Q2 2020 Hawaiian Electric Industries Inc Earnings Call
Welcome to the second quarter 2020, Hawaiian Electric industries Inc. earnings Conference call. All participants will be in listen only mode should you need assistance. Please contact specialist.
Starkey followed by T. Rowe.
After today's presentation, there will be an opportunity to ask questions.
Please note. This event is being recorded I would now like to turn the conference over to Jellison landscape director of Investor Relations. Please go ahead.
They do in need of welcome everyone to Hawaiian Electric industries second quarter 2020 earnings call. Joining me today, our Connie Lau <unk>, President and CEO, Greg Hazelton, H., <unk> executive Vice President and CFO.
Do Hawaiian electric President and CEO Rich Wacker.
American savings Bank, President and CEO and other members of senior management.
We're continuing to follow social distancing procedures. So our executives are in different locations today. Please bear with US again, if we have any delays or mixed audio quality during the call.
On the call, we'll use non-GAAP financial measures to describe our operating performance.
Our press release, some presentation are posted any investor relations section of our website and contain reconciliations of these measures to the comparable GAAP measures.
Forward looking statements will be made on today's call doctors that could cause actual results to differ materially from expectations can be found in our presentation or sep filings and on our website and now Connie will begin with her remark.
Thanks, Julie Hello to everyone. Thank you very much for joining us today, and we hope that you are safe and well and their families or are well.
I'm very proud of this performance of our company and our employees during this call the night team and dynamic.
Well all of US these uncertainties regarding the trajectory of the virus and its implications for a piece of the economic recovery what is clear, it's the strength and resilience of our businesses.
Dedication of our employees.
And our commitment to supporting our customers and our economy throughout this period.
On last quarter's call, we talked about the strikes that would help our company navigate through covert 19.
Our long history of providing essential services for most of our state.
Our strong liquidity across our enterprise.
Stabilizing effect of decoupling and other regulatory mechanisms that are utility.
And our banks conservative approach to risk low risk loan portfolio low cost core deposit base and strong capital position.
This strong foundation, coupled with other factors that benefited earnings enabled us to deliver solid financial results for the second quarter.
45 cents per share compared to 39 cents per share in the same period last year.
While achieving important progress on our long term goals.
I'll start with an update on the virus and economic conditions and how they eat.
Turning to an update on our company.
Then Greg will review, our financial results and outlook.
We're fortunate that hurt you continues to have the nation's lowest cobot 19 mortality rate.
Well cases per capita in her E have generally been lower than other states throughout the pandemic. We have seen an uptick in cases recently, which are state is working to address.
We're seeing the effects of reopening of our local economy, an unprecedented federal stimulus.
Which is estimated to have delivered approximately $7.7 billion in funding to our state thus far.
I'm not use unemployment rate improved to 13.9% in June after peaking at 23.8% in April.
At our utility wealth sales were 11.6% below the same quarter last year, we seem sales improve in some areas such as shopping centers and retail since opening up our local economy began.
We've also seen areas that have maintain stability throughout the call that period, such as our federal government and military presence.
Residential real estate values have remained strong and are up from last year, showing continued strength for the collateral that secure as much of our banks lending.
A key question for how the east economy is one transpacific travel and tourism can resume.
He currently plans to allow travelers with a negative coal that test to forgo the mandatory 14 day quarantine beginning September 1st.
Recognizing how the east prudent management of Kobin 19, Japan announced cover. His addition to a list of 12 global destination deemed safe for Japan residents to resume travel.
This will help restart tourism, although it may take some time before we see tourism near pre coated levels.
Of course, all of these plans are subject to the actual course as a virus and the effectiveness of mitigation.
[noise] well tourism in federal stimulus developments will have a significant impact on the pace at which our economy rebounds.
Our state does have the ingredients for solid recovery.
We continue to benefit from a robust federal government presence here as host to the U.S. in Dokes, if it comes down to from which the U.S. watches 52% of the world surface.
Adult component service command.
We also believe the unique environmental and experience we offer here, we'll continue to make our state of very attractive place for tourism.
There is a new energy to economic diversification efforts here as well.
Companies are actively supporting those efforts.
Turning to our company.
At our utility solid regulatory foundations have served both the company and our customers well.
And enabled us to be a source of strength or community. During this unprecedented time.
Our de coupled regulatory structure has provided accrued revenue stability despite reduced sales in the second quarter.
