Earnings call transcript: Bank of Hawaii Q4 2024 beats EPS forecast, shares rise

Bank of Hawaii Corporation reported its fourth-quarter 2024 earnings, surpassing EPS expectations and experiencing a positive market reaction. The adjusted earnings per share stood at $0.90, exceeding the forecast of $0.84. Revenue, however, came in slightly below expectations at $163.22 million against a forecast of $165.07 million. Despite the revenue miss, the stock price rose by 2.97% in pre-market trading, reflecting investor optimism.

Key Takeaways

• Bank of Hawaii reported adjusted EPS of $0.90, surpassing forecasts.
• Revenue fell short of expectations, reaching $163.22 million.
• Stock price increased by 2.97% in pre-market trading.
• The company is focusing on enhancing wealth management and commercial initiatives.
• Stable economic conditions in Hawaii support growth prospects.

Company Performance

Bank of Hawaii demonstrated resilience in Q4 2024, with net income reaching $39.2 million. The bank's net interest income increased by 2.2% quarter-over-quarter, supported by a net interest margin expansion to 2.26% by December. The company maintains a strong competitive position, holding the largest market share in Hawaii deposits and a robust loan portfolio predominantly within the state.

Financial Highlights

• Revenue: $163.22 million, below the forecast of $165.07 million.
• Earnings per share: $0.85 (adjusted $0.90), compared to a forecast of $0.84.
• Net interest income: $120.2 million, up 2.2% quarter-over-quarter.
• Return on common equity: 10.3% (adjusted 10.9%).

Earnings vs. Forecast

Bank of Hawaii's adjusted EPS of $0.90 exceeded the forecasted $0.84 by approximately 7.1%. This marks a positive deviation from expectations, although revenue fell short by about 1.1%. The earnings beat is consistent with the company's historical trend of meeting or exceeding EPS forecasts, despite occasional revenue misses.

Market Reaction

Following the earnings announcement, Bank of Hawaii's stock rose by 2.97%, reflecting investor confidence in the company's performance. The stock's last closing value was $71.11, and it remains within its 52-week range of $54.5 to $82.7. This positive movement aligns with broader market trends, where financial stocks have shown resilience.

Outlook & Guidance

Looking ahead, Bank of Hawaii expects continued growth in net interest income and margins, targeting a 2.5% margin by year-end 2025. The bank projects non-interest income to be between $44 million and $45 million per quarter in 2025, with potential mid-single-digit growth in commercial loans. Expenses are anticipated to rise by 2-3% in 2025, partly due to revenue-enhancing initiatives.

Executive Commentary

CFO Dean Shigemura emphasized, "Net interest income and margin are expected to continue to increase," highlighting the bank's positive outlook. CEO Peter Ho expressed enthusiasm for the wealth management sector, stating, "We are excited about the [wealth management] space."

Q&A

During the earnings call, analysts inquired about loan growth, which is expected to be primarily in the commercial sector. The management noted no significant impact from local mergers and acquisitions and expressed comfort with current capital levels. The bank is actively managing interest rate swaps and its portfolio to mitigate risks.

Risks and Challenges

• Economic fluctuations in Hawaii could impact growth.
• Rising expenses may affect profitability if not offset by revenue growth.
• Interest rate volatility poses a challenge to margin expansion.
• Competitive pressures in the wealth management sector.
• Potential regulatory changes affecting the banking industry.

Full transcript - Bank of Hawaii Corp (NYSE:BOH) Q4 2024:

Conference Operator: Good day and thank you for standing by. Welcome to Bank of Hawaii Corporation 4th Quarter 2024 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. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Chang Park, Director of Investor Relations. Please go ahead.

Chang Park, Director of Investor Relations, Bank of Hawaii: Good morning and good afternoon. Thank you for joining us today for our Q4 2024 earnings conference call. Joining me today is our Chairman and CEO, Peter Ho President and Chief Banking Officer, Jim Polk CFO, Dean Shigemura Chief Risk Officer, Brad Shearson and our Deputy CFO, Brad Satinberg. 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 actual results may differ materially from those projected.

During the call today, we will 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'll turn the call over to Peter.

