Q3 2020 Bank of Hawaii Corp Earnings Call

Questions you might have so let me begin with a description on the economy. I'd say relatively stable outcome wage of most recent through the past quarter. Um, but but obviously it'll only like or appreciate we did see a clip up in unemployment in for the September month. So September flipped up to 15.1% versus that 13% range that you see from the June through August. But a lot of them driven by there were a number of awards act, um actions taken within the community and I guess one one thing to note there that even with the increase in unemployment for September. If you take those three months for the quarter, they effectively came in online with the with the you hero forecast, you suck.

in the in the light blue bar

That you here, which is the the analysis that we base much credit decisioning off of is calling for 13.4% fourth-quarter unemployment level and in in conversations with some of the senior staff over there. They they feel cautiously optimistic at this point that that that could is achievable assuming we get a continued slow but I think positive reopening of our of our transpac activity the kitchen always go to the next slide here. You'll see on the next slide just an annualized representation of unemployment 925 you hero forecast. You see a little bit off more constructive a little bit a little bit higher for 20 21 and then dipping down for twenty twenty-two and twenty-three years.

This this is in line with a lot of discussions that we've been having with our larger commercial customers and certainly our our Hospitality customers who took two twenty one as a restarting a year for us and you know, hopefully getting to a meaningful level of activity kind of into the 2022 year. It looks like

I just touched a little bit on GDP and personal income. You see the differential in forecast between the gold and and gray bars versus the blue box on employment or I'm sorry real GDP forecasted to rebound the slightly more muted fashion with the most recent forecast. I think maybe one of the more important slides are important takeaways on this slide is to recognize that well GDP obviously has taken a substantial hit here to the island economy for obvious reasons personal income is holding an reasonably well, and so the most recent reforecast as of September actually has personal income falling off pretty materially less than what we had originally forecast.

On the next slide give you a sense for how the local housing market is held up. The answer is surprisingly well, so I'm I'm like a number of other Mainline marketplaces housing for lots of different reasons is is a bright spot in the economy. You see on a daily basis a single family homes have had a nice steady increase in median sale prices up 3.3% inventory levels, very constrained as we look at point-to-point September this year versus last year a little more a bit more price action prices up 13.3% and Cocktails beginning to accelerate and again, very tight inventory conditions similar story on the condominium side. I think Condominiums perhaps are being impacted by birth.

new product

Out of the marketplace. But again, you see a pretty steady year-to-date median sales price increase and an inventory conditions that are that are just awfully concrete as of right now on to arrivals. So I think most of you are aware that beginning on the 15th of this month. So we're we're 10 days into our pre travel program Hawaii began welcoming visitors as well as returning or intended residence, and I'm like back to our Islands through a pre-test program. So basically to the extent that you receive a a recognized pcrm test from a number of approved providers preferred providers, we call them were allowing people with a negative result to come to the islands without having to go through Thursday.

14 day quarantine and once you see here obviously is that had a a very positive impact on transpac activity. So you said on this chart that the day before the program went into place. Um, we had upwards of two thousand visitors on 10/15 the days of the program launched up to 8.2 7.98 page. You see that pent-up demand a bit of a dip, but I can tell you the through the weekend we've begun to go back to those prior levels. So 10/22 you see six point six thousand two hundred visitors or returning transpac. The 23rd was 5.8 and the 24 + 6.3. So it's nice steady increase off around town on what people's uh early sentiment is on the results for you know, I'll be at the last week and half most people feel pretty classically optimistic frankly. Yep.

Where is a little bit higher than what they would have anticipated? And so I think this bodes well certainly gives us a pathway to get the wage. Mestic Market reopened which is two-thirds of our of our arrivals still need to work on International family, Japan. Although there's a lot of activity happening at the administration level help help make that a reality on to the next page. The infection rate here in the islands is generally been a good story. But you see the chart on the on the left shows you the the activity really experienced. What what what I like to call a post July 4th ramp up where we saw real exponential surge credit to the mayor of Honolulu cuz this was mostly concentrating.

