Paul Patterson: Hey, good morning.
Scott Seu: Hi, Paul.
Paul Patterson: Can you hear me? Hi. So just a couple of items on the bank here. The – it sounds to me that if I heard it correctly, and I apologize if I did it, that you guys are seeing more competition from customers looking for higher interest rates than you were previously in the last quarter. Is that correct?
Paul Ito: No, Paul. I think what we’re seeing is compared to our previous forecast. So obviously, the interest rate forecast is higher than we had previously anticipated. So that’s one driver. We are seeing a mix shift and we actually did a little bit or we dug down in terms of deposit changes and what we’re seeing there for the first half of the year. And what we saw was probably a majority – what we’re seeing is a lot more deposits coming in, but also a lot more deposits going out. So there’s a net outflow related to consumer spending. So in other words, depositors spending more on sort of daily living expenses because of the higher inflationary environment. Now we did – we are seeing some migration to higher-yielding alternatives in the data, and we expect that to continue if the rate environment stays elevated.
But in terms of your question on competition, I think in the local Hawaii banking market, what we’re seeing is all banks are competing on CDs. And as we’ve mentioned before, right, this is new money that in order to take advantage of the higher rates, it requires a certain level of new money coming into the bank. And so that’s where we are seeing a little bit more competition.
Scott Seu: Yes. And Paul, the other thing I would say is that I don’t think this was unexpected given the higher interest rate environment, right. I mean all the banks are competing. We are starting to see a little bit of shift from core deposits to the time-based CDs. And that’s – I think that was anticipated. Our overall total cost of funds still remains very attractive compared to our peers.
Paul Patterson: Okay. And I apologize for now speaking more clearly. I guess when I was talking about competition, I meant from all sources, from Treasury Direct to online banking, what have you, not just the Hawaiian market. And I guess what I am wondering, I guess in this context is, I guess back to Julian’s question, this net interest margin, I am wondering whether or not there is a risk of further deterioration given the interest rate environment and just the rollover as we go into quarter-after-quarter going into 2024, if you follow what I am saying?
Scott Seu: Yes, Paul, I am going to ask Ann Teranishi, our Bank President, to comment a little bit on that. I think in general, though what we are starting to see is a moderation of impacts on NIM, but maybe Anne, you can expand.
Ann Teranishi: Yes. I think Paul, to answer your initial question about are we seeing increased competition, I think the competition has been there and hasn’t changed quarter-over-quarter. And we have been quite successful in the second quarter with some of our CD campaigns and had great success in bringing in new retail deposit money, some from existing customers, some from new customers as well as being able to expand our commercial deposit base as well. So, we are feeling that the revised NIM is appropriate and tracking to what we are seeing – what we have seen in the first six months as well as what we are preliminarily seeing in the second half as well.
