Q3 2022 First Hawaiian Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can down.
Good day and thank you for standing by welcome to the first Hawaiian incorporated Q3 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star.
One one on your telephone please be advised that today's conference is being recorded I would now like to hand, the conference over to Kevin Hockey Hockey Llama Investor Relations manager. Please go ahead.
Thank you Tanya and thank you everyone for joining us as we review our financial results for the third quarter of 2022 with me today are Bob Harrison, Chairman, President and CEO , Ralph Music, Chief risk Officer, and interim CFO and other members from the management team we.
We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at H B Dot com in the Investor Relations section.
During today's call, we will be making forward looking statements. So please refer to slide one for our safe Harbor statement.
We may also discuss certain non-GAAP financial measures. The appendix to this presentation contains reconciliations of these non-GAAP financial measurements to the most directly comparable GAAP measurements.
And now I'll turn the call over to Bob.
Thank you, Kevin and good morning, everyone I'll start with a brief update on the local economy.
Hawaii economy continues to be resilient.
September the state wide unemployment rate fell to three 5%, which is in line with the national unemployment rate.
Total visitor arrivals were 703000 in September of this year, which is four 5% lower than September 2019 arrivals.
This is a strong result, considering the Japanese visitor arrivals were at three 4% of the total this year compared to 19, 6% of the total in September 2019.
Japanese visitor arrivals represent a significant upside when they returned to more normalized levels.
Despite the lower number of arrivals visitor spend as of September was 148 billion, which was $18, 5% higher than September 2019.
While higher interest rates have caused a slowdown in the housing market.
Continued demand and lack of supply have kept prices stable.
At September single family home sales on Oahu.
Down 34, 4% from last year.
The median sales price was $1 1 million four 8% higher.
Turning to slide to review, our third quarter results, we had a very strong quarter as net income grew to $69 million or <unk> 54 per share.
Continued to benefit from our asset sensitive loan portfolio.
Low cost core deposit base.
Our return on average tangible assets was $1 one 4%.
Turn on average tangible common equity was 20, 153%.
The board maintained the quarterly dividend at <unk> 26.
During the quarter, we repurchased approximately 107000 shares for two and a half million dollars.
And we continue to maintain strong capital levels after dividend payments and share repurchases.
The common equity tier one ratio was 11 seven 9% at quarter end and total capital was 12, 92%.
Turning to slide three the balance sheet continues to be well positioned for the current environment.
It remains asset sensitive with about $5 4 billion.
Our 35, 39% of the loan portfolio repricing within 90 days.
And we saw the responsiveness of our loan yields are higher interest rates in the third quarter.
We also improved the balance sheet mix in the third quarter is redeployed excess cash and investment securities runoff into higher yielding loans.
The investment portfolio continues to perform well as rates have increased.
The duration of the portfolio remained stable at five and a half years in the third quarter virtually unchanged from year end.
And cash flows from the portfolio ran about $90 million per month for the third quarter.
During the quarter, we reclassified an additional $420 million of securities to held to maturity to reduce the accounting volatility associated with the <unk> adjustments.
Our liquidity position remains very strong with the 62% loan to deposit ratio.
<unk> core deposit base and steady cash flows from the investment portfolio.
Turning to slide four period end loans and leases were $13 7 billion.
An increase of $438 million or three 3% from the end of Q2.
We experienced growth in all portfolios with the largest increases CRE C&I loans.
On a year to date basis, total loans and leases are up $738 million or five 7%.
Excluding PPP loans total loans and leases were up $928 million or seven 3%.
In line with our full year outlook of mid to high single digit growth, which remains unchanged.
As expected a large portion of the increase in the commercial book was on the mainland where the rebound in loan demand started earlier.
Looking forward the fourth quarter loan pipeline remains robust.
Given primarily by commercial loans in Hawaii and Guam.
This should put us at the high end of our original full year loan longer sorry. This should put us at the high end of our original full year loan growth guidance.
Turning to slide five deposits fell by $510 million or two 3% to $22 1 billion at quarter end.
Approximately $347 million or two thirds of the decline was attributable to 10 large commercial accounts.
Our total deposit costs at 24 basis points in the third quarter and.
An increase of 16 basis points from the prior quarter.
This was primarily due to rate increases on our corporate accounts.