On June Thirtyth, Our commission approved our request to defer kogut related costs.
To be considered for potential recovery in a future proceeding.
To help customers. During this time, we extended our suspension of Disconnections through September 1st and have offered a range of payment plans to help customers manage their bills.
Working closely with customers is a key focus for us.
[noise], ensuring our services are affordable.
Also a key focus now even more than ever.
Customer bills are lower now than last quarter due to lower fuel costs and a reduction in the RV a component of the bill due to higher than projected electricity sales in 2019.
[noise] a customer using 500 kilowatt hours of electricity in July paid 14% less for that energy then in March.
We're also working to become a highly efficient utility and as of June 30, we recorded $7.2 million in a regulatory liability account related to ERP benefit.
Amounts that are to be returned to customers as a reduction in all one m. expenses included in great.
We've also secured significantly lower and six price renewable energy plus storage contracts through our recent or piece.
Which will help lower in stabilize customer bills once those come online.
Last week, the PC issued a final decision and how the electric light rate case results were consistent with the interim decision maintaining current effective rate.
In recognition of financial challenges our customers face in this call that period.
In late May we and the consumer advocate filed a settlement with the PC to hold base rates flat in Hawaiian Electric's Twentytwenty, a water rate case.
You may recall that the PC had commissioned a management audit as part of the rate case.
The audit report highlighted areas for improvement, including several we had identified and we're working to address.
For October.
In addition, we are no longer planning to file on Maui Electric 2021, right case.
To offset the black or a base rate increase and achieve or $25 million by year and 2022 commitment, we're developing and have begun implementing plans to reduce costs <unk>.
Including through over time reductions.
Better scheduling and coordination.
Managed reductions of our workforce and reducing lower priority work.
And then the second quarter, we already began to see some of these savings.
As we advance these important cost reductions we are commission and other stakeholders continue to ensure that the renewable and regulatory transition moves forward.
There is great interest in our state and doing everything we can to make cover he's economic recovery, a green and sustainable recovery.
Performance space, right, making or PBR continues on track for PUC decision does December.
Which we believe will lay out the core mechanisms and performance incentive mechanisms or pens.
A new step in the schedule has been added thereafter to enable development of tariffs to implement the new <unk>.
<unk>.
The commission will determine when the new changes will be effective in 2021.
We continued to aggressively advanced efforts to help move our state towards 100% renewable energy and carbon neutrality.
These efforts will also help provide jobs and construction activity to help our state recover from the impacts of Kobe 19.
This includes pursuing new sources of renewable energy through Hawaii, but he's largest renewable procurement.
And may we announce the final selection of projects for our stage to renewable energy RFP.
We're excited to have 14 projects, all solar plus storage or storage only from the original 16 selected moving forward through the contract negotiation and community engagement phase.
If all our completed they could add about 450 megawatts of solar and about three gigawatt hours of storage to our system.
Two of the projects our company self build storage projects on Maui and Hawaii Island.
Stage, one RFP projects also continued to advance while some developers provided force mizher notices as a preventive measure given the possibility of Kobe 19 interruptions.
So far all stage one project are still moving forward.
Last month, the commission approved or application to rebuild the pointed geothermal venture or P. G V transmission line.
This will allow us to bring <unk> back onto our system under the existing PPA, while awaiting approval of our amended PPA.
With land at a premium in Hawaii, we'll need to use both open land and as many rooftops is are available to reach our renewable energy Kohl's.
We're gathering information on parcels as small as one acre and rooftops of at least 3200 square feet for future grid scale solar wind projects and community solar projects.
We also continue working to help reduce carbon emissions from the transportation sector.
To help accelerate this transition we filed a pilot project for E bus make ready infrastructure.
And just this week Hawaiian electric announced its commitment to convert it's entire fleet of light duty vehicles across the islands, nearly 400, Sudan's Suvs small bands and light trucks to be electric by 2035, leading the state of Hawaii in electric vehicle fleets.
Turning to our bank in the second quarter, we stayed focused on doing the right things during this difficult time.
Ensuring employee and customers safety and wellbeing supporting our customers managing risks and controlling costs.
<unk> ramped up sanitation efforts and the use of PPE at all of our locations in Workspaces and <unk> rolled out a new contact list card for all of our debit card holders to keep them safe.
We've been able to help our customers manage economic uncertainty offering fee suspensions in lone deferral, and forbearance options and providing paycheck protection program or P. P. P loans.
