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First Hawaiian, Inc. (NASDAQ:FHB)
Q1 2020 Earnings Call
Apr 24, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to the First Hawaiian Q1 2020 earnings call. [Operator instructions] I would now like to hand the conference over to your speaker, Kevin Haseyama. Please go ahead.

Kevin Haseyama -- Senior Vice President, Strategic Planning, and Investor Relations Manager

Thank you Sydney. And thank you everyone for joining us as we review our financial results for the first 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 view 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 may also refer to certain non-GAAP financial measures. The appendix to 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.

Bob Harrison -- Chairman, President, and Chief Executive Officer

Thank you Kevin. We'll be changing our presentation this quarter. First, I'd like to address our response to the COVID-19 pandemic, then we'll do a deep dive on our loan portfolio. And then lastly, we'll do a quick overview of the financials for the quarter before taking your questions.

Our thoughts go out to those directly impacted by the COVID-19 pandemic as well as the healthcare providers and all those on the front line providing essential services to our country and our state. Hawaii has never faced a situation like this before, and it will be difficult. Unemployment is high, the economy will be challenged until we can return to a new normal. The new normal will continue to be anchored by tourism and government spending though as the tourism, the lure of Hawaii and also the strategic nature of the military here in the Pacific will continue to be an important role for us.

Talking about the pandemic, sadly, 12 people have lost their lives here in Hawaii. The total cases has been just under 600 and has been going down significantly over the last few days. Over the last seven days, for the island of Oahu, there's been less than seven cases a day and actually several days with 0 cases. So our transmission rate, as of yesterday was 0.45.

There's a small group of state administrators including the governor and one of his top aids, the Head of the Senate, the Head of the House, several people from the healthcare industry, myself and another business person that are working on a plan to develop, to reopen Hawaii to both local people as far as being able to circulate freely as well as welcoming visitors to Hawaii. This is really important to get our economy back online and begin the recovery process. First Hawaiian Bank has been serving Hawaii for 161 years, and we play an important role in doing that. We take this responsibility very seriously.

Turning to Slide 2, we have a few points here I'd like to make. One is we've enabled about half of our employees to work from home and employees social distances and different protection measures for those that need to continue to go into the office or also to the branch system to continue to operate. We've temporarily closed about 44% of our branches, 26 of them, and moved those employees to different projects to support the high-volume areas, where there'd be PPP loan processing, higher call center volume, et cetera. Tele transactional volume is down about 50%, and our mobile and ATM channels are seeing record usage, all that you would expect in a situation like this where most people are working from home.

We've also stood up a separate operation center to maintain redundancy just in case something should happen. And we've also been very proactive about serving our customers. We processed just under 2,400 applications for the PPP program, right about $775 million, and we're geared up for the next phase. It should be starting very soon.

We've been very proactive in reaching out to both our consumer and our commercial customers for deferral or for variance, depending on what they need, and we'll talk about that a little bit later. We stood up a portal on our website to make the process very easy for our consumer customers, in particular, and that's been very well received. Another thing we're doing to support our customers is we've waived the any check-cashing fee for stimulus checks for noncustomers, and we're really trying to support the community for those in greatest need so they don't have to go to check cashing businesses. Lastly, on this page, we've also launched Aloha for Hawaii fund to support Hawaii's restaurant industry, while donating up to $1 million to certain nonprofits that are most directly affected by the pandemic.

Moving to Slide 3, I'd like to talk a little bit about the management team. Because while no one knows the severity and longevity of the virus' impact on our economy, we entered this crisis with a strong balance sheet, ample liquidity and high levels of capital. What's critical to this success is our senior management team has, on average, over 28 years of financial industry experience, and every single one of us went through the global financial crisis. Including that,four of us have been or currently are, the chief risk officer and have broad experience in a number of different lending areas.

So risk is definitely part of our culture. We've also participated in most of the large transactions in Hawaii and have often in the role of structuring or arrange in the transaction. So really, we're the commercial bank for the state of Hawaii. The strength of our team, along with our strong consumer -- customer relationships over many years serving our marketing community, will get us through this crisis, just as they've carried us through a number of other crises over our history.

Turning to Slide 4, I'd like to make a few comments before going through the slide. Our philosophy has always been to be a responsible lender and run the bank in a sustainable manner. We want to grow at a good, if not spectacular, rate, and deliver stable and consistent results over the long term. We maintain a balanced and diverse loan portfolio and focus on areas we know well.

Being a relationship bank, we do it to support our customers. This has worked well over the long term, and our loan portfolio reflects those values. The portfolio has a nice balance between commercial and consumer loans, roughly 55-45 right now, and a good mix across loan categories. Within the commercial book, we are balanced between small and large customers.

And on the consumer side, about 75% of the portfolio is secured by residential homes, virtually all of which are in Hawaii, and another 15% is secured by automobiles. On the unsecured loan side, the credit card area, we have tremendous experience. Last year, we celebrated our 50th year of partnership with Mastercard, and are their longest continuous issuer of credit cards in the United States. The diversity we have across the lending businesses has enabled us to not be too reliant on any one industry or segment.

I want to talk a little bit about the mainland. About 20% of our loan book is the mainland borrowers and is focused in 3 areas we know well and have done well in historically, C&I, CRE and dealer flooring. The mainland C&I lending is to large corporate names, many of which are shared national credits. Our shared natural credit customers generally have operations in Hawaii, and we are their Hawaii bank.

We did take the opportunity last summer, as you recall, in Q3, to sell about $409 million of Shared National Credits and none of those had operations in Hawaii, and that just was, better managed that book. With few exceptions, our longtime customers in this area, the loan amounts we generally have around that target hold level of about $15 million. The mainland CRE book consists of many of our best local customers, such as all-time estates or private wealth, that have diversified their holdings and characterized by low leverage, good credit and long investment horizons. The rest of the mainland CRE portfolio's a niche strategy focused on large, well-capitalized sponsors, with investment-grade real estate and supply constrained gateway markets on the West Coast.

