Bank of Hawaii Corp (BOH) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2010 Bank of Hawaii Corporation earnings conference call. At this time all participants are in listen-only mode, and later we will conduct a question-and-answer session. (Operator instructions). As 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, Director of Investor Relations. Please proceed.

Thank you, Jennifer, and good morning, everyone, and thank you for joining us today as we review the results for the third quarter of 2010. Joining with me this morning is our Chairman 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 we released this morning.

Before we get started, let me remind you that today's conference call will contain some forward-looking statements. 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 would like to turn the call over to Peter.

Thanks, Cindy, good morning, everyone. Thanks for joining us today. Bank of Hawaii had solid earnings performance in the third quarter of 2010. Compared to last year, we improved our profitability, reinitiated our share repurchase program, further increased our capital levels and maintained our strong reserves. Our credit quality improved, and we continued to have abundant liquidity and funding.

I'm going 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?

Thank you, Peter. Good morning. Net income for the third quarter was $44.1 million or $0.91 per share compared to $46.6 million or $0.96 per share in the second quarter and $36.5 million or $0.76 per share in the third quarter of 2009. This quarter we realized $7.9 million in gains from the sale of securities in our investment portfolio. We also realized a $5.2 million loss from the early retirement of $75 million of wholesale debt. We realized $15 million in gains from the sale of securities in the second quarter. Our return on assets in the third quarter was 1.37%, and return on equity was 16.64%. Our efficiency ratio was 55.6% this quarter, and excluding the debt retirement loss, our efficiency ratio was 52.4%.

Year to date net income was $143.4 million or $2.96 per share, an increase from last year, which was $103.5 million or $2.16 per share. Year to date return on assets was 1.52% and return on equity was 19.28%. Our efficiency ratio was down to 50.1% from 52.7% last year. Our net interest margin in the third quarter was 3.27% compared to 3.51% in the second quarter and 3.85% in the third quarter of 2009. Year-to-date, net interest margin was 3.5%, down from 3.78% last year. Our lower margin was primarily due to lower yields in our investment portfolio and a lower level of loans versus a higher level of investments.

In the third quarter, for example, the 30-year mortgage rate declined, on average, 31 basis points compared to the second quarter. This impacts the portfolio yield in a couple of ways. First, paydowns are relatively high and newly purchased securities generally have a lower yield. Second and perhaps more importantly, the amortization of any mortgage-secured premium is increased because the expected life of the security is reduced. For us in the third quarter, the premium amortization was $4 million higher compared to Q2.

The credit provision in the third quarter was $13.4 million compared to $15.9 million in the second quarter. The credit provision for the third quarter equaled net charge-offs. Our allowance for loan and lease losses at the end of the third quarter remained at $147.4 million or 2.8% of outstanding loans and leases. Non-performing assets were $45.2 million at the end of the third quarter, up $1.9 million from the end of the second quarter. Included in non-performing loans are $26.9 million in residential mortgage loans.

Non-interest income for the third quarter was $63.1 million, down $5.7 million from the second quarter and up $6.3 million from the third quarter of 2009. The decrease from the prior quarter was primarily due to $7.1 million lower realized gains in the securities portfolio. Overdraft fees were $2.3 million lower, and mortgage banking income was $3.1 million higher. So far, approximately 30% of our customers who have previously incurred overdraft charges have elected to opt in. We also realized $2.9 million from the sale of our mutual funds business. Year to date non-interest income was $203.8 million, up $16.8 million from last year. Non-interest expense totaled $89.9 million in the third quarter, up $4 million from the second quarter and up $5.9 million from the third quarter of 2009. The increases were primarily due to the $5.2 million repurchase termination loss.

Year-to-date, non-interest expense was $257.5 million, down $4 million from last year. The effective income tax rate was 24.7% in the third quarter compared to 34.4% in the second quarter and 32.7% in the third quarter of 2009. The lower effective tax rate was primarily due to the sale of our equity interest in two leveraged leases, which resulted in a $4.4 million credit to the provision for income taxes in the third quarter. Year-to-date, the effective income tax rate was 30.6% as compared to 32.4% last year.

Our investment portfolio now stands at $6.4 billion, up $221 million from the second quarter. The average duration of the portfolio is 1.79 years. We continued to invest on a conservative basis, primarily in Ginnie Mae and Treasury securities, and we have unrealized gains in the portfolio of $148 million.

Loan balances continued to decline and were $5.3 billion at quarter end, down $129 million compared to the second quarter. Excluding the lease category, loans were down approximately 1.6% for the quarter.

