Bank of Hawaii Corporation (BOH)

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Bank of Hawaii Corporation (BOH)

Q4 2011 Earnings Call

January 23, 2012 1:00 PM ET

Executives

Cindy Wyrick – EVP, IR

Peter S. Ho – Chairman, President and CEO

Kent T. Lucien – Vice Chairman and CFO

Mary E. Sellers – Vice Chairman and Chief Risk Officer

Analysts

Aaron Deer – Sandler O'Neill

Jeffrey Rulis – D.A. Davidson

Craig Siegenthaler – Credit Suisse

Brett Rabatin – Sterne Agee

Joe Morford – RBC

Brian Zabora – Stifel Nicolaus

Casey Haire – Jeffries & Company

Jacquelynne Chimera – KBW

Russell Gunther – Bank of America Merrill Lynch

Bryce Rowe – Robert W. Baird & Company

Presentation

Operator

Good day ladies and gentlemen and welcome to the Fourth Quarter 2011 Bank of Hawaii Corporation's Earnings Conference Call. My name is Chris, and I will be your conference moderator for today. Presently, all participants are in listen-only mode. Later, we will facilitate a question-and-answer session. (Operator instructions).

At this time, I would now like to turn the conference over to your presenter for today, Ms. Cindy Wyrick, Director of Investor Relations. Ma'am, you may proceed.

Cindy Wyrick

Thank you, Chris. Good morning everyone and thank you for joining us as we review our financial results for the fourth quarter of 2011. Joining me this morning is our Chairman, President and CEO, 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 the actual results may differ materially from those projected.

And now, I'd like to turn the call over to Peter Ho.

Peter Ho

Thanks, Cindy. Good morning or good afternoon everyone. We certainly appreciate your interest in listening in today. I’m going to provide you with some general comments to begin and then I'll turn the call over to Kent, who'll provide color on the quarter's financials. As customary, we'll then provide an update on risk for the quarter and I'll finish up with some concluding thoughts and then certainly we'll be delighted to answer whatever questions you might have.

Bank of Hawaii posted solid results for the fourth quarter of 2011. Despite continued revenue headwinds confronting the industry, Bank of Hawaii was able to generate fully diluted earnings per share modestly ahead of fourth quarter 2010 levels. Loans were up nicely in the quarter in almost all categories. Average core deposits were up meaningfully in both our consumer and commercial businesses. The number of demand accounts grew 10% and 4% respectively in our consumer and commercial businesses in 2011. Our credit capital and liquidity positions remained strong and our hallmark of our franchise.

And now let me turn the call over to Kent. Kent?

Kent Lucien

Thank you, Peter. Good morning. Net income for the fourth quarter was $39.2 million or $0.85 per share, compared to $43.3 million or $0.92 per share in the third quarter and $40.6 million or $0.84 per share in the fourth quarter of 2010.

The return on assets in the fourth quarter was 1.17%, and return on equity was 15.2%. We reduced our share count by 1.3% in the fourth quarter and by 4% for the full year.

Year-to-date, net income was $160 million or $3.39 per share compared to $183.9 million or $3.80 per share in 2010. We realized $6.4 million in securities gains this year, compared to $42.8 million last year. Year-to-date, return on assets was 1.22%, and return on equity was 15.7%.

Our net interest margin in the fourth quarter was 3.04% compared to 3.09% in the third quarter and 3.15% in the fourth quarter of 2010. Year-to-date, net interest margin was 3.13% compared to 3.41% last year. The lower margin is due mainly to the lower interest rate environment.

The credit provision in the fourth quarter was $2.2 million, the same as the third quarter, and was $5.3 million in the fourth quarter of 2010. The credit provision for the fourth quarter of 2011 included net charge-offs of $7 million and a $4.8 million decrease to the allowance. The credit provision for the third quarter included net charge-offs of $3.7 million, and a $1.6 million decrease to the allowance.

The credit provision equaled net charge-offs for the fourth quarter of 2010. Our allowance for loan and lease losses at the end of the fourth quarter was $138.6 million or 2.5% of outstanding loan and leases. Non-performing assets were $40.8 million at the end of the fourth quarter, up $3 million from the third quarter, and down $3 million from the end of the fourth quarter of 2010. Included in non-performing loans are $25.3 million in residential mortgage loans as of the end of the year.

Non-interest income for the fourth quarter was $43.4 million compared to $50.9 million in the third quarter, and $51.5 million in the fourth quarter of 2010. The decrease was primarily due to lower debit interchange revenue as a result of the Durbin Amendment, and a decrease in mortgage banking income. We retained $34 million in salable residential mortgages in the fourth quarter and thus maintained an overall ratio of 40% of residential mortgages to total loans.

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