Our team worked aggressively to secure and deploy PPP funding delivering $370 million in loans for approximately 4100 small businesses that represent roughly 40000 jobs in our state.
This accounted for the bulk of our loan growth in the quarter.
At the bank, we have a front row seat to the effects of federal stimulus.
Federal Stimulous, the checks leading to significant deposit growth.
24% on an annualized basis.
This excess liquidity gives us added cushion during this cove period.
[noise], though it does pressure net interest margin.
The banks net interest margin was also impacted by the lower interest rate environment and PPP loans.
A core focus has been prudently managing or risk. Our team has been working closely with commercial customers to understand their financial condition and ensure we provision at the right levels.
We're controlling costs, despite additional covid related expenses.
We're also taking advantage of new opportunities that this period presents.
As an example, we've seen rapid customer adoption of self service options, such as online banking and atm's.
This allows us to accelerate our plans for optimizing our branch footprint.
<unk> also started implementing are planned replacement of our a T M fleet with smart atm's, which will be the newest in Hawaii, and we'll give customers even more capabilities outside the branches.
Now Greg will review our results for the quarter and our outlook Greg. Thank you Tony.
Turning to our second quarter results on slide seven <unk>.
Consolidated earnings per sure, we're 45 cents versus 39 cents and the same quarter last year.
After utility timing and management of expenses and the Puc's Grant a deferral treatment for Covid 19 related expenses added positive impact.
At the bank strong mortgage protection and again on sale of Securities helped offset tighter lending margins and higher provision.
At the holding company while costs were wall in line with plan, we did see a slight increase due to an acceleration an increase in our charitable giving during the quarter to support our local community organizations and those impacted by coded.
Consolidated 12 months or are we remains healthy at nine 4%.
Utility <unk> increased 10 basis points versus the same time last year to seven 9%.
Bank or are we which we look at it on an annualized rather than the toilet trailing 12 month basis was 8% for the quarter down from last year too due to economic impacts of Kobe 19th.
Turning to the next slides utility earnings were 2042 $3 million compared to 32 $6 million in the same quarter last year.
Reflecting in part savings due to process improvements and targeted cost reductions.
The most significant drivers of the variance were 7 million lower operation and maintenance expenses, primarily due to fewer generating unit overhauls.
Lex generating station maintenance work associated with overhauls.
Classification, Kobe 19 related bad that experience from your first quarter of 2022, a regulatory asset as a result of the PUC approval ticket for these expenses.
And lower labor costs, due to lower staffing levels and reduced overtime.
The lower generation overhaul Kingsteignton station maintenance work represented approximately $4 million of the 7 million O&M variance and are largely timing related and some of that worked will be performed later this year or next year.
Earnings also reflected a $5 million revenue increase from $4 million higher Ram revenues and $1 million for recovery of West Lock project and grid modernization projects under the M. P. I R mechanism.
$1 million higher net income due to an unfavorable adjustment in 2019 related to reliability performance incentives.
And $1 million lower interest expense due to that refinancing at lower rates.
These items were slightly offset by the following after tax items 1 million lower allowance for funds used during construction as we were is there were fewer long duration projects and construction work in progress.
$1 million higher cost savings from ERP system implementation to be returned to customers.
And 1 million tire depreciation due to increasing investments to integrate more renewable energy improved customer reliability and strengthen system efficiency.
Turning to the drivers of the utilities financial performance for the remainder of the year.
The public utility Commission issued its final decision for Hawaii Island utility confirming Hawaii electrics, nine 5% allowed arrowy and 58% equity capitalization with no change to base rates.
Separately, if the PUC approves are settlement with the consumer advocate in Hawaii, Hawaiian electric right case for Oahu.
We should see a similar outcome no increase in base rates with nine 5% allowed <unk> and 58% equity capitalization.
The utilities multiyear strategy for greater operational efficiency and cost reductions should help offset the lack of base rate increases.
The PUC order approving deferral of Covid related expenses.
<unk> covers expenses incurred for March 17th two year and.
And the second quarter, we reclassified it pretax amount to $5 million in bad that expense and <unk>.
Incurred in the first quarter to a regulatory asset.
Covid related costs have been six $5 million today.
Two separate application will be filed to request recovery of such costs in the future.
Although sales were down 11, 6% versus a second quarter.
Last year.
Due to decoupling revenues due to decoupling revenues were not significantly impacted.
Substantial decreases and fuel prices have been positive for both the utility and customers.
