Q1 2020 Earnings Call

Ladies and gentlemen, thank you are standing by and welcome to the first Hawaiian Q1 2020 earnings call.

This time, all participants are in listen only mode.

The speaker presentation, there will be a question and answer session to ask a question. During this session. Please press star one your telephone.

Please be advised to get conference is being recorded and if you require any further assistance. Please press star zero.

I'd now like to have the conference over to your Speaker, Kevin actually I'm. Please go ahead.

Absolutely.

Thank you everyone for joining.

You are absolutely.

What is going.

With me today are bought Kirsten Chairman President and CEO.

Yeah, Rob.

Response.

Yeah.

Presentations I referred to in her remarks.

He is available for download again.

In the Investor Relations section.

During todays call will be making forward looking statement.

Please refer to slide one foresee purpose statement.

We may also refer to certain non-GAAP financial measures.

This presentation contains reconciliations.

Yep National measurement.

Right.

And now I'll turn it over.

Thank you Kevin we're changing our presentation. This quarter first I'd like to address our response to the cold 19 pandemic.

And we'll do a deep dive on our loan portfolio and then lastly, we'll do a quick overview of the financials for the quarter before taking your questions.

Our thoughts go out to those directly impacted by the Carbonite team.

As well the health care providers and all those on the frontline, providing a central services to our country in our state.

Why is 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 a new normal.

The new normal will continue to be anchored by tourism and government spending though as the.

The tourism, the lower of Hawaii and also the strategic nature.

The military during the Pacific will continue to be a important role for us.

Talking about the pandemic Sadly told people lost her lives here and why the total cases has been just under 600 and that has been going down significantly over the last few days.

Over the last seven days for though I Wonder why would there has been less than seven case was a day and actually several days with zero cases sort of transmission rate as of yesterday, It was 0.4 or five.

There's a small group of state administrators, including the Governor one of his top eight the head of the.

The Senate ahead of the house.

Several people from the health care industry, and 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 walk I mean visitors to Hawaii. This is really important to get our economy back online and begin the the recovery process.

First one bank is instrument wife, or 161 years, when we play an important role in doing that we take this responsibility very seriously.

Turning to slide two.

We have a few points year I'd like to me.

One is we.

The neighbor about half of our employees to work from home and employees those for the distance. He is a different protection measures for those that need to continue to go into the office or also to the branch system to continue to operate.

Weve temporary repos about 44% of our branches 26 of them and moved those employees to different projects to support the high volume or is whether it be PPP loan processing higher call center volume et cetera.

Hello, transactional volume is down about 50%.

And our mobile and DPM channels are seeing record usage, all that you would expect into situation like this for most people are working from home.

We've also stood up a separate operations center to maintain redundancy just in case something should happen.

And we've also been very proactive about serving our customers.

We process just under 2400 applications for the PPP program right about $775 million and were geared up for the next phase it should be starting very soon.

We've 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'll talk about that a little bit later, we stood up a portal on our website to make the process very easy for consumer customers in particular, and that's been very well received.

Another thing were doing to support our customers has agreed to waive the.

And he check cashing fee for a stimulus checks for non customers and we're really trying to support the community for those in greatest need. So I don't have to go to check cashing.

Businesses.

Lastly on this page. We've also launched the law for Hawaii fun to support Hawaiis restaurant industry, while donating up $10 million to certain nonprofits are most directly affected by the pandemic.

Moving to slide three.

I talked a little bit about the management team.

No one knows of severity and longevity of the viruses impact our economy.

We entered this crisis with a strong balance sheet ample liquidity and high levels of capital.

What's critical of the successes our senior management team has on average over 20 is a finance industry experience in every single one of US went to the global financial crisis.

Putting that for most of them or currently are the chief risk officer and have broad experience in a number of different lending areas. So risk is definitely part of our culture.

We've also participated in most of the large transactions in Hawaii and have often in the role structuring or range and the transaction. So really where are the commercial bank for the state of boy.

The strength of our team along with our strong consumer customer relationships over many years, serving our marketing community.

I will get us through this crisis just as they started after a number of other prices over our history.

Turning to slide four it I'd make a few comments before going through 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 balance 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 50 545 right now.

And a good mix across loan categories.

Within the commercial book, we're balance between small and large customers.

