Bank of Hawaii (BOH) Bilanzkonferenz Q3 2026: NIM weitet sich im 10. Quartal in Folge aus

Die Bank of Hawaii Corporation (NYSE: BOH) berichtete über ein höheres Ergebnis im dritten Quartal 2026, da die Neufestsetzung der Verzinsung ertragsrelevanter Aktiva den Zinsüberschuss und die Nettozinsspanne anhob. Die Kreditkennzahlen blieben insgesamt günstig, obwohl ein einzelner Firmenkredit zu einem Anstieg der notleidenden Vermögenswerte führte.

Wichtigste Erkenntnisse

• Der Nettogewinn erreichte 64,3 Millionen US-Dollar, ein Plus von 1,4 % gegenüber dem Vorquartal und 20,5 % gegenüber dem Vorjahr. Das verwässerte Ergebnis je Aktie lag bei 1,49 US-Dollar, was einem Anstieg von 0,7 % gegenüber dem Vorquartal und 24,2 % gegenüber dem Vorjahr entspricht.
• Der Zinsüberschuss stieg um 2,5 Millionen US-Dollar auf 156,1 Millionen US-Dollar, während sich die Nettozinsspanne um 4 Basispunkte auf 2,82 % ausweitete. Beide Kennzahlen verbesserten sich damit das 10. Quartal in Folge.
• Das Gesamtkreditvolumen wuchs um 85 Millionen US-Dollar oder 0,6 %, angeführt von einem Anstieg der Firmenkredite um 73 Millionen US-Dollar. Das Management rechnet weiterhin mit einem Gesamtkreditwachstum im niedrigen bis mittleren einstelligen Prozentbereich, das primär vom Firmenkreditgeschäft getrieben wird.
• Die durchschnittlichen Einlagen gingen um 0,8 % zurück, was den Liquiditätseinsatz der Kunden sowie den gezielten Abbau teurerer öffentlicher Mittel in Höhe von rund 200 Millionen US-Dollar widerspiegelt. Für das vierte Quartal erwartet das Management ein moderates Einlagenwachstum.
• Die notleidenden Vermögenswerte stiegen aufgrund eines immobilienbesicherten Firmenkredits von 8 Basispunkten auf 30 Basispunkte. Das Management geht davon aus, diese Position im vierten Quartal 2026 oder Anfang 2027 abzuwickeln, wobei ein etwaiger Verlust voraussichtlich unwesentlich ist und bereits zurückgestellt wurde.
• Die Bank of Hawaii kaufte im Laufe des Quartals Stammaktien im Wert von 20 Millionen US-Dollar zurück und plant für das vierte Quartal weitere 20 Millionen US-Dollar. Der Verwaltungsrat erhöhte in der Folge die Rückkaufermächtigung um 200 Millionen US-Dollar.

Wichtigste Finanzdaten

Geschäfts- und operative Entwicklung

Das Firmenkreditgeschäft war der Haupttreiber des Bilanzwachstums. Die Firmenkredite stiegen um 73 Millionen US-Dollar oder 1,2 %, gestützt durch Kundenaktivität und solide Pipelines. Das Verbraucherkreditgeschäft wuchs nur geringfügig, da höhere Zinssätze die Nachfrage nach Wohnimmobilienkrediten weiterhin bremsten. Dennoch berichtete das Management über stabile Pipelines bei Eigentums-Eigenkapitalkrediten (Home-Equity) und sieht potenzielle Nachfrage von Immobilieneigentümern, die erstrangige Hypotheken mit niedrigeren Zinssätzen nicht umschulden möchten.

Die Kreditqualität blieb im Großteil des Portfolios stark. Die Verbraucherkredite beliefen sich auf insgesamt rund 8,1 Milliarden US-Dollar, wobei Wohnungsbau- und Home-Equity-Kredite 86 % ausmachten. Diese Kredite wiesen einen gewichteten durchschnittlichen Beleihungsauslauf (LTV) von 49 % und einen durchschnittlichen FICO-Score von 798 auf.