Fuel prices were down close to 30% in the quarter and the average customer bill declined by over $20.
For months.
Monthly since the pandemic began.
The utility may qualify for rewards this year under the fuel costs risks sharing mechanism as well.
On slide 10, we continued to forecast approximately $360 million a capex in during 2020.
Lash last quarter, you may recall, we indicated the potential for up to $30 million below the forecasts given potential cove it impacts.
After a full quarter.
In the Covid environment, we have confidence in achieving the 360.
We forecast for the year.
We're maintaining or a longer term capex and rate base guidance in 2021, 2021 to 2022 period, we still expect capex to average approximately $400 million per year or about two times depreciation.
As you know with capital projects the timing of specific of a specific project spend can sometimes shift between years and the charged at the bottom left reflect some modest updates those updates don't change our overall guidance in our chart.
The top left.
We continued to expect to utility to be able to self funded forecasted capex through 2020 via retained earnings and access to the desk capital markets.
Turning to the Bank Americans <unk>.
Income was $14 million down from 15 $8 million in the prior quarter and $17 million in the same quarter last year.
Net interest income was 56 $7 million compared to 61 $1 million and the link to quarter, and 61 $5 million and the second quarter of 2019.
The decrease was primarily due to lower asset yields given the lower interest rate environment.
Higher amortization of premiums within the mortgage backed securities portfolio also impacted investment portfolio yield.
Net income was also impacted by a higher provision for the quarter.
<unk> took an additional $7 million and credit reserves related to Kobe.
As well as an additional $4 million for unfunded commitment.
On the net income non interest income side.
Canes on sales of Securities contributed positively to net income.
We realized seven $1 million gain related to the sale of visa Cosby restricted chairs and two 2 million game on the sale of investment Securities as we sold some legacy positions to reduce credit risk and yield volatility in our investment portfolio.
There were additional covid related expenses and savings within non interest expense <unk>.
American incurred three $7 million and covered related expenses, consisting of additional pay to frontline employees to pay out of excess vacation days for employees unable to use vacation while working through the pandemic.
Purchases of PPE, insanitation supplies and employee meals purchase to promote employee safety and support small business restaurants.
These higher Covid related expenses were largely offset by lower travel business development and marketing expenses.
On slide 12, Asp's net interest margin declined to 321% this quarter from 372% and the first quarter.
On the upper right with detailed the elements of that decline.
The lower interest rate environment with the largest driver the net interest margin compression comprising 34 basis points of the decline.
Much of this reflected anticipated repricing in Q2 of most of our adjustable and floating right portfolio.
Four basis points was related too low yielding PPP loans.
Thousand 91 amortization was also a large factor, reflecting a faster rate of prepayments due to lower rates at the long into the curve. This accounted for 15 basis points of compression.
We also realized strong deposit growth from federal stimulus and unemployment benefits that added to cash deposit balances.
While bolstering are liquidity and low cost funding base. These temporary.
Temporary excess liquidity is low yielding and pressured margins.
As noted we did realized benefit from lower deposit costs, which contributed eight basis points to net interest margin.
Turning to bank drivers for the remainder of the year.
We expect continued march and pressure, but Ah more moderate pace and and the second quarter.
And the second quarter NIM compression.
Compressed quickly is variable rate loans repriced after the fed lowered its benchmark right to neared zero in March.
Approximately 93% of a variable Rick portfolio have now repriced and indices too too, which those variable rates are tied are at or near there floors. Thus, we don't expect that part of our foot loan books to have materially to have have materially impacted beef materially impasse.
<unk> Bye further NIM compression.
We do expect continued refinancing.
Of our fixed rate loan portfolio, such as home mortgages is customers take advantage.
Historically low rates this type of reprise pricing is more gradual.
Aside from continued low interest rates, we expect increased amortization in the investment portfolio to continue to impact net interest margin.
As a reminder of how how that impacts NIM, we purchased bonds for the investment portfolio at a premium or discount and that premium or discount is amortize just over the expected lives with the bonds cash flows for more mortgage backed securities which comprises 90% of this portfolio damn <unk>.
<unk> increases if prepayments accelerate.
We see this occur in low interest rate environment.
Refinance activity increases.
We expect can access liquidity continued to pressure margins at similar levels to those <unk> realized this quarter as well.
Given these factors, we know expect net interest margin to be in the 335 to 325.
Percent range for the year.
Turning to the provision.
