Q3 2020 First Hawaiian Inc Earnings Call
So the first Hawaiian Inc. third quarter 2020, and this conference call.
At this time, all participants are listen only mode.
After the speaker's presentation will be a question answer session Dr. question during the session.
Ask a question during the session need to press Star then one on your telephone.
Be advised that todays call is being recorded.
If you acquire additional systems, you May press dormancy arbitration operator.
Let's turn the call over to Kevin asked him. Please go ahead.
Thank you Michelle and thank you everyone for joining us as we review our financial results for the third quarter of 2020.
With me today are Baharestan, chairman, President and CEO, Robbie Manila, CFO, and Ralph meeting Chief Risk Officer.
We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading it viewing on our website at <unk> Dot com in the Investor Relations section.
During today's call. We will also we will be making forward looking statements. So please refer to slide one for our safe Harbor statement.
We will also discuss certain non-GAAP financial measures. The appendix. This presentation contains reconciliations of these non-GAAP financial measurements to the most directly comparable GAAP measurements and now I'll turn the call over to Bob.
Good morning, and thank you for joining us as we review our third quarter results I'd like.
I'd like to start with an update on the current situation here in Hawaii. If you can look at slide two.
As reported on our last call the local economy reopened in early July.
And following a rise in the number of new Cobra cases in late July and August So I want to walk you went into a second stay at home or in early September.
Walking began reopening in late September under a new four tier reopening strategy with quantitative criteria for loosening and tightening restrictions.
They haven't started a tier one the most restrictive tier and moved to tier two yesterday as we were successful in holding down the number of new daily cases.
I had a low positivity rate.
Another important step in the reopening of the Hawaii economy. It was the start of the pre traveled testing program on October 15th.
The program allows transpacific travelers to bypass the steep 14 day corn team if they test negative for COVID-19 within 72 hours of traveling to Hawaii.
Over the last few days Weve seen the number of visitor arrivals and the two to 4000 per day range.
This is an important step in restarting the tourist industry, which is.
Which is the main reason for the state's unemployment rate.
It's remained high in September at 15.1%.
At the bank, we have begun the process of reopening the branches that were closed as a result of the pandemic for that.
But after further evaluation, we decided that for the branches will remain close permanently.
In July we launched our online mortgage origination portal, enabling borrowers to apply for a mortgage digitally.
We also started helping PPP borrowers prepare to apply for loan forgiveness.
We have hosted several webinars in conjunction with the SPP to educate borrowers on the forgiveness process.
And we have already begun submitting applications for forgiveness to the SP.
Now if you turn to slide three I'll go over the third quarter highlights.
We had a solid quarter our results reflect increased economic activity from the reopened in local economy.
Careful balance sheet management and improved asset quality.
Third quarter pretax pre provision net revenue increased 11.3% over the second quarter to $91.3 million.
We had net interest income and noninterest income increased.
Well holding expenses flat.
In the quarter, we were also able to improve our deposit mix as consumer and commercial deposits increased by $166 million and.
And we reduce public deposits by $630 million.
As a result, our total cost of deposits declined six basis points to 13 basis points.
And this contributed to the 12 basis point improvement in net interest margin.
Asset quality improved in the third quarter and our current economic outlook remains relatively unchanged from the second quarter.
As a result, we did not need to add much to our allowance for credit losses, and our provision expense was $5.1 million for the quarter.
We finished the quarter with strong liquidity in capital and the board maintained the dividend at 26 cents per share.
52% dividend payout ratio.
And now I'll turn it over to Ralph to discuss asset quality provisioning alone deferrals.
Thank you Bob Slide four provides some highlights on asset quality with.
With little change to our reserve estimate.
Provision this quarter was minimal loan recoveries exceeded charge offs and the level of nonperforming criticized loans fell as we executed on plan.
Manage higher risk credits.
For the quarter, the provision was $5.1 million down from $55.4 million in Q2, we show.