Die Firmenkredite summierten sich auf 6,3 Milliarden US-Dollar. Gewerbeimmobilienkredite (CRE) machten 4,5 Milliarden US-Dollar bzw. 31 % des gesamten Kreditvolumens aus, mit gewichteten durchschnittlichen LTV-Quoten von unter 60 % über alle CRE-Kategorien hinweg. Mehr als 60 % der Gewerbeimmobilienkredite laufen 2030 oder später aus, was das kurzfristige Refinanzierungsrisiko begrenzt. Nur 2,3 % der Gewerbeimmobilienkredite wiesen LTV-Quoten von über 80 % auf.

Das Wealth Management wuchs weiter. Die Gebühren aus Treuhand- und Vermögensverwaltung sowie aus Renten- und Versicherungsgeschäften summierten sich in den ersten neun Monaten des Jahres 2026 auf 45,2 Millionen US-Dollar, was einem Anstieg von 11,5 % gegenüber dem Vorjahreszeitraum entspricht. Das Management hob weitere Chancen hervor, die sich aus der Zusammenarbeit zwischen Firmenkundengeschäft und Wealth Management ergeben, insbesondere bei der Nachfolge- und Eigentumsübertragungsplanung.

Die Bank of Hawaii behauptete einen Marktanteil von über 34 % am Bankeinlagenmarkt. Unverzinsliche Einlagen machten rund 27 % der Gesamteinlagen aus, während die durchschnittlichen Einlagenkosten konstant bei 1,27 % lagen.

Ausblick des Managements

• Das Management erwartet im vierten Quartal 2026 ein moderates Einlagenwachstum und ein fortgesetztes Wachstum im ersten Quartal 2027, was die Abhängigkeit von kurzfristigen Refinanzierungen allmählich verringern dürfte.
• Das Gesamtkreditwachstum wird voraussichtlich weiterhin im niedrigen bis mittleren einstelligen Prozentbereich liegen, angeführt vom Firmenkreditgeschäft.
• Das normalisierte zinsunabhängige Ergebnis für das vierte Quartal 2026 wird auf rund 44 Millionen US-Dollar geschätzt.
• Der normalisierte zinsunabhängige Aufwand für das vierte Quartal 2026 wird voraussichtlich bei rund 112,5 Millionen US-Dollar liegen.
• Das Management betrachtet ein jährliches Ausgabenwachstum von 2,5 % bis 3 % als normalen Rahmen, obwohl potenzielle strategische Investitionen die Ausgaben im Jahr 2027 beeinflussen könnten.
• Das erwartete Gesamt-Einlagen-Beta in einem Zinserhöhungszyklus liegt bei etwa 34 %, das Management gab jedoch an, dass es mehrere Quartale dauern könnte, um dieses Niveau zu erreichen.
• Mehr als 50 % der Termineinlagen werden innerhalb von drei Monaten mit einem durchschnittlichen Zinssatz von etwa 2,90 % fällig. Das Management rechnet mit einer Verlängerung zu rund 3 %, was die Kosten für Termineinlagen leicht erhöhen wird.
• Das Unternehmen plant, im vierten Quartal 2026 weitere Stammaktien im Wert von 20 Millionen US-Dollar zurückzukaufen. Zukünftige Aktienrückkäufe werden quartalsweise bewertet.

Risiken und Beobachtungspunkte

Die Zusammensetzung der Einlagen stellte das zweite Quartal in Folge einen Belastungsfaktor dar und beschleunigte sich im dritten Quartal, was den positiven Effekt aus der Zinsneufestsetzung ertragsrelevanter Aktiva teilweise kompensierte. Das Management geht davon aus, dass dieser Druck im vierten Quartal nachlassen wird.

Die Einlagen am Quartalsende sanken um 411 Millionen US-Dollar, was in erster Linie auf den Rückgang öffentlicher Mittel und Firmenkundenguthaben zurückzuführen war. Obwohl ein Teil des Rückgangs beabsichtigt war, nutzte die Bank kurzfristige Verbindlichkeiten zur Ergänzung der Liquidität; die Übernachtausleihungen lagen im Schnitt bei 120 Millionen US-Dollar und die kurzfristigen Verbindlichkeiten am Quartalsende bei rund 345 Millionen US-Dollar.

Der Anstieg der notleidenden Vermögenswerte beschränkte sich laut Management auf eine einzelne Firmenkundenbeziehung und deutet nicht auf eine breitere Schwäche des Portfolios hin. Ohne diesen Kredit wären die notleidenden Vermögenswerte bei 8 Basispunkten geblieben.

