Q4 2023 Bank of Hawaii Corp Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by welcome to Bank of Hawaii Corporation fourth quarter 2023 earnings Conference call.
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I would like now to turn the conference over to Cindy.
Cindy: Director of Investor Relations. Please go ahead.
Cindy: Thank you and welcome everyone and thank you for joining us today as we discuss the financial results for the fourth quarter and the full year of 2023. Joining me today is our CEO Peter Ho, our CFO, Jean Hu Tomorrow, our Chief Risk Officer, Mary Sellers, Vice Chair and Deputy risk Officer, Brad Sherman and are managed.
Speaker Change: You have investor Relations Chang part.
Speaker Change: Before we get started let me remind you that today's conference call will contain some forward looking statements and while we believe our assumptions are reasonable there are a variety of reasons that the actual results may differ materially from those projected.
Speaker Change: The call will be referencing a slide presentation as well as the earnings release both of these are available on our website.
Speaker Change: Com under the Investor Relations link and now I'd like to turn the call over to Peter Ho Yeah. Thanks, Andy Good morning, or good afternoon, everyone. We appreciate your interest in bank of Hawaii.
Peter S. Ho: Bank of Hawaii produced another solid financial performance for the fourth quarter of 2023.
Peter S. Ho: Average deposits grew for the second consecutive quarter up 1% on a linked basis and up one 8% year over year loans were again flat in the quarter.
Peter S. Ho: <unk> exited the quarter with NIM of $2 13 flat through the second quarter.
Peter S. Ho: Spence is outside of the industry wide FDIC special assessment, well controlled and fee income was solid.
Peter S. Ho: Capital as measured by tier one CET, one total capital and tier one leverage continued to improve credit remains a strong story.
Speaker Change: I'll start off with some commentary on funding and liquidity events touch on broader market conditions in Hawaii, I'll, then hand, the call over to Mary is as are accustomed to discuss credit and Dave will then share with you some more granular color on the financials.
Mary E. Sellers: So let me touch a little bit on our deposits.
Mary E. Sellers: I think as many of you know we consider our deposit base to be the crown jewel of the franchise build slowly over a 125 years of our history and the islands one relationship at a time as.
Mary E. Sellers: As most of you know Hawaii is maybe the most unique deposit market in the country, where five locally headquartered banks hold 97% of the states FDIC reported deposits.
Mary E. Sellers: As I mentioned, we have an amazing tenure in our deposit relationships with 53% of our deposits with a tenure of 20 years or more than 75% of our deposits, having a tenure of 10 years or more.
Mary E. Sellers: Despite the volatility created by the regional Bank crisis in the first quarter of 2023, both average and spot balances have been steady and growing throughout the year.
Mary E. Sellers: Further noninterest bearing deposits have begun to stabilize with average noninterest bearing deposits at December flat to november's month's average.
Mary E. Sellers: For the year, you can see bank of Hawaii meaningfully outperformed banks nationally and deposit growth as shown in the H eight data.
I would note too that we generated that performance without the usage of broker deposits.
Mary E. Sellers: Deposit pricing relative to broader industry averages remains a strong story in terms of cost of interest bearing deposits and total cost of funds pay this appear to be flattening.
Mary E. Sellers: Okay.
Mary E. Sellers: Additional sources of liquidity remain abundant.
Mary E. Sellers: Now, let me switch over to the marketplace, the Hawaiian economy, but jobs perspective, certainly continues to outperform the broader market and your hero our research entity at the University of Hawaii forecast continued stability.
Mary E. Sellers: The visitor market continues to be impacted by the tragic behind the fires visitor spending and visitor days were down modestly in November compared to 2022.
Mary E. Sellers: Obviously ex the Maui fire figures for extra Maui figures with.
Mary E. Sellers: The Japan market, which as you know has been slow to recover is up 119% year on year, but it is still down 50% from pre pandemic levels. So we're seeing improvement in the Japan market and actually I think that represents some upside for us down.
Mary E. Sellers: Later on into the year and into next year.
Mary E. Sellers: As you can see from the chart here hotels continue to perform well with Revpar up steadily.
Mary E. Sellers: Okay.
Mary E. Sellers: Residential real estate on Oahu was stable with median prices for single family homes down 5% from a year ago in December condominiums, However, up one 5% on media.
