Bank of Hawaii - Q4 2023

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. Welcome to Bank of Hawaii Corporation Q4 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 one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Cindy Wyrick, Director of Investor Relations. Please go ahead.

Cindy Wyrick (Director of Investor Relations)

Thank you, and welcome, everyone. Thank you for joining us today as we discuss the financial results for the Q4 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 Shairson, 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 Ho. Peter?

Peter Ho (Chairman, President and CEO)

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 Q4 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 2.13 flat for the Q2. Expenses outside of the industry-wide FDIC special assessment were well controlled, and fee income was solid. Capital, as measured by Tier 1, CET1, total capital and Tier 1 leverage continued 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 in Hawaii.

I'll then hand the call over to Mary, as is our custom, to discuss credit, and Dean will 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 Q1 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 ex the Maui Fire figures or ex the Maui figures. The Japan market, which, as you know, has been slow to recover, is up 119% year-on-year, but is 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, hotels continue to perform well, with RevPAR up steadily.

Residential real estate on Oahu is stable, with median prices for single-family homes down 5% from a year ago in December. Condominiums, however, are up 1.5% on median. Inventory levels remain extremely tight, with average days on market of 18 days and 26 days for single-family homes and condos, respectively, and month's supply inventory of 2.8 months and 3.2 months for single-family homes and condos, respectively. Now, let me turn the call over to Mary Sellers. But before I do, let me congratulate Mary on her upcoming, much-deserved retirement, this March 31. Mary, I think, as many of you on the call know, has been an outstanding member of our team, with the company, with BOH, for 37 years.... 18 of those years as our Chief Risk Officer.

Mary, you've been truly amazing, and I'd also like to welcome Brad. Brad joined us this past May. Seems like dog years at this point, but he's doing a terrific job, and he'll be stepping into Mary's role shortly. I'm truly excited to have Brad on board. He brings with us a wealth of experience and experience from places like Regions Bank, Union Bank, and MUFG, among other banks. So Brad, would you like to say a few words?

Brad Shairson (Vice Chair and Deputy Risk Officer)

Yes. Thanks, Peter. I would like to just take a moment to say that I feel fortunate to have had the opportunity to work for Mary for the past several months through our planned transition, and I can see the incredible legacy that she'll be leaving behind. I also feel fortunate that under her leadership, she will also be leaving behind a portfolio with such strong asset quality, and I plan to do my best to continue in her footsteps and maintain that same disciplined approach to managing risk. All of that said, let's turn this back to Mary, so she can do this one last time.

Mary Sellers (Chief Risk Officer)

Okay. Thank you, Brad, and Peter, for your kind remarks. First, I must say, though, that credit for our strong and consistently strong credit quality goes to the entire team, particularly our line management, our relationship managers, and our credit team, as well as probably most importantly, to our customers. Brad, I've enjoyed working with you during the transition. You've been a terrific partner. I'm pleased to leave it in your capable hands, and I'm sure you'll do a terrific job. Now on to the usual stuff. First, Bank of Hawaii's lending philosophy is grounded in two fundamental tenets. We lend to long-standing relationships that we understand in our core markets of Hawaii and the West Pacific. We combine this with ongoing disciplined portfolio management, actively exiting those products or segments that have proven to be higher risk.

This positions our portfolio for continued lower net charge-offs through different economic cycles. The loan portfolio is built on long-tenured relationships, diversified by asset categories, with 59% consumer and 41% commercial, has appropriately sized exposures and is 79% secured with real estate, with a combined weighted average loan-to-value of 54%. Our commercial real estate portfolios, which represent 27% of the total loan portfolio, is diversified across the various asset types. The portfolio, built on relationships with demonstrated experience and financial capacity, is conservatively leveraged with a weighted average loan-to-value of 55%. Our office portfolio is granular and has a weighted average loan-to-value of 55%. 23% of the portfolio is in the downtown Honolulu central business district. This segment has a weighted average 60% loan-to-value, and 43% of the exposure is further supported by repayment guarantees.

