Q1 2024 Bank of Hawaii Corp Earnings Call
Operator: Please enter your dial-in PIN and press pound when finished. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Dean Shigemura, Mary Sellers, Kelly Motta, Unknown Executive, Jennifer Lam, Chang Park, Bank of Hawaii Corp Unknown Executive, Jennifer Lam, Chang Park, Bank of Hawaii Corp. Unknown Executive, Jennifer Lam, Chang Park, Bank of Hawaii Corp. Unknown Executive, Jennifer Lam, Chang Park, Bank of Hawaii Corp. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? [inaudible] Good day and thank you for standing by. Welcome to the Bank of Hawaii Corporation first quarter 2024 earnings conference call.
Good day and thank you for standing by welcome to the Bank of Hawaii Corporation first quarter 2024 earnings Conference call. At this time, all participants are in listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
To ask a question during the session you will need to press star one on your telephone.
Then here an automated message advising your hand this race to withdraw your question. Please press star one again piece you buys that today's conference is being recorded I would now like to hand, the call back over to your first speaker today, Cindy Wyrick director of Investor Relations. Please go ahead.
Operator: At this time, all participants are in 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 1-1 on your telephone. You will then hear an automated message advising your hand is being raked. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Cindy Wyrick, Director of Investor Relations. Please go ahead.
Cynthia G. Wyrick: Thank you, Marvin. I'd like to welcome everyone and thank you for joining us today as we discuss the financial results for the first quarter of 2024. Joining me today is our CEO, Peter Ho, CFO, Dean Shigemura, our Chief Risk Officer, Brad Sherrison, and our IR Manager, Chang Park. 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. During the call this morning, we'll be referencing a slide presentation as well as the earnings release. Both of these are available on our website, boh.com, under the Investor Relations link.
Cynthia G. Wyrick: Thank you Marvin I'd like to welcome everyone and thank you for joining US today as we discuss the financial results for the first quarter of 2020 for joining me today is our CEO, Peter Ho CFO, Dean Chicken, Laura our Chief Risk Officer, Brad sure thing and our IR manager of Chang part before we get started let me remind you.
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.
Cynthia G. Wyrick: During the call. This morning will be referencing a slide presentation as well as the earnings release. Both of these are available on our website <unk> dot com under the Investor Relations link and now I'd like to turn the call over to Peter Peter Thanks, Andy Good morning, or good afternoon, everyone. We appreciate your interest in bank of Hawaii.
Cynthia G. Wyrick: And now I'd like to turn the call over to Peter. Peter? Thanks, Cindy.
Peter S. Ho: Thanks, Cindy. Good morning or good afternoon, everyone.
Peter S. Ho: We appreciate your interest in Bank of Hawaii. Bank of Hawaii produced another solid financial performance for the first quarter of 2024. The company, while down two basis points for the quarter, showed significant directional improvement.
Cynthia G. Wyrick: Yeah.
Thanks quite produced another solid financial performance for the first quarter of 'twenty 'twenty four.
Peter S. Ho: While down two basis points for the quarter showed significant directional improvement.
Peter S. Ho: Fee income and operating expenses were steady for the quarter. Credit quality remains excellent. Loans and deposits were stable for the quarter, and equity and capital levels grew. I'll start off with some commentary on funding and then touch on broader market conditions here in the islands. I'll then hand the call over to Brad to discuss credit, and Dean will then share with you some more granular color on the financials.
Peter S. Ho: <unk> common operating expenses were steady for the quarter.
Peter S. Ho: Credit quality remains excellent.
Peter S. Ho: Loans and deposits were stable for the quarter what are your capital levels grew.
Speaker Change: I'll start off with some commentary on funding and then touch on broader market conditions here in the islands I'll, then hand, the call over to Brad to discuss credit people will then share with you some more granular color on the financials.
Peter S. Ho: We'll begin by touching a little bit on the deposit side. As you know, and I think many of you know, we consider our deposit franchise to be our crown jewel, built methodically over our 127-year history, one relationship at a time. This space has served us extremely well, as market rates and betas have moved up over the current rate cycle. As most of you know, Hawaii is probably the most unique deposit market in the country, with five locally headquartered banks holding 97% of the state's FDIC-reported deposits.
Speaker Change: And by touching a little bit on the deposit side.
Speaker Change: As you know many of you I think know we consider our deposit franchise to be our crown jewel built methodically over a 127 year history, one relationship at a time.
Speaker Change: Space has served us extremely well.
Speaker Change: As market rates and betas have moved up over the current rate cycle.
Speaker Change: Most of you know what is maybe the most unique deposit market in the country with five locally headquartered banks holding 97% of the state's FDIC reported deposits.
Peter S. Ho: You can see here that we have amazing tenure in our deposit base across multiple customer segments. This has enabled us to maintain great stability and balances across what has been a bit of a tumultuous period for the industry. Our deposit franchise has also enabled us to deliver total cost of deposits well below industry norms. The increase in total cost of deposits in the quarter of seven basis points is the smallest increase since the second quarter of 2022, helping us to meaningfully improve the trajectory of beta.
Speaker Change: See here, we have amazing tenure in our deposit base across multiple customer segments. This has enabled us to maintain rates stability imbalances across what has been a bit of a tumultuous period for the industry.
Speaker Change: Our deposit franchise has also enabled us to deliver total cost of deposits well below industry norms the ink.
Speaker Change: The total cost of deposits in the quarter of seven basis points is the smallest increase since the second quarter of 2022.
Speaker Change: Helping us to meaningfully improve the trajectory of beta.
Peter S. Ho: Equity levels remain abundant. The employment picture in the islands remains strong and continues to outperform the broader market. The visitor industry continues to be impacted by the tragic Lahaina fires. Here today, in February, total visitor expenditures and arrivals were down 1.9% and 0.6%, respectively.
Speaker Change: Liquidity levels remain abundant.
Speaker Change: The employment picture in the islands remains strong and continues to outperform the broader market.
Speaker Change: The visitor industry continues to be impacted by the tragic lahaina fires.
Speaker Change: Year to date February total visitor expenditures and arrivals were down one, 9% and 6% respectively.
Peter S. Ho: These levels, however, were up much, much, much greater levels of 6.4% and 7.6%, respectively, reflecting continued growth in U.S. mainland visitors to Hawaii and significant growth in the Japanese market, which is up 57.8% on expenditures and 84.3% on arrivals from last year. Rev Part Remains Steady. Residential real estate on Oahu remains stable with median prices up moderately for both single-family homes and condominiums
Speaker Change: These level ex Maui whoever were up much much greater levels of six 4% at seven 6%, respectively, reflecting continued growth in the U S mainland visitors ex Maui and significant growth in the Japan market, which is up 57, 8% on expenditures and 84, 3% on a <unk>.
Speaker Change: <unk> from last year.