Got a small net recovery in Q3, compared compared to net charge offs of $23.4 million in the prior quarter.
Recoveries of $4.9 million exceeded charge offs by $84000.
Assets nonperforming or 90 days past due fell $28.4 million from $43.4 million, we transferred about $14.6 million in non accrual loans to held for sale. It was.
They were subsequently sold in here in early October, resulting in a gain of about $7 million.
Criticized commercial loans decreased approximately 17% to $619 million.
$742 million in the second quarter.
Past due loans, both accruing and on nonaccrual status.
Decreased slightly from the last quarter to $35.7 million.
For approximately 26 basis points on total loans and leases.
On slide five you see a roll forward of the allowance for the quarter by disclosure segments.
The reserve increased by about $3.8 million to $195.9 million, which is.
Which is 1.4% of all loans and 1.56% excluding PPP loans.
The smaller increase reflected a relatively unchanged view of the economy, a smaller balance sheet and an improvement in the risk profile of the portfolio.
Our economic forecast closely aligned to the base case or the current University of Hawaii Economic research organization or you hero forecast.
The forecast for 2020 projects local unemployment to average in the low teens personal income to decline about 4% and a 12% drop in real GDP.
A rebound in these measures is not expected until the middle of 2021, and a stronger recovery not until 2022.
We continue to rely on a qualitative overlay to support default expectations not embedded in the loan portfolio at the.
At the quarter end this amounted to about 20% of the reserve.
Around 80% of that overlay can be attributed to coated.
Turning to slide six.
Snapshot of the outstanding loans that had received deferrals that part as at the start of dependent.
And a recap and how these loans has since performed.
We granted 90 day deferrals to most borrowers except for residential mortgages and some bad loans tied to SPG programs, where we provided up to six months relief.
About 77% of the loans by balance have completed their deferral period.
Around 96% of those loans have returned to payment.
With a small portion offered a second deferral based on additional considerations.
The bulk of the loans remaining under the original deferral are related to residential mortgages.
They are well collateralized with only 3% of the balance is showing a loan to value ratio over 80%.
Moving to slide seven we show the composition of our commercial portfolio by risk rating at quarter end.
Last quarter, we mentioned, we had completed a review of loan loans, assuming a delayed recovery to identify higher risk credits needing active management.
This quarter, we focused on implementing strategies to manage these credits taking actions to support retention rehabilitation or exit objectives.
During the quarter, we saw a net reduction in special mention loans of $121 million and substandard loans by $2 million.
Numbers reflect reductions in the non accrual loans that were under contract for sale and sold after the quarter.
On slide eight you see a recap on the impacted industry slides, we have presented in the past.
Our exposure here remains modest but it is an area of focus as we look to stay ahead of potential credit issues.
60% of our criticized loans are in these industries.
Hospitality companies and hotel properties continue to be impacted by the reduction in global travel our bar.
Our borrowers have been able to bolster liquidity reserves and cut expenses to manage through this time we.
We exit we expect some modest reductions in our portfolio largely through recapitalization.
As we had mentioned in previous calls.
Lending in this space has always been targeted to ensure that we have stronger credit profile that mitigate the inherent volatility in the business.
As well, we continue to track retail businesses and properties to assess their ability to adjust to current conditions.
We anticipate property loans in this space could experience additional stress should they see tenant related vacancy or collection issues.
Finally, I would note that our dealers have reopened and are experiencing a rebound in demand.
We anticipate that balance here will continue to decline as their inventory levels fall.
Partly because of a disruption in new vehicle production.
Now I will turn the call over to Ravi to go over the balance sheet and income statement.
Thank you Ralph turning.
Turning to slide nine period end loans and leases were $13.5 billion down.
Down $264 million or 1.9% versus the prior quarter.
Cnine balances declined $253 million in Q3 due to pay downs in the shared national credit portfolio.
Declines in dealer flooring that occurred in the early part of the quarter and.