Money market accounts and other high balance accounts.
Rack rates on savings or checking accounts in our market remains stable so far this cycle.
Our favorable deposit mix with 42% of deposits and noninterest bearing accounts.
Continues to help provide stability to our total deposit cost.
We expect continued volatility in deposit balances given the unprecedented growth in deposits, we saw during the pandemic as well as rising rates.
However, our liquidity levels remain strong and we have a variety of options to fund loan growth.
Now I'll turn it over to Ralph.
Thank you Bob turning to slide six.
Net interest income increased by $17 6 million or 12, 1% over the prior quarter to $162 $7 million, excluding the impact of the PPP fees and interest net interest income increased $18 $5 million the.
The increase was primarily due to higher yields and balances of loans, partially offset by higher deposit costs.
The net interest margin increased 33 basis points to 293% driven by higher yields on bonds cash and investment securities, partially offset by higher rates on deposits.
While we anticipate that deposit cost increases will begin to accelerate in the fourth quarter. The balance sheet remains well positioned to continue to benefit from rising rates and we expect the margin to increase by 10 to 15 basis points in the fourth quarter.
Turning to slide seven.
Noninterest income was $45 $9 million this quarter, a $1 7 million increase over the prior quarter.
We continued to see improvement in activity based revenue, including trust and investment services income. Despite the continued market volatility.
<unk> income what continued to be negatively impacted by higher bond yields and the continued decline in the equity markets. We expect bully income to return to historical levels of $3 to $3 5 million.
Per quarter, when the market volatility subsides.
Expenses were $113 $3 million, an increase of $4 $2 million from the prior quarter in line with expectation.
The increase was primarily due to higher compensation expenses, a full quarter expenses associated with the new core system and additional post core conversion costs.
As we stated last quarter, we believe that expenses will be between 113 and $114 million in the fourth quarter.
Turning to slide eight I'll now.
A few comments on credit.
Asset quality continues to be strong in Q3, the net charge off rate. The net charge offs were $2 $8 million our year to date annualized net charge off rate is flat at eight basis points.
Lower than the last three years.
NPA and 90 day past due loans were 10 basis points also flat from the prior quarter.
Criticized assets continued to decline dropping from zero point, 91% of total loans in Q2, two 0.81% in Q3.
The bank recorded a $3 2 million provision for the quarter, which included $1 $2 million set aside for unfunded exposures.
Loans 30 to 89 days past due were <unk> $46 1 million.
34 basis points of total loans and leases at the end of Q3 about seven basis points below Q2.
Moving to slide nine.
See a roll forward of the allowance for the quarter by disclosure segments. The allowance for credit loss decreased by zero point $8 million to $148 2 million.
The level equates to 1.08% of all loans.
The reserve for unfunded commitments increased $1 $2 million to $30 1 million.
Reserve needs for loan growth were offset by improvements in the portfolio risk profile this quarter.
The allowance anticipates higher credit losses, consistent with the recession and includes a qualitative overlay for potential macroeconomic impacts not captured in our model.
Let me now turn the call back to Bob <unk> for any closing remarks.
To summarize we expect to finish 2022 with another strong quarter and our balance sheet is well positioned to perform well in a range of economic outcomes.
And finally.
Probably seen the announcement earlier this month of the addition of Mike for your model to the board of directors of first one eight.
Microsoft on a bank board and we are pleased to extend his expertise to the holding company board of directors.
And now we're happy to take your questions.
Certainly as a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.
One woman.
And our first question comes from Steven Alexopoulos.
Alexopoulos of J P. Morgan Your line is open Steven.
Hi, everybody.
Hey, Steve Good morning, Steve.
Wanted to start a dive a little bit into the reduction in the noninterest bearing deposits can you give more color. What you saw in the quarter I know you called out the 10 accounts, where customers just moving a portion of balances to higher yielding alternatives and how much additional run off should we expect.
Yes.
It's.
A volatile part of.
Having having large corporate customers somewhat volatile about 100 plus million dollars of that was titled companies, which you just can't predict what the balances are going to be at the end of the quarter.
We werent seeing anything we.
We didn't lose any accounts some of it moved.
For reasons, we're not quite sure of but.
Really was not related to anything specific and it didn't seem that they were in particular moving into higher yielding accounts.