Hawaiis Wirtschaft blieb stabil, wuchs jedoch nur langsam. Das Management verwies auf Prognosen für ein reales BIP-Wachstum im niedrigen einstelligen Prozentbereich für 2026 und ein Wachstum von 1,6 % für 2027 bei einer Arbeitslosenquote von 2,8 %. Das Unternehmen beobachtet weiterhin die Inflation, die Energiekosten, die Zinssätze, die Konsumausgaben, die Unternehmensinvestitionen und die Nachfrage im Tourismus.

Highlights der Analysten-Fragerunde

Bezüglich der Spannen-Sensitivität gab das Management an, dass die Nettozinsspanne im dritten Quartal ohne den zinslos gestellten Firmenkredit bei 2,83 % gelegen hätte. Der Abbau teurerer öffentlicher Mittel dürfte die Einlagenkosten und die Spanne zusätzlich um etwa 1 Basispunkt verbessern. Es wird zudem erwartet, dass die Zinserhöhung im September die Renditen der ertragsrelevanten Aktiva im vierten Quartal um mehrere Basispunkte erhöht, da sich die Anhebung bei variabel verzinslichen Vermögenswerten über das gesamte Quartal niederschlägt.

Das Management identifizierte etwa 10 % des rund 2 Milliarden US-Dollar schweren Portfolios an öffentlichen Einlagen als potenziell verfügbar für eine Neufestsetzung der Konditionen oder einen Abbau. Es wird jedoch kein weiterer strategischer Abbau im vierten Quartal 2026 erwartet.

Bezüglich des notleidenden Firmenkredits teilte das Management mit, dass der Kreditnehmer einen Verkauf von Vermögenswerten anstrebt. Ein etwaiger Verlust wird voraussichtlich unwesentlich sein, ausreichend zurückgestellt und dürfte den zukünftigen Risikovorsorgeaufwand kaum erhöhen.

Hinsichtlich der Kapitalrückzahlungen erklärte das Management, dass die erweiterte Rückkaufermächtigung Flexibilität bietet, wenn sich Gewinne und Kapital verbessern. Das Unternehmen beabsichtigt, Dividenden und Aktienrückkäufe mit dem organischen Kapitalzuwachs und angemessenen regulatorischen Kapitalquoten auszubalancieren.

Vollständiges Transkript der Telefonkonferenz

Vollständiges Transkript der Telefonkonferenz

Ausführungen des Managements

Operator

Good day, and welcome to the Bank of Hawaii Corporation Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this call may be recorded. I would now like to turn the call over to Chang Park, Director of Investor Relations. Please go ahead.

Chang Park

Good morning and good afternoon. Thank you for joining us today for our third quarter 2026 earnings conference call. Joining me today is our President and CEO, Jim Polk; CFO, Brad Satenberg; Chief Risk Officer, Brad Shairson; and Manager of Investor Relations, Patricia Lam.

Before we get started, I want to remind you that today's conference call will contain some forward-looking statements. And while we believe our assumptions are reasonable, the actual results may differ materially from those projected. During the call today, 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.

Now I would like to turn the call over to Jim.

James Polk

Thanks, Chang. Good morning and good afternoon, everybody, and thank you for joining us. Bank of Hawaii delivered another solid quarter, reflecting continued improvement in our financial performance, the underlying strength of our franchise and our disciplined balance sheet management. For the third quarter, we reported diluted earnings per share of $1.49 and net income of $64.3 million, up 0.7% and 1.4%, respectively, from the prior quarter and up 24.2% and 20.5% when compared to the third quarter of 2025. Return on average common equity was 15.4%.

Our results continue to benefit from the repricing of our earning assets, supported by the strength of our deposit franchise, sound credit quality and disciplined expense management. And while encouraged by our progress, our focus remains on sustaining this performance while strengthening the drivers of longer-term earnings growth.

Turning to our results. Net interest income increased to $156.1 million, and our net interest margin expanded by 4 basis points to 2.82%, marking our 10th consecutive quarter of expansion in both measures. The cumulative improvement in our margin has been an important contributor to our earnings growth, and we continue to see opportunities for additional repricing. At the same time, we recognize that sustaining earnings growth over the longer term will require a greater contribution from the organic deposit, loan and fee income growth.

