10-Q: Bank of Hawaii Q3 Net Income Jumps 32%, EPS Up 29%

Bank of Hawaii Corporation reported a significant 32% increase in net income and a 29% rise in diluted earnings per common share for the third quarter of 2025, driven by strong net interest income growth and improved credit quality.

Summary

• Net income for the third quarter of 2025 increased by 32.2% to $53.3 million, up from $40.4 million in the same period of 2024.
• Diluted earnings per common share rose 29% to $1.20 in the third quarter of 2025, compared to $0.93 in the third quarter of 2024.
• Net interest income grew by 16.2% to $136.7 million in the third quarter of 2025, with net interest margin expanding by 28 basis points to 2.46%.
• Total assets increased by 1.8% to $24.0 billion as of September 30, 2025, from $23.6 billion at December 31, 2024.
• Total deposits increased by 2.2% to $21.1 billion as of September 30, 2025, from $20.6 billion at December 31, 2024.
• Total non-performing assets decreased by 12.6% to $16.9 million as of September 30, 2025, down from $19.3 million at December 31, 2024.
• The allowance for credit losses remained stable at 1.06% of total loans and leases outstanding.
• The company expects to recognize a one-time gain of approximately $18 million from the sale of its merchant services portfolio in the fourth quarter of 2025.
• A loss of $16 million to $17 million is expected in the fourth quarter of 2025 from repositioning available-for-sale securities.

Sentiment

Score: 8

Explanation: The company demonstrated strong financial performance with significant increases in net income and EPS, improved net interest margin, and reduced non-performing assets. Capital ratios are robust, and the local economy shows resilience. While there are expected losses from securities repositioning, the overall trend and outlook are positive, indicating effective management and a healthy financial position.

Positives

• Net income increased by 32.2% for the three months ended September 30, 2025, reaching $53.3 million.
• Diluted earnings per common share increased by 29% to $1.20 for the three months ended September 30, 2025.
• Net interest income grew by 16.2% to $136.7 million, and net interest margin expanded by 28 basis points to 2.46% in Q3 2025.
• Provision for credit losses decreased by 16.7% to $2.5 million in Q3 2025.
• Total non-performing assets decreased by 12.6% to $16.9 million, and the ratio of non-performing assets to total loans and leases and foreclosed real estate improved by 2 basis points to 0.12%.
• Net loan and lease charge-offs decreased by $1.3 million or 4 basis points annualized in Q3 2025 compared to Q3 2024.
• Total shareholders' equity increased by 7.4% to $1.8 billion as of September 30, 2025.
• Regulatory capital ratios (Common Equity Tier 1 at 11.98%, Tier 1 at 14.34%, Total Capital at 15.40%, Tier 1 Leverage at 8.44%) all increased, indicating a strong capital position.
• Hawaii's economy shows resilience with strong construction activity and an unemployment rate of 2.7% in August 2025, below the U.S. rate of 4.3%.
• The company expects a one-time gain of approximately $18 million in Q4 2025 from the sale of its merchant services portfolio.

Negatives

• Total loans and leases decreased by 0.4% to $14.0 billion as of September 30, 2025, from December 31, 2024, primarily due to declines in commercial and industrial loans, home equity, and automobile loans.
• Investment securities losses, net, increased by 76.3% to $1.9 million in Q3 2025, primarily due to higher fees paid for Visa Class B share conversion rate expense.
• Annuity and insurance noninterest income decreased by 25.0% to $1.1 million in Q3 2025.
• Mortgage banking noninterest income decreased by 23.7% to $0.9 million in Q3 2025 due to a decrease in loans sold to third parties.
• The company expects to realize a loss of $16 million to $17 million in Q4 2025 from repositioning a portion of its available-for-sale securities.
• Unrealized losses in available-for-sale and held-to-maturity investment securities were $0.8 billion as of September 30, 2025.
• Consumer Banking net income decreased by 9.3% in Q3 2025, primarily due to increased noninterest expense and decreased net interest income.

Risks

• Business is sensitive to regional business and economic conditions, particularly in Hawaii, Guam, and other Pacific Islands.
• Loan portfolio is largely secured by real estate, and a downturn in the real estate market may adversely affect results of operations.
• Significant changes to the size, structure, powers, and operations of the federal government, changes to U.S. economic policies, and uncertainties regarding potential for these changes may cause economic disruptions.
• A sustained period of high inflation could pose a risk to local economies and the financial performance.
• Climate change and governmental responses to it could have a material adverse impact.
• Disruptions, instability, and failures in the banking industry may negatively impact the company.
• Any reduction in defense spending by the federal government in Hawaii could adversely impact the economy.
• Changes in interest rates could adversely impact results of operations and capital.
• Allowance for credit losses may prove to be insufficient to absorb losses or appropriately reflect the inherent risk of loss in the loan portfolio.
• Consumer protection initiatives and court decisions related to the foreclosure process affect remedies as a creditor.
• Changes in the capital markets could materially affect the level of assets under management and the demand for other fee-based services.
• The Parent's liquidity is dependent on dividends from the Bank.
• Legislation and regulatory initiatives affecting the financial services industry could detrimentally affect the business.
• Changes in income tax laws and interpretations, or in accounting standards, could materially affect financial condition or results of operations.
• A failure in or breach of operational systems, information systems, or infrastructure, or those of third-party vendors, may result in financial losses, loss of customers, or damage to reputation, including cyber-attacks.
• Mortgage banking income may experience significant volatility.
• The requirement to record certain assets and liabilities at fair value may adversely affect financial results.
• Natural disasters and adverse weather in Hawaii and the Pacific Islands may negatively affect real estate property values and operations.
• Competition may adversely affect business.
• Future performance will depend on the ability to respond timely to technological change.
• Negative public opinion could damage reputation and adversely impact earnings and liquidity.
• Subject to certain litigation, and expenses related to this litigation may adversely affect results.
• Performance depends on attracting and retaining key employees and skilled personnel.
• The soundness of other financial institutions may adversely impact financial condition or results of operations.
• Experienced increases in FDIC insurance assessments.