Who implemented 827 stay-at-home order so a bit more relaxed in our prior or initial order but seems to have done the trick. In fact, it's now falling quite dramatically and if you look to the chart to the right would you see is white in terms of cases per hundred thousand on a rolling over the past seven days is amongst the lowest in the country. So of the best-performing states handling the virus in the country and if you go across the the the island with the island chain Wahoo performing. Well now a performing well a live performing exceptionally. Well, big Island's got bit of an issue with some some retirement home issues, but in general the state is a whole this is is operating quite nicely from an infection control standpoint. So finally just bring it all together birth.

We feel we're extremely well positioned for these most unfortunate times. It says a dynamic environment. This is certainly an uncertain and and generation gap sort of situation. But the company for the most part has been built to whether exactly these kinds of occurrences. So as I mentioned I think despite these challenges with this issue Brent metrics are strong is Maria will share with you. We had we had reasonable loan growth in the quarter slightly down on the spot to slightly up on on an average basis but impacted by about thirty-five million dollars and in line pay downs and off and installment loan reductions, as you would anticipate deposits continues to grow nicely for us up three and half percent on an average basis funding costs continue to come down.

And I think as you expect of us or liquidity Capital levels, we're certainly top-notch within the industry. So I think I'll stop there and I'm happy to kick it over to Mary would share some thoughts with you very thank you Peter at the end of the quarter the loan portfolio totaled 11.2 billion and remained 60% consumer and commercial was 76% secured with high-quality real estate with a combined weighted average loan to value of 56% as we've shared before we believe this portfolio of construction. Consistent conservative underwriting and discipline portfolio management will continue to provide us a superior outcome and allow us to continue to support our customers and Community walk through these unprecedented times.

Credit metrics remain strong and relatively stable in the third quarter. We realize net recoveries of 1.5 million for the quarter as compared with net charge-offs of 5.1 million in the second month and three million in the third quarter of 2019 non-performing assets to hold a point 18.6 million or 16 basis points at. N down 4.1 million or three basis points for the link. And down three million or four basis points year-over-year criticized loan exposure increased 51.1 million to 250.7 million months or 2.13% of total loans. The credit provision was 28.6 Million which would net recoveries of one point five million resulted in a thirty Point 1 million increase in the allowance for credit losses.

the reserve reflects our

Best estimate of losses in the portfolio folio given the company's credit risk profile and the current economic Outlook and forecast for our Market, which is Peter noted or anchored off you here Thursday, September 25th Baseline forecast with the reserve build reflective of the continued uncertainty were facing with COVID-19 and the and the potential downside associate at this at the end of the quarter the ratio of the allowance for credit losses to Total loan and Lease outstandings was 1.73% or 1.80% net of PPP lounge and the reserve for unfunded commitments was 2.3 million down $200,000 from the second quarter at the end of the third quarter customer loan balances on payment deferral orange extension totaled 1.5 billion or 13% of total loans.

During the quarter we continue to receive very few new request for payment relief.

She may recall we elected to provide initial payment relief of up to six months where customers given the degree to which way was impacted the provisions afforded under the cares act and our capacity to do so these payments referrals began to expire in September with customers returning to their normal payment schedules beginning in October. This Cadence will continue through November December accordingly asks of October 23rd customer loan balance is on payment deferrals have reduced to 1 billion or 8.6% of total loans took $839 million or 45% decline from the second quarter.

69% of the Consumer loans with payment deferrals as of September 30th are secured with residential real estate with a weighted average loan to value of 61% off 85% of commercial loans with payment for September 30th are secured with a weighted average loan-to-value of 51% Seventy 8% of the commercial loans continue to pay interest.

Our commercial exposure to those Industries most impacted by COVID-19 remained flat for the link. At 11% of total loans, exclusive a PVP and took it our exposure continues to be well positioned to whether this pandemic the retail segment total 648 million or 5% of total loans 91% is secured 55% weighted average loan-to-value 96.9% is secured or extended to an essential business 9% is unsecured and deferred wage. The lodging segment is 503 million or 4% of total loans 78% is real estate secured with a 51% weighted average loan-to-value and 79% have a loan to value of less than or equal to 65% 5.3% is unsecured and deferred.

finishing with the restaurant and

40 minute segments this segment totals $154 million or 1% of total loans 38% is real estate secured with a weighted average loan-to-value of 64% 21.3 million is unsecured in deferred with average exposure of 500,000. 98.8% is secured or paying interest. I'll now turn the call over to

Thank you. Mary is Peter stated? We are well-positioned despite the challenging environment.

