Q1 2020 Earnings Call
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Again, the conference will begin in a few short minutes. Please stay on the line.
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[music] Good day and welcome to the first quarter 2020, Hawaiian Electric industries Inc. earnings Conference call.
Participants will be in listen only mode should you need assistance. Please signal conference specialist pressing the starkey followed by zero.
After today's presentation, there will be an opportunity to ask questions to ask a question. You May proceed start that one under Touchtone phone to withdraw your question. Please press Star then too. Please note. This event is being recorded.
I'd now like turn the conference over to Joy Smolinski Director Investor Relations and strategic planning. Please go ahead.
Thank you Brenda and thank you everyone for joining us today apologies for the delay there thanks for bearing with us.
Today of course, its Hawaiian electric industries first quarter 2020 earnings conference call.
Joining me today, our Connie Lau <unk>, Chairman, President and CEO, Greg Hazelton, <unk> Executive Vice President CFO Scott.
Wine electric President and CEO Rich Blocker American savings Bank, President and CEO as well as other members of senior management.
In keeping with our social dispensing practices.
Our executives are in different locations today. So please bear with us if we have any delays or mix audio quality during the call.
During today's call will use non-GAAP financial measures to describe our operating performance. Our press release presentation are posted in the Investor Relations section of our website contain reconciliations of these measures to comparable GAAP measures.
Looking statements will be made on todays call.
Factors that could cause actual results could differ materially from expectations can be found in our presentation, our filings at Sep and on our website.
And now Carney, Rob I'll begin with her remarks.
Thank you Julie and Aloha, everyone Mahalo. Thank you for joining US today, we hope you are safe and well.
Our thoughts are with those who have been affected by Cobra 19 were grateful for the healthcare workers and the many others on the front lines, providing supplies and services as we collectively weathered the storm damage.
Today, I'll start with covert 19 impacts and have like E plans for reopening our economy and how our companies are positioned then Greg will review, our first quarter results and discuss guidance before we turn to your question.
How about you is facing an unprecedented challenge from covert 19 and were especially mindful of the essential role our company's play.
Your utility we provide reliable electricity to keep our hospitals homes in the central business, it's running.
Through our bank, we help ensure money keep flowing through our economy.
I'm proud of the dedication of our employees and thank them for continuing to provide these essential services throughout these challenging times, even with personal risk to themselves and their families.
Continuing to provide these vital services, while protecting the health of our customers as well as our employees has been core focus.
[music] in Hawaii, we talk about our special culture of Aloha and of course, Liana, our responsibility to others.
It's a culture that we described previously in terms of our community coming together to take care of each other and dumped a land and environment.
And it's a culture that has served us well in managing the public health the impacts of Cobot 19.
Our government's early actions to impose statewide stay at home work from home orders and mandatory 14 day quarantined for all incoming travelers both visitors and residents alike and a whole community response [laughter] have succeeded in flattening the curve it sounds like E.
With me for it we have had sadly 17 death.
And the total caseload Oh 621.
But also 16 days, where new cases, where in the single digit [laughter] on our most populous island up a wahoo where population density is comparable to cities like San Jose, California, We've even had multiple days I know you cases.
These numbers are encouraging and have enabled us to start reopening our economy.
Well this is a difficult time, we believe we will get through this crisis.
Although the east tourism industry has been significantly impacted by the stay at home orders and the travel quarantine the beauty of our state and the Aloha Somebody's people will not change [laughter] post 911 in post the great recession tourism came back strongly it was cleared that people still want to.
Travel, but they wanted to travel to a safe destination.
And this crisis, we had the opportunity to rebrand about E.
The safest place on are.
We believe that we can demonstrate that our state will be a welcoming unsafe place where visitors and that how about you will continue to be a very attractive place where tourettes huh.
How about you will also remain continue to remain of strategic importance for the military and federal state and local government well continue to play a major role here.
Our housing market has also proven resilient it was relatively stable during and after the great recession and continues to be characterized by robust demand for a limited supply.
[laughter], the public and private sectors here are collaborating to responsibly reopened our economy for both residents and visitors and also to shape, what we want our economy to look like in the future. Our company's leaders are deeply involved in these efforts.
In addition, Alan Oshima, former CEO of Hawaiian Electric who stepped down just a couple of months ago was appointed by our give a governor egain to coordinate and navigate our state economic and community recovery in a collaborative fashion.
The overarching plan has three phases phase one stabilization of the number of covert cases based to a gradual reopening and recovery of our economy and phase three making our economy, even more resilient with strong business and job growth.
