First Hawaiian Inc
NASDAQ:FHB
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First Hawaiian Inc
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Ladies and gentlemen, thank you for standing by. And welcome to the First Hawaiian Q1 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today’s conference is being recorded. [Operator Instructions]
I would now like to hand the conference over to your speaker, Kevin Haseyama. Please go ahead.
Thank you, Sydney. And thank you, everyone, for joining us as we review our financial results for the first quarter of 2020. With me today are Bob Harrison, Chairman, President, and CEO; Ravi Mallela, CFO; and Ralph Mesick, Chief Risk Officer.
We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at fhb.com in the Investor Relations section.
During today’s call, we will be making forward-looking statements, so please refer to slide one for our Safe Harbor statement. We may also refer to certain non-GAAP financial measures. The appendix to this presentation contains reconciliations of these non-GAAP financial measurements to the most directly comparable GAAP measurements.
And now, I will turn the call over to Bob.
Thank you, Kevin. We will be changing our presentation this quarter. First, I’d like to address our response to the COVID-19 pandemic, then we will do a deep dive on our loan portfolio, and then lastly we will do a quick overview of the financials for the quarter before taking your questions.
Our thoughts go out to those directly impacted by the COVID-19 pandemic as well as the health care providers and all those on the frontlines providing essential services to our country and our state.
Hawaii has never faced a situation like this before, and it will be difficult. Unemployment is high. The economy will be challenged until we can return to the new normal. The new normal will continue to be anchored by tourism and government spending though, as the tourism, the lure of Hawaii and also the strategic nature of the military here in the Pacific will continue to be an important role for us.
Talking about the pandemic, sadly 12 people have lost their lives here in Hawaii. The total cases has been just under 600, and it has been going down significantly over the last few days. Over the last seven days for the Island of Oahu, there’s been less than seven cases a day and actually several days with zero cases. So, our transmission rate as of yesterday was 0.45.
There is a small group of state administrators, including the governor and one of his top aides the Head of the Senate, the Head of the House, several people from the healthcare industry, myself and another business person that are working on a plan to develop to reopen Hawaii to both local people as far as being able to circulate freely as well as welcoming visitors to Hawaii. This is really important to get our economy back on line and begin the recovery process. First Hawaiian Bank has been serving Hawaii for 161 years, and we play an important role in doing that. We take this responsibility very seriously.
Turning the slide two, we have a few points here I’d like to make. One is, we have enabled about half of our employees to work from home and employed social distancing and different protection measures for those that need to continue to go into the office or also to the branch system to continue to operate.
We have temporarily closed about 44% of our branches, 26 of them; and moved those employees to different projects to support the high-volum
e areas whether it would be PPP loan processing, higher call center volume, et cetera. Teletransaction volume is down about 50% and our mobile and ATM channels are seeing record usage, all that you would expect in a situation like this where most people working from home.
We have also set up a separate operations center to maintain redundancy just in case something should happen, and we have also been very proactive about serving our customers. We processed just under 2,400 applications for the PPP program, right about $775 million and we are geared up for the next phase which should be starting very soon.
We have been very proactive in reaching out to both of our consumer and our commercial customers for deferral or forbearance depending on what they need, and we will talk about that a little bit later. We stood up a portal on our website to make the process very easy for our consumer customers in particular, and that’s been very well received.
Another thing we are doing to support our customers is we’ve waived any check cashing fee for stimulus checks, for non-customers, and we are really trying to support the community for those in greatest need so they don’t have to go to check cashing businesses.
Lastly on this page, we have also launched Aloha for Hawaii Fund to support Hawaii’s restaurant industry while donating up to $1 million to certain nonprofits that are most directly affected by the pandemic.
Moving to slide three, I will talk a little bit about the management team, because while no one knows the severity and longevity of the virus’ impact on our economy, we enter this crisis with a strong balance sheet, ample liquidity, and high levels of capital.
What’s critical to this success is our senior management team has, on average, over 28 years of financial industry experience, and every single one of us went through the global financial crisis. Including that, four of us have been or currently are the Chief Risk Officer and have broad experience in a number of different lending areas. So, risk is definitely a part of our culture.
We have also participated in most of the large transactions in Hawaii and have often in the role of structuring or arranging the transaction, so really we are the commercial bank for the State of Hawaii.
The strength of our team along with our strong consumer -- customer relationships over many years serving our marketing community will get us through this crisis just as they have carried it through a number of other crises over our history.
Turning to slide four, I’d like to make a few comments before going through the slide. Our philosophy has always been to be a responsible lender and run the Bank in a sustainable manner. We want to grow at a good, if not spectacular rate, and deliver stable and consistent results over the long term.
We maintain a balanced and diverse loan portfolio and focus on areas we know well. Being a relationship bank, we do it to support our customers. This has worked well over the long term, and our loan portfolio reflects those values.
The portfolio has a nice balance between commercial and consumer loans, roughly 55/45 right now, and a good mix across loan categories. Within the commercial book, we are balanced between small and large customers, and on the consumer side about 75% of the portfolio is secured by residential homes, virtually all of which are in Hawaii and another 15% is secured by automobiles.
