First Hawaiian Q2 2021 Earnings Call Transcript

Quartr
Provided by Quartr
July 22, 2021

Key Takeaways

  • Positive Sentiment: State of Hawaii’s economic recovery continues with visitor arrivals nearing pre-pandemic levels and unemployment falling to a 15-month low of 7.7% in June.
  • Positive Sentiment: Banks saw broad-based Q2 loan growth of $151 million excluding PPP paydowns, with commercial real estate, construction and residential loans each up over $100 million.
  • Positive Sentiment: Total deposits rose by $701 million quarter-over-quarter to $20.8 billion while the cost of deposits fell to 7 bps.
  • Negative Sentiment: Net interest margin compressed by 9 bps to 2.46% due to excess liquidity and repricing pressures, with a further 3–5 bps decline expected in Q3.
  • Positive Sentiment: Credit quality remained strong with net charge-offs at just 9 bps YTD, a negative $35 million provision release and a decline in criticized assets to 2.51% of loans.
AI Generated. May Contain Errors.
Earnings Conference Call
First Hawaiian Q2 2021
00:00 / 00:00

There are 13 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the First Hawaiian Inc. Quarter 2 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded.

Operator

After the speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to your first speaker for today, Investor Relations Manager, Kevin Hasayama. Thank you. Please go ahead.

Speaker 1

Thank you, Anne, and thank you everyone for joining us as we review our financial results for the Q2 of 2021. With me today are Bob Harrison, Chairman, President and CEO Robbie Malella, CFO and Ralph Miesik, 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 fhp.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.

Speaker 1

We may also discuss 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.

Speaker 2

Thank you, Kevin. Good morning and thanks for joining us today. I'd like to start with a quick update on the state of Hawaii. This is Slide 2 in the deck. We continue to see a steady increase in visitor arrivals And are approaching pre pandemic levels with almost 100% being from the mainland U.

Speaker 2

S. Restrictions on transpacific travel We're further eased starting on July 8, when individuals vaccinated in the mainland U. S. Were also allowed to enter Hawaii without a pre travel COVID test. The economy continues to recover as the unemployment rate fell to 7.7% in June, a 15 month low And the housing market remains strong.

Speaker 2

We are continuing to make progress towards a goal of having 70% of the population vaccinated, At which point, all COVID restrictions are expected to be removed according to statements by the Governor. Similar to the rest of the country, we have seen increases in new cases recently and the test positivity rate, which authorities are closely monitoring. Turning to Slide 3, I'll briefly go over our 2nd quarter results. We have a very good quarter. We saw a broad based pickup in loan activity, Strong deposit growth, a rebound in non interest income, while credit quality remained excellent.

Speaker 2

Total loans grew by $151,000,000 excluding the impact of PPP loan paydowns With growth coming in multiple categories, deposit growth continued to be driven by commercial and consumer deposits. Diluted EPS was $0.67 and the Board maintained the dividend at $0.26 per share. We also repurchased $22,400,000 of common stock under the current share repurchase program. Now I'll turn it over to Ravi to go over the financials.

Speaker 3

Thanks, Bob. Turning to Slide 4, period end loans and leases were $13,100,000,000 down $197,000,000 from

Speaker 1

the end of Q1.

Speaker 3

PPP balances declined $348,000,000 Excluding PPP balances, C and I declined by $209,000,000 primarily due to a $179,000,000 decrease in dealer flooring balances. Excluding the impacts of PPP forgiveness and dealer flooring balances, total loans grew 330,000,000 or 2.8% in the 2nd quarter. We were pleased to see good growth this quarter in many categories, including commercial real estate, Construction and residential loans, each growing by over $100,000,000 The loan pipeline is building And we reiterate our view that full year loan growth, excluding PPP, will be in the low single digit range. Turning to Slide 5. Total deposit balances ended the quarter at $20,800,000,000 A $701,000,000 increase versus the prior quarter.

