Hawaii Lenders CPF and FHB Post Solid Q2 as Margins Widen, But Deposit Pressures Linger

Two of Hawaii’s largest financial institutions delivered stronger second-quarter profits, fueled by expanding net interest margins and a resilient local economy, though divergent deposit trends underscored the challenges facing regional lenders as they navigate a shifting rate environment.

Central Pacific Financial Corp (CPF) reported net income of $20.8 million, or $0.80 per diluted share, a 19% jump from the same period a year ago. First Hawaiian Inc (FHB) did not disclose a direct year-over-year profit comparison but posted a return on average tangible assets of 1.28% and a return on average tangible equity of 16.34% for the quarter ended June 30, 2026. Both lenders benefited from Hawaii’s tight labor market, where unemployment held at 2.5%, and a steady flow of visitor arrivals and spending.

Central Pacific’s net interest margin climbed 4 basis points to 3.57%, while First Hawaiian’s margin expanded 6 basis points to 3.25%. The improvement at both banks was driven by higher yields on loan portfolios and disciplined deposit pricing, even as the Federal Reserve’s policy path remains uncertain.

“We maintained a stable core funding base and expanded our net interest margin,” Central Pacific Chief Executive Officer Arnold Martines said during the company’s earnings call on July 24. The bank was recently named the highest-ranked company in Hawaii on TIME Magazine’s America’s Best Companies 2026 list and was recognized as the Best-In-State Bank in Hawaii by Forbes for the third consecutive year.

First Hawaiian Chairman and CEO Bob Harrison pointed to a “robust pipeline” in commercial and industrial as well as commercial real estate lending. Total loans at First Hawaiian grew by $137 million during the quarter, an annualized pace of roughly 3.6%, with strength in dealer finance and new customer relationships. Residential mortgage growth, however, continued to slow because of elevated interest rates.

Central Pacific’s loan book was relatively flat, with average balances edging up just $33 million. Management attributed the tepid expansion to several loan closings that slipped into the third quarter and anticipated payoffs in the commercial real estate portfolio. The average yield on Central Pacific’s loan portfolio rose to 4.96% from 4.93% in the prior quarter.

Deposit performance painted a more complicated picture. Central Pacific held total deposits steady at $6.7 billion, with core deposits accounting for more than 90% of the total. Total deposit costs were unchanged at 90 basis points. First Hawaiian, by contrast, saw total deposits shrink by $623 million, driven largely by outflows of public deposits. Executives characterized the decline as expected, noting that government partners had deployed excess cash into higher-yielding investment alternatives rather than severing relationships. Retail deposits were flat, while commercial deposits slipped $156 million on seasonal volatility that the bank expects to reverse later in the year.

“The decline in government deposits was expected due to elevated balances at the end of the first quarter,” First Hawaiian’s Harrison said on the call. “This was not due to a loss of relationships.”

On the expense front, Central Pacific’s total other operating expenses rose $2.5 million to $46.2 million, primarily because of higher salaries and employee benefits. The company anticipates full-year expense growth of 2.5% to 3.5%. First Hawaiian’s noninterest expense totaled $130.4 million, including $4.2 million in costs tied to its pending acquisition of TriCo Bancshares, a deal aimed at creating a leading Pacific banking franchise. Because of the transaction, First Hawaiian said it is unlikely to repurchase shares for the remainder of 2026, although it retains the authorization to do so.

Central Pacific, meanwhile, bought back approximately 322,000 shares for $11.3 million during the quarter, leaving $33.2 million remaining under its repurchase program. The bank also raised its quarterly dividend by 3.4% to $0.30 per share, up from $0.29.

Credit quality remained manageable at both institutions. Central Pacific’s non-performing assets stood at $16.5 million, or 22 basis points of total assets. Net charge-offs were 20 basis points of average loans, and the bank recorded a provision expense of $4.4 million, which included $3.3 million added to the allowance. The allowance for loan losses ended the quarter at $60.6 million, or 1.14% of total loans. Criticized loans increased to 234 basis points of total loans, driven by a small number of Hawaii-based credits. First Hawaiian reported a reduction in classified assets and described overall credit performance as solid.

Capital levels at both banks remained well above regulatory minimums. Central Pacific’s total risk-based capital ratio was 14.8%. First Hawaiian did not disclose a comparable figure in its earnings highlights but has historically maintained strong capital ratios.

Looking ahead, executives at both banks struck a cautiously optimistic tone. Central Pacific continues to invest in talent, automation, and data analytics to support future operating efficiencies, while First Hawaiian is focused on integrating TriCo Bancshares and capturing the benefits of its expanded Pacific footprint.

Competition for loans and deposits in Hawaii remains rational, according to First Hawaiian’s management, with no significant shifts in pricing behavior despite mainland pressures. “While deposit costs may rise on the Mainland, we expect them to remain flat or slightly increase in Hawaii,” Harrison said.

Central Pacific’s balance sheet sensitivity is described as relatively neutral to slightly asset-sensitive, meaning it would see only a limited benefit if the Federal Reserve were to raise rates. First Hawaiian, meanwhile, expects continued repricing benefits on its asset portfolio, with a spread of roughly 140 to 150 basis points on roll-on, roll-off assets.

The results highlight the contrasting strategies of Hawaii’s homegrown lenders: Central Pacific is leaning on operational efficiency and capital return, while First Hawaiian is pursuing scale through acquisition. Both are betting that Hawaii’s steady tourism-driven economy will provide a stable backdrop for the rest of the year.