On the under secured loan side, the credit card area, we have tremendous experience. Last year, we celebrated our 50th year of partnership with Mastercard and are their longest continuous issuer of credit cards in the United States. The diversity we have across lending businesses has enabled us to not be too reliant on any one industry or segment.
I want to talk a little bit about the Mainland, about 20% of our loan book is the Mainland borrowers and its focus in three areas we know well and have done well in historically, C&I, CRE, and dealer flooring.
The Mainland C&I lending is two large corporate names, many of which are shared national credits. Our shared national credit customers generally have operations in Hawaii and we are their Hawaii bank.
We did take the opportunity last summer, as you recall, in Q3 to sell about 409 million of the share national credits and none of those had operations in Hawaii and that just was better managed that book. With few exceptions, our longtime customers in this area, the loan amounts we generally have were in that target hole level of about $15 million.
The Mainland CRE book consists of many of our best local customers, such as all timer states or private wealth that have diversified their holdings and characterized by low leverage, good credit and long investment horizons. The rest of the Mainland CRE portfolio is a niche strategy focused on large, well-capitalized sponsors with investment-grade real estate and supply constrained gateway markets on the West Coast.
The Mainland dealer portfolio was started over 30 years ago as an extension of the business segment we dominated here in Hawaii and I have been personally working with many of those customers since the late 1990s. So they are very well known to us.
They are primarily large, multi-store operators, most of whom we have been through the financial crisis. Although, one of the dealer credits are in California, primarily the Los Angeles and San Francisco markets.
We have a highly experienced team managing our Mainland CRE and dealer portfolios, and our two senior managers in those areas are exceptional bankers who headed similar operations for large national and super regional banks.
So, overall, our balanced and sustainable approach has resulted in lower and stable credit cost. The credit losses for the entire portfolio peaked at 72 basis points over the last cycle and we are roughly 135 basis points cumulative in the 2009, 2010 period. Then lastly, C&I and CRE losses never exceeded 60 basis points per annum over the last cycle and residential losses were normal.
I will spend a little bit of time talking about individual slides. On slide four, I just like to bring your attention to a couple of things here that I didn’t already mention. First of all, not only do we have a lot of seniority on our senior management team and our commercial lending area the loan officers average over 25 years of experience.
The mix on the share national credit portfolios you see there is about one-third base on Hawaii, about 30% based in Hawaii and about just under 70% on the Mainland. And lastly, I do want to talk about the consumer side, we are primarily a prime and super prime lender and over 90% of the portfolio is collateralized.
Turning to slide five and see we are the largest commercial lender in Hawaii, the longtime niche focus. The corporate lending to SNC C&I is about $693 million with our $15 million average hold level and you can see the geographic diversification of just over half in Hawaii, Guam and Saipan our core markets and just under half on the Mainland.
The dealer portfolio has flooring balances of $875 million and the average length of relationship with the Hawaii dealers is 18 years and the Mainland dealers is a little less than eight years with the longest being 32 years. And the reason that’s a little bit lower is on the last several years, we brought in newer relationships on the Mainland, virtually all of which are bankers have worked with in previous lives at different banks. So these are not new relationships to our bankers. So as you can see the bottom our loss rate through the cycle and our peak loss rate has been very good in this book over many years.
Turning to slide six to make a few comments on this slide. Most of our exposures you can see is in Hawaii just under 80%, 22% on the Mainland. We do have some hotel exposure as you can see there. The loan-to-value is just over 50% spread in number different properties that we will talk to a little bit later on a later slide.
A large office exposure is a mix of Honolulu Central Business District and West L.A. properties which are typically down and multi-property pools with an average size of $35 million. So we are not dependent on any one single property.
And again, at the bottom of the page, you can see our credit experience has been outstanding in this area with few cycle losses of 2 basis points and peak losses of 30 basis points, substantially outperforming national marks.
Going to slide seven, construction side is a smaller portfolio for us, just over 4% of our total loans and leases, roughly split between Hawaii and the Mainland. The Hawaii focus is for sale multifamily, all the loan-to-values are 60%, low 60% or less except for some of the retail. The few year [ph] cycle losses were very low, peak losses were low as well and this a very important portfolio for us and we rely heavily on the sponsor and the category to do well in this area.
There are a couple areas I do want to highlight in particular and that’s on slide eight, and this is select industries that have gotten a lot of attention recently and leverage lending. It’s either hospitality in a hotel, the CRE there, in the hotel area we have 20 loans with a weighted average loan-to-value of 53%. Over 80% of those balances are the four start resort beach fronts, so you have got the best property with low loan-to-value and we will certainly hold this value through the cycle.
For the hospitality names, we have some larger exposures but those are the largest global hospitality names of the world and we have strong other relationships with them as well. For the retail, I just want to talk a little bit about the CRA exposure. The top 20 loans averaging $15 million and overall 43% of the loans are less than $5 million with low loan-to-value.
Transportation, much of that is either essential service or ground transportation, no air carriers. And then in foodservice, we had a large payoff right after the end of the quarter. So that’s just under $100 million now and most of that exposure is to multi-region franchise operators more in the QSR segment.
