American Savings Bank, N.A. Q3 FY2026 earnings call

• Financial Strength: Delivered strong earnings with ROAA of 1.29% and ROTCE of 16.68%. Capital ratios improved, with Tier 1 leverage at 9.24% and total capital at 14.76%.
• Interest Rate Environment: The balance sheet remains neutral to slightly asset-sensitive, supporting NIM expansion in a 'higher for longer' rate environment. Cost of deposits decreased to 68 basis points despite rising rates.
• Loan Dynamics: Experienced $185.7 million in loan runoff at 5.79% yield versus $161 million in new production at 6.23% yield. Residential mortgage runoff was $54.9 million at 4.85%, replaced by $63 million in production at 6.14%.
• Deposit Strategy: Focus remains on building primary banking relationships with low-cost, granular deposits. Noninterest-bearing deposits now constitute 31.5% of total deposits.
• Local Economy: Hawaii’s economy is supported by infrastructure/military investment and Maui rebuilding. Visitor arrivals increased YTD through August. Unemployment rose slightly to 2.8%. Economists have lowered 2026 growth forecasts.
• Capital Return: Board declared a quarterly dividend of $0.27 per share. Active discussions are ongoing regarding potential stock buybacks once lockups expire.

As American Savings Bank is a single-segment financial institution, the following summarizes its overall financial performance rather than distinct product lines. Net income was $29 million ($0.45 diluted EPS), up 6.7% sequentially. Net interest income (NII) was $76.4 million, up $1.2 million sequentially, driven by higher loan balances and yields. The net interest margin (NIM) expanded to 3.61%, an increase of 15 basis points year-over-year. Noninterest income was $21 million, down $2.8 million due to fair value adjustments in BOLI, though core noninterest income rose $1.3 million. Noninterest expense was $59 million, down $2.1 million excluding one-time deferred compensation adjustments; adjusted expenses rose $2 million due to higher performance incentives. Total assets were $8.9 billion, down 1.2%. Total deposits were $8.1 billion, down 1.7%, with core deposits declining $92.1 million.

• Net Interest Margin: Expectation is for a slow, steady climb in NIM, primarily driven by Federal Reserve rate hikes. Management anticipates one hike in Q4 2026 and potentially more in 2027.
• Cost of Funds: Deposit costs are expected to tick up slightly (approx. 2 basis points) in Q4 due to repricing from Fed hikes, but remain relatively stable.
• Noninterest Expense: Run rate is estimated around $60.5 million, excluding one-time items. Future increases will be driven by inflationary pressures and performance-based incentives.
• Tax Rate: Effective tax rate is expected to be mid-22s to 23% going forward, with the full-year 2026 rate closer to 22% based on current earnings projections.
• Loan Growth: Residential portfolio expected to stay flat. CRE and C&I space offers opportunities, but pipeline is cautious. Annual loan production target remains at 2.2%.

• Economic Slowdown: Local economists have lowered growth estimates for 2026. Elevated oil prices and storm impacts pose risks to the local economy.
• Credit Quality: Nonperforming loans increased to 29 basis points due to a partial charge-off on a commercial construction loan. Hospitality sector headwinds were noted as a previous risk factor.
• Regulatory/Tax Changes: As a public company, limitations on compensation deductions have increased the effective tax rate by approximately 1.4 percentage points compared to prior periods.
• Interest Rate Sensitivity: While currently beneficial, future rate moves could impact deposit pricing dynamics and loan demand if business sentiment deteriorates further.

Q: Jeff Rulis asked about margin trajectory and deposit cost expectations given the stable low deposit costs.

A: CFO Dane Teruya explained that while spot rates rose slightly in September, deposit costs are expected to rise only modestly (a few basis points) in Q4. He reiterated that the long-term expectation is a slow climb in margin, contingent on Federal Reserve rate hikes expected in Q4 2026 and potentially into 2027, which would reset higher-rate-sensitive commercial products upward.

Q: Matthew Clark inquired about cash flow runoff from single-family residential and HTM securities, and CD trends.

A: Teruya detailed that ~$55M in resi runoff (yielding 4.85%) was reinvested at a ~125bps spread benefit. Additionally, ~$74M from AFS/HTM portfolios was reinvested at a >175bps spread. Regarding CDs, customers prefer shorter durations (3-6 months) for liquidity, leading to consistent runoff that management expects to stabilize eventually.

Q: Kelly Motta requested an overview of the loan growth pipeline and outlook for noninterest-bearing deposits.

A: CEO Ann Teranishi stated that the residential portfolio is expected to remain flat with production offsetting runoff. CRE/C&I pipelines are healthy but cautious due to economic conditions, with annual production targeting 2.2%. On deposits, she emphasized the strength of their loyal, granular retail base which supports low-cost funding, noting that teams are actively focusing on expanding primary banking relationships to grow noninterest-bearing deposits.