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.

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.

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.

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…

Net charge offs for the fourth quarter were $25.8 million up $3.5 million on a linked quarter basis. The increase was primarily attributable to a $3.8 million increase in net charge offs in our commercial portfolio. Commercial net charge offs included $9.4 million related to a leverage lease for an airline that filed bankruptcy and $4 million in partial charge offs related to three non-accrual construction loans. Consumer net charge offs decreased slightly by $239,000. For the full year net charge offs were $87.7 million compared to $28 million in 2008. Commercial net charge offs were $51.2 million, an increase of $42.6 million year-over-year and included $13.8 million related to our legacy leverage lease exposure, $9.8 million for construction loans, $10 million related to a large national mall owner with operations in Hawaii and $6.3 million for credit exits taken to reduce greater future risk exposure. Consumer net charge offs totaled $36.5 million an increase of $17 million year-over-year and included $6.7 million in residential mortgage loans, $12.4 million in home equity loans, $6.8 million in automobile and $10.6 million in other consumer loans. Non-performing assets totaled $48.3 million or 84 basis points at the end of the quarter down slightly from $48.5 million at the end of the third quarter and up $33.4 million from the fourth quarter of 2008. For the linked quarter, commercial non-accrual loans were down $10.7 million due to charge offs taken and the transfer of $2.8 million construction loan to foreclosed real estate. Non-accrual consumer real estate assets increased $4.6 million. The year-over-year increase in non-performing assets was driven off a $20.1 million increase in consumer primarily in residential real estate assets, a $10.6 million increase in commercial non-accrual, inclusive of $3 million in loans held for sale and a $2.7 million increase in…

Let me talk just a bit about the economy. Here in Hawaii observers are telling us the economy is stabilizing. We’re seeing forecasts of slowly recovery visitor arrivals and home sales. Although home prices for many owners in Hawaii have held up relatively well, some are significantly depreciated. Unemployment statistics for Hawaii look better than some other states but there remains significant under employment and consumer spending remains at low levels. We also see the serious challenges our political leaders face as they confront governmental budget caps. Other observers, mostly outside of Hawaii are indicating they see signs of economic strengthening. At Bank of Hawaii we are prepared for recovery but have generally low expectations for broad based economic expansion in 2010. Accordingly, we began the year with our plan to continue to manage for the weakened economy. We will continue to see additional business opportunities and ways to offer value to our customers. We remain focus on controlling risk and expense. Soundness remains a key to shareholder value. At Bank of Hawaii we are going to continue to be safe, balanced and prepared.

(Operator Instructions) Your first question comes from Ken Zerbe – Morgan Stanley. Ken Zerbe – Morgan Stanley: I guess the first thing I want to discuss is just the outlook for net interest margin. Obviously with the sale of the private label mortgages, it looks like the yield you were getting on our available for sale securities feel pretty sharply, I guess about 80 basis points on a quarter-over-quarter basis. Going forward do you have any plans to replace those securities with other higher yielding investments or should we basically be sort of expecting a NIM of 350 to 360 going forward from here?

First of all it is unlikely that we would be reinvesting in private label securities at this point. I just can’t see that. Ken Zerbe – Morgan Stanley: Maybe not private label but just any other investments? Where did you invest the money?

Here’s how the portfolio changed between Q3 and Q4, about 2% of the portfolio was in private label securities, about $100 million and about 86% was in mortgage backed securities and another 11% or so in treasuries. Q4, of course we sold out the private label securities and the treasuries went from 11% to 13% and the mortgage backed we kept at 86% of the portfolio. That’s a pretty good composition for us. The mix between mortgage backed, treasuries and TIPS, we look at this all the time but Q4 we were very comfortable with the balance there. Going forward you have to use some of your judgment on the level of overall rates. We’re anticipating at some point that rates are going to go up, in particular that the long end of the curve is going to ship upwards and it may very well come to pass that mortgage spreads increase. To the extent we’re reinvesting at higher rates, it has the prospect of higher margins though I’m not going to predict that, I’m just saying that’s a possibility. That’s how I’d answer your question. Ken Zerbe – Morgan Stanley: The other question I had just maybe if you can give us an update or reminder of where you stand with the leveraged lease portfolio and the reserves you have on the remaining balances there?

We have about $50 million in airline exposure and we’ve reserved about 47% on that. In addition, we have about $200 million in other leveraged lease exposure, about half of that is economically defused leases.

Your next question comes from Aaron James Deer – Sandler O’Neill & Partners. Aaron James Deer – Sandler O’Neill & Partners: I guess a follow up on Ken’s question about the mortgage backed securities that were sold, the private label, can you tell us what kind of loss was taken on those securities?