We decreased our funds sold by $182 million in the third quarter, which also contributed to a higher investment position. Deposits were $9.6 billion at the end of the third quarter, up $278 million compared to the end of the second quarter and up $352 million from the end of the third quarter of 2009. The increases were primarily in public interest-bearing demand deposits and consumer deposits. We decreased our wholesale funding with government entities by $390 million in the third quarter. Our average cost of publicly repurchased agreements is 9 basis points. We also repurchased three repo agreements with private institutions totaling $75 million in the third quarter, and the average yield on these securities was 3.06%.

Our shareholders equity increased $27 million from the second quarter to $1 billion, and tangible common equity to risk-weighted assets increased to 19.50%. We paid out $21.8 million in dividends this quarter. We also resumed our share repurchase program and repurchased 208,500 shares of common stock for $9.8 million. Our remaining buyback authority is 75.6 million as of September 30. Our board declared a $0.45 per share dividend last Friday.

And now I'll turn the call over to Mary Sellers.

Thank you, Kent. Net charge-offs for the third quarter were $13.4 million, down $1.6 million on a linked-quarter basis. The decrease was due to a $3.7 million decrease in consumer net charge-offs driven off a $3.5 million decrease in residential mortgage net charge-offs. Non-performing assets were $45.2 million or 85 basis points at the end of the quarter, up $1.9 million from the second quarter. The increase was largely due to a $1.7 million commercial mortgage loan which was placed on non-accrual during the quarter. Non-accrual construction loans were reduced with the transfer of one property for $2.1 million to OREO. We were successfully able to close the sale of that property last week.

Consumer non-performing assets totaled $30.2 million and included $26.9 million in non-accrual residential mortgage loans and $1 million in residential OREO. As we have indicated previously, we expect the level of non-performing assets to be impacted in the near-term due to the longer resolution time frame for residential assets. This longer resolution period is due in large part to our efforts to work with our customers to keep them in their homes. Foreclosure is always a last resort, but when we do proceed we are confident our practices, procedures and documentation are sound and accurate. And as we've discussed in the past, we have elected to use the judicial process to ensure homeowners have every opportunity along the way to find alternatives.

Since the first quarter of 2009 we've had 18 customers complete the foreclosure process with 13 properties sold and the remaining five currently in OREO. At quarter end loans past due more than 90 days and still accruing interest totaled $10.5 million, down $2.4 million on a linked-quarter basis due to decreases across all consumer loan categories. Restructured loans not included in non-accrual or loans past due 90 days or more totaled $23 million, up $13.6 million from the end of the second quarter. The increase was due to a $9.8 million increase in restructured residential mortgage loans.

Consistent with the slowly improving Hawaii economy, we continued to see stabilization in what we consider to be the higher-risk segments of our portfolio. Our land loan portfolio totaled $28.2 million, down $2.1 million on a linked-quarter basis and $15 million year-over-year. Neighbor island exposure totals $24.5 million with $21 million for second home and investor properties. In our residential mortgage and home equity portfolios we consider loans originated in 2004 -- I'm sorry -- after 2004 with current credit monitoring scores less than 600 and loan-to-value ratios greater than 70% to be a higher risk.

At the end of the quarter higher risk exposure in our residential mortgage portfolio remained flat on a linked-quarter basis at $21.4 million or 1% of our residential portfolio. $8 million of the higher-risk exposure is for loans on the neighbor islands with $5 million for second-home or investors.

In our home equity portfolio, $24 million or 3% of outstandings were considered higher risk. This was a $1.1 million decrease on a linked-quarter basis. $14 million of the higher-risk exposure is in second position, behind another financial institution's first mortgage. At the end of the quarter commercial construction loans totaled $88.7 million with $39.7 million in residential home building exposure. $18 million is considered higher risk. $5.8 million of higher-risk exposure is for projects outside of Oahu with $3.3 million of this on non-accrual at the end of the quarter.

At the end of the quarter, our allowance for loan and lease losses remained at $147.4 million or 2.8% of total loans and leases. The allowance considers these assets with higher risk. , our legacy aircraft leverage lease exposure and the downside risk in our economy and the potential impact on our customers. I will now turn the call back to

Great, thanks Mary. Major economic measures in Hawaii continued to improve during the third quarter due to a strong visitor industry. Hotel occupancy, visitor arrivals, visitor spending and home sales show improvement. Unemployment in Hawaii is gradually improving.