And a number of smaller credits that took the opportunity to pay down their balances.
In Q3, we saw solid growth in construction and commercial real estate.
We also saw strong origination volume in our mortgage portfolio.
Due to low rates and an active residential real estate market.
Mortgage loan originations were over $300 million in the quarter.
Turning to slide 10, total deposit balances ended the quarter at $18.9 billion eight.
A $464 million decrease versus the prior quarter.
Consumer and commercial deposit balances grew by $166 million.
As we had planned public deposit balances declined by $630 million as $853 million and public time deposits maturing and rolled off.
We expect public deposits in Q4 to trend slightly down as stimulus money gets deployed before year end.
Our cost of deposits fell to 13 basis points in the quarter.
Turning to slide 11.
Net interest income was $134 million.
$6.2 million increase versus the prior quarter.
The increase was primarily due to $4.9 million in lower interest expense.
And the $2.8 million increase from the investment portfolio due to higher balances.
These were partially offset by lower interest income from the loan portfolio.
Net interest margin was 2.70% a 12 basis point increase from the previous quarter.
The increase in margin was primarily due to the reduction.
Of about $550 million of excess liquidity.
A full quarter's benefit from lower FHLB balances and lower.
And lower deposit costs.
Going forward, we continue to face headwinds from the low interest rate environment.
However, we anticipate that NIM in the fourth quarter will remain relatively stable.
Turning to slide 12, noninterest income was $48.9 million $3.2 million higher than the prior quarter.
The increase in noninterest income in the third quarter was driven by higher levels of customer activity. Following the gradual reopening of the local economy that started in early July.
Non interest expenses were $91.6 million essentially flat to the previous quarter and the efficiency ratio was 50%.
And now I will turn it back to Bob.
Thank you Ravi so to wrap up in the third quarter the local economy reopen we.
We had a recovery in activity based revenue.
And an improvement in asset quality.
Our overall outlook on the economy hasn't changed significantly since the second quarter and we continue to actively manage our credit risk.
It's still early days for the economy in Hawaii as we only began the pre travel testing program for Trans Pacific travel a week ago.
Hopefully this will be the first step on the road to recovery for the visitor industry.
And now we'd be happy to take your questions.
As a reminder to ask a question we need to press Star then one on your telephone.
Thats why your question press the pound key.
Our first question comes from Steven Alexopoulos of JP Morgan Your line is open.
Hi, everybody.
Hi, This is Steve let me start maybe Bob at a Big picture question, just regarding the travel resuming back into why I know, it's only a week, but when you know you mentioned two to 4000 visitors per day, how does that compare to the initial expectations.
And where does that need to go to to take pressure off the local economies.
Yes excellent question, Steve and we Didnt have a lot of expectations. We start we thought it would start out slow and it has and there's still a few you know.
Capex, you're working out at the airport quite frankly, and checking people and as you download the app and as it got the right provider partner that the state has identified to qualify for pre testing is that the correct.
Test you all those things we've tried to message we made a mistake tried to message out very well to the visitor industry and the and the airline partners have done a fantastic job getting the word out. So there is still kind of.
Kind of working through the process.
And I think Thats what.
What is good about starting slow as we get to work all that out as we start to see a build for the holidays. My thought would be that we won't really have a good idea of what the vault.
Get to the Thanksgiving and Christmas holidays.
This this period of time between now and then will allow us to.
My my my very own scientific way of saying that work out the capex in the process and get people moving again as far as what we need is a level to kind of return to normalcy.
No I think you see that in the hero forecast they see the tourism and.
Industry building over time over the next six months and Thats why we have a pretty conservative outlook on that okay. That's all.
That's helpful way to think about it.
On the margin Robyn it's funny when you are talking about NIM. It sounds like Youre pretty cautious, but then you guided to flat in Fourq. You can you maybe talk about what you see supporting them near term and is that just a temporary support and then you expect pressure afterwards.