The mainland dealer portfolio was started over 30 years ago as an extension of the business segment we dominate here in Hawaii, and I've been personally working with many of those customers since the late 1990s. So they're very well-known to us. They are primarily large multi-store operators, most of whom we bank through the financial crisis. All but one of the dealer credits are in California primarily the Los Angeles and San Francisco markets.

We have a highly experienced team managing our mainland CRE and dealer portfolios, and our two senior managers in those areas are exceptional bankers who had a similar operations for large national and super regional banks. So overall, our balanced and sustainable approach has resulted in lower and stable credit costs. The credit losses for the entire portfolio peaked at 72 basis points over the last cycle, and we're roughly 135 basis points cumulative in the 2009-2010 period. And lastly, C&I and CRE losses never exceeded 60 basis points per annum over the last cycle and residential losses were normal.

I spent a little bit of time talking about the individual slides. On Slide 4, I'd just like to bring your attention to a couple of things here that I didn't already mention. First of all, not only do we have a lot of seniority in our senior management team, in our commercial lending area the loan officers averaged over 25 years of experience. The mix on the Shared National Credit portfolios you see there is about one-third based in Hawaii or about 30% based in Hawaii and about just under 70% on the mainland.

And lastly, I do want to talk about the consumer side. We're primarily a prime and super prime lender, and over 90% of the portfolio is collateralized. Turning to Slide 5. I see we're the largest commercial lender in Hawaii, the long time niche focus, the corporate lending to SNC C&I is about $693 million with our $15 million average hold level.

And you can see this geographic diversification of just over half in Hawaii, Guam and Saipan, our core markets and just under half on the mainland. The dealer portfolio has flooring balances of $875 million, and the average length of relationship with the Hawaii dealers is 18 years, and the mainland dealers' is a little less than eight years, with the longest being 32 years. And the reason that's a little bit lower is over the last several years, we brought in new relationships on the mainland, virtually all of which our bankers who have worked with -- in previous lives with different banks. So these are not new relationships to our bankers.

So you can see at the bottom, our loss rate through the cycle and our peak loss rate has been very good in this book over many years. Turning to Slide 6, let's make a few comments on this slide. Most of our exposure, as you can see, is in Hawaii, just under 80%, 22% on the mainland. We do have some hotel exposure, as you can see there.

The loan-to-value is just over 50%, spread in a number of different properties that we'll talk to a little bit later in a later slide. Our large office exposure is a mix of Honolulu Central Business District and West L.A. properties which are typically done in multi-property pools with an average size of $35 million. So we're not dependent on any one single property.

And again, at the bottom of the page, you can see our credit experience has been outstanding in this area, with through the cycle losses of 2 basis points and peak losses of 30 basis points, substantially outperforming national norms. Going to Slide 7, construction side is a smaller portfolio for us, just over 4% of our total loans and leases, roughly split between Hawaii and the mainland. The Hawaii focus is for sale multifamily. All the loan to values are 60%, low 60% or less, except for some of the retail.

The through the cycle losses were very low, peak losses were low as well, and this is a very important portfolio for us, and we rely heavily on the sponsor and the category to do well in this area. There are a couple of areas I do want to highlight, in particular, and that's on Slide 8. And this is select industries that have gotten a lot of attention recently in leveraged lending. You can see the hospitality and hotels, for the CRE there in the hotel area, we have 20 loans with a weighted average loan-to-value of 53%.

Over 80% of those balances are the 4-star resort beach front. So you've got the best property with low loan-to-value that will certainly hold its value through the cycle. For the hospitality names, we have some larger exposures, but those who are the largest global hospitality names in the world, and we have strong other relationships with them as well. For the retail, just want to talk a little bit about the CRE exposure, the top-20 loans averaging $15 million, and overall, a 43% of the loans are less than $5 million with low loan-to-value.

Transportation, much of that is either essential service or ground transportation, no air carriers. And then in foodservice, we had a large payoff right after the end of the quarter. And so that's just under $100 million now, and most of that exposure is to multi-region franchise operators more in the QSR segment. And lastly, on the page, you have the high-risk C&I, and everybody has a slightly different definition of this.

But some of this is included in the above, so the total leveraged loan portfolio is $344 million. $116 million of that is investment grade, a large portion is pass and then $28 million is criticized. Now, I'd like to go to Page 9 which are residential, Heloc consumer loans. You can see at this page, very conservative lending, virtually all of our home and home equity exposure is in Hawaii, low loan-to-value.

Our monitoring FICO score is high at 764 primarily prime, super prime. Low peak charge-offs and very low through the cycle losses. All of our auto loans are in -- within our footprint, most of them in the prime section. We do have a portion -- about 10% of the portfolio has recourse, and this is common in Guam and Saipan.

This is not -- this does not exist in Hawaii. And so the recourse means you have recourse back to the seller of the car or the car dealer. So we underwrite the car dealer and have a line for them and then do recourse for lower quality customers -- lower credit quality customers. Had good experience in this area, very good profitability throughout the cycle.

We know this well. We have the advantage of you can't ship the car off the island without the approval of the lenders. So you generally have access to the collateral should you need it. Skipping down to credit cards, we have a very large -- a very long annual account age with over 13 years.

And so that's much higher than the norm. This is really a transactional business for us, much less of a revolve business, customers that we've known for a long time, our relationship customers, use us daily for their needs. And this has been a very good portfolio for us, as I say, for many, many years. All the comments I have on that, I would like to move to Page 10, talk a little bit about our deferrals before turning it over to Ralph.

