Bank of Hawaii Corporation (BOH) Q2 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Bank of Hawaii Earnings Conference Call. My name is (Fab), and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Cindy Wyrick, the Director of Investor Relations. Please proceed. Cindy Wyrick – Director of Investor Relations: Thank you, Fab, and good morning, everyone. Thank you for joining us today as we review our financial results for the second quarter of 2011. Joining me this morning is our Chairman, President and CEO, 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 included in the earnings announcement 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 would like to turn the call over to Peter Ho. Peter Ho – Chairman, President and Chief Executive Officer: Thanks, Cindy. Good morning and aloha everyone. Thanks for joining us today. Bank of Hawaii had strong core operating results in the second quarter of 2011. We were pleased to see loan balances grew during the quarter. Deposit balances remained solid. Revenues continue to be challenged to the interest rate environment and our conservative investment and liquidity posture. Operational expenses remain well controlled. Asset quality remains stable and in line with the recovering Hawaii economy. Our balance sheet remains quite strong with high levels of capital, liquidity and reserves. We increased the amount of shares we purchased during the quarter and our directors have authorized us an additional $120 million in repurchase activity. Now I would like to ask Kent to review some of the factors affecting our financial performance this quarter and then Mary will comment on credit quality measures. Kent? Kent Lucien – Vice Chairman and Chief Financial Officer: Thank you, Peter. Good morning. Net income for the second quarter was $35.1 million or $0.74 per share, compared to $42.4 million or $0.88 per share in the first quarter and $46.6 million, or $0.96 per share in the second quarter of 2010. Included in this quarter’s results was $9 million charge our legal settlement related to overdraft claims. There were no securities gains this quarter, compared to $6.1 million in the first quarter and $50 million in the second quarter of 2010. Return on assets in the second quarter was 1.09% and return on equity was 13.9%. Year-to-date net income was $77.5 million, or $1.62 per share, compared to $99.3 million, or $2.05 per share in 2010. We realized $6.1 million in securities gains this year-to-date, compared to $35 million last year. Year-to-date the return on assets is 1.21% and return on equity 15.4%. Our net interest margin in the second quarter was 3.16%, compared to 3.24% in the first quarter and 3.51% in the second quarter of 2010. Year-to-date the net interest margin is 3.20%, compared to 3.61% last year. The lower margin is due to lower interest rate environment in a large investment portfolio. The credit provision in the second quarter was $3.6 million compared to $4.7 million in the first quarter and $15.9 million in the second quarter of 2010. The credit provision for the second quarter included net charge-offs of $6 million and a $2.4 million decrease to the allowance. The credit provision in the first quarter equaled net charge-offs and for the second quarter of 2010, included net charge-offs of $14.9 million and a $1 million increase to the allowance. Our allowance for loan and lease losses at the end of the second quarter was $145 million or 2.7% of outstanding loan and leases. Non-performing assets were $34.2 million at the end of the second quarter, down $400,000 million from the end of the first quarter and down $9.1 million from the end of the second quarter of 2010. Included in non-performing loans are $24 million in residential mortgage loans as of June 30th. Non-interest income for the second quarter was $49.5 million, compared to $53.9 million in the first quarter and $68.9 million in the second quarter of 2010. The decreases were primarily due to realized gains of the securities portfolio of $6.1 million in the first quarter and $15 million in the second quarter of 2010. Also contributing to the decrease compared with second quarter of 2010 were lower overdraft fees. Year-to-date, non-interest income was $103.4 million compared to $140.7 million in 2010. The decrease was primarily due to $28.9 million decrease in securities gains and also lower overdraft fees. Non-interest expense totaled $93.8 million in the second quarter, compared to $86.1 million in the first quarter and $85.9 million in the second quarter of 2010. Excluding the legal settlement, non-interest expense would have been $84.8 million. Total salaries and benefits remained flat compared to the first quarter and included an accrual of $2 million for the banks share appreciation program, partially offset by $1.7 million decrease in payroll taxes, due to incentives paid in the first quarter. Included in the second quarter of 2010, was an accrual of $3.3 million for officer cash grants for the purchase of company stock. The effective income tax rate was 29.1% in the second quarter, compared to 32.6% in the first quarter of 2011, and 34.4% in the second quarter of 2010. The lower rate was primarily due to a release of reserves in the second quarter due to the closing of the IRS audit for two tax years. Our investment portfolio now stands at $6.6 billion and we have unrealized gains in the portfolio of $120 million. We continue to invest on a conservative basis, with purchases of U.S. Treasury notes, SPA floating rate securities and corporate bonds this quarter. The average duration of the AFS portfolio is 2.23 years. Loan balances increased $25 million compared to the end of the first quarter. Mary will be commenting on changes in loan balances in a moment. Deposits were $10 billion at the end of the second quarter, up $67 million compared to the end of first quarter, and up $654 million from the end of the second quarter of 2010. We increased our wholesale funding with government entities by $128 million in the second quarter. Our average cost of public repurchase agreements is eight basis points. Our shareholders’ equity remained flat at $1 billion. We paid out $21.4 million in dividends in the second quarter and we continued our share repurchase program in the second quarter, repurchasing 636,000 shares of common stock for $30 million. Last