No interest rates have fallen significantly in our margin remains Under Pressure. Our net interest income has remained relatively stable. We've been able to mitigate the impact of of the rate charge and pressures for the continued growth of our balance sheet and Mix Change.

Balance sheet growth is is being driven by strong deposits which increased by $316 million or 1.8% linked quarter and 2.4 billion or 15.6% year-on-year over the last ten years deposits have grown by an average of 6.2% annual.

Concurrent with a strong deposit group our total deposit funding costs. Also continue to decline during the quarter ending the quarter at approximately 4 basis points the low cost us with flexibility for growth and it's a significant contributor to our profitability.

At samet again, I guess the impact of lower interest rates. We continue to reduce deposit rates as market conditions allow.

At 66% our loan-to-deposit ratio remains will be low peers with a comparatively low ratio or solid and growing deposit base provides additional asset funding opportunities and pricing flexibility while reducing our funding risk profile against risk assets.

We continue to deploy a portion of that excess liquidity into our Investment Portfolio increase balances by four hundred million dollars to six point four billion. We maintain the high credit quality and liquidity by adding only aaa-rated Securities with reliable monthly cash flows aaa-rated Securities represent 96% of the portfolio balances and 100% remain a rated or better.

Adoration of the portfolio was 3.54 years at the end of the quarter and well within our risk tolerances.

That's the Investment Portfolio remains a stable and secure source of liquidity and funding for a balance sheet.

Our loan portfolio has shown resilience in the face of a difficult lending environment the 8.4% growth and balances gyro near is helping mitigate the impact of sharply lower interest rates and as enabling are stable net interest income is the last ten years loans have grown by an average of 8.5% annually.

Sense of balance sheet grilled. Our profitability is further supported by our disciplined expense management.

Since 2009 expenses have grown at less than half the rate of inflation while we are still making critical investments in equal technology and infrastructure projects.

Throughout the pandemic reprovision net revenue generation remained strong and stable funding the dividends to shareholders building additional reserves and adding to our growing capital.

Are strong risk-based Capital levels continue to improve in the third quarter increasing RCT 1 and Tier 1 Capital ratios to 12.1% off our excess Capital levels in the third quarter continue to hold significant amounts of capital in excess of minimum Regulatory and well-capitalized levels these represent funds that can be deployed for Thursday growth or loss mitigation.

I'll provide additional details on our financial results.

Net income for the third quarter of 2020 with 37.8 million or $0.95 per share.

That interesting come on a reported basis in the quarter was 124.2 million dollars lower by two point five million from the previous quarter and lower by $700,000 from 3rd. June of last year.

Included in the second quarter of 2020 net interest income was an interest recovery of 2.9 Million Dollars.

Excluding the interest recovery from the second quarter that interest income in the third quarter of 2020 increased by $400,000.

It's Mary discussed. We recorded a credit provision of twenty eight point six million this quarter.

Not interested in total 41.7 million dollars in the third quarter of $20 29.5 million from the previous quarter and down 4.8 billion from the third quarter last year.

I'm interested in coming in second quarter of 2020 included a gain of fourteen point two million dollars from the sale of our remaining pieces Sheriff's.

Adjusted for the Visa sale non-interest income increased by four point six million dollars or 12.6% linked quarter primarily due to higher deposit service.

For the fourth quarter of 2020 we expect non-interest income will be approximately 42 million dollars while non-interest income has improved challenges remain do to lower levels of customer activity during the ongoing disruptions from the global pandemic.

Non-interest expenses in the third quarter total of 89.9 million dollars an increase of one point 1 million from the previous quarter and a decrease of 10.4 million from the same quarter last year.