We've been very, very proactive in outreach to our customers that needed deferrals. We think this is an important way to manage our risk as well as take care of our relationships. So we made it very easy for consumers to defer. We also reached out to them to make sure that they knew it was available.

That's why we have the 19,000 consumers, many of which are in the auto, but not exclusively in the 600 businesses. We also did a lot of outbound calling. And then I think the -- really, the important thing on this slide is the third bullet, really to make sure that we carry on through this crisis and given the opportunity to get through the liquidity prices, if they did lose their job, to get unemployment, get the business back up and going, get reemployed, so they can continue making their payments. Auto dealers, in particular, we reached out to them proactively.

And virtually every single one of them chose to defer their loans on the commercial side, and we thought that was a good decision to make. With that, I will turn it over to Ralph to cover our CECL.

Ralph Mesick -- Chief Risk Officer

Thank you Bob. And if I could turn your attention to Slide 11. Rather than go over asset quality this quarter, I'll discuss the provision and the loss reserve. In the first quarter, our provision increased in anticipation of credit costs related to COVID-19, and our allowance reflected the adoption of the new CECL reserve methodology.

The provision was $41.2 million, an increase of $37 million over the prior quarter. After the first quarter net charge-off was $6.1 million, the shift to CECL increased the reserve by $52.1 million or 40% over year-end 2019. About $35.5 million of the increase went into the allowance for credit loss or ACL. The ACL amounted to $166 million at March 31, and the ACL ratio was 1.24%, that's up from 0.99% at year-end.

The balance of $17.3 million was allocated to the reserve for unfunded commitments. Our day one adoption was accounted for $17 million of the change. This was reflected in a onetime adjustment to capital. I will note that the bank elected to waive the regulatory phase in option.

The day two provision was $41.2 million. It was primarily influenced by an overlay that considered the impact of COVID-19. We used the scenario-based migration analysis to estimate additional losses and increased reserves by approximately $36 million. We believe this increase would support the worsening of credits that have been granted payment deferrals however uncertainty around the duration and ultimate effect of the current shutdown may remark further provisioning in coming quarters.

And with that, I'll turn the call over to Ravi.

Ravi Mallela -- Chief Financial Officer

Thank you Ralph. Now, let me turn to the first-quarter highlights on Slide 12. Overall, our results in the first quarter were good as we really didn't start to see significant financial impacts of the disruption from COVID-19 until March. Earnings were $0.30 per share.

We adopted CECL in the first quarter which included a day one hit to capital of $12.5 million and a $41.2 million provision for credit losses. We finished the quarter well capitalized, with a CET1 ratio of 11.65%, and good liquidity, with access to a significant amount of contingent liquidity. Additionally, prior to the disruption in late February and March, we sold about $132 million of residential mortgage loans from our portfolio as a part of our balance sheet management strategy. This transaction, along with all the other steps we took over the last 24 months, such as the sale of $409 million of Shared National Credit loans, has strengthened our balance sheet and put us in a better position to proactively support our customers and manage through the uncertain times ahead.

Turning to Slide 13, period-end loans and leases were $13.4 billion, up $169 million or 1.3% versus the prior quarter. C&I loans increased $282 million driven by approximately $300 million of corporate line draws. While residential loan production remained strong during the quarter, balances fell by about $95 million versus the prior quarter due to the sale of residential loans. Turning to Slide 14, total deposit balances ended the quarter at $17 billion, a $575 million increase versus the prior quarter.

The increase in deposits were driven by an increase of $555 million in public deposits. Public time deposits increased $425 million during the quarter. Our cost of deposits decreased by 6 basis points to 38 basis points. Turning to Slide 15, net interest income in the first quarter was $138.7 million.

Net interest margin in the fourth quarter was 3.12%, a 3 basis point decrease from the previous quarter. The margin in March declined to 3.01% driven by lower average yields for the month, higher average cash balances and lower deposit costs. Turning to Slide 16, noninterest income was $49.2 million, $2.5 million higher than the prior quarter. In Q1, we had a number of onetime items that increased noninterest income including mortgage sales, higher trust and investment income and higher swap fees.

In Q1, fees from card transactions and merchant processing declined by $1.2 million. In February, credit card and merchant activity declined, and given the restrictions due to COVID-19, we expect similar declines in these categories in Q2. Moving to expenses, in Q1, noninterest expense was $96.5 million, about 6% higher quarter-over-quarter, consistent with the 2020 guidance given during our fourth-quarter call. Salaries and benefits grew by $3.7 million in the quarter primarily driven by two factors: the absorption of costs from the loss of BNPP reimbursements and seasonal increases.

Consulting fees were up $2.3 million in Q1 driven by lower-than-expected fees in Q4 and a catch-up in Q1. We expect the go-forward run rate to moderate for the rest of 2020 on consulting fees. And now, I will turn it back to Bob.

Bob Harrison -- Chairman, President, and Chief Executive Officer

Thank you Ravi. And just to finish, a couple of comments. We have -- this is an uncertain time. We don't know exactly what's going to happen.

We have a very good management team. We're in a great market, excellent credit quality, very strong liquidity. You might have noticed we started reporting our U.S. modified LCR or liquidity coverage ratio this quarter.

This is a calculation we've done for years now. And I think it just gives better clarity on what we say when we mean we have strong liquidity. We have very strong capital. We'll talk to that, I'm sure, in the Q&A, but just to say that the targets we've put out there before are still targets.

They're obviously long-term targets and something that we'll have to look at as -- with the pandemic unfolds and the recession goes through -- what the right timing is to reach those long-term goals. And we're going to continue to support our employees and our customers and our community. With that, we're happy to take your questions.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from the line of Steven Alexopoulos with J P Morgan. Your line is open.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Hi everybody.

Bob Harrison -- Chairman, President, and Chief Executive Officer

Hi Steve.