Speaker Change: Revpar remains steady.
Speaker Change: Residential real estate on Oahu remained stable with medium prices up moderately for both single family homes and condominiums.
Brad Sherrison: And now, let me turn the call over to Brett.
Speaker Change: And now let me turn the call over to Brett.
Brad Sherrison: Thanks, Peter. Before beginning, I'd like to acknowledge my predecessor, Mary Sellers, who recently retired after leading risk management here at Bank of Hawaii for the last 19 years. Her vision and development of a strong team laid the foundation for continued sound risk management going forward. During her time, Mary oversaw a refocusing of the bank's credit philosophy toward lending in our core markets and to long-standing relationships. This has greatly contributed to the strong performance of our lending book for many years.
Brett: Yeah, Thanks, Peter before beginning I'd like to acknowledge my predecessor, Mary Sellers, who recently retired after leading risk management here at bank of Hawaii for the last 19 years her vision and development of a strong team laid the foundation for continued sound risk management going forward.
Brett: During her time Mary oversaw a refocusing of the bank's credit philosophy towards lending in our core markets and to long standing relationships. This has greatly contributed to the strong performance of our lending book for many years.
Brad Sherrison: As Bank of Hawaii takes great pride in serving our community, our loan portfolio is 92% Hawaii, 5% Western Pacific, and just 3% mainland. And those mainland loans are a support of our core client relationship. As I walk through our current state, you'll note there really hasn't been much change from last quarter.
Brett: As bank of Hawaii takes great Pride in serving our community our loan portfolio is 92% of Hawaii, 5% Western Pacific and just 3% mainland and those mainland loans are supported by our core client relationships.
Brett: As I walked through our current state you'll note there really hasn't been much change from last quarter.
Brad Sherrison: The lending philosophy I just mentioned is reflected in our loan growth, which has been steady and organic. From the end of 2019 to the end of last year, we averaged about six and a half percent loan growth per year. On the consumer side, which represents 58% of our total loans, or $8.1 billion, we are predominantly lending on a secured basis against real estate. Eighty-five percent of our portfolio is comprised of residential mortgages or home equity, with a weighted average LTV of 51%. The remaining 15% of the portfolio is a combination of auto and personal loans, where our average FICO scores are 732 and 758, respectively.
Brett: The lending philosophy I, just mentioned is reflected in our loan growth, which has been steady and organic from the end of 2019 to the end of last year, we averaged about six 5% loan growth per year.
Brett: On the consumer side, which represents 58% of our total loans or $8 1 billion.
Brett: We are predominantly lending on a secured basis against real estate, 85% of our portfolio is comprised of residential mortgage or home equity with a weighted average LTV of 51%. The remaining 15% of the portfolio is a combination of auto and personal loans, where our average FICO scores are 732% and 758, respectively.
Brad Sherrison: Moving on to commercial, our portfolio size is $5.8 billion, or 42% of our loan book. The largest share of commercial real estate is $3.7 billion in assets, which equates to about 27% of total loans. This book is well diversified across industries and carries a weighted average LTV of only 56%. Given CRE is getting a lot of attention in the industry, let's take a deeper look at our portfolio, which does differ from the mainline.
Brett: Moving on to commercial our portfolio size is $5 8 billion or 42% of our loan book the largest share of commercial is commercial real estate with $3 7 billion in assets, which equates to about 27% of total loans.
Brett: This book is well diversified across industries and carries a weighted average LTV of only 56% given CRE is getting a lot of attention in the industry, let's take a deeper look at our portfolio, which does differ from the mainland.
Brad Sherrison: Starting with the stability of our real estate market in Oahu, vacancy rates remain stable, reflective of the Hawaiian economy and history of limited supply. Industrial vacancy has continued to hover around its historic low, currently just 0.64% versus its 10-year average of 1.75%. At 13.45%, office vacancy is slightly less than a percent higher than its 10-year average. However, office conversions and the long-term trend of office space production will likely continue to temper vacancy rates there.
Brett: Starting with the stability of our real estate market in Oahu vacancy rates remained stable reflective of the Hawaiian economy and history of limited supply.
Brett: Industrial vacancies continue to hover around its historic low currently just 0.64% versus its 10 year average of 175% at 13.45% office vacancy is slightly less than a percent higher than its 10 year average.
Brett: Office conversions and a long term trend of office space reduction will likely continue to temper vacancy rates there.
Brad Sherrison: Retail and multifamily vacancies remain on par with historical averages. A big part of the story here in Hawaii relates to a lack of available land for new construction, which has caused this long history of limited supply across all property types. Looking at industrial square footage, which has increased by only 1.2 million square feet or 0.3% annually over the last 10 years, the same story is true for both retail and multifamily, which have increased 0.7% annually over that same time period.
Brett: Retail and multifamily vacancies remain on par with historical averages.
Brett: A big part of the story here in Hawaii relates to a lack of available land for new construction, which is causing this long history of limited supply of <unk>.
Brett: Across all property types.
Brett: Looking at industrial square footage has increased by only $1 2 million square feet or <unk>, 3% annually over the last 10 years similar stories for both retail and multifamily which have increased <unk>.
Brett: 7% annually over that same time period.
Brad Sherrison: Office space has actually come down 1.5 million square feet or 1.1% annually for a total 10% reduction over the last 10 years. And that trend continues with conversions from office space to condos or even hotels. The limited inventory across all property types makes for greater opportunities for repurposing real estate when supply and demand balances shift. Additionally, that lack of new construction prevents overbuilding and creates resiliency and durability.
Brett: Office space is actually come down one 5 million square feet or one 1% annually for a total 10% reduction over the last 10 years and that trend continues with conversions from office to condo or even hotel <unk>.
Brett: The limited inventory across all property types makes for greater opportunities for Repurposing real estate when supply and demand balances shift.
Brett: Additionally, that lack of new construction prevents overbuilding and creates resiliency and durability you just don't see a cyclical nature here to CRE supply in Hawaii, which on the mainland has been known to lead to boom and bust.
Brad Sherrison: You just don't see a cyclical nature here in CRE supply in Hawaii, which on the mainland has been known to lead to boom and bust. Turning to our lodging market, you can see that the same story on inventory applies to hotel space with no additional square footage over the past 10 years. In fact, a slight decline of 0.03% annually. Additionally, rev par and occupancy rates have been trending solidly upward as international visitors, including those from Japan, have continued to recover from the pandemic.
Brett: Turning to our lodging market you can see that the same story on inventory applies to hotel space with no additional square footage over the past 10 years in fact, a slight decline of 0.0% to 3% annually. Additionally, revpar and occupancy rates have been trending solidly upward as the international visitors, including those from Japan who've continued to recover from the pandemic.
Brett: Nick.