As an example of the volatility this week.
Our noninterest bearing accounts balances are up a couple of hundred million relative to quarter end.
It's just it's a volatile time for our deposits, maybe I'll turn it over to Ralph Yes, some thoughts to add to that sure Steven what we saw this quarter I think was not unexpected some larger accounts with temporary balances moving out.
If you back out those balances the net differential was probably about a two two to two 5% annualized.
This decrease.
In Q4.
We're projecting deposits to be flat to slightly down and I think the outlook for the NIM expansion would incorporate a range of outcomes that.
That we might expect the midpoint, probably approximates a decline that would that would approximate that net differential that we saw.
The higher side would probably represent something with a more stable balance sheet and the low end of the range would probably be indicative of the deposit flows we saw in Q3.
Got you okay.
That's helpful.
Wanted to stay along those lines. So if we look at your cycle to date deposit beta is relatively low and I know historically, Hawaii has been viewed as a market where you could pay lower rates on deposits just given the competitive dynamics of the market.
But we think about digital age right businesses consumers can move money basically pretty easily other phone is that historical view still accurate.
Yes, so I think.
If you were to take a look at what we're projecting for through Q4, I think the total deposit beta is around 10% and then.
The interest bearing about 18%.
You compare that to the last cycle.
What we saw in terms of cumulative beta was about 18% total deposits and about 29%.
In interest bearing we think that slope of the deposit repricing is about what we expected based on past cycles I think at this point.
We are as I said expecting about a cumulative beta around 10% to 11% through year end and then I think what we're looking at going forward is we're trying to be thoughtful and align our pricing to the value proposition, we have across the product sets and.
And I think if we're successful in doing that we're going to minimize our funding costs through the cycle and maximize retention of those deposit customers.
Add to that Steve.
Your question specifically on mobile that's something we pay a lot of attention to effect, Chris is with us today to answer any of the technology questions but.
As far as it specifically relates to the ability to move money Thats something we watch very closely we haven't seen that yet, but that's one of the reasons, we continue to invest in technology and really the data and the analytics around our customers. So that we can stay in front of that when it if it's not if it comes is when it comes.
Right right.
Okay. That's helpful. And then one final one for me.
Just looking at the C&I loan growth was really strong this quarter, even beyond the pickup in dealer could you give a little more color on why such strong growth this quarter there. Thanks.
Yes, maybe I'll start and ask Ralph to add comments I mean first as you mentioned dealer.
Q1, Floorplan balances grew $9 million in Q2 $43 million this quarter $57 million. So we are really starting to see slower than maybe you would have anticipated a year ago. We are starting to see that build back on those balances and we think that will continue its hard to predict exactly what it is.
So thats just staying there in the background and.
Sure.
My assumption is that we will continue to see steady growth in that is.
2023 unfolds Q4 in 2023 as far as the rest of the portfolio. We've just seen a lot of commercial real estate transactions, both here for fourth quarter and this past quarter on the mainland. So it's been a good market, we see that continuing into Q4, it's a little harder.
To see what Q1, and 2023 looks like but Ralph comments, you would add.
The only thing I would say to add to that is we're starting to see spread spread widening which is good I think.
We're able to.
Look at opportunities that I think are going to be pretty attractive in terms of putting it on the balance sheet, even with a rate environment that we're facing today.
Okay. Thanks for taking my questions.
Thanks, Jay Z one moment.
And our next question will come from David Feaster Raymond.
Raymond James.
David Your line is open hey, good.
Everybody.
Good morning, David Good morning, David.
Maybe just touching on the margin expansion I appreciate the guidance, 10% to 15 basis points. This upcoming quarter. Just I'm just curious what rate hike assumptions are embedded in that is that assuming a 75 in the next two to meetings and then just at a high level. How do you think about managing rate sensitivity, you're obviously very rate sensitive naturally.
Just given the nature and complexion of your loan and deposit portfolios, but I'm curious whether you're interested in maybe trying to lock some of that in at this point and how would you do that whether it's longer duration securities more fixed rate lending or.
I'm just curious how you think about that more broadly.
A couple of questions there I'm going to I'm going to punt Ralph first and then do any cleanup afterwards, Rob okay.
I know the assumption for fed funds is at the end of Q4 would be $4 50.