We realized a $11 million loss on those so the $25.7 million gain we reported was a net gain after the $11 million loss. Aaron James Deer – Sandler O’Neill & Partners: Then of the new securities that were added during the quarter what was the duration on those? And then, where does the duration on the overall portfolio stand?

The overall portfolio duration is 2.9 years. Just an average here the new securities we added were a little bit less than one year less than the average. But, that’s taking in to account the 2.9.

There’s simultaneous stuff going on that they were about two year duration. There’s an interplay of these things and it’s hard to give precise numbers on them. Aaron James Deer – Sandler O’Neill & Partners: Mary, I was wondering if you could give kind of an update on the 30 to 89 days past due at least kind of where those went directionally in the quarter, the magnitude and kind of what the trends were within the individual portfolios?

On a linked quarter basis we were up about nine basis points. From the first quarter of ’09 to the end of the year we were up about 13 basis points. Residential actually was fairly flat within that, home equity saw probably the most significant increase but it’s a pretty mixed bag across the portfolio and the remainder of the consumer pieces. Aaron James Deer – Sandler O’Neill & Partners: I guess as a follow up to that and then I’ll step back, amongst your high risk category loans that you mentioned, I think the home equity was the one that was up, the others all showed some improvement and it wasn’t up materially but is that due to falling FICO scores within the book or is that due to higher draw downs on the lines or what stands behind that increase?

We really look at declines in FICO scores below a certain threshold, in this case 600 coupled with where they are on property equity. So we’re looking at anything that was greater than 70% at the time of origination. Aaron James Deer – Sandler O’Neill & Partners: So it was caused by more loans getting captured by those parameters not by higher balances within the existing, is that correct?

That is correct.

Your next question comes from Craig Siegenthaler – Credit Suisse. Craig Siegenthaler – Credit Suisse: The first question I’m sorry to say but it’s another one on NIM here, I know your response to Ken’s question that we have to do our own work with respect to interest rates but how do you think about really one, the asset mix shift to securities from loans and really two, the lower duration from further repositioning within the securities portfolio? How do you think these two could really trend over the next quarter based on what you’re seeing so far?

The loan number is a function of the economy and demand for loans. We have seen a downward trend throughout 2009. The economy here as Al had mentioned is stabilizing but we will just have to see what happens to loan balances. The duration, I think we found a pretty good and comfortable mix in the fourth quarter. That’s always subject to reevaluation and change but we were pretty pleased with our composition in the fourth quarter. Craig Siegenthaler – Credit Suisse: So it kind of sounds like because the economy is still weak there could be a little more downward trending in the loan versus kind of security mix? Then on the second part it sounds like in terms of repositioning you guys are kind of comfortable where you are now so there shouldn’t be additional repositioning in the first quarter?

Well, as I had mentioned, this is a long term situation but we do have to respond to the marketplace and things can change within a period. The quarter is just not over yet so I hate to predict it or give you too much of a forecast on that but as I said, the actions we took in the fourth quarter are pretty consistent with what we are doing right now with the portfolio.

As we look at the long term we don’t expect rates to stay at this level over the long term and so we’ve positioned our portfolio for adaptability. We see a lot of appreciation in our portfolio and that sits in our capital accounts and as rates go up in the future that’s at risk so maintaining that or capturing that is certainly one of the things that is an objective or consideration as we look at what we’re going to do in the upcoming few quarters here. So if we saw opportunities in the portfolio to keep our duration short and to preserve capital I think it is far to say we would look at those opportunities. Craig Siegenthaler – Credit Suisse: Just one more follow up question on share-based comp and cash grants, it ticked up in the fourth quarter, is this just a seasonal fourth quarter item that we should expect every fourth quarter in terms of the uptick or does it happen in other quarters?

The way we’re looking at equity based compensation is to grant cash to our senior employees with the expectation that they will use it to purchase equity. That gives us the efficiency of determining when we take the expense, so we harvested some gains in the fourth quarter that we hadn’t anticipated would be there. The year turned out better than we thought and so it was an opportunity to share some of that benefit with our senior managers. We hadn’t done that for over a year in most cases. We’re going to continue to look at that tool and the flexibility it offers us. We’ll just see what the future brings but right now we’ve got sort of a year’s worth of coverage in equity grants out there for our managers so hopefully that will take care of everybody’s needs in sort of a balanced fashion and continue to give us flexibility when we take those charges. The other reason we’re doing that is it is a pretty efficient use of money. We found ourselves here in the dislocation of the last couple of years taking a charge to earnings for an amount greater than the value of the stock that the employees were getting, either restricted stock or other vehicles. I didn’t like that inefficiency so this way people will get cash and determine when to buy their stock but generally it will have the same values as you charge to earnings. Sorry for the long answer but we’re kind of in an outlier position here both in terms of where we are with liquidity in the investment portfolio and with what we’re doing on equity compensation and so I thought it may be helpful to give a little color around that.