And on the consumer side about 75% of the portfolio secured by residential homes virtually all of which are in Hawaii and another 15% of secured by automobiles.

On the unsecured loan side their credit card area, we have tremendous experience.

Last year, we celebrated our fiftyth year partnership with Mastercard and other longest continuous issue of credit cards in the United States.

The diversity, we haven't across many businesses has enabled us to not be too reliant on anyone industry or segment.

I want to talk a little bit about the mainland about 20% of our loan book is the mainland borrowers and his focus in three areas, we know well and have done well and historically.

Commercial does she and I see area and dealer flooring.

The mainland Cnine lending is too large corporate names many of which are shared national credits.

Our shared national credit customers generally have operations in Hawaii, and we are there Hawaii back.

We did take the opportunity last summer as you recall and in Q3 to sell about 409 million of shared national credits and none of those had operations in Hawaii and that just was better manage that book.

With few exceptions are longtime customers in this area. The loan amounts we generally have run that target hold level about $15 million.

The mainland C. R. E book consist of many of our best local customers such as all time estates or private well diversified their holdings.

Characterized by low leverage good credit along investment horizons.

The rest of the mainland scary portfolios, a new strategy focused on large well capitalized sponsors with investment grade real estate Inc. 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 dominate here in Hawaii.

And I've been personally working with many of those customers since the late 19 nineties, so they're very well known to us.

There are primarily large multi store operators.

Most of whom we bank through the financial crisis.

Although one of the dealer credits are in California, primarily the Los Angeles in San Francisco markets.

We have a highly experienced team managing our mainline siri and dealer portfolio and our two senior managers in those areas.

Central bankers, who had a similar operations for large national and Super regional banks.

So overall, our balanced and sustainable approach has resulted in lower and stable credit costs.

The credit losses for the entire portfolio Pete to 72 basis points over the last cycle.

And were roughly 135 basis points cumulative in that 2009 2010 period.

Then lastly, cnine CRT losses never exceeded 60 basis points per annum over the last cycle and residential losses were now.

I spent a little bit of time talking about the individual slides.

On slide four I, just like to bring your attention to a couple of things here that I didn't I already mentioned.

First of all not only do we have lot of senior already our senior management team and our commercial lending area. The loan officers average over 25 years of experience.

The mix on the shared national credit portfolios you see there is about one third based on Hawaii about 30% based in Hawaii and about just under 70% on them anymore.

And lastly, I do want to talk about the consumer side.

We're primarily a prime and Super Prime lender.

And over 90% of the portfolio is collateralized.

Turning to slide five.

If you were the largest commercial lender why a long time niche focus.

The corporate lending to Snicks United's about 693 million with our 15 million average told level and you can see this geographic diversification.

Just over half in Hawaii, Dom inside Pan our core markets and just under half on demand.

The dealer portfolio has flooring balances of 875 million.

On the average like the relationship with Hawaii dealers as 18 years.

On the mainland dealers is a little less than eight years, what the longest being 32 years and the reason that's a little bit lower is over the last several years, we brought a new relationships on the mainland.

Virtually all of which our bankers have worked with in previous lies a different banks. So these are not new new relationships through our bankers.

So you can see at the bottom or loss rates through the cycle on our peak last rate has been very good on this book over many years.

Turning to slide six make a few comments on this slide.

Most of our exposure as you can see as in Hawaii, just under 80%, 22% on an island.

We do have some hotel exposure as you can see there the loan to values, just over 50% spread and number of different.

Properties, It will talk to a little bit later and later slide.

A large office exposure is a mix of Honolulu Central business District, and West L.A. properties, which are typically done a multi property pools with an average size of 35 million. So we're 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 through the cycle losses of two basis points and peak losses of 30 basis points substantially outperforming.

National marks.

Going to slide seven.

Construction sizes smaller portfolio for us just over 4% of our total loans and leases.

Roughly split between Hawaii and the mainland.

Play focus is for sale multifamily.

While the loan to values are 60% low, 6% or less except for some of the retail.

Let's see the cycle losses were very low peak losses were low as well and this is a very important portfolio for us and we rely heavily on the sponsor.

And the and the.

Category to do well in this area.

There are 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.

Can see the hospitality and hotels.

The CR either in the hotel area, we have 20 loans with a weighted average loan.

The value of 53%.

Over 80% of those balances are Forestar resort Beach front, so you've got the best property with low loan to value. There will certainly hold is value through a cycle.