Peter Ho, Chairman and CEO, Bank of Hawaii: Thanks, Chang. Good morning or good afternoon, everyone. Thanks for joining the call. Bank of Hawaii posted yet another solid quarter to end 2024. Net interest income and net interest margin both improved, just for the 3rd consecutive quarter.

Net interest income grew just over 2% on a linked basis to $120,200,000 Non interest income excluding an adjustment to our Visa (NYSE:V) Class B shares was up modestly on a linked basis. Expenses were controlled quarter over quarter. Average deposits and average loans grew 1.3% and 1.1% on a linked basis to $20,800,000,000 $14,000,000,000 respectively. Average non interest bearing deposits were up modestly in the quarter. Credit quality remained pristine in the quarter with net charge offs and NPAs improving to 9 basis points and 14 basis points, respectively.

Criticized loans improved from 2.42% last quarter to 2.1% this quarter. Capital levels have improved substantially from a year ago. I'll now take a moment to discuss the franchise and market conditions. Brad will then briefly touch on credit conditions, which as I mentioned, look quite strong. And finally, Dean will dig a little deeper into the financials and then we'd be happy to take your questions.

The Bank of Hawaii brand continues to perform well in our unique Hawaii market, holding the number one position in market share as shown in the latest FDIC annual summary of deposits as of June 2024. Bank Foy leads in the deposit market share growth on both a short term and long term basis. Deposit growth remained measured in the quarter. Importantly, non interest bearing demand plus other low yield deposits stabilized nicely, trending positively in December on a rolling 3 month average basis for the first time since June of 2022. Deposit funding costs fell for the first time this rate cycle on both an interest bearing and total deposit cost basis.

Economic conditions remain stable in Hawaii. Unemployment remains well below the national average. The visitor market remains stable, but continues to be impacted somewhat by the Maui market. Residential Oahu real estate trends remain positive. Now let me turn the call over to Brad.

Brad Shearson, Chief Credit Officer, Bank of Hawaii: Thanks, Peter. So the Bank of Hawaii prioritizes serving our community, lending in our core markets where our expertise enables us to make sound credit decisions. The majority of our loan book is the long standing relationships with about 60% of our clients on both the commercial and consumer sides having been with us for over 10 years. This combination has greatly contributed to our strong credit performance for many years and has resulted in a loan portfolio that is 93% Hawaii, 4% Western Pacific and 3% Mainland where we support our clients that do business in both Hawaii and on the Mainland. As I walk through our credit portfolio's 4th quarter performance, you can see that it has remained strong and is consistent with prior quarters.

Our loan book is balanced between consumer and commercial with consumer representing a little over half of total loans at 56% or $8,000,000,000 We lend predominantly on a secured basis against real estate. 85 percent of our consumer portfolio is either residential mortgage or home equity with a weighted average LTV of just 48% and a combined weighted average FICO score of 800. The remaining 15% of consumer consists of auto and personal loans where our average FICO scores are 733 and 760 respectively. Moving on to commercial, our portfolio size is $6,100,000,000 or 44 percent of total loans. The largest share of commercial is commercial real estate with $4,000,000,000 in assets, which equates to 29% of total loans.

This book is well diversified across industries and carries a weighted average LTV of only 55%. Looking at the dynamics for Hawaiian real estate in Oahu, the largest market, you will see that a combination of consistent vacancy rates and little change in inventory supports a stable real estate market. Within the different segments, vacancy rates for industrial, retail and multifamily are all lower than their 10 year average and office is less than 1% above its 10 year average. Total (EPA:TTEF) office space has decreased about 10% over the past 10 years, driven by conversions. This long term trend of office space reduction will likely continue to temper vacancy rates.

Breaking down our CRE portfolio, it is well diversified amongst property types with no sector being greater than 7% of total loans. Our conservative underwriting has been applied consistently with all weighted average LTVs between 50% 60%. Overall, it's a diverse portfolio with low average loan sizes. And our scheduled maturities spread well into the future with more than half of our loans maturing in 2,030 or later. Looking at the distribution of LTVs, the tail risk in our CRE portfolio for any loans with greater than 80% LTV totals only 2% of CRE with only 0.2% over 85 percent LTV.

