Bank of Hawaii Corporation (BOH)

BOH 
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Bank of Hawaii Corporation (BOH)

Bank of America Merrill Lynch Banking and Financial Services Conference

November 14, 2012 11:20 AM ET

Executives

Peter Ho – Chairman, President and CEO

Dean Shigemura – Treasurer

Cindy Wyrick – Investor Relations

Analysts

Russell Gunther – Bank of America Merrill Lynch

Presentation

Russell Gunther

We can get started. Thanks for joining us. Good morning. For those of you who don’t me, I’m Russell Gunther. I cover small cap banks as part of the U.S. regional bank research effort here at BofA Merrill. It’s my pleasure to introduce to you this morning, Chairman, President and CEO, Peter Ho of Bank of Hawaii. We’re also very pleased to have Dean Shigemura as Treasurer; and Cindy Wyrick from Investor Relations with us as well.

As the name suggest Bank of Hawaii, headquartered in Honolulu, Hawaii; total assets, $13.4 billion roughly. The bank continues to demonstrate solid profitability, capital returns, very nice dividend yield; continued buy backs and loan growth that’s recovering shortly [ph] but slowly.

With that, I will turn it over to Peter Ho. Thank you for joining us.

Peter Ho

Great. Okay, thank you, Russell, and thank you all for being here this morning and thank you for your interest in Bank of Hawaii. What I’m going to do this morning is share with you a little bit about our marketplace in Hawaii. It’s a unique market. I’ll share with you our franchise that we have within Bank of Hawaii, and share with you some of the things we think makes us unique as a banking company over on the islands.

First, a little love letter from our legal folks bank in Honolulu. Forward-looking statement, I should just mention to you that this presentation may include certain forward-looking statements and that we have not committed to updating such statements for subsequent events.

So, a little bit about Hawaii. First thing to understand, I think it’s probably intuitive to most of you is that Hawaii is a pretty isolated place. Arguably, the most isolated parcel of land in the world. We are home to 4,300 indigenous species, and that creates for a unique culture, obviously, a unique location and that uniqueness translates into the banking industry and the competitive landscape of the banking industry in our view in a very positive way.

We take 80 degree temperature, some of the best weather in the world and combine that with 78,000 high-quality hotel rooms to create what is truly a world-class visitor industry. Hawaii has the second highest average daily room rates in country, second only to Manhattan, New York City right here.

From a real-estate standpoint, we are pretty compact, 6,400 square miles; that’s actually compacted further by the fact that you have a good amount of multi-million dollar beachside real-estate which is compressed a bit by a fair amount of topography, mountainous topography in the central part of the island. So that 6,400 square miles is actually even smaller; and that has the impact of obviously pushing land values up, but more importantly, for banking business, maintaining a pretty stable real-estate value. And that’s exactly what we saw through the last cycle.

Military is a very important component of our economy. We are home to the U.S. Pacific Command and we feel very good with the federal movement from the European theater into the Pacific Rim from a competitive -- or from a strategic standpoint should, if not, build a strategic positioning militarily in our marketplace, and we’ve maintained strategic position from a dollars and cents standpoint.

The economy in Hawaii is $67 billion; 25% of the economy is, as I mentioned made up of the visitor industry, the federal spending as well as military. Obviously, that number is much larger on an indirect basis, but military and visitor are very important elements of the overall economy in Hawaii.

GDP over the past decade has grown at about the rate of the overall national average through most of the 2000s. Tourism, our tourism base is about two-thirds U.S., within that two-thirds, two-thirds is what we call U.S. West, the Western states; and a third of that coming from the East Coast. The remaining one-third is international, comprised of Japan, Canada, Australia; and increasingly, South Korea, and increasingly, a growing China contingence.

I should mention that visitor arrivals are up about 10% this year. We’re up about 10% last year. The bigger story here however is spending by visitors in the marketplace was up 15% last year and is up close to 20% this year. So, very strong spending. That spending is being led by the international segment. As I mentioned in the last slide, that the international segments represents about a third of arrivals. They represent closing in on half of all spending. So their spend is proportion to the broader U.S. average and then also driving the growth. The growth, the 19.5% growth you see year-to-date in spending is driven about two-third from the international segment. So a very important story for us, a growing story for us as these countries continue to expand economically and continue to have a very strong currency relationship with the U.S. dollar.

I mentioned the military and its importance in our marketplace. Here you see, for most of the decade of the 2000s, military spending in Hawaii has grown a growth rate at 5% or greater throughout most of the past decade. You put these factors together, and you see that unemployment in Hawaii is performing at a substantially better (inaudible) out of the broader U.S. marketplace.

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