Bank of Hawaii Corp (BOH) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Bank of Hawaii fourth-quarter 2016 earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Ms. Cindy Wyrick. Ma'am, you may begin.

Thank you, Kaylee. Good morning and good afternoon, everyone. Thank you for joining us today as we review our results for 2016.

Before we get started, let me remind you that today's conference call will contain some forward-looking statements, and while we believe our assumptions are reasonable, there are a variety of reasons that the actual results may differ materially from those projected. Now I would like to turn the call over to Peter Ho.

Thanks, Cindy. Good morning, everyone, and thanks for joining us today. In addition to Cindy and myself, we also have here with us in Honolulu this morning Kent Lucien, our Vice Chairman and Chief Financial Officer; Mary Sellers, our Vice Chairman and Chief Risk Officer; and joining us for the first time is Dean Shigemura, our Controller.

I'm pleased to announce that effective March 1, Kent will assume the role of Chief Strategy Officer for our organization and Dean will become -- move from Controller to Chief Financial Officer. Brent Flygar, who currently leads our public reporting team within controllers, will become our Controller and Principal Accounting Officer.

Kent had a great run for us -- we were just chatting about that before the call -- nine years as CFO. Done a terrific job for us and we are really excited to have him in his new strategy role, of which there are many, many things to focus in on, as you all know. Dean has been with us for 17 years now and has been both our Treasurer in his term with us as well as Controller, so we are looking forward to having him on board. And Brent, as Controller, has been with us for seven years, having joined us from Ernst & Young.

Now let me turn over to the financials. 2016 was a very good year for us and we are very pleased with our financial results. Our loan balances grew to $8.9 billion at the end of the year, an increase of just over $1 billion, or 13.6%, from 2015.

We also continued to attract quality deposits during the year. Total deposits reached a record $14.3 billion at the end of December, up a little over $1 billion as well, or 8.1%, from the previous year.

Our balance sheet, liquidity, and capital levels remained robust. At the end of the year, credit quality remained strong and stable. Our earnings per share of $4.23 in 2016 also represent a record level of earnings for us.

Now let me turn the call over to Kent, who will expand on some of the financial details here.

Thank you, Peter, and thank you for your comments. Net income for the fourth quarter was $43.5 million, or $1.02 per share, which was essentially unchanged from the third quarter and up from $42.8 million, or $0.99 per share, in the fourth quarter last year. Our return on assets in the fourth quarter was 1.07%, return on equity was 14.90%, and our efficiency ratio was 58.33%.

Our net interest margin in the fourth quarter was 2.83%, up 3 basis points from the third quarter, down 2 basis points from the same quarter last year. Our net interest margin for the full year of 2016 was 2.83%, an increase from 2.81% in 2015, as strong loan growth during the year helped to offset the low interest rate environment.

Premium amortization was $11.1 million in the fourth quarter, down from $11.4 million in the previous quarter and $11.6 million in the same quarter last year. The investment portfolio reinvestment differential was a negative 12 basis points this quarter. We purchased a total of $305 million of securities during the quarter, which were primarily comprised of mortgage-backed securities. As Mary will discuss later, we recorded a credit provision of $3.25 million this quarter, which slightly exceeded net charge-offs.

Noninterest income totaled $46.5 million in the fourth quarter of 2016, compared with $48.1 million in the previous quarter and $44.8 million in the same quarter last year. The decrease compared with the previous quarter was largely due to a decline in income from our customer derivative transactions, benefits during the third quarter from bank-owned life insurance, and a small decline in loan fees and other service charges. The increase from the prior year was largely due to a strong mortgage banking result, which was $6.3 million in the fourth quarter of 2016 compared to $6.4 million in the previous quarter and $3.1 million in the same quarter last year.

Noninterest expense totaled $89.6 million in the fourth quarter, compared with $87.5 million in the previous quarter and $85.7 million in the same quarter of last year. Noninterest expense during the fourth quarter of 2016 continued to reflect higher levels of incentive compensation due to strong business growth and expenses related to the rollout of our strategic initiatives.