To kind of give you an idea of what were what were modeling today.
I guess the question you had on on hedging.
Last quarter, we said that we were going to look at trying to become less asset sensitive, but we're going to do that over time, we weren't going to try to time the market. So we have started.
Slowly a program to sort of address that I think you see this quarter that we did about $200 million.
Swap, we'd actually was a collar that we put in place so we'll do that.
Very measured programming way, so I think what we want to do is be in a position when rates do at some point.
Trend back down being less asset sensitive than we were last quarter last cycle.
Okay that makes sense and then maybe just.
Following up on the pipeline I'm glad to hear that it's holding up well.
Primarily comprised of commercial loans in Hawaii, and Guam, just curious how is demand trending and maybe the pulse and sentiment of your clients in Hawaii.
And then I guess, if we had to think about your growth. If we were going to sustain this mid to high single digit kind of pace would you expect it to be more of a function of continued strong stronger originations or maybe slower payoffs and pay downs I guess, maybe probably a combination of thereof, but I'm just curious how you think about those two dynamics.
As you think about your loan growth rate.
Yeah, Let me let me start.
And far as were looking forward. We think there is clearly for the residential portfolio payoffs will come to.
Only if someone moves where nobody is going to be refinancing anytime soon and we've seen a real slowdown in that origination much like the rest of the country. So we'll really see the loan growth is.
The commercial side of it as far as sentiment of the customers is still pretty bullish as I mentioned in my opening remarks, even though.
Arrivals is down.
We're still seeing really strong growth in spend by visitors and that hasn't that has not slowed down we're cognizant of the demand.
The people from Japan are going to be a little bit slow to come back given the yen dollar exchange rate, but that will come back over time and that will only add to our very strong westbound traveler that we've seen really throughout the entire pandemic. Once we really started to open back up the rough comments, you would add to that yes, I think right now.
<unk>.
There is concern, but not not a ton of changed I think there is a pretty pretty big.
Condo project coming to market today, So we will start to see whats happening with regard to <unk>.
Buyer demand.
In the residential space.
But certainly given the situation with rates I think it's something that we're keeping track of and we're trying to balance sort of opportunity against risk.
And that that's a perfect segue I wanted to touch on asset quality I mean, when we talked last quarter. I think you kind of had you talked about maintaining yet.
A degree of caution just given the environment and you've got a really good pulse on the market I'm just curious.
You know as you look at the Hawaiian economy.
Are there anywhere within your portfolio or even just from a competitive landscape that you're seeing.
Thats, causing you any concern and I guess are you seeing higher rates I mean, obviously your your your portfolio is pristine at this point, but I'm just curious are higher rates starting to impact cap rates at all.
And just any other trends maybe from an industry. Your competitive landscape that you think might be helpful are worth pointing out.
Sure. Let me, let me start on the consumer and ill pass over to Ralph more rates affecting commercial real estate consumer we're still seeing very strong performance across all of those portfolios a little bit of a normalization I would say on the card side and a little bit in indirect, but that's where we always see.
It was better than normal during Covid and I think we're returning more to a normalized environment, where that will go with inflation being what it is as the months unfold, we will have to wait and see but right now it's still excellent and we really haven't seen any signs of weakness and that we do have some concerns about interest rates.
Impacting real estate projects that maybe I'll turn it over to Ralph for a comment on that.
Yes.
Probably answered.
David.
First sort of talking to what do we anticipate for cap rates, we're not really sure what.
What to anticipate other than I think if you look back historically is usually a pretty strong correlation between rates and cap rates I think this time with the amount of inflation in the market I think thats, probably something that we'll have to sort of see.
But then speaking more to sort of our underwriting I would say that.
We are a cash flow lender so cash flow has been pretty much the constraint that we've had in terms of lending in the real estate market not so much ltvs youll see I think across like most banks portfolio today that the LTV ratio is a pretty well.
Primarily because of the fact that people are really lending against cash flow.
From our perspective, we do stress our underwriting so we stress interest rates, we stress occupancies I think that that kind of an exercise helps us kind of understand where we might be today and I think what we were really feeling good about is really sort of the fact that we are in great locations.
They tend to hold up pretty well in terms of values sponsorship and our portfolio has been pretty strong and I think during COVID-19 that was really strong indication, especially with some of the hotel owners holiday sort of manage through a period of like complete disruption. So I think it is something that we're going to.