Ralph Mesick -- Chief Risk Officer

Hi Steve.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Thanks for all the color on credit. The slides and the deck are really helpful. On the CECL reserve build, first question, can you walk through the economic assumptions underlying that, GDP, unemployment? I'd assume it's more local to the Hawaiian economy.

Ralph Mesick -- Chief Risk Officer

Yes, Steve. This is Ralph. It was more local to the Hawaiian economy. And as you know, the numbers keep changing as we get updates.

They've changed quite a bit from the time we had put in place the reserve. But I will mention this fact that when we did our reserve and we looked at the -- basically looked at the -- about three different scenarios, we looked at kind of a V-shaped scenario, a U-shaped scenario and a more severe scenario, and we kind of ended up on a U-shaped scenario. And it actually tied pretty nicely with the level of deferrals we have. So we feel that the reserve right now is appropriate, but obviously, we're going to have to take a harder look at that this quarter as we sort of get more information.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Ralph, when we look at -- go ahead, Bob.

Bob Harrison -- Chairman, President, and Chief Executive Officer

Sorry, Steve. Just to add to that. When we look at this, and that really comes down to how quickly we can reopen the economy and getting people back to work. So that's a key effort and why we're spending so much time on that.

Steven Alexopoulos -- J.P. Morgan -- Analyst

When we look at your reserve level, you're almost 80% coverage of the last DFAST you put out. I'm trying to get a sense because peers are in the 40% to 60% range. Are you guys -- do you feel like you're getting more ahead of the curve or do you think that through the cycle losses this time around, could be worse than what you reported in that DFAST report?

Bob Harrison -- Chairman, President, and Chief Executive Officer

That's -- it's a point in time look. We're, as you know, having gone through CCAR several times. We're very structured on our modeling. I guess I would answer, I don't think it's -- we don't know enough to know what it's going to be, but we want to be conservative in our outlook.

And that's why we took a pretty hard look from where we're at today and taking into account the different economic scenarios, along with level of deferrals, et cetera. While we are proactive about it, so I don't want it to seem that the deferrals are higher. So that means that we could be in for a tougher time. We were extremely proactive reaching out to people.

So there's kind of a mix between us and maybe what some other organizations have done. But we still want to be on the conservative side of that.

Steven Alexopoulos -- J.P. Morgan -- Analyst

OK. And then finally, Bob, on Slide 8, where you're calling out these select industries that are impacted now, I mean, you seem to be pretty conservative, the way you approach each of them. We know foodservice is a problem for everybody. But when you look at the remaining categories, what do you see as most vulnerable for you guys here?

Bob Harrison -- Chairman, President, and Chief Executive Officer

I would think probably Retail. The world is changing, certainly, as all of us stay at home for a month, and maybe -- we don't know how much longer and people buying habits will change. We're relatively low loan-to-value. We have a lot of investment-grade credits in there, but still, you just never know.

Retail is always going to be a -- to me as an industry going forward nationally, maybe less on Hawaii because you have a high visitor count and people tend to -- that's a hobby -- not a hobby, that's an entertainment for them, shopping, for many people. But that's an area we're looking closely at.

Steven Alexopoulos -- J.P. Morgan -- Analyst

OK.

Bob Harrison -- Chairman, President, and Chief Executive Officer

Ralph, would you agree with that?

Ralph Mesick -- Chief Risk Officer

Yes. And I would say that in terms of the retail exposure that we have on the real estate side, it's -- we have a couple of mall-type formats. So those are the ones we'll be taking a harder look at. But thankfully, we have pretty strong sponsors there.

So that's probably an area that, as Bob said, we think, it'll have probably the most impact.

Bob Harrison -- Chairman, President, and Chief Executive Officer

Yes. Low loan-to-value, strong sponsors, that's a characteristic of much of our real estate exposure.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Yup. OK. Thanks for all the color. Thank you.

Operator

Thank you. And our question comes from Ebrahim Poonawala with Bank of America. Your line is open.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Good morning.

Bob Harrison -- Chairman, President, and Chief Executive Officer

Good mornign.

Ralph Mesick -- Chief Risk Officer

Good morning.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

I guess for Ravi, just if you can talk about the margin. So you gave a disclosure there in terms of the margin being at 3.01% in March. Is -- does that reflect, in your view, the entirety of the rate cuts we saw? If you can just talk to in terms of how much more lower the margin can go at least in the near-term before kind of stabilizing?

Ravi Mallela -- Chief Financial Officer

It's a good question, EB. Obviously, the rate cuts that occurred in March occurred on March 3 and March 15. And so what we're seeing is really a partial quarter and frankly a partial month to the impact. A couple of things on our quarterly results.

We absolutely anticipated that this would happen, and we worked proactively with our customers communicating that these changes were going to occur and so from our -- from the deposit pricing side, we were able to act quickly to bring deposit costs down. They went from 44 basis points to 38 basis points in the quarter. And looking forward, Ebrahim, I think if you think about where we could end up, eventually the equilibrium level, if rates continue to stay where they are, you could see maybe deposit costs getting to the mid-20s. But I think that would be probably something that occurs over the course of the year.

I want to flip to the loan side of the equation. I mentioned that it's really a partial month on a partial quarter. And I think we'll continue to see loan yields decline 35% as of this quarter, of our loans are tied to one-month LIBOR. And what you've seen with the one-month LIBOR, in particular, is move, but I think given the challenges that the markets -- the capital markets have had, we've seen that one-month LIBOR rate be buoyed a little bit through, in fact, April.

And as the markets start to stabilize and calm, I think we would expect that the one-month LIBOR would continue to fall to what we would expect to be a normal rate. That's a lot of color. I think just to bottom line it I think we'll see our net interest margin to continue to decline and decline over time over the course of the year, probably stabilizing toward the end of the year. We have a couple of other levers that we can pull.