While we are heartened by the stabilizing trend in our local economy, we remain cautious on the economy as we see greater probability for downside economic surprise than up. Also we see potential revenue headwinds moving forward, resulting from recently enacted financial reform legislation, the possibility of lower interest rates and still muted demand for net new credit in both the consumer and commercial markets.

Now, before we open the call to questions, I thought I would continue with a Bank of Hawaii tradition, providing a quarterly weather report. For the week we are expecting a high of 86 degrees and a low of 73, sunny, with light tradewinds. Airline and hotel prices are still quite reasonable in our marketplace, so this would be a great time for any of you on the phone to come out and visit us.

Now we would be happy to respond to your questions.

(Operator instructions) Ken Zerbe, Morgan Stanley.

Great, thanks, the weather does sound pretty nice out there. First question I had -- can you just talk about the appetite you have for a little more aggressive capital redeployment? I know you hit the dividend and you had $10 million in stock that was repurchased. But it still seems that your capital levels continued to increase. So how do you plan to get those back down going forward?

Ken, you're right. We have abundant capital, and I think we're in a great position. As Peter mentioned, we are still a little bit cautious on the economy. So we are proceeding, as we do in many areas, we are proceeding very carefully. As we look ahead into 2011, we'll make some choices as to the pacing of our repurchases, so we are still looking at that.

Okay, that's fair. And then the second thing -- the NIM compression obviously is, I guess, fairly sizable this quarter. If you have the same level of prepayments -- and I think you mentioned $4 million from the premium amortization -- if you have the same level of prepayments going forward, should we be expecting a similar decline in NIM going forward, or flat? And maybe just talk about the dynamics going forward, because it seems that you're going to have the ongoing pressure from further, I guess, security investments at lower yields.

Right. So it's all a function of the yield curve and the change in that curve. If rates stay flat to where they are right now, we wouldn't expect any greater level of amortization compared to what we've experienced in the third quarter. The actual repricing of securities based on prepayments has a small, a relatively small negative effect because the percentage is also small.

But -- sorry. So you are saying you're going to have a small NIM compression next quarter?

I'm saying it depends, Ken. It depends on interest rates in the quarter. So if interest rates don't change the compression will be relatively small. If interest rates fall, the compression would be greater. Contrariwise, if rates go up, we might not experience any compression. So it really depends on what happens with interest rates.

Okay, I understand, thank you.

Craig Siegenthaler, Credit Suisse.

Just a follow up to Ken's question here on the net interest margin, can you talk about any leverage you have to offset the decline in rates, meaning the ability to deploy excess liquidity here, duration extension on the securities portfolio or retaining conforming residential mortgages, anything we may not be thinking about?

You probably noticed we did take down the funds sold position somewhat here in the third quarter. So that's an opportunity that we will look at as we go forward, which would provide some opportunity to increase interest income. The other factor would be costs and our cost of funds and whether or not we reprice any of that.

As to conforming mortgages, that's a possibility for us. We've done some of that already. So adding to the loan portfolio by taking on some conforming mortgages -- we'll probably do some more of that.

How much of that did you actually do in the third quarter?

It was about $100 million.

Just one follow-a question -- what was the level of the accruing restructured loans? I thought last quarter it was about $14 million, but I didn't see it in the press release this quarter.

I'm not sure we understood your question, Craig. Can you say that again?

What's the level of restructured loans as of the end of the third quarter? I thought at the end of the second quarter it was $12 million.

It's $31.5 million, so about $19.7 million is in residential mortgage. We have $6 million in C&I, and the balance is in our indirect loan portfolio.

Was that a large sequential pickup?

It was a pickup in the residential mortgage section. We were able to do a number of modifications. We made some changes to our modification program that really allowed us to qualify more of our consumers into that.

David King, RBC Capital Markets.

Maybe first off for Kent, that $390 million of repo bonds that came off this quarter -- can you remind us again where those balances were invested and the rate on that?

Okay, I was referring to the funds sold. I think you mentioned repos, which is --

Yes, because I think you had the 390 -- you had those repo borrowings that spiked up in the second quarter, right? And then I think you had $390 million that came off. Was I wrong there in that number?

Right. So, there's an interplay between repo borrowing and deposits that we did bring up some of the government deposits. And so that's the major change between those categories.

Okay, that's helpful. So then maybe, definitely looking at it, then, so for the overall, those private transactions, then, that you did, there were $75 million or so that you prepaid, right. So I think as of June 30 you had -- the cost there was 383, I want to say. What's that kind of cost of funds or costs now?

