Ladies and gentlemen, thank you for standing by and welcome to the First Hawaiian Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there'll be a question-and-answer session. Please be advised that the call will be recorded. I would now like to hand the call over to Kevin Haseyama. Please go ahead.

Thank you, Michelle, and thank you, everyone, for joining us as we review our financial results for the second quarter of 2020. With me today are Bob Harrison, Chairman, President, and CEO; Ravi Mallela, CFO; and Ralph Mesick, Chief Risk Officer. We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at fhb.com in the Investor Relations section. During today's call, we will be making forward-looking statements, so please refer to slide 1 for our Safe Harbor statement. We will also discuss certain non-GAAP measures. The appendix to this presentation contains reconciliations of these non-GAAP financial measurements to the most directly comparable GAAP measurement. And now I’ll turn the call over to Bob.

Thank you, Kevin. Good morning, everyone, and thank you for joining us. I’d like to start with updates on the current situation in Hawaii. The economy here has reopened, and the quarantine requirement for airline travel was lifted in June. Although our number of cases has increased since the reopening, we are effectively controlling the virus's spread, with a 14-day average of 26 new cases as of yesterday. Following the reopening, unemployment dropped to 13.9% in June from over 23% in May. However, quarantine requirements for transpacific travel have been extended to August 31. During the quarter, the bank utilized our digital investments to respond swiftly by developing an online application for the PPP program, enabling us to approve 6,000 loans totaling over $940 million. Given the cautious behavior of many regarding unnecessary contact, we also introduced contactless debit and credit cards. We have started reopening our branches and bringing employees back to the office while integrating work from home into our business model. We continue to support the community with initiatives like the Aloha for Hawaii Fund, which helps the restaurant industry, and we have donated over $1 million to agencies providing COVID relief. Additionally, we contributed $1 million to assist recent high school graduates transitioning to college or vocational school. Now, I’d like to update you on loan deferrals. As a relationship bank, we proactively worked with borrowers facing liquidity shocks during the economic shutdown by offering payment deferrals. We anticipated many customers would adapt to the new normal and return to regular payments. So far, this expectation has proven correct, with the majority of customers either returning to payments or indicating they will. In the Commercial segment, we followed up with customers on deferral and reassessed their financial situations, updating our risk ratings. Currently, over 95% of commercial customers on deferral have stated they will not need additional relief and have either returned to payment or plan to by the end of the deferral period. After our review process, about 14% of the commercial portfolio was downgraded to criticized levels for those who took a deferral. The visibility into the consumer space isn't as clear, but early signs are positive. For the non-mortgage consumer portfolio, deferrals lasted up to 90 days, most of which ended in June and July. Among the approximately $153 million of consumer loans that came off deferral, over 90% have returned to payment. Of the remaining $126 million still on deferral, $41 million is currently paying. Residential mortgage borrowers were given deferrals of up to six months following the program set up by the GSEs, and those borrowers are still within their deferral periods. In summary, from the original $3 billion of loans that went on deferral, over $2.2 billion or 73% have either returned to payment or indicated they will by the end of their deferral period. Residential mortgages on six-month deferrals constitute most of the remaining $814 million of loans still requiring relief. Excluding residential mortgages, just over $240 million or 2% of total loans remain on deferral or are seeking additional relief. On slide 4, you can see a recap of the selected industries slide from last quarter. For this quarter, we've included our auto dealer exposure since it is an area of interest. Overall, aside from PPP loans, there have been no significant changes in our exposures to these industries. Deferrals and PPP loans have provided many of our clients with the liquidity needed to navigate through these challenging times. I’ll now turn it over to Ralph to discuss credit trends.