We're beginning to gradually reopened our economy among local residents and preparing to later welcome visitors parks in golf courses have reopened elective surgeries have resumed and low contact businesses such as car dealerships and automated service providers were allowed to reopen may 1st.
We anticipate economic activity will increase over the coming weeks and months [laughter] with meaningful activity resuming mid to late summer and significant recovery by yearend.
Yesterday are you a university of economic research organization updated their forecast for Hawaii's economic recovery.
And they believe that local economic activity will return by 35% to 45% in May and June and 75% by year end [laughter] tourism will take longer likely beginning to return late July with a ride those by year end, reaching half of their normal levels.
[noise] this reopening gets our state a unique opportunity to consider the future up our economy.
And there too we're looking at doing it responsibly and ensuring that the choices and investments we make move us toward a more sustainable economy.
We're thinking about the right level of tourism that ensures a good experience for visitors and is sustainable for our environment, our lands our economy and our communities.
As a company we're working to support in advance our states recovery at our bank. We're focused on building the innovation economy to diversify and expand job opportunities at our utility we continue to partner with stakeholders to progress clean energy projects and identify opportunities to read.
Filled with Hawaii's green economy goals in mind, and we remain committed to our state, 100% renewable portfolio standard and carbon neutrality goals.
Protecting the health and safety of our employees, helping our customers and supporting our community through this time have been core goals for companies.
To protect employees and customers, we implemented a mandatory work from home policy for employees, who are able and we instituted the use of discrete work teams to increase physical distancing for those employees, who must be on the job such as our line men and power plant operators.
We also scaled back our open bright bank branches and implemented extensive cleaning and physical just didn't seem precautions for those that remain open.
The bank has seen strong increases in online account enrollments and mobile usage, which is encouraging and should help keep reducing costs for routine transactions over time.
As a state and county stay at home orders get phased out overtime, we will likely phase back into full operations, albeit with new practices to maintain health and safety.
We've been pleased that our liquidity and balance sheet strength.
Our utility bank unconsolidated enterprise have enabled us to support our customers in this uncertain time [laughter], our utilities has suspended disconnections for non payment through the end of June and urged customers experiencing hardship to reach out. So we can help with payment arrangements.
We also remain very focused on affordability of customer bills, we're mindful of the need to operate even more efficiently given the economy and how it may impact pending rate requests.
One bright spot has been fuel costs, which are largely a pass through item for our customers. Our customers are seen some benefits of lower fuel prices.
Just when they need it most for example on Oahu and May lower fuel costs would reduce a 500 kilowatt hour per month, bill by more than $12 compared to March.
We expect lower fuel prices to continue to benefit customers for the next few months, but longer term, we remain concerned about the volatility of oil and its impact on customers. So we're still focused on moving off oil as rapidly as possible.
At our bank, we made a huge push with teammates teammates working round the clock shifts to secure loans under the paycheck protection program or P. P. P to help small businesses pay employees and other central bills like utilities.
We are proud that American secured over $317 million for approximately 3600 small businesses employing roughly 40000 individuals.
And that how that you banks in total obtain funding for 78% of our states eligible payroll in the first round, placing of like E. In the top five states in the nation.
American is also helping customers by providing loan deferral and forbearance auctions and waving a number of fees.
[laughter] like Hawaii as a company our fundamentals remain strong and that serves us well to weather the challenges of cobot 19.
On a consolidated basis were comprised a stable operating companies in essential industries.
Our utility has delivered power for I state for over 125 years through many different economic and social conditions.
During this coven period, we do expect higher bad debt expense and lower kilowatt hour sales and indeed in the last week of March we saw lower load, 7% lower on Oahu, and how about E Island, and 14% lower on Maui.
Given the utilities fully de coupled regulatory structure, the primary financial effect relates to liquidity.
Although decoupling and able to recovery of target revenues approved by the PC, Despite lower loads cash collections under that mechanism would be delayed until 2021 under the revenue balancing account.
We've taken steps to meaningfully strengthen the utilities liquidity position, including through an expanded revolver and a private placement, which Christ last week, and which included our first green bond offering.
[noise] the lower loads also impact our renewable portfolio standard or our P.S. performance, albeit in a positive fashion since the lower kilowatt hour sales reduces the denominator in the Rps calculation and we expect to comfortably exceed our Twentytwenty Rps cool.
All of 30%.
Our utility and regulators continue to move regulatory processes forward with minimal disruption the performance based regulation or PBR docket remains on track for final decision by year end with workshops proceeding remotely.