Brad Sherrison: Our CRE is well diversified amongst property types, with no sector being greater than 6.5% of total loans. Our conservative underwriting has been applied consistently across those different property types, with all weighted average LTVs below 60%, and our scheduled maturities have no maturity wall. With only 5.1% of loans due to mature this year and 9.7% next year, and more than half of our loans maturing in 2030 or later, looking at the distribution of LTVs, the tail risk in our CRE portfolio for any loans with greater than 80% LTV totals $37 million, or just 1%.
Brett: Our CRE is well diversified amongst property types with no sector being greater than six 5% of total loans. Our conservative underwriting has been applied consistently across those different property types with all weighted average ltvs below 60%.
Brett: And our scheduled maturities have no maturity wall with only five 1% of loans due to mature this year and nine 7% next year.
Brett: And more than half of our loans are maturing in 2030 or later.
Brett: Looking at the distribution of Ltvs, the tail risk in our CRE portfolio for any loans with greater than 80% LTV totaled $37 million or just 1% and if we move that metric up to 82%. Our CRE portfolio has less than $10 million of exposure is less than a third of a percent.
Brad Sherrison: And if we move that metric up to 82%, our CRE portfolio has less than $10 million of exposure at less than a third of a percent. Our office exposure remains low and manageable, with only 1.1% of the portfolio uncriticized, and only 6% of office loans have LTV greater than 80%. Our maturities over the next two years total less than 4%, or $14 million, of our total outstanding office exposure. Additionally, just 23% of office space is located in downtown Honolulu, with average LTVs of 60%, and 44% of those carry guarantees.
Brett: Our office exposure remains low and manageable with only one 1% of the portfolio and criticize and only 6% of office loans have LTV greater than 80%.
Brett: Our maturities over the next two years total less than 4% or $14 million of our total outstanding office exposure. Additionally, just 23% of office spaces located in downtown Honolulu, with average ltvs of 60% and 44% of those carry guarantees.
Brad Sherrison: Turning to our multifamily portfolio, only 0.6% of the book, or about $5 million, has an LTV greater than 80%. And this is a market where severely limited supply, combined with the high cost of ownership, drives consistent, strong rental demand.
Brett: Turning to our multifamily portfolio only 6% of the book or about $5 million has LTV greater than 80% and this is a market where the severely limited supply combined with the high cost of ownership drives consistent strong rental demand scheduled maturities over the next two years or less than 20%.
Dean Y. Shigemura: Scheduled maturities over the next two years are less than 20%, and more than 65% of the book does not mature until 2030 or later. Looking at our credit metrics overall this past quarter, compared to the linked quarter, metrics remain quite stable, and asset quality remains strong. Net charge-offs were $2.3 million at seven basis points annualized, up two basis points from Q4, but down slightly from a year ago. Non-performing assets have remained stable at around nine basis points for the last year.
And more than 65% of the book does not mature until 2030 or later.
Brett: Yeah.
Brett: Looking at our credit metrics overall, this past quarter compared to linked quarter metrics remained quite stable and asset quality remains strong net charge offs were $2 3 million at seven basis points annualized up two basis points from Q4, but down slightly from a year ago nonperforming assets have remained stable at around nine basis points for the last.
Dean Y. Shigemura: All non-performing assets are secured with real estate with a weighted average loan-to-value of 58%. Delinquencies and criticized loans are also stable, with delinquencies flat at 0.31% from the prior quarter and criticized loans up four basis points from the prior quarter to 1.97%. And the allowance for credit losses on loans and leases was $147.7 million at the end of the quarter. That's up $1.3 million for the reference period and up $4.1 million year over year.
Brett: Year, all nonperforming assets are secured with real estate with a weighted average loan to value of 58%.
Brett: Delinquencies and criticized loans were also stable with.
Brett: Delinquencies flat at three 1% from prior quarter and criticized loans up four basis points from the prior quarter to $1, 97%.
And the allowance for credit losses on loans and leases was $147 7 million at the end of the quarter Thats up $1 3 million for the linked period and up $4 $1 million year over year the ratio of our ACL to Outstandings was 1.07% at the end of the quarter and that's up two basis points from the prior.
Dean Y. Shigemura: The ratio of our ACL to outstandings was 1.07 percent at the end of the quarter, and that's up two basis points from the prior quarter and up three basis points year over year. I'll now turn this over to Dean for an update on our financials.
Brett: Quarter end up three basis points year over year.
Brett: I'll now turn this over to Dean for an update on our financials.
Dean Y. Shigemura: Thank you Brad.
Dean Y. Shigemura: In the first quarter, we maintained our hedging program with $3 billion of notional pay-fix-receive-float interest rate swaps, and we continued to direct investment portfolio runoff into cash at attractive yields. These actions have increased our floating and adjustable rate asset exposure to 45% from 27% at the end of 2022 and positioned us well for this uncertain environment and a range of interest rate outcomes.
Dean Y. Shigemura: In the first quarter, we maintained our hedging program with $3 billion of notional pay fixed received float interest rate swaps and we continue to direct investment portfolio run off into cash at attractive yields.
Dean Y. Shigemura: These actions have increased our floating and adjustable rate asset exposure to 45% from 27% at the end of 2022 and positioned us well for this uncertain environment and a range of interest rate outcomes.
Dean Y. Shigemura: Net interest income was $113.9 million in the first quarter, a decrease of $1.8 million in the quarter. Repricing from asset cash flows contributed $4.7 million of additional net interest income in the quarter, while continued deposit makeshift and repricing, as well as a smaller balance sheet from lower deposit balances, subtracted $5.5 million. In addition, net interest income was also impacted by one less interest-earning day in the quarter, as well as $200 million of our fixed-to-float investment securities resetting during the fourth quarter, which reduced portfolio interest income by approximately $700,000 on a linked quarter basis. As a result, net interest margin declined by two basis points last quarter.
Dean Y. Shigemura: Net interest income was $113 9 million in the first quarter, a decrease of $1 8 million linked quarter.
Dean Y. Shigemura: Repricing from asset cash flows contributed $4 7 million of additional net interest income linked quarter, while continued deposit mix shifts at repricing as well as a smaller balance sheet from lower deposit balances subtracted $5 5 million.
Dean Y. Shigemura: In addition, net interest income was also impacted by one less interest, earning day in the quarter as well as $200 million of our fixed to float investment securities resetting during the fourth quarter.
Dean Y. Shigemura: Which reduced portfolio interest income by approximately 700000 on a linked quarter basis.
Dean Y. Shigemura: As a result, net interest margin declined by two basis points linked quarter.
Dean Y. Shigemura: As noted earlier, our assets continue to reprice higher, supporting net interest income and the margin, even as Fed funds remain unchanged. In the first quarter, cash flow from maturities and prepayments was $806 million. We continue to enjoy greater than 3% spread on cash flow from fixed and adjustable loans being reinvested into like assets, and Investment Security's cash flows being reinvested into cash while maintaining healthy yields on reinvested floating rate loans. We continue to forecast annual cash flows from maturities and paydowns of loans and investments to be $3 billion, which will provide an ongoing supplement to the $7.2 billion in assets, which include our interest rate swap, that reprices annually
Dean Y. Shigemura: As noted.