Turning to our credit metrics, this past quarter compared to linked quarter, the metrics remain quite stable and asset quality remains strong. Net charge offs were $3,400,000 at 10 basis points annualized, down one basis point from Q3 and up 5 basis points from a year ago. Non performing assets are flat at 14 basis points quarter over quarter. Delinquencies have also been stable, taking up 3 basis points to 34 basis points this quarter. Criticized assets dropped to 2.1 percent of total loans with 76% being real estate secured with a 56% LTV.

On last quarter's earnings call, I noted that we had received a payoff after quarter end that had lowered our criticized ratio to 2.19% from quarter end of 2.42%. Criticized assets levels dropped an additional 9 basis points since then. As an update on the allowance for credit losses on loans and leases, the ACL ended the quarter at $148,500,000 that's up $1,200,000 for the linked period and up $2,100,000 year over year. The ratio of our ACL to outstandings was 1.06% unchanged from prior quarter and up 1 basis point year over year. I will now turn this over to Dean for an update on our financials.

Dean Shigemura, CFO, Bank of Hawaii: Thanks Brad. We expanded our net interest income and net interest margin for the 3rd consecutive quarter. Net interest income for the 4th quarter was $120,200,000 an increase of $2,600,000 or 2.2 percent from the previous quarter and net interest margin expanded to 2.19%. During the quarter, our NIM initially decreased in October, primarily due to the negative short term impact of the 50 basis point debt funds rate cut in September. Also negatively impacting the margin were higher cost commercial and public deposits that were carried over from the Q3 and ran offs in October November.

NIM improved to 2.26 percent by December, driven by repricing of asset cash flows, a decrease in average cost of total deposits to 1.67% and slowing of our NIBD and low cost deposit remix. With regard to cash flow repricing, in the Q4, our earning assets with fixed rates generated $518,000,000 of cash flows from maturities and prepayments. Assuming that all of these cash flows from loans were reinvested into like products and cash flows from securities were reinvested into cash, such reinvestment generated incremental net interest income of approximately $2,800,000

Peter Ho, Chairman and CEO, Bank of Hawaii: in

Dean Shigemura, CFO, Bank of Hawaii: the quarter from higher reinvestment yields. Spreads on new loans improved after bottoming in October as mid and longer term interest rates increased. We expect the wider loan spreads to continue into the Q1. At the same time, deposit mix shift has continued to slow with average non interest bearing and low yield interest bearing deposit balances declining by $105,000,000 linked quarter. This compares to the decline of $627,000,000 $315,000,000 in the same period of 2023 and linked quarter respectively.

Assuming the majority of these balances shifted into higher yielding interest bearing deposits, such mix shift negatively impacted net interest income by $900,000 in the 4th quarter, down from the negative $2,600,000 impact in the 3rd quarter. The cumulative impact of fixed rate asset cash flow repricing over 2024 has added nearly $16,000,000 to quarterly net interest income as of the Q4 of 2024, while the cumulative cost of deposit remix over the same period has decreased quarterly net interest income by $10,000,000 but at a slowing pace. The income spread between asset and deposit repricing are expected to continue to compound over the next several years, thus widening the cumulative impact and incrementally growing net interest income and margin. Total deposit costs decreased by 10 basis point linked quarter. When measuring the deposit costs from the start of the Fed funds cuts in September, deposit rates had fallen by 24 basis points by the end of the quarter and further reductions are expected in the Q1 as the full impact of the 4th quarter Fed funds rate reductions are realized.

We have reduced deposit rates across all interest bearing products and are well positioned to reprice our time deposits and improve our margin as 71% of total time deposits are scheduled to mature in the next 6 months and 95% of total time deposits are scheduled to mature in the next 12 months. We continue to strategically position our balance sheet for a range of rate outcomes. We have reduced our rate sensitive assets to $7,000,000,000 while our rate sensitive interest bearing deposits remain at $10,000,000,000 We intend to continue to closely manage the interest rate sensitivity of our balance sheet to ensure that we are well positioned for a variety of rate environments. In the Q4, we actively managed our interest rate swaps and securities portfolio to take advantage of opportunities as interest rates shifted. This included repositioning our swap portfolio by terminating $1,000,000,000 notional shorter maturity swaps with relatively higher fixed rates and executing $200,000,000 notional of spot starting swaps at lower rates.