For the hospitality names we have.

Some larger exposures, but those are the largest global hospitality names in the world and we have strong another relationships with them as well.

For the retail just want to talk a little bit about the CRT exposure the top 20 loans, averaging 15 million.

And overall, 43% of the loans are less than $5 million with low loan to value.

Perhaps protection much of that is either essential service or ground transportation.

No air carriers.

And then in foodservice.

We had a large pay off right at the right. After the end of the quarter and 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 Cnine nobody has a slightly different definition of this.

But some of this has included in them so.

So the total leverage loan portfolios 344 million.

116 million to that as investment grade.

A large portions pass.

And then $28 million criticized.

I'd like to go to page nine, which our residential wheelock consumer loans.

You'll see this page very conservative lending virtually all of our home.

Home equity exposure is in Hawaii.

Low loan to value are monitoring FICO score as high as 764, primarily prime Super Prime.

Low peak charge offs in very low through the cycle losses.

Oliver auto loans are in within our footprint.

Most of them in the Prime section, we do have us portion about 10% of the portfolio has recourse and this is common in Guam insight and this is not.

This does not exist in Hawaii, and so the recourse means you have recourse back to the.

The seller the car 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.

Hi, good experience in this area very good.

Profitability throughout the cycle, we know this well.

We have the advantage of you can't ship the crop the island without the.

Approval the lenders. So you generally have access to the collateral should you need it.

Skipping down a credit cards.

We have a very large very long annual account days over 13 years, and so that's much higher than the norm.

This was really transactional business for us and much less of a revolve business customers that we've known for long time or relationship customers use as daily for their needs. That's been a very good portfolio for us as I said for many many years.

On 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 ROE.

We've been very very proactive and outreach to our customers are needed deferrals. We think this is important way to manage our risk as well as take care of our relationships.

So we made a very easy for consumers to defer we also reached out to them to make sure that they knew was available.

That's why we have the 19000 consumers many of which are in the auto but not exclusively and 600 businesses.

We also.

Did a lot outbound calling it and then I think the really the important thing on this slide is a third bullet.

Really has to make sure that we carried through this crisis and given the opportunity to get to the liquidity prices. If they did lose their job to get unemployment get the business backup ongoing get reemployed. So they can continue making their payments.

Auto dealers in particular, we reached out to them proactively in virtually every single one them chose to defer their loans on the commercial side and we thought that was a good decisions are made.

With that I'll turn it over to route to cover.

Our Cecil.

Thank you Bob.

Engineered.

If I could turn your attention to slide 11.

Rather than go lower asset quality this quarter I'll discuss the provision in loss reserve in the first quarter, our provision increased in anticipation of credit costs related to open my team and our allowance reflected the adoption of the new C. So reserve methodology. The provision was 41.2 million an increase of 37 million over the prior quarter. After the first quarter net charge off the six.

0.1 to ship seasonal increase the reserve by 52.1 million or 40% over year end 2019.

About 35.5 million of the increase when the allowance for credit loss or Hcl Hcl amounted to 166 million at March 31, and the Hcl ratio was 1.24% that's up from 0.99% at year end.

The balance of 17.39 was allocated to the reserve for unfunded commitments our day one adoption.

It was accounted for accounted for $17 million up the change. This was reflected in a onetime adjustments to capital I will not at the bank you elected to waive the regulatory phase in option.

To provision was 41.2 million it was primarily influenced by overlay.

That considers the impact of cobot my team, we use the scenario based migration analysis estimate additional losses and increased reserves by approximately $36 million.

We believe this increase would support the worsening of credits that has cracked engrafted payment deferrals are uncertainty around the duration ultimate except that the current shutdown may require credit provisioning in coming quarters, and with that I'll turn the call over to Robby.

Thank you Raul.

Now, let me turn to the first quarter highlights on slide 12.

Overall, our results in the first quarter were good.

As we really didnt start to see significant impact financial impacts of the disruption from Covidien 19 until March.

Earnings were 30 cents per share.

We adopted Cecil 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 a CPT one ratio of 11.65%.

And good liquidity with access to a significant amount contingent liquidity.

Additionally, prior to the disruption in late February and March we sold about $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 us shared national credit loans.

Strengthened our balance sheet and put us in a better position to proactively support our customers and managed through the uncertain times ahead.