Noninterest expense in the fourth quarter of 2016 included $1.3 million in compensation due to the increase in the stock price during the quarter and a net gain of $1 million from the sale of branch real estate. Noninterest expense for the full year of 2016 was $350.6 million and included net gains of $3.7 million on the sale of real estate and severance expenses of $900,000.

Noninterest expense last year was $348.1 million and included an impairment charge of $9.5 million: $3.3 million in severance, $1.6 million for the rollout of chip-enabled debit cards, and net gains of $5.9 million on the disposition of real estate. Adjusted for these items, noninterest expense was up 4%, which was higher than our guidance, primarily due to the fourth-quarter increases in expenses related to share-based compensation.

The effective tax rate for the fourth quarter of 2016 was 28.38% compared with 29.84% in the previous quarter and 28.23% in the same quarter last year. The effective tax rate for the full year of 2016 was 30.1% compared to 30.49% for the full year of 2015.

As Peter mentioned, we continue to see good growth in loans and deposits. Our investment portfolio declined slightly to $6 billion. The average duration of the AFS portfolio was 2.6 years, the held-to-maturity duration was 3.56 years, and the duration for the entire portfolio was 3.22 years.

Our shareholders' equity was $1.16 billion at the end of the fourth quarter. We paid out $20.5 million, or 47%, of net income in dividends during the quarter and repurchased 134,000 shares of common stock for $10.4 million. At the end of the fourth quarter, our Tier 1 capital ratio was 13.24% and our Tier 1 leverage ratio was 7.21%.

Finally, our Board declared a dividend of $0.50 per share for the first quarter of 2017, an increase of $0.02 per share. Now I will now turn the call over to Mary.

Thank you, Kent. Net charge-offs for the fourth quarter totaled $3 million, up $611,000 on a linked-quarter basis and up $852,000 year over year. Full-year 2016 net charge-offs totaled $3.4 million, or 4 basis points, on an annualized basis.

In the first quarter of 2016, we did realize a full recovery on a single commercial loan previously charged off in 2013. Adjusting for this nonrecurring recovery, net charge-offs would have totaled $10.2 million, or 12 basis points. In 2015 net charge-offs totaled $6.8 million, or 9 basis points, on an annualized basis.

At the end of the fourth quarter, nonperforming assets totaled $19.8 million, or 22 basis points, up $1.1 million from the third quarter and down $9 million year over year, largely due to the resolution of the referenced commercial credit. Residential mortgages accounted for $15.5 million of the total at year-end 2016.

Loans past due 90 days or more and still accruing interest totaled $7.1 million, up $1.4 million from the previous quarter and down $504,000 from the same period last year. Restructured loans not included in nonaccrual loans or loans past due 90 days or more totaled $52.2 million, up $100,000 from the prior quarter and up $2.8 million year over year. Residential mortgage loans modified to assist customers accounted for $18.5 million of the total at the end of 2016.

We recorded a provision of $3.25 million to the allowance for loan and lease losses in the fourth quarter. Accordingly, the allowance totaled $104.3 million at the end of the quarter, up $240,000 from the third quarter and up $1.4 million year over year.

The ratio of the allowance to total loans and leases was 1.17% at the end of 2016, down 3 basis points for the linked quarter and down 14 basis points from the end of 2015. The decrease in the ratio is reflective of the Company's strong asset quality and the strength in the Hawaiian economy over this period as well as the growth in total loans outstanding. The total reserve for unfunded commitments was $6.6 million at year-end, unchanged from the prior quarter and up $500,000 from the end of 2015.

I will turn the call back to Peter.

Thanks, Mary. The Hawaii economy remained healthy through 2016. Our visitor industry continued to grow and our statewide seasonally-adjusted unemployment rate went down to 2.9% in December, compared to 4.7% nationally. Visitor arrivals for the first 11 months of 2016 increased 3% and visitor spending was up 4.1% compared to the same period in 2015.