As mentioned, we did have an additional provision for the in the quarter related Dakota 19.
Total provision recognized during the quarter was 15 $1 million as reflected in there on our income statement, which which also included for 3 million allowance related to unfunded commitments.
As noted on the slide reserves for unfunded commitments are recorded and other liabilities on the balance sheet, rather than the allowance for credit losses.
We believe we have approximately we have appropriately provided for future credit losses as of June 30th.
[noise] provision outlook for the balance of the year is dependent on the economic conditions, which at this point remains uncertain.
We are not currently providing for your bank provision guidance given the uncertainty created by the impacts it covered 19 order economy.
Slide 15 provides an update on what we're seeing in our loan portfolio.
Overall, we have a high quality loan book that remains healthy with only 3% over a borrowers requesting or qualifying for additional deferral thus far.
Ah residential book comprises approximately 60% of the loan portfolio and the loan to value of that portfolio remains conservative at 52%.
Only a small portion of that portfolio roughly 8% have requested payment relief.
And consumer loans, which makeup just over 4% the overall portfolio, we've seen a high volume of deferment request, but it low balances.
While curtailment of supplemental unemployment benefits could result in increased deferment requests were closely monitoring what happens with additional federal stimulants.
We have moved all commercial markets and CRE loans with payment deferrals to what is called special mentioned, meaning that those are subject to enhanced monitoring.
These loans will be reevaluated for upgrade after successful resumption of payments.
Given the enhanced monitoring we have implemented for the commercial markets and CRE loans as well as the overall quality of our loan book, we feel we are well proficient as of June 30th.
[noise] ASB continues to maintain app ample liquidity and healthy capital ratios, despite the challenging economic conditions.
The bank has strong liquidity with over 3 billion available from a combination of that Fhl's B and unencumbered securities.
Asp's two one leverage ratio of eight 4% was comfortably above.
Well capitalized <unk>.
<unk> at the end of the second quarter.
As a reminder, the bank is self funding and we don't expect to see a scenario in which it would need capital from the holding company.
Turning to our consolidated liquidity, we're well positioned withstand the impacts of cove it through the remainder of the year and beyond.
As of June 30, we had $425 million of Undrawn credit facility capacity, just seemed to have $150 million at the holding company and $275 million at the utility.
With just 16 $5 million in commercial paper outstanding all at the holding company.
Utility paid off $14 million in long term that when it matured in July with no other longterm that maturities until 2022.
As of June 30th it had $65 million.
An unrestricted cash balances.
And 2021 that utility has $50 million, a short term bank loan maturity and expects to access it that capital markets to help fund it's capital investment program.
At the holding company, we have 50 million longterm debt and 65 million short term bank term loan maturing and the first half of 2021, and we are currently planning refinancing options for those maturities.
[noise] on slide 18, we expect our dividend from the.
From an equity investment in the utility to be consistent with earlier projections as the utility continues to perform in line with plan and has sufficient retained earnings to support it's capital investment requirements and adequate liquidity to support growth in the customer accounts receivable balances and payment programs for.
Customers.
[noise] that are impacted by Cove at 19.
Although the dividend from ASB is lower than our pre covid outlook bank dividends receive to date or sufficient to maintain hei's strong consolidated capital structure and liquidity.
On Tuesday, the board approved or quarterly dividend of 33 per share it and add an annualized rate of $1.32 per sure <unk>.
We expect to maintain our external dividend and do not expect the need for additional equity at this time.
We've talked through the drivers for these utility in the bank and on slight slide 19, you'll see a resulting guidance for the year.
The utility were weird reaffirming are guidance range and expect to be within the low end of the range.
At the bank, we are continuing to provide pretax pre provision income guidance, which includes net interest.
Income non interest income and non interest expense to range from 90 $210 million.
We know expect mid single digit, earning asset growth compared to low to mid single digit growth, we previously forecast it.
Given the current low interest rate environment in excess liquidity, we expect interest margin and the 325 to 335 range.
Are holding company guidance is unchanged 27, 29 cent loss.
Since it is still too early determined bank provision you're unable to provide consolidated EPS guidance at this time.
I will now I'll turn it back to Coney for her closing remarks [noise].
Thanks, Craig and Mahalo again, thank you to everyone for joining us today.
Although this continues to be a difficult time for our community. We're proud of our company's in T for stepping up to help our state navigate this crisis <unk>.