The repositioning reduced our active pay fixed receive flow interest rate swaps by $800,000,000 to $2,000,000,000 notional and reduced the fixed rate of 4.29 percent to 4.03%. We also maintained the $300,000,000 of forward starting pay fixed receivable interest rate swaps that were executed in the 3rd quarter. These forward starting swaps have an average fixed rate of 3.03% that will become active in 20252026. During the quarter, we purchased an additional $233,000,000 of floating rate securities that have a positive 98 basis point spread to Fed funds, improving our interest income and margin. Our fixed rate asset exposure is 57% at the end of the quarter, down from 73% at the end of 2022.

Net interest income and margin are expected to continue to increase as a result of the balance sheet actions together with the continued asset cash flow repricing, slowing deposit remix and benefits from lower Fed funds rates. Non interest income totaled $43,000,000 in the 4th quarter, which included a previously disclosed $2,400,000 of a one time charge related to the Visa Class B conversion ratio change. Adjusting for this charge, 4th quarter non interest income was $45,400,000 an increase of $300,000 linked quarter as revenue from trust services, customer derivatives and deposit service charges improved. In 2025, non interest income is expected to be $44,000,000 to $45,000,000 in the quarter and increase over the year as revenues from trust services, merchant services and other transaction volume continue to steadily improve. Expenses were $107,900,000 in the 4th quarter.

This compares to expenses of $107,100,000 in the 3rd quarter. The increase was primarily due to higher medical costs that are not expected to repeat. For the full year of 2024, expenses were well managed. Normalized expenses were $426,000,000 after adjusting for one time extraordinary expenses of 3,100,000 dollars an increase of just 1.7 percent from 2023 normalized expenses. Expenses will continue to be a focus in 2025 with core expenses projected to increase 1% to 2% from 2024.

In addition, we've allocated an additional 1% of expenses to invest in revenue enhancing initiatives. Thus, the total expenses are expected to increase 2% to 3% from 2024. As a reminder, the Q1's expenses will include the seasonal bump in benefits and payroll taxes from the payment of incentives investing restricted stock currently estimated at 2,500,000 dollars To summarize the remainder of our financial performance, in the 4th quarter net income was $39,200,000 and earnings per common share was $0.85 Our return on common equity was 10.3%. Adjusting for the previously mentioned Visa conversion ratio change, earnings per common share was $0.90 and return on common equity was 10.9%. We recorded a provision for credit losses of $3,800,000 this quarter.

The effective tax rate for the Q4 was 24% and the tax rate on the full year of 2024 was 24.19%. The effective tax rate in 2025 is expected to be approximately 24%. We continue to maintain healthy excesses above regulatory minimum well capitalized requirements. Our Tier 1 capital ratio was 13.95 percent and total capital ratio was 15%. Our risk weighted assets to total assets ratio continue to be well below peer median reflecting the low risk nature of our asset mix.

During the Q4, we paid out $28,000,000 to common shareholders and dividends and $5,300,000 in preferred stock dividends. As a reminder, the dividends paid on the Series B preferred shares in the 4th quarter was a full quarter's distribution, an increase of $1,800,000 from the 3rd quarter's partial quarter amount. We did not repurchase shares of common stock during the quarter under our share repurchase program. And finally, our Board declared a dividend of $0.70 per common share for the Q1 of 2025. I'll turn the call back over to Peter.

Thanks, Dean. This concludes our prepared remarks.

Peter Ho, Chairman and CEO, Bank of Hawaii: Now we'd be happy to entertain whatever questions you might have.

Conference Operator: Thank you. Our first question comes from the line of Jeff Ruiz from D. A. Davidson.

Jeff Ruiz, Analyst, D. A. Davidson: Thanks. Good morning.

Dean Shigemura, CFO, Bank of Hawaii: Good morning, Jeff.

Jeff Ruiz, Analyst, D. A. Davidson: Dean, if I could a lot of color on the margin, appreciate it. I guess that 226% for December, is that a pretty good jump off point if we kind of start there with any kind of one timers or is that a good rate and then adjust for sort of the positive influences that you talked about that bleed into this year?