Thank you, Bob. Slide 5 provides highlights on asset quality this quarter. During the quarter, we updated our outlook for the economy and completed a comprehensive review of the commercial loan portfolio. The review focused on customers who took deferrals, those in industries that were impacted by the shutdown, and larger exposures regardless of payment status or industry. These activities led to reclassifications, an increase in provisioning, and write-downs to a few credits that were already classified prior to the onset of the pandemic. For the quarter, the provision was $55.4 million, up from $41.2 million in Q1, and net charge-offs increased by $23.4 million, up from $6.1 million in the prior quarter. The higher provisioning reflected the expected impacts of a weaker economy and a material increase in the level of criticized commercial loans. Criticized commercial loans increased by 135% to $742.4 million at quarter-end. The net charge-offs included approximately $16 million in write-downs on several loans. These loans were classified prior to the shutdown and subsequently placed on nonaccrual during the credit review process. Loans that were performing or 90 days past due increased by $25.1 million to $42.9 million at quarter-end. The increase was fully attributable to the loans that were written down. Past due loans fell $19.5 million quarter-over-quarter to $9.1 million. Slide 6 shows the composition of our Commercial portfolio by risk rating as of quarter-end. The portfolio review conducted in the second quarter assessed individual borrower risk by considering a company's financial profile, taking a forward view that assumed a prolonged period of stress. As a result of that effort, we downgraded almost 6% of the loans. Special mention loans increased by $363.4 million to $576.5 million, and substandard loans increased by $63.5 million to $165.9 million. Re-rating of the commercial loans helped us refine our estimate of future credit costs and identify higher risk credits needing more active management. Slide 7 provides a recap of the allowance for the quarter by disclosure segments. In Q1, we embedded a large overlay into the loss estimate. This was necessary given the lack of information that was available at that time. And with an updated economic outlook and the re-rating of the commercial loan portfolio, more of the provisions shifted into the reserve model and away from the overlay. As shown on the table, roughly $49.5 million of the provision expense taken was allocated to the allowance with the largest build in the consumer, C&I, and CRE segments. The building of consumer loans was largely due to an increase in our economic modifier based on our forecasts over the next 12 months. The increase in C&I and CRE areas reflected the change in the modifier as well as downgrades of credit within those portfolios. With the increased provision, the allowance now represents 1.4% of total balances, including PPP loans, and 1.5% net of the PPP loans. And with that, I'll now turn the call back over to Bob.

Thank you, Ralph. If you turn to slide 8, the second quarter highlights, earnings were $20 million for the quarter, and our pretax pre-provision net revenue was solid at $82 million. We did take a $55.4 million provision for credit losses due to the evolving impact of the pandemic, as Ralph just reviewed. But we had strong deposit growth in the quarter, and our cost of deposits declined by 50% to 19 basis points. We finished the quarter with strong capital and liquidity. Turning to slide 9, we remain well capitalized, and our common equity Tier 1 ratio was 11.86% at the end of the quarter. Our CET1 ratio increased by 21 basis points in the quarter, primarily driven by a shift in asset mix. Based on our current economic outlook, we expect to generate sufficient earnings to remain well capitalized, support future loan growth, and sustain the current dividend. If economic conditions become significantly worse than we anticipate, we’ll reassess our ability to maintain the dividend at existing levels. Now I’ll turn it over to Ravi to go over the rest of the balance sheet and income statement.

Thank you, Bob. Turning to slide 10, period-end loans and leases were $13.8 billion, up $384 million or 2.9% versus the prior quarter. PPP balances at the end of the quarter were $916 million. Excluding PPP loans, loan balances declined by $532 million or 3.9% for the quarter. Shared national credit declined by $208 million, dealer flooring declined approximately $180 million and consumer loans declined by $76 million. The rest of the decline in loan balances came from loans in the commercial portfolio. Looking forward, we expect that loan growth will continue to be challenging. Turning to slide 11. Total deposit balances ended the quarter at $19.4 billion, a $2.3 billion increase versus the prior quarter. Core consumer and commercial deposit balances grew by $1.4 billion. We estimate that the PPP loan proceeds contributed to about $500 million of that growth. Total public deposits increased by $820 million in the second quarter. This included a $609 million increase in public time deposits. Our cost of deposits fell by 19 basis points or 50% to 19 basis points in the second quarter. Turning to slide 12. Net interest income in the second quarter was $127.8 million, a $10.9 million decrease versus the prior quarter. That decrease was primarily due to lower yields on loans and investment securities, partially offset by lower rates on deposits and higher loan and investment security balances. Net interest margin in the second quarter was 2.58%, a 54 basis point decrease from the prior quarter. The decline in margin was primarily due to the 150 basis points of rate cuts in the first quarter and the higher cash levels that have been carried during the quarter. Average cash balances were approximately $920 million higher in Q2 and were elevated by strong growth in commercial and consumer deposits, deposits generated from PPP loan balances and an increase in public deposits. During the quarter, as we got better visibility into the PPP loan funding and deposit dynamics, we deployed excess cash into the securities portfolio. Over the next two quarters, we expect cash levels to decline as we pay down $200 million in FHLB advances that mature in late July, and reduce public time deposits while remaining PPP balances get used. During the second quarter, we began deploying excess cash into the investment portfolio which will be accretive to interest income in the third quarter but will pressure the margin. As a result, we conservatively estimate that the margin will increase to the 265% to 270% range in the third quarter barring any significant PPP forgiveness. Turning to slide 13, noninterest income was $45.7 million, $3.6 million lower than the prior quarter. The reduction in noninterest income in Q2 was primarily driven by lower customer activity as a result of the COVID-19 restrictions. Noninterest expenses in Q2 were $91.5 million, $5 million lower than in the previous quarter. The lower noninterest expenses were primarily due to higher deferred loan costs related to the origination of PPP loans and lower card rewards expenses due to lower card activity. And now, I will turn it back to Bob.