Your next question comes from Brett Rabatin – Sterne Agee. Brett Rabatin – Sterne Agee: I wanted to first ask a question on the asset quality color guidance that you gave or just discussing the loan portfolio and credit quality in particular. I’m curious Mary, if we exclude a couple of the larger charge offs this year that related to specific credits, the mall, the leveraged lease this quarter, is it fair to assume or are you essentially saying that 2010 in your prepared comments looks a lot like 2009 in your kind of best guess judgment in terms of credit trends, provisioning, charge offs, etc.?

As a risk person I never like to predict this but I would say at this point I don’t see some of those large charge offs occurring absent other events in the market within our commercial portfolio. Brett Rabatin – Sterne Agee: Then to circle back around to liquidity for the fifth or whatever time it is, if I look at the average fed funds sold versus the end of period, obviously the quarter was more liquid on average than it was at the end of the year and I just wanted to ask if the fed funds hold position if that is something that could be lowered when presumably the feds stops buying mortgage backed securities after the end of March if maybe you can deploy some of that liquidity more aggressively then or if you’re actually just kind of looking for the best opportunities as the year proceeds?

That’s a very good point. We have a lot of liquidity, it is quite frankly more than we really need for the basic business and they should become and is what’s the correct reinvestment point so to the extent there are opportunities if and when rates move up probably the funds sold position would tend to go down. Brett Rabatin – Sterne Agee: Then just lastly I wanted to ask from a interest bearing cost of funds perspective, do you feel like we’re essentially approaching the floor here or do you think you’ll continue to have some ability to lower your cost of funds? Obviously core deposit growth continues to be strong, will you reduce the borrowing base, etc. in the next few quarters?

Well, we’re getting to a point where it’s hard to lower the funding costs. Particularly, if the rate environment changes here and the rates go higher that would become difficult so I wouldn’t expect funding costs to trend much lower. Brett Rabatin – Sterne Agee: What about the repos on the liabilities side?

We have some term on that and so as those mature we’ll look at whether we still need to use that source of funding. It may very well be that we don’t but we’ll see.

That’s under contract, it’s sort of locked in.

We’re locked in to some term on that.

But it is safe to say you and Dean watch this pretty close. Every opportunity – we’ve got a marketplace or we’ve got an obligation to take care of some of our customers and we’re going to continue to do that. The rates being where they are right now it’s short term to think about further cuts because there has to be a fair proposition value for the customer so far safety has been its own reward. As the environment changes we’ll probably see more emphasis on yield and that is kind of behind your comment that it is going to be difficult to lower our cost very much here as we go forward. At some point in time when rates increase we’ll look at a window to put some more timed deposits on. We’ve been continuing to minimize that for the last couple of years but we’ve got a lot of funding capacity there and it may be smart as we see loan rates start to go up to put some more timed deposits on which could have even an opposite impact.

Your next question comes from Erika Penala – UBS. Erika Penala – UBS: My first question surrounds forward strategy, Al what is your appetite for doing a deal assisted or otherwise for let’s call it a larger institution that could be within your footprint?

Well, there are four criteria that we have talked about consistently for several years. You have to find an attractive market and we think Hawaii is that. We have to be able to compete effectively in that market and we can do pretty well here. Then, there has to be a reasonable price of entry and we have to feel comfortable that we can manage it. Those are the four criteria that we use for every opportunity in Hawaii or outside. I would remind everybody that Hawaii is a concentrated market and in general we couldn’t do an acquisition so it would have to be an unusual circumstance. Erika Penala – UBS: Outside of an unusual circumstance, do you think you have the depth that you need in Hawaii?

We have good depth in Hawaii. We have good market share and we’ve been able to grow deposits through this but there are some ways, I could see we could benefit our shareholders if we had an even larger presence here in Hawaii. Erika Penala – UBS: Has your appetite changed for doing anything in the main land?

We continue to look at that Erika. But, that’s why I went over those four criteria because we really haven’t seen anything that says, “Gosh, there’s a compelling reason to change our strategy or our assessment criteria at this point in time.” There may become an entry point that is so attractive or a marketplace where our brand works so well that we would respond to that but generally it is just pretty difficult to manage from remotely. We’re doing pretty well in our marketplace here, that is probably what we’ll continue to focus on. Erika Penala – UBS: One more follow up question for Mary. Mary the $1.3 billion in Oahu based residential real estate credits, could you give us a sense on what the delinquency and non-performing loan trends are, just isolating that bucket?

