Good day, and thank you for standing by. Welcome to the Bank of Hawaii Corporation fourth quarter 2025 Earnings Conference Call. At this time, all after the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press 11 on your telephone. You'll then hear a lot of in messages by being a hand raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I'd like to hand the conference over to your first speaker today, Chang Park. Please go ahead. Good morning, and good afternoon.

Thank you for joining us today for our fourth quarter 2025 earnings 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 our 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 Corporation. We recorded yet another set of strong results in the fourth quarter. Fully diluted earnings per share was $1.39 per share, 63% higher than results from a year ago, and 16% higher than last quarter. Net interest margin improved for the seventh straight quarter, up 15 basis points to 2.61%. Return on common equity improved to 15%. Loans and deposits both grew modestly in the quarter. Importantly, noninterest bearing demand deposits grew 6.6% on a linked basis. Credit quality remained and remains pristine. I'll now touch on some operating highlights. Brad Shairson will briefly update you on credit quality, and Bradley S. Satenberg will dive a little deeper into the financials. As you know, Bank of Hawaii Corporation has a unique business model that creates superior risk-adjusted returns by leveraging our unique core Hawaii market, our dominant brand and market position, and our fortress risk profile. Our market-leading brand position is largely the driver of our market share outperformance, giving us both a robust and durable competitive franchise advantage. Our brand advantage is built on our 125-plus year history in the island, our physical branch system, and increasingly our digital service, marketing, and commerce capabilities. Over the past twenty years, Bank of Hawaii Corporation has delivered market share growth nearly four times greater than that of our next closest competitors. The market share growth continued in 2025, advancing another 40 basis points. We are the clear deposit market share leader in Hawaii. Interest bearing deposit costs improved by 20 basis points, and total cost of funds improved 16 basis points in the quarter. Also in the quarter, we remixed $659 million in fixed rate loans and investments from a roll-off rate of 4% and into a roll-on rate of 5.8%, helping to improve net interest margin. As I mentioned, Q4 was the seventh consecutive quarter of NIM expansion. In early 2025, we had a goal of achieving a 2.50 NIM by year-end based on fixed asset repricing, improving deposit remix, and rate cuts. We were gratified to see NIM result for Q4 well exceeding that goal. We believe NIM by the 2026 could come in near the $2.90 range. Our Fortress Credit position is a long-standing strength of Bank of Hawaii Corporation. The portfolio is diversified by product type, predominantly secured and possessing superior long-term loss experience. We dynamically manage our credit portfolio, actively managing off loan categories that we find not to meet our stringent loss standards. And now let me turn the call over to Brad Shairson, who will provide a brief overview on credit. Brad?

Thanks, Peter. I'll begin with an overview of our credit portfolio, and conclude with asset quality metrics. And as you will see, our performance has remained strong, consistent with prior quarters. Turning to our lending philosophy, the Bank of Hawaii Corporation is dedicated to serving our local communities, lending primarily within our core markets where our expertise allows us to make informed and disciplined credit decisions. Our portfolio is built on long-tenured relationships with approximately 60% of both our commercial and consumer clients having been with the bank for more than ten years. Geographically, our loan book is concentrated in markets we know well. Approximately 93% of loans are based in Hawaii, with 4% in the Western Pacific and just 3% on the Mainland, primarily supporting existing clients who operate both locally and on the Mainland. Our loan portfolio remains well balanced between consumer and commercial exposure. Consumer loans represent 57% of total loans, or approximately $8 billion. Within the consumer portfolio, 86% consists of residential mortgage and home equity loans with a weighted average LTV of 48% and weighted average FICO score of 799. The remaining 14% of consumer loans are comprised of auto and personal lending. Credit quality in these segments also remain strong, with average FICO scores of 730 for auto loans and 761 for personal loans. Turning to commercial lending, the portfolio totals $6.1 billion, representing 43% of total loans. 73% is secured by real estate with a weighted average LTV of 54%, reflecting our ongoing emphasis on collateral protection. CRE remains the largest component of commercial book, totaling $4.2 billion or 30% of total loans. And in Oahu, the state's largest CRE market, a combination of consistently low vacancy rates and flat inventory levels continue to support a stable real estate market. Across industrial, office,…