Future Outlook

The company anticipates a one-time gain of approximately $18 million in the fourth quarter of 2025 from the sale of its merchant services portfolio. However, it also expects to realize a loss ranging from $16 million to $17 million in the same quarter due to repositioning a portion of its available-for-sale securities. The recently enacted One Big Beautiful Bill Act (OBBA) is not expected to materially change the effective tax rate or results of operations. Hawaii's economy is projected to remain resilient, supported by strong construction and domestic tourism, despite moderating job growth and federal employment reductions.

Management Comments

• Hawaiis economy continues to show resilience despite broader national and global uncertainties.
• We will continue to focus on providing customers with best-in-class service and an innovative mix of products and services.
• We will also remain focused on delivering strong financial results while maintaining prudent risk and capital management strategies and affirming our commitment to support our local communities.
• We actively manage exposures with deteriorating asset quality to reduce levels of potential loss exposure and closely monitor our reserves and capital to address both anticipated and unforeseen issues.
• We believe we have sufficient access to various forms of liquidity that would alleviate the need to liquidate these investment securities and realize the losses.

Industry Context

The banking industry is navigating a dynamic interest rate environment, with the Federal Open Market Committee implementing interest rate cuts. Bank of Hawaii's expansion of net interest margin and increased net interest income suggests effective asset/liability management in this environment. The resilience of the Hawaii economy, particularly in construction and domestic tourism, provides a relatively stable operating environment compared to some mainland regions, although federal employment reductions and inflationary pressures remain factors. The company's focus on core banking services and risk management aligns with broader industry trends emphasizing stability and capital strength amidst economic uncertainties.

Comparison to Industry Standards

• Hawaii's unemployment rate of 2.7% in August 2025 is significantly lower than the U.S. unemployment rate of 4.3%, indicating a stronger local labor market compared to the national average.
• The company's regulatory capital ratios (Common Equity Tier 1 at 11.98%, Tier 1 at 14.34%, Total Capital at 15.40%, Tier 1 Leverage at 8.44%) are well above the 'well-capitalized' thresholds, demonstrating robust capital strength relative to regulatory benchmarks for financial institutions.

Corporate Governance

Legal Proceedings

• No pending legal proceedings against or involving the Company are likely to have a material adverse effect upon its financial position or results of operations.

Stakeholder Impact

• Shareholders benefited from increased net income and EPS, stable common stock dividends ($0.70 per share), and preferred stock dividends. The company also has remaining share buyback authority of $126.0 million.
• Employees experienced increases in base salaries, incentive compensation, medical, dental, and life insurance, and separation expense.
• Customers continue to be a focus for the company, which aims to provide best-in-class service and an innovative mix of products and services.
• Creditors are positively impacted by the company's strong capital levels and liquidity, enhancing its ability to meet obligations.
• Local Communities (Hawaii, Guam, Pacific Islands) are supported by the company's commitment and benefit from its operations within a resilient regional economy.

Next Steps

• Recognize a one-time gain of approximately $18 million from the sale of the merchant services portfolio in Q4 2025.
• Realize a loss of $16 million to $17 million from repositioning available-for-sale securities in Q4 2025.
• Pay preferred stock dividends on November 3, 2025.
• Pay common stock dividends of $0.70 per share on December 12, 2025.
• Peter S. Ho's Rule 10b5-1 trading plan to sell up to 60,000 shares is scheduled to remain in effect through December 31, 2026.

Key Dates

Recommendation

The company delivered strong financial results for Q3 2025, with significant increases in net income and diluted EPS, robust net interest income growth, and an expanded net interest margin. Credit quality remains stable with a decrease in non-performing assets. Capital ratios are well above regulatory thresholds, indicating a strong financial foundation. While there are anticipated losses from securities repositioning in Q4 2025, these are offset by a significant one-time gain from a portfolio sale. The underlying business performance and economic context in its primary operating regions are favorable, suggesting continued positive momentum.

Keywords

Bank of Hawaii, BOH, Quarterly Report, Financial Results, Net Income, EPS, Net Interest Margin, Deposits, Loans, Non-Performing Assets, Credit Quality, Hawaii Economy, Banking, Financial Services, SEC Filing, 10-Q