Hello, everyone. Thank you for joining us, and welcome to the American Savings Bank Third Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Jordan Hino, Head of Investor Relations. Jordan, please go ahead.

Thanks, Gabby. Aloha and welcome to American Savings Bank's third quarter 2026 earnings call. With me today are Ann Teranishi, President and Chief Executive Officer, Dean Chiruya, Executive Vice President and Chief Financial Officer, and Stephen Nakahara, Executive Vice President and Chief Credit Officer. During today's call, we may refer to non-GAAP financial measures. We see our statement on the use of non-GAAP financial measures and the related reconciliations in our earnings release and supplemental materials. We may also make forward-looking statements. These statements involve known and unknown risks and uncertainties, and actual results or performance could be materially different from those expressed or implied by the forward-looking statements. Please refer to our securities filings with the Office of the Comptroller of the Currency for a discussion of factors that could affect our results and other risk factors. We undertake no obligation to update these forward-looking statements except as required by law. With that, I'll turn the call over to Anne.

Thank you, Jordan, and aloha, everyone. We appreciate you joining us for our first earnings call as a public company. As we mark this milestone, I want to begin by expressing my gratitude to the teammates who have shaped ASB and to our customers and community for their continued trust and support. We are proud of the straightforward, reliable business model we have built together, one that has served us well for more than 100 years and continues to drive our performance today. That strength was evident in our third quarter results. We delivered another quarter of strong earnings with net income of $29 million, or 45 cents per diluted share, return on average assets of 1.29%, and a return on average tangible common equity of 16.68%. Our results also included quarter-over-quarter margin expansion, improved efficiency, and stronger earnings and capital ratios. We remained focused on disciplined execution across the franchise. Average loan balances increased and deposit costs decreased despite a rising rate environment. Turning to the local economy, infrastructure and military investments together with rebuilding efforts on Maui continue to support construction activity while Hawaii faces elevated oil prices and impacts from recent storms. We are monitoring key economic metrics including visitor activity, employment and housing trends. Visitor arrivals and spending increased year to date through August compared with the same period last year despite declines in August. The civilian labor force and jobs expanded while the unemployment rate increased from 2.6% in June to 2.8% in September. Statewide single-family home sales and median prices increased year-to-date through September while condominium sales and median prices declined compared to the same period last year. Local economists continue to forecast growth in 2026 but have recently lowered their estimates. Against this backdrop, Thank you, Anne. Net income for the third quarter was $29 million.

an increase of $1.8 million, or 6.7% from the prior quarter. The increase reflected higher net interest income, lower provision expense, and an improved efficiency ratio. Net interest income was $76.4 million, up $1.2 million from the prior quarter, primarily reflecting higher average loan balances and improved earning after yields partially offset by lower average investment securities and interest earning deposit balances. Net interest margin was 3.61%, four basis points higher than the prior quarter and 15 basis points higher than the prior year period. The quarter-over-quarter increase was driven primarily by higher investment securities, residential and consumer loan yields, together with continued runoff of higher rate CDs. In the third quarter, we had $185.7 million of loan runoff at a yield of 5.79%, versus $161 million of production at a yield of 6.23%. The residential mortgage runoff was $54.9 million at a yield of 4.85%. Mortgage production was $63 million in the third quarter with a production yield of 6.14%. Our balance sheet continues to be neutral to slightly asset sensitive, which will support NIM expansion in this higher or longer interest rate environment. Our cost of deposits was 68 basis points, down one basis point from the prior quarter and nine basis points lower than the prior year period, despite the rising interest rate environment. Non-interest income was 21 million, down 2.8 million from the prior quarter, primarily due to lower fair market value adjustments related to our BOLI portfolio. Excluding the fair market value impact, non-interest income increased 1.3 million, driven primarily by higher service charges on deposit accounts, income from investment services and other income. Non-interest expense was $59 million, down $2.1 million from the prior quarter, primarily due to lower fair market value adjustment related to our deferred compensation plan. Excluding that fair market value impact, non-interest expense increased $2 million from the prior quarter, primarily reflecting higher performance-based incentives. Our effective tax rate was 23% in the third quarter compared to 21.6% in the second quarter. The increase in the effective tax rate primarily relates to limitations on deductions or compensation as a result of being a public company. We recognized $600,000 of income tax expense in the third quarter for these limitations. $400,000 of that was a catch-up for the first half of the year. Total assets were $8.9 billion at quarter end, down $112.2 million or 1.2% from June 30th. The decrease primarily reflects a decrease in interest-bearing deposits at other financial institutions and modest declines in loans and investment securities. Total deposits ended the quarter at $8.1 billion, down $137.6 million or 1.7% from the prior quarter. Core deposits declined $92.1 million, primarily due to a decline in interest-bearing checking balances resulting from normal commercial customer activity. Non-interest-bearing deposits made up 31.5% of total deposits, 64 basis points higher than the prior period. Our Tier 1 leverage ratio increased to 9.24%, and our total capital ratio increased to 14.76%. With our ability to generate capital and our focus on returning capital to shareholders, the board declared a quarterly dividend of 27 cents per common share payable on November 20th to shareholders of record as of November 9th. Now I'll hand it over to Stephen to cover provision and credit quality. Stephen.