Thanks, Brad. For the quarter, we reported net income of $60.9 million and a diluted EPS of $1.39, an increase of $7.6 million and $0.19 per share compared to the linked quarter. These increases were primarily due to the continued expansion of our net interest income and our net interest margin. As Peter mentioned, this is the seventh consecutive quarter that we've expanded both our NII and NIM, and this quarter's expansion of $8.7 million and 15 basis points represents the most significant improvement during that stretch. Driving this expansion is the successful repricing of our deposits, a $200 million securities repositioning that we executed in early October, as well as the deposit mix shift, which is a positive $100 million this quarter. This is the first time since 2022 after the Fed started raising rates that the mix shift had a positive impact on our earnings. As a reminder, the mix shift represents deposits shifting from noninterest bearing and low yielding deposits to higher cost deposits. Mix shift peaked at $967 million in 2023 and has moderated since then. During the year, the average quarterly mix shift was $25 million compared to $340 million in 2024. During the quarter, the yield on interest earning assets declined modestly by one basis point. As floating rate assets repriced down in response to rate cuts during the latter half of the year. The impact of these rate cuts was almost entirely offset by the positive impact from our fixed asset repricing. While the yield on interest earning assets dipped modestly, the cost of our interest bearing liabilities improved by 19 basis points or 9% compared to the linked quarter. And was driven by the successful repricing of our deposits which declined by to 1.43% a 16 basis point reduction from the third…

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

Answer session. As a reminder to ask a question, you'll need to press 11 on your telephone and wait for your name to be announced. Withdraw your question, please press 11 again. Now first question comes from the line of Matthew Clark of Piper Sandler. Your line is now open.

Hey, good morning, everyone. Good morning. Just want to start on the noninterest bearing deposit growth this quarter. Good to see some strength there. Sounds like less mix shift, people seeking higher rate probably some seasonality too, but just you just drill down on that those balances there at the end of the year, whether or not that's sticky and what you're what your outlook is for growth, this year.

Yeah, Matt. I think I think the fourth quarter might be a bit outsized. I mean, it was a 6% pickup in an IBD, but I think directionally, we've seen growth in in that category for a few quarters now. And that's coming from a pretty balanced grouping of of business segments participating. So commercial, our consumer folks are doing a good job bringing in sticky low cost deposits. So we would anticipate this probably continuing would be my sense, but probably not at that same clip of six, you know, six plus percent. That's probably little bit overstated. And I think there's probably some seasonality in there as you as you to.

Okay. Great. And then on the loan side, pretty much in line. Anything you're seeing there in the pipeline that would suggest any you'd you know, ideally like to get back to mid single digits? I don't know if that's realistic this year or not, just want to get a sense for the pipeline and your outlook there too.

I'll let Jim cover that too. Yeah. I I I feel generally better about where our pipelines are at, but until we can get both consumer and commercial kind of both contributing to to growth, I think we'd probably stick in the mid single you know, in the low single digits at this point. But I think there's opportunity to, improve as we work throughout the year. Yeah. But, I mean, I think to be clear, the you know, '25 was basically it it was a flat year from a end of period standpoint year on year. So I think that '26 at least from our forward vision into at least the first quarter, feels like it's going to be more of a kind of a mid single digit type of year for us. So, you know, a bit of an improvement, but still, you know, we we still love to see growth accelerate there, obviously.

Okay. Great. And then just last one for me. Do you happen to have the your special mention in classified balances at the end of the year?

I will take a look and see if I can get that for you. I don't have that offhand. Might come back to you in a minute or so on that.

Great. Thanks.

We're going for our next question. And our next question comes from the line of Jeffrey Allen Rulis of D. A. Davidson. Your line is now open.

Thanks. Good morning. A couple of questions on the margin. I just want to confirm that kind of update on the margin to reach near the two ninety range. That's a kind of end of year, not fourth quarter average of two ninety million Is that Is that correct?

That that's the way we're thinking about it, Jeff. That's right.

Okay. And and do you happen to have the December margin average?

Yeah. We we finished the year at, $2.67 so about six basis points above where we we, you know, finished the fourth quarter in.

Great. And and just on the sensitivity, it seems like that margin has been almost absent fed hasn't really impacted. It's kind of a mechanical increase. Would you say the same sensitivities or or lack thereof? It it's a pretty from from your seat, looks like a pretty extended increase I guess, regardless of of rate. Rate moves. Upcoming.

Yeah. I I would agree with that. I mean, I would say that any rate cuts that we see as long as they're orderly and sort of telegraphed, I think, we'll see a benefit from that. And then also, you look at the mix shift. And to the extent that we can keep that either moderated at, you know, breakeven or even positive, I think that'll actually contribute to to margin as well.

