Bank of Hawaii Corp (BOH) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter 2008 Bank of Hawaii Corporation earnings conference call. My name is Carmen and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, ladies and gentlemen, this call is being recorded for replay purposes. I would now like the turn your presentation over to your host for today's call, Ms. Cindy Wyrick, Director of Investor Relations.

Good morning everyone. Thank you for joining us as we review the results of the first quarter. Joining me this morning is our Chairman and CEO Al Landon; our Vice Chairman and CFO, Dan Stevens; Vice Chairman and Chief Banking Officer, Peter Ho and Vice Chairman of Corporate Risk, Mary Sellers. Our comments today will refer to the financial information was included in the earnings announcement this morning. Before we get started let me remind you that the conference call will contain some forward-looking statements and while we believe our assumptions are reasonable, there are a variety of reasons the actual results may differ materially from those projected. And with that I would like to turn the call over to Al Landon.

Thank you, Cindy.

Good morning everyone. Bank of Hawaii enjoyed very solid results for the first quarter of 2008. We achieved our major financial performance objectives. As Dan will discuss, we benefited from some extra revenues and we recovered some of the litigation costs recognized in the fourth quarter. These gains allowed us to reward our people, provide for increased risks, and attend to some other needs. Dan will also review highlights of our first quarter operating results. And I will add some comments on the Hawaii economy.

Our bank's credit profile remains just as strong as last quarter when Mary provided a review. Although there are no significant changes in credit to discuss this quarter, you can be assured that we continue to focus on risk reduction. As Cindy indicated, Peter and Mary are also with us this morning and will be happy to respond to your questions.

Dan?

Thank you, Al. Hello, everyone. As Al mentioned, Bank of Hawaii's financial results for the first quarter of 2008 were very solid. Both on an operating basis and as a result of two items that had a positive impact on our bottom line. Net income for the first quarter was $57.2 million, up from $40.9 million in the fourth quarter and $47.3 million in the first quarter of 2007. Diluted earnings per share were $1.18 compared to $0.83 last quarter and $0.94 for the first three months of last year. Our return on assets was 2.16% and return on equity was 29.9%.

I will explain the two items that impacted our first quarter results as well as how they gave us the opportunity to use the related proceeds and then comment on our operating results for the quarter. First, as you are aware, Visa completed its initial public offering in the first quarter of 2008 which resulted in the bank receiving $13.7 million for the portion of our shares that were redeemed. These proceeds were booked as a gain in the first quarter. In addition, as a result of its IPO, Visa funded a litigation escrow that enabled us to reverse $5.6 million of litigation expense that we booked in the fourth quarter of 2007. Our remaining restricted shares will be held in other assets at zero carrying value and we have no plans to sell these shares. The total impact of the Visa IPO in the first quarter including the redemption proceeds and the litigation expense reversal was $19.4 million pre tax and $12.5 million after tax.

The other gain we recorded in the fist quarter in involved a lease transaction. In March of this year, the lessee of an aircraft owned by Bank of Hawaii exercised its early buy out option. We recognized a pretax gain of $11.6 million on the sale. In addition, the early buy out aloud us to reverse tax accruals resulting in a net tax benefit of $1.4 million for a total after tax impact of $13 million. Together the two gains were a pre tax $31 million. We used a portion of these proceeds to invest in our people, to contribute back to our community, and to book additional provisions related to risk management.

First, we took advantage of the opportunity to invest $9 million in our people. About half of the $9 million went to senior officers by awarding them cash grants to buy stock in Bank of Hawaii. The remainder will go to a broader group of employees as a performance award under our additional incentive pay plans. Second, we accrued $3.6 million to provide for legal and other contingencies. Third, we added $9 million for our allowance for loan and lease reserve as the result of economic factors in our market that Al will comment on in his remarks. Fourth, to reduce our funding costs, we exercised our option to call the last $26 million of our outstanding trust preferred securities. We incurred a call premium of $1 million but with a rate of 8.25% on the securities, the pay back for us on this transaction is less than six months. I also want to point out that even though these securities were included as tier one capital, we continue to be adequately capitalized and will maintain our 7% leverage ratio.