We've got FHLB fixed rate term advances that are going to mature, about $400 million this year is going to mature, and depending on what we see in terms of loan growth, either the PPP program and funding those and being available to proactively serve our customers or are there additional line draws that occur during the course of the year will give us more color on where we see margins are heading for the year, if that helps.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And what's the rate on that FHLB maturity that's coming up?

Ravi Mallela -- Chief Financial Officer

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

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Understood. And I guess, Ravi, just with you, in terms of expenses, consulting fees go I guess decline and normalize a little bit. Outside of that, should we expect this mid-90s expense on rate for now?

Ravi Mallela -- Chief Financial Officer

I'd take you back to what we communicated in Q4. Our core non-interest expenses were a little bit over $367 million. We added about a 5% to 6% of that. So when you put all of those together, you get to about what you said about 96%, 97% per quarter.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And just shifting, Bob, I guess this is an unprecedented crisis in terms of what it -- the social distancing requires. I think back to like the macros and notions or whatever you want to call it, is there a breaking point in terms of when you look at the Hawaiian economy, where either we need to see some federal help or the state government or local government kicking in to kind of support the economy if air travel remains significantly shot for the rest of the year?

Bob Harrison -- Chairman, President, and Chief Executive Officer

Yeah. Excellent question, EB. And we certainly can't predict a feature. One of the things that we're trying to do as a group and as a state, that group I mentioned earlier, and it's going to be a much broader group over the next few weeks as it grows as -- really take a scientific and medical approach to reopening.

And you know you can't do it all at once. You have to do it by screening and testing and then continue it on all the way to quarantine if need be. But Hawaii's testing has been I think one of the top two or 3 per capita in the country. And they really need to create that confidence within the local population, one, to be able to circulate; and then two, to start welcoming visitors back.

And when visitors come back, it's going to be with some element of risk. Everybody wants that because we know that a big part of our economy is driven by tourism. And so that's one of the things I think we'll be working very closely with the airline, not just Hawaiian airlines, but the legacy carriers as well to see how we can get that confidence, both in the visitor and also in the local community to reopen as soon as possible. It will take a pretty strict criteria to work through that people feel comfortable, but we're on a really good path right now.

So as we get from here to there, you have the federal stimulus money going through the end of July. We're recommending to the governor that he hold off on state funds until after that period of time and let the federal stimulus money really kind of run its course as much as possible through July on the unemployment checks and throughout the rest of the year on the CARES program, just to be there as it is needed to support the state going forward. But it's changing by the day and almost by the hour, but that's a top of mind for a whole bunch of people here in Hawaii. Did that answer your question?

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Yes, that's helpful. I mean I think it's all about just getting a perspective until we get better real clarity on how things open up. But thank you for taking my questions.

Ralph Mesick -- Chief Risk Officer

You're welcome.

Operator

Thank you. And Our next question comes from Jackie Bohlen with KBW. Your line is open.

Jackie Bohlen -- KBW -- Analyst

Hi. Good morning everyone.

Ralph Mesick -- Chief Risk Officer

Hi Jackie.

Jackie Bohlen -- KBW -- Analyst

I wondered if you could speak to the stability of line draws post quarter. Thank you for the data on that. It was helpful to know what the -- what your draws were as of March 31. But I'm just wondering what the behavior was like post quarter?

Ralph Mesick -- Chief Risk Officer

So it hasn't changed a whole lot. I mean, right now, interestingly, if we look at the portfolio as a whole, the utilization rates didn't change year over year. And where they did change was where you would anticipate they changed some of the industries that we had outlined. And that was the bulk of the change in the line draws.

And interestingly enough, I mean, on the consumer side, we haven't had a lot of that. So I think...

Bob Harrison -- Chairman, President, and Chief Executive Officer

Jackie, this is Bob. Just to add to Ralph's comments, most of the C&I and the Shared National Credit borrowings were before -- before quarter end and very little after. And for the consumer primarily Heloc is very little usage to date. And credit cards actually were down over year-end to end of first quarter which is typical, and we haven't seen any real spike in usage in that area either.

Jackie Bohlen -- KBW -- Analyst

OK. So both the consumer categories have been very stable. Just for further clarification since utilization is similar to the year-ago quarter. Do you look at the line draws as indicative of what's going on or was it just a seasonal trend?

Ralph Mesick -- Chief Risk Officer

It was indicative of what was happening. I mean, clearly, it was that.

Bob Harrison -- Chairman, President, and Chief Executive Officer

Clearly, some of the corporates borrowed immediately and just -- they felt better doing it. Interestingly, they borrowed, and for the most part, it's sitting in our check-in accounts. So they haven't used it yet, but we'll see how that plays out over the rest of this quarter and into the next quarter.

Ravi Mallela -- Chief Financial Officer

Jackie, this is Ravi. And maybe I would just add, as we started to track the activity that occurred toward the end of March I think an important factor in the behavior of our customers was the implementation of the Fed program which provided capital markets with a lot of stabilization. And that stabilization I think led us back to what we're seeing, at least, for the time being, a very normalized run rate going forward on those draws.

Jackie Bohlen -- KBW -- Analyst

OK. That's very helpful. Quick house cleaning question for you, Ravi, what was the gain on the real estate sale in the quarter?

Ravi Mallela -- Chief Financial Officer

I believe it was $1.2 million.

Jackie Bohlen -- KBW -- Analyst

OK. And do you anticipate any other...

Ravi Mallela -- Chief Financial Officer

Sorry $1.1 million.

Jackie Bohlen -- KBW -- Analyst

$1.1 million. And do you anticipate any other balance sheet restructuring? I know it's small.

Ravi Mallela -- Chief Financial Officer

Not at this moment.

