Good day, ladies and gentlemen, and welcome to the fourth quarter 2008 Bank of Hawaii Corporation earnings conference call. My name is [Nancy] and I will be your coordinator for today. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Cindy Wyrick, Director of Investor Relations. Please proceed.

Thank you, Nancy, and hello, everyone. Thank you for joining us today as we review the Bank of Hawaii's financial results for the fourth quarter of 2008. 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 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 Al Landon. Al?

Thank you, Cindy. Good morning, everyone. Happy New Year or, as we say today in Hawaii [Hawaiian phrase]. Bank of Hawaii announced this morning our 2008 financial results. For the year, our earnings were $192.2 million. That's right, net income. And for the fourth quarter our net income was $39.3 million. As Kent will discuss, we continued our strategy of increasing Bank of Hawaii's deposits, reserves and capital in response to the economic uncertainty. Following Kent's comments on the bank's performance, I will update you on our plans for 2009. Kent?

Thank you, Al. Good morning. Net income for the fourth quarter was $39.3 million or $0.82 per share compared to $47.4 million or $0.99 per share in the third quarter of 2008 and $40.9 million or $0.83 per share in the fourth quarter of 2007. The decrease is due to a return to customary tax rates and accounting for mortgage servicing rights, as I'll explain. For the quarter, net income to average assets was 1.52%. Return on equity was 19.56% and our efficiency ratio was 51.58%. Net interest margin was 4.43% compared to 4.33% in the third quarter and 4.12% in Q4 of 2007. Year end deposits were $8.3 billion, up $634 million from Q3 and up $350 million from year end 2007. For the full year 2008, net income was $192.2 million or $3.99 per share compared to $183.7 million or $3.69 per share in 2007, an increase of 8%. Return on average assets was 1.84% for the year compared to 1.75% in 2007, and the return on equity was 24.54% versus 25.15% last year. Shareholder's equity was $791 million at year end, up from $750 million at the end of 2007. This quarter's results included a $4.5 million net reduction in the accounting fair value of mortgage servicing rights due to a reduction in the assumed life of our servicing portfolio. During the quarter our loan and lease net chargeoffs were $10.6 million and in addition we added $8 million to our reserve for credit losses. Fourth quarter net interest income increased $2.3 million from the third quarter due to a higher net interest margin and slightly higher average loan balances. Our net interest margin was 4.43% for the fourth quarter, an increase of 10 basis points over the prior quarter. Average loan balances for C&I, commercial mortgage…

Thank you, Kent. In December, Bank of Hawaii decided not to participate in the U.S. Treasury's Capital Purchase Plan. We could not see how participation would benefit our shareholders. Rather than rely on expensive government funding, Bank of Hawaii focused on increasing deposits and retaining capital. As Kent indicated, we have substantial resources available for investment and lending and remain eager to invest and lend into attractive opportunities as conditions warrant. We do agree with many observers that investment in lending could stimulate business activity, but until impaired business models and institutions are restructured, we think concern about undue risk will limit that business activity. Our immediate plan for 2009 is to continue to manage for a weakening economy. That means reducing our credit risk, maintaining liquidity, increasing capital and looking for opportunities to build value. Externally, Bank of Hawaii will focus on supporting customers we know with credit and good service. Internally, we plan to improve work force productivity, upgrade technology to enhance customer service, and manage risk and expense. In our release this morning we indicated that it is impractical for us to set earnings expectations for 2009 since we cannot forecast how long it will take for conditions to return to normal. Right now we think soundness is the priority component of financial performance. Bank of Hawaii is safe, balanced and ready to address the challenges ahead. I want to assure you that we remain committed to delivering superior financial performance. Now we'd be happy to respond to your questions.

Nancy, can you check and see if there are any questions?

(Operator Instructions) Your first question comes from Brett Rabatin - Sterne, Agee & Leach, Inc. Brett Rabatin - Sterne, Agee & Leach, Inc.: First, I know last quarter you had a reclass from deposits from non-interest bearing to interest bearing and obviously really strong growth in DDA this quarter. The interest bearing was mixed with averages down, but ending period strong. Can you guys walk through A) no one else is really seeing these kind of deposit trends, what that was a function of, and then B) was there anything unusual in the quarter that we should be aware of?

