Bank Of Hawaii CEO Discusses Q1 2012 Results - Earnings Call Transcript

Bank of Hawaii Corporation (BOH)

Q1 2012 Earnings Call

April 23, 2012; 02:00 pm ET

Executives

Peter Ho - Chairman, President & Chief Executive Officer

Kent Lucien - Vice Chairman & Chief Financial Officer

Mary Sellers - Vice Chairman & Chief Risk Officer

Cindy Wyrick - Director of Investor Relations

Analysts

Joe Morford - RBC Capital Markets

Ken Zerbe - Morgan Stanley

Brett Rabatin - Sterne, Agee

Casey Haire - Jeffries

Jeff Rulis - D. A. Davidson

Craig Siegenthaler - Credit Suisse

Aaron Deer - Sandler O’Neill

Jacquelynne Chimera - KBW

Bryce Rowe - Robert W. Baird

Russell Gunther - Bank of America

Presentation

Operator

Good day ladies and gentlemen and welcome to the first quarter 2012, Bank of Hawaii Corporation earnings conference call. My name is Shequana and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (Operator Instructions).

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

Cindy Wyrick

Thank you Shequana. Good morning everyone and thank you for joining us as we review our financial results for the first quarter of 2012.

Joining me this morning is our Chairman, President and CEO, Peter Ho; our Vice Chairman and Chief Financial Officer, Kent Lucien; and 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 you 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 from those projected.

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

Peter Ho

All right, thanks Cindy. Good morning everyone and thanks for joining us. The financial results for the first quarter of 2012 represent a strong start for the Bank of Hawaii. During the quarter we continued to generate good loan and deposit growth, our net interest margin improved, non-interest income increased and we maintained strong expense management controls. We purchased $30 million in shares, paid our shareholders a dividend and retained strong levels in liquidity, capital and reserves.

Now I may ask Kent to review some of the factors affecting our financial performance this quarter and then as is our custom, I’ll ask Mary to comment on our credit quality measures. Kent?

Kent Lucien

Thank you, Peter. Good morning. Net income for the first quarter was $43.8 million or $0.95 per share, compared to $39.2 million or $0.85 per share in the fourth quarter of 2011 and $42.4 million or $0.88 per share in the first quarter of 2011.

Our return on assets in the first quarter was 1.29% and return on equity was 17.3%. Our net interest margin in the first quarter was 3.06% compared to 3.04% in the fourth quarter of last year and 3.24% in the first quarter of 2011.

The credit provision in the first quarter was $351,000, compared to $2.2 million in the fourth quarter and $4.7 million in the first quarter of 2011. The credit provision for the first quarter included net charge-offs of $3.4 million and a $3 million decrease to the allowance.

The credit provision for the fourth quarter included net charge-offs of $7 million and a $4.8 million decrease to the allowance. Our allowance for loan and lease losses at the end of the first quarter was $135.6 million or 2.4% of outstanding loan and leases.

Non-performing assets were $41.4 million at the end of the first quarter and represented 0.74% of loans. Included in non-performing loans are $26.4 million in the residential mortgage loans as of March 31.

Non-interest income for the first quarter was $48.1 million compared to $43.4 million in the fourth quarter, and $53.9 million in the first quarter of 2011. The increase compared to the fourth quarter was primarily due to a $3.5 million gain in the sale of our equity interest and two leverage leases, partially offset by a $1 million loss on an aircraft lease in the first quarter.

Also contributing to the increase was $1.6 million increase in mortgage banking income. The decrease compared to the first quarter of 2011 was primarily due to the $6.2 million decrease in securities gains and $3 million lower debit interchange revenue as a result of the Durbin Amendment, partially offset by the net gains from the sale of leases previously mentioned.

Non-interest expense totaled $85.2 million in the first quarter, compared to $84.4 million in the fourth quarter and $86.1 million in the first quarter of 2011. The increase compared to the fourth quarter was primarily due to higher payroll taxes, associated with incentive compensation accrued in 2011 and paid in the first quarter of 2012 and $1.2 million for our personal computer refresh program. The decrease compared to the first quarter of 2011 was primarily due to a decrease in FDIC insurance expenses and lower operational losses.

The effective income tax rate was 27.6% in the first quarter compared to 26.1% in the fourth quarter and 32.6% in the first quarter of 2011. The lower rate this quarter was primarily due to the previously mentioned lease transactions, which resulted in a $2.7 million credit to provision for income taxes.

Read the rest of this transcript for free on seekingalpha.com