Jackie Bohlen -- KBW -- Analyst

OK. And then just lastly I want to make sure I understand...

Bob Harrison -- Chairman, President, and Chief Executive Officer

I just want to add to the -- sorry, Jackie, to that point. We've done so much over the last couple of years. We really feel we're in a good place on the balance sheet now. And quite frankly, we're glad we did by bringing down the public time over the last few years and selling the SNC loans allowed us to go into public time a bit to fund our PPP program loans right now.

So it's really given us a lot of flexibility.

Jackie Bohlen -- KBW -- Analyst

OK. OK. And just one last one, and then I'll step back. I just want to make sure that I understood properly, when you were talking about waving the reg deferral option, are you -- were you referencing the transition period with the CECL and regulatory capital? And my understanding is that you don't intend to use that?

Ralph Mesick -- Chief Risk Officer

Yes.

Bob Harrison -- Chairman, President, and Chief Executive Officer

That is correct.

Jackie Bohlen -- KBW -- Analyst

OK. Thank you.

Operator

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

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi. Good morning everybody.

Ralph Mesick -- Chief Risk Officer

Good morning, Jared.

Bob Harrison -- Chairman, President, and Chief Executive Officer

Good morning, Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

On the margin, just a follow-up. Do you have the March asset yields and funding costs as well as the blended margin?

Ravi Mallela -- Chief Financial Officer

I don't think we're -- we don't actually have that really at the -- we can certainly toss...

Bob Harrison -- Chairman, President, and Chief Executive Officer

We can circle back with you on that, and then Kevin can give you a call on that.

Jared Shaw -- Wells Fargo Securities -- Analyst

Sure. OK, OK. And then the anticipated additional pressure from margin. I mean, I guess that's not necessarily impacting or including the impact from PPP and any accelerated flows from that in the third quarter? Is that the right way to look at it?

Ravi Mallela -- Chief Financial Officer

Yes. I think that will be something that will occur over the course of the quarter. Obviously, there's a second installment of these programs too, and so we'll have to factor that into place. One thing I didn't mention when EB asked a similar question, is also the fact that we're relatively liquid from a balance sheet perspective.

That's really important for us. We want to be available for our customers. We want to take a proactive approach with them. We're carrying a little bit extra cash.

And at this point, where the Fed funds target rate is between 0 and 25 basis points, we're not earning much on that cash. So that's also another factor in our -- in what we project for NIM going forward.

Jared Shaw -- Wells Fargo Securities -- Analyst

OK. And then looking at the floor plan financing, can you give a little detail on how some of the manufacturers are working with the dealers or are they? And as inventories start to stall on the lots I guess is there anything more specific you're doing with the dealers to work through that or with the manufacturers to work through that?

Bob Harrison -- Chairman, President, and Chief Executive Officer

Yes, good question. And we can't speak to the manufacturers, except anecdotally, what we've heard through their captive finance firm -- arms have been very accommodating to the dealers as have we. We waive curtailments for a period of time to just -- if they -- literally, people can't leave their houses and they can't be open, not being essential services, nobody's going to be buying a car, virtually, nobody is going to be buying a car. So those types of things, the deferral program, that's really what we've done to support them.

Ralph, am I missing something?

Ralph Mesick -- Chief Risk Officer

No.

Bob Harrison -- Chairman, President, and Chief Executive Officer

And they're very astute business people. And so we're in constant contact with them. So we'll see if they need any further help. But clearly, by stopping production, the manufacturers aren't going to be flooding the market afterwards, but we'll have to see as a restart and what car sales do as people come out of the work at home, stay at home.

Jared Shaw -- Wells Fargo Securities -- Analyst

So could -- do you think that we could see maybe over the next, I don't know call it eight quarters, floor plan balances just generally continue to trend down as maybe appetite for holding as much inventory diminishes from the dealers?

Bob Harrison -- Chairman, President, and Chief Executive Officer

Hard to tell. It's going to be driven by consumer behavior and see what people -- what transpires after that.

Operator

Thank you. And our next question comes from Laurie Hunsicker with Compass Point. Your line is open.

Laurie Hunsicker -- Compass Point -- Analyst

Hi. Thanks. Good morning.

Bob Harrison -- Chairman, President, and Chief Executive Officer

Good morning.

Ralph Mesick -- Chief Risk Officer

Good morning.

Laurie Hunsicker -- Compass Point -- Analyst

I just want to just start over at Shared National Credits. I want to make sure I got this right. Your total SNC book is now $693 million. Is that correct?

Ralph Mesick -- Chief Risk Officer

That number sounds -- yeah.

Laurie Hunsicker -- Compass Point -- Analyst

Because that's a big drop from last quarter and I think...

Bob Harrison -- Chairman, President, and Chief Executive Officer

No, no, no.

Ralph Mesick -- Chief Risk Officer

It's -- total SNC book, this is...

Laurie Hunsicker -- Compass Point -- Analyst

Or I can get back to that.

Bob Harrison -- Chairman, President, and Chief Executive Officer

It's -- on Slide 4, Laurie, if you go to Slide 4, the total Shared National Credit portfolio in the middle of the slide is $1.3 billion. And 31% of that is Hawaii and 69% mainland. If you go to Slide 5, and for the kind of the corporate lending side of the SNC book, because there's a little bit in the dealer, is $693 million. So that's the difference between the two numbers, I think you look at.

Ralph Mesick -- Chief Risk Officer

That $693 million is the mainland SNC.

Bob Harrison -- Chairman, President, and Chief Executive Officer

Yes.

Laurie Hunsicker -- Compass Point -- Analyst

OK. That makes sense. And so -- and then the increase that we saw, that was just mainly drawdowns that occurred? I assumed you weren't originating new?

Bob Harrison -- Chairman, President, and Chief Executive Officer

That's correct.