Pandemic has highlighted how strong the foundation our company has built over many decades and that is positioned as well to whether the storm.
And now we look forward to hearing your questions.
Thank you we will now be in the question and answer session to ask a question and I pressed Star then one on your catch downtown so using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please Crestar then too.
First question today it comes from Jackie Bolan with can't be W. Please go ahead.
Hi, good morning, everyone Barney Jackie.
Oh God I had lots of questions today for any red [laughter] and I thought I'd start off with them.
P and just I'm okay.
<unk>.
<unk> I mean that'd be nice.
That today and.
Helpful.
Wanted to double check that and quiet Jackie Burgundy Uh-huh, Yeah. We're breaking you were breaking up on that question could you repeat.
Alright, let me take off and I had that iced tea don't want snow about me a little better [laughter].
Okay, great sorry about that I was just wanted to see the the P. P. P. P. S. So that's.
<unk> the 950000 realized in the second quarter I'm. So just doing the mouth on that that mean do you expect another 2 million to to come through this year right.
No, we're a little higher than that [noise]. So that you know the timing of those loans was mid quarter right. So you're you're only at a partial quarter. If it's Joe standardization you'd expect to see about three three and a half and the second half.
And then depending on the speed of forgiveness.
Yeah, we could get more.
Okay. So that's that's just the pier amortization I'm doesn't take into account that you are you know, having those ones forgiven and accelerating that right correct.
Okay.
And what do you have your total expected fees to receive from P. P. P loans, so roughly 4% of her outstanding of the loan to reproduce who was was our <unk>.
Sure that'd be <unk>.
Close to 13 and a half the 14th.
Okay and at that Rosa 591.
Yes.
Okay. That's that's the <unk>.
[noise] sorry, I put you off go ahead, yeah, no. That's that's the fee amount, but will receive from from the spirit.
Okay.
And did that have a large impact I'm on compensation this quarter.
No.
None okay.
Okay. Okay.
And then I guess, just and you know in conversations that your bankers I've been having with customers what kind of a sense does that give you for how many will ultimately qualify for forget that.
We feel pretty good I mean, you know are are booked.
Our production really targeted really hit the target of worth the program was sent out to achieve so you know we have only a couple of handfuls of loans bigger than than $2 million. We have a large amount that were under the hundred and 50000.
[noise] threshold that they're talking about for potential broad forgiveness. So so we feel pretty good about it and the way people are using it in the discussions that we've had with them you know.
They are either marshalling shepherding I'm, which is why we've got some excess liquidity or or they use but intend to use it for payrolls or and now with the additional time to to use it for payrolls, we would expect they would they would broadly qualify.
Okay. Okay. That's helpful. Thank you.
And just I know this isn't really challenging question, but with all the moving parts that you have with access liquidity not related the P. P. P. At that yeah. The P. P P deposits and forgiveness and everything else. How are you thinking about you know the ads and flows the balance sheet size I know that you know you you provided mid single.
<unk> expectation girls for earning assets.
But I guess, what <unk>, what are things that could cause that to be higher lower from there.
No I think we need to decide.
How much mortgage production, we want to sell versus put on booked that can affect that mortgage productions pretty strong rates are pretty low you know, there's always a trade off of of selling versus versus putting it in the portfolio. The mix of how that comes in whether it's you know.
End up being saleable production or not and then you know I think there's there's still activity that's out there and we were just we need to.
Make sure our risk appetite is is in line with the opportunities that are that are in the market. So there is some good volume that's out there for for projects that we think are are worthwhile and but we were you know we got a triple check of her assumptions now.
Alright, it's not it's not a normal environment.
But at the same time, we wanna be constructive for economic activity here right. So you know those are probably the biggest variables.
Okay. Okay. No. That's that's helpful to keep that in mind and then just one last one and then I'll set back.
In terms of the decision Q celebration portfolio mortgages, correct me, if I'm wrong, and that's what I'm, assuming that to gain on sale that you're seeing in the market has some impact on that decision are you still seeing a pretty good gain on sale margin network, you know getting a a quarter. Yes. We are yeah I think it's still it's still a healthy.
And so that's you know that factors and as you said to the to the considerations.
Okay, Okay. Thank <unk>.
Okay.
Hey, Hey, Jackie this is Connie I would just add you know we're having lots of those discussions that you just raised about the optimal size of the balance sheet and a nice thing about American being part of the Hei holding company is that we probably have more levers that we can pull.
Then you know a standalone bank could.