Speaker 3

This was driven by A $769,000,000 increase in consumer and commercial deposits and partially offset by $67,000,000 decrease in public deposits. Our cost of deposits fell 1 basis point to 7 basis points in the quarter. Turning to Slide 6. Net interest income was $131,500,000 a $2,300,000 increase versus the prior quarter. The increase in net interest income was primarily due to higher average balances of investment securities and lower balances and rates on time deposits.

Speaker 3

Net interest margin was 2.46%, a 9 basis point decrease from the previous quarter. Core asset and liability repricing contributed about 4 basis points NIM compression, while excess liquidity caused about 8 basis points of additional compression. Just a reminder, we currently consider excess liquidity as balances over 500,000,000 The decline in NIM was partially offset by higher income due to the higher balance of PPP loans forgiven versus the prior quarter, which increased net interest margin by about 3 basis points. In Q3, Excluding the impact of excess liquidity and PPP loan forgiveness, we expect our net interest margin to decline 3 to 5 basis points. Turning to slide 7.

Speaker 3

Non interest income in Q1 was $49,400,000 a $5,500,000 increase over the previous Non interest income was driven by a nice increase in credit and debit card fees and merchant services interchange, which in total contributed $2,200,000 to the increase this quarter. Other service charges increased $1,500,000 of which approximately $1,000,000 was from one time fees generated by our commercial customers. Swap fees increased $800,000 Envoli and Trust income increased $900,000 this quarter. Non interest expenses were $99,400,000 $3,100,000 higher than the previous quarter. The increase was driven by a one time charge of $1,200,000 in salaries and benefits and $1,400,000 in higher card rewards expenses, which was due to higher activity.

Speaker 3

The remaining increase was primarily driven by higher sales incentives paid in the quarter. The efficiency ratio was 50 4.7%. On a year to date basis, expenses are running about 4.1% higher than the same period last year. However, we continue to expect full year expenses to be about 7% higher than in 2020. And now I'll turn it over to Ralph to go over asset quality.

Speaker 4

Thank you, Ravi. If you could turn to slide 8, I'll make a few comments on credit. Asset quality continues to hold up and the recovery is underway with a strong return of Mainland First. In Q2, the net charge offs For the quarter were $1,100,000 well below the $4,600,000 recorded in the prior quarter. Our year to date annualized net charge off rate is at 9 basis points, significantly lower than the Levels in 2020 2019.

Speaker 4

The bank recorded a negative $35,000,000 provision for the quarter. NPAs and 90 day past due loans were marginally down this quarter with a 2 basis point decrease from the prior quarter to 12 basis points. Criticized assets continue to decline as well, dropping from 3.47% of total loans in Q1 to 2.51% in Q2. Loans 30 to 89 days past due to decline 5 basis points to 22 basis points at the end of Q2. Moving to slide 9, you see a roll forward of the allowance for the quarter by disclosure segments.

Speaker 4

The $35,000,000 negative provision we recorded this quarter came on a more optimistic outlook and improvement in the portfolio credit quality. The allowance decreased by $31,200,000 to $169,100,000 which is 1.29 percent of all loans and 1.38 percent net of the PPP loans. And with that, I'll turn the call over to Bob.

Speaker 2

Thanks, Ralph. Finally, you may have seen the announcement last week of the addition of 2 new directors to the Board, Kelly Thompson and Jim Moffett. Their combined expertise in the areas of technology, strategic planning, risk management and e commerce will provide valuable insight and guidance as we execute our digital transformation. As I mentioned on our last call, we introduced a redesigned fhp.com website and a new mobile banking app that includes features such as 3rd party account integration and personal financial highlights. The improvements have been well received as the number of visitors to our website has increased and they are staying longer with higher levels of engagement.

Speaker 2

We have also seen an over 500% increase in the active users for our new personal financial management tool MoneyMap versus our previous offering. I also want to mention that our core conversion initially targeted for the Q3 of this year is being pushed back to the 1st part of 2022. And With that, we'd be happy to take your questions.

