Good day, and thank you for standing by. Welcome to the Bank of Hawaii Corporation Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message device when your hand is raised. To withdraw your question, please press star 11 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chang Park. Please go ahead. Good morning and good afternoon.

Thank you for joining us today for our Third Quarter 2025 Earnings Conference Call. Joining me today is our Chairman and CEO, Peter Ho, President and Chief Banking Officer, James Polk, CFO, Bradley S. Satenberg, and Chief Risk Officer, Bradley Shairson. Before we get started, I want to remind you that today's conference call will contain some forward-looking statements. And while we believe our assumptions are reasonable, the actual results may differ materially from those projected. During the call today, 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. And now I would like to turn the call over to Peter.

Thanks, Chang. Good morning or good afternoon, everyone. Thank you for your continued interest in Bank of Hawaii. We recorded yet another set of strong results for the quarter. Fully diluted earnings per share were $1.20 per share, 29% higher than the results from a year ago, and 13% higher than last quarter. Net interest margin improved for the sixth straight quarter, up seven basis points to 2.46%. Return on common equity improved to 13.6% for the quarter. Average deposits increased by 7% annualized and the period loans increased modestly. Credit quality remained and remains pristine. I'll now touch on some operating highlights as well as an update on our wealth initiative. Brad Shairson will briefly update you on credit quality, and Bradley S. Satenberg will dive a little deeper into the financials. As a reminder, Bank of Hawaii has a unique business model to create superior risk-adjusted returns by leveraging our unique core Hawaii market, our dominant brand and market positions, and our fortress risk profile. Our market-leading brand position is largely the driver of our market share outperformance. For the 2025 FDIC summary of deposits, released last month, we advanced our number one deposit market share position in Hawaii by 40 basis points as of June 30, 2025. Since February 2005, Bank of Hawaii has grown market share by 600 basis points, well in excess of any other competitor in the Hawaii market. Interest-bearing deposit costs and total cost of funds both improved in the quarter. Also in the quarter, we remixed $594 million in fixed-rate loans and investments from a roll-off rate of 4.1% and into a roll-on rate of 6.3%, helping to improve net interest margin. As I mentioned, Q3 was the sixth consecutive quarter of NIM expansion. We anticipate NIM to expand further for a…

Thanks, Peter. The Bank of Hawaii is dedicated to serving our community, lending in our core markets where our expertise allows us to make sound credit decisions. Most of our loan book is comprised of long-standing relationships with approximately 60% of our clients in both commercial and consumer having been with us for over a decade. This combination has significantly contributed to our strong credit performance over the years, resulting in a loan portfolio that is 93% Hawaii, 4% Western Pacific, and just 3% Mainland, where we support our clients who conduct business both in Hawaii and on the Mainland. As I review our credit portfolio's third-quarter performance, you will see that it has remained strong and consistent with recent quarters. Our loan book is balanced between consumer and commercial, with consumer representing a little over half of total loans at 57% or $7.9 billion. We predominantly lend on a secured basis against real estate, 86% of our consumer portfolio consists of either residential mortgage or home equity with a weighted average LTV of just 48% and a combined weighted average FICO score of 799. The remaining 14% of consumer consists of auto and personal loans where our average FICO scores are 731 and 761, respectively. Moving on to commercial, our portfolio size is $6.1 billion or 43% of total loans. 73% is real estate with a weighted average LTV of only 55%. The largest segment of this book is commercial real estate with $4 billion in assets, which equates to 29% of total loans. Looking at the dynamics for real estate in Oahu, the state's largest market, a combination of consistently low vacancy rates and flat inventory levels continue to support a stable real estate market. Within the different segments, vacancy rates for industrial, office, retail, and multifamily are…

Thanks, Brad. For the quarter, we reported net income of $53.3 million and a diluted EPS of $1.20 per share. An increase of $5.7 million and $0.14 per share compared to the linked quarter. These increases were primarily driven by the continued expansion of our net interest income and net interest margin, which grew by $7 million and seven basis points, respectively. The expansion in both our NII and NIM was driven by the combination of fixed asset repricing which added $3.3 million for NII as well as growth in the average balance of our deposits and the successful repricing of our CD book. Partially offsetting these benefits was the deposit mix shift. During the third quarter, the mix shift was $104 million and had an $800,000 negative impact on our NII. The average mix shift during the first three quarters of this year declined by $350 million to $67 million per quarter compared to $417 million per quarter for the same period last year. During the quarter, the yield on our interest-earning assets increased by seven basis points, benefiting from an improvement in the yield on both our loan portfolio and securities portfolio. At the same time, the cost of our interest-bearing liabilities declined by two basis points driven by a modest decline in the cost of our deposits, which decreased to 159 basis points. The average cost was inflated during the quarter due to several large transitory high-cost deposits. The spot rate on our deposits was 154 basis points or five basis points lower than the average during the period. Our beta at the end of the quarter was 28%, and I believe that we will ultimately achieve a 35% beta after Fed funds hits a terminal rate. The repricing of our CD book will lag our non-maturity…

Thanks, Brad. This concludes our prepared remarks. And we'd be happy to entertain whatever questions you might have.