Dean Y. Shigemura: Earlier, our assets continue to reprice higher supporting net interest income and the margin even as fed funds remain unchanged.
Dean Y. Shigemura: In the first quarter cash flow from maturities and prepayments was $806 million.
Dean Y. Shigemura: We continued to enjoy greater than 3% spread on cash flow from VIX.
Dean Y. Shigemura: First of all loans being reinvested into like assets.
Dean Y. Shigemura: In investment Securities cash flows.
Dean Y. Shigemura: Reinvested into cash while maintaining healthy yields on reinvested floating rate loans.
We continue to forecast annual cash flows from maturities and Paydowns.
Dean Y. Shigemura: Loans and investments to be $3 billion.
Dean Y. Shigemura: Which will provide an ongoing supplement to that $7 2 billion in assets, which include our interest rate swaps that reprice annually.
Dean Y. Shigemura: 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 as new asset yields are well in excess of runoff. As Peter mentioned, the rate of growth in our deposit costs slowed significantly in the first quarter through disciplined pricing, which is expected to continue, as well as through growth of lower cost and more granular consumer deposits, which increased $109 million in the quarter. However, as the outlook for rates has shifted from six rate cuts to a higher-for-longer rate scenario, we expect continued pressure on our deposit mix and pricing to result in slightly higher overall deposit costs.
Dean Y. Shigemura: 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 as new asset yields are well in excess of runoff.
Dean Y. Shigemura: As Peter mentioned the rate of growth in our deposit costs have slowed significantly in the first quarter with disciplined pricing, which is expected to continue.
Dean Y. Shigemura: As well as to growth of lower cost and more granular consumer deposits, which increased $109 million linked quarter.
Dean Y. Shigemura: However, as the outlook for rates has shifted from six rate cuts to a higher for longer rate scenario. We expect continued pressure on our deposit mix and pricing to result in slightly higher overall deposit costs.
Dean Y. Shigemura: Non-interest income totaled $42.3 million in the first quarter, unchanged from the fourth quarter, as market conditions and transaction volumes were steady. We expect core non-interest income to be slightly lower in the second quarter due to recent market volatility. During the first quarter, as is our practice, we managed our expenses in a disciplined manner as inflationary conditions continued. Expenses for the first quarter were $105.9 million, which included $2.2 million of seasonal payroll taxes and benefits related to incentive payouts and restricted stock investments. In addition, we recognize $500,000 of severance expenses in the quarter.
Dean Y. Shigemura: Noninterest income totaled $42 3 million in the first quarter unchanged from the fourth quarter as market conditions and transaction volumes were steady.
Dean Y. Shigemura: We expect core noninterest income to be slightly lower in the second quarter due to recent market volatility.
Dean Y. Shigemura: Okay.
Dean Y. Shigemura: During the first quarter as is our practice, we managed our expenses in a disciplined manner as inflationary conditions continue.
Expenses in the first quarter were 101 hundred $5 9 million, which included $2 2 million of seasonal payroll taxes and benefits related to incentive payouts and restricted stock vesting.
Dean Y. Shigemura: In addition, we recognized 500000 of.
Dean Y. Shigemura: Severance expenses in the quarter.
Dean Y. Shigemura: Thus, the adjusted core expense level in the first quarter was $103.2 million. Corp expenses in the fourth quarter were $102.9 million when adjusted for the industry-wide FDIC special assessment that resulted in a $14.7 million charge, as well as $1.7 million of expense savings not expected to recur. Thus the adjusted core expense level in the first quarter was $300,000, or 0.3% higher late quarter. We continue to evaluate expense levels and have revised our expected normalized expenses in 2024 to increase 1 to 2% from 2023 normalized expenses of $419 million.
Dean Y. Shigemura: Thus the adjusted core expense level in the first quarter was 100 $103 2 million.
Dean Y. Shigemura: Core expenses in the fourth quarter were $102 9 million when adjusted for the industry wide FDIC special assessment that resulted in a $14 $7 million charge as well as $1 7 million of expense savings not expected to recur.
Dean Y. Shigemura: Thus the adjusted core expense level in the first quarter was 300000.
Dean Y. Shigemura: Four 3% higher linked quarter.
Dean Y. Shigemura: And this is lower than our prior guidance. In the second quarter, we expect to recognize an additional non-recurring industry-wide FDIC special assessment. The FDIC has indicated that we will be informed of the actual amount in June. In addition, I want to note that the annual merit increases took effect at the beginning of April and are included in the expense guidance. To summarize the remainder of our financial performance in the first quarter of 2024, net income was $36.4 million, and earnings per common share was $0.87, an increase of $6,015,000 per share, respectively.
Dean Y. Shigemura: We continue to evaluate expense levels and have revised our expected normalized expenses in 2024 to increase 1% to 2% from.
Dean Y. Shigemura: From 2023 normalized expenses of $419 million and this is lower than our prior guidance.
Dean Y. Shigemura: In the second quarter, we expect to recognize an additional nonrecurring industry wide FDIC special assessment.
Dean Y. Shigemura: The FDIC has indicated that we will be informed of the actual amount in June.
Dean Y. Shigemura: In addition, I want to note that the annual Merit increases took effect at the beginning of April and are included in the expense guidance.
Dean Y. Shigemura: To summarize the remainder of our financial performance in the first quarter of 2024 net income was $36 4 million and earnings per common share was <unk> 87.
Dean Y. Shigemura: Increases of $6 million and <unk> 15 per share respectively.
Dean Y. Shigemura: Our return on common equity was 11.2%. We recorded a provision for credit losses of $2 million this quarter. The effective tax rate in the first quarter was 24.7%. The tax rate in 2024 is expected to be approximately 24.5%. As has been the experience since the first quarter of 2023, we continue to organically grow our capital from prior quarters, and we continue to maintain healthy excesses above the regulatory minimum well-capitalized requirements. Our risk-weighted assets to total assets ratio is well below the peer median, reflecting the low-risk nature of our asset mix.
Dean Y. Shigemura: Our return on common equity was 11, 2%.
Dean Y. Shigemura: We recorded a provision for credit losses of $2 million this quarter.
Dean Y. Shigemura: The effective tax rate in the first quarter was 24, 7%.
Dean Y. Shigemura: <unk> rate in 2024 is expected to be approximately 24, 5%.
Dean Y. Shigemura: As has been our <unk> experienced since the first quarter of 2023, 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 Y. Shigemura: Our risk weighted assets to total assets ratio well below peer median reflecting the low risk nature of our asset mix.
