Andrew Liesch: Okay. And then just on the expense guide. Is that really just inflationary pressures pushing it higher, or is there anything else in the operating cost that we should be aware of as we look into 2024 as far as their own projects or other alternatively cost saving opportunities?
Dean Shigemura: There’s — it’s generally going to be inflationary pressures, there’s some projects that are coming online, but generally it’s going to be merit increases and the like for that, for the increase. Of course, we’re continuing to look for opportunities to reduce the expenses as is always been our practice.
Peter Ho: Andrew, let me ask you, on your question on margin, I just want to understand the context of the question. Was it, as the Fed or if and as the Fed reduces short rates, what will the impact be on our NIM? Is that the question?
Andrew Liesch: Yes. 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 maturing and being reinvested to offset maybe any of the adjustable available rate product?
Peter Ho: Yes. 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, it 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 obviously hurt the floating portion of our earning assets. But then over time results in lower funding costs, right? So we think — 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.
Andrew Liesch: Yeah. Got it. All right. That makes sense. Very helpful. Thanks for taking the questions [Multiple Speakers]
Dean Shigemura: Yes, just to be clear on that — yes, 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 assets side, so even if the Fed were to cut rates, we would expect the margin to continue increasing.
Andrew Liesch: Got it. Okay. Very helpful. Thanks so much.
Operator: [Operator Instructions] Our next question comes from Kelly Motta with KBW. Your line is open.
Kelly Motta: 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. It seems like 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 first quarter or two see some compression as that variable rate portion at now about 45% resets lower immediately to that change in rates? Just trying to square away both of your comments there.
Dean Shigemura: Yes, 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 offsetting the decrease in what we — on the liability side, the deposit side, we would be bringing down our deposits as well and the rates. So those two would [move lower] (ph) with an opportunity to — on the deposit side to reduce that further.
Peter Ho: Yes. 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 — there could be that intermediary period, Kelly, but we do think that over reasonable short order, we should be able to kind of get margin expansion out of lower interest rates.
Kelly Motta: Got it. And 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. It’s the right way to think about it — we’ll start seeing a greater portion of that come back, provide rates move lower after that 2.5 year average header is up, just trying to better understand kind of the cadence of how that will impact that [indiscernible] back of AOCI.
Dean Shigemura: 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 about 30% of a hedge, so 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 it is going to be more active program, but 30% right now is the hedge.
Kelly Motta: Okay. Got it. Maybe switching to the balance sheet and loan growth. Just wondering, if you look out to the next year, how we should be thinking about your expectations for loan growth on the island, as well as what we could potentially see coming out of Maui, both 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: 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 awful ways off Kelly. So probably — it’s probably just not even constructive to hypothesize what economic impact that might have at this time, but 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 too much of a shortfall activity-wise coming out of any form of tourism shortfall generated by the wildfires over — kind of over the next several, several months. And then 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 just don’t — we don’t even really have a design yet on what all that project potentially could or would look like.