Mary, you’re looking for individual statistics? I don’t know if we’ve got them.

I don’t know that I have that with me today. I can get back to you with that particular segment.

But generally?

It was flat.

Trends are not moving significantly in the Oahu market but the economy is slow and so you expect delinquencies to be moving against us a little bit. I don’t think there’s anything in Oahu that would suggest that it’s different than the rest of the market.

Your next question comes from Robert Bohlen – Keefe, Bruyette & Woods. Robert Bohlen – Keefe, Bruyette & Woods: I think I heard this right, there were some commercial real estate loans that were purchased in December, is that correct?

That’s correct. Robert Bohlen – Keefe, Bruyette & Woods: Was that I’m assuming some type of portfolio that was purchased, were those full relationships or was that something that we can maybe expect the deposit side of that relationship to still come over seeing as it was pretty late in the quarter?

Those were predominately commercial mortgages so there is some relationship opportunity attached to that but basically we’re looking more for the asset purchase. Robert Bohlen – Keefe, Bruyette & Woods: So there wasn’t kind of a full deposit relationship coming with those when you purchased it?

Let me say that the structure of the transaction did not include encompassing the deposits as well.

Your next question comes from Brian Zabora – Sitfel Nicolaus. Brian Zabora – Sitfel Nicolaus: Just a quick question on the gain on sale from the insurance subsidiary, did that run through other fee income?

Yes. Brian Zabora – Sitfel Nicolaus: So is the insurance revenues in the quarter about $2.3 million a decent run rate going forward?

Yes. Brian Zabora – Sitfel Nicolaus: Were there any expenses tied to that subsidiary that you recognized in the fourth quarter that might go away or was the fourth quarter number excluding any insurance expenses from that unit that you sold?

About $3.5 million direct per year expense wise. Brian Zabora – Sitfel Nicolaus: Was that in the fourth quarter at all or was that already exited?

It was a bit noisy in the fourth quarter because we had some transition costs built in to that.

Your next question comes from Joe Gladue – B. Riley. Joe Gladue – B. Riley: A question about the provision reserve levels and provisioning and of course you added just a little bit to the reserve this quarter, about $1 million. What are your thoughts going forward? Do you think you’re getting close to a time where you can stop any excess provisioning? Just what are your thoughts going forward?

I don’t think it’s a time where we can make that call yet. We’ve been pretty consistent over the quarter saying that we think reserves are advantageous in the economy right now and it’s a little bit difficult because we disclosed one number, the aggregate but within that number then there are allocations to various components of our portfolio and we do a pretty comprehensive exercise each quarter. We certainly look for the day when we can stop growing that reserve and reserve coverage but we’re going to have to continue to monitor. I think that’s just where I’ll stop. It’s just too early for us to make a prediction Joe, as to when we’ll be able to stop growing the reserve coverage.

I agree, we look at it each quarter and decided what directionally we need to do.

Your next question comes from Albert Savastano – Fox-Pitt Kelton. Albert Savastano – Fox-Pitt Kelton: Can you just give us a little more color on the CRE loan purchase? What was the balance and what kind of yields are you getting on those? And, would you do that again?

The balance is $47.5 million, that was 27 loans. The portfolio is highly granular, average loan size was $1.7 million, the median was $1.4 million. From a risk standpoint the loans that we’ve on boarded pretty much fit straight in to the sweet spot of our existing portfolio and each of these credits was individually underwritten so there’s no blind pool within that portfolio. So to answer your second question, I think if we had the opportunity to take a look at a similar transaction we would do that. Albert Savastano – Fox-Pitt Kelton: Peter two things, geography on the loans?

Geography is all Hawaii. You also asked about a yield and tenure and that is six and six.

6% yield and six year expected life?

Yes.

And all Hawaii based loans?

Correct. Albert Savastano – Fox-Pitt Kelton: Just on the margin can you give us an idea of what it was either in December or at the end of the quarter?

This is overall net interest margins? Albert Savastano – Fox-Pitt Kelton: Yes, I just kind of want to get a starting point for 2010?

What was it for the single month of the quarter? The average was 357. Albert Savastano – Fox-Pitt Kelton: What it was for December or at the end of the quarter?

After we got the securities.

It is very similar to the average for the quarter.

At this time we are showing no further questions available Cindy Wyrwick you may proceed.

It’s suppose to be a high of 80 every day this week. The fog is clearing out that means the trade winds will be back. The airline prices are reasonable, hotels have plenty of room so this would be a great time for anybody to come and visit Hawaii. Now Cindy, you can wrap up.

I’d like to thank all of you for joining us today and for your interest in Bank of Hawaii and definitely come visit. Take care and have a great day folks.

Thank you for your participation in today’s conference call. You may now disconnect.