Thank you, Ravi. So, to wrap it up, at a state level, we reopened the local economy, and indications show that we're doing a good job controlling the virus even as more people are returning to their everyday activities. However, given the COVID situation on the mainland and the additional pushback of the reopening in the local economy to tourism, there remains a fair amount of uncertainty regarding when we’ll be able to welcome back tourists. Having said that, Hawaii’s success in controlling the virus has really made us an attractive place to visit when that is available. During this period of uncertainty, we remain a source of strength for our customers, our employees, and the community. And with that, we have to take any of your questions.

Our first question comes from Ebrahim Poonawala of Bank of America Securities. Your line is open.

I guess, just first, Ravi, if I could follow up with you on your margin guidance of 2.65% to 2.70% in the third quarter. Sorry, if I missed it, but does that exclude everything, PPP, and is that kind of a base that you think where margin becomes relatively defensible or stabilizes in that range as we think beyond third quarter and maybe into, well into the first half of next year. Understanding that you're not guiding that out, but I'm just wondering if margin stabilizing in that range, is that sort of a reasonable way to think about it?

No. We provided guidance for Q3 in the range of 2.65% to 2.70%. We definitely anticipate the net interest margin to improve, but there will be several challenges ahead. We expect to decrease cash levels over the next one to two quarters. Each quarter, approximately $300 million in public time maturities will roll off. We are also set to pay off $200 million in FHLB borrowings by the end of the month, and we have begun to notice a decline in cash levels as stimulus funds are distributed. However, we do face challenges. We mentioned the potential for further deposit flows into accounts. We experienced strong deposit growth in the quarter, which is an important consideration, and as PPP loans are utilized, we may see some of that return to our balance sheet. There are numerous factors at play for the future, but we expect the net interest margin to at least reach the 2.65% to 2.70% range in Q3.

And just to add to that, Ebrahim, this is Bob, we haven't forecasted any of the forgiveness for PPP. We're just assuming it runs its course over the two-year period, because it's just too hard to guess when that's going to happen. Rather than estimate it, we're just letting it run for the two-year period in our modeling.

Got it. So that's helpful. And just separately, Bob, I guess one around the reopening of tourism, talk to us about what's baked into your reserving at the end of the quarter around things reopening back up? How soon do you expect that in your forecast? And if it takes longer, let's say if it gets pushed out for another three months, what does that mean for your reserving and credit outlook and just your resiliency of the customers to kind of live through this and then still be able to service their debt on the other side?

Yeah. That's an excellent question. Let me just start, and then I'll hand it over to Ralph because that really ties into how we looked at our economic model for CECL. And we take a pretty conservative view on things as you've seen and watched us over the last several years, and that ties in with how our outlook is for the economy. But, Ralph, do you want to kind of go through it in more detail?

Yeah. In terms of the CECL forecast, we basically looked at economic forecasts and assumed a pretty severe recession. I think we estimated the state effective unemployment would be in the low to mid-teens. Personal income would drop in the upper-single digits, and probably we'd see no meaningful return in tourism until later in the year. So looking at visitor arrivals, down 60%, and then state GDP dropping probably low mid-teens, which is probably twice the national rate. And in our model, I think the local unemployment rate is probably the strongest correlation that we have to sort of our base loss model.

So, to wrap that up, we're not forecasting a significant recovery at all through the end of the year.

Understood. Regarding the 14% of deferred loans that moved into criticized status, can you provide some insight on the borrower base and the process those loans go through? What is your perspective on potential loss severity?