So you can be sure that we will be Ah carefully balancing.
Future growth because it's rich said, we definitely want to support the economic recovery here and as you heard me and my comments.
You know, we do believe that we're gonna pull through this and certainly if you know, there's a vaccine or therapeutic treatment.
That would.
Really accelerate things, but even in the meantime, Ah as we noted the real estate values have been holding up here and that's always been a very good economic activity for Hawaii.
Okay. So.
Interpreting that then I would say the outside of customer behavior and deposits and and all of that it's it's more likely that the balance sheet you could see more growth and met digits are rather than bless grouse is that a fair assumption.
Ah you know you could actually see it go both ways either way.
But it would be that we will look at smart growth.
So we'll be looking too.
Carefully to at that name going forward.
To put on the kinds of loans that can help <unk>.
[noise] bolster that but for the long term.
Okay.
Okay I understand thank you.
The next question comes from Paul Patterson, Let's glamour off the subject. Please go ahead.
Huh.
Uh huh.
So I.
Wanted to apologize if I just missed us but what.
What changed what was the difference between what you guys were thinking last quarter and this quarter.
That change the the name forecast for this your what was it that.
But [noise] of all those factors that you outlined in great detail.
Was that was which weren't weren't expecting I guess.
The biggest factor was.
There there were to the biggest factor was the repricing of the the adjustable and floating rates and those indices really moved.
Farther a little bit further than we expected during the quarter right. So so you you got down to floors, but it moved to it moved quickly and so that was part of it and then secondly, the you know as we were as we were coming in the P. P. P. The dilution effect of the P. P. P. A S as.
And an ongoing Ah dilution effective that depending <unk> again, depending on how fast it.
They forgive her pay off.
That's still a variable that we've got to watch as we go forward, but from where we were sitting at the end of that'd be kind of end of April the biggest mover and there was was the the the dropped in those benchmark indices against which the just worried loans price.
Okay.
And then with respect to the visa sale and and the other securities.
Are there more opportunities you see in that or or how shall we think about that going into.
For the for the remainder of this year and potentially for next to your.
The benefits associated with it.
So we've sold out or visa position. So that's that's all gone we felt pretty good about where the prices were thought it was a good time to to be able to exit bad and that gives us some capital reinforcement.
The other security <unk>.
We had planned in our yard are probably have a 3 million $4 million of sales <unk>. There's there's a roughly you know those happen based on portfolio repositioning and other things like that.
That are normal course, we we've.
Gotten 3 million of that in the first half we don't we don't see a lot of other repositioning, but the right now based on where rates are and where are holdings are but.
That can change depending on our you know what happens with any individual security that we're in and they even desire see it froze desire to stay in or out of a security, but but if you wouldn't expect it to be a big factor.
Okay.
And then I guess next year, it's gonna be sort of opportunistic is that how we should sort of think about it or or is this sort of the the three.
Sort of fish three is just kind of numbers ordering.
Yeah.
That's probably a <unk> Ah normalized number I mean, any year you'd see a little bit of that.
Okay, and then just and again.
The the the <unk> level customers that are only utilities, how like how many customers or our current with their with their electric bills or how many or not I guess.
We'll get in touch with her set up.
Alright.
I didn't hear that I apologize yeah, no change change can I answer okay. I'm sorry, Yeah I saw this is T.
You know, we see the amount of folks paying later increasing.
N D. You know 30 to 60 690 M M a greater than 90 D.
It's increased slightly.
But you know for the most part you know people have been you know paying your bill I would say that you know the more time I'm disconnection for nonpayment.
Usually spend extended through September 1st and you know proactively we've gone out to reach out to our customers.
With those sound real rigid to work out payment plans.
Okay, great well, thanks, a lot and hang in there.
[laughter] Thanks, Paul Thanks, Paul.
[noise] again, if you have a question. Please crestar then one the next question comes from Charles Fishman with Morningstar. Please go ahead.
Well, hopefully I won't embarrass myself asking a bank question here is a utility animals, but I'm I'm still not getting.
Yes, ma'am, okay, yeah, just trying to make it simple I mean, you knew the name was coming down I mean, you took it down first quarter, you're taking the town again.
So yeah, let's just more obviously, we're dealing with an unprecedented amount I'm not beaten on your <unk>, it's more than you thought putting simplified language. It's.
This this full of money came in from the P. P. P. The deposits.