Turning to slide 13 period end loans and leases were $13.4 billion.

The 169 million or 1.3% versus the prior quarter.

Cnine loans increased $282 million driven by approximately $300 million corporate line draws.

While residential loan production remained 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 billion dollar increase versus the prior quarter.

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 six 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% three basis point decrease from the previous quarter.

The margin in March declined to 3.01% driven by lower average yields for the month.

Higher average cash balances and lower deposit costs.

Turning to slide 16, noninterest income was $49.2 million $2.5 million higher than the prior quarter.

In Q1, we had a number of onetime items that increased noninterest income, including mortgage sales higher trust and investment income.

Higher swap fees.

In Q1, FY subject card transactions and merchant processing declined by 1.2 billion.

In February credit card and merchant activity decline.

And given the restrictions due to cobot 19, we expect similar declines in these categories in Q2.

Moving to expenses in Q1 noninterest expense was $96.5 million.

6.6% higher quarter over quarter.

Yes that 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.

Absorption of cost from the loss of Bnpp reimbursements and seasonal increases.

Consulting fees were up 2.3 million in Q1, driven by lower than expected fees in Q4, and a catch up in Q1.

We expect to go forward run rate to moderate but the rest of 2020 on consulting fees.

Now I will turn it back to Bob.

Thank you Robby and just to finish running 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 what a great market.

Excellent credit quality very strong liquidity you might have noticed we started reporting our us modified LCR liquidity coverage ratio this quarter.

This is a calculation we've done for years now and I think it just gives better clarity on what were what we say when we mean, we have strong liquidity.

We are very strong capital, we'll talk to that I'm sure in the today, but just to say that the targets. We've put out there before are still targets. There, obviously long term targets and something that we'll have to look at as was the pandemic unfolds in the recession.

Goes through the and see what the right timing is to reach those long term goals.

And we're going to continue to support our employees and our customers in our community.

With that we're happy to take your questions.

Thank you ladies and gentlemen, if you the question at this time. Please press Star then one then your telephone. Please please press star one our first question is on the line of Steven.

Alexopoulos with JP Morgan Your line is open.

Hi, everybody.

Steve Thanks.

Thanks for all the color on credit the slides of the deck it really helpful.

On the Cecil Reserve build a first question can you walk through the economic assumptions underlying that GDP unemployment at assume much more local total Hawaiian economy.

Yes. The this is Ralph it was more local today Hawaiian economy, and as you know the numbers keep changing.

As we get updates they've changed quite a bit from the time we had.

Put in place their reserve, but I will Matt mentioned, the fact that when we did our reserve and we looked at the.

Basically the about three different scenarios with kind of a V shaped scenario that you you shapes scenario.

A more severe scenario, we kind of ended up on that on a on a U shape scenario and it actually tied pretty pretty nicely with.

Level of deferrals, we have so so we feel that the reserve right now as appropriate, but obviously, we're going to have to take a harder look at that this quarter as as we sort of get more information.

Oh, okay.

Well go ahead, sorry, just 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're spending so much time on that.

Well, we've looked good you reserve level, you're almost 80% coverage over the last the fast you put out.

I'm trying to get a sense because peers are the 40% to 60% range are you guys. Do you think you're getting more ahead of the curve or do you think the through the cycle losses. This time around could be worse than what you reported and I'd be faster report.

Yes, that's it's a point in time look were as you know having gone through see cars. Several times, we very structured on our on our modeling.

I guess I would answer I don't think as we don't know enough to know what is going to be but we want to be conservative in our outlook and Thats why we took a pretty hard look from where we're at today is taken into account to different economic scenarios, along with level deferrals et cetera, while we were proactive about it. So I don't want it does seem that the deferrals or 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 mixed between us and maybe with some other organizations have done, but we still want to be on the conservative side of that.

Okay.

Then finally I'm on slide eight for you're calling out fees.

Industries, Jerry impacted now let me use you seem to be pretty conservative than what you approach each of them. We know foodservice is a problem for everybody, but when you look at the remaining categories. What do you what do you see as 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 than maybe we don't know how much longer and people buying habits will change.

Were 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.

To me as an industry going forward nationally is maybe less on Hawaii, because you have a high visitor account and people tend to.

Thats a hobby is not a hobby that's a entertainment for them as shopping for many people.