Operator

Thank you. We have our first question from the line of Steven Alexopoulos from JPMorgan. Your line is now open.

Speaker 5

Hi, everyone.

Speaker 2

Thanks, Steve.

Speaker 5

I wanted to start. So Bob, as we've seen other parts of the U. S. Reopen, increased sales have been strong at companies, has been great for deposit growth for banks, but not so much for loan growth. As Hawaii increasingly comes back online, can you walk us through How this could or really should impact the loan portfolio?

Speaker 5

And what do we need to see to move up from the low single digit guidance?

Speaker 2

Thanks, Steve. That's a great question. What we have started to see and this is what we talked about, I believe, certainly in the last call, maybe the last couple of calls, As we're seeing the loan growth on the Mainland first, and we're expecting to see the loan growth in Hawaii coming later. And that's with the exception of residential. Residential has been very strong here in Hawaii as it is in many parts of the country.

Speaker 2

The challenge there is staying ahead of the runoff. The commercial real estate construction has been somewhat in Hawaii as we have a number of projects that are ongoing and then on the mainland as well. As we look forward, we're really going to see as Hawaii gets back to work and people are spending more money, We've seen the activity numbers on the loan side. We think that there will be recovery in consumer area, Credit cards have started, indirect lending will follow when there's little more cars to purchase. I think that will be the first Things that we'll see and then later on we'll see the businesses kind of run through these high deposit balances they have and go back Managing their money and doing some borrowing as well.

Speaker 2

So that will take a little bit of while after the recovery starts.

Speaker 5

Got you. Okay. That's helpful. Bob, one thing that caught my eye was on the one slide where you talked about home prices were up over 20% And one of the markets and I know zoning issues have been tough in Hawaii, right? Locals don't want to give up more land for development.

Speaker 5

But just given the price increase, I know you're involved with some of this. Are there more calls for more supply, which I think would benefit you guys? Is there any traction on that side?

Speaker 2

Yes, that's a very complicated topic as it is in many cities. I think the first things a lot of people are focused on is Certainly, the county level governments are focused on better managing the Airbnb and VRVO Just because that does take supply out of the local market, I think that's a first step many counties here in Hawaii are very focused on Certainly here on Oahu and to a lesser extent on Maui. The next thing is you're seeing a couple of the large projects that were approved some time ago, Hope Pealy and Coral Ridge are accelerating their development plans. So given that the market is so strong, they're trying to push out ahead. And then lastly, we are also seeing continued interest in high rise residential condominiums Here on Oahu that a number of those projects that have been talked about are moving ahead strongly.

Speaker 2

So altogether that helps. Looking at land reform and looking at the way of changing how we have our Toning process for ag to urban, that's a longer term topic.

Speaker 5

Okay. That sounds good. Maybe final question for Ravi. On the securities book, you saw quite a bit of growth again this quarter. I'm curious what's the yield on what you were able to add in the quarter?

Speaker 5

And Given this a bit of a step down in rates, do you have less of an appetite here to continue adding? Thanks.

Speaker 3

Sort of the new volume rates have been coming in around 120 to 140 depending on the duration of the I think we're up to about $6,900,000,000 in balances on the investment security side. I think it will really depend on what's available. Certainly, it's a lever we can use to manage liquidity during this time. We don't want to grow the portfolio too much when we feel as Bob had mentioned earlier in the call that As loan growth starts to pick up, we want to take advantage of those opportunities and deploy our liquidity towards those loan opportunities. So right now, we feel very comfortable with where we are around $6,900,000,000 maybe it might tick up a little bit, but It'll really depend on what the environment is like going forward.

Speaker 5

Got it.