On just the $75 million, it was 3.06%.

Okay, so the net that's left, somewhere in between the two, I guess? Or do you have that somewhere?

It's -- the net that's left on the private is approximately 3.9%.

Okay, and then maybe just trying to think about the margin outlook going forward, I guess, do you have the number or where the margin was as you guys exited the quarter? Maybe in September, September 30, where that was?

Yes. I don't think we quote that number, do we?

I don't have it.

Yes, I'm sorry; we don't have that figure.

Maybe, then, something else real quick, last one -- on overdraft, specific dollar impact this quarter? And I guess how should we think about the full quarter run rate in the fourth? Or what are you guys thinking is the kind of incremental impact?

Right, so the overdraft revenue was down $2.3 million in the quarter. As I mentioned, the opt-in percentage of customers who previously had an overdraft was approximately 30%. And that number is increasing, so we are getting additional opt-ins everyday. It's hard to say, but we think we will probably end up where we originally thought, which was about 50% loss in this category. And this category in total had been approximately $24 million annually.

Aaron Deer, Sandler O'Neill Partners.

Following up on the questions, obviously there's a lot of revenue headwinds going on, both on the net interest income, as well as on the fee income side. So I'm wondering what there might be in terms of expense offsets as you look for ways to maintain your profitability.

It's certainly an area that we are attending to. As I mentioned in the call, the repurchase of the debt impacted our expenses in the third quarter by $5.2 million. So we wouldn't presume that that would be a continuing kind of thing. But beyond that, we are putting more emphasis on efficiency, productivity and those things that we need to do to lower our expenses in view of the fact that revenue is down.

Aaron, the other category that I know is garnering a lot of attention, too, is I guess what we would refer to as alternative revenue sources through fee increases and the like. And I would say that we are taking a reasonably measured approach to that. We want to make sure that we've got a good dynamic going between the shareholder value and value to the customer. And so, because we've got the sort of profitability that we do, we are going to be probably a little conservative in our approach and our timing into any of those types of changes.

In terms of fee increases? Is that --

Right.

Okay, and then I guess just a quick question on the tax benefit in the quarter. I think you mentioned that was $4.4 million, and that's what it says in the text of the release. But then in the back, where you guys break out the numbers, I think it said $4.0 million. I'm just wondering what the difference is there.

I'm not sure. I can't tell you.

Brett Rabatin, Sterne Agee.

Wanted to make sure, first, I wanted to get a clarification on the comment you said early about the economy. The Hawaiian economy is pretty strong, but you said you indicated that there was a greater probability of downside surprise than upward surprise. I was curious to hear what that was a reflection of.

Well, what we've seen in the base economy is gradual improvement down the major activity drivers. So housing appears to be coming back, albeit slowly. The visitor industry actually has posted some very strong arrival numbers and occupancy levels are looking good there.

I guess what we are really speaking to is the -- I think the probability of those trends improving dramatically from where they are today is, in our mind, probably not that high a probability. The possibility of a downside, call it another leg down in the economy, in the national economy, if you will, or some sort of geopolitical event just happening, either in the Asia-Pacific region or domestically, I think probably has a higher probability of occurrence.

So basically we see -- we like what we see in the economy although, as we think about potential outcomes over the next 12 to 18 months, we see a fair amount of downside risk and not as much or not a correlated level of upside opportunity.

Okay, and does that make you be more conservative, i.e., you were talking earlier about capital and your thoughts on deploy -- ?

Yes. I would say, Brett, that you ought to use that as a way to help shape your views on our thinking of the marketplace going forward in the near-term.

Okay. And then, Kent, do you have the cash flow handy on the portfolio, what you know is going to be coming due in the next few quarters?

Yes, we do, but as you know, with mortgage securities that can vary. That's a function of prepayments on mortgages. So, of course, as rates come down, that number will go up. So we have the contractual prepayments, but there's always an additional element as a function of the environment.

No, I understand. I'm sorry; I'm trying to get the contractual.

Yes. We can give you that figure. I don't have it.

Okay. And then the other thing I was curious about, just from a cost of funds perspective was, I was surprised, CDs don't comprise a big part of your funding base. But the cost of CDs was only down about 2 basis points, linked quarter, and I'm guessing your CD offering rate is below the 1.25% level that you had the past two quarters. Was there any reason why it wasn't down more in the third quarter? And is that one of your areas of opportunity?