Mary E. Sellers: Inventory levels remain extremely tight average days on market of 18 days and 26 days for single family homes, and condos, respectively and months supply of inventory of $2 eight months and three two months for single family homes and condos respectively.
Speaker Change: Now, let me turn the call over to Mary sellers, but before I do let me congratulate Mary on her upcoming much deserved retirement.
Mary E. Sellers: March 31, Mary I think as many of you on the call know has been an outstanding member of our team.
With the company with BLA for 37 years 18 of those years as our chief risk Officer.
Speaker Change: Barry has been truly amazing.
Speaker Change: I'd also like to welcome Brad Brad joined US. This past may seems like dog years slides.
Speaker Change: Is doing a terrific job and he'll be stepping into Mary's role shortly how truly excited to have Brad on board. He brings with US a wealth of experience and experienced slight regions Bank Indian banking <unk>. Other banks. So I was like 50 words, yes. Thanks, Peter I would like to just take a moment and say that I feel fortunate.
Speaker Change: To have had the opportunity to work for Mary for the past several months through our planned transition and I can see the incredible legacy that she'll be leaving behind I also feel fortunate the under her leadership. She will also be leaving behind the portfolio with such strong asset quality and a plan to do my best to continue in her footsteps and maintain that same disciplined approach to managing risk.
Speaker Change: All of that said, let's turn this back to <unk>. So she can do this one last time, okay. Thank you Brad.
<unk>: Peter for your kind remarks, firstly, I must say, though the credit for a strong.
Peter S. Ho: And consistently strong credit quality goes to the entire team, particularly our line management, our relationship managers and our credit team as well and probably most importantly to our customers brought up enjoyed working with you during the transition <unk> been a terrific partner Im pleased to leave in and you're capable hands and I'm sure you do a terrific job.
Peter S. Ho: Now on to the visual stuff.
Peter S. Ho: First.
Peter S. Ho: <unk> always lending philosophy is grounded in two fundamental tenants, we lend to our long standing relationships that we understand in our core markets of Hawaii and the west specific.
We combine this with ongoing disciplined portfolio management actively exiting those products or segments that have proven to be higher risk.
Peter S. Ho: This positions our portfolio for continued lower net charge offs through different economic cycles.
Peter S. Ho: The loan portfolio is built on long tenured relationships diversified by asset categories, with 59% consumer and 41% commercial is appropriately sized exposures and it's 79% secured with real estate with a combined weighted average loan to value of 55%.
Peter S. Ho: Our commercial real state portfolios, which represent 27% of the total loan portfolio is diversified across the various asset types. The portfolio built unrelated <unk> chips with demonstrated experience and financial capacity is conservatively leveraged with a weighted average loan to <unk>.
Peter S. Ho: <unk> a 55%.
Peter S. Ho: Our office portfolio is granular and has the weighted average loan to value of 55%, 23% of the portfolio is in the downtown Honolulu Central business District. This segment has a weighted average 60% loan to value and 43% of the exposure is further supported by.
Repayment guarantees 4% of the loans in the office segment, our maturing through 2025.
Peter S. Ho: While not immune from the changing dynamics impacting the office market across the U S vacancy and rent and remained relatively resilient.
Peter S. Ho: Office market on Oahu as conversions to alternative to refuse continue to reduce overall inventory levels in the last five years alone approximately 1 million square feet of inventory have been removed and it's estimated an additional 300000 square feet will be removed in the next several years.
Peter S. Ho: Hawaii supply constraints driven off its unique geography, and onerous regulatory process served to create relative stability in our real estate markets over the long term and less volatility during periods of stress. This is particularly pronounced in the housing sector were severely limited supply is <unk>.
Peter S. Ho: Founded by the high cost of home ownership.
Peter S. Ho: Two factors together continue to drive consistent strong rental demand.
Peter S. Ho: Tight market conditions continue to persist in the.
Peter S. Ho: Industrial market with vacancy rates at historic lows sub 1% supply constraints continue to also be an issue in this segment.
Alaska has real estate market, whether it's supply chain disruptions manufacturing shutdowns backlog seaports and inflation with vacancy and rents returning to pre pandemic levels grocery and drug anchored continue to outperform again relatively flat inventory levels helped support stability in this segment.