Speaker 2

Steve, maybe a follow on to my earlier answer. Key point I forgot to make is, for our dealer flooring, we're down right about $570,000,000 from The 4 year average balance ending 2019 and that's all supply driven. The amount of Capacity and committed lines is out there. It hasn't really changed that much. So as you see a recovery in That product, the manufacturer's ability to deliver cars, you'll see a pretty strong recovery both here in Hawaii and on the mainland In that particular portfolio.

Speaker 5

Got you. I guess the $1,000,000 question there is, do dealers return inventory levels to where they were, which I don't think anybody Knows at this point, but I hear you that it should get better from where it is. Okay. Thanks for taking my question.

Speaker 2

Thanks, Steve.

Operator

Thank you. Our next question comes from the line of Jackie Bohlen from KBW. Your line is now open.

Speaker 6

Hi, everyone. Good morning.

Speaker 7

Good morning. Hi, Najari.

Speaker 6

I wanted to start with expenses and just

Speaker 3

Yes. Maybe a little bit of background on expenses. I think we talked a little bit about the drivers quarter over quarter. I think the delay in the core implementation didn't really change our outlook for 2021 expenses. We feel pretty comfortable with that 7% guidance that we gave.

Speaker 3

And I think when we look to 2022, We'll certainly give guidance as we typically do at the end of the year.

Speaker 6

Okay. And was I guess, was there anything Was it internally or externally driven that caused the shift in the conversion timing?

Speaker 2

Yes, Jackie, this is Bob. Maybe I can take that. It really is a conversation we're having with our technology partner. And we're cautious and Things were a little behind where we had wanted them to be. So we just want to be very sure we could do this successfully and want to give ourselves a little more time.

Speaker 2

The other issue is, we just weren't comfortable doing a conversion in the Q4. It's just that Q4 brings in a whole bunch of other Externalities that we didn't want to have to worry about.

Speaker 6

Okay. That makes sense. And then just in terms of The employee base and kind of where you sit today versus what you would consider full employment, Aside from the start ups, which I'm assuming really it's the past announcement, but just wondering where you stand And how any recruitment efforts that you might be having are going, just as everything kind of wakes back up?

Speaker 2

Sure. This is Bob again. We didn't let anybody go as we closed 40% of our branches during COVID. We just redirected them to other areas of the bank. Having said that, we also didn't replace people necessarily as normal attrition took place, People moving, retiring, etcetera.

Speaker 2

So we're still out there even though we don't have huge needs, we're always out there trying to find The right employees and it's difficult right now. It's just a tough environment to do that depending on what job of course, Different jobs have different challenges, but we've been moderately successful, but it's not easy right now. That is a challenge for us and I think everybody

Speaker 6

Meaning, more entry level positions versus kind of middle or upper management or is it more broad based?

Speaker 2

I think it's probably more entry level and there are certain specialized areas. Of course, we're always looking for certain people in the technology area and That's always a challenge. Anytime we can find someone with that skill set, we tend to grab them right away, but it's Typically more entry level.

Speaker 6

Okay. Great. Thanks, Bob, for all the color. I appreciate it.

Speaker 2

Thank you, Jackie.

Operator

Thank you. Our next question comes from the line of Ebrahim Poonawala from Bank of America. Your line is now open.

Speaker 8

Good morning.

Speaker 1

Good morning. Good morning.

Speaker 8

I guess just Question on following up on the dealer finance, we saw another decline. So I heard your comments earlier, Bob. Do you think that balances those balances have stabilized? And do you see any room for any meaningful improvement in the back half of the year? Or Is it all a 2022 event at this point?

Speaker 2

Yes. It's hard to predict the two factors we talked about. First of all, YV, congratulations on your promotion. That's great news. And to address the question, The hard part is trying to pick when manufacturing capacity will increase and demand will moderate.

