Regional banking institution Bank of Hawaii (NYSE: BOH) fell short of the market’s revenue expectations in Q2 CY2025, but sales rose 11.2% year on year to $174.5 million. Its non-GAAP profit of $1.06 per share was in line with analysts’ consensus estimates.

Is now the time to buy BOH? Find out in our full research report (it’s free).

StockStory’s Take

Bank of Hawaii’s second quarter results did not meet Wall Street’s revenue expectations, prompting a negative market reaction. Management attributed performance to continued expansion in net interest margin—helped by asset repricing and stable deposit costs—but acknowledged subdued loan growth, especially in commercial lending. CEO Peter Ho described commercial production as “a little bit of a disappointing quarter,” citing both market uncertainty and elevated prepayments as headwinds. CFO Brad Satenberg highlighted disciplined expense control, noting severance charges tied to ongoing restructuring efforts.

Looking ahead, Bank of Hawaii’s outlook revolves around further margin improvement as more fixed assets reprice to higher yields, and the potential for modest loan growth if market conditions stabilize. Management expects expense growth to moderate in the back half of the year, with ongoing focus on investment in core initiatives. Peter Ho emphasized continued efforts to deepen noninterest-bearing deposit relationships, while Satenberg expects balance sheet flexibility to help the bank navigate any shifts in the interest rate environment. Management remains cautious about commercial loan pipelines but sees opportunities if uncertainties subside.

Key Insights from Management’s Remarks

Bank of Hawaii’s management pointed to margin expansion from asset repricing and steady deposit costs as key performance drivers, while deposit and loan mix shifts influenced revenue and profitability.

• Margin expansion from asset repricing: Net interest income and margin grew for the fifth consecutive quarter, as maturing lower-yield assets were reinvested at higher rates. Satenberg explained that this process contributed approximately $3.2 million in additional net interest income for the quarter.

• Deposit mix moderation: Management noted a slowdown in the shift from low- or no-yield deposits to higher-cost products. The cost of deposits remained stable, and over half of the bank’s certificates of deposit (CDs) are expected to reprice at lower rates in coming months, supporting future margin gains.

• Sluggish commercial lending: CEO Peter Ho described commercial lending activity as disappointing, with both commercial real estate and commercial & industrial loan growth remaining flat or declining. He cited market uncertainty and a rise in prepayments as primary factors holding back growth.

• Expense management with targeted restructuring: The quarter included a severance-related charge linked to restructuring, but overall expenses were well controlled. Satenberg expects further discipline, with some incremental restructuring anticipated in the next two quarters.

• Stable asset quality and conservative underwriting: Chief Risk Officer Brad Shairson highlighted a granular, diversified loan portfolio, with low loan-to-value ratios and minimal exposure to high-risk segments. Credit metrics remained solid, with low delinquency and net charge-off rates.

Drivers of Future Performance

Bank of Hawaii’s near-term performance will depend on continued margin expansion, deposit mix stability, and the pace of loan growth amid a competitive and uncertain market.

• Continued net interest margin improvement: Management believes further asset repricing and lower CD rates could drive additional gains in net interest margin, assuming interest rates remain steady. Satenberg stated that a net interest margin of 2.50% is achievable and sees no immediate obstacles to this trajectory.

• Modest loan growth potential: While commercial lending was soft this quarter, President Jim Polk noted that commercial pipelines are building and expects a return to modest growth if economic uncertainty diminishes. The bank’s approach focuses on long-standing customer relationships and maintaining credit quality.

• Expense discipline amid ongoing investment: Satenberg reaffirmed that overall expense growth should moderate to 2-3% for the year, with continued investment in strategic initiatives and no plans to curtail capital projects. Management anticipates incremental restructuring but remains committed to balancing growth investments with cost containment.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace and magnitude of net interest margin expansion as CDs and other assets reprice, (2) any rebound in commercial loan growth as pipelines build and economic uncertainty potentially recedes, and (3) the evolution of deposit mix and ability to grow noninterest-bearing balances. Progress on expense containment and the impact of ongoing restructuring will also be important indicators of operational discipline.

Bank of Hawaii currently trades at $65.60, in line with $65.63 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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