Peter S. Ho: Over time.
Despite the delay in the return of the Japanese tourists to pre pandemic levels flat inventory levels helped to support occupancy and revpar levels, NOI, whose lodging segment.
Hawaii island's remain a top five destination in terms of highest revenue per average room and average daily rate with Oahu, attracting more visitors than any other island in the state.
Peter S. Ho: In addition to the continued strength in our markets real estate fundamentals, we have just 8% of our commercial mortgage loans maturing in 'twenty for minimizing repricing risk in the portfolio.
Peter S. Ho: Tail risk in the commercial portfolio real estate portfolio remains modest with Jeff's, 0.4%, having an LTV greater than 80%.
Peter S. Ho: Our construction portfolio referenced represents 2% of total loans with the majority being in low income or affordable housing, which continues to be chronically under supplied in our markets.
Peter S. Ho: Asset quality remains strong in the fourth quarter net loan and lease charge offs were $1 $7 million or five basis points annualized of total average loan and lease outstandings down 300000, or one basis point for the linked quarter and down 100000 year over year for the full year net loan and lease charge offs were $7 eight.
Peter S. Ho: Or six basis points, compared with $5 1 million or four basis points in 2022.
Peter S. Ho: Nonperforming assets were $11 7 million or eight basis points stable from the third quarter and down 900000, or one basis point year over year. All nonperforming assets are secured with real estate with a weighted average loan to value of 56% loans.
Loans delinquent 30 days or more increased modestly and remained low at 31 basis points at the end of the quarter.
Peter S. Ho: Criticized loans as a percentage of total loans were 193% at the end of the quarter down eight basis points for the linked quarter. As we continued to see improved financial performance in a number of credits which had been slower to recover from the ancillary impacts of Covid. The.
Peter S. Ho: The allowance for credit losses on loans and leases was $146 4 million up $1 1 billion for the linked period and up $2 million year over year the ratio of the allowance for credit losses to total loans and lease Outstandings was one 5% at the end of the quarter up one basis point from the prior quarter and down.
Peter S. Ho: One basis point year over year.
Speaker Change: Now ill turn the call over to Dean.
Dean: Thank you Mary and congratulations on your upcoming retirement.
Dean: To better balance our interest rate sensitivity profile in the fourth quarter, we added an additional $1 billion notional.
Dean: Notional pay fixed interest rate swaps for a total of 3 billion notional.
Dean: In addition, we continue to originate a greater proportion of floating and adjustable rate loans holds more fed funds sold.
Dean: These actions have increased our floating rate assets exposure to 45% from 27% at the end of 2022 and positioned us well for this uncertain rate environment.
Dean: Net interest income was $115 8 million in the fourth quarter, a decrease of $5 1 million linked quarter.
Dean: As a regional bank crisis unfolded, we fortified our balance sheet in the second quarter by adding liquidity.
Dean: As uncertainty decrease at our core deposits remained strong we reduce the on balance sheet liquidity in the third quarter by reducing wholesale at noncore funding by $2 2 billion.
Dean: These actions reduced our balance sheet leverage and improved our capital position, but did reduce our earning asset base by $904 million on average in the fourth quarter.
Net interest margin was stable linked quarter as asset repricing offset higher deposit costs.
We continued to exercise deposit pricing discipline, while growing total balances as evidenced by our deposit beta continuing to outperform that of peer banks.
Dean: As of December 2023, our cumulative total deposit beta was 31, 6%.
Dean: We believe that our deposit betas have peaked in the fourth quarter as our deposit rates began to flatten and noninterest bearing deposits have stabilized at 27% to 28% total deposits.
Dean: In addition.
Dean: <unk> lower cost and more granular consumer deposits increased on average by $129 million linked quarter.
Dean: We expect this trend to continue into 2024.
Our assets continue to reprice higher supporting net interest income and margin growth.
Dean: Annual maturities and Paydowns of loan and deposit portfolios of $3 billion continues to provide an ongoing supplement to the $7 2 billion in assets, which includes our interest rate swap portfolio that reprice annually.
Dean: The yield on maturities and paydowns of loans and investments in the fourth quarter was approximately four 6% at two 1% respectively.