Certainly I think there will be pressure on the asset side.
No.
New securities yields are obviously.
Grinding down lower and we're going to see refinancing activity and and.
In our primarily in our mortgage portfolio and.
And we'll continue to see pay downs I think the upsides.
There are frankly on the interest expense I'll, maybe name three areas.
In.
In Q3, we had $200 million of FHLB maturities.
Roll off the balance sheet, but that actually occurred at the end of July and so we'll pick up a little bit more in Q4.
I think theres, a little bit of room on the deposit side, we were at 13 basis points for the quarter, but maybe there's maybe there's a little bit of room on the deposit side not a whole lot, but some room to for further.
For for for deposit cost to go down and then you know so.
Certainly we don't control the amount of liquidity that comes on to the balance sheet, we could see commercial and consumer deposits coming back and increasing but I think when we think about our you know our public deposits, we feel given what we know about the trending in those deposits, we see potentially those deposits declining or.
Over the course of the quarter and and giving us some sense that the NIM will be stable for the quarter, but certainly there downside pressures okay.
And just to wrap up so most investors I think you're getting comfortable lease over the near term on credit that's more okay. What can you do over the next year, our pre tax pre provision growth that if we think about NIM being flattish to down no. Bob maybe talk about what should the expectations be on pre tax pre provision growth.
This flat a good assumption from here moving forward is there anything we should be thinking about that can drive a little bit better growth. Thanks.
Yes, good question, Steve and I will.
I'll look at it from the standpoint, and really is going to be loan balances that are going to help us to recover and protect that pre provision net revenue.
Really what it comes down to there is a couple of different things one we're going to see a continued churn in the residential portfolio.
The teams are working full speed to keep up with the volume and so you will see that we had been selling much of that production, we're putting some of that more on balance sheet. So there might be some growth in that area from that that line item also the dealer balances are down several 100 million from the end of the year.
Obviously its a.
Surprise I think virtually all of us of how strong the sales have been and as production in the manufacturers gets back online you will see I think a gradual build from that that line item as the dealers start to rebuild their inventories, which are very low right now and they'll do that costs.
They'll do that cautiously they're going to be careful about but I think those are the two lead items and then thirdly in our commercial real estate portfolio. There are a number of construction projects that are now funded deals that.
Deals that we've put together over the last what Ralph 12 to 18 months of course, all the borrowers equity is in there first and now we're starting to see some fairly significant draws as we saw in the quarter that just ended.
So I think those are three areas, we could look to for loan growth.
Anything you'd like to maybe I'd just add a couple of comments on the expense side.
I've been fortunate to be able to hold expenses flat.
Certainly we slowed down some of our discretionary spending.
We then there will be some pressure.
Looking forward, we expect those to tick up a little bit we're continuing to invest in the business itself, we're working on our core platform.
Plantation, we are investing in the businesses and as we start to open up we'll start to see maybe some more expenses related to incentive comp as the economic activity starts to pick up just wanted to provide that qualification on the expenses side really related to TTP and maybe one last thing is.
As we do continue the reopening we didnt see a full quarter of activity related type income credit.
Credit debit card fees and merchant processing is still well much better than Q2 is still not at the normal run rate and as the economy reopens and and visitors return, we'll see some activity there as well which should be beneficial.
Terrific. That's very helpful color. Thanks for taking my questions.
Okay.
Our next question comes from Ebrahim Poonawala with Bank of America Securities. Your line is open.
Hey, guys good morning.
Good morning run warning just.
Just wanted to follow up on connected me they think.
Im sorry, Ebrahim could you speak up a little bit we can hardly hear you.
Is there any better flow a little bit.
A little bit Yeah go ahead. Thank you.
Yes, just wanted to follow up on credit for a second I.
From a distance just in a lot of concern that recovery in Hawaii.
And then when we look at sort of the dissolving this quarter just talk to us in terms of.
Your comfort level ball Buffalo six months of this pandemic and no downside on the portfolio.