Finally, we invested in our community by providing for $2.25 million of contributions, most of which benefit the Bank of Hawaii Charitable Foundation.

The after tax impact on first quarters net income of the two gains, net of the investments and risk management people and our community was $9.5 million or $0.20 per diluted share. Excluding these highlighted items, our return on assets was a solid 1.8% this quarter and our return on equity was 24.9%. Both ratios improved compared to the fourth quarter.

Turning now to the other components of the income statement, our net interest income and margin both improved in the first quarter. Net interest income was up $2.7 million from the fourth quarter and net interest income benefited from the steeper yield curve and lower deposit cost due to decreased rates in core deposit growth. Net interest margin was 4.17%, up five basis points from the fourth quarter and 10 basis points from the first quarter of 2007. The analysis of the change in net interest income is included in table 7A and 7B. Non-interest income for the first quarter of 2008 was $86.1 million up significantly because of the gains mentioned previously. Excluding the Visa proceeds and asset solid gains from both quarters non-interest income was $60.8 million in the fourth quarter up $3.6 million or 6% compared to $57.2 million in the fourth quarter of 2007. The increase was primarily due to a $2.3 million increase in mortgage income, largely due to refinancing activity and a $1.7 million increase in seasonal contingent insurance commissions.

Non-interest expenses increased over the fourth quarter of 2007 because of the use of proceeds related to the items I discussed earlier. Adjusting for the use of those proceeds, non-interest expense totaled $83.2 million in the first quarter, down from the fourth quarter and only $1.1 million higher in the first quarter of 2007.

Our efficiency ratio dropped below 50% on the strength of the gains. On a normal operating basis our efficiency ratio was about 51% for the quarter.

Moving over to the balance sheet, outstanding loans totaled $6.6 billion at the end of the period, essentially flat from December 31st, 2007 reflecting some slowing of the economy and more stringent underwriting standards. Compared to the first quarter of 2007, loan balances reflect modest growth, increasing $72 million on a period end basis and $26 million on average. Our construction exposure has declined $55 million since the end of the first quarter of last year and is now $191 million.

Our investment securities portfolio which was approximately $3 billion at March 31st, 2008 is strong from a credit, duration and liquidity perspective. The size of our investment portfolio increases or decreases subject to loan growth.

Since the fourth quarter of 2007, we have reduced our exposure to foreign corporates by $124 million or 57%. Our $125 million power value and subordinated notes mature on March 1st, 2009 and they no longer qualify as a component of total capital. As of January 1st, 2008, we elected the fair value option for our subordinated debt.

Period end deposits increased $160 million compared to December 31st, to $8.1 billion at the end of March. Savings deposits were up $98 million this quarter due to several factors including a successful deposit acquisition campaign. Average deposits also increased this quarter up $150 million from the fourth quarter including a $50 million increase in non-interest bearing demand accounts. A portion of the increase in deposits is attributable to one large commercial deposit. The solid growth in our deposits this quarter contributed to a strong liquidity position. Most of the liquidity was held in short term assets. At quarter end our loan to deposit ratio was 81%.

Asset quality remains strong. The additional provision we have booked reflects increased risks in our small business, unsecured consumer and air transportation portfolios. We believe that the risk factors outlined in our press release may negatively impact the collectibility of both our small business and unsecured consumer portfolios. We also believe that increased fuel costs and a softening nationwide economy will place further strength on airlines, potentially negatively impacting the remaining airline related leases in our portfolio.

Non-performing assets were $6 million at the end of the first quarter, up from $5.3 million as of December 31st. As a percent of total loans non-performing assets were nine basis points, one basis point higher than the fourth quarter and comparable to the first quarter of 2007.

Net charge offs during the first quarter were $5.4 million, unchanged from the fourth quarter and up from $2.6 million in the first quarter of last year. This increase is primarily due to higher losses in home equity loans and a $2.1 million partial recovery on an airline lease in the first quarter of 2007. Our loan allowance for loan lease losses was $100 million at March 31st, representing 1.52% of loans and leases.