Speaker 2

So We haven't seen either of those come back, although you're starting to see the semiconductor issue that's So many manufacturers, it looks like the semiconductor companies are starting to pivot towards making more chips for cars, which should help in the back half. The question will be, is that going to be enough to keep up with the demand that still seems to be quite strong? What we're hearing and talking to a whole bunch of our customers, where all of our customers kind of a mix of the conversations between the West Coast and here They expect to see some return in the back half of the year, but nobody is predicting it gets back to Normal inventory levels until probably early 2022.

Speaker 8

Understood. And just in terms of, I guess, separately on when you think about fee revenue, We've seen a fair amount of recovery, I guess, close to pre pandemic levels. How are you thinking about the outlook for fee revenue activity and customer activity as it

Speaker 2

Maybe I can start and I'll hand it off to Ravi. I think the missing piece we're seeing here and of course it's a lot of that's activity driven, which Ravi can speak to, is we don't have our international traveler back yet and that won't be toward until the end of this year, Early next year, primarily Japan, but also Canada. And that's has been in the past over 20% of our travelers And generally higher spending travelers. So that's a positive indication for later, but Ravi maybe you can address What's happening today?

Speaker 3

Ebi, this is Ravi. Certainly, we saw a nice uptick in credit and debit It's hard to get a dinner reservation these days in Honolulu. And to the extent that that continues on and we continue to see that level of I think we feel very good about that line item continuing to support our fee income for the rest of the year. Some of the other lines, other service charges we talked about, a number of one time fees generated by our commercial customers. We typically see that quarter over quarter.

Speaker 3

There are always one time opportunities for us and we continue to expect to see those types of One time items over the course of the year. And trust and investment income has been strong and consistent over Of course of the year and certainly we feel that really will continue to go on. And BOLI, we saw a recovery this quarter primarily due To some investments we have that are mark to market in the portfolio, as long as rates stay relatively stable, we feel pretty good about that line too. And swap income had a nice little pickup this quarter. I think that's a reflection hopefully as we start to see more loan growth on the Commercial side, we'll see swap income continue to rebound from where it was previously.

Speaker 3

So when you put all those things together, Yvi, we feel pretty good about a range of $47,000,000 to $49,000,000 for the next quarter.

Speaker 8

Got it. Thanks for that color, Ravi. Thank you and thanks for taking my questions.

Operator

Thank you. Our next question comes from the line of David Pfister from Raymond James. Your line is now open.

Speaker 9

Hey, good morning, everybody.

Speaker 2

Good morning, David. Good

Speaker 4

morning, David.

Speaker 3

Good morning, David. Welcome.

Speaker 10

I appreciate the commentary on the pipeline in the prepared remarks. Just kind of wanted to follow-up on that and get a sense of some of the puts and takes with loan growth. I mean, we've talked about dealer Floor plan, but how have originations trended and how have payoffs and paydowns been an offset And just the composition of the pipeline, is it similarly well balanced to the like we saw the growth in the quarter or Were there any segments that you're seeing notable strength?

Speaker 2

Yes, a couple of things maybe. This is Bob, David, And maybe I'll comment and ask Ralph to make a couple of comments. We're seeing some transitions in our dealer portfolios. Some Customers are selling and new customers are buying and we've been fortunate to be able to help them with those transitions. So that and a couple of new customers has led some nice Line growth in that area and some loan growth as well, although given the depressed level of flooring balances, that's an Opportunity for later more than it is for today.

Speaker 2

We're also seeing some good commercial real estate activity both here and to a lesser extent on the West Coast. So that is ongoing. And then with that commercial real estate activity is on the construction side deals that have been in place for some time Funding, we're expecting several of the projects that we're lending on to finish up later this year. So This is the part of the construction cycle where they're actually doing their draws. And before it was more of the equity going in and now it's actually The bank money finishing the project before they go into sales.

Speaker 2

But Ralph, anything you want to add to that?

Speaker 4

No, I think that pretty much sums up The areas that we're seeing growth.

Speaker 10

I just want to follow-up on your comments on construction. I was just curious How much of the growth this quarter is drawings on prior commitments versus new deals? And just how do you approach underwriting Construction projects in light of the inflationary pressures on both building materials and labor in this environment.