And while we remain mindful of the evolving interest rate environment and competitive landscape, our focus continues to be on maintaining a stable, high-quality deposit franchise, preserving balance sheet flexibility and generating attractive risk-adjusted returns. Average deposits declined 0.8% for the quarter, largely reflecting the normal deployment of customer liquidity associated with completed real estate projects, distributions to owners and working capital needs. We also made a deliberate decision to reduce certain higher cost public deposits towards the quarter end, which impacted the end of quarter spot balance.

Despite the competitive environment, our average cost of deposits remained stable at 1.27%, while noninterest-bearing deposits continued to represent roughly 27% of total deposits. Customer activity and deposit pipelines remain healthy. And based on what we see today, we anticipate returning to modest deposit growth in the fourth quarter.

On the lending front, total loans increased by $85 million or 0.6% for the quarter, 2.4% annualized. Commercial loans increased by $73 million or 1.2%, supported by healthy customer activity and solid pipelines, while consumer lending grew marginally, reflecting the ongoing impact of higher interest rates, particularly in residential lending.

Looking ahead, we anticipate overall loan growth to continue in the low mid-single-digit range with commercial lending being the primary driver of growth. Credit quality remains a fundamental strength of Bank of Hawaii and our disciplined approach to underwriting and portfolio management continues to serve us well. Brad Shairson will provide additional commentary on this shortly.

I also want to highlight our continued progress in wealth management, where targeted investments over the past several years have been driving a meaningful improvement in results. For the 9 months ended 9/30/26, trust and asset management fees and annuity and insurance fees totaling $45.2 million increased by 11.5% over the same period in 2025. We are seeing the benefits of the investments we have made in Bankoh Advisors as well as in our trust and asset management businesses.

We also see opportunities through stronger coordination between Commercial Banking and Wealth Management, particularly through our Center for Family Businesses & Entrepreneurs. Helping business owners navigate wealth planning, succession and ownership transition represents an important opportunity to deepen relationships and generate additional fee income going forward. Beyond our quarterly results, we remain focused on strengthening organic growth across the franchise. Bank of Hawaii benefits from a leading deposit market share position, long-standing customer relationships and a trusted brand built over more than 125 years.

Today, we hold over 34% of the bank deposit market and have expanded our market share by 6.7% over the last 20 years. These are important advantages. However, we believe there is an opportunity to translate them into even stronger organic growth across the franchise. Our focus is on deepening existing relationships, capturing greater share of our customers' financial needs and becoming more effective at attracting new customers. Across Commercial Banking, Wealth Management and Retail Banking, we see opportunities to broaden relationships and better leverage the strength of our franchise.

Turning briefly to the local economy. Hawaii continues to demonstrate resilience, although growth remains modest. Current forecasts call for low single-digit real GDP growth in 2026, with growth projected at 1.6% for 2027. Unemployment remains low at 2.8%. Tourism results have been mixed as of late. Through August, visitor arrivals and spending were above prior year levels despite a softer weather-affected August, while military construction activity, public investment and military spending continue to provide meaningful support to the economy. With that said, we continue to monitor inflation, energy costs and interest rates, particularly their impact on consumer spending, business investment and visitor demand.

Overall, we view Hawaii as a stable but modest growth market. This reinforces the importance of expanding our customer relationships and market penetration rather than relying primarily on underlying economic growth. As I reflect on the quarter and our progress this year, I'm encouraged by the continued improvement in our financial performance and the strength of our franchise. Our near-term focus is on sustaining that momentum, while our longer-term opportunity is to translate our competitive advantages into stronger organic growth and greater operating efficiency. We will pursue these opportunities thoughtfully, maintaining the financial and risk management discipline that has long characterized Bank of Hawaii.

And with that, I'll turn the call over to Brad Shairson.

S. Shairson

Thanks, Jim. I'll begin with an overview of our credit portfolio and conclude with asset quality metrics. And as you'll see, our performance has remained strong, consistent with prior quarters. Turning to our lending philosophy. The Bank of Hawaii is dedicated to serving our local communities, lending primarily within our core markets where our expertise allows us to make informed and disciplined credit decisions. Our portfolio is built on long-tenured relationships with approximately 60% of both our commercial and consumer clients having been with the bank for more than 10 years.

Geographically, our loan book is concentrated in markets we know well. Approximately 91% of our loans are based in Hawaii with 5% in the Western Pacific and 4% on the Mainland, primarily supporting clients in our market that also have operations on the Mainland. Our loan portfolio remains well balanced between consumer and commercial exposure. Consumer loans represent 56% of total loans or approximately $8.1 billion.