We also continued our share repurchase program by purchasing 652,900 shares during the first quarter at a cost of $31.4 million. Since quarter-end we have repurchased another 65,000 shares so our remaining authorization was approximately $59.8 million as of this morning.

Our target tier one leverage ratio remains at 7%.

In conclusion, our Board consistent with our March dividend, declared a $0.44 per share dividend last Friday.

And I will now turn the call back to Al.

Thanks, Dan. In January, we indicated that the Hawaii economy was in pretty good shape even though there were some signs of slowing. Our earnings announcement this morning indicated that the signs of economic slowing have become more clear. Consistent with these indications of a slowing economy, we remain cautious about the credit risks we face.

As Dan mentioned, we have increased our liquidity and reserves. We continue our efforts to reduce credit risk in our portfolios. We are less clear as to what changes may occur in our local competitive conditions. Although we expect economic slowing may reduce our opportunities slightly, we continue to see Bank of Hawaii's capital generation from income as strong. As Dan said, we expect to maintain our capital levels of 7%. And with our very solid first quarter, we maintain our goals of positive operating leverage and earning 1.7% on assets and 25% on equity. Now, we'd be happy to take your questions.

(OPERATOR INSTRUCTIONS) We will wait one moment while questions compile. The first question comes from the line of Brett Rabatin from FPN Midwest. Please proceed.

Good morning everyone.

Hi, Brett.

First just congratulations on the results in the current environment. I know it is fairly tough. I wanted to make sure one thing on the excess liquidity, the $240 million of Fed funds at the end of the quarter and the average balance is higher during the quarter, is that commercial account shorter term in nature or can you give us some color on whether that can be deployed in higher yielding assets or whether it is just off the balance sheet.

It is a combination of a couple of things, Brett. The demand deposit as Dan mentioned, pretty large denomination. I think it is between $50 million and $75 million. That has moved in and out of banks around town. It tends to move to us in certain economic conditions and elsewhere in other economic conditions and elsewhere in other economic conditions. And not money that we would count on for the long term. We also get sort of seasonal tax flows out of some our public institutions and we basically take those funds more as an accommodation than as a profit source. So, both of those are not sources that we would bank on with steady long-term retention at those levels. And then when we take a look at what we see in the asset marketplace, this just didn't feel like a good quarter for us to be going out very long. We sort of have the sense that retaining some liquidity probably has some advantages to us so it is the combination of those two factors, Brett.

Okay.

Do you want to add on that?

No, that's fine.

Okay. And then, wanted to maybe--a question for Mary. Wanted to go through you mentioned in the press release and in your commentary, more conservative thoughts on the economy and a slightly higher level of criticized loans, obviously after a low four. Can you put some more color around that? And then 90 past due was a little lower but just curious on any additional color on the indirect portfolio and then obviously then aircraft as well.

Okay. Maybe I will start with the indirect portfolio. As you can see, Brett, the net charge offs were down dollar wise from 4Q to 1Q.

Right.

We have made numerous changes in underwriting over the past year and we are starting to see some benefit from that. We do see the 2005 and 2006 vintages still rolling through and those are showing a higher loss rate than what we are seeing from '07. The other part of your question?

Well, just. Very modest increases. In the modest increases in criticized?

Yes.

Okay. And you have never disclosed really, obviously the one you had come off the quarter was not, not local. You never really disclosed too much about the aircraft lease portfolio. Can you give us a sense today of the credit ratings of the aircraft portfolio and just what you have seen in that portfolio relative to the current environment?

Yes, the credit ratings are terrible. They're all the airlines-- not all the airlines you read about. If you remember, Brett, we had a larger portfolio, and this quarter we got down the good way. We got down the bad way, got our exposure down the bad way a couple of times before.

Yes.

We have a little table in there that breaks it out between U.S. and non U.S. and we have got an air cargo carrier in there. It's a mix. What I would tell you is that we are pretty comfortable with our reserves related to that. If you look at the rest of your balance sheet in our reserve levels, you would conclude we were pretty conservative in our reserves, and we have got a higher level allocated to our aircraft exposure portfolio than what we do to anything else in the portfolio.