It does.
Does it feel that based on the view you've done.
You are adequately adult despite expectation for losses or does this just feels like a falls in the middle before you actually start having a better centered on credit risk and credit losses.
Excellent question, and maybe I'll start and then turn it over to Ralph I guess to start with we spent a lot of time with our commercial borrowers certainly the larger commercial borrowers and we feel we have a very good handle on what's going on in that portfolio.
Residential is still very strong so we have.
Very little concerns in that area.
The unknown candidly is around the consumer.
The consumer is performing much better than we would expect a much better than.
As like Ralph I. After 30 years in the business has seen in previous cycles because of that 15% unemployment you.
I would not expect to see the very very low level of delinquencies in the strong return to payment.
I think thats certainly been positively impacted by the government stimulus and.
And thats been a huge help and if there is additional stimulus.
Before a full recovery in Hawaii that would help but.
We just don't know yet I think that as far as how we look at our provision in our allowance for credit loss today, we've taken all that into account in looking at the model and as Ralph mentioned I'll, let him speak to we also have a qualitative overlay on that resulted in that area just for that reason that route.
Sure I guess.
I guess I would say that if you look at the composition of the portfolio between special mention and substandard.
Substandard loans, probably are the ones that are really the smaller companies the ones that we would have anticipated having difficulty.
And then I think as we look at the larger companies by and large they have been able to.
Reposition their businesses and so I think from my standpoint, I think the business side is there a repositioning I think one of the questions really is to the extent that they are laying off.
Laying off employees, what would that mean to the consumer book.
And then I think secondarily looking at our landlords.
[music].
Right now, we Havent really had a lot of issues around.
I mean, I think theyve been collecting rents and they've been able to work with their tenants, but that's one one area that will continue to watch. So we have a number of credits that we put on special mention just for that purpose.
Does that address your question maybe.
It does then I guess just follow up to that means I'm going to see if you're sort of out of the woods.
They think the stock sitting at a 6% dividend yield.
At relatively cheap valuation relative to your history, and just trying to get a sense like when I listen to the.
When I listen to the Airlines Hawaiian day, increasing flights into Hawaii, We had the same from WLA Scott.
Currently it seems like a lot of things that coming back into motion is it fair to assume that the worst in terms of credit cost is likely behind and as we look forward into next summer I know thats not part of your baseline forecast, but a fair amount of normalcy should have.
Yes, if you think about next year middle of next year.
That that's pretty far to forecast I think thats, what we have included really.
Really the base case in the euro forecast as far as our base case for provisioning.
There there is certainly uncertainty and Thats why weve added that qualitative overlay.
We're very comfortable with where we're at with the allowance that we will see more issues come up within the portfolio, but we think we are adequate we adequately reserved at this time.
Well, thanks for taking my questions.
Our next question comes from Alex matters of Goldman Sachs. Your line is open.
Hi, good morning, Mark.
Morning, winning.
So obviously this is a very strong quarter for credit results given the environment you saw criticized in Nonperformers down materially.
First Im just wondering if you could comment on what the embedded assumptions for credit migration up to this point would have been earlier in the year and then second as an add on to that.
We continued to see metrics remain benign in the near term. It at some point does that start to reduce your expectation for through the cycle losses and sort of over what timeframe would you think about that.
Yes, I would say you know we were operating under the assumption that we're early days into this.
We have reserved for what we think is appropriate given the composition of the portfolio I think overtime you are.
If we do see.
Going to expect to see.
Some deterioration in asset quality metrics in the portfolio, but is the provision can.
Stay relatively benign and.
Maybe we would change our outlook, but right now I think our expectation going into this with the consumer was that we were going to have a lot more people having issues, but as it turned out that return to pay has been fabulous.
Maybe just a follow up on the second part of your question. This is Bob.