It is. We've never been much of a CD shop, to begin with. And really, I think offering that we had in place was really more as an accommodation to customers who had a need or a desire for that product level. And I think, as we've seen rates continue to come down over the past year, that certainly is, from a pricing standpoint and from an offering standpoint, something we're looking at.

Okay, great, thanks for the color.

Joe Gladue, B. Riley.

I think most of my questions on the margin have been answered, but let me ask if you can give us a little idea of what the trends are in early-stage delinquencies, or have you had the 30-to-89-day delinquency number?

Sure, be happy to do that. Actually, on our portfolio, our consumer portfolio in total, it has been pretty flat on a linked-quarter basis. We were down year-over-year about 20 basis points. Our 30-to-59-day is running down about 2 basis points on a linked-quarter and down about 20 basis points year-over-year.

Okay, thank you, I think that's all.

Bobby Bohlen, KBW.

Most of my questions have been asked, just a clarification on two. One, when you process the overdraft, how do you order your overdraft processing?

We've been ordering that -- you are talking about on checks, Bobby?

On checks or debits. I mean, getting to the point of like the high to low versus --

Yes, checks have been high to low.

And, is that under review, or is that standard?

It's under review. Really, what we are looking at is the courtesy overdraft amounts. We are looking at the overall overdraft pricing that we have throughout our system because we have slight pricing differences, depending on region. And we are also looking at the number of overdrafts that we'll charge in any given day. So I'd say that, before we get to the sequencing, we're going to work through those other factors to see what kind of value proposition we are creating for our customer base.

And then the other follow-up -- on the CDs, do you know about how much of the portfolio of the CDs you have that would be repricing this quarter?

I do not; I do not.

Okay, thank you.

Brian Zabora, Stifel Nicolaus.

A question on the provision expense -- based on your comments, could we expect that basically a matching of net charge-offs or something in that range in the next couple of quarters?

I think that would be a reasonable assumption, given the asset quality metric.

Okay, and then could you just give us a sense on -- C&I charge-offs were up a bit in the quarter, and resi mortgages were pretty low this quarter. What trends were you seeing in those two segments?

We had two C&I borrowers in our local Hawaii commercial pools that encountered difficulties in this economy that accounted for the increase in C&I. In terms of residential mortgage, in the second quarter we didn't increase our discounts on our neighbor island properties, and that was about $2 million of the total net charge-offs that were in the quarter. That, and the modifications in the third quarter, really accounted for the differential.

Okay, thanks for taking my question.

Bryce Rowe, Robert W. Baird.

Just a couple questions, Kent, on the bond gains. You've got $150 million unrealized, almost. In light of the interest rate environment, any thoughts there as to further harvesting those gains?

Yes. No, we don't have any specific plan with respect to those, and it really depends on conditions that arise at the time. It also depends on how we are trying to position the entire balance sheet. So it's possible that we may have future gains, but we have no specific target or plan.

Okay. Second question -- within the salaries expense, I noticed the separation expense jumped up here in the third quarter. Can you remind us what that is a function of?

Yes. That's a function of the retirement of our previous CEO.

Okay, I thought so. Thank you.

Brett Rabatin.

I just wanted to ask the loan portfolio -- obviously, you continue to have payoffs in the portfolio. I wanted to hear two things. One is just, what does the loan pipeline look like? And then, with just the lack of real big loan demand here, are there any strategies you're looking at in terms of new loan products or different things you're looking at to try and keep the loan portfolio from further atrophying?

Yes, Brett. I think the best way to look at it is on a year-on-year basis. Let me segment the portfolio out for you and give you some color that way. We are down just over $600 million on a one-year basis. A third of that is coming out of our commercial market, two thirds of that is out of our consumer/resi mortgage portfolio. In the commercial market the decline has been driven roughly 50-50 between C&I as well as our leverage lease book. Commercial mortgage and construction have effectively offset each other.

So on the C&I side, I would tell you -- I don't want to quote a particular pipeline, but I would tell you that we see better activity there than we have in, I'm going to say, the past eight quarters. And I would anticipate growth there in a sector where we've had not had growth for a good amount of time here.

The lease portfolio you're going to see continue to run down, and that is because that's a strategic decision. It's effectively a legacy portfolio generating, I think, a yield of 274 or something like that. So probably accretive to get that off.