Within the consumer portfolio, 86% consists of residential mortgage and home equity loans with a weighted average LTV of 49% and weighted average FICO score of 798. The remaining 14% of consumer loans are comprised of auto and personal lending. Credit quality in these segments also remained strong with average FICO scores of 730 for auto loans and 763 for personal loans.

Turning to commercial lending. The portfolio totals $6.3 billion, representing 44% of total loans. 73% is secured by real estate with a weighted average LTV of 55%. This reflects our ongoing emphasis on collateral protection. CRE remains the largest component of the commercial book, totaling $4.5 billion or 31% of total loans. And in Oahu, the state's largest CRE market, a combination of consistently low vacancy rates and flat inventory levels continues to support a stable real estate market.

Across industrial, office, retail and multifamily property types, vacancy rates remain below or close to their 10-year averages. Our CRE portfolio remains well diversified with no single property type exceeding 10% of total loans. Conservative underwriting practices continue to be applied consistently with weighted average LTVs below 60% across all CRE categories. In addition, diversification within each segment remains strong, supported by modest average loan sizes.

Scheduled maturities are also well balanced with more than 60% of CRE loans maturing in 2030 or later, reducing near-term refinancing risk. Given the recent rise in interest rates, I will also mention that interest rate sensitivity is an important consideration in our underwriting process. Where appropriate, we evaluate borrowers under stress rate scenarios to assess our ability to absorb higher debt service costs. This helps us understand repayment capacity, not only under current conditions, but also under a range of potential rate environments.

Looking at the distribution of LTVs, there isn't much tail risk in our CRE portfolio, just 2.3% of CRE loans have greater than an 80% LTV. C&I accounts for 11% of total loans totaling $1.7 billion. This portfolio is diversified across industries, characterized by modest average loan sizes, and there is very little leveraged lending.

Turning to asset quality. Overall credit performance remains strong and generally in line with the trends we've seen over the past several quarters. Delinquencies and net charge-offs remained at favorable levels during the quarter at 46 basis points and 9 basis points, respectively. In addition, criticized assets declined by 44 basis points from 2.81% to 2.37%. That said, you will notice an increase in our nonperforming assets to 30 basis points from 8 basis points. That increase was driven by a single commercial loan rather than broader weakness across the portfolio.

The loan is real estate secured, and we expect to exit this exposure either this quarter or early next quarter as the borrower finalizes the sale of this asset. Absent this one relationship, nonperforming would have been flat at 8 basis points to the previous quarter. And as an update on the allowance for credit losses on loans and leases, the ACL ended the quarter at $146.2 million. That's down $800,000 to linked quarter. The ratio of our ACL to outstandings ends down 1 basis point at 1.02%. This concludes my remarks.

I will now turn the call over to Brad Satenberg for a discussion of our financial performance.

Bradley Satenberg

Thanks, Brad. For the quarter, we reported net income of $64.3 million and a diluted EPS of $1.49, up $459,000 and $0.02 per share compared to the linked quarter. NII increased $2.5 million and NIM expanded 4 basis points to 2.82%, primarily benefiting from our fixed asset repricing, partially offset by an unfavorable deposit mix shift. This marked the second consecutive quarter where the mix shift was negative. And although it accelerated this quarter, I expect it to moderate in the fourth quarter and return to a range more in line with prior 4 quarters.

Excluding the impact from the nonaccrual loan that Brad Shairson mentioned during his comments, our NII would have increased by $3 million, while our NIM would have been 2.83%. The yield on earning assets increased 5 basis points during the quarter, primarily due to the fixed asset repricing. The September rate hike had a limited impact this quarter, but it should add several basis points to earning asset yields in the fourth quarter as our floating rate assets benefit from this increase for the full period.

The cost of interest-bearing liabilities was unchanged at 1.83% for the quarter. Deposit costs also held steady at 1.27%, while the end of quarter spot rate was 2 basis points higher at 1.29%, reflecting only a modest impact from the September rate hike. Deposit costs also benefited from the strategic runoff of approximately $200 million of high-cost public funds during the quarter. As discussed last quarter, I'm expecting that any additional rate hike will benefit NII and NIM for the first several quarters until our deposits fully reprice.