Pay attention to but I think location sponsorship.
And I think the way that we underwrite in terms of being a cash flow lender. That's that that gives us a lot of confidence in the portfolio as we move into 2023.
And then how.
How do you think about the reserve going forward I mean, just curious whether you would expect just given potential for weaker diesel inputs. Just curious how you think about the reserve and that plays into some of those comments.
So I would say that the reserve is right now is contemplates a recession in 2023, so it was.
Initially it was built up because of Covid and Covid sort of kind of went away and then some of these other macroeconomic conditions started to come into place. So if we look at it we sort of impute like a one year loss rate against the portfolio.
We are looking at sort of absorbing losses that would be indicative to what we saw at sort of our peak losses last cycle. So it's it's a healthy reserve and it's certainly I.
I think appropriate for what we see today in the marketplace and what we sort of projected out over the next the next 12 months.
To add to that would be dependent on loan growth is what we would look at the appropriate level for the reserve, yes that.
To add to it and as I had mentioned in the comments we saw loan growth.
Typically that would have probably caused us to have a higher provision this quarter, but we had a lot of improvement in terms of the overall risk profile of the portfolio. So.
That's helpful. Thank you.
One moment.
And our next question will come from Andrew.
Okay, I'm, sorry, Andrew Lee.
Piper Sandler your line is open Andrew.
Thanks.
Good morning, guys.
Question on the expense outlook from here I think in the past you've mentioned a more normalized expense growth rate would be 4% to 5%.
Does that how can we should be looking at it from from here. If we just sort of annualize this $113 million to $114 million and then build off of that.
The best way to look at it.
Good morning, Andrew This is Bob maybe I'll start off and hand it to Ralph.
No we're really looking at dollars and that's why we've tried to give you the guidance of $113 million to $114 million for the quarter, which were still very comfortable with for Q4.
Came in very close to that right on top of that in Q3. So that's how we're really looking at it as far as beyond that we're going through the budgeting process. Now so don't really have a view to 2023, there are still some moving parts as we get through the.
Kind of.
At the end of the core conversion and some of the consultants have certainly most of them have.
Gone and we finished the need for their services are still a little bit that's going on in Q4, but.
Sort of puts and takes in that side of it but.
We're comfortable with the 113 to 114 number for this quarter Ralph anything you would add to that no I think.
To Bob's point we.
We're going to have a little bit expense this quarter that related to kind of the cure period and the conversion that will go away and then going into the next year, we'll probably have.
Some.
Inflation related increases, but I think at this point, we're still working through the budget and we haven't really sort of projected out for 2023 expense growth rate.
Alright Thats helpful.
On the fee side, if I just ignore the.
Boley issue the nice increase in fee income.
How are how do you think thats going to trend here in the fourth quarter with.
Maybe some holiday travel and increasing transactions. The thing you could have another step up here in the fourth quarter.
Generally the activity related things for cards and merchant processing that we do see a nice uptick in Q4 historically, that's what we've seen in <unk>.
We have good visitor numbers.
Still really kind of driven by the Thanksgiving through year end Christmas.
Periods of little little hard to see right now, but historically, we've always seem to pick up and those kind of activity.
Revenues of lines in the fourth quarter.
Yes.
The wealth side, we've seen some some challenges with equity accounts, but we've seen a lot of.
Good performance in terms of money market accounts, which now we're getting fee income off of it. So that's where we're sort of seeing that kind of the net increase in that area.
Got it.
Very helpful. Thanks for taking my questions here.
One moment.
Our next question will come from MS. Kelly Motta, Okay. VW Your line is open.
Hi, good morning. Thanks, so much for the question for all the color today.
I was just wondering I don't think its been mentioned on the call yet today.
If there was any update on that.
CFO search has been ongoing this year and.
Perhaps timing of that thank you so much.
Thank you Kelly.
No.
So the question.
We were close to the candidate it didn't work out for them and their families. So we're still working on that and we hope to bring that to conclusion very soon.
Got it well I can't imagine Hawaii too hard of itself.
Yes.
It works for all of Us.
Yes.
Yes.
Yes.
Looking at capital and capital return.
Tier one ratios are still super healthy.