Our Hawaiian electric Twentytwenty rate case is also moving forward, although the schedule for an interim decision in order is now October rather than July.
As part of that rate case, the P. you see implemented a management audit that's been a constructive process and the audit report is still expected in may.
On April 29, the PC published an order terminating the mandatory triennial rate case cycle as such we're no longer required to file a Maui electric rate case and were evaluating our options there.
Our bank has served our state for 95 years and has a conservative risk culture lending practices and loan portfolio.
These attributes helped s. beef perform well compared to other banks during the 2000 8009 financial crisis and position us well for the challenge at hand.
Well net interest income will decline due to lower rates across the curve and credit losses will rise due to the economic slowdown the bank remains a good contributor <unk>.
S be independently maintains strong liquidity and capital and regularly conduct stress testing implemented after the banking crisis, so the great recession, including under scenarios more severe. It then what is anticipated from cope at 19.
Our bank also has limited exposure to industries, such as accommodations, foodservices and retail with a commercial and industrial loan portfolio that is highly focused and secured by real estate.
At this point you do not see a scenario that would require h. <unk> to inject capital into the bank. However to maintain its target leverage ratio well supporting increased lending under the paycheck protection program. The bank will retain capital it otherwise would have paid in dividends to the whole income.
Let me.
At the holding company, we have enhanced our liquidity to ensure that we can be a source of strength to our subsidiaries in the unlikely event that it is needed while maintaining our investment grade capital structure and our shareholder dividend, we have paid on <unk> on the interrupted dividends since 19 no one.
Including during the great recession, and maintaining the stability of our dividend is no less important today.
We have a strong leadership team with the experience in judgment to guide our companies through this period.
I was CEO of H.T.I. through 911 in the great recession, rich, let a publicly traded Korean bank through that crisis, our bank CFO, let a recapitalization of another bank here in Hawaii, and our utility and executive teams have decades of experience and are well versed in incident.
Crisis management.
Our board members with we've been very actively engaged in this period include former utility and bank executives, who steered their companies through the financial crisis, as Ceos, Cfos and chief risk Officer.
Despite our company's strengths and the essential services, we provide we do expect impacts from covert 19.
We saw the beginnings of those in the first quarter, including higher bad debt expense at our utility and higher allowance for credit losses at our bank.
With the exception of bad debt covert 19 related costs were not significant for the first quarter, but may increase in the next few quarters.
As a result, the utility has filed a request for deferral treatment of cobot 19 related costs and plans to seek recovery of those costs at a later time.
The first quarter was impacted by items other than coven 19 in particular higher than planned utility Olin an expense utility on M. expense management has been an area of focus for us and while we have a number of efforts way, we do have more work to do.
I'll now ask Greg to discuss our first quarter results, our liquidity into our guidance Greg.
Thank you Connie and welcome everyone.
I will speak briefly on our Q1 results before moving to our outlook.
On slide.
Nine our Q1 earnings were 31 cents per share compared to 42 cents per share in the prior year quarter.
Well that 19 expenses impacted earnings at both the utility in the bank, including $2.5 million higher utility bad debt expense pretax then Q1 of last year, an additional provisioning for coated 19 of over $4 million shut the bank.
Bad debt expense at the utility were also impacted utility are are we.
We expect that bad debt expense will will continue to impact our income statement Untold deferral treatment is granted for future recovery.
Although we did have negative impacts from Cobiz 19 during the quarter. We also had a very strong start to the year prior to the pandemic.
Loads were strong and showed increases over the prior year nearly 5%.
We started the year with one of the nation's lowest unemployment rates and the strength of the pre toasted, Hawaii economy makes us optimistic about or future once we're through the crisis.
On Slide 10 utility earnings were 23.9 million compared to 32.1 million in the first quarter 2019.
The most significant drivers of the variance were 3 million revenue increase from higher rate adjustment mechanism revenues 1 million revenue increase from the recovery of west flock and grid modernization projects under the major project in term recovery mechanism.
And 1 million lower interest expense due to debt refinancings at lower rates.
These items were offset by $7 million higher on M. expenses compared to Q1 2019, primarily due to increased bad debt expense due to cold It 19.
The absence of one time of a onetime benefit in Q1 19 due to deferral treatment for certain previously incurred expenses.
And in increasing vegetation management work and higher outside service costs.
In addition, we had approximately 1 million higher depreciation expense 1 million lower net income from the absence of renewable procurement performance incentive mechanism.
And we received that we received in Q1 Q 19.
1 million from the absence of mutual assistant work reimbursement from the first quarter of 19.
