Core Insights - Bank of Hawaii reported solid performance in Q3 2024, with notable increases in net income and diluted earnings per share on a linked basis [3] - The bank's net interest income and net interest margin (NIM) expanded for the second consecutive quarter, while fee income grew and operating expenses decreased [3][10] - The bank maintains a strong credit quality with low non-performing assets and stable credit metrics [8][19] Lending Philosophy and Portfolio - The bank focuses on core markets in Hawaii and the Western Pacific, leveraging local expertise for credit decisions [1] - Approximately 60% of clients have been with the bank for over 10 years, contributing to a loan portfolio that is 93% Hawaii-based [1] - The loan growth averaged about 6.7% per annum from 2019 to 2023, but has slowed in 2024 due to high interest rates [4] Loan Composition - Consumer loans represent 57% of total loans, predominantly secured against real estate, with 85% being residential mortgages or home equity [4] - The commercial loan portfolio is $5.9 billion, with commercial real estate making up $3.9 billion, or 28% of total loans [5] - The bank's commercial real estate portfolio is well-diversified, with a weighted average loan-to-value (LTV) of 56% [5][7] Market Conditions - Visitor arrivals in Hawaii remain elevated compared to pre-pandemic levels, although Maui arrivals have decreased [2] - Oahu's residential real estate market is stable, with median sales prices increasing modestly and median days on market below 30 [2] - The industrial vacancy rate in Hawaii is at a historic low of 1.05%, while office and retail vacancy rates are stable [6] Financial Performance - Net interest income increased by $2.8 million in Q3, driven by cash flow repricing and an increase in earning assets [10] - Non-interest income totaled $45.1 million, up $3 million from the previous quarter, with improved performance across various segments [17] - The bank's net income for Q3 was $40.4 million, with earnings per common share rising to $0.93 [19] Capital and Credit Quality - The Tier 1 capital ratio increased to 14.05%, and the total capital ratio rose to 15.11% [20] - The allowance for credit losses on loans and leases ended the quarter at $147.3 million, reflecting a stable credit environment [9] - Non-performing assets increased slightly to 14 basis points, with net charge-offs remaining low at $3.8 million [8][19] Dividend and Shareholder Returns - The bank paid out $28 million in dividends to common shareholders and $3.4 million in preferred stock dividends during the quarter [21] - A dividend of $0.70 per common share was declared for Q4 2024 [21]

Core Viewpoint - The government's decision to maintain interest rates on small savings schemes will limit banks' ability to further reduce deposit rates, impacting their overall deposit strategies [1][9]. Group 1: Government's Decision on Small Savings Rates - The government has decided to keep interest rates unchanged for various small savings schemes for the January-March 2026 quarter, including the Public Provident Fund (PPF) at 7.1%, Sukanya Samriddhi Yojana at 8.2%, and National Savings Certificate (NSC) at 7.7% [3][4]. - This marks the eighth consecutive quarter that these rates have remained unchanged, despite the Reserve Bank of India (RBI) cutting the repo rate by 125 basis points since February of the previous year [5]. Group 2: Impact on Banks and Deposit Rates - Banks are facing challenges in reducing deposit rates further due to the unchanged small savings rates, which could make deposits less attractive compared to alternative investment options [8][10]. - The weighted average lending rate (WALR) on fresh rupee loans decreased by 69 basis points from February to October 2025, while the weighted average domestic term deposit rate (WADTDR) on fresh deposits declined by 105 basis points during the same period [5][6]. - Deposit growth has slowed to 9.35% year-on-year, while credit growth has risen to nearly 12%, widening the credit-deposit growth gap by over 260 basis points [11]. Group 3: Market Competition and Strategy - Banks are experiencing increased competition from capital markets, particularly mutual funds and equity markets, which are attracting household savings away from traditional deposits [14]. - Each bank will determine its deposit rate strategy based on its credit growth ambitions and net interest margin (NIM) outlook, influenced by the liquidity conditions and interest rates of competing investment products [10][14]. - The certificate of deposit (CD) market has seen significant activity, with banks raising over ₹50,000 crore through this route in recent weeks, indicating a shift in funding strategies [15].

Financial Data and Key Metrics Changes - The company reported a record earnings per share of $2.84 for Q3 2025, with net income of $35.9 million, showing significant improvement compared to previous quarters [4] - Non-performing loans decreased from $52 million to $17 million, primarily due to the foreclosure of a $37 million loan, which was subsequently sold for a gain [4] - Loan growth was 2.3% ($133 million) and deposit growth was 2.5% ($151 million) during the quarter [5] - The efficiency ratio improved to less than 30%, with stable operating overhead compared to previous quarters [5][6] Business Line Data and Key Metrics Changes - The company experienced reasonable loan and deposit growth, indicating increased optimism among customers despite ongoing economic uncertainties [5] - The net interest income and net interest margin both improved in Q3 compared to previous quarters [5] Market Data and Key Metrics Changes - Approximately 29% of the loan portfolio is fixed rate or long adjustable, while 71% is floating rate, with 98% of the floating rate loans having floors [12] - The average margin for September was reported at 3.87%, with a cost of deposits at 3.36% [24] Company Strategy and Development Direction - The company aims to maintain loan growth in Q4 2025, hoping to match Q3 levels, while also managing interest rate sensitivity through a balanced loan portfolio [35][55] - There is a strategic focus on increasing demand deposits, which are becoming harder to acquire due to competitive pressures [39] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about loan growth in Q4, influenced by potential interest rate cuts and seasonal factors [35] - The company is closely monitoring credit quality and expects to see reasonable migration in criticized and classified loans [27][29] Other Important Information - The company repurchased $6.3 million of its own shares during the quarter and continued to buy back shares in October, totaling 128,000 shares for $11.2 million [6][17] - An error in calculating diluted earnings per share for the first half of 2025 was corrected, resulting in an underreporting of net income by $0.05 [6] Q&A Session Summary Question: Update on loan portfolio's floating rate component - Approximately 71% of the loan portfolio is floating rate, with 98% having floors, but many are not currently in the money [12] Question: Price sensitivity around the buyback - The buyback strategy is assessed based on income levels and share prices, with no set formula [13] Question: Average margin and cost of deposits - The margin for September was 3.87%, and the cost of deposits was 3.36% [24] Question: Expectations for loan growth and pipelines - The company expects loan growth to remain stable, with a positive outlook for Q4 based on current activity levels [35] Question: Near-term expense run rate expectations - Non-interest expenses are expected to be around $22 million to $22.5 million going forward [37] Question: Specific dollar estimate of expected OREO gain in Q4 - The expected OREO gain in Q4 is projected to be in the $3 to $4 million range [41] Question: Competitive dynamics and loan demand - The company is seeing more deals coming through the pipeline, with optimism from borrowers due to rate cuts [50][51] Question: Actions to manage asset sensitivity - The company continues to proactively manage interest rate sensitivity, adjusting the loan portfolio as needed [55]