Okay. Maybe we can follow up off line about that. Lastly I guess I was surprised, Dan to hear you were leaving. Can you provide any color? It sounds like you are going to come back to the mainland or any thoughts on, you leaving and then just for your CFO search if that's going to be mostly internal or if you are going to again lookout side of the Company as well.

Well, I will leave the search to my chairman to my left. I left for personal reasons. The perception of living in Hawaii away from family et cetera in the mainland and the reality once I got here were kind of two different things. So I have enjoyed my working with the bank, the people here. I have had a great time, but for more of personal reasons I thought it would be best at this time to head back home.

That was my guess. I have heard that from another transplant as well. So, best of luck to you. Thanks again, everyone.

Thank you.

And the next question comes from the line of Ken Zerbe from Morgan Stanley. Please proceed.

Great, thanks. Can you just give a little more detail in terms of the increase in the compensation expenses? And I mean this in the best possible way, but maybe just touch on, you know, why you take gains or one-time gains from your portfolio or Visa and give it back to the employees of the Company. And how that should be viewed as a good thing for the shareholders. Thanks.

Oh yes. We are in a position right now where looking at equity-based compensation over the last few years, seems to be rather bifurcated in its perception. On the one hand you have investors who say gee it is good to have the officers of the Company own shares and think like shareholders. And on the other hand, you have got this whole world of oversight that is constantly focusing on and pinging on equity based compensation. So what we decided to do was to try to simplify our process a little bit. And we gave cash grants to our senior officer team that is about equivalent to a year and a half worths of restricted stock amortization. And we said, why don't you use that cash, sort of as a win-fall like our lease gain and invest in the Company. And we are going to see how that goes. The benefit is that when you change from restricted stock which is a grant up front and expense over the lifetime, to a cash grant which ideally would be accrued up front and dispersed at the end of an expense stream you get a gap there. And the only way you can cover it is a one-time grant and we happen to have one-time income and I paired the thing up and said we are going to do that.

And this is just, just this one time or is this something you might plan to do an annual basis going forward?

We are going to see how it works. As I said, it is equivalent to longer than a year's worth of amortization. And so it is sort of covers this year's amortization or the amortization of grants of restricted stock we would have otherwise needed to make this year. And if that works out and we get some good satisfaction from our employees and we have the retention goals we have in mind, then we will probably start accruing for it and continue that in the future. If it doesn't work out quite the way we expect why then we will take a look at what's the next best way to incent performance.

Understood. The other question I had was just in terms of the risk of your loan portfolio. I know you are highlights, airlines, small business and unsecured consumers being why you are increasing your allowance. I guess last quarter you were focused more on the auto portfolio. Are we seeing a material deterioration in the small business and unsecured consumer or are you just trying to be cautious?

I think we used the word cautious in our release and comments a few times this morning, and that's a pretty good description.

Great. Thanks.

The next question comes from Erica Penala from Merrill Lynch.

Good morning. Mary, I was just wondering if you can give us some color in the home equity portfolio. I know it wasn't mentioned as an area of concern. Could you tell us what early stage delinquencies are shaking out to be in that portfolio and if you have a sense of changing payment behavior or more strain?

Actually in our home equity portfolio, early stage delinquency is down. In fact early stage delinquency is down across all of our consumer portfolios. It ran 23 basis points this quarter versus 53 in the fourth quarter. And you can see our NPAs are down in home equity too. So, we haven't seen any material shifts in terms of credit score, LTV et cetera to this point.

Okay.

We do continue to tighten though at the margin, as Al has mentioned, as we really just look to reduce risk moving on out.

And what's the size of your portfolio that you would consider small business?

About $200 million.

Okay. One last question, how should we think about the run rate, the expense run rate going forward? Dan?