And 1 million lower a if you do you see is there were fewer long duration projects in she in construction work in progress, particularly after the Weslock was placed in service in November.
[noise] turning to the bank.
Americans Nadine net income 15.8 million in the quarter down from 28.2 million in the previous quarter.
Although as a reminder for Q. The fourth quarter 2019 included 7.7 million of net income from the sales of the former a former properties.
Net income was also down by 5 million versus the first quarter 2019, mostly due to the provision taken due to colder than 19.
Following our adoption of C., so and the additional provision in the first quarter relating to co that we believe we are well positioned and oral and our allowance for.
For the loan and lease losses ratio of <unk> of 149 basis points is above our local peers, who averaged about 126 basis points.
We also saw strong loan growth during the quarter, 4.7% annualized with solid loan growth in commercial and commercial real estate portfolios.
As well as strong deposit growth of 7.1% on an annualized basis.
I'd like to spend some time and how were prudently positioning ourselves to withstand the impacts of covered as it at runs its course in April we executed financing transactions at both the utility and the holding company that increased committed credit capacity and allowed us to migrate away from commercial paper markets.
H.T.I. issued 65 million, a 65 million 364 day term loan freeing up the full capacity over 150 million credit facility.
The strong pro forma holding company liquidity allows it to serve as a source of strength for the combined enterprise and ensures 2020 cash needs can be met.
[noise] Hawaiian electric added 75 million of capacity through a new revolver and launched in repriced to 160, and priced 160 million private private placement.
95 million of which was used to free up credit capacity.
On its revolver.
The private placement also included 50 million dollar Green bond portion.
The utility will be refinancing existing Threed 64 day term loan with an extended maturity into 2021, freeing up liquidity in 2020.
When the customer challenges due to coated will likely have the most impact.
With these transactions, we will have increased liquidity at the utility by over three times.
[noise] with full availability of or credit facilities at both the utility in the holding company post closing of the utilities private placement.
And ample liquidity <unk> speech at the federal home loan Bank.
Or FHLB, we believe our consolidated company has ample liquidity, we're in a strong position to support our states economic recovery and maintain our commitment to investment grade ratings.
[noise] looking at maturities over the long over Oh, our long term debt maturities over the remainder 2020, only 14 million.
Remains at the utility.
We have a modest holding company maturity of 15 million in the first quarter of 2021, which we expect to refinance in advance of that maturity.
Turning to the bank.
He Sps commitment to a strong balance sheet and conservative capital ratios is why just so resilient during challenging times such as this.
Bank has strong liquidity.
With approximately 3 billion available from a combination of the FHLB and unencumbered securities.
The bank is self funding and we don't expect it to need capital from the holding company under any scenario, including very very severe stress scenarios that weve refreshed during the quarter.
We expect SBS dividend to the holding company. This year will be reduced as we expect is speed to focus on retaining capital to support loan growth and important customer programs such as <unk>.
Such as PPP and to cover higher credit costs during this period.
On slide 14, we don't expect our dividends from the utility to change meaningfully from the level previously communicated.
Although the dividend for me SP is slower we expect it it's profitable operations will continue to contribute to earnings.
I mean, we remain committed to investment grade rating and can turn on our dividend reinvestment program, it's needed, which can cost effectively generate about 30 million of.
Cash and incremental equity annually based on historical levels. However, we don't currently believe we have a need to issue equity this year.
We expect to maintain or external dividend, while growing the dividend in line with or any with longer term earnings growth.
Although we have different scenarios around the pandemics impacts and we maintain a and we maintained a healthy capital liquidity.
And.
Dividends under under these scenarios.
[noise] turning to the outlook for the year.
We're currently forecasting approximately 22 million of cobot 19 related expenses at the utility.
Whether we get deferral treatment is an important driver for the year, we've requested decision by June Thirtyth.
On the regulatory front timing for the Hawaiian electric rate case in term decision has shifted to October.
We have we had originally requested 4% revenue increase or about 78 million.
However, we recognize how difficult the current economic environment is for customers.
And we recognize that we did not receive an increase in the Hawaiian electric light interim last year and that some of our peers are now are not being granted increases by the regulators.
We're tightening our belts like everyone in our community to find expenses to offset and expense offsets for any future for any lower revenue increase while maintaining our utility earnings outlook.
[noise] full decoupling water utility will help provide earning stability for the year Cobot 19 impacts were mainly in the latter half of March at stay at home orders in Air travel Quarantines went into effect.
Why we are insulated from the impacts of lower load and rep on revenue, we don't get true ups for incremental bad debt expense.
Which was up considerably in March versus last year.