Another portion to HTM.
Just wondering how you are seeing.
It's Eric.
And any changes to how you may be a bottom up where you're willing to go.
Continued interest rate volatility factors into.
And your outlook for repurchases at all.
Alright.
Thank you Kelly.
Maybe I'll start relative to common equity tier one our goal is still our guideline is dropped 12% were under that primarily due to strong loan growth. As you saw we didn't repurchase a lot of shares in Q3, and I think that will still be <unk>.
Relatively nominal as we work to build back that common equity tier one for a 12% guidelines. So we expect that to happen.
This quarter and maybe into next quarter, we still have authority to repurchase shares we can be opportunistic about that and we will look to <unk>.
Continued.
Looking at that and next year as well, but right now we're still working towards that guidance the 12%.
Got it that's helpful.
And then just minor minor point on on yields I, just I noticed that your rising mortgage yield came down I understand there wasn't a ton of growth there, but just wondering.
It was surprising to see it.
Yields come down a little bit where there any specials or running or any anything unusual at all.
Thank you Sir anything like that.
We're skewing those trends.
We did have a small this is Ralph we did have a.
Project that closed out.
Projects that closed out this quarter that we had actually made some commitments on so I think.
The yield on the production this quarter was a bit lower.
Got it.
Thank you so much for the commentary I'll step back.
Thank you.
In a moment.
Your next question comes from Timur <unk> of Wells Fargo. Your line is open.
Hey, good morning.
Good morning.
Maybe starting on the loan growth that youre seeing on the mainland I'm. Just wondering is that primarily shared national credits and then for the commercial real estate portfolio.
Which industries are really driving that strong loan growth.
Part of that is the dealer floor plan, because we have that both here and in the mainland. So some of that growth you're seeing is dealer floor plan.
And our dealer book.
Most of that is non shared national credit, but there are a couple that are larger more syndicated deals. So I don't know the breakdown of that specifically.
We're also doing commercial real estate loans.
Many of those are.
Shared national credits, but not all and that tends to be more in the multifamily, but Ralph do you have more of a.
A breakdown on that.
With regard to this in the CRE book It was a combination of some some dealer.
Related assets owner occupied.
And then.
Pretty much multifamily and some industrial.
Got it.
As you are thinking about funding future loan growth I understand your commentary about the deposit base and there is still being a little bit of uncertainty there should we expect that.
In the near term.
40 of the loan growth is going to be funded through the bond book sale and I'm just wondering what your.
Appetite is for maybe layering in some more time deposits I noticed I think this quarter and just maybe talk about the market for.
Time deposits on Hawaii.
As we look at the investment portfolio, that's going to be our primary funding source for loan growth there might be some timing differences in there depending on.
Loans funding versus maturity or cash flows coming off the investment portfolio.
There might be some of the public time deposits or other methods, we might use to kind of bridge that but thats, what we primarily be looking at.
Okay, and then for those public time deposits what type of sensitivity to interest rates is that pretty much one for one with what's going on at the fed or is there some sort of discount to that.
It's a pretty strong correlation.
Okay.
Got it and then maybe last for me just going back to the asset quality conversation and.
The conversation about the allowance level I just want to make sure I'm hearing this correctly it sounds like we're close to a bottom on the allowance to loan ratio and incremental loan growth is going to be funded for or is there still a possibility of this dynamic that broader credit trends within the portfolio improve when you can actually see that allowance.
Total loan ratio continued to decline kind of irregardless of near term loan growth.
We still have some qualitative element within the.
The loan loss reserve. So that's the part that we'll just have to be more.
Just have to keep our eye on whats happening out of the market.
And the economy and adjust to that but other than that I would think there would be some correlation between loan growth and provisioning Ralph Yes, I would think it would be a pretty pretty strong correlation at this point.
Just given where we're at and what we sort of see in orders in the future.
Got it thank you for taking the questions.
One moment.
Our next question will come from Christian Degrassi of Goldman Sachs. Your line is open Christian.
Hey, good morning.
Good morning, one acres.
So with core conversion done I imagine some resources.
Been freed up can you talk about what the roadmap and focuses on now regarding.
Okay.
I'm, sorry, Christian we werent able to assure the question would you mind repeating it.