Well, a couple of things I would say were going on. Continued promotion of our free checking, which we think is the most attractive free checking product in the market and I think our customers are picking up on that as well. The second is that I think as concern in the marketplace increased regarding the safety of some short-term investment vehicles, such as money market mutual funds, we found customers were giving strong consideration to bringing their money into an institution they felt comfortable with and knew. We put a little bit of yield enhancement in that - there was some room in our margin to do it - and made, I think, what was a pretty attractive on balance sheet product available for customers and they responded pretty nicely. The third thing I would say is that as we watched what unfolded late fall, early winter, it became clear to us that a focus on deposits was going to be a pretty important aspect of our business. Lending demand had slowed down in many of our product sets, and so we asked our people to put a special out there on deposit gathering. And you saw as the quarter went on a pretty nice momentum build for putting deposits on our balance sheet. As we got down to then looking at whether to participate in the government funding program, the ability to raise deposits and generate liquidity internally was an element of our decision. So, Brett, that's kind of four features that went into it and that's what I would say in summary. Peter, Kent, either of you want to add anything to that?

I would just add on the management piece, we really turned all of our management metrics deposit focused, both on the consumer side as well as on the commercial side, and we've shifted a good amount of talent within the organization into deposit gathering parts of the company. Brett Rabatin - Sterne, Agee & Leach, Inc.: I also wanted to ask on credit maybe a few questions for Mary. I was hoping to get some color on what the auto - I know there was some color in the press release about the changes in the consumer portfolio. I was curious what auto was at the end of the quarter. I think it was a little under $400 million last quarter. And then just any commentary on the past dues for the HELOCs.

Okay. In terms of our indirect portfolio, Brett, as you know, we've been driving down that portfolio with tightening underwriting. You also realize that auto sales are declining pretty dramatically, both in Hawaii and in our Pacific Island division. So that's really the driver behind the decreases in that portfolio. In terms of our HELOC, did you say NPAs or net chargeoffs? Brett Rabatin - Sterne, Agee & Leach, Inc.: No, the past dues seem to be moving up. And what was the number for the indirect auto or do you have that?

[Three sixty nine]. And in terms of the past dues, they're up about $780,000 on linked quarter [inaudible] year-over-year. And really, that's seven loans, 60% of which we have the first all pretty much in Hawaii, weighted average LTV of about 70%. Just softness in the local economy kind of contributing to migration into that. Brett Rabatin - Sterne, Agee & Leach, Inc.: Okay, and Mary, have you been stress testing the portfolio and the different components and, if so, what is the analysis telling you in terms of what's happening to both the commercial portfolio, the CRE portfolio from loan to values and that sort of thing, and then what kind of stresses are you seeing on the consumer side?

Brett, she's been testing this thing weekly. Stress would be the world. Brett Rabatin - Sterne, Agee & Leach, Inc.: Yeah, okay.

Mary, a little color for Brett on that?

Okay. Well, in our home equity portfolio you realize that the majority of that is owner occupant and a good 95% is on Oahu. And Oahu has seen modest medium price declines of about 3%. We don't have the luxury, really, of some of the models the mainland banks have that we can load in and do an update, so we're really kind of working through various segments and trying to do that ourselves. So I don't have a lot more color around that at this point in time. Our residential portfolio, again, primarily on Oahu, primarily owner-occupant, $1 billion originated prior to 2004, and any run up in appreciation, so very low LTVs at origination. Now we're kind of stressing different pockets, but right now we really see most of the losses being driven off an event in terms of somebody has an illness, spouse death or loses a job. In the residential portfolio, I would indicate that the land loan segment is one in which we did see additional stress, and that contributed primarily to net chargeoffs this year. Our land portfolio is $56 million, down from $76 last year and $100 million the previous year; 52% of it's nonresident owners, which is really the most problematic. But that's the only segment right now that I would say has the most stress that we're concerned about.