Friday, our board declared a dividend of $0.45 per share for the third quarter. At the end of the quarter, we have $13.1 million remaining under our existing share repurchase program. The board has increased the share repurchase authority by an additional $120 million. The amount of repurchases in the future will depend on many factors including the economy, the credit environment, and the value proposition for our shareholders. We will continue to update you quarterly on our capital management actions. Our capital position remained strong and at the end of the second quarter, our QCE, the risk weighted asset ratio was 19.1%. Now, I will turn the call over to Mary Sellers. Mary Sellers – Vice Chairman and Chief Risk Officer: Thank you, Kent. Net charge-offs in the second quarter totaled $6 million, up $1.3 million on a linked quarter basis and down $9 million year-over-year. The linked period increase was due to a $1.5 million increase in home equity. The year-over-year decrease reflects reductions of $4.1 million and $4.8 million in the commercial and consumer portfolios respectively. Non-performing assets totaled $34.2 million, down $436,000 from the first quarter and $9.1 million year-over-year. As Kent shared, residential mortgage non-accrual loans totaled $24 million at quarter end. The level of non-performing assets will continue to be impacted in the near-term due to the longer resolution timeframe for residential assets. At quarter end, loans past due more than 90 days and still accruing interest totaled $7.8 million, up $2.2 million on a linked quarter basis and down $5.1 million year-over-year. The linked period increase was due to an increase in residential mortgage largely due to two loans, while the year-over-year decrease was due to reductions across all the consumer portfolios, including a $3.2 million reduction in residential mortgage. Restructured loans not included in non-accrual or loans past due 90 days or more totaled $28.2 million at quarter end, down $1.3 million from the prior quarter due to the pay off of a $3 million commercial loan offset by two residential mortgage loans totaling $1.5 million that will return to accrual status based upon performance. Residential mortgages loans modified to assist our customers in retaining their homes account for $20.5 million of the total. Consistent with the improving Hawaii economy, we continue to see improvement on a linked quarter and year-over-year basis and what we consider to be the higher risk segments of our loan portfolio. Our land loan portfolio totaled $20 million at the end of the second quarter, down $1.6 million on a linked quarter basis and $10.3 million year-over-year. As we have shared previously, in our residential mortgage and home equity portfolios, we consider loans originated after 2004 with current credit monitoring scores less than 600 at loan-to-value ratios greater than 70% to be at higher risk. At the end of the quarter, higher risk in our – exposure in our residential portfolio totaled $23.7 million, down $1.8 million on a linked quarter basis and up $2.4 million year-over-year. In our home equity portfolio, higher risk exposure totaled $21.8 million, down $2 million on a linked quarter basis and $3.2 million year-over-year. At the end of the quarter, residential, mortgage and home equity loans and lines delinquent 30 to 89 days totaled $22.6 million, down $2 million on a linked quarter basis and up $1.4 million year-over-year. Commercial construction loans totaled $80.5 million at the end of the quarter with $35.6 million in residential homebuilding exposure. Higher risk exposure totaled $16.2 million, up $1.5 million from the first quarter and down $2.8 million year-over-year. The provision from loan and lease losses was $3.6 million, which given net charge-offs of $6 million reduced the amounts for loan and lease losses by $2.4 million to $145 million. Absent significant deterioration in the economy, we anticipate that we may require a lower level of allowance going forward. With the improving Hawaii economy, we did see modest loan growth in both our commercial and consumer portfolios this quarter. Commercial loan outstandings were up $19.3 million on a linked period basis driven off a $44 million increase in C&I outstandings related to existing customers making capital investments in their businesses. Commercial mortgage outstandings were down $11.1 million at period end primarily due to substantial expected linked-quarter payoffs. Consumer loan outstandings were up $5.3 million on a linked-quarter basis due to a $22 million increase in residential mortgage portfolio and substantial operating performance in our home equity and in direct auto. I’ll now turn the call back to Peter. Peter Ho – Chairman, President and Chief Executive Officer: Great. Thank you, Mary. Major economic metrics in Hawaii further improved during the quarter led by a rapidly improving visitor industry. Hotel occupancy, hotel revenue, visitor arrivals and visitor spending all continued to show signs of improvement. As expected, Japanese visitor arrivals decreased from the March natural disasters in Japan. However, this is more than offset by strong visitor arrivals from other markets. It’s interesting to note that 40% of our visitor spending now comes from international travelers. On the international segment, Japan comprises 37% of the international segment while other countries including China, Korea, Canada, Australia, and New Zealand comprised 63% of the international segment and are indeed the fastest growing segment in terms of visitor spending. The Hawaii Tourism Authority is anticipating visitor activity to remain strong for the second half of the year due to increased airlift out of Asia, Australia and New Zealand and the establishment of the China Eastern Airlines service from Honolulu to Shanghai beginning next month. This marks the first regularly scheduled direct lift from the People’s Republic of China and in my estimation is a significant event. Other positive signs at Hawaii include stabilization of the overall job growth of – and the overall job market as well as decreasing unemployment. The housing market on Oahu remains stable, inventory levels remains stable, and although we are seeing a bit of softness into the neighbor island markets. And now, I’d be happy to entertain your questions.