The base of construction remained strong in both the private and public sectors and home prices continued to increase throughout the year. The median sales price of a single-family home on Oahu, our primary market, increased 5% in 2016 and the median sales price of a condominium increased 8.3% compared to 2015. The volume of single-family home sales on Oahu during the year increased 6.5% and condominium sales increased 8.4%.

Months of inventory decreased to 2.5 months for single-family homes and 2.6 months for condominiums, and the median number of days on market were only 18 days for a single-family home or a condominium.

Thanks for joining us again this morning and we would be happy to field your questions at this time.

(Operator Instructions) Jeff Rulis, Davidson.

Thanks, good morning. Peter, maybe a question on thoughts on budgeting for loan growth in 2017. Maybe you could provide some reasons for or against 2017 loan growth matching the 2016 level, if possible.

Yes, well, 2016 was 13.6% for the year, which I think would be a pretty heady number for us to attempt that in 2017.

The way that I would square that, Jeff, is on the positive side we have had some market success. We feel good about that. I'm not sure there is reason to believe that we won't be able to outperform at some level. And the economy remains pretty darn strong.

There really aren't any factors at this point pointing to a softening or a downturn in the local economy. So I think that's, if you will, the tailwind that we're looking at from a loan perspective and a deposit perspective, frankly, from that standpoint as well.

The things that we are thinking about as potential headwinds are -- we are -- we've got to be, unless this is just an absolute super cycle, approaching mid cycle, and as a result, we are going to very naturally begin to tighten in on underwriting and credit standards. That is just part of what we do as our organization. So, obviously, that's going to have some impact on us.

And I think that there are likely some lending categories that probably have reached their peak, so I will give you a for-instance. Construction lending, I think last quarter, or this quarter actually, peaked out at pushing $200 million and that has been obviously accretive to our growth for a few years now. And likely as we move forward, just looking at where we are in the cycle that probably turns as a potential headwind to growth for us. So that's how I see the lending space for probably the next couple of quarters here.

That's great; appreciate the color there. Maybe on the other side then, on the pretty strong deposit growth to close the year and I guess in your market are you having to increase rates at all to bring in funds? Or maybe just comments on the general market pricing that you're seeing. Is there a pass-through on, say, the last rate hike that you're seeing from the competitors?

Obviously we've seen a rise in longer rates here. You referenced the shorter end and the Fed's actions there, so obviously a fair amount of interest I'd say and chatter at the client level. But, frankly, I think that the rate environment has been reasonably muted out here.

We have -- we are being extra careful and extra sensitive to understand what the market dynamics are as we potentially are stepping into a higher rate environment, but in terms of actual rate actions, things, I would say, have been reasonably muted, Jeff.

Okay, I'll step back. Thanks.

Casey Haire, Jefferies.

Thanks. Good morning, guys. Wanted to focus on mortgage banking, elevated this quarter -- or flat this quarter, rather. Just some color; what -- was there an MSR write up in there? And then what is the forecast going forward with the long end of the curve up?

Casey, let me -- maybe I'll talk a little bit about the business side and the market opportunity for us and then flip it to Kent and Dean to talk about the financial pieces to that.

It was a great year for us from a resi standpoint. Our production was up 30.5%, really led by a very, very strong effort in our purchase activity. So feel really good about that because, frankly, 2015 was a good year for us as well.

And so we are hoping to extend that out. We had very, very strong improvement, if you will, in our wholesale business, which helped to push some of that volume out. So a great year in 2016 and hoping for a similar outcome in 2017.

Yes, we did have the $2.2 million write-up in our MSR, so that's included in the mortgage banking income. So going into next year I guess, with the higher rates, we would expect some challenges there on the mortgage banking income, so we could expect some lower income there.

Okay, great. Just what was the split on purchase/refi, in terms of the volumes?