I would say that we are looking to when we'd feel comfortable to make a call on when the worst is behind us that's too early to tell right now I think it would be at least one to two more quarters before we'd have a good idea of what the Hawaii economy is in a full recovery and what the impact of the rig.
Session has has had on the Hawaii economy.
Okay. Thanks Thats helpful. And then maybe just a quick follow up on the <unk> side, and particularly your mortgage portfolio.
Could you comment on what drove the step up in their reported yield.
Quarter versus last quarter.
Sort of where you're seeing new production.
This quarter.
Yes, no comment on that Alex This is Randy I think what we saw in Q3 was really.
Came from an accrual that we put in Q3 that maybe should have been booked in Q2. So if you want to think forward and look forward to sort of where that line would look.
I would start with where our yields average yields were in Q2, there were 3.8% in Q2 and you would build from there certainly were seeing a lot of refinancing activity in that space and but.
But I think 388 as a good starting point for you to look at going forward for Q4.
Okay I appreciate it and then do you have a sense of where new loans are coming on currently.
I don't think we provide that information out.
As public okay.
Okay. Thanks for taking my question.
Our next question comes from Jackie Boland of KBW. Your line is open.
Hi, good morning, everyone.
Hey, Jack one Jackie.
Wanted to talk a little bit about the the Nonperformers sale that you had in October that's a pretty sizeable gain on the balance I was that something that you'd already taken a credit mark on.
Yes. This is that's a credit to the.
Actually a number of credits when we did the re grading project that has actually had some weakness before folded and so we placed on non accrual. We did an impairment analysis took some charges on that and we ended up.
[music].
Getting getting a price on those loans much better than what we had anticipated so.
That was that was going to get treatment.
Okay.
And what what like just geography purposes, what line item do you expect to run the gains your next quarter.
No I don't.
Ill defer to Ravi, but I think it's going to be a gain as opposed to a recovery no I think that goes through the.
Other income line that we'll get back to you.
Okay. Okay.
Okay. Thank you.
And then just based on looking at point to point balances.
And then Rick.
We're calling our discussion from last quarter as well as with the commercial and commercial real estate was there any commonality between these loans on.
In terms of either balance or industry anything like that.
I am sorry, Jackie this Bob just to clarify which loans, you're referring to the ones that we've had the recovery.
Yes, the one thing that hurts the Nonperformers that are sold I'm, just wondering if there's more to come down the pipeline in the future as workout continue.
One of those as I said these are credits that we had on the books for a while that had had challenges. They were classified and we we were actively sort of looking at strategies to get.
Get out of those deals so.
As it turned out we were able to affect that and as far as geography, there on the c. and I and the commercial real estate portal.
Portfolios.
Okay. So everything that you were looking to get out as weve since gotten out ads.
Well I mean, it's a large portfolio we sub nonperformers. So we're actively working all of those credits.
Yes. So every every credit is going to have an asset planning.
For the most part I think.
We'll either retain or exit credits depending on the situation.
Okay.
Okay, and then switching gears and looking at expenses, you mentioned that you're going to permanently close for.
Four branches, what kind of an offset does this provide you some of the investments that Robbie whats the betting.
Well we've been.
It's not a direct dollar amount what we've been doing is managing our personnel quite closely quite frankly, given how many branches. We had close as I've mentioned in previous calls.
We repositioned a lot of those people in other areas of the bank, where there were needed and you have your natural attrition. So is that kind of work through and you work to re staff the branches theres been quite a mix in the personnel.
The personnel for the retail side of the bank, but Ravi anything further comment no.
Okay.
Okay. Thank you ill step back.
Thank you Jack.
Our next question comes from Andrew Liesch of Piper Sandler Your line is open.
Hi, good morning, everyone.
One planner.
Just.
Curious about the Securities book quite hear the increase the last few quarters and obviously, but.
Opportunities to invest liquidity into loans as little more challenging than in the past, but I'm. Just curious like the average yield is only down seven basis points of what what have you been adding them.
Keep the yield up there but.
