Bank of Hawaii: The NIM Grind Continues Amid a Pivot to Rate Hikes

Bank of Hawaii delivered another quarter of margin expansion, with net interest margin up four basis points to 2.78%, the ninth consecutive quarterly increase. The rate environment has shifted, but management is confident in the trajectory. “The improvement reflected the continued repricing of our fixed rate assets, along with disciplined deposit pricing.” — Jim Polk, President and CEO · 2026-07-27 Net interest income rose to $153.6 million, and EPS of $1.47 was up 13% sequentially. The company's net interest income has grown from $104 million in 2016 to $151 million in Q1 2026, underscoring the power of asset repricing.

Strategic Deposit Pruning and a Rate Hike Bet

The most notable strategic shift is the decision to let high-cost public deposits run off. CFO Brad Satenberg explained, “I also expect public deposits to decline in the third quarter as we strategically allow certain higher cost funds to run off.” — Brad Satenberg, Chief Financial Officer · 2026-07-27 These deposits carry costs of 3.5%-4% out of a ~$2 billion public deposit base. By shedding roughly 10-15% of that book, BOH is accepting a smaller balance sheet to protect margin. This is complemented by a new expectation for a rate hike in September. “Now we're forecasting one rate hike this year. Mid-September is what we have in our forecast.” — Brad Satenberg, Chief Financial Officer · 2026-07-27 The company now expects the net interest margin to approach 2.9% by year-end, implying about five basis points per quarter of expansion. This is a departure from prior commentary, which leaned toward rate cuts as a tailwind. The deposit pricing discipline will be critical: the deposit beta is expected to settle around 34% in any hike cycle, mirroring the last cycle.

I also expect public deposits to decline in the third quarter as we strategically allow certain higher cost funds to run off.

Wealth Management Inflection and Credit Stability

Beyond the balance sheet, wealth management is emerging as a growth engine. Fee income rose to $43.3 million, with roughly half of the increase attributed to market appreciation and half to production. The wealth management efforts, including the recently opened Center for Family Business & Entrepreneurs, are building a pipeline around succession planning and M&A. “I would see that as sustainable without market change going forward.” — Jim Polk, President and CEO · 2026-07-27 On credit, the criticized asset ratio ticked up to 2.81% from 2.12%, but the increase is isolated to a single real estate-secured borrower that continues to perform. Net charge-offs remain modest at 10 basis points, and non-performing assets are just 8 basis points.

Outlook and Positioning

Management remains confident in the earnings trajectory, with normalized expenses guided to $112.5 million in Q3 and fee income to $43 million. They reaffirm the longer-term normalized margin of 3.25%-3.5%, achievable through continued fixed-asset repricing. As Peter Ho noted in the prior quarter, “if we are at roughly 2.90% at the end of this year and we are growing on the fixed asset repricing at 20 basis points per year, that would put us in that zone at the end of 2028.” — Unknown Speaker, President and CEO · 2026-04-20 The difference now is the rate environment: a hike could accelerate the repricing of floating-rate assets while the deposit book reprices more slowly. The stock, while down 19% from its 2021 peak, has been stable over the past 90 days, suggesting the market is waiting for the margin story to fully materialize.