[noise] be it had an unprecedented level federal stimulus coming into the states including funds.
Funds loan through the Paycheck protection program and we expect that this will provide some upside as customers get more breathing room to pay bills.
The lower fuel prices are also bright spot for our customers.
[noise], we're now approximately we now forecast.
Approximately 330 to 360 million of Capex in 2020.
As we see about 30 million a potential downside due to covert related delays.
As I mentioned, we've delayed some scheduled maintenance to avoid outages for residential customers.
Now working from home.
However, we are maintaining or along with longer term capex and rate piece guidance.
In the 2021 2022 period, we expect Capex to average approximately 400 million per year or about two times depreciation.
This does not include potential self bid build projects that made it through the first round as the renewable energy and storage state stage two RFP process.
Well find out whether any of those projects are ultimately selected later this week.
We continue to expect the utility to be able to self fund its forecasted capex through 2020 via retained earnings and access to the two debt capital markets.
Turning to <unk> species.
Cadence and key drivers are our bank guidance for the year of 73 cents to 80 cents is showing on the on the left on the left lower left and that is in and that included our standard elements, including asset growth net interest margin provision and return on assets.
I would say I should say, our prior bank guidance, which is no longer in effect.
Experience will to experience tells us that it's difficult to know how.
And event such as Cold 19.
Will impact asset quality until we have a better sense about the timing in manner in which our core local economy will reopen.
[noise] given the N. stat uncertainty it is too early to provide guidance on provision and consequently, we are unable to provide s. our return on asset guidance as well for the bank.
However, we do have sufficient visibility to provide guidance on a pretax pre provision level, which is comprised of net interest income noninterest income noninterest expense.
Which also provides you a snapshot of the continuing profitable operation of the bank in this economic environment, excluding the credit impacts of coking 19.
We estimate the pre tax provision income range.
To be from 90 million to 110 million for 2020.
That income along with our existing bank reserves and strong capital position gives us significant headroom to absorb the uncertainty of coated related credit impacts.
Well right well rate moves by the fed in March had a modest impact in the first quarter. We expect the low interest rate environment to have a greater impact on asset yields in Q2, and thus further pressure net interest margins.
Floating rate debt, such as LIBOR based and prime and prime linked clones reprice.
Based on the change in the benchmark to which they are tied.
We saw some effect in Q1 from Lowber lower LIBOR rates on our commercial portfolios and expect to see the full impact in Q2.
We also saw some Q1 impact from the lower prime rate to which our home equity line of credit portfolios type.
Those lines of credit are now at the at their floor price and consequently, we do not expect we would we would expect minimal.
Incremental impact from further repricing of that portfolio.
Fixed rate debt, such as 30 year fixed rate mortgages, where reprice real were probably set a much.
It's a much more slowly.
Through refinancing of existing mortgages.
Given our already very low cost of funds at 24 basis points in the first quarter, there's little room to move lower and improve to improved net interest margins.
[noise] Sps net charge offs has consistently been below the national average this was true during the financial crisis has Hawaii's residents continued to pay their mortgages and other loans.
If you look at two at the 2008 through 2011 period, our provision expense averaged <unk>, 0.52% of our loan portfolio.
Peaked at <unk>, 0.81%.
If you apply that to a portfolio of our size today you'd have approximately.
You'd have an average credit cost of 27 million and it peak of 42 million.
Turning to slide 20.
We've walked through each of the key drivers for utility in bank. So now so now I'll bring it all together.
At the utility we are reaffirming our guidance range and we currently expect the utility to be at or below.
The midpoint.
That is that this assumes the deferral of cobot 19 related cost is granted <unk> during 2020 for later recovery.
At the bank because provision is tied to uncertainties regarding impacts of coded 19, and the economic recovery, we're providing guidance at the pretax pre provision line.
We expect pretax pre provision income, which includes net interest income noninterest income and noninterest expense to range from 90 million to 110 million.
We continue to expect low to mid single digit earning asset growth.
Given our current low interest rate environment, we expect net interest margin in the 3.4 or 5% to 3.55% range.
Our holding company guidance is unchanged.
At.
27 cents to 29 cents.
S loss.
Given that it's too early to determine the bank provision we are unable to provide consolidated earnings providing earnings per share guidance at this time.
Connie will now make for closing remarks, thanks, Greg and although again, thank you to everyone for joining us today.
Although this is a difficult time for our community. We are proud of the way our companies have stepped up to help our state recover.
However, we recognize that there is a long road ahead, and we think we're well prepared to weather the storm and help our customers as covert 19 runs its course and now we look forward to hearing your question.