Thats an area. We're looking closely at crop would you agree with that yes, and I would say that in terms of the retail exposure that we have on the real estate cited.

We have a couple of mall type format. So those are the ones would be taking a harder look at but thankfully we have pretty strong sponsors there. So.

That's that's probably an area that yes, as Bob said.

We think we'll have probably most impact.

Our loan to value strong sponsors that.

Characteristic of much of our real estate exposure Yep.

Okay. Thanks for all that.

Thank you.

Thank you Alan.

Question comes from Ebrahim Poonawala of America. Your line is open.

Good morning.

My name or point Amy.

I guess for all the just if.

If you can talk about the margin. So you gave.

Our disclosure that in terms of the margin being a tier one in March.

It does that reflect in your view being tied to your study did it cuts. We sold it you can just talked to in terms of how much more lowered the margin can goal.

He's in the near term before kind of fall stabilizing.

That's a good it's good question Abbey.

Yeah, obviously the rate cuts that occurred in March occurred and on March 3rd in March 15.

And so what we're seeing is really a partial quarter and frankly of a partial month.

To the impact a couple of things on our quarterly results.

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 you know on 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.

Actually the equilibrium level if rates continue to stay where they are you could see maybe deposit costs getting to the mid twenties, but I think that would be probably something that occurs over the course of the year.

I want to flip to the loan side of the equation.

I mentioned that it's really up a partial month on a partial quarter and.

I think we'll continue to see loan yields declined 35% as of this quarter of our loans are tied to to one month LIBOR and what you've seen with the one month LIBOR in particular is move but I think given the challenges.

At the markets of the capital markets at had we've seen that one month LIBOR rate be buoyed a little bit through in fact April and as the markets start to stabilize and Com I think we would expect that the one month LIBOR would continue to fall to what we would expect to be a normal rate.

That's a lot of color I think just the bottom line and I think we'll see our net interest margin to continue to refine and decline over time over the course of the year, probably stabilizing towards the end of the year you have a couple of other level levers that we can pull.

Got it HLB fixed rate term advances that are going to mature about 400 million this year and a mature and depending on what we see in terms of loan growth.

Needed a PPP program and funding knows and being available to proactively serve our customers or are there additional line draws that occurred during the course of the year will will give us more color on where we've seen margins are heading for the for the year.

That helps.

Got it and whats good.

Eight on that for Joby maturity, that's coming up.

It's a the weighted average rate on those 400 million is around 2.8, maybe a little bit above that 2.83%.

Understood and they give us a ravi just with you on in terms of expenses consulting fees goal I guess decline a normalized fit outside of that should we expect this mid nineties.

Expensed one of the inflow.

I would take you back to what we communicated in Q4, our core noninterest expenses were 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. What you said about 90 697 per quarter.

Got it and just so shifting ball means I guess this is an unprecedented cases in terms of.

What is this ocean distancing requires.

I think back like the macro assumptions or whatever you want to call it.

Did a breakingpoint been don't move when you look at that why any call me great either we need to see some federal health for the speed Goldman.

Look at Goldman kicking in two kind of support the economies air travel to the means significantly shot for the rest of there.

Yes excellent question, maybe and we certainly can't predict a feature one of the things that we're trying to do as a group and as a state that group I mentioned earlier and it's going to be a much broader group over the next few weeks as it grows is really take a.

Scientific and medical approach to reopening in you know you can't do it all.

Once you have to do it by screening and testing and.

And then continued on all the way the quarantine if need be but hoist 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 of one to be able to circulate and then two to start welcoming visitors back and I'm visitors come back is 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 and so that's one of things I think we'll be working very closely with the airline not just wind airlines, but the the legacy carriers as well to see how we can get that confidence both in the visitor and also in the local community reopened as soon as possible.

We'll take a pretty strict criteria to work through the people feel comfortable but run a really good path right now so.

As we get from here to their yes, the federal stimulus money going through the end.

July.

We're 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 on the unemployment Jackson throughout the rest of year on the cares program just to be there is needed to support state going forward, but it is changing by the day in almost by the hour, but that's it.

Top of mind for a whole bunch of people here in Hawaii.

Does that answer your question.

Thats helpful. When they think it's all about is getting a perspective until we get better real clarity on how can we spoken off but.

Okay. Thank you for taking my questions.