Speaker 4

Yes. I think the what will happen what happened I think earlier this year was some projects got delayed just because of the fact that they were trying to lock down cost. And I think that will work its way through, but that could be a short In the short run, a little bit of a blip, but we are seeing loans that we are originating that we had originated Start to fund, but behind that we're also closing new loans. So it looks like we're going to continue to have that sort of pace. The one thing that we're starting to see, which is a bit unusual is there continues to be More aggressive sort of takeout activity.

Speaker 4

So we would in the past, we would see situations where we're doing an apartment loan And we would hold the loan all the way through the stabilization of the project. And then what started to happen was we started to see people coming in and Paying us off once the project was complete and now actually we're seeing people coming in and looking to refinance before the projects actually complete. So That's pretty I think it talks to the level of supply of credit that's out there today.

Speaker 10

That's great. And I'd just like to shift gears to the technology. I mean, what you guys have been doing is pretty impressive. And you've talked a lot about it being This open API structure, I'm just curious how do you think about FinTech and opportunity to leverage that and play into this And whether there's even any partnerships or investments that you guys can make in FinTech and embed that in your platform? Just any thoughts on that front?

Speaker 2

Great question. That's something we look at very closely. We certainly We're looking to probably partner first and invest at some point in the future. We aren't quite at that stage yet. We are very actively looking at We used to partner with different fintechs and even non fintechs, but other technology partners to do things That they can do faster, better and much less expensive than we can.

Speaker 3

David, this is Ravi. And maybe I'd just add that The open API architecture that we're building towards actually gives us a tremendous amount of flexibility and we're building towards a capability where The types of FinTechs and the products that they have available to us, we'll be able to partner quickly with them, so that we have the best of breed when we have our Infrastructure setup, we'll be able to partner with the best of breed FinTechs and work with them closely.

Speaker 10

That's great. Thanks guys.

Speaker 1

Thank you.

Operator

Thank you. Our next question comes from the line of Andrew Liesch from Piper Sandler. Your line is now open.

Speaker 7

Hey, good morning, everyone. Good morning. Good morning, Mike. Question on the allowance and the negative provision Reserve ratio is still above the day 1 CECL level, but is this now a level where you're comfortable where you think you'd grow into it at this point Or do you think there could be other reserve releases at some point down the line?

Speaker 4

Well, This is Ralph, Andrew. I think we're going to have to see the rebound that we have that's happening today, which is much better than we would have anticipated It's sustainable. And then I think how that translates into performance for our business customers and households will be important To evaluate over the next couple of quarters, we know the variant is starting to have we're seeing higher infection rates. So we have And I think finally, we want to know how what happens once we see the stimulus and the relief programs go away If our consumers continue to hold up, so I think it's kind of hard to say right now, but that was a pretty big release and I think it Reflective of how quickly the economy has rebounded here and the outlook improving.

Speaker 7

Got it. Okay. Thank you. And then, Ravi, I think you said excluding the impact of excess Quiddity front, I mean, I know it's still somewhat early in the quarter, but what have you seen so far? Is there any has that been alleviated at all?

Speaker 7

What flows are you seeing there?

Speaker 3

Yes. I mean, I think over the course of the quarter, we mentioned commercial and consumer deposits were up quarter over quarter. To the extent that we see PPP loan forgiveness continue sort of at a pretty good clip, Some of that money is going to flow back onto our balance sheet in the form of liquidity. And so I think it's a little early to say where liquidity levels are going to go. But certainly, as we mentioned before, We have quite a bit of capital.

Speaker 3

We have plenty of room on the balance sheet for loan growth. And when we see those opportunities come, we're going to be able to take advantage of it.

Speaker 7

Got it. Okay. Thanks for taking the questions.