Ralph Mesick -- Chief Risk Officer

Yes, drawdowns.

Laurie Hunsicker -- Compass Point -- Analyst

OK, OK. That makes sense. OK. And then going to the CRE side, and by the way, I just want to echo what Steven said in detail is very, very helpful.

Within your CRE, can you just help us think about what is on the mainland just collectively of your $3.4 billion?

Ralph Mesick -- Chief Risk Officer

Question was what's on the mainland?

Bob Harrison -- Chairman, President, and Chief Executive Officer

For the commercial real estate on the mainland?

Laurie Hunsicker -- Compass Point -- Analyst

What -- yes. Of your CRE book, yes -- what percentage is mainland of the CRE, if you know and I mean I can circle back...

Bob Harrison -- Chairman, President, and Chief Executive Officer

So you can see on Page 6 here, you see that diversified book of 78% is Hawaii, Guam and Saipan, and 22% is on the mainland of that $3.4 million.

Laurie Hunsicker -- Compass Point -- Analyst

Is on the mainland, right? I'm sorry. I asked that the wrong way. In other words, when I look at this portfolio, what are your main categories that are on the mainland, right? I think at one point you referenced on the construction that the construction is mainly multifamily, Hawaii. I'm assuming most of the multifamily is on Hawaii here of the CRE.

I mean I guess just generally, if we look at this slide, just as a flavor, what are your main CRE categories that reside on the mainland?

Bob Harrison -- Chairman, President, and Chief Executive Officer

Yes. Let me start, and then I'll turn it over to Ralph. It really ties into those 3 areas, kind of the Hawaii long time real estate, heavy companies, legacy companies over generations that decided to diversify outside of Hawaii as they sell Hawaii real estate and move to the mainland, and we follow them and support them in those various markets. And secondly, we do real estate to support our auto dealers for their -- not only their floor plan that we're doing on the C&I side, but the commercial real estate side for the building improvements, et cetera.

Then the last category would really be that niche strategy that we're looking at to be really a preferred participant in primarily the LA market, but also a few other select markets in those gateway cities, where the local bank has a house name, where they want to do a deal and they prefer not to bring in a competitor within the market since we've worked with them over many years, they are bringing us in. And so these are very high quality projects. Those, in particular, have a higher percentage of multifamily. But Ralph, anything to add to that?

Ralph Mesick -- Chief Risk Officer

Yes, so if you took -- we have about $786 million on the mainland. And about half of that is sort of old Hawaii families. These are like 1031 Exchange properties, very low LTVs. They tend to be on the West Coast, although we have some in the Denver area and as far as the Midwest for some industrial properties.

And then with the other half, as Bob said, it's really kind of about I think 50-50 between office and multifamily. So that's sort of the book right now with a little bit of industrial, not a lot.

Jared Shaw -- Wells Fargo Securities -- Analyst

OK. Got it. And then of your hotel book, the $368 million, do you happen to know how much is on the mainland of that?

Ralph Mesick -- Chief Risk Officer

We have a small, maybe a couple of ones on the mainland, and this is with private clients. So it's primarily here.

Bob Harrison -- Chairman, President, and Chief Executive Officer

Yes. Long time customers of ours.

Laurie Hunsicker -- Compass Point -- Analyst

Yes. OK. OK. And then just turning to construction.

Just same question. In other words, 40% here is Hawaii. What -- the other 52% that's mainland, just very high level, what is the main category here that breaks?

Ralph Mesick -- Chief Risk Officer

Primarily multifamily.

Laurie Hunsicker -- Compass Point -- Analyst

Primarily multifamily.

Bob Harrison -- Chairman, President, and Chief Executive Officer

That piece is primarily multifamily, yes.

Laurie Hunsicker -- Compass Point -- Analyst

OK, OK. That's helpful. And then looking at Slide 8, just going back to retail. So of your $737 million, can you help us think about what's retail service versus retail shopping? I know you mentioned you have some malls.

But do you just have collectively the dollar exposure, the percentage exposure of that $737 million that breaks into retail service versus retail shopping?

Ralph Mesick -- Chief Risk Officer

I don't have that. I'm not sure I'm following what you're...

Bob Harrison -- Chairman, President, and Chief Executive Officer

I'm not sure what you mean between retail service and retail shopping, Laurie. Can you clarify that, please?

Laurie Hunsicker -- Compass Point -- Analyst

Sure. Like retail service is, grocery stores, hardware, that type of thing versus retail shopping as clothing.

Ralph Mesick -- Chief Risk Officer

Yes. We have probably three or four properties that are primarily sort of retail shopping. A lot of the book is -- a big chunk of the book is really smaller stuff and a lot of -- and our largest -- some of our largest loans are grocery-anchored shopping centers.

Bob Harrison -- Chairman, President, and Chief Executive Officer

And the retail service, as you would define it.

Ralph Mesick -- Chief Risk Officer

Yes, yes.

Laurie Hunsicker -- Compass Point -- Analyst

OK, OK. That's helpful. And then at the bottom here, I see this but no -- little or no direct exposure which is great. But I just want to confirm, in terms of oil, are you at 0 or is there a dollar number on your exposure?

Bob Harrison -- Chairman, President, and Chief Executive Officer

There is a de minimis retail gas station number based in Hawaii. But that's it.

Ralph Mesick -- Chief Risk Officer

Yes.

Laurie Hunsicker -- Compass Point -- Analyst

That's it, basically 0. OK. That's helpful. And then just going onto the consumer on Page 9.

Just wondered if there was a little bit more color on both the credit cards and the other consumer. And I realize these are smaller categories here, but just wondered how much of that is sort of in footprint versus out? And what is below 660 in both of those categories. And then maybe also on your other consumer, is there anything in there like prosper, lending club, anything like that or what is that?