On the consumer side, which is two thirds of the reduction over the past year, that is approximately half coming from residential mortgage and the other half coming from home equity, indirect lending and some other smaller consumer products that we have. Kent mentioned earlier, we are hanging onto a few conforming loan products, mostly lower term product than the traditional 30-year product. And we are beginning to see a kick-up in purchase volume. Proportionality is kind of the same, but we are seeing higher volumes, and the proportions are remaining the same there.

So, we suspect that we're going to see improvement in residential mortgage balances. And then on the home equity side and indirect side, we see better stability in the marketplace. So frankly, I think we are going to be opening up our underwriting a bit there. And we are also seeing a better demand for that product in the marketplace as the consumer rebounds from what was a very suppressed level a year and a half, two years back.

So in summary, I'd say that we see a better outlook for loan trends out there. I'm not sure I see great growth in the next year or so, but I certainly see, or we certainly see, an opportunity to stabilize those levels.

Okay, so that's good color, so the outlook is essentially kind of the keep the portfolio where it is or maybe grow just a little bit?

I think that's right.

Okay, thank you.

Andrea Jao, Cowen.

Peter, could you remind us what -- in terms of your long-term strategy, what profitability metrics you are targeting versus the current metrics that you're showing right now?

The second part to my question is, if over the next year or 18 months or even two years it becomes difficult to reach your longer-term targets, would you be willing to shrink the balance sheet a little, especially if the loan book remains steady and the investment portfolio becomes outsized? Are you willing to shrink the investment portfolio and shrink the balance sheet?

Andrea, I'm going to take a stab at your first question, and then I'll ask Kent to talk about the sizing issue. As you know and as I think most of you know, we are very much a return-oriented company. So the metrics that are meaningful to us are a return on assets, return on shareholders equity is an important metric to us. We are going to do everything within our capacity, within the environment that we find ourselves in, to maximize those objectives.

Earnings growth, we think, is something that will come when the economy comes back or as the economy comes back. We are starting to see improvement there. But I think you've noted a ray of caution in our tone, and we are not going to push things too hard here from a credit standpoint or from a new business or new businesses standpoint.

And as to the size of the balance sheet, I think what we've experienced over the last few quarters has really been strictly a function of the very rapid deposit growth. I don't think we have any particular desire to have an outsized investment portfolio. And quite frankly, it's a very large number at this point. Hopefully, in a more normal economy, the relationship between loans and deposits will be a higher percentage and the investment portfolio could very well be a smaller amount. That will be a function of the environment and such.

But we have no particular goal to make it a bigger balance sheet, for example.

On the deposits side, on a year-over-year basis quarterly average, our consumer deposits are up just under 7.5%. And our commercial deposits -- I'm talking core deposits here, checking and savings -- are up 5.7%. So the near-term challenge is to how do we utilize that quality of funding. We think, longer-term, though, bringing in quality core deposits and not really pricing for it but just using the efficacy of the brand is something in our long-term interest.

Okay, thank you so much.

David King.

Just following up real quick on Brett's question on the loan demand, I think that's pretty encouraging, I guess. What kind of pricing are you guys seeing on that now? And I guess maybe, Peter, you could talk about just in general the types of loans that are out there and the opportunity there to grow maybe on the commercial side, given some of the encouraging trends you are seeing.

Yes, David, I wish I could tell you that risk premiums have returned to the marketplace. I think maybe they did, for a very brief period of time. But I think the marketplace is so competitive and everyone is out there trying to pick up every quality C&I or commercial mortgage or loan opportunity, pricing has actually thinned out pretty meaningfully.

Okay, thank you very much.

David Katz, Banc of America/Merrill Lynch.

I just had a question on the overdraft fee discussion you had earlier. You said about 30% -- you're seeing about a 30%, to date, and you expect that to increase pretty much -- you are seeing that increase on a daily basis. I think last call you guys broke out the conversion rate by new accounts and existing accounts. Do you also have that for this quarter?

Yes, we do. New accounts have been running around 20% opt-in, and 30% for the existing.

And on the fee, what is the fee structure? And you guys compete on fee structure with other banks there regarding overdraft?

You mean, the rate per overdraft?

Yes.

Our rate is $26 per overdraft. It may be one of the lower rates in the marketplace.

Okay, great, thank you.

There are no further questions at this time. We will now turn the call over to Cindy Wyrick for closing remarks.

Thank you, everyone, for joining us today and for your interest in the Bank of Hawaii. As always, if you have additional questions or need further clarification on any of the topics discussed today, please feel free to contact me. Have a great day, everyone.

Ladies and gentlemen, that concludes today's conference. That you for your participation. You may now disconnect. Have a great day.