As I mentioned if you look at our expense run rate from the first quarter of last year to the first quarter of this year we are only up slightly under $2 million on last year first quarter, first quarter of this year. So we expect to continue to have a strong focus on expense control, obviously we will look at opportunities in the marketplace to hire good people or to invest in products. But I think you still see very strong evidence of a focus on expenses.

I think Dan, we said last quarter we would anticipate a expense run rate of $82 to $84 million, $82.5 to $84.5. Somewhere in that range, Erika.

Right. We are consistent with that.

Okay. Thank you so much for taking my call.

And the next question comes from the line of Brent Christ from Fox-Pitt. Please proceed.

Good morning.

Morning.

Just a follow up on the expense question, could you give us a sense in terms of some of the employees incentive awards that you incurred this quarter, how much of that you potentially kind of brought forward from future quarters versus, it was just in excess of what you would have otherwise planned to incur over the course of the year?

We didn't bring too much forward from future quarters. Maybe, maybe $1 million or a little bit more. What we did though, when we set the budget for, for 200 -- for 2008, it was recognized we didn't have enough money in it for the shareholder, and so we took a little bit out of our bonus pool. And the main amount of our traditional bonus plans was to help restore, sort of to top off that piece, so that at the end of the year, if we have good performance in the next three quarters we will be able to pay a full bonus. Just kind of an offset to the slowness that we would expect to see in revenue growth.

Got you. And then, a follow up on the airline portfolio. Could you give us or quantify how much you have in reserves specifically allocated to that portfolio at this time?

I don't think we have ever disclosed that, have we?

If you look in the Q, it is roughly the same percentage. I mean the K, that we break down.

We give it there?

We give out on our total leasing. So if you look at that.

Okay. So the total leasing would be primarily the airline portfolio then?

Yes.

Okay. And then, lastly, it looked like the loan balances were relatively stable this quarter. Could you give us a sense of how the pipeline looks? It looks like you had a little bit of growth on the commercial side but I am just curious how the pipeline is at the end of the quarter.

Peter?

Sure. Really, the loan portfolio breaks out with reductions in outstandings down the construction and leasing side and increases down our C&I and permanent mortgage booked, and I think as we look out in the next several quarters we look to see that trend continue. We have good pipeline in the C&I book. We put a lot of emphasis into what we would term owner occupied commercial mortgage activity and we are seeing some good lift there.

Okay. Thank you.

(OPERATOR INSTRUCTIONS) The next question comes from the line of Justin Maurer from Lord Abbett. Please proceed. You may proceed, Justin.

Hello. Can you guys hear me?

Yeah, coming through loud and clear, Justin.

Sorry about that. A couple of follow ups. First on the leverage ratio at 7%. I mean clearly you guys are in an enviable position that most aren't at this point. What are your thoughts? I know you mentioned just quickly, the share buy back that you are largely there, I guess. I assume you would prefer to stay on the conservative side of that and just kind of maintain even if you are generating excess capital to hang on to that and maybe the percentage drifts up a bit. Is that fair? Or are you still going to try to drive to that number?

We are going to watch our risk indicators and we stay in touch with our regulators as well, who pay attention. For right now, we are sort of assessed we could let that move up pretty conveniently if we needed to. But sort of the steady buy back program has worked pretty well for us. So I guess maybe I am not really answering your question, am I? We are going to stay where we are at 7% for right now but we have got flexibility to move that up if the situation suggests we need to.

Okay. Just are you finding in conversations with the regulators, that, that is the number one metric that they're focused on; because I know some of the capital raises that have occurred including one today focus on tangible equity, and I know that has been kind of a controversial point for folks when people were making--banks make an acquisition, they would tell you that the regulators didn't care about tangible capital, and now all of the sudden you are seeing actions maybe suggest otherwise.

Funny how that changes, isn't it?

Yes.

The, in our case we don't have very much goodwill. It has been quite stable. We have not been in the acquisition business, and so, we really haven't had to draw those distinctions nor have we had to have any serious conversation, well, any challenging conversation with our regulators about capital levels.

Yes.

All of our conversations are serious, but they understand our business plan. They understand where we are going, and at this point, they see the risk profile as aligned with our capital levels and flexibility to adjust if we need.