In the third quarter occupancy expenses were reduced by one point nine million dollars from the sale of proxy offset by the recognition of 1.8 million of Separation expenses.

Rules for corporate incentives and the third quarter or two point seven million dollars and continue to be lower than the comfortable. 2019 which was 5.7 million months included in the expenses for the third quarter of 2019 was an increase of six million dollars in legal reserves.

For the fourth quarter of 2020 expect our non-interest expenses will be approximately the same as the third quarter at about ninety million dollars.

The effective tax rate in the third quarter was 20.09% We estimate the rate will be approximately twenty 21% for the fourth quarter.

Or return on assets was .76% return on Equity was 11.01% in our efficiency ratio is 54.2%

Our net interest margin in the third quarter was 2.67% 16 basis points from the second quarter and down 34 basis points from the third quarter of 2019.

Adjusting for the 2.9 Million Dollar interest recovery recognized in the second quarter, which benefited the second quarter. Margin by 7. Basis points. The margin is a third quarter was lower by knowledge basis points the increase the decrease was primarily due to lower interest rates and much higher levels of liquidity you too strong deposit growth.

Expect our net interest margin will remain under pressure in decline by approximately 7 to 8 basis points in the fourth quarter from the continuing impact for rates and additional liquidity.

However, an interesting column is expected to be approximately unchanged from the third quarter as loan growth and acid in exchange are expected to mitigate the impact of the lower margin.

Our estimates conservatively assume PPP loans are carried for the full 24 months.

Sure hold a sec what he was 1.36 billion dollars at the end of the third quarter during the third quarter. We paid out twenty six point nine million or 71% of net income in dividends.

Are serving purchase program remain suspended.

And finally aboard declared a dividend of sixty seven cents per share for the fourth quarter of 2020 and I'll turn it back over to Peter great. Thank you Dean off. So there's our our prepared comments. We're happy to share with you. Whatever questions you you might have at. This time is a reminder to ask a question. You will need to press star one on your telephone again, that's star one and it's a touch-tone telephone to ask a question to withdraw your question. Press the pound key. Please stand by while we compiled the Q&A roster.

Our first question comes from the line of Abraham pulling Wala Bank of America security your line is open.

Thank you. Good morning morning. I guess the first question if you could just talk a little bit about the photos that 8.6% talk to us in terms of how you would like to have. These deferrals come up just from a timeline standpoint where you think they tend towards the end of the year and within the Deferred book, what's your expectations of what percentage actually my Gates about performing particularly as it relates to the sort of the higher COVID-19 sectors.

Sure, maybe let me start with our Consumer Portfolio. It was down 34% from the peak with mortgage and home equity down for Thursday in 34% Auto and indirect were down fifteen and 19% respectively from the peak in our Consumer Portfolio the majority of our deferrals and mortgage home-equity were pretty equally Judds such that we have 40% maturing and or returning to payment in October forty percent in November and then Thursday 10:10 through the balance of the year on direct and indirect that had a little different Cadence. So we only had about 10 to 20% coming off of deferral moving to payment on October. So we're a little earlier into that process. So that will move about 40 40 20 through the balance of the year, you know, the results to date have been Pub.

But I think it's a bit too early to really draw any conclusions and will really want to take a look at the data this month to see how that's playing out on the commercial front. We're down down to $480 million, which is down 55% The secured piece was dumb 56% from the peak and the unsecured 52% our Outlook. There is may continue to see some payoffs through the end of the year probably dropping maybe another hundred million, but we are continuing to support our customers and offering additional damage primarily a principal deferrals and this just really is to partner with them as they've had to draw in their own liquidity and capital to carry the negative and have done so long and we feel it's appropriate that we assist and given the low leverage on these assets. It makes sense. Yeah, that's a really good point where I mean, I think just to add a little color to to Marys, Georgia.