You're welcome.

Thank you and our next question comes from Jackie Bohlen with KBW. Your line is open.

Hi, good morning, everyone.

Okay Jackie.

I wondered if you could see Q.

The stability of line guys post quarter I'm cancer. Thank you for the.

Data on that was helpful to know what the what your draws for as of March 31st, but I'm just wondering what the behavior was like post quarter.

So it hasn't changed a whole lot I mean right now.

Interestingly, even look at that portfolio as a whole that utilization rates didn't change.

Year over year.

And where they did change was where you would anticipate the change some of the industry that we had.

Offline and that was the bulk of the change in the line cost and interestingly enough and the on the consumer side, we Havent had a lot of a lot of that so.

Yes, so very Jack is about just add ralphs comments.

Most of the Sicad I and the shared national credit borrowings were before year before quarter end and very little after.

And for the consumer primarily HELOC is very little usage today and credit cards actually were down.

Over year end to end the first quarter, which is typical and we haven't seen any really spike in usage in that area either.

Okay. So both the consumer categories have been very stable.

Yes, just.

Further clarification since utilization if the election year ago corridor.

Do you.

Do you look at the line draws as indicative of what's going on or was it just seasonal trend.

Well it was it was indicative of what was happening I mean.

Clearly was that.

Clearly some of the corporate borrowed immediately into.

They feel better doing it interestingly they borrowed and for the most part it's sitting in our checking accounts. So.

They havent used the yet but.

We'll see how that plays out over the rest of this quarter and into the two 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 let us back to what we're seeing at least for the time being a very normalized run rate going forward on those Strauss.

Okay.

Thank you that's very helpful.

Quick house cleaning question for you Robbie that what was the gain on the real estate sale in the quarter.

I believe it was 1.2 million.

Okay.

And do you and any other about 1.1. Thank you yeah, Andy do you anticipate any other balance sheet restructuring I know that it's small.

Not at this moment.

Okay.

And then just lastly, I want to make sure I Jackie to that to that point, we've done so much over the last couple of years, we really feel we're 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 selling the snake loans allowed us to go into public time, a bit to fund our PPP program loans right now so it's really giving us a lot of flexibility.

Okay. Thanks, Bob.

And just one last one then I'll step back I, just want to make sure that I understood properly when you're talking about waving the and the rate deferral option or you were you referencing the transition period with the Stifel and regulatory capital on and my understanding is that you don't intend to use that.

Yes that is correct.

Okay. Thank you.

Thank you Sir our next question comes from the line Jared Shaw with Wells Fargo Securities Your line.

Hi, good morning, everybody.

One is garnering a derringer.

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 where we don't we don't actually had that.

We can we can certainly tough circle back with you on that Kevin can give you a call on that sure. Okay. Okay and then.

The anticipated additional pressure from margin I mean, I guess that that's not necessarily impacting or including the impact from.

TPP and then the accelerated flows from that in third quarter.

That's the right way to look at it.

Yeah I think.

That'll be something that'll occur over the course of the quarter, obviously theres a second installment of these programs too and so we'll have to factor that into place one thing I Didnt mention what went on EPS to similar question is also the fact that where you know where were 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're carrying a little bit extra cash cash and at this point, where the fed funds target rate is between zero and 25 basis points were not earning much on cash. So that's a that's also another factor and.

In our and what we project front end going forward.

Okay and then.

Looking at the floor plan financing.

Can you give a little detail on housing to the manufacturers are working with the dealers.

Or are they and you know as as inventories start to stall on on the lots.

Yes is there anything more specific you're doing with the with the dealers to work through that or with the manufacturers who works for that.

Yes, good question and.

I can't speak to the manufacturers, except anecdotally, what we've heard through their captive finance from arms have been very accommodating to the dealers as have we we waived can 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, you and nobody is going to be binary.

Car virtually nobody is going to be buying a car. So those types of things the deferral program.

So that's really what we've done to support them, Ralph I missing something no.

And there, they're very astute business people and so we're in constant contact with them. So we'll see if indeed any further help but.

Clearly by stopping production the manufacturers aren't going to be flooding the market afterwards, but we'll have to see as a restart and what car sales do as people come out of the work at home stay at home.

So could do you think that we could see maybe over the next I'll call. It eight quarters Floorplan balances just generally continue to trend down is.

Yeah.