Dean: These cash flows continued to be reinvested predominantly in new loans, which are yielding greater than 7% and 5% on average.
Are held in cash at the fed, which earns an attractive yield and preserves liquidity.
Dean: As a result of these cash flows repricing our assets higher our overall asset yields have steadily increased and are expected to continue to increase your asset yields well in excess of the run off yields.
Dean: As a result of continued asset repricing together with the peaking of our deposit data.
Margin is expected to increase by two to four basis points in the first quarter of 2024.
Dean: Noninterest income totaled $42 3 million in the fourth quarter, an increase of $1 3 million over the normalized third quarter results.
Dean: Recall that third quarter results include a $14 7 million of gains from the termination of private repurchase agreements, partially offset by a net loss of $4 6 million from the sale of $159 million of <unk> securities and at $800000 charge related to a change in the visa.
Class B conversion ratio.
Dean: Market conditions improved in the quarter and transaction volumes were steady.
As these conditions persist into 2024, we expect core noninterest income to be at similar levels as the fourth quarter.
First half of the year and continued to trend higher in the second half.
Dean: During the fourth quarter as is our practice, we managed our expenses in a disciplined manner as inflationary conditions continued.
Dean: Expenses in the fourth quarter were $116 million, which included an industry wide FDIC special assessment that resulted in a $14 $7 million charge.
Dean: In addition in the fourth quarter expense savings of $1 $7 million, we realize which are not expected to recur in 2024.
Dean: Thus the adjusted core expense level in the fourth quarter was $102 9 million.
Third quarter expenses included severance expenses of one of $2 1 million and 400000 of extraordinary expenses related to the Maui wildfires.
Dean: Adjusting for these items expenses into the third quarter was $103 1 billion.
Thus core expenses linked quarter were modestly lower despite continued inflation pressures.
Dean: Expenses of 2024 are expected to be two to two 5% higher.
<unk> 2000, 2000, 22023 normalized expenses of $419 million.
Dean: As a reminder, the first quarter's results will include seasonal expenses related to payroll taxes and benefits from incentive payouts.
Dean: Currently estimated at $3 5 million versus $3 7 million in the first quarter of 2023.
Dean: To summarize the remainder of our financial performance in.
Dean: In the fourth quarter of 2023, net income was $30 4 million and earnings per common share of <unk> 72 cents.
Dean: Decrease of $17 5 million.
Dean: <unk> 45 per share respectively.
Dean: Fourth quarter results included the Industrywide, FDIC special assessment, which reduced EPS by 29 per common share.
Dean: Our return on common equity was 955%.
Dean: We recorded a provision for credit losses of $2 $5 million this quarter.
Dean: The effective tax rate in the fourth quarter was 20, 325% at 20, 462% for the full year.
Dean: The tax rate for 2024 is expected to be approximately 24.
5%.
Dean: We continue to organically grow our capital from prior quarters, and we continue to maintain healthy excesses above the regulatory minimum well capitalized requirements.
Dean: Our risk weighted assets to total assets ratio well below peer median reflecting the low risk nature of our asset mix.
Dean: During the fourth quarter, we paid out $28 million and comment to common shareholders in dividends and $2 million and preferred stock dividends.
Dean: We did not repurchase shares of common stock during the quarter under our share repurchase program.
Dean: And finally, our board declared a dividend of <unk> 77 per common share for the first quarter of 2024 now.
Dean: Now I'll turn the call back over to Peter.
Peter S. Ho: Thanks, Dave.
Peter S. Ho: That concludes our prepared remarks.
Peter S. Ho: She will be happy to take your questions.
Speaker Change: Thank you.
Speaker Change: A reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: The first question comes from Jeff <unk> with D. A Davidson your line is now open.
Jeff: Thanks, Good morning.
Jeff: Peter I think you mentioned.
Jeff: The increase the non interest bearing deposits.
Jeff: Spot quarter end up.
Considerably I think you mentioned pretty flat November December I, just wanted to kind of get a sense for or was that still.
Speaker Change: You bet.
Speaker Change: Valley fire related insurance payouts or anything that kind of came in early part of the quarter that led to that increase in noninterest bearing.
Speaker Change: Yes, Jeff.
Speaker Change: <unk>.
