range of 3.5% to 4%.

Speaker #5: And those would be high-cost deposits. So, when I say high-cost, I'm thinking somewhere in the range of 3.5% to 4%.

Speaker #4: Okay, got it. That's helpful. And then, if I could just ask one more: when we step back and think about the margin longer term, I think you've reiterated that 2.90% by year-end, which now includes a rate hike— which I understand is beneficial near term, but maybe more neutral longer term.

Kelly Motta: Okay. Got it. That's helpful. Then just if I could ask one more. When we step back and think about the margin longer term, I think you've reiterated that 290 by year-end, which now includes the rate hike, which I understand is beneficial near term, but maybe more neutral longer term. As we think about that 325 to 350 normalized margin, any twists or takes in terms of the timeline of getting there? Is that still kind of how we're thinking about it in kind of this change rate environment? Are there any other considerations to note? Thanks.

Speaker #4: As we think about that 325 to 350 normalized margin, are there any puts or takes in terms of the timeline for getting there? Is that still kind of how we're thinking about it in this changing rate environment, or are there any other considerations to note?

Speaker #5: The way I look at it is, we're still on that trajectory, depending on what happens in interest rates. There's a lot of variability—this is still a couple of years down the road, as we've talked about.

James C. Polk: The way I look at it is we're still on that trajectory depending on what happens in interest rates. There's a lot of variability. This is still a couple of years down the road, as we've talked about, but I don't see anything sort of at this point in time that would cause us to deviate materially from that.

Jim Polk: The way I look at it is we're still on that trajectory depending on what happens in interest rates. There's a lot of variability. This is still a couple of years down the road, as we've talked about, but I don't see anything sort of at this point in time that would cause us to deviate materially from that.

Speaker #5: But I don't see anything, sort of at this point in time, that would cause us to deviate materially from that.

Speaker #4: Got it. Thank you.

Kelly Motta: Got it. Thank you.

Speaker #3: Thank you. I'm currently showing no further questions at this time. I would now like to hand the call back over to Patricia Lam for closing remarks.

Operator: Thank you. I am currently showing no further questions at this time. I would now like to hand the call back over to Patricia Lam for closing remarks.

Speaker #4: 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 us if you have any additional questions.

Patricia Lam: 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 us if you have any additional questions.

Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.

Q2 2026 Bank of Hawaii Corp Earnings Call

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