Maybe even more than you thought and there really isn't the opportunity to invest it because I mean in the way a bank links money, obviously isn't is loaning out and.
Taking money on it a la la right, but you you knew the money.
<unk> those deposits are gonna go out pretty soon so it really tied your hands on what to do with it and therefore.
So it wasn't an opportunity to invest it plus you had all the the costs associated with the administration I'll be <unk> is that a simplified.
<unk> you know.
Idea of what went on here with the ma'am.
Yeah, well, that's that's for the roughly about 10 basis points of excess liquidity are we talking about right yeah.
Yeah I'll because.
To your point, when we get when we get the funds.
And then the those monies those P. P. P monies are deposit Linda customers accounts.
Don't know how fast they're gonna spend them because it does uncharted territory. So we keep it very available right.
If if they're gonna spend it in a lot of them were targeted to spend initially as you know in the quarter in order to get forgiveness. The the original guidance was spend it all by June 30th right. So we kept it we kept it available in cash like.
Instruments, so that <unk> on a moment's notice customers are spending it.
She was there so so that we had the cost side to your point and no <unk> very little income against them. So you do new dilute down the return on the overall book because you have a lot near zero.
[noise] interest merger.
Okay, then as far as the uncertainties the remaining with the bank it sounds like the mortgage portfolios pretty good shape and it sounds like you have a handle on his name I mean, obviously, you're done and unplugged within an event.
Usually do she was still out there your comfort with the reserves, you've taken especially on small businesses that or.
Are dependent on tourism, realizing that's that's a fairly small part of your portfolio, but certainly the most that has the most uncertain park.
Sure isn't it I wouldn't just a small but you know it cuts across right. The <unk> your point I think.
Giving you guys are kind of a view of the the portfolio and the various exposure. So you know we are less exposed to the riskier segments.
You know reasonably modest exposure to the hospitality industry and and some some of the other riskier ones, but the reality is our local economy.
Is not the these are not hermetically sealed sectors right. So when when one area suffering even though we don't have a direct exposure to at the the community does and so it affects the level of economic activity across the community.
So to you know the economy describe sectors that are strong right, but right now our biggest sectors are weak and that that means the general business environment is challenging and so the you know the the ability of of companies to.
To maintain their their cash flows to maintain to cut costs in order to stay viable you know, they're doing a great job, so far and but we don't know when we're gonna open up so that the economy to grow broadly Ah and support them. So.
We can't call, we can't really develop a very confident call on which companies are gonna be able to endure the the necessary time period does that answer your question Charles.
Yeah.
Have that helps.
You know something I'm struggling with let me, let me move to be your children.
Yeah can I help me for Ya.
I'll just pointed out the slides that rich was referring to that have a lot of detail on the loan portfolio start in the appendix It slide 39.
And then I just you know on your question on reserving the way the reserving is done now under Cecil.
Is that every quarter at quarter and when the bank puts up it's provision.
It's got to make a judgment call in for the commercial loans that is actually loan by alone.
As to what the potential expected losses would be over the life the remaining license alone.
So we feel good about the provision that we've taken out of the second quarter, but come September 30th and the end of the next quarter, we gotta make that determination again, and we gotta take into account now that it's over the expected life and alone what may happen in the economy.
Going forward, so that's the difficult part.
Setting the Provisionary corner.
Given it'll be uncertainty of recovery.
Well that helps honey, let me look at those slides and I'll I'll call.
Sure I R.
People and frequently and have any questions and then on the utility.
Just one question are you counting on any of this fuel reward.
<unk> you know the the sharing of the the fuel savings to get you to the lower end of utility guidance. I mean will you be able to book that before the end of the year.
Is that built into your guidance.
No. It's we've we've maintained neutral physician on that as soon as we roll through the year.
So there are guidance is largely driven by our ability to offset the lack of revenue increases through cost reductions overall, which we've seen good progress on and we have confidence in achieving this year.
Okay. Thank you very much you probably vulgar utilities I cover it was one of them more difficult situations. So hang in there. Thank you [laughter]. Thanks [laughter]. Thanks Charles.
This concludes our question and answer session Oh, now I'd like to turn the conference back over to jealous Malinski for any closing remarks.
Thank you all for joining US today, we hope you stay safe and well and of course, please do reach out.
Give me directly.
If you have any questions and we'll be happy to get back to Ya.
Thank you.
This conference that's not conclude it. Thank you for attending today's presentation you may know disconnect.
[noise].