Purchase was -- it was almost 50/50, actually, purchase and refi.

Okay, great. Then just switching to credit. Obviously not a lot of risk on the balance sheet here with only $20 million of non-performers in the $9 billion book. But just wondering, given a decent loan growth outlook and a conservative balance sheet culture, what is -- I know you guys don't manage to a number, but what is the outlook on the LLR? Have we hit a floor here at 1.17%?

Well, I think as we continue to share that we take a look at every quarter, it will depend in part on growth in our balance sheet, the asset class that grows, what we are seeing in metrics around that, and a little bit of the economic outlook at the time.

Okay, great. And just lastly on the tax rate, it came in a little light this quarter. What's a good go-forward rate to use?

We have been guiding 30% to 35%. Looking at this year, about 30% to 33%, so a little bit narrower range.

All right, great. Thank you. Congrats to Kent and Dean on the new roles.

Jacque Bohlen, KBW.

Good morning, everyone. I was a little bit surprised to see -- I know the premium am went down a little bit quarter on quarter, but I would've thought there might have been a little bit more of that just given the rate movements in the quarter. Is this something that could potentially happen in 1Q?

Yes, I think so, Jacque. There's a little bit of lag in the mortgage payoffs and interest rates really started to move up in the second half of the quarter. So I think you might see a little bit of a slowdown in payoffs and, thus, a reduced amortization as the first quarter progresses.

Okay. Then you had mentioned the $305 million in security purchases. What was the timing and average rate on that?

Well, it was throughout the year. The yield on what we purchased was 2% and what ran off was 2.12%.

Okay. So that $305 million, that wasn't fourth quarter; that was the full year?

Fourth quarter.

Oh, fourth quarter, okay. And then just one quick housekeeping one. The gain on sale at branch, was that all captured in occupancy?

Yes.

Okay, great. Thanks. I'll step back now.

Brett Rabatin, Piper Jaffray.

Good morning, everyone. Wanted to first ask about deposits; really strong core deposit growth, mostly in commercial. Can you talk about that and maybe any visibility into what's driving that and flows as you see them happening this year?

Well, the fourth quarter is generally seasonally a strong point for deposits and for commercial deposits in particular. But you're right; when we look at average deposits in consumer and commercial, consumer was up 8% for the year, 8.1%, and commercial, coincidentally, was up 8.1% as well. Really reflecting growth in all three of the categories -- demand, time, and savings -- but really I guess headlined by demand.

And so I think what we are seeing, Brett, is just a very strong local economy, certainly in the consumer space. Then on the commercial side, same comment but also I think impacted by just a lot of transactional activity happening in the real estate sector as a lot of real estate projects are coming online. And, fortunately, we are the beneficiary of a fair amount of closing accounts and things of that nature in that space.

Okay. And then the other thing; was just curious about your thoughts on repurchases and, given where the stock is, does that affect what you do this year?

Well, it's still an important part of the strategy going forward, but having said that, remember the priority is to make sure we have enough capital to support the business. The business is growing, so we are going to need capital for that purpose.

As I mentioned in the remarks, we increased the dividend, so dividends are important, and it is really the residual that is available to us on buybacks. So we are still intending to carry forward with buybacks, but it is within the context of its priority.

Okay, great. Thanks for the color.

Aaron Deer, Sandler O'Neill.

Good morning, guys. Peter, following up in your earlier comments with respect to construction, any other categories where you have specific expectations in terms of what we might expect as the year plays out and as you see some maturing in the local economy?

As it relates to construction, Aaron?

More in other categories, actually; and maybe in commercial and what we might see in commercial real estate and some of the other categories.

Our CRE folks tell us they've got a pretty good-looking pipe looking forward in 2017 which, frankly, was a bit of a surprise to me, but they are seeing that.

The construction side is going to be interesting. I would have a year ago said that the high-rise, the luxury high-rise maturation of that cycle would really spell a decline in the construction book. I think that may be short term, but there are also a lot of affordable transactions floating around the marketplace right now.