Yes. Okay. Just so I understand, the cash grant again, to follow up to the earlier question. That is in lieu of restricted stock this year upon which you hope or I assume have sign off from those folks that they will turn around and buy the stock. Is that right or --

Yes, that's pretty close.

Okay.

The word "hope" is something we wrestled with a little bit there. And we are going to disperse this in more than one payment.

Okay.

We will see how the first installment goes in terms of utilization for investment purposes, and that will help qualify people for future installments.

I guess the question though is did you, is there an accounting difference as to the way this flows as opposed to if you had earmarked this amount of stock for the bonus, call it $3 million that you could have just provided for that as the year went on as opposed to this cash payment now if you will to hope to turn into stock later or expect to turn into stock later?

I think you have got it, yes.

Okay.

If, the normal thing would be if you have a plan, you should accrue it and spread it over the work period.

Okay.

That is indeed what may happen in the future.

Yes.

If the program is successful. But in this case, looking at the accounting for it where we had gains in one quarter.

Yes.

And we matched up expense by making a payment to the employees.

Okay. And what typically is the split of restricted stock versus cash incentive compensation an on annual basis? Is it predominantly cash.

Yes. It is heavier weighting in cash traditionally. And then the idea of the equity based compensation is longer term, so we worked off of annual grants that had a performance accelerator on it.

Okay. So the 3 million or so that was accrued in the first quarter, is that, how does that compare to what was done in '07? I don't have that handy. I don't know if it was delineated as a line item anyway.

It is-- the line item had several things in it, and the element of comparison that we work off of, Justin is sort of what the amortization into expense would be following the restricted stock grants.

Yes.

And we are, as I mentioned, a little bit higher, we, I think $4.5 million was the cost of our grants or cash awards this quarter. And that is about a year and two thirds worth of amortization.

I follow you. Okay. Got it.

Follow where I am going there?

Yes. Yes. Okay. And just one last thing on the comp. Is how are you guys or how is the Board thinking about what your earnings targets or whatever targets are going used this year. You mentioned the 25% (inaudible) and so on, kind of the standard targets but when you guys think about the noise if you will of this quarter and the puts and takes to help us kind of understand what's being included and excluded from a bonus calculation perspective?

Yes. Well as Dan said, we dropped $9.5 million through to the bottom line for the shareholders.

Yes.

And we think of that as giving us some assurance that we will be able to achieve those performance levels when we look at what we think is going to be a slowing economy out here in Hawaii and the risk that portends.

Got it. Okay. Just two quickies, otherwise, indirect auto you have talked about that the last couple of quarters, hoping to bring that down. Average balance if I am looking at this right was down $6 million, $7 million . Is that as expected,less than

Pretty much as expected. Hawaii is down a bit more. We do have a small piece of mainland exposure that was up about oh about $6 million for the quarter.

Okay. And is that kind of directionally, should we expect that order of magnitude every quarter or is it not that linear?

You should expect about that direction of magnitude each quarter.

Okay. Mary, while I have you too on credit, obviously there's this nice balance that you guys are trying to strike here of being prudent yet I think we are all trying to figure out are there things you guys are seeing that we are not seeing and clearly you addressed the consumer side of things that early stage delinquencies are down. I think you guys have been pretty public about what airlines you may or may not have exposure to in terms of the ones that have already filed. So, I guess I can, we can take from that that there's no adverse development if you will since the end of the quarter on the bigger bulk of your stuff.

Exactly. No significant changes on your larger C&I portfolio.

Thank you. Appreciate it.

Thanks, Justin.

And the next question comes from the line of Andrea Jao from Lehman Brothers. Please proceed.

Good morning everyone.

Good morning, Andrea.

Hoping to get your outlook with respect to the margin. How much more expansion can we expect over the course of 2008 and what does this improvement hinge on?