(Operator Instructions) And your first question will come from the line of Craig Siegenthaler with Credit Suisse. Craig Siegenthaler – Credit Suisse: Thanks. Thanks for taking my questions.

Good morning Craig. Craig Siegenthaler – Credit Suisse: First, just on the roughly $1.5 billion of reclassified securities from available-for-sale to held-to-maturity, what type of securities were involved in the shift and also what was the main driver here? Was part of the driver kind of long-term asset liability matching, was it trying to drive this more stable NIM year term, maybe you could just give us some color there?

Yeah, Craig, actually, we undertook that change mainly last quarter. The composition of the held-to-maturity portfolio is very similar to the AFS portfolio. So, there is really no difference in the types of securities in the two different portfolios. We really made that change based upon our liquidity situation and the fact that we really in fact intended to hold these securities to maturity and so we merely reflected that in the re-class. Craig Siegenthaler – Credit Suisse: Got it. And is there a duration difference between the two portfolios, you said basically we own the same security, I am just wondering excluding the kind of the accounting differences, is the duration within both those portfolios about the same and what is that?

It’s a little bit longer in the HTM than the AFS. So, the AFS is about 2.23 years and the HTM is about 2.7 years or so that so that’s a little bit of a difference. Craig Siegenthaler – Credit Suisse: And is the – in terms of the competition, but you ought to disclose what that is to us, is that lot of that kind of where we are at Ginnie Mae’s?