Thanks, James. The allowance for credit losses on loans was $60.2 million at quarter end or 97 basis points of total loans compared with $61.5 million or 99 basis points at June 30th. Provision expense was $0.7 million in the third quarter down $2.6 million from the linked quarter. In the second quarter, we recognized provision related to real estate secured loans to a commercial relationship and headwinds within the hospitality sector. We did not have a comparable provision in the third quarter. Non-performing loans were 29 basis points of total loans compared with 19 basis points in the prior quarter. In the third quarter, we recognized a partial charge-off of a non-performing commercial construction loan. As a result, net charge-offs were $1.8 million, or 11 basis points on an annualized basis compared to less than one basis point in the prior quarter. We believe we are appropriately reserved and continue to work closely with our customers while maintaining discipline, underwriting, and portfolio monitoring. And with that, I'll turn the call back to Anne.

Thank you, Stephen. Our third quarter performance demonstrates the strength of our straightforward, reliable business model and the continued focus of our teammates. As we begin this next chapter as a public company, we remain committed to disciplined growth, strong credit risk management, and delivering value for our customers, communities, and shareholders. And now we will open the call up for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Jeff Rulis with B.A. Davidson. Your line is now open. Please go ahead.

Thanks. Good morning, all. Maybe a little bit on the margin. Danny, you talked about kind of the roll-on dynamic on loans, but the cost of deposits down continues to be a remarkably low number. I guess as we think about the margin and that kind of expectation for further climb, maybe if you could unpack the deposit side and your expectations for – expect to see any rate pressure on that front, seeing as the loan side seems pretty positive on the yield front.

Yeah. Hi, Jeff. The deposit side, the yield has been remaining relatively stable. I think, you know, looking at the spot rate for the month of September, it's up one basis point versus what we reported on a quarterly basis. So we did reprice some of our deposits as a result of the Federal Reserve interest rate hike. And so what you'll see is – It's slightly picking up in the fourth quarter, but relatively only about a couple basis points up.

Got it. And, again, as we roll into 27, it's just that we're back to kind of that slow climb is still continues to be the expectation on the margin overall. Yeah.

Yeah, that's correct. The interest rate environment is really the determining factor. So if the Federal Reserve does raise interest rates, right now we're expecting one in the fourth quarter. There is also probably a couple that will occur in 2027. So with those interest rate moves, we will be resetting some of our higher more rate-sensitive commercial products a little higher to reflect those changes. So we would expect our cost of funds to inch higher as those rate changes become effective.

Appreciate it, Dane. And then maybe just one other one on the expense side. You know, it seems like kind of the items that are one time in nature, if we think about the fair value adjustment on comp, against maybe an offset of the IPO cost. I think that's about $1.4 million, a net of that. I guess a run rate going forward of $60.5 is kind of in that range. Is that correct? And then kind of a growth rate from there, we just assume a kind of inflation growth off of that.

Yeah, so in the third quarter, if you eliminate the fair market value related to our deferred comp plan, we think that would be a good run rate for the fourth quarter. So there was a tick up in our non-interest expense related primarily due to higher performance incentives. And so then going forward, you know, as we move through the year, there will be – Some inflationary impacts on that number.

Appreciate it. I'll step back. Thanks.

Your next question comes from the line of Matthew Clark with Piper Sandler. Your line is now open. Please go ahead.

Hey, good morning. Thanks for the question. Just to round out the margin discussion, can you just update us on the cash flows coming off the single-family resi portfolio, which is where I think the opportunity is to reprice, and same thing on the HCM securities portfolio and the pickup and spread that we should anticipate there?

Yeah, so the cash flow that came off in the third quarter was roughly about $55 million in The yield was about 4.85%. We are seeing a benefit of reinvesting that back into mortgage production, roughly about 125 basis points higher. And then on the investment portfolio, we are seeing runoff within our HTM and AFS portfolio. In the third quarter, We got roughly about $74 million runoff. We're currently reinvesting that either back into loans or back into the investment portfolio at a spread of a little more than 175 basis points. Okay.

And that 74 was a blend of AFF and HCM, obviously?

That's correct.

Okay. Got it. Okay, and then just on the CD runoff, maybe speak to that trend. Is that somewhat deliberate? Is that a customer preference? And what's the rate and duration on the new CDs? Just trying to get a sense for the roll-off, roll-on rates.

Correct. So we have some campaigns out there. I think in this environment, our customers' demand is to be a little shorter. So we have some promotional campaigns in the three-month and six-month range. So what's rolling off has been a consistent trend. Over the past couple quarters, you can see that in our numbers. I think in this environment, people are wanting to be a little bit more liquid and not lock in their money. And so we think that trend will continue, but eventually will stabilize. Stabilize.