Dean Y. Shigemura: During the first quarter, we paid out $28 million to common shareholders in dividends and $2 million in preferred stock dividends. We did not repurchase shares of common stock during the quarter under our share repurchase program. And finally, the board declared a dividend of $0.70 per common share for the second quarter of 2020. Now, I'll turn the call back over to Peter. All right.
Dean Y. Shigemura: During the first quarter, we paid out $28 million to common shareholders in dividends and $2 million and preferred stock dividends.
Dean Y. Shigemura: We did not repurchase shares of common stock during the quarter under our share repurchase program.
Dean Y. Shigemura: And finally, our board declared a dividend of <unk> 17 per common share for the second quarter of 2024.
Dean Y. Shigemura: Now I'll turn the call back over to Peter.
Peter S. Ho: Great. Thank you, Dean.
Peter S. Ho: Great. Thank you Dave.
Peter S. Ho: That concludes our prepared remarks, we'd be happy to entertain your questions at this time.
Operator: That concludes our prepared remarks. We'd be happy to entertain your questions at this time. Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question...
Operator: Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A. Our first question comes from the line of Jade Scharr from Barclays. Your line is now open.
Peter S. Ho: Thank you at this time, we will conduct a question and answer session.
Speaker Change: A minor to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Jared Shaw from Barclays. Your line is now open.
Speaker Change: Yes.
Jared Shaw: Hi, good morning.
Jade Scharr: Thanks for taking the questions. Maybe first just starting with margin, you know, as we as we look at the securities cash flows continue to come down, I guess at the same time cash came down this quarter. Should we? With the expectation that there's still a little bit of a tail on deposit costs, how should we be thinking about the trajectory of margin over the next few quarters?
Jared Shaw: Sure. Thanks for thanks for taking my questions.
Jared Shaw: Maybe first just starting with margin.
Jared Shaw: We as we do look at the Securities cash flows continuing to come down I guess at the same time cash.
Jared Shaw: It came down this quarter should we.
Jared Shaw: With with the.
Jared Shaw: Expectation that theres still a little bit of a tail on deposit costs, how should we be thinking about the trajectory of margin over the next few quarters.
Dean Y. Shigemura: Yeah, so when when you look at our asset side of the balance sheet, and the repricing from our cash flows, you know, we continue to expect Approximately, in total, about $5 million of accretion NII, and then on the liability side, on the deposits, you know, with the higher for longer interest rate environment, you know, we do expect the deposit remix and repricing to continue somewhat, but at a much, much lower rate than what we've been experiencing and what we had experienced in 2023.
Jared Shaw: Yes, so when you look at our <unk>.
Jared Shaw: Asset side of the balance sheet.
Jared Shaw: And the repricing from our cash flows we continue to expect.
Jared Shaw: <unk> in total about $5 million.
Jared Shaw: Accretion NII.
Jared Shaw: And then on the liability side on the deposits with the higher for longer interest rate environment, We do expect the deposit.
Jared Shaw: Mix and repricing to continue somewhat.
Jared Shaw: But at a much much.
Jared Shaw: Lower rate than what we've been experiencing and what we had experienced in 2023, yes, we really saw deposit costs flatten.
Peter S. Ho: Yeah, we really saw deposit costs flatten, pretty meaningfully, not completely, but meaningfully, pretty late into the fourth quarter called November of 23. And so if you look at 23, you know, January through that November period, average total deposit costs were growing at about 11 basis points per month from that November mark forward. So through the first half of this month, that number slowed to like two basis points. So a big step down, but still plus two basis points per month. And it's anyone's guess as to whether or not that two basis points will turn to one basis point or zero.
Jared Shaw: Pretty meaningfully not completely but meaningfully.
Jared Shaw: Pretty much the fourth late into the fourth quarter call in November of 43.
Jared Shaw: So if you look at 'twenty three January through that November period.
Jared Shaw: Average total deposit costs were growing at about 11 basis points per month.
Jared Shaw: From that November Mark forward so through.
Jared Shaw: The first half of this month that number slow delay two basis points. So a big a big step down, but still plus two basis points per month, and it's anyone's guess as to whether or not that two basis points turns to one basis point or zero we're hopeful.
Peter S. Ho: We're hopeful of that trend, but it's just too tough to tell. So I think the tail of the NII for the quarter is going to be the NII accretion that we get from the fixed asset cash flow against whatever we end up with from a funding cost standpoint for the quarter. And last quarter, I thought we had a pretty reasonable chance of coming out ahead. But it didn't come to pass. There were some one-off items in that number as well. We'll see what happens this quarter, but it's just the numbers are getting so tight; it's just too tough to make a call one way or another, I'd say.
Jared Shaw: That trend, but just too tough to tell so I think the quarter the tail of the NII for the quarter is going to be.
Jared Shaw: The NII accretion that we get from the fixed asset.
Jared Shaw: Cash flow.
Jared Shaw: Against.
Jared Shaw: Whatever we end up with from a funding cost standpoint.
Jared Shaw: For the quarter and last quarter I thought we had a pretty reasonable chance at coming out ahead.
Jared Shaw: Did it come to pass there are some one off items in that number as well, we'll see what happens this quarter, but it's just the members are getting so tight it's just too tough to make a call one way or another I'd say.
Peter S. Ho: Okay, good call. Thanks. Shifting to capital, you continue to grow capital, really strong levels there, and you mentioned the buyback authorization. What's the general feeling about buying back stock here, and I guess at what point is capital getting too high given the broader growth profile, staying in that, you know, call it the longer-term 6% range? Yeah, so I think a lot to think about.
Speaker Change: Okay, great color, Thanks, and then.
Speaker Change: Shifting to.
Speaker Change: <unk> capital.
Speaker Change: Hey, ROE capital really strong levels, there and you mentioned the buyback authorization.
Speaker Change: What's the general feeling with.
Speaker Change: Buying back stock here and I.
Speaker Change: I guess at what point is capital getting too high given the broader growth profile.
Speaker Change: Staying in that call it longer term, 6% range.
Peter S. Ho: Yeah, so I think there is a lot to think about on the capital front, both from an operational standpoint, as well as from a top-down regulatory standpoint or just kind of a broader industry perspective. And so I think, kind of, from the top down, there's still a fair amount of uncertainty around where banks are going to be pushed to hold capital levels. From the bottom up, it still feels like there's a fair amount of caution, I'd say in the marketplace.
Speaker Change: Yeah. So I think a lot to think about on the capital front.
Speaker Change: From an operational standpoint, as well as from a top down regulatory standpoint, or just kind of the broader.
Speaker Change: Industry perspective, and so.
Speaker Change: <unk>.
Speaker Change: Kind of from from the top down there is still a fair amount of uncertainty around where banks are going to be pushed to old capital levels.
Speaker Change: From the bottom up it still feels like there's a fair amount.