Operator

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

Speaker 9

Hi, good morning, everyone. Thanks for the opportunity to ask the question. I guess with loan growth and the Sort of persistent headwinds from flooring, any change in your appetite to retain or book more residential loans, maybe Beyond what we saw this quarter, but as a percentage of the loan book for a longer period of time?

Speaker 3

I think it will be a reflection of what we see sort of in the marketplace. The marketplace is, I think slowly starting to move towards more of a purchase market. And as that market moves from shifts from purchase and refi, we'll see The reflection on the balance sheet of either retaining more loans or selling. Certainly, the bump here, dollars 106,000,000 quarter over quarter in residential What was good for us and we like those loans. We like the quality of those loans.

Speaker 3

And when we feel it's appropriate, we like to put those on the balance sheet.

Speaker 2

Yes. And this is Bob, Jared. Just to add to that, given where pricing is at, your the average price of a home is quickly moving out of Freddie and Fannie category here in Hawaii, and so a lot of the new loan origination is not able to be sold, Elyse Dufresne, your company.

Speaker 3

Okay.

Speaker 9

That's great. And then on expenses, I guess, first, looking back into your full year guidance that sort of assumes dollars of expenses stay roughly flat Where we are here, even with some of those items that were called out, as we look with the move of the timing of the core conversion, Were there any expenses associated with delaying that that are in 2021 Or will the expense sort of the main expense of that conversion move now from 2021 to 2022?

Speaker 3

I think it's sort of a there's a lot of different moving parts there. Certainly, some of it is going to shift into 2021, but we for example, our training program and the cost associated with training Our frontline staff sort of stretched out a little bit more and so that's one impact. Certainly, that's a benefit to us here, But we'll have to spend that money at some point in time. On the flip side, we were extending some of the Relationship existing relationships with technology providers to get across the finish line next year. And so there's going to be a lot of puts and takes On it, we feel pretty good about our guidance still intact for 2021.

Speaker 3

And we feel that Overall, when we look at these puts and takes, really doesn't have a material impact this year.

Speaker 9

Okay. And Do you have a date set for the conversion or is that still to be determined?

Speaker 2

Yes. We're still working on that with our technology partner, But looking for Q1 of 2022 if everything works out well. Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Laurie Hunsicker from Compass Point. Your line is now open.

Speaker 11

Great. Hi, thanks. Good morning.

Speaker 9

Good morning, Laura.

Speaker 11

Just wondered your credit is looking pristine. Deferrals, Didn't see any deferral numbers on any of your deferrals last quarter were very, very low at $81,000,000 Can you just give us an update on where we are with deferrals?

Speaker 4

Sure, Laurie. This is Ralph. Right now, we're at $35,000,000 in deferrals. And of that, I think It's about $21,000,000 is residential mortgages. So that's down from I think $2,400,000,000 is what we sort of have on the books of loans that were had We granted deferrals last year.

Speaker 11

Great. Fabulous. That's helpful. And then just wondered if

Speaker 6

we could go back on

Speaker 11

the PPP I appreciate all the detail. The $23,000,000 that's the remaining unamortized piece of PPP, how much is that Round 1 or how should we think about the pace of that forgiveness? Is the majority of that $23,000,000 potentially forgiven In the back half of this year, how should we be thinking about that?

Speaker 3

Laurie, this is Ravi. It's a little hard to say when we think it's going to be coming Yes. I think round 1, the balances related to that are Around $2,000,000 and we had round 2, which came sort of really in partnership with Round 1. It's really low. And then so the bulk of it really came in the latest round in Q1.

Speaker 3

And so to the extent that we get the forgiveness pipeline going, which is what we did in the start of Q2 as we shifted our attention To helping our customers go through the forgiveness process, it will just take time and we'll just have to see how it plays out.

Speaker 2

And Laurie, this is Bob. Just to add to Ravi's answer a bit. What we're doing is kind of barbelling because The easy forgiveness is $150,000 and under. We've been very engaged with those customers. And then the very large the larger loans, Which have more sophisticated CFOs, accounting staff, been easier to work with them and now we're kind of in the group in the middle.