Yeah, I mean, it has a little bit more Ginnie Mae’s than treasuries. Craig Siegenthaler – Credit Suisse: Got it. And then just a final question, when I look at kind of the 8 basis points I believe it was compression in the loan yield quarter-over-quarter. I am just wondering if you could help us understand what was the driver there? Was it between really kind of competition on new loans, some other issues like if there is any swap or run-offs, and then also the impact from just LIBOR and other interest rates being down in the second quarter?

Yeah, it’s mainly the environment. So, interest rates fell roughly 50 basis points or so between the first and the second quarter that’s going to affect virtually every category. So, you saw it a little bit in the mortgage line. You saw mortgage interest rates go down and it just reflected the environment. Craig Siegenthaler – Credit Suisse: Got it. All right, great guys. Thanks for taking my questions.

Sure.

Your next question will come from the line of Brett Rabatin with Sterne Agee. Brett Rabatin – Sterne Agee: Hi everyone.

Hi Brett. Brett Rabatin – Sterne Agee: Wanted to ask about capital and the buyback going forward, first of all, is the leverage ratio, the appropriate capital ratio we should be thinking about and then if it is 7% used to be kind of where you targeted that and then I am just curious about the pace of the buyback going forward?

Well, Brett, we are looking at a lot of different dimensions in terms of capital management. And so I would dissuade you from focusing on one particular ratio compared to any other determinant. So, we have taken all these things into account in sizing the repurchase activity. And so essentially we are buying back relative to the earning we are generating, so the capital we are generating, plus the dividends we are paying and then on a quarter-by-quarter basis, we will make a decision based on the environment, the economy, the credit environment, whether to go beyond that or not. And in the second quarter, we decided to go little bit beyond that. Brett Rabatin – Sterne Agee: Okay. Fair enough, good color and then, I also wanted to ask Mary, as it relates to the credit leverage going forward. It sounds like the body language there was the provision could be flat to even negative going forward if credit continued to improve. Mary, can you give a little more color around pace of credit improvement?

I think, we are really looking at this point more at the economic environment. I think our credit quality at this point remains relatively stable. We have seen improvement very definitely year-over-year, but the anticipated that absence of the deterioration we would continue to look at requiring a lower level of reserve. Brett Rabatin – Sterne Agee: Can the pace accelerate in terms of the decline?

I think, you recognize our management style will be pretty measured and consistent and we’ll look to apply that to potential reserve releases as well, Brett. Brett Rabatin – Sterne Agee: Okay, great. Thanks for the color.

Your next question will come from the line of Joe Morford with RBC Capital Markets. Joe Morford – RBC Capital Markets: Thanks. Good morning everyone.

Good morning. Joe Morford – RBC Capital Markets: I just wondered if you could comment at all about the pipeline at period end in the commercial portfolio going into the third quarter. It sounds like a fair amount of the activity has few months came from existing customers, so did you see an increase inline in the usage as well?

A bit, but that wasn’t anywhere near what made up the growth in outstandings. It was really a good amount of reinvestment back into our client businesses, a few transactions on top of that. I’d say that we don’t speak specifically to the pipelines, but I’d say that activity both on the C&I as well as on the commercial mortgage front looked pretty good going into the second half of the year. Joe Morford – RBC Capital Markets: Okay. That’s helpful. And then also the other question was I mean loans were up, but investments were up as well. I suspect tied to the growth and deposits. That looked really mostly coming from the public accounts. So, just kind of curious, kind of what term and rate you’re paying on those or getting on that and was there a specific investments purchases tied to that?

Yes. Those are going to be pretty low cost deposits and there is interplay between the wholesale funding and public deposits. So, some of the public entities switch back and forth between those categories, typically the wholesale funding is seven to eight basis points something like that. The deposit costs are not going to be too much different than that. Joe Morford – RBC Capital Markets: Okay. All right fair enough. Thanks so much.