Yes, with core conversion done I imagined some resources that have been freed up. So can you talk about what the roadmap is a focus going forward from here regarding investments back into the business.
Chris wanted to have a FERC please sure hi Christian.
Sorry, I have a little bit the code this is Chris thoughts.
With the core conversion.
They're very deliberate approach to open banking architecture modern API architecture, that's really opened up our ability to differentiate our product services.
We had a differentiated value proposition.
Recently, we launched a new.
Credit card a priority unlimited.
Or should we built a.
Custom integrations using our software developers.
Innovative several different platforms to create a more integrated acquisition and fulfillment platform.
Basketball month since launch we have opened up 2000 of those cards.
In addition to that we do.
Building out a robust 360 view of our customer using both debt.
More traditional data architecture, combined with machine learning, which is giving us a real time data capture.
The ability to do real time analytics to help our bankers assist our customers with more actionable impressed by his insights and then going forward we're looking at.
We're in the process of upgrading our online banking platform for all of our consumer and small business customers at the end of that conversion will be on the same.
It will be on the same platform for our commercial.
Business and consumer customers each of them, having the emphasis of the platform, but being on the same platform, which provides more efficiency from the back office and a better customer experience overall, and then we'll continue to leverage AI and machine learning.
Current assets of the business they are underwriting to help drive better and faster decisioning.
And then just to add to that Christian is we look at that.
<unk>.
The robust roadmap and from a cost perspective, and bring it back down to that we're going to be doing that and really a thoughtful way to not.
Overspend in any one period, but theres a lot on our plate and that's what the customers want they want that functionality and we need to evolve. So there will be continued investment in the business to make that happen and we're going through that budgeting process now for 2023. So we don't really have a view on it today, but that will be part of our budgeting.
Process for next year.
Got it thank you for taking my question.
One moment.
Ladies and gentlemen, if you do have a question. Please press star one on your Touchtone telephone.
And our next question is going to come from Laurie Hunsicker of Compass point research and trading your line is open Laurie.
Great Hi, Thanks, good morning.
Good morning, hoping that we could go back to credit, which is looking absolutely stellar but just specifically that the charge offs. They all seem to be coming from consumer can.
Can you give us a little color around that is that auto is that unsecured consumer just any any color around that what you are seeing.
Thanks.
It's primarily unsecured consumer I mean the rates.
We're still pretty low.
Below where we were at last year end.
Half of what we were in 2019.
And is that coming.
Hawaii or is that.
Oh I'm sorry go ahead.
Alright. So this is Bob we only do that within our footprint, Hawaii and Guam. So it's going to be primarily Hawaii I don't have the breakdown between Hawaii, and Guam, but it's going to be primarily in Hawaii and that's why.
Referring to earlier is kind of a normalization back to what we've seen through our spine is search.
Lower than last year and lower than pre pandemic, but.
Might be up a little bit from quarter.
Evercore.
Got it Okay got it and then and then on the income statement side noninterest income.
Just two items could you comment a little bit about when you all might be com.
Consumer friendly how we should think about.
A drop in.
So D. C is when that might start and then also the other other line that Q3, eight 4 million.
And it jumped around was there any onetime items in that in that line or onetime losses.
Thanks.
Sure Larry This is Bob I'll cover the NSF question. So.
As we've talked about I think previously going through the core conversion conversion really that was our priority to get that done and we continue to look at what's happening in the marketplace and how we can make sure that the services, we're offering or a value add to the customer.
We are looking to do different ways to serve them.
Incorporate.
Different ways to approach overdraft.
Payments, but part of that is driven by what the core providers can provide to us as far as technology solutions. So we're looking at that we haven't made any decisions yet, but that's something we certainly keep front of mind, Ralph do you want to touch on.
Yes, so the big Delta there Laurie was we had a.
Airlines excise tax refund that we took in.
The prior quarter, so that was really sort of the delta.
Got it got it Okay, and then last quick one.
How should we think about that for next year. Thanks.
Yes.
Not not a lot of change we're looking at about 25%.
Great. Thanks for taking my question.
And I'm showing no further questions I would now like to turn the conference back to Kevin <unk> for closing remarks.
We appreciate your interest there first of all and please feel free to contact me. If you have any additional question.
Thanks, again for joining us and enjoy the rest of your day.
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