Maybe appetite yet for holding as much inventory.

Finishes from the dealers.

Hard to tell it's going to be driven by consumer behavior and see what people.

What transpires after that.

Great. Thanks, a lot.

Thank you and our next question comes from Laurie I'm, Okay with Compass point your line is open.

Hi, Thanks, good morning might want to Clark.

Just wanted to start over it and shared national credits I want to make sure I got this write your total snack book is now 693 million is that correct.

Yes first ounce yes.

No.

That's a big drop from last quarter, and I know normalized.

Okay.

Total book.

[noise] or I can.

On slide four Laurie if you go to slide for the total shared national credit profile in the middle of the slide is 1.3 billion.

Okay, 31% of that as Hawaii, and 69% Malan, if you go to slide five.

And for the kind of a corporate lending side of the SMIC book, because there's a little bit in the dealer is 693 million. So that's the difference between the two numbers I think you look assets 93 is.

Yeah Okay.

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 Strada.

Okay, Okay that makes sense.

Okay, and then going to their decreased by them by the way I just want to Echo what Stephens had detail. It is very helpful.

Within your Craig can you just help us think about what what is on the mainland collectively of your 3.4 billion.

Question was what's on the mainly for the commercial real estate on the May have white.

Yes of your creep up.

Yes, what what percentage of main line of that Craig.

And if not like on a call back.

On page six area.

To that.

Diversified book, and 70% is way Guam and say Pan.

And 22% is on the mainland of that 3.4 billion right I'm, sorry, I I asked the wrong way in other words when I look at that's when I look at that portfolio. What what are your main categories that are on the moment.

Hi, I think.

Yes, definitely good sound like him Preston. That's your question is mainly multifamily Hawaii I'm, assuming most of the multifamily is on Hawaii here of the Craig and I guess, just generally if we look at this stage it does that flavor.

What are your what are your main three categories that that reside on the name.

Yes, let me start and then I'll turn it over to Ralph it really ties into those three areas kind of the.

The Hawaii longtime real estate heavy companies a legacy companies over generations that decided to diversify outside of why is it fell quite real estate move to the mainland and we follow them and support them in those various markets.

And secondly, we do real estate to support.

Our our auto dealers.

For they're not only their floor plan that we're doing on the see an ISI, but the commercial real estate side for the building improvements et cetera.

In the last category would really be that niche strategy that we're looking at to be really a preferred participant in primarily the LNG 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 on the prefer not.

To bring in a competitor within the market and 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 anything that so if you took we have we have about 786 million on on the mainland and about half of that is.

Sort of all fully families.

Is there like at 31 exchange properties very low LTV.

They tend to be on the west coast, Although we have some some in.

The Denver area and as far as.

The Midwest some industrial properties.

And then.

The other half as Bob said, it's really kind of but I think 50 50 between office and multifamily.

So that's sort of the book right now.

It's a little bit of industrial not a lot.

Okay got it and then of your of your hotel Buck.

316 million do you happen to know how much.

And on the mainland of that.

We have a small maybe a maybe a couple of bonds on the balance this is with private clients that's primarily.

Longtime longtime customers of ours, yes.

Okay, Okay, and then I'm just turning to construction.

Same question another words.

You know, 40% Heres why what the other 52% that's near London very high level. What is what is the main category, yeah, well break primers and primarily multifamily.

Hi, Maryland that doesn't pieces, 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 shopping I know you mentioned you have some all but can you just have collectively the dollar Oh sure as a percentage of other drive that 737 million that break.

And our retail service person with retail shopping.

I don't have that.

I try to following what would your I'm not sure with two main between retail service and retail shopping sorry can you clarify that please.

Sure I like retail service, the grocery stores hardware or that type of thing personal retail shopping as part of that.

Yes, we 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 I'll and our largest are like some of our largest loans are.

Grocery anchored.

Shopping centers and the retail service the as you would define yes.

Okay. Okay. That's helpful and then at the bottom here I think as footnote little or no direct exposure, which is great I just want to confirm and in terms of oil.

Are you with zero or is there a dollar number on your expense there is a de minimis retail gas station number based in Hawaii, yes, but that's it so that that basically there. Okay. That's helpful and then.

Going on to that Im on page nine I'm, just wondering if there was a little bit more color on on both the credit card and the other consumer and I realize these are smaller categories here, but I'm just wondered how much of that in Florida and footprint first without and what is below 60 on both of those.