Your next question will come from the line of Aaron Deer with Sandler O’Neill & Partners. Aaron Deer – Sandler O’Neill & Partners: Hey, good morning everyone.

Good morning, Aaron.

Good morning. Aaron Deer – Sandler O’Neill & Partners: Couple of questions, first if I can follow-up on Craig’s line of question regarding the margin, I’m just curious what given the kind of the shift in asset mix that you’ve had what your expectations are for the margin going forward that you are getting a little bit more attraction on the loan side, if maybe that mix improves enough to start seeing some stabilization or even improvement in the margin going forward or if there is any opportunity to reduce funding cost at this point?

Yes. Well, the margins really going to be a function of at least three variables. So, the amount of liquidity that we are maintaining, the interest rate environment and loan growth and so we saw a little bit of growth in the second quarter. Certainly to the extent, we can increase the composition of loans versus investments that will help and then the first point, which I made was liquidity, to the extent, we reduced any liquidity and put back to work on investments that can also help. Now having said that, we are working against the pretty tough rate environment. So, the environment as I mentioned earlier has come down quite a bit. So, for example the 10 year treasury compared to when we last spoke in April, it's been down about 56 basis points or so. So, it would be good to be able maintain the margin, but we will have to see how the environment develops. Certainly the other two factors liquidity and loan growth can help. Aaron Deer – Sandler O'Neill & Partners: Okay. But all else equals have like maybe there is some of these environmental factors are offsetting your, maybe likely to more than offset your abilities on the other two fronts?

Well, I'm not going to say more or less, but you can tell their offsetting factors. To be nice to be able to maintain the margin, but that conditional upon the environment and what happens with loans and liquidity. Aaron Deer – Sandler O'Neill & Partners: Okay. And then in another way, we've got some clarity on the interchange rules, I’m curious I think historically interchange fees represented something like $6 million per quarter. I’m wondering what your thoughts are in terms of what that drops down to going forward and if that's all going to come in the fourth quarter if we see some of that start to happen in the third quarter or next year. How that kind of plays out going forward?

Yes. The new rules take effect October 1st. Aaron Deer – Sandler O'Neill & Partners: Right.

And so it's really a fourth quarter item. The exact impact on us is a little bit difficult to say, the rules really impact the cap and the actual rate is not known or finalized as provided by the network providers. But having said that, probably the best way to think about it is, on an annualized basis we probably stand to lose between $12 to $14 million in interchange revenue under the new arrangement. That's a lower number than I probably mentioned previously. I think we're talking about probably $18 million on an annualized basis. Aaron Deer – Sandler O'Neill & Partners: And you mentioned that as a revenue number, I’m wondering are there associated cost that could also go down with that that would help to offset the drop in the revenue side?

Yes. It's hard to say at this moment. Those are possibilities, but I’m just not prepared to say that at this moment. Aaron Deer – Sandler O'Neill & Partners: Okay, all right. Thanks for taking my question.

Your next question will come from the line of Joe Gladue with B. Riley. Joe Gladue – B. Riley: Hi, good morning.

Hi, Joe.

Hi, Joe. Joe Gladue – B. Riley: I just like to maybe drilldown a little bit on just the residential mortgage and home equity line. With the increase in net charge-offs in those portfolios and it looks like there was an increase in 90-day past dues and some of those portfolios as well. I just wondered if you could give us a little more color on what the trends are there and what's driving up?

Joe, I think, the issue becomes on $3.1 billion portfolio and the numbers are running $2 million if we have a few more loans move one direction or the other, we'll see some swings quarter-to-quarter. I think really within those two portfolios, we're seeing really pretty stable performance that reflects might be unemployment rate that's remained at 6%. If we look at our early stage delinquencies in those two portfolios, they are down on a linked quarter $2 million up year-over-year $1.4 million. It could be two or three loans that really swing at this point. So, I think we will just see a little bit of that volatility quarter-to-quarter around those numbers, but pretty consistent at least within time. Joe Gladue – B. Riley: That’s fair enough. But I guess, why you mentioned it I was going to ask about the early stage delinquencies and just overall total for that number, where is the trend in that from first quarter to second quarter?