Speaker Change: Of of caution I would say in the marketplace and so we think that growing capital is thought of as a good idea in the eyes of our shareholders and therefore, probably a better idea than the alternative of stock repurchase for now.
Peter S. Ho: And so we think that growing capital is thought of as a good idea in the eyes of our shareholders and, therefore, probably a better idea than the alternative of stock we purchase for now. Now, you know, greater clarity from the top down would be helpful. Improvement and kind of a bottom-up environment would be helpful. And that probably begins to change our trajectory over time. Great. Thanks very much.
Speaker Change: Now greater clarity from the top down would be helpful.
Speaker Change: Improvement in kind of the bottom up environment would be helpful. Not probably begin to change our trajectory over time.
Speaker Change: Great. Thanks very much.
Speaker Change: Sure.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Jeff Rulis at DA Davidson. Your line is now open.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Jeff <unk> at D. A Davidson your line is now open.
Jeffrey Allen Rulis: Thanks. Good morning Peter, just to maybe follow on, if it follows that you talked about deposit costs sort of by month, two basis points. I'm interested in the spot rates on both interest-bearing and total deposit costs, how do those compare to the Full Quarter Averages?
Jeff: Thanks, Good morning, Hey, Jeff Peter.
Jeffrey Allen Rulis: Just to maybe follow on it.
Jeffrey Allen Rulis: It follows that you talked about deposit costs sort of by months two basis points interested in the spot rates on both interest bearing.
Jeffrey Allen Rulis: And total deposit costs, how do those compare to that.
Jeffrey Allen Rulis: Full quarter averages.
Peter S. Ho: Sure. Um, so the total average deposit cost for, I can give you the average for March of that, was 177. [inaudible] Average interest-bearing deposit cost. So that's, yeah, average engine-bearing deposit cost for March was $242.
Jeffrey Allen Rulis: Sure.
Jeffrey Allen Rulis: So.
Speaker Change: Total average deposit cost for I can give you the average for March of that.
Speaker Change: Was one was $1 77.
Speaker Change: And.
Speaker Change: Okay.
Speaker Change: Average interest bearing deposit costs.
Speaker Change: Average interest bearing deposit costs for March was $2 42.
Peter S. Ho: Okay, yeah, pretty flat. Three basis points or so higher than the quarterly. So that's kind of the trend. And like you said, it's leveling off. Just wanted to check that figure. Okay, if I were to maybe just hop.
Speaker Change: Okay.
Speaker Change: So pretty pretty flush.
Speaker Change: <unk> III.
Speaker Change: Three basis points or so higher than the quarterly so that's kind of the trend and like you said it.
Speaker Change: Leveling off.
Speaker Change: Just wanted to check that figure.
Speaker Change: Okay, if I were to.
Speaker Change: Maybe just talk.
Peter S. Ho: Maybe about the loan pipelines, you know, kind of heard from various inputs that the hire for longer, maybe there was a pause earlier in the year in terms of thinking about rate cuts and, I guess, some customers. I am not giving up on that, but the hire for longer is happening. Are you seeing that in your loan pipelines? Are people settling in on rates where they are that it's actually starting to improve the pipeline picture at all kinds of years to date?
Speaker Change: Maybe about the loan pipelines.
Speaker Change: Kind of heard.
Speaker Change: From various inputs that.
Speaker Change: The higher for longer maybe there was a pause earlier in the year in terms of thinking about rate cuts and I guess, maybe some customers.
Speaker Change: Not giving up on that but the higher for longer is occurring are you seeing that in your loan pipelines are people settling in on rates, where they are that it's actually starting date.
Speaker Change: Improve the pipeline.
Speaker Change: Sure it all kind of year to date.
Peter S. Ho: Yeah, Jeff, the pipeline's been interesting, and, you know, in spaces where we get some great relief. We've seen good movement. I'm talking more on the residential lending side, some good pickups and volumes. And then as rates begin to crest again, as they have most recently, you see that demand fall pretty quickly. So our RISD was down 0.6% for the quarter on an average basis, and home equity was down 1.1% on an average basis.
Speaker Change: Yes, Jeff the pipeline been interesting and in spaces, where we get some rate relief, we've seen good movement I'm talking more on the residential.
Speaker Change: Lending side.
Speaker Change: Some good pickups in volumes and then as rates.
Speaker Change: To begin the crest again as they have most recently, you'll see that demand fall off pretty quickly.
Speaker Change: So our rosy.
Speaker Change: Was down 6% for the quarter on an average basis.
Speaker Change: Equity was down one 1% on an average basis.
Peter S. Ho: We were hoping for a flattening this quarter; we'll see if we get that depending on how rates fall out, but my outlook for, or our outlook for the balance of the year is pretty flat, and that's based on, one, a belief that rates are possibly higher for longer. So not a lot of confidence in rate relief. And secondly, I think, in part, that's driving the consumer to be a little bit more cautious, both the consumer as well as, I think, the commercial and commercial real estate customer.
Speaker Change: We were hoping for a flattening this quarter.
Speaker Change: We'll see if we get that.
Speaker Change: Depending on how rates fallout.
Speaker Change: My outlook for our outlook for the balance of the year is pretty flat and Thats based on.
Speaker Change: Our belief that rates are possibly higher for longer.
Speaker Change: So not a lot of.
Speaker Change: Confidence in rate relief and then secondly, I think in part that's driving the consumer to be a little bit more cautious both both the consumer as well as I think the commercial and commercial real estate customer.
Peter S. Ho: Thanks, Peter. And one last one, if I could just give you some really interesting stats, I had no idea that industrial CRE kind of vacancy is that low and supply the lack of growth there. I'm curious as to the history of conversions on the island, on Oahu, you know, from office to industrial and maybe some of the puts and takes there. I'd be interested in just hearing that. Yeah, well, if there is some,
Speaker Change: Okay. Thanks, Peter and one last one if I could just.
Speaker Change: Really interesting stats I had no idea that industrial CRE kind of <unk>.
Speaker Change: You can see is that low in supply.
Speaker Change: The lack of growth there.
Speaker Change: Sure.
Speaker Change: The history of <unk>.
Speaker Change: Conversions on the island on Oahu.
Speaker Change: Uniform from office to.
Speaker Change: Two industrial and maybe some of that.
Speaker Change: Puts and takes there I'd be interested in just hearing that.
Peter S. Ho: Yeah, well, so the conversion side is there's not much conversion from office to industrial for lots of different reasons, just kind of the configuration of where this real estate is and the like. And, you know, Hawaii is a very onerous entitlement place, so it'd be tough to get those asset classes converted.
Speaker Change: So if there is.
Speaker Change: Yes, well so the convert the conversion side is there is not much conversion from office to industrial.
Speaker Change: For for lots of different reasons, just kind of the configuration of where this real estate is and alike.