Thank you, ladies and gentlemen. If your question has been answered and wish to move yourself from the queue, please press 11 again. First question comes from Matthew Clark with Piper Sandler. Your line is open.

Hey. Good morning. Good morning. I heard the spot rate on CDs at the September, you have the spot rate on total deposits, either interest-bearing or total?

Total is 154 basis points.

Okay. Thank you. And then as maybe maybe for Peter. As we as we look out on the NIM, you know, when do you think you might be able to get to that 3% NIM? Do you feel it seems like it may have moved up a little bit based on a couple of actions you've taken this quarter, but just trying to get a sense for some line of sight on when we think we can get there.

Yeah. Yeah. That's kind of the question of the day, isn't it? So I think what what we've been fixating on and what investors have been questioning is can we achieve 2.50 by year-end? At this point, that seems to be like a reasonably likely potential for Q4. And then as we move into '26, what what we would anticipate I mean, the the fixed asset accretion is just gonna continue on for a number of years, frankly. And so the way to think about it is I think a base layer assuming deposit remix of about what we've experienced the past, couple of quarters and kind of rates in the yield curve as is, that's about a 25 basis point pickup in NIM per year. So 25 bps. And then on top of that, as Brad alluded to, there's opportunity for improvement in the NIM as fed funds comes down. And frankly, I think we still probably have you know, some opportunity in repricing of the overall deposit book moving forward. So I I guess the answer to me is 25 basis points per year and then I think there's upside in both fed funds coming down well as just overall pricing to the to the overall deposit book.

Okay. Great. It's helpful. And just last one for me on the modest loan growth here, a little bit of nice little turnaround the positive. Just any commentary on the pipeline and the outlook for growth here in the fourth quarter and maybe next year without low single digits is still the right way to think about

Yeah. I I think low single digits is still the right way to think about it. Our continue to improve. And, you know, Q3 was definitely better than Q2. I think Q4 should be better than Q3, and we'll just continue to watch the pipelines as we get into the new year. But I I think that guidance holds, and I think if we get a little more clarity in the economy, maybe a little bit more stability some rate reduction, we may see some potential upside there too.

Okay. Thank you.

One moment for our next question. Our next question comes from Kelly Motta with KBW. Your line is open.

Hey, good morning. Thanks for the question. Maybe, Peter, kicking off with some of the changes you made on the Wells side. Wondering, was this made last quarter and just kind of how you're thinking about, it seems like a a great opportunity to leverage the Bank of Hawaii brand. So wondering how you're thinking of that progressing. Any efforts to add talent to the to the bench help drive that? Just how you're thinking about it as as a lever moving forward. Thank you.

Yeah. Good question, Kelly. So we actually are in production with Saterra at this point. They've been a great partner so far. We are soon to be concluded on, you know, quote, the repapering process. So that that's gone quite smoothly. Obviously, that's taken some production capability out of the hands of our advisers as they just tend to the administrative function there. So I I think we're we're set to move smartly forward from that point on. And and that that opportunity, I think, is is a great one both the standpoint of providing just a much, much better client experience to our customers but also in terms of of really attracting you know, best in marketplace advisers because when you combine the capabilities that we now have with Saterra to our you know, the brand position the bank enjoys, in the islands. There's a lot of opportunity in there that that we are looking forward to. So that's kind of half the equation. The other half of the equation is within our our high net worth space. And they're really what we're focused on is really driving a better partnership, if you will, between our commercial bankers and our wealth advisers. We've seen some early signs of green shoots there. And then to your question, and I think it's the appropriate one, against that backdrop, we have been adding a good amount of talent really in in the advisory space. And we would intend intend to see that commitment to talent build continue on the next year or so, I'd say.

Great. Thanks for all the color. Another somewhat high-level question I have here, on slide six, what really stands out is how well, Bank of Hawaii has been picking up share. The past several years. Do you can you provide any color as to what parts of the business have been driving that? Is that retail? Any you know, specific set segments, commercial? Just trying to get a sense of what has been the the most impactful in in gaining share here on the island.

