Bank of Hawaii reached record deposits and topped earnings estimates in the second quarter, but uncertainty about the state’s economic recovery prompted it to set aside $40.4 million to cover potential loan losses stemming from the coronavirus pandemic.

The state’s second-largest bank, which announced its financial results today, has now put into reserve $74 million through the first six months of the year for businesses and consumers unable to pay their debts.

Peter Ho, chairman, president and CEO of Bankoh, said the bank is using University of Hawaii Economic Research Organization projections to incorporate into the bank’ financial modeling for its loan-loss provisions. He said the bank has focused on the state’s unemployment rate, which was 13.9% in June, 23.5% in May and 23.8% in April after being just 2.4% in March.

“As we think forward to future provisioning, my sentiment is that our unemployment, if you want to use that as kind of a guideline, 13.9% feels like a little bit of an overreaction to the downside,” Ho said on the bank’s earnings conference call. “And likely, we’ll probably see (going forward) unemployment levels in between that 13.9 and that 24ish number in the earlier months. So, I don’t think that the end of provisioning is in store for us anytime soon. Although, I guess, I would say that Q2 was probably a pretty meaningful number for us.”

Parent company Bank of Hawaii Corp. reported that its net income, pulled down by the loan-loss provision, finished the quarter lower by 31.6% at $38.9 million, or 98 cents a share, compared with $56.9 million, or $1.40 a share, in the year-ago period. The bank’s noninterest income was boosted by a gain of $14.2 million related to a sale of Visa Class B shares.

Bankoh’s revenue rose 5% to $178 million from $169.5 million.

Analysts surveyed by Thomson Reuters were projecting earnings per share of 89 cents and revenue of $166.7 million.

Bankoh’s stock fell $1.42, or 2.4%, to $57.76 after the earnings were announced.

The bank’s deposits jumped 12.5% from the year-earlier quarter to an all-time high of $17.42 billion as Paycheck Protection Program loan funding and consumer economic impact payments contributed to the growth.

Loans also were strong as they increased 9.7% to $11.81 billion, with $543 million in PPP loans the main driver.

Bankoh maintained its quarterly dividend at 67 cents a share. It will be payable Sept. 15 to shareholders of record at the close of business on Aug. 31.

Ho said the bank continued to perform well in a “very challenging environment.”

“Our balance sheet continued to grow while maintaining strong levels of capital and liquidity,” he said in an earnings release. “Our asset quality remained stable during the quarter and we are well positioned for the future.”

With interest rates low and cash levels high, the bank’s net interest margin declined 13 basis points to 2.83% from 2.96% in the previous quarter and was down 21 basis points from 3.04% in the second quarter of 2019. Net interest margin is the difference between what the bank generates from loans and pays out for deposits.

Bankoh made 4,521 PPP loans as of June 30 totaling nearly $562 million, and helped 17,300 customers — on loan balances totaling $1.9 billion — realign their loan terms in support of the near-term dislocations caused by the pandemic.

“With numerous government stimulus and deferral programs afoot during the pandemic, we saw contact center volume spike 69% in the month of April, requiring enormous commitment and support from our contact center staff,” Ho said.

He also said that as customers sheltered close to home, the bank saw unprecedented digital banking activity.

“Thanks to many years of focus on our digital channels, we’ve been gratified to see year-to-date mobile deposit growth of 36%, online deposit account openings growth of 300%, online mortgage app growth of 142% and online HELOC app growth of 79% year-to-date as compared to last year,” he said.