Near this level.
I mean, I think there maybe I'd characterize it a little differently, Andrew I'd say, they're sort of.
No there is sort of coming to a low point, if you will when you're thinking about it but certainly.
What we're seeing out in the marketplace.
It is.
Some somewhere close to about 1% in terms of yield so there's.
What we're what we're buying and the book has been pretty big cuts we were at five.
5.1 billion I believe in Q2, and so theres a lot of momentum in that book already built up that is keeping it relatively flat I mean, the way I would characterize the investment portfolio really our strategy. There is you know not only are we trying to deploy excess liquidity and sort of low risk weighted asset.
It's that we feel comfortable with and that provide liquidity liquidity to us, but also were looking to extend the duration of that portfolio to offset a little bit of asset sensitivity. If you look at that book at the beginning of the year I believe that.
Duration on that portfolio was about two in a quarter and I think we're a little bit above 3.5 now so.
You know we've been buying some very specific types of securities that have embedded duration in them and as a result, we're really really feel good about the portfolio and we're testing.
Okay. That's that's that's really helpful.
And then just in the presentation reference that started the PPP forgiveness process just curious.
Just curious what states you can provide there how is the process going and any sort of timing that.
Our early results that you've seen on loans being forgiven by the Sps sure.
Sure we have submitted.
Well over 100 and have heard back on zero them. So far so it's still early I think thats pretty common what I've seen nationally is there's been a fair amount of loan submitted but not a lot of been forgiven, yet and I think everybody is just working through the process as you know the Treasury Secretary diminution changed.
[noise] tbsp they change the requirement for the 50000 under loans and so we were really holding off contacting those borrowers hoping for something like that to happen. So we have to redo the documentation a bit redo our process a bit and then we'll be doing a broader outreach to two that borrower group as well.
No, but it's early in the process and it looks like it's going to take some time, it's not a simple process. So there is a fair amount of education, we're trying to do with the borrowers to to get them ready and get their paperwork in order, but it will take some time.
The idea of a quick turnaround on that I think is not going to happen.
I understood you have heard similar comments. Thank you.
Thank you for taking my questions I will step back.
Our next question comes from Brock Vandervliet of GBM.
Your line is open.
Hey, guys. This is the last Abraham for Brock.
Just wanted to walk through the provisioning by segment that you disclosed on slide five looks like Directionally. There was some variance there with Cnine CR reprovision being negative and then others being positive and it sounds like there is some qualitative differences maybe but.
Specifically wanted to know if there is anything we should be aware of there.
No the the provision was fairly small.
Portfolio composition in terms of our risk risk rate improve we do.
We did put a little bit more on the side for smaller business credits on as far as on a qualitative overlay.
And we continue to hold a pretty pretty substantial substantial amount related to the consumer book, Although we're not really seeing.
Seeing that stress yet.
Okay. Okay. Okay.
And.
Just keeping going to credit.
The cure rate looks like it's been pretty been pretty high that thus far.
But for any deferrals that don't return to current by year end can you just talk about what your approach would be there in dealing with those.
It be go longer term modification under the cures act or something else.
Yes, I think we pretty much I think going forward. We're looking at this like we would in any recession. So we're going to.
You know if it's a commercial credit we're going to treat it like a worked out and we're going to.
Work through that process, if we end up modifying the credit will probably be putting it on a.
Our status.
And then I think with regard to the mortgage lending side.
We have a moratorium until I think January here on foreclosures so right.
Right now, even although we've given them longer.
Longer periods for modification I think you know the very little that we would be able to do at this point anyway.
Okay, and just lastly can you remind us on the LPV is on a on the retail and on the hospitality.
The portfolios and I'm, just how comfortable you are there with the with the actual loss content that could that could eventually.
That could eventually come out of it.
Yeah, No we havent updated ltvs for the purposes of.
Providing information, but I can tell you that as we look at the credits.