And so, as you know from prior conversation, there's a fair amount of single-family housing to be built, but those projects are still a few years out. But I would say there may be an opportunity for construction to blend in with more affordable projects as we move forward, so that's something to think about. Now those projects still have to get greenlighted and financed and the like, so there's still a question mark out there, but it's something to think about.

On the C&I side, we were pretty fortunate in Q4. We had a few fundings, frankly, that we weren't anticipating and then we had just a very, very strong finish in our dealer business. So a fair amount of flooring activity flowed in to the organization.

I think as we look forward we are not as constructive in our outlook in that space as we are on our CRE side.

Okay. And how about on the consumer side? Any expectations there with plans for any sort of promotions or anything you might be doing on that front?

We are feeling really good about our resi book. You know a couple years ago we converted systems and that has resulted in a lot of efficiencies for us. That's really what has given rise to the opportunity to create purchase opportunities, because you know those have reasonably short tickers attached to them. So, frankly, we are hopeful that we can extend that piece in 2017.

Indirect and home-equity have been, as you know, very strong performers for us. I'm not sure we're going to be able to continue that rate of growth, but I would expect those books to grow again in 2017.

Okay, that's great. Then just a quick one for Kent or Dean. With the tax rate down this quarter, was that related to any sort of offset with solar again where you might've seen the kick up in the other expense line?

We do have a number of solar investments that contributed to the reduction in the rate. The expenses were relatively flat to the third quarter though.

The expenses related to the solar were flat relative to 3Q?

Yes.

Thank you, I'll step back. Appreciate you taking my questions.

Ebrahim Poonawala, Bank of America.

Good morning, guys. A question on expenses, and I'm sorry if I missed it; I guess as we look into 2017 firstly can you just talk about in terms of what we should expect on expense growth relative to the reported expenses for 2016, and like any pressure points as they pertain to comp expenses, healthcare expenses going higher next year?

Also, is there anything on 1Q seasonality that we should sort of think about as we think about comp expenses for 1Q?

Yes. So looking at 2017 -- actually looking back at 2016, we had about $3.7 million of real estate sales that helped reduce some of our expenses. So adjusting for that, we are looking at about a 2% to 3% increase over 2016. And we do have in the first quarter a seasonal bump in expenses related to some payroll taxes and related to the incentive payouts.

Got it. Just wondering if, Peter, you had any color around like how competitive it is in terms of retaining talent or have you seen any sort of push higher in terms of comp expenses tied to revenue producers?

Yes and yes. It is a competitive market. I mean, just from a baseline standpoint we're sub 3% on unemployment, which is the first time since 2007 that we have been in that space. So it is tough to hang on to people; it's even tougher to hang on to really talented people and you are seeing that to some certain extent in our comp line.

Fortunately, I think we've been able to more than make up for that on the revenue side and we have been pretty fortunate in being able to hang on to the people that we need to hang on to.

Understood. And just a follow-up on your comments earlier in terms of capital, with TCE I think sub 7% at the end of the year, I recognize in terms of what you said around capital priorities, but could you remind us what's sort of binding constrainment capital? Like do you want the PCE to TA, tangible asset, ratio to be north of 7%, where you would feel comfortable buying back stock?

And how does valuation for the stock where it is today play a role in terms of how you think about buybacks versus a special dividend or something else?

Our real constraint in the capital management area is on a Tier 1 leverage ratio and so the minimum is 7% for us. Right now we are 7.2%-plus, so we are well within our own floor on that topic.

Values, obviously, always important. We are tactical when we need to be. But having said that, we still have a plan and a program to continue to buy back stock.

Got it. So we should expect that to sort of move forward and, other than what you need for organic growth in dividends, we should expect you to do some steady buybacks through 2017? Is that fair?

Yes, I think that's a fair assessment.