Your next question comes from Aaron Deer - Sandler O'Neill & Partners LP. Aaron Deer - Sandler O'Neill & Partners LP: I guess I was hoping to just get a little bit more information on the mainland construction loans. It sounds like you just have a couple of them, but I'm wondering if the second one is also a participation? I suspect that it is. And then where are those projects located?

Both are in California. The second one is only $1.4 million and it's closing out, so we expect absolutely no problem with that. The other one is in L.A. The balance is $5 million. It is our largest non-accrual. Aaron Deer - Sandler O'Neill & Partners LP: And then can you also give some color behind the deterioration in the C&I portfolio? It looks like both NPAs and 90-day past dues were up. Any specific industries where you're seeing the problems and what do you expect for that heading into the new year?

No, really the increase was really just two loans and it was two clients that had additional stress here in the local market. So that was about $1.8 million and in addition to the $5 million, that really drove the increase in the commercial segment. So no particular segment.

The $5 million, Mary, was the -

Construction loan.

The construction loan.

Outside of that there was $1.8 million in our commercial portfolio that was part of the increase and that's it. Aaron Deer - Sandler O'Neill & Partners LP: And then lastly, given the size of the MSR adjustment I would have thought that maybe the mortgage income would have swung to a negative, but obviously it wasn't. Was it just strong origination fees that helped to offset that or what was going on there?

Yes, that was a major offset. The activity in refinancings is way up. The pipeline is quite large. And so that's the offset.

Your next question comes from Robert Bohlen - Keefe, Bruyette & Woods. Robert Bohlen - Keefe, Bruyette & Woods: Just two follow up questions on the deposits. I was wondering first if you could tell me where some of these - because you did say new deposit accounts - where they were coming from, if they were from banks or if you're seeing any softness in credit unions on the island?

I would say that our new customers were broad based financial institutions, which would include some credit unions, made some deposits rather than investments. As to credit union weakness, I don't that we've seen particular signs of weakness, but we've maintained for a number of years a positive relationship with credit unions. I think we've talked about it in prior calls. And I think that has been a positive factor for us right now. We're finding increasing interest from credit unions. I think it's just natural that everybody looks at their depositories right now and the farther away your relationships and connections are from your home market, the more scrutiny you give them. So we've I think seen some nice response from credit unions and we're working hard to make sure they understand the benefits of banking with Bank of Hawaii. Robert Bohlen - Keefe, Bruyette & Woods: And then my second question is it looks like a lot of the deposit growth is on its way to funds sold. Is that something that you're waiting to see, how sticky those are and will it eventually move into securities or is liquidity kind of pretty king here?

Well, we ended the year with a lot of focus on liquidity, not knowing what conditions were going to be like as we moved into January. I would say that there's less anxiety over stickiness than there is over the returns on investing at this point, so the desire for liquidity and the yields or the attractiveness of investment alternatives tell us this is a good time to stay short. Kent, you manage that. You want to add anything to it?

No, that's right. I mean, at the investment rates, given the terms available for the securities that we would want to own, we feel it's just better to stay liquid at this point.

Your next question comes from Erika Penala - BAS-ML.

Just a follow up to Brett's question. For the delinquency trends for indirect auto, could you give us the past dues for fourth quarter versus third?

I sure can.

We can, but not from memory. Mary's looking it up, Erika.

Do you have another question, Erika, while I look it up?

I do. In terms of the deposit pricing environment in Hawaii, I guess it's a two-part question. One is do you still have some peer banks that are out of line in terms of their deposit rate offerings? And the second, in terms of your ability to rationalize deposit costs, do you think we're at a floor?

Let me address that. As we start off the lunar New Year here in Hawaii, I'm reminded that we never say anything adverse about anybody in Hawaii, so I don't think anybody's out of line, but there are unique times and initiatives that some of our competitors have shown up with that we may not fully appreciate. I think as we start the year everything seemed pretty well balanced. I don't think there were any great outliers, Kent, did you?

No, nothing unusual. I mean, obviously it's dynamic and everyone is competing for share of deposit market.

