Bank of Hawaii Earnings Call Insights: Mortgage Origination and Potential Cost Savings
Bank of Hawaii Corporation (NYSE:BOH) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Joe Morford – RBC Capital Markets: Just wondered if you could comment on the mortgage origination pipeline at period end and then also just, what kind of mix you’re seeing between refi activity and purchase and are you expecting much of a further drop in gain on sale margins from first quarter levels?
Kent T. Lucien – Vice Chairman & CFO: Joe, as to the gain, that has started to climb down a bit here. It definitely came down during the first quarter, but it’s starting to flatten out a little bit at this moment. Now that’s obviously subject to change, but that’s what we’re seeing right now. On the composition, there is a bit more of a portfolio balance compared to saleable. At the end of the period it was about 36% portfolio and it has been 26% earlier. So, I think refis are becoming a little bit less a part of the composition. The apps – those are also starting to flatten out a bit, so I think I quoted 7% decrease in Q1 versus Q4. That seems to have flattened out, but it’s pretty early in the period. So I mean no offense, definitely a prediction at this moment.
Joe Morford – RBC Capital Markets: I guess my follow-up would be, you gave the premium amortization number for the quarter of $16.5 million, I’d be curious how that compared with the fourth quarter number and are you seeing any discernible change in the underlying trends here, particularly given that mortgage banking activity seem to slow a fair bit in the quarter?
Kent T. Lucien – Vice Chairman & CFO: Yeah, Q4 was nearly the same number, so, it’s right around $16.5 million dollars in Q4, and since such a large portion of the portfolio is mortgages, the amortization will really depend on how prepay speeds develop. So, for example if they begin to slowdown amortization will decline. So, that’s out there as a possibility, whether that’s what happens we’ll just have to see, but that’s a possibility.
Potential Cost Savings
Jeff Rulis – D. A. Davidson: The expense reductions that you’ve implemented in Q1, have you put a number on what the potential cost savings of that would be?
Peter S. Ho – Chairman, President & CEO: I’m struggling here, because we have, but I’m not sure what we’ve discussed before. Kent you want to…?
Kent T. Lucien – Vice Chairman & CFO: Yeah, let me put it this way. We did have a higher level of severance that we reported in Q1, that really should flip around by the end of the year. In other words, the saves associated with that in particular should be reversed by the end of the year. So, we are pretty optimistic about expenses going forward. We have a lot of good programs in place and we are working at it on a continuous basis. So as I said we are pretty optimistic.
Jeff Rulis – D. A. Davidson: Just so I get you – understand you right. We will have the absence of the severance costs this quarter and then potentially that same amount off the core comp expense?
Kent T. Lucien – Vice Chairman & CFO: Well I didn’t quite say we won’t ever have more severance. That’s always a possibility. But for the salaries and benefits associated with this particular severance that should be paid back within this year…
Jeff Rulis – D. A. Davidson: Then one question on just maybe the C&I and Commercial Real Estate segments in the competitive environment, would you I guess point to the competition as any part of loan demand being compressed or I guess production being down? You said – seeing any of your competitors maybe more financially stable than they previously were, what are you seeing out in the marketplace?
Peter S. Ho – Chairman, President & CEO: Well it is competitive that’s for sure. If I look at the Commercial portfolio we are up 9% on a year-over-year basis based on end of period numbers and we are modestly constructive in the first quarter. That was coming off of a 4% gain quarter in the fourth quarter. So a lot of transactions really were pushing hard to get into the end of the year because of the uncertainty around the tax situation. So I am still reasonably optimistic around commercial C&I, Commercial Mortgage but I think it’s going to be lumpy like it generally is and we are going to have some strong quarters and we are going to have some flat quarters like we just experienced.
Jeff Rulis – D. A. Davidson: But no major change in the last call it year on the competition side?
Kent T. Lucien – Vice Chairman & CFO: From a composition standpoint, it’s been the local vendors. All of them obviously are hungry for assets. What we haven’t seen and I think this is probably more to your question, is out of market competitors really dropping in, so the model line, real estate folks that we had in last cycle still are nowhere on the radar screen and the conduit market which at one point was down as low as $5 million, $10 million on mortgages, is still pretty absent from the market.