Speaker Change: In the.
Speaker Change: Hawaii is a very onerous entitlement place so it would be.
Speaker Change: Tough to get those asset classes converted when we do see a fair amount of conversion, though his office to two multifamily.
Brad Sherrison: Where we do see a fair amount of conversion, though, is office to multifamily, and that's happening pretty meaningfully here in the downtown corridor. And, you know, obviously, we think that's a positive because office space is, you know, it's not a disaster, but it's still a 12 13% vacancy market for us. And we're just completely housing constrained. So we are starting to see more than green shoots into that space, and that's probably more the trend from office to housing versus office to industrial, and the industrial issue is an issue. It's just that kind of vacancy factor, as you can imagine, creating all sorts of dysfunction operationally on the island.
Speaker Change: And that's happening pretty meaningfully here in the downtown corridor.
Speaker Change: Obviously, we think thats a positive because.
Speaker Change: The offices.
Speaker Change: It's not a disaster, but it's still a 12% 13% vacancy market for us and we're just completely housing constrained so starting to see more than green shoots into that space and thats, probably more of the trend from office to housing versus office to industrial.
The industrial issue is an issue it's like that kind of vacancy factors as you can imagine, creating all sorts of dysfunction operationally in the island.
Brad Sherrison: I'll just add really quickly that when you look at that graph, you can see that office space has come down a little more in the past five years than in the previous five. So it's down 1.2 million square feet in the last five years, and there are forecasts out there for it to come down another 400,000 square feet or so in the next three years.
Speaker Change: I will just add really quickly that when you look at that graph you can see that office space has come down a little more in the past five years than the previous five so it's down $1 2 million square feet in the last five years and there is a fourth there are forecasts out there for it to come down another 400000 square feet or so in the next three years.
Brad Sherrison: Okay, thanks, Brad and Peter. I appreciate it. Thank you. One more.
Speaker Change: Okay, Thanks, Rod and Peter I appreciate it.
Speaker Change: Sure.
Operator: Thank you one moment for our next question. Our next question comes from the line of Andrew Liesch from Piper Sandler. Your line is now open.
Speaker Change: Okay. Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Andrew <unk> of Piper Sandler Your line is now open.
Andrew Brian Liesch: Thanks. Good morning, everyone.
Speaker Change: Okay.
Andrew: Thanks, Good morning, everyone.
Peter S. Ho: I'm just curious what you guys are seeing in terms of deposit trends, right? It sounds like it's in public funds that leave, and then it's Lahaina-related fire relief efforts, deposits leave. But do you think you've reached a point of stabilization in the mix, and you can grow deposits from here? Or, I guess, what are you hearing at the individual client level?
Andrew: Just curious what you guys are seeing.
Andrew: And deposit trends it sounds like you had some public funds leave behind.
Speaker Change: <unk> related fire relief efforts deposits leave.
Speaker Change: But.
Speaker Change: Do you think you've reached a point of stabilization in the mix and you can grow deposits from here or I guess what are you.
Speaker Change: Hearing at the at the individual client level.
Peter S. Ho: Yeah, good question, Andrew. So there was some bumpiness, as you saw in the numbers from Q4 to Q1. And really, the way to think about it is from Q3 to Q4 to Q1. And so in Q3, we were at 20.5 billion average deposits. In Q4, we spiked 20.7. And then now for this past quarter, we're down 20.5, and that run-up in Q4 had a lot of Maui kind of insurance and essential aid type of money that kind of flowed in during the quarter and then flowed out during the quarter. So I think that probably the number to go off of for the foreseeable future is kind of that 20.5 mark that seems pretty durable.
Speaker Change: Yes good.
Speaker Change: Good question.
Speaker Change: Andrew.
Speaker Change: So there was some bumping us.
Speaker Change: As you saw in the numbers from Q4 to Q1.
Speaker Change: And really the way to think about it is Q3 to Q4 to Q1 and so Q3, we were at 25 billion average deposits Q4, we spiked 27, and then now for this past quarter were down 25.
Speaker Change: And that run up in Q4 had a lot of Maui and of insurance and.
Speaker Change: And essential aid type of money that kind of flowed in in the quarter and then flowed out in the quarter.
Speaker Change: So I think that probably the number.
Speaker Change: To go off of.
Speaker Change: For the foreseeable future as kind of that 25, mark that seems pretty durable.
Peter S. Ho: And what we're seeing, you know, amongst the deposit mix is a pretty meaningful slowdown in the mixed shift from non interest bearing to interest bearing. So if you look at 23, the first three quarters of 23, that runoff and non-interest bearing was about $98 million per month, and then kind of from Q.., for 23 to current, that number's down by about a third of that, like $33 million.
Speaker Change: And what we're seeing.
Speaker Change: Amongst deposit mix is a pretty meaningful slowdown.
Speaker Change: In.
Speaker Change: And the mix shift from noninterest bearing.
Speaker Change: To interest bearing so if you look at it.
Speaker Change: You look at 'twenty three.
Speaker Change: Kind of the first three quarters of 2003 that run off in noninterest bearing with about.
Speaker Change: The $98 million per.
Speaker Change: Per month.
Speaker Change: And then kind of from Q.
Speaker Change: For 2003 to current debt numbers down by about a third of that like $33 million. So I'm not sure that we're completely done with.
Peter S. Ho: So I'm not sure that we're completely done with kind of runoff in non-interest bearing, but as you can see, the rate of runoff has slowed pretty dramatically. And frankly, you know, we were thinking that as we got a rate cut or two, that would kind of mark the end of that period, but it seems like that may be pushed out.
Speaker Change: Run off in noninterest bearing but as you can see.
Speaker Change: The rate of runoff has slowed pretty dramatically.
Speaker Change: And then frankly.
Speaker Change: We were thinking.
Speaker Change: But as we got a rate cut or two that would have.
Speaker Change: Mark the end of that period, but it seems like that might be pushed out a little bit at this point.
Dean Y. Shigemura: Got it. Okay, that's really helpful there. And then, Dean, just on the expense guidance. So the 419, the 1 to 2% growth off that, that does include the seasonal impact that you had in the first quarter at 2.2 million, correct? Yeah.
Speaker Change: Got it okay, that's really helpful. There.
Speaker Change: And then being just on.
Speaker Change: On the expense guidance.
Speaker Change: So the 419.
Speaker Change: The 1% or 2% growth off that that does include the seasonal.
Speaker Change: The impact that you had in the first quarter at $2 2 million correct.
Dean Y. Shigemura: Yeah, it does include the 2.2 million but would exclude the, you know, if the second special assessment FDIC.
Speaker Change: Yes. It does include the $2 2 million, but was excluded.
Speaker Change: The second special assessment.
Dean Y. Shigemura: Right. Got it. Okay. Thanks for that clarification. You've answered all my other questions.