At the end of the quarter, our fixed-to-float ratio was 57%, down 1 percentage point from the prior quarter. $200 million of forward starting swaps became active during the quarter, and we finished the period with an active pay-fixed, receive-float swap portfolio of $1.6 billion with a weighted average fixed rate of 3.25% and an average life of 1.2 years. $1.1 billion of these swaps hedge our loan portfolio and $500 million hedge our securities.

Noninterest income was $42.7 million for the quarter compared to $43.3 million during the linked quarter. This quarter included a $600,000 charge related to a change in the Visa B conversion ratio, while the prior quarter included a similar $400,000 charge. Excluding these items, noninterest income declined $400,000, primarily reflecting lower gains on leased asset sales and a decline in trust-related tax services revenue from a seasonally stronger second quarter.

Higher deposit fees partially offset these declines. My forecast for the fourth quarter is that normalized noninterest income will be approximately $44 million. Noninterest expense was $112.3 million compared to $111.2 million in the linked quarter. The current quarter had no nonrecurring items, while the second quarter included a $500,000 benefit from the net forfeiture of unvested restricted stock units. Excluding that benefit, expenses increased approximately $600,000.

Fourth quarter normalized noninterest expense is expected to be approximately $112.5 million. During the quarter, we also recorded a provision for credit losses of $2.8 million, resulting in a coverage ratio of 1.02%. In addition, we reported a tax provision of $19.4 million during the quarter, resulting in an effective tax rate of 23.2%. The higher tax rate compared to the linked quarter was primarily due to additional valuation reserves set aside for certain LIHTC investments.

Turning to the balance sheet. Loans grew at an annualized rate of 2.4% during the quarter. Deposits declined $411 million from the linked quarter, primarily due to lower public funds and commercial deposits. As previously noted, the deposit runoff was intentional, while the commercial outflows were concentrated among a small number of larger customers, utilizing deposits to fund construction projects and normalized -- normal quarterly operating expenses. We used short-term borrowings to supplement our liquidity during the quarter with overnight borrowings averaging $120 million.

Our capital ratios remained above the well-capitalized regulatory thresholds during the quarter with Tier 1 capital and total risk-based capital of 14.4% and 15.4%, respectively. And consistent with the linked quarter, we paid dividends of $28 million on our common stock and $5.3 million on our preferreds. During the third quarter, we repurchased $20 million of common shares at an average price of approximately $78 per share. I am currently planning to repurchase an additional $20 million of stock in the fourth quarter.

At the end of the quarter, $69 million remained available under the repurchase plan. And subsequent to quarter end, the Board approved increasing the plan by an additional $200 million. Finally, the Board declared a dividend of $0.70 per common share that will be paid during the fourth quarter.

Now I'll turn the call back over to Jim.

James Polk

Thanks, Brad. We'd now be happy to answer whatever questions you may have.

Operator

[Operator Instructions] Our first question comes from Jeff Rulis with D.A. Davidson.

Fragen und Antworten

Jeff Rulis

Maybe a follow-on on the margin, Brad Satenberg. Do you have an average for September? And I wanted to kind of nail down net of the nonaccrual impact as well as the public deposit runoff kind of came late, is that also an additional tailwind to the margin? So a few in there. Sorry about that.

Bradley Satenberg

Yes. No, good question. So September, just excluding the impact and that nonperforming asset was recorded in September. So excluding the impact from that nonperforming asset, the NIM would have been 2.83% in September. And then the public funds ran off throughout the quarter, but more towards the end. So that should be a modest tailwind, about 1 basis point or so on our cost of deposits and on our NIM going forward.

Jeff Rulis

Okay. And I guess any other interest in running off the public deposits further or expectations there?

Bradley Satenberg

We're always looking at the public funds. I do still think there's an opportunity there to run off additional deposits, but I don't expect it to be this quarter. I think we'll look at them on a case-by-case basis and see where the opportunities are. So I do think there's an opportunity, but I would not anticipate it this quarter.

Jeff Rulis

Got it. And then maybe one last one, just on the overall demand on the loan side and particularly if we see additional rate hikes, got the commercial outlook looks pretty strong, maybe not so much on the consumer. But any update on kind of demand that you're seeing as it relates to rate moves?