4% of the loans in the office segment are maturing through 2025. While not immune from the changing dynamics impacting the office market across the U.S., vacancy and rents have remained relatively resilient in the office market on Oahu, as conversions to alternative use continue to reduce overall inventory levels. In the last five years alone, approximately 1 million sq ft of inventory have been removed, and it's estimated an additional 300,000 sq ft will be removed in the next several years. Hawaii's supply constraints, driven off its unique geography and onerous regulatory process, serve to create relative stability in our real estate markets over the long term and less volatility during periods of stress. This is particularly pronounced in the housing sector, where severely limited supply is compounded by the high cost of homeownership.

These two factors together continue to drive consistent, strong rental demand. Tight market conditions continue to persist in the Oahu industrial market, with vacancy rates at historic lows, sub 1%. Supply constraints continue to also be an issue in this segment. Oahu's real estate market, whether it's supply chain disruptions, manufacturing shutdowns, backlogged seaports, and inflation, with vacancy and rents returning to pre-pandemic levels. Grocery and drug anchors continue to outperform. Again, relatively flat inventory levels help to support stability in this segment over time. Despite the delay in the return of the Japanese tourists to pre-pandemic levels, flat inventory levels help to support occupancy and RevPAR levels in Oahu's lodging segment. The Hawaiian Islands remain a top five destination in terms of highest revenue per average room and average daily rate, with Oahu attracting more visitors than any other island in the state.

In addition to the continued strength in our markets' real estate fundamentals, we have just 8% of our commercial mortgage loans maturing in 2024, minimizing repricing risk in the portfolio. Tail risk in the commercial portfolio—real estate portfolio remains modest, with just 0.4% having an LTV greater than 80%. Our construction portfolio represents 2% of total loans, with the majority being in low income or affordable housing, which continues to be chronically undersupplied in our markets. Asset quality remains strong in the Q4. Net loan and lease charge-offs were $1.7 million or 5 basis points annualized of total average loan and lease outstandings, down $300,000 or 1 basis point for the linked quarter and down $100,000 year-over-year.

For the full year, net loan and lease charge-offs were $7.8 million, or 6 basis points, compared with $5.1 million, or 4 basis points in 2022. Non-performing assets were $11.7 million, or 8 basis points, stable from the Q3 and down $900,000, or 1 basis point year over year. All non-performing assets are secured with real estate, with a weighted average loan-to-value of 56%. Loans delinquent 30 days or more increased modestly and remained low at 31 basis points at the end of the quarter.

Criticized loans as a percentage of total loans were 1.93% at the end of the quarter, down 8 basis points for the linked quarter as we continue to see improved financial performance in a number of credits, which had been slower to recover from the ancillary impacts of COVID. The allowance for credit losses and loans and leases was $146.4 million, up $1.1 million for the linked period and up $2 million year-over-year. The ratio of the allowance for credit losses to total loans and leases outstandings was 1.05% at the end of the quarter, up 1 basis point from the prior quarter and down 1 basis point year-over-year. I'll now turn the call over to Dean.

Dean Shigemura (CFO)

Thank you, Mary, and congratulations on your upcoming retirement. To better balance our interest rate sensitivity profile, in the Q4, we added an additional $1 billion of notional pay-fixed, receive-float interest rate swaps for a total of $3 billion notional. In addition, we continued to originate a greater proportion of floating and adjustable rate loans and hold more Fed funds sold. These actions have increased our floating rate assets exposure to 45% from 27% at the end of 2022, and positioned us well for this uncertain rate environment. Net interest income was $115.8 million in the Q4, a decrease of $5.1 million linked quarter. As the regional bank crisis unfolded, we fortified our balance sheet in the Q2 by adding liquidity.

As uncertainty decreased and our core deposits remained strong, we reduced the on-balance sheet liquidity in the Q3 by reducing wholesale and non-core funding by $2.2 billion. These actions reduced our balance sheet leverage and improved our capital position, but did reduce our earning asset base by $904 million on average in the Q4. Net interest margin was stable linked quarter as asset repricing offset higher deposit costs. We continued to exercise deposit pricing discipline while growing total balances, as evidenced by our deposit beta continuing to outperform that of peer banks. As of December 2023, our cumulative total deposit beta was 31.6%. We believe that our deposit betas have peaked in the Q4 as our deposit rates began to flatten, and non-interest-bearing deposits have stabilized at 27%-28% of total deposits.

