Bank of Hawaii Corporation (BOH)

BOH 
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Bank of Hawaii Corporation (BOH)

Q4 2009 Earnings Call

January 25, 2010 1:00 pm ET

Executives


Cindy Wyrick – Director of Investor Relations

Allan R. Landon – Chairman of the Board & Chief Executive Officer

Peter S. Ho – President & Chief Banking Officer

Kent T. Lucien – Vice Chairman of the Board & Chief Financial Officer

Mary E. Sellers – Vice Chairman & Chief Risk Officer

Analysts

Ken Zerbe – Morgan Stanley

Aaron James Deer – Sandler O’Neill & Partners

Craig Siegenthaler – Credit Suisse

Brett Rabatin – Sterne Agee

Erika Penala – UBS

Robert Bohlen – Keefe, Bruyette & Woods

Brian Zabora – Sitfel Nicolaus

Joe Gladue – B. Riley

Albert Savastano – Fox-Pitt Kelton

Presentation

Operator

Welcome to the fourth quarter 2009 Bank of Hawaii Corporation earnings conference call. At this time all participants are in a listen only mode. We’ll be facilitating a question and answer question towards the end of this conference. (Operator Instructions) I’d now like to turn the presentation over to our host for today’s call the Director of Investor Relations Cindy Wyrick.

Cindy Wyrick

Thank you as we review the financial results for Bank of Hawaii’s fourth quarter of 2009. 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 Vice Chairman and Chief Risk Officer Mary Sellers.

Comments today will refer to the financial information that was included in our earnings release 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. Now, I’d like to turn the call over to Al Landon.

Allan R. Landon

Before I start I’d like to make sure that we’re all clear that this is Bank of Hawaii’s earnings call. In January of 2009 we conclude that Bank of Hawaii would not benefit from participating in the US Treasury’s capital purchase program and declined to participate. We also decided that given the uncertain economic environment Bank of Hawaii would focus on soundness as the primary measure of success until impaired business models and institutions were brought right.

Those decisions have worked out pretty well for our bank. As you can see from our earnings announcement, Bank of Hawaii was solidly profitable throughout 2009 albeit at lower levels than in recent years and our bank remains very sound. While we’ve seen some things brought right in our industry there is still more work to be done to solidify the financial services business. Like many financial institutions Bank of Hawaii encountered more credit and risk issues in 2009 than in recent years and we took action to mitigate the risk and minimize losses.

One result of the credit challenges was reduced profitability. Another results of the credit and risk issues in our industry was a flight to quality for deposits. Bank of Hawaii was a beneficiary of significant deposit growth last year. At the same time there was little customer demand for loans except for low rate conforming mortgages. These events resulted in abundant liquidity and an increased investment portfolio with reduced margins at Bank of Hawaii. We also added to our reserves and capital, each an important indication of soundness.

Kent will expand on some of the factors affecting our financial performance and Mary will comment on our credit quality measures. I’ll come back and conclude our comments with some observations about our market and banking environment. Then, we’ll be happy to respond to your comments and questions. Kent, over to you.

Kent T. Lucien

Net income for the fourth quarter was $40.5 million or $0.84 per share compared to $36.5 million or $0.76 per share in the third quarter and $39.3 million or $0.82 per share in the fourth quarter of 2008. This quarter we realized $25.7 million in gains from the sale of securities in our investment portfolio and we have also completely liquidated our position in private label mortgage securities.

Our return on assets was 1.31% and return on equity was 16.9% for the quarter. Our efficiency was 48% this quarter. For the full year, net income was $144 million or $3 per share compared to 2008 net income of $192.2 million or $3.99 per share. As mentioned, 2009 net income includes $25.7 million of security gains and by comparison 2008 results included pre-tax gains of $25.3 million from the redemption of Visa shares and the early buyout of an aircraft lease. Also in 2008 we recognized a $12.9 million reversal of income tax expense due to the settlement of SILO/LILO lease matters with the IRS.

Our return on assets in 2009 was 1.22%, return on equity was 16.42% and efficiency ratio was 51.46%. Our net interest margin in the fourth quarter was 3.57% compared to 3.85% in Q3. Our margin is lower due to a greater proportion of investments compared to loans, shorter duration and lower risk within our investment portfolio and the elimination of private label mortgages from the portfolio.


The credit provision in the fourth quarter was $26.8 million compared to $27.5 million last quarter and included a $1 million add to the allowance for loan losses. Our allowance for loan and lease losses is now $143.7 million or 2.49% of outstanding loan and leases. Non-performing assets decreased slightly to $48.3 million at yearend from $48.5 million in the third quarter. Our credit provision for the full year 2009 was $107.9 million compared to $60.5 million in 2008 and we increased the allowance for loan losses by $20.2 million during the year.

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