We can’t talk about individual loans, of course, but I will say they were very much in the tourism-related industries, and we have been working with them, and they have been making progress, but Ralph, maybe you want to add some comments.

During our revalidation exercise, we asked loan officers to consider a 12-month forward outlook under very severe conditions, taking into account the potential impact of COVID and the borrowers' liquidity during an extended period of reduced activity. Many of the credits that were downgraded fell into the special mention category, indicating areas of possible weakness rather than clear-cut issues. This assessment was crucial for understanding which clients required our attention. Moving forward, we will evaluate each of these clients, reviewing our performance assumptions and making updates accordingly. If a client's situation improves beyond our expectations, we may upgrade their credits. Conversely, if conditions do not improve, we will consider further downgrades. Currently, most of the downgrades we have observed are within the special mention category.

Our next question comes from Steven Alexopoulos of JPMorgan. Your line is open.

I wanted to first start with the dividend which you didn't cover with earnings, and, Bob I heard your commentary. You think you’ll have sufficient earnings to cover it moving forward. But can you talk about your comfort level in maintaining an elevated payout ratio and maybe where you'd like to see that move to over time?

Excellent question. I mean, we're now in a period of additional stress, and the last two quarters have resulted in substantial increases in provisioning. What we have always said in the past is looking at a 50% payout ratio, and we think that as the economy normalizes over the next couple of quarters we'll get back to that payout ratio. It might take a little bit of time, but we're optimistic on Hawaii long term and we're just going to keep working through this. We have taken conservative marks as Ralph mentioned, and we think that positions us well for a weaker economy in the near term.

Yeah, yeah. Okay. That's helpful. And then when we look at the slide that you're calling out the select industries, and we look at the auto related where the deferrals are pretty high, can you give some color on what you're seeing there? I assume that's all floorplan in terms of the C&I bucket, but maybe give some color there.

Yeah. That's correct. The vast majority of the C&I bucket is floorplan. And as we had talked about in the first quarter, virtually all of our dealer customers, you can see 85% of them took payment deferrals. And all but maybe one very small customer came back to regular payment, and so they are actually doing quite well. One of the issues in our loan portfolio is based on a floor line and they're selling all of the cars but have had difficulty getting new cars from the factory. So they've done quite well coming out of the pandemic.

That's helpful. And then one of the areas which has always been a focus for you guys is shared national credits. And I know you've exited some of those over the past few quarters. I'm just curious how are those performing here compared to the rest of the portfolio?

What we saw and you see in the hospitality hotel area is a number of draws in the shared national credit portfolio right before quarter-end and into early April, about a $0.25 million. And virtually all of that got paid off in May and June. So they used the lines as expected and as we look at their cash needs or went to the capital markets, they paid off those draws. So, we're seeing it used exactly as expected. We're not seeing new stress in that portfolio. Although having said that, that is the larger loans that we did look at every single one of those in our analysis.

Okay. And then finally, Bob, as we think about the reserve, so the first quarter we had a big adjustment, the overlays in there. This quarter you had the downgrades. As we think about the third quarter, it sounded like you're taking a fairly harsh outlook in terms of the economic assumptions. Should we see reserve build further in the third quarter? It seems like it should be behind you here. Right?

We're very comfortable with the levels of where they're at now, and unless the economic outlook changes significantly, we would foresee that provisioning would come down.

Our next question comes from Andrew Liesch of Piper Sandler. Your line is open.

Just questions on the deposit growth outside of the PPP funds and the public funds. That’s pretty outstanding growth from local consumers and commercial businesses. What was behind that? Anything you can point to?

Well, I think it was a lot of different activities that we're seeing with our commercial and consumer borrower, I mean, our customers. We have a very rational deposit market here in Hawaii, and we just saw a lot of build as people move their money and their funds into deposit accounts.

Additionally, Andrew, as Ravi mentioned, we experienced some funds returning from our sweep accounts back to the balance sheet. This was a part of the total. While the amount wasn't significant, it contributed to the overall figures. Separately, on the public side, as we've discussed previously regarding our role as the state depository, the state received its CARES money. We collaborated closely with them throughout the quarter to effectively manage the considerable influx of funds as they were deposited into their accounts.

Okay. And then how should we think about the expense base going forward? You had the increased deferral costs and the lower card expenses as well and I would also assume that maybe the less travel and entertainment costs. But when do you think you're going to see it increase back to normalized run rate?