James Polk

I'll jump in on this one, Jeff. Obviously, I commented on the strength of the commercial pipeline. And I think the outlook as far as we can see at this point remains good. I feel comfortable around that. The interesting one is just consumer and resi is just challenged by the current rate environment.

What I am encouraged by is we were able to get some growth out of the home equity line portfolio. And I'm optimistic that as people with lower rate sort of first mortgages who don't want to do anything with that, we'll look more towards home equity lines to tap some of the equity in their homes. Our pipeline remains stable in that space and optimistic that we can get some growth out of that front.

Operator

Our next question comes from Matthew Clark with Piper Sandler.

Matthew Clark

Just on the margin, we got your spot rate. I heard you speak to the public funds, maybe a little bit of an incremental benefit there. But how should we think about the interest-bearing deposit beta through the cycle here? I think on the way down, you were around 44%.

Bradley Satenberg

I would say on the way up, I mean, our expectation on total deposits, the betas will be around 34%. Again, I think that will depend on the competitive market, which I think has been rational to this point as well as customer behavior. But I think to get to that 34% is going to take several quarters to achieve that beta.

Matthew Clark

Yes. Okay. And then you saw an increase in CDs. Can you update us on the CDs that are maturing this coming quarter and the kind of roll-off and roll-on rates at least as it relates to your expectations in terms of the promo and what you expect it to roll into?

Bradley Satenberg

Yes. I mean about 50%, a little bit over 50% of our CDs are going to mature or will mature within the next 3 months at a rate of about 2.90%. I expect it to roll on at an average rate of about 3% or so somewhere between -- there are new money promotions at 3%. And so I do expect us to see 3-month bump up slightly or the CD rate bump up slightly for this quarter.

Matthew Clark

Okay. And then just last one for me. On the borrowings, I know at least at the end of the -- end of the quarter, they were up a little more meaningfully. How should we think about -- assuming deposit growth resumes, how should we think about the $853 million of borrowings going forward?

Bradley Satenberg

Well, we did utilize short-term borrowings this past quarter. And at the end of the quarter, on a spot basis, it was about $345 million of short-term borrowings. My expectation is that deposit growth will return in the fourth quarter and the first quarter of next year and that our reliance on short-term borrowings will slowly be mitigated by that deposit growth.

Operator

Our next question comes from Jared Shaw with Barclays.

Jared David Shaw

I guess just on [ signature ] deposits, when we look at the total outflows and the DDA outflows, was that really all primarily public funds? What were some of the trends on the core side? And then when you talk about -- or you talked about stabilizing to growing deposits, should we expect total and DDA to see some tailwinds?

James Polk

Yes. So obviously, we talked about the public funds. That was an intentional move on our part. Within the commercial, it's really just a multitude of things that really normal activity that in combination with each other, put a little pressure on the quarter-end deposits. So a lot of that was related to just normal business activities, investment in real estate projects, as Brad pointed out, working capital requirements.

We had some distributions to business owners. We also had some funds that ran off related to completed condominium projects that we had expected some additional inflows from related projects to help offset that. We expect that to come in, in the future. But those are really the primary drivers. It was not one thing in specific because all regular customer activity just was a lot at the end of the quarter.

Jared David Shaw

Okay. And then on the nonperformer that moved over, it sounds good that it's going to be resolved or potentially resolved in the coming quarter or so. But is there any specific reserve? Or do you take any specific charge-off on that? Or how should we think about potential loss content?

S. Shairson

That's a good question. Thanks for the question. This is Brad Shairson. And what I can tell you about that NPA is that the loan matured during the third quarter and the borrower elected to pursue a sale of the property. So I'm not going to comment on the specific credit or property type while the sale is pending. But I'd just say it is an idiosyncratic credit situation rather than an indication of any broader stress within any particular portfolio segment.

And to get to the heart of your question, based on our current assessment, any loss associated with the sale is expected to be immaterial and had already been adequately reserved for. So as a result, we wouldn't expect the resolution of this credit to increase our future provision expense.

Jared David Shaw

Okay. And then just maybe a final one on the buyback. With the increased authorization and the $20 million per quarter seems like pace, what would cause you to accelerate the buyback above that $20 million per quarter level?