In addition, lower cost and more granular consumer deposits increased on average by $129 million linked quarter. We expect this trend to continue into 2024. Our assets continued to reprice higher, supporting net interest income and margin growth. Annual maturities and paydowns of loan and deposit portfolios of $3 billion continued to provide an ongoing supplement to the $7.2 billion in assets, which includes our interest rate swap portfolio that reprice annually. The yield on maturities and paydowns of loans and investments in the Q4 was approximately 4.6% and 2.1%, respectively. These cash flows continued to be reinvested predominantly into new loans, which are yielding greater than 7.5% on average, or held in cash at the Fed, which earns an attractive yield and preserves liquidity.

As a result of these cash flows repricing our assets higher, our overall asset yields have steadily increased and are expected to continue to increase as new asset yields are well in excess of the runoff yield. As a result of continued asset repricing, together with the peaking of our deposit beta, the margin is expected to increase by 2-4 basis points in the Q1 of 2024. Noninterest income totaled $42.3 million in the Q4, an increase of $1.3 million over the normalized Q3 results.

Recall that Q3 results included $14.7 million of gains from the termination of private repurchase agreements, partially offset by a net loss of $4.6 million from the sale of $159 million of AFS securities, and an $800,000 charge related to a change in the Visa Class B conversion ratio. Market conditions improved in the quarter and transaction volumes were steady. As these conditions persist into 2024, we expect core non-interest income to be at similar levels as the Q4 in the H1 of the year and continue to trend higher in the H2. During the Q4, as is our practice, we managed our expenses in a disciplined manner as inflationary conditions continued.

Expenses in the Q4 were $116 million, which included an industry-wide FDIC special assessment that resulted in a $14.7 million charge. In addition, in the Q4, expense savings of $1.7 million were realized, which are not expected to recur in 2024. Thus, the adjusted core expense level in the Q4 was $102.9 million. Q3 expenses included severance expenses of $2.1 million and $400,000 of extraordinary expenses related to the Maui wildfires. Adjusting for these items, expenses in the Q3 was $103.1 million. Thus, core expenses linked quarter were modestly lower despite continued inflation pressures.

Expenses in 2024 are expected to be 2%-2.5% higher from 2023 normalized expenses of $419 million. As a reminder, the Q1's results will include seasonal expenses related to payroll taxes and benefits from incentive payouts, currently estimated at $3.5 million versus $3.7 million in the Q1 of 2023. To summarize the remainder of our financial performance, in the Q4 of 2023, net income was $30.4 million, and earnings per common share was $0.72, a decrease of $17.5 million and $0.45 per share, respectively. The Q4 results included the industry-wide FDIC special assessment, which reduced EPS by $0.29 per common share. Our return on common equity was 9.55%.

We recorded a provision for credit losses of $2.5 million this quarter. The effective tax rate in the Q4 was 23.25% and 24.62% for the full year. The tax rate for 2024 is expected to be approximately 24.5%. We continued to organically grow our capital from prior quarters, and we continue to maintain healthy excesses above the regulatory minimum well-capitalized requirements. Our risk-weighted assets to total assets ratio are well below peer median, reflecting the low risk nature of our asset mix. During the Q4, we paid out $28 million in common to common shareholders in dividends and $2 million in preferred stock dividends. 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 2024. Now I'll turn the call back over to Peter.

Peter Ho (Chairman, President and CEO)

Thanks, Dean. That concludes our prepared remarks. We'll be happy to take your questions.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. The first question comes from Jeff Rulis with D.A. Davidson. Your line is now open.

Jeff Rulis (Managing Director and Senior Research Analyst)

Thanks. Good morning. Peter, I think you mentioned the increase—well, the non-interest-bearing deposits spot quarter-end up considerably. I think you mentioned pretty flat November to December. I just wanted to kind of get a sense for, was that still maybe like Maui fire-related insurance payouts or anything that kind of came in early part of the quarter that led to that increase in non-interest-bearing?