Yeah. Let me let me just add a little bit to that, Jeff. I think you know, what what you saw in the quarter was the convergence of of a number of things that were supportive of the margin expansion. Obviously, as you pointed to, the fixed asset repricing is mechanical. I mean, we just have assets coming off at lower yields than they're going back onto, which is a good thing, obviously. But you know, rate cuts did have a positive impact for us to the extent we get rate cuts moving forward. Think that's going to continue to be a positive for us. And then also in the quarter, we had very strong as as as you know, we had strong deposit remix characteristics. So we're able to grow out the lower yielding NIVD in particular deposits. And if that if that continues to persist, that'll be another tailwind for us. And then finally, I'd say that I think that you know, certainly, effectively, there have been two you know, rate cut periods, twenty four and twenty five, I'd say that our ability to manage deposit pricing with the 25 vintage was materially better than 24. So I think team's gotten better at managing you know, a little more of a a rate reduction cycle. And that's coming through on our on our betas.

Got it. Nice backdrop. If I could squeeze one more in just on the on the credit side with the ACL decline linked quarter, I I wanna read much into it, but is there any sort of indication of a mix change or macro improvement? You kind of outlined the CRE firming up, but I just wanna touch on credit and and potentially that reserve release if if we should take anything from that.

Sure. So and I will answer your other question as well. Related to special mention. Special mention, I'll start off with that and just say that special mention end of the fourth quarter was $63.4 million. That's actually a year over year change down $46.8 million. From the fourth quarter 2024. And then our total classified at $298.5 million. And, you know, as as Peter mentioned earlier, credit quality remains pristine. During the quarter, I will mention that we had a charge off of of just over $1 million related to a previously identified nonperforming asset. And as a result, you you can see our NPA is the declined while net charge offs experienced a modest uptick. This was obviously a idiosyncratic resolution rather than any sort of reflection of a a broader credit stress. That's very clear. Absent this charge off, our credit quality metrics would have been pretty much, very similar to last quarter's performance. We do continue to see very strong underlying portfolio performance overall. And our we have stable trends across delinquencies, criticized assets, and any early stage indicators. And in addition to answer your second question, you know, the most recent UHERO economic forecast for the state of Hawaii reflects an improved outlook for 2026, and that's really what supports that reduction in the ACL coverage during the quarter. So we feel really good about how we're positioned right now.

Well, an improved outlook coming off of what we previously had forecasted down Exactly. So they revised their downturn numbers up.

That's right. Yeah.

Sounds good. Thank you.

Great. Let's see you, Jeff.

Thank you. One moment for our next question. Comes from the line of Jared Shaw of Barclays. Your line is now open.

Thanks. Good morning.

Morning, Jared.

Hey. Maybe just sticking back with the the growth in DDA, it's a great quarter. Can you just give a little color on market share gain that you think from that versus just sort of improving customer backdrop? And then if we look at you know, the slide that shows the strength of sort of the market share gain over the last year and the last twenty years, is there a natural ceiling for that? Or do you think that you know, Bank of Hawaii Corporation can continue to you know, sort of take significant share here.

I'll I'll address the second part of the question first. I I like to believe that our historic performance is an indicator of what's possible for the future. We're you know, we we think of Hawaii as our core and primary market. And we're always trying to figure out ways to serve our clients better whether it's on the consumer side or the commercial side. That's been met with with pretty handsome market share pickups. So I I just I don't really see a condition that would lead me to believe that that's going to retard at all. Into the future. I mean, it's a competitive world. Things are changing. Products change. Consumer demands and sentiment changes. And today, we've been pretty good at understanding how that plays through here in this marketplace. And I'd I'd hope that continues to continue on. As relating to the demand deposits growth from the past certainly this quarter and the past couple of quarters, prior I I think it's this market feels like it's, you know, stable but not growing tremendously. So I don't know a lot of our operating deposits have come from just better economic outcome. That feels reasonably flat to me. I do think there's some cyclicality into the fourth quarter. And and I think, frankly, it's it takes a while for you know, the teams to really focus in on you know, whatever categories you're sending them to to focus in on. And, you know, DDAs and deposits and DDAs in particular is an area that we have obviously put a lot of emphasis into as as Fed funds has given that a good amount of profitability. I think we'll be able to see kind of the fruits of our labor there.

Okay. Thanks. Appreciate that color. Yes. Shifting maybe to the other side of the balance sheet. Talking about the low single digit loan growth opportunity, Could you just give a little color on what you're seeing in terms of commercial pipelines and what sort of the backdrop on the residential mortgage side could look like? Sure. Jimmy, you wanna cover that?

Yeah. So maybe I'll start with commercial. You know, we've seen the pipeline build nicely through Q4. I think that's sets us up really, you know, in a more positive fashion in Q1. The activity's been on the commercial real estate side in our large commercial real estate business, but we've also seen some good growth in the pipeline in our middle market businesses. So I think it's it's more robust than just one area. We feel pretty good about that. On the resi side, you know, we had a really solid Q4 that was driven in part by an increase in overall purchase activity. Aided by, a couple projects that closed out during the quarter. Pipeline remains pretty good going into Q1. And so I think, you know, as I said earlier, I think we feel better about overall loan activity. And, you know, I think we see the opportunity to to move into the middle mid single digits as we work through the year.