Bob Harrison -- Chairman, President, and Chief Executive Officer

Maybe to cover that first. We don't do any purchase of loans from Fintech. So that number 0. And then going back to the credit card, we used to have a mileage card associated with Aloha Airlines before it went bankrupt.

And so that -- many, many years ago, and we converted that to our own cards. So we do have customers on the mainland that continue to carry our card because of really that -- I mean, different reasons, but primarily that. So there's a bit of that, but primarily, we're in market. I don't have the percentages off top of my head, but that just is a broad scope.

Laurie Hunsicker -- Compass Point -- Analyst

OK, OK. And then what do you know of those two portfolios or however you want to break it out, what is actually sitting below the 660 line on FICO?

Bob Harrison -- Chairman, President, and Chief Executive Officer

I don't have that with us. And I'm not sure. If we do release that, we'll come back to you with it. But I'm not sure we release that type of information.

Laurie Hunsicker -- Compass Point -- Analyst

OK. Great. And then, Bob, just last question to you. I know now you've mentioned it twice in terms of -- you're on this committee to open back up Hawaii which I saw that.

You and Pete are both on it. And I was reading some articles around it, and it's fascinating because in terms of thinking about how travelers to Hawaii are going to be treated, it's a little different than almost anywhere else in the U.S. and that there's one thought out there about involving U.S. customs and TSA and the State Department of Transportation.

And I just wondered if you can expand a little bit on that?

Bob Harrison -- Chairman, President, and Chief Executive Officer

Sure. Yes, it's funny. Islands kind of hang together. And so we're working closely with New Zealand and learning a lot from them and what they've done and their Department of Health has given us a lot of things to work on.

The -- Peter and I are really sitting in the back and looking at it from the business side, but it's really being driven by the medical community. So the heads of the two largest hospital groups' here, along with the Head of the Blue Cross Blue Shield insurer, they've really taken that in -- under their wing and it's a lot of support by the governor's designate to really develop a recovery plan. He's providing a lot of resources, Boston Consulting Group, among others, to help work with the medical experts to develop a plan on how to do it. So it's not going to be -- I won't take everybody's time to get into the science of it, but it's really going to be driven by medical science and knowing that you can't catch everybody but to screen, to test, to follow up and then to quarantine, if needed.

And really developing that and building that up, it will involve hiring people, whether they're state workers or not, to be determined, to really doing the tracking and the testing. But that's a job creation to a bit. And this is probably an 18-month to 2-year effort until there's a widely available vaccine and/or treatment for COVID-19. So looking at it as kind of book ended from today until a couple of years from now, do as much as we can to reopen the economy and make people feel good about.

Not only Hawaii people feel good about tourists coming to visit, but Hawaii people feeling good day one about circulating more freely to reopen our economy within Hawaii.

Laurie Hunsicker -- Compass Point -- Analyst

Got it. And just so I'm clear, theoretically, I come over with my family. We're put in some sort of a holding room as we're tested -- or we, everybody on the plane tested and then, boom, we're given the green light to basically freely roam? Is that sort of part of the thought in terms of reopening?

Bob Harrison -- Chairman, President, and Chief Executive Officer

To be determined. Unlikely you would test everybody. You would screen everybody, but you wouldn't necessarily test everybody. And if you screen and there's questions, then you would get tested.

But again, that's all under development right now.

Operator

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

Alex Matters -- Goldman Sachs -- Analyst

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

Bob Harrison -- Chairman, President, and Chief Executive Officer

Yes. It's been quite the process. So I'll leave it at that. It's been -- I think as we're going to look back in hindsight, you probably wouldn't have picked the SBA program as a way to put money out to a lot of small businesses, but that's the program we have.

I'm not sure how long they'll be on the balance sheet. They are talking to our clients, most of them plan to ask for forgiveness under the criteria of employing, bringing back your employees. So we see a high percentage of that, at least, what we're being told, we'll be forgiven and not sure then how much stays on afterwards. The fees, quite frankly, we've been running so hard.

We know it's between 1% and 3%, but we haven't really done that calculation to figure out what that is.

Alex Matters -- Goldman Sachs -- Analyst

OK. That's helpful. And then maybe just a quick follow-up on that. I know you mentioned you're planning to participate in the second wave as well.

Just wondering, based on your conversations with clients in the first round, how much more demand do you think there could be? And how large that could end up being for you?

Bob Harrison -- Chairman, President, and Chief Executive Officer

In numbers of people, we have a huge amount of demand. And probably more than we can process given the time, the funds will be available. At the end of the first round, we closed the portal, and we don't plan on reopening it until we can satisfy all of the requests we have in. And again, our ability to process is pretty good relative to a bank our size.

We've automated quite a bit of it. But there's a lot of people that want to participate in this program. So I don't think this round will satisfy all the need, and there is talk about doing a third round, but we'll just have to wait and see.

Alex Matters -- Goldman Sachs -- Analyst

All right. Thanks for answering my questions.

Operator

And I am not showing any further questions at this time. I would now like to turn the call back to your speakers for any further remarks.

Kevin Haseyama -- Senior Vice President, Strategic Planning, and Investor Relations Manager

Thank you for joining us today. We appreciate your interest in First Hawaiian, and please feel free to contact me if you have any additional questions. Enjoy the rest of your day, and have a nice weekend.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Kevin Haseyama -- Senior Vice President, Strategic Planning, and Investor Relations Manager

Bob Harrison -- Chairman, President, and Chief Executive Officer

Ralph Mesick -- Chief Risk Officer

Ravi Mallela -- Chief Financial Officer

Steven Alexopoulos -- J.P. Morgan -- Analyst

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Jackie Bohlen -- KBW -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

Laurie Hunsicker -- Compass Point -- Analyst

Alex Matters -- Goldman Sachs -- Analyst

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