Peter Ho (Chairman, President and CEO)

Yeah, Jeff, the quarter end spot, as you know, December oftentimes is kind of a funny quarter end because it is a year-end. And we saw probably, I want to say, $300 million-$400 million of stuff just kind of pop in and out. Some of that was in non-interest-bearing, which is in part why you saw that jump up. Kind of the better number to look on, just to understand the spot, I think, is the average NIBD for the quarter was five point, just about $5.7 billion, and that compares to $5.8 billion for the Q3.

So a real flattening there, and I would anticipate, Jeff, at least our early insight into this quarter, that number feels to be pretty stable.

Jeff Rulis (Managing Director and Senior Research Analyst)

Okay. So if I look at that average balance, and you would not anticipate then some outflows of, again, kind of Maui-related. Like, was there any temporary in that? Or do you think the averages kind of balance that out and from here it's-

Peter Ho (Chairman, President and CEO)

Yeah, we're hopeful that we can maintain that average NIBD's balance of call it $57. Overall balances, I think, you know, we're running about $20.6 right now. If we came through the quarter at $20.6, that wouldn't surprise me on average balances. And yeah, you're right, we do have, there's probably $200-$300 million of Maui-related aid that's kind of flowing in and out of our balance sheet, and so a little unpredictable. Some of it in the NIB, most of it earning some form of a yield, though, thankfully for them.

Jeff Rulis (Managing Director and Senior Research Analyst)

Got it. Okay. And so, Dean, I guess that's all I consider that would be baked into the, into the margin. Maybe just a follow on to that. The cost of that hedge is, I don't know if you have that available. Is there? Did that lean on margin a few basis points of kind of what you added in terms of what was added in the quarter? Was that impactful?

Dean Shigemura (CFO)

It was accretive in terms of net interest income of about $5 million. So it did help us, but it does kind of neutralize or hedge our exposure at the short end.

Jeff Rulis (Managing Director and Senior Research Analyst)

Okay. So it was a short-term benefit and also balances out going forward. I guess the bigger question then, but you know, kind of you've mentioned the Q1 expectations. Could you just frame up, Dean, should we see H2 of a cut or two, or maybe kind of range bound, if it's more than that, how you think margin generally trends, all things being equal?

Dean Shigemura (CFO)

Yeah, all things equal, we expect the margin. You know, from short-term changes in rates, we expect to be neutral. But what we're expecting is, on the asset side, to increase from just the asset repricing that we have, you know, the cash flow coming off and being invested at much higher yields.

Jeff Rulis (Managing Director and Senior Research Analyst)

Sure. Okay. Great. Well, I will step back, and congrats, Mary, on the retirement, and thank you for your help over the years. I appreciate it.

Mary Sellers (Chief Risk Officer)

Thank you.

Operator (participant)

Please stand by for the next question. The next question comes from Andrew Liesch with Piper Sandler. Your line is now open.

Andrew Liesch (Senior Equity Research Analyst)

Thanks. Hi, everyone. Dean, just a clarification question on the swaps here. Do you have what the pay and receive rates are, right now?

Dean Shigemura (CFO)

We haven't disclosed it, and the average tenor is approximately 2.5 years. And just to clarify, on the previous question, the $5 million is based on the $3 billion of total. The total interest income from the $3 billion.

Peter Ho (Chairman, President and CEO)

The incremental in the quarter was $1 billion, right?

Dean Shigemura (CFO)

Of swaps.

Peter Ho (Chairman, President and CEO)

Of swaps.

So it would be some number less than a third-

Yeah

Let's call it.

Andrew Liesch (Senior Equity Research Analyst)

Got it. All right. And then just also clarification on the margin commentary. With the Feds cutting rates gradually should be pretty neutral to the margin. Is, was that correct?

Dean Shigemura (CFO)

Yes.