You know, we're down from 2 billion to mid year 2 billion and 1/2 quarter-end and and is married thousand nine hundred ninety-two actually as of a few days ago or Thursday our expectation is that number will continue to drop but underlying all of that are you know clients that we have and have had for a long time who are just experienced an extraordinary situation. And so our goal is to be able to support them obviously within the bounds of our capital and reserve and capability which we feel very good about so I have you know, my my sense is that this this is actually going quite well, we as you know have been building reserves towards this, um, we can see some what the light at the end of the tunnel on that and on the client-side, you know for their part they've, you know, been dutifully bringing that number down, but we are going to get to a point where you know that that that represents the truly deferred wage.

population set in our goal would

Be able to be able to support them by virtue of the fact. We've built the capital around them to do that Abraham. I would also share with you that in the high-risk industry exposure are deferral population down 42% from the peak and the majority of that remains secured only 22% of that is unsecured.

Got it. So I guess safe to assume that I do work with your borrowers. Some of them mean they need the photos that extend beyond here. And that's the right way to think about it. I would I would imagine with unemployment, you know, 5 x where it was pre COVID-19. Probably a high likelihood.

Understood and types light 6 showing the daily arrivals when you think about the actual if if you gave some overview of the local economy Peter, but as we think about just the reopening of Tourism the hotels like do you expect like a few weeks from now all the properties to be open kind of what's going on in terms of your customers in your lodging in restaurant customers at least opening back up over the next few weeks. Yeah good good question. So, you know, we in in I have been dead pretty consistent conversation with with sector that didn't affect her and and similar comments are I think people are you know, obviously because of the month starts with the reopening over the over the summer where where people are falling out is they took a bit of a wait-and-see attitude, so we are reopen most bulb.

Could I talk to or looking to be open kind of early into next month if you will so I think I think that bodes well for for arrivals for us. Um, yeah, we're we're running right now at about 20% of you know, what what we used to run in a normal environment and most of the hotel is that I speak to our Point need to see if we could get that number more to 50 percentage that that begins to allow them to operate. Um, you know with some with some semblance of of in the black if she will so that would be the near-term goal and I think most of them would say it's going to take maybe another year on top of that to get back to the good old days.

Understood and if I can sneak in one last one for Dean 10 for spelling out the fourth quarter Guidance just as we think about the Securities will be in this talk to us about the pressure on that page on the average in what about 195 in the book in the third quarter? What a new Security is coming in at and what's the outlook for cash first coming of maturity or the next I guess Q one year.

Yeah, so the the New Year's coming on or about 1 to maybe one and a quarter percent. So quite a little versus what's running off and the differential in the last quarter was about one-and-a-half percent. So we we would expect that to continue through, you know, the foreseeable future in terms of the low rates in terms of liquidity, you know, the the portfolio of does have a pretty high run off of increase this quarter. I think you've signed the presentation last quarter was 9.1 million versus the thoughts in terms of Premium amortization versus a 7.5. So I would expect the cash flows coming off in the fourth quarter and maybe into next year to be a little bit elevated off but you know that gives us a lot of liquidity continue liquidity and we'll probably be in reinvesting a good portion of that back into the portfolio.

about a statement questions

Thank you. Our next question comes from the line of Geoffrey Lewis a d a Davidson your question, please.

Good morning, Jeff question on the the migration Trends to the island just in and out of the state and I guess is that off and then to as it relates to I mean your mortgage outlook for 4:21?

So expand for me the migration question Jeff. Yeah, just more recent flows of folks moving to the state permanently or or and or just how that yep. Yeah. Yeah, so that has been um that has been um, uh for three years know, you know somewhat of a of an issue so net domestic migration has always been in a slightly negative. It called a couple thousand per year. That's the number of folks leaving the islands to the US Mainland number of people from the US Mainland coming to the islands to live the last three years. We've seen that expand to walk, you know, ten twelve thirteen fourteen fifteen thousand people, but since we had around that was prior to

And so that's a condition that existed pre COVID-19 out of covet, you know, we'll have to see what happens. You know, I think obviously economic conditions will be somewhat different but at the same time, you know, housing prices might be different as well though. That's not very out in the statistics right now interesting side note on on migration from the mainland is at the very top end of the market and and this is mostly anecdotal. But but I've heard and seen it enough to to Thursday things that there's there's a trend that we are seeing a number of you know, high-end, uh, potential residents. Um, looking to make y e a place to hang out and kind of off work through I guess the COVID-19 if you will and I can tell you just from my own experience just in the neighborhood that I frequent you definitely see that phenomena happening.