Dean Shigemura, CFO, Bank of Hawaii: Yes. The 4th December margin of 2.26 was a pretty clean number. And as you say, it is a good jumping off point for the Q1. So in addition to that, we'll be seeing the asset repricing to continue. And actually some benefits from the last re pricing on our Fed funds cut as it re prices our deposits.

Jeff Ruiz, Analyst, D. A. Davidson: Right. It sounded as if you were active in some deposit rate lowering that so far this year as well? Yes. Okay. Got it.

Okay. Thank you. Next (LON:NXT) topic, just wanted to just check-in on kind of the loan growth pipeline and anyone can hop in. I guess, Peter, kind of interested in not only just a pipeline update and your thoughts, but also any sort of ripple effect of any M and A that's occurred on the island and the ASB sale, maybe pretty early, but if you could feather that into the pipeline discussion, that'd be great. Maybe no effect at all as well.

Peter Ho, Chairman and CEO, Bank of Hawaii: Sure. So we were reasonably okay with loan growth for the quarter, really headlined by commercial growth, as you can see, Jeff. Consumer was just kind of moving sideways, frankly. And I think that's probably likely to be the case this year, unless we get a little relief around rates, which I think might have the potential to boost levels. The good news is the back book on commercial remains strong.

So we would not be surprised to see a performance in the next quarter or so similar what we see what we saw in the Q4. As it relates to what's happening in the marketplace, we're not really seeing any active change in how competition is forming out here. So probably way too early to notice anything to be frank, but frankly, we're also not really anticipating much change either.

Jeff Ruiz, Analyst, D. A. Davidson: Okay. Thanks, Peter. I'll step back.

Conference Operator: Thank you. One moment for our next question. Our next question comes from the line of Jared Shaw from Barclays (LON:BARC).

Jared Shaw, Analyst, Barclays: Hey, good morning everybody. Hey, Jared. I guess a few things. Maybe when you look at the movement on the hedges this quarter, are you still targeting sort of a 60% fixed rate mix in that fixed to float or is that coming down with these moves?

Dean Shigemura, CFO, Bank of Hawaii: No, I think where we ended the quarter at about 57% is where we're at least in the near term looking to remain. Obviously, if rates do shift quite significantly, we could change it. But right now, it is 57%.

Jared Shaw, Analyst, Barclays: Okay. So that's a good level then you keep calling.

Dean Shigemura, CFO, Bank of Hawaii: Yes.

Jared Shaw, Analyst, Barclays: And then just looking at the office book, you have 36% of that coming due next year. What's the any level of conversation with those borrowers? What's the expectation for when those come due that is that likely to be renewed? Are you seeing people put more equity in? What's the outlook there?

Brad Shearson, Chief Credit Officer, Bank of Hawaii: So I'll just really quickly say that we're not seeing any issue with any of those renewals. So at this point, everything looks really good and strong on office. And really just, I guess, to speak about credit in general, as you can tell, it was kind of a boring quarter, which I guess is a good thing. But we're really seeing just good stability overall, both on commercial and consumer, and that includes our CRE portfolio and of course, which then includes office space. So no real issues there.

Peter Ho, Chairman and CEO, Bank of Hawaii: Yes. And I think the maturity is by my recollection, I think it's 39% by 2027. So it's not quite as concentrated as what you quoted there, Jared. But still, I mean, we do have some payoffs coming up in the next couple of years. And as Brad mentioned, we're feeling pretty good about that.

Jared Shaw, Analyst, Barclays: Okay. All right. Thanks. And then just I guess finally for me, looking at capital continues to be very robust on the regulatory side. What would have to happen, I guess, for you to be more active with the buyback here?

Peter Ho, Chairman and CEO, Bank of Hawaii: A little cleaner line of sight into credit, the economy and rates, I'd say. So I think we're quite satisfied with the capital build over the past year. And I think levels where they are appropriate to kind of the environment that we see. But having said that, Drew, I would also probably throw in there that we think that there's a fair amount of opportunity for what I'd say is heightened variability across all of those factors. And I think as long as that continues to trend, we're probably likely to hold off on the buyback for the foreseeable future.

