First Hawaiian, Inc.

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 speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star then 1 on your telephone. Please be advised that the call will be recorded. If you require additional assistance, you may press star then 0 to reach an operator. I'd 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 Malela, CFO, and Ralph Misik, 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 one 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 measurements. and now I'll turn the call over to Bob. Thank you, Kevin.

Good morning, everyone. Thank you for joining us. I'd like to start with updates of the current situation here in Hawaii. Then we'll update you on deferrals, credit and provisioning before we go into our normal review of the quarter. The economy within Hawaii has reopened. The quarantine requirement for in and out travel was lifted in June. And while our number of cases has risen following the reopening of the local economy, We're still doing a good job of controlling the spread of the virus. The trailing 14-day average of new cases is 26 as of yesterday. With the reopening of the local economy, unemployment fell to 13.9% in June, down from over 23% in May. However, the quarantine requirement for Trans-Pacific travel has been extended to August 31st. During the quarter, the bank leveraged off our digital investments to quickly respond and develop an online application for the PPP program. This allowed us to approve 6,000 loans for over $940 million. And at a time when many people are being very cautious about unnecessary contact, we also launched our contactless debit and credit cards. We've also begun reopening our branches and bringing some employees back to the office while incorporating work from home as part of our normal business model. We're continuing to support the community and we've launched Aloha for Hawaii Fund to support the restaurant industry and donated over a million dollars to agencies providing COVID relief. We also donated a million dollars to assist our recent high school graduates as they transition to college or vocational school. Moving to slide three, I'd like to provide you an update on our loan deferrals. As you recall, our strategy as a relationship bank was to be very proactive when working with borrowers who faced a liquidity shock as the economy went into a shutdown. We did this by providing customers with payment deferrals to allow them to adjust to the changing circumstances. Our expectation at that time was that many would adapt to a new normal, and we expected most of our customers to return to regular payments. Our experience so far has borne this out, and we're seeing the majority of customers returning to payment or indicating they will be returning to payment. In the commercial segment, when we followed up with each individual customer who went on deferral, we also reassessed their financial situation to update our risk rating on the loan. Currently, over 95% of the commercial customers who have indicated they will not require any additional relief and have either returned a payment or intend to return the payment at the end of the deferral period. Following the review process, about 14% of the commercial portfolio was downgraded to criticize levels for those that took a deferral. Our visibility into the consumer space is not quite as clear as the commercial space, but early indications are good. For the non-mortgage consumer portfolio, deferrals were up to 90 days, the majority of which end in June and July. What we're seeing is that of the approximately $153 million of consumer loans that came off deferral, over 90% returned to payment. Of the remaining $126 million still on deferral, 41 million is paying. Residential mortgage borrowers provided deferrals of up to six months following the program set up by the GSEs So those borrowers are still in their deferral periods. When you put all of that together for the current situation, of the original $3 billion of loans that went on deferral, over 2.2 billion, or 73%, have returned a payment or said they will return a payment at the end of their deferral period. Residential mortgages on six-month deferrals make up the majority of the remaining $814 million of loans still on deferral or needing relief. Excluding residential mortgages, a little over $240 million, or 2% of total loans, remain on deferral or are seeking additional relief. Turning to slide four, you can see a recap of the selected industry slide that we presented last quarter. For this quarter, we also included our auto dealer exposure on the table, since this was an area of interest and we don't break it out elsewhere. As you can see on the slide, other than PPP loans, there have been no meaningful changes in our exposures to these industries. On the whole, deferrals and PPP loans help many of our clients build a liquidity base to help them through a challenging time. With that, I'll turn it over to Ralph to go over the credit trends.