Bank of Hawaii (BOH) Q3 2025: Net Interest Margin Expands for 6th Straight Quarter, Setting Up 25bps Annual Tailwind

October 27, 2025 | By EarningsIQ Research

Bank of Hawaii’s disciplined asset repricing and deposit management drove another quarter of net interest margin expansion, as credit quality remained pristine and capital flexibility improved. Wealth management modernization and selective capital return signal a pivot toward higher-value growth levers. With NIM momentum, robust credit, and a sharpened focus on affluent and advisory segments, BOH enters 2026 positioned for incremental margin gains and balanced loan growth.

Summary

• Margin Expansion Momentum: Net interest margin improvement is set to continue, underpinned by asset repricing and disciplined deposit management.
• Credit Outperformance Holds: Credit quality metrics remain at industry-leading levels, supporting stable risk-adjusted returns.
• Strategic Wealth Push: Wealth management investments and technology upgrades target share gains in Hawaii’s affluent segment.

Performance Analysis

Bank of Hawaii delivered another quarter of disciplined margin expansion, with net interest margin (NIM) rising for the sixth consecutive period. This was achieved through proactive asset repricing—remixing $594 million of fixed-rate loans and investments from 4.1 percent to 6.3 percent—and continued improvement in deposit costs, which fell to a spot rate of 154 basis points. Average deposits increased at a 7 percent annualized rate, reflecting both franchise strength and effective relationship management. Non-interest income also saw a lift, normalizing higher after adjusting for one-time items, driven by increased customer derivatives, trust, and asset management fees.

On the expense side, normalized non-interest expense ticked higher due to additional incentives and a seasonal payroll impact, but management expects a return to a $109 million quarterly run rate. Capital ratios further strengthened, with Tier 1 at 14.3 percent and total risk-based capital at 15.4 percent, providing ample flexibility for dividends and a potential resumption of share repurchases. The sale of the merchant services business and subsequent securities portfolio repositioning are expected to deliver a modest but recurring pre-tax earnings boost.

• Deposit Cost Control: Deposit spot rates declined to 154 basis points, with further repricing upside as CDs mature and reset at lower rates.
• Asset Repricing Drives NIM: Fixed asset roll-offs into higher-yielding instruments contributed to sustained NIM gains, with management projecting 25 basis points of annual expansion as a base case.
• Expense Discipline Maintained: Despite one-off severance and incentive costs, underlying expense growth remains contained, supporting operating leverage as revenue grows.

Credit quality metrics—net charge-offs, non-performing assets, and criticized loans—all improved or held at low levels, reinforcing BOH’s fortress risk profile and providing a stable foundation for incremental growth and capital deployment.

Executive Commentary

Strategic Positioning

1. Hawaii Market Share Leadership

BOH’s dominant brand and local focus have enabled it to expand its number one deposit share position by 40 basis points this year, and by 600 basis points since 2005. This outperformance is balanced across consumer, commercial, and municipal segments, reflecting deep franchise integration and consistency in strategy execution.

2. Asset and Liability Optimization

Management’s ongoing remixing of fixed-rate assets into higher-yielding instruments and disciplined deposit cost management underpin the NIM expansion story. The maturity profile of CDs and repositioning of the swap portfolio provide additional levers for margin resilience, even as rate cuts loom in 2026.

3. Wealth Management Modernization

BOH is investing to address a historic lag in assets under management (AUM) growth, launching the Banko Advisors platform in partnership with Cetera to upgrade technology and client experience. The strategy targets both mass affluent and high net worth segments, with an emphasis on cross-selling and advisor talent acquisition to capture a greater share of Hawaii’s fragmented wealth market.

4. Fortress Credit Culture

The loan book remains highly secured and diversified, with 86 percent of consumer loans in residential mortgage or home equity (average LTV 48 percent) and conservative commercial real estate (CRE) exposures (all CRE LTVs under 60 percent, no sector above 7 percent of total loans). The risk discipline is reinforced by minimal exposure to non-depository financial institutions (0.6 percent of total loans) and a steady de-risking of non-core credits.