Speaker 2

It's taking a little bit more handholding and we're just going to have to work through that with the customers.

Speaker 11

Got it. Okay, super helpful. And then just one last question as we Put all of that together and we look past PPP, we're kind of 3 quarters out or whatever the number is, and there's still Obviously, some challenges on margin. If our core margin is running at 235%, is that the right way to be thinking about this? Or Is there a better guide you can give us on that?

Speaker 3

I think it will depend on a number of different factors. I think it all depend on what we see with respect to the loan portfolio, our appetite for investment And deploying some of that liquidity going forward and just general levels of liquidity. So it's probably a good number to start from, but from there it's Things could change, go up or down depending on what we see.

Speaker 11

Great. Thank you. Helpful. Thanks for taking my questions.

Speaker 1

Thank you, Larry. Thanks.

Operator

Thank you. Our next question comes from the line of Jackie Bohlen. Your line is now open.

Speaker 6

Hi, thanks for taking my follow-up. I just wanted a refresher on capital targets and ratios. I know the ratios didn't really change much quarter But I feel like the economy is rapidly evolving. So just an update on how you think about the capital ratios you're targeting And if that was if the quarter's pace of repurchases was a pretty indicative level?

Speaker 2

Jackie, this is Bob. Maybe I'll start and hand it over to Ravi. We haven't changed any of our targets. We're still looking at Common Equity Tier 1 at 12%. And so we're still well above that as you can tell.

Speaker 2

As Ralph had mentioned, it's a little hard to predict far as where the credit quality will continue at this level, where there be challenges as the stimulus kind of wears off and various other things. And then lastly, we'd love to see that capital being used to support loan growth. And that's a little bit early to figure that out. But Ravi, anything to add?

Speaker 3

Jackie, I'd just add that I think we mentioned during the call that we did about $22,400,000 in share repurchases in the quarter. We think that's a pretty good pace for the quarter and kind of puts us in line with the $75,000,000 of Share repurchases that we are authorized to do in the year. And so given where capital levels are, we feel confident about kind of moving through that Consistently over the course of the year.

Speaker 6

Okay, great. Thank you for all the background.

Speaker 1

Thank you.

Operator

Thank you. And I would now like to turn The conference over back to Mr. Kevin Hatayama.

Speaker 1

Hi. Anne, I think we have one more question from Brock Vandervliet in the queue.

Operator

Okay, sir. Sorry about that. So we have one more question from Brock Vandervliet from UBS. Your line is now open.

Speaker 12

Good morning. This is Sean Soren on for Brock. Going back to how credit has been clean and recovery, what should we think about in terms of The NCO profile in the next couple of quarters.

Speaker 4

Yes. The NDA profile, is that what you said, Sean?

Speaker 12

The NCO?

Speaker 4

NCO profile. Yes. This is Ralph. I think As we thought through this going in, we would have anticipated taking provisions and seeing those provisions eventually sort of flow to losses. You look at where the level of NPAs are today, they're very low.

Speaker 4

So I mean at this point, If that trend continues, we're in really we're not going to see a lot of losses this year, not to the extent that we saw. But as I said, we have to kind of see how strong this recovery is and what happens with Our consumers and households once the stimulus programs go away. So we're prepared to take quite a bit of loss in the provision today. I think as you look at about 138 basis points net of PPP, that's fairly large. It's something that would be Indicative of something that more of a recessionary sort of level of provisioning.

Speaker 12

Great. That's helpful. Thanks for taking my question.

Speaker 2

Thanks, Sean.

Operator

Thank you. And now I will turn the call over back to Mr. Kevin Hasayama.

Speaker 1

Thanks everyone for joining us today. We appreciate your interest in First Hawaiian Please feel free to contact me if you have any additional questions. With that, enjoy the rest of your day and have a good weekend.

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