Bank of Hawaii Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Bank of Hawaii Corporation third quarter 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your host, Director of Investor Relations, Cindy Weirich. Madam, please go ahead.

Thank you, Lateef. Good morning, good afternoon, everyone. Thank you for joining us today as we discuss our financial results for the third quarter of 2020. On the call with me today is our Chairman, President, and CEO, Peter Ho, our Chief Financial Officer, Dean Shigemura, our Chief Risk Officer, Mary Sellers, and also joining us today is the newest member of our IR team, Welcome, Janelle Higa. 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, we will be referencing a slide presentation as well as the earnings release. A copy of the presentation and release are available on our website, boh.com, under investor relations. And now I'd like to turn the call over to Peter Ho.

Great. Thank you, Cindy. Good morning, everyone. Aloha. I thought what we would do today is follow along the path that we've taken over the past couple of earnings calls and give you a little bit more of an expanded commentary before we get into our Q&A. I will kick off with a descriptor on the economy and our local experience with the COVID-19 virus. I'll then turn it over to Mary, who will share with you some credit highlights, and then to Dean for financials. Then as he finishes up, we'll be happy to answer whatever questions you might have. So, let me begin with a description on the economy. I'd say relatively stable outcome of most recent through to the past quarter, but obviously at a lower level like or appreciate. We did see a clip up in unemployment for the September month. So September clipped up to 15.1% versus that 13% range that you see for the June through August period. A lot of that driven by there were a number of Warren's Act actions taken within the community. And I guess one thing to note there that even with the increase in unemployment, for September, if you take those three months for the quarter, they effectively came in online with the UHERO forecast. You see in the light blue bar that UHERO, which is the analysis that we base much of our credit decisioning off of, is calling for a 13.4% fourth quarter unemployment level. And in conversations with some of the senior staff over there, they feel cautiously optimistic at this point that that is achievable, assuming that we get a continued slow but I think positive reopening of our TransPAC activity. Okay, Janelle, let's go to the next slide. Here you see on the next slide just an annualized representation of unemployment 925, you hear a forecast, you see a little bit more constructive, a little bit higher for 2021, and then dipping down for 2022 and 2023. This is in line with a lot of discussions that we've been having with our larger commercial customers and certainly our hospitality customers who really point to 21 as a restarting year for us and, you know, hopefully getting to a meaningful level of activity kind of into the 2022 year. Go to the next slide. I'll just touch a little bit on GDP and personal income. You see the differential in forecasts between the gold and gray bars versus the blue bars. Unemployment, or I'm sorry, real GDP forecasted to rebound in a slightly more muted fashion with the most recent forecast. But I think maybe one of the more important slides or one of the important takeaways on this slide is to recognize that while GDP obviously has taken a substantial hit here to the island economy, for obvious reasons, personal income is holding in reasonably well. And so the most recent re-forecast as of September actually has personal income falling pretty materially less than what we had originally forecast. On the next slide, give you a sense for how the local housing market has held up. The answer is surprisingly well. So not unlike a number of other mainland marketplaces, housing, for lots of different reasons, is a bright spot in the economy. You see, on a year-to-date basis, single-family homes have had a nice, steady increase in median sale prices of 3.3 percent, inventory levels very constrained. As we look at point-to-point September, this year versus last year, a bit more price action, prices up 13.3 percent, and sales beginning to accelerate. And again, very tight inventory conditions. Similar story on the condominium side. I think condominiums perhaps are being impacted by less new product coming onto the marketplace. But again, you see a pretty steady year-to-date median sales price increase. and inventory conditions that are just awfully constrained as of right now. On to arrivals, so I think most of you are aware that beginning on the 15th of this month, so we are 10 days into our pre-travel program, Hawaii began welcoming visitors as well as returning or intended residents and the like back to our islands through a pretest program. So basically, to the extent that you receive a recognized PCR test from a number of approved providers, preferred providers we call them, we're allowing people with a negative result to come to the islands without having to go through the 14-day quarantine. And what you see here, obviously, is that's had a very positive impact on Transpac activity. So you see on this chart that the day before the program went into place, we had upwards of 2,000 visitors on 10-15, the day that the program launched, up to 8.2, 7.9, 8.3. You see that pent-up demand. A bit of a dip, but I can tell you that through the weekend, we've begun to bow back to those prior levels. So 10-22, you see 6,200 visitors are returning Transpac. The 23rd was 5.8, and the 24th was 6.3. So a nice steady increase. Asking around town on what people's early sentiment is on the results for, you know, albeit the last week and a half. Most people feel pretty cautiously optimistic. Frankly, these numbers are a little bit higher than what they would have anticipated. And so I think this bodes well. It certainly gives us a pathway to get the U.S. domestic market reopened, which is two-thirds of our of our arrivals still need to work on international, namely Japan, although there's a lot of activity happening at the administration level to help make that a reality. On to the next page. The infection rate here in the islands has generally been a good story. You see the chart on the left shows you the activity. really experienced what I like to call a post-July 4th ramp-up, where we saw a real exponential surge. Credit to the mayor of Honolulu, because this was mostly concentrated on Oahu, who implemented an 827 stay-at-home order, so a bit more relaxed than our prior or initial order, but seems to have done the trick. infection rates now falling quite dramatically. And if you look to the chart to the right, what you see is Hawaii, in terms of cases per 100,000 on a rolling seven or over the past seven days, is amongst the lowest in the country, so of the best performing states handling the virus in the country. And if you go across the islands within the island chain, Oahu performing well, Maui performing well, performing exceptionally well. Big Island's got a bit of an issue with some retirement home issues, but in general, the state as a whole is operating quite nicely from an infection control standpoint. So finally, just to kind of bring it all together, we feel we're extremely well positioned for these most unfortunate times. This is a dynamic environment. This is certainly an uncertain and generational sort of situation. But the company, for the most part, has been built to weather exactly these kinds of occurrences. So, as I mentioned, I think despite these challenges, we're well positioned. Credit metrics are strong, as Maria will share with you. We had reasonable loan growth in the quarter, slightly down on a spot basis, slightly up on a on an average basis, but impacted by about $35 million in line pay-downs and installment loan reductions, as you would anticipate. Deposits continue to grow nicely for us, up 3.5 percent on an average basis. Funding costs continue to come down. And I think, as you can expect of us, our liquidity and capital levels are certainly top-notch within the industry. So I think I'll stop there, and I'm happy to kick it over to Mary. We'll share some credit thoughts with you, Mary.