Understood. And congratulations, Kent and Dean. Thank you.

John Moran, Macquarie.

Thanks, guys. I've just got actually two sort of ticky-tack follow-ups. One, the MSR, if I heard you right, was $2.2 million write up this quarter. Last quarter I had that down as $0.5 million write up. Is that correct?

Yes.

Okay. And then on the securities book, the duration, if I heard you right, is 3.22. Do you happen to have that handy from last quarter? What the linked-quarter change was there?

No, but I can get it to you, John.

Terrific, thanks. Then just one kind of bigger picture one. The dollar impact to tourism; if you're seeing anything in terms of the composition of who is visiting the island, if that is changing or if the spend has changed? Obviously you put the stats in the press release and things look really healthy, but any sort of forward look on that?

You would think that would be the case; it hasn't really played out as much. Total expenditures year-to-date are up 4.1%. US West, US East are coming in at 6% and 4.5%. Japan, surprisingly, is up 1.9%. And all others, so places like Australia and New Zealand, Taiwan, Korea, are up just about 7%.

So the dollar isn't impacting those markets; what is being impacted is Canada. Canada has been the problem child for us for a while now, down 10% year-to-date in spending. So obviously I think some of that has to do with the dollar, but I think there are other factors happening in that marketplace that are playing into that.

Got you, got you. Thanks very much.

(Operator Instructions) Laurie Hunsicker, Compass Point.

Good morning. Peter, I wondered if you could just take us back through your comments around construction peaking and turning into a headwind for growth. What specifically is behind that?

Well, the bulk of that portfolio is in higher-end high-rise real estate transactions and those, for the most part, are winding down. We have just a couple left -- we have one left. And so, as that pays down, we will see a decline in that portfolio, which has grown pretty significantly over the past couple of years for us. So that's what I meant by the headwind.

Okay. And, obviously, your construction to risk-based capital is super, super low. None of this was at all pressure from the regulators; it's just simply just as you look at the market?

No. Our real estate to capital, from a regulatory standpoint, it is in very good shape to begin with and our construction in particular is awfully low.

Okay, great. Then just to tie into a question that Casey asked regarding your reserves to loans, and I know that you historically haven't given guidance, but a year ago you were up at 1.30%. Now you're at 1.17% and your credit is very pristine.

I guess to your comments that we are potentially approaching the mid-cycle mark of where we stand in credits; is there a floor in terms of how low you go? We're not going to see you go below 1% or how do you think about that?

I don't think we necessarily think of a floor. We really look at just what's appropriate relative to the risk in our portfolio and our analysis of where we are at that point in time.

Okay, okay. And then switching gears, your year-ago March quarter you sold 100,000 shares of Visa, leaving you about 189,000. Are we expecting to see a sale most likely in this current quarter coming up?

That is still the plan right now.

Then does all of that potentially drop to the bottom line?

Yes.

Then just one last question. With your branch sale, and obviously you own a chunk of your branches, how are you thinking about branch sales going forward? Was this just a one-off or is it something that you are looking at on a bigger picture?

It's pretty much a one-off. Even though we have had a number of transactions through 2016, we are pretty much done with selling branch real estate. Now that's different and apart from a wider strategy of reducing occupancy expense by reducing the square footage of leases and that sort of thing.

So there's opportunity to reduce occupancy expense going forward, but in particular selling real estate, there is not likely to be too many more of those.

Okay, great. Thank you very much.

Ken Zerbe, Morgan Stanley.

Thanks. Just a really quick question on the $1.3 million stock-related expense. Is that something that, all things equal, next quarter should expenses be, say, $1.3 million lower as it doesn't occur again, or do you need the stock --?

I'm just trying to think of like did you need the stock price to go down to reverse that? Can you just walk us through the mechanics of when we might see another change? Thanks.

Yes, the way the calling works for it is we, for the restricted share units, we have to mark-to-market the units at the end of every quarter, in addition to accrue additional units. So the write-up mainly has to do with the price change as opposed to the level of accrual of units. So, subject to any price changes, we would expect a lower expense.