5. Capital Allocation Flexibility

With capital ratios comfortably above regulatory minimums, BOH is positioned to resume share repurchases and sustain its dividend, while maintaining capacity to invest in growth and technology upgrades. The board’s recent dividend declaration and management’s commentary signal a willingness to deploy capital opportunistically as conditions warrant.

Key Considerations

BOH’s third quarter showcased a business model built for steady compounding, balancing risk, margin, and growth. Strategic investments in wealth management and technology, combined with disciplined balance sheet management, set the stage for incremental earnings power as the rate cycle turns.

Key Considerations:

• Margin Expansion Durability: NIM tailwinds are underpinned by asset repricing and deposit cost resets, with management projecting a 25 basis point annual pickup under current conditions.
• Wealth Management Upside: Successful execution on Banko Advisors and high net worth initiatives could unlock a new earnings lever, but will require continued talent and technology investment.
• Capital Return Optionality: Ample capital supports both dividends and opportunistic buybacks, especially given current stock valuation and improving earnings visibility.
• Expense Growth Trajectory: Core expense growth is expected to run in the low 3 percent range for 2026, reflecting ongoing investment in advisory talent and technology, but with a focus on maintaining operating leverage.

Risks

Key risks include potential deposit mix volatility as rates normalize, competitive pressure in both lending and wealth management, and macroeconomic uncertainty that could slow loan growth or impact Hawaii’s real estate markets. While credit metrics remain strong, any deterioration in local economic conditions or unexpected rate moves could challenge the margin and growth outlook. Expense growth from ongoing investments must be matched by revenue lift to protect profitability.

Forward Outlook

For Q4 2025, Bank of Hawaii guided to:

• Normalized non-interest income of $42 to $43 million, reflecting the merchant services divestiture and higher customer activity.
• Normalized non-interest expense of approximately $109 million, with the impact of seasonal payroll and incentive accruals moderating.

For full-year 2026, management expects:

• Expense growth in the low three percent range, driven by continued investment in wealth management and technology.

Management highlighted several factors that will shape results:

• Ongoing NIM expansion from asset repricing and lower CD costs
• Potential for incremental loan growth if macro stability and rate cuts materialize
• Capital return flexibility, with buybacks likely to resume in Q4 and into 2026

Takeaways

BOH’s margin expansion, fortress credit, and capital flexibility provide a stable platform for compounding returns, while wealth management modernization and selective capital return offer upside optionality for 2026 and beyond.

• Margin Tailwind: Proactive asset and liability management is driving consistent NIM gains, with further upside as CDs reprice and deposit costs normalize.
• Strategic Wealth Pivot: Modernization and advisor recruitment in wealth management could unlock a new growth vector, but execution and talent retention will be key.
• Capital Deployment: With capital ratios strong, BOH is positioned to balance dividends, buybacks, and organic growth, enhancing shareholder returns in a lower-rate environment.

Conclusion

Bank of Hawaii’s Q3 2025 results reinforce its reputation for disciplined execution, risk management, and margin optimization. With NIM momentum, robust credit, and a sharpened focus on wealth management, BOH is set up for steady earnings growth and capital return as it enters 2026.

Industry Read-Through

BOH’s performance highlights the enduring value of disciplined balance sheet management and local market leadership in regional banking. The ability to expand NIM through asset repricing and deposit cost control, even as the rate cycle turns, underscores the importance of funding franchise strength. The pivot toward wealth management modernization signals a broader industry trend, as banks seek to diversify fee income and deepen client relationships amid margin compression. Competitors with similar market concentration or risk discipline may find a playbook in BOH’s approach, while those lagging in technology or advisory talent risk further share loss in the affluent and high net worth segments.

BOH Financials Regional banking Net interest margin Wealth management Credit quality Capital return