Speaker Change: Right right.
Speaker Change: Got it.
Speaker Change: Okay. Thanks for that clarity that clarification.
Speaker Change: You've answered all my other questions I'll step back thank you.
Andrew Brian Liesch: I'll step back. Thanks. Thank you. One moment for our next question.
Speaker Change: Thank you one moment for our next question.
Operator: Our next question comes from the line of Kelly Motta of KDBW. Your line is now open.
Speaker Change: Our next question comes from the line of Kelly Motta of KD VW. Your line is now open.
Kelly Ann Motta: Hi, good morning. Thanks. Thanks for the question. I might circle back to the margin. Looking at slides 40, 34 with the call it 800 million of loans and investment portfolio flows coming in in Q1, I was surprised to see earning asset yields only increased four basis points this quarter. I was just wondering if there was anything unusual or any kind of puts and takes to think about as we think about the dynamics of, you know, the repricing of your book as we look ahead in a higher for longer environment.
Kelly Ann Motta: Hi, good morning. Thanks, Thanks for the question.
Speaker Change: Sure.
Kelly Ann Motta: I might circle back to the margin.
Kelly Ann Motta: Looking at Slide 40, 34 with the call.
Kelly Ann Motta: <unk> hundred million of.
Kelly Ann Motta: Loans and investment portfolio.
Kelly Ann Motta: Okay.
Kelly Ann Motta: Flows coming coming.
Speaker Change: Got it.
Speaker Change: And in Q1, I was surprised to see earning.
Speaker Change: Asset yields only increased four basis points.
Speaker Change: This quarter I was just wondering if there was anything unusual or any kind of puts and takes to think about as we think about.
Speaker Change: The dynamics of.
Speaker Change: The repricing of your book as we look ahead and are higher for longer environment.
Dean Y. Shigemura: Yeah, one thing to point out is that, as I mentioned, the investment portfolio; we had some securities that repriced fixed to flow that brought down the yield on the investment portfolio. So that had an impact. In addition, the loan volume came down, and balances came down, so that also had an impact on the overall yield. You know, if we had stayed flatter, the increase would have been greater.
Kelly Ann Motta: Okay. All right.
Speaker Change: Yes, one thing to point out is that.
Speaker Change: As I mentioned the investment portfolio, we had some of securities that reprice fixed slowed that brought down the <unk>.
Speaker Change: The yield on the investment portfolio, so that had an impact.
Speaker Change: And then in addition in addition to the loan volume came down.
Speaker Change: Balances came down so that also had an impact on the overall yields.
Speaker Change: If we have to stay flatter.
Speaker Change: The increase was a bit greater.
Dean Y. Shigemura: That's helpful. And then going back to earlier in the Q&A, I think you had said that you expect about $5 million in NII from earnings asset repricing over the next couple of quarters. Just wanted to clarify if that's over the course of the year or next quarter. I just wanted to kind of close the loop on that commentary to make sure I'm understanding it correctly. It's per quarter. Yeah, per quarter. Awesome. Thanks so much.
Okay, Alright, that's helpful. And then and then going back to earlier into the Q&A. I think you had said about you expect about $5 million and NII from earning asset repricing over.
Speaker Change: The next couple of quarters, just wanted to clarify if that's over the course of the year or next quarter I just wanted to.
Speaker Change: Kind of close the loop on on that commentary that make sure I am understanding it correctly, it's per quarter per quarter.
Speaker Change: Awesome.
Speaker Change: Thanks, so much.
Kelly Ann Motta: Um, I guess my last question, um, you know, credit is really a strength of the bank. And I love all the slides on asset quality. It really highlights how strong things are.
Speaker Change: I guess I guess last question.
Speaker Change: Credit is really a strength of the bank.
Speaker Change: I love all the sides on the asset quality it really highlights how strong things are.
Kelly Ann Motta: You know, I know it's a couple years out, but it looks like maybe a third of the office portfolio matures in 2026. I'm just wondering if you've started kind of proactively reaching out to those borrowers, or gotten an assessment of. You know how that's going to hold up. I know it's not that large of a piece given the size overall of the office, but just wondering if there's been any sort of proactive work with those borrowers and any early insight you can share on that.
Speaker Change: I know, it's a couple of years out it looks like there's maybe a third at the office portfolio matures in 2020, Saxe I'm. Just wondering if you started kind of proactively reaching out to those borrowers and gotten a necessity.
Speaker Change: Yes.
Speaker Change: How thats going to holdup I know its not not that large of a piece given how the size overall of office, but just wondering if theres been any.
Speaker Change: Sort of proactive work with those borrowers and any early insight you can share with that.
Peter S. Ho: Yeah, well, I mean, one of the great things about a bank our size is the quality and intimacy of the relationships we have with our customers are really important to us. And so, you know, we're, as a matter of course, in contact and working with our clients at all times on all types of loans. The office sector, we're not seeing a heck of a lot of stress there, Kelly.
Speaker Change: Yes, well I mean, we're in contact with one of the one of the great things about our bank our sizes.
Speaker Change: The quality.
Speaker Change: The intimacy of the relationships, we have with our customers are are really important to us and so we're as a matter of course in contact and working with our clients at all times.
Speaker Change: So loans.
Speaker Change: The office sector.
Speaker Change: We're not seeing a heck of a lot of stress there Kelly.
Peter S. Ho: So there's, you know, not too much reason to be thinking about restructuring or how we fix this loan or that loan at this point. Should conditions change, obviously, we'll begin to have different and more frequent conversations.
Speaker Change: So.
Speaker Change: Not too much reason to be thinking about restructuring or how do we fix this one or that loan at this point.
Speaker Change: Should conditions change, obviously, we will begin to have different and more frequent conversations but for now we feel pretty good about where where that book is.
Peter S. Ho: But for now, we feel pretty good about where that book is. Despite the title of it being office. Appreciate it. Thanks for the color, Peter. Thank you. This concludes the question and answer session. I would now like to turn it back to Chang Park for
Speaker Change: Despite.
Speaker Change: Despite the title of it being office.
Speaker Change: Yes.
Speaker Change: I appreciate that thanks for the color Peter.
Operator: Thank you. This concludes the question and answer session. I would now like to turn it back to Chang Park for closing remarks.
Peter S. Ho: Thank you. This concludes the question and answer session I would now like to turn it back to James Park for closing remarks.
Chang Park: Thank you everyone for joining us today and for your continued interest in Bank of Hawaii. As always, please feel free to reach out to either Cindy or me if you have any questions on any of the topics discussed today. Have a great day. This does conclude the program. You may now disconnect.
James Park: Thank you everyone for joining us today and for your continued interest in bank of Hawaii as always please feel free to reach out to either Cindy or me. If you have any questions on any of the topics discussed today have a great day.
James Park: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
James Park: Yes.
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