Jared Shaw, Analyst, Barclays: So if we don't see changes in credit economy or rates, that's like then capital ratios are likely to still build through 2025?

Peter Ho, Chairman and CEO, Bank of Hawaii: Yes, through retained earnings, it's probably accurate less dividends.

Chang Park, Director of Investor Relations, Bank of Hawaii: Okay,

Jared Shaw, Analyst, Barclays: great. That's what I had. Thank you.

Conference Operator: Thank you. Our next question comes from the line of Andrew Liesch from Piper Sandler Companies.

Andrew Liesch, Analyst, Piper Sandler Companies: Hey, good morning, everyone. Thanks for taking the questions here. Just a follow-up on the revenue enhancing initiatives that you've mentioned in the expense section and the expense outlook. I mean, what sort of initiatives might this include?

Dean Shigemura, CFO, Bank of Hawaii: I don't want to get into the specifics, but it is directed at our commercial and wealth areas, but definitely accretive to the earnings stream this year and then into next.

Peter Ho, Chairman and CEO, Bank of Hawaii: Got it. So is it like software upgrade just

Andrew Liesch, Analyst, Piper Sandler Companies: to make them more efficient and then enhance revenue that way just kind of Yes. Okay.

Peter Ho, Chairman and CEO, Bank of Hawaii: Yes. Andrew, let me take a stab at that. So as I think you know, we've been really putting an emphasis on building a wealth operation up to the same market scale capability as our consumer and commercial businesses. And we've had good success over the past couple of years. This I think in the 4th quarter quarter year on year, our trust and broker sales revenues were up just over 9%.

So pleased with that. And Dean alluded to, we do have what I'd term interesting things planned for 20 25 that I think are going to enhance that improvement even more so. But nothing really to report specifically at this point, but we are excited about the space.

Jeff Ruiz, Analyst, D. A. Davidson: Got it. Got it.

Andrew Liesch, Analyst, Piper Sandler Companies: You've covered all my other questions. I'll step back. Thanks.

Peter Ho, Chairman and CEO, Bank of Hawaii: Take care.

Conference Operator: Thank you. One moment for our next question. Our next question comes from the line of Andrew Terrell from Stephens.

Andrew Liesch, Analyst, Piper Sandler Companies: Hey, good morning. Hey, Andrew.

Andrew Terrell, Analyst, Stephens: If I can go back to some of the margin just quickly, for the $2,000,000,000 of swaps that are active and remaining, can you just remind us that the share between the securities portfolio, how much is allocated to the securities portfolio versus how much against the loan portfolio?

Dean Shigemura, CFO, Bank of Hawaii: In terms of the allocation, it's sorry, I should know this. It's about $600,000,000 against $700,000,000 against the AFS and $1,300,000,000 against the loan portfolio.

Andrew Terrell, Analyst, Stephens: Got it. Okay. And then if I go back to just some of the re pricing benefits and I appreciate all the color there. But if I just think about what you guys have experienced over the past year, call it that $16,000,000 of quarterly repricing, margin wise, that's right at 30 basis points of NIM. So I guess if we're expecting that to continue, plus you should have some deposit repricing benefits carrying forward into 1Q, you're starting margins at a good level.

Do you think you can exit 2025 at, call it, 2.5% or better type margin?

Peter Ho, Chairman and CEO, Bank of Hawaii: Andrew, it's Peter here. That is a trend possibility, I would say. A lot of things have to go right for that to happen. But I would say that from an NII standpoint, we're pleased with what we see in terms of the diversity of opportunities to build that number. So the balance sheet turnover, as you know and understand, is a good story and a cumulative accreting story.

And we are I'd say with the interest rate cuts that we did get towards the back half of last year, we're really pleased with both market reaction as well as kind of the pricing that we're seeing on our own in our own book. So yes, I don't want to throw I don't want to put a line of the sand out there, but directionally, I think that's reasonably accurate. But as I mentioned, a number of things have got to go right for that to happen.