We will now begin the question and answer session.
To ask a question you May press Star then one I wonder Touchtone phone.
You are using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then to this time pause momentarily to assemble our roster.
[noise]. Our first question comes from Jackie Bohlen with KBW. Please go ahead.
Hi, good morning, everyone.
Morning Burn <unk>.
Just wanted to clarify a couple of items with E. M Protection program and make sure I heard correctly that you said roughly 370 million for about 3600, IDE application I hear that right.
Yes, hi, Jackie its rich and that's through that's through April.
Okay through April so with that so that includes some round two in there as well correct.
Okay, and when I when I look at that number it.
It seems like the average loan size is a little bit larger than 100000, why we kept the e. on that it's somewhere in between 3% to 5% maybe towards the higher AD given the average loan size I'm is that accurate or are there you know some larger loans in there that are going the average a little bit no. That's that's correct.
That's correct, yes, we have only probably in there we think we have less than two dozen loans that are bigger than a couple million bucks. So we really hit the sweet spot of the small businesses.
Okay.
Okay, and then are you, saying Ted Bundy through existing balance sheet liquidity are you looking at the fed one funding facility or a lot.
Yeah existing balance sheet, primarily in <unk>, where we're set up to take advantage of the fed facility, but we'll do that if if we have the need to right now we're we're keeping it on balance sheet as you know the when we don't expect them to last too long a significant portion will get forgiven as we come out of the.
Second quarter so.
It's sort of a temporary spike.
Okay.
I think yeah that's helpful.
And then.
I see and thank you for the added detail within the buyback.
Flipping through that as you're going to your prepared remark I'm just looking to that Nick exposure I in general and understanding that you know at 4%, it's pretty low piece of the portfolio I related to the grade on those I was 75% of the portfolio being investment grade is that similar to where it was that at 12 31 or did you.
Any downgrades during the quarter I know, it's still you know a little bit really for that given the timing, but just curious.
Yeah, it's pretty consistent we haven't seen a downgrades on our exposures and that's fine.
Okay.
Okay, and then in terms of just outreach that you might be doing far it the personal unsecured loan I. You know if you could you provide any color on that and how that plays into deferral, but you might be granting and how that played into some at that reserve Bellevue hot in the quarter.
Yes, so as you know, we're offering a deferments food and others are across the portfolio across the bank commercial and consumer.
In the <unk> the consumer unsecured we've had about a.
3000 customers ask for deferrals out of out of that portfolio. It represents a little more than 10% of the of the balance of the of the book.
Well, you know and as we as we work through that we're communicating with customers about.
This is a deferral not a forgiveness. This is you know we need to be we're happy to help you, let's make sure. We're communicating about how you're going to me payments again, when the starts up and were beefing up our loss mitigation resources on that side as well so as we look at it.
You know, we felt coming out of the quarter. It was prudent to to put up a little bit of of reserves against a deterioration in the collectability that book and we'll see how it goes as we play through but.
That's kind of you mentioned you know Hawaii tends to have a little bit better performance than the national average on on payments and I'm paying back our debts. So we're we're we're hopeful that that continues through this crisis too.
Okay. That's that's helpful and if I, if I'm remembering correctly, that's a very granular portfolio right.
Right. The average loan size is somewhere around $10000. So it's not a.
That's not a large individual exposure I'm very very oh small size loans [noise].
Hi.
And then just one last one for me and I'll step back I'm looking to the net interest margin.
Okay and understanding some of the repricing trends pushes and pulls that you have going on there I made it sounds like following you repricing that takes place into Q outside of Yep, New generation that maybe at a low rates in the portfolio. The NIM could start to stabilize in the latter half of the year is that how.
You're thinking about it.
Yeah, you know the biggest hit that we take is the repricing on a variable loans.
That has been you can see them the benchmark so they've moved that's been pretty severe.
Since down 150 basis points on my board just since a year round. So it doesn't have much further to go I don't think.
And you know as the clarity on the economy.
Becomes more of it and then.
Interest rates to stabilize and we will you know we wouldn't expect to see.
Significantly further lower repricing.
Okay, great. Thanks actually I appreciate it okay.
Our next question comes from Paul Patterson with Glenrock Associates. Please go ahead.
Good morning.
Hi, Paul Good morning, Paul.
So [laughter] so.
[noise], there's just sort of to go over the sort of the big stuff a little bit more.
I'm not familiar as HM.
But just in general when we're talking about these deferrals and through the 40 13 Andy.
Just sort of all that stuff, that's going on with carriers.