I think what's happened is lending demand has softened and investment alternatives have been less attractive. People have responded as you might expect with rates. I think customer expectations similarly have focused a great deal on the certainly of maintaining the value of your principal, and I think the banking system, in particular Bank of Hawaii, present a nice opportunity there right now. In terms of further rationalization, you know, there's a time impact depending on what rates do, but I don't think we have an expectation of any significant decrease going forward. Peter or Kent, anything you guys see on the deposit side in terms of further price reduction?

I would say that in the time segment things appear to be pretty stable. On the savings side we see some interesting rates out there and we'll see what happens to them as we move through the year within the rate environment we're in.

Yes, Erika, I should correct that. I just addressed our local competitors - Hawaii-based banks. With respect to the national competitors, you tell me what kind of assets somebody's putting on to justify a 3.75% or a 4% rate in this environment. I don't get it and propping those businesses up I don't get either.

And I guess another question is if the opportunities for Bank of Hawaii to buy banks out of receivership presents itself, would you care to go back mainland or, given that your concentration in Hawaii from a deposit standpoint, is that a nonstarter?

It's a pretty interesting question. For us it's about building value and we try to keep a focus, shareholders first, but then balance that with community and customers and employees. And when we look at the risks associated with going outside of our market in an expansion, especially an acquisition, it just seems hard right now to justify that. In fact, I'll go one step further. As you look at the quarterly results and you see the goodwill impairments showing up, I think it really has to question whether it's ever made a whole lot of sense to try to grow aggressively that way. So we've always left that as an option. If it builds value, we would give consideration to it. We know that there are going to be lower prices and probably some institutions under stress. We've got a strong, solid, well-prepared management team. So could there be some place where our brand worked and in combination with attractive pricing and a good market? I guess we wouldn't rule it out. But I'll tell you we're far more interested in making sure that our bank operates efficiently and we've got the work force aligned and the marketing program set for our markets right now. A long answer to a question, Erika, but we address it regularly and we just haven't found an opportunity that makes sense for us in looking now for quite awhile.

Can the regulators force you or compel you to anything out of market? I'm just wondering if you're sort of one of the strong banks standing.

Well, in case they're listening, you know, we're always willing to discuss an opportunity. There is some price that could become so attractive I suppose it would make sense. Our relationship with our regulators has never been one of force. We have good relationships and good discussions with them, and we certainly would entertain that. But I don't think they're going to come over here and say you guys have to go do this. I do see some interesting dynamics in some larger banks where it appears there are trade-offs - if this, then that kind of thing - and maybe that's helpful. But I don't think they see us as a major player in resolution of problem situations.

And before I remove myself from queue, Mary, do you have those delinquency numbers?

I sure do. Our 90-plus are actually down year-over-year from 27 basis points to 15. And then our short-term delinquencies are trending up a bit, but only about 10 basis points year-over-year. Clearly, we're cautious going into this year with the economic slowing in Hawaii.

Your next question comes from John Flanagan - [Unidentified].

I think you said that the trust income was down in the fourth quarter. I'm a little surprised by that, Al. Could you comment on the outlook?

Yes, John, it was down in the fourth quarter and primarily as a result of asset values on the equity side. To a lesser extent, we get into our asset management business and the mutual funds, and you get a compression around your fees. And so you get some fee waivers as yields get increasingly low, towards zero. So that's what I would say about the revenues in that business. Peter or Kent, anything you want to add in that?

On the asset management? I didn't catch the front of that.

Trust and asset management fees and we've got it both ways, right?

Yes.

Lower equity fees and then the money market funds?

Yes, well the equity markets clearly aren't helping us. International markets, of which we have some funds, are in even worse shape than domestics. We're seeing, as you might expect, people moving their overall asset allocation to a more conservative stance, which gives us a lower weighted fee structure. And then, as you mentioned, Al, as money market rates get narrower and narrower, that starts to put pressure on our fee-earning capabilities in that segment.