Got it, then. It's kind of really narrow but could narrow that into the the mortgage outlook for 21 somewhat related. But those are big picture. Just trying to get a sense for the mortgage. Yeah, you know, it's just going to be you know, I think mortgage is going to be largely a refi phenomenon. As you know, the the VA side is absolutely white hot so much Freedom mortgages of the world or are running roughshod the purchase side is you know, it's it's it's punching as well. But you know, Hawaii is just an inventory cuz frame marketplace, I think if we were a different Market we'd be selling every you know, nailed down to the ground that we had up and just there just aren't a lot of homes to buy. So I think that we we believe our our forecast is that mortgage will continue to be strong but mostly in the refi space and and and most of that's just because we just don't have that much inventory out here.

Okay, what maybe one last one Peter? Certainly, the bank has been out of ahead of the curve on a the branch to digital shift. And as you see the industry exchange rate in in a remote working world is that change the pace of of what you kind of your own course of action, do you accelerate that plan or maybe just an update on kind of that move as you gaze. Yeah, that that's that's definitely from center of a lot of the things we're thinking about right now Jeff and how long we've seen is a pretty dramatic shift. I mean we we've and you and I have discussed this, you know, we've seen for years now a meaningful shift took digital away from in-person branch COVID-19 has really accelerated that so I can share with you that uh, year-to-date wage.

Our Branch transactions are down call it 50% and and a lot of that is just people changing Behavior as they age as they kind of we we figure their daily their daily lives because of the virus. Now, what what that helped to do is move things like deposits, you know consumer deposits into other channels albeit electronic channels. So for instance in August twenty nineteen, sixty 1% of our deposits were coming through our branches fast forward to this past August that numbers down to 47% So, you know, we you know, we think that that is a trend that is going to continue. The question is once we come out of COVID-19 for out of this crisis, you know, what will the bounce-back factor birth?

So I guess the way that we're thinking about it is we as you know, we were already down the path of trying to create a more efficient physical presence. I think this is exposed to that to a certain degree. But what we're trying to figure out this point is, you know, if Branch volumes are down 50% What's the balance back Factor? But you know save the bounce-back factor is plus 50% from that down 50 that still gives you kind of a net net twenty-five reduction 25% reduction in overall activity and certainly something that we need to to be processing around off just to finish off the thought we've we've we're very happy with our investments on the Commerce side.

Because obviously because of the reduction and Branch activity traditional Branch sales are just off meaningfully, but those for the most part of the offset by our thoughts. Are you, Versailles down our mortgage and consumer loan and and consumer deposit opening activities, so generally a good story.

Okay. Appreciate it. Thanks.

Thank you. All right. Next question comes from the line Jackie Bolen of KBW your question, please.

Hi, good morning. Everyone. This is a follow-up to my understanding that you know, you've obviously got a lot under review right now. What are some of your preliminary thoughts and how we should be thinking about the expense structure in 2021?

Yeah, so there there there are some hopeful thoughts there and then there are some longer-term strategic plans that we that we hope just line up nicely for us there Jackie and so, you know, one of the expense drivers this year has been frankly being pretty pretty Draconian on the variable comp side. So our hope is that as provisioning moderates and as operating volumes returned somewhat more normal condition that number should obviously blow up a bit, right? So that's going to create a Delta for us at least versus what we're doing this year and what we would anticipate doing what we're thinking through is, you know, what are the home base operating opportunities that we have at our disposal. So Jeff, you know touched and asked about the branch Side branch real estate that clearly is an opportunity for us as you know, that's not something.

That's come about just because of covered. I think it's the accelerated because of comment and then we also have a number of efficiency initiatives that are being brought about by just better process, um design and management as well as by some technology and automation capabilities that were that were getting underway on so I think the best way to talk about it is if you look at our long-term expense slope, you know that we've been able to really draft below the overall rate of inflation while still provide for future investment and we would expect to continue to to be on that path for for you know for a number of years to come.