One of the things we are doing a piece of property alone is we're doing an evaluation and a lot of cases, we are assuming.
I had a bit of stress in the first couple of years. So some of these properties are treated them like there.
New construction and not stabilized and need to go through a like a lease up.
And and that is kind of informing the risk risk grade of the credit.
Okay, great. Thanks, guys.
Our next question comes from Jared Shaw of Wells Fargo Securities. Your line is open.
Hey, good morning, guys.
Good morning, when joining.
Yeah, just to circle back on credit and.
In the past you've said that it was the provision and allowance is really model driven based on the euro.
Projections, but you know in September you here are these new euro forecast came out it was a pretty significantly weaker compared to what was happening earlier in the summer and certainly weaker compared to an improved Moody's forecast for the broader U.S. economy.
I guess I'm surprised we didnt see a bigger provision this quarter, especially since the allowance ex PPP at the end of the quarter is at or just below the mainland peers. So I mean there is.
Is the model going to be updated for the September you hero or was that included in the third quarter provision level.
This is Bob I'll start off and then maybe hand it over to Ralph we had in the previous use your model. Once we had the pessimistic view of the three views and that's what we use for our model for two from online and then as a updated that to the current outlook very close to the end of the quarter and we looked at.
And our.
View was not that different than the base model.
Their base outlook, and we feel very comfortable with that so Ralph you want to.
Yes, I don't I don't really have a lot more to add last.
Last quarter, the pessimistic case was sort of where we landed and this quarter.
They pretty much transition to two.
Cases their base case, and we think that's that's that's where we believe today is appropriate place to be and honestly what were seeing in the portfolio supports.
Okay, great. Thank you.
Our next question comes from Laurie Hunsicker of Compass point Your line is open.
Yeah, Hi, good morning.
Good morning.
Let's start on slide six with just absolutely beautiful and I want to make sure that I'm understanding this the right way. So if I'm looking at your commercial your commercial deferrals.
You were up 2.1 billion and then as of Sept.
September 30, your Johnson 70 million and then I guess, you're stuck into for all of you sometime in October October that takes it down to $56 million in the commercial am I reading this the right way.
So the credits that are under deferral right now would be the 70 plus the 56.
Well, Okay. So 126 million that's unbelievable okay.
That's helpful. And then on slide eight I was hoping you could give us a refresh on deferrals there so.
Massively down on for each of those categories that hotel retail auto transportation foodservice.
On leverage.
Yes, I don't I don't have that for you.
But I can tell you that it's pretty small numbers.
No no really large credits in the hospitality space.
And we did have a number of deferrals as we've talked about in the the auto space in the past and they are they are yeah. We're we're off guard. So those all return to current pay.
And the other thing I would mention.
The other thing I'd mention is on the commercial deferrals to the extent that they're getting a deferral, they're giving us something at this point.
Okay.
So I guess.
Just kind of looking at that so that bucket last quarter.
With a billion to one differ on that of your total commercial.
Ultipro 2.1 billion right now you are down to 126 million so.
I couldn't be maybe extrapolate and say the 126 million, 60% or so are in as highlighted categories that a good way to think about it.
Yeah, I actually don't have that number Larry I'm sorry.
Okay, you know what I'll follow up with you I'll follow up with you offline I'm just one more question. The PPP fees that were remaining as of September 30.
Thank you know right around 20 million to send out you had a tighter number on that.
What we've done is when we book them, we booked them for the term of the loan so they're being brought into the income statement over the term of each of those specific loan right.
Right, but I mean.
[music].
Go ahead, Lori I'm, just wondering how much remains that you had 24 million as of last quarter I'm just.
Okay.
You know what I'll follow up if you offline that's it from me thank okay.
Yes.
There are no further questions I'd like to turn the call back over to Kevin has jamel for any closing remarks.
We appreciate your interest in first Hawaiian and please feel free to contact me. If you have any additional questions. Thanks again for joining us and have a good weekend.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
[music].