Sure. For the total portfolio including our commercial, it was $33.4 million in 2Q and that’s down $2.8 million on a linked quarter and down $7.1 million year-over-year. Joe Gladue – B. Riley: Okay.

Consumer makes up both of that at $31 million it’s down $410,000 for a quarter basis and 1.9 year-over-year. And again then out of that $31 million, home equity and consumers make up $22.6 million. Joe Gladue – B. Riley: Okay. And just one other question, I guess in the other non-interest expense line, of course the $9 million settlement within there, but if after removing that, it looks like there was about $1.7 million decline from first quarter to second quarter. Was there any I guess specific thing driving that?

We had had an operating loss in the first quarter that was a little bit higher than usual and we didn’t use that in the second quarter. Joe Gladue – B. Riley: Okay. All right, that’s all I had. Thank you.

Thank you.

Your next question will come from the line of Erika Penala with Bank of America/Merill Lynch. Erika Penala – Bank of America/Merrill Lynch: Good morning.

Hey Erika.

Good morning. Erika Penala – Bank of America/Merrill Lynch: My first question is on the run-rate for your overdraft fees, is the shift in overdraft policy already reflected in your previous guidance of down $14 million year-over-year when you are talking about the annualized run-rate?

Well, let me give you the facts on this. So, our overdraft income in the second quarter was $5.1 million, and in the equivalent period last year, it was $10.1 million. Erika Penala – Bank of America/Merrill Lynch: And that’s fully reflected of the shift in overdraft policy?

Yes. Erika Penala – Bank of America/Merrill Lynch: Okay, got it. And also was there anything unusual in the fees exchanges and other services line, I noticed that it was $16.7 million this quarter and that was running a little bit lower for the previous two quarters. Was there something unusual there or is that a run-rate that could carry out for the remainder of the year?

It was a little bit higher than the debit card income. We received about $900,000 of profit sharing income amount that probably wouldn’t be expected to go forward. Erika Penala – Bank of America/Merrill Lynch: Okay. And also Peter I just wanted to ask about some of your comments in regards to looking at the pipeline for the second half of the year, you mentioned that there were some deals and reinvestments back rather to the businesses that your clients were doing in the second quarter. Do you think that this could – this type of reinvestment could continue at the same pace? I guess I am asking really indirectly if the C&I loan growth that we saw this quarter is something that we could expect to continue for the next two?

I think that the likelihood is that there will be a little more balance between commercial mortgage and C&I. I think C&I lending was up over 5% for the quarter. So, that’s probably not sustainable, just a great quarter for the corporate folks, but commercial mortgage was uncharacteristically off in the quarter. And so I think the combination of the two should give us pretty reasonable outcome in the next couple of quarters. Erika Penala – Bank of America/Merrill Lynch: Okay, thank you for taking my questions.

Okay.

Your next question will come from the line of Jeff Rulis with D. A. Davidson. Jeff Rulis – D. A. Davidson: Hi good morning.

Hey, Jeff. Jeff Rulis – D. A. Davidson: Peter, just a quick follow-up on that comment, I was going to ask about the commercial mortgage actuals showing that run-off in the quarter, so just a timing issue or anything re-class there?

We had a couple of large mortgages come off right at the end of the quarter. And we had been going back and forth on these pieces of business, trying to – obviously trying to retain them, but in the end lost them to institutional providers and that’s what happened in the quarter. Jeff Rulis – D. A. Davidson: Okay. Thanks and then on the margin, do you have monthly averages for the NIM?

We don’t provide monthly results. Jeff Rulis – D. A. Davidson: Okay. Thanks.

Your next question will come from the line of Jacque Chimera with KBW. Jacque Chimera – KBW: HI, good morning everyone.