Okay, great. Thank you for the the additional comments. They're taking a look at deposits just curious and this ties in with balance sheet size as well, I noticed that the the commercial declined was perfectly offset with consumer and public and just wanted to see what your appetite is for public deposits. And if that was just a function of an opportunity to sell or if you're trying to maintain balance sheet growth to offset margin pressure, which kind of alluded to earlier? Yeah. Well, so let me let me talk about the numbers first and then I'll come back to the strategy if that's okay with you, you know the numbers because because we have so many, you know, kind of stimulus type of dollars large dollars balancing around with some of our larger commercial clients Jackie kind of the the spot point-to-point numbers can be a little dog.

Leading so, you know now more than ever we're looking at.

Balances and if you look at that, you know for the quarter we were up 2.3% on an average deposit basis consumer was up 3% commercials up 6.5% and actually government was down seven and half percent. So that gives you the snapshot for the quarter itself in terms of our strategy around the house. So the government deposit sector they guess more specifically the time sectors, you know pricing is gone is again gotten awfully attractive there and as we've described in the package when when rates are very low the municipalities tend to you know, go with local players just cuz it's an easier form of execution. I think they prefer to do that job, you know, we can get pricing in the you know, single-digit range which you know, I think by anybody's book is is pretty attractive as as rates rise, you know things become more competitive and more National wage.

Is a competition and then that becomes less attractive to us. So I think while we're in this rate rate zone, we will opportunistically be out of the the government time sector, but just as a broader, you know backdrop, you know, where we really trying to build our deposit franchises not so much there but really more down the core commercial consumer front.

No, definitely definitely understood in terms of of that and thank you for the average. That's that was very helpful. Okay. Thank you. I'll sit back. Okay. Thanks. Thank you. Next question comes from the line of and release of Piper Sandler the question, please.

It's at least please make sure your line intermediate going to speakerphone looking handset. Oh, I apologize. Good morning. This is follow-up. You hear me? Yep. Yep. Okay. Yeah. Sorry. I just wanted to follow up on on the margin and macquiddy discussion and certainly forecasting out the level of the high level of liquidity can be challenging but where am I mean, it recognized marginal be down a bit more here this courtroom. Where do you guys think that ultimately ends up bottoming out before kind of plateau? I guess reaching a trial.

Yeah, looking into next year probably towards the end of the year, but the pace of the decrease will will decelerate. So Monday we're looking at probably in the fourth quarter of next year. We're we're bottom out. But again the the pace of decreasing the margin will slow. Okay, that's helpful on that. And then on the credit front the rise in criticized loans is curious. What was driving back. Is there anything else amongst the deferrals or among certain borrowers that gives you some positive tone?

we did have a

Increase in our high-risk industry exposure to accounted for about 42.7% of that are high-risk industry exposure is or criticized wage is 79% secured and has a weighted average LTV at 59% So that's that's really what two and half percent right now. Yeah, so it's still well below regulatory. Yes two points. Yeah. It's still very long. I was very low and then off one more on the C Income how much this is driven by the increase here of like a of any reopening and as a state does have more reopening and torque does come back a little bit, uh opportunities for other sorts of consumer transaction-related fees. I mean, did you think there's opportunities for that to improve next year as as activity log?

Yes, so the the increase in in those feline items that you that you reference definitely with driven by a resumption of local economy. Traffic a good a good graph to look at is we go to the yujiro site. They have a uh, well, they call an economic pulse, uh, which took a whole bunch of high frequency data and and amalgamate sit and that that actually is now up to its highest level since the prices hit. So we think that's what we're seeing just came in enhanced activity and and we would hope Andrew that if it has the visitor arrivals to the islands helps push the economy forward wage see more of that that trend line happened.

Okay, great. I appreciate all the color and thanks for taking my question.