And lastly on the page, you have the high-risk C&I and everybody has slightly different definition of this, but some of this is included in the above. So the total leverage loan portfolio is $344 million, $160 million of that is investment grade, a large portion is pass and then $28 million is criticized.
With that, I’d to go to page nine, which are residential, HELOC, consumer loans. You see in this page very conservative lending, virtually all of our home and home equity exposure is in Hawaii, low loan-to-value, our monitoring FICO score is high as 764 primarily prime, super prime, low peak charge-offs and very low through-the-cycle losses.
All of our auto loans are in -- within our footprint, most of them in the prime section. We do have a portion about 10% of the portfolio has recourse and this is common in Guam and Saipan. This is not -- this does not exist in Hawaii. So that recourse means you have recourse back to the seller of the car or the car dealer. So we underwrite the car dealer and have a line for them and then do recourse for lower quality customers -- lower credit quality customers.
Had good experience in this area, very good profitability throughout the cycle. We know this well. We have the advantage of if you can’t ship across the island without the approval of the lender, so you generally have access to the collateral should you need it.
Skipping down a credit card, we have a very large -- a very long annual count days over 13 years and so that’s much higher than the norm. This is really a transactional business for us and much less of a revolve business and customers that we have known for a long time, our relationship customers use as daily for their needs and this been a very good portfolio for us as I say for many, many years.
All the comments I have on that, I would like to move to page 10, talked a little bit about our deferrals before turning over to Ralph. We have been very, very proactive in outreach to our customers that needed deferrals. We think this is an important way to manage our risk, as well as take care of our relationships.
So we made it very easy for consumers to defer. We also reached out to them to make sure that they knew it was available. That’s why we have the 19,000 consumers, many of which are in the auto, but not exclusively and 600 businesses.
We also did a lot of outbound calling and then I think the -- really the important thing on this slide is the third bullet, really is to make sure that we carry on through this crisis and give them the opportunity to get to the liquidity crisis if they did lose their job to get unemployment, get the business back up and going, get reemployed so they can continue making their payments.
Auto dealers in particular, we reached out to them proactively and virtually every single one of them chose to defer their loans on the commercial side and we thought that was a good decision to make.
With that, I will turn it over to Ralph to cover our CECL.
Thank you, Bob. And if I could turn your, excuse me, if I could turn your attention to slide 11, rather than go over asset quality this quarter, I will discuss the provision and loss reserve. In the first quarter, our provision increased in anticipation of credit costs related to COVID-19 and our loans reflected the adoption of the new CECL reserve methodology.
The provision was $41.2 million, an increase of $37 million over the prior quarter after the first quarter net charge-off of 6.1. The shift to CECL increased the reserve by $52.1 million or 40% over year-end 2019.
About $35.5 million of the increase went into the allowance for credit loss or ACL. The ACL amounted to $166 million at March 31 and the ACL ratio was 1.24%. That’s up from 0.99% at year-end. The balance of $17.3 million was allocated to the reserve for unfunded commitments.
Our day one adoption was accounted for -- accounts for $17 million of the change. This was reflected in a onetime adjustment to capital. I will note that the Bank elected to waive their regulatory phase-in option.
The day two provision was $41.2 million. It was primarily influenced by an overlay that considered the impact of COVID-19. We used a scenario-based migration analysis to estimate additional losses and increase reserves by approximately $36 million.
We believe this increase would support the worsening of credits that have been granted payment deferrals. However, uncertainty around the duration and ultimate effect of the current shutdown may remark credit provisioning in coming quarters.
And with that, I will turn the call over to Ravi.
Thank you, Ralph. Now, let me turn to the first quarter highlights on slide 12. Overall, our results in the first quarter were good and we really didn’t start to see significant impact financial impacts of the disruption from COVID-19 until March. Earnings were $0.30 per share.
We adopted a CECL in the first quarter which included a day one hit to capital of $12.5 million and a $41.2 million provision for credit losses. We finished the quarter well-capitalized with the CET1 ratio of 11.65% and good liquidity with access to a significant amount of contingent liquidity.
Additionally, prior to the disruption in late February and March, we sold about a $132 million of residential mortgage loans from our portfolio as a part of our balance sheet management strategy. This transaction along with all the other steps we took over the last 24 months such as the sale of $409 million of shared national credit loans has strengthened our balance sheet and put us in a better position to proactively support our customers and manage through the uncertain times ahead.
Turning to slide 13, period end loans and leases were $13.4 billion, up $169 million or 1.3% versus the prior order. C&I loans increased $282 million, driven by approximately $300 million of corporate line draws. While residential loan production remains strong during the quarter, balances fell by about $95 million versus the prior quarter due to the sale of residential loans.
Turning to slide 14, total deposit balances ended the quarter at $17 billion, a $575 million increase versus the prior quarter. The increase in deposits were driven by an increase of $555 million in public deposits. Public time deposits increased $425 million during the quarter. Our cost of deposits decreased by 6 basis points to 38 basis points.
