Bank of Hawaii Corporation

Ladies and gentlemen, thank you for standing by. Welcome to Bank of Hawaii Corporation fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Cindy Weirich, Director of Investor Relations. Please go ahead.

Thank you and welcome, everyone. Thank you for joining us today as we discuss the financial results for the fourth quarter and the full year of 2023. Joining me today is our CEO, Peter Ho, our CFO, Dean Shigemura, our Chief Risk Officer, Mary Sellers, Vice Chair and Deputy Risk Officer, Brad Sherson, and our Manager of Investor Relations, Chang Park. 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'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'd like to turn the call over to Peter Hull. Peter?

Thanks, Cindy. Good morning or good afternoon, everyone. We appreciate your interest in Bank of Hawaii. Bank of Hawaii produced another solid financial performance for the fourth quarter of 2023. Average deposits grew for the second consecutive quarter up 1% on a linked basis and up 1.8% year over year. Loans were again flat in the quarter. Margins ebbed in the quarter with NIM of 213 flat for the second quarter. Expenses outside of the industry-wide FDIC special assessment were well controlled and fee income was solid. Capital is measured by Tier 1, CET1. Total capital and Tier 1 leverage continue to improve. Credit remains a strong story. I'll start off with some commentary on funding and liquidity and then touch on broader market conditions as well. I'll then hand the call over to Mary, as is our custom, to discuss credit. And then we'll then share with you some more granular color on the financials. So let me touch a little bit on our deposits. I think as many of you know, we consider our deposit base to be the crown jewel of the franchise, built slowly over 125 years of our history in the islands, one relationship at a time. As most of you know, Hawaii is maybe the most unique deposit market in the country, where five locally headquartered banks hold 97% of the state's FDIC reported deposits. As I mentioned, we have an amazing tenure in our deposit relationships. with 53% of our deposits with a tenure of 20 years or more and 75% of our deposits having a tenure of 10 years or more. Despite the volatility created by the regional bank crisis in the first quarter of 2023, both average and spot balances have been steady and growing throughout the year. Further, non-interest-bearing deposits have begun to stabilize, with average non-interest-bearing deposits in December flat to November's month average. For the year, you can see Bank of Hawaii meaningfully outperformed banks nationally in deposit growth as shown in the H-8 data. I'd note, too, that we generated that performance without the usage of broker deposits. Deposit pricing relative to broader industry averages remains a strong story in terms of cost of interest-bearing deposits and total cost of funds. Betas appear to be flattening. Additional sources of liquidity remain abundant. Now let me switch over to the marketplace. The Hawaiian economy, from a jobs perspective certainly, continues to outperform the broader market, and UHERO, our research entity at the University of Hawaii, forecasts continued stability. The visitor market continues to be impacted by the tragic Lahaina fires. Visitor spending and visitor days were down modestly in November compared to 2022, but up modestly X the Maui fire figures or X the Maui figures. The Japan market, which as you know, has been slow to recover, is up 119% year on year, but it's still down 50% from pre-pandemic levels. So we're seeing improvement in the Japan market. And actually, I think that represents some upside for us down later on into the year and into next year. As you can see from the chart here,