I think it's important to discuss the factors affecting our expenses. In 2020, we concluded the last of our reimbursements, which amounted to approximately $6.5 million. As we have stated in previous discussions, we are continuing to invest in technology and are currently implementing a new core platform. We anticipate a 1% to 2% increase in expenses due to these initiatives aimed at enhancing our technology and establishing our core operations. We will persist in investing in these areas. Opportunities for further investment may depend on the economic activity we observe. This quarter, the main factors impacting our expenses were related to PPP loans and the deferred loan costs we accepted as reductions in salaries and expenses. Additionally, there were decreases in the usage of our cards and associated rewards expenses due to lower activity levels. We are consistently searching for opportunities to manage costs and remain focused on our expenses as an organization. However, many of the factors influencing expenses will be tied to economic conditions and the costs linked to those activities.

And, Andrew, this is Bob. To add to those comments, I want to remind everyone that we waived all of our ATM fees during the second quarter to assist our customers, and we anticipate that these fees will contribute to our revenue in the third quarter.

Our next question comes from Jacque Bohlen of KBW. Your line is open.

Bob, I wanted to follow up on your comments related to the waived fees in the quarter. Was that the sole driver of the quarterly variance between 1Q and 2Q in terms of service charges and other fee income, or is some of that impacted by customer behavior so it could carry over into third quarter as well?

Well, much of the second quarter, we were stay-at-home, and so that clearly had an impact on customer activity and customer behavior. So you saw pure credit and debit transactions. You saw the higher loan balances resulted in lower overdraft fees. There were a number of different drivers that affected that. Ravi, did I miss anything?

I would just add that during the quarter, we observed a decrease in merchant services fees. Jacque, we reached a low point in April and began to see some recovery in May and June as the local economy started to reopen. A significant part of what we're looking forward to depends on how effectively we can continue to open the local economy and whether we can do so on a larger scale. We experienced stabilization in the middle of the quarter, followed by a slight increase as we began to reopen.

Okay. And then understanding that the other income line item can be very volatile, what was the driver of the increase on a linked-quarter basis?

Yeah. Are you referring to non-interest income?

Yeah. The big driver on non-interest income was higher BOLI income in the quarter. If you look back at the quarter and think about the quarter, we had a lot of disruptions in the market and some of the underlying investments in our BOLI portfolio were impacted in Q1 and they recovered in Q2. And so you saw that $2.2 million increase in BOLI from Q1 to Q2. And then we had higher swap fee income in the quarter. And that was just a reflection of some of our customers being able to go in and engage in some swap activity as rates fell and they generated some income in the quarter itself. The offsetting factor is there as Ravi and myself mentioned was just lower service charges on deposit accounts and lower credit and debit card fees and merchant services fees.

The increase in the other income line item within non-interest income from about $5 million to about $8 million was primarily driven by higher swap fee income.

It was approximately $2.8 million from increased swap fees and around $400,000 from miscellaneous categories, leading to a total of $3.2 million.

Okay. Great. Thank you. That's helpful. And just one quick last one on PPP. So, are you amortizing your expected fees on a quarterly basis?

We're taking a pretty conservative view and looking at that over a two-year period.

Okay. Great. Thank you.

Our next question comes from Brock Vandervliet of UBS. Your line is open.

Great. Thanks for taking the question. Okay. You covered PPP. I like that disclosure on slide 7 in terms of the reserve breakdown. A question I had on C&I; we penciled ex-PPP, the C&I reserve may be as high as in the 80s basis points. Some of your peers are well above that. Is there something we should look for or you would call out for delta and why that might be lower?

I think the composition of the portfolio, we do have a lot of SNC credits. They tend to be higher quality even in the downgrading activity that we took. Some of the downgrades were really moving from a very high pass to still a pass grade. So I think that has a lot to do with the fact that we have a lower reserve in that area.

Okay. And as you look at CECL and the reserve methodology that you went through, how much of an island overhaul, if you will, that did you apply to correct for the Moody’s using more of a mainland bent to their numbers, I would assume?

Yes, Brock, that's a good question. This is Bob speaking, and I'll start and then pass it over to Ralph. We are not using the Moody’s model; instead, we are utilizing the local University of Hawaii Economic Research Organization model as the foundation for many of the banks in this area. This model is much more focused on the regional economies. Ralph, do you have any additional comments on that?