Bradley Satenberg

Yes. I mean, like you said, we plan to buy $20 million this quarter. We will reevaluate it going into 2027, what our plan is. We do think at the current level, it's a good opportunity to buy back the stock. We think it's undervalued. And we'll take it on a quarter-by-quarter basis, and we'll determine whether we want to accelerate that or not. But for now, $20 million this quarter. And again, going into next year, we'll reconsider it and we'll look at that.

Operator

Our next question comes from Andrew Liesch with StoneX Financial.

Andrew Liesch

Question on expenses. Your guidance at the beginning of the year was for about 2.5% to 3% growth. You're tracking pretty nicely below that today. I guess anything you can point to that drove that? And then if we look out back up into 2027, do you think we get back to a more normalized level of expense growth?

Bradley Satenberg

Well, I mean, the way I look at it is when you normalize last year to the prior year's expenses and compare it to where I think we're going to land or where I'm projecting us to land in 2026, the expense growth is just around 3%. And so we're always very, very careful. But I think we are right at that 3% level, and we're very meticulous with our expenses and very cautious with expense management.

Andrew Liesch

And I think like that's like a normal level of expense growth going forward then?

Bradley Satenberg

I would think so. I mean, obviously, we're in the middle of our budgeting for 2027, but I would think 2.5% to 3% is our normalized run rate. And then we will look at other strategic opportunities, and that may impact the expense growth for 2027. But again, we will be very careful of any time we're spending, we try to find opportunities to save as well. And so we try to keep that within a reasonable level of growth.

Operator

Our next question comes from Kelly Motta with KBW.

Kelly Motta

I'd like to circle back to the earlier question about the buyback, specifically as it relates to capital. I believe 9% Tier 1 leverage is kind of your goal here. TCE slipped a little with AOCI. Just can you remind us how you're thinking about just overall levels of capital and kind of guideposts around specific regulators of how active you could get?

James Polk

Well, I'll take a shot at it. I mean the way we've been viewing it is, obviously, we want to pay our dividends. We want to buy some shares back, and we want to allow for some organic accretion in the capital levels. I think we've been talking in the past about getting to 9% on that particular ratio. I think as we look forward, the increase in the authorization is really just to give us flexibility as we continue to improve earnings as we continue to look at the valuation of the stock and just to give us that sort of the opportunistic capability to buy when we feel that the time is right.

So we'll obviously make sure that we're managing to appropriate capital levels. But again, I think we've demonstrated the ability to be thoughtful with our distributions and to continue to allow our capital ratios to organically grow.

Kelly Motta

Got it. That's helpful. And then when I look at your slide on cash flow repricing, the quarterly impact on NII from cash flow repricing hasn't changed, but it looks like the cash flows you saw this quarter came down a bit. Just wondering with rates up, has that changed -- has there been any extension at all in the securities portfolio and change kind of expected cash flows here?

Bradley Satenberg

I don't think you're going to see a significant change in the cash flows. I think about it as the cash flows are going to be in the range of $550 million to $650 million. In the second quarter, it was a little bit higher because we had some maturities and payoffs.

Obviously, with rates bumping up and since pulling back, but the duration of our investment portfolio has increased modestly. But I would think from a cash flow perspective, we're not seeing a material change based upon where rates are today or where they were at the beginning of the quarter and where they ended the quarter at.

Kelly Motta

Got it. That's helpful. Kind of last one for me. I think you noted that you're going to be opportunistic again about potentially moving out some higher cost public deposits. It looks like they're about just over $2 billion at the end of the quarter. Can you size what amount of the book is kind of larger and more transactional might be potentially opportunistically moved out?

Bradley Satenberg

I'd say -- I mean, you're right. I mean the portfolio is about $2 billion. I would think when I look at the portfolio, I mean, a big portion of it is operating accounts. And so I don't anticipate us to strategically try to run off any of those operating account balances. But when I look at it, I would say about 10% of that portfolio still has an opportunity to either reprice or to be run off if we don't think the pricing is appropriate.

And again, I do not anticipate it this quarter. But I do think down the road, we will be relooking at that and continue to focus on opportunities to bring down our cost of deposits, and that's certainly one area that we'll be focused on.

Operator

I'm showing no further questions at this time. I'd like to turn the call over to Patricia Lam for closing remarks.

Patricia Lam

Thank you, everyone, for joining us today and for your continued interest in Bank of Hawaii. As always, please feel free to reach out to us if you have any additional questions.

Operator

Thank you for your participation. This does conclude the program. You may now disconnect. Good day.