Andrew Terrell, Analyst, Stephens: Yes. No, certainly. And I can appreciate that. On the CD portfolio, I think in the presentation, you guys called out it was close to half of the time deposits repriced or matured in the Q1 or will mature in the Q1, call that $4.10 cost or so. What's the current offering rate for you guys right now?

And what would you expect these CDs to reprice to in the Q1?

Dean Shigemura, CFO, Bank of Hawaii: So the current offering is around 3

Peter Ho, Chairman and CEO, Bank of Hawaii: percent. Actually, we want to come down, but obviously you can appreciate that we're not going to get specifically into direct pricing, Andrew.

Andrew Terrell, Analyst, Stephens: Okay, fair enough. Lastly, do you just have the medical costs in Q4, the dollar amount that you guys called out in the release?

Peter Ho, Chairman and CEO, Bank of Hawaii: $1,400,000

Chang Park, Director of Investor Relations, Bank of Hawaii: Yes.

Dean Shigemura, CFO, Bank of Hawaii: I'm sorry, 2.6 $1,500,000 It's $1,500,000 Sorry. The increase was about $1,500,000

Andrew Terrell, Analyst, Stephens: Okay. Thank you for taking the questions.

Conference Operator: Thank you. One moment for our next question. Our next question comes from the line of Kelly Motta from KBW.

Kelly Motta, Analyst, KBW: Hey, good morning. Maybe switching back to the loan side of things, you've now had 2 nice quarters of growth. Wondering what you guys are seeing in terms of the pipelines? And it sounds like you're very optimistic about your expectation for NII growth through next year. Wondering how much of that is based on excuse me, is factors in any sort of growth on the loan side?

Dean Shigemura, CFO, Bank of Hawaii: So maybe I'll tackle this is Jim. I'll tackle the pipeline side.

Chang Park, Director of Investor Relations, Bank of Hawaii0: We actually began to see a lot of growth in the commercial pipelines around Q2 of last year, which led to a good Q3 and a particularly strong Q4. That was the strongest production quarter we've had since 2,002. Deal flow continues to be active and I think we see the opportunity for continued growth in the commercial loan space. So I think we feel pretty good. And maybe I'd just add for some color.

It was really a good mix of C and I and CRE and a bunch of different asset classes to core clients with really good credit underwriting statistics. So I think we feel really good about that. Kind of keep us on path for sort of that mid single digit growth as we look for this next year.

Peter Ho, Chairman and CEO, Bank of Hawaii: Yes. I guess I would add, Kelly, that obviously we're hopeful of continued loan growth that would be accretive to NII. But really the thing that we're really focused on in the NII space is the diversity of opportunities in that space. So loan growth definitely contributory to the extent that we get it. But really just deposit growth given where the slope of the yield curve has moved to in a reasonably short period of time would be highly accretive for us.

And then kind of back to the balance sheet turnover and just the overall reduction of Fed funds, the ability to create some margin out of that gives us a pretty interesting diversity of options around NII.

Kelly Motta, Analyst, KBW: Got it. That's helpful. And I think you may have please correct me if I'm wrong, but I think you may have some FHLB maturing potentially this year. Wondering how you guys are thinking about managing that if potentially deposit growth could help pay down some of that or potentially taking on some new self funding as a replacement?

Dean Shigemura, CFO, Bank of Hawaii: Yes. We don't have any maturities this year. The first maturities are in 2020 next year, 2026. We do

Peter Ho, Chairman and CEO, Bank of Hawaii: have the opportunity to prepay to the extent we wanted to.

Dean Shigemura, CFO, Bank of Hawaii: Right. Yes. And that's something we actively manage to look at because it's the current rates are 413, I believe. So still accretive to NII. So as we get closer, we may choose to reposition that.

But right now, the first maturities in 2026.

Kelly Motta, Analyst, KBW: Got it. Thank you. I will step back. Nice quarter, guys.

Dean Shigemura, CFO, Bank of Hawaii: Yes. Thank you.

Conference Operator: Thank you. At this time, I would now like to turn the conference back over to Chang Park for closing remarks.

Chang Park, Director of Investor Relations, Bank of Hawaii: Thank you for joining us today. And as always, please feel free to reach out to me if you have any additional questions. Thank you.

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