Great. Thank you.

Thank you. One moment for our next question. And our next question comes from line of Andrew Tyrrell of Stephens. Your line is now open.

Hey, good morning.

Hey, Andrew.

If I could just start on the the margin, obviously, you know, another sounds like another year of a a really good margin expansion. I'm just curious. Is that mostly fixed asset repricing driven? Do you do you assume or contemplate any securities restructuring within there? And then you know, as we look out beyond just, you know, the fourth quarter or 2026, does the fixed asset repricing benefit continue in 2027? Or starts to diminish somewhat?

I'll let Brad touch on that. Yeah. I mean Generally, yes, but I'll let Brad once.

Yeah. I mean, just to start with the fixed asset repricing, I we we we believe we've got couple years at least, of that. I mean, you know, we think we'll still see an impact of it. It may start start to diminish slowly, but, we'll continue to see that, you know, continue to have an impact over the next couple of years easily. As far as this quarter, I mean, did have fixed asset repricing and the securities repositioning, obviously. Had an impact, and then the rate cuts obviously, had an impact as well on the the decrease in our cost of deposits. And so looking into the first quarter, I mean, I think we're continuing that momentum. I think you'll see the NIM expand, maybe not to the same extent as you saw in the fourth quarter, but I I still think we'll see a nice expansion with the, you know, the spot rates and our cost of deposits and then the December NIM, you know, going into January at $2.67. You know, I think we'll continue to see some good momentum with our NIM.

Yep. Okay. And then just on the topic, do you have the the the total NI impacts of the the swaps in the fourth quarter inclusive of the terminated hedges? I think you guys terminated last quarter.

The the impact on our net interest income. The it was about Yep. Just over a million dollars for the quarter. And that includes the impact of the amortization of the termination costs.

Got it. Okay. Thank you. And then last one for me, just sounds like you know, interested in in picking up the buyback a bit here in the in the first quarter, but growth also sounds a little stronger as well on the loan side. Just remind us for comfortable at from a capital standpoint. And then just on the repurchase front, should we expect that becomes a more more consistent part of the capital return story moving forward?

I think as as long as growth remains kind of in the in the tepid range, call it, We're gonna be looking to deploy capital into buybacks. We like you know, kinda where the price is from a from a purchase standpoint at least. So we were 5,000,000 last quarter I would anticipate that we'll be closer to the 15 to $20 million range moving forward per quarter.

Great. Nice quarter. Thanks for taking the questions.

Thank you. Take care.

Thank you. One more for next question. And our next question comes from the line of Kelly Ann Motta of KBW. Your line is now open.

Hey, good morning. Thanks for the question. Most most of mine have been asked and answered at this point. But, one area I did wanna touch on was these. You mentioned on your October earnings call about on the potential opportunity in wealth and ahead. And I appreciate the Q1 guidance of forty two to forty three. As you look ahead, can you perhaps share a bit about the opportunity on the fee side and and kind of the cadence of potential pull through with that? Thank you.

Sure. Should we wanna touch on that? Yeah. Sure, Peter. So, you know, as we've mentioned, we've spent the last couple years really building into our wealth opportunity. We've started to see some, good traction in internally, educational wise, participation wise, calling wise with our clients. We're doing a number of different engagement activities with clients just from a seminar type of perspective, and I think those things are really starting to to to help us to build the overall momentum. You can look at, you know, quarter over quarter, we had a little over 2% growth in fees on a linked quarter basis. And so I think that, production in Q4 was one of our highest levels in a while. Pipeline remains, very strong from an investment perspective. So know, I think as we as we move forward getting into that 10 range, I think that was the guidance that we provided at the last call, even higher as we have more time to build into the opportunity. Think, you know, we feel pretty reasonable about that.

Got it. That's that's, that's really helpful. And then on the expenses, just a minor housekeeping question. On the three to three and a half percent increase, I just wanna make sure I'm using the right normalized expense base to have you at about $4.41 in 2025. Is that Is that the right number to kind of build off of given that there's been a couple onetime items, especially here in the second half?

Hey, Kelly. This is Brad. Yeah. That's that's about right. I mean, I look at it somewhere between 40 $4.40 and $4.41.

Got it. Thank you so much.

Take care.

You. I'm showing no further questions at this time. I'd like to turn it back to Chang Park for closing remarks.

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

Thank you so much.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.