Speaker Change: Quarter end spot as as you know December often times is kind of funny.
Speaker Change: <unk>.
Speaker Change: Quarter end, because it is a year end.
Speaker Change: Probably.
Speaker Change: Well, let's say.
Speaker Change: <unk> $400 million of stuff, just kind of pop in and out.
Speaker Change: Some of that was in noninterest bearing.
Speaker Change: Which is in part why you saw that.
Speaker Change: Kind of the better the better number to look at it just to understand the spot I think is.
Speaker Change: The average at IBD for the quarter was five point.
Speaker Change: Just about $5 7 billion.
Speaker Change: That compares to five $8 billion for the third quarter.
Speaker Change: So a real flattening there.
Speaker Change: To anticipate Jeff.
At least our early our early insight into this quarter that number feels to be pretty stable.
Okay.
If I look at that average balance and you would not anticipate Ben.
Speaker Change: Outflows of again kind of Bally related.
Speaker Change: Was there any temporary in that or do you think the averages kind of balance that out from here.
Speaker Change: Yes.
Speaker Change: We're hopeful that we can maintain that average.
Speaker Change: The Bally.
Speaker Change: Balance of call it five seven.
Speaker Change: Overall balances I think were running about 26 right now.
Speaker Change: If we came through the quarter of 2006 that wouldn't surprise me on average balances.
Speaker Change: And yes, you're right we do have.
Speaker Change: Theres, probably two or $300 million of Maui related.
Speaker Change: Aid, that's kind of flowing in and out of our balance sheet.
Speaker Change: So a little unpredictable some of it in the <unk>.
Speaker Change: Most of the earnings yield, though thankfully for them got it.
Speaker Change: Okay, and so Dean I guess if I.
Dean: I would consider that would be baked into that.
Dean: Margin, maybe just a follow on to that.
Dean: Cost of that hedge is I don't know if you have that available as there is that lean on margin a few basis points of kind of what you added in terms of.
Dean: What was added in the quarter.
Dean: Was that impactful.
Dean: It was accretive in terms of net interest income.
Dean: About.
Dean: $5 million.
Dean: So it did help us but it does it does kind of neutralize our hedge our exposure at the short end.
Dean: Okay. So it was a short term benefit in enel.
Dean: Also balances out going forward I guess.
The bigger question than kind of you've mentioned the first quarter expectations.
Speaker Change: Could you just frame up Dean.
Speaker Change: Should we see second half.
Cut or two.
Speaker Change: Or maybe kind of range bound if it if it's more than that how you think margin generally.
Speaker Change: Trends out all things being equal.
Speaker Change: Yes, all things equal.
We expect.
Speaker Change: The margin from short term changes in rates, we expect to be neutral.
Speaker Change: We're expecting is the on.
On the asset side.
Speaker Change: To increase.
Speaker Change: From just the asset repricing that we have the cash flow coming off and be invested at much higher yields.
Speaker Change: Sure Okay.
Speaker Change: Great well I will step back and congrats Mary on the retirement and thank you for your help over the years I appreciate it.
Thank you.
Please standby for the next question.
Speaker Change: The next question comes from Andrew Liesch with Piper Sandler Your line is now open retail.
Speaker Change: Thanks.
Speaker Change: One.
Andrew Brian Liesch: Dean just a clarification question on the swaps here, what do you have what the pay and receive rates are right now.
We haven't disclosed that.
Andrew Brian Liesch: And the average.
Andrew Brian Liesch: Tenure is approximately two five years.
Speaker Change: And just to clarify on the previous question.
Speaker Change: The $5 million was based on the $3 billion.
Total the total.
Interest income from the $3 billion.
Speaker Change: Incremental in the quarter was $1 billion right.
Speaker Change: Swaps, yes, so it would be.
Speaker Change: Some number less than a third follow up.
Got it alright.
Speaker Change: And then just start also clarification.
Speaker Change: Clarification on the margin commentary.
With the fed cutting rates gradually should be pretty neutral to the margin is that correct.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay, and then just on the expense guide.
Yes.
Speaker Change: Is that really just inflationary pressures pressures pushing it higher or is there anything else.
Speaker Change: In the <unk>.