Well, I think as Al mentioned before, given the market we are in now, we are more interested in liquidity. So we had that one large deposit. So I would look at our margin holding relatively steady for the year, and net interest income as well. But we are not going to be putting a lot of our excess liquidity and going you know, long and buying various securities. We are going to probably keep our powder dry, just given the economic environment we are in both on a national level and Hawaii.

And you know, what kind of loan growth to do you expect in this source of funding then?

I think on the loan side, we would anticipate for the next few quarters that we would look similar to how we looked Q1. You know, certain pockets we still see a nice risk adjusted return opportunity, certain pockets as you know we are trying to window down our outstandings on. On balance I think we get to zero or slightly positive though. Okay.

On mortgage banking, how much does this--obviously mortgage bank revenues are elevated in the first quarter. How much do you think this is in or perhaps you can maintain this higher run rate going forward.

We would love to, but a lot of the activity was due to refinancing of mortgages, in the first quarter, maybe bleeding into April. But we would love to do that but just given the economic reality and the housing market in Hawaii we don't expect that to be running through the rest of the year.

Well, I think that's right. The offset is the housing market is getting tougher. The upside we are seeing fewer competitors in the market if you will. And the rate environment is pretty attractive.

Right.

Great. Thank you so much.

Hey Andrea, you asked about funding and we didn't comment on that.

Right.

And I guess it makes sense if we are not looking at a lot of loan growth you wouldn't have too much incremental funding but we are continuing to focus on savings and transaction account growth, and we are seeing positive movement in that direction. So, to the extent that we can reduce institutional and time funding, that continues to be our plan as we move forward. We will just have to see, I made a little comment about the competition. We are just not sure what all is going to p happen there as mortgage shake out continues and you see rescue plans of companies that have been active out here specifically the Country Wide. We just don't know what that is going that bring to the mortgage side of things.

Great. That's very helpful. Thank you.

And the next question comes from the line of Bobby [Bollin] from KBW. Please proceed.

Hi, thank you. On a follow up to the margin, if I looked at the most of the decline in the savings rates--I'm sorry, the deposits rates came through the savings, with a much smaller decline in the time. So I was wondering if you can let us know what is the current prevailing CD rate and what is kind of the average life of CDs currently?

I don't have the CD rates in front of me. I will have to get back to you on that.

Bobby you may have got us here.

I don't have that in front of me, Bobby.

Okay. (inaudible) back from Germany? We will get back to you on the follow up, maybe give Cindy a call after the conference.

Okay. I will. And second, on a, just on the other items you mentioned in the Hawaii economy outlook that there was some cruise ships relocations. What exactly was that?

My comment was, we have within blessed with three large cruise ships, visitor cruise ships that circle the islands here and over the last few months we have had two of those announce plans to move to other markets. So that is going to reduce the supply business and the transportation business here in Hawaii. Cruise over night between island and then stop during the day and let visitors off to the islands. So we are going to see some reduced visitor counts as a result of those relocations.

Okay. And then on the two recent bankruptcies we saw they were both coming out of the west coast, delivering arrivals to Hawaii. Have you seen--

You are talking abut airlines, Bobby?

Yes, sorry.

Yes. Aloha here at the beginning of the month and a couple of days later, ATA did the same thing. So that is going to temporarily reduce lift available from those carriers and probably increases the price although other carriers are increasing their lift on a quick basis here. But it is going to take some time to adjust for that.

Okay.

Bobby just to follow up on your question, we have a special time deposit rate of 1.85% which is a five month rate and the average duration of our portfolio is about six months average life.

Okay. That's helpful. Thank you.

And we have no further questions. I would now like the turn the call back over to Mr. Al Landon. Please proceed.

Thank you. I would like to close our discussion this morning, Dan, by thanking you for your contributions to our success. We hope you'll take a little bit of aloha with you when you leave the islands, and we wish all the best.

Thank you, Al. It was a pleasure being here.

I would like to thank everyone for joining us today and for your interest in the Bank of Hawaii. As always, if you have any additional questions, please feel free to contact me, 808-694-8420. Have a great day, everyone.

This concludes the presentation for today, ladies and gentlemen. You may now disconnect. Have a wonderful day.