John, in terms of looking forward, you sure would hope that the equity values have reached a point where they won't be decreasing. We don't have a prediction on that. I think as time goes on we've opened up our architecture and have an enhanced product there. As people reevaluate their asset allocation, we may have some attractive product offerings. And then that gets into sort of the rate and volume mix, and I just don't have - I think that gets pretty finite for us to make any prediction about 2009 going forward.

Well, Al, did you have an increase in trust accounts for the year?

Yes.

Meaningful?

No.

My other question, Al, relates to treasury stock. I'm amazed how ironic it is. Every company I deal with and call on has absolutely stopped the treasury stock program even if they have tons of cash at the same time that their stocks in most cases are at the most fundamentally attractive level they've been in 5 or 10 years. Would you restart treasury if you felt a little more comfortable with the world out there?

Yes. Now, John, that's if we felt a little more comfortable; I accepted your condition at face value. Right now with regulator oversight, I think their encouragement is to build capital. Our own intuition is to build capital. And for us it couples up with the decision on not taking the government investment. And so in that decisioning, we talking with our Board and everybody who we consulted about our internal capital generation rates, and we think giving that a little bit of time to work makes some sense. We have mixed feelings. We'd like to buy back our stock, particularly when it's an attractive buy. On the other hand, if we lose that window, we think that might bode well for some of our shareholders as well.

Your next question comes from Jordan Heimowitz - Philadelphia Financial.

Two quick questions. One is what is your reserve for the airplanes on your books in dollars or percentages?

I don't know that we've ever disclosed that Jordan. I would say it's substantial. We haven't made a disclosure of allocation to elements, have we done that, Mary?

In the second quarter last year you gave the number.

Wow, we gave the number?

Yes, in the Q.

It's up a little from then.

But approximately the same?

Approximately the same number, but I think - isn't our airline exposure down from then, Mary?

Yes, it is.

It was $80 million I think at that point.

You just want to take a peek at that? If we've disclosed it before, then we can comfortably update it, can't we, Cindy?

Yes.

It's still about - it's below $80 million now.

So our exposure, Cindy, to the airline is how much?

It's $80 million, rounded up.

Rounded up to $80 million. And Mary, where are we percentage wise? Do you happen to have that with you?

I do.

Mary's looking so we give you an accurate answer. I've got kind of a percentage in mind, but she'll get us the precise part of the allocation, Jordan. Have you got a second question?

I was just wondering the credit quality on that book because you don't break it out. Was everything current?

Everything is current. But we've been consistent in reminding people that we have that exposure and being current in the airline industry, typically those leases structure with a six-month or an annual pay and so it's not quite the same as monthly pay lease structures, Jordan. I'm sure you're familiar with that, but I wanted to mention that for people who might not focus as much on it.

My other question as you're looking that up is you've got a pretty decent exposure to Guam and Guam could benefit from some military repositioning. Can you give an update? Has there been anything finalized, discussed or where things stand on that? And what's your dollar or percentage amount of exposure to Guam is as well?

Well, our Pacific Island business, which is primarily Guam, generally is about 10% of our assets of our loan book. And Guam would be most of that, so maybe it's 8% or 9% in total. The military repositioning - the Marines moving from Okinawa to Guam - was announced a couple of years ago and got a lot of discussion and attention. Since then I think the military has continued to work aggressively on planning in preparation for that. The government in Guam has a lot of infrastructure needs to make that work smoothly. And I think that has been the challenge, is for the good folks out in Guam to figure out how to take care of all of that. I think that has toned down the discussion here over the last six to 12 months. I think now as we look at some of the defense profile versus our budget or our expenditures, it's a little less clear exactly how much and what the timeline is. I do know talking to the military folks they have some nice advances in their plans, and I'm just not up to speed on what their timeline is, Jordan. So that's a little color around sort of maybe a non-answer. I don't know. Mary, do you have a number or are we going to have to do some work and get back to him?

$30.7 million.

$30.7 million.

So it's almost identical to where it was before?

That's millions of dollars against the exposure that rounds up to $80 million, right?

Yes.

Well, if there are no other questions, I'd like to thank everyone for joining us today. And, as always, if you have additional questions, please feel free to call me at 808-6948430. Have a great day. Happy New Year, everyone.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.