Yeah, I mean, 80% of our loan book really exists in Hawaii and Guam. So, that's the big driver of our economic modifier to the CECL model.

Okay. And lastly I'm sure this is a major topic of parlor conversations, sort of. But once the island is open, any prognostications on take-up from tourist travel?

It is going to come down. I think Hawaii is a very attractive place for people to come. We keep hearing that not just anecdotally, but from a lot of different sources. But it's going to be driven by people's willingness to get on the airplane. And it seems okay for now, but it's really hard to judge that in volume. So, we'll just have to wait and see.

Our next question comes from Jared Shaw of Wells Fargo Securities. Your line is open.

Hi. Good afternoon. Most of my questions were answered. I guess as you look at the consumer portfolio and especially autos, as those deferrals have come off, do you expect any adjustments to balance or any incremental charge-offs to align valuation with current balances on the cars?

Well, this is Bob. I can touch on that and then hand it over to Ralph. We incorporated that into the CECL model, so it is part of our modeling. Ralph, do you have anything else to add?

In the first quarter, we analyzed various scenarios related to our book. This quarter, we delved deeper into the data, examining loans by their numbers and auction prices. We applied additional stress to that data in Q2. Now, the pay rate return in that segment is exceeding our expectations, so we are quite satisfied with the reserves we allocated for indirect auto loans.

Okay. Regarding the residential portfolio, what do you expect for its performance if the next UHERO data worsens? This seems to be a concern in the broader discussion about Hawaii. What are your thoughts on collaborating with customers and the effect on the residential portfolio?

Yeah. It's something we're certainly paying attention to. I will say that Hawaii has always been and continues to be a supply-constrained market. And we have underwritten the portfolio conservatively as you remember that. We didn't repeat the slides from last quarter because it didn't change that much but the average loan to value in the portfolio is in the low 60s around. So, even in a period of significant stress in the supply-constrained market it would have to be a very different economic environment where we would be really concerned about the residential portfolio. Ralph, any comments to add to that?

No, not really, Bob.

All right. Thank you.

Our next question comes from Alex Matters of Goldman Sachs. Your line is open.

First, just a quick follow-up on the CECL scenario assumptions. Are you factoring in any benefit from the government stimulus programs and deferrals? And if so, are you assuming sort of any continuation of that going forward?

In terms of the individual risk ratings of customers, if they took PPP loans, that likely influenced their liquidity position. However, it's a short-term factor and wouldn't have a significant impact. We haven't assumed any additional programs that might become available.

Okay. That's helpful. And now on the remaining $800 million or so deferrals sort of still seeking relief, excluding the mortgage loans, could you provide some color on what industries those are in and sort of what your plans for workout are there?

So there's very few in the commercial book, and the way we would approach that is the way you approach any sort of problem credit situation. So each one gets evaluated individually. We come up with a sort of strategy around the loan, action plans and so forth. On the consumer side, we're looking to move from deferrals to modifications, and we've set up a program to deal with a large volume of modifications if necessary. So that's really what we're looking to do, moving from the deferral period to modifications, and we think as long as we keep people paying and working with us, that's going to be very helpful for us in terms of getting through this.

Okay. And then maybe just one more quick one on the mortgage portfolio, could you provide a little color on sort of the timing of when you expect the losses there to eventually come through once the deferrals expire, sort of like how you're approaching that?

Yeah. I mean, that would be something typical like a foreclosure process in the State of Hawaii. You're talking 12 months out from the default, so that would be further down the road. Again, I think we're pretty comfortable with that portfolio right now. We're comfortable with the LTVs. We’re comfortable with the location of the collateral. And we have pretty good history, as Ralph said, in terms of performance of that portfolio through a cycle given the fact that Hawaii is still supply-constrained.

Great. Thanks for taking my questions.

Our next question comes from Laurie Hunsicker of Compass Point. Your line is open.

With the PPP, how much are you expecting in fees in the $940 million?

With the fees? Yeah, it's about — go ahead, Ravi.

It’s a little over $24 million that we've estimated.

Okay. And is that net of the $2 million you're donating?

We're not connecting this $2 million to the PPP loans.

Got it. Okay. And so…

That was out of our foundation.

Okay, perfect. I didn’t know they were just next to each other in the wording of the sum.