Speaker Change: Operating cost that we should be aware of as we look into 'twenty four as far as they are in projects or other alternatively cost saving opportunities.
Speaker Change: There is.
Generally going to be inflationary pressures.
Speaker Change: There are some projects that are coming online, but generally it's going to be.
Speaker Change: Increases in the life.
Speaker Change: For that for the increase of course, we are continuing to look for opportunities to reduce the expenses as has always been our practice.
Speaker Change: Right Andrew.
Speaker Change: Andrew Let me ask you on your question.
Speaker Change: Margin I just wanted to understand the context of the question was as the fed or if and as the fed reduces short rates.
Speaker Change: What will be impact beyond our NIM was up yeah, Yeah, I think it's pretty clear that flat or no change in the rate environment with the repricing.
Speaker Change: Few basis points of expansion, but if the fed starts to lower the short end.
Speaker Change: What does that mean to the <unk>.
Speaker Change: And is there enough repricing differential on maturing and being reinvested to offset.
Speaker Change: Maybe any of the I guess more variable rate product yes.
Speaker Change: I mean, the way I think about it.
Speaker Change: Whatever I say here is that kind of a higher for longer.
Speaker Change: Work could be okay. It would kind of leave our margins stable.
Speaker Change: Modestly.
Speaker Change: The fed cutting rates.
Speaker Change: Let's just call it conservatively.
Speaker Change: Over time.
Speaker Change: Would obviously hurt.
Speaker Change: Floating portion of our of our of our earning assets, but then over time results of lower funding cost right. So.
Speaker Change: The upshot of that over a reasonably short period of time adjustment period is that we would see an improvement in our in our NIM.
Yes got it yet.
Speaker Change: Alright that makes sense very helpful.
Thanks for taking them.
Speaker Change: Just to be clear of that.
Speaker Change: Yes, the short end when I mentioned that we are effectively hedged what that also means is that.
Speaker Change: We do continue to see repricing of the App.
Speaker Change: On the asset side, so even if the fed were to cut rates, we would expect.
Speaker Change: The margins continue increasing.
Speaker Change: Got it okay.
Speaker Change: Very helpful. Thanks, so much.
Speaker Change: Yes.
Speaker Change: As a reminder to ask a question. Please press star one one on your telephone keypad and please standby for your name to be announced.
Speaker Change: Our next question comes from Kelly Motta with <unk>. Your line is open.
Kelly Motta: Hi, Thanks, so much for the question.
Kelly Motta: I hate to beat a dead horse here with the margin I just want to make sure Im understanding what you are saying correctly. It seems like it's clear.
Kelly Motta: Higher for longer you will continue to lap.
Kelly Motta: Level up on margin.
Kelly Motta: Sure.
Kelly Motta: It seems like with some moderate cuts.
Understanding correctly Dean you still think it.
Kelly Motta: It'll be it will continue to go up initially or could we at least in the first quarter are to see some compression is.
Kelly Motta: That variable rate portion.
Kelly Motta: About 45% reset lower.
Kelly Motta: Immediately to that change in rates, just just trying to square away both of your comments there.
Speaker Change: Yes, the way we look at it is we've.
Speaker Change: <unk>.
Speaker Change: We have separated out the floating rate assets.
Speaker Change: From from what is repricing in the cash flow so the asset repricing.
Cash flows is going to continue to increase our margin.
Speaker Change: Floating rate assets.
Speaker Change: Offsetting the decrease in what we on the liability side the deposit side.
Speaker Change: We would be bringing down our deposits as well the rates.
Speaker Change: So those two bore.
Speaker Change: With the opportunity to on the deposit side too too.
Speaker Change: <unk> further.
Speaker Change: But youre right. There is a there is a timing issue right because as soon as the fed drops rates that will contractually drop margin certain margins on our earning assets and it will take us.
Speaker Change: Period of time to bring down those rates within our deposit book.
Speaker Change: So there could be there could be that that intermediary period, Kelly, but we do think that.
Speaker Change: Over reasonable short order, we should be able to kind of get margin.
Speaker Change: The expansion out of lower interest rates.
Got it and I appreciate.
Speaker Change: The commentary that the average tenor of the swaps is two five years.
Speaker Change: Can you can you help me understand how that impacts at OCI accretion back to capital.