Turning to slide 15, net interest income in the first quarter was $138.7 million. Net interest margin in the fourth quarter was 3.12%, a 3 basis point decrease from the previous quarter. The margin in March declined to 3.01% driven lower average yields for the month, higher average cash balances and lower deposit cost.
Turning to slide 16, non-interest income was $49.2 million, $2.5 million higher than the prior quarter. In Q1 we had a number of one-time items that increased non-interest income including mortgage sales, higher drops in investment income and higher swap fees.
In Q1, fees from card transactions and merchant processing declined by $1.2 million. In February, credit card and merchant activity declined and given the restrictions due to COVID-19, we expect similar declines in these categories in Q2.
Moving expenses in Q1, non-interest expense was $96.5 million, about 6% higher quarter-over-quarter consistent with the 2020 guidance given during our fourth quarter call. Salaries and benefits grew by $3.7 million in the quarter, primarily driven by two factors, the absorption of cost from the loss of BNPP reimbursements and seasonal increases.
Consulting fees up $2.3 million in Q1, driven by lower than expected fees in Q4 and a catch-up in Q1. We expect the go-forward run rate to moderate for the rest of 2020 on consulting fees.
And now I will turn it back to Bob.
Thank you, Ravi. And just to finish, a couple of comments, we have -- it’s an uncertain time. We don’t know exactly what’s going to happen. We have a very good management team. We are in a great market, excellent credit quality, very strong liquidity.
You might have noticed we started reporting a U.S. modified LCR liquidity coverage ratio this quarter. This is a calculation we have done for years now, and I think, it just gives better clarity on what we are -- what we say when we mean we have strong liquidity.
We have a very strong capital. We will talk to that, I am sure, in the Q&A, but just to say that the targets we have put out there before are still targets. They are obviously long-term targets. It’s something that we will have to look at as the pandemic unfolds and the recession goes through to see what the right timing is to reach those long-term goals. And we are going to continue to support our employees and our customers and our community.
With that, we will be happy to take your questions.
Thank you. [Operator Instructions] Our first question comes from the line of Steven Alexopoulos with JPMorgan. Your line is open.
Hi, everybody.
Hi, Steve.
Hi, Steve.
Thanks for all the color on credit. The slides in the deck are really helpful. On the CECL reserve build. First question, can you walk through the economic assumptions underlying that, GDP, unemployment, I’d assume it’s more local to the Hawaiian economy?
Yeah. Steve, this is Ralph. It was more local to the Hawaiian economy, and as you know, the numbers keep changing as we get updates. They have changed quite a bit from the time we had put in place the reserve.
But I will mention the fact that when we did our reserve and we looked at the -- basically we looked at the -- about three different scenarios with kind of the V-shaped scenario, a U-shaped scenario, and a more severe scenario, and we kind of ended up on a U-shaped scenario, and it actually tied pretty nicely with the level of deferrals we have. So we feel that the reserve right now is appropriate. But obviously, we are going to have to take a harder look at that this quarter as we sort of get more information.
Ralph, when we look at -- go ahead, Bob.
Sorry, Steve. Just to add to that, when we look at this and that really comes down to how quickly we can reopen the economy and getting people back to work, so that’s a key effort and why we are spending so much time on that.
When we look at your reserve level, you are almost 80% coverage over the last DFAST you put out. I am trying to get a sense, because peers are in the 40% to 60% range. Are you guys – do you think you are getting more ahead of the curve or do you think that through the cycle losses this time around could be worse than what you reported in that DFAST report?
That’s -- it’s a point-in-time look, we are -- as you know, having gone through CCAR several times, we are very structured on our modeling. I guess, I would answer, I don’t think it’s -- we don’t know enough to know what it is going to be, but we want to be conservative in our outlook, and that’s why we took a pretty hard look from where we are at today and taking into account the different economic scenarios along with level of deferrals, et cetera, while we are proactive about it.
So, I don’t want to seem that the deferrals are higher. So, that means that we could be in for a tougher time. We were extremely proactive reaching out to people, so there’s kind of a mix between us and maybe what some other organizations have done, but we still want to be on the conservative side of that.
Okay. And then, finally, Bob, on slide eight, where you are calling out these select industries that are impacted now, I mean, you seem to be pretty conservative the way you approach each of them. We know foodservice is a problem for everybody. But when you look at the remaining categories, what do you see is most vulnerable for you guys here?
I would think probably retail. The world is changing certainly as all of us stay at home for a month, and maybe we don’t know how much longer and people buying habits will change. We are relatively low loan-to-value. We have a lot of investment grade credits in there, but still you just never know, retail is always going to be up.
To me as an industry going forward nationally maybe less so on Hawaii because we have high visitor count and people tend to -- that’s a hobby -- not a hobby, that’s entertainment for them and shopping for many people, but that’s an area we are looking closely at.
Okay.
Ralph, would you agree with that?
Yeah. And I would say that in terms of the retail exposure that we have on the real estate side, it’s -- we have a couple of mall-type formats. So those are the ones we will be taking a harder look at, but thankfully we have pretty strong sponsors there. So that’s probably an area that as Bob said we think won’t have probably the most impact.
Yeah. Our loan-to-value star [ph] sponsors, that’s a characteristic of much of our real estate exposure.