Andrew Liesch (Senior Equity Research Analyst)

Okay. And then just on the expense guide, is that really just inflationary pressures pushing it higher, or is there anything else in operating costs that we should be aware of as we look into 2024, as far as different projects or other alternatively cost-saving opportunities?

Dean Shigemura (CFO)

There's it's generally gonna be inflationary pressures. There's some projects that are coming online, but generally it's gonna be, you know, merit increases and, and the like, of, for that, for the increase. Of course, we're, we're continuing to look for, opportunities to reduce the, expenses, as has always been our practice.

Andrew Liesch (Senior Equity Research Analyst)

Right.

Peter Ho (Chairman, President and CEO)

Andrew, let me ask you on your question on margin. I just wanted to understand the context of the question. Was it as the Fed or if and as the Fed reduces short rates, what, what will the impact be on our NIM? Is that the question?

Andrew Liesch (Senior Equity Research Analyst)

Yeah. Yeah. I think it's pretty clear that flat or no change in the rate environment with the repricing, we have a few basis points of expansion. But if the Fed starts to lower the short end, what does that mean to the margin? Is there enough repricing differential on what's-

Dean Shigemura (CFO)

Yeah

Andrew Liesch (Senior Equity Research Analyst)

- maturing and being reinvested to offset, maybe any of the adjustable variable rate product?

Peter Ho (Chairman, President and CEO)

Yeah.

Dean Shigemura (CFO)

Right.

Peter Ho (Chairman, President and CEO)

I mean, the way I think about it, and Dean, you can clean up whatever I say here, is that kind of higher for longer would work, would be okay. It would kind of leave our margins stable, up modestly. Fed cutting rates, let's just call it conservatively, over time, would, you know, obviously hurt our, the floating portion of our earning assets, but then over time, results in lower funding costs, right? So we think, you know, kind of the upshot of that over a reasonably short period of time, adjustment period, is that we've seen an improvement in our NIM. Yeah.

Andrew Liesch (Senior Equity Research Analyst)

Got it.

Peter Ho (Chairman, President and CEO)

Yeah.

Andrew Liesch (Senior Equity Research Analyst)

All right. That makes sense. Very helpful. Thanks for taking the time-

Dean Shigemura (CFO)

Yeah, just to be clear that,

Andrew Liesch (Senior Equity Research Analyst)

Mm-hmm

Dean Shigemura (CFO)

... that, yeah, the short end, when I mentioned that we're effectively hedged, what that also means is that we do continue to see repricing on the asset side. So even if the Fed were to cut rates, you know, we would expect the margin to continue increasing.

Andrew Liesch (Senior Equity Research Analyst)

Got it. Okay.

Dean Shigemura (CFO)

Yeah.

Andrew Liesch (Senior Equity Research Analyst)

Very helpful. Thanks so much.

Peter Ho (Chairman, President and CEO)

Yep.

Operator (participant)

As a reminder, to ask a question, please press star one one on your telephone keypad, and please stand by for your name to be announced. Our next question comes from Kelly Motta with KBW. Your line is open.

Kelly Motta (Director of Equity Research)

Hi. Thanks so much for the question. I hate to beat a dead horse here with the margin, but I just want to make sure I'm understanding what you both are saying correctly. It seems like it's clear, higher for longer, you'll continue to level up on margin. With some moderate cuts, am I understanding correctly, Dean, you still think it'll continue to go up initially, or could we, at least in the Q1 or two, see some compression as that variable rate portion at now about 45% resets lower to immediately to that change in rates? Just trying to square away both of your comments there.

Dean Shigemura (CFO)

Yeah. And the way we look at it is we've I've separated out the floating rate assets from what is repricing in the cash flow. So the asset repricing from cash flows is going to continue to increase our margin. The floating rate assets, you know, offsetting the decrease in what we on the liability side, the deposit side, we would be bringing down our deposits as well, you know, the rates. So those two would move more with an opportunity to, on the deposit side, to reduce that further.

Peter Ho (Chairman, President and CEO)

Yeah. But, I mean, but you're right. There is a timing issue, right? Because as soon as the Fed drops rates, that will contractually drop margins, certain margins on our earning assets, and it will take us a period of time to bring down those rates within our deposit book. So there could be, you know, there could be that intermediary period, Kelly. But we do think that, you know, over reasonable short order, we should be able to kind of get margin expansion out of lower interest rates.