Sorry about that.

No, no. My confusion. Okay. So just going over to credit. The C&I charge-off that you have this quarter, the $40 million, can you share with us what categories those were in?

Yeah. I mean we had four loans that basically were classified pre-COVID when we did the exercise we did this past quarter. We basically sort of changed sort of the outlook for those resolution plans. We did impairment analysis of the charges. We’re carrying the balance on the books on nonaccrual. And I think we would anticipate that we have paydowns over the next few quarters on those loans as some properties get sold.

Can you share with us what type of C&I loans those were?

There are a couple of C&I loans and a couple of real estate secured loans.

They were related to tourism if that's what you're asking, Laurie.

Sure. I mean were they in the hotel category or the retail category? I mean I think more broadly everything is sort of touching tourism, right, restaurant. I mean I'm just trying to understand what category they broke into.

Yeah. We're…

Given the nature of the situations, we can't really talk a lot about individual credits. Sorry about that, Laurie.

Okay. I mean I guess my same question was with the jump in non-performers too. You had both a jump in C&I and a jump in for CRE. I just was wanting to understand what categories, not necessarily specific loans, but what category are jumping weakness?

The jump in nonperformers was attributed to those four loans.

Also those four loans. Okay. Okay. Just looking at your slide 4, your hospitality and hotels, only 21% in deferral, in a raw number is $130 million. That's super, super low compared to what we're seeing with mainland hotels. Can you just, Bob, maybe comment a little bit on the strength there? And then also given the return to pay within your hotel books, how you're thinking about that. Thanks.

We've always focused on the strength of the sponsor and sought out individuals who have the capacity to sustain themselves during challenging times. I think that's what we're witnessing now. It's quite unusual that we have entire hotels still closed for a prolonged period, yet they have resources that do not require our support. Ralph, do you have anything to add?

No, no.

Okay. And then I just want to make sure I got this right. So, your dealer floor plan loans right now are $979 million up from $875 million last quarter. Is that correct? Am I reading this wrong here? Or maybe a better question is…

You’re reading it off of slide 4. So, that includes some things that are not floor plan.

Got it.

So, Ravi, do you have the…

Yeah, the dealer floor balances were $795 million at the end of the last quarter. And they’re at $615 million this quarter. So, it is down about $180 million.

Dealer floor plan, okay. And then how much of that is California?

So the mainland this quarter was about $440 million versus $570 million the prior quarter.

Okay. Great. And then do you have the same numbers for your shared national credit book?

It's generally about a third in Hawaii and the remainder on the mainland.

Yeah. The total SNC portfolio this quarter was about $1.1 billion. It was down $208 million from $1.3 billion. The mainland SNC was about $790 million, and of that, $180 million is about $130 came from the mainland. So that was due to pay-downs of loans.

Okay. Great. And then just one last question, following up on Jacque’s, do you have the dollar amount of lost income in the June quarter and just the March quarter for comparison, or just even the June quarter and just the March quarter for comparison? Or just in mind? Yeah.

I don't have the number for Q1 right now, but we can discuss it later. We usually don't go into that level of detail.

Okay.

Yeah.

Okay. Great. Thanks. I’ll leave it there.

Our next question is a follow-up from Ebrahim Poonawala of Bank of America Securities. Your line is open.

Thank you for taking my question again. I wanted to follow up with you, Ravi, regarding the expense outlook to ensure I understood correctly. When examining the benefits this quarter related to the cards and the lowest comp expenses, it seems that card expenses will be contingent on activities. If those activities remain low, that line item will also be low. Regarding the comp, does the 2.4 revert back to what we saw in the first quarter? How does that unfold from here, if you could elaborate?

I believe there will be different factors at play. You might notice some deferred compensation costs in the next quarter, alongside ongoing reductions in salary expenses due to decreased economic activity. We've been observing this trend to some degree in that area, and it will likely continue as we move beyond Q1.

Got it. Did you expect $300 million in CD public time deposits maturing in each of the next two quarters?

We typically see that kind of level of maturity show up on our books on a quarterly basis and it gives us another lever for us to be able to pull depending on what we see in terms of other aspects of the balance sheet.

Got it. That’s all I have. Thank you.

There are no further questions. I’d like to turn the call back over to Kevin Haseyama for any closing remarks.

Thank you, Michelle. We appreciate your interest at First Hawaiian. 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.