Yeah. Okay. Thanks for all the color.
Good question. Thank you.
Thank you.
Thank you. And our next question comes from Ebrahim Poonawala with Bank of America. Your line is open.
Good morning.
Good morning, Ebrahim.
Good morning.
Good morning.
I guess for Ravi, just if you can talk about the margin, so you gave a disclosure there in terms of the margin being at 3.01% in March. It -- does that reflect in your view the entirety of the rate cuts we saw? If you can just talk to in terms of how much more lower the margin can go at least in the near term before kind of stabilizing?
So it’s a good question, EB. Obviously, the rate cuts that occurred in March occurred on March 3 and March 15. And so, what we are seeing is really a partial quarter, and frankly a partial month to the impact.
A couple of things on our quarterly results. We absolutely anticipated that this would happen and we worked proactively with our customers communicating that these changes were going to occur. And so from our -- from the deposit pricing side, we were able to act quickly to bring deposit costs down. They went from 44 basis points to 38 basis points in the quarter.
And looking forward, Ebrahim, I think if you think about where we could end up eventually, the equilibrium level of rates continue to stay where they are. You could see maybe deposit costs getting to the mid-20s, but I think that would be probably something that occurs over the course of the year.
I want to flip to the load side of the equation. I mentioned that it’s really a partial month on a partial quarter. And I think we will continue to see loan yields decline 35% as of this quarter of our loans are tied to one month LIBOR.
And what you have seen with the one-month LIBOR in particular is moved, but I think, given the challenges that the markets or the capital markets have had. We have seen that one-month LIBOR rate be buoyed a little bit through, in fact, April and as the market starts to stabilize in comp, I think we would expect that the one month LIBOR would continue to fall to what we would expect to be a normal rate.
It’s a lot of color, I think just the bottomline, I think, we will see our net interest margin would continue to decline and decline over time over the course of the year or probably stabilizing towards the end of the year.
We have a couple of other levers that we can pull. We have got a FHLB fixed rate term advances that are going to mature about $400 million this year are going to mature and depending on what we see in terms of loan growth, either the PPP program and funding those and being available to proactively serve our customers or additional line draws that occur during the course of the year will give us more color on where we are seeing in margins are heading for the end of the year. That helps.
Got it. And what’s the rate on that FHLB maturity that’s coming up?
It’s the weighted average rate on those $400 million is around 2.8%, maybe a little bit above that, 2.83%.
Understood. And again, just in terms of expenses, consulting fees grow, I guess, declined or normalized a little bit. Outside of that, should we expect this mid-90s expense on rate for now?
I take you back to what we communicated in Q4, our core non-interest expenses were a little bit over $367 million. We added about 5% to 6% to that. So when you put all those together you get to about what you said about 96%, 97% per quarter.
Got it. And just shifting Bob, and I guess, this is an unprecedented crisis in terms of what the social distancing requires. I think back like the macro assumptions or whatever you want to call it, is there a breaking point in terms of when you look at the Hawaiian economy, which either we need to see some federal help or that state government or local government kicking in to kind of support the economy if air travel remains significantly shut for the rest of the year?
Yeah. Excellent question, EB, and we certainly can’t predict the future. One of the things that we are trying to do as a group and as a state, I mentioned earlier, it’s going to be a much broader group over the next few weeks as it grows. It really take a scientific and medical approach to reopening and you can’t do it all at once, you have to do it by screening and testing, and then continue on all the way to quarantine, if need be.
But Hawaii’s testing has been, I think, one of the top two or three per capita in the country. And they really need to create that confidence within the local population, one, to be able to circulate, and then, two, to start welcoming visitors back.
And when visitors come back, it’s going to be with some element of risk. Everybody wants that because we know that a big part of our economy is driven by tourism. So that’s one of the things I think we will be working very closely with the airline, not just Hawaiian Airlines, but the legacy carriers as well to see how we can get that confidence both in the visitor and also in the local community to reopen as soon as possible. It will take a pretty strict criteria to work through the people to feel comfortable, but we are on a really good path right now.
So as we get from here to the area, the federal stimulus money going through the end of July, we are recommending to the governor that he hold off on state funds until after that period of time and let the federal stimulus money really kind of run its course as much as possible through July on the unemployment checks and throughout the rest of the year on the CARES Program, just to be there as needed to support state going forward. But it’s changing by the day and almost by hour but that’s a top of mind for a whole bunch of people here In Hawaii. Did that answer your question?
Yeah. That’s helpful. I mean, I think, it’s all about is getting a perspective until we get better real clarity on how things open up. But thank you for taking my questions
You are welcome.
Thank you. And our next question comes from Jackie Bohlen with KBW. Your line is open.
Hi. Good morning, everyone.
Good morning.
Good morning, Jackie.
Good morning.
I wondered if you could speak to the stability of line draws post quarter and thank you for the data on that. It’s helpful to know what your draws were as of March 31st, but I am just wondering what the behavior was like post quarter?