Yeah. I think that the, the gratifying part to the question is it's really been pretty balanced. And so we've been able to pick up consumer as well as commercial as well as municipal share over the years. And I really I don't think that there's a single silver bullet here. I think it's really just our commitment to the marketplace and our consistent application of the strategy that's been working for us for past couple of decades now.

Got it. Thanks for the color. Last question from me is just on capital. Ratios continue to build. It sounds like growth is picking up but still more in the low single-digit range. Any updated thoughts on buybacks when capital return? Thank you.

Yeah. I think, you know, we are happy with our capital levels. I mean, you know, you you can always pick up here or there. But I think given where the stocks at right now, we think that there's a great opportunity to deploy capital into into repurchases at this point. We probably are likely to be doing some of that activity here in this quarter and into next year. Obviously, the dividend is important to us, but we think the payout ratio for is in pretty good shape. And, hopefully, we'll be able to deploy some of the capital into growth as we move forward.

Awesome. For all all the time today. I'll step back.

Thank you. One moment for our next question. Our next question comes from Jeffrey Allen Rulis with DA Davidson. Your line is open.

Thanks. Good morning. Circling back to the the growth outlook, sounds like that's picking up a little bit, upward trending. And just Slide 12 sort of outlines some of the derisking activities or some of the noncore has that been a part of the function of some muted growth in maybe '25 or in the rearview and maybe having done some of that is that helping the net growth equation? Just want to feel if the undertow of derisking is kind of I mean, you're always managing credit, but has that been outsized in the trailing months?

No, Jeff. It's a good question. I think for the most part, derisking has not been a headwind for us for for a while now, I guess I guess the the positive to that is I don't see anything or any activity in our current portfolios that would lead me to believe that it should be, you know, that it's gonna be an impediment to growth moving forward either. So it's kinda it kinda is what it is for right now. We're we're happy with the portfolios.

Got it. Okay. So just kinda pointing out areas that you that are core and noncore, but from a growth perspective has not been much of a past and future I guess, component. Fair enough. Enough. On the if I hop to expenses, I wanna think about I appreciate the core January. If we rolled a 26 a lot of discussion of the wealth management investment. It had been in the 2% to 3% growth for twenty five. Can we think about that in 2026 at similar levels as wealth maybe put that to the upside of that range or anything else coming on if we can think about '26 growth rates?

Yeah. Let me let me punt that to to Bradley S. Satenberg.

Yeah. Thanks, Jeff. That's a good question. I would say if you're trying to model out, I would expect, 2026 expenses to be, you know, in the March to be slightly higher because of the the payroll, the seasonal payroll charges that we have. But overall, I think, you know, we we we've projected this year 2% to 3%. I think the projection this year is going to be 3% to 4%, but probably closer to like the lower threes. Think 3.5.

Okay. Great. Thanks.

Yep. Take care.

One moment for our next question. Our next question comes from Jared Shaw with Barclays. Your line is open.

Hey, everybody. Good morning.

Morning.

On the on the credit side, office, it looked like Central Business District moved from 17 or 217% loans from 24 with was there a a payoff there, or what was driving the, the reduction in in CBD office?

Yeah. We had what I would say as a a relationship, SNC credit, that was in the office space that we had the opportunity to exit, and we chose to exit that facility. It was a reasonable risk, but not core to what we were looking to do in that space. So opportunistic.

Okay. Alright. Thanks. And then, does the NII impact from swaps on the side, does that assume the notional swaps remain at the $1.4 billion or does that take into account some of that additional I guess, it may take into account the additional growth you talked about.

Can you just repeat your question there? Wasn't exactly sure what you're asking.

Sure. Does the impact to net interest income from the swaps that you list out, does that assume the notional swaps remain at $1.4 billion? Or if not, what are the, what are the changes to that?

Yeah. No. We we expect it to remain at 1.4. I mean, obviously, we have our forward starting swaps. So I I think I had mentioned in my script we had $100 million notional swap start in October, and then we've got the remaining 500 'll start in, you know, 2026, kinda mid to late twenty twenty six. But at this point, all of our expectations are 1.4 notional plus some roll off in 2027 of the 1.4, but also rolling on our forward starting swaps.

Okay. Thank you.

And I'm not showing any further at time. I'd like to turn the call back over to Chang Park for any further remarks.

Thank you, everyone, for joining us today and your for your continued interest in Bank of Hawaii. As always, please feel free to reach out to me if you have any additional questions.

Thank you. Well, ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.