Hi, Jacque. Jacque Chimera – KBW: Just to verify, sorry I missed this in your prepared remarks. You said that the direct flights from China into Honolulu are going to start sometime in next quarter?

Yes. Jacque Chimera – KBW: Okay. Has the Hawaii Tourism Authority, have they done any projections on what kind of an increase we’re going to see in visitor arrival following that?

From China? Jacque Chimera – KBW: Yes.

I think the anticipation for this year is 88,000. Jacque Chimera – KBW: Okay.

Right. Jacque Chimera – KBW: And then I can’t remember the exact terminology, but the ATM like machines that you have in place with the partnership that you have.

Yes. Jacque Chimera – KBW: Will that provide any benefit to the Company?

You’re talking about our affiliation with China UnionPay, which is the largest card provider in China. With that relationship is about is helping China UnionPay improve their brand here in the islands. They anticipate that Chinese visitors will become an increasingly significant part of the visitor segment here in Hawaii and what they’re doing is helping us with marketing resources. So, there is not really other than what we traditionally earned through our ATM networks on international transactions. There is no special provision there, but they are helping us to build out our Chinese capabilities in the electronic banking space. Jacque Chimera – KBW: Okay, so more of kind of an advertising marketing benefit in income item.

Right. Jacque Chimera – KBW: Okay. And then just as a follow on to someone else’s question. I’m not sure, who asked it, but. You said that, the few large mortgages that have come off at the quarter. I know that in the Mainland we’re seeing a lot of competition from some larger institutions that are getting into spaces that they may not traditionally have been into just because of smaller loans. Are you seeing that on Hawaii at all, any pressure in commercial pricing because of that? I know that they’re not really involved in your market at all, but I’m just wondering if that had anything to do with it.

I think that those institutions that you’re talking about, we have seen down as low as call it $20 million. So, I guess, that trend continues. We’ve not seen them at least as of yet dipped below into kind of the more middle market segments. Jacque Chimera – KBW: Okay. So, it’s kind of a non-issue for you then right now?

Yes. Jacque Chimera – KBW: Okay, great. Thank you very much.

I hope so. Jacque Chimera – KBW: Hopefully that will continue.

(Operator Instructions) And your next question will come from the line of Casey Haire with Jeffries. Casey Haire – Jeffries: Hi, good morning.

Good morning.

Good morning. Casey Haire – Jeffries: One more question on the margin. Regarding the new loan production this quarter, can you give us a sense of what yield that came with relative to the 492 on average?

Well, I can’t break that out for you, but it’s going to be typical of the composition what you see on average for the period. Casey Haire – Jeffries: Okay. Any sense on the securities yield?

Well, to mention the reinvestment rates are lower today than they were three months ago. So, that is the tough interest rate environment to get the same yield today as you got several months ago. Casey Haire – Jeffries: Okay. And then just lastly, the FDIC insurance, that’s down I guess due to the new calculation?

Yes. Casey Haire – Jeffries: Is that a good run rate going forward or is there is some more bleed maybe?

I think that the figure for this quarter is pretty typical of what we’re going to see into the future. Casey Haire – Jeffries: Okay great. Thank you.

You are welcome.

Your next question will come from the line of Bryce Rowe with Robert W. Baird. Bryce Rowe – Robert W. Baird: Hi, thank you. I just wanted to follow-up on the debit interchange question. Are you guys contemplating any deposit product changes to offset that lost revenue?

We are contemplating potential changes to pricing and promotion and features, although frankly we’ve just not come to any conclusion on what to do with that, if anything. Bryce Rowe – Robert W. Baird: Okay. Thank you.

And there are no further questions in the queue. I would now like to turn the call back over to management for closing comments. Cindy Wyrick – Director of Investor Relations: Thank you, Fab. I would like to thank everyone for joining us today and for your continued interest in the Bank of Hawaii. As always, if you have any additional questions or need further clarifications on any of the topics we discussed today, please feel free to contact me. Thanks everyone and have a great day.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a wonderful day.