So it hasn’t changed a whole lot. I mean, right now interestingly if we look at the portfolio as a whole, the utilization rate didn’t change year-over-year and where they did change was where you would anticipate they change some of the industry that we had outlined and that was the bulk of the change in the line draws, and interestingly enough, I mean, on the consumer side, we haven’t had a lot of that, so I think…
Yeah. So it varies, Jackie. This is Bob. Just to add to Ralph’s comments. Most of the C&I and the C&I national credit borrowings were before a year -- before quarter end and very little after. And for the consumer primarily HELOC is very little usage to-date. And credit cards actually were down over yearend to end of first quarter which is typical and we haven’t seen any really spike in usage in that area either.
Okay. So for both the consumer categories have been very stable. Just for further clarification since utilization is similar to a year ago quarter. Excuse me, do you look at the line draws as indicative of what’s going on or was it just a seasonal trend?
Well, it was indicative of what was happening, I mean, clearly was that?
Clearly, some of the corporates…
Okay.
…borrowed immediately and just -- they felt better doing it. Interestingly they borrowed and for the most part of sitting in our checking accounts. So they haven’t used it yet, but we will see how that plays out over the rest of this quarter and into the next quarter.
Jackie, this is Ravi. And maybe I would just add as you -- as we started to track the activity that occurred towards the end of March. I think an important factor in the behavior of our customers was the implementation of the fed program, which provided capital markets with a lot of stabilization and that stabilization I think led us back to what we are seeing at least for the time being a very normalized run rate going forward on those draws.
Okay. Thank you, that’s very helpful. A quick house cleaning question for you Ravi there, what was the gain on the real estate sale in the quarter?
I believe it was $1.2 million.
Okay. And do you anticipate any other bal…
Sorry, $1.1 million.
$1.1 million. Thank you.
Yeah.
And do you anticipate any other balance sheet restructuring, I know it’s small.
Not at this moment.
Okay. And then just lastly…
And Jacque -- sorry Jackie to that point…
I want to make sure I understand…
…to that point, we have done so much over the last couple of years. We really feel we are in a good place on the balance sheet now. And quite frankly we are glad we did by bringing down the public time over the last few years and sell this unique loans allowed us to go into public time a bit to fund our PPP program loans right now. So that’s really giving us a lot of flexibility.
Okay. Okay. Thanks Bob. And just -- one last one and I will step back. I just want to make sure that I understood properly when you are talking about waiving the rate to borrow option. Are you -- were you referencing the transition period with the CECL and regulatory capital and my understanding is that you don’t intend to use that?
Yes.
That is correct.
Okay. Thank you.
Thank you. Our next question comes from the line Jared Shaw with Wells Fargo Securities. Your line is up.
Hi. Good morning, everybody.
Good morning, Jared.
Hi, Jared.
Good morning, Jared.
Hey. On the margin just a follow up, do you have the March asset yields and funding costs, as well as the blended margin?
I don’t think we are -- we don’t actually have that but we…
We can…
We can certainly talk…
Circle back with you on that and Kevin can you give you a call on that, Jared.
Okay. Okay. And then the anticipated additional pressure from margin, I mean, I guess, that’s not necessarily impacting or including the impact from PPP in any accelerated flows from that in third quarter?
That’s…
Is that the right way to look at it?
Yeah. I think, that will be something that will occur over the course of the quarter. Obviously, there’s a second installment of these programs too and so we will have to factor that into place. One thing I didn’t mention was when EB asked a similar question is also the fact that we are relatively liquid from a balance sheet perspective.
That’s really important for us. We want to be available for our customers. We want to take a proactive approach with that. We are carrying a little bit extra cash at this point, whether the fed funds’ target rate is between 0 basis points and 25 basis points. We are not earning much on that cash. So that’s also another factor in our -- in what we project for NIM going forward.
Okay. And then, looking at the floorplan financing, I guess, can you give a little detail on how some of the manufacturers are working with the dealers or are they -- and as inventories start to stall on the lots. I guess, is there anything more specific you are doing with the dealers to work through that or with the manufacturers to work through that?
Yeah. Good question. And I can’t speak to the manufacturers except anecdotally what we have heard through their captive finance firm -- arms have been very accommodating to the dealers as have we.
We waived curtailments for a period of time to just if they -- literally people can’t leave their houses and they can’t be open, not being essential services. Nobody’s going to be buying a car, virtually nobody’s going to be buying a car. So those types of things. The deferral program. Those -- that’s really what we have done to support them Ralph, I am missing something?
No.
And they are very astute business people and so we are in constant contact with them. So we will see if they need any further help. But clearly by stopping production, the manufacturers aren’t going to be flooding the market afterwards. But we will have to see if they restart and what car sales do, as people come out of the work at home, stay at home.
So do you think that we could see maybe over the next, call it, eight quarters floorplan balances, just generally continuing to trend town as maybe appetite for holdings…
Yeah.
… as much inventory diminishes from the dealers?
Hard to tell. It’s going to be driven by consumer behavior and see what people -- what transpire after that.
Great. Thanks a lot.
Thank you. And our next question comes from Laurie Hunsicker with Compass Point. Your line is open.
Yeah. Hi. Thanks. Good morning.
Good morning.
