Bank Of Hawaii's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Bank of Hawaii Corporation (BOH)

Q2 2012 Earnings Call

July 23, 2012 2:00 p.m. ET

Executives

Cindy Wyrick - Director, IR

Peter Ho - Chairman, President & CEO

Kent Lucien - Vice Chairman & CFO

Mary Sellers - Vice Chairman & Chief Risk Officer

Analysts

Aaron Deer - Sandler O’Neill & Partners

Casey Haire - Jefferies & Company

Joe Morford - RBC Capital Markets

Jeff Rulis - D. A. Davidson

Brett Rabatin - Sterne, Agee & Leach

Jacquelynne Chimera – KBW

Erin Davis - Morningstar

Russell Gunther - Bank of America

Brian Zabora - Stifel Nicolaus & Company

Presentation

Operator

Good day ladies and gentlemen and welcome to the second quarter 2012 financial results conference call. My name is Johnson and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today’s conference to Ms. Cindy Wyrick, Director of Investor Relations. You may begin.

Cindy Wyrick

Thank you Johnson and good morning everyone and thank you for joining us today as we review the financial results for the second 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 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 Peter Ho.

Peter Ho

Thanks Cindy. Good morning everyone. Thanks for joining us today. Financial results for the second quarter of 2012 represent another good quarter for Bank of Hawaii. We continued to generate loan and deposit growth. Consumer checking account count grew 8% year on year, and we maintained our commitment to strong and risk expense management.

In line with the industry, our net interest margin was adversely impacted by the low interest rate environment that we find ourselves in for the quarter. During the quarter, we repurchased $20 million of stock, continued to pay our dividend and retained strong levels of liquidity, capital and reserve.

Now let me turn the call over to Kent to review financials.

Kent Lucien

Thank you, Peter. Good morning. Net income for the second quarter was $40.7 million or $0.90 per share, compared to $43.8 million or $0.95 per share in the first quarter and $35.1 million or $0.74 per share in the second quarter of 2011.

Our return on assets in the second quarter was 1.19% and return on equity was 16.2%. Year to date net income was $84.6 million or $1.85 per share compared to $77.5 million or $1.62 per share in 2011. Year to date return on assets was 1.24% and return on equity was 15.7%. Our year to date efficiency ratio was 57.6%, a reduction from 59.8% in 2011.

Our net interest margin in the second quarter was 2.98% compared to 3.06% in the first quarter and 3.16% in the second quarter of 2011. Year to date net interest margin was 3.02% compared to 3.20% last year. Lower margin is due mainly to the lower interest rate environment.

The credit provision in the second quarter was $628,000, compared to $351,000 in the first quarter and $3.6 million in the second quarter of 2011. The credit provision for the second quarter included net charge-offs of $3.8 million and a $3.2 million decrease to the allowance.

The credit provision for the first quarter included net charge-offs of $3.4 million and a $3 million decrease to the allowance. Our allowance for loan and lease losses at the end of the second quarter was $132.4 million or 2.3% of outstanding loan and leases.

Non-performing assets were $41.5 million at the end of the second quarter and represented 0.73% of loans. Included in non-performing loans are $26.8 million in the residential mortgage loans as of June 30.

Non-interest income for the second quarter was $46.8 million compared to $48.1 million in the first quarter, and $49.5 million in the second quarter of 2011. The decrease to the first quarter was primarily due to a $3.5 million gain from the sale of our equity interest and two leverage leases, partially offset by a $1 million loss on a direct financing lease in the first quarter. The decrease compared to the second quarter of 2011 was primarily due to $4 million lower debit interchange revenue as a result of the Durbin amendment.

Mortgage banking results were strong in the quarter, producing $7.6 million of income versus $5.1 million in the first quarter. Year to date non-interest income was $94.9 million compared to $103.4 million in 2011. The decrease was primarily due to lower debit interchange revenue and $6.1 million in securities gains in 2011, partially offset by higher mortgage banking income.

Non-interest expense totaled $80.7 million in the second quarter, compared to $85.2 million in the first quarter and $93.8 million in the second quarter of 2011. The increase compared to the first quarter was due to lower salaries and benefits expense and $1.2 million for our personal computer refresh program in the first quarter. The decrease compared to the second quarter of 2011 was primarily due to the $9 million legal settlement related to overdraft plaints in 2011 and lower salaries and benefits. Year to date non-interest expense was $166 million compared to $179.9 million in 2011.

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