How should we think about what's the accounting impact that's associated with somebody asked for deferrals or any any reserve or anything that we should think about that happens without what has been the run rate I mean, you mentioned that.
No the unsecured.
Consumer stuff, but I was wondering in general what do you see on the mortgage so I'm sorry, if I missed the.
Yeah.
So across the <unk>. This is Richard gun. Good good morning, Paul across the book you would we have roughly 10% of the book that has asked for hardship accommodations and though weve accommodated.
So mortgage side.
Is about 11% Oh the book.
You know and so under the guidance that was released as long as a customer was current prior to the situation in the hardship it doesn't affect the b a pass through status. So they're considered still a current good loans and we are not required to.
Make any adjustments for a further it was a provision we go on certain parts of the book Weve determined that that's prudent and that's that was the case with some of the consumer unsecured where we'd be elected to to provide on a qualitative factor some additional.
For for on Collectability of that book, but but broadly you know initially restructurings those commercial loans that are the again were current before or are not gonna be considered TV ours.
So the regulatory guidance has been I think constructive as we come through it and so we're really going to see is as we as the clarity comes on how the economy is going to open up how the tourism industry is going to open up again, then we'll be really on a company by company exposure boats.
Those are a basis in determining what we do.
Okay, and then just in general, though I mean, my instinct. These things are sort of automatic almost.
And they can be a guess grant for up to 12 months is about right.
No. It's not it's not that long. We're currently we're doing a three months at a time, we would be able to the current is you know up to six months. So we we began doing these it in late March you know you had an initial surged.
Additional request some sort of leveled off so you know I think the people who wanted and needed to take advantage of it at the early stages, having the growth. Since then has been fairly modest.
We'll go through that towards the end of the for this quarter. We ended the second quarter.
On considerations for another a three month extension of those terms and that's at our discretion to.
To do that we in the first round, we did make it very easy for people to take advantage of those and we will will make our call on that at the end of the second quarter based on how how things look.
And then I guess, you know you're going to use references to.
2008, what have you win and and to go to do quite well I think you know comparison to others on that but this is considerably different I guess.
And for instance, the governor at least as supposed to report was what suggesting that public employees take a 20%.
Hey, Todd.
And I know you guys are pretty depends on tourism, what have you and and so I'm just sort of trying to get a sense as to.
What kind of exposure, we should be thinking about here I mean, you know if it's that kind of activity would it take place.
I'm, just trying to get some senses to what that stress might mean.
In terms of your your your loans and what have you do you follow what I'm, saying I mean, it just feels very different.
Yeah, there will be called <unk> that would be called guidance around the provision [laughter]. So you know as we've said, but it's a bit murky [laughter] you know I think there's you know it is hard to draw a comparison to to any specific sort of situation. We provided the historical context.
For one situation, but but I think well you know there's also never been anything like the the kind of stimulus coming into this we you know more what will be close to three and a half billion as my guess on the P.P.P. by the time, we get through round two oh the.
Billion and a half dollar billion three that's coming through the cares Act in front of virus relief fund the the <unk> billion to have stimulus payments that are getting out into the into the individual consumers. So we've never seen that dynamic either right. So I think there's there's things in the negative sent some things in the <unk>.
Live sense that we're getting just need a little time to play out, but but actually you know there's there's factors that affected both ways.
Okay, just because of a sense it that way person pickup was happening how many how much of the workforce of of Hawaii would be a I see that you guys had 90% as.
<unk> government, but on the other had and so that's probably the sense of what have you, but but then there's another.
Number that's involved in education and that Pie chart on slide three and and.
And health care, So im just wondering just.
You guys have <unk> when you guys look at your own numbers, what do you what do you guys thinking about in terms of the number of people who might theoretically base that kind of reduction if they would remain employed.
Do you probably as a percent of the workforce 70 cents or sort of metric associated with them [noise].
Oh this is Julie will double check the number I'm pretty sure. It's in the range of about 10%.
Okay.
And just to clarify the governor signaled that that that might be a possibility and also said it would be a last resort.
Yeah, No I'm sure [laughter], Yeah, I've got a lot of resistance to it as well.
[laughter].
Finally on on the University of Hawaii stuff, that's 75 person I I apologize for does not getting that completely what 75% of activity would be normalized by the end to the years at what they were saying just what does that.
That's correct and I really urge you to go take a look at Ah Ah you heroes and forecast because for example, the prior forecast which was as of the end of March. He did not include the effect of the stimulus payments that rich was talking about and.