Speaker Change: That may have muted some of that benefit to tangible book value this quarter.
Speaker Change: Is the right way to think about it.
Speaker Change: We will start seeing a greater portion of that comeback provided rates move.
Lower.
Speaker Change: After that two five year average hatteras.
Speaker Change: Just trying to better understand kind of the cadence of how that impacts.
Speaker Change: That will impact that.
A quick back of LCI.
Speaker Change: Yes, so the.
Speaker Change: Swaps or <unk>.
Speaker Change: One 3 billion of swaps or hedging the RFS portfolio, so not the entire $3 billion.
Speaker Change: And so when it's.
Speaker Change: <unk>.
Speaker Change: About 30% of our hedge so it does it does mitigate the movement up or down and then over time as you as you recognize that.
Speaker Change: We will reduce a 30% will fall over time, if we did nothing now.
Speaker Change: It is going to be more active program, so, but 30% right now is the hedge.
Speaker Change: Okay.
Speaker Change: Got it.
Speaker Change: Switching to the balance sheet and loan growth.
Speaker Change: Just wondering as you look out to Q2, the next year, how we should be thinking about.
Speaker Change: Your expectations for loan growth on the island as well.
Speaker Change: You know, what we could potentially see coming out of now April.
Speaker Change: How that potentially impacts the tourism impact as well as just the rebuild there and how that fits into that loan growth expectation.
Speaker Change: Well, let's talk about Maui first.
Speaker Change: I think.
Speaker Change: Most of the.
Speaker Change: Funding coming in and value right now and activity is around relief efforts to date.
Speaker Change: The rebuild of Maui is still awful ways off Kelly.
Speaker Change: So probably.
Speaker Change: It's just not even constructed.
Speaker Change: To hypothesize, what what economic impacts that might have at this time.
Speaker Change: From a visitor perspective.
Speaker Change: The state.
Speaker Change: <unk> is performing well Maui is coming back.
Speaker Change: A lot faster than.
Speaker Change: People had anticipated at least that's the.
Speaker Change: The anecdotal that I get from from from that part of the state.
Speaker Change: So I don't think that theres going to be too much of a shortfall activity wise coming out of.
Speaker Change: Any forward tourism shortfall generated by the by the wildfires over.
Speaker Change: Over the next several several months.
Speaker Change: And then just in terms of the ability for.
Speaker Change: The long term stimulus impact of the rebuild of Lahaina to kick in I think thats still a ways off because we just don't we don't even really have a design yet on what what all of that project Patel.
Potentially could or would look like.
Speaker Change: So again, probably just too early to determine.
Speaker Change: Got it thanks for the color and then I guess, excluding Maui, how should we be thinking about the outlook for growth.
Speaker Change: Yes, we think that loan growth similar to last quarter's view is going to be reasonably tepid unless unless the fed just get really aggressive with rate cuts, which which we're not anticipating.
I think that the consumer is still going to be impacted somewhat by what they perceived to be higher rates.
Speaker Change: Interestingly mortgage rates in the low sixes don't seem to be too terribly outside of historical norm. If you go back years and years, but still I think that's having a negative impact on demand on the consumer front.
Speaker Change: We did have a reasonably good C&I quarter.
Speaker Change: So there is activity in the marketplace construction had a reasonable quarter as well, though that's a small portfolio.
Speaker Change: A lot of our low income housing.
Speaker Change: <unk>.
Speaker Change: But we're really kind of the big driver of our commercial portfolio is commercial real estate and people there.
Given the markets doing fine but.
Speaker Change: But transaction I think people are just kind of sitting on their hands for now is waiting to see which way interest rates, stakeout, which where the recession or the economy shakes out recession or expansion or just kind of soft landing.
Speaker Change: So I wouldn't anticipate a whole lot of activity before towards until we until maybe the back end of this year.
Speaker Change: Got it I appreciate all the color I'll step back thanks again.
That concludes the question and answer session. At this time I would now like to turn the call back to Cindy Wyrick for closing remarks.
Thank you again, everyone for joining us today and for your continued interest in bank of Hawaii as always please feel free to reach out to other.
Speaker Change: Martin do you have any additional questions or need further clarification on any of the topics discussed today. Thanks again, everyone and have a great.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Okay.