Category.

And then maybe helpful. On your other kill tumor is there anything in there like.

For lending club anything like that or or whats what would that maybe to cover that first we don't do any purchase of loans from fintech.

So that number Cheryl.

And then going back to the credit card.

We used to have a mileage.

Card associated with the low higher lies before it went bankrupt in 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 is a bit of that but primarily were in market.

I don't have the percentages on top of my head, but this is a broad scope.

Okay. Okay, and then what do you know I've I've those two portfolios or however, you want to break it out what is actually sitting below the 16 line on cycle.

I don't have that with us I'm not sure. If we do we lease up we'll come back to you with it but im not sure we release that type of information.

Okay, Great and then Bob just last question to you.

Then you're now you've you've mentioned it twice in terms of you're on the committee to open back up Hawaii, which I saw that you NPR both on it.

And I was reading some articles around that and it's fascinating because in terms of thinking about how travelers to Hawaii are going to be free data. It's a little different then how much anywhere else in the U.S. and that you know there's there's one thought out there about involving youre customs and say in the face carbon the transportation and just wondered if you can expand a little bit a little bit on that.

Sure Yeah, it's funny islands kind of hang together and so we're working closely with New Zealand and learning a lot from them and what they've done and the department of health has given us a lot of things to work on the.

Peter and I are really sitting in the back end and looking at 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 Bluecross Blueshield ensure really taken that in under their weighing and it's a lot of support by the Governor's Designee.

Need to really develop a recovery plan these providing a lot of resources Boston consulting group among others to help worked with the medical experts to develop a plan on how to do it so it's not going to be.

Yes.

I won't take everybody's time to get into 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 to follow up and then two quarantine if needed and it really developing that building that out it will involve hiring people, whether they stay workers and not to be determined to really doing the tracking in the testing.

But thats a job creation to a bit and this is probably 18 months to to your effort until there's a.

Okay widely available vaccine and or treatment for cobot 19, So looking at it is kind of a bookended today's tell a couple of years from now do as much as we can to reopen the economy and made people feel good about not only.

Hawaii people feel good about tourists coming to visit but why people feeling good day, one about circulating more freely to reopen our economy within Hawaii.

Got it and just so I'm clear theoretically I can lever with my family or put in some sort of a holding ram is more tests that are.

We everybody on the plane tested and del Mar given the Green light to basically frankly ROM is that sort of part of that's not in terms of pre open.

To be determined.

Unlikely you would test everybody you had screen everybody, but you wouldn't necessarily test everybody and if you screen in a you know those questions and you would get tested but I.

Again, that's all under development right now.

Thank you and our next question comes from Alex matters with Goldman Sachs. Your line is open.

Hi, guys. Thanks for taking my question I was wondering if you could probably provide a little more color on that PDP loans that you, but in the quarter, particularly on how long you're assuming they stay on the balance sheet at this point the fees associated with them and what the impact on margin could be in the near term.

Yes, it's been quite the process leave it at that it's been the though.

I think is we're going to look back in hindsight, you probably wouldn't pick DSP a program as a way to.

Put money out to a lot of small businesses, but thats the program we have.

I'm not sure how long will be on the balance sheet as a talking to our clients most of them plan to ask for forgiveness under the.

The criteria of employing.

Turning back in our employees so.

We see a high percentage of that at least what we're being told will be forgiven and not sure then how much stays on afterwards.

The fees quite frankly with and running so hard we know it's between one and 3%, but we haven't really done that calculation to figure out what that is.

[noise]. Okay. Thanks Thats helpful. And then maybe just a quick follow up on that I know you mentioned, you're planning to participate in the second way 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 that could end up being for you.

Oh 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 to reopen in it until we can satisfy all the request we have in.

And.

Again, our ability to process is pretty good relative to a bank our size, we've 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 is talk about doing a third round, but we'll just have to wait and see.

Alright, thanks for answering my question.

[noise], Thank you and I'm not showing any further questions. At this time of now let's turn the call back your speakers for any closing remarks.

Thank you for joining us today.

We appreciate your interest in personal Y and feel free to contact me. If you have any additional questions.

During the rest today and have a nice weekend.

Ladies and gentlemen, this concludes today's conference call todays participating you may now disconnect.

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