Bank of Hawaii Corporation (BOH)

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Bank of Hawaii Corporation (BOH)

Q4 2008 Earnings Call

January 26, 2008 1:00 pm ET


Cindy G. Wyrick - Senior Vice President, Corporate Secretary, Manager of Investor Relations

Allan R. Landon - Chairman of the Board, Chief Executive Officer

Kent T. Lucien - Vice Chairman of the Board, Chief Financial Officer

Peter S. Ho - President, Chief Banking Officer

Mary E. Sellers - Vice Chairman, Chief Risk Officer


Brett Rabatin - Sterne, Agee & Leach, Inc.

Aaron Deer - Sandler O'Neill & Partners LP

Robert Bohlen - Keefe, Bruyette & Woods

Erika Penala - BAS-ML

John Flanagan - [Unidentified]

Jordan Heimowitz - Philadelphia Financial



Good day, ladies and gentlemen, and welcome to the fourth quarter 2008 Bank of Hawaii Corporation earnings conference call. My name is [Nancy] and I will be your coordinator for today. (Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Cindy Wyrick, Director of Investor Relations. Please proceed.

Cindy G. Wyrick

Thank you, Nancy, and hello, everyone. Thank you for joining us today as we review the Bank of Hawaii's financial results for the fourth quarter of 2008.

Joining me this morning is our Chairman and CEO, Al Landon; our President and Chief Banking Officer, Peter Ho; Vice Chairman and Chief Financial Officer, Kent Lucien, and our Vice Chairman and Chief Risk Officer, Mary Sellers. Our comments today will refer to the financial information included in the earnings announcement this morning.

Before we get started, let me remind you that today's conference call will contain some forward-looking statements, and while we believe our assumptions are reasonable, there are a variety of reasons that the actual results may differ materially from those projected.

And now I'd like to turn the call over to Al Landon. Al?

Allan R. Landon

Thank you, Cindy. Good morning, everyone. Happy New Year or, as we say today in Hawaii [Hawaiian phrase].

Bank of Hawaii announced this morning our 2008 financial results. For the year, our earnings were $192.2 million. That's right, net income. And for the fourth quarter our net income was $39.3 million.

As Kent will discuss, we continued our strategy of increasing Bank of Hawaii's deposits, reserves and capital in response to the economic uncertainty. Following Kent's comments on the bank's performance, I will update you on our plans for 2009.


Kent T. Lucien

Thank you, Al. Good morning.

Net income for the fourth quarter was $39.3 million or $0.82 per share compared to $47.4 million or $0.99 per share in the third quarter of 2008 and $40.9 million or $0.83 per share in the fourth quarter of 2007. The decrease is due to a return to customary tax rates and accounting for mortgage servicing rights, as I'll explain.

For the quarter, net income to average assets was 1.52%. Return on equity was 19.56% and our efficiency ratio was 51.58%. Net interest margin was 4.43% compared to 4.33% in the third quarter and 4.12% in Q4 of 2007. Year end deposits were $8.3 billion, up $634 million from Q3 and up $350 million from year end 2007.

For the full year 2008, net income was $192.2 million or $3.99 per share compared to $183.7 million or $3.69 per share in 2007, an increase of 8%. Return on average assets was 1.84% for the year compared to 1.75% in 2007, and the return on equity was 24.54% versus 25.15% last year. Shareholder's equity was $791 million at year end, up from $750 million at the end of 2007.

This quarter's results included a $4.5 million net reduction in the accounting fair value of mortgage servicing rights due to a reduction in the assumed life of our servicing portfolio. During the quarter our loan and lease net chargeoffs were $10.6 million and in addition we added $8 million to our reserve for credit losses.

Fourth quarter net interest income increased $2.3 million from the third quarter due to a higher net interest margin and slightly higher average loan balances. Our net interest margin was 4.43% for the fourth quarter, an increase of 10 basis points over the prior quarter. Average loan balances for C&I, commercial mortgage and home equity were up, while automobile, residential mortgage, leasing and construction were down. Our construction loan portfolio is now at $154 million compared to $209 million at the end of 2007.

For the year, net interest income was $23.8 million higher than 2007 as our net interest margin increased 25 basis points to 4.33%. The net interest margin improved because of lower funding and deposit costs that more than offset lower asset yields. Our funding costs declined 104 basis points in 2008, while our earning asset yields dropped 52 basis points.

Non-interest income for the fourth quarter was $54.5 million, down $2.5 million from the third quarter and $5.8 million lower than the fourth quarter of 2007 due to the previously mentioned reduction in the accounting value of mortgage servicing rights and a decline in trust and asset management income of $1.9 million.

Non-interest expense was $82.7 million in the fourth quarter, down $4.1 million from the third quarter and $9.3 million lower than the fourth quarter of last year. All expense categories are lower than Q3.

Our efficiency ratio improved to 51.58% this quarter compared to 54.05% last quarter. For the full year 2008, the efficiency ratio was 51.23% compared to 52.78% for 2007.

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