Good morning, Laurie.
Just wanted to start over at shared national credit, I want to make sure I got this right. Your total SNC book is now $693 million. Is that correct?
That number sounds -- yeah.
Yeah.
Because that’s a big drop from last quarter and I know that...
No, no, no.
… was the third quarter.
Total SNC book, this is...
Or I can come back to that.
No. On slide four, Laurie, if you go to slide four, the total shared national credit…
Yeah.
…portfolio in the middle of the slide is $1.3 billion.
Got it. Okay.
And about 31% of that is Hawaii and 69% Mainland. If you go to slide five and for the kind of the corporate lending side of the SNC book as there’s little bit in the dealer is $693 million. So that’s the difference between the two numbers that I think you are looking at.
That $693 million is the...
Okay.
… the Mainland SNC.
Yeah.
Okay. That makes sense. And so -- and then the increase that we saw that was just mainly drawdowns that occurred, I assume you weren’t originating new?
That’s correct.
That is drawdown.
Okay. Okay. That makes sense. Okay. And then going to the CRE side, and by the way, I just want to echo what Steven said, this detail is very, very helpful. Within your CRE, can you just help us think about what is on the Mainland just collectively of your $3.4 billion?
Question was what’s on the Mainland?
For the commercial real estate on the Mainland?
What is -- yeah. What -- yeah, of your CRE book, yeah, what percentage is Mainland of the CRE, if you know it…
So you see on…
…and if not, I can circle back…
On page six there, you see that diversified book is 78% is Hawaii, Guam, and Saipan, and 22% is on the Mainland of that $3.4 billion.
Is on the Mainland, right? I am sorry. I asked that the wrong way. In other words, when I look at this portfolio, what are your main categories that are on the Mainland, right? I think…
Yeah. And that’s the…
…at that point you referenced on the construction…
Sure.
…that the construction is mainly multifamily Hawaii, I am assuming most of the multifamily is on Hawaii year of the CRE. And then, I guess, just generally, if we look at the slide, just as a flavor, what are your main CRE categories that reside on the Mainland?
Yeah. Let me start and then I will turn it over to Ralph. It really ties into those three areas kind of the Hawaii long-time real estate-heavy companies that -- legacy companies over generations that decided to diversify outside of Hawaii. They sell Hawaii real estate and moved to the Mainland and we follow them and support them in those various markets.
And secondly, we do real estate to support our auto dealers for their -- not only their floorplan that we are doing on the C&I side, but the commercial real estate side for the building improvements, etcetera.
And the last category would really be that niche strategy that we are looking at to be really a preferred participant in primarily the LA market, but also a few other select markets in those gateway cities where the local bank has a house name where they want to do a deal and they prefer not to bring in a competitor within the market. Since we work with them over many years, they are bringing us in and so these are very high-quality projects. Those in particular have a higher percentage of multifamily. But, Ralph, anything to add to that?
Yeah. So if you took, we have about $786 million on the Mainland and about half of that is sort of Oahu families. These are our 1031 Exchange properties, very LTVs. They tend to be on the West Coast, although, we have some in the Denver area and as far as the Midwest with some industrial properties. And then with the other half as Bob said, it’s really kind of about, I think, 50-50 between office and multifamily. So that’s sort of the book right now with a little bit of industrial, not a lot.
Okay. Got it. And then of your hotel book, the $368 million, do you happen to know how much is on the Mainland of that?
We have a small, maybe a couple of ones on the Mainland and this is with private clients. So it’s primarily here.
Yeah.
Okay.
Long time customers of ours.
Yeah.
All right. Okay. Okay. And then just turning to construction, just same question, in other words, 40% here is Hawaii, what -- the other 52% is Mainland, just very high level, what is the main category here that breaks?
Primarily multifamily.
Primarily multifamily.
Yeah. That piece is primarily multifamily, yeah.
Okay. Okay. That’s helpful. And then looking at slide eight, just going back to retail. So of your $737 million, can you help us think about what’s retail service versus retail stropping, I know you mentioned you have some malls, but do you just have collectively the dollar exposure or the percentage exposure of that $737 million that breaks into retail service versus retail shopping?
I don’t have that and I am not sure I am following with your...
I am not sure what you mean between retail service and retail shopping, right? Can you clarify that please?
Sure. Like retail service is grocery stores, hardware that type of thing versus retail shopping as clothing.
Yeah. We have probably three or four properties that are primarily sort of retail shopping. A lot of the book is -- a big chunk of the book is really smaller stuff and a lot of -- and our largest -- large -- some of our largest loans are grocery anchored shopping centers.
On the retail service as you would define it?
Yeah. Yeah.
Okay. Okay. That’s helpful. And then at the bottom here I see this footnote little or no direct exposure which is great. I just want to confirm in terms of oil, are you at zero or is there a dollar number on your exposure?
There is the de minimis minimum retail gas station number based in Hawaii.
Yeah.
But that’s it.
Okay. So, that’s basically zero. Okay. That’s helpful. And then, just going on to the consumer on case on page nine, just wondered if there was a little bit more color on both the credit card and the other consumer and I realize these are smaller categories here. But just wondered how much of that is sort of input print versus out and what is the below $660 million in both of those categories? And then maybe…
Yeah.