Okay, and there's this last one for me on a potential buyback. I guess, how soon would you consider buying back stock? Should we just assume you have to wait for the lockups to come off at a minimum?

Yeah, that's a great question. So we're currently working with the board on how we optimize our capital. And so we haven't made any determination on what we're going to be doing with that excess capital. But we're having active discussions with them on that. And so we'll come out with something a little later on on that topic.

Okay, great. Thank you.

Your next question comes from the line of Andrew Terrell with Stevens. Your line is now open. Please go ahead.

Hey, good morning. If I could just start on the deposits. If I look at the non-time certificate deposits down at Ben, I know you guys call out some commercial normal seasonality, or you want to quantify just what you view as kind of seasonal in nature in terms of outflows and the deposits, and then Do you want to speak to maybe fourth quarter trends so far that you're seeing in the deposit book?

Yeah. Hi, Andrew. The deposit outflow in the third quarter was seasonal. You know, we saw some of the deposits outflow from some of our customers just for normal commercial activity. And so what typically we see every year is there's a pickup in deposits in the fourth quarter, and we do expect that to occur this year. It's something that we continue to see in our market every single year. Those balances tend to hold through the first quarter and then eventually flow out thereafter. So we do expect a pickup in the fourth quarter.

Okay, great. I saw there's just a small lift in non-accrual loans this quarter. I caught the comment here on the partial charge-off. Can you speak to what drove the non-accrual lifts? And then was there any interest reversal that came out of that that impacted the loan yields or interest income this quarter?

Yeah, Andrew, this is Stephen. The increase in non-accrual was associated with the partial charge-off. It's the same curve. CR reconstruction deal, so the residual balance on that is $4.1 million, and that represents the majority of that change in on accruals. And no material change on the interest income.

Okay. And then last, if I back out there, I think the tax rate you called out, $400,000 is maybe a catch-up to the first half of the year. If I back that out, it gives me like a 22% tax rate. Is that the right amount or right rate to think about going forward?

Yeah. Hi, Andrew. I think the tax rate in the mid-22s to 23 level is an appropriate level going forward. For this year, we think that the effective tax rate will be closer to 22% And that's just a reflection of our current earnings projection. But, you know, as we continue to earn more money, the tax rate may increase slightly.

Okay. Thanks for the questions and congrats on the IPO.

Thanks, Andrew. As a reminder, if you would like to ask a question, please press star 1 to raise your hand Your next question comes from the line of Kelly Mata with KBW. Your line is now open. Please go ahead.

Hey, good morning. Thanks for the question. Maybe I'd like to kick it back to loan growth. I believe you noted, Anne, in your prepared remarks that the growth expectations for Hawaii were revised today. Down a little bit. Just wondering if you could give us an overview on the pipeline as it stands today and kind of overall outlook for net growth from here. Thanks.

Yeah, I think with this rate environment, we are expecting the residential portfolio to stay flat with no major residential projects coming online. And so production will really offset the runoff. We do continue to see opportunities in the CRE space. and C&I Space. We had really great production in the first half. We were successful at pulling some of that in into June. And overall, our loan production for the year is still at 2.2%. The pipeline's looking pretty steady and healthy. Not as robust as earlier this year, which is, I think, consistent with what we would expect in the economic environment. We do expect some payoff activity this quarter. And while we see good opportunities, we're really being disciplined in our approach on credit as well as pricing. I think in terms of business sentiment, our business customers and the leaders that we speak with feel like, you know, things are going okay. They feel healthy. But with this economic environment, they're being pretty cautious and kind of cautious. a little bit more prudent in how they're thinking about business opportunities.

Got it. Thank you. That's helpful. And then turning to the other side of the balance sheet, it's not lost on me that you've had three now consecutive quarters of improvement in non-interest-bearing deposits, which has been a challenge for, I think, both banks. Maybe you could take a minute to discuss The success you've had with growing core accounts and the outlook there. Thanks.

Yeah, on Kelly, I'll start, and Dane may want to chime in, but, you know, from a steady, you know, granular, low-cost deposit base, we feel like, you know, we continue to have a terrific steady deposit base, and so We serve the everyday people of Hawaii, and they have been loyal to us over the years, and that is just a really important part of our deposit franchise. So that's why we've been able to continue to have the low cost of deposits, and we expect for that to continue to happen.

Yeah, Kelly, I think the only thing I'd add is that that's our primary focus. We're really trying to build primary banking relationships, and so as the commercial teams go out and the retail teams go out, that's really the focus is expanding our deposit base, and they've been pretty successful in bringing in some of the non-interest-bearing deposits.

Got it. Thank you so much. Congrats again on the ICO and a nice quarter. Thanks a lot, Joey.

There are no further questions at this time. I will now turn the call back to Jordan Hino for closing remarks.

Thank you, Gabby, and thank you everyone for joining us today. If you have any follow-up questions after the call, please contact Investor Relations at ASPHawaii.com. Thank you and have a great weekend.

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