Got it, because you don't mark it up. Okay.

So the stock stay exactly unchanged over the next three months; then the expense would just be the new units and the mark-to-market would be zero?

Correct.

Okay. And the only reason we saw the greater delta this quarter is just because of the stock price moving?

Right, that's it.

That helps. Thank you.

Brett Rabatin, Piper Jaffray.

I just wanted to go back to, Peter, some comments you made about auto. It sounds like you intend to continue to grow that portfolio somewhat over the next year.

There has been some concern about auto. I don't imagine you have seen as much of it in Hawaii as some of the mainland, but can you just talk about any thoughts on auto delinquencies? And it hasn't really impacted your credit, but just any concern about growth of that portfolio and the credit related to it?

Brett, are you thinking on the indirect side or on the dealer side?

On the indirect side.

The indirect side. You know, our experience has been pretty flat and so really the way we think about that book is it's a good market for us. We have a smaller market share than some other competitors within the marketplace, so we think that there is a market share opportunity there for us.

So, yes, credit-wise things have been reasonably flat. And, as we look forward, we think that there is opportunity through potential market share gain versus through just the growth of the market, which is, as you pointed out, flattening out a bit.

Okay, great. Thanks for the color.

Casey Haire, Jefferies.

Thanks, guys. So just a little more color on the NIM. Kent, I heard you on the 12 basis point differential negative on the reinvestment; just curious where was that maybe at the end of the quarter and where is that today? Just some color there?

Just guessing, because I don't really know how it's going to turn out. But it's either lower or past the breakeven point as we speak. That is a guess on my part.

But things have moved up quite a bit and the number I quoted was for the entire quarter, which included the first half, which was at a pretty low rate. So, yes, I think we are probably a smaller negative or could be on the plus side as we speak.

Okay, great. And on the loan side, loan yields actually held stable this quarter for the first time in a while. What is the new money, the new yield on production today versus [that P91]?

That's a complicated answer just because of the mix, but, directionally, it's going to be a very similar answer to what we were talking about with regard to the investment portfolio. If we were at breakeven in the fourth quarter, odds are we are probably into positive territory into the first quarter. Again, that depends on the mix, but I think by line item it's probably going to be a better comparison than what we saw in the fourth quarter.

Okay, great. That's helpful. Just for clarity, what percentage of the loans do float?

It is roughly 60% fixed, 40% variable and floating.

Excellent, thank you.

(Operator Instructions) Aaron Deer, Sandler O'Neill.

Actually, the remainder of my questions were asked and answered, thank you.

Matthew Keating, Barclays.

Yes, thank you. My question is also related to the net interest margin trajectory. Obviously in 2016 you saw about 3 basis points or so of net interest margin expansion in what was, arguably, a fairly difficult interest-rate backdrop.

And while obviously the rate backdrop remains quite variable as we look out to 2017, if you assume rates stabilize at these levels, do you expect or do you think it's possible to see more significant NIM expansion in 2017 at this juncture? And what might be a good performance in your mind around that?

So the fourth quarter -- just using the 10-year Treasury as kind of a benchmark here -- fourth quarter had us at 2.14%. You're going to see in our 10-K the net interest income sensitivity to 100 basis points shock; our net interest income would rise by about 5%. You can use that as a rough gauge on how -- versus where we are today.

I don't know if it's going to be about 2.4% in the first quarter, but that should give you some guidance around what to expect for the margin.

Got you, that's helpful. Most of my other questions have already been answered, so thanks very much.

Thank you. I'm showing no further questions at this time. I would like to turn the call back to Ms. Wyrick for closing remarks.

Thank you. I would like to thank all of you for joining us today and for your continued interest in the Bank of Hawaii. As always, please feel free to contact me if you have any questions or need further clarification on any of the topics discussed today.

Thanks, everyone. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.