…Bob, so on your other consumer, is there anything in there like transfer, lending club, anything like that or what is that?
Maybe to cover that first, we don’t do any purchase of loans from fintech.
Okay. Great.
So that number is zero. And then going back to the credit card, we used to have a mileage card associated with the lower airlines before it went bankrupt and so that many, many years ago we converted that to our own cards.
So we do have customers on the Mainland that continue to carry our card because of really that, I mean, different reasons but primarily that. So there’s a bit of that, but primarily we are in market. I don’t have the percentage at the top of my head, but this is a broad scope.
Okay. Okay. And then what do you know of those two portfolios or however you want to break it out, what is actually hitting below the 660 line on FICO?
I don’t have that with us. I am not sure…
Okay.
If we do release that, we will come back to you with it, but I am not sure we release that type of information.
Okay. Great. And then, Bob, just last question to you. Now you have mentioned it twice in terms of you are on this committee to open back up Hawaii which I saw that. You and Peter are both on it. And I was reading some articles around it and it’s fascinating because in terms of the thinking about how travelers to Hawaii are going to be traded. It’s a little different than almost anywhere else in the U.S. in that there’s one thought out there about involving U.S. Customs and TSA, and the State Department of Transportation and just wondered if you can expand a little bit on that?
Sure. Yeah. It’s funny. Islands kind of hang together and so we are working closely with New Zealand and learning a lot from them on what they have done and their Department of Health has given us a lot of things to work on.
The -- Peter and I are really sitting in the back and looking at it from the business side, but it’s really being driven by the medical community. So the heads of the two largest hospital groups here along with the Head of the Blue Cross Blue Shield ensure, have really taken that in -- under their wing. There’s a lot of support by the governor’s designee to really develop a recovery plan and he is providing a lot of resources, Boston Consulting Group, among others, to help work with the medical experts to develop a plan on how to do it.
So it’s not going to be -- I won’t take everybody’s time to get in the science of it, but it’s really going to be driven by medical science and knowing that you can’t catch everybody but to screen, to test, to follow up and then to quarantine if needed.
And really developing and building that up. It will involve hiring people whether they state workers or not to be determined, to really doing the tracking and the testing, but that’s a job creation to a bid. And this is probably a 18-month to two-year effort until there is a widely available vaccine and/or treatment for COVID-19.
So looking at it as kind of a looking at from today until a couple of years from now as much as we can to reopen the economy and make people feel good about not only Hawaii people, feel good about tourists coming to visit, but Hawaii people feeling good they want about circulating more freely to reopen our economy within Hawaii.
Got it. And just so I am clear, theoretically, I come over with my family or put in some sort of a holding room as we are tested or we everybody on the plane tested and then boom we are given the green light to basically freely roam. Is that sort of part of thought in terms to reopen?
To be determined. Unlikely you would tell everybody. You would screen everybody, but you wouldn’t necessarily test everybody. That you screen and there’s questions anybody could test it, but again that’s all under development right now.
Thank you. And our question comes from Alex Matters with Goldman Sachs. Your line is open
Hi, guys. Thanks for taking my question. I was wondering…
Hi.
…if you could provide a little more color on the PPP loans that you booked in the quarter, particularly on how long you are assuming they stay on the balance sheet at this point. The fees associated with them and what the impact on [inaudible] could be in the near-term?
Yeah. It’s been quite a process, so we leave it at that. It’s been -- I think we are going to look back in hindsight, you probably wouldn’t pick the SBA program as a way to put money out to a lot of small businesses, but that’s the program we have.
I am not sure how long it will be on the balance sheet. I’d say, talking to our clients, most of them plan to ask for forgiveness under the criteria of employing, bringing back their employees. So we see a high percentage of that, at least what we are being told, will be forgiven, and not sure then how much stays on afterwards. The fees, quite frankly, we have been running so hard. We know it’s between 1% and 3%, but we haven’t really done that calculation to figure out what that is.
Okay. Thanks. That’s helpful. And then maybe just a quick follow-up on that, I know you mentioned you are planning to stay in the second wave as well. Just wondering, based on your conversations with clients in the first round, how much more demand you think there could be and how large like it ends up in for you?
In numbers of people, we have a huge amount of demand and probably more than we can process given the time the funds will be available. At the end of the first round, we closed the portal and we don’t plan on reopening it until we can satisfy all the requests we have in.
And again, our ability to process is pretty good relative to a Bank our size. We have automated quite a bit of it. But there’s a lot of people that want to participate in this program. So I don’t think this round will satisfy all the need and there’s talk about doing a third round, but we will just have to wait and see.
All right. Thanks for answering my questions.
Thank you. And I am not showing any further questions at this time. I would now like to turn the call back to your speakers for any further remarks.
Thank you for joining us today. We appreciate your interest in First Hawaiian and please feel free to contact me if you have any additional questions. Enjoy the rest of your day and have a nice weekend.
Ladies and gentlemen, this concludes this conference for today. Thank you for participating. You may now disconnect.