Thank you. All right. Next question comes from the line of Lori hunsaker of compass point, please. Go ahead. Thanks. Good morning. Just wanted to go back to Jackie's question on just just looking at the public deposits. Do you have a breakdown as to as to what the time is within that 1.675 billion number and just maybe a little bit about your strategy on public time.

I don't have a breakout per se on me Lori. Okay, I'll circle circle back. Maybe just generally you know off again rates are obviously very very low but how you're thinking about specifically the public timepiece specifically we think of the public it's kind of a it's kind of a it depends on what part of the cycle you're asking us and you know in in general I'd say that they don't really represent a strategic part of our deposit business, but there are times when rates are so low that their prices pricing is so benign is just kind of silly enough for us to take that opportunity and that's kind of where we are right now. We're squarely in the low single-digit range right now. And so yeah, if if a local Treasurer calls and says, would you like to take this money for a period of time generally the answer that is going to be yes, so, you know, I think birth

we're we're trading right now is somewhat opportunistic, but just in the

Broader sense, you know public space and the time-space in particular is not really not really are you know where we would be trying to push the deposit portfolio Okay there. Okay, great. And then Mary question for you hoping we could we could go back over appreciate the October 23rd update. So obviously commercial here drop $837 million. I'm just talking deferrals 837 million from September Thirty down to 480 million at October 23rd. Do you have that breakdown either by percentage or dollars what the retail lodging and restaurant is for deferrals as of October 23rd?

I do.

Okay, so October 23rd, the retail deferrals would be $80 million with $75 of that in secured exposure with a 51% LTV off the lodging exposure is a hundred and sixty six hundred and forty million of that is secured at 39.8% and our restaurant and entertainment was 42.5 off with Millions secured at 47% LTV and thirty $2 million unsecured.

Okay, that that's great. That is that's very helpful. And then just one other questions is shifting gears on your on your loan. Do you have an update in terms of as of September Thirty what the processing fee income would be in other words as of last quarter around numbers. It was $18 or so off on your books. Just trying to get a sense of if we suddenly have, you know, lump forgiveness where that number stands currently.

Well the way to think about is if you take the $18 million and you divided by 2/8 quarters, that's how much we would amortize into the yield every order. Okay? Okay, so just under sixteen PM, okay.

That's not so great. Thank you. I'll leave it there.

Thank you. My next question comes from KC hair of Jeffries line is open.

Hey, good morning. This is Elan Zinger on for Casey.

Are you wanting something with the resi mortgage yields? They were up a couple of basis points, you know, what drove that and and where some of the new projects coming on at what pricing?

Yes, in terms of the yield what's happening is as because we have a lot of refi or prepayment activity. What we do is we then get to walk. This is kind of a more of a technical response, but we do get to recognize a lot of the loan fees into the yield. So that's what's driving some of the yield increases in terms of what's happening on um, you know, right around maybe slightly less than 3% is where where they're coming on.

Okay, so you're so you're just pulling in more of the fee instead of you know amortizing it out over a longer period is that is that how I should understand it? Yeah, ok, Google home coming up loans that are coming off term, right because they're being reflex. Oh, okay. Yeah got it. And then just back to the name guidance. Could you just remind us what it is but whatta contemplates in terms of you know cash balances for the fourth quarter and and uh and growth insecurities.

So the cash right now, we're call it eight hundred million and securities with 6.4. So we're probably going to deploy some of that back into the portfolio off then that's what's going to help us stabilize the net interest income.

okay, and then just last one for me on the tax rate if the corporate tax rate goes to 28% like like many think might happen, you know where where could be a wage, you know, what range could be a way to settle out and

It's hard to say right now because of just where we you know, the tax rate right now. It's pretty low at 20% So I would I I don't want to give a number because we haven't really kind of delved into the exact impact of what a higher rate would do to us.

Okay.

Hello.

That was it for me. Thank you guys.

Thank you. Is there a no more questions and I'd like to turn the call back over to send you for closing remarks ma'am. Thank you. Again. I'd like to thank all of you for joining again today for your continued interest in Bank of Hawaii. As always, please feel free to contact us if you have any additional questions or need further clarification on any of the topics we discussed today. Everyone. Have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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