And that now is included in this current one although he has a little more pessimistic view on tourism. So you know that's the nature of everybody. We're all trying to look into this crystal ball and look at all the determinants and put them together and come up with views that our defrain as time progresses and we.
I see what actually developed within the economy.
Awesome. Thanks, so much guys hang in there.
Our next question comes from Charles Fishman with Morningstar. Please go ahead.
Hello [noise].
On the deferral of cold with 19 expenses with respect to the utility.
You know we have a track record in the southeast U.S. mainland with storms were pretty much know what happens in how they get the pearls when hurricane comes through.
Or is there anything you have that a precedent in Hawaii for this type of deferral of though unusual expense.
Well why do we turn that over to Joe Violette or on a regulatory team at the utility.
Hi, Yes again, thanks, Craig This is Joe Yes, we have experienced in Hawaii on [noise].
<unk> for differ looks significant cost [laughter] pull them out for that you're right I mean hurricane related for some of the other utilities actually the pass for 'em our law the incident on quality, though so there is there's some precedence for deferral treatment for extraordinary costs.
So I guess is oh fair or level of confidence that you'll get that I realize you can't I mean, that's you're rolling that out.
As my own but.
There are certainly I would think of.
A decent chance you're going to get it is that fair assessment.
Charles Hi. This is Scott you want electric I'm just to add to what Joe just said.
Even yesterday, our public utilities Commission issued an order, which basically had a number of elements, but probably the most important was that a in addition to saying that if you've not already done. So please suspend disconnections.
And Meanwhile, it's given us authorization to establish regulatory assets to recorder costs.
That result from the suspension of these disconnections. So that's pretty good signal I think that our commission is one where were required to start tracking these costs and then to file regular updates to the commission of these Oh these costs.
Okay, and then moving to the bank.
But with Greg said that a pretty material portion of the loan book was mortgages could you maybe give a little more color to that like what.
Percentage or is residential mortgages, what percentage is commercial mortgages of total loan book.
Yes. So if you refer to there's this slide in the material that gives you a little bit more on it I think it slide 31.
And in the back.
The.
Shows you we got about a five.
Point 2 billion dollar loan book, if you look at the residential mortgage piece.
I don't even a home equities, you've got about three point.
3.3 billion of it right there and then you add commercial real estate.
That that gets you up and then within within other component that gets you up to the 80% of the bokor.
Perfect slot I, just never noticed that before I was just like the cost a lot. You included every every day I can I just never had a reason looked at it okay.
Well, you're absolutely Charles <unk> Colvard today, we thought you might ask [laughter]. There you go Oh, well, that's that's why it's perfect well then.
No. This Connie let me just add to that are in call. Your attention Oh, so not only do we have slide 31, which basically shows that about 80% of the total long portfolio is secured by real estate here in Hawaii, but then there after I'm on slide 32.
<unk> 33.
34.
And even 35, which is the national syndication Oh fly that you Jackie was referring to a we've tried to break out the loan portfolio and give some stats. There. So everyone has a sense of the quality of the loan portfolio. So for example, if I go to slide 32 for the.
Residential mortgage portfolio. It I'll show you that the average loan to value for the portfolio is 53.5%.
So that gives you a sense of how much equity is in each one of these loans as a buffer right and I think on there you can also see that our home equity portfolio is it's different than you might.
Think about home equities, a lot of times people think about him as a second mortgage and a high LTV and in fact the.
Predominant majority of ours are first position a lot of <unk> you know the ltvs are very low people use it as a as almost a sore a flexible source of funding on what has has always been strong real estate values strong and stable real estate values in Hawaii. So it's it's not.
You know what what your initial perception or home equity books would be and and we see that perform quite quite well overtime and you can also see the granularity that Jackie was talking about a you know for example for the residential mortgages average loan size of 300000.
The personal unsecured $10000. So you know we have.
Very community Bank light.
Well that is quite granular.
Okay, all done I'm, not a banking analyst, but that's certainly not to give you confidence that the.
I mean people don't like to walk away from their hormones. Other home. So that's that's at that level of confidence that I suspect you experienced 10, plus years ago and Alaska crisis.
Yeah, and as we said you know in Hawaii, that's especially true when it's so hard yeah. We have limited land mass. So it's those so hard to even get into a phone.
Okay very helpful Oh boy keep the phase.
[laughter] I think Sarah.
This concludes our question answer session I'd like turn the call back over to management for any closing remarks [noise].
[noise]. Thank you all for joining US today appreciate your comments and questions and please let US know please feel free to get in touch if you have anything else and certainly stay healthy and safe take care.
[noise]. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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