Kelly Motta (Director of Equity Research)

Got it. I appreciate the commentary that the average tenor of the swaps is 2.5 years. Can you help me understand how that impacts that AOCI accretion back to capital? I think that may have muted some of the benefit to tangible book value this quarter. Is the right way to think about it, you know, we'll start seeing a greater portion of that come back, provided rates move lower after that 2.5 year average tenor is up. Just trying to better understand kind of the cadence of how that impacts, that'll impact that accrete back of AOCI.

Dean Shigemura (CFO)

Yeah. So the swaps about $1.3 billion of swaps are hedging the AFS portfolio, so not the entire $3 billion. And so when it's approximately, you know, about 30% of a hedge, so it does, it does mitigate the movement up or down. And then over time, as you recognize that will reduce the 30% will fall over time if we did nothing. Now, you know, it is going to be a more active program, so but 30% right now is the hedge.

Kelly Motta (Director of Equity Research)

Okay. Got it. Maybe switching to the balance sheet and loan growth. Just wondering, as you look out to the next year, how we should be thinking about your expectations for loan growth on the island, as well as, you know, what we could potentially see coming out of Maui, both, you know, with how that potentially impacts the tourism impact as well as just the rebuild there and how that fits into that loan growth expectation?

Peter Ho (Chairman, President and CEO)

Mm-hmm. Well, let's talk about Maui first. I think most of the funding coming into Maui right now, and activity, is around relief efforts today. The rebuild of Maui is still an awful ways off, Kelly. So probably, you know, it's probably just not even constructive to hypothesize what, you know, what economic impact that might have at this time. From a visitor perspective, the state is performing well. Maui is coming back a lot faster than people had anticipated. At least that's the kind of the anecdotal that I get from that part of the state.

So I don't think that there's going to be, you know, too much of a shortfall activity-wise coming out of any form of tourism shortfall generated by the wildfires over, you know, kind of over the next several months. And then, you know, just in terms of the ability for the long-term stimulus impact of the rebuild of Lahaina to kick in, I think that's still a ways off because we don't even really have a design yet on what, you know, what all that project potentially could or would look like. So again, probably just too early to determine.

Kelly Motta (Director of Equity Research)

Got it. Thanks for the color. And then, I guess, excluding Maui, how should we be thinking about the outlook for growth next year?

Peter Ho (Chairman, President and CEO)

... Yeah, we think that loan growth, similar to last quarter's view, is gonna be reasonably tepid. I mean, unless the Fed just gets really aggressive with rate cuts, which we're not anticipating, I think that the consumer is still gonna be impacted, you know, somewhat by what they perceive to be higher rates. Interestingly, mortgage rates in the low sixes don't seem to be too terribly outside of historical norm if you go back years and years. But still, I think that's having a negative impact on demand on the consumer front. We did have a reasonably good C&I quarter, so there is activity in the marketplace. Construction had a reasonable quarter as well, though that's a small portfolio, with a lot of our low-income housing projects.

But really kind of the big driver of our commercial portfolio is commercial real estate. And people there are, the market's doing fine, but transactionally, I think people are just kind of sitting on their hands for now and just waiting to see which way interest rates shake out, which way the recession or the economy shakes out, recession or expansion or just kind of soft landing. So I wouldn't anticipate a whole lot of activity before toward, you know, until maybe the back end of this year.

Kelly Motta (Director of Equity Research)

Got it. I appreciate all the color. I'll step back. Thanks again.

Operator (participant)

That concludes the question and answer session. At this time, I would now like to turn the call back to Cindy Wyrick for closing remarks.

Cindy Wyrick (Director of Investor Relations)

Thank you again, everyone, for joining us today and for your continued interest in Bank of Hawaii. As always, please feel free to reach out to Audrey Tang or to me if you have any additional questions or need further clarification on any of the topics discussed today. Thanks again, everyone, and have a great day.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect.